Question

1. You are at your local bank intending to deposit your savings. Explain why you would not offer a loan, at an interest rate that is higher than the rate the bank pays on your deposits (but lower than the rate the bank charges for car loans), to the next individual who enters the bank to apply for a car loan.

Answer 1

Bank charges more interest on credit and give less interest on reserve funds and stores since banks and other budgetary establishments need to keep their advance financing cost higher than their store loan fee provided that it's the reverse way around, they would be paying out more cash than they're taking in. Much the same as each business, bank likewise needs to make more than it spends. As far as the yearly report, store accounts are liabilities, and advances are resources.

Besides, what banks pay on deposits is a cost.If a bank needs more deposits, it's reasonable going to pay more to get them. That particularly applies to online activities with no physical branches.

Then again, banks rush to change the yearly rate on Mastercard or home value credit extension because of Fed rate moves.

Thus when financing costs go up, to keep away from disintegration of benefit banks need the rate on credits to go up in any event as much as what one do on deposits.