Primary deposit in a commercial bank is called
- Active deposit
- Passive deposit
- Derivative deposit
- All of the above
Correct Answer: Passive deposit
A primary deposit is generally referred to as a passive deposit in a commercial bank. Passive deposits are funds deposited by customers into their bank accounts, which form the foundation for a bank’s operations.
Passive deposits are those that are made voluntarily by customers without any active involvement or effort on the part of the bank. Commercial banks rely heavily on passive deposits to meet withdrawal demands and support lending and investment activities.
A passive deposit can be a savings account, current account, fixed deposit account, or recurring deposit account, offered by a commercial bank. In these accounts, customers deposit their excess funds, and the bank takes care of them. In return, customers can enjoy the convenience of secure money storage, easy access to funds through various banking channels, and, in some cases, earn interest on their deposits.
Why the other options are not correct
a. Active deposit
The term “active deposit” is not commonly used in banking terminology, and it does not refer to a specific type of deposit in commercial banks. A passive deposit is a deposit made by the customer, initiated and controlled by the customer themselves. The bank receives and manages these deposits, so they are passive.
c. Derivative Deposit
In commercial banks, derivative deposits are not used as primary deposits. A derivative is a financial product whose value is determined by an underlying asset, index, or reference rate. It is common to use derivatives for hedging, speculation, and risk management. Nevertheless, derivative instruments are traded on financial markets and are not directly related to customers’ primary deposits.
d. All of the above:
Option (d) “All of the above” is incorrect because only option (b) “Passive deposit” is a valid term for primary deposit in a commercial bank. “Active deposit” and “Derivative deposit” are inaccurate and don’t apply to primary deposits in commercial banks.
As a result, primary deposits in commercial banks are known as passive deposits. Passive deposits are the funds customers deposit into their bank accounts, which form the backbone of a bank’s operation. The deposits provide commercial banks with the funds they need to meet the financial needs of their customers, to support lending activities, and to invest in a variety of assets.
Banking institutions and customers can manage funds efficiently and maintain financial stability by understanding the distinction between passive deposits and other financial instruments, such as derivatives. By mobilizing savings, providing credit, and contributing to overall financial stability, commercial banks continue to play a vital role in the economy as customers continue to entrust their funds to them.