Lecture03_Characteristics of Money (part 3 of this lecture)
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K@sh Again
Apr 12, 2010, 10:27:30 AM4/12/10
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As we know that money is an asset which is used for the exchange of goods & services and the repayments of the debts. Now I want to talk about, What are the Characteristics of Money??
There are three important Characteristics of Money:
1st of all it should be used as a means of payments that we can use money for settling our payments, purchasing goods & services Or for settling down our payments of our debt obligations.
Money is accepted in economic exchanges. In olden times we had use Barter system, means exchanges of thing. for example if some one need wheat and I have wheat but I need rice and he/she have rice then I have to give him/her a specific amount of rice in exchange of a specific amount of wheat.Barter is an alternative to using money but it doesn’t work very well.
Actually it requires a “double coincidence of wants,” meaning that in order for trade to take place both parties must want what the other has. If I need rice and I have wheat to purchase rice but the man who have rice don't need my wheat then he will not exchange his rice with me that was the biggest problem that why this money system had introduced where both parties have something to give and get, means now if I have wheat and want rice for my use then I can sale my wheat and earn money from other then can purchase rice from that person who is ready to sale his/her rice and can give him/her money which I have. So money finalizes payments so that buyers and sellers have no further claim on each other.
A unit of Account:
The money should be use as a unit of account.We measure value using rupees and paisas.
Money is the unit of account that we use to quote prices and record debts.
A Store of Value:
finally, the money should be used for the store of value. The store of value and the means of payments are interrelated.
Well, now I want explain these characteristics a little bit more,
when we talk about money as means of payments then I want to tell you about olden days, in past we had different commodities which we can use as means of payments, (when money was not existed) but currently we have a common thing that is money for settling down our payments against the purchasing goods and services.
Money basically facilitates the economic exchanges, there are two types of economic exchanges, one is of goods & services and other is the debt and loans; both types of exchanges required money.
Now if don't want to use money then can we make exchanging goods & services as well as on debt obligations?
Yes! we have the barter system for this purpose, Barter exchange does exist but it does not efficiently complete the exchanges, Because one of the basic requirement of the barter exchanging that is double or coincidence of wants. this type of system is known as barter system where exchanges of goods for the goods or exchange of services for the goods and services. This system also has some disadvantages or problems.
when money acts as a unit of account that we can determine the prices of goods & services in terms of money not in terms of other goods and services.
So money can also be reffered as the standard of value, that what is each good or service 's value in terms of money.
Final characteristic of money is to act as a store of value. For money to function as a means of payment it has to be a store of value too, because it must retain its worth from day to day.
when we talking about store of money then it means we are talking about wealth & we can't keep wealth only in the form of moneybut here are also other ways. For example our financial instruments that we can invest our wealth, our surplus on stocks or bonds. we can also invest our wealth in the form of real asset. for example houses, if we rent that house, then we can earn rent on that particular house.
Note: You may see this concept of money in your handouts of MGT411, page number 8, lecture 03. now you may read the text under heading "Characteristics of Money" and after reading my full post and reading that paragraph, if you will have still some questions in your mind about this topic then don't be shy to ask questions to me, I am here to explain you again and again.
There are three important Characteristics of Money:
- A means of payment
- A unit of Account
- A Store of Value
1st of all it should be used as a means of payments that we can use money for settling our payments, purchasing goods & services Or for settling down our payments of our debt obligations.
Money is accepted in economic exchanges. In olden times we had use Barter system, means exchanges of thing. for example if some one need wheat and I have wheat but I need rice and he/she have rice then I have to give him/her a specific amount of rice in exchange of a specific amount of wheat.Barter is an alternative to using money but it doesn’t work very well.
Actually it requires a “double coincidence of wants,” meaning that in order for trade to take place both parties must want what the other has. If I need rice and I have wheat to purchase rice but the man who have rice don't need my wheat then he will not exchange his rice with me that was the biggest problem that why this money system had introduced where both parties have something to give and get, means now if I have wheat and want rice for my use then I can sale my wheat and earn money from other then can purchase rice from that person who is ready to sale his/her rice and can give him/her money which I have. So money finalizes payments so that buyers and sellers have no further claim on each other.
A unit of Account:
The money should be use as a unit of account.We measure value using rupees and paisas.
Money is the unit of account that we use to quote prices and record debts.
A Store of Value:
finally, the money should be used for the store of value. The store of value and the means of payments are interrelated.
Well, now I want explain these characteristics a little bit more,
when we talk about money as means of payments then I want to tell you about olden days, in past we had different commodities which we can use as means of payments, (when money was not existed) but currently we have a common thing that is money for settling down our payments against the purchasing goods and services.
Money basically facilitates the economic exchanges, there are two types of economic exchanges, one is of goods & services and other is the debt and loans; both types of exchanges required money.
Now if don't want to use money then can we make exchanging goods & services as well as on debt obligations?
Yes! we have the barter system for this purpose, Barter exchange does exist but it does not efficiently complete the exchanges, Because one of the basic requirement of the barter exchanging that is double or coincidence of wants. this type of system is known as barter system where exchanges of goods for the goods or exchange of services for the goods and services. This system also has some disadvantages or problems.
- it is time consuming
- it is not efficient.
when money acts as a unit of account that we can determine the prices of goods & services in terms of money not in terms of other goods and services.
So money can also be reffered as the standard of value, that what is each good or service 's value in terms of money.
Final characteristic of money is to act as a store of value. For money to function as a means of payment it has to be a store of value too, because it must retain its worth from day to day.
when we talking about store of money then it means we are talking about wealth & we can't keep wealth only in the form of moneybut here are also other ways. For example our financial instruments that we can invest our wealth, our surplus on stocks or bonds. we can also invest our wealth in the form of real asset. for example houses, if we rent that house, then we can earn rent on that particular house.
Note: You may see this concept of money in your handouts of MGT411, page number 8, lecture 03. now you may read the text under heading "Characteristics of Money" and after reading my full post and reading that paragraph, if you will have still some questions in your mind about this topic then don't be shy to ask questions to me, I am here to explain you again and again.
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