CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking
When a bank grants a loan by crediting the borrower's account with the loan amount, creating a deposit that did not exist before, the deposit so created is commonly called:
The deposit is called a derivative deposit, also known as a secondary deposit. It arises when a bank creates a deposit by granting a loan, unlike a primary deposit, which arises when customers actually deposit cash or cheques with the bank.
- AFixed deposit
- BDerivative depositCorrect
- CTime deposit
- DPrimary deposit
Explanation
Derivative (or secondary) deposits arise from loans and advances made by the bank. Primary deposits come from customers depositing cash or cheques, so that option is wrong here.
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