financial transactions
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A financial transaction is an agreement, or
communication Communication (from la, communicare, meaning "to share" or "to be in relation with") is usually defined as the transmission of information. The term may also refer to the message communicated through such transmissions or the field of inqu ...
, between a buyer and seller to exchange goods, services, or assets for payment. Any transaction involves a change in the status of the finances of two or more businesses or individuals. A financial transaction always involves one or more financial asset, most commonly money or another valuable item such as
gold Gold is a chemical element with the Symbol (chemistry), symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a Brightness, bright, slightly orange-yellow, dense, s ...
or
silver Silver is a chemical element A chemical element is a species of atoms that have a given number of protons in their nuclei, including the pure substance consisting only of that species. Unlike chemical compounds, chemical elements ...
. There are many types of financial transactions. The most common type, purchases, occur when a good, service, or other commodity is sold to a consumer in exchange for money. Most purchases are made with cash payments, including physical currency, debit cards, or cheques. The other main form of payment is credit, which gives immediate access to funds in exchange for repayment at a later date.


History

There is no evidence to support the theory that ancient civilizations worked on systems of barter. Instead, most historians believe that ancient cultures worked on principles of gift economy and
debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
. In a gift economy, valuables are given without any formal declaration of repayment, often thought to be a form of reciprocal altruism. Official systems of credit and debt were first created around 1800 BCE by the Babylonians, who established the first formal interest rate limits with the Code of Hammurabi. Many cultures around the world began using commodity moneyobjects whose value comes from their intrinsic value. These often included gold or silver coins, along with non-metal objects such as cowrie shells, beaver pelts, and dried corn. Between 1000 BCE and the first millennium CE, coinage became increasingly common throughout Europe and Asia. In England, banknotes were introduced starting in the 17th century. Each note promised to pay the bearer the value in gold upon demandthis is called a gold standard. In the 20th century, many countries gradually phased out the gold standard in favour of
fiat money Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was some ...
money that is not backed by any commodity. Since the start of the 21st century, online banking has become much more widespread. By 2001, tens of millions of people were doing their banking on the
internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, p ...
. By 2012, between 46 and 82 percent of all transactions were done electronically. Digital currencies, currency that is stored on electronic systems, have gained popularity.
Bitcoin Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public d ...
, invented in 2009, reached a cap of over US$1 trillion in 2021. One of the downsides of
cryptocurrencies A cryptocurrency, crypto-currency, or crypto is a digital currency Digital currency (digital money, electronic money or electronic currency) is any currency A currency, "in circulation", from la, currens, -entis, literally meanin ...
is that since they are not tethered to any tangible assets, their price can fluctuate wildly, sometimes by 20% or more in a single day.


Types of transactions


Cash transactions

A cash transaction is any transaction where money is exchanged for a good, service, or other commodity. Cash transactions can refer to items bought with physical money, such as
coins A coin is a small, flat (usually depending on the country or value), round piece of metal A metal (from Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when freshly prepared, polished, or fractured, sh ...
or cash, or with a
debit card A debit card, also known as a check card or bank card is a payment card that can be used in place of cash In economics Economics () is the social science that studies the production, distribution, and consumption of goods ...
. These differ from credit transactions because the money is immediately taken from the buyer and given to the seller.


Credit transactions

Transactions that use credit involve a deferred payment for the goods or services rendered. When something is bought using credit, it gives the seller an asset (the payment at a later date) and gives the buyer a liability (the amount that must be paid at a later date). Credit cards are an example of when credit is used, where the card issuer (usually a bank) gives the customer a line of credit with which they can make purchases. The liabilities the customer accrues with the card are usually paid off at a set date, and any unpaid liabilities create interest for the issuer. Loans and mortgages are examples of credit. The lender agrees to give out a lump sum (the " principal") to the borrower, who pays back the loaned amount over a set period of time (called a "term"). The lender usually charges an additional percentage on top of the initial amount borrowed, called the " interest rate". Mortgages are similar to loans, but are usually for a larger amount of money and over a longer term, often for buying
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more genera ...
. Mortgages are almost always secured by collateral, most commonly the real estate they are being used to purchase. If the borrower fails to make the necessary payments on the mortgage, the lender has the right to claim and sell the property in a process known as foreclosure.


Internal and external transactions

External transactions are any business transactions that involve more than one party. For example, a company buying inventory from a supplier would be considered external. All cash and credit transactions are external, since they affect the finances of more than one person or group. On the other hand, internal transactions only affect one business. Shifting goods between different departments in a business is an internal transaction, since it does not change the overall finances of the company.


See also

* Financial transaction tax * Teeming and lading * E-commerce


References

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