The medium of exchange

Money, the medium of exchange, is used in one half of almost all exchange. Workers exchange labour services for money. People buy and sell goods in exchange for money. We accept money not to consume it directly but because it can subsequently be used to buy things we do wish to consume. Money is the medium through which people exchange goods and services.

To see that society benefits from medium of exchange, imagine a barter economy. A barter economy has no medium of exchange. Goods are traded directly or swapped for other goods. In barter economy, the seller and the buyer each must want something the other has to offer.

Other functions of money

Money can also serve as a standard of value. Society considers it convenient to use a monetary unit to determine relative costs of different goods and services. In this function money appears as the unit of account, as the unit in which prices are quoted and accounts are kept.

In Russia prices are quoted in rubles; in Britain in pounds sterling; in the USA, in US dollars. It is usually convenient to use the units in which the medium of exchange is measured as the unit of account as well. However there are exceptions.

During the rapid German inflation of 1922-1923 when prices in marks were changing very quickly, German shopkeepers found it more convenient to use dollars as the unit of account. Prices were quoted in dollars even though payment was made in marks, the German medium of exchange. The situation in Russia nowadays reminds of that of in Germany.

Money is a store of value because it can be used to make purchases in the future. To be accepted in exchange, money has to be a store of value. Nobody would accept money as payment for goods supplied today if the money was going to be worthless when they tried to buy goods with it tomorrow. But money is neither the only nor necessarily the best store of value. Since money pays no interest and its real purchasing power is eroded by inflation, there are almost certainly better ways to store value.

Finally, money serves as a standard of deferred payment or a unit of account over time. When you borrow, the amount to be repaid next year is measured in pounds sterling or in some other hard currency. Although convenient, this is not an essential function pf money.

Different kinds of money

In prisoner-of-war camps, cigarettes served money. In the 19^th century money was mainly gold and silver coins. These are examples of commodity money, ordinary goods with industrial uses (gold) and consumption uses (cigarettes), which also serve as a medium of exchange.

A token money is a means of payment whose value or purchasing power as money greatly exceeds its cost of production or value in uses other than as money.

An IOU money is a medium of exchange based on the debt of private firm or individual. A bank deposit is IOU money because it is a debt of the bank.

Найдите в тексте английские эквиваленты.

Основная черта; средство платежа; средство обращения; мера стоимости; средство сбережения; единица учета; средство погашения долга; обмениваться товарами и услугами; платить %; бартерная экономика; деньги-товар; денежные знаки; вклад в банке; долговое обязательство; покупательная способность.

Дайте толкование выражений на английском языке:

deferred payment

medium of exchange

IOU

Ответьте на вопросы.

1. What is the crucial feature of money?

2. What are other functions of money?

3. What are different kinds of money?

4. What is barter economy?

5. What currency can be used as the unit of account?

6. What is the current situation in Russia today?

7. What does IOU stand for?

Переведите на английский язык.

Существует несколько функций денег. Во-первых и прежде всего, деньги являются средством платежа, или обращения; деньги можно использовать при покупке и продаже товаров и услуг. Деньги выступают также мерой стоимости. Общество считает удобным использовать денежную единицу в качестве масштаба для соизмерения относительных стоимостей различных благ и ресурсов.

Деньги служат средством сбережения. Поскольку деньги являются наиболее ликвидным товаром, то есть таким, который можно без проблем обменять (продать), то они являются очень удобной формой хранения богатства. Это, однако, не единственная форма хранения богатства. Во время упадка в экономике, при высокой инфляции и обесценении денег, население, скорее всего, будет хранить богатство в виде недвижимости и других дорогостоящих товаров – предметах искусства, драгоценностях.

Деньги, которые, в сущности, являются долговыми обязательствами государства, коммерческих банков и сберегательных учреждений, имеют стоимость благодаря товарам и услугам, которые приобретаются за них на рынке.

UNIT 17

THE MONEY MARKET

Active vocabulary

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

Text 1

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 and 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 mln. 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.

Переведите на русский язык.

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

Заполните пропуски словами и выражениями из текста.

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 earn 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 ____.

Переведите выражения на английский язык.

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.

Ответьте на вопросы.

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?

Переведите на английский язык.

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

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

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.

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

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.