Q.Describe the functions of the money. OR Explain the following: [2+2=4]
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Start your 14-day free trial to unlock the full solution →Money has four primary functions: medium of exchange, measure of value, store of value and standard of deferred payments. (OR: CRR is the share of deposits banks keep as cash with the RBI, and SLR is the share kept as liquid assets with the bank itself; both are tools to control credit.)
Functions of money.
- Medium of exchange: money is generally accepted in exchange for goods and services, removing the barter requirement of a double coincidence of wants. This is its primary function.
- Measure (unit) of value: money acts as a common unit in which the value/price of all goods and services is expressed and compared.
- Store of value: money can be stored and used in the future because it holds value over time, allowing people to save purchasing power.
- Standard of deferred payments: money serves as the unit in which future (deferred) payments, such as loans and instalments, are stated and settled.
OR — CRR and SLR.
(i) Cash Reserve Ratio (CRR): the minimum percentage of a commercial bank's total deposits (net demand and time liabilities) that it must keep as cash reserves with the Reserve Bank of India. By raising the CRR the RBI reduces banks' lendable funds (tightening credit), and by lowering it the RBI increases credit. …
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