The bank and the money supply. Банк и предложение денег

The narrowest measure Ml of the money supply is currency in circulation outside the banking system plus the sight deposits of commercial banks against, which the private sector can write cheques. Thus the money supply is partly a liability of the Bank (currency in private circulation) and partly a liability of commercial banks (checking accounts of the general public).

The Demand for Money. Спрос на деньги

The demand for money is the quantity of liquid assets people are willing to have in hand at any given moment. It depends on the income they gain and the opportunity costs connected with the interest rate. But why do people hold money at all?

Money is a stock. It is the quantity of circulating currency and bank deposits held at any given time. Holding money is not the same as spending money when we buy a meal or go to the cinema. We hold money in order to spend it later.

The distinguishing feature of money is its use as a medium of exchange, for which it must also serve as a store of value. It is in these two functions of money that we must seek the reasons why people wish to hold it.

The Transactions Motive for holding money. In a monetary economy we use money to purchase goods and services and receive money in exchange for the goods and services we sell. Without money, making transactions by direct barter would be costly in time and effort. Holding money economizes on the time and effort involved in undertaking transactions. We need to hold money between receiving payments and making subsequent purchases.

How much money we need to hold depends on two things, the value of the transactions we wish to make and the degree of synchronization of our payments and receipts. We do not know how much $100 will buy until we know the price of goods. If all prices double, we will need to hold twice as much money to make the same transactions as before.

The demand for money is a demand for real money. We need a given amount of real money to undertake a given quantity of total transactions.

The Precautionary Motive for holding money. Thus far we have assumed that people know exactly when they will obtain receipts and make payments. But of course we live in an uncertain world. Tills uncertainty about the precise timing of receipts and payments gives rise to a precautionary motive for holding money. Suppose you decide to buy a lot of interest-earning bonds and try to get by with only a small amount of money holdings. You are walking down the street and spot a great bargain in a shop window. But you do not have enough money to take advantage immediately of this opportunity. By the time you have arranged for some of your interest-earning bonds to be sold off in exchange for money, the sale may be over. Someone else may have snapped up the video recorder on sale at half-price. This is the precautionary motive for holding money. In advance, we decide to hold money to meet contingencies the exact nature of which we cannot foresee.

Together, the transactions and the precautionary motives provide the main reasons for holding the medium of exchange. They are the motives most relevant to the benefits from holding money.

The Asset Motive for holding money. Suppose we forget all about the need to transact. We think of a wealthy individual or a firm deciding in which assets to hold wealth. At some distant date there may be a prospect of finally spending some of that wealth, but in the short run the objective is to earn a good rate of return.

Some assets, such as industrial shares, on average pay a high rate of return but are also quite risky. Some years their return is very high, but in other years it is negative. When share prices fall, shareholders can make a capital loss, which swamps any dividend payment to which they are entitled. Other assets are much less risky, but their rate of return tends to be much lower than the average return on risky assets. Since people dislike risk, they will not put all their eggs in one basket. As well as holding some risky assets, they will keep some of their wealth in safe assets. Although on average this portfolio will earn a lower rate of return, it will help avoid absolute disaster at hard times.

The asset motive for holding money arises because people dislike risk. People are prepared to sacrifice a high average rate of return to obtain a portfolio with a lower but more predictable rate of return.

VOCABULARY NOTES

currency in circulation – наличность в обращении

the opportunity costs – альтернативные издержки владения деньгами

the transactions motive for holding money – трансакционный мотив на­копления денег (категория кейнсианского анализа)

to undertake transactions – проводить, совершать сделки

receipts [risi:ts] pi. – денежные поступления

the precautionary motive for holding money – мотив накопления денег на непредвиденные цели (категория кейнсианского анализа)

the precise timing – точное время

to get by – прожить, сводить концы с концами

to spot – разг. увидеть, заметить

a great bargain – хорошая вещь, которая предлагается по специальной (сниженной) цене; удачная покупка

to take advantage of – воспользоваться

to snap up – подхватить, перехватить

contingencies – случайности, непредвиденные обстоятельства

to foresee – предвидеть

the asset motive for holding money – мотив накопления денег в качестве активов (категория кейнсианского анализа)

on average – в среднем

to swamp – поглощать, сводить на нет

risky assets – неликвидные активы (долгосрочные инвестиции и ссуды;

