11. Write a short summary of the text "Financial Institutions".

_______________________________Unit 11______________________________________

1. Answer the questions:

1. What is a market?

2. What types of markets do you know?

3. What do you know about money markets?

2. Train the following words and phrases before you read the text “Money Market”

equities (syn. ordinary shares, equity shares, ordinary stocks) - звичайні акції

to offset – відшкодовувати

obvious - очевидний

to deplete - виснажувати, вичерпувати

to incur – наражатися

opportunity costs -1) найвищий дохід по альтернативному виду інвестицій;

2) альтернативні видатки володіння грошима

Treasury bills - казначейські векселі

conversely – навпаки

temporary surplus - тимчасовий надлишок

3. Read and translate the text: the money market

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 add 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 raises 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.

4. Answer the following questions:

1. What is the equilibrium in the money market? How can it be reached?

1. Explain in your own words the term “opportunity costs”. What is the opportunity cost of holding money?

2. How does the money market work?

5. Suggest Ukrainian equivalents to the following expressions:

• 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

6. Replace the parts in italics by synonyms:

to offset this cost

equities

equilibrium

to go down

to earn income

7. Fill in the gaps with the words and expressions from the text.

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 ____.