Question

Consider the path of a paper check as it travels through the check-clearing system. Which step in the process uses money?

• when the consumer hands the check to the merchant

• when the merchant’s bank sends an electronic image of the check to the local Federal Reserve Bank

• when the Federal Reserve credits the merchant’s bank’s reserve account and debits the consumer’s bank’s reserve account

• when the consumer’s bank debits the consumer’s checking account by the amount of the check

Answer 1

Considering all the steps of cheque clearing system given above . Monetary transactions are used in the 2nd last step i.e when creditor is credited with money and debit from the consumers bank account.

In that stepthere is no physical money but the virtual money transfer takes place . Clearing cheque is like transfer of electronic money from one bank account( be it a company a group, co-operative or an individual) to other ( the beneficiary) depending on who writes cheque for whome .