1. WELCOME

2. MONEY
Alex. K. George
BSF-10-002

3. MONEY
Money is any good that is widely used and
accepted in transactions involving the transfer
of goods and services from one person to
another.
-medium of exchange

4. 4
EVOLUTION OF MONEY
 Commodity money: Gold, Silver, other precious
metals, certain stones, Cigarettes, etc.
 Representative money that is backed 100 % by precious
metals.
 Fiat money: No consumption or investment use: intrinsically
useless pieces of paper.
 Checks
 e- money & plastic money

5. CHARACTERISTICS OF MONEY
i. Durability
ii. Divisibility
iii. Transportability
iv. Non counterfeit ability
v. Limited supply
vi. Acceptability

6. 1. DURABILITY
• Item retains the same shape, form, and
substance over an extended period of time
• It does not easily decompose, deteriorate,
degrade, or otherwise change form.
• Durability also extends beyond the physical
realm to include social and institutional
durability.

7. 2. DIVISIBILITY
• Means money can be divided into small
increments that can be used in exchange for
goods of varying values.
• For an item to function as the medium of
exchange, which can be used to purchase a
wide range of different goods with a wide
range of different values, then it must be
divisible. The smaller the divisions, the better.

8. 3. TRANSPORTABILITY
• Means that money can be easily moved from
one location to another when such movement
is needed to complete exchanges.
• The money must be transportable. Money that
is NOT transportable is not transported, so it is
not used.

9. 4. NON COUNTERFEIT ABILITY
• Means that money cannot be easily duplicated.
• A given item cannot function as a medium of
exchange if everyone is able to "print up," or
"make up" a batch of money any time that they
want.

10. 5. LIMITED SUPPLY
• Means that restriction on the amount of money
in circulation
• Respective country’s Government has the
responsibility to control/maintain an adequate
money supply to the market based on their
monetary policies.

11. 6. ACCEPTABILITY
• Acceptability means that everyone must be
able to use the money for transactions.
• Money is universally accepted anywhere in the
world as a universal mean for transaction.

12. TYPES OF MONEY
1. Commodity money
2. Fiat money
3. Bank money

13. 1. COMMODITY MONEY
• Commodity money is a good whose value
serves as the value of money
• Gold coins are an example of commodity
money.
• Commodity money has been replaced with fiat
money.

14. 2. FIAT MONEY
• Fiat money is a good, the
value of which is less than
the value it represents as
money.
• Currency are an example
of fiat money because their
value as slips of printed
paper is less than their
value as money.

15. 3. BANK MONEY
• Bank money consists of the book credit that
banks extend to their depositors.
• Transactions made using checks drawn on
deposits held at banks involve the use of bank
money.
• example:- DD, Checks, credit & debit cards

16. PLASTIC MONEY
• Plastic money is a term that is used in
reference to the hard plastic cards we use
everyday in place of actual bank notes.
• Different forms such as cash cards, credit
cards, debit cards, pre-paid cash cards, store
cards, etc.

17. FUNCTIONS OF MONEY

18. FUNCTIONS OF MONEY
i. Money as a unit of value
ii. Medium of exchange
iii. Standard of deferred payments
iv. Store of value

19. 1. MONEY AS A UNIT OF VALUE
• Money measures the value of various goods
and services which are produced in an
economy.
• Money works as unit of value or standard of
value.
• Money works as common measure of value by
expressing exchange value of all goods and
services in money in the exchange market.

20. 2. MEDIUM OF EXCHANGE
• Money facilitates transactions of goods and
service as a medium of exchange.
• Eg; Producers sell their goods to the
wholesalers in exchange of money.
Wholesalers sell the same goods to the
consumers in exchange of money.

21. 3. STANDARD OF DEFERRED PAYMENTS
• Modem economic setup is based on credit and
credit is paid in the form of money only.
• Money, besides being the basis of current
transactions, is also the basis of deferred
payments.
• Only money is such a commodity in whose
form accounts of deferred payments can be
maintained in such a way so that both creditors
and debtors do not stand to lose.

22. 4. STORE OF VALUE:
• It was virtually impossible to store surplus value
under barter economy; the discovery of money
has removed this difficulty.
• With the help of money, people can store surplus
pur-chasing power and use it whenever they want.
• Saving in money is not only secure but its
possibility of being destroyed is very less.
Besides, it can be used whenever needed.
• Money has become the only basis of promoting
capital formation.

23. THE DEMAND FOR MONEY
• The demand for money is affected by several
factors,
– The level of income
– Interest rates
– Inflation
– Uncertainty about the future.
• The way in which these factors affect money
demand is usually explained in terms of the
three motives for demanding money:
I. The transactions
II. The precautionary
III. The speculative motives

24. 1. TRANSACTIONS MOTIVE
• The transactions motive for demanding money
arises from the fact that most transactions
involve an exchange of money. Because it is
necessary to have money available for
transactions, money will be demanded.
• The total number of transactions made in an
economy tends to increase over time as income
rises. Hence, as income or GDP rises,
the transactions demand for money also rises.

25. 2. PRECAUTIONARY MOTIVE.
• People often demand money as
a precaution against an uncertain future.
• Unexpected expenses, such as medical or car
repair bills, often require immediate
payment. The need to have money available in
such situations is referred to as
the precautionary motive for demanding
money.

26. 3. SPECULATIVE MOTIVE.
• Money, like other stores of value, is an asset. The
demand for an asset depends on both its rate of
return and its opportunity cost.
• Typically, money holdings provide no rate of return and
often depreciate in value due to inflation. The
opportunity cost of holding money is the interest rate
that can be earned by lending or investing one's money
holdings.
• The speculative motive for demanding money arises in
situations where holding money is perceived to be less
risky than the alternative of lending the money or
investing it in some other asset.

27. SUPPLY OF MONEY
• The money supply of a country consists
of currency (banknotes and coins) and bank
money (the balance held in checking
accounts and savings accounts).
• Bank money, which consists only of records
(mostly computerized in modern
banking), forms by far the largest part of the
money supply in developed nations

28. M1, M2, M3
• M1, M2, M3 are all measures of money
supply, the amount of money in circulation at a
given time.
M1, also called narrow money, normally include
coins and notes in circulation and other money
equivalents that are easily convertible into cash.
M2 is somewhat broader measure of the supply of
money, which includes all of M1
plus savings and time deposits held at banks.
M3 is an even broader measure of the money
supply, which includes all of M2 plus large
denomination, long-term time

29. • M1 being the narrowest measure and M3 being
the broadest.
• Narrow money refers to forms of money that
are available immediately for use in
transactions,
• Broad those that are not immediately available.

30. REFERENCE
• http://www.cliffsnotes.com/study_guide/Definition-of-
Money.topicArticleId-9789,articleId-9744.html
• http://economics.about.com/od/money/a/Types-Of-
Money.htm
• http://www.shmoop.com/money-banking/types-of-
money.html
• http://www.amosweb.com/cgi-
bin/awb_nav.pl?s=wpd&c=dsp&k=money+characteristics
• http://subramoneyplanning.blogspot.in/2011/11/money-its-
functions-characteristics.html
• http://lexicon.ft.com/Term?term=m0,-m1,-m2,-m3,-m4
• http://mrunal.org/2012/05/money-supply-m1m2.html

31. Thank you…

32. • en.wikipedia.org/wiki/Inflation
• www.investopedia.com/terms/i/inflation.asp
• www.inflation.co.in/
• www.tradingeconomics.com/india/inflation-
cpi
• www.westegg.com/inflation/