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Difficulty: MediumMeaning, Functions, and Characteristics of Money

A building contractor enters into an agreement with a supplier to purchase 500 bags of cement today, with a formal contractual commitment to settle the payment of ₦2,500,000 in six months time. Which function of money is directly illustrated by this credit transaction?

  1. Standard of deferred paymentAnswer
  2. B
    Store of value
  3. C
    Unit of account
  4. D
    Medium of exchange

Answer

Standard of deferred payment
The correct answer is the option identifying money as a standard of deferred payment. When goods are acquired on credit and debt settlement is postponed to a future date, money functions as the benchmark measure in which debt is expressed and legally settled.

Step-by-Step Solution

1
Analyze the commercial transaction scenario described in the stem.
The scenario describes obtaining goods immediately while postponing financial settlement to a specified future date (credit transaction).
Identifying the nature of the transaction helps determine which specific function of money is being exercised.
2
Map the transaction characteristics to the functions of money.
Money acts as a standard of deferred payment when it facilitates credit trade by serving as an agreed unit for settling future financial obligations.
This secondary function overcomes the limitation of barter where future obligations were difficult to measure or enforce.

Key Concept

Secondary Functions of Money: Standard of Deferred Payment
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Topics

Meaning, Functions, and Characteristics of Money

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