“Trade and Money”

 > Explanatory Article by Marios Kyriakou, MSc Economics


About the author: Marios Kyriakou has a bachelor’s degree in Economics from the University of Cyprus and a master’s degree in Economics from the University of Warwick. He is also a holder of CySEC’s Advanced Certificate in Financial Services Legal Framework and a professional in Online Trading, Forex and CFDs with more than 7 years of experience.

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<Last updated 13.04.2020>

Dear reader,

Hi! If you are interested in Economics, I’ve prepared the below to help your understanding about money. You should take a look at this short article in which I discuss Trade and Money, of how people use Money as a Medium of Exchange.

In primitive economies, only a few products existed and trading/exchange was taken place instantly. This means that trading one good for another was done directly, face to face transactions. However, people were facing problems when doing economic activities without using  a medium of exchange. These problems include: 1) People in need of a specific good had to find people providing it to do the exchange. This was hard to be done. 2) difficult to transport goods and resources for trading to take place, 3) calculating and dividing quantities of the goods was difficult. 4) difficult to identity the value of the goods and depreciation rate.

Money helped in making it easier for goods and services to flow through the economy. Money is whatever is generally acceptable as medium of exchange. Instead of one transaction to take place, two transactions are happening: a) Seller’s side: One sale, an exchange of money for the good,  b) Buyer’s side: One buy, an exchange of money to buy another good.

Money is considered a Medium of Exchange, an Intermediate Good. I also serves as a Unit of Account: It represents a counting tool: The value of a unit of one good or service in terms of money is called price. It serves also as Means to Store Value: the amount that gives the possibility to transfer purchasing power from the present to the future. The money received today from the sale of one good, can be used to buy something else in the future. Is serves as a medium for contracting and repaying loans: An amount of money must be re-payed based on the agreement, a contract signed between two parties.

There are three forms so far of money:

> Commodity money: a physical good. Animals, shells, salt etc. were used as money by human beings as well as metals like gold and silver. This type of money has intrinsic value.

> Fiat money: Money that the law forces people to accept it as medium of exchange and as means to repay debt. Does not have intrinsic value. Involves coins and notes, demand deposits.

> A cryptocurrency (or crypto currency):  It is something new in this era, a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.

 


 

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Thank you for reading my articles and watching my videos.”

Marios Kyriakou

References:
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Βλαδιμήρου-Παναγιώτου Β. και Κουζαλή-Σωτηρίου Ε., Οικονομικά Γ’ Λυκείου, Κύπρος, Α΄ Έκδοση 2017.  Υπηρεσία Ανάπτυξης Προγραμμάτων, Κύπρος.
Besanko, David Braeutigam, Ronald R. Gibbs, Michael, 2011, Microeconomics, Hoboken: John Wiley, 4th ed,
International student version
Frank, Robert H., 2010, Microeconomics and Behavior, New York: McGraw-Hill Irwin, 8th ed.
Estrin, Saul Laidler, David E. W. Dietrich, Michael ., 2008, Microeconomics, Harlow: FT/ Prentice Hall, 5th ed.

Disclaimer: This article is intended for educational purposes only and does not replace independent professional judgement. Its purpose is to act as a complementary educational service to society, promoting personal development and social, economic and cultural progress of citizens. While this content has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by the creator to the accuracy or completeness of the information presented or any other written or oral information made available to any interested party and any such liability is expressly disclaimed.

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