How Much Do You Know About Money & Cost of Credit?

Banks usually lend money for both commercial and industrial purposes. Commercial purposes refer to loans given to businesses for their day-to-day operations, such as purchasing inventory or paying salaries. Industrial purposes, on the other hand, involve loans given to finance the purchase of machinery, equipment, or infrastructure for manufacturing or production activities. By offering loans for both commercial and industrial purposes, banks support the growth and development of businesses in various sectors of the economy.

In a proper financial transaction, money can be exchanged in the form of coins, bank cheques, and currency notes. This means that any of these forms can be used to complete a financial transaction. Coins are physical metal or metallic pieces that represent a certain value, bank cheques are written orders to pay a specific amount from one bank account to another, and currency notes are paper money issued by the government. Therefore, all of these options are valid forms of exchanging money in a financial transaction.

In the modern economy, the use of the barter system is eliminated. This means that the barter system, which involves the direct exchange of goods and services without the use of money, is no longer widely practiced or considered as a primary method of trade. Instead, modern economies rely on the use of currency as a medium of exchange, making bartering less common and less influential in economic transactions.

Currency notes are considered legal tender in the modern economy. Legal tender refers to a form of payment that must be accepted by law to settle a debt or fulfill a financial obligation. Currency notes, issued by the central bank or monetary authority, are widely accepted as a medium of exchange for goods and services. They hold value and can be used to make purchases, pay bills, and settle debts. Demand drafts and bank cheques, on the other hand, are negotiable instruments that require the involvement of banks or financial institutions to be converted into cash or transferred to another account.

All of the options listed are examples of credit money. Notes issued by the government are considered credit money because they are backed by the government's promise to pay the bearer the specified amount. A demand deposit in the bank is also credit money because it represents a claim on the bank for the deposited amount. Token money, such as coins or chips, is another form of credit money as it holds value based on the trust and creditworthiness of the issuer. Therefore, all three options mentioned in the question are examples of credit money.

The value of money varies inversely with the price level because when the price level increases, the value of money decreases. This means that the purchasing power of money decreases as prices rise. Conversely, when the price level decreases, the value of money increases, resulting in greater purchasing power.

The term "dynamic" refers to the ability of money to facilitate the conversion of savings into investments. Money is considered dynamic because it can be easily exchanged and used to purchase assets or invest in various opportunities. This quality allows individuals and businesses to put their savings to work and generate returns, contributing to economic growth and development.

AML stands for Anti Money Laundering. This term refers to a set of laws, regulations, and procedures implemented by financial institutions and other businesses to prevent and detect money laundering activities. Money laundering involves disguising the origins of illegally obtained funds to make them appear legitimate. AML measures aim to identify and report suspicious transactions, conduct due diligence on customers, and maintain records to ensure compliance with anti-money laundering laws and regulations.

The barter system has several limitations, including the lack of a proper common measure of value, meaning there is no standardized unit to determine the worth of goods or services being exchanged. Additionally, there is no store value in the barter system, as goods cannot be easily saved or stored for future use. Lastly, the barter system requires a double coincidence of wants, meaning both parties involved in the exchange must have something the other wants. These limitations make the barter system inefficient and impractical for complex economies.

Legal sanction is essential for money before it can perform its function because it provides the necessary authority and legitimacy for the use of money in a society. Without legal sanction, money would not be recognized as a valid medium of exchange, making it difficult for people to accept and use it in transactions. Legal sanction ensures that money is backed by the government or a regulatory authority, giving it credibility and trustworthiness. This allows for the smooth functioning of the monetary system and facilitates economic activities.