This document provides an overview of Chapter 1 from a Money & Finance Management course. It defines money and explores its history and origins. Money originated as a commodity used for bartering before evolving into coins and representative money like receipts. The key functions of money are also outlined as being a medium of exchange, unit of account, store of value, and occasionally a standard for deferred payment. Examples are given to illustrate each function.
4. Definition of Money
ï” Money is an object
that is accepted as
payment for
goods, services or
repayment of debts in
society.
5. The word "money" is
believed to originate from
Greek history. In the ancient
world, Hera was often
associated with money. The
temple of Juno Moneta at
Rome was the place where
the mint of Ancient Rome
was located.
Etymology
6. The name "Juno" may derive
from the Etruscan goddess Uni
(which means "the
one", "unique", "unit", "union", "
united") and "Moneta" either
from the Latin word "monere"
(remind, warn, or instruct) or
the Greek word "moneres"
(alone, unique).
7. Trade between people may
date back to at least 100,000
years ago. Instead of money
they were using barter
methods. Barter is a method
of exchanging goods. For
example they were giving a
chicken in return of a box of
apples.
History
8. ï” But this system was not accurate.
Eventually many cultures
developed the use of commodity
money whose value comes from a
commodity of which it is made. The
first usage of them came from
Mesopotamia circa 3000 BC.
According to Herodotus the Lydians
were the first people that used
gold and silver to make coins.
9. The system of commodity money
evolved into a system of
representative money as gold and
silver merchants, and banks
started to issue receipts to their
depositors redeemable for the
commodity money deposited. In
the end these receipts became
generally accepted as a means of
payment and were used as money.
10. Function of Money
ï” The main functions of money are:
ï” a medium of exchange
ï” a unit of account
ï” a store of value
ï” and occasionally in the past, a standard of deferred
payment.
Any kind of object or secure verifiable record that fulfills
these functions can be considered money.
11. Medium of Exchange
ï” Medium of exchange function of money is used to
intermediate the exchange of goods and services. It avoids
the inefficiencies of the barter system as it was hard to
conclude a deal of the value of the goods that were
exchanged by two sides. Maybe the moneyâs most
important usage is as a method for comparing the values
of dissimilar objects.
12. Unit of Account
ï” Money is the common standard for measuring relative
worth of goods and services.
=
13. Unit of Account
For example,
ï” Prices in the U.S. are expressed in dollars. The function of
money for the price of bread is $2/loaf
ï” The price of wine is $6/bottle.
ï” A loaf of bread costs 1/3 of a bottle of wine and a bottle of
wine costs 3 loaves of bread.
14. Store of Value
ï” The money which is saved and stored and used as a medium of
exchange. The value of money generaly remains stable but we
should not forget the inflation effect.
15. Store of Money
ï” For example:
ï” Real estate, precious metals, gem stones, and similar assets
can be used in this way.
16. Standard of deferred payment
ï” It is the money which is used as a standard benchmark to use
in the future. The real value of money changes due to the
inflation and deflation.
ï” It is a direct result of the store of value, and measure of value
functions of money.
ï” It means «buy now, pay later»
17. Standard of deferred payment
ï” For example:
ï” Buying a car, especially paying off a car loan. An individual can
get a loan to buy a car today, then pay off the loan with
payments deferred into the future. In the same way that an
immediate payment is stated in terms of the monetary
unit, so too is any deferred payment.
