Demonetisation

Demonetisation means withdrawing the legal-tender status of selected currency notes and replacing or exchanging them under official rules. In India, an important stated aim was to reduce the circulation and use of counterfeit notes. Fake currency can damage trust in money, support illegal activities, and cause losses to people and institutions. Therefore, the question is asking about a harmful or unlawful practice that the measure tried to control.

Option A is correct because it names the use of counterfeit currency. Depositing money in a bank and making digital payments are ordinary or encouraged financial activities, not wrong behaviours that demonetisation tried to reduce. Preparing bills is also a lawful business practice. Thus, among the choices, only the use of counterfeit currency matches the stated objective.

After demonetisation, records of large cash deposits in banks could help the tax department compare deposited amounts with a person's declared income. Therefore, records of large bank deposits are correct. Sports programmes, weather reports, and school timetables have no direct relevance to tax assessment. Exam tip: Remember scrutiny of cash deposits and improved tax compliance as effects of demonetisation.

Demonetisation removes the legal-tender status of selected currency notes, at least for ordinary transactions. If a large share of the cash used by people suddenly cannot be spent, customers and businesses must depend on replacement notes, bank withdrawals, cards, or other payment methods. This creates immediate pressure on both the supply of cash and the systems used to make payments.

Option A is correct because it identifies the direct short-term business effect: pressure on cash availability and payment arrangements. The other options have no logical connection with demonetisation. Employee entertainment, furniture colour, and school sports are not standard immediate market consequences of a currency change. The question asks about an immediate market pressure, so it should be answered in terms of liquidity and transaction difficulties rather than long-term policy goals.

After demonetisation, reduced cash availability led businesses and customers to use digital payments more often, such as cards, net banking and mobile wallets. Digital skills became necessary to accept payments, maintain records and carry out online transactions safely. Avoiding tax payments is neither the purpose of digital skills nor a lawful business practice. Exam tip: Link the effects of demonetisation with digital payments, transparency and the technological environment.

Demonetisation does not end all bank accounts. Be careful with exaggerated words in incorrect-statement questions.

After demonetisation, the use of old high-value notes was restricted. Customers who did not immediately have new notes or digital payment facilities could reduce their cash purchases. Therefore, a shopkeeper’s daily cash inflow could fall temporarily. A fall in cash receipts does not mean that sales or business permanently ends. Exam tip: Look carefully for qualifiers such as “temporarily” or “short-term” in business environment questions.

The governing concept is the technological dimension of the business environment. Online payment depends on digital networks, payment platforms, authentication systems, smartphones or computers, and secure data processing. Demonetisation may encourage businesses and customers to use such cashless methods, but the feature that identifies the environment in this question is the use of technology. The economic environment explains changes in money, income or payment conditions, yet the direct basis of accepting an online payment is technological infrastructure. Natural surroundings, physical geography and sports activities do not explain the transaction. Therefore option A is the most precise answer.

After demonetisation, the withdrawal of old high-value notes reduced the availability of cash. Therefore, businesses dependent mainly on cash sales faced the threat of a temporary fall in customers’ purchasing ability and sales. Adopting digital payments was an opportunity, not a threat. Exam tip: In SWOT analysis, a threat is an adverse external condition, whereas a new facility or improvement is an opportunity.

During demonetisation, old notes were deposited into accounts through banks or post offices within the prescribed period. Therefore, the process was related to banking channels. Digital wallets are used for payments, not for depositing old currency notes. Exam tip: Distinguish between bank deposits, formal banking and digital payments as separate effects of demonetisation.

After demonetisation, cash deposits, withdrawals and sales records received greater scrutiny. By recording every cash receipt and payment accurately in the cash book, traders could reconcile their accounts and meet tax and other compliance requirements. Merely entering old notes in a cash book could not make them valid. Exam tip: a cash book records cash transactions, not transactions made through a bank account.

Demonetisation reduced the easy availability of commonly used cash for a period. To make purchases, transfer money, or receive payments, many consumers and sellers could use alternatives such as cards, mobile wallets, internet banking, and other digital methods. This could increase familiarity with cashless or less-cash transactions and change normal purchasing habits, although the extent of change could differ among people and places.

