Characteristics of money ppt

characteristics and functions of money and components of money market ppt
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Published Date:25-07-2017
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CPT Section C General Economics Chapter 8 Unit 1 CA Shweta Poojari 1.Concept of Barter System 2.Meaning & Definition of Money 3. Functions of Money 4. Classification of Money 5. Money Supply & Money Stock in India 6. Multiple Choice questions Barter system refers to direct exchange of goods & Services i.e. Exchanging goods/services available with us to buy the goods/services we need, because there was no standard mode for settlement of transactions like “Money”. Eg: One person has surplus of wheat wants cloth and another person having surplus of cloth wants wheat. Lack of Double Coincidence Lack of Divisibility Lack of Measure of Value In Barter system person having a surplus of one commodity should be able to find another person who needs it and has something to offer in exchange. There are certain goods which are useful as a whole. Eg: Horse, Cow, Table, etc. These cannot be exchanged in pieces for different things for barter. There is no common measure in barter system. Suppose a Goat is to be exchanged for rice, it is difficult to decide the quantity of rice worth a goat. Money is also defined as, “Money is What money Does” i.e. anything that performs the function of money is money. Anything that is generally accepted as a medium of exchange. According to Robertson “Money is anything which is widely accepted in payment for goods, or in discharge of other kinds of business obligations.” According to Kent “Money is anything which is commonly used and generally accepted as a medium of exchange or as a standard of value.” Primary Secondary Continge nt Medium of exchange Store of value Basis of credit Measure or unit of Standard for Liquidity deferred payment Maximum utilization value of resources Transfer of value Guarantor of solvency Distribution of National Income • Money as a medium of exchange is Medium of used in the sale and purchase of goods and services. Exchange: • Money measures value of goods and services and facilitates sale and Measure purchase of goods and services. The value of each good and service is of Value: expressed as price of the commodity. • Money serves as store of value (i.e. Wealth in liquid form). In modern world, people want Store of to have some currency notes or coin in their pocket, home, bank account etc. to use any Value : time for purchase of anything. Standard • Money is also helpful in payment for goods and services after lapse of time i.e. debts, for deferred loans and future transactions can be settled. payments : • Sale and purchase of movable and Transfer immovable property can also be made with the help of money. of Value: • It is the changes in the quantity of Basis of money that brings about changes in supply of credit. The entire strength of Credit: credit system is based upon money. • Money is the most liquid asset which can be converted into other assets Liquidity: quickly. • In context of production & Maximum consumption, the producers and consumers can make a Cost-Benefit utilization of analysis to ensure optimum utilization resources: of resources. • Money is the guarantor of solvency of a Guarantor person. If a person is able to pay his debt, he will be called solvent. On the other of hand, if a person fails to honor his obligations, he will be called as insolvent. Solvency: Distribution • Money is helpful in measuring the contribution to national income of various of National sectors of the economy, people of the country. Income: In Consumption & Trade (as a medium of exchange) In Budgeting & Economic Policy formation (Expenditures & Revenues expressed in money terms) To measure National Income In Production (to compensate the factors of production i.e. rent, wages, etc) Directs Economic Trends (directs idle resources into productive channels) Encourages Division of Labour & Occupational Specialization Fiat Money & Fiduciary Money: Fiat money, also known as currency is a legal tender . It has legal power to discharge debts. The creditor cannot refuse to accept it. Fiduciary money are the demand deposits of the bank. It is accepted as money on the basis of the trust that issues it command . A person can refuse to accept bank money (Cheque), because there is no guarantee that the cheque will be honoured. Full Bodied Money, Representative Money & Credit Money: Full Bodied Money- • The money, whose value as a commodity for non- monetary purposes is as great as its value as money is known as full-bodied money. • Eg: Gold coins in gold standards, Silver coins in silver standards or Gold and silver coins in bimetallic standard. Full Bodied Money, Representative Money & Credit Money: Representative Money- • Instead of actual metallic coins paper money is used. • The money has higher face value than its intrinsic value is known as representative full bodied money. Full Bodied Money, Representative Money & Credit Money: Credit Money- • The money whose value is greater than the commodity value of the material from which the money is made is known as credit money. • It can be in forms of token money, circulating promissory notes issued by central government and deposit at banks. We have adopted at present managed paper currency standard with a minimum reserve system of note issue in India. The legal money, in which the government discharges its obligations , is known standard money. India is on paper currency standard because India’s monetary authority, the Reserve Bank of India has adopted standard currency made of paper. Paper currency in India is unlimited legal tender. It means that it can be used to make payments and settle debts upto an unlimited amount.

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