An introduction to the topic of money its functions and the banking system

Two individuals, each possessing some goods the other wanted, would enter into an agreement to trade.

types of money

These need to be updated. Aftermath of the Revolution The chaos from the Revolutionary War left the new nation's monetary system a complete wreck.

Impressions Create Everything The second type of money is fiat moneywhich does not require backing by a physical commodity.

Four functions of money

In other words, in a barter system, exchange can take place only if there is a double coincidence of wants between two transacting parties. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed. Because of the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple greater than 1 of the amount of base money created by the country's central bank. However, money is more liquid than most other stores of value because as a medium of exchange, it is readily accepted everywhere. However, people's perceptions must be supported by an economy that can produce the products and services that people want. Store of Value: To act as a store of value, money must be reliably saved, stored, and retrieved. Money comes in three forms: commodity money, fiat money, and fiduciary money. The state circumvented the British law stating that only the monarch of the British empire could issue coins by dating all their coins in , a period when there was no monarch. How does the existence of money simplify the process of buying and selling? Economies without money typically engage in the barter system. Coinage Main article: Coin These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold, and at one point there was bronze as well.

It is not necessarily useful—you can't eat gold, and it won't keep you warm at night, but the majority of people think it is beautiful, and they know others think it is beautiful.

As I mentioned elsewhere, there is enough material in the book for at least two 'Money and Banking' courses.

primary functions of money

Although cowrie shells are no longer used as money, do you think other forms of commodity monies are possible? This category represents money that can be readily transferred into cash.


introduction to money and banking pdf
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Financial sector