金融英语Lecture 1 Money(总
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Money
If you can actually count your money, then you are not really a rich man.
——American oil billionaire J. Paul Getty
What is money?
Economists define money as anything that is generally accepted in payment for goods or services or in the repayment of debts.
Types of money
A. Commodity money B. Convertible paper money C. Fiat money(or fiat currency):
Usually paper money, is a type of currency whose only value is that a government made a fiat that the money is a legal method of exchange.
Unlike commodity money or representative money it is not based in another commodity such as gold or silver and is not covered by a special reserve. D. Private debt money E. Electronic money
Private debt money
A loan that the borrower promises to repay in currency
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on demand. . IOU the checkable deposit at commercial banks and other financial institutions.
Commercial notes（商业票据）: Short-term, unsecured,
discounted, and negotiable notes sold by one company to another in order to satisfy immediate cash needs. Include: promissory note (期票，拮据) draft (汇票) check and so on.
Electronic money: Electronic Check, Internet Payment
System, Credit Card Service
What does money do?
A. Medium of Exchange
In almost all market transactions in our economy, money in the form of currency or checks is a medium of exchange; it is used to pay for goods and services. The use of money as a medium of exchange promotes economic efficiency by eliminating much of the time spent in exchanging goods and services.
Terms: Transaction cost, Time value of money B. Unit of Account
The second role of money is to provide a unit of account; that is, it is used to measure value in the economy. We measure the value of goods and services in
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terms of money, just as we measure weight in terms of pounds or distance in terms of miles.
Note: Fiat money has not only no particular value in use; it doesn't even really have a value in exchange except that which is decreed that it would have. Terms: Good money, Bad money C. Store of Value
Money also functions as a store of value: it is a repository of purchasing power over time. It is an asset. It 's something that we can use to store value away to be retrieved at a later point in time. So we can not consume today, we can hold money instead - and transfer that consumption power to some point in the future. Term: Hard currency
Measuring Monetary Aggregates
1. Measure as “money” only those assets that are most liquid, hence that function best as a medium of exchange. 2. Include all financial assets in the measure of money, but weight them in proportion to their liquidity. 1. M1 = Most Narrow Measure (Most Liquid)
M1 = currency + traveler’s checks + demand deposits + other checkable deposits
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2. M2 = M1 + Less Liquid Assets
M2 = M1 + small denomination time deposits + savings deposits + money market deposit accounts + money market mutual fund shares
3. M3 = M2 + Less Liquid Assets
Money supply
The revenue raised through the printing of money. When the government prints money to finance expenditure, it increases the money supply. The increase in the money supply, in turn, causes inflation. Printing money to raise revenue is like imposing an inflation tax. To expand the money supply:
The Federal Reserve buys Treasury Bonds and pays for them with new money.
To reduce the money supply:
The Federal Reserve sells Treasury Bonds and receives the existing dollars and then destroys them.
Inflation
Inflation is an increase in the average level of prices, and a price is the rate at which money is exchanged for a good or service.
Here is a great illustration of the power of inflation:
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In 1970, the New York Times cost 15 cents, the median price of a single-family home was $23,400, and the average wage in manufacturing was $ per hour. In 2008, the Times cost $, the price of a home was $183,300, and the average wage was $ per hour.
Hyperinflation is defined as inflation that exceeds 50 percent per month, which is just over 1 percent a day.
Questions
1. Money is not unique as a store of value; any asset, be it money, stocks, bonds, land, houses, art, or jewelry, can be used to store wealth. Many such assets have advantages over money as a store of value: They often pay the owner a higher interest rate than money, experience price appreciation, and deliver services such as providing a roof over one's head. If these assets are a more desirable store of value than money, why do people hold money at all?
The answer to this question relates to the important economic concept of liquidity.
2. Rank the following assets from most liquid to least
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liquid:
a. Checking account deposits b. Houses c. Currency
d. Washing machines e. Savings deposits f. Common stock
3. Why have some economists described money during a hyperinflation as a “hot potato” that is quickly passed from one person to another?
4. Was money a better store of value in the United States in the 1950s than it was in the 1970s Why or why not In which period would you have been more willing to hold money
5. In Brazil, a country that was undergoing a rapid inflation before 1994, many transactions were conducted in dollars rather than in Reals, the domestic currency. Why?
Quiz
1. Fiat money is:
A. credit card charges B. Coins
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C. not convertible into precious metals. Answer: C
D. checks
2. Which of these is not a function of money in an economy?
A. Store of value B. Medium of exchange
C. Source of income D. Unit of account Answer:C
3. Which of the following is not part of M1? A. checking accounts B. traveler's checks
C. savings accounts D. currency
Answer:C
4. If Mary deposits $100 of her currency in her checking account, then:
A. M1 will increase by $100. B. M2 will fall by $100.
C. M1 and M2 will not change. D. M2 will increase by $100. Answer:C
5. If Mary moves $100 from her savings account to her
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checking account, then:
A. M1 will not change. B. M2 will not change. C. M1 will fall by $100. D. M2 will fall by $100. Answer:B
6. Which of the following is not part of M2?
A. Small time deposits B. Currency C. Institutional money market mutual funds D. Saving accounts Answer:C
7. Inefficiencies that are created when using checks as money include:
A. Checks can transfer funds slowly. B. There are too many bad checks written. C. Checkbooks can be stolen.
D. Checks can be written for any amount. Answer:A
8. The liquidity of an asset is:
A. the ability of an asset to earn interest income. B. the amount of an asset sold at discount or premium. C. the relative ease with which an asset can be converted into a medium of exchange.
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D. the relative ease with which an asset can be converted into a common stock. Answer:C
9. For a commodity to function effectively as money, it must
A. Be widely accepted. B. Be backed by gold or silver.
C. Be indestructible. D. Be printed by the government. Answer:A
10. Money supply data is generated by: A. The Department of Commerce
B. The Federal Deposit Insurance Corporation (FDIC) C. The Federal Reserve System (the Fed) D. The Treasury Department Answer:C
11. Which of the following correctly shows the evolution of the payments system?
A. Commodity money, fiat money, checks, electronic money.
B. Commodity money, fiat money, electronic money, checks.
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C. Commodity money, checks, fiat money, electronic money.
D. Fiat money, commodity money, checks, electronic money. Answer:A
12. Which of the following is true regarding money's store of value function?
A. money does not allow a person to hold purchasing power from the time income is earned until it is spent. B. money is the only store of value available. C. money is the most liquid store of value available. D. money is superior to all other stores of value during periods of inflation. Answer:C
13. Which of the following is not a disadvantage of electronic money?
A. People are concerned about the privacy and security of e-money transactions.
B. E-money transactions cost more than paper check transactions.
C. The cost of setting up a system for processing e-money payments is high.
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D. E-money does not allow people to take advantage of float. Answer:B 14. Wealth is
A. Generally accepted for the repayment of debts B. A flow of earnings per unit of time C. A stock concept
D. The total collection of pieces of property that serve to store value Answer:D
15. The Fed's measurements of monetary aggregates A. Are more reliable in the short run than the long run. B. Are revised once a year.
C. Does not depend on the definition of money.
D. Are more reliable in the long run than the short run. Answer:D
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