Question -------------------------
Followup To
What are the uses of money? What are the differences among the alternative measures of money?
How is money created?
How does a financial panic occur?
Answer Shykhan, You do pose very interesting questions.
Money is a financial insturment or a means to transaction between parties. It could take the form of cash, credit, electronic or other media. In the past, trade required an exchange of goods of similar precieved value. So, sea shells may have been held in high regard by people in the mountians while flint (for stone tools) may have been held in high regard by people near the ocean. Thus these two commodities were traded on a one for one basis. Today, money is used (most often) for such transactions. Barter still occurs but it is far less common.
Alternative measures of money. I am not sure what you mean here. Do you mean the differences between the US Dollar and the Euro? or the Yen? Please define.
Money was at one time created by the individual bank and even a community with something of value like gold. But today most money is created by a countries central bank and its value is based on the strength of that countries economy. At one time, during the gold standard, money was backed by gold at a set value across the world.
Financial panic occurs when the economy of a country begins to flounder and the citizens loose confidence in the economy and the government. When this occurs, the value of the currency drops against the values of other currencies. This then reduces the value of stocks and equity holdings which can lead to a spiral of financial problems. It could easily spread internationally if the economy in question is one of the larger ones like Japan, Germany or the US.
