How Is The Fractional Reserve Banking Principle Used?
Under the fractional reserve banking principle, banks have ample free cash in their hand. They generally use these ample funds to: • Provide new loans to their customers • Invest in various investment options, such as equity and foreign exchange. In this concept, the bank takes loans from its depositors and offers those funds to people in need of them. This means that you are indirectly funding the loans and investments made by your bank. However, this could also mean that if you are taking a loan from your bank, you might be indirectly lending money to yourself.
