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Monday, 21 November 2011

Define Money What are the functions of money? Money is that what money does

Money pays very important role in the economy of the country. In the old age, different things like gold and silver coins were used as a money. In the present age bank notes and credit money are used to pay for goods and services.
Money is one of the greatest discoveries of the modern age. It occupies a unique position in the social and economic life of a man. A man works for money to enjoy the maximum facilities. Money by itself is not wealth it is a mean to acquire the wealth like different things in the world. It will not feed you unless you will spend it.

Various definitions have been offered but Crowther's definition is more comprehensive. He says, "Money can be defined as any thing that is generally accepted as a means of exchange and at the same time acts as a measure and as a store of value".

1. General Acceptability :-
It is an essential quality of money that it should be acceptable as a means of payment.

2. Measure Of Value :-
The economy can not work efficiently unless money serves as a standard of value.

3. Store Of Value :-
Money should also store the value. There are so many instruments which are included in the money. In a present age Currency, Deposits, Prize Bonds and Treasury Bills are included in money. These instruments are very useful in storing the value.

Following are the important functions of money :

1. Medium Of Exchange :-
Money serves as a medium of exchange. It passes from hand to hand in exchange for goods and services. Goods buy money and money buys goods.

2. Standard Of Value :-
The unit of money measures the value of different goods. When we say that one Kg. sugar price is Rs. 10 in other words the value of one Kg. sugar is Rs. 10. So money provides an easy means of measuring the value as compared to other goods.

3. Store Value :-
Perishable goods can not be stored for a longer period. In this case money has an advantage over goods. So money provides an easy means of storing wealth as compared to other goods.

4. Standard Of Deferred Payments :-
In case of transactions involving future payments money enables the exchange of present goods for future goods.

5. Money As A Liquid Asset :-
Money is the liquid asset because it can be used at any time. We can purchase any thing or we can save it for future or we can do the investment, there is no problem in using it.

6. Transfer Of Value :-
Money fulfills the purpose of transferring the value from one place to another. For example it is not possible to transfer one building physically from one city to another city. So in the shape of money it can be transferred.

7. Guarantor Of Solvence :-
Money being immediately useable serves the purpose of meeting any or all money obligations or debits. So money being the most liquid of all assets also serves as a guarantor of solvency in other words ability to meet financial obligations.

8. Helps For Expanding The Economy :-
Money is very useful in expanding the trade, industry and production and improved the economic condition of countries.

9. Distribution Of Wealth :-
Money is very useful for the distribution of national income among the various factors the production and it brings justice to pay the reward to each factor according to its contribution.

10. Roll In Credit System :-
Without money banks can not create credit money on the basis of their cash reserves. Change in the volume of money is brought by increasing or decreasing the money supply.


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