Money as a Medium of Exchange
Money is the most common form of exchange in the modern world. When money is used as a medium of exchange, it acts as a link between buyers and sellers. They don’t have any doubts in their mind about its value because its value is determined by the government and is same for all. Traditionally, there was no way to compare the value of two different commodities like we can’t determine the value of a cow in return of hens. But after the arrival of money, trading different commodities became comparatively easier.
Banks
Banks are an important part of every financial system. They help a nation’s economy by providing financial help to businesses and individuals providing services.
A bank is a financial institution which provides the facilities for deposits and other money-related services. It accepts money from those who have an excess of it and gives it to those who need it. A bank is a financial intermediary that accepts deposits and provides lending services either directly by giving loans or indirectly through capital markets. A bank is a link between customers who have extra money and customers with a shortage of money.
“Banks are efficient medium of exchange.” Explain
By opening a bank account, people deposit their money in banks. Banks provide fixed interest (usually around 5%) on the deposited amount and help people to keep their money safe. People can withdraw their money whenever they want. They can transfer money from one bank account to another with the help of cheques, demand drafts and Internet banking. Nowadays, UPI apps are widely used methods of online payment services.
Banks are an important part of our daily lives. Banks are financial institutions that provide services like accepting deposits, withdrawing money and providing loans. One of the main functions of banks is to act as a medium of exchange. Only 15% of their total cash deposits are kept by a bank to meet their daily withdrawal requests. They use their remaining money to provide loans to the people at a predetermined rate of interest.
Table of Content
- Barter system
- Money
- Money as a Medium of Exchange
- Functions of Bank
- Types of Commercial Banks
- How bank act as a Medium of Exchange?
- Why Banks are an Effective Medium of Exchange?