MONEY AND BANKING

MEANING & FUNCTIONS

 BARTER SYSTEM OF EXCHANGE
• Barter system of exchange is a system in which goods
are exchanged for goods.
• Under barter system, what we want to buy must
match with someone else selling the same thing. This
is known as ‘double coincidence of wants’.
• This system of exchange is also called C-C Economy.
Here C stands for commodity.
 MEANING
Money is an instrument that serves as:
❖a medium of exchange
❖a measure of value
❖a store of value
❖as a convenient mode of transfer of value
❖a standard for deferred payments
 FUNCTIONS
MEDIUM OF EXCHANGE
• It means that money acts as a medium for the sale
and purchase of goods and services.
• In the absence of money, goods were exchanged for
goods. This required double coincidence of wants.
• Introduction of money has facilitated the exchange.
• Exchange is now much simpler and therefore
unlimited.
MEASURE OF VALUE
• Money serves as a measure of value in terms of unit
of account.
• Unit of account means that the value of each good
and service is measured in the monetary unit.
• Earlier one good was valued in terms of the other.
• Now each good is valued in terms of money.
• Accordingly accounting has become simple and easy.
STORE OF VALUE
• Store of value implies store of wealth.
• Storing wealth has become easy with the introduction
of money.
• Stored value is a source for future investment.
• It was not convenient to store value in the barter
system of exchange.
TRANSFER OF VALUE
• Money also serves as a convenient mode of transfer of
value.
• Money can be easily transferred to far-off places
where goods are to be purchased.
• By facilitating transfer of value, money has promoted
both consumption expenditure as well as investment
expenditure across all parts of the world.
STANDARD OF DEFERRED PAYMENTS
• Deferred payments are payments which are made
sometimes in the future.
• Deferred payments were very difficult to make under
barter economy.
• Money has made deferred payments much easier
than before.
THANK YOU