BANKING AFFAIRS

Detailed explanation-1: -Answer: 1. Derivative deposits also known as secondary deposits are the deposits in excess of the minimum cash reserves to be held by the banks. These deposits are used to grant loans to the borrowers. In this way, derivative deposits form the basis of credit creation by the commercial banks.

Detailed explanation-2: -Commercial banks create credit by advancing loans and purchasing securities. They lend money to individuals and businesses out of deposits accepted from the public. However, commercial banks cannot use the entire amount of public deposits for lending purposes.