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Barter system of exchange: It refers to an exchange system in which goods and services are exchanged for other goods and services. Such a system is also known as commodity for commodity exchange (i.e. C-C exchange). For example - if a person having surplus wheat wants milk, then he/she can exchange that wheat with a person who has milk as well as who needs wheat at the same time.

Money can be easily stored without any loss in its value. Thus, store of value as a function of money implies that money can easily be saved and used for future needs. Money’s function of storing value can be justified because of the following reasons:

i. Money is the most widely accepted medium of exchange

ii. There is no loss in the value of money over time. Though there is a loss in the value of money due to inflation, it is negligible.

iii. Money can be stored conveniently and does not involve any cost.iii. Money can be stored conveniently and does not involve any cost.

Double coincidence of wants: It implies that the needs of any two individuals should complement each other for the exchange to take place. That is, the commodities owned by two different individuals are required by each other.

Near money: Near money refers to those assets which may not be a perfect medium of exchange but are highly liquid i.e. those assets that can be easily converted into cash. For example bank deposits, bills of exchange, equity shares etc. Thus, highly liquid assets are referred to as near money.

Money: Money is anything that acts as a medium of exchange. Money is accepted by a seller in exchange of his goods and services. It also acts as a common measure of value. 5

The cost of an umbrella – Rs 225

The cost of 15 umbrella as 225 × 15 = 3,375

The cost of a table Rs 4,320

The cost of a table Rs 4,320 × 16 = 69,120

A labourer earns amount – Rs 525

A labourer earns amount –  Rs 525 × 7

In a week = 3675

Distribute Rs 4,425 among Akhbar Amar & Anthony equally

The amount of share each gets = 4425/3 = 1475 Rs

Vinod a carpenter earns 9.666 in 6 days

The amount vinod earns a day = 9666/6 = 1611 Rs

1 Rs = 100 Paise

19.75 Rs = (19.75 x 100)/1,975,00 Paise

1 Rs= 100 Paise

32 Rs = (100 x 32)/3200 Paise

1. Bank

2. Barter system

3. Token coins

4. Standard or Full-bodied coins

5. Legal tender money

Some most commonly accepted definitions are as follows: 

• Prof. Walker – “Money is what money does”. 
• Prof Crowther – He has given the most acceptable definition. “Money is anything that is generally accepted as a means of exchange and at the same time, acts as a measure and as a store of value”.

1. Nonlegal tender money

2. Deferred payment

3. Primary functions

4. Demonetization

1. (c) Marshall

2. (d) Changing the value of money

3. (b) Commodity money

4. (b) stones

Proper Order is given below :

1. b, a, c, d

2. b, c, a, d

Store of Value function of money means that money can be used as an asset for storing value. It further means that the stored money can be used for transactions, in future. This is because money comes in convenient denominations, easily mobile and can easily be used for transactions.

Detailed Answer:

(i) We find that individuals don't spend their entire income. They may save a part of their income to store it for use at later date.

(ii) They do this as they know that money will be acceptable at any time in future for buying any commodity which they desire.

(iii) In the barter system, it is difficult to store commodities as it involves costly storage/reduction in quality or value of the stored commodity. Thus, money overcomes the problem of storage that exist in barter system.

(i) With the introduction of money, the value of each commodity can be estimated from its price which is in terms of a common unit, say rupees.

(ii) For e.g., we know that the value of one pen is Rs.10 and value of a notebook is Rs.20.

Therefore, 2 pens are equivalent to 1 notebook. Therefore, the relative value of goods can be determined.

(iii) In barter system, if there are 10 goods the price of each good is measured in terms of 9 other goods which makes the exchange more complex. Thus, there is no common measure of value which gets overcome with the introduction of money.

Money as a standard of deferred payments means that money acts as a 'standard' for payments, which are to be made in future. Every day, millions of transactions take place in which payments are not made immediately. Money encourages such transactions and helps in capital formation and economic development of the economy. Money as a standard of deferred payments has simplified the borrowing and lending operations. It has led to the creation of financial institutions. Under barter system, it was very difficult to make future payments and contractual payments such as salaries, loans, interest payments, etc. For example, it was difficult to decide whether wages to a labour are to be paid in terms of food grains or any other commodity. This is because it was difficult to value the services of labour in terms of a commodity. Similarly, if a loan is taken in the form of a commodity, then the problem will arise in its repayment. However, as superior to the Barter System, money made the system of deferred or contractual payments such as salaries, interest payments, etc. possible.

Money as a standard of deferred payments means that money acts as a 'standard' for payments, which are to be made in future. Every day, millions of transactions take place in which payments are not made immediately. Money encourages such transactions and helps in capital formation and economic development of the economy. Money as a standard of deferred payments has simplified the borrowing and lending operations. It has led to the creation of financial institutions. Under barter system, it was very difficult to make future payments and contractual payments such as salaries, loans, interest payments, etc. For example, it was difficult to decide whether wages to a labour are to be paid in terms of food grains or any other commodity. This is because it was difficult to value the services of labour in terms of a commodity. Similarly, if a loan is taken in the form of a commodity, then the problem will arise in its repayment. However, as superior to the Barter System, money made the system of deferred or contractual payments such as salaries, interest payments, etc. possible.

