Unit of account, standard for deferred payment.

Money alsoactsas a measuring unit to assess the relative values of different commodities. This is distinct from its function of a medium of exchange, because a unit of account could in principle be used merely to assign prices rather than act as a means of payment. For example the guinea is used as a unit of account in many of London’s prestigious auction rooms, yet there is no such thing as guinea note or coin for actual use in transactions.

Money also performs this measurement function over time when it becomes a standard of deferred payment. If I wish to borrow a given sum now, an interest will be added to it so that I know how much I will have to repay in the future. Contracts can also be made for delivery of goods in the future. Inflation erodes the usefulness of money in this role.

 

Ø Comprehension:

1. What are three basic functions of money?

2. Why is barter a clumsy way of doing business?

3. In what case can money be more than a temporary store of value?

4. Why do people continue to hold money even in the period of rapid inflation?

5. What is ‘deferred payment’?

Ø True-false questions:

1. Anything can act as money if it is generally accepted by people as money.	
2. In all advanced economies the greater part of money supply consists of notes and coins.	
3. Barter is an efficient way of doing business.	
4. When the price level is stable, money can be more than a temporary store of value.	
5. Inflation erodes the usefulness of money.	

 

Ø Summarizing:

Complete the following sentences to summarize the text above:

1. Anything can act as money if it is generally accepted …

2. In all advanced economies, the greater part of the supply of money consists of…

3. There are three distinct functions of money: a medium of exchange,…

4. Money also performs the measurement function over time, when it becomes…

Ø Viewpoint:

Is it still popular in our country to keep some part of wealth in the form of money or do people tend to shift to other financial assets?

 

MONEY AND BANKS

 

Lead-in: What types of banks do you know? Key words and phrases 1. variety of commodities– разноманітність товарів 2. precious metals – коштовні металі 3. paper currency – паперові гроші, валюта 4. medium of exchange – засіб обміну 5. gold receipts – золоті грошові надходження. 6. bank deposit – банківский депозіт 7. durability – довговічність 8. transaction account deposits – трансакційні депозіти 9. automated teller machines (cash dispensers) – банківські автомати 10. interest rates – процентна ставка, норма відсотка 11. savings bank– ощадний банк 12. ‘secondary bank’ – вторинний банк 13. financial intermediaries – фінансові посередники, кредитно-фінансові установи 14. accumulate savings – нагромаджувати, накопичувати заощадження 15. long-term credit instruments – довгострокові кредитні інвестування 16. issue securities – випускати цінні папери 17. takeovers and merges – поглинання одних фірм іншими, злиття фірм 18. trustees for property – опікунство, виконання довірчих функцій на майно 19. liabilities– зобов’язання, пасиви

 

“Adventure is the life of commerce, but caution,

I had almost said timidity, is the life of banking”

(Walter Bagohot, 1826-1877)

Money is whatever generally acceptable in order to perform functions of paying for goods and services. In the past it took the form of a variety of commodities, though precious metals tended to be favoured because of a number of convenient physical characteristics, above all the fact that they are limited in supply. With the development of banks, paper currency has come to succeed precious metals as the medium of exchange, initially in the form of gold receipts, and then as central bank notes, backed by the authority of government. Nowadays bank deposits are generally accepted as money, and form the greater part of the money supply. Although anything can serve as money, the material of it should possess some important qualities: portability, durability, uniformity, divisibility (to make a change), recognizability.

Today money consists of coins, paper currency, and transaction account deposits. Now we are beginning to make electronic transfers of money through electronic funds transfer systems (EFT). EFT systems range from Automated Teller machines (ATM) or cash dispensers and to ‘virtual money’ (WEB money) on the Internet.

The banking system of Great Britain consists of a number of institutions, with the Bank of England playing a crucial role in regulating the supply of money and influencing interest rates, overseeing the operations of commercial banks. The Bank of England also manages the National Debt. According to the functions they perform banks may be divided into the following groups: commercial banks, savings banks, investment banks, trust companies. Commercial banks fall into two groups, ‘clearing’ and ‘secondary’ banks. In common with other commercial institutions, they operate by acting as financial intermediaries, borrowing money in order to re-lend it, which they are able to do profitably because of their specialised knowledge of financial markets.

Savings banks accumulate savings in small accounts, give credit for businesses and, as a rule, invest their funds in long-term credit instruments.

Investment banks raise funds for industry on the various financial markets, finance international trade, issue securities, and deal with takeovers and merges.

Trust companies administer funds or property for the benefit of others; they serve as trustees for property. Banks are distinguished from other intermediaries by the fact that their liabilities (bank deposits) can be spent directly as money, which makes them the focus of monetary policy.

 

Ø Comprehension:

1. Give the definition of money.

2. What are the main functions of money?

3. What is the role of the Bank of England in the economy of the country?

4. Describe the operations of commercial banks.

 

Ø Summarizing:

Complete the following sentences to summarize the text above:

1. Money is whatever acceptable to perform functions of ….

2. Today money consists of coins, ….

3. According to their functions banks can be divided into ….

4. Commercial banks fall into two groups: ….

5. Savings banks accumulate ….

6. Bank deposits (liabilities) can be spent ….

 

Ø True-false questions:

1. Money is whatever generally acceptable in order to perform functions of paying for goods and services.	
2. With the development of banks, paper currency has come to succeed precious metals as the medium of exchange.	
3. The Bank of England plays a crucial role in regulating the supply of money and influencing interest rates, overseeing the operations of commercial banks.	
4. The Bank of England doesn’t manage the National Debt.	
5. Commercial banks operate by acting as financial intermediaries, borrowing money in order to re-lend it.	
6. Bankliabilities (bank deposits) can’t be spent directly as money.	

 

Ø Viewpoint:

Is the role of the National Bank of Ukraine similar to the one of the Bank of England in Great Britain?