Banking Services and Operations

Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time. 

Money supply is measured in several ways which includes M1, M2, M3 and M4  measurement of money supply. Every measurement has it own definition with different components varying from most liquid to most rigid form. 

Demand deposits refers to the deposits of the people which is held by the commercial banks which can be withdrawn on demand. These are included in M1 and M2 measurement of money supply as they are considered the liquid money supply in the economy. 

Money refers to a common medium of exchange that is issued under the law of government and acts as a legal tender for the whole country. As a medium of exchange, money functions as a mode of exchanging goods and services. In this function of money, money is used to purchase or sell different goods and services in the market. 

Money refers to a common medium of exchange that is issued under the law of government and acts as a legal tender for the whole country. The functions performed by money are as follows: 

1. Medium of exchange: As a medium of exchange, it refers to a function of money in which money is considered as a mode of exchanging goods. This function of money solved the main problem of barter system which was double coincidence of wants.

2. Common measure of value: As a measure of value, it refers to a function of money that helps in determining the value of goods and services. Money is taken as the common denominator while measuring the value of goods and services in monetary terms.

3. Store of value: As a store of value, it refers to the function of money  that helps individuals in storing their wealth in the form of money. Therefore, money acts as an asset that sustains value over a period of time.

The four classic functions of money are medium of exchange, measure of value, standard of deferred payment, and store of value.

The financial system is typically categorized into these seven components: money, financial instruments, financial markets, financial institutions, regulatory agencies, central banks, and the Federal Reserve System.

Credit money includes instruments like cheques, drafts, and bills of exchange, which represent a promise to pay and are widely used in modern transactions.

Functions of money are often categorized as primary and secondary (or derived). The less important functions are generally referred to as secondary or derived functions.

Contingent functions of money include basis of credit, distribution of national income, and general form of capital, among others.

The primary functions of money are medium of exchange, store of value, and measure of value. Employment generation is an economic goal or outcome, not a functional definition of money itself.

Money is universally recognized for its roles as a medium of exchange, a common measure of value, and a standard for deferred payments.

Narrow Money (M1) includes currency in circulation and demand deposits. Time deposits are considered less liquid and are included in broader measures like M3.

The basic distinction between the measurements of narrow and broad money is the treatment of time deposits of banks.
$\text{Broad money = Narrow money + Time deposits}$

Money does not require intrinsic value (like gold or silver) to function; its value is derived from general acceptability and its role as a medium of exchange (fiat money).

India adopted the socialist form of economy prior to 1991 which involved a lot of government intervention in all the sectors including banking sector which made Indian economy a little conservative compared to other economic structures prevalent then. But after 1991, the government disinvested all its share from most of the sectors including banking sector which brought privatization in banking sector where public sector used to dominate prior to 1991.

Quantitative or traditional methods of credit control consist of banks rate policy, open market operations and variable reserve ratio. Qualitative or selective methods of credit control consist of the guideline of margin requirement, credit rationing, regulation of customer credit and direct action. 

Quantitative controls are planned to control the volume of credit created by the banking system qualitative measures or selective methods are intended to regulate the flow of credit in specific uses.

The correct option is D.