Important Terms

Money: Money may be defined as anything which is generally accepted by the people in exchange of goods and services or in repayment of debts.

According to Crowther, “Money can be defined as 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.”

Barter exchange/Barter system: It implies direct exchange of goods against goods without use of money is called barter exchange. It is also called C.C. economy, i.e., commodity for commodity exchange economy. When a weaver gives cloth to the farmer in return for getting wheat from that farmer, this is called barter exchange.

Money as Legal tender money: Currency (coins and notes) is bound to accept is it in exchange for goods and services and in discharge of debts. None can refuse to accept it because non-acceptance is an offence. It is issued by the government or duly authorized Central Bank.

Demand Deposits: Deposits in a bank which are payable on demand are called demand deposits. It also provides the facility of medium of exchange which is a function of money, when payments are made by cheques.

Cheque: It is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been made.

Loan activities of banks: Basically banks borrow money to lend. Banks pay interest (suppose x%) from whom it borrows. After keeping a portion of deposits as reserves, banks lend to people who demand money as loan and bank charges interest (suppose y%) from them. The difference between what is changed from borrowers (y%) and what is paid to depositors is their main sources of income.

Credit (loan): Credit refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. Main demand for credit is for crop production in case of rural areas.

Debt-trap: Suppose a person takes a loan and due to unavoidable circumstances he is not able to repay his loan. Now he faces a difficult situation and has to take a loan to repay the previous loan. This situation is called debt-trap.

Related Topics

• Credit
• Modern Forms of Money
• Loan Activities of Banks