Student name: Maida zenab

Assignment set: D
Paper code: 601
Subject: Money Banking and Finance
Course and semester: BBA 6th semester

Ans1: Money is the medium of exchange, store of value and standard of deferred payment.Today
Money has become the vital component which is needed everywhere and in every field.The
supply of money in an economy affect economic activities to a great extent, if there is an
increase in money supply ,typically lower interest rates, it will generate more investment and
cosumer will spend more,business houses will increase their production and vice -versa.
Money Market nainly deals with meeting the short term requirement of borrowers and
providing liquidity or cash to the lenders.Money market play an important role in maintaining
monetary equilibrium ,promoting economic growth of a country in various sector.
On the contrary, Capital Market deals with long term funds .It is an arrangement to borrow and
lend money for longer period of time exceeding one year.It provides opportunities for the public
to invest their money in attractive ventures.
Money Market instrunents allow borrowers to meet their short term requirements, and also
provide easy liquidity to the lenders.
Common money market instruments are
• Treasurey Bills
• Repurchase agreement
• Certuficate of depisits
• Comnercial papers
On the other hand, capital market deals with providing long term funds to the business houses
and government.
Capital market instruments include:
• Rupee loans
• Debentures
• Stock
• Bonds
• Foreign exchange loans
Ans 2: In today’s world everything began and ends with money .From buying sellimg
purchasing and producing everything is dependent on money.

Money has reviel its importance from the following factors:

• Money has remove the hindrances of barter system where exchanging
goods and services was a great challenge.
• The price mechanism runs on the basis of money,As a labour works for
wages and producer for profit.The wages and profit can be easily expressed
in terms of money.
• Money has made consumer to decide easily ,how much to spend ,what to
purchase and how much to save.
• Money has foster the role of Investment,the greater the current saving, the
greater will be the Investment.
• Money has played an important role in economic developement of a country
in every feild being it agriculture sector, industrial sector,infrastructure
etc,without money economic developement of a country cannot take place.

Differences between barter system and present money system can be reviel from the
following points:

• Double coincidence of wants: The main difficulty which was faced in barter system
was double councidence of wants.If a person wants to exchange his goods he must
find same person who is willing to exchange his commodity with his commodity.
But money has removed this hindrance ,Anything can be acquire through money
as it act as a medium of exchange.

• Lack of common measure: The another shortcoming of barter system is the lack of
any common unit ,in which goods and services can be measured.But through
invention of money,any goods or services can be measured in monetery and units.
• Lack of store of value:In barter system commodities cannot be saved for a longer
period if time,as some commodities are perishsble in nature. But money has
remove this hindranges too,money can be stored as long as when it is not in use
• Difficulty in future payment:The barter system suffered the difficulty of future
payment.But through evolution of money this problem has been solved through
the system of deferred payments

Types of money:
• Commodity money:This is the simplest form of money,used in barter system
Certain types of commodities constitutes the commodity money which include
gold,silver,copper etc
• Fiat money:Fiat money is that form if money,which dont have any instrinct
valueand it can be converted into any resource.Any commodity or services
which can be easiky acquired is a fiat money
• Fiduciary money:Fiduciary money is the type of money where assures the
customer to pay in differents kind of money or when the customer can sell the
promise or transfer it to somebody else example include gold,silver or paper
money.
Functions of money
• Medium of exchange:Money the hindrance of co-inicidency of wants which has
been faced in banter system.Anything can be acrcine through many as it acts a
median of exchange various good and limci.
• Store of value:Money acts as a slow of value eamlier in banter system,Commuditu of
peislable natery Cannot be stores ienine then hindrence too.
• Standard of defend payment:Mony fulfill the function of alofened payment.It is as
a standard to sectle a debt in future in an accepted way.

Ans3: Foreign exchange has facilitated import and export of a country.

It strengthen the global trade of a country.
The foreign exchange provides credit to the national and imternational economies,
thereby boosting foreign trade.

Foreign exchange has affect the life of common man in following ways:
• Travelling overseas:Travelling abroad is a greater challenge in itself, for a common
man.When there are injections(foreign remittence) in our currency the common man
can easily spend on food hotel stay etc and vice versa.
• Distance education: students studying abroad are greatly affected by foreign
exchange.
• Other miscellaneous expenses(cost of medical,rent,groceries):Beside above two if
someone is staying outside he/she has to meet up with the daily expenses which
include groceries,rent etc.
Other than this if some medicines are imported from foteign they will have high tarrif
charges, which will again bear by a common man.

List of items india imports and exports:

Import:oil,electronics,gold,heavy machineries etc.
Export:clothing ,jewellery,spices,leather etc.

Import and export affects our country to a great extent.

 If the import of a country are high it will lead to a deficit in the country’s currency
thereby leading to depreciation.
On the contrary,if the exports are high the currency of country will appreciate leading
to injections of foreign remittence,thus the currency will appreciate resulting in
economic gtowth of a country.
Ans 4: Money supply can be explain by following theory:
Quantity theory of money irving fisher approach:
In this theory fisher put emphasis on use of money as a medium of exchange.In other words
money is demanded for transactional purposes.
If there is increase in prices there will be increase in money supply and vice versa.
Following are the factors affecting the value of currency in comparision to other currency:
Inflation rate:In an economy lower inflation rate shows the increase in value of currency and
vice versa.
Interest rate:Interest rate also affects currency value and dollar exchange rate all are
correlated ,higher interest rate provide higher rate to the lender and vice versa.
Balance of payment: Balance of payment fluctuates exchange rate of domestic currency.A
deficit im current account due to spending more on importing goods will lead to a fall in
domestic currency .

Ans 5: Inflation means increase in general price level.

Imflation affects our daily life on spending of goods and services it also affects our standard of
living because at point of times it become dificult to meet up with all the necessities and luxuries
due to rise in price.
Inflation occurs when there is a imbalance in demand and supply thus leading to increase in
prices.
Eg: Due to rise in petrol prices ,instead of using personal vehicle a man switches from personal
vehicle to public transport.
Types of inflation:
Creeping inflation: It is the inflation when the price rise upto 3% a year or less.It is a mild
inflation which make consumer to expect that the price will keep going,thus resulting in increase
in demand.
Galloping inflation:When inflation prices touches 10% or more.It needs to check on.The
economic becomes unstable and government loose creditibility.
Hyperinflation: When price touches more than 50%,but this type of inflation is very rare.
Inflation good or bad?
Inflation is not so good for our economic growth and development because due ti inflation the
value of currency depreciates which means a downfall in GDP ,also there will be deficit in
current account and balance of payment.
Inflation affects the economy ,which shows the negative impact in an economy,but at some level
if inflation is mild it may not be bad for a economy.