Academia.edu is a platform for academics to share research papers. Inconvertible paper money is issued in the case of an emergency like war, deflation or crisis. It is commonly used in almost each and every part of the world. The cheque drawn on demand or current deposit of bank, bills of exchange, promissory notes, drafts, and letter of credit are the examples of credit instruments used in the money market. It is in the form of monometallic and bimetallic. Stay connected with Kullabs. The face value of paper money is more than its intrinsic value. Another important function of money is the basis of credit. In Section 1, it is argued that the need for money as a means of payment is caused by the existence of uncertainty. It increases the purchasing power. It is one of the important functions of money as it can be used as standard of the deferred payments. Money is used as medium of exchange. Clipping is a handy way to collect important slides you want to go back to later. © 2020 Springer Nature Switzerland AG. In Exchange: Money possess the purchasing power and serves as a medium of exchange. Jha, P.K., et al. However, the functions of money are broadly classified into three categories. It loses its value when its melted. This system is known as barter system. Before the introduction of money, the exchange was carried out on the basis of exchange of goods and services directly. Ltd, 2070. Since they can be converted into gold in case of requirement, they are also known as convertible money. For example, it is easier to transfer money from Kathmandu to Biratnagar. If you continue browsing the site, you agree to the use of cookies on this website. The purchasing power of the money is inversely related to the price level. It is a convenient form to store wealth. Fiat money is known as the money which is issued by the central authority or Government without maintaining cent percent gold reserves. The functions of money are broadly classified into three categories. If you’re looking for a great essay service then you should check out ⇒ www.HelpWriting.net ⇐. Since these production costs are very low, the authorities could in theory issue sufficient fiat money to buy up any additional quantities of goods and assets required. To overcome the difficulties, monetary system was introduced and is in practice till date. It has also been suggested that the authorities present ability to influence monetary conditions lies precisely in their legal ability to restrict any such competition in the provision of currency. Money is generally divided into 4 categories. pp 24-50 | See our User Agreement and Privacy Policy. Kalimati, Kathmandu: Dreamland Publication, 2011. The secondary functions of money are described below: An important secondary function of money is a store of value of any goods and services. 209.141.57.188. It is also called as optional money because no one can be forced to accept this type of money. Sellers agree to accept it in exchange for a good or service. The existence of a gap between the real costs of issuing financial liabilities and their value makes it worthwhile for intermediaries (banks) to bid for deposits of currency by offering attractive substitute assets.
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