Answered

Which of these is the BEST explanation for why banks loan money to individuals?

AThe bank would like to earn a profit by charging interest.
BThe government requires that banks give money to applicants.
CThe bank would like to take a risk and support an entrepreneur.
DThe bank would like to borrow money from the Federal Reserve System.

Verified Answer :

Athe bank would like to earn a profit by charging interest.
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The first alternative is correct (A).

The act of borrowing amounts to risks. The main risk that bank suffers is the risk of default on the part of the borrower of the loan. In addition, the bank has operating costs for servicing and conducting loan operations.

In this way, the esimulo that the banks have to lend are the interest charged, that is, the obtaining of advantages in the form of profit. Such interest must cover operating costs and risk exposure for a bank to lend money.

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