money and credit economic big summary
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Chapter 3
*Money*: Money acts as an intermediate in the exchange process & it is called medium of exchange. In many of our day to day transactions, goods are being bought & sold with the use of money.
The reason as to why transactions are made in money is that, a person holding money can easily exchange it for any commodity or service that he or she wants.
*Double coincidence of wants*:
When in the exchange, both parties agree to sell and buy each others commodities it is called double coincidence of wants. In the barter system double coincidence of wants is an essential feature.
*Demand Deposits in Bank*:
Deposits in the bank account that can be withdrawn on demand. People need only some currency for their day to day needs. For instance workers who receive their salaries at the end of each month, have some extra cash. They deposit it with the banks by opening a bank account in their name. Bank accept the deposits and also pay an interest rate on the deposits.
*Cheque*:
Paper instructing the bank to pay a specific amount from a person’s account to the person in whose name the cheque is drawn.
Reserve Bank of India:
It is the central bank of India which controls the monetary policy of the country. Reserve Bank of India supervises the activities of formal sector and keep the track of their activities but there is no one supervise the functioning of informal sector. Periodically banks have to submit information to the RBI on how much they are lending and to whom, at what interest rate, etc.
*Credit*:
The activity of borrowing and lending money between two parties.
*Collateral*::
Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing.
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