Suppose Bank One offers a risk-free interest rate of 10.0% on both savings and loans and Bank Enn offers a risk-free interest rate of 10.5 % 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?

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

A. Take a loan from Bank One at 10 % and save the money in Bank Enn at 10.5 % . B. Take a loan from Bank One at 10.5 % and save the money in Bank One at 10%. C. Take a loan from Bank Enn at 10.5 % and save the money in Bank One at 10%. D. Save at both banks.

Answer this - b. 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 deposits, as will Bank Enn. B. Bank One would experience a surge in the demand for loans, 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, while Bank Enn would receive a surge in deposits.

Answer this - c. What would you expect to happen to the interest rates the two banks are offering?(Select the best choice below.)

A. Bank One would increase its loan rate, and/or Bank Enn would decrease its savings rate. B. Bank One would decrease their interest rates, and Bank Enn would increase its rates. C. Both banks would decrease their interest rates. D. Both banks would increase their interest rates.