Basics of Money
Money is an Instrument used for Exchange of Goods & Services, repayment of debts or used for Exchanging one currency to another. Money is printed by the Central Bank of any country which is based on the factors effecting Demand & Supply of Money in the Economy. Demand & Supply of Money is based on the Demand & Supply of Goods & Services in the Economy.
Inflation: Since the Resources (Land, Labour & Capital) are Limited and the Human being needs, desires & wants are unlimited, always there will be higher demand for Goods & Services which will continuously increase the prices of Goods & Services. The increase in prices of Goods & Services is called as “Inflation” measured between certain intervals, say Monthly or Yearly. But, the value of Money which is there at your hand at present doesn’t increase. This leads to erosion of Money Value and decrease the purchasing power overtime. Hence, the Money has to grow atleast at the pace of the Inflation to preserve the purchasing power of money intact, otherwise the same value of Money cannot buy the same quantity of Goods & Services which was used to buy earlier.
Time: Time Factor is considered as a holding period of Money at your Hand. If the Money at your hand is generating returns equal to Inflation, then the Money value remains intact and if the Money is no generating any returns or less returns compared to Inflation rate then there is an erosion of Money Value which will decrease the purchasing power of Money over the period of Money held. Till the time you hold Money in the form Cash & not investing in return generating Investment Products there will be erosion of Money value. Hence, the Time is the most important & critical factor in the Money Aspect.
Money received by the beneficiary for the sale of Goods, Products, Assets, Services and Capital which termed as “Income”. Income may be referred to as Profits, Gains, Revenue, Wages, Remuneration, Proceeds, Compensation and many other names.
| Sale of Services | Salary or Business/ Professional Income |
| Sale of Goods/Products | Business Income |
| Sale of Assets | Capital Gains |
| Sale of Capital | Interest/Dividends |
Money paid for the purchase of Goods; Products & Services termed as “Expenditure”. Expenditure may be referred to as Cost, Spending, Payment, Consumption and many other names.
| Purchase of Services | Personal Expenditure/Business or Professional Expenditure |
| Purchase of Goods | Business Expenditure |
In an Economy, the People, Institutions, Corporates and Governments have excess money earned as Income and wanting to deploy the excess Money termed as “Investment” for the purpose earning returns on Investment. Investments comprises of Real Assets and Financial Assets. Real Assets include Real Estate Properties, Fixed Assets such as Plant & Machinery, Equipment, Capital Goods and Natural Commodities such as Gold, Silver, Copper, Aluminum and other Commodities. Financial Assets include Monetary Assets such as Fixed Deposits, Recurring Deposits, Shares, Securities, Derivatives, Stocks, Bonds, Warrants and other Financial Instruments.
Businesses or Corporates require Money to start and grow the business which deploys the Money in Business is called as “Capital”. Capital may be of two kinds, “Equity Capital” and “Debt Capital”. Equity Capital is a Perpetual in Nature and not returnable to the Investors during the life-time of the Company and Debt Capital is a returnable capital to the Investors after a certain period of time which comprises of Short-Term and Long-Term Debt.
Individuals, Businesses and Corporates need Money for Short-Term, Medium-Term and Long-Term for various purposes which will be funded by Banks & Financial Institutions termed as “Finance”. Financing options include Property Loans, Business Loans, Personal Loans, Education Loans, Working Capital, Credit Cards, Leasing, Factoring, all lines of Credit and many other Financing Options provided for various purposes by Banks & Financial Institutions.
Money converted as legal tender by the Governments termed as “Currency”. Money printed by Central Banks has a limited usage only in the domestic country. One Country Currency cannot used in another country to buy and sell any goods & Services because of the Acceptance & Trust even though it is a Legal Tender. Hence, there is a need for exchange of currencies in International Trade and Commerce. There are certain Global currencies accepted anywhere in the world such as US Dollar, Euro, GBP, Yen.
Money as a physical currency termed as “Cash”. Cash is a readily available Money used for Exchange of Goods & Services in an Economy. Cash includes Bank Notes and Coins. Cash is a Tangible Money used as immediate liquidity and acceptance. Money is broader concept of Physical and Digital forms such as Bank Notes, Coins, Bank Deposits, Electronic Transfers and Crypto Currencies.
New Technological Inventions & Innovations paved way for replacement of Money printed by Central Banks where the Technology itself termed as Money which has given birth various Technologies such as Digital Payments, Block-Chain Technology, Digital Wallets and Payment Apps, Digital Currencies such as Crypto Currencies like BITCOIN, ETHER, BINANCE, CARDONO etc., and Central Bank Digital Currencies (CBDC).