CUET Preparation Today
Which of the following statement is incorrect in the context of money supply? |
Commercial banks mediate between individuals or firms with excess funds and lend to those who need funds. People prefer to keep money in banks because banks offer to pay some interest on any deposits made. A bank must balance its lending activities so as to ensure that sufficient funds are available to repay any depositor on demand. The interest rate paid by the banks to depositors is more than the rate charged from the borrowers which is called the ‘spread’ and it is the profit appropriated by the bank. |
The interest rate paid by the banks to depositors is more than the rate charged from the borrowers which is called the ‘spread’ and it is the profit appropriated by the bank. |
The correct answer is option 4: The interest rate paid by the banks to depositors is more than the rate charged from the borrowers which is called the ‘spread’ and it is the profit appropriated by the bank. Option 4 is incorrect. Banks pay lower interest to depositors (not more as mentioned) and charge higher interest from borrowers. The difference between these two rates is called the spread, and it is the bank’s profit. Options 1, 2, and 3 correctly describe the functioning of commercial banks
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