Question

Suppose interest rates on residential mortgages of equal risk are 5.5% in California and 7.0% in New York. Could this differential persist? What forces might tend to equalize rates? Would differentials in borrowing costs for businesses of equal risk located in California and New York be more or less likely to exist than differentials in residential mortgage rates? Would differentials in the cost of money for New York and California firms be more likely to exist if the firms being compared were very large or if they were very small? What are the implications of all of this with respect to nationwide branching?

Answer 1

Answer: The effect of interest rate on Mortgages of Financial Institutions.

Explanation: The implications that result from the interest rate on Mortgages are as follows- 1. Prevention of Acquisitions of failed banks that increase local market concentration. 2.Attempt to limit increases in concentration that does result in mergers.3 Impact of financial crisis and recession too. 4. Finance as a barrier to entry of new markets.