In general, when interest rates fall, a savings institution's cost of obtaining funds declines more than the decline in the interest earned on its loans and investments.

Question

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When interest rates fall, the cost of obtaining funds for a savings institution decreases because it can borrow money at a lower rate. However, the interest earned on its loans and investments also decreases, but not as much as the cost of obtaining funds. This is because the savings institution has already locked in the interest rates on its loans and investments, and it cannot change them as quickly as the market interest rates.

In General, When Interest Rates Fall, a Savings Institution's Cost