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Question
Money performs both primary and secondary functions.
Identify a specific function of money which is related to future payments. State a reason.
Solution
The function of money which is related to future payments is the Standard of deferred payment.
Credit is needed when we cannot pay for a commodity or service that we wish to consume now. Money serves as a standard of deferred payment. Deffered payments refer to those payments which are to be made in future. In a modern economy, a large number of transactions involve future payments, which can easily be stated in terms of money. Suppose you borrow a sum of ₹ 20,000 at 10 percent interest per annum for one year. It means that you promise to pay ₹ 22,000 (₹ 20,000 as principal and ₹ 2,000 as interest) after one year. Money serves as a standard of such future payments.
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