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Finally, money serves as a standard of deferred payment or a unit of account over time. A standard of deferred payment is the accepted way (in a given market) to settle a debt, it’s a unit in which debts are denominated.

EXERCISES

Ex. 1. Pronounce the international words correctly.

Ex. 2. Mind the use of the verbs lend, borrow, owe.

1)If you borrow money, somebody gives you it on a temporary basis:

He is always borrowing money but he usually pays it back quite quickly.

2)Lend is the opposite of borrow. It is an irregular verb:

Could you lend me some money? The bank has lent us $5000.

3)Owe means to have debts; to need to pay or give something to someone because they have lent money to you, or in exchange for something they have done for you.

I owe Janet ten pounds. We still owe $1000 on our car (= We still need to pay $1000 before we own our car). I think you owe (= should give) me an explanation/apology.

Complete the sentences with the correctformof the verbslend, borrow, owe.

1. She … some money from me. 2. The bank … me $12,000. 3. I … five pounds from my brother and forgot to pay it back. 4. We … money from the bank at 8% interest. 5. If you … someone money, you have to give them a particular amount of money because you have bought something from them or have … money from them. 6. Money that you … is called a debt. 7. The word is … from Latin. 8. The bank will … you money at a lower interest if you provide a security.

Ex. 3. Match the Russian word-combinations with their English equivalents.

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Ex. 4. Match the words from A with their synonyms from B.

Ex. 5. The text contains a number of common verb-noun partnerships (e. g. to store money, to make purchases ... ). Match up the verbs and nouns below to make common collocations.

Ex. 6. Complete the table by inserting the missing forms.

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speculative

continuously

Ex. 7. Complete the sentences.

1. Commodity money is… 2. Fiat money is… 3. In modem economies, fiat money is supplemented by… 4. The unit of account is the unit in which… 5. Money is a store of value because… 6. A standard of deferred payment is…

Ex. 8. Review the following statements and mark them true (T) or false (F) Correct the statements which are false.

1. The value of commodity money comes from a commodity out of which it is made. 2. Barter is an efficient medium of exchange. 3. Any item can successfully serve as money. 4. Money is said to be liquid because it is immediately available to spend for goods. 5. Only money can serve as a store of value.

Ex. 9. Answer the questions.

1. What is money? 2. What examples of commodity money are given in the text? 3. What is fiat money? 4. What is fiat money supplemented by in modern economies? 5. In what way does society enforce the use of fiat money? 6. How are goods exchanged in a barter economy? 7. Why is trading expensive in a barter economy? 8. What are the functions of money? What do they imply?

Ex. 10. Give a brief summary of the text.

TEXT B. Supply and Demand for Money

Task: read the text and focus on the following issues: 1) money supply and its forms; 2) types of demand for money.

Money supply or money stock, is the total amount of money available in an economy at a particular point in time. Changes in money supply affect the price level, inflation and the business cycle.

Money supply comes in many forms, including currency, demand deposits, time deposits, and plastic money. The narrowest commonly used measure of money M1 consists of currency (bills, coins, money orders and traveler’s checks) and current accounts or checking accounts. Money measure M2 is sometimes called broad money because it includes various not-quite-money monies such as savings accounts. М2 can be presented as M1 + savings accounts + money market accounts. M3 equals to M2 plus large time deposits of $100 000 or more.

When the money supply increases, people have more money to spend, and demand for goods and services increases.

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The demand for money is the desired holding of money balances in the form of cash or bank deposits. Why do people hold (demand) currency and checkable deposits (M1), rather than putting their money to work in stocks, bonds, real estate, or other non-money forms of wealth? John Maynard Keynes, in his 1936 work entitled The General Theory of Employment, Interest, and Money, gave three important motives for doing so: transactions demand, precautionary demand, and speculative demand.

The transactions demand for money is the stock of money people hold to pay everyday predictable expenses. The desire to have ‘walking around money’ to make quick and easy purchases is the principal reason for holding money. Without enough cash, the public must suffer forgone interest.

People have a second motive to hold money, called the precautionary demand for money. The precautionary demand for money is the stock of money held to pay unpredictable expenses. This is the ‘mattress money’ people hold to guard against those proverbial rainy days.

The third motive for holding money is the speculative demand. The speculative demand for money is the stock of money held to take advantage of expected future changes in the price of bonds, stocks, or other non-money financial assets. It is the so called ‘betting money’.

Demand for money is a crucial implication for the optimal way in which a central bank should carry out monetary policy.

Ex. 1. Match the Russian word combinations with their English equivalents.

Ex. 2. Match the kind of demand for money in A with the stock of money people hold in B and the definitions that follow.

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1.The stock of money people hold to pay unpredictable expenses.

2.The stock of money people hold to take advantage of expected future changes in the price of bonds, stocks, or other non-money financial assets.

