Money & Payments / Present value - Coursework Example

Money and Banking In answering the question of how inflation affects the functions of money, it is important to some of the common function of money. These include Medium of exchange in trade, store of value or measure of value, a standard of deferred payment as well as a unit of account to make accounting records for transactions involving money. On the other hand, inflation referrers to a situation where the general prices of goods and services are increasing continuously for a significant period say one year.

In other words, inflation leads to decline in money value over time. Consequently, inflation has a direct effect on the money function of serving as a medium of exchange. In a situation where an economy is experiencing high inflation, the value of money keeps on falling hence making it difficult to place the value of goods in that economy generally. In short, this function of money becomes less effective in a situation of high inflation. With the increase in inflation, the volatility of the same tends to increase unpredictably.

With this, it becomes difficult to place a particular value on money. This in turn reduces the effectiveness of money as a store of value. On the same note, the use of money as a condition for deferred payment becomes ineffective with high rates of inflation (Hammonds, 2006).With time, payment systems will evolve into electronic payment systems that are known as e-commerce. In actual sense, electronic commerce is rapidly growing in many markets around the globe. This is attributable to the development of the national information infrastructure that have facilitated the transfer of money from one place to another electronically.

This form of payment will benefit the society in reducing transaction costs in various ways, To begin with, with e-commerce, the transaction costs remain the same regardless of the number of transactions involved. This is unlike the case of cash payments where the number of transactions is a factor. This payment system is also accurate and eliminates errors involved with human processes. This means that the number of employees needed to transact in such a system is few hence reducing the general cost of the said business (Hammonds, 2006).

In addressing the inverse relationship between security prices and interest rates, the security to be considered will be a bond. Bonds are usually bought directly through banks or mutual funds. Upon issuance of new bonds, they carry coupon rates that are either equal or close to the prevailing market interest rate. However, security prices in general and in this case bond prices have an inverse relationship with interest rates. This implies that once the interest rate goes down in an individual economy, the value of securities goes up.

The reverse is also true. As such, investors in various securities should have a keen eye on different interest rates prevailing in markets that can be invested in. In negotiating an automobile lease, a person ought to have the knowledge of a couple of concepts regarding the lease of cars. First, it is imperative to note that the lease payments for an automobile are dictated by the value or price of that car. On a similar note, it is critical to know that a person could negotiate for the price of an automobile prior to leasing it.

The lower the price, the lower the lease payments. Other information that is helpful in this negotiation includes the following: the vehicles invoice price, excess mileage costs that apply in case the limit set at the pint of lease is exceeded as well as the exact time duration that an individual wants to take a contract. This is because leases taken for a longer period have less monthly than shorter terms. This can hence misguide a person to make a lease for an automobile for a longer period than the desired (Jasper, 2005).

ReferencesHammonds, H. (2006). Banking: Money. South Yarra, Victoria: Macmillan Education Australia Pty.Jasper, M. (2005). Auto leasing. Dobbs Ferry, NY: Oceana Publications.