Microfinance and Demonetization Quiz

Demonetization and Financial Systems

• Demonetization impacted the formal financial system, with a focus on promoting digital payments and reducing black money.

Self-Help Groups (SHGs)

• Banks lending to poor women organized in SHGs increases their financial inclusion and empowerment.
• If a member of an SHG does not repay their loan, the entire group is held responsible and may face penalties.

India's Demonetization (2016)

• The primary goal of India's demonetization in November 2016 was to reduce black money, curb terrorism funding, and promote digital payments.

Post-Demonetization

• The deadline for depositing old currency notes in bank accounts without declaration after demonetization was December 30, 2016.
• Demonetization improved tax compliance, as many people disclosed their income and assets during the remonetization process.

Money and Liquidity

• The main reason for holding money is the liquidity preference, which arises from uncertainty and the need for transactions.
• Liquidity refers to the ease and speed of converting assets into cash without significant loss of value.
• In the context of the firm and worker scenario, the average money holding is ₹1,000 for the firm and ₹500 for the worker.
• The opportunity cost of holding money is the return that could have been earned if the money was invested elsewhere.
• Transaction demand refers to the need to hold money for daily transactions and unexpected expenses.

Demand and Supply for Money

• People desire to hold money balance due to uncertainty, transaction demand, and liquidity preference.
• Demand and supply for money refer to the equilibrium between the desire to hold money and the availability of money in the economy.
• Formal payment systems refer to organized financial institutions and channels that facilitate transactions, such as banks and ATMs.