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2. MONEY AND CREDIT

3. Barter System:

4. Barter is a system of exchange where goods or services are
directly exchanged for other goods or services without
using a medium of exchange,

5. LIMITATIONS OF BARTER
SYSTEM
• Lack of double coincidence of
wants
• Difficulty of storing value.
• Differed payments are difficult
• Some goods are indivisible

7. The major feature or rather drawback of the barter
system was the coincidence of wants. It used to be
difficult to find a person who can fulfill the coincidence
of wants. Moreover, it was impractical and difficult to
carry heavy goods for barter. This restricted the economic
activity.

9. MODERN FORMS
OF MONEY

10. Deposits with Banks: The other form in
which people hold money is as deposits with
banks. At a point of time, people need only
some currency for their day-to-day needs.
Banks accept the deposits and also pay an
interest rate on the deposits. In this way
people’s money is safe with the banks and it
earns an interest. People also have the
provision to withdraw the money as and
when they require. Since the deposits in the
bank accounts can be withdrawn on
demand, these deposits are called demand
deposits.

11. Every loan agreement specifies an interest
rate which the borrower must pay to the
lender along with the In rural areas, the
main demand for credit is for crop
production. Crop production involves
considerable costs on seeds, fertilizers,
pesticides, water, electricity, repair of
equipment, etc. There is a minimum stretch
of three to four months between the time
when the farmers buy these inputs and
when they sell the crop. Farmers usually

12. Banks keep only a small proportion of their deposits as
cash with themselves. For example, banks in India these
days hold about 15 per cent of their deposits as cash. This
is kept as provision to pay the depositors who might come
to withdraw money from the bank on any given day.
Since, on any particular day, only some of its many
depositors come to withdraw cash, the bank is able to
manage with this cash. Banks use the major portion of the
deposits to extend loans. There is a huge demand for loans
for various economic activities.

13. Collateral is an asset that the borrower owns (such as
land, building, vehicle, livestock, deposits with banks)
and uses this as a guarantee to a lender until the loan
is repaid. If the borrower fails to repay the loan, the
lender has the right to sell the asset or collateral to
obtain payment. Property such as land titles, deposits
with banks, livestock are some common examples of
collateral used for borrowing.

14. Interest rate, collateral and documentation requirement, and
the mode of repayment together comprise what is called the
terms of credit. The terms of credit vary substantially from one
credit arrangement to another. They may vary depending on the
nature of the lender and the borrower.

15. Credit (loan) refers to an agreement in which the
lender supplies the borrower with money, goods or
services in return for the promise of future payment.

16. Formal Sector: The formal Sector
comprises of banks and cooperative
societies.
Informal Sector: The informal
sector consists of money lenders
and friends and relatives,
merchants and landlords.

17. Anything which is used as a medium of exchange, store
of value and standard of differed payments is called
money.
IT IS THE MOST WIDELY
USED MEDIUM OF EXCHANGE

18. The Reserve Bank of India is India's central
banking institution, which controls
the monetary policy of the Indian rupee. It
commenced its operations on 1 April 1935
during the British Rule in accordance with the
provisions of the Reserve Bank of India Act,
1934.The original share capital was divided into
shares of 100 each fully paid, which were
initially owned entirely by private
shareholders.Following India's independence

19. The RBI plays an important part in the
Development Strategy of
the Government of India. It is a
member bank of the Asian Clearing
Union. The general superintendence
and direction of the RBI is entrusted
with the 21-member Central Board of
Directors: theGovernor (Dr. Raghuram
Rajan),

20. RESERVE BANK
OF
INDIA

21. • Financial Supervision
• Regulator and supervisor of the
financial system
• Managerial of exchange control
• Issue of currency
• Banker's bank

22. It’s aims is to upgrading the quality of the
statutory audit and internal audit functions
in banks and financial institutions. The
audit sub-committee includes Deputy
Governor as the chairman and two Directors
of the Central Board as members.

23. It also the regulate and supervises the financial system
and prescribes broad parameters of banking operations
within which the country's banking and financial system
functions. Its objectives are to maintain public
confidence in the system, protect depositors' interest
and provide cost-effective banking services to the
public.

24. The central bank manages to
reach different goals of the
Foreign Exchange Management
Act, 1999. Objective: to facilitate
external trade and payment and
promote orderly development
and maintenance of foreign

25. The bank issues and exchanges currency
notes and coins and destroys the same when
they are not fit for circulation. The objectives
are to issue bank notes and giving public
adequate supply of the same, to maintain the
currency and credit system of the country to
utilize it in its best advantage, and to
maintain the reserves.

26. RBI also works as a central bank
where commercial banks are account
holders and can deposit money. RBI
maintains banking accounts of all
scheduled banks. Commercial banks
create credit. It is the duty of the RBI
to control the credit through the CRR,
bank rate and open market operations.

27. As banker's bank, the RBI facilitates the clearing
of cheques between the commercial banks and
helps inter-bank transfer of funds. It can grant
financial accommodation to schedule banks. It
acts as the lender of the last resort by providing
emergency advances to the banks. It supervises
the functioning of the commercial banks and take
action against it if need arises.