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Where does the profit of a commercial bank come from?
AFrom the fees charged for issuing cheque books
BFrom the interest gap on loans and deposits, plus fees
CFrom the premiums paid by insured depositors
DFrom the dividends paid on shares it has issued
Answer & Solution
Correct answer: B. From the interest gap on loans and deposits, plus fees
1. A bank earns interest on the loans it makes and pays interest on the deposits it holds.
2. The difference between those two amounts is the first part of its income.
3. Fees earned from other financial services are added to that difference.
4. Together they pay the costs of the bank and provide its profit.
5. Dividends are paid out by the bank to its shareholders, so they are a use of profit rather than a source of it.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.3 U.S. Financial Institutions_
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