assignment3c - Answerstoquestions

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Answers to questions 11.1 – While Regulation Q was designed to keep banks from competing with each other by  putting a cap on what interest rates they could pay, it restricted competition and therefore  prevented consumers from getting higher interest rates for their deposits. While this may have  forced interest rates up for loans so banks could still profit, at some point consumers and  businesses alike would not request loans as the cost of them may get to high and that would cap  not only loan rates, it would cap deposit rates. This would happen because for banks to make a  profit they must pay lower interest rates for deposits than they charge for loans. Additionally due  to low inflation, this regulation had a low impact. Also, since the stock market crash, people had  little faith in putting their money there so the bank was the choice location to put funds. Regulation Q was good for the reason it kept larger banks from paying more interest than smaller  banks therefore preventing failures of those smaller banks. Eventually money market instruments  paid better interest and this regulation ended because banks couldn’t match the rates. 11.5 – While banks are trying to be giving consumers and businesses a one-stop shopping  location, I don’t believe they will be replacing all of the stockbrokers and insurance agents. The  reason being is that sometimes people want to buy items from specialists and can sometimes not  only get better service and information but can also get items at a lower cost from companies that 
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This note was uploaded on 09/07/2011 for the course ECON ECO 201 taught by Professor Unknown during the Spring '09 term at New York Institute of Technology-Westbury.

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assignment3c - Answerstoquestions

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