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Why are demand deposits considered as money?
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Why are demand deposits considered as money?
Due to following reasons the demand deposits are considered as money
(i) Demand deposits can be withdrawn from the bank whenever it is required.
(ii) They are widely accepted as a means of payment, along with the currency, thus they aqre considered as money.
(iii) They are accepted widely as means of payment by way of a cheque instead of cash.
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Why are demand deposits considered as money?
Demand Deposits as Money

Demand deposits are considered as money due to their essential characteristics and functions within the economy. As a type of deposit account held at a bank or other financial institution, demand deposits possess the following attributes that make them suitable for use as money:

1. Liquidity:
Demand deposits are highly liquid, meaning they can be readily converted into cash or used for payments and transactions. Account holders can easily access their funds through various channels such as ATMs, checks, or online transfers. This liquidity feature allows individuals and businesses to use demand deposits as a medium of exchange.

2. Acceptability:
Demand deposits are widely accepted as a form of payment. They are recognized and honored by most merchants, service providers, and individuals, making them a universally accepted means of settling debts and obligations. This acceptance is crucial for demand deposits to function effectively as money within an economy.

3. Store of Value:
Although demand deposits do not possess the same store of value characteristics as other forms of money (e.g., cash or certain investments), they still hold value in the form of readily accessible funds. Account holders can maintain balances in their demand deposit accounts for future use or to meet their financial requirements, making these deposits a convenient store of value.

4. Unit of Account:
Demand deposits serve as a common unit of account within an economy. They provide a standardized measure for pricing goods, services, and assets. By using demand deposits as a unit of account, individuals and businesses can easily compare and evaluate the value of different products and make informed decisions regarding their purchases or investments.

5. Medium of Exchange:
One of the primary functions of money is to act as a medium of exchange. Demand deposits fulfill this function by facilitating the transfer of funds between parties. Through electronic transfers, checks, or debit cards, individuals and businesses can utilize demand deposits to make payments, settle debts, and conduct transactions efficiently.

Conclusion:
Demand deposits possess the essential characteristics required for an item to be considered as money. Their liquidity, acceptability, store of value, unit of account, and medium of exchange functions make them an integral part of modern economies. These deposits provide individuals and businesses with a convenient and widely accepted means of conducting financial transactions, thereby contributing to the overall functioning of the economy.
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Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. Banks use the major portion of the deposits to

Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. Compared to the formal lenders, most of the informal lenders charge a much ................... interest on loans

Read the source given below and answer the questions that follows:Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.Answer the following MCQs by choosing the most appropriate optionQ. An agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

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Why are demand deposits considered as money?
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