17 Most VSAQ’s of Money, Banking and Inflation Chapter in Inter 1st Year Economics (TS/AP)

Table of Contents

2 Marks

VSAQ-1 : What is barter system? (OR) What do you mean by ‘Barter system’?

The barter system is a method of exchange in which goods are directly traded between individuals or parties without the involvement of money as a medium of exchange. It relies on the concept of a double coincidence of wants, wherein both parties in the trade must have a desire for what the other is offering. For instance, one person might trade paddy (rice) for clothes with another individual, with both parties benefiting from the exchange.

VSAQ-2 : Distinguish between saving deposits and time deposits.

Saving Deposits are demand deposits with higher liquidity, lower interest rates, and no fixed term. They are suitable for short-term savings.
Time Deposits are fixed-term deposits with restricted liquidity, higher interest rates, and a predetermined maturity date. They are ideal for long-term savings.

VSAQ-3 : What is net banking? Explain the merits of it? (OR) What do you mean by Net Banking’? (OR) What is the meaning of Net Banking. (OR) Internet banking.

Net banking, or internet banking, allows individuals to manage their bank accounts online.

Merits:

24/7 Access: Available anytime, anywhere.
Time-Saving: Eliminates physical branch visits.
Cost-Effective: Reduces paper-based transaction costs.
Security: Utilizes advanced security measures.
Eco-Friendly: Reduces paper usage.
Service Range: Provides various online banking services.
Mobile Apps: Mobile banking apps for convenient access.
User Caution: Users must follow security guidelines to protect their accounts.

VSAQ-4 : Write about the main objectives of Central Bank. (OR) What are the objectives of ‘central bank’?

Currency Issuance Control: Regulating the issuance of currency notes to maintain stability and prevent excessive money supply.
Monetary Stability: Achieving price stability and controlling inflation to ensure a stable economic environment.
Credit System Regulation: Supervising and regulating the credit system to maintain financial stability and prevent excessive credit expansion.
Commercial Bank Guidance: Providing guidance and regulations to commercial banks for efficient and prudent financial practices.
Uniform Credit Policy: Developing and implementing a consistent and uniform credit policy nationwide to support balanced economic growth.

VSAQ-5 : What is Clearance house? (OR) What is ‘Cleaning House’? (OR) Clearance house.

A clearance house, also referred to as a clearing house, is a financial institution responsible for clearing financial transactions, particularly checks and electronic fund transfers, among various banks. It acts as an intermediary between banks, facilitating the efficient settlement of transactions. For instance, when a customer deposits a check from another bank into their account, the clearance house ensures that the funds are securely transferred from the issuing bank to the receiving bank. This process plays a pivotal role in ensuring the smooth and secure exchange of funds between different banks. Central banks, such as the Reserve Bank of India (RBI), often oversee or operate clearing houses to ensure the effective functioning of the payment system.

VSAQ-6 : What is currency? (OR) Currency.

Currency denotes the physical form of money used within an economy, typically comprising banknotes (paper money) and coins. It is issued by the central bank and the government and serves as the primary medium of exchange for conducting transactions involving goods and services. Currency represents one of the components of the broader money supply, which also encompasses demand deposits (funds held in checking accounts) and time deposits (funds held in savings accounts or fixed-term deposits). Currency is the most tangible and universally recognized form of money utilized by the public for everyday transactions.

VSAQ-7 : Explain near money. Give two examples. (OR) What is Near Money? (OR) Near Money.

Near money denotes highly liquid assets that are not classified as actual money but can be readily converted into cash or used for transactions. Examples of near money include Treasury Bills and Certificates of Deposit (CDs).

VSAQ-8 : Explain Recurring Deposits. (OR) Recurring deposits.

Recurring deposits are a form of savings option in which individuals deposit a fixed amount of money regularly, usually on a monthly basis, for a predetermined period. These deposits provide higher interest rates compared to regular savings accounts but offer lower interest rates than fixed deposits. Recurring deposits enable individuals to save and earn interest systematically over time while ensuring a fixed monthly commitment towards savings.

