Derivative deposit in a commercial bank is also called
- Active deposit
- Passive deposit
- Primary deposit
- None of the above
Correct Answer: a. Active deposit
In a commercial bank, derivative deposits are also known as active deposits. Active deposits are the funds that customers deposit actively into their bank accounts. These deposits are initiated and controlled by the customers themselves, who willingly choose to deposit their funds into various types of accounts offered by the bank.
In active deposits, customers can deposit and withdraw funds based on their financial needs and preferences. These accounts include savings accounts, current accounts, fixed deposit accounts, and other accounts where they actively decide to place their money.
Providing the bank with a stable source of funds to lend and invest is crucial to its success. A portion of the funds deposited by customers can be used to provide loans to borrowers, stimulating economic activity and facilitating a variety of financial transactions.
Why the other options are not correct
b. Passive deposit:
Derivative deposits in a commercial bank are not called passive deposits. A passive deposit is typically defined as the funds that customers deposit into their bank accounts and which serve as the basis for the bank’s activities. In contrast to derivatives, passive deposits are traditional bank deposits where customers entrust their funds to the bank, and the bank acts as their custodian.
c. Primary deposit
Typically, primary deposits are synonymous with passive deposits, representing the funds that customers deposit into their bank accounts. This term is not interchangeable with derivative deposits. Derivative deposits are not referred to as primary deposits in the banking industry. They serve as the foundation of a bank’s operations and are the primary source of funds for lending and investment activities.
d. None of the above:
This option is incorrect, because the correct term for derivative deposits is (a) Active deposits.
A derivative deposit is referred to as an active deposit in a commercial bank. Customers actively deposit funds into their bank accounts, whereas passive deposits, the basis for a bank’s operations, are passive deposits. By understanding the differences between different types of deposits, customers and the banking sector can manage funds effectively, offer financial services, and maintain the stability of the banking system effectively.
In the ever-changing landscape of banking and finance, it is essential for individuals and businesses to be aware of the various types of deposits and financial instruments available. Customers can make informed decisions about their financial needs and goals by understanding the differences between active deposits and derivatives.