UNIT ONE

1.1 THE CONCEPT OF MONEY AND BANKING

 Introduction
Money is any object you can use as payment for goods and services and repayment of debts in a
given country. The key functions of money are distinguished as: a medium of exchange, a unit of
measurement, a store of value, and, occasionally, a standard of deferred payment.

Economists distinguish amongst three different kinds of money: commodity money, fiat money,
and bank money. Commodity money is a good whose value serves as the value of money. Gold
coins are an example of commodity money. In most countries, commodity money has been
replaced with fiat money. Fiat money is a government issued currency that isn't backed by a
commodity such as gold. Fiat money gives central banks greater control over the economy because
they can control how much money is printed. Bank money consists of the book credit that banks
extend to their depositors. Transactions made using checks drawn on deposits held at banks involve
the use of bank money.

Banking is an industry that handles cash, credit, and other financial transactions. Banks provide
a safe place to store extra cash and credit. They offer savings accounts, certificates of deposit, and
checking accounts. Banks use these deposits to make loans. These loans include home mortgages,
business loans, and car loans

Dear learners, this particular Unit deals with two vital sections. The first section hints at definition
and function of banking; while the second section discusses measurement of money.

Unit Objectives:
Upon completion of this Unit, you will be able to:

 identify functions of banking; and

 explain official measurement of money.