Essay about lecture 1 money

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Introduction to Business II
Mr. Abraham Ansong
Lecturer
Department of Management Studies
School of Business
U. C. C

3/18/15

Abraham Ansong

1

Money
The Barter system
Limitation of the Barter Economy
Definition of Money
Characteristics of money
Types of Money
Functions of Money
The concept of Inflation and Financial Assets

3/18/15

Abraham Ansong

2

Barter System
At the beginning of civilization, money did not

exist and people traded without the use of money
Without money, people had to swap or ‘barter’ in

order to obtain the things they needed.
Modern trading arose from the system of barter.

However, people resort to barter in times of monetary crises or when currency is devalued by hyperinflation 3/18/15

Abraham Ansong

3

Definition of Bartering
Bartering is the medium in which goods and services are directly exchange for other goods and services without a common use of money.

3/18/15

Abraham Ansong

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Limitations of Barter
Presence of double coincidence of wants

For double coincidence to occur, both parties must have something to offer and both must require each others goods at the same time, otherwise no deal can occur.

No capital formation

Absence of incentive for savings and production of capital goods. The priority was on current consumption needs 3/18/15

Abraham Ansong

5

Limitations of Barter
Absence of common measure of value

The absence of satisfactory means of measuring goods made it difficult to estimate the relative value of the goods. Exchange cannot occur unless both assign the same value to different goods which they possess
Want of means of subdivision
Some commodities were not easy to split them into parts. The splitting up often result in loss in value of the good
3/18/15

Abraham Ansong

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Limitations of Barter
Difficulties in transfer of wealth

People held wealth in the form of animals and perishable goods. Division of such wealth were impossible No specialization
The system did not allow for division of labour and was characterized by inefficient allocation of resources
No budgeting
People were unable to forecast the worth of their merchandise with reasonable certainty or to make estimate of future incomes and revenue
3/18/15

Abraham Ansong

7

Limitation of Barter
Time wasting

The time spent in finding trading partner was enormous and the negotiating process wasted time. Difficulty in saving goods
Commodities deteriorate mush faster than currency since most goods at that were perishable
The emergence of money solves most of these problems associated with the barter system 3/18/15

Abraham Ansong

8

Money
Money is any asset which is generally acceptable for the settlement of debts.
Functional definition
Money is anything that is generally accepted as a medium of exchange, measure of value, store of value and for the payment of debts.
Money is therefore what money does

3/18/15

Abraham Ansong

9

Commodities used as Money in
Ancient times
Silver
Gold
Grains
Salt
Copper
Seashells
Whale teeth
Stones
Fishhooks

3/18/15

Abraham Ansong

10

Characteristics of Money
Acceptability: it means that everyone must be able to accept and use the money for transactions. In the Ghana this is indicated on our paper bills by the notation: “This note is issued on statutory authority and is legal tender for the payment of any amount”.
Stability: the value of the material used as a measure of value must be consistent.
Instability is the root of unacceptability
3/18/15

Abraham Ansong

11

Characteristics of money
Divisibility: means that the money can easily be divided into smaller units of value.
Uniformity: it means that all versions of the same denomination of currency must have the purchasing power. Also called homogeneity.
Portability: individuals must be able to carry money with them and transfer it easily to other individuals. 3/18/15

Abraham Ansong

12

Characteristics of money
Scarcity: it should not be in abundance in supply. There must be
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