CBSE Questions for Class 12 Commerce Economics Money And Banking Quiz 5 - MCQExams.com

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

It does not deal with government securities.

True. 

Cash Reserves Ratio (CRR) refers to the proportion  of total deposits of the commercial banks which they must have keep as cash reserves with the central bank in the form of cash. Cash reserve ratio is determined by central bank so that they can control the amount of credit creation of the commercial banks at the time of inflation or deflation in the economy. 

If a country's lending is more than its borrowing from the rest of the world, it is known as a net lender. In such a case, the country is treated as a creditor nation because it has a history of more lending(giving credits) than borrowings(taking credits). 

Money refers to a common medium of exchange that is issued under the law of government and acts as a legal tender for the whole country. The functions of money can be classified into two categories: 

1. Primary function: The primary function of money includes money as a medium of exchange and money as a measure of value.

• As a medium of exchange, it refers to a function of money in which money is considered as a mode of exchanging goods. This function of money solved the main problem of barter system which was double coincidence of wants.
• As a measure of value, it refers to a function of money that helps in determining the value of goods and services. Money is taken as the common denominator while measuring the value of goods and services in monetary terms.

2. Secondary function: The secondary function of money includes money as a store of value and money as a standard of deferred payment. 

• As a store of value, it refers to the function of money  that helps individuals in storing their wealth in the form of money. Therefore, money acts as an asset that sustains value over a period of time
• As a standard of deferred payment, it refers to one of the most important functions of money. Deferred payments refer to payments made on loans, salaries, pensions, insurance premium, interests, and rents. The necessary condition for deferred payment is that the amount of repaid money should be the same as it was at the time of purchase of the good. Since all the goods and services can be expressed in terms of money, it makes the future payments easy and functional. 

Deferred payments refer to payments made on loans, salaries, pensions, insurance premium, interests, and rents. The necessary condition for deferred payment is that the amount of repaid money should be the same as it was at the time of purchase of the good or at the time of taking loan. Since all the goods and services can be expressed in terms of money, it makes the future payments easy and functional. Moreover, the value of currency does not change with time which makes it easy for the borrower to take money and repay it in future. Therefore, money serve as a standard of deferred payment. 

Precautionary motive of money refers to the demand for money to store it for future uncertainties. In other words,
if money is demanded so that it can be kept for bad days then the demand of such money is known as precautionary money. In such cases, money functions as the store of value. 
Precautionary money balance in needed in a company so that it can be used if there is any uncertainty of receipt in the income and expenditure statement which means the company can make use of this money if the expenditure exceeds the income in a particular year.