Chapter 2 - Money
EXERCISE
Q. 1. Complete the correlation :
1) Primary function of money : Medium of exchange : : ______ : Transfer of value
Ans: Secondary function of money
2) ______ : Basis of credit : Secondary functions of money : standard of deferred payments.
Ans: Contingent function of money
3) Commodity money : Shells : : ______ : Credit card
Ans: Plastic money
4) Divisibility : Smaller denomination : : ______ : Easy to carry from one place to another.
Ans: Portability
5) Barter system : Goods : : Modern economy : ______
Ans: Money
Q. 2. Give economic terms :
1) The act of exchanging goods for goods – ______
Ans: Barter System
2) Provision for making payments in future – ______
Ans: Deferred payment
3) System that makes use of currency for facilitating payments – ______
Ans: Digital system
4) Credit instrument through which bank deposits are transferable – ______
Ans: Cheque/Demand Draft
5) Monetary value stored and transferred electronically by means of computer hard drive or servers – ______
Ans: E-money
6) Money not accounted for in the bank and not disclosed to the government – ______
Ans: Black money
Q. 3. Choose the correct option :
1) Arrange in the order of evolution of money.
a) Metallic money
b) Animal money
c) Metallic coins
d) Commodity money
Option :
1) a, b, c, d
2) b, d, a, c
3) d, c, a, b
4) c, a, b, d
Ans: 2) b, d, a, c
2) Arrange in the order of evolution of money.
a) Plastic money
b) Paper money
c) Electronic money
d) Credit money
Option :
1) b, d, a, c
2) a, b, c, d
3) d, c, b, a
4) c, d, a, b (Corrected option)
Ans: 4) c, d, a, b
Q. 4. Identify and explain the concepts from the given illustrations :
1) Vasantsheth provides coal from his shop to farmers in exchange for food grains.
Ans: Barter System
The barter system is a method of exchanging goods directly for other goods, without using money. In this example, it is a barter exchange because Vasantsheth gives coal in return for food grains.
2) Babanrao deposits his money in a nationalized bank.
Ans: Bank Money
Bank money, also called credit money, is the money that people keep in banks as deposits. This money can be taken out or transferred using a cheque, draft, or other methods. In this case, it is called bank money because Mr. Babanrao puts his cash into the bank as a deposit.
3) Charu used her debit card to purchase a shirt for her younger brother.
Ans: Plastic money
Plastic money means using debit or credit cards instead of cash to make payments. In this case, Charu uses her debit card to buy a shirt, so she is using plastic money.
4) Malathi purchased a house through an agent. The agent accepted the commission amount in cash but did not issue a receipt to her.
Ans: Black Money
Black money is money received in cash that is not recorded officially and no tax is paid on it. In this case, since the agent didn’t give a receipt to Malathi, it is considered black money.
5) To prevent misuse/fraudulent use of the national currency, a note ban is imposed on its use at certain times.
Ans: Demonetization.
Demonetization is a step taken to reduce black money in a country. It involves banning certain currency notes from being used. A note ban is an example of demonetization.
Q. 5. State with reasons whether you agree or disagree with the following statements :
1) There are no difficulties in the barter system.
Ans: No, I do not agree with the statement.
The barter system means exchanging goods and services without using money. People gave what they had and got what they needed from others. But as society grew, the barter system became outdated due to many problems:
a) Problem of Double Coincidence of Wants:
In the barter system, both parties need to have what the other wants. For example, if person A has cloth and wants rice, but person B has rice and doesn’t want cloth, the exchange can’t happen.
b) Lack of Common Measure of Value:
There was no standard unit to measure the value of goods. For example, it was hard to compare two liters of milk with two kilograms of rice.
c) Difficulties in Storage of Goods:
Storing goods for future use was challenging, especially with perishable items like milk, eggs, and vegetables. Additionally, heavy or bulky goods require a lot of space.
d) Indivisibility of Certain Goods:
Some goods, like animals or houses, couldn’t be divided into smaller portions for exchange. For example, if A wanted to exchange a sack of wheat for half a goat, the exchange would be impossible due to the indivisibility of the goat.
e) Problem of Making Deferred Payments:
In the barter system, repaying debts in the future was difficult, especially with perishable goods that would not remain in the same condition.
