chapter 1- money, credit, and banking
TRANSCRIPT
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How well do you know your Money?
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How well do you know your Money?
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• COURSE INTRODUCTION:• What is FINANCE?• Why Study Money?• Why Study Credit?• Why Study Banking?
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Chapter 1
NATURE AND
FUNCTIONS OF MONEYPowerPoint Presentation
Created by:RC T. BIGNOTIA, MBA
Faculty-St. Paul University Manila
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Chapter 1- Nature and Functions of Money
Learning Objectives: After completing the Chapter, you should be
able to Explain the effects of Money on Economic lifeDiscuss the discuss the Stages in Exchange DevelopmentDefine the Meaning of MoneyIdentifies the Characteristics of Good Money
Explain the Functions of Money Understand the Origin of Evolution of Money
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“There is nothing about money that cannot be understood by the person of reasonable curiosity, diligence and intelligence”.
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“ A rose by any other name will smell as sweet”
William Shakespeare
salapi Kuwarta
Atik
Datungbread
pera
“anda”
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Stages in Exchange Development
• 1st Stage- Direct Appropriation Stage What early man’s needs was provided by its natural resources.
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Stages in Exchange Development
• 2nd Stage- Barter/Direct ExchangeGoods and services directly exchange for other goods and services
Barter ended man’s self-sufficiency and ushered in economic inter-dependence among men
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Stages in Exchange Development
DIFFICUTIES OF BARTER:
1. Product do not have the same value2. No double coincidence of wants3. Lack of store value4. It is cumbersome, inconvenient and
indivisible
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Stages in Exchange Development
•3rd Stage- The Use of Commodity as MoneySome goods because of its usefulness, beauty, scarcity and rarity commands a wide acceptance as medium of exchange.Non-Metallic (rice, corn, wheat, salt, tea, cattle)Metallic Money (gold, silver, copper.Intrinsic value or material value is equal it’s monetary value
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In the days of the Early Roman Empire, SALT were used as money. “salarium”
Salt Money
In South Sea Islands 10,000 coconuts were enough to buy a wife
Money for buying a Wife
In Mexico and Central America CORN was used as money, In Japan and the Phils. RICE was used
Money that could be Eaten
Commodities Used as Money Throughout History
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Cattle was used as moneyIn Greece
Tea was used as MoneyIn China
In Egypt SLAVES was used as money, In England they were called “payment in Kind”
Living Money
Commodities Used as Money Throughout History
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Stages in Exchange Development
4th Stage- Credit Money
Money whose monetary value is more than its material or commodity value
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Money comes from the Greek Word “Moneta”
• Anything which is used as a medium of exchange and is widely accepted for the payment of of goods and services, debts and obligations within a given territory without reference to the credit standing of the person who offers it
DEFINITION OF MONEY
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• State Theory of Money Money is what the law says it is.
• Money has Purchasing Power The power to command goods and services
What makes Money Generally Accepted in Exchange or Payment of Goods or Services?
“Money” per se is not money unless use and accepted
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What gives money its Purchasing Power?
The Law has given money a Legal Tender Power.
What is Legal Tender Power
• A mandatory law that makes money accepted in payment for all kinds of services
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Legal Tender Money
•any form of money which according to law is acceptable for all forms of obligations
What are Considered Legal Tender Money in the Philippines? Notes and coins issued by BSP
Can checks be
Considered as Money?
Legal Tender Money
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1. As a Medium of Exchangemoney serves as a common medium or tool ofexchange.
The use of money as a medium of exchange promotes economic efficiency? How?
Functions of Money
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2. As a Standard Unit of Valuemoney serves as a measuring device in which value of goods and services can be express.
Thus, in turn standardized the value of goods and services.
Functions of Money
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3. As a Standard of Deferred PaymentThe money that we use as a medium of exchange is the same money we can use topay for our debts and obligations
Functions of Money
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4. As a Store of Value money has the quality to be kept or store for future use
In what way will money
loses it functions?
Functions of Money
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1. General Acceptanceaccepted by anyone in exchange for goods and services
2. Stabilityvalue must not change every now and then and not susceptible to fluctuations, devaluation, inflation, etc.
3. Portabilitymoney is made light, to be easily carried from one place to another
Characteristics of Good Money
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4. Cognizabilitydesign should not only be aesthetically beautiful but also difficult to counterfeit.
5. Durabilitymoney must withstand longer period of time against wear and tear
6. Divisibilitydivisible into small parts and likewise possible to recombine these small parts into bigger denominations
Characteristics of Good Money
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7. Malleabilitymoney can be melted and beaten into a desired shape to conform to the specification of the government
8. Uniformitymoney must conform to certain standard to avoid confusion (size, shape, and color)
9. Homogeneitymaterial used must be uniform in composition throughout
10. Elastic
Characteristics of Good Money
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Ring: 75% copper; 25 nickelCore: 92% copper; 6% aluminum; 2% nickel
10 Peso
65% copper; 35% zinc75% copper; 25% nickel 70% copper;24.5 zinc,5.5nickel
25 cents1 Peso5 Peso
6% copper; 94% steel6% copper; 94% steel6% copper; 94% steel
1 cents5 cents10 cents
Denomination Composition
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Question – Why do our gov’t. need to regulate the volume of money?
Q – How does the gov’t.regulate the volume of Money in Circulation?
Discussion Questions:
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1. Commodity Money- money that is made up of precious metal or another valuable commodity
a. Non-Metallic Moneyb. Metallic Money
gold/silver
2. Credit Money- credit instruments by the government backed by a promise to paya. Government Notesb. Bank Notes
3 Important Types of Money
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1. Fiat Money -refers to paper currency decreed by government as legal tender but not convertible into coins or preciousmetal.
-It is backed by a government promised that it is legally acceptable as a means of exchange for products
-State Theory of Money (Japanese Imperial Notes)
3 Important Types of Money
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GreeceBelgium, France, Switzerland and othersNetherlands & Suriname
DrachmaFranc
Guilder
Morroco, UAEAustralia, Canada, New Zealand, Singapore, U.S. and others
DirhamDollar
VenezuelaBrazilAlgeria, Jordan, Kuwait and others
BolivarRealDinar
Currencies of the World
Name of Currency Country Using
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SpainEgypt, Great Britain, Lebanon and others
PesetaPound
Denmark, NorwayItaly, Turkey, and othersGermany
KroneLiraMark
Czech Republic, Slovak RepIceland and Sweden
Koruna
Krona
Currencies of the World
Name of Currency Country Using
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JapanChina
YenYuan
India, Pakistan and othersAustria, and others
RupeeSchilling
South Africa, NamibiaSaudi Arabia, Qatar
RandRiyal
Currencies of the World
Name of Currency Country Using
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1. Where does the supply of money in a specific government comes from? How does a government control its supply of money? How does the supply of money affect the economy or economic activity of a country, provide an example
2. How do you relate this with the current financial conditions of our country?
Research Work: