Class X Chapter – 3
Money and Credit - Practice
Questions (2)
Ques.
What are the functions of Money?
Ans.
The major functions of Money are as follows:
1.
Money as the Medium of
Exchange:
This is the primary function
of money. People exchange different goods and services through the medium of
Money. By serving this way, money has solved the problems faced in barter
system.
2.
Money as a Unit of Account:
Money serves as a unit of
account or measure of value. Different commodities are measured in different
units e.g. milk in liters, cloth in meters, potatoes in kg. Therefore, the
exchange of goods for each other had been difficult. But money has given them a
single measuring rod i.e. now, the value of these goods can be expressed in
common unit of money.
3.
Standard of Deferred
Payments:
Deferred payments are
payments which are made some time in future. Debts are now expressed in terms
of money. Money has made it easier to borrow and repay the loans because the
value of money generally maintains a constant value through time.
4.
Money as a Store of Value:
Wealth can be stored in
terms of money for future. Thus, the value is stored in most liquid asset form
i.e. money. By spending money, we can quickly get any commodity in future.
Ques.
What is ‘Liquidity of Money’?
Ans.
Liquidity of Money: Liquidity means convertibility into cash. The
ability to convert an asset into money quickly without any loss in its value is
called liquidity of the asset. Money is the most liquid asset of all. One can
convert money into any commodity or any other asset easily, quickly and without
any loss at any point of time.
Ques.
Define Bank.
Ans.
Bank: Any institution which accepts deposits from the public and
advances loans is called a bank. Thus, a bank acts as a financial intermediary.
Ques.
What is banking?
Ans.
Banking: Banking means the accepting deposits of money from the
public (repayable on demand or otherwise, and withdrawable by cheques, draft
etc.) for the purpose of lending.
Ques.
What do you mean by Commercial Bank?
Ans.
Commercial Bank: The financial institution which performs the
function of accepting deposits from general public and giving loans for
investment with the aim of earning profit.
Ques.
What are the primary functions of a bank.
Ans.
The primary functions of a bank are as follows:
1.
Bank accepts deposits: A
commercial bank accepts deposits in the form of current, saving and fixed
deposits. Bank collects savings of individuals and firms. Deposits are the
lifeline of a bank.
2.
Bank gives loans and
advances: Bank gives loans particularly to the
businessmen and entrepreneurs and thereby earns interest. This is the main
source of bank’s income. Bank keeps certain amount of deposits as reserves and gives
the balance amount as loans and advances.
Ques.
What is a Central Bank? Name the central bank of India.
Ans.
Central Bank: The central bank is apex institution of monetary
system of a country. It organizes, supervises, regulates and develops the
monetary system of the country.
In India, the name of central bank
is Reserve Bank of India (RBI). At present, the governor of RBI is Urjit Patel
(took the charge in Sep, 2016), preceded by Raghuram Rajan.
Ques.
What are the functions of the central bank of a country?
Ans.
The functions of central bank are as follow:
1.
Issue of Currency: The
central bank is given the sole monopoly of issuing currency in order to secure
the volume of currency and credit in the economy. In India, all currency notes
except one rupee note and coins are issued by RBI. One rupee notes and coins
are issued by government mints.
2.
Banker to the Government:
Central bank functions as a banker to the government - both central and state governments. It
carries out all banking business of the govt. Government keep their money in
the current account with central bank. Central bank accepts receipts and makes
payments on behalf of the governments.
3.
Banker’s Bank and
Supervisor: The central bank regulates and supervises
the functioning of all banks of the country. Central bank acts as banker’s bank
in three capacities:
(a)
Custodian of the cash reserves of banks.
(b)
Lender of last resort.
(c)
Acts as a bank of central clearance,
settlements and transfers.
4.
Controller of Credit and
Money Supply: Central bank controls the credit and money
supply through its monetary policy which consists of two parts – currency and
credit. It serves this purpose through different monetary policy instruments.
Ques.
Differentiate between central bank and commercial banks.
Ans.
|
Central Bank
|
Commercial Bank
|
|
·
It is the apex bank in the money
market of the country. |
·
It is merely a unit in the banking
structure of the country. |
|
·
Its primary aim is public welfare.
|
·
Its primary aim is to make profit.
|
|
·
It has the sole monopoly to
currency notes. |
·
Its not authorized to issue
currency notes. |
|
·
It cannot deal with public.
|
·
It directly deals with the public
and business firms. |
|
·
It acts as a banker to the govt.
|
·
It has no such responsibility to govt.
|
|
·
It is a custodian of nation’s Gold
and Foreign Exchange Reserves. |
·
It does not perform such function.
|
|
·
It decides the monetary policy to
stabilize the economy. |
·
It plays supplementary role in that
& is regulated by the central bank. |
