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MONEY AND ITS FUNCTIONS

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Key Words and Phrases:

 

conventional usage Ò звичайне, загальноприйняте вживання
coin Ò монета
invention Ò винахід
paper bill Ò паперова банкнота
checking account Ò чековий рахунок
payee Ò одержувач грошей, платежу
savings account Ò ощадний рахунок
money substitute Ò замінник грошей
to consume Ò споживати
unit of account Ò одиниця розрахунку
to measure Ò вимірювати
store of value Ò засіб заощадження
to eliminate Ò усувати
to designate Ò визначати, встановлювати
divisible Ò подільний
to deteriorate Ò псуватися
to appraise Ò оцінювати
repository Ò сховище
purchasing power Ò купівельна спроможність
to facilitate Ò полегшувати
to promote Ò сприяти
to ascertain Ò встановлювати; з'ясовувати
interest rate Ò відсоткова ставка
to store Ò зберігати
common denominator Ò тут: загальний еквівалент вартості
transaction costs Ò трансакційні витрати

 

Money is one of the most important inventions of mankind. It has been different things at different times: cattle, whale's teeth, stones and shells, gold and silver. Today the most commonly used objects are metal coins and paper bills. Economists’ use of the word money differs from conventional usage. Money(or money supply) is anything that is generally accepted in payment for goods or services or in the repayment of debts.

When most people talk about money, they're talking about currency.Currency is money which is used in a particular country.Cashis a form of money that consists of paper currency and coins. But money is not always in the form of cash. It is in the form of deposits, which is money held in checking and savings accounts. Instead of cash people often use checksto pay their bills. A check is a piece of paper that orders a bank to give the payee a specific amount of money. Checks, creditanddebit cards perform the function of money substitutes. They give people a possibility to buy goods or services without using cash.

The development of computer technology means also a new stage of an evolution of the payments system. Nowadayselectronic money (also known ase-money)appears. E-money is money that is stored electronically. Electronic cash, or e-cash, is a form of electronic money that can be used on the Internet to purchase goods or services.

Money facilitates trade and commerce. It performs three functions. Money serves as:

Ø a medium of exchange;

Ø a unit of account;

Ø a store of value.

Money as a medium of exchange is the most important function of money. In a modern economic system, money enters almost all market transactions. Money promotes economic efficiency by eliminating much of the time spent exchanging goods and services. It also promotes efficiency by allowing people to specialize in what they do best.

The need for money is so strong that almost every society beyond the most primitive invents it. For a commodityto function effectively as money, it has to meet several criteria: (1) it must be easily standardized, making it simple to ascertain its value; (2) it must be widely accepted; (3) it must be divisible so that it is easy to “make change”; (4) it must be easy to carry; and (5) it must not deteriorate quickly.

The second role of money is to provide aunit of account; that is, it is used to measure value in the economy. We measure the value of goods and services in terms of money, just as we measure weight in terms of pounds or distance in terms of miles.

The value of a good or service is that for which it can be exchanged in the market. When the money prices of a number of common objects are known, it is easy to appraise the relative price of any item just from its money price. Money serves as the common denominator in which the values of all goods and services are expressed.

Money also functions as astore of value; it is a repository of purchasing power over time. A store of value is used to save purchasing power from the time income is received until the time it is spent. This function of money is useful because most of us do not want to spend our income immediately.

Money is not unique as a store of value; any asset, be it money, stocks, bonds, land, houses, art, or jewelry, can be used to store wealth,the total collection of pieces of property. Many assets have advantages over money as a store of value. They often pay the owner a higher interest rate than money and deliver services such as providing a roof over one's head. But why do people use money?



The answer to this question relates to the important economic concept of liquidity, the relative ease and speed with which an asset can be converted into a medium of exchange. Money is the most liquid asset of all because it is the medium of exchange; it does not have to be converted into anything else in order to make purchases. Other assets involve transaction costs when they are converted into money.

Politicians and policymakers throughout the world care about the conduct of monetary policy, the management of money and interest rates.

 

NOTE:

Transaction costs:The time and money spent in carrying out financial transactions.

QUESTIONS:

1. What is money?

2. What is currency?

3. What is cash?

4. What is e - money?

5. What functions does money perform?

6. Why does money eliminate the need for intermediate exchanges?

7. What criteria should a commodity have to meet to function as money?

8. What is a store of value used for?

9. What is wealth?

10. Why is money not unique as a store of value?

11. What is liquidity?

12. Why is money the most liquid asset?

13. What is monetary policy?

 

EXERCISES:

 

I. Give the Ukrainian equivalents of the following words and phrases:

 

money substitutes; bank account; repayment of debts; to pay bills; development of computer technology; a medium of exchange; to perform; to earn income; means of payment; commodity; to measure the value; a repository; divisible; to store wealth; to deteriorate; the most liquid asset; transaction costs;monetary policy; repayment of debts; to designate; purchasing power; paper currency and coins; checking and savings accounts; payments system; to eliminate; to ascertain; value to make purchases; to meet several criteria.

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II. Give the English equivalents of the following words and phrases:

 

сприяти; засіб обміну; засіб заощадження; засіб платежу; отримувати дохід; відповідати декільком критеріям; усувати; вирішувати проблему; витрачати; відносна ціна; вартість; готівка; дохід; замінники грошей; одиниця розрахунку; електронна готівка; паперова банкнота; трансакційні витрати; одержувач грошей, платежу; купівельна спроможність; найбільш ліквідний актив; встановити вартість; платіжна система; сплата, погашення боргів.

III. Use the appropriate term or terms from the text to complete each of the following statements:

1. Money facilitates _____ and _____ .

2. _____ is money which is used in a particular _____.

3. Nowadays _____ _____ appears.

4. Money _____ people to earn higher incomes.

5. In modern economic system, _____ enters almost all market

transactions.

6. Money promotes economic _____.

7. Money serves as the common _____ in which the values of all goods and services are expressed.

8. Money is a _____ of exchange.

9. _____ is not unique as a store of value.

10. _____ is the relative ease and speed with which an asset can be converted into a medium of exchange.

11. Politicians and policymakers throughout the world care about the conduct of _____ _____.

 


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