Money

By-
What is Money??
• Money is any item or verifiable record that is generally
accepted as payment for goods and services and repayment
of debts in a particular country or socio-economic context.
• The main functions of money are distinguished as: a medium of
exchange, a unit of account, a store of value and sometimes,
a standard of deferred payment.
•  Any item or verifiable record that fulfills these functions can be
considered as money.
Functions of money
• Money is often defined in terms of the three functions or services that
it provides. 

1. Medium of exchange,
2. Store of value
3. Unit of account.
Medium of exchange
• Money's most important function is as a medium of exchange to
facilitate transactions. Without money, all transactions would have to
be conducted by barter, which involves direct exchange of one good
or service for another.
• The likelihood of a double coincidence of wants, however, is small
and makes the exchange of goods and services rather difficult.
• Money effectively eliminates the double coincidence of wants problem
by serving as a medium of exchange that is accepted in all
transactions, by all parties, regardless of whether they desire each
others' goods and services.
Store of value
•  In order to be a medium of exchange, money must hold its value over time;
that is, it must be a store of value.
• If money could not be stored for some period of time and still remain
valuable in exchange, it would not solve the double coincidence of wants
problem and therefore would not be adopted as a medium of exchange.
• As a store of value, money is not unique; many other stores of value exist,
such as land, works of art, and even baseball cards and stamps.
• However, money is more liquid than most other stores of value because as a
medium of exchange, it is readily accepted everywhere. Furthermore, money
is an easily transported store of value that is available in a number of
convenient denominations.
Unit of account
• Money also functions as a unit of account, providing a common
measure of the value of goods and services being exchanged.
• Knowing the value or price of a good, in terms of money, enables
both the supplier and the purchaser of the good to make decisions
about how much of the good to supply and how much of the good to
purchase.
 Types of Money
Money are classified as under:
1. On the basis of Physical form:
(a) Metallic Money
(b) Paper Money
(c) Plastic Money
2. On the basis of money creation by government and the banking system:
(a) Partial fiat Money
(b) Credit Money
(c) Total Money
3. On the basis of legal force behind acceptance
(a) Legal Money
(b) Optional Money
On the basis of Physical form
• Metallic Money:
Money made up of metals is called metallic money. The coins are known as
metallic money. 1 rupee,2 rupee coins are presently in circulation. 
• Paper Money:
It is made up of paper. It is legally tendered. It is issued by monetary authority
or central bank of the nation against the reserve of gold. The value of gold kept
reserve may be equal to or less than the amount of money issued. It is lighter
less costly to print and safe type of money. But if it is lost, or caught fire then
owner of the money suffers loss. However it is easy to carry.
• Plastic Money:
These are the authorized card issued by the recognized and approved institutes
by the central bank of the country. Credit cards , Debit Cards are the examples.
On the basis of money creation by government and the
banking system:
• Partial fiat money:
Fiat money represent the total coins and currencies introduced by the
central bank in the economy for facilitating the exchange transactions.
• Credit money:
The credit money is created by the banking system on the basis of the time
deposits of fiat money with the banking system on such time deposits is
created by banking system.
• Total money:
The total money supply in an economy is represented by narrow money.
i.e. partial fiat money and credit money.
On the basis of legal force behind acceptance

• Legal money:
The coins and currencies introduced in the economy by the central
bank are legal currency which are also known as legal tender . Thus, It
is a fiat money .
• Optional money:
Certain financial instruments like cheques, drafts, pay orders , bill of
exchange are issued by the reputed individuals and institutions . The
receiver of such instruments against the settelment of the monetary
consideration can refuse to accept it , If he doubts the creditworthiness
of the issuer .
Thank you…