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Meaning of Money and Functions

This document discusses the definition, functions, and types of money. It defines money as a commonly accepted medium of exchange and measure of value. The primary functions of money are as a medium of exchange to facilitate trade, and as a measure or unit of value. Additional functions include serving as a standard for deferred payments, a store of value, and means of transferring value. Money is further classified based on the relationship between its commodity value and monetary value, including full-bodied, representative full-bodied, and credit money.

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Aisha Rizvi
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64 views13 pages

Meaning of Money and Functions

This document discusses the definition, functions, and types of money. It defines money as a commonly accepted medium of exchange and measure of value. The primary functions of money are as a medium of exchange to facilitate trade, and as a measure or unit of value. Additional functions include serving as a standard for deferred payments, a store of value, and means of transferring value. Money is further classified based on the relationship between its commodity value and monetary value, including full-bodied, representative full-bodied, and credit money.

Uploaded by

Aisha Rizvi
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MONEY AND

VALUE
OF MONEY
MONEY
Money is a Commodity which is commonly
accepted as a medium of exchange. It is the medium
in which prices and values are expressed. It
circulates from person to person and country to
country, facilitating trade and it is the principal
measure of wealth.
VALUE OF MONEY
The amount of goods and services received in exchange for a unit of
money constitutes value of money.
 According to Crowther, “ The value of money is what it will buy .
 According to Robertson, “By the value of money we mean the
amount of things in general which will be given in exchange for a
unit of money . “
FUNCTIONS OF
MONEY
PRIMARY FUNCTION
It refers to basic functions of money, common to all economies of the world . It
includes-
(1) Medium of exchange - Most important function. It means that money acts as
an intermediary for goods and services in an exchange transaction. Use of
money as a medium of exchange has removed the major difficulty of double
coincidence of wants in barter system.
 (2) Measure of Value-It means that the value of each good or service is
measured In monetary terms.
 Also called unit of account.
SECONDARY OR SUBSIDIARY
FUNCTION
It Includes all those functions, that are supplementary to the primary functions:
-
 (1) Standard of Deferred Payments: - Deferred Payments are those payments
which are made sometime in future i.e., payments of loans.
 (2) Store of Value :- It means storing the purchasing power to be used
sometimes in the future. Savings in terms of money are much more secured.
Than those in terms of goods.
 (3) Transfer of Value :- Money acts as a Convenient mode of the transfer of
value. Helpful when goods are purchased from far off places for the
satisfaction of human wants.
CONTINGENT FUNCTION
These are those functions which tend to assume significance during the course of economic
development.
 (1.) Money forms the basis of other credit instruments :- Money serves as the basis of all credit
instruments like cheque , drafts etc.
 (2.)Money facilitates the study of National Income distribution :-Every data is measured in
terms of money , i.e., National Income, Per Capital income, etc.
 (3.) Bearer of option :- when we accumulate wealth in terms of money, we can exercise our
option regarding purchase of goods and services according to one needs.
 (4.) Money serves as a Guarantee of Solvency:- Monetary deposits serves as a guarantee
against insolvency. A firm can be declared bankrupt when it fails to fulfil its monetary
liabilities.
 (5.) Money facilitates Liquidity of Capital:- Fixed assets can be converted into money that
people are induced to generate wealth in the form of such assets.
CLASSIFICATION OF MONEY
Money is classified on the basis of the relationship between
the value of money as a commodity and the value of money
as money. It can be broadly classified as:
Full-bodied Money
Representative Full-bodied Money
 Credit Money
FULL-BODIED MONEY
Full-bodied money refers to any unit of money,
whose intrinsic value and face value are equal,
i.e., Commodity Value = Money Value. For
example, During the colonial period, 1 rupee
coin was made of silver metal and its monetary
value was equal to its commodity value
REPRESENTATIVE FULL
BODIED MONEY
The representative full-bodied money usually
refers to money made of paper. The money
value of representative full-bodied money is
much higher than its commodity value,
i.e., Money Value > Commodity Value. 
CREDIT MONEY
The money whose intrinsic value or commodity
value is much lower than its face value is
known as Credit Money, i.e., Commodity
Value<Money Value. For example, the face
value of a ₹200 note is Rs 200, but if we sell
the note as a paper, we would get a much lower
amount. 
CHARACTERISTICS OF
MONEY
It is generally accepted as a medium of exchange.
It is voluntarily accepted.
It acts as a medium of exchange.
It acts as a measure of value.
It acts as a store of value.

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