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FAQs on Textbook: Money- what it is? - Introduction to Financial Markets for Class 9

1. What is money and why is it important?
Ans. Money is a medium of exchange that is widely accepted in transactions for goods and services. It serves as a unit of account, a store of value, and a standard of deferred payment. Money is important because it facilitates trade and economic transactions, enables individuals to meet their needs and desires, and helps in the allocation of resources in an economy.
2. How is money created?
Ans. Money is created through a process called fractional reserve banking. When a commercial bank receives deposits from customers, it is required to keep only a fraction of those deposits as reserves, while the rest can be lent out to borrowers. This lending creates new money in the economy, as the borrowed funds are deposited in other bank accounts and can be re-lent. The central bank also plays a role in money creation through its monetary policy measures.
3. What are the different forms of money?
Ans. Money can exist in various forms, including cash, such as coins and banknotes, and digital or electronic money, like debit cards, credit cards, and online payment systems. Additionally, money can be in the form of checks, money orders, and traveler's checks. Each form of money serves the purpose of facilitating transactions and can be converted into other forms of money.
4. How does inflation affect the value of money?
Ans. Inflation refers to the general increase in prices of goods and services over time. When there is inflation, the value of money decreases as it can buy fewer goods and services. This means that the purchasing power of money diminishes, and individuals need more money to maintain their standard of living. Inflation erodes the value of savings and affects economic decisions, such as investments and consumption patterns.
5. What is the role of the central bank in managing money?
Ans. The central bank of a country has the responsibility of managing the money supply and ensuring the stability of the currency. It uses monetary policy tools, such as interest rates, reserve requirements, and open market operations, to control the money supply and influence economic conditions. The central bank aims to maintain price stability, promote economic growth, and regulate the financial system.
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