Social Science (087) — AI-generated practice question

Demand deposits are deposits held in bank accounts that can be withdrawn by the account holder on demand at any time.

They are considered equivalent to currency because of the cheque facility. A cheque is a paper instructing the bank to pay a specific amount from the payer's account to the payee. This allows transactions to be settled directly without physical cash — for example, a shoe manufacturer can pay a leather supplier by cheque, transferring money between bank accounts. Since demand deposits are widely accepted as a means of payment, they share the essential features of money (medium of exchange).

Source: Chapter 3 — Deposits with Banks

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• 1 mark for defining demand deposits (withdrawable on demand).
• 2 marks for explaining WHY they are equivalent to currency — focus on the cheque facility enabling cashless settlement of transactions.
• Mention the example (Salim & leather supplier) if space allows; it shows you understand the mechanism.
• Key phrase examiners look for: "facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash."
• Do not confuse demand deposits with fixed/term deposits — the key feature is "on demand" withdrawal + cheque payment facility.