mmw prelim

• Money can be a metal coin, or a piece of paper with a historic image on it, but the value that people place on it has nothing to do with the physical value of money
• Money


  Derives its value by being a medium of exchange, a unit of measurement and a storehouse for wealth
• Money is valuable merely because everyone knows everyone else will accept it as a form of payment
• Bartering


  A direct trade of goods and services where two traders trade equal value of their services or commodities
• Asian Cutlery


  • Chinese moved from using actual tools and weapons as a medium of exchange to using miniature replicas of the same tools cast in bronze
• Lydia King Alyattes minted the first official currency


  600 B.C.
• Coins


  Made from electrum, a mixture of silver and gold and stamped with picture acted as denominations
• In the streets of Sardis, circa 600 B.C., a clay jar might cost you two owls and a snake
• Paper money


  Chinese moved from coins to paper money, banks started using bank notes for depositor and borrowers to carry around instead of coins and notes could be taken and exchanged for their face values in silver or gold
• Money


  Defined as anything that is used a medium of exchange and is generally accepted as a mean of payment
• Money as a medium of exchange

  Eliminates certain challenges that every barter transaction presents, consumer has the full liberty to manifest their preferences on certain goods and services, it presents a very strong influence on the quality of goods and services that are produced, serves as tool from which economic activities can be based
• Money as a means of payment


  Used for the settlement of any exchange for the convenience of all parties be it for business or for personal satisfaction
• Money as a store of value


  Saving - keeping the value of the money at relatively the same level in a short span of time in the future, Investing - putting your money in some productive activities and in the process increasing its absolute value
• Money as a unit of account


  There has to be a universally common and acceptable basis on the measurement of goods and services to be exchanged
• Necessary attributes of money


  • Acceptability
  • Elasticity
  • Convertibility
  • Divisibility
  • Portability
  • Recognizability
  • Malleability
  • Durability
• Acceptability


  Refers to the characteristics of being good enough or suitable enough in exchange of something without any fear on he part of the holder for refusal by the other party to other transaction
• Elasticity


  Money in the context its supply should be capable of being increased or decreased depending on the state or needs of economy
• Convertibility


  Money's capability of being swiped over other currencies, most especially to ones considered as dominant currencies like Dollar, pound and Euro
• Divisibility


  Money should be capable of being divisible from a fraction 1, 10, 100 and so on, to facilitate flexibility of exchange
• Portability


  Money should be capable of being carried anywhere with ease
• Recognizability


  For money to route easily in circulation it should be capable of easy recognition. The authentic stamp or the government should be easily visible and distinguishable to prevent and counter forgery or counterfeiting
• Malleability


  For metallic money, it should be capable of passing through process of casting to make sure it has the authoritative stamp or markings in it
• Durability


  Money should possess the capability to physically stay long enough in circulation and withstand exposure to elements like water, humidity, moderate heat and sometimes chemicals
• Kinds of money


  • Commodity money
  • Fiat money
  • Credit money
• Commodity money


  Originates from the use of commodity as the means of exchanging goods, a near hybrid barter
• Fiat money


  Money issued by pronouncement of the authority or government, being used because of established customs and practice
• Credit money


  In the form of note, a promise to the bearer that he will be paid with standard money on demand or at fixed determinable time
• Money creation and demand for money

  1. Evolved from barter system

  2. Goldsmithing

  3. From plain receipts to loan out

  4. Modern banks

  5. Fractional reserve banking
• Fractional reserve banking


  Banking in which the banks only hold a fraction of the money from their client's deposit as reserves, allowing them to lend out to people who want to borrow money
• Coinage


  The process of manufacturing metals into certain shapes to maintain the uniformity in all the coins of these same kind
• Coinage


  • Metals nowadays serve the purpose of money chiefly in the form of coins, the requisite amount of being weighed out on the occasion of each exchange or passed from hand to hand in quills or other rough container capable of being used as instruments of measurement
• Coin


  A piece of metal or combination of metals bearing stamp indicative of its weight and fineness and other devices designed to render counterfeiting difficult to prevent clipping and sweating and sometimes to serve educational, artistic or patriotic purposes
• The great advantages of coins led to their universal use in the early times and at present their manufacture constitutes a business of no small magnitude and of great social significance
• Accuracy and physical uniformity of coins

  • If gold and silver in its pure state had to be weighed in every transaction, commerce on a large scale, in which rapidly and accuracy are essential and even slight losses in each exchange ruinous would be impossible, this can only be done if their denominations, sizes and weights are conveniently arranged
• In order to make the money received go very much farther than it otherwise would in the payment of debts and the purchase of commodities, debasement was frequently practiced; that is baser and cheaper metals were used as substitute for a part of gold and the silver, the old weight and name being retained
• The correct ideas regarding the nature and functions of money become a part of the common knowledge of business men and other well-informed people, the process of reform consisted in the gradual withdrawal of the right of coinage from all private persons, and in the development of the strictest integrity in the manufacture of coins on the part of public authorities
• Credit


  The ability to obtain a thing of value in exchange for a promise to pay with money or something equally satisfactory to the seller at some future time, it can also be described as the parting of resources by one party called the debtor where the latter does not give the money back to first party immediately thereby generating a debt
• With or without money, credit can still exist for as long as there was a parting of something of value and recognition of obligation by the other party
• Advantages of a credit economy

  • It generates additional funding
  • It presents opportunity
  • It can increase government spending
  • It benefits the economy
  • It postpones financial outlay
• Disadvantages of a credit economy

  • Credit may lead to inflation
  • It can lead to wastage of resources
  • Unlike cash, credit has a pervasive effect
  • It can burden the next generation