Other things being equal,an increase in the number of days that a commercial bank loan is outstanding will mean:
A) a reduction in the banks risk.
B) an increase in the administration costs.
C) an increase in the dollar amount of the interest.
D) a reduction in the principal amount borrowed.

Question

Quizplus · Accepted Answer

An increase in the number of days that a commercial bank loan is outstanding means that the borrower is taking longer to repay the loan. As a result, the bank will charge more interest on the loan to compensate for the longer period of time that the funds are tied up. This will lead to an increase in the dollar amount of the interest. It will not necessarily reduce the bank's risk, increase administration costs or reduce the principal amount borrowed.

Other Things Being Equal,an Increase in the Number of Days