Solved: Experiencing a surge in the demand for loan, Finance Basics

Experiencing a surge in the demand for loan

Problem: 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.

1) What arbitrage opportuity is available?

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

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

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Finance Basics: Experiencing a surge in the demand for loan

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