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03 Aug 2019, 23:33
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B
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
65%
(hard)
Question Stats:
56% (01:39) correct
44%
(01:47)
wrong
based on 2134
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Not Attempted Yet
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
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
01 Dec 2019, 02:28
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This is “Must be True” question
Question stem :
Fact 1 - Since deposits are protected, evaluation of financial strength of bank turns out to be a difficult task.
Fact 2 - Choice of bank is driven by yield or interest rate they offer.
Fact 3 - So to attract more deposits banks will offer higher rate of interest
The decision of bank offering a higher rate of interest is driven by the fact that the deposits are protected by the government. So if the banks keep on offering higher rate of interest it would end up eroding banks financial strength.
So option B.
Posted from my mobile device
Question stem :
Fact 1 - Since deposits are protected, evaluation of financial strength of bank turns out to be a difficult task.
Fact 2 - Choice of bank is driven by yield or interest rate they offer.
Fact 3 - So to attract more deposits banks will offer higher rate of interest
The decision of bank offering a higher rate of interest is driven by the fact that the deposits are protected by the government. So if the banks keep on offering higher rate of interest it would end up eroding banks financial strength.
So option B.
Posted from my mobile device
General Discussion
20 Dec 2019, 06:37
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Bunuel
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, ______
-> the scope is about the banks's plan to attract depositors by offering high interest rate
-> C,D,E are easily eliminated because they do not talk about the banks' plan
Between A and B, I went for B because it talks about "the financial weakening of many banks", which is related to the the premise "strains the financial strength of a bank"
Can anyone help me out with why A is wrong?
