Suppose Bank One offers a risk-free interest rate of 5.5% on both savings and loans, and Bank

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Suppose Bank One offers a risk-free interest rate of 5.5% on both savings and loans, and Bank Enn offers a risk-free interest rate of 6% 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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Corporate Finance

ISBN: 9780137845071

6th Edition

Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Jun 12, 2024 01:01 AM

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Suppose Bank One offers a risk-free interest rate of 5.5% on both savings and loans, and Bank

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Corporate Finance

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