ценные бумаги с колеблющимся курсом)

a portfolio – портфель (напр., ценных бумаг)

disaster – бедствие, крах

to sacrifice – жертвовать, приносить в жертву

predictable rate of return – предсказуемая норма прибыли

Assignments

I. Suggest the Russian equivalents

the distinguishing feature of money; in a monetary economy; the time and effort involved in undertaking transactions; snapped up the video recorder on sale at half-price; the motives most relevant to...; a capital loss, which swamps any dividend payment to which they arc entitled; will not put all their eggs in one basket; avoid absolute disaster at hard times; to sacrifice a high average rate of return; in the short run

II. Replace the parts in italics by synonyms

gives rise to; to take advantage of the opportunity, to meet contingencies, to foresee, a more predictable rate of return

III. Fill in the gaps with the words and expressions from the text

1. The narrowest measure Ml of the money supply is __ outside the banking system plus __ of commercial banks.

2. The money supply is partly __ of the Bank and partly a liability of

3. The demand for money is __ people are willing to have in hand at any given moment.

4. Holding money is not the same as __ money, as we hold money, in order to __.,

5. It is in two main functions of money, that is, its use as a medium of __ and a store of __, that we must seek the reasons why __.

6. Without money, making transactions by __ would be __ in time and effort.

7.We need to hold money between __ and __.

8. How much money we need to hold depends on __ we wish to make and the degree __.

9. We need a given amount of __ to undertake a given quantity of __.

10. The uncertainty about __ of receipts and payments gives rise to __.

11. The precautionary motive for holding money is a decision to hold money to meet __ the exact nature of which we cannot __.

12. Together, __ and __ provide the main reasons for holding the medium of exchange as they are the motives __ to the benefits from __.

13. Some assets, such as __, on average pay a high rate of return but are also __.

14. When share prices fall, __ can make __, which __ any dividend payment to which __.

15. Since people dislike risk, they will not __.

16. Although on average __ will earn a lower rate of return, it will help avoid __ at hard times.

17. People are prepared to sacrifice __ to obtain a portfolio with a lower but __ rate of return.

IV. Find in the text English equivalents for the following

наличность в обращении; денежные обязательства банка; текущий (чековый) счет; путем непосредственного обмена; трансакционный мотив накопления денег; мотив накопления денег на непредвиденные цели;

прожить на небольшие деньги; быть готовым к случайностям, непредви­денным обстоятельствам; получать доходы и производить платежи; мотив накопления денег в качестве активов; портфель ценных бумаг

V. Answer the questions

1. What is the money supply?

2. What determines the demand for money?

3. What are the reasons for holding money? How do people hold their money?

4. Dwell on each motive for holding money.

VI. Translate into English using all the active possible

1. Одна из причин спроса на деньги состоит в том, что люди нужда­ются в деньгах как в средстве обращения, то есть в удобном способе приобретения товаров и услуг. Домашние хозяйства должны иметь доста­точное количество денег, чтобы делать покупки, платить по счетам и т. д. Предприятиям деньги нужны для оплаты труда, материалов, энергии и т. д. Необходимые для этих целей деньги называются спросом на деньги для сделок.

2. Другая причина, по которой люди держат деньги, вытекает из их функции как средства сбережения. Люди могут держать свои финансо­вые активы в различных формах, например: в виде акций, частных или государственных облигаций или в деньгах. Отсюда, естественно, следует, что существует спрос на деньги, как на финансовые активы.

3. В узком смысле предложение денег, обозначаемое Ml, состоит из двух элементов: наличности, то есть металлических и бумажных денег, находящихся в обращении, и чековых (бессрочных) вкладов, то есть вкладов в коммерческих банках, различных сберегательных учреждениях, на которые могут быть выписаны чеки.

THE MONEY MARKET (РЫНОК ДЕНЕГ)

The money market comprises the demand for money and the money supply. The equilibrium in the money market is such a state of balance when the demand for money from households and businesses is satisfied by the quantity of the money supplied. The equilibrium in the money market is reached by changing bond prices.

People can hold their wealth in various forms — money, bonds, equities, and property. For simplicity we assume that there are only two assets: money, the medium of exchange that pays no interest, and bonds, which we use to stand for all other interest-bearing assets that are not directly a means of payment. As people earn income, they ad to their wealth. As they spend, they deplete their wealth. How should people divide their wealth at any instant between money and bonds to gain the best profits possible and not to incur losses?

There is an obvious cost of holding money. The opportunity cost of holding money is the interest one would have gained if he (she) had held bonds. It naturally follows that people will hold money rather than bonds only if there is a benefit to offset this cost, only if holding money is more profitable than holding bonds. It may happen only when interest rates on bonds are too low to make it profitable to hold bonds.

