UNIT II

MONEY AND ITS FUNCTIONS

OBJECTIVES:
-money and its functions: notions and vocabulary
-Future and Future in the Past
-reading, writing, summarizing skills
I. Answer the questions bellow:
1. Explain the role of money in an economic system?
2. How did it appear?
3. What forms of money do you know?
4. What are the functions of money in any economic system?
Money - History and Functions

Reading comprehension
For thousands of years, gold was the ultimate money. It could buy anything including hearts. It
was wealth and power to be sure, but it was also enchantment, with a special luster and
reassuring weight and feel. The lure of gold drove ships across stormy seas and explorers across
rugged mountains to places as remote as Canada's Klondike region near the Arctic Circle.
Gold isn't used as money any more. It still glitters, but it's treated more like soybeans or pork
bellies than a ransom fit for a king.
Money didn't exist in ancient times, so people had to trade with each other - or barter - to obtain
the items they wanted. The first trades were probably animal skins for grain, or cotton for
livestock.
But these exchanges were cumbersome, and some common commodities, such as grains, started
to assume the role of money. In early Egypt, for example, barley, an important source of food,
became the accepted means of payment for goods and services.
By 700 B.C., though, the Egyptians had abandoned barley and adopted gold as their primary
instrument of exchange. A rare and beautiful metal, gold had become the universal symbol of
wealth and power. And, being portable and durable, it was an ideal form of money.

B.
By the 15th century trade and commerce had expanded tremendously. When King Croessus of
ancient Lydia (now Western Turkey) had gained control of Asia's richest gold mines for the
Persian Empire, he wanted others to recognize his newfound power and ordered the first gold
coin to be made. Bearing the image of a lion and a bull, the coin became the standard of
exchange for all trade and commerce.
A need appeared for a new, less cumbersome system of making payments. The goldsmiths met
this need. Their system worked this way: people would deposit their gold coins at their local
goldsmith's. In return, the goldsmiths would give them a receipt. Eventually, the receipt began to
circulate as money because they could always be redeemed for the gold itself.
Gradually, countries came to adopt a form of the goldsmith's system. Their governments printed
currency and backed it up with gold they held in official reserves. And so the "gold standard" for
currencies was born. One of the first countries to adopt the gold standard was Great Britain in
1916. It made its currency the pound, equal in value to an ounce of gold. Then Coinage Act of
1792 first put the young American nation on a "bimetallic standard", backing the dollar, which
was a coin at the time, with both gold and silver.
With the world at war, for the first time, people were seeking security, and thus started
exchanging their currency for gold. But governments soon saw their reserves run seriously low,
as a result. By 1914 most countries, except the United States, abandoned the gold standard to
protect their reserves.
By the mid 1930's, practically all the major nations had abandoned the gold exchange standard.
Governments would accumulate dollars that they could redeem for gold at the U.S. Treasury.
Of course, gold will always be the metal of choice for the jet-set, who like to adorn their homes
with gold-leaf sinks, bathrooms and picture frames.
Today, gold can be bought and sold in several different forms: coins, bullion or perhaps just as
paper claim to the metal.
There are two types of gold coins: bullion coins and numismatic. Countries produce the bullion
coins as legal tender, which means they can be spent as money. Prices are based on the local gold
price in London (The "London Fix").
Numismatic gold coins no longer circulate as money. Their value derives more from their
condition and rarity than their actual gold content.
Many investors hold paper claims to gold in the form of future contracts. These contracts are
nothing more than a commitment to buy or sell gold at a future time at a pre-agreed price.
Typically, the buyer and seller meet at a commodity exchange to work out future contracts.
Today gold has assumed the role of a commodity such as wheat or cotton. And like any other
commodity, its price is determined in a free market by the forces of supply and demand.
I. Answer the following questions after reading the text:
1. How did gold become the symbol of wealth and power?
2. Why did countries adopt the gold standard?
II. Point out the main stages of money history. What would you add?

