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    Characteristics and Functions of Money

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    This document defines money and its key functions and characteristics. It discusses money as a medium of exchange, unit of account, store of value, and standard of deferred payment. Money must be durable, portable, divisible, uniform, have limited supply, and be acceptable. The functions of money allow for efficient exchange and commerce. Financial markets and institutions, like banks and stock exchanges, facilitate the flow of capital and provide short- and long-term financing options.

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    Characteristics and Functions of Money

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    33 views2 pages
    This document defines money and its key functions and characteristics. It discusses money as a medium of exchange, unit of account, store of value, and standard of deferred payment. Money must be durable, portable, divisible, uniform, have limited supply, and be acceptable. The functions of money allow for efficient exchange and commerce. Financial markets and institutions, like banks and stock exchanges, facilitate the flow of capital and provide short- and long-term financing options.

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    This document defines money and its key functions and characteristics. It discusses money as a medium of exchange, unit of account, store of value, and standard of deferred payment. Money must be durable, portable, divisible, uniform, have limited supply, and be acceptable. The functions of money allow for efficient exchange and commerce. Financial markets and institutions, like banks and stock exchanges, facilitate the flow of capital and provide short- and long-term financing options.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    33 views2 pages

    Characteristics and Functions of Money

    Uploaded by

    Android Help
    This document defines money and its key functions and characteristics. It discusses money as a medium of exchange, unit of account, store of value, and standard of deferred payment. Money must be durable, portable, divisible, uniform, have limited supply, and be acceptable. The functions of money allow for efficient exchange and commerce. Financial markets and institutions, like banks and stock exchanges, facilitate the flow of capital and provide short- and long-term financing options.

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    © All Rights Reserved
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    Download as doc, pdf, or txt
    of 2

    Principles of Finance THAT IN ALL THINGS, GOD MAY BE GLORIFIED.

    MONEY Necessary prerequisite for the


    1. Generally accepted for payment of formulation of commercial
    goods and services and for agreements that involve debt
    repayment of debts To function as a unit of
    2. An officially issued legal tender account, money must be:
    generally consisting of currency and a. Divisible into smaller units
    coin without loss of value
    3. Circulating medium of exchange as precious metals can be coined
    defined by a government from bars, or melted down into
    4. The currency of one country can be bars again
    exchanged for the currency of another b. Fungible one unit or piece
    via a currency exchange must be perceived as
    5. Representative so that you may have equivalent to any other, which
    exchange for goods and services is why diamonds, works of art
    MONEY AS LEGAL TENDER or real estate are not suitable
    1. Legal tender is a type of payment that as money
    can lawfully be used to meet financial c. Specific weight, measure,
    obligations size to be verifiably
    2. Commodity or asset countable coins are often
    3. Officially issued currency or coin that milled with a reeded edge, so
    can be legally exchanged for that any removal of material
    something of equal value such as from the coin (lowering its
    good or service, or that can be used in commodity value) will be easy
    payment of a debt to detect
    3. STORE OF VALUE
    FUNCTIONS OF MONEY Money must be able to be reliably
    1. MEDIUM OF EXCHANGE saved, stored and retrieved
    used to intermediate the exchange Be predictably usable as a medium
    of goods and services of exchange when it is retrieved
    it thereby avoids the inefficiencies Value of money must also remain
    of a barter system, such as the stable over time
    double coincidence of wants Inflation reducing the value of
    problem money, diminishes the ability of
    generally accepted for goods and money to function as a store of
    services value
    2. UNIT OF ACCOUNT Any amount of money
    Standard numerical unit of printed/minted = money reserve
    measurement of the market value standard (BSP)
    of goods, services, and other 4. STANDARD OF DEFERRED PAYMENT
    transactions Accepted way to settle a debt
    Also known as measure or It may function for discharge of
    standard of relative worth of debts
    deferred payment

    1 Anastasia Grey
    Principles of Finance THAT IN ALL THINGS, GOD MAY BE GLORIFIED.

    When debts are denominated in THREE MAIN AREAS OF FINANCE


    money, the real value of debts may 1. FINANCIAL MARKETS AND
    change due to inflation and INSTITUTIONS
    deflation, and for sovereign and Money markets provide
    international debts via debasement companies and governments with
    and devaluation short term liquidity (you need
    5. MEASURE OF VALUE to raise cash for accounts
    Standard measure and common payable)
    denomination of trade Capital Markets provide
    Basis for quoting and bargaining of companies and governments with
    prices long term financing
    Necessary for developing efficient a. Capital possible supplement
    accounting systems for additional capital coming
    Most important usage is as method from financial institutions
    for comparing the values of b. Capitalization in form of loan
    dissimilar objects coming from financial market
    c. Other financial
    market/institution
    CHARACTERISTICS OF MONEY Sole proprietorship
    1. DURABILITY Partnership/corporation
    Item must be able to withstand cooperative
    being used repeatedly Typical financial institutions:
    2. PORTABILITY a. Banks and investment banks
    Individuals are able to carry money b. Stock brokerages
    with them and transfer it easily to c. Mutual funds
    other individuals d. Pension funds
    3. DIVISIBILITY e. Insurance companies
    Money can easily be divided into
    smaller units of value SOURCE:
    4. UNIFORMITY PROF. GABBY SAGARINOS LECTURE
    All versions of the same
    denomination of currency must
    have the purchasing power
    5. LIMITED SUPPLY
    Restrictions on the amount of
    money in circulation ensure that
    values remain relatively constant
    for the currency
    6. ACCEPTABILITY
    Everyone must be able to use the
    money for transactions
    Makes money legal tender

    2 Anastasia Grey

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