BUILDING ECONOMICS

ASSIGNMENT 1

MONEY
SUBMITTED TO:
SUBMITTED BY:
Ar. ANUBHAV MITTAL
NIVEDITA TIWARI

WHAT IS MONEY?
Money can be a shell , a metal coin , or a piece of

paper with a historic image on it , but the value that

people place on it has nothing to do with the physical
value of money.
Money derives its value by being the medium of

exchange , a unit of measurement and a store house

of wealth.
Money allows people to trade goods and services

indirectly , understand the price of goods and give us

a way to save for larger purchases in the future.

HISTORY OF MONEY
Money has been part of human society for atleast the

last 3000 years . Before that time the BARTER

SYSTEM was used.
Barter system was the system of direct trade of
goods and services.

COMMODITY MONEY
It is the money that would have value even if it were
not being used as money. Gold is referred to as
commodity money.
COMMODITY BACKED MONEY
While commodity money uses the commodity itself as a
currency directly , commodity backed money is money
that can be exchanged on demand for a specific
commodity.
The gold standards is an example of commodity backed
money , under gold standards people do no literally
exchange any amount of gold for a good but rather a
system works such that the currency holders could
trade in their currency for a specified amount of gold.
FIAT MONEY
It is money that has no intrinsic value but has value as
money because a government decreed that it has value
for that purpose.

FUNCTIONS OF MONEY

MEDIUM OF EXCHANGE
Moneys most important function is as a medium of
exchange to facilitate transactions.
Without money , all transactions would have to be
conducted by barter system , which involves direct
exchange of one good or service for another.
But in barter system , exchange can only take place if
there is a double coincidence of wants between two
transacting parties and likelihood of such a double
coincidence of wants is very small , therefore , money
effectively eliminates this problem by serving as a
medium of exchange that is accepted in all transactions ,
by all parties , regardless of whether they desire each
others good and services.

STORE OF VALUE
In order to be a medium of exchange , money must
hold its value over time, that is , it must be a store of
value.
As a store of value , money is not unique , many other
stores of value exist, such as land, works of art , etc.
Money may not even be the best store of value
because it depreciates with inflation.
However money is more liquid than most other stores
of value because as a medium of exchange, it is
readily accepted everywhere.
Money is also an easily transported store of value
that is available in a number of convinient
denominations.
UNIT OF ACCOUNT
Money also functions as a unit of account, providing a
common measure of the value of goods and services
being exchanged.
Knowing the value or price of a good, in terms of

Characteristics of money
To serve as an effective medium of exchange, money
must be durable.
Second, what serves as money must not be easily
reproduced by people and should be relatively scarce.
Third, although what serves as money must be
relatively scarce but it cant be too scarce. Whatever
serves as money should be available in sufficient
quantity to enable all the exchanges in our economy to
take place.
It should be easy to transport.
Money must be divisible into usable quantities or
fractions.
Therefore , money needs to be:
1.Durable
2.Not easily reproduced by people
3.Relatively scarce
4.Not too scarce

FINANCIAL INSTITUTIONS
A financial institution is an establishment that conducts
financial transactions such as investments, loans and deposits.
COMMERCIAL BANKS

ROLE OF FINANCIAL INSTITUTIONS

Financial institutions play an important role in the
development process, particularly through their role in
allocating resources to their most productive uses.
These institutions provide consumers and commercial
clients with a wide range of services and different
types of banking products.
The role of such institutions is important during
market booms and recessions.
During financial crisis these institutions provide the
financing that drives economic growth , and during
recessions , banks curtails lending.

WHAT IS BANK??
A bank is a financial intermediary and money creator
that creates money by lending money to a borrower ,
thereby creating a corresponding deposit on a banks
balance sheet .
Lending activities can be performed directly by
loaning or indirectly through capital markets.
Banks activities can be divided as follows :
1. RETAIL BANKING dealing directly with individuals
and small business .
2. BUSSINESS BANKING providing services to mid
market business .
3. CORPORATE BANKING directed at large business
entities .
4. PRIVATE BANKING providing wealth management
services to high-net worth individuals and families .
5. INVESTMENT BANKING relating to activities on

Types of banks
COMMUNITY BANK
Locally operated financial institutions that empowers
employees to make local decisions to serve their
customers and partners.
COMMUNITY DEVELOPMENT BANKS
Regulated banks that provide financial services and
credits to under served markets and population.
LAND DEVELOPMENT BANKS
These are special banks that provide long term loans.
Its main objective is to promote development of land ,
agriculture and increase the agriculture production.
CREDIT UNIONS OR CO-OPERATIVE BANKS
Not for profit cooperatives owned by depositors and
often offering rates more favorable than for profit
banks. Usually membership is restricted to the

POSTAL SAVINGS BANKS

These are savings bank associated with the
national postal systems.
PRIVATE BANKS
Banks that manage the assets of high net worth
individuals.banks located in jurisdiction with low
taxation
OFFSHORE BANKS
Banks located in jurisdiction with low taxation and
regulation. Many offshore banks are private banks.
SAVINGS BANKS
Savings banks keep their focus on retail banking ,
payment , saving products , credits and insurances
for individuals or small and medium sized
enterprises.
ETHICAL BANKS

BANK CREDITS
The borrowing capacity provided to an individual
by the banking system , in the form of credit or
loans. The total bank credit the individual has is
the sum of the borrowing capacity each lender
bank provides the individual.

Types of credits
The two basic categories of consumer credit are open-end credit
and closed-end credit. Open-end credit, also called revolving
credit, requires monthly payments that are less than the total
amount due.
Examples of revolving credit are credit card accounts and home
equity lines of credit. In each case, consumers can use their
credit while paying on their account balance.
Closed-end credit provides a fixed amount of money to finance a
specific purpose for a specific period of time.

TYPES OF LOANS
STUDENTS LOAN
Student loans are offered to college students and their families to
help cover the cost of higher education. There are two main
types of student loans: those offered by the federal government,
and those offered by private lenders. Federally funded loans are
better, as they typically come with lower interest rates and more
borrower-friendly repayment terms.
Mortgages
Mortgages are loans distributed by banks to allow consumers to
buy homes they cant pay for upfront. A mortgage is tied to your
home, meaning you risk foreclosure if you fall behind on loan
payments. Mortgages have among the lowest interest rates of
any loans.

Auto Loans
Like mortgages, auto loans are tied to your property. They can help
you afford a vehicle, but you risk losing the car if you miss
payments. This type of loan may be distributed by a bank or by the
car dealership directly. While loans from the dealership may be
more convenient, they often cost more overall.
Personal Loans
Personal loans can be used for any personal expenses and dont
have a designated purpose. This makes them an attractive option
for people with outstanding debts, such as credit card debt, who
want to reduce their interest rates by transferring balances. Like
other loans, personal loan terms depend on your credit history .

Payday Loans
Payday loans are short-term, high-interest loans designed to
bridge the gap from one paycheck to the next. They are
predominantly used by repeat borrowers living paycheck to
paycheck. Because of the loans high costs, the government
strongly discourages their use.

Borrowing from Retirement and Life Insurance

Those with retirement funds or life insurance plans may be
eligible to borrow from their accounts. This option has the benefit
that you are borrowing from yourself, making repayment much
easier and less stressful. However, in some cases, failing to repay
such a loan can result in tax consequences.

COST INDEX

Construction cost index is an indicator of the average cost

movementover time of a fixed basket of representative goods
and services related to construction industry.

BIBLIOGRAPHY
www.investopedia.com
www.debt.org