L3 BTEC Business Unit 3 - A1 Functions and Role of Money

Identify the four functions of money

• Unit of account, means of exchange, store of account and legal tender

• Store of account, means of exchange, store of value and money tender

• Unit of account, means of exchange, store of value and legal tender

• Unit of account, means of exchange, store of tender and legal tender

Answer explanation

The functions of money are the jobs that it performs. 

These are:

Legal Tender

Unit of Account

Means of Exchange

Store of Value

Remember LUMS

Match the Definition to the Function of Money:

Money is the legal means we use to pay for goods and services.​

• Legal Tender

• • Unit of account​

• Means of exchange

• Store of value

Answer explanation

Legal Tender ​

• Money is the legal means we use to pay for goods and services.​ The legal tender is national currency of a country. ​It is the official method of payment.

Match the Definition to the Function of Money:

It keeps its value over time.

• Legal Tender

• • Unit of account​

• Means of exchange

• Store of value

Answer explanation

Store Value​

• Money has a value and can be stored in the bank.​ Used in the future to buy goods or services.​ It keeps its value over time.

Match the Definition to the Function of Money:

This allows us to place a monetary value on goods or services

• Legal Tender

• • Unit of account​

• Means of exchange

• Store of value

Answer explanation

Unit of Account

• This allows us to place a monetary value on goods or services​. You can then exchange those goods for other items of similar value ​

  In the UK, the unit of account is pounds and pence . The price of goods and services show the unit of account.

Match the Definition to the Function of Money:

Money is used to sell, buy or trade goods or services

• Legal Tender

• • Unit of account​

• Means of exchange

• Store of value

Answer explanation

Means of Exchange​

• It allows us to trade.​ Money is used to sell, buy or trade goods or services. ​ Otherwise, we would need to swap goods or services.​

Why do you need to plan your spending?

• Prevent going into unmanageable debt

• Going into debt usually incurs interest making the debt worse.

• If you have lots of debts it will impact your credit rating.

• You may get declared bankrupt if you cant pay your bills.

Answer explanation

If you do not control your spending this may result in more money going out than coming in. This results in debts that you owe to businesses or people which may charge interest. Interest will increase the amount your owe over time. If you have lots of debt your credit card will suffer making it more difficult and expensive to borrow money in the future. This debt spiral can eventually result in you being declared bankrupt because you cannot afford to pay all your debts.

Good practice when planning your finances includes:

• Buying what you want.

• Remaining Solvent.

• Maintaining a good credit rating.

• Never borrowing money.

• Setting financial targets.

Money owed is known as:

A score given to individuals on how likely they are to repay debts based upon their previous actions​ is known as:

• The ability to meet day-to-day expenditure and repay debts means you are