Azizah Isa1 TOPIC 4 MONETARY ECONOMICS. Azizah Isa 2 MONEY

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  • Azizah Isa*TOPIC 4MONETARY ECONOMICS

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    MONEY

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  • Azizah Isa*In the ancient time, where money is not yet introduced,transactions were done by exchanging one goods with another in a Barter System.

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  • Azizah Isa*Barter Trade SystemA barter system is a direct trading or exchanging of goods between one person to another.Barter system of course does not work successfully in a modern economy.

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.Value instability

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.Value instabilityStorage are impossible

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.Value instabilityStorage are impossibleIndivisible

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.Value instabilityStorage are impossibleIndivisibleNo Standard of unit of account

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.Value instabilityStorage are impossibleIndivisibleNo Standard of unit of accountDifficulties in paying debt

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.Value instabilityStorage are impossibleIndivisibleNo Standard of unit of accountDifficulties in paying debt These problems may caused to:

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  • Azizah Isa*Problems in Barter SystemDouble Coincidence of Wants.Value instabilityStorage are impossibleIndivisibleNo Standard of unit of accountDifficulties in paying debt These problems may caused to: waste of time, inconvenience, cumbersome and difficulties in making an exchange.

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  • Azizah Isa*.Due to limitations in the Barter System, Money is needed in a modern economy which act as a means of payment in the transaction of goods and services.

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  • Azizah Isa*WHAT IS MONEY?HOW DO YOU DEFINE MONEY?

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  • Azizah Isa*Definition of MoneyMoney can be anything that is generally accepted by the public as a medium of exchange in the transaction activities.

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  • Azizah Isa*Money act as a means of payment:Money act as:a medium to transfer ownership of goods and services from one person to another and for the repayment of debts.

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  • Azizah Isa*Evolution of MoneyAs time passed by, the money used varies accordingly to meet the needs and purpose of using money.In the ancient time Commodity Money is used.For example; gold, silver, stones, seashells, corns, wool and bones.

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  • Azizah Isa*Museum of Bank Negara MalaysiaThe different types of commodity money.

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  • Azizah Isa*Commodity MoneyIn the use of gold, for example; its: Precious metal such as gold and silver had its intrinsic value as a full-bodied money.

    Thus, if its intrinsic value is stated on its face therefore it is said that: Face Value = Commodity Market Value.

    Intrinsic value = Commodity Market Value.

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  • Azizah Isa*Modern MoneyBut nowadays, in the modern economy, there are many forms of money: Fiat money

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  • Azizah Isa*2. Fiat Money

    Face Value (FV) > Commodity Market Value (CMV) Example: coins and paper money (banknotes).Although its FV is larger than its CMV, but still it is acceptable as money because of the truth and faith in its acceptance as a legal tender in each specified country .

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  • Azizah Isa*The Ringgit and Sen (as in the picture above) are issued by Bank Negara Malaysia (BNM) as a legal tender in Malaysia.

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  • Azizah Isa*Modern MoneyBut nowadays, in the modern economy, there are many forms of money: Fiat money Bank money

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    A form of Near Money i.e. a financial asset which closely resemble money.Examples: Current/Demand Deposits in banks (cheques), Credit Cards, Debit Cards, Stored Valued Cards, Smart Card ATM Cards and Saving Accounts.

    3. Bank Money

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  • Azizah Isa*Modern MoneyBut nowadays, in the modern economy, there are many forms of money: Fiat money Bank money

    Electronic Money

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  • Azizah Isa*4. Electronic Money/ e-money / e-purse / e-cash.

    Transfer of money electronically made over the internet.The acceptance of electronic payment in the transactions via internet.Example: e-cash and e-cheques

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  • Azizah Isa*Money is what money doesWhat does money can do for you?

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  • Azizah Isa*MONEY can does its FUNCTION for you.

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  • Azizah Isa*What are the FUNCTIONS of MONEY ?

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  • Azizah Isa*Four Main Functions of Money:As a Medium of Exchange

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  • Azizah Isa*Four Main Functions of Money:As a Medium of ExchangeAs a Standard Measurement / unit of account

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  • Azizah Isa*Four Main Functions of Money:As a Medium of ExchangeAs a Standard Measurement / unit of accountAs a Store of Value

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  • Azizah Isa*Four Main Functions of Money:As a Medium of ExchangeAs a Standard Measurement / unit of accountAs a Store of ValueAs a Standard of Deferred Payment

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  • Azizah Isa*1. As a Medium of ExchangeFor transactions purposes in purchasing and selling of goods and services.It act as an instrument to make payment or to receive payment in the transfer of ownership.

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  • Azizah Isa*2. As a Standard of MeasurementCan be used in measuring the value of goods and services in terms of its monetary value.Have a standard monetary units (RM) as a unit of account. For e.g. RM1, RM2, 0.50 cents 0.20 cents etc. Comparing relative value of goods and services transacted.

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  • Azizah Isa*3. As a Store of ValueFor saving purposes as a store of wealth.Has the ability to hold its value has the non-perishable criterion.Can reserve for the purpose of future purchasing.

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  • Azizah Isa*4. As a Standard of Deferred PaymentAs a means of settling debts maturing in the future.As money acts as a unit of account and store of value, it makes easier to settle debt.Lenders make loans and buyers repay loans with money.

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  • Azizah Isa*Four Main Functions of Money:

    As long as inflation does not exist in an economy, money may does its functions successfully.

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  • Azizah Isa*Four Main Functions of Money:As long as inflation does not exist in an economy, money may does its functions successfully.It is said that, money is what money does.

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  • Azizah Isa*LETS THINK OF WHAT MONEY CAN BUYS?

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  • Azizah Isa*CAN MONEY BUYSANYTHING THAT YOU WANT?

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  • Azizah Isa*CAN MONEY BUY YOUR TRUE LOVE?CAN MONEY BUY YOUR FRIENDSHIP?

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  • Azizah Isa*LETS THINK OF WHAT ACTUALLY MONEY CAN DO FOR YOU?

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  • Azizah Isa*5 minutes rest ,Please !

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  • Azizah Isa*Money as the Most Liquid AssetAccording to the Liquidity Approach : Money is the most liquid asset.All assets have some degree of liquidity, but some have more than others.Indeed, money is perfectly liquid although in the real world money is not absolutely liquid.Refer to a Simple Liquidity Spectrum.

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  • Azizah Isa*A Simple Liquidity SpectrumMore liquidLess liquidCASH (most liquid asset)CURRENT ACCOUNTOTHER BANK DEPOSITSDEPOSITS AT NON-BANKSSHORT-TERM SECURITIESLONG-TERM SECURITIES PHYSICAL ASSETS (least liquid asset)

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  • Azizah Isa*Liquid Assets and Near MoneyLiquid Assets refer to any financial instruments that can be converted into money easily. The most liquid asset is the cash coins and notes.

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  • Azizah Isa*Liquid Assets and Near MoneyNear Money are those financial instruments or assets which are readily convertible into money.Examples are; current deposits (cheques), savings deposits, short term bills.

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  • Azizah Isa*Categorization of Monetary Aggregates

    NARROW MONEY BROAD MONEYBROADER MONEYA Measure of Monetary Aggregates according to a Diamond Spectrum.

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  • Azizah Isa*NARROW MONEY, M1Also known as Transaction Money can be used to make direct payments.M1 constitute of:Currency in Circulation (coins and paper money/notes/bank notes)Banks Till MoneyCurrent DepositsTravelers Checks issued by no