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Question
Fill in the blank with appropriate alternatives given below
Every loan creates a __________.
Options
credit
deposit
profit
loss
Solution
Every loan creates a credit.
Explanation:
Loans are given out of deposits at a higher interest rate than what is offered on those deposits. The money spent by the borrowers again come back to the bank in the form of deposits (if it is assumed that all transactions are routed through banks). The banks again keep a portion of the deposits with them and lent the rest and so on. In this way loans by commercial banks create credit.
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