III. Read the following text and draw out the main ideas:
The Euro
Since January 1st, 1999 the euro has been operating as a recognized currency on the world
markets and has been widely used, especially by commercial banks and other companies, in noncash payment transactions. On January 2002 the euro banknotes and coin will be put into
circulation. Their design and production was, from the outset, planned as a cooperative venture
of the European Union. The graphic symbol of the euro was inspired by the Greek letter epsilon
and refers to the first letter of the word Europe. The parallel lines represent the stability of the
euro. The official abbreviation for the euro has been registered with the International
Organization for Standardization ISO.
The euro banknotes depict the architectural styles of seven periods in European cultural history
Classical, Romanesque, Gothic, Renaissance, Baroque and Rococo, the age of iron and glass
architecture, and the modern 20th century architecture and emphasize three main architectural
elements - windows, gateways, and bridges. The windows and gateways on the front of each
banknote symbolize the spirit of openness and cooperation in Europe. The 12 stars of the
European Union are also featured, representing the dynamism and harmony of the contemporary
Europe. The reverse of each banknote features a bridge typical of the respective age of European
cultural development. These bridges range from early constructions to the sophisticated
suspension bridges on the modern era and are used as a metaphor for communication among the
people of Europe as well as between Europe and the rest of the world.
The European System of Central Banks became operational and is responsible for framing and
implementing the single monetary and exchange rate policy (setting short-term interest rates in
euro). The participating national currencies will no longer be listed on the foreign exchange
markets.
As far as banks and large firms are concerned, the transition to the single currency began chiefly
via the single monetary and exchange rate policy, the capital and the associated settlement
systems. Banks draw up their customers' account statements in both euro and national currency.
They take advantage of the time available in order to inform their customers of the consequences
of the switch to the single currency for their financial transactions. They step up their staff
training efforts to prepare for the changeover and can also offer certain products in euro, legal
and technical constraints permitting.
Consumers continue to use chiefly their own national currency because euro banknotes and coins
are not yet available. Public demand can, however, swiftly prompt some banks or firms to offer
services in euro.
The gradual introduction of dual pricing of goods and services enables consumers to get used to
the single currency. By developing a "feel" for prices in the single currency and learning to
convert national currencies into euro at a fixed rate, they thus realize that they do not stand to
lose from the introduction of the single currency.
IV. Read the following text and point out advantages and disadvantages of the single
European currency.
The European Unions currency, the euro, is now in use by 12 nations with a total population of
300 million people in an economic zone two-thirds the size of the US economy. Since its
introduction on January 1, 1999, it has been readily accepted at home and in global capital
markets, and several nations in Eastern Europe and around the Mediterranean are eager to join
the euro zone or peg their national currencies to the euro. In contrast to the predictions of some

American pessimists about its prospects, the euro has delivered low inflation and interest rates to
the Continent.
Nonetheless, the euro does present a challenge to the dollars dominance. Over time, this
challenge will only grow more formidable, particularly if Europe undertakes economic reforms
internally. Even in the absence of Europe liberalizing and becoming more attractive as a place in
which to invest, it is incumbent upon American policymakers to make themselves aware of these
trends and their potential impact on the US economy and foreign policy.
The existence of the euro provides investors with an alternative currency having wide enough
acceptance and deep enough markets to shift into should there be a decline of confidence in the
dollar. http://www.iie.com/publications/papers/paper.cfm?ResearchID=537

VOCABULARY
I.
Give synonyms for:
money, standard, value goods, wealth, measure, trade, ingot, stock, interest, revenue, lend,
insurance, allowance, manager, regulation, production, monetary unit, development.
II. Give adjectives corresponding to the following nouns:
money, gold, system, receipt, government, standard, coin, contract, price, market,
commitment, investor, demand, environment, rate, finance, insurance, payment, interest,
profit, bank, deposit,
III. How many of the money words below do you know? Read the definitions, then fill in each
blank with one of the words:
cash; change; cheque; coin; credit card; banknote
1. ________: money which is made of paper.
2. ________: money which is made of metal.
3. ________: what you get if a shirt costs 17.99 and you give the shop assistant 20.
4. ________: a printed piece of paper which you write on. You can buy things with this. You can
also get money for it at a bank.
5. ________: a plastic card you can use to buy things. You pay the money for what you bought
after one or two months.
6. ________: coins and paper money.
IV. Forms of money. Choose the correct word to complete the sentences:
1. The pound, the dollar and the leu are called .
a) cash; b) monies; c) reserves.
2) The currency that is used in a foreign country is called .. ..

a) money; b) cash; c) foreign currency.

