Definition§
Currency consists of several forms of money that are circulating within an economy, facilitating the exchange of goods and services. It can be classified into three major categories:
- Circulating Money: Any kind of money that is currently being used in an economy for transactions.
- Medium of Exchange: Includes various instruments such as coins, banknotes, cheques, and promissory notes.
- Official Monetary Units: The recognized money in official use within a particular country.
Currency plays a pivotal role in the economy, allowing for the smooth facilitation of trade and commerce.
Examples§
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Coins and Banknotes:
- US Dollar (USD)
- Euro (EUR)
- British Pound (GBP)
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Bank Instruments:
- Cheques
- Bills of Exchange
- Promissory Notes
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Foreign Exchange:
- Japanese Yen (JPY) being used in international transactions.
- A business in Europe accepting US Dollars for import payments.
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Time to Maturity:
- A bill of exchange maturing after 90 days.
Frequently Asked Questions (FAQs)§
Q1: What is the primary function of currency? Currency serves as a medium of exchange, facilitating transactions between individuals and entities by providing a common ground for value.
Q2: How is currency different from money? While money includes anything that can be used as a medium of exchange, store of value, or unit of account, currency specifically refers to the physical forms of money—coins and paper bills.
Q3: What is the role of foreign exchange in currency? Foreign exchange involves trading different currencies in the global market, allowing for international transactions and investment.
Q4: Can digital forms of money be considered currency? Yes, digital forms like cryptocurrency can be considered currency if they are widely accepted as a medium of exchange.
Related Terms§
- Foreign Exchange (Forex): The global marketplace for trading national currencies against one another.
- Bill of Exchange: A written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.
- Promissory Note: A financial instrument containing a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
Online References§
- Investopedia on Currency: Understanding Currency
- Foreign Exchange Basics: Forex Market
- Fundamentals of Bills of Exchange: Bill of Exchange
Suggested Books for Further Studies§
- Money, Banking, and Financial Markets by Stephen G. Cecchetti and Kermit L. Schoenholtz
- Foreign Exchange: A Practical Guide to the FX Markets by Tim Weithers
- Currency Trading For Dummies by Kathleen Brooks and Brian Dolan