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Q.Explain the Primary and Secondary functions of Money.
Telangana TsbieTSBIE Telangana Intermediate (1st Year) Commerce Board 2023Subjective· 5mImportance★★★★★
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Start your 14-day free trial to unlock the full solution →Money performs primary functions - medium of exchange and measure of value - which are its essential functions, and secondary (derived) functions - store of value, standard of deferred payments, and transfer of value. Together these functions overcome the difficulties of the barter system.
Primary functions of money
These are the basic and original functions that money performs in every economy:
- Medium of exchange: money is generally accepted in exchange for goods and services. A seller accepts money and a buyer pays money. This removes the need for a double coincidence of wants, which was the main difficulty of the barter system.
- Measure of value (unit of account): the value or price of every good and service is expressed in terms of money. Money acts as a common denominator in which all values are measured and compared, making accounting and calculation possible.
Secondary functions of money
These are derived from the primary functions and add to the usefulness of money:
- Store of value: money can be stored or saved to be used in the future because it does not perish and is generally accepted at all times. People hold wealth in the form of money.
- Standard of deferred payments: payments to be made in the future (loans, instalments, rent, salaries) are stated and settled in terms of money, because its value is relatively stable and it is widely acceptable.
- Transfer of value: money allows purchasing power to be transferred easily from one person to another and from one place to another (for example, a person selling property in one city can buy property in another). …
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