MONEY AND BANKING (ДЕНЬГИ И БАНКОВСКОЕ ДЕЛО)

Money and its Funсtions. Деньги, их функции.
Although the crucial feature of money is its acceptance as the means of payment оr medium of exchange, money has other functions. It serves as a standard of-value, a unit of account, a store of value and ft a standard of deferred payment. We discuss each of the functions of money in turn.
The Medium of Exchange. Средство обращения.
Money, the medium of exchange, is used in one-half of almost аЦ exchange. Workers exchange labour services for money. People buy and sell goods in exchange for money. We accept money not to consume it directly but because it can subsequently be used to pay things we do wish to consume. Money is the medium through, which people exchange goods and services.
To see that society benefits from a medium of exchange, imagine ...

Money can also serve as a standard of value. Society considers it convenient to use a monetary unit to determine relative costs of different goods and services. In this function money appears as the unit of account, is the unit in which prices are quoted and accounts are kept.
In Russia prices are quoted in roubles; in Britain, in pounds sterling; in the USA, in US dollars; in France, in French francs. It is usually convenient to use the units in which the medium of exchange is measured as the unit of account as well. However there are exceptions. During the rapid German inflation of 1922 - 1923 when prices in marks were changing very quickly, German shopkeepers found it more convenient to use dollars as the unit of account. Prices were quoted in dollars even though payment was made in marks, the German medium of exchange.
The situation in Russia nowadays reminds of that of in Germany.

over in exchange a good or service that the cinema manager wants. There has to be a double coincidence of wants. You have to find a cinema where the manager wants what you have to offer in exchange

He thought it safe enough.To understand what actually happened in this simple transaction let's consider the following table.Таbl. 6. Goldsmiths as bankersAssetsLiabilities1. Old-fashioned goldsmith 2. Gold lender 3. Deposit lender Step 1 4. Deposit lender Step 2Gold $100Gold $90 + loan 10 Gold $l00 + loan $10 Gold $90+loan $10Deposits $100Deposits $100Deposits $110Deposits $100The first row shows what the goldsmith did before he made this loan- He had a hundred dollars of gold, which he owed to the people who had deposited it with him, so his assets and liabilities were the same. But when he lent, say, $10 of gold to the firm, he actually had only $90 of gold in his vault plus the value of his loan. His assets still equalled his liabilities, but he was going to get some interestIt so happened that the firm, that took out the loan, didn't really want to carry that $10 of gold around, so It asked me goldsmith if, instead of actually taking the gold, it could be given a deposit. The third row of Tabl. 6 shows what happened then. Although the goldsmith's assets and liabilities were the same, but were then worth $110, not $100. When the firm wrote a cheque for $10, and that person came in to collect his $10 worth of gold, the goldsmith's assets failed, but so did his liabilities (the fourth row of the table). The important point to notice here is that it made no difference to the goldsmith whether his initial loan was in actual gold or in a form of a deposit.Now let's turn to the question of reserves. Reserves are the amount of gold that is immediately available in the vault to meet depositors' demands. People originally deposited $100 of gold with the goldsmith. The goldsmith lent $10, leaving himself with $90. As a banker he was relying on the fact that not everyone would want their gold back at the same time. If they had done, be couldn't have paid out. His reserves of $90 were not enough.The goldsmith in the table has a 100% reserve ratio. The reserve ratio is the ratio of reserves to deposits. Once he has made his loan, he has a 90% deposit ratio. This is a small risk with a small profit. How much dare he lend out in order to make a profit through his interest charges? What are the risks involved? Suppose the goldsmith took too much of a risk. He lent 80% of the gold he had. This panicked people. They doubted he could pay them all back, he was bound to lose some of the gold he had lent, so they rushed to get their gold back before it was too late. That was what we would now call a run on the bank, a financial panic. And the financial panic leads to exactly what people fear: the bank cannot pay them, goes bankrupt, and they go bankrupt as well.VOCABULARY NOTESrare - редкийlines - штрафыto measure their value accurately - точно измерить их стоимость (ценность)to divide into a wide range of amounts - разделить на много частей (маленьких или больших)precious metals - драгоценные металлыgold bullion - золотой слитокto deposit with - хранить, вкладыватьa goldsmith - золотых дел мастерworked with gold for jewellery - делал золотые украшенияa guarded vault - охраняемый подвал, хранилищ:to fetch - приносить, доставать to transfer - переводить, передаватьonce these letters or cheques, became acceptable as a way of paying for goods - как только (когда) эти письма, или чеки, стали приниматься при оплате товаровtheir money holdings- деньги, которые им принадлежали, которыми они владелиa bank loan - банковская ссуда, заемa little interest - небольшой процентthe goldsmith was short of gold - у мастера не было достаточно золотаto reckon - полагать, считатьat any rate - во всяком случаеa transaction - сделкаto owe - быть должнымassets and liabilities - активы и пассивыthe vа1uе of his loan - стоимость ссуды, которую он далto equal - равняться, быть равнымthe firm didn't really want to саrry that gold around, so it asked the goldsmith If, instead of actually taking the gold, it could be given a deposit - фирма не хотела держать золото при себе (носить золото с собой) и вместо того, чтобы на самом деле его забрать, попросила мастера принять это золото на хранение в виде вклада(they) were worth $110 - их стоимость составляла, они оценивались (имели ценность) в 110 долларовto write (syn. to draw, to issue, to make out) a cheque - выписать чекhis assets failed - зд. его активы снизилисьto fail - (о банках) обанкротитьсяinitial loan - первоначальная ссудаreserves - резервыthe amount of gold that is immediately available in the vault - запасы (количество) золота, которое всегда находится (и может быть немедленно получено) в хранилище банкаdepositors' demands - требования вкладчиковleaving himself with $90 -оставив себе только 90 долларовto rely on - рассчитывать, надеяться на что-либоthe reserve ratio • резервная нормаdare - осмеливатьсяto make a profit through his interest charges - получить прибыль за счет платежа процентовWhat are the risks involved? - Чем он рискует?to panic (panicked) -пугать, приводить в панику to doubt - сомневатьсяhe was bound to lose some of the gold - он непременно должен был потерять часть золотаa run on the bank - натиск вкладчиков на банк the financial panic - финансовая паника to fear - опасаться, страшиться to go bankrupt - обанкротитьсяMODERN BANKING (СОВРЕМЕННАЯ БАНКОВСКАЯ СИСТЕМА)The goldsmith bankers were an early example of a financial intermediary.A financial intermediary is an institution that specializes in bringing lenders and borrowers together.A commercial bank borrows money from the public, crediting them with a deposit. The deposit is a liability of the bank. It is money owed to depositors. In turn the bank lends money to firms, households or governments wishing to borrow.Banks are not the only financial intermediaries. Insurance companies, pension funds, and building societies also take in money in order to relend it. The crucial feature of banks is that some of their liabilities are used as a means of payment, and are therefore part of the money stock.Commercial banks are financial intermediaries with a government licence to make loans and issue deposits, including deposits against, which cheques can be written.Let's start by looking at the present-day UK banking system. Although the details vary from country to country, the general principle is much the same everywhere.In the UK, the commercial banking system comprises about 600 registered banks, the National Girobank operating through post offices, and a dozen trustee saving banks. Much the most important single group is the London clearing banks. The clearing banks are so named because they have a central clearing house for handling payments by cheque.A clearing system is a set of arrangements in which debts between banks are settled by adding up all the transactions in a given period and paying only the net amounts needed to balance inter-bank accounts.Suppose you bank with Barclays but visit a supermarket that banks with Lloyds. To pay for your shopping you write a cheque against your deposit at Barclays. The supermarket pays this cheque into its account at Lloyds. In turn, Lloyds presents the cheque to Barclays, which will credit Lloyds' account at Barclays and debit your account at Barclays by an equivalent amount. Because you purchased goods from a supermarket using a different bank, a transfer of funds between the two banks is required. Crediting or debiting one bank's