VSAQ-9 : Overdraft.

Overdraft is a banking facility provided to current account holders, permitting them to withdraw funds exceeding their account balance. The bank may impose interest charges on the overdrawn amount. Overdraft serves as a short-term financial solution for account holders experiencing temporary fund shortages, providing them with flexibility in managing their financial needs.

VSAQ-10 : Savings deposits

Savings deposits refer to funds placed in a savings account at a bank, primarily by individuals with limited income. These deposits are well-suited for low and middle-income individuals. They typically offer relatively low-interest rates, often around 4% per annum, but provide the account holders with flexibility to withdraw funds as needed. Some banks may impose withdrawal restrictions in terms of frequency and withdrawal amount to encourage long-term savings and maintain liquidity.

VSAQ-11 : What do you understand by store of value of money? (OR) Store of value.

The store of value concept pertains to the capability of money to maintain its value over time. Money serves as a store of value because it can be saved and used for future transactions or purchases. Unlike perishable goods that tend to lose value over time, money can be held and exchanged later with only minimal depreciation. This characteristic makes money a convenient means to store and preserve wealth for future use.

VSAQ-12 : What are the components of money supply?

Money supply includes:

Currency: Cash and coins in circulation.
Demand Deposits: Funds in checking accounts.
Savings Deposits: Funds in savings accounts.
Time Deposits: Fixed-term deposits.
Money Market Instruments: Short-term securities.
Repos: Short-term lending agreements.
Central Bank Reserves: Held by commercial banks.

VSAQ-13 : What are cash credits?

Cash credits refer to bank accounts with a pre-determined borrowing limit. Account holders can withdraw funds up to this limit and are charged interest on the borrowed amount. Depending on the terms, collateral may be necessary, and repayments are usually made in periodic installments. Cash credits provide a flexible means to address short-term financial requirements by allowing account holders to access borrowed funds as needed.

VSAQ-14 : What are the functions of money?

Money serves four primary functions:

Medium of Exchange: It facilitates the exchange of goods and services by serving as a universally accepted intermediary.
Unit of Account: Money provides a common measure of value, allowing individuals to compare and express prices.
Store of Value: It preserves wealth over time, allowing individuals to save and store value for future use.
Standard of Deferred Payment: Money enables contracts with payments to be made in the future, ensuring stability in financial transactions.

VSAQ-15 : What are monetary aggregates of RBI?

The Reserve Bank of India (RBI) uses several monetary aggregates to measure money supply:

M1: Includes currency notes, coins in circulation, and demand deposits (current and savings accounts).
M2: Encompasses M1 components plus time deposits, post office savings, and other near-money assets.
M3: Covers M2 components, as well as net time deposits with the banking sector, savings and fixed deposits with co-operative banks, and more.

VSAQ-16 : What are the uses of overdrafts?

Overdrafts have multiple uses, including:

Short-Term Financing: Accessing funds for immediate, short-term financial needs.
Working Capital Management: Supporting day-to-day operations by bridging cash flow gaps.
Emergency Expenses: Covering unexpected costs promptly.
Check Bounce Prevention: Avoiding the inconvenience and costs of bounced checks.
Timing Adjustment: Addressing discrepancies in the timing of income and expenses.
Opportunity Seizure: Taking advantage of time-sensitive opportunities.
Financial Flexibility: Providing flexibility in managing cash flow and transactions.

VSAQ-17 : Explain the types of inflation.

Types of Inflation

Demand-Pull: Due to excess demand, associated with growth.
Cost-Push: Caused by increased production costs.
Built-In: Resulting from wage-price spirals.
Hyperinflation: Extreme and uncontrollable price surge.
Core: Excludes volatile factors for stable inflation.
Imported: Stemming from costlier imports.
Creeping: Slow, steady price rise in stable economies.
Stagflation: Unusual mix of stagnation, unemployment, and inflation.
Galloping: Rapid price increase, not hyperinflation.