An Expansive View Of A Financial Transaction

There are many things we overlook in life. Either because we didn't give them much thought or we're simply not interested in them altogether. This can be fine when they don't affect us directly. It becomes different when they do.

I still remember the first time I consciously went to a shopping mall and saw the price tag on each item I viewed. To me, the price tag was like a bridge I need to first cross to own the item on the other side.

This was a bit of a problem with the hefty price tags and when I try to negotiate at the counter with the cashier, she always adamantly shakes her head.

I wondered why negotiations were welcomed on some financial transactions and not welcomed on others. What's the reason behind it, what was I missing? Other than there's a thing called price fixing or resale maintenance, I still don't know much about the reason behind it.

But over time, I did understand many other aspects of a financial transaction due to just picking an interest on the topic. Most of us conduct a financial transaction daily. Some have made thousands in their lifetime so far.

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An Inward Look

A financial transaction is an exchange of value between two or more parties. Typically, money is the medium of exchange but sometimes, other financial utilities can be substituted.

Financial transactions are ubiquitous in our day to day lives. From simple things like buying a loaf of bread to more complex things like investing in a real estate property.

Going to the core of a financial transaction, we find four basic components to it. Which are;

1. The parties
2. The value
3. The medium
4. The motive

For instance, buying a loaf of bread. I, the buyer and the seller of the bread are the parties. The value is the bread(the good) and the money(the payment). In most cases, cash is the medium. While the motive for me is a desire to eat(want) and for the seller, to make a profit(the goal).

Apart from the medium, all other elements are twofold in nature and they have to be in sync for a complete transaction to happen. Despite the motive to eat, If I don't see value on the good(bread) , then the transaction may not end up happening.

I see the medium as the most important element. Because it is the 'platform' on which the transaction happens. Also, money can be both the value and the medium.

An Outward Look

When we zoom out and take an outward look, we realise that a financial transaction isn't an isolated circumstance. But merely a part of a system of interconnected links happening on the background.

One of the links is the economy. Sometimes, we may not see the value component of a financial transaction as favourable during certain economic conditions. Only few people buy cars during high inflation.

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On the other hand, during an economic boom, there could be many parties. This can give us more options and the opportunity to conduct financial transactions in which we get the most amount of value with the least amount of money(medium).

Believe it or not, society is also a link on the background. In that it shapes and influences our perception of value. Edward Bernays's recount of tying women's right to smoking cigarettes in his book Propaganda is a good example.

Many women pick up the habit of smoking cigarettes in public irrespective of the reasons not to. Suddenly, there was much value to it because the perception has been shifted.

In Closing

Many people operate somewhere in between the inward and outward look in terms of awareness. It's not like we can be aware of all its aspects all the time.

However, having a broad perspective of the scope of a financial transaction can be useful in many financial situations. Sometimes, helping us solve seemingly complex financial problems.

When a particular bank refuses to give us a loan, it might be we didn't present a good motive for them to approve. Or maybe, we're just better off finding another party.

With a broad perspective, a world of different financial possibilities opens up to us.
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