ECONOMICS
ECONOMIC INSTITUTIONS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Banks borrow money from people. Banks do NOT pay them interest.
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Banks give money to people. People do NOT have to pay the money back.
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Banks lend money to people. People pay the money back with interest.
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Banks make money. Banks print their own bills and create their own money
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Detailed explanation-1: -Money lending, hence has always been and will be one of the most lucrative business. The modern day formal financial systems that include banks and NBFCs have made a dent to the profession of money lending by bringing rates down, but these institutes also make handsome money on the loans they give out.
Detailed explanation-2: -Customer Loyalty Banks lend money to companies to encourage them to use business checking and savings accounts, financial advisory services, tax preparation services and even investment banking services in a different branch of the bank.
Detailed explanation-3: -Banks use their excess reserve balances to lend to other banks. The Federal Open Market Committee (FOMC) meets eight times a year to set the federal funds rate. 4 The committee sets a target for the rate, although banks don’t have to charge the exact rate. The rate charged is negotiated between the two banks.
Detailed explanation-4: -Banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements. The interest rate charged depends on the availability of money in the market, on prevailing rates and on the specific terms of the contract, such as term length.