account at another bank is the simplest way to achieve this.However on the same day someone else is probably writing a cheque on a Lloyds' deposit account to pay for some stereo equipment from a shop banking with Barclays. The stereo shop pays the cheque into its Barclays' account, increasing its deposit. Barclays then pays the cheque into its account at Lloyds where this person's account is simultaneously debited. Now the transfer flows from Lloyds to Barclays.Although in both cases the cheque writer's account is debited and the cheque recipient's account is credited, it does not make sense for the two banks to make two separate inter-bank transactions between themselves. The clearing system calculates the net flows between the member clearing banks and these are the settlements that they make between themselves. Thus the system of clearing cheques represents another way society reduces the costs of making transactions.The Balance Sheet of the London Clearing Banks.Балансовый отчет лондонских клиринговых банковТаbl. 7 shows the balance sheet of the London clearing banks. Although more complex, it is not fundamentally different from the balance sheet of the goldsmith-banker shown in Таbl 6. We'll begin by discussing the asset side of the balance sheet.The Balance Sheet of the London Clearing Banks.Assets£bLiabilities£bSterling: Cash Bills and market loans AdvancesSecuritiesLending in other currencies Miscellaneous assets TOTAL ASSETS2,934,783,09,454,615,5200,1Sterling: Sight deposits Time deposits CDsDeposits in other currencies Miscellaneous liabilities TOTAL LIABILITIES54,1 59,9 8,146,2 31,8200,1Cash assets are notes and coin in the banks' vaults. However, modem banks' cash assets also include their cash reserves deposited with the Bank of England. The Bank of England (usually known as the Bank) is the central bank or banker to the commercial banks.Apart from cash, the other entries on the asset side of the balance sheet show money that has been lent out or used to purchase interest-earning assets. The second item, bills and market loans, shows short-term lending in liquid assets.Liquidity refers to the speed and the certainty with which an asset can be converted back into money, whenever the asset-holders desire. Money itself is thus the most liquid asset of all.The third item, advances, shows lending to households and firms. A firm that has borrowed to see it through a sticky period may not be able to repay whenever the bank demands. Thus, although advances represent the major share of clearing bank lending, they are not very liquid forms of bank lending. The fourth item, securities, shows bank purchases of interest-bearing hug-term financial assets. These can be government bonds or industrial shares. Although these assets are traded daily on the stock exchange, so in principle these securities can be cashed in any time the bank wishes, their price fluctuates from day to day. Banks cannot be certain how much they will get when they sell out. Hence financial investment in securities is also illiquid.The final two items on the asset side of the balance sheet show lending in foreign currencies and miscellaneous bank assets. Total assets of the London clearing banks were £200,1 billion. We now shall examine how the equivalent liabilities were made up.Deposits are chiefly of two kinds: sight deposits and time deposits. Whereas sight deposits can be withdrawn on sight whenever the depositor wishes, a minimum period of notification must be given before time deposits can be withdrawn. Sight deposits are the bank accounts against, which we write cheques, thereby running down our deposits without giving the bank any prior warning. Whereas most banks do not pay interest on sight deposits or cheque (checking) accounts, they can afford to pay interest on time deposits. Since they have notification of any withdrawals, they have plenty of time to sell off some of their high- interest investments or call in some of their high-interest loans in order to have the money to pay out deposits.Certificates of deposit (CDs) are an extreme form of time deposit where the bank borrows from the public for a specified period of time and knows exactly when the loan must be repaid. The final liability items in Таbl. 7 show deposits in foreign currencies, miscellaneous liabilities, such as cheques, in the process of clearing.VOCABULARY NOTESa financial intermediary - финансовый посредникto bring together - соединять, сводить вместеinsurance companies - страховые компанииpension lands - пенсионные фондыthe money stock - денежная масса, деньги в обращенииto issue deposits - открывать вкладыthe National Girobank - англ.