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Any thing that is egenerly accepted in payment for goods or services or the repayment of debts Money is a commodity which

is generally acceptable as a medium of exchange and at the same time it acts as a measure and a store of value.

M1.. Transaction approch According to this approch only those commodities will be included in money which are just medium of exchange .Thus all those goods which facilitate the sale or purchase of goods ,or which facilitate the transection of goods and services can be given the name of money

Thus according to this approch M1=coins +currency notes +demand deposits of commercial banks

M2 LIQUIDITY APPROCH In M2,in addition to M1,all those monetry units are included which have the property of money as a store of value . M2=M1+saving bank accounts+short period time deposits+treasury bills+Deposits of money market+bonds+shares

M3=M2+long period time deposits+mutuals funds balances

As aMedium of exchange As a Unit of account As a Store of value As a standard of deferred payments

Money was developed according to needs & Requirements. Main aim was to remove the shortcomings of the Barter System.


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When different commodities were used as a medium of exchange (BARTER SYSTEM) Cow Heads, Goats, Axes, Dried Fishes etc were used as medium of exchange.

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Barter System had different problem like: Storing Problem Durability problem Transportation problem Divisibility problem

The next step in the evolution was the discovery of precious metals like Gold, Silver, Copper. Metallic Money consist of coins made of Gold, Silver, Copper or nickel as a mode of payment.

UnCoined Metals Metals were not used as a coin but as a Bullion. This created the problem of measuring the weight & Value. Supply of money also became problem when the mines were fully used up or new mines were discovered. Transportation & Storage problem were also there.

Coined Metals. As a next step, standard coins were created. They had a standard weight & value. Problem of un coined metals started here as well.

Metallic money can be: FULLY BODIED Whose Face Value is equal to the value of metal contained in it. TOKEN MONEY Its Face Value is Higher than Intrinsic Value (Value of Metal)

When paper currency was introduced as a mode of payment. Originated as a receipt issued by Goldsmiths. These receipts were then later on used for payments. Difference in the value of receipts was becoming a problem then.

PAPER MONEY Refers to the Notes issued by the State or by the Bank, usually the Central bank. Paper Money can be: 1. Representative Paper Money. 2. Convertible Paper Money. 3. Fait Paper Money.

Representative Paper Money. It is that money which is fully backed by equivalent metallic reserves. Convertible Paper Money Which is convertible into coins on demand. Fait Paper Money Which is not redeemable or convertible into Gold or Silver on demand. It is accepted because it is declared legal tender by the issuing authority and has general acceptance as a medium of exchange. The intrinsic value of Fait money is Nil.

Includes Bank money (different instruments offered by the Banks.) Cheques, Drafts, P.O, T.C are examples. Convenient, Safe and easily convertible into cash. Its like Near Money.

Electronic money (also known as e-money, electronic cash, electronic currency, digital money, digital cash or digital currency) refers to money or scrip which is exchanged only electronically. Typically, this involves use of computer networks, the internet and digital stored value systems.

General Acceptability. Stability of Value. Transportability. Storeability. Divisibility. Homogeneity. Cognizability. Malleability.