In effect, banks are able to charge
A)depositors for banks' superior information about borrowers.
B)borrowers for banks' superior information about depositors.
C)the government for banks' superior information about borrowers and depositors.
D)interest rates that are in fact above those legally allowed.

Question

Quizplus · Accepted Answer

Banks are able to charge depositors for their superior information about borrowers because they are able to invest the money in ways that are profitable and safe, while also providing loans to borrowers who are likely to repay them. This allows banks to offer higher interest rates on deposits than would be available in other investment options, and the depositors are willing to pay for the banks' expertise in finding and assessing borrowers.

In Effect, Banks Are Able to Charge