Demonetisation

Controlling black money was a major objective of demonetisation. Give it priority in objective-based questions.

During demonetisation, old high-value notes were withdrawn from circulation, limiting the availability of cash. A cheque is a non-cash instrument that enables payment from a bank account, so its use could increase as an alternative to cash. Issuing new notes is a function of the banking system and the Reserve Bank, not of cheques. Exam tip: Remember that demonetisation encouraged digital and other non-cash payment methods.

The governing concept is the importance of monitoring the business environment, especially public policy and regulatory decisions. A policy change concerning currency can affect cash availability, customer purchasing behaviour, banking arrangements, payment technology, record keeping, and operating costs. Businesses therefore need to observe such changes, assess their likely effects, and prepare suitable responses rather than assuming that existing practices will always remain effective. Option A is correct because it identifies the impact of policy changes. Wall colour, a customer’s birthday, and chair height may matter in very limited contexts, but they do not express the broad lesson about external policy conditions tested here. The example encourages environmental scanning and timely adaptation.

Less cash and more records can improve transparency. Link transparency with record-based payments.

During demonetisation, certain high-denomination notes in circulation ceased to be valid, while the availability of new notes and cash was limited. Therefore, a customer could face difficulty paying for a large purchase due to insufficient valid cash. Option C is the opposite of the situation, since old notes were not accepted without restriction at every shop. Exam tip: Remember cash shortage and payment difficulties as immediate effects of demonetisation.

In a less-cash economy other payment modes rise in place of cash. Understand it separately from cashless.

After demonetisation, the use of banking channels and digital payments increased. These modes create electronic or bank records of each transaction, improving transparency and accountability in business. Informal cash-only records are less reliable and harder to verify. Exam tip: Link demonetisation with digital payments, formal transactions, and improved record-keeping.

The governing concept is that money performs several functions, including serving as a medium of exchange. In this role, people use accepted currency to buy goods and services and to settle payments. When specified currency notes were demonetised, their legal-tender status was withdrawn or restricted, so those notes could no longer be freely accepted in ordinary transactions. Therefore, the exchange function of the affected notes was directly disturbed, making option A correct. The other choices are unrelated: a school syllabus is an educational document, a sports rule governs a game, and cloth colour is a physical characteristic. They are not functions of money and could not be affected as monetary functions.

The governing business-environment concept is that an external change can create both problems and opportunities for firms. During demonetisation, the availability and use of some cash notes were restricted, so many consumers and businesses looked for alternatives such as mobile wallets, cards, and electronic bank transfers. This increased the potential customer base and usage of digital-payment companies. Hence option A is correct: the companies received an opportunity to attract more users and expand transactions. Stopping production is not the relevant opportunity, removing laws is not the firms’ role, and avoiding banks does not describe digital payments, which often depend on banking or regulated financial systems.

Demonetisation encouraged the use of banking channels and digital payments, which could create clear records of transactions. Verifiable records improve transparency and strengthen trust among buyers, sellers and the government. Unrecorded cash transactions remain outside formal records, so they do not increase trust. Exam tip: Link demonetisation with transparency, digital payments and the formal economy.

Explaining new payment methods helped customers buy easily. Customer education supports sales.

After demonetisation, large quantities of old notes were deposited in bank accounts. Checking the source of such deposits could help determine whether the money came from declared income and whether appropriate tax had been paid. Closing banks or changing the colour of notes was not the purpose of scrutiny of cash deposits. Exam tip: Link demonetisation with formalisation of cash, tax compliance, and checking unaccounted income.

Digital businesses got opportunities and cash-based businesses faced challenges. Write it as opportunities and threats.

Banks were the main places for exchange and deposit of notes. In simple factual questions banks are the correct clue.

After demonetisation, greater emphasis was placed on formal and digital payments. Therefore, sales bills and payment records became more useful because they provide clear evidence of transactions. They record income, expenses and the source of payment, improving transparency. Anonymous slips and oral agreements do not provide verifiable records. Exam tip: For transparent business transactions, bills, receipts and bank/digital payment records are important.

The governing concept is that customer satisfaction depends partly on the convenience, reliability, and accessibility of a firm’s service. Demonetisation disrupted cash transactions, so a business that quickly offered practical alternatives—such as card payments, mobile wallets, or bank transfers—could reduce customer difficulty and preserve trust. Customers would be more likely to return when payment was simple and secure; therefore option A is the best answer. The word “could” is important because the outcome depended on how the business responded. Customers would not necessarily always disappear, payment clearly affects the buying experience, and a business would not stop recognising its customers merely because the payment system changed.

During demonetisation, certain high-denomination notes ceased to be legal tender, so people holding large amounts of cash at home had to exchange or deposit it in banks. Therefore, the habit most affected was keeping large cash amounts at home. Paying by debit card is a mode of payment, not a cash-holding habit. Exam tip: Remember that demonetisation reduced reliance on cash transactions and encouraged banking and digital payments.

Mobile banking allows money transfer without cash. Digital tools can solve immediate payment problems.

After demonetisation, greater attention was given to cash transactions and sources of income. A business with transparent accounts, tax records, and transactions could gain credibility with customers, banks, and other stakeholders. Therefore, option A is correct. Options B and C are contrary to legal compliance, while option D refers to an unauthorised activity. Exam tip: Remember transparency, tax compliance, and movement towards the formal economy as key effects of demonetisation.

Demonetisation shows that economic environment affects business. In exams link the conclusion with environment and adaptation.