Question

If a bank pays 3% interest on savings, how much interest will it charge for loans to people? Your answer What does diversification mean? Your answer

Answer 1

1 If bank pays 3 % interest on savings, then it will charge above 3% to loan money to people. The spread between what it pays to depositors and charge interest to borrowers is net interest margin for bank. For example the bank will charge 5-6% for the loan to borrowers to make profit in banking business

2 Diversification is a strategy in which the investment or exposure is spread to different markets to limit the exposure of high risk in single market or geographical area. The rationale diversification is that the portfolio of different kinds of assets aims to generate higher return and lower the risk of any individual holding or security.