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Nature of Money
Lesson 1 – Barter system and Functions of Money
1
Monopoly Game
• Have you played Monopoly Game before?
• Before you start the game, you will be given some money.
Can you tell me what’s the money for?
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Monopoly Game
• The money in the game is used for:
• Purchasing of properties
• Building houses
• Paying for rent/penalty to other players
• Others
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Concept of Bartering
• Before the invention of money, people bartered for goods
and services they needed with others.
• The traders must agree on a fair exchange which both parties
accept.
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Problems of the Barter System
• Coincidence of wants:
• It is a situation in which the goods or services that one party
desires for is what another party is willing to give up.
• Therefore, you have to find somebody who wants to trade the
item that you want to get AND who also wants the item that you
want to trade off.
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Problems of the Barter System
• With barter there will be less specialisation because it is not
easy to have the coincidence of wants.
• If you can't find someone to trade with, you will have to produce
the thing you want.
• Less specialisation means less output and more scarcity.
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What is Money?
• Money is a medium of exchange in transactions that can act as a unit
of account and a store of value.
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Unit of Account
• Prices are quoted in dollars and cents.
• We can set prices to represent the values of goods and services.
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Store of Value
• Money allows us to transfer purchasing power from present to future
because we can save the money for future use.
• The barter does not allow us to keep the goods which are perishable.
• Money is most liquid (spendable) among all assets.
• It is a convenient way to store wealth by means of saving.
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Medium of Exchange
• Nowadays, money is used as a medium of exchange for buying goods
and services.
• We can simply pay money in order to get what we want.
• Money allows for greater specialisation and trade and productive
efficiency as it is not necessary for you to find someone with
coincidence of wants.
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Two Kinds of Money – Tangible & Intangible
• Money is a token that is widely accepted as a medium of exchange.
• The token can be tangible like a coin or note, cheque, or intangible
like a bank deposit or electronic money.
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Activity 1
• Let’s take a $10 note out and discuss the followings:
•
•
•
•
Who issue this $10 note?
Who govern the issue of this note?
Name all the coins/notes of HK which are in circulation at present.
Can you describe more about the note?
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Activity 1 - Answers
• Who govern the issue of this note?
• Today the issue of Hong Kong dollar notes is governed by the Hong Kong
Monetary Authority (HKMA), the governmental currency board of Hong Kong.
• Who issue this $10 note?
• Under licence from the HKMA, three commercial banks can issue their own
banknotes for general circulation in HK, they are:
• The Hongkong and Shanghai Banking Corporation Limited (HSBC)
• Standard Chartered Bank
• Bank of China (Hong Kong) Limited
• Notes are also issued by the HKMA itself.
• 10 dollar banknotes are currently the only denomination issued by the HKMA.
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Activity 1 - Answers
• Name all the coins/notes of HK which are in circulation at present.
• Can you describe more about the note?
• E.g. the issue date, the note number, the watermark, etc.
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The End
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Nature of Money
Lesson 2 – Cheque and Electronic Money
1
Cheque
• When will you use a cheque?
• Sometimes you may have to pay a cheque to school for the purchase
of textbooks or donations to some charitable organisations.
• One of the reasons for using cheque is that it is safer for you to bring
along with than cash especially when the amount of payment is quite
large. Because the cheque is only available to be presented by the
payee.
2
What is Cheque?
• A cheque is a document that orders a payment of money from a bank
account.
• The person (drawer) writes various details on the cheque including
the dollar value, date, in favour of a specified person or company
(payee) and signs it, ordering the bank (drawee) to pay the amount of
money stated.
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Cheque (sample sourced from Wikipedia)
Crossing (if any)
Drawee (issuing bank)
Date
Payee
Amount paid in number
Amount paid in word
Drawer
Signature
Cheque number
Account number
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Electronic Money
• Electronic money is money that is traded and exchanged
electronically.
• This involves the use of computer networks, the Internet and digital
stored value systems.
• Examples of electronic money are octopus card, electronic payment
services, paypal, credit cards, and digital currencies such as Bitcoin.
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Octopus Card
• The Octopus card is a reusable contactless stored value smart card for
making electronic payments in online or offline systems in Hong Kong.
• It is launched in September 1997 to collect fares for local
transportations and eliminate the need for keeping the change.
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Activity 1
• List FIVE usages of Octopus card in your daily live.
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Activity 1
• Other than transportation, Octopus card can
be used for making payment in many retail
shops in Hong Kong like:
• Convenience stores
• Supermarkets
• Fast-food restaurants
• On-street parking meters
• Car parks
• Other point-of-sale applications such as
service stations and vending machines.
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Electronic Payment Services
• Commonly known as EPS, is one of the largest electronic payment
system in Hong Kong.
• EPS entails the simple use of an ATM card for retail payment in Hong
Kong, Macau and Shenzhen.
• Users can simply pay by ATM card instead of cash when purchase, the
amount will be deducted from their bank account accordingly.
