1.

(a) Name the Bank which has sole authority to issue currency in India. Mention three ways by which it differs from a commercial bank.(b) Define money. Explain how money performs the following functions:1. As a measure of value. 2. As a standard of deferred payment. 3. As a store of value.

Answer»

(a) The bank which has sole authority to issue currency in India is cantral bank, in India (RBI as central bank). The three ways by which it differs from a commercial bank are as follows:

Central BankCommercial Banks
1. Central bank is an apex institution in the money market.Commercial bank is merely a unit in the banking structure of the country operating under the control of central bank.
2. A country has only one central bank.A country has a large number of commercial bank.
3. It enjoys the monopoly power to issue currency and it is generally owned and governed by the Government.These banks do not have power to issue currency and can be owned by the Government or by the private entrepreneurs.
4. Central bank controls credit.Commercial banks create credit.
5. It acts as an agent and a banker to the Government. It functions as a custodian of the Government’s funds, and gives advise on monetary and fiscal measures.These banks have no advisory responsibility towards the state

(b) Money is defined as “Anything which is commonly used as generally accepted, as a medium of exchange or as a standard of value, like metallic coins, paper money, and deposit money. It functions as:

1. As a measure of value: Money is accepted as a measure of value or unit of account. Under the barter system, the price of a commodity were expressed in terms of other commodity. 

2. As a standard of deferred payments: Money acts as a standard of deferred payments. It means payment to be made in future can be expressed in terms of money.


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