Which of the following statements is true about banks?

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Banks mediate between those who want to sell one commodity in exchange for other commodities.

Banks use a major proportion of deposits to invest in mutual funds.

Banks charge a lower interest rate on a loan than the interest rate they offer on deposits.

Banks use deposits to fulfil the loan requirements of all the people.

answer is D.

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Detailed Solution

Banks use deposits to fulfil the loan requirements of all people. People keep the money they do not require daily use with the banks as deposits. Bank even pays them interest on it. Banks act as mediators to bring this money back into the market. It loans out these deposits to those seeking loans at an interest rate higher than they give on the deposits. The bank earns the working capital and profit from this difference in the interest rates.

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