Because of these issues, the barter system could not continue for long.
2) There are many good qualities found in modern currency.
Ans: Yes, I agree with the statement.
There are many good qualities found in a modern currency like:
a) General Acceptability: Money should be widely accepted for exchange by everyone.
b) Divisibility: Money must be easy to divide into smaller units for small transactions.
c) Durability: Money should last long and withstand repeated use, like coins and notes.
d) Cognizability: Money must be easy to recognize with clear markings to avoid confusion.
e) Portability: Money should be easy to carry without difficulty or high cost, like currency notes.
f) Homogeneity: Money of the same denomination should be identical in appearance and features.
g) Stability: Money should have a stable value, helping in the exchange of goods and services over time.
3) Many tasks are accomplished by money.
Ans: Yes, I do agree with the statement.
Money performs a number of functions in today’s economy. They are as follows:
A) Primary Functions:
(i) Medium of Exchange: Money is used to buy and sell goods and services.
(ii) Measure of Value/Unit of Account: Money helps in comparing prices and expressing the value of goods and services. Different currencies like Rupee, Dollar, Pound, and Yen are used in different countries.
B) Secondary Functions:
(i) Standard of Deferred Payments: Money makes it easier to borrow and repay loans, as payments can be made in the future.
(ii) Store of Value: Money helps save wealth for future needs and purchases.
(iii) Transfer of Value: Money allows assets to be transferred easily between people and places.
C) Contingent Functions:
(i) Measurement of National Income: National income is expressed in monetary terms, such as rent, wages, and profits.
(ii) Basis of Credit: Money is used by banks to create credit and facilitate lending.
(iii) Imparts Liquidity to Wealth: Money is the most liquid asset, easily converted into goods or other assets.
(iv) Estimation of Macroeconomic Variables: Money is used to measure economic factors like GDP, savings, and investments, and helps in tax collection and budgeting.
4) Money can be sent anywhere through electronic means.
Ans: Yes, I agree with the statement.
Money can be sent anywhere through electronic means. This is possible through e-money or electronic money, which is stored and transferred electronically using devices like mobile phones, tablets, smart cards, or computers. E-money is supported by the Central Bank and is widely used for purchases and transactions around the world. Digital wallets are another example of electronic money, where money is stored digitally and can be used for online payments
Q. 6. Answer the following questions on the basis of the following information :
Ganesh travelled to the mall by bus. He gave the conductor ₹10 coins for the ticket. He purchased many commodities from the mall.
At the billing counter, he gave his credit card for payment but the billing clerk informed him that only debit cards were accepted. Since Ganesh had forgotten his debit card at home, he offered to make payment by cash.
1) Identify the types of money used in the information
Ans: The types of money used in the information are coins (cash), credit card, and debit card.
2) Explain any two of them.
Ans:
Coins (cash): Coins are physical money in the form of small metallic pieces, used as a medium of exchange for goods and services. In this case, Ganesh used ₹10 coins to pay for the bus ticket.
Credit Card: A credit card is a type of plastic money that allows the cardholder to borrow money from a financial institution up to a certain limit to make payments for goods or services. Ganesh attempted to use his credit card at the mall, but the billing clerk informed him that only debit cards were accepted.
IN BETWEEN THE CHAPTER
Find out :
Recent changes introduced by banks for safe use of plastic money.
Ans:
As of 2025, Indian banks have introduced several measures to enhance the security and safety of plastic money, including debit and credit cards. Here are some key initiatives:
- EMV Chip Technology:
Most debit and credit cards now come equipped with EMV (Europay, MasterCard, and Visa) chip technology. This chip generates a unique transaction code for each purchase, making it highly resistant to cloning and fraud.
- Two-Factor Authentication (2FA):
Banks have implemented two-factor authentication for online transactions. This typically involves entering an OTP (One-Time Password) sent to the cardholder’s registered mobile number, adding an extra layer of security.
