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Read and translate the text «Currencies»
All values in the economic system are measured in terms of money. Originally, a valuable metal (gold, silver or copper) served as a constant store of value, and even today the American dollar, for example, is technically “backed” by the store of gold which the US government maintains. The value of money is basically its value as a medium of exchange, or, as economists say, its ‘purchasing power’. The first instances of money were objects with intrinsic value. This is called commodity money and includes any commonly-available commodity that has intrinsic value; historical examples include pigs, rare seashells, whale's teeth, and (often) cattle. In medieval Iraq, bread was used as an early form of money. Numismatists have examples of coins from the earliest large-scale societies, although these were initially unmarked lumps of precious metal. Ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade. The system of commodity money in many instances evolved into a system of representative money.
Early Currency. Currency is the creation of a circulating medium of exchange based on a store of value. Currency evolved from two basic innovations: the use of counters to assure that shipments arrived with the same goods that were shipped, and the use of silver ingots to represent stored value in the form of grain. Both of these developments had occurred by 2000 BC. Currency was introduced as standardized money to facilitate a wider exchange of goods and services. This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the Fertile Crescent for over 1500 years. These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. It was with Archimedes' principle that the next link in currency occurred: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with.
In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold coins were used for large purchases, payment of the military and backing of state activities. Silver coins were used for large, but common, transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. In Europe this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest. Thus the overall ratios of the three coinages remained roughly equivalent. In China, however, the need for credit and for circulating medium led to the introduction of paper money.
The Era of Hard and Credit Money. Paper money was, in one sense, a return to the oldest form of currency: it represented a store of value backed by the credibility of the issuing authority. Drafts and checks issued privately had been in intermittent use for centuries, however, it was with the rise of global trade that paper money would find a permanent place in currency.
The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of stock in joint stock companies, and the redemption of those shares in paper. However, these advantages held within them disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it created money that did not exist, it was subject to Gresham's Law: people would exchange money rather than coins of the same value, and this increased the velocity of money and therefore increased inflationary pressures, a fact observed by David Hume in the 18th century. The result is that paper money would often lead to an inflationary bubble, which would then collapse when the demand for paper notes fell to zero, and people began demanding hard money. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive, since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.
Legal Tender Era. With the creation of central banks, currency entered into a new era in the history of currency. During both the coinage and credit money eras the number of entities which had the ability to coin or print money was quite large. One could, literally, have "a license to print money"; many nobles had the right of coinage. Royal colonial companies, such as the Massachusetts Bay Company or the British East India Company could issue notes of credit—money backed by the promise to pay later, or exchangeable for payments owed to the company itself. This led to continual instability of the value of money. The solution which evolved beginning in the late 18th century and through the 19th century was the creation of a central monetary authority which had a virtual monopoly on issuing currency, and whose notes had to be accepted for "all debts public and private". The creation of a truly national currency, backed by the government's store of precious metals, and enforced by their military and governmental control over an area was, in its time, extremely controversial. Advocates of the old system of Free Banking repealed central banking laws, or slowed down the adoption of restrictions on local currency. At this time both silver and gold were considered legal tender, and accepted by governments for taxes. However, the instability in the ratio between the two grew over the course of the 19th century, with the increase both in supply of these metals, particularly silver, and of trade. This is called bimetallism and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States Greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed. By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Governments followed Gresham's Law: keeping gold and silver paid, but paying out in notes.
Modern currencies. Several countries can use the same name, each for their own currency (e.g. Canadian dollars and US dollars), several countries can use the same currency (e.g. the euro), or a country can declare the currency of another country to be legal tender (e.g. Panama and El Salvador have declared US currency to be legal tender). Each currency typically has one fractional currency, often valued at 1/100 of the main currency: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 at (currency) = 1 kip (currency). However, due to inflation, both fractional units have in practice fallen into disuse. Nowadays ISO have introduced a system, ISO 4217, using three-letter codes to define currency (as opposed to simple names or currency signs), in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in nearly a dozen different countries, all with wildly differing values. In general, the three-letter code uses the ISO 3166-1 country code for the first two letters and the first letter of the name of the currency (D for dollar) as the third letter.
