money banking Flashcards
(45 cards)
What is the definition of money?
Money may be defined as anything which is generally acceptable as a medium of exchange and acts as a measure, store of value, and standard of deferred payment.
What does ‘double coincidence of wants’ mean in the context of barter?
Double coincidence of wants means that goods in possession of two different persons must be useful and needed by each other.
List the drawbacks of the barter system.
- Lack of double coincidence of wants
- Lack of divisibility
- Difficulty in storing wealth
- Absence of common measure of value
- Lack of standard of deferred payment
What is a primary function of money?
The primary function includes the most important functions of money which it must perform in an economic system.
What is the primary function of money as a medium of exchange?
Money eliminates the basic limitation of barter trade, allowing individuals to exchange their goods and services for money.
What does liquidity of money refer to?
Liquidity of money refers to the ease at which money is converted into other goods and services.
What is the secondary function of money that pertains to credit?
Standard of deferred payments.
What is the function of money as a store of value?
Wealth can be conveniently stored in the form of money without loss in value.
How is money supply in the economy determined?
Money supply is determined by the monetary policy of RBI, the Central Bank of India.
Define demand deposits.
Demand Deposits refers to the deposits of the general public with commercial banks which can be withdrawn on demand.
What is fiat money?
Fiat Money refers to currency notes and coins which have no intrinsic value but are accepted for transactions as they bear the promise of the governor of RBI.
What is legal tender money?
Legal Tender Money refers to currency notes and coins which must be accepted as a mode of payment for transactions by all citizens.
What is the role of the Central Bank in a country’s monetary policy?
The Central Bank designs and controls the country’s monetary policy.
What are the functions of the RBI as a currency authority?
- Sole authority for issue of currency
- Backing currency with assets of equal value
- Putting and withdrawing currency in circulation
What is the function of the RBI as a banker to the government?
The RBI acts as a banker and supervisor to the central and state government, handling deposits, payments, and loans.
What does the term ‘banker of the government’ imply?
It implies that the central bank performs banking operations for the government, including receiving deposits and making payments.
What is the function of the RBI as a lender of last resort?
The central bank assists commercial banks that fail to meet their financial requirements from other sources.
What are quantitative instruments of monetary policy?
Quantitative instruments affect the overall supply of money/credit in the economy.
What is bank rate policy?
Bank rate is the rate of interest at which the central bank lends to commercial banks without collateral.
What are open market operations (OMO)?
OMO consists of buying and selling government securities and bonds in the open market by the Central Bank.
What does Cash Reserve Ratio (CRR) refer to?
CRR refers to the minimum percentage of a bank’s total deposits that it is required to keep with the central bank.
What does Cash Reserve Ratio (CRR) refer to?
The minimum percentage of a bank’s total deposits that it is required to keep with the central bank
If the minimum reserve ratio is 10% and total deposits are Rs. 100 crores, how much must the bank keep with the Central Bank?
Rs. 10 crores
What happens to CRR in a situation of excess demand leading to inflation?
CRR is raised, reducing cash resources and credit availability in the economy
