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CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking

Ravi sells his old scooter to Meena and accepts a bank cheque for the agreed price. Which function of money is most directly illustrated by the fact that Ravi is willing to accept payment in a widely accepted form rather than insisting on goods in exchange?

The function illustrated is the medium of exchange. Ravi accepts a widely accepted payment instead of demanding goods, because money removes the need for a double coincidence of wants and can be used to buy whatever he needs later, which is what an exchange medium does.

  1. AMedium of exchangeCorrect
  2. BStore of value
  3. CStandard of deferred payment
  4. DUnit of account

Explanation

Money removes the need for a double coincidence of wants that barter requires. Ravi accepts payment because it can be used to buy anything he needs later, which is the medium of exchange function. Store of value concerns holding purchasing power over time, which is not the main point here.

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