Profile
Settings
Refer your friends
Sign out
What is money? This is a question that has been asked throughout history, and the answer is not always simple. Money can be defined as anything that is used as a medium of exchange to buy goods and services. It can also be described as a unit of account, meaning it is used to measure the value of goods and services. In this article, we will explore the definition of money, its functions in the economy, and different types of money. We will also take a look at some interesting facts about money!
The Best Definition of Money
Money is often described in terms of the functions that it gives. It can be a source of exchange, value, and a unit of account. Money is what people use to buy goods and services. It is also a measure of value or price, a standard of payment, and a unit of account.
As a medium of exchange, money is a value that buyers give to sellers when they buy goods and services. Money is accepted by sellers because they know that they can use it to buy other goods and services.
History of Money
The history of money is fascinating and begins with the barter system. Bartering is the process of exchanging goods or services for other goods or services.
For example, let’s say you have a cow and I have a chicken. You may want my chicken for its eggs, and I may want your cow for its milk. So, we agree to trade and both end up with something we value. Gradually the concept of the barter system spread and people started using commodities, such as gold and silver, for trading.
The use of commodities as money led to the development of the banking system. The first banks were established in the early Renaissance period in Italy and served as a place to store gold and silver. The first bank in India is the State Bank of India established in the year 1806 as the Bank of Calcutta.
Functions of Money Market
Some of the major functions of the money market are as follows:
- Issuance of currency: The money market is responsible for the issuance of currency notes and coins by the Central government through the Reserve Bank of India (RBI).
- Borrowing and lending: The money market provides a platform for the government to borrow funds from the public and also for the banks to lend money to each other.
- Maintaining liquidity: The money market ensures that there is an adequate flow of money in the economy, which in turn helps to maintain liquidity.
- Transfer of funds: The money market also facilitates the transfer of funds from one financial institution to another.
- Risk management: The money market provides a platform for the management of risks associated with financial assets.
- Promote economic growth: The money market also helps in promoting economic growth by providing funds for the development of infrastructure and other productive activities.
Types of Money
There are three types of money:
- Commodity money: Commodity money is a good that can be used as a medium of exchange. Commodity money must be durable, portable, divisible, and have a consistent value. Gold and silver coins are examples of commodity money.
- Representative money: Representative money is a type of money that represents a commodity. Representative money can be redeemed for the commodity it represents.
- Fiat money: Fiat money is a type of money that is not backed by a commodity. Fiat money has value because the government has declared it to be legal tender.
Importance of Money Market
The money market is an important part of the economy because it provides a way for people to save money and earn a return on their savings. The money market also provides a way for people to borrow money. The money market is important because it helps to keep the economy stable.
The money market is made up of financial institutions and investors that trade in money market instruments. The money market instruments are short-term debt instruments that are used to finance the short-term needs of the government and businesses. The money market instruments include Treasury bills, commercial paper, and certificates of deposit.
The money market is important because it provides a way for the government to borrow money. The government borrows money by selling Treasury bills to investors. The government uses the money it borrows to finance its operations.
Conclusion
The best definition of money is anything that has some value and is used for payment purposes in respect of goods or services and repayment of loans or giving advances in an economy. The money market is also important because it provides a way for businesses to borrow money. Businesses borrow money by selling commercial paper to investors. Commercial paper is a type of short-term debt that is used to finance the operations of businesses. This article deals with the best definition of money, the functions of the money market, and its importance.
