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Types of Money
1. To be used as money, an item must have certain characteristics: durability (the ability to be used over and over again), portability (the ability to be carried from one place to another and transferred from one person to another), divisibility (the ability to be divided into smaller units), stability in value (people who save money are confident that it will have approximately the same value when they want to buy something with it as it had when they put it into savings), acceptability (people are willing to accept money in exchange for their goods or services). Money comes in all shapes and sizes. The items used as money are a reflection of the society in which they are used. Money as a rule includes coins, paper money, checks and near money.
2. Checks or checkbook money usually make up more than 70 percent of the nation’s money supply, and nearly 90 percent of the transactions in most countries are completed by writing checks. Because checks are payable to the holder of the check on demand, checking accounts are often called demand deposits. Checks are representative money because they stand for the amount of money in a person’s account. They are generally accepted because the bank must pay the amount of the check when it is presented for payment. Checks, therefore, are considered money because they are a medium of exchange, a standard of value, and a store of value.
3. Other financial assets are very similar to money. These assets, such as savings accounts and time deposits, are called near money and are not usually considered part of the nation’s money supply. Bills of exchange are examples of near money. Though they are easily accessible, these accounts cannot be used directly to buy goods or pay debts. Depositors, for example, cannot pay bills directly from their savings accounts. Since funds in these accounts can be easily converted into cash, however, they are considered near money.
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Money’s durability means that money can be easily transferred from person to person.
Near money can be used directly to buy goods or pay bills and debts.
Cash unlike savings accounts or bills of exchange is considered near money.
Stability in value encourages saving and maintains money’s purchasing power.