The correct answer is Option (3) → (A), (B) and (C) only
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A. Considered as a Money Creating system of the Indian Economy: This is correct. Commercial banks create credit through the process of lending, which is known as the money multiplier effect. When a bank receives a deposit, it lends out a portion of it, and this loan money is then deposited in another bank, continuing the cycle and expanding the money supply.
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B. They accept deposits from the public at a lower interest rate and lend out part of these funds at a higher interest rate: Correct. This is the core function of a commercial bank as a financial intermediary. They borrow from savers (depositors) and lend to investors and consumers.
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C. The difference between the interest rate paid to depositors and charged for lending is called "Spread". This is correct. The spread is the primary source of a bank's profit, covering its operating costs and generating a return for its shareholders.
- D. Commercial banks in isolation control the money supply in India, is incorrect. While commercial banks create money, the ultimate control over the money supply rests with the central bank, the Reserve Bank of India (RBI). The RBI uses various monetary policy tools (like the Cash Reserve Ratio, Repo Rate, etc.) to influence the commercial banks' ability to lend and thus controls the overall money supply.
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