Question

Explain the loan activities of banks.

Answer 1

The loan activities of bank can be understood in the following manner.

Banks keep about 15% of cash reserves out of the deposits it receives in the form of savings. The banks pay a fixed amount of interest rate on the savings. The remaining of the deposits is lent out as loans to those who require. The borrowers are required to pay the interest on loans. The difference between payment to the lenders and receipts from the borrowers comprises the earnings of the bank.