Defination of Money

8/12/2019 Defination of Money

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Any thing that is egenerly accepted in paymentfor goods or services or the repayment of debts

Money is a commodity which is generally

acceptable as a medium of exchange and at thesame time it acts as a measure and a store ofvalue.


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M1.. Transaction approch

According to this approch only thosecommodities will be included in money which

are just medium of exchange .Thus all thosegoods which facilitate the sale or purchase ofgoods ,or which facilitate the transection ofgoods and services can be given the name of

money


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Thus according to this approch

M1=coins +currency notes +demand deposits ofcommercial banks


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M2 LIQUIDITY APPROCH

In M2,in addition to M1,all those monetry unitsare included which have the property of

money as a store of value .M2=M1+saving bank accounts+short periodtime deposits+treasury bills+Deposits ofmoney market+bonds+shares


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M3=M2+long period time deposits+mutualsfunds balances


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As aMedium of exchange

As a Unit of account

As a Store of value

As a standard of deferred payments


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Money was developed according to needs &Requirements.

Main aim was to remove the shortcomings of

the Barter System.


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1. COMMODITY MONEY

2. METALIC MONEY

3. PAPER MONEY

4. CREDIT MONEY

5. ELECTRONIC MONEY


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When different commodities were used as a mediumof exchange (BARTER SYSTEM)

Cow Heads, Goats, Axes, Dried Fishes etc were usedas medium of exchange.


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Barter System had different problem like:

1. Storing Problem

2. Durability problem

3. Transportation problem

4. Divisibility problem


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The next step in the evolution was thediscovery of precious metals like Gold, Silver,Copper.

Metallic Money consist of coins made of Gold,Silver, Copper or nickel as a mode ofpayment.


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UnCoined Metals

Metals were not used as a coin but as a Bullion.

This created the problem of measuring the

weight & Value. Supply of money also became problem when

the mines were fully used up or new mineswere discovered.

Transportation & Storage problem were alsothere.


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Coined Metals.

As a next step, standard coins were created.

They had a standard weight & value.

Problem of un coined metals started here aswell.


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Metallic money can be:

FULLY BODIED

Whose Face Value is equal to the value of

metal contained in it.TOKEN MONEY

Its Face Value is Higher than Intrinsic Value

(Value of Metal)


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When paper currency was introduced as amode of payment.

Originated as a receipt issued by Goldsmiths.

These receipts were then later on used forpayments.

Difference in the value of receipts was

becoming a problem then.


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Representative Paper Money.It is that money which is fully backed byequivalent metallic reserves.

Convertible Paper MoneyWhich is convertible into coins on demand.

Fait Paper MoneyWhich is not redeemable or convertible intoGold or Silver on demand. It is acceptedbecause it is declared legal tender by theissuing authority and has general acceptance asa medium of exchange. The intrinsic value ofFait money is Nil.


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Includes Bank money (different instrumentsoffered by the Banks.)

Cheques, Drafts, P.O, T.C are examples.

Convenient, Safe and easily convertible intocash.

Its like Near Money.


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http://mirror-uk-rb1.gallery.hd.org/_exhibits/money/_more2006/_more05/credit-card-fragments-after-being-cut-up-to-destroy-them-MasterCard-Visa-with-chip-closeup-1-DHD.jpg


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Electronic money (also known as e-money,

electronic cash, electronic currency, digital

money, digital cash or digital currency) refers

to money or scrip which is exchanged onlyelectronically. Typically, this involves use of

computer networks, the internet and digital

stored value systems.


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General Acceptability.

Stability of Value.

Transportability.

Storeability. Divisibility.

Homogeneity.

Cognizability.

Malleability.

Defination of Money

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