Question

When the yield curve is upward sloping, for profitability reasons bank managers;

O fund and lend at the middle of the curve

O none of the above

O fund at the long end and lend at the short end of the curve

O fund at the short end and lend at the long end of the curve

Answer 1

The Option 4 is CORRECT.

 

Explanation:

An upward sloping yield curve suggetss that the long term investments have a higher yiled ( as the investors want more for the higher risk ) so at the long end of the curve Banks lend money at the higher interest rates and they sell short term securities at lower rates to increase the inflow of money to be made available for further lending at the long end of the curve.

 

Thus from the above discussion we can say that - When the yield curve is upward sloping for profitability reasons, Bank Managers Fund at the short end and Lend at the long end of the curve.

The Option 4 is CORRECT.