The International Monetary Fund uses a variant system when referring to national currencies. The International Monetary Market (IMM), largely the creation of Leo Melamed, is part of the Chicago Mercantile Exchange (CME), the largest futures exchange in the United States and the second largest exchange in the world for the trading of futures and options on futures. The IMM was started on May 16, 1972. Two of the more prevalent contracts traded are Currency Futures and Interest Rate Futures.
to evolve (from) – to develop gradually by a long continuous process.
medium (pl. ~dia or –diums) – 1. the method for giving information; form of art; 2. a substance in which objects or living things exist, or through which a force travel; 3. a middle position
to shave – to cut off (very thin pieces) from a surface
to debase – 1. to reduce in quality or value in the opinion of others, to degrade; 2. to lower the real value (of a coin) by making them with less valuable metal
to tamper (with) – to touch or make changes in smth. without permission, esp. so as to cause damage
intermittent – happening, then stopping, then happening again, with pauses in between; not continuous
specie – (a store of, a consignment of) money in the form of coins
to redeem – (fml.) 1. to carry out, to fulfil; 2. to make smth bad less bad; 3. (from) to buy back smth. one has given in return for being lent money
to repeal – to put an official end to a law
Exercise 1. Suggest the meaning of the following words and word combinations:
To discourage its citizens from, commodity money, representative money, to facilitate a wider exchange, to represent stored value, to lead to the shift of, to be stamped into coins, to assure the individual doing smth., to be easily tested for their fine weight of metal, to form three tiers of coins, to introduce through mining or conquest, to remain roughly equivalent, to be backed by, the credibility of the issuing authority, drafts and checks issued, to be in intermittent use, to redeem the note, intrinsic value, to increase inflationary pressures, to lead to an inflationary bubble, to establish mints, to collect taxes, to hold gold and silver stock, credit money, to be exchangeable for payments, to lead to continual instability, the creation of a central monetary authority, to repeal central banking laws, to slow down the adoption of, bimetallism, constituting the circulating medium, currency signs, the trading of futures and options on futures, to fall into disuse.
Exercise 2. Find the English equivalents for:
Быть вовлеченным (занятым) во внешнеторговую деятельность, находящееся в обращении средство обмена, партия товара, отгружать, серебряные слитки, подделывать, создать новую единицу расчета, определить стоимость (ценность) монеты; расчеты по налогам, сборам, контрактам, в рамках сотрудничества; в целом меновые отношения между тремя типами монет, снижать риски, терять владение чем-либо, выкуп долей в ценных бумагах, увеличить скорость обращения денег, оставаться в состоянии подозрительности и враждебности, быть заразительным, печатать бумажные деньги, чеканить монету, количество объектов, выпускать кредитовое авизо, иметь действительную монополию на выпуск денег, оказывать давление (придавать силу), законное платежное средство, расплачиваться купюрами, противопоставленный (в противовес чему-то), мелкие деньги как валюта.
Exercise 3. Make up situations using the word combinations:
1.Быть вовлеченным во внешнеторговую деятельность, находящееся в обращении средство обмена, печатать бумажные деньги, оставаться в состоянии подозрительности и враждебности, быть заразительным, собирать налоги, иметь действительную монополию на выпуск денег, расплачиваться купюрами.
2.Количество объектов, снижать риски, чеканить монету, определить стоимость (ценность) монеты, терять владение чем-либо, законное платежное средство, подделывать, в целом меновые отношения между тремя типами монет, создать новую единицу расчета.
3.Скорость обращения денег, серебряные слитки, расчеты по налогам, сборам, контрактам, выпускать кредитовое авизо, оказывать давление (придавать силу), выкуп долей в ценных бумагах, противопоставленный (в противовес чему-то).
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