commodity money

Examples of commodity money in the following topics:

• The Definition of Money

  • Money comes in three forms: commodity money, fiat money, and fiduciary money.
  • The value of commodity money comes from the commodity out of which it is made.
  • The commodity itself constitutes the money, and the money is the commodity.
  • Conch shells have been used as commodity money in the past.
  • The value of commodity money is derived from the commodity out of which it is made.

• Types of Currency

  • Commodity money value comes from the commodity out of which it is made.
  • The commodity itself constitutes the money, and the money is the commodity.
  • The use of commodity money is similar to barter, but a commodity money provides a simple and automatic unit of account for the commodity which is being used as money.
  • Commercial bank money differs from commodity and fiat money in two ways.
  • Fiat, Commodity, and Commercial Bank money are three main types of money

• Forms of Money

  • First and oldest payment system is commodity money.
  • Commodity money is government selects one commodity from society to become money, such as gold or silver.
  • Commodity money could be anything.
  • Commodity money could be full-bodied money.
  • Second form of commodity money is representative full-bodied money.

• Answers to Chapter 1 Questions

  • If the savers hide their money under the mattress, then they remove this money from the economy.
  • Many assets are technically not money, but the public can easily convert them into money.
  • Fiat money is paper money and is more convenient to carry around than gold coins.
  • Finally, commodity money retains its value and has other purposes than as money.
  • People can convert some assets to money easily, so they are almost money.

• Commodities and Other Futures

  • Commodities traders fall into two broad categories: hedgers and speculators.
  • Hedgers are business firms, farmers, or individuals that enter into commodity contracts to be assured access to a commodity, or the ability to sell it, at a guaranteed price.
  • Thousands of individuals, willing to absorb that risk, trade in commodity futures as speculators.
  • Speculating in commodity futures is not for people who are averse to risk.
  • While professional traders who are well versed in the futures market are most likely to gain in futures trading, it is estimated that as many as 90 percent of small futures traders lose money in this volatile market.

• Functions of Money

  • Money acts as a standard measure and common denomination of trade.
  • Money functions as:
  • This is why diamonds, works of art, or real estate are not suitable as money.
  • For instance, coins are often milled with a reeded edge, so that any removal of material from the coin (lowering its commodity value) will be easy to detect.
  • The value of the money must also remain stable over time.

• The Role of the Financial System

  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items.
  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items .
  • Securities include stocks and bonds, and commodities include precious metals or agricultural goods.
  • There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded).
  • In other words, financial markets help shift money from industry to industry or firm to firm based on the supply and demand for their products.

• Uses of Derivatives to Manage Exposure

  • Derivatives allow risk related to the price of underlying assets, such as commodities, to be transferred from one party to another.
  • Companies that produce or depend on the purchase of commodities are exposed to price fluctuations that occur in commodities markets.
  • Derivatives allow risk related to the price of underlying assets, such as commodities, to be transferred from one party to another.
  • For example, a corporation borrows a large sum of money at a specific interest rate.
  • The corporation could buy a forward rate agreement (FRA), which is a contract to pay a fixed rate of interest six months after purchases on a notional amount of money.

• Disinflation

  • The causes of disinflation are either a decrease in the growth rate of the money supply, or a business cycle contraction (recession).
  • If the central bank of a country enacts tighter monetary policy, (i.e., the government start selling its securities) this reduces the supply of money in an economy.
  • This contraction of the monetary policy is known as a "quantitative tightening technique. " When the government sell its securities in the market, the supply of money reduces, and money becomes more upscale and the demand for money remains constant.
  • Even though the demand for commodities fall, the supply of commodities still remains unaltered.
  • This happens when people are jobless, and they have a very small portion of money to spend, which indirectly implies reduction in the supply of money in an economy.

• Other Factors of Production

  • All three of these are required in combination at a time to produce a commodity.
  • Factors of production (or productive 'inputs' or 'resources') are any commodities or services used to produce goods or services.
  • The classical economists also employed the word "capital" in reference to money.
  • Money, however, was not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good.
  • The return to loaned money or to loaned stock was styled as interest while the return to the actual proprietor of capital stock (tools, etc.) is classified as profit.