A savings institution's cash flows are ____ related to interest rate movements.
A) positively related to
B) inversely related to
C) unrelated to
D) none of the above

Question

Quizplus · Accepted Answer

Savings institution's cash flows are typically inversely related to interest rate movements. When interest rates rise, the institution's cash inflows increase as depositors earn higher interest, but their cash outflows also increase as more depositors withdraw their funds to seek higher returns elsewhere. Conversely, when interest rates fall, the institution's cash inflows decrease as depositors earn lower interest, but their cash outflows also decrease as fewer depositors withdraw their funds.

A Savings Institution's Cash Flows Are ____ Related to Interest