Money serves several

different functions in a

modern economy. In this

lesson, you‘have learn

about how money is a

medium of exchange and

how it works in our

economy.

Barter is a system of

exchange by

which goods or services are

directly exchanged for other

goods or services without

using a medium of exchange,

such as money. These type

was done mostly before the

invention of money in the

form of paper currency or

coin

. Lack of Double Coincidence of Wants:

Barter transactions can be possible only

when two persons desiring exchange of

commodities should have such commodities

which are mutually needed by each other

. Lack of Double Coincidence of Wants:

Barter transactions can be possible only

when two persons desiring exchange of

commodities should have such commodities

which are mutually needed by each other

For example if a person is haveing a cow that

how could he exchange it with cloths or food

grain

. Lack of a Common Measure of Value:

The biggest problem in the barter exchange was

the lack of common measure of value i.e., there

was no such commodity in lieu of which all

commodities could be bought and sold. In such a

situation, while facilitating the exchange of a

commodity its value was to be expressed in all

commodities, such as one yard cloth is equal to

½ kilogram of potato etc.

. Lack of Store of Value:

In a barter economy, the store of value could be

done only in the form of commodities. However,

we all know that commodities are perishable and

they cannot be kept for a long time in the store.

Because of this difficulty, the accumulation of

capital or store of value was very difficult

A medium of exchange is an intermediary

used in trade to avoid the inconveniences of

a pure barter system.Because with the

disadvantages of the bater system it was very

difficult for the socity to grow with.

Value common assets

Constant utility

Low cost of preservation

Transportability

Divisibility

High market value in relation to volume and

weight

Recognisability

Resistance to counterfeiting

In the modern monetary

systems, there are three

forms of money in actual

use: (i)Metallic Money,

(ii) Paper Money,

(iii) Deposit Money.

Metallic Money:

Metallic money refers to coins made out of

various metals like gold, silver, bronze,

nickel, etc. A coin is a piece of metal of a

given size, shape, weight and fineness

whose value is certified by the State.

In the modern India paper money is used as the

mode of exchange

In India the Reserve Bank Of India issues the

currency notes on the behalf of the govt.

The law legalises the use of rupees as a medium

of payment that cant be refused in setting a

transaction in the all over the India . No

individual can legally refuses to take a payment

in the form of paper money issued by the RBC

Deposit money is the money which are

deposited in the bank

Credit money refers to money that

constitutes future claims of a valuable item

against an entity.

The holder of the money can use it to

purchase goods and services; when the holder

wants to, he or she can redeem it to get the

item by which it is backed.

Credit money is made of a material that has

low intrinsic value compared to the value it

represents when exchanged

Money placed into a banking institution for

safekeeping.

Bank deposits are made to deposit accounts at a

banking institution, such as savings accounts,

checking accounts and money market accounts.

The account holder has the right to withdraw any

deposited funds, as set forth in the terms and

conditions of the account.

The "deposit" itself is a liability owed by the bank to

the depositor (the person or entity that made the

deposit), and refers to this liability rather than to the

actual funds that are deposited.

As we know the banks have a great deposits but bank keep only a small proportion of there deposits as cash with themselves

For example in India 15%of there deposits are in the form of cash in there hands

What about the other??

Bank make use of the other 85% deposits to meet the loan requirements of the people

Bank charges a high amount of interest from the people for the loan

And gives a little less to the depositors

So the money between the both sides is the income of the bank

A cheque is a document that orders a bank

to pay money from an account. The person

writing the cheque, the drawer, has

a transaction banking account where their

money is held. The drawer writes the various

details including the monetary amount, date,

and a payee on the cheque, and signs it,

ordering their bank, known as the drawee, to

pay that person or company the amount of

money stated.

There are two types of

credits:

Formal measure

Informal measure

A large number of transaction in our day to day activities involves credit in one or the other way

IN the villages farmers usually take crop loan at the beginning of the season and repay the loan after harvest .

Repayment of the loan is crucially depended on the income of the farming

Sometime the failure of the crop made loan repayment impossible sometimes the farmers has to even sell there a part of land to repay the payment or to work for the money leader in his farm

A situation in which

a debt is difficult or impossible to repay

, typically because

high interestpayments prevent repayme

nt of the principal:a

new personal bankruptcy law aims to h

elp individuals free themselves from

the debt trapcountries

like Greece and Portugal are already ca

ught in a debt trap

The reserve bank of india supervision the functioning of formal sourse of loans.

The RBI monitors the banks is actually maintaining cash balance.

The RBI sees that the banks give loans not just to profit making businesses and traders but also to small cultivation small scale industries to small borrowers etc.

Periodically banks have to submit information to the RBI on how much they are lending to whom at what intereestrate etc

Collector in an assent that the barrow owns

and use this as a guaranty to the Leander

until the loan is repaid

Interest rate collateral and documentation

requirement and the mode of repayment

together comprise what is called terns of

credit

The terms of credit vary substantially from

one credit arrangement to another

They may vary depending one the nature of

the lender and the borrower

Self-help groups, also known as mutual

help, mutual aid, or support groups, are

groups of people who provide mutual

support for each other. In a self-help

group, the members share a common

problem, often a common disease or

addiction. Their mutual goal is to help

each other to deal with, if possible to heal

or to recover from, this problem.