Money Banking and Finance the nation The ways governments distribute and manage their nation’s money is referred to collectively as finance This includes overseeing the circulation of money granting credit making investments and creating banking facilities We also use the term finance to describe the way money is managed by individuals banks and corporations Put a bit more simply finance refers to how we raise and manage money so that it can be spent for specific purposes Money management often comes in the form of loans and credit Investment is another type of financing Depending Depending on what parties are involved finance can be described as personal business or public 6
CHAPTER ONE The Exchange Process Barter is when a person exchanges one good either an item or a service directly for another When people use money on the other hand the exchange is indirect A family spends money to buy a car This common transaction is easy to understand understand We may not normally think of this in the reverse the person who sells the car is buying money which can be used as a substitute for all possible products and services HOW AND WHY MONEY WORKS Money was invented more than four thousand years ago People who wanted to trade goods and services gradually realized that exchange would be easier if there were some single commodity that everyone would accept as valuable valuable Gold silver and copper were all valued for their many uses and they were highly prized because of their scarcity 7
Title World economies recognize the value of gold Each bar background and coin foreground left and right has a value attached based on the rare metal’s weight and availability scarcity Because gold was the scarcest it was usually but not always more desirable than the other two Its universal acceptability made it the medium of exchange in long-distance long-distance trade Just like today’s money gold and silver have advantages advantages over other kinds of goods First they have universal purchasing power everyone agrees they are valuable Second Second they can be processed into different sizes and weights to stand for a variety of different values Third they are fairly durable They will not rust or decay and they can be stored for long periods of time Fourth because even small amounts of these metals are valuable it is easy to carry them around just as it is easy to carry coins in a pocket or purse today 8
The Exchange Process Fifth silver and gold but especially gold have never lost their exchange value THE PHYSICAL FORM OF MONEY and silver were Gold assigned exchange value by people because of their scarcity When used for exchange purposes these two precious metals are called hard money This term does not only refer to their solidity as metals It suggests that silver and gold are real money in contrast contrast to paper money It is more convenient to carry around paper money such as these US bills than a lot of heavy coins or gold bars Paper money also called banknotes came about so that people could make expensive purchases without having to carry around lots of heavy coins or even large amounts of actual gold 9
