Question 1

What is money?

Accepted Answer

Money is an item that is generally accepted as payment for goods and services and repayment of debts in a country or socio-economic context. The main function of money is to act as a medium of exchange, which eliminates the cumbersome need for the double coincidence of wants inherent in the barter s

Question 2

What is meant by double coincidence of wants?

Accepted Answer

Double coincidence of wants refers to a situation where two persons mutually desire to buy and sell each other's commodities. In a barter economy, what a person desires to sell must be exactly what the other person wishes to buy. Without this exact matching condition, trade cannot take place. This s

Question 3

What are the modern forms of money?

Accepted Answer

The modern forms of money include currency notes, coins, and deposits with banks. Unlike precious metals like gold and silver in ancient times, modern currency is not made of precious metals and does not have daily use value of its own. It consists of paper notes and coins authorized by the governme

Question 4

How do banks mediate between depositors and borrowers?

Accepted Answer

Banks keep only a small proportion of their deposits as cash with themselves to pay daily withdrawal requests from depositors. They use the major portion of the deposits to extend loans to people who need financial assistance. By charging a higher interest rate on loans than what they offer to depos

Question 5

What are collateral requirements for a loan?

Accepted Answer

Collateral is an asset that the borrower owns, such as land, building, vehicle, livestock, or deposits with banks, and uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to recover the due a

Economics: Money and Credit