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Money and credit

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MEDIUM OF EXCHANGE
In a barter system where goods are directly exchanged with each other, double coincidence of wants is an essential feature. Double coincidence of wants When both the parties agree to sell and buy each others commodities.

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Difficulties of the barter system

Essentiality of double co incidence of wants Problem of storage of goods Problem of division of goods Lack of standard unit of measurement

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MONEY AND ITS + IMPORTANCE n

In an economy where money is in use , it eliminates the need for double co incidence of wants by providing crucial intermediate step. person holding money can easily exchange it for any commodity or service. Thus everyone prefers to receive payments in money and then exchange the money for things that they want.
SINCE MONEY ACTS AS AN 5/3/12 INTERMEDIATE IN THE EXCHANGE

nA

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MONEY
In the very early ages, grains and cattle were used as money. Thereafter, metallic coins (gold, silver, copper) were used.

MONEY paper notes and coins. Includes

OTHER FORMS OF CURRENCY

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Authorised by the govt. of a country and is therefore accepted as a medium of exchange. Has no use of its own (unlike grain and cattle). In India the reserve bank of India issues currency notes on behalf of the central govt. the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions. 5/3/12 Money removed the double coincidence of wants

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DEPOSITS WITH BANKS

Banks accepts deposits and interest on it. Since the deposits in the bank accounts can be withdrawn on demand, they are called demand deposits. The facility of cheques against demand deposits makes it possible to directly settle payments. Therefore they act as medium of exchange.
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CHEQUE

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A cheque is a paper instructing the bank to pay specific amount from the persons account to the person in whose name 5/3/12 the cheque

bank s
FUNCTIONS OF A BANK Accepting deposits Granting loans

LOAN ACTIVITIES OF BANKS

Banks keep only a small proportion of their deposits as cash with themselves. (reserves) Banks use a major portion of the deposits to extend loans. Banks meditate b/w those who have surplus money (the depositors) and these who need it (the

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Depositors
People make deposits

Bank
People take loans

Borrower s

People make withdrawals and get interest

People repay loans with interest

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CREDIT 5/3/12
CREDIT(loan) refers to an agreement in which the lender supplies the borrower with money, goods and services in return for the promise of future payment. Taking a loan can make a person better off or worse off than before. Therefore there are two different credit situations.
a) ADVANTAGES OF CREDIT

b) DISADVANTAGES OF CREDIT

Meet the ongoing expenses of production Complete production on time Help in increase earnings Makes a person better off than before.

Fear of debt trap Parting with the existing assets for loan repayment Makes a person worse off than before.

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THANK YOU

SHRIYA CHANDRA