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Value for money

August 22, 2011 Leave a comment


Value for money can be divided into two parts, as follows:
a. Nominal value and intrinsic value
Face value is the value written in each currency or the value written on the money itself.
Intrinsic value is the value or price of materials used to make currency.

b. The value of internal and external value
Internal value is the value of money or resources to purchase some goods or services. Internal value is a real value, that value can be measured by the number of objects that indicate the purchasing power of money.
External value is the value of a currency as measured in foreign currency (foreign currencies), which is called exchange of money or exchange value of money.

Currently most of the money made from paper. The current paper money is virtually has no intrinsic value, but the public would accept the money because public confidence in money itself. Since the enactment of the bill on the basis of trust, then paper money called a trust or fiduciary money.

Value of the currency of a country different from the value of the other country’s currency, hence currency of a country can not be exchanged for currencies of other countries with the same amount. To perform the exchange of foreign currency needed foreign exchange. Foreign exchange rate is the price of its own currency or the price of foreign currency expressed in dollars.

Some theories about the value of money
a. Inflation. If the circulation of money is too much then it will result in inflation, the falling value of money is not proportional to the flow of goods and services. If inflation can not be controlled by the government, there will be hyperinflation.
b. Deflation. If the ratio of the amount of money circulating in the community is smaller than the flow of goods and services will result in deflation, the rising value of money and prices will be low or low-cost goods.
c. Devaluation. Devaluation is government policy to reduce the currency’s value against foreign currencies. In the state that issued the policy of devaluation, the price of goods exports (in foreign markets) to be cheap, so the demand for overseas goods more or increases, and domestic purchasing power was growing stronger.

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