Money is a common currency or account that is usually accepted as settlement for services rendered and repayment of payments, including interests, taxes, or other socially determined charges in a certain country or cultural context. It can also be an abstract measure of value usually denoted by units on the market and quoted as price. This article discusses money from various perspectives, including its definition, importance, and the various aspects of money making transactions.
The most important aspect of money is its definition. The word “money” refers to a specific class of goods (the items defined as money) that are accepted as payment in trade. Money normally refers to coins or paper bills, but it may also refer to checks, banknotes, physical pieces of wealth, gold or silver coins, or other goods of like kind. In a barter economy, the value of goods and services that are exchanged immediately and permanently through agents of the market is the only basis for money-the value of the future transactions.
Money, as a medium of exchange, facilitates transactions between individuals, between groups of individuals and between countries. Money facilitates the transfer of goods, services, and information between individuals and groups of individuals and between countries. With money a social bond is created that transcends the geographical and political boundaries. It is a bond that helps to understand and guarantee the future transaction costs between parties to the transaction.
The role of money in our lives goes beyond the simple use for trade. Money is a fiduciary media through which promises are made to the public. A firm’s assets are not just those products and goods that it produces or manufactures, but also those assets that it owns through bank deposits, stock certificates, and bank reserves.
Money is a medium of exchange because it facilitates the transfer of goods and services between individuals. It is also a guarantee, through bank notes, that a particular unit of currency will be repaid. It may make the exchange rate of one type of currency to another easy to ascertain, and it may help a firm avoid the danger of having its value depreciate in proportion to the value of the other currency. It may make it possible for individuals and small businesses to get credits from each other at a low cost. Money, through a medium of exchange such as currency, makes it possible for small market participants to establish a regular and reliable flow of transactions.
The three characteristics of money, as they apply to the various uses-what it is a medium of exchange for, what it guarantees, and how it makes it possible for individuals and small businesses to get credits with each other, make it crucial for a firm to have a consistent supply of goods and services of various kinds and sizes, on a recurring basis. This means that there has to be a regular and reliable supply of cash to facilitate future transactions. It is not enough that a firm gets credit for these goods and services, it must have a constant and reliable source of income for doing so. If there are no sources of income, it becomes impossible to make future transactions and it will be more difficult, on the whole, to provide consumers and other entities with the products and services that they need. That is why the steady supply of money is important to firms and to humans in general.