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(11. Define money. Explain the primary functions of money
2012
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201
2013
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Money is any object that is generally accepted as payment for goods and services and the repayment of debt.
Money has three primary functions – Medium of exchange, Unit of account and Store of value.
- Medium of exchange – When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange.
- Unit of account – It is a standard numerical unit of measurement of market value of goods, services and other transactions. It is a standard of relative worth and deferred payment and as such is necessary prerequisite for the formulation of commercial agreements that involve debt. To function as a unit of account, money must be divisible into smaller units without loss of value, fungible (one unit or piece must be perceived as equivalent to any other) and a specific weight or size to be verifiably countable.
- Store of value – To act as a store of value, money must be reliably saved, stored and retrieved. It must be predictably usable as a medium of exchange when it is retrieved. Additionally, the value of money must remain stable over time.
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