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

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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.

What arbitrage opportunity is available?

Which bank would experience a surge in the demand for loans? Which bank would receive a surge in deposits?

What would you expect to happen to the interest rates the two banks are offering?

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Fundamentals of Corporate Finance

ISBN: 978-0132148238

2nd edition

Authors: Berk, DeMarzo, Harford

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Question Posted: May 12, 2012 06:50 AM

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

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The Arbitrage Opportunity is should go through a loan from Bank One at 55 an...View the full answer

Fundamentals of Corporate Finance

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