Suppose Bank One offers a risk-free interest rate of 9% on both savings and loans, and Bank
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Suppose Bank One offers a risk-free interest rate of 9% on both savings and loans, and Bank Enn offers a risk-free interest rate of 9.5% on both savings and loans.
a. What arbitrage opportunity is available?
b. Which bank would experience a surge in the 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?
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Related Book For
Corporate Finance The Core
ISBN: 9781292431611
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo
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