by tonytran2015(Melbourne, Australia)
1. How much does a bank pay you?
When you deposit $100 for a fix 1 year term at your bank you may be paid back $105 at the end of the year.
2. How much does the bank actually earn?
Suppose that some Mr. A may want to obtain a secured loan of $100 from the bank. He can obtain it provided he agrees that the bank can sell his $2000 motor-bike to get back their money if he does not repay the loan as agreed. Usually the bank charges Mr. A an interest of $5+$2 for 1 year loan. The bank bears no risk and they say that the extra $2 is their only profit.It does not actually give cash to Mr.A, but allows him to use something like a personal cheque book so that he can write cheques to pay others of up to…
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