3.The stock of money people hold to pay everyday predictable expenses.

Ex. 3. Answer the questions.

1. How is money supply defined in the text? 2. What are most commonly used measures of money? 3. Who is responsible for regulating money supply in the economy? 4. What is the demand for money? 5. What are the basic types of demand for money? 6. What is the main reason for having ‘walking around money’? 7. What are the consequences of lacking cash? 8. What do precautionary balances help to avoid? 9. What is the speculative demand for money held for? 10. What happens to the opportunity cost of holding money when the interest rate falls?

TEXT C. Monetary and Fiscal Policies

Task: go through the text and compare the concepts of “monetary and fiscal policies” and their tools.

Monetary policy is a central government policy with respect to the quantity of money in the economy, the rate of interest and the exchange rate. Two basic types of monetary policy are: contractionary (or tight) and expansionary (or easy/free/loose) policies. Expansionary monetary policy is a policy which expands (increases) the supply of money, whereas contractionary monetary policy is the one that contracts (decreases) the supply of a country’s currency.

The main instrument used by a central bank to achieve its goals is the interest rate – also known as the discount rate or base rate. This is the rate at which the central bank is ready to lend to commercial banks.

Another instrument of monetary policy is open market operations, which involve the purchase or sale of government securities by the central bank. The change in the reserves translates into a change in the credit provided to firms and households.

Finally, the central bank also requires the commercial banks to hold a percentage of their deposits as reserves. These are called required reserves, and the percentage is known as the required reserve ratio. It is important to point out that required reserve ratios are very stable – central banks do not like to change them too often.

Monetary policy is an effective tool for influencing the economy in the short run. But the trouble is that it is difficult to predict the length of time poli-

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cies need to take effect. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation.

Policy aimed at changing the level of either government spending or taxes to stimulate or slow down the economy is known as fiscal policy. It was invented by the British economist John Maynard Keynes in the 1930s.

Keynes maintained that governments should use fiscal policy (tax and spending programs) to stabilize the economy. He said the overall level of economic activity depends on effective demand – that is, total spending by individuals, businesses, and government.

Fiscal policy is the manipulation of the government budget deficit or surplus to influence the level of aggregate income (or GDP) in the economy. If aggregate income is too low (actual income is below target income), the appropriate fiscal policy is expansionary fiscal policy: to increase the deficit, or to reduce a surplus, which means the government spends more or takes in less. If aggregate income is too high (actual income is above target income), the appropriate fiscal policy is contractionary fiscal policy: to reduce the deficit, or to increase a surplus, which means the government takes in more intaxes or spends less.

But fiscal policy takes time to come into effect and there is no guarantee that it will work in the desired direction.

The 2008/09 global economic crisis has shaken the foundation of the free market consensus of the past two decades. The current responses of the governments across the globe on the global recession fully recognize the Keynesian view that markets do not have any automatic mechanism to self correct and that government intervention is necessary to revive the economy.

Ex. 1. Match the Russian word combinations with their English equivalents.

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Ex. 2. Answer the questions:

1. How can monetary policy be defined? 2. What are contractionary and expansionary monetary policies? 3. What are the main instruments of monetary policy? 4. Why can’t monetary policy be considered a magic wand (волшебная палочка) with which to manage the economy? 5. Who invented fiscal policy? What kind of policy is it? 6. What are the two basic types of discretionary fiscal policy? How do they differ?7. What do economists blame Keynesianpolicies for?

Ex. 3. Complete the sentences.

1. Fiscal policy is… . 2. Keynes maintained that governments should use fiscal policy to… . 3. According to Keynes the overall level of economic activity depends on… . 4. If aggregate income is too low… . 5. If aggregate income is too high… . 6. Expansionary and contrationary fiscal policies are two basic types of… . 7. A contractionary policy is composed of… . 8. An expansionary fiscal policy means… . 9. Attempts to intervene using fiscal policy can be damaging because they… .

TEXT D. Types of Banks and their Functions

Task: read the text to get the general idea about different types of banks and their activities. Choose the heading for each paragraph.

–Investment Banking

–Interest Rates

–Commercial Banking

–Universal Banking

–Central Banking

–Basic Types of Bank Accounts

–The Role and Classification of Banks

1. A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities. The essential role of a bank is to connect those who have capital (such as investors or depositors), with those who seek capital (such as individuals wanting a loan, or businesses wanting to grow). According

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to their primary functions most common types of banks are central, commercial, investment and universal.

2.A central bank which is also called a reserve bank, or monetary authority is a banking institution granted the exclusive privilege to lend the government its currency. A central bank fulfils a number of key roles in the economy, acting as a bankers’ bank and as a lender of last resort, being responsible for monetary creation, and having overall responsibility for monetary policy. The central bank can use control of interest rates, open market operations and required reserves to influence the monetary base and overall interest rates in the economy.

