Money is a token or item which acts as a medium of exchange that has both legal and social acceptance with regards to making payment for buying commodities or receiving services, as well as repayment of loans.
In addition, money also functions as a standard of value and a store of value because with the help of money, the value of various goods and services can be measured. According to a small number of economists, money is a standard of deferred payment. There are various types of money and different definitions are applied for them.
Money refers both to currency, specifically a large number of currencies that circulate under the legal tender status, and different types of financial deposit accounts, for example savings accounts, demand deposits, as well as certificates of deposit.
According to the theory of modern economy, currency is the most minuscule constituent of money supply. Money has no similarities with real value as real value is the fundamental component of the study of economics.
The study of economics has a key focus on money and money is mostly associated with finance. If money is absent, then the economy becomes ineffective, and on the contrary, the efficient use of money results in increased productivity and wealth. According to economics, money has the following characteristics:
Money is a medium of exchange or it functions as an intermediary of trade.
Money functions as a unit of account or a standard mathematical unit of measurement, which is used to measure the market value of various commodities and services and other dealings.
Money functions as a store of value because the forms of money can be stored and recovered and used for any future purpose.
Money has the highest degree of liquidity for the simple reason that money has the universal acceptance and recognition as the basic form of currency
Usually, money can be categorized into the following types:
Commodity Money: This is a type of money which can be utilized both as an exchangeable commodity and a general purpose exchange medium in its own capacity.
Fiat Money: Fiat money is that type of money the value of which is ascertained with the help of legal methods instead of the associated availableness of commodities and services. Fiat money can symbolize government promises or a commodity.
Credit Money: Credit money refers to the claim placed to a legal individual, which can be implemented to buy goods and services.
Soft Money: Soft money refers to the paper currency rather than gold, silver, or any other types of coined metal.
Hard Money: Hard money refers to the value of different gold, silver, or platinum coins (bullion) in circulation in the field of international trade.
Know More : Different Types of Money
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