Question

How do banks act as middlemen between those who have surplus funds and those who need funds?

• A. Banks accept deposits from depositors, and lend some of it as loan to borrowers.
• B. Banks borrow from the Reserve Bank of India, and lend it as loan to borrowers.
• C. Banks accept deposits from the Reserve Bank of India, and lend some of it as loan to borrowers.
• D. Banks create a platform where lenders and borrowers meet.

Answer 1

The correct option is A Banks accept deposits from depositors, and lend some of it as loan to borrowers.

People can deposit their surplus funds in banks, against which the bank has to pay the depositers a certain rate of interest. Banks keep a certain percentage of the deposists as reserves and use the remaining to give loans. Banks charge a certain rate of interest for granting loan.