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The creation of derivative deposit out of the money from primary deposit is called _________

  • The creation of derivative deposits out of the money from primary deposit is called Credit creation.
  • Credit creation refers to the process by which commercial banks create credit or money through the lending process.
  • When a bank receives a primary deposit, it can lend a portion of that deposit to another borrower, thereby creating a new deposit.
  • This process can continue through multiple rounds of lending, with each new loan creating additional deposits and increasing the overall money supply in the economy.
  • Derivative deposits, on the other hand, are a type of deposit that is created through financial transactions such as the purchase of a certificate of deposit or a bond.
  • These deposits are not directly related to primary deposits and do not involve the creation of new money. Instead, they represent a transfer of existing money from one form to another.