Financial institutions who have loaned money at a fixed rate of interest will most likely:
A)experience losses if the inflation rate is higher than anticipated.
B)experience losses if the inflation rate is lower than anticipated.
C)earn an increased profit margin between the interest paid on deposits and the interest received on loans.
D)benefit if the inflation rate is higher than anticipated.

Question

Quizplus · Accepted Answer

If the inflation rate is higher than anticipated, the real value of the money repaid on the loan will be less than the value of the money that was loaned, resulting in a loss for the financial institution.

Financial Institutions Who Have Loaned Money at a Fixed Rate