Option A is correct because adopting digital payment is a plausible consumer-behaviour change caused by reduced cash availability. The other options use extreme or unrelated claims. People did not necessarily refuse every payment, permanently stop all purchases, or accept only foreign cash. The question asks what could occur, so a tendency toward digital payment is the appropriate conclusion.

Daily buying and selling could be directly affected by cash shortage. In process-based questions focus on payment.

Invalidating old high-value notes was linked with curbing illegal cash. Identify it in objective-based questions.

Cash receipts in services could fall if cash payments reduced. Keep the impact limited to the short term.

After demonetisation, greater use of digital payments and banking channels could make transaction records clearer. This makes it easier to monitor income, expenses and cash flow; therefore, financial control of transactions could improve. Quality, inventory and production controls are important business controls, but they are not the most direct effect of demonetisation. Exam tip: Link demonetisation with digital payments, transparency and record-based transactions.

The governing concept is formalisation of economic activity. When transactions move through banks and other regulated channels, they are more likely to leave verifiable records, follow reporting requirements and become visible to authorised institutions. This can improve transparency, widen the documented tax and financial base, and support more accountable economic activity. Formalisation does not guarantee that every problem disappears, but it is a recognised direction of economic reform in this context. Unrecorded trade, ignoring law and avoiding banks would generally reduce transparency rather than strengthen reform. Therefore option A is the only suitable answer.

Due to deposits and payments in banks, banking awareness could rise. Link it with financial inclusion.

Small everyday purchases often require exact cash or a small amount of change. During demonetisation, people could face a shortage of usable notes and coins, while shopkeepers might not have enough change for customers. As a result, buying inexpensive items, paying fares, or completing other small transactions could become inconvenient or temporarily impossible, even when the customer had some money.

Option A is correct because it names the shortage of small change. This is a specific example of the wider cash shortage and payment disruption caused by the sudden withdrawal or replacement of currency. The other choices are impossible or unrelated: goods do not become gold, expenses do not automatically become zero, and shops do not turn into examination centres. The focus is the practical difficulty of making small cash payments.

The governing concept is technological risk management in a changing payment environment. If customers and businesses use more digital payments, transaction details travel through devices, networks, applications and financial platforms. Weak passwords, fraudulent links, malware, unauthorised access or data theft can then cause financial loss and damage trust. Cyber security measures such as secure authentication, software updates, access controls and staff awareness help reduce these risks. A shortage of paper, a building’s colour or employee leave does not create the same direct need to protect digital transactions. Hence option A is correct.

The direct answer is A: demonetisation tried to reduce the importance of the cash-based informal economy. Demonetisation withdrew the legal-tender status of specified currency notes. One stated aim was to reduce unreported cash, bring transactions into recorded channels and encourage formal banking and digital payments. The informal sector often depends heavily on cash and may have fewer official records, so it was especially affected. Option A correctly combines cash dependence with informality. Option B is wrong because the formal economy already uses records and banking systems. Option C is wrong because digital payments were encouraged rather than reduced. Option D is wrong because banking-based activity was part of the formal alternative. This answer describes an objective, not a claim that every informal transaction disappeared.

Demonetisation removed the legal-tender status of specified old notes for a period, so people had to deposit them in bank accounts or exchange them through authorised banking channels. This made banks, branches, counters, and related account services especially important. The question is about the immediate service demand created by the note-exchange process, not about luxury or entertainment needs.

Option A follows because exchanging or depositing old currency directly required banking services. Cinema services, sports tickets, and weather information were not necessary for changing notes. Although demonetisation also affected digital payments and other parts of the economy, the specific activity named here was handled mainly through banks. Therefore, A is the appropriate answer.

If cash inflow and payments are affected, working capital may face pressure. Write it as a short-term impact.

Issuing clear bills and accepting digital payments demonstrate transparency and legal compliance, which build customer trust and a positive business image. Making sales without records may violate accounting and tax requirements, so it is not appropriate. Exam tip: A good business image is usually linked with honesty, transparency, and customer trust.

Demonetisation shows that economic changes affect business. Planning and adaptation are key exam terms.

Bank transfers create clear payment records. In exams link this with transparency and formal economy.