Question

What's a commercial bank most likely going to do with your money when you deposit it?

Question 10 options:



Keep it in a central safe at the bank until you are ready to withdraw it




Send it to one of the 12 main Federal Reserve Banks for safekeeping




Loan it out to someone else at a higher rate of interest than the rate you are earning




Invest it in the stock market and update your balance according to the market's performance

Answer 1

Loan it out to someone else at a higher rate of interest than the rate you are earning

Step-by-step explanation:

The principal way commercial banks earn money in a fractional-reserve system, is by obtaining money from the public, and loaning out a fraction of that money at a higher interest rate.

A commerical bank may pay for a deposit an interest rate of, for example, 2 o 3%, but when this commercial bank loans out part of that deposit, it may charge 5, 6, 7% or even more.

This is why commercial banks tend to be very profitable businesses most of the time.