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Q.

The major portion of money that we deposit in banks is used to extend loans.

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Detailed Solution

The above statement is true.
There is a mechanism through which banks earn a profit. The banks have to hold a certain percentage of total deposits in the form of cash. They do it in case any depositor comes to withdraw their deposits. Usually, it is around 4%. The remaining portion of the deposit is then extended loans. Thus, the majority of the money that we deposit in banks is used to extend loans. Banks usually charge a high rate of interest from lenders as compared to the interest rate they give to depositors. The difference between these two interest rates becomes the source of profit for the banks.

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