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 economic system.
2. What forms of money do you know?

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 any other
merchandise, 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.

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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. The 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
the mid 1930's, practically all the major nations had abandoned the gold exchange standard. 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 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.
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.

II. 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 and why did they give it up later?

III. Point out the main stages of money history described in the text. What stage would you add?

IV. 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 non-cash
payment transactions. On January 2002 the euro banknotes and coin were 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
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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 is
responsible for framing and implementing the single monetary and exchange rate policy.

VOCABULARY
V. Find the words defined: cash; capital; change; cheque; property; coin; bill, credit card;
salary; banknote, Bill, wage
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.
7. ………: a form or draft of a proposed statute presented to a legislature, but not yet enacted or
passed and made law.
8. ……….: a statement of money owed for goods or services supplied; account of charges
9. ………: any form of wealth employed or capable of being employed in the production of more
wealth; assets remaining after deduction of liabilities; the net worth of a business.
10. ………..: a fixed compensation periodically paid to a person for regular work or services.
11. ……….: money that is paid or received for work or services, as by the hour, day, or week
12. ………….: that which a person owns; the possession or possessions of a particular owner:
VI. Forms of money. 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 ………...

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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.

VI. 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 employee’s 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.

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 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.

VII. 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 …………….. …………. .

Speaking

II. Find a title for each fragment. What do theey 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

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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. Explain the following diagram:

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 WRITING

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

II. 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 bite
I. Pass the following sentences from Present to Past Tense. Make the necessary changes in the
secondary clause:
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. 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.

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 TRANSLATION
A.
La frăție, frate, la negoț, pe cumpărate.
Averea omului este măsurată de felul în care știe să o folosească.
Banii care vin prea ușor, se duc tot atât de ușor.
Uneori dacă dai bani cu împrumut iți faci un dușman secret; refuză-l, vei avea un dușman pe față.
Nu cheltui acolo unde poți economisi, dar nu economisi acolo unde trebuie să cheltuiești.
Banii sunt o informație în mișcare.
B.
Ca urmare a lărgirii negoțului s-a trecut de la sistemul simplist al trocului (barter) la folosirea
anumitor mărfuri ca măsură a valorii, ca un echivalent general pentru restul produselor, așa încât
să fie facilitată (facilitate) și accelerată (stimulate) circulația bunurilor între comunitățile omenești.
Drept instrumente pentru efectuarea plăților au fost folosite de-a lungul timpului diferite produse
ca vite, blănuri și unele obiecte cu o valoare simbolică recunoscută (generally admitted), de pilda
pietre deosebite sau scoici, ajungându-se până la urmă la o utilizare generalizată a metalelor, care
vor începe mai apoi să fie bătute ca monede, (coin) pentru o cât mai lesnicioasă mânuire (easy
handling). Banii nu vor rămâne prea multa vreme doar mijloace de intermediere între participanții
la viața economică. Intrucât ofereau putința să se cumpere orice și oricând, banii au devenit
întruchiparea (embodyment) bogâției și puterii, fiind căutați, înmulțiți și tezaurizați (stock) tot mai
avid (greedy). Un fapt important în evoluția relațiilor economice și sociale îl constituie,
neîndoielnic, extinderea (development) împrumutului; într-o prima fază numai de produse
destinate consumului (consumer goods), în special cereale, iar ulterior și de unelte ale muncii și de
instrumente bănești (payment instruments). Imprumuturile apar acordate (grant) încă de la
începuturi contra (against) unui anumit preț - dobânda - ceea ce asigura o substanțiala sursă de
caștig creditorilor, respectiv deținătorilor de disponibilități (resources) în mărfuri și bani care
încheiau asemenea tranzacții (understanding, contract).