Factors Money and its Concepts: Is KEY TO BUSINESS SUCCESS?

By  //  July 15, 2021

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Crowther’s definition of money describes it as anything generally accepted as a medium of exchange and something that also helps measure and store the value.

Hawtrey said that money is the same as those concepts which, for example, an umbrella or a teaspoon, can be defined once we have used it or by the purpose they serve.

According to Robertson, anything is extensively accepted when payments for goods or discharge of any business jobs.

There are various kinds of money, which every student must understand so that their concepts are clear and they get effective guidance:

■ Token money: Money whose face value exceeds its intrinsic or metallic value is called token money.

■ Fiat money: Money that is issued on the order of the government is called fiat money.

■ Convertible money: Convertible money is those which can be converted to precious metals like gold and silver.

■ Non-convertible money: Money that cannot be converted into precious metals like gold and silver is called non-convertible or nonconvertible money.

Legend: It is a promise made by money to its bearer to pay a specific sum of money to a person holding it.

Legal tender: All currency coins and notes that have the government’s legal sanction and legal backing are issued under a law that cannot be rejected are known as legal tender.

Being a legal tender, a person has to accept it and cannot reject it. Legal actions can be taken against a person who refuses to admit that it is a medium of exchange and is used for settling debts.

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Further additions to this concept of legal tender that need to be kept in mind while referring for academic guidance are:

■ Limited legal tender: It is a legal tender that has to be accepted up to a certain limit, and beyond that limit, people cannot be forced to accept it for settling debts and making payments. For example, all currency notes and coins below rupees 10 are limited legal tender per the latest RBI (Reserve Bank of India) norms.

■ Complete legal tender: It is a legal tender, and there is no maximum limit for people to accept it for settling debts and making payments. For example, all currency notes above rupees 10 are unlimited legal tender per the latest RBI norms.

■ Deposit or bank money: It is that amount of money issued on the government’s order based on which cheques are drawn. It is legal tender. It depends upon the will of a person whether to accept it or to reject it. 

■ Checks: Checks are non-negotiable instruments for the bank for making payments and transfers equal to the amount mentioned to a person.

Further, to gain effective research paper, we need to understand the functions of money:

■ Primary functions: This category includes those functions which are fundamental and essential. These functions are mandatory to be performed by money under all circumstances and in every economy:

  1. Medium of exchange: Money is considered a medium of business as it is generally and widely accepted because it is a legal tender. Money is used to purchase and sell commodities at reasonable prices.
  2. The measure of values: As we measure kilograms in weights, distance in kilometers, similarly prices prevailing in the market can be expressed in terms of money for all goods and services since money is a common measure of value or unit of account.

■ Secondary functions: This category has those functions that are derived from the primary functions. They are as follows:

  1. Standard of deferred payment: Money is considered the standard of deferred compensation because it can be used to make future payments since money is a legal tender and is generally and widely accepted as a means of exchange. Future payments can be made in the sense of salaries, pension, insurance premium, etc.
  2. Store of value: Money can be useful in storing the value as people can keep their wealth in the form of money, which they can use in the future as money is generally and widely accepted. They are storing value in the form of bonds, shares, debentures, etc.
  3. Transfer of value: Money helps in transferring value from buyer to seller in the form of prices. Sales and purchases can only be made possible when weight is transferred from one person to another. This value is expressed as price and is measured in terms of money.

■ Contingent functions: It is a role of money to assist different kinds of economic entities like producers, consumers, etc. so that they could arrive at a financial decision that relates to the production, consumption, etc. they are as follows:

  1. Maximization of utility: A rational consumer always aims at maximizing his total utility with prices. The utility and costs are measured in terms of money. Thus, capital is useful in equalizing marginal utility.
  2. Employment of factor inputs: A profit-maximizing producer always aims to maximize marginal productivity of factors with its prices (remunerations) since the rate of payments such as wages and salaries is expressed in terms of money.
  3. Distribution of national income: Money helps in distributing national income to various factors of production because rewards to a different aspect of production such as land – rent, labor – wages and salaries, capital – interest, and entrepreneur’s profit are expressed and paid in terms of money.
  4. Basis of credit system: Commercial and business activities are highly dependent upon the country’s credit system. Money provides the backbone to all these credit systems. All money instruments like credit cards, debit cards, promissory notes, cheques are not operable without cash.

This makes it clear the importance of money and how it facilitates the effective functioning of our economy. These were a few basic points that the people must take note of while they are reading for business relationships with money.