Question

If you are a banker and expect interest rates to rise in the future, would you prefer to make short-term loans or long-term loans?

Short answer

You should need to make short-term loans . Then, at that point, when these advances mature, you will actually want to make new advances at higher loan costs, which will produce more pay for the bank.

Step-by-step solution

Concept Introduction

Interest rates are known as the expense of capital and return on capital distributed by banks and different moneylenders. High-interest rates support loaning while low-financing costs invigorate acquiring and can impact macroeconomic components like the cash multiplier and expansion.

Explanation

Short terms loans, once reimbursed, will let loose more cash-flow to loan later on when financing costs can order a better yield. Whenever financing costs are relied upon to go down, paradoxically, long haul loans can order a higher in general return over short-term ones and might be ideal for investors.

Final answer

Assuming I were a broker I would like to take short term loans since when these advances mature, you will actually want to make new advances at higher interest rates