NCERT Solutions for Class 10 Social Science History Chapter 3
Social Science Class 10 Economics
Money and Credit 3
Important NCERT Questions Based on new NCERT Books for Session 2022-2023
Questions No: 3
How do banks mediate between those who have surplus money and those who need money?
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Banks accept deposits from people who have surplus money by paying interest on these deposits. These deposits are majorly used by the bank to extend loans to those in need of money. The rate charged by the bank from borrowers is slightly higher interest than what they pay to the depositors. The bank acts as an intermediary and benefits both the people parties. In this way, banks mediate between those who have surplus money and those who need money.
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(i) People hold money as deposits with banks which pay an interest rate on them.
(ii) People do not withdraw the cash daily.
(iii) The banks, therefore, hold only 15 per cent of their deposits as cash with themselves in order to pay the depositors who might come to withdraw money from the banks on any given day.
(iv) Since, on any particular day, only some of its many depositors come to withdraw cash, the bank is able to manage with this cash.
(v) They use major portion of the deposits to extend loans to those who need money.
(vi) The banks make use of the deposits to meet the loans requirements of people.
(vii) Thus, in this way, the banks mediate between those who have surplus money and those who need money. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between the two is the main source of income of the banks.