Question

please answer in essay format

4) Why do we say that when a bank makes a loan it is creating money? Explain fully.

Answer 1

Why do we say that when a bank makes a loan it is creating money?

Answer

there are various kinds of loan as per the financial requirements of person. Banks can give a loan which can be secured or unsecured. People go for secured loan due to lower interest rates and the large sum of money available which can be used for purchasing a car or house. Bank loans provide flexibility it allows one to repay as per convenience as long as the installments are regular and timely.

once a business borrower has paid off alone there is no more obligation to our involvement with the bank lender unless the borrower wishes to take out a subsequent loan. Bank loans are available to finance the purchase of inventory and equipment as well as to obtain operating capital and funds for business expansion. These loans are a time honoured and reliable method of financing a small business but banks are often only e-finance forms with substantial collateral and long track record and the term they offer are often very strict.
When banks provide loan they charge interest on money. By that way they circulate money in economy and get benefit of interest rates and earn profit.

With various policy banks distribute loan in various businesses and individuals. People get loan from bank and repay with interest by that way banks create money. When interest rates are low people attracting for bank loans. And by that way with various attractive themes banks attract people for getting loans and earns profit.