Functions of Money

  • Medium of exchange – money is generally acceptable by everybody in exchange for goods and therefore enables trade to be carried out conveniently hence reducing drawbacks of barter trade
  • Measure of value – when commodities are valued in terms of money,a problem of fixing exchange rate is solved.this is because money provides a common denominator in which the values of various goods and services are expressed.
  • A unit of account – money can be held for no other purpose than is a unit by which goods and services are valued.
  • Store of value – this is because it is easily convertible into other forms of can also be kept as savings for future transactions since it is durable and relatively stable in value.
  • Standard of deferred payment – a debt incurred today can be paid at a later date using used to settle future payments.
  • Transfer of immovable properties – using money,we are able to transfer the value of a commodity from one person or place to another. e.g. a piece of land in Mombasa can be sold and the money received used to acquire a piece of land of an equivalent value in another province.
  • Measure of wealth – wealth can be measured in monetary terms.

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