12/6/2011 3:54:42 AM
Posted By: SimonMburu Membership Level: Silver Total Points: 718
MONEYMEANING OF MONEYWhatever commodity is acceptable to both buyers and sellers in exchange for goods or services is referred to as money. It’s the means of payments, especially notes and coins, given and accepted in buying and selling. Money is dynamic concept that changes with time.EVOLUTION OF MONEYi. Commodity money:Over time, different communities have used different commodities as a medium of exchange for goods .i.e. coastal communities in Kenya accepted cowrie shells as money while pastotralists used cattle.ii. Metallic money:Some communities accepted the use of precious metals like gold, silver and copper as money. The limit was the scarcity of the precious metal in all countries. It was also impossible to determine their value. The value was based on the amount of metal in the coin.iii. Coin ageThis came after the metallic money. Initially, privet goldsmith determined what quantity of metal was t be in each coin. However, this role was taken over by governments in different countries. Coins were made as either full-bodied or token coins. A full bodied coin is one whose face value is equivalent t to the metal contained in the coin. Token coins are coins in which the face value of the coin is far much higher that the value of the metal used to mint it. Such coins are cheaper to produce and are durable.iv. Paper moneyThe use of full-bodied coins as money was fraught with risks. The coins could be easily lost .e.g. to robbers. Paper money was initially introduced by goldsmiths however banks developed and took up the responsibility of issuing paper money. With the expansion and development of trade and the need for more paper money, governments took up the responsibility of issuing paper money. Paper money issuance is called fiduciary issue. Paper money is acceptable for use because the ‘paper’ on which it is printed has a legal status hence the name legal tender.Legal tender is an attribute that is granted to money by law for it to be acceptable in the exchange of goods and services in a given jurisdiction. Legal tender can be convertible or nonconvertible. When it is nonconvertible it implies that one can exchange it for foreign currency on demand.• Credit moneyThis is payment of good using credit card. A credit card holder is relieved of the need to carry notes and coins for exchange.CHARACTERISTICS OF MONEY1. General acceptability-for anything to effectively act as money, it must be generally accepted as a means of exchange by all people.2. Scarcity-money must be scarce to retain its value, and to be effective as a medium of exchange.3. Divisibility-It must be capable of being divided into small denominations for easy exchange e.g. Kenyan currency is divisible into units of Ksh50, Ksh100, Ksh200 etc.4.Portability-Money should be light, so that it can be carried around easily and conveniently.5.Stability-Money should not loose or gain value fast. Its value should remain fairly constant for a reasonable time. This makes people have confidence in the money and hold it longer.6.Homogeneity-All units should have the same value everywhere in a particular economy. Notes and coins should be of the same shape, weight, size, colour, quality and texture.7. Cognisability-Should be easily recognized in the particular economy, should not be easily confused with other inferior materials or substances.8. Maxeability-should not be easily counterfeit.9. Durability-It should not be easily damaged.FUNCTIONS OF MONEYI.Medium of exchange-It should be accepted by all. It can be commonly used to obtain goods and services.II.Measure of value-Value of goods can be expressed in terms of money. This has made assessing the values of different commodities possible.III.A store of value-Since money is not perishable producers of perishable goods e.g. farmers can sell their produce and store the money for future use.IV.Standard for future payment-Money is relatively stable in value. This means it is very convenient for future or differed payments.
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