Principles of Business: Barter and Money

Barter and Money Principles of Business

Bartering Systems

• A system of exchange where goods and services are traded for other goods and services without using money
• Direct exchange: immediate exchange of goods and services
• Indirect exchange: exchange of goods and services through a third party

Unit Of Account

• A standard unit of measurement for the value of goods and services
• Functions:
  • Enables comparison of values between different goods and services
  • Facilitates trade by providing a common language for value expression
• Examples: dollar, euro, peso

Store Of Value

• A function of money that allows it to be saved and stored for future use
• Characteristics:
  • Durability: ability to maintain value over time
  • Portability: ease of transportation and storage
  • Divisibility: ability to divide into smaller units
• Examples: gold, silver, currency

Medium Of Exchange

• A function of money that facilitates trade by acting as an intermediary between buyers and sellers
• Allows for indirect exchange by providing a common medium for exchange
• Characteristics:
  • Acceptability: widely accepted as a form of payment
  • Standardization: standardized units of value
  • Convenience: easy to use and transport
• Examples: cash, credit cards, digital payment systems

Instruments of Exchange

• Items used to facilitate exchange, including:
  1. Commodity-based currencies (e.g. gold, silver)
  2. Fiat currencies (e.g. paper money, digital currency)
  3. Representative money (e.g. checks, debit cards)
  4. Commercial bank money (e.g. checking accounts)

Instruments of Payment

• Items used to settle transactions, including:
  1. Cash (coins and banknotes)
  2. Checks
  3. Credit cards
  4. Debit cards
  5. Electronic funds transfers (EFTs)
  6. Digital payment systems (e.g. mobile payments, online banking)

Bartering Systems

• A bartering system is an exchange of goods and services without using money, and can be either direct or indirect.
• Direct exchange involves an immediate trade of goods and services between two parties.
• Indirect exchange involves a third party, allowing for greater flexibility in trade.

Unit Of Account

• A unit of account is a standard unit of measurement for the value of goods and services.
• It enables comparison of values between different goods and services and facilitates trade by providing a common language for value expression.
• Examples of units of account include the dollar, euro, and peso.

Store Of Value

• A store of value is a function of money that allows it to be saved and stored for future use.
• It must have certain characteristics, including durability, portability, and divisibility.
• Examples of stores of value include gold, silver, and currency.

Medium Of Exchange

• A medium of exchange is a function of money that facilitates trade by acting as an intermediary between buyers and sellers.
• It allows for indirect exchange by providing a common medium for exchange.
• It must have characteristics such as acceptability, standardization, and convenience.
• Examples of mediums of exchange include cash, credit cards, and digital payment systems.

Instruments of Exchange and Payment

• Instruments of exchange are items used to facilitate exchange, including commodity-based currencies, fiat currencies, representative money, and commercial bank money.
• Instruments of payment are items used to settle transactions, including cash, checks, credit cards, debit cards, electronic funds transfers, and digital payment systems.

Instruments of Exchange

• Barter is a direct exchange of goods or services without using money, with advantages including no need for money and convenience in certain situations, but disadvantages such as a limited market, lack of divisibility, and difficulty in storing value.

Commodity-based Currencies

• Commodity-based currencies use a valuable commodity as a medium of exchange, with advantages including storing value, being divisible, and having wide acceptance, but disadvantages such as being perishable, difficult to standardize, and requiring storage.

Fiat Money

• Fiat money is a currency with no intrinsic value, but backed by government decree, with advantages including being easy to standardize, easily replaceable if damaged, and low-cost production, but disadvantages such as fluctuating value and the potential to lead to inflation.

Instruments of Payment

• Cash is physical currency (coins and banknotes), with advantages including wide acceptance, ease of use, and no need for identification, but disadvantages such as limited use in large transactions and risk of loss or theft.

Checks

• Checks are written orders to pay a certain amount, with advantages including being verifiable, usable for large transactions, and providing a paper trail, but disadvantages such as the risk of bounced checks and delayed clearing.

Credit/Debit Cards

• Credit/Debit cards are electronic payment systems, with advantages including convenience, speed, and wide acceptance, but disadvantages such as the risk of fraud, potential interest rates, and fees.

E-commerce

• Electronic Data Interchange (EDI) is the electronic exchange of business documents (e.g., invoices, orders), with advantages including faster transaction times, reduced paperwork, and improved accuracy, but disadvantages such as requiring specialized software and high implementation costs.

Online Payment Systems

• Online payment systems are electronic payment methods (e.g., PayPal, online banking), with advantages including convenience, speed, and security, but disadvantages such as the risk of fraud, potential fees, and technical difficulties.

Understanding bartering systems, unit of account, and their functions in business transactions. Learn about direct and indirect exchange methods and how they facilitate value comparison.