FM4-UNIT-1-LESSON1-4.docx

**MONEY AND ITS EVOLUTION** **TARGET GOAL FOR THE UNIT** - Show the evolution, functions and features of a good money. (AP) **VALUES DESIRED:** Openness and Perseverance -------------------------------- **LESSON 1.1 ORIGIN OF MONEY** -------------------------------- **I. LEARNING OUTCOM...

**MONEY AND ITS EVOLUTION** **TARGET GOAL FOR THE UNIT** - Show the evolution, functions and features of a good money. (AP) **VALUES DESIRED:** Openness and Perseverance -------------------------------- **LESSON 1.1 ORIGIN OF MONEY** -------------------------------- **I. LEARNING OUTCOMES** - Determine the origin of money. (R) - Explain the importance of money. (U) **II. INPUT** **Concept/ Origin of Money** Our monetary system developed to meet the [changing needs of the economy]. Primitive economies consisted largely of [self-sufficient units or groups] that lived by means of hunting, fishing, and simple agriculture. There was little need or occasion to exchange goods or services. [As economies become more developed, and some men specialized-to some degree, at least-the process, of exchange became more important. To help facilitate this exchange of goods for goods, or barter, tables or relative values were developed from experience.] For example, the table might show the measure of grains, amount of cloth, and the like as equal to one cow or sack of sugar. This arrangement helped facilitate exchanges, but the process had many serious drawbacks. For example, if a man had a cow which he wanted to trade for some nuts, he would need to find someone who had an excess of nuts to trade[. The need for a simple means of exchange led to the] DEVELOPMENT OF MONEY. Thus, money became a MAJOR TOOL for [facilitating transactions. ] Money is commonplace yet mysterious. Even common usage of the word often indicates confusion between money and income and money and wealth. For example, when we say a woman makes a lot of money, we may mean that she earns a high income from her job as a lawyer. On the other hand, when we say a man has a lot of money, we may mean that he has accumulated a lot of savings or wealth as money is one form of wealth. **MONEY** - Money is [defined as anything authorized by law to be generally accepted as a medium of exchange and a standard of value and has no reference to the general standing of the person who offers it as payment for goods and services] (Alminar-Mutya, 2017) **Importance of Money** 1. **MONEY SIMPLIFIES MATTERS.** Without money, individuals would have to devote more time to buy what they want and sell what they do not want. Workers are paid in money, which they can use to pay bills and make purchases. 2. **MONEY BECOMES THE MEDIUM OF EXCHANGE**. Goods and services are then expressed in terms of money, a common denominator. One of the most important things about medium of exchange is that everyone must be confident that it can passed on, that it is generally acceptable in trade. 3. **MONEY MEETS THE LOW-UNCERTAINTY - HIGH-EXCHANGEABILITY REQUIREMENT**. It frees people from spending much time bartering goods and services and allows them to pursue other endeavors. 4. **MONEY ALSO CONTRIBUTES TO ECONOMIC DEVELOPMENT AND GROWTH**. It does this by stimulating both savings and investment and facilitating transfers of funds from savers to borrowers, who want to invest by do not have enough money to do so. Financial markets give savers a variety of options to lend and borrowers, thereby increasing the volume of both savings and investment and encouraging economic growth. ----------------------------------- **LESSON 1.2 FUNCTIONS OF MONEY** ----------------------------------- **I. LEARNING OUTCOMES** - Identify the functions of money. (R) **II. INPUT** Money has several functions which includes the following: 1. **Medium of Exchange** - [Money facilitates buying and selling.] [It is used to pay for or settle obligations.] Because it is acceptable as payment for goods and services, it serves as a physical means for conducting business transactions. The use of money makes purchases and sales possible. - In addition, [money reduces the time spent on a transaction.] - As a transaction medium, [money is a means of repaying debts or exchange of assets such as shares of common stock.] - Throughout history, the medium of exchange has taken many forms-commodities, precious metals, paper and even mere entries in ledgers (accounts). Societies began to designate as media of exchange commodities that were nonperishable, divisible, grain, stones and metals. Soon, these items were replaced by precious metals, such as silver and gold, which were in use until the twentieth century. - The prolonged used to money as a commodity suggests that a [medium of exchange must be SCARCE for it to be valuable,] [DIVISIBLE for it to be used for small and large purchases], [PORTABLE for it to be carried around by traders, and NON-PERISHABLE (STORABLE) for it to last over time.] - Precious metals, especially gold, were commodities of choice, but the limited supply required monetary authorities to devise new forms of money, like paper money, the supply of which can be increased easily and inexpensively. 2. **Unit of Account or Standard of Value** - Money serves as a yardstick for measuring prices and values when comparing items. In principle, any commodity can serve as a unit of account. - Goods and services are expressed in relative values of money. Their prices are related to the value of money, which serves as measuring stick. - When measuring weight, kilo is the unit of account, when measuring distance, kilometer. Similarly, when we measure the value of a haircut or a steak, we employ a unit of account, that is, the amount of money needed to acquire the product or service. We measure the values of items we want to acquire in terms of one commodity-money. 3. **Store of Value** - Money is a reservoir of future purchasing power. It is both a temporary and a permanent store of purchasing power. - A person who saves a portion of his income is storing the purchasing power of his money temporarily. A person who puts in more money to carry out a transaction in stocks, bonds, or real estate is also storing the purchasing power of money. - The ability of money to serve as a store of value depends on its capacity to retain its purchasing power. When the purchasing power of money drops, as when the prices of goods and services rise rapidly, the public does not want to hold money as a permanent store or value and even shortens the amount of time it holds money as a medium of exchange. - Money value can be stores in TWO FORMS: SAVINGS and INVESTMENT. Income derived from savings is interest and that from investment is profit. If money is kept for future use in the form of savings or investment, it earns income. - In an economy with developed financial institutions, there exists a multitude of financial assets which serves as a means of storing wealth, including various types of short-term securities, bank deposits and stocks. 