MONEY SYSTEM

Business studies study module

Money is anything that is generally accepted and used as a medium of exchange for goods and services.

Features/ characteristics of Money

For anything to serve as money, it must have the following characteristics:

  • Acceptability: The item must be acceptable to everyone.
  • Durability: The material used to make money must be able to last long without getting torn, defaced or losing its shape or texture.
  • Divisibility: Money should be easily divisible into smaller units (denominations) but still maintains it value.
  • Cognizability: The material used to make money should be easily recognized. This helps reduce chances of forgery. It also helps people to differentiate between various denominations.
  • Homogeneity: Money should be made using a similar material so as to appear identical. This eliminates any risk of confusion and forgeries.
  • Portability: – Money should be easy to carry regardless of its value.
  • Stability in value: The value of money should remain fairly stable over a given time period.
  • Liquidity: – it should be easily convertible to other forms of wealth (assets).
  • Scarcity: – It should be limited in supply. If it is abundantly available its value will reduce.
  • Malleability- the material used to make money should be easy to cast into various shapes.
  • Not easy to forge- money should not be easy to imitate.

Functions of Money

  • Medium of exchange: It is generally acceptable everyone in exchange of goods and services. It thus eliminates the need for double coincidence of wants.
  • Store of value: It is used to keep value of assets e.g. surplus goods can be sold and then money kept for future transactions.
  • Measure of value: Value of goods and services are expressed in money form. Performance of businesses is measured in terms of money.
  • Unit of account: It is a unit which the value of goods and services are calculated and records kept.
  • Standard of deferred payment: it is used to settle credit transactions.
  • Transfer of immovable items (assets): Money is used to transfer assets such as land from one person to another.



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