Suppose the money market is in equilibrium when the interest rate on interest-bearing assets (e.g. Treasury bills and other securities) is 6% and the amount of money demanded is $200 mm. Now suppose the interest rate goes down, say, to 4%. In this case interest-bearing assets are no longer profitable as they can't earn a sufficient return. Hence the demand for money will rise and will lead to a temporary lack of money in the money market. If they lack money, households and businesses are likely to sell bonds they possess for cash. That will cause an increase in the bond supply, which lowers bond prices and rises interest rates on interest-bearing assets. With a higher interest rate the amount of money people are willing to have in hand will decrease again. Consequently, the money supply will adjust to a current demand to reflect a new higher interest rate.

Conversely, the increase in the money supply creates its temporary surplus, which results in the demand for bonds and bond prices going up. The interest rate falls thus restoring balance in the money market, but at a new lower interest rate.

VOCABULARY NOTES

equities (syn. ordinary shares, equity shares, ordinary stocks) – обыкно­венные акции

to deplete – истощать, исчерпывать obvious – очевидный

to offset – возмещать

Treasury bills – казначейские векселя

consequently – следовательно, поэтому

conversely – наоборот

temporary surplus – временный избыток, излишек

Assignments

I. Suggest the Russian equivalents

interest-bearing assets are no longer profitable; to sell bonds they possess for cash; the supply will adjust to the current demand; we use to stand for all other interest-bearing assets; thus restoring balance

II. Replace the parts in italics by synonyms

to offset this cost

III. Fill in the gaps with the -words and expressions from the text

1. The money market comprises __ and __.

2. The equilibrium in the money market is such __ when the demand for money from __ is satisfied by the quantity of __.

3. The equilibrium in the money market is reached by __.

4. Money is the medium of __ that __.

5. We use bonds to stand for all other __ that are not directly __.

6. As people cam income, they __ their wealth. As they spend, they __ their wealth.

7. __ of holding money is the interest one __ if he (she) __ bonds.

8. People will hold money rather than bonds only if holding money is __ than holding bonds, that is when __ on bonds are __ to make it profitable to

9. In case the interest rate goes down __ are no longer profitable as they can't __.

10. The demand for money will rise and will lead to __ in the money market.

11. If they lack money, households and businesses are likely to __ they possess __.

12. If there is an increase in the bond supply, it will __ bond prices and __ interest rates on __.

13. The money supply will __ to a current demand to __ a new higher interest rate.

14. The increase in the money supply creates its __, which results in __.

IV. Find in the text English equivalents for the following

равновесие денежного рынка; временная нехватка (избыток) денег;

иметь на руках; быть в равновесии; восстанавливать равновесие; достичь равновесия; активы (облигации), приносящие процентный доход; увели­чивать богатство; исчерпывать (истощать) богатство; для простоты допус­тим, что...; альтернативные издержки владения деньгами; компенсиро­вать издержки

V. Answer the questions

1. Explain in your own words the term "opportunity costs". What is the opportunity cost of holding money?

2. What's the equilibrium in the money market? How can it be reached?

3. How does the money market work?

VI. Translate into English using all the active possible

1. Для экономики плох как недостаток, так и избыток денег, так как первый ведет к снижению расходов во врем|я упадка, а последний – к обесценению денег и снижению их покупательной способности во время инфляции.

2. Денежный рынок объединяет спрос и предложение денег для опре­деления равновесной ставки процента.

3. Равновесие денежного рынка устанавливается посредством изменения цен на облигации. С изменением цен на облигации процентные ставки ме­няются в обратном направлении. При равновесной ставке процента цены на облигации постоянны, а спрос и предложение денег равны.

4. Уменьшение предложения создает временную нехватку денег на де­нежном рынке. Люди и учреждения пытаются получить больше денег путем продажи облигаций. Поэтому предложение облигаций увеличива­ется, что понижает цену на облигации и поднимает процентную ставку.

5. Увеличение предложения денег создает временный их избыток, в результате чего увеличивается спрос на облигации и цена на них стано­вится выше. Процентная ставка падает, и на денежном рынке восстанав­ливается равновесие.

