Tag: functions of money

Questions Related to functions of money

Many a time we read in newspaper about the benefits of National Electronic Funds Transfer (NEFT), a delivery service launched by the bank. Why do banks advocate for such delivery channels?
A. It is a system in which no physical transfer takes place, hence risk is very low.
B. In this system banks are not required to transfer any money actually to the account of the customer. Only book adjustment is done. Hence actual fund is not needed.
C. This facility is available to anybody at any place. Even having a bank account is not at all necessary.

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. Only (A) is correct

  2. Only (B) is correct

  3. Only (C) is correct

  4. Both (A) and (B) are correct

Show answer
Correct Option: D
Explanation:

National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer.

Under this Scheme, individuals can electronically transfer funds from any bank branch to any individual having an account with any other bank branch in the country participating in the Scheme.

Various banks in the country have installed machines which disburse money to general public. These machines are called _______.

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. coin dispensing machines

  2. ATMs

  3. debit card machines

  4. ledger machines

Show answer
Correct Option: B
Explanation:

An ATM, which stands for automated teller machine, is a specialized computer that makes it convenient to manage a bank account holder's funds.
It allows a person to check account balances, withdraw or deposit money, print a statement of account activities or transactions, and even purchase stamps

Many times we see banks advertise - "Anywhere Banking: Anytime Banking". Which of the following products/facilities launched by banks make it possible for the customers to avail banking services 24 hours all seven days?
A. ATM
B. Internet Banking
C. Universal cheque book facility

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. Only (A)

  2. Only (B)

  3. Both (A) and (B)

  4. All (A), (B) and (C)

Show answer
Correct Option: D
Explanation:

  • An automated teller machine (ATM) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, transfer funds, or obtaining account information, at any time and without the need for direct interaction with bank staff.
  • Internet banking is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution's website.
  • A cheque is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued.
All these facilities are available to a customer all the time.

In which of the following fund transfer mechanisms, can funds be moved from one bank to another and where the transaction is settled instantly without being bunched with any other transaction?

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. RTGS

  2. NEFT

  3. TT

  4. EFT

Show answer
Correct Option: A

The term 'Smart Money' refers to ________________.

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. Foreign Currency

  2. Internet Banking

  3. US Dollars

  4. Credit Cards

Show answer
Correct Option: D

By increasing repo rate, the economy may observe the following effect(s) ____________________.

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. Rate of interest on loans and advances will be costlier.

  2. Industrial output would be affected to an extent.

  3. Banks will increase rate of interest on deposits.

  4. All of these

Show answer
Correct Option: D

According to Keynes, the speculative demand for money is due to __________.

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. money is better store of value than any other long term financial assets

  2. higher returns on speculative activities

  3. general tendency to speculate to make quick return

  4. all the three

Show answer
Correct Option: A
Explanation:

According to J.M. Keynes, Money has speculative demand due to its function as a better store of value than any other long tern financial asset because of the following two reasons: 

(i) Money in not perishable as it does not have any age, its is not time bounded and does not gets old which makes it a better store of value. 
(ii) The rate of money does not change with time as in case of securities and bonds. The value of the currency remains intact even if there is fluctuations in the money market which makes it the best store of value. 

Which of these is not a function of money?

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. Medium of exchange

  2. Store value

  3. Power indicator

  4. Measurement of value

Show answer
Correct Option: C
Explanation:

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 of money can be classified into two categories: 

1. Primary function: The primary function of money includes money as a medium of exchange and money as a measure of value.


2. Secondary function: The secondary function of money includes money as a store of value and money as a standard of deferred payment. 


Therefore, power indicator is not a function of money. 

When saving are given as a loan and borrower repays the amount, money serves the function of  ________.

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. unit of measurement

  2. store value

  3. standard of deferred payment

  4. medium of exchange

Show answer
Correct Option: C
Explanation:

Deferred payments refer to payments made on loans, salaries, pensions, insurance premium, interests, and rents. The necessary condition for deferred payment is that the amount of repaid money should be the same as it was at the time of purchase of the good or at the time of taking loan. Since all the goods and services can be expressed in terms of money, it makes the future payments easy and functional. Moreover, the value of currency does not change with time which makes it easy for the borrower to take money and repay it in future. Therefore, money serve as a standard of deferred payment. 

If someone keeps some money for bad days, this demand for money is known by_________ motive of money.

economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

  1. speculative

  2. transaction

  3. precautionary

  4. store

Show answer
Correct Option: C
Explanation:

Precautionary motive of money refers to the demand for money to store it for future uncertainties. In other words, if money is demanded so that it can be kept for bad days then the demand of such money is known by the precautionary motive of money. In such cases, money functions as the store of value.