1suppose bank one offers a risk-free interest rate of 85 , Ask an Expert

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1. Suppose Bank One offers a risk-free interest rate of 8.5 % on both savings and loans and Bank Enn offers a risk-free interest rate of 9.0 % on both savings and loans.

a. What arbitrage opportunity is available?

b. Which bank would experience a surge in demand for loans? Which bank would receive a surge in deposits?

c. What would you expect to happen to the interest rates the two banks are offering?

a. What arbitrage opportunity is available ? (Select the best choice below.)

A. Take a loan from Bank One at 8.5 % and save the money in Bank Enn at 9.0 %

B. Take a loan from Bank Enn at 9.0 % and save the money in Bank One at 8.5 %

C. Take a loan from Bank One at 9.0 % and save the money in Bank One at 8.5 %.

D. Save at both banks.

2. Which bank would experience a surge in demand for loans? Which bank would receive a surge in deposits ? (Select the best choice below.)

A. Bank One would experience a surge in the demand for loans, while Bank Enn would receive a surge in deposits.

B. Bank One would experience a surge in the demand for deposits, as will Bank Enn.

C. Bank One would experience a surge in deposits, while Bank Enn would receive a surge in loans.

D. Bank One would experience a surge in the demand for loans, as will Bank Enn.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92712442

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