Question

♦How do banks mediate between those who have surplus money and those who need money ?❤❤❤❤❤❤❤❤❤❤❤❤❤

Answer 1

Answer:

i. Banks take deposits from those who have surplus money.

ii. Banks keep only a small proportion of deposits as cash with themselves.This kept as provision to pay the depositors who might come to withdraw money from the bank on any given day.

iii. Since on any particular day, only some of its depositors come to withdraw cash, the bank is also to manage with this cash.

iv. Banks use the major portion of the deposits to extend loans.

v. Banks charge a higher interest rate on loans than that they offer on deposits. This difference between these two interest rates is their main source of incomes.

Answer 2

Banks mediate between those who have surplus money and those who need money by taking deposits and giving out loans to them respectively.

 

• Banks work by taking deposits and giving out loans to their customers and earning profit by acting as the middleman.
• Customers who have excess money, deposit their money in banks and in turn, receive interest on it.
• Banks tend to keep only a small part of deposits as cash.
• This is used to pay the depositors who might wish to withdraw their money on any given day.
• Banks use the rest of the portion of the deposits to extend loans to people in need.
• Banks charge a higher interest rate on loans than the one they offered on deposits. This difference is their source of income.