Which of the following is true of bank spread?
A)The more vigorous the competition among banks, the smaller will be spread between the interest rates on loans and deposits.
B)The larger the banks that are competing with each other, the larger will be spread between the interest rates on loans and deposits.
C)The spread between the interest rates on loans and deposits will be much narrower in banks in rural areas than the banks in big cities.
D)The lower the number of banks in a city, the smaller will be the spread between the banks' interest rates on loans and deposits.

Question

Quizplus · Accepted Answer

Bank spread refers to the difference between the interest rates banks charge on loans and the interest rates they pay on deposits. When there is greater competition among banks, the demand for loans increases, and banks must offer competitive interest rates to attract customers. As a result, the spread between interest rates on loans and deposits narrows. Hence, option A is the correct choice. Options B, C, and D are incorrect because they present statements that contradict this basic principle of competition between banks and the impact on bank spread.

Which of the Following Is True of Bank Spread