How do banks mediate between those who have surplus money and those who need money?

Question

Friends, I need a formal ans. for this question.

Answer 1

Banks take in money from those with excess funds in the form of deposits. These deposits may be demand in nature (like a checking account or other unemcumbered funds), savings accounts which pay interest, which are more limited but also very accessible, or time deposits like CDs, which are locked up for certain durations.

They then lend money to those who need it in the form of loans. Loans like personal loans, mortgages, auto loans and other revolving lending like credit cards.

This is how banks intermediate funds.

Answer 2

banks donot do any such thing in the way u r writing or in the spirit of your question. Banks are a commercial organisation and their only purpose of being in business is to make money. People with surplus money depsoit same in the banks and persons who need money go to banks for loan. There is no question of mediating between the two. supposing I need money and take a loan from a bank, either the bank or me would not even know whose money is coming to me. Once the money is deposited with bank , it is held by the bank as a custodian without giving away the name of the person who has deposited money to the person wha takes loan.

Answer 3

I hope you are asking about the purpose of banking industry. People who have money may not be knowing the ways and means to multiply it. They need security and guarantee for their money with the promise that it will get multiplied in a speicified manner over a period of time. They need an approved & acceptable form of institution to do this. This is one side. On the other side, people who are in need of money require them to fulfil various forms of their obligations such as education, marriage, hospitalisation, purchase of house or articles. But they want this money with the consideration that they will not be charged exorbitantly by way of interest. They want this money with further consideration that it can be repaid in so many instalments, at regular intervals to suit their income capacity. They would also like to have these facilities extended by not money lenders or muscle men but from a decent form of approved and authrorised institution. Here comes the role of a bank. They cater to the needs of both the set of people by different schemes and charge them nominally but still having the margin for profit and their steady growth. They collect the money from the people who have excess of surplus of it and lend it to the needy. They pay interest to the depositors and charge interest from the borrowers. The marginal difference in the interest rates are for the survival and growth of the bank. The bank may further extend this service to bigger institutions. Thus there will institutional depositors and borrowers also. Some times the bank may go to help the government also in various projects. Though there are different type of banks to serve the different segment of customers, the core functions circle around these requirements.

Answer 4

Simple.Banks accept money as deposits from people who have it in excess with them and lend it to the needy people,who can afford to pay the interest.
Banks earn by the difference in the interest spread,ie,the difference between the interest on loans (which is usually highet ) and the interest on its deposit schems

Actually economic imbalances in the society is thus reduced,by the banking activities.

Answer 5

not sure on your question. but the simple answer is if one bank needs money they loan it to the other bank, that is how they make money, just like how they loan money to you and me

Answer 6

By being a bridge between them!

Answer 7

private finanmcial companies lend money to the poor.