Meaning and function of Money, Indian Financial System Video Lecture | Indian Financial System - B Com

so first and foremost let us talk about
what do we mean by the term money many
economists say that money is what money
does money is what money does and what
does money do it serves as a medium of
exchange people use it to buy and sell
goods it is used as a common measure of
value by the term common measure of
value it means that we express the value
of goods and services in terms of muddle
whatever we buy whether it is our
grocery fruits and vegetables everything
is expressed in terms of a common value
that is money it also serves as a store
of value store of value means that you
if you have surplus money you can keep
that you can keep that safely and you
can use it in future you can store it in
various forms and then you can use it in
future when you need it so it serves as
a store of value
so anything that performs these three
basic functions that it acts as a medium
of exchange it acts as a common measure
of value people express the value of
their goods in that and it acts as a
store of value that can be termed as
money it has a general acceptability by
all general acceptability by the people
because it is backed by the government
so money is that serves as a medium of
exchange serves as a common measure of
value and acts as a store of value this
is what money means now what are the
functions of money in a static sense
static sense means the word static means
stationary it has always been used and
expressed in this term
this is a basic functions these are the
basic functions of money that it has
performed since ages so in a static site
sense it acts as a medium of exchange
people use it to exchange goods and
services amongst themselves now what was
the medium of exchange when earlier
money was not there earlier people used
to rely on barter system you must have
heard and studied this barter system in
you were young what does barter system
mean barter system mean that if a person
had one bag of rice and he wanted or he
had let's say he had ten bags of rice
and he wanted some meat he was a
producer of rice and it did not had beef
he had ten bags of rice and he was
willing to give some of his rice bags to
get wheat for example he was willing to
exchange his one bag of rice in place of
one bag of wheat so they exchanged it
amongst themselves there was another
person who had wheat and then they
exchanged and that was how exchange was
taking place had previous errors now
what was the problem regarding this that
the most important problem was that
there needed to be a coincidence of need
now suppose there is another man who has
wheat but he does not want rice he
already has rice with himself so he said
I would not exchange with you these were
the problems that were faced and that is
why it was very important to introduce
some unit in which people would exchange
goods amongst themselves without these
problems that was when money was
introduced earlier it was in the form of
gold coins and silver coins and then
with Ages paper currency came into
circulation so it acts as a medium of
exchange people exchange goods amongst
themselves with the aid of money next it
acts as a unit of account unit of
account now what do you mean by the term
unit of account unit of account means
that people express the values of their
goods in this money for example whatever
price is expressed in 40 rupees per kg
and similarly all the Bhoots are
expressed mobile according to your
values starting from 4000 per piece to
40,000 per piece everything is expressed
in terms of money so it acts as a unit
of account you can express the value of
your goods and services in terms of
money not if some other method or some
other unit would have been taken in
place of money for example if rice would
have been taken as a unit of money so
you would say I will give 10 bytes of
rice to get one mobile then it would
have become very impractical and host:oh
it sells better so to have money which
could be used as a unit of account which
was easy to carry and easy to transfer
now what do we mean by the term fiat
money fiat money means what is your
paper currency paper in itself does not
have any intrinsic value of its own if
you take a hundred rupee note you would
say what value does it have
as it is it has a value of 100 rupees
you can buy a 100 rupee good from it but
otherwise if you say it's just a paper
what value does it have
fiat money means your paper currency
that you have it has the backing of a
government backing of Indian government
in our case it is fat and that is why it
becomes a legal tender it becomes a
legal tender and weaken nobody can
refuse to accept that within the
boundaries of our country and everybody
has to abide by it
had it not be in backed by the
government we would have been printing
notes in our home but that is not
possible because that will not be
accepted it is only that when of paper
is packed by the
of India that it becomes a fiat money or
the currency that we use it is used as
the standard of deferred payments if you
have to make any payments in future you
can use money to settle your accounts if
you have taken a loan you can settle it
later or you can use it for making
deferred payments in payments later and
that can be used as a standard of
deferred payment as store of value now
suppose if you have surplus income what
do you do you can keep it safely either
in the bank or you can invest it and
then you can use it in future so it acts
as a store of value this is one of the
most important functions of money that
it will not get spoiled with edges you
can use it in the time to come so it
acts as a store of value where you can
use it in future for you what are the
purposes now this was in static sense it
has always these have been the functions
of money that it has always performed
line dynamic sense that new functions
that it has performs recently now it
performs direct economic trends direct
economic trends means that all your
savings are directed are directed in a
proper channel they are invested wherein
they create output they affect
employment in a country so it directs
the money in making economic progress in
a country so that is also a very
important function of money that you can
use it for economic upliftment of a
country where all the savings will be
directed and generating more output more
employment encouragement to division of
labour 9 a money economy when payments
are made in terms of money people are
more encouraged to give their best
provide services in which they excel so
that they are paid better and it
encourages division of labour smoothens
transform
visions of savings into investment now
money that is sold as I told you there
are two sectors major sectors in an
economy they are households that's safe
and then they are far reducers or the
entrepreneurs that need money for their
investment where they can do more and
more production so this transformation
of money from savings into investment is
whatever is saved can be transmitted
from savings to investment for better
upliftment of that economy this is one
of the very important dynamic function
of money so we have studied about
functions of money studied functions we
know all the attacks as a medium of
exchange it acts as a unit of account by
the term unit of account we mean that
the values are expressed of goods and
services in terms of money it acts as a
standard of deferred payment wherein you
can make payments in future and it acts
as store of value these four other
static functions of money and in a more
dynamic sense they can be used for
directing economic trends for
encouraging division of labour and
transforming savings into investments