Question 2 - MCQ Questions (1 Mark) - Chapter 1 Class 8 Economics - Introduction to Banks - Economics

What is the primary source of income for banks when they lend money to individuals and businesses?

A. Service fees for providing money transfer facilities.

B.  Interest charged on loans.

C.  Profit earned from organizing community events.

D. Commissions earned from selling real estate properties.

Answer:

Answer by Student

So, the correct answer is option (B): interest charged on loans .

Detailed Explanation by Teachoo

As we learned from the chapter , banks make money by playing the “interest game” with borrowers and savers. They charge borrowers a bit more in interest than they pay to savers. The difference between the interest earned on loans and the interest paid on deposits is like their “net interest income.” The higher the margin, the more money the bank makes.

Let’s check all the options and see why they are correct or not:

• Option (A) Service fees for providing money transfer facilities - Service fees are charges that banks collect from customers for providing various services, such as money transfer, cheque book, ATM card, etc. These are not the primary source of income for banks, but rather a secondary or additional source. So, this is incorrect .
  
  
• Option (B) Interest charged on loans - Interest charged on loans is the amount that banks collect from borrowers for lending them money. This is the primary source of income for banks, as it accounts for most of their net interest income. So, this is correct .
  
  
• Option (C) Profit earned from organizing community events - Profit earned from organizing community events is the amount that banks make from hosting or sponsoring various events, such as seminars, workshops, festivals, etc. These are not the primary source of income for banks, but rather a way of promoting their brand and social responsibility. So, this is incorrect .
  
  
• Option (D) Commissions earned from selling real estate properties - Commissions earned from selling real estate properties is the amount that banks make from acting as intermediaries or agents in real estate transactions. These are not the primary source of income for banks, but rather a way of diversifying their business and risk. So, this is incorrect .

Thus, option (B) is correct .