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Consider the following statements regarding the commercial banks.
1. They accept deposits from the public and lend out part of these funds to those who want to borrow
2. The interest rate paid by the banks to depositors is higher than the rate charged from the borrowers
Which of these statements are correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consider the following statements regarding the commercial banks.1. T...
- Commercial banks are the other type of institutions which are a part of the money-creating system of the economy.
- In the following section we look at the commercial banking system in detail. They accept deposits from the public and lend out part of these funds to those who want to borrow.
- The interest rate paid by the banks to depositors is lower than the rate charged from the borrowers. This difference between these two types of interest rates, called the ‘spread’ is the profit appropriated by the bank.
Most Upvoted Answer
Consider the following statements regarding the commercial banks.1. T...
Statement 1: They accept deposits from the public and lend out part of these funds to those who want to borrow.
This statement is correct. Commercial banks are financial institutions that accept deposits from the public. They provide a safe place for individuals and businesses to deposit their money. These deposits serve as a liability for the bank, as they owe the depositor the amount deposited. The banks then use a portion of these funds to provide loans and credit facilities to borrowers. This is a key function of commercial banks, as they act as intermediaries between savers and borrowers.
Statement 2: The interest rate paid by the banks to depositors is higher than the rate charged from the borrowers.
This statement is incorrect. Commercial banks typically charge a higher interest rate on loans compared to the interest rate they offer on deposits. The difference between the interest rate charged on loans and the interest rate paid on deposits is known as the spread. The spread allows banks to generate profits and cover their operating expenses. The spread also compensates the banks for the risk they undertake in lending money to borrowers. Therefore, the interest rate paid to depositors is generally lower than the rate charged to borrowers.
Conclusion:
Based on the analysis of the two statements, it can be concluded that only Statement 1 is correct. Commercial banks do accept deposits from the public and lend out a part of these funds to borrowers. However, Statement 2 is incorrect as the interest rate paid to depositors is generally lower than the rate charged from borrowers.
This statement is correct. Commercial banks are financial institutions that accept deposits from the public. They provide a safe place for individuals and businesses to deposit their money. These deposits serve as a liability for the bank, as they owe the depositor the amount deposited. The banks then use a portion of these funds to provide loans and credit facilities to borrowers. This is a key function of commercial banks, as they act as intermediaries between savers and borrowers.
Statement 2: The interest rate paid by the banks to depositors is higher than the rate charged from the borrowers.
This statement is incorrect. Commercial banks typically charge a higher interest rate on loans compared to the interest rate they offer on deposits. The difference between the interest rate charged on loans and the interest rate paid on deposits is known as the spread. The spread allows banks to generate profits and cover their operating expenses. The spread also compensates the banks for the risk they undertake in lending money to borrowers. Therefore, the interest rate paid to depositors is generally lower than the rate charged to borrowers.
Conclusion:
Based on the analysis of the two statements, it can be concluded that only Statement 1 is correct. Commercial banks do accept deposits from the public and lend out a part of these funds to borrowers. However, Statement 2 is incorrect as the interest rate paid to depositors is generally lower than the rate charged from borrowers.
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Consider the following statements regarding the commercial banks.1. They accept deposits from the public and lend out part of these funds to those who want to borrow2. The interest rate paid by the banks to depositors is higher than the rate charged from the borrowersWhich of these statements are correct?a) 1 Onlyb) 2 Onlyc) Both 1 and 2d) Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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Consider the following statements regarding the commercial banks.1. They accept deposits from the public and lend out part of these funds to those who want to borrow2. The interest rate paid by the banks to depositors is higher than the rate charged from the borrowersWhich of these statements are correct?a) 1 Onlyb) 2 Onlyc) Both 1 and 2d) Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements regarding the commercial banks.1. They accept deposits from the public and lend out part of these funds to those who want to borrow2. The interest rate paid by the banks to depositors is higher than the rate charged from the borrowersWhich of these statements are correct?a) 1 Onlyb) 2 Onlyc) Both 1 and 2d) Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements regarding the commercial banks.1. They accept deposits from the public and lend out part of these funds to those who want to borrow2. The interest rate paid by the banks to depositors is higher than the rate charged from the borrowersWhich of these statements are correct?a) 1 Onlyb) 2 Onlyc) Both 1 and 2d) Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?.
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