Question

In a perfect market, is the quoted borrowing rate equal to the quoted savings rate?

What happens to borrowing/lending rates if everybody do not share the same information?

What happens to borrowing and lending rates if there is only one seller (bank)?
Or if there is only one buyer (firm) borrowing?

(Please answer for all steps)

Answer 1

1)YES in a perfect market borrowing rate and saving rates are same because in that environment inflation remain constant and low.

2) If borrowers do not share same imformation then due to consideration of risk premium borrowing rates may go High

3) If there is only one bank for lending then as per demand they can very lending rates means when demand for borrowing goes up they increase the lending rates and vice versa.

4) if there is only one buyer or borrower then lending rates for that situation can go down because that one buyer can negotiate as per requirement with lender to lend him at low lending rate as possible because there is only single buyer or borrower

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