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Q2. The key component of the financial system is the money market that
acts as a fulcrum of monetary operations.
Write down the important points under each category mentioned below.
a) Functions performed by money market
b) International interest rates
c) Standardized Global Market regulations.
Answer. a) Functions performed by money market
1. To maintain monetary equilibrium. It means to keep a balance between the demand
for and supply of money for short term monetary transactions.
2. To promote economic growth. Money market can do this by making funds available
to various units in the economy such as agriculture, small scale industries, etc.
3. To provide help to Trade and Industry. Money market provides adequate finance to
trade and industry. Similarly it also provides facility of discounting bills of exchange
for trade and industry.
Q3. Thousands of years back the concept of bartering between parties was
prevalent, when the concept of money had not evolved. Explain on counter
trade with examples.
Answer. Trading between nations has been happening since time began. In ancient
time nations traded silk, spices, cloth and animals of all kinds. Today nation trade food
items, defense equipment, metals, electronics etc. The products might have changed
but the basic concept is still the same as the underlining need which brings together
two nations in a trade relationship still exists. One such method of trading between
nations is called counter trade. Counter trade is an import / export relationship
between nations or large companies in which good and/or services are exchanged for
goods and services instead of money. In some cases monetary evaluations are made
for accounting purposes.
Spring-2016
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