What is Money?

Money is any object or record that is generally accepted as payment for goods
and services and repayment of debts in a given socio-economic context
or country. The main functions of money are distinguished as: a medium of
exchange; a unit of account; a store of value; and, occasionally in the past,
a standard of deferred payment. Any kind of object or secure verifiable record
that fulfills these functions can serve as money.

1) MONEY AS A MEDIUM OF EXCHANGE

When both parties have to agree to sell and buy each others
commodities this is known as Double coincidence of
wants. Once he has exchanged his goods for money, he can
purchase other goods in market. Since money as an intermediate
in the exchange process. It is called a medium of exchange.

2) STORE OF VALUE
A recognized form of exchange can be a form
of money or currency, a commodity like gold, or financial
capital. To act as a store of value, these forms must be able to
be saved and retrieved at a later time, and be predictably
useful when retrieved.
 Barter System

Limitations Of Barter System

 Lack of double coincidence of wants

 Difficulty of storing value

 Differed payments are difficult

 Some goods are indivisible

 FORMS OF MONEY
Old Form Of Money
Grains and Cattles, Metallic Coins—Gold, Silver and Copper

Modern Form Of Money

Paper Notes, Coins
It is not made of precious metals as Gold, Silver, and Copper. It is accepted as a
medium of exchange because the currency is authorized by the Govt. Of India.

Reserve Bank Of India

The Reserve Bank of India (RBI) is India's central

banking institution, which controls the monetary policy of

the Indian rupee. It was established on 1 April 1935 during

the British Raj in accordance with the provisions of the

Reserve Bank of India Act, 1934. The RBI plays an

important part in the development strategy of

the Government of India. It is a member bank of the Asian

Clearing Union. The general superintendence and direction of

the RBI is entrusted with the 21-member-strong Central

Board of Directors—the Governor (currently Duvvuri

Subbarao).
 Demand Deposits

Loan Activities of Banks

 Banks keep only a small proportion of their deposits as cash with
themselves.
 Banks use the major portion of the deposit to extend loans.
 Banks mediate between those have surplus funds and those who are in
need of these funds.
 Banks charge a higher interest rate on loans than what they offer on
deposits.
 CREDIT
Credit refers to an agreement in which lender supplies
the borrowers with money, goods, and services in
return for the promise of future payments.
1) Role of Credit
Whether credit will be useful or not depends upon the risks in the
situation & on whether there is some support, in case of loss.
In the rural areas the main demand for the credit is for the crop
production. Crop production involves considerable cost on seeds,
fertilizers, pesticides, water, electricity, repair of equipment etc.
Farmers usually take crop loans at the beginning of the season and
repay loan after harvest. Repayment of the loan is dependent on the
income from farming.
Sometimes repayment of the loan becomes difficult and credit instead
of improving the earnings, pushes the borrower into a situation from
which recovery is difficult. This situation is called DEBT TRAP.
2) Terms Of Credit
 Interest rate
 Collateral
 Documentation requirement
 The mode of repayment
 Formal Sources of Credit
• Commercial Banks, co-operative societies and Regional Rural Banks
constitute the formal sector of credit
• The Reserve Bank of India supervises the functioning of formal sources
of loans.
• They collect low rate of interest.
• They follow some well defined rules and procedures.
Informal Sources of Credit
• The informal lenders include moneylenders, traders, employers, relatives and
friends, etc.
• There is no organization which supervises the credit activities of lenders in the
informal sector.
• They collect high rate of interest.
• They do not follow any rules or procedures.

Self Help Groups

• Banks are not present everywhere in rural India.
Even they are, getting a loan from bank is much more
difficult than taking a loan from the informal sources.
In recent years, people have tried out some new ways
of providing loans to the poor. SHG is one of them.
• A typical SHG has 15-20 members, usually belonging
to one neighborhood, who meet and save regularly.
• Members can get small amounts as loans from the
group. Rate of interest is low and it is decided by the
members.
• After 2 years the group can get loans from the bank.

Importance Of Self-Help Groups

•
•

•
 Different Sources Of Credit
1%

Landlords
30% 25%
Banks
Cooperative Societies
Other
Relatives & Friends

3% Traders
7% Money Lender
27%
7%

Dollar

Source of Value
Barter System
 Old forms of money

unit of account

Modern forms of money

RBI
 Cheque

activities of bank loan

Self help group
Name-- Abhinav Singh
Chauhan
Class-- Xth D
Roll No.-- 10
Subject-- S.S.T.