Money is an accepted as medium of exchange in the forms of coins and banknotes to carry on economic acivities smoothly. It is a type of good that is widely used and accepted in transactions. That involves the transfer of goods and services from one person to another.
Money is the foundation stone of modern economic life.It is the access around which all economic activities involved. Money is an important source in all economies. It is widely used and allows us to compare similar offers for goods and services to determine their best value.
Money is of three types they are
- Commodity money
- Fiat money
- Bank money
Goods whose value serves as the value of money is called commodity money .
Example gold and silver coins.
Goods whose value represents less than the value of money is called Fiat money. fiat money has value as money because the government has ordered that has value at that purpose.
Example coins and currency notes.
Bank money is the money that consists of the book credit that banks extend to their depositors.
Example checks and credit cards.
Characteristics of Money
It must be acceptable by every one to purchage goods and services in the economy.
Money should last for a long time that is why money is in the form of coins made from metal or currency notes made out of a special paper.
Money should be easy to carry so that money can be transformed from one place to another .
It must be limited in supply because the more circulation of money is less valued by the economy.
It should be possible to break into sub units for different types of transactions. It is neccessary to use only as much money as is neccessary for purchages.
Money should be easy to recognise and should not be easy to duplicate.
Functions of Money
Medium of exchange
Money must be commonly accepted by people in exchange for goods and services. It eliminates the need for double coincidence of wants.
Measure of value
Money serves as a common measure of value in terms of which the value of all goods and services is measured and expressed.
Standard of Deferred Payments:
Money not only helps current transactions but also facilitates credit transaction through its function as a standard of deferred payments. Money must maintain a constant value through time.
Store of Value
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.
Importance of Money
Money plays an important role in the daily life of a person whether he is a consumer, a producer, a businessman, an academician, a politician or an administrator. It is one the most prestigious important and essential tools of modern economic life.