Question

1:28 Question 11.12 If you were managing a bank, what would you want to do with that currency in the vault? Briefly explain. Showing most recent Enter your response... Reply

Answer 1

A bank manager generally prefers to lend most of the money in the vault to the borrowers and keep a proportion of the money with itself to meet daily needs of people who want to withdraw their cash. This is the way business is done in the bank. Lending money in the vault to the borrowers helps the banks in earning rate of interest which it charges the borrowers for using that money. The more the amount of money the bank lends out the more is the rate of interest that banks earns and as the banks earn more money this will increase overall profits of the banks and make the banks profitable.

A proportion of the deposit money in the vault will also be kept in the form of excess reserves to prevent run on the bank and meet the daily needs to withdrawal. Thus, a bank manager will prefer to keep a proportion of the deposits in the vault and lent out rest of the money to the borrowers.