How well do you know your Money?

How well do you know your Money?

• COURSE INTRODUCTION:
• What is FINANCE?
• Why Study Money?
• Why Study Credit?
• Why Study Banking?
 Chapter 1

NATURE AND
FUNCTIONS
OF MONEY
PowerPoint Presentation Created
by:
RC T. BIGNOTIA, MBA
Faculty-St. Paul University Manila
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
“There is nothing about money that cannot be understood by
the person of reasonable curiosity, diligence and intelligence”.
“ A rose by any other name will smell as sweet”
William Shakespeare

pera Atik

salapi Kuwarta
Datung
bread
“anda”
Stages in Exchange Development

• 1st Stage- Direct Appropriation

Stage
What early man’s needs was
provided by its natural resources.
Stages in Exchange Development

• 2nd Stage- Barter/Direct

Exchange
Goods and services directly
exchange for other goods and
services

Barter ended man’s 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

•3rd 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 it’s monetary value
Commodities Used as Money Throughout History
Money that could be Eaten In Mexico and Central
America CORN was used as
money, In Japan and the
Phils. RICE was used

Money for buying a Wife In South Sea Islands

10,000 coconuts were
enough to buy a wife

Salt Money In the days of the Early

Roman Empire, SALT were
used as money. “salarium”
Commodities Used as Money Throughout History
Living Money In Egypt SLAVES was used
as money, In England they
were called “payment in
Kind”

In China Tea was used as Money

In Greece Cattle was used as money

Stages in Exchange Development

4th Stage- Credit Money

Money whose monetary value is

more than its material or
commodity value
DEFINITION OF MONEY

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
What makes Money Generally Accepted in Exchange
or Payment of Goods or Services?

• State Theory of Money

Money is what the law says it is.

• Money has Purchasing Power

The power to command goods
and 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

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?
Functions of 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

In what way 4. As a Store of Value

will money loses money has the
it functions? quality to be kept or
store for future use
Characteristics of Good 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
 Denomination Composition
1 cents 6% copper; 94% steel
5 cents 6% copper; 94% steel
10 cents 6% copper; 94% steel

25 cents 65% copper; 35% zinc

1 Peso 75% copper; 25% nicke
5 Peso l 70% copper;24.5
zinc,5.5nickel
10 Peso Ring: 75% copper; 25
nickel
Core: 92% copper; 6%
aluminum; 2% nickel
Discussion Questions:

Question – Q– How does

Why do the gov’t.
our gov’t. need regulate the
to regulate the volume
volume of Money in
of money? Circulation?
 3 Important Types of Money

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)
Currencies of the World

Name of Currency Country Using

Bolivar Venezuela
Real Brazil
Dinar Algeria, Jordan, Kuwait and
others

Dirham Morroco, UAE

Dollar Australia, Canada, New
Zealand, Singapore, U.S.
and others
Drachma Greece
Franc Belgium, France,
Switzerland and others
Guilder Netherlands & Suriname
Currencies of the World

Name of Currency Country Using

Koruna Czech Republic, Slovak Rep
Iceland and Sweden
Krona

Krone Denmark, Norway

Lira Italy, Turkey, and others
Mark Germany

Peseta Spain
Pound Egypt, Great Britain,
Lebanon and others
Currencies of the World

Name of Currency Country Using

Rand South Africa, Namibia
Riyal Saudi Arabia, Qatar

Rupee India, Pakistan and others

Schilling Austria, and others

Yen Japan
Yuan China
 Research Work:

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?