Chapter 1- Money, Credit, And Banking

How well do you know your Money?

How well do you know your Money?

• COURSE INTRODUCTION:• What is FINANCE?• Why Study Money?• Why Study Credit?• Why Study Banking?

Chapter 1

NATURE AND

FUNCTIONS OF MONEYPowerPoint Presentation

Created by:RC T. BIGNOTIA, MBA

Faculty-St. Paul University Manila

Chapter 1- Nature and Functions of Money

Learning Objectives: After completing the Chapter, you should be

able to Explain the effects of Money on Economic lifeDiscuss the discuss the Stages in Exchange DevelopmentDefine the Meaning of MoneyIdentifies the Characteristics of Good Money

Explain the Functions of Money Understand the Origin of Evolution of Money

“There is nothing about money that cannot be understood by the person of reasonable curiosity, diligence and intelligence”.

“ A rose by any other name will smell as sweet”

William Shakespeare

salapi Kuwarta

Atik

Datungbread

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“anda”

Stages in Exchange Development

• 1st Stage- Direct Appropriation Stage What early man’s needs was provided by its natural resources.

Stages in Exchange Development

• 2nd Stage- Barter/Direct ExchangeGoods and services directly exchange for other goods and services

Barter ended man’s self-sufficiency and ushered in economic inter-dependence among men

Stages in Exchange Development

DIFFICUTIES OF BARTER:

1. Product do not have the same value2. No double coincidence of wants3. Lack of store value4. It is cumbersome, inconvenient and

indivisible

Stages in Exchange Development

•3rd Stage- The Use of Commodity as MoneySome goods because of its usefulness, beauty, scarcity and rarity commands a wide acceptance as medium of exchange.Non-Metallic (rice, corn, wheat, salt, tea, cattle)Metallic Money (gold, silver, copper.Intrinsic value or material value is equal it’s monetary value

In the days of the Early Roman Empire, SALT were used as money. “salarium”

Salt Money

In South Sea Islands 10,000 coconuts were enough to buy a wife

Money for buying a Wife

In Mexico and Central America CORN was used as money, In Japan and the Phils. RICE was used

Money that could be Eaten

Commodities Used as Money Throughout History

Cattle was used as moneyIn Greece

Tea was used as MoneyIn China

In Egypt SLAVES was used as money, In England they were called “payment in Kind”

Living Money

Commodities Used as Money Throughout History

Stages in Exchange Development

4th Stage- Credit Money

Money whose monetary value is more than its material or commodity value

Money comes from the Greek Word “Moneta”

• Anything which is used as a medium of exchange and is widely accepted for the payment of of goods and services, debts and obligations within a given territory without reference to the credit standing of the person who offers it

DEFINITION OF MONEY

• State Theory of Money Money is what the law says it is.

• Money has Purchasing Power The power to command goods and services

What makes Money Generally Accepted in Exchange or Payment of Goods or Services?

“Money” per se is not money unless use and accepted

What gives money its Purchasing Power?

The Law has given money a Legal Tender Power.

What is Legal Tender Power

• A mandatory law that makes money accepted in payment for all kinds of services

Legal Tender Money

•any form of money which according to law is acceptable for all forms of obligations

What are Considered Legal Tender Money in the Philippines? Notes and coins issued by BSP

Can checks be

Considered as Money?

Legal Tender Money

1. As a Medium of Exchangemoney serves as a common medium or tool ofexchange.

The use of money as a medium of exchange promotes economic efficiency? How?

Functions of Money

2. As a Standard Unit of Valuemoney serves as a measuring device in which value of goods and services can be express.

Thus, in turn standardized the value of goods and services.

Functions of Money

3. As a Standard of Deferred PaymentThe money that we use as a medium of exchange is the same money we can use topay for our debts and obligations

Functions of Money

4. As a Store of Value money has the quality to be kept or store for future use

In what way will money

loses it functions?

Functions of Money

1. General Acceptanceaccepted by anyone in exchange for goods and services

2. Stabilityvalue must not change every now and then and not susceptible to fluctuations, devaluation, inflation, etc.

3. Portabilitymoney is made light, to be easily carried from one place to another

Characteristics of Good Money

4. Cognizabilitydesign should not only be aesthetically beautiful but also difficult to counterfeit.

5. Durabilitymoney must withstand longer period of time against wear and tear

6. Divisibilitydivisible into small parts and likewise possible to recombine these small parts into bigger denominations

Characteristics of Good Money

7. Malleabilitymoney can be melted and beaten into a desired shape to conform to the specification of the government

8. Uniformitymoney must conform to certain standard to avoid confusion (size, shape, and color)

9. Homogeneitymaterial used must be uniform in composition throughout

10. Elastic

Characteristics of Good Money

Ring: 75% copper; 25 nickelCore: 92% copper; 6% aluminum; 2% nickel

10 Peso

65% copper; 35% zinc75% copper; 25% nickel 70% copper;24.5 zinc,5.5nickel

25 cents1 Peso5 Peso

6% copper; 94% steel6% copper; 94% steel6% copper; 94% steel

1 cents5 cents10 cents

Denomination Composition

Question – Why do our gov’t. need to regulate the volume of money?

Q – How does the gov’t.regulate the volume of Money in Circulation?

Discussion Questions:

1. Commodity Money- money that is made up of precious metal or another valuable commodity

a. Non-Metallic Moneyb. Metallic Money

gold/silver

2. Credit Money- credit instruments by the government backed by a promise to paya. Government Notesb. Bank Notes

3 Important Types of Money

1. Fiat Money -refers to paper currency decreed by government as legal tender but not convertible into coins or preciousmetal.

-It is backed by a government promised that it is legally acceptable as a means of exchange for products

-State Theory of Money (Japanese Imperial Notes)

3 Important Types of Money

GreeceBelgium, France, Switzerland and othersNetherlands & Suriname

DrachmaFranc

Guilder

Morroco, UAEAustralia, Canada, New Zealand, Singapore, U.S. and others

DirhamDollar

VenezuelaBrazilAlgeria, Jordan, Kuwait and others

BolivarRealDinar

Currencies of the World

Name of Currency Country Using

SpainEgypt, Great Britain, Lebanon and others

PesetaPound

Denmark, NorwayItaly, Turkey, and othersGermany

KroneLiraMark

Czech Republic, Slovak RepIceland and Sweden

Koruna

Krona

Currencies of the World

Name of Currency Country Using

JapanChina

YenYuan

India, Pakistan and othersAustria, and others

RupeeSchilling

South Africa, NamibiaSaudi Arabia, Qatar

RandRiyal

Currencies of the World

Name of Currency Country Using

1. Where does the supply of money in a specific government comes from? How does a government control its supply of money? How does the supply of money affect the economy or economic activity of a country, provide an example

2. How do you relate this with the current financial conditions of our country?

Research Work: