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1 year ago

Where do financial institutions get the funds that they lend to customers?

1 answer:

3 0

Banks typically generate income by borrowing funds from depositors and paying them back at a predetermined interest rate. By charging the borrowers a higher interest rate and making money off the interest rate spread, the banks will lend the money to borrowers.

Banks obtain savings from individuals and companies (savers) and use these resources to issue loans to others who need money (borrowers). One of the biggest funding expenses for banks is the interest they must pay on the money they receive from savers.

Finance companies make money by selling securities, primarily commercial paper, to other companies, including banks, in the money market. They then lend the money to people or corporations at an interest rate that is higher than what they pay on their securities.

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You might be interested in

You are interested in valuing a 2-year semi-annual corporate coupon bond using spot rates but there are no liquid strips availab

Scorpion4ik [409]

Answer:

Following are the solution to this question:

Explanation:

Assume that $r_1$ will be a 12-month for the spot rate:

$\to 1.25 \% \times \frac{100}{2} \times 0.99 + \frac{(1.25\% \times \frac{100}{2}+100)}{(1+\frac{r_1}{2})^2}=98\\\\\to \frac{1.25}{100} \times \frac{100}{2} \times 0.99 + \frac{(\frac{1.25}{100} \times \frac{100}{2}+100)}{(1+\frac{r_1}{2})^2}=98\\\\\to \frac{1.25}{2} \times 0.99 + \frac{(\frac{1.25}{2} +100)}{(1+\frac{r_1}{2})^2}=98\\\\\to 0.61875 + \frac{( 0.625 +100)}{(\frac{2+r_1}{2})^2}=98\\\\\to 0.61875 + \frac{( 100.625)}{(\frac{2+r_1}{2})^2}=98\\\\\to 0.61875 + \frac{402.5}{(2+r_1)^2}=98\\\\$

$\to 0.61875 + \frac{402.5}{(2+r_1)^2}=98\\\\\to 0.61875 -98 = \frac{402.5}{(2+r_1)^2}\\\\\to -97.38125= \frac{402.5}{(2+r_1)^2}\\\\\to (2+r_1)^2= \frac{402.5}{ -97.38125}\\\\\to (2+r_1)^2= -4.13\\\\ \to r_1=3.304\%$

Assume that $r_2$ will be a 18-month for the spot rate:

$\to 1.5\% \times \frac{100}{2} \times 0.99+1.5\% \times \frac{100}{2} \times \frac{1}{(1+ \frac{3.300\%}{2})^2}+\frac{(1.5\% \times \frac{100}{2}+100)}{(1+\frac{r_2}{2})^3}=97\\\\\to \frac{1.5}{100} \times \frac{100}{2} \times 0.99+\frac{1.5}{100} \times \frac{100}{2} \times \frac{1}{(1+ \frac{\frac{3.300}{100}}{2})^2}+\frac{(\frac{1.5}{100} \times \frac{100}{2}+100)}{(1+\frac{r_2}{2})^3}=97\\\\$

$\to \frac{1.5}{2} \times 0.99+\frac{1.5}{2}\times \frac{1}{(1+ \frac{\frac{3.300}{100}}{2})^2}+\frac{(\frac{1.5}{2} +100)}{(1+\frac{r_2}{2})^3}=97\\\\\to 0.7425+0.75 \times \frac{1}{(1+ \frac{\frac{3.300}{100}}{2})^2}+\frac{(0.75 +100)}{(1+\frac{r_2}{2})^3}=97\\\\\to 1.4925 \times \frac{1}{(1+0.0165)^2}+\frac{(100.75 )}{(1+\frac{r_2}{2})^3}=97\\\\\to 1.4925 \times \frac{1}{(1.033)}+\frac{(100.75 )}{(1+\frac{r_2}{2})^3}=97\\\\$

$\to 1.4925 \times 0.96+\frac{(100.75 )}{(1+\frac{r_2}{2})^3}=97\\\\\to 1.4328+\frac{(100.75 )}{(1+\frac{r_2}{2})^3}=97\\\\\to 1.4328-97= \frac{(100.75 )}{(1+\frac{r_2}{2})^3}\\\\\to -95.5672= \frac{(100.75 )}{(1+\frac{r_2}{2})^3}\\\\\to (1+\frac{r_2}{2})^3= -1.054\\\\\to r_2=3.577\%$

Assume that $r_3$ will be a 18-month for the spot rate:

$\to 1.25\% \times \frac{100}{2} \times 0.99+1.25\% \times \frac{100}{2} \times \frac{1}{(1+\frac{3.300\%}{2})^2}+1.25\%\times\frac{100}{2} \times \frac{1}{(1+\frac{3.577\%}{2})^3}+(1.25\% \times \frac{\frac{100}{2}+100}{(1+\frac{r_3}{2})^4})=96\\\\$

to solve this we get $r_3=3.335\%$

4 0

2 years ago

Brent is a full-time exempt employee in Clark County, Indiana. He earns an annual salary of $39,360 and is paid semimonthly. He

serious [3.7K]

Answer:

Federal Income tax ⇒ $80
FICA ⇒ $125.46
State income tax ⇒ $52.97
Local deduction - Clark County Income tax ⇒ $29.52

Explanation:

Brent gets paid semi-monthly so his pay per period is:

= 39,360 / (12 months *2)

= $1,640

Based on the table therefore, his federal tax is:

= $80

This figure is based on the intersection between income of $1,640 and 3 withholding allowances.

FICA tax rate is 7.65% so his FICA tax is:

= 1,640 * 7.65%

= $125.46

State income tax = $52.97

Local deduction - Clark County Income tax = $29.52

Total deductions:

= Federal tax + FICA + State income tax + Clark County income tax

= 80 + 125.46 + 52.97 + 29.52

= $287.95

3 0

3 years ago

As a new supervisor, you need to introduce yourself to your team of ten employees. the best medium for this type of non-routine

Stells [14]

The answer to this question is that the best medium would be a face to face meeting. A face to face meeting is a meeting where in group of people are being held in a specific meeting room to meet and discuss a specific agenda. Face to face meetings are said to be the best type of meeting because this ensures engagement and it is more efficient.

7 0

2 years ago

The controller of Crane Industries has collected the following monthly expense data for use in analyzing the cost behavior of ma

Anna [14]

Answer:

Variable cost per unit= $6.6 per unit

Explanation:

Giving the following information:

January: $2,880 330

February: $3,180 380

March: $3,780 530

April: $4,680 660

May: $3,380 530

June: $5,520 730

To calculate the unitary variable cost, we need to use the following formula:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (5,520 - 2,880) / (730 - 330)= $6.6 per unit

4 0

2 years ago

There exists a(n)

FrozenT [24]

Answer:

Direct, upward sloping

Explanation:

Supply refers to the quantities of goods or services that firms are willing to sell to the markets are a specific price. As per the law of supply, an increase in prices leads to an increase in the quantity supplied. Therefore, the relationship between the price and quantity supplied is direct. Firms prefer to supply more products to the markets at higher prices because they will make more profits.

The supply curve is a graphical presentation of the relationship between price and quantity supplied. The supply curve is upward sloping. It originates from the bottom left corner, showing how quantities vary along the curve at different prices. Quantity supplied increases as the price rise.

7 0

2 years ago