Money and its functions

Medium of exchange When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.

Anything implies a thing to be used as money need not be necessarily composed of any precious metal. Basis of Credit System: When values are expressed in terms of money, the number of prices are reduced from n n-l in barter economy to n-1 in monetary economy.

To be a successful medium of exchange, money must be commonly accepted by people in exchange for goods and services. With money, we can buy an assorted bundle of goods and services.

On the payment of money, purchase of goods and services can be made i. Money serves as a common measure of value in terms of which the value of all goods and services is measured and expressed.

Money helps in the distribution of national product through the system of wage, rent, interest and profit. Thus, money facilitates the formation of capital markets and the work of financial intermediaries like Stock Exchange, Investment Trust and Banks.

Commodity A British gold sovereign Many items have been used as commodity money such as naturally scarce precious metalsconch shellsbarleybeads etc. A fluctuating monetary unit creates a number of socio-economic problems. The only necessary condition is that, it should be universally accepted by people as a medium of exchange.

Paper money from different countries At around the same time in the medieval Islamic worlda vigorous monetary economy was created during the 7th—12th centuries on the basis of the expanding levels of circulation of a stable high-value currency the dinar.

Without money, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another. The use of money as the standard of deterred or delayed payments immensely simplifies borrowing and lending operations because money generally maintains a constant value through time.

These functions have been presented below in the charitable. Money, being a unit of value and a generally acceptable means of payment, provides a liquid store of value because it is so easy to spend and so easy to store. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange.

Value of any asset can be transferred from one person to another or to any institution or to any place by transferring money. Theoretical and Empirical Definitions of Money: Money came into use to remove the inconveniences of barter as money has separated the act of purchase from sale.

The loans, which are taken at present, can be repaid in money in the future. Money is also called a bearer of options or generalised purchasing power because it provides freedom of choice to buy things he wants most from those who offer best bargain.

Similarly, a producer maximizes his profit by equating the marginal productivity of a factor unit to its price. Functions of Money Money performs five important functions: Money is the measuring rod, i. Similarly, a producer maximizes his profit by equating the marginal productivity of a factor unit to its price.

Money as a liquid store of value facilitates its possessor to purchase any other asset at any time. Some have argued that inflation, by reducing the value of money, diminishes the ability of the money to function as a store of value.

It is on the basis of these functions that money guarantees the solvency of the payer and provides options to the holder of money to use it any way, he likes. It is therefore essential that the money commodity should always be one which can be easily and safely stored.

However, money is more liquid than most other stores of value because as a medium of exchange, it is readily accepted everywhere. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal.

Usually the goal of monetary policy is to accommodate economic growth in an environment of stable prices. Money also functions as a means of transferring value.

Functions of Money

The value of the future payments is regulated by money. This function of money also separates the transactions in time and place because the sellers and buyers of a commodity are not required to perform the transactions at the same time and place.

Producers sell their goods to the wholesalers in exchange of money. Money is anything serving as a medium of exchange. On the basis of crude empirical tests, the Committee did not find either direct or indirect link between money and economic activity via the interest rate.

Money is a matter of functions four, a medium, a measure, a standard and a store. Money and its Functions Definitions By R.P Kent “Money is anything which is commonly used and generally accepted as a medium of exchange or as a standard of value” By Marshall “All those things which are, at any time and place, generally current without doubt or special enquiry as a [ ].

3 Functions of Money. STUDY. PLAY. medium of exchange. Money facilitates the exchange of goods and services. unit of account. money can be used as the common denominator valuing goods and services, facilitating the comparisons of relative value.

store of value. This means that the term money should be used to include anything which performs the functions of money, viz., medium of exchange, measure of value, unit of account, etc. Money: Its Functions and Characteristics 5 THE ROLE OF MONEY than trying to do everything, or many things, a person concentrates his or her labour skills on one activity or on just a few activities.

4 Essential Functions of Money

3 Functions of Money. STUDY. PLAY. medium of exchange. Money facilitates the exchange of goods and services. unit of account. money can be used as the common denominator valuing goods and services, facilitating the comparisons of.

These four functions of money have been summed up in a couplet which says: Money is a matter of functions four, a medium, a measure, a standard and a store. These functions have been presented below in the charitable. (i) Money as a Unit of Value: Money measures the value of various goods and.

Money and its functions
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Money: Nature, Definitions and Functions of Money