ZIMSEC O Level Commerce Notes: Money and its characteristics
- Money was developed to overcome some of the problems of barter trade.
- There are many forms of money viz:
- Bank notes and coins
- Money orders
- Bills of exchange
- Postal Orders
- Bank notes and coins are legal tender.
- These are issued by government and must be accepted by anyone in settlement of debt or in payment of goods or services.
- There are two types of coins:
- Standard coins: these contain precious metal that match the face value of the coin.
- Token coins: are not worth the same as the metal they contain.
Functions of Money
- A medium of exchange-it can be exchanged for goods and services e.g. money for a car.
- A measure of value-the value of goods and services can be expressed in monetary terms for example a $5 000 truck.
- A standard of comparing value-for example a $20 goat and a $20 for 4 chickens.
- A store of value– surplus goods can be sold and stored in the form of money and perishables such as vegetables can be sold and their money kept for future use. Money can also be deposited in a bank for future retrieval and use.
- A standard of future/deferred payments-goods and services are valued and paid for later for example during Hire Purchase and credit transactions.
- As a unit of transactions i.e. accounting transactions are expressed and measured in monetary terms.
Characteristics of Money
- Money has to have the following features if it is to perform its stated functions:
- Acceptable-money must be acceptable in making payments and people must accept it on their own volition.
- Divisible-money must be available in different denominations making it divisible into smaller units thus enabling all manner of transactions including microtransactions.
- Durable-it should be able to maintain in state for a long time and not wear easily.
- Portable-money must be light enough for people to be able to carry it easily.
- Recognisable-money should be identifiable and distinguishable one coin and note from another.
- Uniform/Homogenous-Notes and coins of the same denomination must have the same characteristics and appearance.
- Scarcity-money should be in limited supply.
- Stable value-money should have a consistent value and withstand the effects of inflation.
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