Transilvania University of Brașov
Faculty of Economic Sciences and Business Administration
Spring 2022, 1st year
Lecture 7
LEAD-IN
1 What do people need money for?
2 What do you know about the currency used in your country?
3 What is the best method of payment (cash, credit card, etc.)? Why?
MONEY
Economics offers various definitions for money, though it is now commonly defined
as any good or token that functions as a medium of exchange that is socially and legally
accepted in payment for goods and services and in settlement of debts. Money also serves as a
standard of value for measuring the relative worth of different goods and services.
The use of money provides an easier alternative to barter, which is considered in a
modern, complex economy to be inefficient because it requires a coincidence of wants
between traders, and an agreement that these needs are of equal value, before a transaction
can occur. Money is generally considered to have the following characteristics:
"Money is a matter of functions four, a medium, a measure, a standard, a store". To
function as money, the monetary item should possess a number of features:
1. It is a medium of exchange.
It should have liquidity, and be easily tradable, with a low spread between
the
prices to buy and sell, in other words, a low transaction cost
It should be easily transportable; precious metals have a high value to
weight
ratio. This is why oil, coal, vermiculite, or water is not suitable as money
even
though they are valuable. Paper notes have proved highly convenient in this
regard.
It should be durable. Money is often left in pockets through the wash. Some
countries (such as Australia, New Zealand, Mexico and Singapore) are
making their bank notes out of plastic for increased durability. Gold coins
are
often mixed with copper to improve durability.
2. It is a unit of account. A unit of account is a standard numerical unit of
measurement
of the market value of goods, services, and other transactions.
It should be divisible into small units without destroying its value; precious
metals can be coined from bars, or melted down into bars again. This
is why leather and live animals are not suitable as money.
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It should be fungible: that is, one unit or piece must be exactly equivalent to
another, which is why diamonds, works of art or real estate are not suitable
as
money.
It must be a specific weight, or measure, or size to be verifiably countable.
For instance, coins are often made with ridges around the edges, so
that any removal of material from the coin (lowering its commodity value)
will be easy to detect.
3. It is a store of value. Money must be able to be reliably saved, stored, and retrieved.
Modern forms of money.
Banknotes (also known as paper money) and coins are the most liquid forms of tangible
money and are commonly used for small person-to-person transactions. Today, gold is
commonly used as a store of value, but is not often used as a medium of exchange or a unit of
account. But central banks do use gold as a unit of account. There are also less tangible forms
of money, which nevertheless serve the same functions as money. Checks, debit cards and
wire transfers are used as means to more easily transfer larger amounts of money between
bank accounts. Electronic money is an entirely non-physical currency that is traded and used
over the Internet.
Benchmark world currencies
These are the major currencies used in trading.
Australia – Australian Dollar (AUD)
Canada – Canadian Dollar (CAD)
China – Renminbi (CNY)
European Monetary Union (EUR-13) – Euro (EUR)
Hong Kong – Hong Kong Dollar (HKD)
Japan – Japanese Yen (JPY)
Switzerland – Swiss Franc (CHF)
United Kingdom – Pound Sterling (GBP)
United States – US Dollar (USD)
2.1 Answer the following questions to the text.
1 What are the basic money functions?
2 For what reason is barter considered being less efficient than money?
3 What forms of money are mentioned in the text?
4 Which forms of money are the most suitable to be used as money?
5 How do some countries make their banknotes more durable?
6 What is electronic money?
2.2 Mark the sentences as True (T) or False (F).
1 There are a lot of definitions for money.
2 The use of money is as convenient as barter.
3 Efficient barter means that the traders’ needs coincide.
4 Precious metals can’t be used as money because they are too heavy.
5 Gold can serve the same functions as money.
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6 Checks and debit cards are commonly used for small person-to-person
transactions.
VOCABULARY PRACTICE
3.1 Match the words with the definitions.
1 currency a a system of exchanging goods and services for other
goods and services rather than using money
2 transaction b money or property, especially when it is used to start
a business or to produce more wealth
3 barter c a sum of money that a person or organization owes
4 goods d the system or type of money that a country uses
5 capital e things that are produced in order to be sold
6 debt f a business deal or action, such as buying or selling
Something
3.2 Complete the sentences with the correct forms of the capitalized words in brackets.
Many years ago people traded (1) __________ (DIFFER) kinds of goods with one another. A
farmer traded his grain grown on his plot with a (2)__________ (BAKE) for some loaves of
bread. A fisher traded some of the (3) __________ (DAY) catch of fish with a smith for a
spade or an axe. Such an exchange of goods or services by trading was called bartering.
Bartering was a good way to do (4) __________ (BUSY) when people wanted to make an (5)
__________ (ACCEPT) trade. For example, a farmer might want to exchange a pig for a
sheep, but first would have to find another person who wanted to make such a trade. This
might take a lot of time and effort and, sometimes, might not even be possible. Bartering was
also an acceptable way to do (6) __________ (BUSY) when both parties could agree on the
worth or value of what they had to trade. But how much grain was a baker’s loaf of bread
worth? How many fish were
equal to the value of the time spent by the smith (7) __________ (MAKE) the spade or the
axe?
In time it became more difficult to conduct such a trade. It was also difficult to set a just value
for the different goods and services. So it became clear that something new was needed that
would be acceptable by everybody in exchange for goods and services. That “something” was
money.
3.3 Complete the sentences using the following words. Some words you do not need to
use.
to eat to pay to serve to realize to lose to put
payment service debts currency transaction money
1 “When it's a question of __________, everybody is of the same religion." Voltaire
2 "If you want to know what a man is really like, take notice of how he acts when he
__________ money." New England Proverb
3 "Only when the last tree has died and the last river has been poisoned and the last fish has
been caught will we __________ we cannot __________ money." Native American Proverb
4 There are severe penalties for late __________ of taxes.
5 Local banks give better rates for converting your traveler's checks into foreign __________
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6. The bank charges a fixed rate for each __________.
