Suppose Bank one offers a risk free interest rate of 5.5% on both savings and loans, and
Question:
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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The Arbitrage Opportunity is should go through a loan from Bank One at 55 an...View the full answer
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