Money and its functions. How the Banks Operate

immediate - безпосередній

medium - засіб

deferred payment - відкладений платіж

value - вартість, цінність

maintain - підтримувати, зберігати

to honour - акцептувати

tо emerge - з'являтися

liquidity -ліквідність

assets - активи

to be portable - тут: легко переносити

to be durable - тут: довго використовуватися

money supply - грошова маса

store of value - запас вартості

paper money - паперові гроші

legal tender - законний платіжний засіб

substitute - заміна

purchasing power - купівельна спроможність

circulation - обертання

rapidity - швидкість

to allocate - розміщувати

to issue - тут: друкувати

current account - поточний рахунок

deposit account - депозитний рахунок

interest - процентний прибуток

loan – позика

Money is a medium of exchange that is generally acceptable by all persons within the immediate community. In addition to serving as a medium of exchange, money serves as: a store of value (your savings). This means goods or services can be converted into money that is easily stored until some future time. a unit of account (your means of comparing prices of goods and services) a standard of deferred payment (your claim on goods and services that can be exercised now or in the future).

All values in the economic system are measured in terms of money. There is additionally a wider sense of the word "money" covering anything which is used as a means of exchange, whatever form it may take.

Historically a great variety of commodities has served at one time or another as a medium of exchange: cattle, tobacco, leather, furs, olive oil, beer or spirits, slaves or wives, copper, iron, gold, silver, rings, diamonds, etc.. But most societies have tended to choose substances that are relatively durable, easy to divide and easy to carry.

Thus a valuable metal (gold, silver or copper) served as a constant store of value, and even today the American dollar is technically "backed" by the store of gold which the US government maintains. Because gold has been universally regarded as a very valuable metal, national currencies were for many years judged in terms of the so-called "gold standard". Nowadays, however, national currencies are considered to be as strong as the national economic which support them.

Different forms of money are in use in Ukraine today. The most familiar are coin and currency. The term coin refers to metallic forms of money. Coins are adequate for small transactions, while paper notes are used for general business. The term currency refers to paper money issued by Government. While money has changed in shape, kind or size over the years, modern money still shares many of the same characteristics of primitive money. Money is very portable when people carry chequebooks. For example, they really are carrying very large sums of money since checks can be written in almost any amount.

The idea of checking originated in the Middle Ages, when gold was the only widely accepted form of currency. Because travelling merchants found gold bulky and dangerous to carry, banks emerged to provide the service of issuing document that would be honoured abroad against a gold deposit that would remain at home.

Coins and notes are issued by governments and authorized banks, and are known as "legal tender". Other arrangements such as cheques and money orders are not legal tender. They perform the function of substitute money and are known as "instruments of credit". Credit is offered only when creditors believe that they have a good chance of obtaining legal tender when they present such instruments at a bank or other authorized institutions. if aman's assets are known to be considerable, then his credit will be good. If his assets are in doubt, then it may be difficult for him to obtain large of sums of credit or even to pay for goods with cheque.

Modern money is very durable. Metallic coins last a long time under normal use and generally don't go out of circulation unless they are lost. Paper currency also is reasonably durable. Modern money, however, isn't as stable in value.

The value of money is basically its value as a medium of exchange, or, as economists put it, its "purchasing power". This purchasing power is dependent on supply and demand. The demand for money is reckonable as the quantity needed to effect business transactions. An increase in business requires an increase in the amount of money coming into general circulation. But the demand for money is related not only to the quantity of business but also to the rapidity with which the business is done. The supply of money, on the other hand, is the actual amount in notes and coins available, its value decreased, and it doesn't buy as much as it did, say, five years earlier. This conditions known as "inflation".

Banks are closely concerned with the flow of money into and out of the economy. They often cooperate with governments in efforts to stabilize economies and to prevent inflation. The first objective of any central bank is to safeguard the value of the currency, in terms of what it will purchase at home and in terms of other currencies. They are specialists in the business of providing capital and in allocating funds on credit.

Banks normally receive money from their customers in two forms: on current account, and on deposit account. With a current account a customer can issue personal cheques. No interest is paid by the bank on this type of account. With a deposit account, however, the customer undertakes to leave his money in the bank for a minimum specified period of time. Interest is paid on this money. The bank in its turn lends the deposited money to customers who need capital. This activity earns interest for the bank, and this interest is almost at a higher rate than any interest which the bank pays to its depositors. In this way the bank makes its main profit.

The bank is a reservoir of loanable money, with streams of money flowing in and out. For this reason economists and financiers often talk of money being "liquid", or of the "liquidity" of money. It can be converted into other forms of wealth relatively quickly.

The system of banking rests upon a basis of trust. Consequently, business can be done and cheques can be written without any legal tender visibly changing hands.

QUESTIONS AND TASKS

1. Does a cup of coffee or a bottle of soft drink cost more to purchase today than it did ten years ago? Have your buying habits changed in recent years because of price changes? In what specific ways?

2. Before money was invented, people "bought" what they needed by trading their services or possessions: in some primitive societies the barter system still prevails. Why is barter inconvenient and impractical in modern, industrial society?

3. Most of us have a limited money supply. What do you suggest that we do to use it wisely?

4. Many people believe that some of the best returns come from the money you spend get yourself knowledge. Do you agree?

5. Money is an artificial, social convention. Will it survive in the future?

6. Discuss the two sayings: "Money is the root of all evil" and "Money makes the world go round". Do you agree? What examples can you think of to prove or disapprove them?