Question

How does money perform its role as medium of Exchange. 

Answer 1

1. Medium of exchange is the most important function of money. Money is generally and widely accepted as the medium of exchange.
2. A medium of exchange is an intermediary instrument which is used in making transactions of goods and services.
3. Money serves as a proper medium of exchange because of the following characteristics: 
   1. General acceptability.
   2. Easily divisible for small and large transactions.
   3. Easy to transport.
4. All purchases or sales are made through money. Since money is generally accepted, everyone accepts it in exchange for goods and services. It thus removed the difficulty of barter system by eliminating the need for double coincidence of wants.