The main functions of money are: medium of exchange, unit of account and store of value. But what about value of money?
- Functions of Money
- Value of Money
- Cards in modern world
1. Functions of Money
Although money uses in various ways in the economy, basically there are three major functions of money. They are a medium of exchange, a unit of account, and a store of value. These three functions are known as the primary functions.
If you want to know or to remember, you can read more about what is money or about different types of money in the previous post.
1.1. Medium of Exchange
The most important and major function of money is as a medium of exchange to facilitate any kinds of trade and economic transactions. The trading of products and ventures in business sectors is among the most widespread exercises of human existence. To encourage these trades, individuals choose something that will fill in as a mechanism of trade—they select something to be cash. We can comprehend the meaning of a mechanism of a trade by thinking about its absence.
Trade happens when merchandise is traded straightforwardly for different products. A purchaser may discover a dealer who will exchange a horse for a couple of sheep. Another merchant may give a hairstyle in return for a nursery hose. Assume you were visiting a supermarket in a deal economy. You would have to stack up a fully loaded truck of things the merchant may acknowledge in return for staple goods.
That would be an unsure issue; you were unable to know when you set out toward the store which things the merchant may consent to exchange. A second’s thought of the trouble of living in a trade economy will exhibit why human social orders perpetually select something—now and then more than a certain something.
1.2. Unit Of Account
This function of money suggests that it’s the ruler by which other values are measured. For instance, an accountant may charge $100 to file your income tax return . That $100 can buy two pairs of shoes at $50 a pair. Money acts as a standard denominator, an accounting method that simplifies brooding about trade-offs.
1.3. Store of Value
So as to be a medium of trade or exchange, money must hold its value with the time. This is third function of money. It must be a store useful . As a store useful , money isn’t unique. Many other stores useful exist, like land, works of art, and even baseball cards and stamps. Money won’t even be the only store useful because it depreciates with inflation. However, money is more liquid than most other stores useful because as a medium of exchange, it’s readily accepted everywhere. Furthermore, money is an easily transported store useful that’s available during variety of convenient denominations.
2. Value of Money
A certain amount of money is determined as an exchange for a service or product. The value of a dollar can usually be determined in three ways. The first thing to determine is how much the dollar will cost in other parts of the world. This is how the exchange rate is measured. Forex traders usually set the exchange rate of this foreign currency. They factor in expectations for the future by accepting demand and providing accounts. This is why it is often observed that the rate of exchange of business increases and decreases.
The second method of determining the value of money is based on the value of treasury notes. These treasures easily convert any money into dollars in the secondary market. It should be noted that the exchange rate of this dollar has been declining over the last few decades. The value of the US dollar has fallen sharply as economic growth has picked up in most parts of the world. Traders, on the other hand, have strengthened the dollar against the euro as they see the dollar as a safe exchange medium.
The value of money usually refers to the exchange value of a product or service. The value of money refers to the amount of money that is determined in exchange for a product. The purchasing power that is required to get a service is the value of money. What the exchange rate of money will depend on the place. Single unit money depends on business conditions. We should remember one thing and that is the exchange rate of a commodity increase, the value of money decreases. So it can be said that in general the price level of service and the value of money are determined in reverse. So we must look at the reasons for the exchange rate and understand its value.
It must be remembered that a certain amount of currency is set for receiving a service or product. The US dollar was added to the exchange rate shortly after World War II. These exchange rates are presented through some special paper and are legally prevalent as per the demand through which desirable metal can be redeemed.
People need a lot of things to meet their daily needs, which is why the exchange rate system has been invented. In ancient times the exchange of metal rings was the currency. After that the introduction of the ring, the metal currency which was made of precious copper, silver, or gold circulated all over the world. With the evolution of time came the current exchange currency made of paper.
2.3. Exchange Rate
Technically currency generally refers to the physical value; in the global market, value currency is calculated as a unit of the exchange rate. Due to business, different companies or parties have to deal with foreign currency in many cases. The government supports two policies for lending through this process, one of which is a fixed exchange rate.
This exchange rate is determined by a particular company through which there is business contact with the foreign country. These transactions and currencies are set up directly through the central bank of the country and then they buy or sell them. Investors can acquire any type of pegged currency through the central bank if they wish.
Currency exchange rate
According to IBAN.com, the currency exchange rate is the value of one currency for the purpose of conversion to another. It is also regarded as the value of one country’s currency in relation to another currency.
Different currency rates can be easily found on specialized sites, like XE, OANDA, X-Rates, or IBAN. You only must introduce the amount of money you want to exchange, from what currency and to what currency you want to convert that amount of money. The result is delivered instantaneously on the screen.
2.4. Forex Traders
Forex trading is an acronym for Forex Exchange Trading. It is the largest selling currency in the international economic market. It is about 25 times bigger than any stock market in the world. Forex trading gives instructions for any type of exchange rate. It can be said that the value of the dollar is constantly changing based on foreign trade. Forex trading largely determines the exchange depending on the conditions of the trade which causes the price to fall. All those who travel abroad have done this forex trading to cover the cost of the destination because the currencies of most countries are different.
3. Cards in Modern World
Money often provides its services through certain functions. Money usually acts as a unit of account, as a means of saving money, and as a medium of exchange. The main and important function of currency is to act as a medium of exchange. In the modern era, exchanges are done in two ways, one is through credit cards and the other is through debit cards. Below is a brief description of these two mediums:
3.1. Credit Cards
A card issued by a financial institution that can withdraw money from a bank and that institution is called a credit card. According to the terms of the company, the users of this card are obliged to return the money with interest. Credit Card users receive many additional benefits from Debit Card users.
3.2. Debit Cards
A debit card is a card that gives a loan directly from a customer’s check account and does not require a loan bank. When exchanging large amounts of currency like Master card or Visa card, the debit card has much more customer protection than Credit Card. The debit card has a fraud protection facility for extra protection so a security message is available during the transaction. Besides, there is no annual fee for exchanging between these cards, which is the amount to be paid based on the transaction for the credit card.
Money is needed for the smooth running of daily activities. The value of money has evolved a lot in the evolution of time. Forex trading is working to keep the economic situation right as the value of money varies in different countries of the world. The value of money is constantly declining, so we have to keep an eye on it.