Money in the Financial System

Finance

The study of money; how it’s made, how it’s lost, and how it’s managed

Money (currency)

Anything generally accepted in exchange for goods and services

Gained full acceptance during the Great Depression
In the U.S., paper money is really a government "note" or promise, worth the value specified on the note.

Medium of Exchange

Before flat money, the trade of goods and services was accomplished through bartering

Trading one good or service for another of similar value
Inefficient because not always divisible and can be complicated in multiple-party transactions
People have used giant round stones, like the ones shown in the photo, for money

For centuries, people on the Micronesian island of Yap have used giant round stones, like the ones shown here, for money. The stones aren't moved, but their ownership can change

Functions of Money

There are three major functions:

Medium of Exchange
Store of Value
Unit of Value

The following video answers the question, what does money actually do?