Money can be defined as a generally acceptable medium that can be exchanged for goods and services, and can be used as a measure and store of value.
The following are the important functions of money:
(i) Medium of Exchange: Money acts as an intermediary in the exchange transactions of goods and services. Money solves the problem of double coincidence of wants by acting as a medium of exchange for all goods and services.
(ii) Unit of value: Money acts as a convenient unit of account. The value of all the goods and services can be exchange for various goods and services.
(iii) Store of Value: Money is not a perishable item and its storage costs are also considerable low. Moreover, it is acceptable to anyone at any point of time. Thus, money acts as a store of value for individuals.
(iv) Standard of Deferred Payments: Money acts as standard in terms of which future or deferred payments are stated because money maintains a constant value over a period of time.

Let price of bond (P) = x
Rate of interest (r) = 5%
The amount can be calculated as: \(A=P\left( 1+\frac { r }{ 100 } \right) ^{ n }\quad \)   ..........(1)
The amount promised at the end of 2 years = Rs.500
Substituting appropriate values in (I), we get:
\(500=x\left( 1+\frac { 5 }{ 100 } \right) ^{ 2 } \)
\(500=x\left( \frac { 100+5 }{ 100 } \right) ^{ 2 }\)
\(500=\left( \frac { 105 }{ 100 } \right) ^{ 2 }\)
\(x=\frac { 500\times 100\times 100 }{ 105\times 105 } \quad x=453.51\)
Thus, the price of the bond is Rs.453.5.

Excves money supply leads to a situatin of inflation. Two meaures to control inflation are:
1. Increae tax rate
2. Reduce public expenditure

Cash reerve ratio (CRR) is the minimum fraction of thetotal deposit with the commercial bank, which they are required to keep with the central bank. If CRR is increaed, banks are required to keep more part of their deposits in the form of reserves or securities and will have fewer funds to lend. This will contract credit.

Thre following are the main components of money supply:
(i) Currency: Currency is the main component of money. Currency consists of coins and notes.
(ii) Demand Deposits: Demand deposits are also an important component of money supply. These are payable by the banks on demand from the account holder. For example: Current and Saving Account Deposits.
(iii) Time Deposits: These deposits have a fixed period to maturity. For example: Fixed Deposits.

Legal tender money is the money that, by law be accepted as a medium of exchange and payment for debt by the citizens of a country. It cannot be refused by any person against the payment for transactions. Everyone is bound to accept it because its non-acceptance is an offence. Example: of legal tender is currency notes issued by Reserve Bank of India.
Fiat money refers to the currency notes and coins made legal tender by the order of the government. They do no have intrinsic value like a gold or silver coin.

The central bank of a country is the sole note issue authority. In India, RBI as the central bank issues the notes of all denominations of the country except One Rupee note which is issued by the Ministry of Finance, Government of India. According to De Kock, the main reasons for grasons for granting power of issuing motes to central bank are:
(i) To maintain similarity in notes circulation and better regulation of currency
(ii) To grant ditinctive prestige to currency notes
(iii) To avoid unnecessary credit creation by the commercial bank
(iv) To make government inpection on issuing note effective.

The agency functions of a commercial bank are as follows:
(i) To transfer funds from one place to another.
(ii) To collect funds on behalf of the customers.
(iii) To purchase and sell shares and debentures on behalf of the customers.
(iv) To provide income-tax consultancy.
(v) To pay bills and insurance premium as per customer's direction.
(vi) To provide facility of traveller's cheque and letter of credit.

The four functions of money are:
(i) Money as a Unit of Value
(ii) Money as a Medium of Exchange
(iii) Money as a Standard of Deferred Payment
(iv) Money as a Store of Value
Money as a Unit of Value: Money acts as a convenient unit of account. The value of all goods or services can be expressed in monetary units. Money as a unit of value helps in measuring the value of exchange for various goods and services. For example, if the price of a pen is Rs.10 then a pen can be exchanged for ten monetary units. Therefore, money is a useful measuring ro0d of value provided the value of money or purchasing power remains constant.