Would recommend any changes for deposit or loan rate

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Consider a frictionless economy where there are only two banks, namely DFG Bank and LMN Bank. Both banks offer deposits and loans at the same, annual, compounding frequency. CXT Bank has an interest rate of 2.5% for its deposits and an interest rate of 5% for its loans. XYD Bank has an interest rate of 1.5% for its deposits and an interest rate of 2% for its loans.

Problem a. Based on the above information, is there any profit opportunity available?

Problem b. Will there be any bank that experiences a surge in the demand for its loans? Will there be any bank that experiences a surge in the demand for its deposits?

Problem c. CXT Bank hires you as a consultant, so that you can help with them with their interest rate policy. Would you recommend any changes for their deposit or loan rate?

Reference no: EM133009834

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