Explain how an installment loan differs from revolving credit in terms of risk and the nature of the return to the lender.
Answer to relevant QuestionsThe differential between fixed- rate credit card rates and a bank’s cost of funds typically varies over the interest rate cycle. What is this relationship, and why does it exist? Does the differential between commercial ...Explain generally how smart cards, debit cards, and prepaid cards differ from traditional credit cards. Suppose that four college students check their FICO scores and discover the information listed below. Describe how lenders might price loans to the borrowers with lower scores versus the borrowers with higher scores in terms ...Large banks often borrow heavily in the federal funds market and maintain small investment portfolios relative to their asset size. Are these offsetting risk positions? Why do large banks organize themselves this way? In each of the following cases, identify the buyer and seller of the option, how the value of the option is indicated, and when (in what interest rate environment) the option will be exercised: a. A bank buys a five year ...
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