Economists themselves have considered diverse aspects of money such as the reasons for its existence, changes in its form, and its role in the economic prosperity and development of people and nations (ICFAI Center for Management Research (ICMR), 2005).” Money occupies a central place in a modern society. Money provides innumerable benefits in our day-to-day lives. In the classical theory, money played an insignificant role as it had no causative influence on the economy. In the opinion of classical theorists, money was purely confined to medium of exchange and related itself to economic activity.
Money was used as a technical instrument to overcome the complexities involved in barter system. There was strong opinion that money was a passive element, which was used to help in the process of exchange. Contrary to this, in modern economics money plays a significant and an active role. Modern economists emphasize that the most important function of money is to regulate the general economic activity and to promote the wealth and welfare of a country’s economy. It further explains how money influences production, consumption and distribution. Thus, the institution of money is considered to be an efficient instrument contributing to economic prosperity of a country.
Due to the advent of globalization, financial markets are getting integrated with the passage of time, and people and firms are entering into more and more cross-border financial deals. In order to make these transactions feasible, a system for determination of the amount and method of payment of the underlying financial flows is needed. Since the domestic currencies of the parties involved will be different, the flows will take place in some mutually acceptable currency. The parties involved will then need to convert the amount involved into their domestic currencies. The set of rules, regulations, institutions,