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Class 10
Social Science - Understanding Economic Development
Money and Credit
how do banks mediate between those who have surplu...

Question:
How do banks mediate between those who have surplus money and those who need money?

Answer:

Books encourage the people with surplus money to invest their money with them. In return those people are paid a certain rate of interest for the same. Banks hold about 15 per cent of their deposits as cash. This is kept as provision to pay the depositors who might came to withdraw money from the bank on any given day. They use the major portion of the deposits to extend loans to those who need money. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between the two rates is their main source of income.

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Question:
How do banks mediate between those who have surplus money and those who need money?

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Question:
How do banks mediate between those who have surplus money and those who need money?