Question
Why might you be willing to make a loan to your neighbor by putting funds in a savings account earning a $5 \%$ interest rate at the bank and having the bank lend her the funds at a $10 \%$ interest rate rather than lend her the funds yourself?
Step 1
Convenience: By putting the funds in a savings account at the bank, you can easily manage and track your money. The bank takes care of all the administrative tasks, such as collecting interest and providing statements, which saves you time and effort. Show more…
Show all steps
Your feedback will help us improve your experience
Pragya Ahuja and 96 other educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
Why might a bank be willing to borrow funds from other banks at a higher rate than the rate at which it can borrow from the Fed?
If you deposit $\$ 20,000$ in a savings account at a bank, you might earn 1 percent interest per year. Someone who borrows $\$ 20,000$ from a bank to buy a new car might have to pay an interest rate of 6 percent per year on the loan. Knowing this, why don't you just lend your money directly to the car buyer and cut out the bank?
Firms, the Stock Market,and Corporate Governance
How Firms Raise Funds
Transcript
18,000,000+
Students on Numerade
Trusted by students at 8,000+ universities
Watch the video solution with this free unlock.
EMAIL
PASSWORD