Intro. To Banking1

Chapter 1. Origins and functions of Money 

Specialization and exchange - Previously man was sufficient (food,

clothing, shelter through hunting, fishing)

- Need for specialization- to save time and

get convenience. (for e.g. specialized in hunting, construction)

Chapter 1. Origins and functions of Money Barter System / Direct Exchange 

-Definition: Barter is a type of trade where goods or services are exchanged for a certain amount of other goods or services; no money is involved in the transaction. It can be bilateral or Multilateral as trade

Disadvantages of Barter 1.

Mutual coincidence of wants:

2.

The rate of exchange: how to measure? Large indivisible units: chair for cow Consistent quality Perishable commodities Transport and storage of commodities for exchange

3. 4. 5. 6.

Before any transaction can be undertaken, each party must be able to supply something the other party demands. To overcome this mutual coincidence problem, some communities have developed a system of intermediaries who can store, trade, and warehouse commodities. However, the intermediaries often suffer from financial risk.

Indirect Exchange - Diagrammatic explanation

few most marketable commodities available (grain bags, salt, cloth etc) -

Precious Metals 

Usage of bronze , silver, gold , copper etc.

1.

Less bulky Durable Consistent Quality

2. 3.

Money and its functions Money : Assets that people are generally willing to accept in exchange for goods and services or for payment of debts.

Functions of Money 1. Medium of Exchange: - Willing to accept - Money is universally accepted

2. Unit of Account: - Measure the relative values of goods and services. - Money is a useful unit of account only if its value relative to the average of all other prices doesn’t change too quickly.

3. Standard of Deferred payment - Many contracts promise to pay fixed sums of money well into the future - borrowing and lending possibilities

4. Store of Value - If you do not use all your dollars to buy goods and services today, you can hold the rest to use in the future. - money does not lose much of its value