The interest rate paid by the commercial banks to depositors is lower than the rate charged from the borrowers. This difference between these two types of interest rates, called?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Spread
Commercial banks are a part of the money-creating system of the economy. They accept deposits from the public and lend out part of these funds to those who want to borrow. The interest rate paid by the banks to depositors is lower than the rate charged from the borrowers. This difference between these two types of interest rates, called the ‘spread’ is the profit appropriated by the bank.