Which of the following is an essential function performed by banks?
A) Transferring funds from spenders to savers.
B) Transferring funds from savers to spenders.
C) Keeping the money supply constant.
D) Lending funds to the Federal Reserve.

Question

Quizplus · Accepted Answer

Banks perform the essential function of transferring funds from savers (those who have excess funds) to spenders (those who need funds) by accepting deposits from savers and lending them to borrowers. This function helps to facilitate economic activity by providing access to funds for those who need them. Transferring funds from spenders to savers (option A) is not an essential function of banks as spenders usually do not deposit their funds in banks. Keeping the money supply constant (option C) is the role of the central bank of a country, not commercial banks. Lending funds to the Federal Reserve (option D) is not an essential function of banks as it is the other way around, with the Federal Reserve lending funds to banks.

Which of the Following Is an Essential Function Performed by Banks