MARKETS AND INTEREST RATES (РЫНКИ И НОРМА ПРОЦЕНТА)

For each type of investment and for many of their derivatives there is a market. There is a market in money in London. It is not a physical marketplace: dealings take place over the telephone, and the price a borrower pays for the use of money is the interest rate. There are markets in commodities. And there is a market in government bonds and company shares:

the stockmarket. The important thing is that no market is entirely independent of the others. The linking factor is the cost of money (or the return an investor can get on money). If interest rates rise or fall there is likely to be a ripple of movement through all the financial markets. Money will gravitate to where it earns the best return, commensurate with the risk the investor is prepared to take and the length of time for which he can tie up his money. This is the most important mechanism in the financial sphere. As a general rule:

* The more money you have to invest, the higher the return you can expect.

* The longer you are prepared to tie your money up, the higher the return you can expect.

* The more risk you are prepared to take, the higher the return you can expect if all goes well.

In either type of market, the buyers and the sellers may deal direct with each other or they may deal through a middleman known as a marketmaker. If they deal direct, each would-be buyer has to find a corresponding would-be seller. If there is a marketmaker, a seller will sell instead to the marketmaker, who buys on his own account in the hope that he will later be able to find a buyer to whom he can sell at a profit. Marketmakers make a book in shares or bonds. They are prepared to buy shares in the hope of finding somebody to sell to or sell shares (which they may not even have) in the expectation of finding somebody from whom they can buy to balance their books. Either way, they make their living on the difference between the prices at which they buy and sell. Marketmakers (in practice there will normally be a number of them competing with each other) lend liquidity – fluidity – to a market. A potential buyer can always buy without needing to wait until he can find a potential seller, securities can readily be turned into cash.

VOCABULARY NOTES derivatives – производные the linking factor – связующий фактор, звено a ripple of movement through all the financial markets – движение, волне­ние на всех финансовых рынках to gravitate – стремиться commensurate with – соразмерный to tie up – вкладывать (капитал) a middleman – посредник a marketmaker – "делатель рынка"; брокерская фирма, постоянно ко­тирующая ценные бумаги, товар

on one's own account – на свой страх и риск; самостоятельно fluidity – подвижность

Assignments

I. Suggest the Russian equivalents

the other side of the same coin; a ripple of movement; he can sell at a profit; they make a book in shares and bonds; buy to balance their books

II. Replace the parts in italics by synonyms

money will move to where it earns the best return; investor can tie up his money; who buys on his own account.

III. Fill in the gaps with the words and expressions/row the text

1. A market in money in London is not __: dealings take place __, and the price a borrower pays for __ is __.

2. __ is a market in government bonds and company shares.

3. If interest rates rise or fall there is likely to be __ through all the financial markets.

4. Money __ to where it earns the best return, __ with the risk the investor __ and the length of time for which he can __ his money.

5. The more money you __, the higher the return you __.

6. The longer you are prepared to __, the higher the return __.

7. The more risk you __, the higher __.

8. If the buyers and the sellers deal direct, each __ has to find a corresponding __.

9. A marketmaker buys __ in the hope that he will later be able to find a buyer to whom he can __.

10. Marketmakers are prepared to buy shares __ of finding somebody to sell to or sell shares __ of finding somebody from whom they can buy to __.

11. Marketmakers make their living on __ at which they buy and sell.

12. Marketmakers lend __ to a market.

IV. Find in the text English equivalents for the following

рынок товаров; рынок акций; лежать в основе; перемещаться; вло­жить деньги; наибольшая прибыль, соизмеримая (соразмерная) с риском;

посредник, известный как "создатель рынка"; потенциальный (2 вариан­та) покупатель и продавец; на свой страх и риск; в надежде (2 варианта)

V. Check your grammar

the + comparative... the + comparative

e.g. the sooner the better

Make sentences using this construction, like this:

much money to invest – a high return

The more money you have to invest, the higher the return you can expect.

1. to produce goods and services — to enjoy a high standard of living

2. a high standard of living – a lot of expenditure on luxury items

3. wide advertising — high sales

4. high prices for some goods – low sales

5. a great demand – high prices – much profit

6. injections into the economy — the size of the circular flow of income and the level of the activity in the economy increase

7. the severe inflation – the rise in the general price level – the fall in the purchasing power

Add some more sentences of your own on inflation, the money supply and the demand for money, the money market etc.

VI. Answer the questions

1. What are different types of investment and what are the corresponding markets? Dwell on each item.

2. What is a marketmaker? How does he make the market?

VII. Translate into English using all the active possible

1. Вкладывая деньги в различные банки и инвестируя их в различные фонды, инвестор всегда преследует цель получить наибольшую прибыль, соизмеримую с риском.