- Tokenization:
Tokenization replaces sensitive card details with a unique identifier or token during transactions. This ensures that actual card information is not exposed during online or mobile payments, reducing the risk of data breaches.
- Contactless Payment Limitations:
To mitigate unauthorized use, banks have set limits on contactless payments. Transactions exceeding a certain amount require additional authentication, such as entering a PIN or providing biometric verification.
- Real-Time Transaction Alerts:
Cardholders receive instant SMS or email notifications for every transaction made. This allows for immediate detection of any unauthorized activity and prompt reporting to the bank.
- Biometric Authentication:
Some banks have integrated biometric authentication, such as fingerprint or facial recognition, for accessing mobile banking apps and authorizing transactions, enhancing security.
- Enhanced Fraud Detection Systems:
Banks employ advanced machine learning algorithms to monitor transaction patterns in real-time. Suspicious activities trigger automatic alerts and, in some cases, temporary freezing of the card until the cardholder confirms the transaction.
These measures aim to protect cardholders from fraud and unauthorized transactions, ensuring a safer experience when using plastic money in India.
Find out :
List of various modes of digital transactions.
Ans: Here is a list of various modes of digital transactions commonly used in India:
- UPI (Unified Payments Interface)
A real-time payment system developed by NPCI (National Payments Corporation of India), allowing easy and instant money transfer between bank accounts via mobile apps.
Examples: Google Pay, PhonePe, Paytm, BHIM UPI, Amazon Pay.
- NEFT (National Electronic Funds Transfer)
A nationwide system to transfer funds from one bank account to another in India. Transactions are processed in batches and settle during specific hours.
- RTGS (Real-Time Gross Settlement)
A system for large-value transactions, where the transfer of funds is done on a real-time and gross basis. It is used for immediate settlement of payments.
- IMPS (Immediate Payment Service)
A real-time inter-bank money transfer system that operates 24/7. It allows users to transfer money instantly between bank accounts.
- Mobile Wallets
Digital wallets allow users to store funds, make payments, and transfer money using a mobile app. Examples include Paytm, PhonePe, Google Pay, and Amazon Pay.
- Aadhaar-enabled Payment System (AePS)
A payment system that allows transactions using Aadhaar as an identity verification tool. It enables cash withdrawals, balance inquiries, and fund transfers.
- Debit/Credit Cards (Online Payments)
Debit and credit cards can be used for online transactions by entering card details on e-commerce websites or apps. It includes payments for shopping, bill payments, etc.
- Digital Banking (Net Banking)
Internet banking services offered by banks that allow users to perform various financial activities online, such as transferring funds, checking balances, and paying bills.
- Bharat Bill Payment System (BBPS)
A centralized platform for bill payments, where users can pay utility bills (electricity, water, gas, etc.), insurance premiums, and more through multiple channels.
- USSD (Unstructured Supplementary Service Data)
A service offered by telecom operators, which allows users to make financial transactions (like balance checks, money transfers) via simple code on their feature phones, even without an internet connection.
- E-commerce Payment Gateways
Online platforms like Amazon, Flipkart, and Myntra use payment gateways (Razorpay, CCAvenue, etc.) to process digital payments for purchasing goods and services.
- QR Code Payments
A simple method of payment where users scan a merchant’s QR code to make payments. It’s commonly used in both physical stores and for peer-to-peer payments.
- BHIM (Bharat Interface for Money) App
A mobile application developed by NPCI that facilitates UPI-based payments, making it easier for users to make quick bank transfers and merchant payments.
- E-NACH (Electronic National Automated Clearing House)
A digital mode for processing payments and collections, commonly used for automating recurring payments like loan EMIs, utility bills, etc.
- Crypto Payments (Bitcoin, Ethereum, etc.)
Though not fully regulated in India, cryptocurrencies are being used for digital transactions on certain platforms, where individuals can purchase goods and services with digital coins.
These are the primary modes of digital transactions in India, offering users a variety of options to carry out financial transactions quickly, securely, and conveniently.