Question

Paul works for Conservebank. Newspapers speculate that the country’s Central Bank may increase interest rates soon. Paul drafted a memorandum to his co-workers at Conservebank about the effect the increase in interest rates will have on the bank's business and on the bank's consumers, and made different statements.

Select the statement that is incorrect.

a. High interest rates may reduce the number of good credit applications.

b. Increased interest rates will increase the profit of the bank.

c. A decrease in expenditure on durable consumer goods may be experienced.

d. The use of debt when interest rates are high restricts the cash position of customers

Answer 1

Increased interest rate does not increase the profits of the bank as such, because the bank will be not just collecting higher interest rate on their loans, but they will also be having to pay the higher interest rates on the deposits so it is not about the increase in interest rate which will increase the profits of the bank.

All the other statements in relation to interest rates are true.

Correct answer will be option (B) increased interest rates will increase the profits of the bank.