1. (b). Q.4. Match The Following: 'A' 1. Primary Function Of Money 2. Indian Rupee Is 3. An Institution Which Deals With Money 4. RBI Established On 5. Money Is A Good Servent But 6. Accepting Deposits 7. Clearing House 8. Note Issue 9. Non-schedule

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Understanding the Functions and Institutions of Money in the Indian Economy

Introduction

The Indian economy, like many others, relies heavily on the concept of money to facilitate transactions, store value, and serve as a medium of exchange. Money plays a vital role in the functioning of an economy, and its primary function is to act as a medium of exchange, unit of account, and store of value. In this article, we will match the given options with their respective definitions and explore the functions and institutions of money in the Indian economy.

Primary Function of Money

Money is a good servant but a bad master. This famous quote highlights the importance of money in our lives. The primary function of money is to act as a medium of exchange, which enables individuals and businesses to trade goods and services with each other. Money also serves as a unit of account, allowing us to express the value of goods and services in terms of a common denominator. Additionally, money acts as a store of value, enabling individuals and businesses to save and invest for the future.

Indian Rupee

The Indian Rupee (INR) is the official currency of India. It is the primary medium of exchange in the country and is divided into 100 paise. The Indian Rupee is issued by the Reserve Bank of India (RBI) and is available in various denominations, including coins and banknotes.

An Institution which Deals with Money

Reserve Bank of India (RBI) is the central bank of India and is responsible for managing the country's monetary policy. The RBI is an institution that deals with money and is responsible for regulating the money supply, maintaining price stability, and ensuring the stability of the financial system.

RBI Established On

The Reserve Bank of India (RBI) was established on April 1, 1935, under the Reserve Bank of India Act, 1934. The RBI was set up to take over the management of the country's monetary policy from the British colonial government.

Money is a Good Servant but a Bad Master

Money is a good servant but a bad master. This famous quote highlights the importance of money in our lives. Money can be a good servant when it is used to facilitate transactions, store value, and serve as a medium of exchange. However, when money becomes a bad master, it can lead to greed, corruption, and inequality.

Accepting Deposits

Accepting deposits is one of the primary functions of a bank. Banks accept deposits from individuals and businesses and use these deposits to make loans and investments. This process helps to mobilize savings and channel them into productive sectors of the economy.

Clearing House

A Clearing House is an institution that facilitates the settlement of transactions between banks. It acts as a central location where banks exchange cheques, drafts, and other financial instruments to settle their transactions.

Note Issue

Note issue is the process of issuing banknotes by a central bank. In India, the RBI is responsible for issuing banknotes and coins. The RBI issues banknotes in various denominations, including ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500, and ₹2000.

Non-Schedule Bank

A Non-Schedule Bank is a bank that is not a member of the Reserve Bank of India's (RBI) schedule of banks. Non-schedule banks are not required to maintain a minimum cash reserve ratio and are not subject to the same regulatory requirements as schedule banks.

Conclusion

In conclusion, money plays a vital role in the functioning of an economy. The primary function of money is to act as a medium of exchange, unit of account, and store of value. The Indian Rupee is the official currency of India and is issued by the Reserve Bank of India (RBI). The RBI is responsible for managing the country's monetary policy and is an institution that deals with money. Understanding the functions and institutions of money is essential for making informed decisions about personal finance, investments, and economic policy.

References

  • Reserve Bank of India. (2022). Annual Report 2021-22.
  • Ministry of Finance. (2022). Economic Survey 2021-22.
  • World Bank. (2022). World Development Indicators 2022.

Glossary

  • Medium of exchange: A medium of exchange is a good or service that is widely accepted in exchange for other goods and services.
  • Unit of account: A unit of account is a standard unit of measurement used to express the value of goods and services.
  • Store of value: A store of value is a good or service that can be saved and used in the future to purchase other goods and services.
  • Reserve Bank of India (RBI): The Reserve Bank of India (RBI) is the central bank of India and is responsible for managing the country's monetary policy.
  • Indian Rupee (INR): The Indian Rupee (INR) is the official currency of India and is issued by the Reserve Bank of India (RBI).
  • Non-schedule bank: A non-schedule bank is a bank that is not a member of the Reserve Bank of India's (RBI) schedule of banks.
    Frequently Asked Questions (FAQs) about Money and the Indian Economy

Q1: What is the primary function of money in the Indian economy?

