2. MONEY: The use of money spans a very large part of our
daily life
look around you and you
Would easily be able to identify several transactions
involving money in a single day.
Money is also used as a exchanging medium.
Credit : Credit encompasses any form of deferred payment. Credit is
extended by a creditor, also known as a lender, to a debtor,
also known as a borrower.
4. DEPOSITS WITH BANKS
The other form in which people hold money is as deposits
with banks. At a point of time , people need only some
currency for their day-to-day work needs. For
instance, workers who receive their salaries at the end of
each month have extra cash at the beginning of the month.
Then to save money people deposit money into the bank.
Banks accept the deposit and also pay an amount as an
intrest on the deposits. In this way people money is safe with
the banks and it earns an amount as intrest.
5. • Money is any object or record that is generally accepted
as payment for goods and services and repayment
of debts in a given country or socio-economic context.
• The main functions of money are distinguished as:
• a medium of exchange;
• a unit of account;
• a store of value;
• and, occasionally in the past, a standard of deferred
payment. Any kind of object or secure verifiable record
that fulfills these functions can serve as money.
6. 1)credit is the trust which allows one party to provide resources to another party
where that second party does not reimburse the first party immediately , but instead
arranges either to repay or return those resources (or other materials of equal value) at
a later date. The resources provided may be financial or they may consist of goods or
services. Credit encompasses any form of deferred payment. Credit is extended by
a creditor, also known as a lender, to a debtor, also known as a borrower.
2)Credit does not necessarily require money. The credit concept can be applied in
barter economies as well, based on the direct exchange of goods and services .
However, in modern societies credit is usually denominated by a unit of account. Unlike
money, credit itself cannot act as a unit of account.
Movements of financial capital are normally dependent on either credit
or equity transfers. . Credit is also traded in financial markets.
7. Where Does Your Money Go?
Track expenses for one month
What did you buy
Which were needs vs. wants
Patterns of spending
Categorize spending (clothing, food, etc.)
Identify future spending (car, etc.)
8. The defination of money
• Anything that serves all three of the
following is called as money-
• means of payment or medium of
exchange
• Unit of account
• Store of value
9. MODERN FORMS OF MONEY
We have seen that money is something that
can act as a medium of exchange in
transactions . before the introduction of
coins, a variety of objects was used as
money.
Modern forms of money include:
1)Currency
2)Deposits from banks
10.
11. LOAN ACTIVITIES OF
BANKS
• There is an interesting mechanism at work here .banks
keep only a small proportion of their deposits as cash
with themselves.
• For example, banks in india these days hold about 15%
of their deposits as cash .
• This is kept as provision to pay the depositors who
might come to withdraw money from the bank on any
given day. Since, on any particular day, only some of its
many depositors come to withdraw the cash , the banks
is able to manage with this cash.
12. TWO DIFFERENT CREDIT
SITUATION
A large number of transaction in our day-to-day
activities involves credit in some form or the other.
Credit(loan) refers to an agreement in which the
lender supplies the borrower with money , goods or
service in return for the promise of future payment .
Let us see how credit works through the following
two example:
1)Profit of credit(festival season)
2)Loss due to credit(swapna problem)
13. TERMS OF CREDIT
• Every loan agreement specifies an intrest rate which the
borrower must pay to the lender along with the repayment
of the principal. In addition , lenders may demand
collateral against loans.
• Collateral is an asset that the borrower owns and uses
this as a guarantee to the lender until the loan is repaid .
• If the borrower fails to repay the loan , the lender has the
right to sell the asset or collateral to obtain payment.
Property such as land titles, deposits with banks, livestock
are some common example of collateral used for
borrowing.
14. Money supply
In economics, money is a broad term that refers to
any financial instrument that can fulfill the functions of money
(detailed above). These financial instruments together are
collectively referred to as the money supply of an economy. In
other words, the money supply is the amount of financial
instruments within a specific economy available for
purchasing goods or services. Since the money supply
consists of various financial instruments (usually currency,
demand deposits and various other types of deposits), the
amount of money in an economy is measured by adding
together these financial instruments creating a monetary
aggregate.
15. Functions
In the past, money was generally considered to have the following functions:
1) "Money is a matter of functions four,
2) a medium,
3) a measure,
4) a standard,
5) a store.
6) " That is, money functions as a medium of exchange, a unit of account,
a standard of deferred payment, and a store of value.However, that of medium of
exchange,
7) unit of account, and store of value, not considering a standard of deferred
payment as a distinguished function, but rather subsuming it in the others.
