IGNOU| MONEY, BANKING AND FINANCIAL INSTITUTIONS (ECO - 09)| SOLVED PAPER – (DEC - 2023)| (BDP)| ENGLISH MEDIUM
BACHELOR’S DEGREE PROGRAMME (BDP)
Term-End Examination
December - 2023
(Elective Course: Commerce)
ECO–09
MONEY, BANKING AND FINANCIAL
INSTITUTIONS
Time: 2 Hours
Maximum Marks: 50
Weightage: 70%
Note: Attempt any five questions. All questions carry
equal marks.
हिंदी माध्यम: यहां क्लिक करें
1. What do you mean by ‘Money’? Discuss the functions of money. 2+8
Ans:- Money is a system of value that facilitates the
exchange of goods and services in the economy. It is everything that is
generally accepted as a means of exchange, a measure of value and a store of
value. Money eliminates the difficulties of barter, where both parties must
have something that the other wants or needs, by acting as an intermediary
commodity.
The functions
of money can be broadly classified into primary and secondary functions:-
(A) Primary
Functions:
(i) Medium of
Exchange: Money enables the exchange of goods and services between buyers
and sellers. It solves the problem of double coincidence of wants inherent in
the barter system.
(ii) Measure
of Value: Money serves as a standard for expressing the value of all goods
and services. The prices of goods are quoted in monetary terms.
(B)
Secondary functions:
(i) Store of
value: Money can be easily stored for future use and is the most convenient
means of storing wealth and earnings.
(ii) Standard
of deferred payment: Money acts as a standard for future payments. It
facilitates borrowing, lending and the creation of financial institutions.
(iii)
Transfer of value: Money facilitates the purchase and sale of goods not
only in the domestic country but also internationally.
Money also
has some incidental functions:-
(a) It is the
basis of the credit system and facilitates business transactions on credit.
(b) It helps
to equalise marginal utilities and marginal productivity.
(c) It
increases the productivity of capital as it is the most liquid form.
In short, money
is an essential tool that enables economic transactions, stores value and
facilitates the transfer of purchasing power. Its functions have evolved over
time to support the increasing complexity of modern economies.
2. Explain the functions of commercial banks. 10
Ans:- Commercial banks play a vital role in the
financial system by performing various functions that facilitate economic
activities. These functions can be broadly classified into primary and secondary
functions.
(A) Primary
Functions of Commercial Banks:-
(i) Accepting
Deposits: Commercial banks accept deposits from the general public, which
are the primary source of funds for these institutions. Deposits are classified
into demand deposits (current and savings accounts) and time deposits
(recurring and fixed deposits).
(ii)
Providing Loans and Advances: Commercial banks mobilise these deposits and
lend them to institutions and individuals for various purposes, such as
consumption and investment activities. Loans are classified on the basis of
duration, which includes call loans, short-term, medium-term and long-term
loans. Banks also provide cash credit, overdraft facilities and discount bills
of exchange.
(B) Secondary
functions of commercial banks:-
(i) Credit
creation: Commercial banks create credit by lending money to borrowers,
thereby increasing the money supply in the economy.
(ii)
Investment of funds: Commercial banks invest the deposited funds in various
assets, such as government securities, corporate bonds, and other financial
instruments.
(iii)
Discounting bills of exchange: Commercial banks discount bills of exchange,
which are short-term debt instruments, to provide short-term loans to
businesses.
(iv)
Providing overdraft facilities: Commercial banks provide overdraft
facilities to customers, allowing them to withdraw more than the balance in
their accounts.
(v) Agency
functions: Commercial banks perform agency functions, such as collecting
cheques, paying bills, and facilitating foreign exchange transactions.
(vi)
Providing locker facilities: Commercial banks provide safe deposit vault
facilities to customers to store valuables.
(vii)
Transactions in foreign exchange: Commercial banks facilitate foreign
exchange transactions, which involve buying and selling foreign currencies.
(viii)
Exchange of securities: Commercial banks facilitate the exchange of
securities such as stocks and bonds among investors.
Conclusion:- Commercial
banks perform a variety of functions that are essential for the functioning of
the economy. These functions include accepting deposits, granting loans and
advances, and providing various ancillary services. By performing these
functions, commercial banks play a vital role in mobilizing savings, allocating
funds, and facilitating economic activities.
3. What is a Central Bank? Explain credit control function
of a Central Bank. 2+8
[COMING SOON]
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