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- Financial Dictionary
In banking terminology the term Banking refers to the acceptance of money from other individuals and organizations for the purpose of safeguarding their funds. In addition, Banking involves lending out said funds in order to make a profit. These functions represent the general business of bankers.
For example, in order to avoid keeping cash at home, many people typically prefer Banking or deposing their money, which can even provide interest income in some cases. The bank receiving this deposit will then typically lend out the funds which they accepted at a multiple and collect interest on the loans. In Banking, this technique of lending out more than the money taking on deposit is known as Fractional Reserve Banking, and this technique makes up the way that commercial banks have been doing business and profiting from it for years. Retail banks not only pay relatively little interest on deposits to their customers compared to what the Interbank deposits rates are priced at, but they are then allowed to collect interest on loans of money that they made to others but do not actually have on deposit.
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