Money and Banking

What is Money?

Money is the habitually accepted mode of exchange. In an economy which comprises of only one individual there cannot be any exchange of goods and therefore there is no part for money. If there is more than 1 individual but these individuals do not take part in market place transactions, instance : family residing on remote and an isolated island, money has no operation for them. However, as soon as there is more than 1 economic representative who keep themselves occupied in transactions through the market place, money becomes a significant tool for enabling these exchanges.

Economic exchanges without the conciliation of money are known as barter exchanges or barter systems. However, they presume the rather unlikely double coincidence of wants. Contemplate, for instance, an individual who has an excess amount of rice which he or she wishes to trade for clothing. If he or she is not fortunate enough he or she may be unable to find another person who has the absolutely opposite demand for rice with an excess of clothing to offer in interchange. The search costs may become restrictive as the number of individuals goes high. Hence, to smoothen the transaction, an intermediate commodity is necessary which is suitable and acceptable to both parties. Such a commodity is known as money. The individuals can then sell their products for money and use this money to buy the goods they need. Though the help of exchanges is contemplated to be the primary role of money, it serves other causes as well.

What is banking?

Banking is a trade of accepting deposits and lending money. It is functioned by financial intermediaries, which executes the functions of shielding deposits and furnishing loans to the public.

To put it in other words, banking means accepting for the cause of lending or investment of deposits of money from public outstanding on demand and can be withdrawn by cheque, draft order.

The above mentioned is the concept that is explained in detail about Money and Banking. To know more, stay tuned to BYJUS.