5 Functions of Money are listed and explained in this article. We hope you find it informative and able to meet the demands of your research.
In a previous article on our website, we defined money as anything that is generally acceptable by everyone as a means of exchange for goods and services.
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Sometimes, money can be in cash or kind, depending on the state at which it is offered and to whom it is offered and also determinant on the purpose for which it is offered.
In this article, we will look at some of the functions of Money as we know that money had many other uses other than just being a medium of exchange for goods and services.
5 Functions of Money
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Money equally performs the following functions:
1. Money is used as a medium of exchange
Money usually serves as a medium through which people can exchange goods and services. As against the ancient method of trade by barter, Money can be used to buy different types of goods and services across the world and this, in turn, facilitates the means of exchange.
It came into use as a result of the inadequacies of the barter system. Money is therefore widely accepted as payment for debts up till this 21st century.
2. Standard of delayed payment
Due to the fact that money can be stored, it can be gathered up to pay debts that are fixed in terms of money. Money can serve as a medium by which business transactions that have not been paid for can be settled in the future. The use of money makes it possible for financial payments to be deferred from the present day to some other future date.
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3. Unit of account
By virtue of serving as a unit of account, money makes it practically possible for individuals and companies to keep an accounting record of their transactions in bank statements, ledgers and invoices.
If not for money, accounting would have been a bit difficult because most of the information in accounting has to do with numbers and those numbers are in close relation with the money of which one cannot do without the other.
4. Store of value
Money is a good and quality store of value because, with the advent of money, wealth which is not needed at the moment can be stored for future use.
When there is no inflation, money stored or saved retains its value for many years, when there is inflation, the money loses value but when inflation takes the opposite angle, it regains a lot of value.
5. As a measure of value
The worth of things is determined by the value of money. This includes the value of goods and services which are expressed by prices.
As a result of this, money is used as a yardstick to measure, calculate and compare the worth of goods and services as well as occupation.
We have learned in this article about the worth of money, its functions, and its uses. Regardless of its denomination, money has a great value and the more the economy favours money, it increases in value especially when it is not easily seen in the hands or wallet of people.