how do Bank mediate between those who are in need of money and those have surplus money
Answers
bank make us open different types of savings account to deposit our surplus money and in return they give us interest on our money..
it lends money to needy people in terms of loan and charge interest on it from them...
this way it mediate between us
Answer: This is done by taking money in the form of deposits from those who have surplus and providing a part of these deposits as loans to those in need of money.
Explanation:
1. Banks take money in the form of deposits on some interest rate from those who have surplus.
2. They keep some amount of it with themselves to be provided to the depositors in case of any demands. (Most of he deposits made are demand deposits. It means you can take your money whenever you want. This is done through ATM machines.)
3. Nowadays the banks usually keep 15% of the deposits with themselves for demand purposes.
4. As not all the depositors will require to withdraw all of their deposited money in a single day, the rest of the 85% money can be used to lend to those in need of it.
5. Those in need of money can lend money from the banks in form of loans.
(there are a number of loans that can be taken like study loans, personal loans, home loans etc.)
6. However, the loans are provided on an interest rate. So the debtors have to return to the bank an amount greater then what they took.
7. Similarly, those who have deposited their money in the banks also get a surplus amount i.e. they would get an amount more than what they deposited.
8. However, the Interest rate on the loans is much higher than the interest rate on the deposits.
9. The difference in the interest rates is often the income of the bank.
This is how banks mediate between those who have surplus and those in need of it.