MONEY

Definition: Money is something which is generally acceptable as a medium of exchange and can be converted into other assets without losing its time and value

Characteristics or Features of Money:

  • Durability: Money must be durable and not likely to deteriorate rapidly with
    frequent handling. Currency notes and coins are being used repeatedly and shall
    continue to do so for many years.
  • Medium of exchange: Money is the thing that acts as a medium of exchange for the sale and purchase of goods and services.
  • Weight: Money must be light in weight. Paper money is better than metal coins because it is light in weight.
  • Measure of value: It not only serves as medium of exchange but also acts as a measure of value. The value of all the goods and services is expressed in terms of money.

Important points about money:

  • Legal definition of money: Legally, money is anything proclaimed by law as a medium of exchange. Paper notes and coins (together called currency) is money as a matter of law.
  • FIAT Money: It is defined as a money which is under the ‘FIAT’ (order/authority) of the government to act as a money.
  • Functional definition of money: Functional definition of money refers to money as anything that performs four basic functions. (Medium of exchange, standard unit of value, standard of deferred payments, store of value)
  • Narrow definition of money: Functional definition of money is a narrow definition of money. It includes only notes, coins and demand deposits as money.
  • Broad definition of money: A broad definition of money also includes time deposits/ term deposits with the banks or post offices as a component of money.