Money:
Money is something which facilitates the transaction of goods and services.
Barter System of Exchange:
Barter system of exchange is the system in which commodities are exchanged for commodities. This is also called commodity for commodity exchange economy.
Barter System of Exchange:
Barter system of exchange is the system in which commodities are exchanged for commodities. This is also called commodity for commodity exchange economy.
Difficulties of Barter System of Exchange:
1. It requires double coincidence of wants which is a rare occurrence.
2. It lacks a common unit of exchange.
3. It lacks the system of future payments or deffered payments.
4. It lacks the system of storage of value.
Definition of Money:
Legal Definition- Money is anything declared by law as money
Functional Definition- Money is anything that acts as a medium of exchange, measure of value, store of value and standard for deferred payments.
Classification of Money: It is classified on the basis of value of money as money and value of money as commodity as following:
1. Full bodied money.
2. Representative full bodied money.
3. Credit money.
Functions of Money:
1. ‘Money is matter of functions four, a medium, A measure, A standard and a store,
A. Medium of exchange: It means that money acts as an intermediary
for the goods and services in an exchange transaction.
B. Measure of value or unit of value: Money serves as a measure of value in terms of unit of account. Unit of account means that the value of each good or service is measured in the monetary unit.
C. Standard of differed payments: Money is functioning as deferred
Payments because its price remains relatively stable.
D. Store of value: Storing of value means means store of purchasing power. It is convenient to store value in terms of money
Because storage of money does not need much space
Indian Monetary System: It is based on paper currency standard.
Currency is issued in India by RBI based on minimum reserve system. Currency issued in India is inconvertible. The issuing authority will not convert it into bullion – gold or silver.
Money Supply:
The supply of money means the total stock of all the forms of money (Paper money, Coins and Bank deposits). Which are held by the public at any particular point of time. In India RBI uses four alternative measures of money supply called as M1, M2, M3, M4.
Banking
Central Bank: The central bank is the apex institution of a country’s monetary system. The design and control of the country’s monetary policy is its main responsibility. India’s central bank is the Reserve Bank of India.
Functions of Central Bank:
1. Currency Authority: The central Bank is the sole authority for the issue of currency in the country. All the currency issued by the central bank is its monetary liability. This means that the central bank is obliged to back the currency with assets of equal value.
Because storage of money does not need much space
Indian Monetary System: It is based on paper currency standard.
Currency is issued in India by RBI based on minimum reserve system. Currency issued in India is inconvertible. The issuing authority will not convert it into bullion – gold or silver.
Money Supply:
The supply of money means the total stock of all the forms of money (Paper money, Coins and Bank deposits). Which are held by the public at any particular point of time. In India RBI uses four alternative measures of money supply called as M1, M2, M3, M4.
Banking
Central Bank: The central bank is the apex institution of a country’s monetary system. The design and control of the country’s monetary policy is its main responsibility. India’s central bank is the Reserve Bank of India.
Functions of Central Bank:
1. Currency Authority: The central Bank is the sole authority for the issue of currency in the country. All the currency issued by the central bank is its monetary liability. This means that the central bank is obliged to back the currency with assets of equal value.
2. Banker to the Government: The central bank acts as a banker to the government both central as well as state governments. It carries out all the banking business of the government and the government keeps its cash balances on current account with the central bank.
3. Bankers Bank and Supervisor: As the banker to banks , the Central Bank holds a part of the cash reserves of banks, lends them short term funds and provides them with centralized clearing and remittance facilities.
4. Controller of Money Supply and Credit: The Central Bank controls the money supply and credit in the best interests of the economy by various instruments as quantitative and qualitative instruments:
I) Quantitative Instrument:
A. Bank Rate Policy: The bank rate is the rate at which the Central Bank lends funds as a lender of last resort to banks against approved securities or eligible bills of exchange.
B. Open Market Operations: Open market operations is the buying and selling of government securities by the central bank from/to the public and banks on its own account. The sale of government securities to banks will have the effect of reducing their reserves.
C. Varying Reserve Requirements: Banks are obliged to maintain reserves with the central bank on two accounts. One is the cash reserve ratio and the other is Statutory Liquidity Ratio. Varing CRR and SLR are tools of monetary and credit control.
II) Qualitative Credit Control:
A. Imposing margin requirement on secured loans:- A margin is the difference between the amount of the loan and market value of the security offered by the borrower against the loan. The advantages of this instrument are manifold.
B. Moral Suasion: This is a combination of persuasion and pressure that the Central Bank applies on the other banks in order to get them to fall in line with its policy.
C) Selective Credit Controls: These can be applied in both a positive as well as a negative manner.