Money serves as a medium of exchanging goods and services. People sell goods for money and use the money for buying goods they want. It has removed the problem of double coincidence of wants faced in the Barter System.

Detailed Answer:

Money, as a medium of exchange, means that it can be used to make payments for all transactions of goods and services. It is the most essential function of money. Money has the quality of general acceptability. So, all exchanges take place in terms of money. This function has removed the major difficulty of lack of double coincidence of wants and inconveniences associated with the barter system. Use of money allows purchase and sale to be conducted independently of one another. This function of money facilitates trade and helps in conducting transactions in an economy. Money has no power to satisfy human wants, but it commands power to purchase those things, which have utility to satisfy human wants.

Money, as a medium of exchange, means that it can be used to make payments for all transactions of goods and services. It is the most essential function of money. Money has the quality of general acceptability. So, all exchanges take place in terms of money. This function has removed the major difficulty of lack of double coincidence of wants and inconveniences associated with the barter system. Use of money allows purchase and sale to be conducted independently of one another. This function of money facilitates trade and helps in conducting transactions in an economy. Money has no power to satisfy human wants, but it commands power to purchase those things, which have utility to satisfy human wants.

Use of money overcomes the drawbacks of barter system of exchange in the following manner:

(i) With the introduction of money, double coincidence of wants is no longer needed.

(ii) Money facilitates storage of value which is difficult in barter system.

(iii) Money facilitates satisfaction of wants even in smaller units which is not possible in barter system.

(iv) Money serve as a medium of exchange. Accordingly, scope of exchange has greatly widened.

Money overcomes the problem of barter system by replacing the C-C economy with monetary economy (where 'C stands for commodity).

(i) Money as medium exchange solves problem of lack of double coincidence.

(ii) Money as measure of value solves problem of absence of common measure.

(iii) Money as store of value solves problem of storing wealth.

(iv) Money as standard of deferred payment solves difficulty of borrowing and lending.

Plastic money

Functions of money:

(i) Medium of exchange.

(ii) Store of value

(iii) Unit of account

(iv) Standard of deferred payments

The functions of money can be classified into the following two categories:

(i) Primary Functions: These are those functions which are common to all countries during all time periods. These include the following:

(a) Medium of exchange: It means that money acts as an intermediary for the exchange of goods and services.

(b) Measure of Value: Money serves as a measure of value in terms of unit of account. i.e., in monetary units. For example, value of sugar can be expressed in monetary unit by saying that price of sugar is Rs.15 per kg.

(ii) Secondary Functions: These are those functions which are supplementary to the primary functions discussed above. These include the following:

(a) Standard of Deferred Payments: Deferred payments refer to those payments which are made in future. Money is accepted as a standard of deferred Payments because, (a) its price remains stable, (b) it has general acceptability (c) it is more durable compared to other commodities.

(b) Store of Value: It is convenient to store value in terms of money because. (a) it has general acceptability, (b) stability of its value, (c) it is convenient to store money.

(c) Transfer of Value: Money serves as a convenient mode of the transfer of value, because of its general acceptability and the merit of liquidity.

The different types of money are:

i. Commodity money - Initially, human beings exchanged goods and services for other goods and services. In other words, commodity exchange or commodity money was more prevalent.

ii. Money in the form of metals - After commodity money was phased out, metals began to be used as a medium of exchange. Under the metallic monetary system, gold and silver were the two metals that were of particular important and were widely in use.

iii. Money in the form of paper - With further rise in the volume of trade, paper money came into existence and was widely used. This form of money was easier to carry and store. Thus, it became a medium of exchange in almost all the countries of the world.

iv. Bank money and credit money - Bank money can be said to be the most convenient and durable form of money. Nowadays, individuals frequently use credit money in the form cheques, drafts, credit cards etc..

v. Plastic money - Plastic money in the form of debit cards has also emerged as an attractive medium of exchange. Moreover, net banking facilities and online transactions have further reduced the risks involved in carrying paper money.

No. we disagree with the given statement. Barter system had many difficulties. The various drawbacks of the barter system are as follows:

i. Problem of double coincidence of wants: Double coincidence of wants implies that the needs of two individuals should complement each other for the exchange to take place. For example, suppose a person in the above case, the second person must need rice in exchange of tea.

ii. Lack of a common unit of value: Under the barter system, there was no common unit for measuring the value of one good in terms of the other good for the purpose of exchange. For example, a horse cannot be measured in terms of rice in case of exchange between rice and horse.

iii. Difficulty in wealth storage: It was very difficult to store commodities for future exchange purposes. The perishable goods like grains, milk and meat could not be stored to exchange goods in future. Therefore, wealth storage was a major difficulty in the barter system.

iv. Lack of standard of deferred payments: The future payments could not be met in a C-C economy (barter system), as wealth could not be stored. It was very difficult to pay back loans.

