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Question

Difficulty: MediumFunctions and Characteristics of Money

A cocoa farmer in Ondo State agrees to supply 50 bags of cocoa to a commercial exporter, with settlement agreed to be made in Nigerian Naira three months after delivery. Which function of money is primarily demonstrated by using currency to express and settle this future financial obligation?

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

Answer

Standard of deferred payment
The standard of deferred payment is a secondary function of money that allows debt contracts to be formulated and settled in monetary terms at a future date. When trade occurs on credit and settlement is postponed, money provides the benchmark for calculating and fulfilling the future obligation.

Step-by-Step Solution

1
Analyze the financial transaction scenario presented in the stem.
The transaction involves an agreement to deliver goods now and pay in currency three months later (a credit/deferred transaction).
Identifying the timing of payment helps distinguish spot transactions from credit-based contractual transactions.
2
Map the specific economic role of money in this deferred context to the appropriate monetary function.
Using money to define and settle future debts defines money as a standard of deferred payment.
Money enables long-term commercial contracts by serving as an agreed measure for obligations payable at a future date.

Key Concept

Functions of Money: Standard of Deferred Payment
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Topics

Functions and Characteristics of Money

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