Banking Awareness: Money and Characteristics of Money for Bank Tests and Interviews

Money and Characteristics of Money

It is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context of country. Any kind of object or secure variable record that fulfils these functions can be considered as money.

Credit Money:

Any future monetary claim against an individual or nor that can be used to buy goods and services.

Legal Money:

It is a type of payment that can lawfully be used to meet financial obligations. Money, as legal tender, is a commodity or asset or an officially issued currency or coin that can be legally exchange for something of equal value such as a good or service,or that can be used in payment of a debt.

Adjacent Money:

It is not exact money, but near to money. Because it's nature of liquidity is more in comparison to others like bond, government debenture and more.

Different Types of Money:

Now, we will discuss the different types of money. Broadly speaking, there exist three main types of money in a modern economy days  they are Metallic Money, Paper Money and Credit Money. Economists, however, further classify money into many.

The important types of money are explained below

1) Metallic Money:

Money made-up of any metal is called metallic money. It refers to coins that are made-up of various metals like Gold, Silver, Nickel, Copper etc. The right of minting coins, is the monopoly of the state.

Metallic Money is further classified into two types. They are:

i ) Standard Money:

Standard Money or full bodied money is that money whose face value is equal to the intrinsic value. Standard Money/ Coins are generally made up of Gold ans Silver.

ii ) Token Money:

Token Money is that money whose face value is greater that its intrinsic value. Token money / coins are generally made up of cheaper metals like copper, nickel etc.

2) Paper Money:

Money made-up of paper is called Paper Money. Paper Money consists of currency notes issued by the government or the Central Bank of a country.

Paper Money is further classified into four types they are:

• i ) Representative Paper Money: The Paper Money which is fully backed by gold and silver reserves is called representative paper money.

• ii ) Convertible Paper Money: It is that paper money which is convertible into standard coins.

• iii ) Inconvertible Paper Money: It is that paper money which is not convertible into standard coins or valuable metals

• iv ) Fiat Money: Paper money which circulates on the authority of the government is fiat money. Fiat money is created and issued by the state. It is only a variety of inconvertible paper money.

3) Acceptable Money:

On the basis of general acceptability, money can be categorised into legal tender money and non-legal tender money.

i ) Legal Tender Money: It refers to that money which the state and the people accept as the means of payment in discharge of debts. It is classified in to two sub parts they are:
                    

                    a) Limited Legal Tender Money  and   b)Unlimited Legal Tender Money

ii ) Non-Legal Tender Money: It is also known as optional money. It refers to that money which may or may not be accepted as a means of payment. Optional money has no legal sanction.