3) Money that you borrow from a commercial bank is called .
a) capital; b) loan; c) subsidy.
4. Money in notes and coins is called .
a) monies; b) capital; c) cash.
5) The whole amount of money received by a company or a person is called .
a) income; b) wages; c) salary.
6. The money that you have to receive back when the price is lower than the denomination of the
banknote you give to the shop assistant is called ..
a) cash; b) compensation; c) change.
7. Money earned by someone for a month's (professional) work is called ...
a) income; b) wage; c) salary.
8) A manual worker receives ..
a) income; b) wages; c) salary.
9). Retired persons receive
a) pension; b) aid; c) subsidy.
10) When setting a new company you need ...
a) loan; b) fund; c) capital.
11) You pay a loan to a bank regularly in .
a) a) fee; b) income; c) installment.
12. You pay a .. to doctors, lawyers, private schools
a) revenue; b) fee; c) capital.
13) Producers are sometimes helped to sell cheaper through ...
a) loans; b) reserves; c) subsidy.
14) A person can have a part of a business called.
a) deposit; b) budget; c) stake.
15) Money kept in a deposit for paying pensions is called ...
a) fund; b) deposit; c) budget.
V. Find the missing words:
fringe benefits, annuity, wage-freeze, deficit, bill, bonus, scholarship, alimony, donation,
earnings, interest, debt, income, allowance, profit
1. Caterpillar recorded profits in 2012 and then in early 2013 bludgeoned its unions into
accepting a six-year -. .
2. The press was quick to downplay the significance and even the seriousness of Blair's
..
3. They were in fact of such magnitude that he received a $15 million . in2009,
reportedly more than Blankfein was awarded.
4. Additional on-the-job perks, typically referred to as , are viewed as
compensation by an employer but are generally not included in an employees taxable
income.
5. We agreed on an figure and she began working in earnest.

6. In middle school, I went to a private school on a where we played the stock

market game
7. Adam remained with his mother, who received some $250,000 a year in .
8. $1 million is actually an ., which pays out about $25,000 over 40 years - before
taxes.
9. Beginning next Tuesday, October 8, reports for the third quarter begin to come
out.
10. Business expenses are supposed to be the expenses necessary to generate the ..
upon which you pay taxes to the government.
11. The Obamas donated more than 20 percent of their . to various charities.
12. His week, the U.S. government sold $20 billion of 28-day bills with an . rate
of zero.
13. He called for his and paid it.
14. The French .. as constituted in 1905 was made up of funded debt and floating
debt.
15. Year by year, the budget showed a and the indebtedness of the state
increased.
VI. Find a title for each fragment. What do they represent?

1. ______________________________
The use of money as a medium of exchange makes possible a great extension of the principle of
specialization. In an advanced society the use of money allows to exchange hours of labor for an
amazing variety of goods and services: two weeks' labor for a holiday abroad just as easily as we
can exchange it for a piece of furniture or a year's rent on a flat. Such exchanges are taken for
granted yet they would be inconceivable without the use of money.
2. ______________________________
The first step in the use of money was probably the adoption of some commodity as a unit of
account or measure of value. Money, most likely, came into use within the barter system as a
means whereby the values of different goods could be compared. The direct exchange of goods
for goods raise all sorts of problems regarding valuation: "How many bushels of corn are equal
in volume to one sheep, if twenty sheep exchange for three cows and one cow exchanges for ten
bushels of corn? This problem of exchange rates is easily solved when all other commodities are
valued in terms of a single commodity which then acts as a standard of value. Money now serves
as such a standard and when all economic goods are given money values (i.e. prices), we know
immediately, the value of one commodity in terms of any other commodity.
3. __________________________________
Once a commodity becomes universally acceptable, in exchange for goods and services, it is
possible to store wealth by holding stock of this commodity. It is a great convenience to hold
wealth in the form of money.
Consider the problems of holding wealth in the form of some other commodity, say wheat. It

