Question

Identify two business situation within the banking industry. Articulate how one of these lends itself to a simple lkenear regression and how one does not?

Answer 1

BUSINESS SITUATIONS WITHIN BANKING INDUSTRY:

(1) Situation 1:

X = Number of Telles in the bank

Y = Time taken by a customer to complete the transaction with the bank

There is an Inverse Linear relation between X and Y. i.e., as the Number of tellers is increased, Time taken by a customer to complete the transaction reduces because he need not wait in the queue for long time. Thus, Situation 1 lends itself to a Simple Linear Regression.

(2) Situation 2:

X = Number of customers a bank has got

Y = Profit of the bamk

Situation 2 does not lend itself to a Simple Linear Regression, because the profit of a bank (Y) does not only the Number of customers (X) but so many other factors such as competition of other bamks: viz., the number of other banks in that area, economic condition of the place etc. In such situation, Simple Linear Regression does not apply; only Multiple Regression is appropriate.