Functions of money:

(i) Medium of exchange.

(ii) Store of value

(iii) Unit of account

(iv) Standard of deferred payments

The functions of money can be classified into the following two categories:

(i) Primary Functions: These are those functions which are common to all countries during all time periods. These include the following:

(a) Medium of exchange: It means that money acts as an intermediary for the exchange of goods and services.

(b) Measure of Value: Money serves as a measure of value in terms of unit of account. i.e., in monetary units. For example, value of sugar can be expressed in monetary unit by saying that price of sugar is Rs.15 per kg.

(ii) Secondary Functions: These are those functions which are supplementary to the primary functions discussed above. These include the following:

(a) Standard of Deferred Payments: Deferred payments refer to those payments which are made in future. Money is accepted as a standard of deferred Payments because, (a) its price remains stable, (b) it has general acceptability (c) it is more durable compared to other commodities.

(b) Store of Value: It is convenient to store value in terms of money because. (a) it has general acceptability, (b) stability of its value, (c) it is convenient to store money.

(c) Transfer of Value: Money serves as a convenient mode of the transfer of value, because of its general acceptability and the merit of liquidity.