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Questions and Answers
How do banks primarily generate income from their lending and deposit acceptance functions?
What proportion of total deposits do banks in India typically keep as cash for withdrawals?
What role does the concept of liquidity play in a bank's ability to meet withdrawal demands?
What is the primary function of banks in the context of surplus funds and borrowing needs?
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Which of the following statements is true regarding a bank's cash management?
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Which function of banks involves using a majority of deposits for purposes beyond liquidity?
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What is the significance of the interest rate spread in banking operations?
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Study Notes
Bank Deposits and Loans
- Banks act as intermediaries between depositors (those with surplus funds) and borrowers (those needing funds).
- Banks receive deposits from individuals and businesses.
- They keep a small proportion of deposits as cash reserves (e.g., 15% in India) to meet daily withdrawal demands.
- Banks utilize the majority of deposited funds to provide loans to individuals and businesses.
- Banks earn income by charging a higher interest rate on loans than they pay on deposits.
- The difference between loan interest and deposit interest is a key source of bank revenue.
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Description
This quiz explores the fundamental roles of banks as intermediaries between depositors and borrowers. It covers how banks manage deposits, maintain cash reserves, and generate revenue through loan interest. Test your understanding of these key banking concepts.
