What ,Why and
Under-graduate , Dept of Electrical Engineering
• Money is any object of value that is
generally accepted as payment for goods
and services and repayment
of debts within a market
• From livestock and sacks of cereal grain to
cowries(sea shells) to beads to currently
used paper and metal currencies.
• Barter is a system of exchange by
which goods or services are directly exchanged
for other goods or services without using
a medium of exchange .
• May be Bilateral or multilateral.
Limitations of barter
• Need for presence of double coincidence of
• Absence of common measure of value:
• Indivisibility of certain goods:
• Difficulty in storing wealth:
• Money, in and of itself, is nothing.
• The value that people place on it has
nothing to do with the physical value of the
money. Money derives its value by being a
medium of exchange, a unit of
measurement and a storehouse for
COINS and CURRENCY
• In 600 B.C., Lydia's King Alyattes minted
the first official currency. The coins were
made from electrum, a mixture of silver
and gold that occurs naturally, and
stamped with pictures that acted as
• In 600 B.C., the Chinese moved from
coins to paper money
• Eventually, the banks (primarily in
Europe) started using bank notes.
• These notes could be taken to the bank at
any time and exchanged for their face
values in silver or gold coins.
• From 1821 to 1914 most of the world’s
currencies were redeemable into GOLD.
• Britain was the first to adopt this method in
• Then it had fixed 1£ at ¼ of 1 ounce of
• However after 1932 (End of the first great
economic depression) USA was the only
country to still have pegged its currency to
• Most european countries started a floating
• Gold Backing had decreased (war
• US chose to suspend Dollar convertibility
• A year later most pegged currencies
reverted back to floating system.
Floating vs. Fixed
• A fixed exchange rate denotes a nominal
exchange rate that is set firmly by the monetary
authority with respect to a foreign currency or a
basket of foreign currencies.
• By contrast, a floating exchange rate is
determined in foreign exchange markets
depending on demand and supply, and it
generally fluctuates constantly.