may deteriorate, it is costly to store, it must be insured, and there will be significant handling
costs in accumulating and distributing it. In addition, its money value may fall while it is being
stored. The form of money has become very apparent in recent years - during periods of inflation
when the exchange value falls.
4. ___________________________________
An important function of money in the modern world, where so much business is concluded on
the basis of credit, is to serve as a means of deferred payment. When goods are supplied on
credit, the buyer has immediate use of the goods, but she does not have to make an immediate
payment. He can pay for them, 3, or perhaps 6 months after delivery. In the case of hire purchase
contracts, the buyer takes immediate delivery but pays by means of installments spread over 1, 2,
or 3 years.
A complex trading organization based on a system of credit can only operate in a monetary
economy. A seller would be most unlikely to accept any promise to pay in the future that was
expressed in terms of a commodity other than money. It will have no idea how much of that
commodity it will need in the future and if it does not want it, it will be faced with the trouble
and risks involved in selling it. It is prepared to accept promises to pay in terms of money,
because, whatever the patterns of the future be, they can be satisfied if it has money.
II Fill in the blanks the following missing words:
sale and purchase, exchange of goods, value of money, economic theory, interest-bearing
property, legal act, exchange, credit transactions
Secondary functions of money
The secondary functions of money can be deduced from the function of money as a medium of
exchange when speaking about ... . They are in fact, nothing but the
of present goods against future goods. The frequent reference which is made to
money as a standard of deferred payments simplifies discussions about the influence of changes
in the .. upon the real amount of money debts. The functions of money as a
transmitter of value through time and space may also be directly traced back to its function as
medium of exchange. Nowadays this function has been replaced by the purchase of . ... On the other hand, money still functions to-day as a means for
transporting value through space, which is now nothing but a matter of facilitating the
. .
Particular attention has been devoted, especially in recent times, to the function of money as a
general medium of payment. . .. . apparently become independent of each other.
The apparent lack of a relationship between the two parts of the single transaction has been taken
as a reason for regarding them as independent proceedings, for speaking of the payment as an
independent .. ., and consequently for attributing to money the function of being a
common medium of payment. For the jurist, money is a medium of payment. The economist may
not adopt this point of view if he does not wish to prejudice his prospects of contributing to the
advancement of .. . .

WRITING

I.
II.

Imagine a future human society without money in a 250 word composition.

Read the introduction of the text and make your own conclusion based on the
following further information:

Not even the mighty Middle East can survive cheap oil forever
If oil stays around $50 a barrel, most countries in the region will run out of cash in five years or
less, warned a dire report from the International Monetary Fund this week. That includes OPEC
leader Saudi Arabia as well as Oman and Bahrain.

IMF reports:
o Low oil prices will wipe out an estimated $360 billion from the region this year
alone;
o Huge budget surpluses are quickly swinging to massive deficits as oil prices have
crashed to around $45 currently from over $100 last year.
o Many of these countries are being forced to tap into rainy day funds to weather
the storm.
o Oil exporters will need to adjust their spending and revenue policies to ensure
fiscal sustainability
o The depressed oil prices have come at a time when spending has gone up as many
of these countries are grappling with regional violence and turbulence in financial
markets.

