hello again welcome back to unit 3 personal and business finance and today we're gonna look at functions of money and quickly go through what the functions of money are and how you can apply them so functions of money for your exam you're gonna have to know the four different functions of money so the first one is unit of account the second one is means of exchange third one is store of value and the fourth one is legal tender what you have to do in your exam is either be able to recall these from your memory and list them or possibly describe one in a bit more detail so that's what we're going to do now um the first one is unit of account this allows you to look at the value of something basically so um money allows you to look at things and understand the value a lot better Before money it would have been hard to compare two items. So for example you've got a 500ml bottle of water at 50p and a 2 litre bottle of water at 45p. You can straight away tell that the 45p one is cheaper than the 50p one.
When you break that down further the 50p one is 10p per 100 millilitres. and the 2 litre bottle is 2.25p per 100ml so it's 4 times cheaper to buy the 2 litre bottle and that is thanks to the unit of account so you know that that is a cheaper item and that's the first one means of exchange so basically before money you would have had to barter to buy or acquire different asset than that you already had so if I raise chickens and I needed a cow I would exchange my chickens for a cow which is quite straightforward however if the person who had the cow didn't want my chickens then that would be quite awkward because then I'd have to trade my chickens for something that person did want and then trade that for the cow so that's when things became complicated where money comes in is that you can swap your money for something quite easy so for example you could buy your lunch with your money you can buy any item that you need with your money and not chickens so that's good so it's a means of exchange and means of exchanging your money for another item thirdly is store of value so this basically means that you can store your money and save it for a later date. Again I'll go back to the chickens example.
If I'm raising chickens and nobody wants to buy them, they'll die eventually and I'll lose my wealth and that asset. Whereas money, money doesn't die and I can just save it. So I can keep that money somewhere in a bank or invest it and use that a later date.
or pass it down through the generations so it's a good thing to store and finally legal tender so another function of money is that it's legally recognized as a form of payment and is backed by the government so if somebody's got an item for sale and you go to exchange money for that item it's legally um acceptable um it's a legally acceptable form of currency that's backed by the government so if you went to go and pay for something with three chickens again i like this chicken analogy so i want to stick with it if you went to buy something for three chickens people do well within the right to decline that purchase whereas if you go with five pound it's backed by the government can't really stop you and so i hope that's been a whistle stop tour of functions of money and obviously you can play this back look at more of the wording and just to get you to grips with it but it's pretty straightforward four functions you've got to be able to outline what they are possibly describe them thanks for listening