Important questions Eco
- March 23, 2023
So, demand deposits have all the essential feature of money as they are widely accepted as means of payment. These are demand deposits that track the market interest rate, which is impacted by the economic activity of central banks. Therefore, the interest rate provided by money market accounts can vary compared to savings accounts as it depends on the market interest rate. Members of cooperative societies contribute their resources in order to cooperate certain areas. Now there may be various kinds of cooperative such as farmer, weaver, industrial workers etc. Krishak Cooperative functions in a village not very far away from Sonpur.
- How do demand deposits have the essential features of money?
- As the price levels lower due to increased money supply, the production in business will increase to accommodate people’s increased spending.
- Such deposits are called demand deposits as they are payable by the bank on demand from the account- holder.
- The barter system requires a double coincidence of wants on the part of those who want to exchange goods or services.
- Money is the link which connects the values of today with those of the future.
A rise in the money supply will reveal its effect by decreased interest rates and price values of commodities and services. Whereas a decrease in money supply will result in increased interest rates, price values with a coupled increase in banks’ reserves. Understanding the fundamentals of money supply and money demand helps get an idea regarding the country’s financial status and the fluidity of the country’s currency. In this section, we shall talk about the supply of money, its meaning, components, and the various methods that are involved in the money supply. Deposits are a crucial and very cheap source of funding for banks which make money by lending to their customers at higher rates than their cost of funding. So the name of the game is to keep “deposit costs” down while attracting enough deposits to lend out.
Money Supply: Definition
Current account holders generally use these deposits to meet their daily needs. However, there may be a maximum limit on deposits withdrawn from these accounts, specified as the daily limit of the account holder’s account balance. Mention the characteristic of the formal and informal sources of credit in India. First of all he needs to have collateral or an asset through which guarantee could be provided of his loan.
These are the amounts held in checking accounts. An example of unfavorable terms of credit for the small farmer is Shiva is a small farmer. He borrows money at the rate of 4 % per month ( i.e., 48 % per annum) from a local moneylender to grow his crop. As a result Shiva has to sell a part of his land to repay the loan. Small farmers can get cheap credit from sources like regional rural banks, agricultural co-operatives and SHGs.
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Demand deposits are deposits made in various current accounts or DDA types. These current accounts or DDAs are accounts using which you can retrieve your deposits without seeking approval or submitting a prior notice to the bank. Demand deposits are accepted widely as means of payment by way of a cheque instead of cash. Why is there a great need to expand formal sector credit in India?
Banks charge a higher interest rate on loans than what they offer on ……………. High rate of interest of borrowing shows the amount to be rapid higher than income of the borrower and this way it leads increasing debt and debt-trap. Differentiates between what is charged from borrowers and what is paid to depositors.
Each article must have as many different values as there are other articles for which it is to be exchanged. When thousands of articles are produced and exchanged, there will be unlimited number of exchange ratios. Absence of a common denominator in order to express exchange ratios create many difficulties. Money obviates these difficulties and acts as a convenient unit of value and account.
Krishak Co-operative functions in a village not very far away from Sonpur. With these deposits as collateral, the Co-operative has obtained a large loan from the bank. These funds are used to provide loans to members. Once these loans are repaid, another round of lending can take place. Interest rate, collateral and documentation requirement and the mode of repayment are the terms of credit required for formal or informal sectors for loans.
What is meant by demand deposits Class 10?
Since demand drafts/cheques are widely accepted as a means of payment along with currency they constitute money in the modern economy. Demand deposits can be withdrawn on demand and can be used as a medium of exchange just like money. Payments in case of demand deposits can be made through cheque.
Banks and cooperatives should increase facility of providing loans so that dependence on informal sources of credit reduces. Describe the bad effects of informal sources of credit on borrowers. A person obtains credit to meet the working capital needs of production. How do demand deposits have the essential features of money? However, a country’s currency is said to have an inconvertible paper money standard if it is not convertible in gold or silver. Thus, it is conventional to describe a country’s monetary system in terms of its standard money, which serves as the primary source of supply.
Review any three merits and any two demerits of ‘formal sector of credit’ in India. Sometimes, the failure of the crop makes loan repayment impossible. Banks charge a higher interest rate on loans than what it offers on deposits. Every loan agreement specifies an interest rate which the borrower must pay to the lender along with the repayment of the principal.