4. **Standard of Deferred Payment** - Money is used as a medium for fulfilling obligations of debtors to creditors on maturity. - It serves to measure the extent of obligations by debtors and claims by creditors. - Money as the standard of deferred payment means that promises to pay at are expressed in money value. --------------------------------------- **LESSON 1.3 FEATURES OF GOOD MONEY** --------------------------------------- **I. LEARNING OUTCOMES** - Discuss the different features of a good money. (U) **II. INPUT** A good money has the following features: 1. General Acceptability 2. Durability 3. Portability 4. Divisibility 5. Stability of Money Value 6. Cognizability 7. Homogeneity or Uniformity 8. Malleability 1. **General Acceptability** 2. **Durability** 3. **Portability** 4. **Divisibility** 5. **Stability of Money Value** 6. **Cognizability** 7. **Homogeneity or Uniformity** 8. **Malleability** ------------------------------- **LESSON 1.4 TYPES OF MONEY** ------------------------------- **I. LEARNING OUTCOMES** - Determine the types of money. (R) **II. INPUT** **Types of Money** 1. Commodity money 2. Metallic money 3. Paper money 4. Coins **Commodity Money** - The inconvenience of the barter system forced the creation of a common medium or commodity to facilitate exchange. - Money evolved from simple forms or thins with intrinsic value, such as rice, corn, wheat, salt, tobacco, sugar, copper, wire, gold, and silver. - Early men used these commodities as money. Since there was no uniformity in the use of commodities as money, the following factors were considered: a. General acceptability at the place and time b. Utility rather than as medium of exchange c. High demand d. Limited supply - When commodities were used as medium of exchange, goods could be valued in terms of the item used as money and could be exchange for it. This process was still cumbersome and time-consuming as some items were bulky and difficult to carry around. **Metallic Money** - Due to economic development and an improved standard of living, people wanted a better medium of exchange. Metals proved to be more efficient. - Copper, iron, tin and lead were the earliest metal used as money and were in the form of useful implements such as knives, forks, pots, spears, bows and arrows. - When supply of gold and silver became abundant (3,000 B.C.), they used as form of money. - The transition from the use of commodities as money to the use of precious metals eventually led to the general usage of the latter. - Gold and silver were in great demand for ornamentation because of their durability, malleability, and beauty. The supply of these metals was limited and they had great value, which made them a valuable medium of exchange. - In time, coins with a certain weight of metal in them were developed, and coining money and determining its value became a governmental function. - In the evolution of money, the following properties favored the use of metallic coins and eliminated other commodities as material for money: a. Scarcity and stability of metal supply b. Durability c. Divisibility d. Availability in convenient units **Paper Money** - Gold and silver are cumbersome to carry around when large transactions are to be made. The main purpose of paper money is to minimize this inconvenience. - The government issued paper money to represent certain quantities of gold or silver those were kept by the government. - The paper was accepted as a medium of exchange because persons accepting it knew that they could get precious metal when and if they wanted it. Such paper money backed up by gold or silver, or representative paper money, circulated freely. - The general acceptance of paper money as medium of exchange without the intention of redeeming the precious metal it represented made possible by issuance of paper money with no such backing. - In early times, Philippine peso bills used to bear the promise of the Philippine Treasury to redeem such notes in gold or silver to bearer on demand. To date, money circulating is liabilities of the Bangko Sentral ng Pilipinas and are guaranteed by the government of the Philippines. **Coins** - In 1949, the Central Bank was established and it replaced gold and silver coins with coins made of metal alloys that were less than one centavo in value. - Today, coins circulating in the world are of lower metal value to prevent the waste or loss or previous metals and to facilitate the settlement of small obligations. - Kinds of coins: a. Standard coins - made of metal like gold. They are also known as *full-bodied money* under the gold standard. - A full-bodied monetary system is one in which the value of the commodity circulating as money or metal coins is the same for non-monetary and monetary purposes. b. Subsidiary or token coins - Coins whose face value is greater than material used. It is also similar to representative *full-bodied money*. - These are evidences (usually paper money) of ownership of a commodity such as gold and silver. - Originally, these paper notes were issued as simple *iou's* or receipts acknowledging claim to an equivalent volume of gold or silver coins collectible on demand by the bearer of the note. Since these notes could be exchanged for a fixed quantity of metail coins on demand, they became acceptable as means of payment. **Fiat, credit or fiduciary money** - Money whose value as a commodity is less than its value in exchange for goods or services. - This originated 400 years ago with English goldsmiths, who maintained safekeeping warehouses for precious metals. The became conscious of the fact that they did not need to maintain full 100 percent backing of their notes. - Credit money excludes representative full-bodied money. It includes any form of money which exhibits a value in exchange greater than the intrinsic value of the material from which it was made. - Fiduciary money includes token coins, the centavos, pennies, and dimes initially issues at a face value substantially in excess of the market value of the metals in the coins. - It also includes the paper money issued by the government, paper currencies issued by the Bangko Sentral, notes issued by commercial banks as evidences of claims, and current accounts at financial institutions. These are claims of depositors against the financial institutions, payable on demand and transferrable from one party to another with the use of checks. The various types of money are as follows: 1. Full-bodied money 2. Representative full-bodied money 3. Credit money a. Token coins b. Representative token coins c. Government promissory notes d. Commercial bank promissory notes e. Central bank promissory notes 4. Demand deposits subject to transfer by checks.