Principles of Finance

THAT IN ALL THINGS, GOD MAY BE GLORIFIED.

MONEY
1. Generally accepted for payment of
goods and services and for
repayment of debts
2. An officially issued legal tender
generally consisting of currency and
coin
3. Circulating medium of exchange as
defined by a government
4. The currency of one country can be
exchanged for the currency of another
via a currency exchange
5. Representative so that you may have
exchange for goods and services
MONEY AS LEGAL TENDER
1. Legal tender is a type of payment that
can lawfully be used to meet financial
obligations
2. Commodity or asset
3. Officially issued currency or coin that
can be legally exchanged for
something of equal value such as
good or service, or that can be used in
payment of a debt
FUNCTIONS OF MONEY
1. MEDIUM OF EXCHANGE
used to intermediate the exchange
of goods and services
it thereby avoids the inefficiencies
of a barter system, such as the
double coincidence of wants
problem
generally accepted for goods and
services
2. UNIT OF ACCOUNT
Standard numerical unit of
measurement of the market value
of goods, services, and other
transactions
Also known as measure or
standard of relative worth of
deferred payment
1

Anastasia Grey

Necessary prerequisite for the

formulation of commercial
agreements that involve debt
To function as a unit of
account, money must be:
a. Divisible into smaller units
without loss of value
precious metals can be coined
from bars, or melted down into
bars again
b. Fungible one unit or piece
must be perceived as
equivalent to any other, which
is why diamonds, works of art
or real estate are not suitable
as money
c. Specific weight, measure,
size to be verifiably
countable coins are often
milled with a reeded edge, so
that any removal of material
from the coin (lowering its
commodity value) will be easy
to detect
3. STORE OF VALUE
Money must be able to be reliably
saved, stored and retrieved
Be predictably usable as a medium
of exchange when it is retrieved
Value of money must also remain
stable over time
Inflation reducing the value of
money, diminishes the ability of
money to function as a store of
value
Any amount of money
printed/minted = money reserve
standard (BSP)
4. STANDARD OF DEFERRED PAYMENT
Accepted way to settle a debt
It may function for discharge of
debts

Principles of Finance

THAT IN ALL THINGS, GOD MAY BE GLORIFIED.

When debts are denominated in

money, the real value of debts may
change due to inflation and
deflation, and for sovereign and
international debts via debasement
and devaluation
5. MEASURE OF VALUE
Standard measure and common
denomination of trade
Basis for quoting and bargaining of
prices
Necessary for developing efficient
accounting systems
Most important usage is as method
for comparing the values of
dissimilar objects

CHARACTERISTICS OF MONEY
1. DURABILITY
Item must be able to withstand
being used repeatedly
2. PORTABILITY
Individuals are able to carry money
with them and transfer it easily to
other individuals
3. DIVISIBILITY
Money can easily be divided into
smaller units of value
4. UNIFORMITY
All versions of the same
denomination of currency must
have the purchasing power
5. LIMITED SUPPLY
Restrictions on the amount of
money in circulation ensure that
values remain relatively constant
for the currency
6. ACCEPTABILITY
Everyone must be able to use the
money for transactions
Makes money legal tender

Anastasia Grey

THREE MAIN AREAS OF FINANCE

1. FINANCIAL MARKETS AND
INSTITUTIONS
Money markets provide
companies and governments with
short term liquidity (you need
to raise cash for accounts
payable)
Capital Markets provide
companies and governments with
long term financing
a. Capital possible supplement
for additional capital coming
from financial institutions
b. Capitalization in form of loan
coming from financial market
c. Other financial
market/institution
Sole proprietorship
Partnership/corporation
cooperative
Typical financial institutions:
a. Banks and investment banks
b. Stock brokerages
c. Mutual funds
d. Pension funds
e. Insurance companies

SOURCE:
PROF. GABBY SAGARINOS LECTURE