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Bank one and bank enn interest rates-arbitrage opportunity

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Reference no: EM1334142

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 at 6% on both savings and loans.

a) What arbitrage opportuity is available?

b) Which bank would experience a surge in the demand for loan? Which bank would receive a surge in deposit.

c) What would you expect to happen to the interest rate the two banks are offering?

Reference no: EM1334142

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