Choose the option that best captures the essence of the text. The passage explains how banks issue money in the form of banknotes and current accounts, act as collection and paying agents, participate in interbank clearing and settlement systems, and offset payment flows so as to economise on reserves and reduce settlement costs.

Introduction / Context:
This question asks you to complete a passage about how banks operate as payment intermediaries. The passage explains that banks issue money in the form of banknotes and deposits, act as collection and paying agents, and participate in clearing and settlement systems. It then states that these activities allow banks to economise on reserves because inward and outward payments offset each other. The final sentence begins "It also enables..." and you must choose the best completion from the options given.

Given Data / Assumptions:

• The text explains that banks can offset payment flows so they do not need to hold large reserves for each individual payment.
• It mentions clearing and settlement systems in which banks exchange payment instruments.
• The phrase "It also enables ..." must logically introduce an additional benefit connected with offsetting payment flows.
• The options differ in whether they mention geographical areas, whether the flows are offset, and whether settlement costs increase or decrease.

Concept / Approach:
When banks offset payment flows, they reduce the net amount that needs to be settled in central bank money or reserves. This reduces, rather than increases, the cost of settlement. The passage already states that banks economise on reserves because inward and outward payments offset. Extending that idea across geographical areas, such as between different regions or countries, naturally leads to lower settlement costs between those areas as well. Therefore, the correct completion should mention offsetting payment flows between geographical areas and reducing settlement costs.

Step-by-Step Solution:
Step 1: Note that the previous sentence states "This enables banks to economise on reserves ... since inward and outward payments offset each other." The phrase "It also enables" must introduce another beneficial effect of offsetting.Step 2: Consider what happens when payments flow between different regions. If banks arrange clearing systems so that payments going in both directions are netted off, only the small net difference has to be settled, which reduces cost.Step 3: Examine option B: "The offsetting of payment flows between geographical areas, reducing the cost of settlement between them." This directly describes the additional benefit and matches the positive, cost saving theme of the passage.Step 4: Examine option A, which is similar but says "increasing the cost of settlement". That contradicts the previous sentence, which showed how offsetting economises on reserves and therefore lowers costs.Step 5: Examine options C and D. Both restrict the effect to only urban or only rural areas, which the passage never mentions. They introduce unnecessary and unsupported limitations and, in the case of D, again say "increasing the cost", which clashes with the logic of offsetting.

Verification / Alternative check:
Insert option B into the passage and read it fully: it now says that banks economise on reserves because inward and outward payments offset, and that this also enables the offsetting of payment flows between geographical areas, reducing settlement costs. This is coherent and reflects how real world clearing and settlement systems, such as interbank networks, operate. Replacing it with option A would make the passage self contradictory, because something that economises on reserves should not increase costs at the same time.

Why Other Options Are Wrong:
Option A reverses the expected effect, claiming higher costs where the passage clearly describes a cost saving mechanism. Option C and option D introduce urban versus rural distinctions not mentioned anywhere in the text, so they go beyond the given information and weaken the coherence of the passage. Additionally, they do not capture the general macro level benefit across all geographical areas that the passage implies.

Common Pitfalls:
Some learners focus on superficial similarities in wording and may choose option A because it matches the structure of option B. However, careful reading of the preceding sentences shows that the whole point of interbank clearing is to reduce the need for reserves and lower costs. A helpful strategy is to summarise each sentence in your own words before looking at the options, so you can quickly reject those that contradict the core idea.

Final Answer:
The completion that best fits the passage is "The offsetting of payment flows between geographical areas, reducing the cost of settlement between them.", so option B is correct.