Banks also specify the rate of interest, i.e., the rate at which the borrower:

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has to pay the lender for using his loan amount.

has to deposit the lender for using his loan amount.

Both 1 and 2

None of the above

answer is A.

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Detailed Solution

Banks also specify the interest rate, i.e., the rate at which the borrower has to pay the lender for using his loan amount. They may also demand from the borrowers collateral that serves as a guarantee for repayment of the loan. All the information regarding these interest rates, collaterals and documentation requirements, and the mode of repayment are provided in an agreement known as the ‘Terms of Credit’. These terms of credit are not the same for every borrower and may vary depending on the amount and duration of credit, purposes for which the loan is raised, risk involvement, etc.

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