Commerce Exam > Commerce Questions > Lending rate is fora)Central bank by the comm...
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Lending rate is for
- a)Central bank by the commercial banks
- b)Commercial banks by the government
- c)Central banks by the central bank
- d)Public by the commercial banks
Correct answer is option 'D'. Can you explain this answer?
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Lending rate is fora)Central bank by the commercial banksb)Commercial ...
Lending rate is the interest rate charged by commercial banks to the public for providing various types of loans such as personal loans, home loans, car loans, etc. Let us understand why the correct answer to this question is option 'D'.
Public borrowing from commercial banks
The primary source of funds for commercial banks is the public. They accept deposits from the public and use these funds to provide loans to the public. The interest rate charged on loans is higher than the interest rate paid on deposits, and the difference between the two is the profit earned by the banks.
Factors affecting lending rate
The lending rate charged by commercial banks depends on various factors such as:
1. Cost of funds: The cost of funds for the banks is the interest rate paid on deposits. If the cost of funds is high, then the lending rate will also be high.
2. Inflation: Inflation is the rate at which the general level of prices for goods and services is rising. If inflation is high, then the lending rate will also be high.
3. Credit risk: Credit risk is the risk of default by borrowers. If the credit risk is high, then the lending rate will also be high.
4. Market competition: If there is intense competition in the market, then banks may reduce their lending rates to attract more customers.
Conclusion
In conclusion, the lending rate is the interest rate charged by commercial banks to the public for various types of loans. The correct answer to the given question is option 'D' because it is the public who borrows from the commercial banks and pays the lending rate.
Public borrowing from commercial banks
The primary source of funds for commercial banks is the public. They accept deposits from the public and use these funds to provide loans to the public. The interest rate charged on loans is higher than the interest rate paid on deposits, and the difference between the two is the profit earned by the banks.
Factors affecting lending rate
The lending rate charged by commercial banks depends on various factors such as:
1. Cost of funds: The cost of funds for the banks is the interest rate paid on deposits. If the cost of funds is high, then the lending rate will also be high.
2. Inflation: Inflation is the rate at which the general level of prices for goods and services is rising. If inflation is high, then the lending rate will also be high.
3. Credit risk: Credit risk is the risk of default by borrowers. If the credit risk is high, then the lending rate will also be high.
4. Market competition: If there is intense competition in the market, then banks may reduce their lending rates to attract more customers.
Conclusion
In conclusion, the lending rate is the interest rate charged by commercial banks to the public for various types of loans. The correct answer to the given question is option 'D' because it is the public who borrows from the commercial banks and pays the lending rate.
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Lending rate is fora)Central bank by the commercial banksb)Commercial ...
Option D
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Lending rate is fora)Central bank by the commercial banksb)Commercial banks by the governmentc)Central banks by the central bankd)Public by the commercial banksCorrect answer is option 'D'. Can you explain this answer?
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