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Suppose Bank One offers a risk-free interest rate of 7.0% on both savings and loans, and Bank Enn offers a risk-free interest rate of 7.5%
Suppose Bank One offers a risk-free interest rate of 7.0% on both savings and loans, and Bank Enn offers a risk-free interest rate of 7.5% 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? a. What arbitrage opportunity is available? (Select the best choice below.) A. Take a loan from Bank One at 7.0% and save the money in Bank Enn at 7.5%. B. Take a loan from Bank Enn at 7.5\% and save the money in Bank One at 7.0%. C. Take a loan from Bank One at 7.5% and save the money in Bank One at 7.0%. D. Save at both banks. 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 loans, while Bank Enn would receive a surge in deposits. B. Bank One would experience a surge in the demand for loans, as will Bank Enn. C. Bank One would experience a surge in the demand for deposits, as will Bank Enn. D. Bank One would experience a surge in deposits, while Bank Enn would receive a surge in loans. 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
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