12 Banks

People who work usually have a bank account.. If money is kept in a bank savings account, it will earn interest. What other services do banks offer?

The other main service is lending money. Individuals and businesses often need to borrow money and they need a lender they can trust. This is exactly what banks are – reliable lenders.

Apart from storing and lending money, banks offer other financial services. They give customers cheque books and credit cards to use instead of cash. They provide ATM (automatic teller machines) so that people can get cash any time of the day or night.

But how do banks make a living? Basically, they make a living by charging interest on loans. Of course, when you make a deposit into a bank savings account, the bank pays you interest on that money. However, the rate which banks pay savers is less than the rate which they charge from borrowers. The extra money they make by charging interest on loans is where banks earn most of their money.

All banks keep a reserve of money. The reserve must be a certain percentage of all the savings received from customers – for example 20 per cent. This figure is set by the central bank, and this is one of the ways that governments can control the amount of money circulating in the economy. (1049)

13 The Stock Exchange

If you are a shareholder and you want to get back the money you have put into a company, you must sell your shares at the Stock Exchange. The Stock Exchange is a place where shares are bought and sold.

The price of shares is controlled by the amount of people willing to pay for them.

If the company is making a profit, other people may want to buy shares in it, so you may be able to sell the shares at a higher price than you paid for them. If you bought 100 shares at $1.00 each and you sold them later at $1.50 each, you would make $50 profit on the 100 shares, as well as keeping any dividend paid during the period when you owned the shares.

But if business is not going well, other people may not be willing to pay $1.00 a share. If they think that the company may have profit in the end, they might pay 80 cents a share. If the business is really failing no one will buy the shares at all and you risk losing all your money.

The first Stock Exchange was established in 1773 in London. It was the biggest in the world until 1914. Now it is the third to Tokyo and New York. The building dates from 1969.

(900)

14 Unemployment

We say that unemployment exists where people capable and willing to work are unable to find suitable paid employment. But where an economy is adapting to changing conditions, there will always be some persons unemployed as they change jobs or as seasonal work comes to an end.

Unemployment may occur for many different reasons. There will always be some people changing jobs. In certain occupations, e.g. unskilled labour in the construction industry, workers are not employed regularly by one employer. When a contract is completed labour is not required. Sometimes workers are discharged when a factory is reorganized.

Unemployed workers usually register at the local exchange from which employers can hire them. The unemployed are paid certain benefits.

Employment in some industries, e.g. building, fruit-picking is seasonal in character. Seasonal employment can be reduced to one “season” and employ such people as students and housewives during the busy period. Sometimes there are unemployed workers of a particular occupation in one part of the country but a shortage of the same type of work in other parts. Thus today there is a surplus of unskilled and manual labourers in the north of England, whereas firms in the London area have vacancies unfilled. Two main reasons can be suggested for this type of unemployment – ignorance of opportunities and immobility of labour.

Workers may be in “between jobs”. Some of them are looking for better jobs, others are seeking better salaries. Young people try to find their first jobs. This is called frictional unemployment. This type is usually short-term and is considered as inevitable.

Unemployment may also be caused by important changes in the structure of consumer demand and in technology. As a result some workers find that their skills and experience are unwanted by these changes. This type of employment is more long-term and considered as more serious. It is known as structural unemployment.

The full employment or natural rate of unemployment ranges between 5 and 6 per cent.

(1700)