A
Project on
On
Topic : Money
Submitted in partial fulfilment of the
requirement for the award of
Bachelor of Technology
in
Chemical Engineering
of
National Institute of Technology, Raipur
Submitted to
Dr. Manwendra Tripathi
Submitted by
Fiza tandon
Roll no. 20113021
Contents
Chapter 1- Introduction
Chapter 2- classification of money
Chapter 3- paper money
Chapter 4- value of money
Chapter 1
Introduction
Evolution of money
Commodity MoneyMetallic Money Paper /Token /
Representative / Fiat MoneyBank Money, Deposit
MoneyCrypto Currency
Barter system was introduced by Mesopotamian tribes. It has
following challenges:
- Double co-incidence of Wants
- Search Cost & Transaction cost is high.
- Storage of perishable commodities is difficult, results in loss
of value
- Doesn’t encourage specialization and division of labour
For definition of money we can say that money is that which
money does. Money is the matter of functions four. A medium,
a measure, a standard, a store.
1. A medium of exchange : earlier it is most important
function of money because it was used in the place of
barter system like goods were exchanged in terms of
money resulting the elimination of double coincidence of
wants.
2. Measure of value: ₹=value
3. Standard of deferred payment
4. Store of value: money can be stored more efficiently as
compared to other goods
Functions of money:
1. Primary functions :
Measure of value
Medium of exchange- Buy & Sell goods and services
using money as the ‘medium.
2. Secondary functions :
Store of value
Transfer of value
Deferred of value
3. Contingent functions :
Basis of credit system, Financial markets (share, bond etc
Employing factor of production i.e. Land, Labour,Capital
Creation & Redistribution of National Income via
Taxation.
Chapter 2
Classifications of money
1. Actual money: with this all the payment are made
2. Money of account: it is used to express debts and prices.
Theoretically the unit of money may remain the same,
while the actual money answering that description may
change.
2.1 metallic money: some value independent of its
monetary value
2.2 paper money: reserve bank notes
3. legal tenders: money is always a legal tender and anything
which is legal tender is money
3.1 full legal tender: Indian rupees and reserve bank
notes
3.2 limited legal tender: money which is allowed only
upto limited extent
4. standard money: free coinage and always a unlimited legal
tender.
5. Token money: it is that money whose face value is put
higher by a legal order than the value of metal contained
in it. Rupee is neither a standard coin nor a token coin but
it imbibes some of the characteristics of both hence it is
well styled as token standard.
6. Coin
Chapter 3
Paper money
Paper money is a country's official, paper currency that is
circulated for the transactions involved in acquiring goods and
services.The printing of paper money is typically regulated by
a country's central bank or treasury in order to keep the flow of
funds in line with monetary policy.Paper money tends to be
updated with new versions that contain security features and
attempt to make it more difficult for counterfeiters to create
illegal copies. The first recorded use of paper money was
purported to be in the country of China during the 7th century
A.D. as a means of reducing the need to carry heavy and
cumbersome strings of metallic coins to conduct transactions.
Similar to making a deposit at a modern bank, individuals
would transfer their coins to a trustworthy party and then
receive a note denoting how much money they had deposited.
The note could then be redeemed for currency at a later date.
While paper money is the most accepted medium of exchange,
companies often issue shares of their own company to purchase
other companies and reward their staff. Shares are units of
ownership in a company that entitle the shareholder to an equal
distribution of any profits. Of all accepted mediums of
exchange, shares are closest to paper money because they can
be exchanged on the open market for cash. Paper money is fiat
money. Fiat money is any money that is considered legal tender.
Paper money and coins are legal tender. Example of Paper
Money : In the U.S., paper money is considered fiat money.
This means that it has no actual value except as an accepted
medium of exchange. Before 1971, this was not the case; U.S.
banknotes were backed by a certain amount of gold, which was
dictated by the Federal Reserve. The euro is another form of
paper money that is used in multiple countries. As of 2023, 20
of the 27 member states in the European Union (EU) use the
euro as their official currency.
Chapter 4
Money and exchange
Advertising, soliciting, or accepting for a charge the currency
or other negotiable instrument denominated in the currency of
one government in exchange for the currency or other
negotiable instrument denominated in the overseas currency is
known as "currency exchange" or "foreign currency exchange."
money issued by a different government. "Currency" refers to
coins and paper money that are legally tender in the United
States or another nation, in circulation, and that are widely used
and recognised as a method of exchange in the nation where
they are issued. The price at which one currency will be
exchanged for another is known as the exchange rate. Since
most exchange rates are characterised as floating, their value
fluctuates according to market forces such as supply and
demand. Certain exchange rates are set or linked to the value of
the currency of a particular nation. Changes in exchange rates
have an impact on businesses because they alter the price of
commodities imported from other nations and the demand that
foreign consumers have for their goods. The gross domestic
product, unemployment rate, market interest rates, and
economic activity of each nation are typically used to calculate
the exchange rate between two currencies. They are established
in the global financial marketplace, where banks and other
financial organisations trade currencies continuously based on
these variables. These rates are sometimes referred to as market
exchange rates. Rate adjustments may be made on an hourly,
daily, or big incremental shift basis.
Chapter 5
Value of money
People want money because it has purchasing power, and their
want for money contributes to some of this purchasing power.
Is this not, however, circular reasoning? It's not! The
"regression theory" of Ludwig von Mises states that we have to
consider the time factor. Our search for cash holdings is
influenced by our past purchasing power, which was influenced
by our prior purchasing power, and so on, all the way up to the
point where the monetary demand first emerged. At that time,
a certain amount of gold or silver's purchase value was solely
based on its non-monetary applications. This leads to the
intriguing conclusion that, absent their historical use as
"substitutes" for real money—such as gold and silver—for
which there was a nonmonetary demand, the widespread use of
paper money as it exists today would be unthinkable.
Government tender paper became the official or "fiat money"
only when man became accustomed to these alternatives and
governments denied him the ability to use gold and silver as
currency. Because consumers now focus their monetary
demand on government tender paper, it has value and
purchasing power while having no nonmonetary demand. Fiat
money would be worthless if the public's demand for it were to
suddenly stop or shift towards actual products as a medium of
exchange.
Regarding Supply and Demand
Like the pricing of all other economic commodities and
services, the supply and demand of money affect its purchasing
power. The specific relationship between supply and demand
establishes the purchasing power of this particular item. Thus,
let's start by examining the variables that affect each person's
want for money.Since money serves as a medium of exchange,
factors pertaining to the money or products side of the
transaction may have an impact on our desire for it. Thus, we
can discuss factors that are induced by products and factors that
are induced by money.
Variation on the Goods Side
The former may be illustrated with a basic example. Assume
for the moment that an opposing army has cut off all new
supplies to our mediaeval town. Starvation and severe want are
present. The amount of money remained the same—no gold or
silver has left our troubled town—but its purchasing power had
to decrease. Because everyone wants to ensure their survival by
keeping less cash in return for some scarce food. All situations
where there is a decline in the amount of available items but no
change in the amount of money in people's cash holdings are
identical. During a conflict, even if there may be an equal
amount of money in circulation, the value of money tends to
decrease and commodities prices rise when the adversary
closes supply channels or reduces economic activity due to a
shortage of labour. In an agricultural economy, a poor crop
might clearly devalue the currency. Likewise, a nationwide
walkout that cripples an economy and drastically curtails the
flow of products and services drives up the cost of things and
concurrently depresses the purchasing power of money. Indeed,
any labour dispute or attempt to damage the economy tends to
have an impact on pricing.