The interest rates the two banks are offering

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Reference no: EM132073335

Suppose Bank One offers a risk-free interest rate of 6.5 % on both savings and loans and Bank Enn offers a risk-free interest rate of 7.0 % on both savings and loans.

a. What arbitrage opportunity is available?

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

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

Reference no: EM132073335

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