Money and Credit Test - 17

Money market refers to the market where money is traded just as a commodity between two parties. It is a part of financial market where money is used as a financial assets for short term borrowing, lending, buying and selling which matures in less than a year. Since money is given and taken on credits in this market, therefore it is also known as credit market. 

The core of all forms of money throughout the history of mankind is faith.
Suppose you sell a pack of cheese to somebody and they give you a hundred rupee note. Why do you accept that worthless piece of paper in exchange of the real commodity which you can actually consume. The reason is faith,
you have faith that when you take that piece of paper to somebody they will also accept it and give you something real that you want.
If you feel that nobody will accept that paper then you won't accept it either.
So what money does? It makes transactions easier. And help overcome the limitations the barter system. Anything can be used as money if everybody is willing to accept it in transaction. It should be generally acceptable to people. It could be virtually anything from a piece of plastic, stamp, buttons etc.
Given of course everybody believes in those things and has confidence in them. In past even bars of clay has been used as money in some civilizations.
So that's what money does. Anything that do this function is money. So money is what money does. Hence, correct answer is option A.

Commodity money is that money whose face value is equal to its commodity value.  In other words, the face value of the money is equal to the value of commodity used to make it. It is also known as full-bodied money. For example- when silver and copper coins were used as common medium of exchange the value of money was equal to the commodity value of these coins. 

Money market refers to the market where money is traded just as a commodity between two parties. It is a part of financial market where money is used as a financial assets for short term borrowing, lending, buying and selling which matures in less than a year. Since money is given and taken on credits in this market, therefore it is also known as credit market. 

Limited legal tender refers to the portion of legal tender in the economy which consist of smaller units of money like a unit coin etc. For example in case of India, 50 paise coins and 25 paise coins are the limited legal tender which can be offered as legal tenders to clear the dues of 10 rupees and 1 rupee respectively. The highest amount which can be cleared using limited legal tender and which is generally accepted in the economy is Rs. 25. 

Time deposits refers to the deposits with the commercial banks which can be withdrawn from the account holder's account after the expiry of a specified period of time. Savings do not form a part of time deposit as it is a part of demand deposit because any amount up to the limit of the credit balance can be withdrawn as per the wish of the account holder. Therefore, savings deposit does not form a part of time deposit. 

Barter system was the oldest system of money where goods were exchanged for goods and there was no common medium of exchange in the economy. Under this system, people exchanged commodities for commodities to satisfy their wants. For example: a person who had 1 kg of rice and wanted 1 kg of wheat could exchange the rice with another person who had 1 kg of wheat and wanted 1 kg of rice instead.