Barter system had many difficulties. The difficulties in barter system were :

i. Problem of double coincidence of wants: Double coincidence of wants implies that the needs of any two individuals should complement each other for the exchange to take place. However, in reality, it is very difficult to find an individual who possesses the goods and services that are needed by another individual at the same time in exchange of what he/she has.

ii. Lack of a common unit of value: Under the barter system of exchange, there was no common unit for measuring the value of one good in terms of another good for the purpose of exchange.

iii. Difficulty in wealth storage and transfer of value: Individuals tend to store a part of their wealth or earnings as savings to be used for future needs or as an investment. However, it is very difficult to store many types of commodities.

iv. Lack of standard of deferred payments: It was very difficult to make future payments and contractual payments such as salaries, loans, interest payments etc. For example, it was difficult to decide whether wages for labour are to be paid in terms of food grains or any other commodity.

The above statement is correct. Face value of token coins is the value which is mentioned on the coin. On the other hand, intrinsic value of token coins refers to the value of the metal which a token coin is made of. Since token coins are made up of cheap metals, in case of token coins, the face value is greater than their intrinsic value.

Correct Option is :

(B) 1 – d; 2 – e; 3 – c; 4 – b; 5 – a

(b) Barter system

In indirect transaction, the medium of exchange is money.

Banking is defined as accepting for purpose of lending or investment of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft etc.

(c) Contingent

Two conditions necessary for barter system are :

1. Limited wants
2. Limited area.

(d) All of these

Wrong Pair: 

Secondary function of money – Medium of Exchange.

Correct Option is :

(C) 1 – c; 2 – d; 3 – a; 4 – b; 5 – e

Yes, I agree with the statement. 

More and more use of plastic money can help in eradicating corruption in India in the following ways: 

• Every transaction detail is recorded by the bank when the transaction is done through plastic money. 
• None of the money transactions are illegal as these take place through banks. 
• At the international level, all the conversion of Indian currency into dollars or Swiss dollars can be recorded with transactions done through plastic money. 
• It’s only when transactions take place in cash, bribery and other illegal activities take place.
• But the use of plastic money is easy to use, easy to keep records, and hence will help in removing corruption.

The evolution of money has passed through various stages with the development of civilization. 

Following are the various stages of money which evolved gradually with the need and time: 

(a) Animal money: In the primitive age (prehistoric period) animals like cows, goats, sheep, etc. were used as a common medium of exchange. In hot climatic countries cow, ox, etc. were chosen as a medium of exchange. 

(b) Commodity money: In certain countries, commodities like shells, wheat, rice, tobacco, wool, fur, salt, etc. were used as money. In cold countries, skin and fur were used as a medium of exchange. But due to the lack of uniformity and storage, metallic money was evolved. 

(c) Metallic money: With the progress of civilization, precious metals like gold and silver came into use as money. Initially, metallic money was imperfect in size, shape, weight, etc. But the scarcity of precious metals gave rise to the of use of metallic coins. 

(d) Metallic coins: Use of metals led to the introduction of coins. Rulers in olden times affixed their seal on metallic money. These coins were of two types. 

• Standard or full-bodied coins : Coins for which the face value is equal to its intrinsic (metal) value are known as standard or full-bodied coins. E.g. gold and silver coins. 
• Token coins: Coins for which the face value is greater than intrinsic value are known as token coins. E.g. coins made of nickel, copper, aluminium, etc. In India token coins are of ₹ 1, ₹ 2, ₹ 5, and ₹ 10. But difficulties in the transportation of token coins gave rise to paper money. 

(e) Paper money: Paper money is made of paper. In India all currency notes of ₹ 5, ₹ 10, ₹ 50, ₹ 100, ₹ 200, ₹ 500, and ₹ 2000 are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. Paper money has a very small intrinsic value of its own. 

(f) Bank money or Credit money: Bank money refers to bank deposits. This can be withdrawn or transferred on demand by means of cheque, demand draft, etc. These are not legal tender money, but through credit instruments, money can be transferred from one place to another and from one person to another. Today most of the big payments are made or received through cheques.

 (g) Plastic money: In recent years due to the advancement of technology use of plastic money like credit cards, debit cards also have become very popular. 

(h) Electronic money: It is the most recent development of money. Funds are electronically transferred through mobile phones, smart cards, etc. With this invention, transactions through worldwide have become very easy and popular.

Yes, I agree with the statement. 

Credit money can be refused because 

• Credit money refers to Bank money. 
• Bank money is not legal tender money. 
• No one can force to accept this money. 
• It is not punishable if it is not accepted. 
• Hence, Credit Money can be refused.