Money is a medium of exchange or money is anything which is generally accepted in the settlement of debts and other obligations.
WHY DO WE USE MONEY?
- As a medium of exchange, it facilitates achievements and satisfaction of mans wants.
- It ennglish-swahili/courage” target=”_blank”>courages specialization because specialization facilitates exchange and exchange require a medium upon which it should be carried.
- By use of money one can borrow, lend and save.
- The used of money avoids the problems (disadvantages of butter trade/system).
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Currency
It refers to the bank notes and coins in circulation in a country. The currency in Tanzania,is the shilling.
Legal Tender
The money which by law must be accepted in settlement of debts within a country.
TYPES OF MONEY
Money evolved through the following stages.
1.Barter system
This was the earliest form of exchange where commodities were exchanged directly for other commodities.
e.g. millet, meat, cassava, Beans,cows,salt etc.
2.Crude commodity money e.g. salt, corn, tea, Tobacco etc. such commodities were used because of their real value. However most of them were perishable.
- Later beeds, cowrie shells were used as money.
- Precious metals e.g. silver, gold, iron copper were used because they had more value, were scarce and therefore had some qualities of good money.
- Paper money which is now operational in all countries (completely unbacked by Gold)
- Fiduciary issue, This is money which is completely unbacked by Gold.
- Credit money (Cheque deposit/Demand deposit Cheques are now used as the medium of exchange. Cheques are not legal tender but are acceptable in settlement of debts.
- Fiat money.This is money issued on the directive of the government irrespective of the level of economic activity.
- Managed currencies.Managed currency is that which is used only within a country.
- Token or coins
- Money which means near money.
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QUALITIES OF GOOD MONEY(Characteristics of good money)
- ACCEPTABILITY
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It must be a legal tender, all people in the country must accept it in settlement of debts or other types of exchange.
- PORTABILITY OR TRANSFERABILITY
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It should be easily carried from one place to another and it must not be heavy in relation to its value
- DIVISIBILITY
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Money should be easily divided into smaller unit eg 1 shilling, 5 shilling, 50 shillings and 100 shillings so as to facilitates smaller transactions
- HOMOGENEITY
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One unit should be identical with other e.g 100 shilling note should be similar as used in a country.
- SCARCITY
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Money should be relatively source so as to maintain its value and again it should not be too scarce.
- STABILITY IN VALUE
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Money should be able to maintain its value from year to year. In reasonable period of time it should not delay or under go any physical deterioration.
- UNCOUNTERFEITABILITY
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That is money must be difficult to imitate or forge so that it can maintain its value.
- DURABILITY
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Money should be durable. It is to serve its function as a store of value money must not delay or under go any physical deterioration so as to maintain its value.
- COGNIZABILITY
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Money should be easy recognized throughout the all countries. The 100 shilling note, 200, 500, 1000 etc which should be the same throughout the all city.
10. MALLEABILITY
Money coin should be hammered or beaten into any shape without losing its intrinsic value i.e it should not crush or break and dis-integrate.
FUNCTIONS OF MONEY.
- MEDIUM OF EXCHANGE
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Money is used as a medium of exchange simply because goods and service are exchanged in money.
- UNIT OF ACCOUNT
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Money is used as unit that effect or carry out business transactions and accounting procedures.
- MEASURE OF VALUE
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Value of goods and services are expressed in terms of money eg a kg of meat costs so much e.t.c
- STORE OF WEALTH (VALUE)
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Money can be used to store value or wealth because it’s bulky and not perishable.
- STANDARD OF DIFFERED PAYMENT.
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Money facilitates payment of debts and transaction in some future date.
- Money can enables specialization to take place i.e through demand.
- Money solves the problem of double coincidence of wants
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N.B
Anything doing the above is money hence the expression of money is what it does.
BANKING
What is a Bank?
This refers to an institution that accepts deposits from those who have money in excess of their immediate needs or safe guards the money, receives and advances loans to those who are in need of financial assistance.
TYPES OF BANKS.
a) Savings Banks
These are intended to provide a safe place for keeping money and promote the habit of saving among individuals. e.g The Post Office Savings Bank.
b) Commercial Banks
Are institutions engaged in commercial business accepting deposits on various terms with the public and making profits by lending money to the public among other things.
They include N.B.C bank, CRDB bank,Bank of Baroda,NMB, Barclays Bank,Stanbic Bank etc.
c) Central Banks
It is a government institution established to control,guide and assist commercial banks in the country and to provide banking services and financial advice to the government.
d) Merchant Banks
e) Specialized Banks
These serve especial type of customers, are aimed at providing especial type of services eg the cooperative banks which mainly serves cooperative societies, The agricultural development bank which serves farmers, The Housing Finance Bank provides finance in buying and building houses only,Mkombozi Bank ltd etc.