KSLU Solved Question Papers
Money, Banking and International Trade
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 2
2025 Jun Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 2 Money, Banking and International Trade 2025 Jun Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Model answers written and edited by the munotes.in editorial desk.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2025 Jun examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2025 Jun examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2025 Jun examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 80 · 20 questions answered
Instructions printed on the paper
- N.B. (1) Answer all five Units. (2) One essay type question and one short note/problem is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer should be written either in English or Kannada completely.
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1
Unit 01
(a)What is money ? Explain the various functions of money.[10]
Answer
For full marks, cover: what money is, explained through the problems of barter that it solves (Jevons's three inconveniences); its essential quality, general acceptability, and its legal backing; the functions grouped as static functions (medium, measure, store, standard of deferred payment) and dynamic functions (effects on prices, output and growth), each with an example; the condition on which all the functions depend; a conclusion.
What money is: the problem it solves
The best way to understand money is to imagine life without it. In a barter economy, goods are exchanged directly for goods.
W. Stanley Jevons, in Money and the Mechanism of Exchange (1875), named three inconveniences of barter:
- The want of coincidence. To make a barter, "there must be a double coincidence, which will rarely happen." A weaver who wants rice must find a farmer who has rice and also wants cloth.
- No common measure. Every good has to be valued in terms of every other good. With a hundred goods there would be thousands of exchange rates.
- No means of division. A cow cannot be split to buy a pair of shoes.
Money is the thing that removes these inconveniences. It is any article that everyone in a community will accept in exchange for goods and in payment of debts.
The essential quality: general acceptability
What makes something money is not its material but general acceptability. Shells, metal coins, paper notes and bank balances have all been money because people accepted them. In India today, a rupee note is money for two reasons. People accept it, and the law requires them to. Under section 26(1) of the RBI Act, 1934, every bank note is legal tender, guaranteed by the Central Government. Most money today is not even notes: it is bank deposits moved by cheque and UPI.
The functions of money
A. Static functions (the basic, technical functions)
- Medium of exchange. Money stands between every sale and purchase. The weaver sells cloth for money and then buys rice. Exchange is split into two separate acts, so the double coincidence is no longer needed. This is money's primary function.
- Measure of value (unit of account). Money is the common unit in which all prices are stated. Instead of thousands of barter ratios, every good has one price. Accounts, profits and national income all depend on this.
- Store of value. Money lets people keep purchasing power for the future. A farmer can sell his harvest and spend the money over the year. Unlike grain, money does not rot.
- Standard of deferred payment. Debts payable in the future are fixed in money. Loans, rent, salaries and insurance are all stated in money terms.
Jevons treated these four as "the four functions which money fulfils."
B. Dynamic functions (money's influence on the economy as a whole)
- Money influences prices. A large rise in the quantity of money, without a rise in output, raises prices. This is the idea behind the quantity theory of money.
- Money influences output and employment. Cheap and plentiful money encourages borrowing, investment and hiring. Scarce and dear money does the opposite. This is why the Reserve Bank changes its policy rate.
- Money promotes saving and capital formation. Savings held in money can be deposited in banks and lent to firms for investment. Without money, saving would mean hoarding goods.
- Money makes the credit system possible. Banks lend on the strength of money deposited with them, and cheques and digital payments rest on money.
- Money helps distribute income. Wages, rent, interest and profit are all paid in money.
The same functions in new forms
The form of money keeps changing while its functions stay the same. A payment by UPI performs the medium of exchange function without a single note changing hands. A bank balance stores value. A home loan fixes a deferred payment in rupees. India has also begun a digital rupee. The Finance Act, 2022 amended the RBI Act so that a bank note includes a note in digital form. Its wholesale pilot began on 1 November 2022 and its retail pilot on 1 December 2022. What matters is that people accept it.
Barter problems and the functions that solve them
| Inconvenience of barter (Jevons) | Function of money that removes it |
|---|---|
| Want of double coincidence | Medium of exchange |
| No common measure of value | Measure of value |
| Goods cannot be divided | Money is divisible into small units |
| Goods cannot be kept without loss | Store of value |
| Future payments cannot be fixed | Standard of deferred payment |
The condition on which every function depends
All these functions work only while the value of money is stable. If prices rise fast, money is a poor store of value and an unfair standard for debts. J. M. Keynes wrote in A Tract on Monetary Reform (1923): "Thus Inflation is unjust and Deflation is inexpedient."
That is why the RBI Act, as amended in 2016, makes price stability the primary objective of monetary policy. The inflation target for 2026 to 2031 is 4 per cent, within a band of 2 to 6 per cent.
Conclusion. Money is anything generally accepted in exchange and in payment of debts. It exists because barter suffers from the want of double coincidence, the lack of a common measure and the lack of divisibility, as Jevons showed. Its static functions are medium of exchange, measure of value, store of value and standard of deferred payment. Its dynamic functions shape prices, output, saving and credit. In India, the law backs the rupee as legal tender. Monetary policy protects its value, so that money can go on performing all these functions.
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