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FUNCTIONS OF MONEY

Functions of Money

Money performs five important functions:‑

Medium of Exchange:

  • Money acts as a medium of exchange as it’s generally accepted. On the payment of money, purchase of goods and services can be made i.e. goods and services are exchanged for money.
  • Money bifurcates buying and selling activities separately so it facilitates the exchange transactions.

Measure of value:

  • Money is a common measure of value so it is possible to determine the rate of exchange between various goods and services purchased by the people.
  • Exchange value of commodity can be expressed in terms of money. For e.g. we can say that 10 metres of Cotton Cloth cost $220 dollars or Rs.10,000 rupees only.

Store of value:

  • Money acts as a store of value. Money being generally acceptable and its value being more or less stable, it is ideal for use as a store of value.
  • Being non-perishable and also comparatively stable in value, the value of other assets can be stored in the form of money.  FUNCTIONS OF MONEY
  • Property can be sold and its value can be held in money and converted into other assets as and when necessary.

Standard or Deferred payment:

  • Money is also inevitably used as the unit in terms of which all future or deferred payments are stated. Future transactions can be carried on in terms of money.
  • The loans, which are taken at present, can be repaid in money in the future. The value of the future payments is regulated by money.

Transfer of value:

  • Value of any asset can be transferred from one person to another or to any institution or to any place by transferring money.
  • The transfer of money can take place irrespective of places, time and circumstances.
  • Transfer of purchasing power, which is necessary in commerce and other transactions, has become available because of money.  FUNCTIONS OF MONEY

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Indian Economy

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