What is Money?
Money is a thing which is used to get our required goods and services. In simple words, a piece of paper used as a medium of exchange. It is important in everyone's life and its value will be decided by the Government or some top government banks. It plays a key role in every type of situation society will judge the status with money.I am not saying live only for earning money don't take it in another manner. I am saying to fulfill our dreams and needs we need money.
In the olden days, only goods act as a medium for goods transfer. If one person is cultivating rice, he will exchange his rice for another person with wheat of some other material. There arises a problem some foods will grow in a specific period and some materials required more time to manufacture.
To overcome this issue gold is used to exchange their goods. Gold supply is very small when compared to its demand. So, Money/Currency is invented. It is nothing but the piece of paper or coin that country's government will decide its value like 5 RS, 10 RS. So people can exchange the money for the goods that they required.
Functions of Money
Money should satisfy the following needs of the people
- People should able to buy their needs by using this money
- Money should hold value till that piece of paper is approved by their country government
- Should be used to measure the value of any good
5 Different Types of Money
- Fiat Money
- Commodity
- Representative
- Fiduciary
- Commercial bank money
Fiat Money
This is the piece of paper/coin that we are using in our day-to-day life for exchanging goods and services. This money is created by the country's government and they will decide the value of each Fiat money. It will differ from country to country and people can't buy any goods and services using other country currencies.
There is a possibility of exchanging other currencies with their country currency and the value of that money will differ from country to country. For example, a person with a US dollar can't buy any goods and services in India using the dollar. He needs to exchange his dollar for equivalent rupees to buy their needs in India.
Example: Banknotes and coins
Commodity
This can be used across the countries. Its price will be fixed based on supply and demand. In the olden days, people use these commodities to buy their goods and services. These commodities can be exchanged in their country with equivalent money or certificate that holds the value of this commodity.
Example: Gold, and other goods that can be exchanged.
Representative Money
This type of money doesn't have any value on its own. In many countries, government or private companies will store people's gold in safe wallets and gave people a certificate. These certificates should be exchanged only from where they got this. This can't be exchanged as like Fiat money
Example: Certificates, Tokens
Fiduciary
These are a kind of money that can be exchanged from one bank account to another bank account without withdrawing their money. This is handled by a piece of paper that holds the basic details about the account with account holder authentication. Nowadays most people are preferring to make the online transaction as it is free of cost and less time consumption.
Example: Cheques, Online Bank transfers
Commercial bank money
This is the amount that is having in their bank account and it is not in the physical form. People can share this amount using online transactions or using fiduciary mode. The benefit of this is, in a bank account bank will provide interest of some percentage to the account holder. This money can be withdrawn from ATM or bank or can directly transfer to any person.
Example: Money in the bank
Hope this article will be informative
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