3.A country’s minimum interest rate is the discount rate, at which the central bank makes secured loans to commercial banks. Banks lend to blue chip borrowers (very safe large companies) at the base rate or the prime rate; all other borrowers pay more, depending on their credit standing (or credit rating, or creditworthiness): the lender’s estimation of their present and future solvency. By influencing the amount of real money in the economy by means of interest rate and other instruments, the central bank is able to influence aggregate demand, which in turn will influence prices.

4.Commercial or retail banks are businesses that trade in money. Commercial banks are also known as business banks and they make a profit by:

–lending to the money market;

–investing in sound shares and securities;

–charging interest payments on overdrawn accounts;

–making loans to businessmen and private individuals, etc.

Commercial banks offer their clients a wide range of services. They receive and hold deposits, pay money according to customers’ instructions, offer investment advice and give advice on overseas matters, exchange foreign currencies, issue travellers’ cheques and so on.

5.The commercial bank provides its customers two basic types of accounts: deposit (BrE) or savings account (AmE) and the current (BRE) or checking account (AmE). The deposit/savings accounts pay interest but can not be used directly as money (for example, by writing a cheque).These accounts let customers keep liquid assets while still earning a monetary return. The current/checking account pays no interest and it provides access to funds on demand through a variety of different channels like check books, plastic cards and others.

6.Investment banks, often called merchant banks in Britain, raise funds for industry on the various financial markets, finance international trade, issue and underwrite securities, deal with takeovers and mergers, and issue government bonds.

7.The most recent trend in banking system has been the advance of universal banks, which attempt to offer their customers the full spectrum of financial

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services under the one roof. Deregulation in the USA and Britain is leading to the creation of ‘financial supermarkets’: conglomerates combining the services previously offered by banks, stockbrokers, insurance companies, and so on.

Ex. 1. Search the text for the English equivalents to the following:

1) последний кредитор критической ситуации; 2) обязательный резерв; 3) сдерживать инфляцию; 4) платежеспособность; 5) погасить долги; 6) учетная процентная ставка; 7) имущество, активы; 8) кредитоспособность; 9) получить заем; 10) предоставлять ссуду.

Ex. 2. Find the information in the text to answer the questions:

1. How will you comment on the fact that bank is an intermediary between a depositor and a borrower? 2. What basic types of banks are mentioned in the text? 3. What are the key roles of the central bank? 4. What is a discount interest rate? 5. How do the commercial banks earn money? 6. What kind of services do commercial banks offer to their clients? 7. What are the main functions of merchant banks in England? 8. In what way did deregulation in America and Europe influence the banking system?

Ex. 3. Review the following statements and mark them true (T) or false (F). Explain why.

1. If the bank lends money to a company, the bank is one of the company’s debtors. 2. If you borrow money from the bank at a variable rate of interest, you might have to pay back more than you think you will. 3. Creditors prefer low interest rates. 4. Debtors prefer high interest rates.

Discussion

A.Answer the questions:

1.What facts from the history of money do you know?

2.Do you think that paper money will be completely replaced by electronic money in future? Why?

3.What is the difference between fiscal and monetary policies?

4.What are the tools of fiscal policy?

5.Who carries out fiscal policy?

6.What is the difference between a credit card and a debit card?

B.Revise the texts of the unit and be ready to speak on the following issues:

–types of money;

–functions of money;

–money supply and its influence on economic scenario;

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–basic motives for the transactions, precautionary and speculative demand for money;

–monetary policy and its types;

–instruments of monetary policy;

–instruments of fiscal policy;

–types of banks and their functions;

–types of the accounts the commercial banks provide.

Project

Work with your partner or in small groups and prepare a presentation on one of the following topics:

1.Interesting facts from the history of money.

2.E-money: its prospectives and dangers.

3.The reasons for the world financial crisis of 2008.

4.Neo-Keynesian policy in the present world.

5.An overdraft agreement: its benefits and dangers.

6.Types of services Belarusian banks offer to their clients. Use any sources available.

Section III. LEXICAL-GRAMMAR TESTS

Grammar material to be revised:

1.Word-formation: Negative Word-building Prefixes.

2.Verb. Tenses in the Active and Passive Voice.

3.Non-finite Forms of the Verb: Infinitive, Gerund, Participle I, II and their Functions.

TEST I

I. Read the text.

From the History of Money

1.Nine thousand years ago, people did not have money. They traded animals and crops for things they wanted. In China, in about 1200 B.C., people traded shells for what they wanted. Chinese people also traded metal tools for the things they wanted. For example, they traded metal knives and shovels for the things they wanted. Later in China, people made metal money. In about 100 B.C., the Chinese made money of animal skin. The first paper money was made from white colored deer skin. It came from China about 900 years later.

2.In about 700 B.C., people made the first round metal coins. The coins were made of gold and silver. They looked very similar to the coins we use to-

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