Unit V. 1. Money and Financial Institutions

2. Grammar Revision. Conditional Clauses.

Ex.1 Read and translate the text paying particular attention to the words in italics. Consult a special dictionary if necessary.

Money and Free Market Economy.

Money can be anything that is generally accepted in payment for goods or services. It provides a medium of exchange, a measure of value, and a store of value. Principal forms of money are currency, demand deposits (checking accounts), and other checkable deposits.

Financial institutions such as commercial banks, savings and loan associations, and savings banks (thrifts) are essential to the smooth operation of a market economy system. The demand deposits and other checkable deposits they hold make up the largest part of the money supply. These institutions also provide a safe place for the deposit of funds and serve as a source of loans and other financial services.

Because loans are typically added to demand deposits, one can say that the lending ability of banks serves to “create money”. How much money commercial banks create is limited by the required reserve ratio, which determines the amount of money that a bank can lend at any particular time.

The Federal Reserve System is nation’s central bank. It provides banking services for financial institutions and supervises their activities. It also acts as a bank for the federal government.

The “value of money” is really its purchasing power – the amount of goods and services it can buy. The purchasing power of money can increase, as it does during periods of deflation, and it can decrease, as it does during periods of inflation. The causes of inflation are generally described as either demand-pull or cost-push. Demand –pull inflation is brought on by an excess of purchasing power that serves to drive up prices (“too much money chasing too few goods”). Cost-push inflation is brought about by rising production costs. Although certain groups within the economy as a whole are likely to suffer.

Ex.2. Agree or disagree to the following:

1. To operate successfully a market economy should have financial institutions.

2. Banks are established to accumulate money.

3. The Federal Reserve Bank is one of the well-known banks of America.

4. Inflation is caused by a great purchasing power of customers.

Ex.3. Answer the questions.

1.Which principal forms of money do you know?

2.What kind of service do financial institutions provide?

3.Are the activities of commercial banks limited somehow or other?

4.Why are the periods of deflation followed by inflation periods?

Ex.4. Using a special dictionary study the following words and combinations of them. Translate them into Russian.

Currency, current.

Convertible currency, hard currency, soft currency, pegged currency, elastic currency, ration currency, current affairs, current demands, inflation of currency.

Inflation, to inflate, inflationary, inflator, deflation.

To curb inflation, anticipated inflation, creeping inflation, demand-push inflation, galloping inflation, latent inflation, tax-push inflation, inflation-adjusted, wage-push inflation, galloping inflation, inflated prices.

To save, saving.

Saving in inventory, to encourage saving, cost saving, savings bonds, saving banks, tax saving, expenditure saving, to save expenses.

To supervise, supervision, supervisor, supervisory.

Technical supervision, under general supervision, safety supervisor, traffic and transportation supervisor, a supervisory body, government insurance supervision.