Definition and Types of Near Money:
The main objective of money is to arrange transaction between different people and business organizations. The money and incomes are closely related. As most of the incomes are obtained in money. Hence people keep their wealth in money.
It means that with money (i) wealth can be kept, (ii) income can be represented, (iii) payments can be made, (iv) the future needs can be met In the early stages of money the major portion of money possessed by people was consisted of currency and demand deposits. With the passages of time so many substitutes of money became available. These substitutes of money are also like liquid assets. However, the degree of liquidity varies. These liquid assets comprise of govt., securities, saving accounts, shares, bonds and bearer certificates. All such assets have the quality of money as store of value, but they can not be used as a medium of exchange. However, after some time period they can be converted into money. Thus all those liquid assets which have the quality of money as a store of value; they are furnished with some claim of receipt or payment; and they are attached with this sentence “I owe you” (IOU), are called Near Money.
The followings are major types of near money.
(i) Drafts and Bills of Exchange: The drafts and bills of exchange are such financial documents which are attached with promise to pay the specific amount in future. Normally, such time period lasts for 3 months. Such instruments are used to make payments regarding exports, imports and other domestic or international transactions.
(ii) Treasury Bills: Whenever govt. wants to borrow from public it sells its treasury bills. Such bills are sold when govt. faces budget deficit They are called bills because they are attached with a specific time period and promise to pay in future.
(iii) Bonds: The bonds are the written form of loans. Whenever, govt. or some institution is in need of money they issue bonds. The bonds which are issued by some business organization they are called “Debentures”. Bonds provide a source to borrow, particularly for a longer period. The bonds are furnished with the followings: (a) The bond holder will be given interest at a particular rate, (b) The maturity period of bond will be specified, (c) The bond holder will be able to get the principal amount after maturity period.
(iv) Equity Shares: The firms in order to run their business sell their shares. The public purchases such shares. The share holders do not get the fixed amounts against their Shares. Rather, they have to share profit or loss of the company whom shares they are having. If at any time the firm closes its business the shareholders are paid after payment of all the debts. Stock exchanges sell or purchase shares.
(v) Fixed and Saving Deposits: People deposit their savings in fixed and saving accounts. Such amounts can not be withdrawn from banks before a particular period and heavy interest is paid against them.
(vi) Saving Certificates: In addition to banks so many non-bank institutions have also emerged which issue a variety of saving certificates.
In addition to above mentioned, the travelers cheques, insurance policies, savings of general provident fund, prize bonds and money orders also represent Near Moneys.