The public deposit their extra cash in the banks by opening a bank account in their name.
Banks use the major portion of the deposits to extend loans however they hold 15% of these
deposits as cash. Why do you think banks maintain this cash deposit?
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When a deposit is made at a bank, that bank must keep a portion the form of reserves. The proportion is called the required reserve ratio. Loans out a portion of its reserves to individuals or firms who will then deposit the money in other bank accounts.
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