Asked by Daisy Cheng on May 01, 2024
Verified
One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?
Store Of Value
An asset that can be saved, retrieved, and exchanged in the future without significantly losing value.
Currency
The system of money in common use in a country, which facilitates the exchange of goods and services.
Liquid Asset
An asset that can easily be converted into cash in a short period without losing value.
- Distinguish and explicate the different functions that money serves.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
Currency is not a perfect store of value. When prices increase, that is, during periods of inflation, the value of currency falls. Additionally, currency does not earn interest which means there is an opportunity cost of holding currency. For these two reasons, few people hold all their wealth as currency.
Learning Objectives
- Distinguish and explicate the different functions that money serves.