User:Chuck Marean/Finance

Finance has a few basic ideas. 1. Value. Something has value if someone would give something for it. 2. Barter. Giving something of yours in return for something you want. 3. Money. Something agreed by the group to be of intermediate value. 4. Capital. The accumulation of surplus value. 5. Credit. Selling in return for a promise to pay. 6. Interest. The charge for capital or credit. 7. Banks. Banks safeguard money and loan money. 8. Exchange. In a bank office, B's cash from buying a check goes to C when C cashes a different check. 9. Fiat money. When the value of money is inforced by the government. 10. Price. The value of something in terms of money.

Barter
Barter is when a product or service is given in return for another. The barter idea is based on feelings of property rights and of group members putting forth individual effort. Barter is the basis of the ideas of trade and commerce. Trade is within the same community and commerce is between communities and countries. For example, a farmer receives money or credit in return for wheat. The credit might be the debt of the merchant or of the farmer depending on when the wheat is brought to the merchant.

Mediums of exchange
Mediums of exchange make the pholosophy of barter more practical. They make specific goods and services worth something to more people. They include money, gold, and credit. Money (coins) is used the least. Gold could be shipped between banks in international commerce with large enough shipments to be affordable. Credit is used the most.

Money
Before coins, metals were used by weight. In the ninth century B.C., governments began issuing coins and inforcing their use. Because metal is relatively indistructable, coins were considered money and paper notes were considered a form of credit. Paper money started as promises to pay coins. Individuals and businesses used such notes first, followed by governments. Since governments coined money, they began inforcing their notes as if they were coins and this was controversial. The opinion was that metals such as gold and silver had been used as a mediums of exchange because of their value in trade. Then, coins had been accepted because the value stamped on them was only a little more than the actual value of the metals the coins were made of. The trade value of the paper in paper money, however, was much less than the amount printed on it. A paper dollar would be worth a dollar only if the government was strong enough to inforce that value. More so for a five dollar bill and higher denominations. When money has a certain value because of an inforced law, it's called "fiat money." New coins and paper money are products and as such have been used on occasion by large, strong governments to pay their obligations.

Capital
The word capital has an economic sense and a commercial sense. In polotical economy, capital is surplus left after consumption usable without reducing property that could be productive. For example, food stored to survive the winter is considered capital. In commerse, capitol is retained earnings usable until paid. It also includes property that could be sold without reducing earning power.

Credit
Credit is selling or loaning because of the debtor's ability and agreement to pay soon. Credit is not secured on the debtor's capacity to earn. Rather, credit is agreed to if the debtor has property worth more than the amount of credit extended. For example, the bonds of a business are secured by the company's property. Thus, most sales are made using credit.

Interest
Interest is the fee for an amount of money owed from a credit sale, from an overdue debt, or from borrowing. The principal is the debt the interest is being charged regarding. When interest is paid in advance from the loan at the time the loan is made, the fee is called the interest discount. The interest rate (amount) is a per cent of the principal amount owed. Legal rate of interest refers to the amount that can be charged because of an overdue debt, without the debtor's agreement. It also refers to the maximum amount of interest allowed by law even with the debtor's consent. Current rate is another term for market rate. The market rate of interest is always less than the profit the average borrower would make from using the money, or he would refuse to borrow the money. Other things affecting the current rate of interest are the need for loans, how risky the times are, the number of lenders and lender overhead such as the cost of shipping money.

Exchange
Exchange is the use of checks, short-term loans and bookkeeping to reduce a bank's need to ship gold, currency and coins. Domestic exchange is done within the same country and foreign exchange crosses national borders. In a simple example, business A in New York owes business B in London $1,000 and C in London owes $1,000 to D in New York. A bank has offices in both New York and London. From that bank, A buys a $1,000 bill of exchange to pay B and C buys a $1,000 bill of exchange to pay D. The $1,000 paid to the office in New York is able to stay in New York for D to cash the bill of exchange that came from London. When the money is converted from dollars to pounds, it might first be converted to it's value in ounces of gold. In domestic exchange, a cashier's check is bought from the bank rather than a bill of exchange. Another type of bill of exchange is like an honored post-dated check. Rather than buying the bill of exchange from the bank, it is sold to the bank as the company borrow's money. This type of exchange is due in 30, 60, or 90 days, is payable to the bearer by the company, and is secured by the company's current accounts receivable. The bill of exchange issued by the company might be traded around the world like gold, or another commodity of stable value until the time it's allowed to be cashed.

Price
The price of something is influenced by productivity, tools used and profitability. Usefulness, quality and money supply also affect the price. Factors controling retail price are: 1. manufacturing costs 2. distribution costs 3. demand for the merchandise 4. competition (number of suppliers) 5. combination (trade unions and monopolies) and 6. trade controls such as import taxes and one distributor cornering the supply of something. The gold standard, however, did not affect the price of merchandise because a weight of gold is just another unit measure.

Currency
Currency includes money and documents representing money such as gold certificates. Money is coins and notes that are legal tender. Other currency is secured by treasure such as paper money, coins and bars of gold and silver. Various designs of coins have been issued, discontinued and redeemed at face value for new designs. The same is true for paper money. Such notes were not legal tender at first because they are made of paper. They represented coins. There have been various kinds of non-money currency. For example, gold certificates represented gold coins in the treasury. Likewise, government bonds are often deposited and exchanged for cash.

Treasury
A treasury is a bank owned and operated by and for the government. For example, Federal Hall in New York City was a branch office, or sub-treasury, of the U.S. Treasury. It had gold-filled vaults in the basement, large money-filled safes on the main floor, and it had accounting offices and files on the upper floors. It received deposits such as post office revenue, duties and other taxes, and payments from banks. Its disbursements included coins in return for paper currency, and its payments went to the military, bond holders, building projects, pensions and so forth. Before becoming a sub-treasury, the museum was an import tax office, or custom house. The sandstone building replaced the brick Federal Hall where George Washington became President of the United States.