21/11/09: Banking. Children were made to answer it all.

What was it like when there were no banks? Where did people keep their money? What if someone needed more money than he actually had?

What will happen if all of us start keeping money in a safe in our houses? What are the dangers of keeping all the money like this? What are the advantages? Isn't bank a safer place?

How do banks work? What if I want to borrow some money? Where does this money come from? What if one fine morning all the customers go to the bank and withdraw all their money?

Why would anyone lend you any money? How will the lender ensure that he is profited through this deal? Have you ever heard of interest rate on loans?

Why would you put your money in the bank? Safety? Interest on deposit?

Why do fixed deposit schemes have greater interest rate? Do they give some kind of assurance to the banks?

Would you tell me, without solving for PNR/100, how much money will I have at the end of 1, 3.5 and 7 months, if I keep 100 rupees in a bank today, at a simple interest rate of 3% per month? Would you write down today's discussion after going home and show it to me tomorrow?

They answered almost all the questions eventually. Right from Saawkaars exploiting the needy to banks being supported by the govt through our tax money! Phew!

The objective behind this discussion was to study banks. The objective behind studying banks was to understand the meaning of rate of interest. The objective behind understanding the meaning of rate of interest was to solve simple interest problems. The objective behind solving simple interest problems was to study rationals and irrationals (which is yet to materialise).