BANKING AFFAIRS

Detailed explanation-1: -Banks are the main providers of financing to households when they need to borrow funds. This lending is classified according to the purpose for which it is granted, such as for house purchase (to buy homes) or for consumption (to buy goods and services). It usually takes the form of a bank loan.

Detailed explanation-2: -Banks often use compound interest to calculate bank rates. In essence, compound rates are calculated on the two key components of a loan-principal and interest. With compound interest, the loan interest is calculated on an annual basis.

Detailed explanation-3: -Banks use the major portion of the deposits to extend loans to those who need money. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits.