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MONEY AND CREDIT

MONEY

Financial Management
The role of the financial
management is to look and
secure funds needed by the
business.
Forms of funds

Money
Credit

What is a barter system?


Barter system was the first stage
of monetary system
It is the direct exchange or
swapping of goods for goods,
services for services, goods for
services or services for goods.

Society abandoned the barter system for the


following reasons:
It was difficult for that person who has the
things you need and who wants the things
you are offering for exchange.
There is no common denominator to
measure the value of goods and services
sought for exchange
Most of the goods traded have unequal
values
It is time consuming, cumbersome and very
inconvenient for individuals to use the
barter system

What is money?
Money is anything used by society as
a medium of exchange, and is widely
acceptable for the payment of goods
and services without questioning the
integrity of the person offering it.
Money supply is consist of deposit
money, which is withdrawable by
means of checks and currency,
which consist of notes and coins.
The primary function of money is to

Money

Money

which is in the form of cash


Money comes from creditors who
purchase shares in the company
Money can be kept in the business
in liquid form or in interest bearing
bank deposits.

Money

Cash on Hand and Cash in Bank

Cash on Hand
Cash

on Hand is money in circulation in a


business.
The amount of cash on hand should be
sufficient for normal day-to-day operations.
Excess cash on hand should be deposited to
the bank

Cash in Bank
Is

in a current account that should be sufficient


to pay only current bills due or current payroll.
Excess cash in bank should be invested in
securities.

Money

Cash Management

Good number of small businesses make


profits according to income statement
but not in the cash flow.
It is better still to have just the right
amount.

Significance of money

Important moving factor in the society:


It has a tremendous power over economic
goods.
Encouraging more production, which leads to a
multiplier effect and results to progress in the
economy.
Some unfavorable effects of money:
The excessive desire for money profits
Dispute arise out of claims to a large sum of
money incomes.
Become a measure for judging people and
things
Society has the tendency of becoming too

Functions of money

As a medium of exchange
Transferred from person to person.
As a standard to measure the value of
goods and services
It is used as a yardstick in the pricing of
things
As a means of deferred payment
As a store value
Liquidity an asset may be converted
into money without significant
inconvenience or loss of time

FUNCTIONS OF MONEY

Two ways of keeping money for future use:

By saving
The productive way of keeping money for future use
is by depositing it in a bank
By investing
Investments can be made in business, corporate or
government securities, money market, real estate
properties and jewelries
Investment in business has three divisions:
Industrial business manufacture of goods
Commercial business bridging the gap between
the producer and the ultimate consumer
Servicing business concerned with the rendering
of services

ATTRIBUTES OF GOOD
MONEY

General acceptability refers to the


willingness of people to accept the money
in exchange for goods and services
Stability of value pre-requisite to general
acceptability
Portability the quality of money being
easily carried from place to place
Cognizability the money circulating
within the country can be easily
distinguished from other kinds of money

ATTRIBUTES OF GOOD
MONEY

Divisibility the material used as money


must be capable of being divided into
smaller denominations without impairing
or destroying the value of the whole.
Homogenity the materials used as
money should have equal weight and
fineness
Elasticity the volume of money being
capable of manipulation by monetary
authorities
Durability enables money to withstand

KINDS OF MONEY
Commodity money has a value of
its own
In modern times, the types of
commodity money are gold and
silver
Credit money able in payment of
goods and services, debts and
obligations

KINDS OF MONEY

Types of credit money:

Representative paper money - 100%


gold and silver reserves

KINDS OF MONEY

Fiduciary paper money partial gold or silver


reserve
Bank notes promise of a bank to pay the bearer
of the note a sum certain in standard money
upon demand

KINDS OF MONEY
Fiat Money paper money issued by
government edict or decree
Legal Tender Money kind of money
that circulates because of its legal
tender power

CREDIT

The Birth of the Credit


System

What is Credit?

It is the debtors ability to make


payments at some future time.
It is the power or ability to obtain
money, goods and services at the
present time in exchange for a promise
to pay with money upon demand or at a
future determinable time.

Essential Elements of Credit

The passage of time


The creation of a legal obligation
Existence of a monetary unit
Element of confidence

Characteristics of Credit

Credit a a bipartite contract credit always


involves two parties: debtor who obtains the
money and creditor who lends his money.
Credit as a pecuniary contract always
express in terms of money
Credit as fiduciary contract based on trust
and confidence
In credit, risk is always involved possibility of
obligations cannot be paid
Credit always involves futurity payment is
always done at a future date

Significance of Credit
Allows the possible production of
goods
To provide financial means for
businessmen
To promote full employment