Suppose Bank One offers a risk-free interest rate of 5.5% on both savings and loans, and Bank Enn of
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.
a. What arbitrage opportunity is available?
b. Which bank would experience a surge in the demand for loans? Which bank would receive a surge in deposits?
c. What would you expect to happen to the interest rate the two banks are offering?
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Deliverables: Word Document
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