Economics - Near Money

morningpeasant

I am slightly confused about the definition of near money. My book give it as: assets which fulfill some, but not all, of the functions of money. However, other sources give it as: highly liquid assets which can be converted into money quickly without loss of value.
I have cheques, debit cards, and credit cards as three examples of near money. However, they act as a means of exchange, unit of account, store of value, and standard for defferd payment, and so I can't see how they do not fulfill all of the functions of money...

highlydebased

Potentially assets which are most liquid. i.e stock a business may hold.

If it is defined as an asset which can be converted quickly to cash then cheques and cards are technically incorrect.

Dave_Kilkenny

Okay just read your definition now and I do business but not home economics or accounting so I've never heard of this term.

So from my understanding it would be items that are not cash, they arent government bonded legal tender. Although they can be converted quickly into cash or used to purchase items.
Examples could include: cheques, debit cards, bonds, saving accounts.

Personally I would not consider stock "near money" as well, it is more than often not easy or convenient to quickly convert into money without the loss of value, stock can only depreciate in value and does not have a direct cash value equivalent that is static (does not change).


Ie. A company may have one hundred computers each valued at 1,000 each, so a total of 100,000 euro. Although this is not near money as a computer can depreciate in value and if you wished to convert these 100 computers into cash to buy a home you would first have to find a buyer and negotiate a price.


Whereas;
If you had a cheque, bonds or money in a savings account they all have a static cash value that will not fluctuate.

Ie. I have a cheque for 100 it is not cash (money) yet I can go to a bank conveniently and convert it to cash. A cheque for 100 will never depreciate in value nor will I have to negotiate a price for it.



Hope that helps,

Keen2win

Money is anything that must be accepted as payment for a good or service.

Near money doesn't have to be (cheques etc.)

So it fulfills some of the functions of money, but not all ( doesn't have to be accepted)

Thats my take on it

Bob the Builder

Functions of money (to LC standard anyway):

• Medium of Exchange
• Store of Value
• Unit of account
• Standard for deferred payment

Therefore, the stock a business holds can be regarded as near money because it cannot be used as a Unit of Account or arguably a standard for deferred payment.

On the other hand, cheques and credit cards cannot be referred to as near money because they fulfiull the functions of money, in their broad sense at least.

"Near money" is moreso a descriptive term than a definition and is open to the student's perception of it's definition.

randylonghorn

As I understand it, "near money" describes items which are not cash and which cannot be used directly as a medium of exchange but which are "liquid" assets ... i.e. they can be converted into money quite quickly and easily.

The definition seems to be variable depending on who is using the term, and how much leeway they are prepared to allow for delay in converting into cash, how secure the asset is, etc. So government securities or bonds always seem to get included; holdings of foreign currencies which can be quickly converted are normally included; money in a bank account which you can withdraw at any time is also included, because while we think of it as "money in the bank" you can't actually hand someone your bank statement in payment ... the money must be withdrawn / converted in one form or another.

So while the general definition is easily enough understood, what are or are not examples of "near money" often starts an argument, as there doesn't seem to be one universally accepted list!

morningpeasant

Thanks so much for all the replies guys,

Does anybody know if it came up as a definition question in the exam papers? It'd be great to get the exact definition that is considered acceptable by the marking scheme.