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Which bank would experience a surge in demand for loans

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Reference no: EM132908864

Suppose Bank One offers a risk-free interest rate of 4.5% on both savings and loans and Bank Enn offers a risk-free interest rate of 5.0% on both savings and loans.

Problem a. What arbitrage opportunity is available?

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

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

Reference no: EM132908864

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