“The credit activities of the informal sector should be discouraged.” Support the statement with arguments. So, the farmers have to sell a part of their land to repay the loan. Credit in such a condition pushes the borrowers into a situation from which recovery is painful and they get into the debt trap. Why are service conditions of formal sector loans better than informal sector? Demand deposits are the deposits which can be withdrawn on demand. Money can be easily deposited and withdrawn from the banks.
What is the difference between bank money and demand deposits?
Doubtlessly money helps in removing the difficulties of barter system as explained above. Money as store of value solves the barter problem of lack of storing wealth . The shoemaker wants a loaf in exchange of his shoes but exchange value of a piece of loaf is but a fraction of a pair of shoes. Shoes cannot be sub-divided without destroying their values.
An economy based on barter exchange (i.e., exchange of goods for goods) is called C.C. Economy, i.e., commodity for commodity exchange economy. In such an economy, a person gives his surplus goods and gets in return the goods he needs. For example, when a weaver gives cloth to the farmer in return for getting wheat from the farmer, this is called barter exchange. Similarly, the farmer can get other goods of his requirements like shoes, cow, plough, spade, etc. by giving his surplus wheat . Thus system of barter exchange fulfils to some extent the requirement of both the parties involved in exchange.
‘‘Credit can play a positive role.’’ Justify the statement with arguments. The following table shows people in a variety of occupations in urban areas. What are the purposes for which the following people might need loans? …………issues currency notes on behalf of the Central Government. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation. After many practices if he won’t be able to find the loan then he has to visit any moneylender for this purpose of money borrowing.
The concept of money supply still has certain elements that need to be explored. This mainly includes figuring out what can be treated as ‘money’ and what can’t. For example, commercial banks’ fixed deposits are not treated as ‘money’ under money supply. In contrast, the savings deposits made under the Post office savings bank cannot be counted as money because they lack exchange via cheque and face no liquidity. The supply of money, on the other hand, is a different concept.
His profit will be double and in case if he borrows then he would be able to pay easily all his debts in time. “Bank plays an important role in the economic development of the country.” Support the statement with examples. The money is transferred from one bank account to another in a couple of days.
With the help of this collected amount as why are demand deposits considered as money class 10, the cooperatives have received a large loan from the bank. They use this fund to give loans to the needed people. Besides getting loans from the cooperative banks, the other major sources of getting cheaper credit in rural areas are the cooperative societies only. A large number of people in our country are poor and yes it affects the capacity to borrow in many ways.
‘Simultaneous fulfillment of mutual wants by buyers and seller’s is known as double coincidence of wants. There is lack of double coincidence in the wants of buyers and sellers in barter exchange. The producer of jute may want shoes in exchange for his jute. But he may find it difficult to get a shoemaker who is also willing to exchange his shoes for jute. Thus a seller has to find out a person who wants to buy seller’s goods and at the same time who must have what the seller wants. This is called double coincidence of wants which is the main drawback of barter exchange.
In India there are four concepts of money supply. Reserve Bank of India uses four alternative measures of money supply called as M1, M2, M3, and M4. Among these measures, M1is the most commonly used measure of money supply because its components are regarded as most liquid assets. These are also taken into account as consistent and constant money supply. In most countries, these deposits represent the bulk of the money supply.
So, he pledges to repay loans by working for the landowner. They can take loans from banks or from co-operatives who charge very low rate of interest. A House Loan Megha has taken a loan of ₹ 5 lakh from the bank to purchase a house. The annual interest rate on the loan is 12% and the loan is to be repaid in 10 years in monthly instalments. Megha had to submit to the bank, documents showing her employment records and salary before the bank agreed to give her the loan.
Because of this feature, https://1investing.in/s are willing to lend to the poor women when organised in SHGs even though they have no collateral as such. Most of the important decisions regarding the savings and loan activities are taken by the group members. “ ’Self Help Groups’ help borrowers to overcome the problem of lack of collateral.” Examine the statement. Banks promote all the sectors of the economy through loans. They charge from borrowers and what is paid to depositors is their main source of income.
M2 money supply is the money supply that includes currency checking accounts in banks traveler’s checks savings deposits money market funds and certificates of deposit. M1 includes demand deposits and checking accounts which are the most commonly used exchange mediums through the use of debit cards and ATMs. Of all the components of the money supply M1 is defined the most narrowly.
Treasury or the Federal Reserve Bank but circulate in the economy. Closely related to currency are checkable deposits also known as demand deposits. A checking account is a deposit account held at a financial institution that allows withdrawals and deposits. The two main differences between demand deposit and time deposit accounts are how easily you can access the money in the account and how much interest the account earns.