Chapter 3

NCERT
Class 10
Economics
Solutions
3. How do banks mediate between those who have surplus money and those who need money?

Question:

How do banks mediate between those who have surplus money and those who need money?

Answer:

Banks act as a special intermediary between people with surplus currency and those in need. People having surplus money deposit their money in banks by opening accounts in their own names. Banks accept these deposits and also pay interest on it. In this way, people's currency remains safe with the banks and interest is also earned on it. People are also provided the facility to withdraw currency from it whenever they want. Banks keep only 15% of this deposit in the form of cash. Banks use the major part of the deposits to give loans. There is a great demand for loans for various economic activities. Banks give loans to people and charge interest on them.

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