BANKING AFFAIRS

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

To which category of the money supply do transaction accounts belong?

A	M1
B	M2
C	M3
D	MZM

Explanation:

Detailed explanation-1: -M1 money is a country’s basic money supply that’s used as a medium of exchange. M1 includes demand deposits and checking accounts, which are the most commonly used exchange mediums through the use of debit cards and ATMs.

Detailed explanation-2: -Therefore, transaction deposits are recorded in the M1 measure of money supply. M1 is calculated as: M1 = Currency + Coins + Checkable deposits(transaction deposits) + Traveler’s checks.

Detailed explanation-3: -M1 consists of currency notes and coins that are in circulaation with public as well as the demand deposits with commercial banks. These can be used by the public directly for any transactions. Hence, M1 is also known as ‘Transaction Money’.

Detailed explanation-4: -Money is measured with several definitions: M1 includes currency and money in checking accounts (demand deposits). Traveler’s checks are also a component of M1, but are declining in use. M2 includes all of M1, plus savings deposits, time deposits like certificates of deposit, and money market funds.

There is 1 question to complete.