What is money? Why do individuals hold money? Briefly describe the functions of money.

Definition of  Money

Money is anything that is generally accepted as a means of payment for buying goods and services and settling debts. Its main characteristic is general acceptability.

 Reasons for holding Money

(1) Transaction Motive: People hold money to meet their regular expenses and daily transactions.

(2) Precautionary Motive: People keep money to meet unexpected expenses or emergencies.

(3) Speculative Motive: People hold money to take advantage of future opportunities, such as buying assets when their prices fall.

 Functions of Money

(1) Medium of Exchange: Money is used to buy and sell goods and services. It makes transactions easier than barter.

(2) Measure of Value/Unit of Account: Money provides a common standard for measuring and expressing the value of goods and services.

(3) Store of Value: Money allows people to keep their wealth for future use.

(4) Standard of Deferred Payment: Money is used to settle future payments, such as loans and other debts.