2. Members of the group
No Names of the group
1 Abdisalan saed jamac
2 Hassan abdi muude
3 Mohamoud abdi haddi
4 Abdirahman jamac cawad
5 Saynab Mohamed adan
6 Khalid abdi ali
7 Hamze abdisalan abdilahi
3. Learning objectives
After reading this chapter, you will be able to:
Define money, its functions, and its characteristics
Describe various types of money.
Compare and contrast commercial banks, savings and loan
associations, credit unions, and mutual savings banks.
Distinguish among nonbanking institutions such as insurance
companies, pension funds, mutual funds, and finance companies.
4. What is the money?
anything generally accepted in exchange for goods and
services.
Materials as diverse as salt, cattle, fish, rocks, shells, cloth,
as well as precious metals such as gold, silver, and copper
have long been used by various cultures as money.
Finance
Is The study of money—how it’s made, how it’s lost
and how it’s managed
5. Functions of money
there are three important functions of money:
medium of exchange,
measure of value
store of value.
6. Cont..
medium of exchange
Money's most important function is as a medium of exchange
to facilitate transactions.
Without money, all transactions would have to be conducted
by barter, which involves direct exchange of one good or
service for another.
Medium of exchange, which means that money acts as an
intermediary between the buyer and the seller.
7. Cont…
measure of value
Is the function of money that enables the values of different goods
and services to be compared.
Assume a country’s money is copper. I may agree to trade Joe
two pounds of copper for a cow even if I do not need any copper
because I know I can trade copper with anyone else in the
community.
Everything in the community would be measured against copper.
Perhaps a pig is worth one pound of copper.
8. Cont…
store of value.
A store of value is an asset that maintains its value without
depreciating.
Gold and other metals are good stores of value as their shelf lives
are essentially perpetual, whereas a perishable good (e.g., milk) is
a poor store of value due to its propensity to decay.
A store of value is something that people use to transfer
purchasing power from the present to the future.
9. Characteristics of money
To be used as a medium of exchange, money must be
Acceptable
divisible
portable
Stable
Durable.
Difficulty to Counterfeit.
10. Cont…
acceptability
To be effective, money must be readily acceptable for the
purchase of goods and services and for the settlement of
debts.
Acceptability is probably the most important characteristic of
money.
This shows the confidence people have in money.
11. Cont…
Divisibility
Money must be capable of being divided into smaller units,
e.g. ($100, $50, $20, $10, etc., to enable it to purchase both
high and low priced commodities.
With barter, the lack of divisibility often makes otherwise
preferable trades impossible, as would be an attempt to trade
a steer for a loaf of bread.
12. Cont…
portability
it must be easily moved from one location to the next.
Means is that money must be able to go wherever such that it
is easy to transport as people travel.
The object that serves as money must be something that can
easily be carried about from one place to another.
13. Cont…
Stability
Money must be stable and maintain its declared face value.
A $10 bill should purchase the same amount of goods or
services from one day to the next.
The principle of stability allows people who wish to postpone
purchases and save their money to do so without fear that it
will decline in value.
14. Cont…
Durability.
Money must be durable.
Durability of money is such that it can be used over and over
again; hence it must survive wear and tear for long periods.
The object that will serve as money must be able to long
term.
15. Cont…
Difficulty to Counterfeit.
Finally, to remain stable and enjoy universal acceptance, it
almost goes without saying that money must be very difficult
to counterfeit—that is, to duplicate illegally.
Every country takes steps to make counterfeiting difficult.
Most use multicolored money, and many use specially
watermarked papers that are virtually impossible to duplicate.
16. Types of Money
Generally There are two types of money paper money and
coin money
Checking account
Saving account
Money market account
Certificates of deposit
Credit card
Debit card
17. Cont…
Checking account
money stored in an account at a bank or other financial
institution that can be withdrawn without advance notice; also
called a demand deposit
savings accounts
accounts with funds that usually cannot be withdrawn without
advance notice; also known as time deposits
19. Cont…
money market accounts
accounts that offer higher interest rates than standard bank
rates but with greater restrictions
certificates of deposit (CDs)
savings accounts that guarantee a depositor a set interest
rate over a specified interval as long as the funds are not
withdrawn before the end of the period—six months or one
year, for example
20. Cont…
credit cards
means of access to preapproved lines of credit granted by a
bank or finance company
debit card
a card that looks like a credit card but works like a check;
using it results in a direct, immediate, electronic payment
from the cardholder’s checking account to a merchant or third
party
21. Banking institution
Banking institutions accept money deposits from and make
loans to individual consumers and businesses.
Some of the most important banking institutions include:
commercial banks,
savings and loan associations
credit unions
mutual savings banks.
22. Cont…
commercial banks
the largest and oldest of all financial institutions, relying
mainly on checking and savings accounts as sources of
funds for loans to businesses and individuals
savings and loan associations (S&Ls)
financial institutions that primarily offer savings accounts and
make long-term loans for residential mortgages; also called
“thrifts”
23. Cont…
credit union
a financial institution owned and controlled by its depositors,
who usually have a common employer, profession, trade
group, or religion.
mutual savings banks
financial institutions that are similar to savings and loan
associations but, like credit unions, are owned by their
depositors.
24. Nonbanking institution
Nonbank financial institutions offer some financial services,
such as short-term loans or investment products, but do not
accept deposits.
These include
insurance companies,
pension funds,
mutual funds,
26. Cont…
insurance companies
businesses that protect their clients against financial losses
from certain specified risks (death, accident, and theft,
for example) in exchange for a fee, called a premium.
insurance companies generally have large amounts of
excess funds.
They typically invest these or make long-term loans,
particularly to businesses in the form of commercial real
estate loans.
27. Cont…
pension funds
managed investment pools set aside by individuals,
corporations, unions, and some nonprofit organizations to
provide retirement income for members
One type of pension fund is the individual retirement account
(IRA), which is established by individuals to provide for their
personal retirement needs.
28. Cont…
mutual fund
an investment company that pools individual investor dollars
and invests them in large numbers of welldiversified
securities
brokerage firms
firms that buy and sell stocks, bonds, and other securities for
their customers and provide other financial services
29. Cont…
finance companies
businesses that offer short-term loans at substantially higher
rates of interest than banks
Commercial finance companies make loans to businesses,
requiring their borrowers to pledge assets such as
equipment, inventories, or unpaid accounts as collateral for
the loans.