M and B

Business

Quiz 2 :
Money and Payments

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Quiz 2 :
Money and Payments

Money means anything that is generally acceptable as a means of exchange At the same time it acts as a measure and stone of value. Money is one of the greatest inventions of making according to walker "money is what money does " is wider sense , money includes all mediums of exchanges like gold, silver, copper ,paper, cheque, bill of exchanges etc. Functions of money: Medium of exchange: It is a medium of exchange as it is widely accepted across the world for the purchase of any goods and services. Money benefits the society in a number of ways a. It ever comes splitting the act of barter in to two acts exchange i.e. sales purchases through money. b. It promotes transitional efficiency in exchange by facilitating the multiple exchanges of goods service with minimum effort time. c. It promotes allocation efficiently by facilitating specialization in production trade. Measure of value : As it is widely accepted across the world, it used to measure the value of good or service. As money is considered as the unit of account, it helps in developing as efficient accounting system. This is because the value of a variety of goods and services that are physically measured in different units in monetary units it must maintained Standard of deferred payments : As it is a unit of account and unit used to measure the value of goods and services, it needs to maintain a definite value over the time period. The change in the value of the money benefits the creditors or the debtors at the cost of debts. Store of value : By acting as a store of value, money provides security to the individuals to meet unpredictable emergencies to pay debts that are fixed in terms of money, money as a liquid store of value facilitates its possessor to purchase any other asserts at any time money as a links between present the future.

We should consider transaction costs as they play an Very important role in money management. Transaction costs not only examining the role of money in society. Transactions costs and society are different aspects.they also separate financial venues by customer patronage and market rankings.

Inflation, defined as the continuing increase in the general level of prices in an economy. For Example, we get 10 units of a good for $1 under normal circumstances, but in the case of inflation, the price level rise and we get less than 10 units for the same $1. Inflation is decreasing purchasing power of money. As demonstrated in the example, the same value of money after the increased prices could buy fewer units after inflation. Inflation causes many problems; there would be decline in the interest showed towards money. The reason behind this is the decreasing ability to purchase good with consistent purchasing value or power. This results in money losing one of its attribute, which is value function. Hence, people chose other modes of saving and hence tend to keep real assets like lands to retain their wealth. Due to the declining purchasing power of money, it cannot serve as a medium of exchange too. This is because people would rather prefer solid products like cloths or jeans to exchange for goods than the worthless money. Banks and other institutions tend not to lent money to others because the money paid back is worthless, making them loss money. Money can no longer be a standard for deferred payment. When the inflation is low and stable, it actually helps the economy and encourages money to function better.