Question

Banks are like other businesses. While businesses sell services or physical things, banks sell money in the form of loans and credit cards. Banks earn their income in part on the interest they charge on loans. That interest is higher than the interest they pay on depositors' accounts. For example, if you deposit your money in a bank, it may pay you 2 percent interest. So for $100 of your money, it will pay you $2. Then let's say a bank customer wants to borrow $100. The bank might charge that person 10 percent interest on that loan, meaning the borrower would have to pay back $110 after a year. The bank will earn $10 on the $100 it loaned, and it only paid you $2 for that $100. It made a profit of $8.

Which statement summarizes the paragraph?

A
People who take out a $100 loan from the bank at a 10 percent interest rate will pay the bank an extra $10.
B
People who deposit $100 into their account can usually expect to earn 2 percent from their deposit, or $2.
C
Banks are businesses that make money by selling credit cards to people who pay interest on them.
D
Banks make money by charging a higher interest on loans than the interest they pay on depositors' accounts.

Answer 1

D. Banks make money by charging a higher interest on loans than the interest they pay on depositors' accounts.

Step-by-step explanation:

Commercials banks are intermediaries of credit. They connect the supply side and demand side of credit. Banks accept deposits and use them to create loans for other customers.

Interest earned from loans is the primary source of revenue for banks. Interest from loans is earned when banks charge higher interest on loans than they pay for deposits.