A1: The primary function of money in the Indian economy is to act as a medium of exchange, unit of account, and store of value. Money enables individuals and businesses to trade goods and services with each other, express the value of goods and services in terms of a common denominator, and save and invest for the future.

Q2: What is the Indian Rupee (INR) and how is it issued?

A2: The Indian Rupee (INR) is the official currency of India and is issued by the Reserve Bank of India (RBI). The RBI issues banknotes and coins in various denominations, including ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500, and ₹2000.

Q3: What is the Reserve Bank of India (RBI) and what is its role in the Indian economy?

A3: The Reserve Bank of India (RBI) is the central bank of India and is responsible for managing the country's monetary policy. The RBI regulates the money supply, maintains price stability, and ensures the stability of the financial system.

Q4: What is the difference between a schedule bank and a non-schedule bank?

A4: A schedule bank is a bank that is a member of the Reserve Bank of India's (RBI) schedule of banks. Schedule banks are required to maintain a minimum cash reserve ratio and are subject to the same regulatory requirements as other banks. A non-schedule bank, on the other hand, is a bank that is not a member of the RBI's schedule of banks and is not required to maintain a minimum cash reserve ratio.

Q5: What is the role of a clearing house in the Indian economy?

A5: A clearing house is an institution that facilitates the settlement of transactions between banks. It acts as a central location where banks exchange cheques, drafts, and other financial instruments to settle their transactions.

Q6: What is the significance of note issue in the Indian economy?

A6: Note issue is the process of issuing banknotes by a central bank. In India, the RBI is responsible for issuing banknotes and coins. The RBI issues banknotes in various denominations, including ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500, and ₹2000.

Q7: How does the RBI regulate the money supply in the Indian economy?

A7: The RBI regulates the money supply in the Indian economy by setting monetary policy targets, such as inflation rate and economic growth rate. The RBI also uses tools such as open market operations, reserve requirements, and interest rates to regulate the money supply.

Q8: What is the impact of money on the Indian economy?

A8: Money has a significant impact on the Indian economy. It enables individuals and businesses to trade goods and services with each other, express the value of goods and services in terms of a common denominator, and save and invest for the future. Money also facilitates economic growth, employment, and income generation.

Q9: What are the benefits of a stable monetary policy in the Indian economy?

A9: A stable monetary policy in the Indian economy has several benefits, including low inflation, high economic growth, and low unemployment. A stable monetary policy also helps to maintain investor confidence, attract foreign investment, and promote economic stability.

Q10: What are the challenges facing the Indian economy in terms of monetary policy?

A10: The Indian economy faces several challenges in terms of monetary policy, including high inflation, low economic growth, and high unemployment. The RBI must balance the need to control inflation with the need to promote economic growth and employment.

Conclusion

In conclusion, money plays a vital role in the functioning of the Indian economy. The primary function of money is to act as a medium of exchange, unit of account, and store of value. The RBI is responsible for managing the country's monetary policy and regulating the money supply. Understanding the functions and institutions of money is essential for making informed decisions about personal finance, investments, and economic policy.

References

  • Reserve Bank of India. (2022). Annual Report 2021-22.
  • Ministry of Finance. (2022). Economic Survey 2021-22.
  • World Bank. (2022). World Development Indicators 2022.

Glossary

  • Medium of exchange: A medium of exchange is a good or service that is widely accepted in exchange for other goods and services.
  • Unit of account: A unit of account is a standard unit of measurement used to express the value of goods and services.
  • Store of value: A store of value is a good or service that can be saved and used in the future to purchase other goods and services.
  • Reserve Bank of India (RBI): The Reserve Bank of India (RBI) is the central bank of India and is responsible for managing the country's monetary policy.
  • Indian Rupee (INR): The Indian Rupee (INR) is the official currency of India and is issued by the Reserve Bank of India (RBI).
  • Non-schedule bank: A non-schedule bank is a bank that is not a member of the Reserve Bank of India's (RBI) schedule of banks.