In what way can we see that financial intermediary create credit?

In what way can we see that financial intermediary create credit? 

Ans. Banks through the following functions create credit in an economy. 

Acceptance of deposits: Banks may accept deposits in the form of demand deposits or time deposits. Deposits which are withdrawable on demand are called demand deposits. It includes current deposits and saving deposits. The deposits which can be withdrawn only after expiry of a fixed time period are called time deposits. Lower interest is paid on saving deposits, higher interest is paid on time deposits and no interest is paid on current deposits. 

Lending of loans: Through this function banks act as a mediator between those who want to save and those who wish to invest and thereby promotes the rate of capital formation. Banks extend loans in the form of: 

(a) Cash credit 

(b) Overdrafts 

(c) Loans and advances

(d) Discounting of bills of exchange 

Interest charged by the bank on various loans depends upon the amount, period, social priority, nature of collateral offered, solvency of the borrower.