Question

Define or explain following concept:
1. Barter system
2. Double coincidence of wants
3. Money
4. Near money
5. Limited legal tender

Answer 1

1. Barter system of exchange: It refers to an exchange system in which goods and services are exchanged for other goods and services. Such a system is also known as commodity for commodity exchange (i.e. C-C exchange). For example - if a person having surplus wheat wants milk, then he/she can exchange that wheat with a person who has milk as well as who needs wheat at the same time.

2. Double coincidence of wants: It implies that the needs of any two individuals should complement each other for the exchange to take place. That is, the commodities owned by two different individuals are required by each other.

3. Near money: Near money refers to those assets which may not be a perfect medium of exchange but are highly liquid i.e. those assets that can be easily converted into cash. For example bank deposits, bills of exchange, equity shares etc. Thus, highly liquid assets are referred to as near money.

4. Money: Money is anything that acts as a medium of exchange. Money is accepted by a seller in exchange of his goods and services. It also acts as a common measure of value.

5. Limited legal tender money: Legal tender money is that money which is backed by law and issued by the monetary authority. It cannot be refused by anybody. Limited legal tender money is that money which is accepted as legal tender but only up to a certain limited amount. In India, a maximum of 1000 coins be used for payments legally.