Answer to Question #170775 in Marketing for Nicole

Question #170775

The potential of the banks to create money is decreased when …

[1] the bank lending rate increases.

[2] the South African Reserve Bank increases the reserve requirement ratio.

[3] the bankers borrow from the South African Reserve Bank.

[4] individuals choose to deposit their funds at the bank.

Expert's answer

1) Banks across the country follows differentiated pricing to maximize profits as it's the main goal of any business organization. When their lending rates rise they scare away the borrowers and investors because they are not worthy to make profits to grow their businesses. Hence this reduces the potential of banks to generate money.

2) When the South African reserve bank increases its reserve requirement ratio it renders a decrease in the ability of commercial banks to make money as a result of the influence it brings in on their lending rates.

3) When the bankers borrow from the South African Reserve Bank they lower the potential of the banks to create money as a result of obliging other banks to pay a deposit based on the rendered rates hence leading to a deficit of funds on banks.

4) When people choose to deposits money into their bank accounts the bank lends other people the money, later the lending customers pay a larger amount of money to the bank in return this contributing to the potential of banks in generating money.

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