Monday, August 24, 2009

Dynamic Functions of Money

Following are the chief or dynamic functions that money has to perform.

i. Medium of Exchange:

Under barter system people felt many difficulties and inconveniences. Money has solved all these difficulties. There is no necessity for a double coincidence of wants in a medium economy. Money serves as a very convenient sells medium of exchange – under money economy a worker sells his services and a producer his goods. Both get money a general purchasing power.

ii. Store of value:

Money serves as a store of value or in other words it enables a person to keep a portion of his assets liquid. Liquid assets are those which can be used for any purpose at any time one likes. Most persons in the modern world have to keep currency notes in their pockets or at home, or they may keep current accounts with bank with draw able by cheque.

iii. Standard Measure of Value:

Under the barter economy there was no common measure of value in terms of which other value could be expressed and accounts kept. Money removes this difficulty too. In a money economy, it is easy to compare the receptive values of commodities and services. They are in proportion to their respective prices. In matters of exchange a common standard of value makes transactions easy and fair.

iv. Standard of Deferred Payments:

In the word of to day borrowing and lending are very essential. But is should be so arranged that neither the borrowers nor the lenders should suffer any undeserved loss or should make an unexpected gain. If a loan were taken in oxen and has to be repaid in that very form we can imagine the difficulty. In a loan is taken in the form of money and repaid in money, then we give back practically what we borrowed, for money has comparatively a stable value.

v. Money Transfers Value:

With the help of money it is easy for a person to shift his movable and immovable property to different place. He has supply to dispose it off and with the sale proceeds buy similar property in the place where he wants to settle down.


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