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Group3.___Economi
cs
Money as a medium
of exchange
Money acts as an intermediate in the
exchange in the exchange process and
therefore it is called a medium of
exchange.

According to Robertson:-”any commodity

that full fills the responsibility of payment
and occupation is called money
 Modern forms of money include currency — paper notes and
coins. Unlike the things that were used as money earlier,
modern currency is not made of precious metals such as gold,
silver, and copper. And unlike grain and cattle, they are neither
of everyday use. The modern currency is without any use of its
own. Then, why is it accepted as a medium of exchange? It is
accepted as a medium of exchange because the currency is
authorized by the government of the country.In India, the
Reserve Bank of India issues currency notes on behalf of the
central government. As per Indian law, no other individual or
organization is allowed to issue currency. Moreover, the law
legalizes the use of a rupee as a medium of payment that cannot
be refused in settling transactions in India. No individual in
India can legally refuse a payment made in rupees. Hence, the
rupee is widely accepted as a medium of exchange.
A currency is the system of money circulation or money in
common use followed in a country, particularly for people
in a nation. Money can be used as a medium of exchange
in any form, particularly circulating banknotes, cash and
coins. Each country possesses its own value of currency
since there are different types of currencies which are
used in different countries. For example Indian currency
is represented in Rupees (Rs, INR). Now let's explore the
currency system in different countries and thus how
currency converters work.Examples and Symbols of
Currency Different countries use their own currency value
and symbol. That said, we have brought you some of the
most popular currencies of the world as per trade and
commerce.
 Deposits in Banks
The other form in which people hold money is as deposits with
banks. People deposit their extra cash with the banks by
opening a bank account in their name. Banks accept the
deposits and also pay an amount as interest on the deposits.
The deposits in the bank accounts can be withdrawn on
demand, these deposits are called demand deposits. The
payments are made by cheques instead of cash. A cheque is a
paper instructing the bank to pay a specific amount from the
person’s account to the person in whose name the cheque has
been issued.
Loan activities of
banks

•Banks use the majority portion of

the deposits to extend loans. There is
a great demand for loans for various
economic activities like vehicle
loans, education loans, housing
loans, personal loan etc. Banks
charge a higher interest rate on loans
other than what they offer on
deposits
The reason for using money rather than barter
system
A person holding money can easily exchange it for commodity or
services he or she wants.
Thus everyone prefers to receive payment in the money except things.
 Which are two
major sources of
formal sector
credit in India
The two major sources of formal sources of
2
credit are: (i) Banks and (ii) Cooperatives
Banks and cooperative societies constitute the formal
sector of credit. Landlords, moneylenders, traders,
relatives, friends and other sources of credit constitute
the informal sector of credit. The formal sector provides
only marginally more credit than the informal sector
currently.
 Two different credit
situations
Formal Sector- It includes banks and cooperatives that
extend loans to households for entrepreneurship and
other personal needs. The rates of interest charged by
them are low.

Informal Sector- It includes moneylenders, traders,

employers, relatives, and friends. The moneylenders
generally charge at a higher rate of interest.
Terms of credit
Credit means a loan, an agreement
in which the lender (creditor)
supplies the borrower with money,
goods or services which is to be
returned in future. Terms of credit
apart from the rate of interest,
collateral also includes
documentation, mode of repayment.
Formal sector credit
In India
Formal sector credit in India includes
loans from banks and cooperatives.
RBI supervises their functions of
giving loans. Rich urban households
depend largely on formal sources of
credit. Lower rate of interest on loans
is charged as compared to informal
sources of credit.
Sources of credit per rs 1000 of rural
households in India

Survey of 2012 Survey of 2022

 Self help groups for the poors

A self-help group is a financial intermediary  committee

usually composed of 12 to 25 local women between the
ages of 18 and 50. Most self-help groups are in India,
though they can be found in other countries, especially in
South Asia and Southeast Asia. A SHG is generally a
group of people who work on daily wages who form a
loose grouping or union. Money is collected from those
who are able to donate and given to members in need.