10. Money. Banking and monetary policy. Money: roles, forms, functions.

In general, money is any item that is widely accepted as payment for products. The paper bills and metal coins are only two of the forms money. In the past, many things served as money. Most of the items used as money, however it often has little value of its own. Its value comes from the product for which it can be exchanged.

In most modern economies money serves several functions. As a means of exchange money is used to trade for goods and services. As a store of value people use money to save their wealth for the future. Money can be kept in a bank, a safe or a pocketbook until it is needed. As a standard of value money is used to compare the worth of one product with that of another.

State-issued money which is legal tender is known as fiat money. Money in the form of paper bills and metal coins is called currency. Sometimes, time deposits also are considered a form of money. Economists call things used for some, but not all, of the functions of money near money. Credit cards allow a purchaser to borrow money from the seller of the purchased goods. Insurance policies, stocks, and bonds are other examples of near money.

Money is very important in our society. It helps the economy run smoothly. The market system determines how much money everything is worth.

You have your own beliefs about the value of goods, services, jobs, and people. You may feel that some things are priceless and others are not worth as much as they cost.

11. The supply of money

Our personal supply of money changes often. Increases and decreases in our supply of money probably affect how much we spend. Similarly, the amount of money in the total economy changes often. Changes in the economy’s money supply are more complex than changes in a personal money supply.

The money supply is constantly changing. Sometimes it expands and sometimes it contracts.

The supply of checking account money, or demand deposits, also changes. Banking laws require a bank to put a certain percentage of its deposits in reserve, usually 10 to 20 percent. A bank’s reserve is the money the bank must set aside and not loan to anyone.

The expansion of the money supply does not continue forever. The expansion will stop if the bank stops making loans. Lending may cease (закончиться) if the bank cannot find any more people it believes will be able to repay a loan. If people stop putting their money into accounts, the bank will not be able to make loans.

If many people suddenly withdraw their money all at once, the bank must do more than stop making loans. It will have to start calling for payment of its loans so that it can increase its reserves.

12. The role of central banks and commercial banks. Types of bank accounts.

The role of central banks

Central banks function as banks for the government and for other banks.

Central banks usually implement (осуществлять) monetary policy.

Central banks also control the money supply.

Central banks act as a lender of last resort to commercial banks with liquidity problems.

Central banks issue coins and bank notes. They are legal tender in the country where they are produced.

To provide the safety of the banking system, central banks impose reserve requirements. It means that commercial banks must deposit a certain amount of money with the central bank at zero interest.

By increasing or decreasing prices and wages, the central bank influences interest rates, demand, output, growth, unemployment.

The role of commercial banks

Commercial banks are the base of developed economy and agents of monetary policy.

Commercial banks evaluate a borrower’s solvency (кредитоспособность).

Commercial banks are financial intermediaries between depositors and borrowers. They accept deposits, act as agents for payment and provide lending operations.

Commercial banks predict the effects of the government policy on full economic activity, interest rates and risk in order to best manage their depositors’ money.

Types of bank accounts

People may have three basic types of bank account:

Current account (checking account) is the most popular one. It is used for everyday transactions such as paying bills or transferring money.

This type of account enables people to hold their money in a safe place.

It provides people with a credit or a debit card so that they don’t have to carry much cash.

It allows people to withdraw their money at any time but provides no interest.

The current account holder can have an overdraft.

Deposit account is another popular account which is really designed for saving money. It may be used for short-term, small savings.

The money paid into deposit account earns interest.

If the client wants to withdraw the money he has to inform the bank. If the client wants his money immediately (before the deadline), he loses some interest.

Savings or long-term deposit is an account which may be used for long-term, large savings.

The customer may have a fixed-term account. In this case the account holder may not be able to withdraw the money for a certain period agreed with the bank. The customer can’t get his money immediately. He has to inform the bank in advance when he wishes to withdraw the money.

It pays interest at a higher rate than a deposit account.

Conclusion

We should know the roles of central and commercial banks, types of bank accounts because it is

necessary in our life. There are lots of situations when people made mistakes because they didn’t know something in banking sphere. It is also useful for our future profession.