Functions of money

Money is any item that may be used in paying an obligation. History tells us that
money has no specific form in early of part of human business interactions. Various
objects have been used to represent value just to facilitate the commercial transactions.

The following are the functions of money:

1. Medium of exchange – this is the most important function of money. Through it,
business transactions can be facilitated with much ease. People will generally
accept money in exchange of goods they will deliver and/or services they will
render.

2. Measure of value – the use of money in business transactions removes the usual
difficulties that the parties may encounter in barter trade. Both parties will know
exactly the amount of money to give or to receive to consummate an agreement.

3. Store of value – A person who received money as form of payment, may decide
to keep it for a while and just spend it in the future knowing that the value of it will
generally remain the same.

Characteristics of Money
The following are some of the important characteristics of money:

1. Durable – after a period that the money is transferred from one person to
another, it still retains its form and shape.
2. Portable – it is easy to carry it from one place to another.
3. Divisible – it can easily be divided into small increments making it easy to give
the exact amount of payment up to the last centavo.
4. Difficult to counterfeit – money that is easy to counterfeit will become worthless.
Its function as a medium of exchange will be lost since no one will trust its
intrinsic value anymore.
 5. Acceptable in a particular jurisdiction – generally, the creditor can be compelled
to receive it as payment.

Global currency
Ideally, money must be backed with something of value, such as gold or silver.
Its worth will be more meaningful, and its transferability will be enhanced. It would be
nice if the world will have just one currency with such intrinsic value. If this happens, the
prices of the commodities in various countries can be easily compared, and the hassle
of converting different currencies will be eliminated.

However, it remains a plan to have a global currency. Perhaps this is because of

the fear of possible loss of independent local monetary policy 1 that will govern and
address the economic problem in a particular country.

Legal tender

Legal tender is the currency which if offered as payment, in proper amount, by

the debtor, the creditor cannot refuse to accept. In Philippines, “The maximum amount
of coins to be considered as legal tender is adjusted as follows:

1. One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-Piso and 10-
Piso coins; and
2. One hundred pesos (P100.00) for denominations of 1-sentimo, 5-sentimo, 10-
sentimo, and 25-sentimo coins.”2

There is no limit on Philippine currency notes.

Assignment: (topics for the recitation next meeting)

1
“The primary objective of BSP's monetary policy is to promote a low and stable inflation conducive to a
balanced and sustainable economic growth.” [http://www.bsp.gov.ph/monetary/overview.asp]

2
BSP Circular No. 537, Series of 2006, dated 18 July 2006
1. Determine the following types of checks:

 Certified Check - a form of check or cheque for which the bank verifies that sufficient funds exist in the
account to cover the check, and so certifies, at the time the check is written.

 Crossed Check - any check that is crossed with two parallel lines, either across the whole check or
through the top left-hand corner of the check. This double-line notation signifies that the check may only be
deposited directly into a bank account

 Ante-Dated Check - Cheque is called ante dated cheque when you write a date on cheque that is earlier
than the date on which it is presented to the bank. Any Cheque with past date (not exceeding past 3
months) can be presented to bank for clearance or payment.

 Postdated Check - A Cheque is called post-dated cheque when cheque bear post-date or in simple
words, cheque have future date. If any cheque bear a date of next week or next month, then it is called post-
dated cheque.

 Cancelled Check - a check that has been paid or cleared by the bank it was drawn on after it has been
deposited or cashed. The check is "canceled" after it's been used or paid so that the check cannot be used
again.

 Bouncing check - a check that cannot be processed because the account holder has nonsufficient
funds (NSF) available for use.

 Stale Check - As you know, validity of cheque is 3 month from the date of cheque. When the validity
period expire, cheque become stale. Such cheque can’t be presented for payment in the bank. And if they
are presented for payment, get dishonored by the bank. Banks also don’t accept these cheques.

 Manager’s or Cashier's Check - a check drawn by the bank’s manager upon the bank itself and
accepted in advance by the bank by the act of its issuance. It is really the bank’s own check and may be
treated as a promissory note with the bank as its maker. Consequently, upon its purchase, the check
becomes the primary obligation of the bank and constitutes its written promise to pay the holder upon
demand

2. What are the usual reasons why checks bounce?

there are several cheque bounces reasons to be considered such as incorrect date mentioned on
the cheque, signature mismatch, mismatch of the amount and figures, damaged cheque, overwriting of
the cheque, etc. The principal reason for a cheque bounce is insufficient funds.

3. Kinds of bank accounts

 Savings account - A savings account is a basic type of bank account that allows you to deposit
money and keep it safe, and withdraw funds, all while earning interest.
 Time deposit account - involves keeping your funds in the account for a fixed period of one month
to seven years
 Current account - a bank account that you can take money from at any time and that
usually earns little or no interest. opened by businessmen who have a higher number of regular
transactions with the bank.
  Joint account - for convenience and transparency in managing their shared income and
expenses.
 Payroll account - A payroll bank account is a separate checking account that businesses use
exclusively to pay employees their payroll checks
 Foreign currency account -  transactional account denominated in a currency other than the
home currency and can be maintained by a bank in the home country or a bank in another country.

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