ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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storing all of the deposits.
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loaning a portion of deposits.
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loaning all of the deposits.
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none of the above
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Detailed explanation-1: -Although banks do many things, their primary role is to take in funds-called deposits-from those with money, pool them, and lend them to those who need funds. Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money).
Detailed explanation-2: -An increase in demand deposits or other liabilities of a bank increases the bank’s reserves. Bank can make loans equal to its excess reserves. Loans made by increasing demand deposits. The loan check is spent, deposited in a different bank, and CLEARS.
Detailed explanation-3: -Banks use the majority portion of the deposits to extend loans. Therefore, the correct answer is option (d)
Detailed explanation-4: -Banks in India hold around 15% as cash with themselves and with the RBI. This cash deposit is known as ‘reserve’. This helps to ensure that there is money available to the people even if there are large spendings by the bank.