MONEY AND ITS FUNCTIONS

Money

Target questions:

1. What is money?

2. What is barter?

3. What goods were used as money?

4. Why did precious metals gradually take over?

5. What are the functions of money?

6. What are credit cards?

7. What is a currency?

8. What is the Ukrainian currency?

Money is any medium of exchange that is widely accepted in payment for goods and services and in settlement of debts. Money also serves as a standard of value for measuring the relative worth of different goods and services. The number of units of money required to buy a commodity is the price of the commodity.

In modern world money is used for buying or selling goods, for measuring value and for storing wealth. Almost every society now has a money economy based on coins and paper bills of one kind or another. However, this has not always been true. In primitive societies a system of barter is used. Barter was a system of direct exchange of goods. Somebody could exchange a sheep, for example, for anything in the marketplace that they considered to be of equal value. Barter, however, was a very unsatisfactory system, because people's precise needs seldom coincided. People needed more practical system of exchange, and various money systems developed based on goods which the members of a society recognized as having value. Cattle, grain, teeth, shells, feathers, skulls, salt, elephant tusks and tobacco have all been used. Precious metals gradually took over because, when made into coins, they were portable, durable, recognizable and divisible into larger or smaller units of value.

The most important types of money are commodity money, fiat money, and credit money. The value of commodity money is about equal to the value of the material contained in it, usually gold, silver, and copper. Until the 18th and 19th centuries, coins were given monetary worth based on the exact amount of metal contained in them, but most modern coins are based on face value – the value that governments choose to give them, irrespective of the actual metal content. Most governments now issue paper money in the form of bills, which are really "promises to pay". Such money are known as fiat money. Paper money is obviously easier to handle and much more convenient in the modern world. Credit money is paper backed by promises by the issuer, whether a government or a bank, to pay an equivalent value in the standard monetary metal. Both the fiat and credit forms of money are generally made acceptable through a government decree that all creditors must take the money in settlement of debts; the money is then referred to as legal tender.

Nowadays checks and credit cards are being used increasingly. The world's first durable plastic currency was introduced by Australia in a special issue in 1988 and in a regular issue in 1992. Plastic bills are more resistant to counterfeiting than paper. So at present, paper bills and coins are less widely used as a means of payment than checks and electronic transfers and it is possible to imagine a world where "money" in the form of coins and paper currency will no longer be used.

MONEY AND ITS FUNCTIONS

(1) Although the crucial feature of money is its acceptance as the means of payment or medium of exchange, money has three other functions. It serves as a unit of account,as a store of value, andas a standard of deferred payment.

Date: 2015-12-24; view: 1558