CMA Intermediate · Financial Management and Business Data Analytics · Financial Institutions
A development bank refinances a commercial bank's term loans to farmers at 6.5% per annum, and the commercial bank lends to farmers at 9% per annum. On a refinanced pool of Rs 40 crore, and ignoring all other costs, what is the commercial bank's annual gross interest spread in rupees?
The commercial bank's annual gross spread is Rs 1.00 crore. It earns 9% from farmers and pays 6.5% on the refinance, a spread of 2.5%, which on Rs 40 crore equals Rs 1 crore. Other costs are ignored, so no further deduction applies.
- ARs 1.00 croreCorrect
- BRs 0.60 crore
- CRs 3.60 crore
- DRs 2.60 crore
Explanation
Spread = 9% - 6.5% = 2.5%. On Rs 40 crore, 2.5% = Rs 1.00 crore. Rs 2.60 crore is the refinance cost alone, and Rs 3.60 crore is the lending income alone.
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