The interest rate policy followed by the Central Bank of major world economies (USA, UK, Japan,...

The interest rate policy followed by the Central Bank of major world economies (USA, UK, Japan, Europe) are near zero or negative. Discuss the implication this low-interest rate policy for any one type of financial institution (banks, savings, and loans, insurance companies, pension funds, mutual funds, etc.) and examine its possible impact.

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Expert Solution

Low interest rate policy for banking companies will mean that when the central bank will be deciding upon the lower interest rate, It'll mean that the bank will be able to generate lower income on its loans but it will also be providing lower income on its deposits so it's zero sum game and hence banks are just an instrument to pass on these benefits to the customers so banking will be having a benefit in form of higher liquidity because these are the measures which are undertaken by the central banks in order to revive the demand into the economy and stimulate that money into the economy so it can be said that these banking organisation will be having a benefit in form of higher landing and they can have a better flexibility in their operation from Central banks.

The impact of lower interest rate on bank will be that the bank will be having a higher demand and they will left with picture higher Corpus to lend and they will also offer a lower rate of interest of the deposits.

jeff jeffy answered 1 year ago

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