For what reasons would the Fed prevent a bank from offering higher interest rates on deposits?
For what reasons would the Fed prevent a bank from offering higher interest rates on deposits?
Homework Answers
Fed might not provide higher interest rate for deposits because
of following reasons are
1. The growth rate of the economy might be low and the income level
might be low. Lower interest increases liquidity and increases the
investments which boosts the economy.
2. Lower interest rate increases money supply and it increases
employment.When there is lower employment rate interest rate are
kept at lower rate.
3. Lower interest rate also helps improving exchange rate of the
currency
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For what reasons would the Fed prevent a bank from offering higher interest rates on deposits?
Problem #3 Consider a commercial bank with the balance sheet that includes variable interest deposits worth...
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You have $1000 and a bank is offering 5% simple interest on deposits. (A)If you deposit...
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3) Effective versus nominal interest rates. Bank A pays 4% interest compounded annually on deposits, Bank...
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Problem #3 Consider a commercial bank with the balance sheet that includes variable interest deposits worth $200 and variable interest loans worth $100. Assume that initially the interest paid on deposits is 2% and the interest rate earned on loans is equal to 4% i)What is the value of the GAP in this bank? What is the contribution to profit generated by variable interest assets and liabilities in this bank? ii Explain what happens to the contribution to bank profit...
3) Effective versus nominal interest rates. Bank A pays 4% interest compounded annually on deposits, Bank B pays 3.75% compounded semiannually, and Bank C pays 3.5% compounded daily. a) Which bank would you use? Why? b) If you deposited $5,000 in each bank today, how much would you have at the end of 2 years? c) What nominal rate would cause Banks B and C to provide the same effective annual rate as Bank A? d) Suppose you do not...
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