ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Banks also earn money from interest they earn by lending out money to other clients. The funds they lend comes from customer deposits. However, the interest rate paid by banks on the money they borrow is less than the rate charged on the money they lend.

Detailed explanation-2: -The Primary Way That Banks Make Their Money. The main way that banks make money is from their customers who deposit with them. They then use that money to then lend to other customers.

Detailed explanation-3: -Banks can borrow from the Fed to meet reserve requirements. The rate charged to banks is the discount rate, which is usually higher than the rate that banks charge each other. Banks can borrow from each other to meet reserve requirements, which is charged at the federal funds rate.

Detailed explanation-4: -Banks use the major portion of deposits to extend loans. These loans are then recovered with an interest. Banks charge a higher interest for credit than deposits. Hence, the amount they receive is greater than the amount that they lend.

Detailed explanation-5: -As Banker to banks, the Reserve Bank provides short-term loans and advances to select banks, when necessary, to facilitate lending to specific sectors and for specific purposes.