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Which of the following best completes the passage below? As [#permalink]
 03 Nov 2009, 03:28
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Which of the following best completes the passage below?
As long as savings deposits are insured by the government, depositors will have no incentive to evaluate the financial strength of a savings bank. Yield alone will influence their choice of bank. To attract deposits, banks will be forced to offer the highest possible interest rates. And since paying higher rates inevitably strains the financial strength of a bank, ______
(A) the government will be forced o impose limitations on interest rates
(B) deposit insurance will ultimately lead to the financial weakening of many banks
(C) savers will be forced to choose between deposit insurance and higher interest rates
(D) deposits will tend to go to the banks with the greatest financial strength
(E) bank profits will tend to rise to ever-higher levels
Any explainations for the chosen answers are welcome.
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Re: As long as savings deposits are insured [#permalink]
03 Nov 2009, 04:48
raven678 wrote: Which of the following best completes the passage below?
As long as savings deposits are insured by the government, depositors will have no incentive to evaluate the financial strength of a savings bank. Yield alone will influence their choice of bank. To attract deposits, banks will be forced to offer the highest possible interest rates. And since paying higher rates inevitably strains the financial strength of a bank, ______
(A) the government will be forced o impose limitations on interest rates
(B) deposit insurance will ultimately lead to the financial weakening of many banks
(C) savers will be forced to choose between deposit insurance and higher interest rates
(D) deposits will tend to go to the banks with the greatest financial strength
(E) bank profits will tend to rise to ever-higher levels
Any explainations for the chosen answers are welcome. I vote for D. A, B, C, E are simply iirellevant here. D clearly completes passage. Since paying higher rates will attract savers (depositors), and since higher rates strain financial strength, then savers will go to the banks with greatest strength, what D illustrates.
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Re: As long as savings deposits are insured [#permalink]
04 Nov 2009, 07:38
i would go for D, pls post OA
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Re: As long as savings deposits are insured [#permalink]
04 Nov 2009, 07:42
i would go for D, pls post OA
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Re: As long as savings deposits are insured [#permalink]
04 Nov 2009, 10:43
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raven678 wrote: Which of the following best completes the passage below?
As long as savings deposits are insured by the government, depositors will have no incentive to evaluate the financial strength of a savings bank. Yield alone will influence their choice of bank. To attract deposits, banks will be forced to offer the highest possible interest rates. And since paying higher rates inevitably strains the financial strength of a bank, ______
(A) the government will be forced o impose limitations on interest rates
(B) deposit insurance will ultimately lead to the financial weakening of many banks
(C) savers will be forced to choose between deposit insurance and higher interest rates
(D) deposits will tend to go to the banks with the greatest financial strength
(E) bank profits will tend to rise to ever-higher levels
Any explainations for the chosen answers are welcome. B since paying higher rates inevitably strains the financial strength of a bank and to attract deposits, and deposit insurance will force banks to offer the highest possible interest rates, deposit insurance will ultimately lead to the financial weakening of many banks.
Last edited by speeddeamon on 04 Nov 2009, 19:55, edited 1 time in total.
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Re: As long as savings deposits are insured [#permalink]
04 Nov 2009, 14:31
speeddeamon wrote: raven678 wrote: Which of the following best completes the passage below?
As long as savings deposits are insured by the government, depositors will have no incentive to evaluate the financial strength of a savings bank. Yield alone will influence their choice of bank. To attract deposits, banks will be forced to offer the highest possible interest rates. And since paying higher rates inevitably strains the financial strength of a bank, ______
(A) the government will be forced o impose limitations on interest rates
(B) deposit insurance will ultimately lead to the financial weakening of many banks
(C) savers will be forced to choose between deposit insurance and higher interest rates
(D) deposits will tend to go to the banks with the greatest financial strength
(E) bank profits will tend to rise to ever-higher levels
Any explainations for the chosen answers are welcome. B since paying higher rates inevitably strains the financial strength of a bank and to attract deposits, deposit insurance will force banks to offer the highest possible interest rates, deposit insurance will ultimately lead to the financial weakening of many banks. OA is B as well. 
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Re: As long as savings deposits are insured [#permalink]
13 Nov 2009, 09:54
Choice B seems like the right fit. Government sponsored deposit insurance limits competition to interest rates on deposits, and this creates a situation that undermines the strength of banks.
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Re: As long as savings deposits are insured
[#permalink]
13 Nov 2009, 09:54
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