2. Фондовая биржа – это посредник между потенциальными покупа­телями и продавцами государственных облигаций, акций компаний и других ценных бумаг.

3. В основе любого рынка, в т.ч. рынка ценных бумаг, лежит принцип равновесия между теми, кто хочет продать, и теми, кто хочет купить акции.

PRIMARY AND SECONDARY MARKETS (ПЕРВИЧНЫЙ И ВТОРИЧНЫЙ РЫНКИ)

Fixed-interest securities and ordinary shares are the main stock-in-trade of the securities markets and the Stock Exchange is the main securities market in the UK (and the New York Stock Exchange is the largest in the USA). By buying one or the other, investors arc helping – directly or indirectly – to provide the finance that government or industry needs. Why "directly or indirectly"? Because the stockmarket is two markets in one: a primary market and a secondary market.

A primary market is one in which the government, companies or other bodies can sell new securities to investors to raise cash.

A secondary market is a market in which the investors can buy and sell these securities among each other. The buying and the selling in the secondary market does not directly affect the finances of government and companies. But if investors did not know they could buy and sell securities in the secondary market they might well be reluctant to put up cash for the government or companies by buying securities in the primary market when they were first issued. And the prices established by the buying and selling by investors in the secondary market help to determine the price that government and companies will have to pay next time they need to issue further securities for cash in the primary market. A reasonably liquid secondary market is normally considered vital for a healthy primary market.

VOCABULARY NOTES

stock-in-trade – товарная наличность; товар

the Stock Exchange – Лондонская фондовая биржа

to be reluctant to do smth – неохотно делать что-либо

Assignments

I. Suggest the Russian equivalents

sell securities to raise cash; might be reluctant to put up cash for the government; to issue further securities for cash

II. Replace the parts in italics by synonyms

might be reluctant to put up cash for the government; directly affect the finances; are helping to provide the finance; is considered vital

III. Fill in the gaps with the words and expressions from the text

1. By buying __ and __ investors are helping to __ that government or industry needs.

2. The stockmarket is two markets in one: a __ market and __ market.

3. A primary market is a market in which the government, companies or other bodies can sell __ to investors to __.

4. A secondary market is a market in which __ can buy and sell these securities __.

5. If investors did not know they could trade securities in __ they might __ to put up cash for the government or companies by buying securities __ when they were __.

6. The prices established by investors in the secondary market help to __ the price that government and companies will have to pay next time they need to __ further securities __ in __.

7. A __ secondary market is normally considered __ for a __.

IV. Find in the text English equivalents for the following рынок ценных бумаг; фондовая биржа; первичный рынок; вторичный рынок

V. Answer the questions

1. What is a primary market?

2. What is a secondary market?

3. How are they interconnected?

VI. Translate into English using all the active possible

Все рынки взаимосвязаны: процентные ставки влияют на цены об­лигаций и акций на фондовом рынке; цены акций и облигаций влияют на состояние финансов компаний и правительства, что меняет ситуацию на денежном рынке. Это, в свою очередь, имеет огромное значение для состояния экономики в целом и поднимает или понижает стоимость на­циональной валюты на внешнем валютном рынке (the foreign exchange market).

MONETARY POLICY (КРЕДИТНО-ДЕНЕЖНАЯ ПОЛИТИКА)

Monetary policy is one of the main instruments of macroeconomics. It is based on the ability of the Central bank to control the money supply, which leads to changes in interest rates and the exchange rate, and therefore in the amount of investment, which influences directly the national output. This method of controlling the economy centres on adjusting the amount of money in circulation in the economy and so the level of spending and economic activity. Monetary policy was first employed as a means of control in the 1950s, but has been more widely used since the 1970s. The Central Bank plays a major role in the implementation of a nation's monetary policy. In some countries (for example, Germany) the Central Bank operates monetary policy independent of government policy. However, the UK's Central Bank, the Bank of England, implements monetary policy on behalf of the government. Monetary policy has three main aspects:

· Controlling the money supply

· Controlling interest rates

· Managing the exchange rate

In this section we study the ways in which a central bank can control the supply of money in the economy. The aim of the authorities when controlling the money supply is to limit the amount borrowed, and hence spent, by businesses and individuals during a inflationary period. It is hoped in this way to limit the level of overall demand in the economy and thus to remove or reduce inflationary pressure. During a recession monetary policy is aimed at increasing the money supply to encourage spendings. We now describe the three most important instruments available to affect the money supply: open market operations, reserve requirements and the discount rate.