The primary functions of money are as follows:
(a) Medium of Exchange: Money plays an important role as a medium of exchange. It facilitates exchange of goods for money. It has solved the problems of barter system. It helps the people to sell in one place and buy in another place. Money has widened the scope of market transactions. Money has become a circulating material between buyers and sellers.
(b) Measure of Value: The money acts as a common measure of value. The values of all goods and services can be expressed in terms of money. As a measure of value, money performs following functions:
- The value of all goods and services measured and expressed in terms of the money.
- Rate of exchange of goods and services expressed in money.
- Facilitates the maintenance of accounts.
- It facilitates price mechanism.
- It makes goods and services comparable in terms of price.
