ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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By charging people interest to borrow money.
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By charging people interest to keep their money there.
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By charging a fee every time a customer writes a check or uses a debit card.
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None of the above-banks are nonprofit institutions
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Detailed explanation-1: -Banks earn money in three ways: They make money from what they call the spread, or the difference between the interest rate they pay for deposits and the interest rate they receive on the loans they make. They earn interest on the securities they hold.
Detailed explanation-2: -Banks generally make money by borrowing money from depositors and compensating them with a certain interest rate. The banks will lend the money out to borrowers, charging the borrowers a higher interest rate and profiting off the interest rate spread.
Detailed explanation-3: -Cost coverage Banks and financial institutions have to pay some interest on the deposits. Also, banks incur significant operating expenses in their operations. Interest is charged on loans to cover the cost of obtaining funds and the cost incurred in the process of borrowing and lending.
Detailed explanation-4: -“When banks extend loans to their customers, they create money by crediting their customers’ accounts.”
Detailed explanation-5: -Interest is the monetary charge for the privilege of borrowing money. Interest expense or revenue is often expressed as a dollar amount, while the interest rate used to calculate interest is typically expressed as an annual percentage rate (APR).