money itself is medium of exchange

Medium of exchange function of money solves the problem of double coincidence of wants inherent in the barter system. It is this function of money which facilitates trade and promotes it. It is the important source of transactions in an economy.

Open market operations refer to the purchase and sale of government securities in the open market by the Central bank. By selling the government securities, the Central Bank reduces the equivalent amount of reserves of commercial banks thereby restricting their capacity to lend. By buying government securities, the Central bank injects additional purchasing power into the system which results in the expansion of credit. Thus, depending on the situation of excess demand (or deficient demand), the Central bank may resort to sale (or purchase) of government securities resulting in fall (or a rise) in the availability of credit.

Significance of the 'store of value' function of money is stated in the following points:

(i) Money is an asset that retains its value overtime, therefore public store its wealth in the form of money.

(ii) Money overcomes the problem of storing perishable items under barter system of exchange.With money, people hold liquidity and value in a much more convenient manner. 

It refers to those payments which are to be made in future.Money is accepted as a standard of deferred payments because:

(i) Its price remains relatively stable.

(ii) It has general acceptability.

(iii) It is more durable as compared to other commodities.

'Money is what money does' In the light of this statement, money performs four main functions, namely, medium of exchange, unit of account, store of value and standard of deferred payments. Only through these above' functions, money overcomes the shortcomings of the barter system. Now explaining the above functions briefly:
(i) Medium of exchange: It facilitates buying and selling of goods and services. So, exchange has become very simple and is conducted on a large scale. As a result, the level of production has also substantially risen with the introduction of money.
(ii) Unit of account: Measurement of the value of goods being exchanged was very difficult in barter system. This was because of lack of common unit of account. But now the introduction of money has removed this difficulty and each good/service is valued in terms of money, which acts as a common unit of account.
(iii) Store of Value: Store of value here refers to store of wealth in terms of paper titles like FDR's..... etc. It is a source of future investment for a secure future. All stored wealth should be properly invested and should not remain like idle-saving.
(iv) Standard of deferred payments: Money has made deferred payments (which are payments made in the future) much easier than before. When money is borrowed, it is to be returned with interest, i.e., both the principal as well as interest amount, are to be paid back. This function of money has facilitated borrowing and lending and also led to the emergence of 'financial market'.

(a) Repo Rate refers to the rate of interest at which Central Bank (RBI) lends money to commercial banks for a short term. To control the inflationary condition in the economy, RBI raises the Repo Rate to make borrowings expensIve.(b) Margin Requirements refer to the difference between the current value of the security offered for loan and the value of the loan granted. To control the deflationary conditions, the Central Bank reduces the margin requirements.

The primary function of commercial banks is money creation in an economy. By the historical experience of commercial banks, they know that the deposits would not be withdrawing all of their funds at a particular time.
That is why they create credit in the form of much higher demand deposits than their cash reserves. commercial banks issue loans on the basis of their demand deposits, even if a fraction of the amount is with them as cash reserves.
That is why they create credit in the form of much higher demand deposits than their cash reserves. commercial banks issue loans on the basis of their demand deposits, even if a fraction of the amount is with them as cash reserves.
In this way, they contribute to increase the flow of money in an economy by the process of credit creation. e.g. suppose a bank has a credit reserve of rs 1500 and demand deposits of rs 12000. it means the bank is creating credit of 8 times of 1/5 cash reserve if the withdrawals are 12.5% of the deposits, the bank needs to keep only 12.5% of its total deposits as cash (CRR).

Here<    Demand deposits=\(\frac { 1 }{ CRR } \times \) cash reserve
or
                 Demand deposits=\(\frac { 1 }{ 12.5 } \times \)1500=rs 12000
Now, the bank can issue loans to its customers on the basis of these demand deposits, as loans are never offered in cash, but only as demand deposits in favour of the customer. suppose, the bank issue loan of rs 10500 to its customer keeping rs 1500 as cash reserve. now, this loan is also with the bank as demand deposits. again, the bank keeps 12.5% of this rs 10500 and can give rs 9187.5 to its customers as loan.
Thus, the money goes on multiplying and create new flow of money in the economy.
The total credit creation by this bank can be obtained by the following formula:
Total credit/money creation=initial deposit\(\times \frac { 1 }{ LRR } \) =12000\(\times \frac { 1 }{ 12.5% } \)= rs 96000

'Lender of Last Resort' means that when the commercial banks are in difficulty, Central Bank can make advances to them when temporarily in need of funds.

Instruments of monetary policy of the central bank are broadly classified as:
(i) Quantitative Instruments
(ii) Qualitative Instruments
(i) Quantitative Instruments  of monetary policy focus on the overall supply of money in the economy. These instruments relate to two policy rates and two policy ratios. The policy rates are (i) Bank rate (ii) Repo rate
The two policy ratios are (i) CRR (ii) SLR.
(ii) Qualitative Instruments of monetary policy are those instruments which focus on selected sectors of the economy. The banks are advised to be selective in offering loans, specially when the economy is gripped in the inflationary spiral.

High Powered Money refers to the currency created by the Central Bank (Reserve Bank of India). It serves as the basis of bank money. This is the reason for high powered money to be called 'Base Money' or 'Monetary Base'. Greater the base, more the supply of money by the commercial banks. Supply of high powered money is controlled by the Reserve Bank of India.