Inglese - lettura economica inglese - Riassunto esame, prof. La Ragione

Money and its functions

It’s very difficult to define exactly what money is. Over the years, a variety of commodities have been accepted as money, ranging from precious metals to cattle. The money is as money does, and therefore anything which performs the function of money is money. There are 4 functions which money performs:

Functions of money

• To act as a medium of exchange or means of payment; money is universally acceptable for goods and services. In the absence of a medium of exchange, trade could take place on the basis of barter. Clearly, barter would restrict the growth of trade; a man can exchange his labor for money, and then use this money to purchase the output produced by others. By acting as a medium of exchange, money is therefore fulfilling a crucial function enhancing trade, specialization, and wealth creation.
• To act as a unit of account. By acting as a medium of exchange, money also provides a means of expressing value.
• To act as a store of wealth. Because money can be exchanged immediately for goods and services.
• To act as a standard for deferred payment. In the modern world, goods are often purchased on credit, with the amount to be repaid fixed in money terms, because it would be impractical to agree on repayment in terms of other ways.

Liquidity

A term used in connection with money is liquidity; an asset is more liquid the more swiftly and less costly it can be converted into the means of payment. For this, money is the most liquid asset of all, and it can take 2 forms:

• Cash,
• Bank deposits.

There are several kinds of bank deposits with varying degrees of liquidity. It is very important to understand the difference between a bank deposit and cheques, because cheques are simply the means to transfer a bank deposit from one person to another. It’s the bank deposit which is accepted in settlement of debt; a cheque that cannot be honored against a bank deposit is worthless.