Read the text and give main characteristics and functions of money.

 

CHARACTERISTICS OF MONEY

Money is anything is commonly accepted as a means of paying for the goods and services individuals need and want. Money enables us to function in society and to have the thing we need to survive - things such as housing, food, clothing, transportation, heat and water.

Money has not always been the coins and paper bills known to us. Trough out history various things of value have been used as money. For example, in many parts of the ancient world, salt was used as money because it was rare and necessary to life. Among many early cultures, furs or pelts were used as money. Eventually valuable metals became the most common type of money; in fact, gold coins were used as money in the United States as recently as 1933.

Currency, which is dollar bills and coins, fits most of the definition of money. However, checks are accepted payment for purchases, and checking account deposits are considered money and not currency.

To define money as currency would be considered too narrow for most economists.

Money has three basic functions. It serves as a medium of exchange, as a measure of relative value, and as a store of value.

As a medium of exchange, money enables two individuals to exchange without having to barter; that is the carpenter doesn't have to build a step for the grocer every time he wants a carton of milk. The carpenter can build steps or anything else for anybody, receive money for his services, and use the money to purchase milk from the grocer. The grocer can in turn use the money received from the carpenter and others to purchase a suit from the tailor.

As a measure of relative value, money allows two dissimilar items to be purchased on a similar base. It is in terms of money that we think of value. How many cartons of milk should the grocer pay for a suit? If asked that question, you might ask, how much is a carton of milk worth? And how much is the suit worth? You would want to define the exchange in terms of the relative value of the two items and would use the value in dollars (money) to determine how many cartons of milk it should take to buy a suit. Money helps to think of different things in terms of a common value base.

As a store of value, money makes it possible for us to hold onto the value over time. If the grocer would have to hold the value of his milk in milk, he could not hold it for long because it would spoil. If he sells the milk and gets money for it, he can hold the money until he wishes to purchase something.

To measure the money supply, we measure the amount of money in the economy. However, what to measure is a problem. Should someone's home be considered money? After all, it can be sold for cash.

To understand the money supply you have to first understand the concept of liquidity.

Liquidity is simply a measure of how quickly an item can be converted to cash. Obviously the most liquid item is cash itself, since it does not need to be converted. However, many other items approach cash in liquidity because they function as cash in many transactions. These items include demand deposits, against which checks can be written or from which funds can be withdrawn; time deposits, from which funds can be withdrawn; and money market funds, which can be immediately sold for cash.

 

Exercises

Answer the questions.

1. What do we understand under the term “money”?

2. What does money do for people?

3. What were the analogues of money?

4. What do we understand under the term “currency?”

5. What are the functions of money? Describe them.

6. What is liquidity?

7. Money is said to have a time value. What exactly does it mean?

2. Find in the text English equivalents for the following Ukrainian phrases:

Загальноприйнятий; засіб сплати; гроші надають нам можливість; на протязі усієї історії; серед багатьох ранніх культур; хутра та шкіра; коштовні метали; сплата, яка прийнята; засіб обміну; вимірювання відносної вартості; засіб накопичування; отримати гроші за свої послуги; може у свою чергу; двом різним товарам; на однаковій основі; грошова маса; кількість грошей; концепція ліквідності; безстроковий вклад; терміновий депозит.