Explain four Function of Money

Money performs the following functions

  1. Medium of Exchange: Money can serve as a medium through which people can exchange goods and services. It came due to the inadequacy of the trade-by-barter system. Money can be used to buy different variety of goods and services.
  2. Standard of Deferred Payment: Since money can be stored, it can be accumulated to pay debts that are fixed in terms of money. The use of money makes it possible for payments to be deferred from the present to some future date. And it encourages stability of money.
  3. Unit of Account: In serving as a unit of account, it becomes practically possible for individual and companies to keep accounting record of their transactions in bank statements, ledgers and invoices.
  4. Store of Value: Money is a good store of value because wealth can be stored for future use. When there is no inflation, money stored or saved retains its value for many years.
  5. As a measure of Value: The value of goods and services are expressed by prices, therefore, money is used as a yardstick to measure and compare the worth of goods and services as well as occupation.

Next check: State 8 characteristics of money

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