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1) My personal preference is transliteration.

2) Someone in Microsoft translated this as "Smriti" and this became standard for them. Now, Microsoft uses "smriti" for this and this is the word I most dislike in MS's Hindi translations. Just imagine going to Nehru place and asking,"Bhaiya, aapke paas 256 MB ki smriti hogi kya?" !!!

memory is called as smaran shakthi.and it is not called as smruthi. smruthi's meaning is in the memory of.so memory means storing enegy of mind or perfectly called as storing capacity of human brain. so it must be as shakti of human brain. so the term used in hindi or sanskrit is smaran shakthi.smaran means yaad.memorize.

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Note added at 4 days (2005-11-25 14:37:28 GMT)
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this is write and accurate word for memory

although I am agree with other respected colleagues that transliteration is the best way for modern technology, but still there is some synonims in Hindi. Like this :
memory of a computer= computaar kee smriti dhaaraN kshamataa= कम्पूटर की स्मृति धारण क्षमता
mamory of a mobile phone= mobile phone kee smriti dhaaraN kshamataa= मोबाइल फोन की स्मृति धारण क्षमता