Question

Assertion (A): Commercial banks are profit based financial institutions.

Reason (R): Commercial banks accept deposits to make loans and advances at higher interest rates than they pay to the depositors.

Options

• Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true but Reason (R) is false.

• Assertion (A) is false but Reason (R) is true.

Answer 1

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Explanation:

Commercial banks are for-profit businesses. The reason directly explains this business model by demonstrating how banks get that profit by charging higher interest rates on loans than the rates they pay depositors, a margin known as the “spread”.