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  1. 1. Money By Prof.B.K.Vashishtha
  2. 2. Money <ul><li>“ Every branch of knowledge has its fundamental discovery. In mechanics, it is the wheel; in science, fire; in politics, the vote. Similarly, in economics, in whole commercial side of man’s social existence, money is the essential invention on which all the rest is based.” </li></ul><ul><li>Geoffery Crowther </li></ul>
  3. 3. Definition <ul><li>“Money is what money does”- Walker </li></ul><ul><li>“commodity, which is used to denote anything is widely accepted in payment for goods or in discharge of other business obligations.” –Robertson </li></ul>
  4. 4. Definition <ul><li>“ Anything which is generally acceptable as the mean of exchange (as a mean of settling the debts) and that at the same time act as a measure and as a store of value” </li></ul><ul><li>G. Crowther </li></ul>
  5. 5. Money <ul><li>According to the traditional economist, money includes not only paper notes and metallic coins, but also the demand deposits of commercial banks. According to the Radcliffe committee report(1959), money includes not only currency in circulation, but also all liquid assets (saving bank deposit, short term securities etc.) held by individual. </li></ul>
  6. 6. Money <ul><li>According to central bank approach, money includes not only currency in circulation but also various types of commercial bank deposits plus all credit created by various banking agencies operating in the economy. </li></ul>
  7. 7. Money and Currency <ul><li>The term currency includes metallic coins and paper notes. These are legal tender & are in actual circulation in the country </li></ul><ul><li>The term money includes not only coins & paper notes but credit instruments also. </li></ul><ul><li>Thus we can say that all currency is money but all currency is not money. </li></ul>
  8. 8. FUNCTIONS OF MONEY <ul><li>Primary or Main functions </li></ul><ul><li>Secondary functions </li></ul><ul><li>Contingent functions </li></ul><ul><li>Other functions </li></ul>
  9. 9. Primary functions <ul><li>These are also known as original functions- </li></ul><ul><li>Money as a medium of exchange- </li></ul><ul><li>it has a quality of general acceptance, it plays a mediator role between purchases and sales, it replaced barter system with money exchange system. </li></ul>
  10. 10. Primary functions <ul><li>Money is a measure of value- </li></ul><ul><li>the prices of goods and services are expressed in term of money, it also serves as unit of account </li></ul>
  11. 11. Relationship <ul><li>The two functions are performed simultaneously at the same point of time. </li></ul><ul><li>Some time money is used as measure of value but not as a medium of exchange, (like house wife exchanges goods) </li></ul><ul><li>After the first world war two currencies were in use in Germany– the American dollar as a measure of value and the German mark as a medium of exchange. </li></ul>
  12. 12. Secondary function <ul><li>Money is the standard of deferred payment </li></ul><ul><li>Money is a store of purchasing power </li></ul><ul><li>Money is a mean of transferring purchasing power </li></ul>
  13. 13. Contingent function <ul><li>Prof. Kinely – money has to perform certain additional in developed countries, known as contingent function of money. </li></ul><ul><li>Money is the basis of credit </li></ul><ul><li>Money facilitates distribution of social income </li></ul><ul><li>Money helps to equalize marginal utility & marginal productivity </li></ul><ul><li>Money increases productivity of capital </li></ul>
  14. 14. Other functions <ul><li>Money helps to maintain repayment capacity </li></ul><ul><li>Money represents generalized purchasing power </li></ul><ul><li>Money gives liquidity to capital- </li></ul><ul><li>Income motive </li></ul><ul><li>Transaction motive </li></ul><ul><li>Precautionary motive </li></ul><ul><li>Speculative/tentative motive </li></ul>
  15. 15. Classification of money <ul><li>On the basis of nature- </li></ul><ul><li>Actual money- </li></ul><ul><li>The money which is current in practice in a country </li></ul><ul><li>Money of account-it is the money in term of which the account are maintained in the country </li></ul><ul><li>Germany after world war & U.S.A. 1933 </li></ul>
  16. 16. <ul><li>Commodity money </li></ul><ul><li>Representative money </li></ul>
  17. 17. Classification of money <ul><li>ON THE BASIS OF LEGALITY </li></ul><ul><li>1.LEGAL TENDER MONEY- it is the money accepted as payment both by govt & people. It has legal sanction behind it, no one can refuse </li></ul><ul><li>Limited legal tender </li></ul><ul><li>unlimited legal tender </li></ul>
  18. 18. <ul><li>Limited legal tender – no one can be forced beyond a certain limit. 1,2,5,10,20 & 25 paise up to Rs. 25 </li></ul><ul><li>Unlimited legal tender is that money which a person has to accept up to any limit. </li></ul><ul><li>2. optional money- no one can be forced to accept it </li></ul>