GRAMMAR

I Pass the following sentences from Present to Past Tense. Make the necessary changes:
1. He explains that the balance sheet will be the main document showing the estate of our
business.
2. He says that the new service will enable customers to make payments from their accounts by
credit transfer.
3. He learns that the process of globalization that enables investment in financial markets will be
carried out on an international basis.
4. They are sure that the goodwill of their company will become a saleable asset.
5. He declares that he will calculate again his gross income.
6. The shop assistant assures us that he will bring any items made of gold, silver or platinum,
stamped with hallmark.
7 The general manager promises to keep a house journal for all the employees to inform them
about the policy of the company.
8. He explained that the wages of the employees would reflect partly a return of the human
capital for the future.
9. The wholesaler claims that he will be allowed goods according to the import license.
10. The politicians pretend that indexation policy will mitigate the effects of inflation.
I. Rewrite the text using appropriate tenses.
What will make money what it is? Partly we will determine it by statutes declaring that certain
pieces of paper and metal produced by government will be money. These notes and coins we call
will be "legal tender" and you'll have to accept them as payment in full for any transaction.
However, part of what we regard as money will be determined by custom. If you think about
how much money (as distinct from wealth) you have, you won't consider only your holdings or
cash and coin - you'll include deposits you have in your bank.
Whether it's cash or bank deposits, money is an asset for you and simultaneously a debt for either
the bank or the government. That's why credit cards will be not considered money, but tangible
proof that you've been granted a line of credit (a loan up to a predetermined amount which you
can decide to activate). Because they represent a debt for, not an asset they will never be money.
III.
Make the necessary changes:
1. Six employees of the national airline Sabena (steal) perfume, watches and cigarettes
while they (take) duty-free to and from planes at Brussels National Airport.
2. A major project to renovate Brussels Stock Exchange (start) last week.
3. The government has been advised by a parliamentary commission to reopen its embassy
in Iraq. Several EU countries (restore) diplomatic ties with this country.
4. Brussels (be) the victim of big projects and bad planning for almost a century.
5. According to a recent Belgian Internet Mapping study, one million Belgians over the age
of 15 (surf) the web regularly, and one in three (make) at least one web purchase.

TRANSLATION
A.

La frie, frate, la nego, pe cumprate".

"Averea omului nu se afl n lzi, ci n felul n care tie s o foloseasc".
"Imbogii-v fiind harnici, economi i cinstii".
"Banii care vin prea uor, se duc tot att de uor".
"Uneori dac dai bani cu mprumut ii faci un duman secret; refuz-l, vei avea un duman pe
fa".
"Nu cheltui acolo unde poi economisi, dar nu economisi acolo unde trebuie s cheltuieti".
"Ideea c i cunoaterea poate crea valori economice, este n general absena din cele mai multe
analize economice; exist, ns, anumite semne c acum ncepe s fie luat n considerare ...
Trebuie s crem o teorie a valorii bazat pe cunoatere, pentru a nlocui teoria lui Marx despre
valoarea bazata pe munc".
(John Naisbitt, Megatendinte, 1989)
"Banii sunt o informaie n micare". (idem)
"Informaia este esena problemei. Ea poate descuia ua spre tezaurul numit succes. Ea ne
influeneaz modul de apreciere a realitii i hotrrile pe care le lum".
(Herbert Cohen, Orice se poate negocia, Bucuresti, 1995)
B.
Ca urmare a lrgirii negoului s-a trecut de la sistemul simplist al trocului (barter) la folosirea
anumitor mrfuri ca msur a valorii, ca un echivalent general pentru restul produselor, a a nct
s fie facilitat (facilitate) i accelerat (stimulate) circulaia bunurilor ntre comunitile
omeneti. Drept instrumente pentru efectuarea plilor au fost folosite de-a lungul timpului
diferite produse ca vite, blnuri i unele obiecte cu o valoare simbolic recunoscut ( generally
admitted), de pilda pietre deosebite sau scoici, ajungndu-se pn la urm la o utilizare
generalizat a metalelor, care vor ncepe mai apoi s fie btute ca monede, (coin) pentru o ct
mai lesnicioas mnuire (easy handling). Banii nu vor rmne prea multa vreme doar mijloace
de intermediere ntre participanii la viaa economic. Intruct ofereau putina s se cumpere
orice i oricnd, banii au devenit ntruchiparea (embodyment) bogiei i puterii, fiind cutai,
nmulii i tezaurizai (stock) tot mai avid (greedy). Un fapt important n evoluia relaiilor
economice i sociale l constituie, nendoielnic, extinderea (development) mprumutului; ntr-o
prima faz numai de produse destinate consumului (consumer goods), n special cereale, iar
ulterior i de unelte ale muncii i de instrumente bneti (payment instruments). Imprumuturile
apar acordate (grant) nc de la nceputuri contra (against) unui anumit pre - dobnda - ceea ce
asigura o substaniala surs de catig creditorilor, respectiv deintorilor de disponibilit i
(resources) n mrfuri i bani care ncheiau asemenea tranzacii (understanding, contract).