jaiswalamrita wrote:Sorry to open an old thread, but I am not able to strike option E out.
(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.
Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:
There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan
As per me this is what happens in practical also.
Please let me know whats wrong with this reasoning.
Hi,
here u dont have to apply your practical knowledge.
the statement is saying about the depositors getting less interest rates on their deposits because of less competition among banks.
This is the same reason which is used in the paragraph for higher interest rates on loans so it strengthens the conclusion.