For a bank, the difference between the interest rate charged to borrowers and the interest rate paid on liabilities is called the ________.

Question

Quizplus · Accepted Answer

The difference between the interest rate charged on loans and the interest rate paid on liabilities (deposits) is known as the interest rate spread. It represents the earnings of the bank and reflects the risk and costs associated with the lending and borrowing activities. Option A is incorrect as insurance premium is a fee paid by the bank to transfer the risk of lending to an insurer. Option C is incorrect as risk premium is the compensation for bearing risk above the risk-free rate. Option D is incorrect as term premium is the additional compensation paid for holding a longer-term bond.

For a Bank, the Difference Between the Interest Rate Charged