The bank’s income comes from the difference between the higher interest rate charged on loans to borrowers and the lower interest rate paid to depositors. This difference in interest rates is the main source of profit for banks. The correct answer is (b).
The correct answer is (b). Banks earn income by lending money to borrowers at a higher interest rate while paying a lower interest rate to depositors. The difference between these two rates is called the spread or margin, which becomes the bank’s income. This system allows banks to operate profitably while performing their key role of connecting savers and borrowers in the economy.