Login

what is derivative deposit???

The primary function of any commercial bank is to accept deposits from the common public and advancing loans to the fund seeking individual. People keep their deposits with bank in cash form. Banks in turn loan out that deposit to a fund seeking individual after keeping a fraction of it with themselves as reserves. The individual who has taken that loan from a commercial bank will keep a part of that loan as cash in hand to carry out day to day activity and deposit the remaining part of loan with some other bank or the same bank. This deposit by the loan taking individual is called Derivative deposits.
​ Banks again will keep a part to that deposit with them as a reserve and loan out the remaining one to another individual whoever asks banks for funds. In this way a chain of loans and deposits get created resulting in the increase of money supply in the economy.

  • 2
View Full Answer

derivativeDeposit creationConditionsPrimary depositRefers to the banks to absorb in the form of cash, can increase itsReserveDeposit. Create derivativedepositmust have two basic conditions:

How many and derivativedepositreserve is directly related to. Bank extractionReserveThe proportion of totaldepositscalledThe deposit reserve rate.The deposit reserve rateHigher and higher, more reserve, bank available smaller funds, deriveddepositswas also a corresponding reduction; otherwise,The deposit reserve rateMore and more low, reserving less, bankAvailable fundsThe more, the deriveddepositsincreased correspondingly.

  • 0

sry iam not able to understand

  • -1

Every loan creates a deposit. If a bank gives a loan of rs.90 to a borrower,thenthe borrowerwill have to maintainthe accoutin which the loan has been credited, thus forming a new account. This is called a derivative deposit or secondary deposit.

Hope this helped you :'D
  • -2
What are you looking for?