How well do you know your Money?

How well do you know your Money?

Chapter 1

NATURE AND
FUNCTIONS
OF MONEY


Chapter 1- Nature and Functions of Money


Learning Objectives:
After completing the Chapter, you should be able to

Explain the effects of Money on Economic life
Discuss the discuss the Stages in Exchange
Development
Define the Meaning of Money
Identifies the Characteristics of Good Money
Explain the Functions of Money
Understand the Origin of Evolution of Money

Stages in Exchange Development
1
st
Stage- Direct Appropriation
Stage
What early mans needs was
provided by its natural resources.


Stages in Exchange Development

2
nd
Stage- Barter/Direct
Exchange
Goods and services directly
exchange for other goods and
services

Barter ended mans self-
sufficiency and ushered in
economic inter-dependence
among men

Stages in Exchange Development
DIFFICUTIES OF BARTER:

1. Product do not have the same value
2. No double coincidence of wants
3. Lack of store value
4. It is cumbersome, inconvenient and indivisible



Stages in Exchange Development

3
rd
Stage- The Use of
Commodity as Money
Some goods because of its usefulness,
beauty, scarcity and rarity commands
a wide acceptance as medium of
exchange.
Non-Metallic (rice, corn, wheat, salt,
tea, cattle)
Metallic Money (gold, silver, copper.
Intrinsic value or material value is
equal its monetary value
In the days of the Early
Roman Empire, SALT were
used as money. salarium
Salt Money
In South Sea Islands
10,000 coconuts were
enough to buy a wife
Money for buying a Wife
In Mexico and Central
America CORN was used as
money, In Japan and the
Phils. RICE was used
Money that could be Eaten
Commodities Used as Money Throughout History
Cattle was used as money
In Greece
Tea was used as Money In China
In Egypt SLAVES was used
as money, In England they
were called payment in
Kind
Living Money
Commodities Used as Money Throughout History
Stages in Exchange Development

4
th
Stage- Credit Money

Money whose monetary value is
more than its material or
commodity value





Money comes from the Greek Word Moneta



Anything which is used as a medium of
exchange and is widely accepted for the payment
of of goods and services, debts and obligations within a
given territory without reference to the credit
standing of the person who offers it
DEFINITION OF MONEY





State Theory of Money
Money is what the law says it is.

Money has Purchasing Power
The power to command goods
and services

What makes Money Generally Accepted in Exchange
or Payment of Goods or Services?
Money per se is not money unless use and accepted




What gives money its Purchasing Power?

The Law has given money a Legal Tender Power.
What is Legal
Tender Power
A mandatory law that makes money accepted in
payment for all kinds of services


Legal Tender Money

any form of money which according to law is
acceptable for all forms of obligations

What are Considered Legal Tender Money in
the Philippines? Notes and coins issued by BSP

Can checks be
Considered as
Money?
Legal Tender Money
1. As a Medium of Exchange
money serves as a common
medium or tool of
exchange.

The use of money as a
medium of exchange
promotes economic
efficiency? How?


Functions of Money

2. As a Standard Unit of
Value
money serves as a measuring
device in which
value of goods and services
can be express.

Thus, in turn standardized the
value of goods and services.


Functions of Money


3. As a Standard of Deferred
Payment
The money that we use as a
medium of exchange is the
same money we can use to
pay for our debts and
obligations
Functions of Money

4. As a Store of Value
money has the
quality to be kept or
store for future use
In what way
will money loses
it functions?
Functions of Money

1. General Acceptance
accepted by anyone in exchange for goods and
services
2. Stability
value must not change every now and then and
not susceptible to fluctuations, devaluation,
inflation, etc.
3. Portability
money is made light, to be easily carried from one
place to another

Characteristics of Good Money

4. Cognizability
design should not only be aesthetically beautiful
but also difficult to counterfeit.

5. Durability
money must withstand longer period of time
against wear and tear

6. Divisibility
divisible into small parts and likewise possible to
recombine these small parts into bigger
denominations

Characteristics of Good Money

7. Malleability
money can be melted and beaten into a desired
shape to conform to the specification of the
government

8. Uniformity
money must conform to certain standard to avoid
confusion (size, shape, and color)

9. Homogeneity
material used must be uniform in composition
throughout
10. Elastic
Characteristics of Good Money
Ring: 75% copper; 25
nickel
Core: 92% copper; 6%
aluminum; 2% nickel
10 Peso
65% copper; 35% zinc
75% copper; 25% nicke
l 70% copper;24.5
zinc,5.5nickel
25 cents
1 Peso
5 Peso
6% copper; 94% steel
6% copper; 94% steel
6% copper; 94% steel
1 cents
5 cents
10 cents
Denomination Composition

Question
Why do
our govt. need
to regulate the
volume
of money?
Q How does
the govt.
regulate the
volume
of Money in
Circulation?
Discussion Questions:
1. Commodity Money- money that is made up of
precious metal or another valuable commodity

a. Non-Metallic Money
b. Metallic Money
gold/silver

2. Credit Money-
credit instruments by the government backed by a promise
to pay
a. Government Notes
b. Bank Notes

3 Important Types of Money
1. Fiat Money
-refers to paper currency decreed by
government as legal tender but not
convertible into coins or precious
metal.

-It is backed by a government promised
that it is legally acceptable as a
means of exchange for products
-State Theory of Money (Japanese
Imperial Notes)

3 Important Types of Money
Greece
Belgium, France,
Switzerland and others
Netherlands & Suriname
Drachma
Franc

Guilder
Morroco, UAE
Australia, Canada, New
Zealand, Singapore, U.S.
and others
Dirham
Dollar
Venezuela
Brazil
Algeria, Jordan, Kuwait and
others
Bolivar
Real
Dinar
Currencies of the World
Name of Currency Country Using
Spain
Egypt, Great Britain,
Lebanon and others
Peseta
Pound
Denmark, Norway
Italy, Turkey, and others
Germany
Krone
Lira
Mark
Czech Republic, Slovak Rep
Iceland and Sweden
Koruna

Krona


Currencies of the World
Name of Currency Country Using
Japan
China
Yen
Yuan
India, Pakistan and others
Austria, and others
Rupee
Schilling
South Africa, Namibia
Saudi Arabia, Qatar
Rand
Riyal

Currencies of the World
Name of Currency Country Using
1. Where does the supply of money in a specific government
comes from? How does a government control its supply
of money? How does the supply of money affect the
economy or economic activity of a country, provide an
example

2. How do you relate this with the current financial
conditions of our country?
Research Work:
PowerPoint Presentation Created by:
RC T. BIGNOTIA, MBA
Faculty-St. Paul University Manila