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Difficulty: MediumTypes and Forms of Money

A trader holds Treasury bills, bills of exchange, and savings bank deposits. Although these assets serve as a reliable store of value and can easily be converted into cash, they cannot be spent directly as a medium of exchange to purchase goods. Under which form of money are these financial assets classified?

  1. Near moneyAnswer
  2. B
    Legal tender
  3. C
    Fiat money
  4. D
    Token money

Answer

Near money
Near money (or quasi-money) refers to highly liquid assets such as Treasury bills, bills of exchange, and savings deposits. They perform the store of value function of money and can quickly be turned into cash, but cannot be used directly as a medium of exchange for purchasing goods.

Step-by-Step Solution

1
Examine the properties of the financial assets listed in the stem (Treasury bills, bills of exchange, savings deposits).
These assets possess high liquidity and act as a store of wealth, but cannot be used directly to pay for goods in everyday transactions.
Forms of money are categorized by their liquidity level and their ability to serve directly as a medium of exchange.
2
Match these properties against the standard definitions of forms of money in Commerce.
Assets that must be converted into cash or bank deposits before spending are categorized as near money or quasi-money.
Near money acts as a close substitute for money without having immediate medium-of-exchange status.

Key Concept

Types and Forms of Money - Near Money (Quasi-Money)
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Topics

Types and Forms of Money

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