Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Which of the following statement about the contractually promised return on a loan is INCORRECT? Select one: a. Other things being equal, an increase in

Which of the following statement about the contractually promised return on a loan is INCORRECT?

Select one:

a. Other things being equal, an increase in compensating balance would increase the cost of borrowing for the borrowers.

b. Other things being equal, an increase in credit risk premium would increase the cost of borrowing for the borrowers.

c. For a given promised gross return on a loan, k, FI managers can use the pricing formula to find various combinations of fees, compensating balances, and risk premiums they may offer their customers that generate the same returns.

d. Other things being equal, an increase in reserve requirement would increase the cost of borrowing for the borrowers.

e. When compensating balances are held as time deposits they earn interest. As a result, borrowers opportunity losses from compensating balances have been reduced to the difference between the loan rate and the compensating balance time-deposit rate.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding Futures Markets

Authors: Robert Kolb, James Overdahl

6th Edition

1405134038, 9781405134033

More Books

Students also viewed these Finance questions

Question

What are the pros and cons of using credit? (p. 321)

Answered: 1 week ago