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Paypal
• PayPal is an international e-commerce business allowing payments
and money transfers to be made through the Internet.
• “PayPal is the faster, safer way to pay and get paid online, via a
mobile device and in store. The service gives people simpler ways to
send money without sharing financial information, and with the
flexibility to pay using their account balances, bank accounts, credit
cards or promotional financing.” (source: paypal-media.com)
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Credit Cards
• A credit card offers a revolving line of credit to cardholders to pay for
goods or services by means of electronic payment based on their
credit limit (which is approved in advance) and settle the payment
when it is due (usually 30 to 90 days after purchase).
• There is no charge for the use of credit card. However, if the payment
were not fully settled by the due date, interest will be charged for all
outstanding transactions based on the original amount due.
• Credit cards are not money, they are in fact short-term borrowings.
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Activity 2 – Major Types of Credit Card in
Hong Kong
• Do you know how many types of credit cards are mostly
used in HK?
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Major Types of Credit Card in Hong Kong
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Benefits to Customers by using Credit Cards
• Convenience.
• Cardholders can enjoy short-term interest-free loans for
purchasing, provided the total spending does not exceed the
credit limit and settle before the due date.
• Many credit cards offer rewards and benefits packages,
such as enhanced product warranties at no cost,
• Credit cards also offer reward points which may be
redeemed for cash, products, or airline tickets.
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Drawbacks for Customers Using Credit Cards
• High interest expense
• If the customer did not settle the amount when it is due, a high interest will
be charged which is around 20% to 60% interest rate per annum of the
original amount due.
• Merchants that accept credit cards must pay interchange fees to
credit card issuer (i.e. the bank). In some cases merchants will
transfer these fees to credit card holders.
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The End
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Nature of Money
Lesson 3 – Foreign Currency
1
Travel Overseas
• Do you have overseas travel experience?
• Can you pay HK dollars during your travel?
• If not, what can you do?
2
Foreign Currency
• Those other than local currency are foreign currencies.
• The local currency in Hong Kong is Hong Kong Dollar (HKD).
• i.e. In HK, those currencies other than HKD are foreign currencies
3
Activity 1 – Can you tell which countries of
the currency signs below belong to?
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Activity 1 – Can you tell which countries of
the currency signs below belong to?
UK – Great British Pound
(GBP)
Indian – Rupee (INR)
European Countries –
Euro (EUR)
Japan – Yen (JYP)
China – Renminbi (RMB)
Korea – Won (KRW)
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Foreign Exchange
• In order to get the foreign currency, we need to convert our local
currency into the foreign currency.
• This is called foreign exchange.
• For example, you want to travel in United States, you need to convert
your HKD into USD so you can use in America.
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International Trade
• International trade is the exchange of goods and services across
countries.
• Businesses in different countries buy/sell goods from/to each other.
• They may have to settle the payment by using the selling party’s local
currency.
• E.g. a Hong Kong company buy goods from Korean supplier may need to pay
in Korean Won.
• If the Hong Kong company does not have sufficient Korean Won, it has to buy
KRW by converting HKD to KRW in order to settle the payment.
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International Trade
• International trade is important to every country.
• Without international trade, nations would be limited to the goods
and services produced within their own borders.
• i.e. a country can import goods that they do not have but can be
produced at a lower cost in other countries.
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Exchange Rate
• An exchange rate between two currencies is the rate at which one
currency will be exchanged for another.
• It is also regarded as the value of one country’s currency in terms of
another currency.
• For example, the exchange rate for USD to HKD is 1:7.75 (i.e. USD1.00
can exchange for HKD7.75)
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Exchange Rate Risk
• When you have to exchange foreign currency,
there will be an exchange rate risk.
• For example, if you want to travel to Japan, you
must have some JPY for you to spend there.
Therefore, you need to convert your HKD into
JPY through a foreign exchange service. If the
exchange rate for JPY rises, i.e. you need to give
up more HKD to have the same value of JPY, the
cost of the trip will then be higher.
• The same risk also exists in business when a
company has to pay their overseas supplier in
foreign currency or receive foreign currency
from their overseas customer and then convert
it into HKD.
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Activity 2
• Translate the below foreign currencies into HKD.
Foreign Currency
Exchange Rate
USD10,000
GBP1,350
1:7.78
1:12.68
JPY32,000
10,000:734
RMB25,000
EUR3,200
0.78:1
1:10.64
AUD6,500
1:6.87
Hong Kong Dollar
Equivalent
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Activity 2 – Solution
• Translate the below foreign currencies into HKD.
Foreign Currency
Exchange Rate
USD10,000
GBP1,350
1:7.78
1:12.68
JPY32,000
10,000:734
RMB28,000
EUR3,200
0.78:1
1:10.64
AUD6,500
1:6.87
Hong Kong Dollar
Equivalent
77,800
17,118
2,348.80
35,897.44
34,048
44,655
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The End
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