ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Banks create profit by lending and receiving interests on loans like personal loans, business loans, mortgages. Banks make money from fees and service charges depending upon the products. Banks are essential for an economy as they raise capital and credit and provide liquidity to the market.

Detailed explanation-2: -1. Profits: Banks are in business to make a profit like other firms. They earn profits primarily from interest on loans and securities they hold.

Detailed explanation-3: -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-4: -Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.

Detailed explanation-5: -Banks can create money through the accounting they use when they make loans. The numbers that you see when you check your account balance are just accounting entries in the banks’ computers. These numbers are a ‘liability’ or IOU from your bank to you.