English for the students of economic faculties

The economic environment. Measuring economic activity. Economic systems and markets. Income, price and demand. A model of the economy, inflation. Money, banking, injections, withdrawals. Interest rates, bond prices. The money market and monetary policy.

Рубрика Экономика и экономическая теория
Вид учебное пособие
Язык английский
Дата добавления 12.11.2012
Размер файла 1,0 M

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irredeemable stock - непогашаемые ценные бумаги

undated stock - ценные бумаги без указания даты погашения

to hold on (to smth) - сохранять что-либо, держаться за что-либо

vise versa - наоборот

Assignments

I. Suggest the Russian equivalents

pay a fixed rate of interest: fixed-interest securities; IOU; become entitled to receive the interest; the original investor.

II. Replace the parts in italics by synonyms

has important implications; undertakes to pay; people who put up the money; agrees to redeem the stock; become entitled to receive the interest

III. Fill in the gaps with the words and expressions from the text

1. The change in __ has important implications for the stockmarket prices of bonds, which __.

2. Of fixed-interest securities the traditional __ issued by __ arc the most familiar though companies also issue __.

3. When the government needs to borrow money, it issues __ as a form of __ and undertakes to pay so much a year in interest to the people who __ and who get the IOU __.

4. When the government __ securities, it normally agrees __ the stock at some date in the future.

5. The original investors can sell their __ to other __, who then become __ from the government.

6. The investor __ to pay $100 for the right to receive __, because this represents an 11% __ on his __.

7. If __ rates rise, the __ investor sees __ fall.

8. __, the value of his investment __ if interest rates had fallen.

9. If interest rates on securities __, bond prices or prices for securities __, and __.

IV. Find in the text English equivalents for the following долговое обязательство; непогашаемые ценные бумаги (без указания даты погашения); наоборот, напротив (2 варианта)

V. Explain in English

а promissory note; IOU; fixed-interest securities; irredeemable (undated) stock

VI. Answer the questions

1. What does the government do when it needs to borrow money?

2. What are the implications of the change in interest rates for the stockmarket prices of bonds? Explain how it works.

VII. Translate into English using all the active possible

1. Государство, выпуская в тяжелые времена облигации в качестве долговых обязательств, когда ему необходимо занять деньги у населения, гарантирует обратную выплату всей занятой суммы плюс накопленный процент.

2. Вы не имеете права на пособие по безработице, если вы никогда не работали.

3. Правительство выделило около 500000 долларов, чтобы спасти популярный футбольный клуб.

4. Более высокая процентная ставка невыгодна для инвесторов, уже вложивших свой капитал в акции с фиксированным дивидендом, так как она означает для них большие потери.

THE MONEY SUPPLY AND THE DEMAND FOR MONEY (ПРЕДЛОЖЕНИЕ И СПРОС НА ДЕНЬГИ)

The Bank and the Money Supply. Банк и предложение денег

The narrowest measure Ml of the money supply is currency in circulation outside the banking system plus the sight deposits of commercial banks against, which the private sector can write cheques. Thus the money supply is partly a liability of the Bank (currency in private circulation) and partly a liability of commercial banks (checking accounts of the general public).

The Demand for Money. Спрос на деньги

The demand for money is the quantity of liquid assets people are willing to have in hand at any given moment. It depends on the income they gain and the opportunity costs connected with the interest rate. But why do people hold money at all?

Money is a stock. It is the quantity of circulating currency and bank deposits held at any given time. Holding money is not the same as spending money when we buy a meal or go to the cinema. We hold money in order to spend it later.

The distinguishing feature of money is its use as a medium of exchange, for which it must also serve as a store of value. It is in these two functions of money that we must seek the reasons why people wish to hold it.

The Transactions Motive for holding money. In a monetary economy we use money to purchase goods and services and receive money in exchange for the goods and services we sell. Without money, making transactions by direct barter would be costly in time and effort. Holding money economizes on the time and effort involved in undertaking transactions. We need to hold money between receiving payments and making subsequent purchases.

How much money we need to hold depends on two things, the value of the transactions we wish to make and the degree of synchronization of our payments and receipts. We do not know how much $100 will buy until we know the price of goods. If all prices double, we will need to hold twice as much money to make the same transactions as before.

The demand for money is a demand for real money. We need a given amount of real money to undertake a given quantity of total transactions.

The Precautionary Motive for holding money. Thus far we have assumed that people know exactly when they will obtain receipts and make payments. But of course we live in an uncertain world. Tills uncertainty about the precise timing of receipts and payments gives rise to a precautionary motive for holding money. Suppose you decide to buy a lot of interest-earning bonds and try to get by with only a small amount of money holdings. You are walking down the street and spot a great bargain in a shop window. But you do not have enough money to take advantage immediately of this opportunity. By the time you have arranged for some of your interest-earning bonds to be sold off in exchange for money, the sale may be over. Someone else may have snapped up the video recorder on sale at half-price. This is the precautionary motive for holding money. In advance, we decide to hold money to meet contingencies the exact nature of which we cannot foresee.

Together, the transactions and the precautionary motives provide the main reasons for holding the medium of exchange. They are the motives most relevant to the benefits from holding money.

The Asset Motive for holding money. Suppose we forget all about the need to transact. We think of a wealthy individual or a firm deciding in which assets to hold wealth. At some distant date there may be a prospect of finally spending some of that wealth, but in the short run the objective is to earn a good rate of return.

Some assets, such as industrial shares, on average pay a high rate of return but are also quite risky. Some years their return is very high, but in other years it is negative. When share prices fall, shareholders can make a capital loss, which swamps any dividend payment to which they are entitled. Other assets are much less risky, but their rate of return tends to be much lower than the average return on risky assets. Since people dislike risk, they will not put all their eggs in one basket. As well as holding some risky assets, they will keep some of their wealth in safe assets. Although on average this portfolio will earn a lower rate of return, it will help avoid absolute disaster at hard times.

The asset motive for holding money arises because people dislike risk. People are prepared to sacrifice a high average rate of return to obtain a portfolio with a lower but more predictable rate of return.

VOCABULARY NOTES

currency in circulation - наличность в обращении

the opportunity costs - альтернативные издержки владения деньгами

the transactions motive for holding money - трансакционный мотив накопления денег (категория кейнсианского анализа)

to undertake transactions - проводить, совершать сделки

receipts [risi:ts] pi. - денежные поступления

the precautionary motive for holding money - мотив накопления денег на непредвиденные цели (категория кейнсианского анализа)

the precise timing - точное время

to get by - прожить, сводить концы с концами

to spot - разг. увидеть, заметить

a great bargain - хорошая вещь, которая предлагается по специальной (сниженной) цене; удачная покупка

to take advantage of - воспользоваться

to snap up - подхватить, перехватить

contingencies - случайности, непредвиденные обстоятельства

to foresee - предвидеть

the asset motive for holding money - мотив накопления денег в качестве активов (категория кейнсианского анализа)

on average - в среднем

to swamp - поглощать, сводить на нет

risky assets - неликвидные активы (долгосрочные инвестиции и ссуды;

ценные бумаги с колеблющимся курсом)

a portfolio - портфель (напр., ценных бумаг)

disaster - бедствие, крах

to sacrifice - жертвовать, приносить в жертву

predictable rate of return - предсказуемая норма прибыли

Assignments

I. Suggest the Russian equivalents

the distinguishing feature of money; in a monetary economy; the time and effort involved in undertaking transactions; snapped up the video recorder on sale at half-price; the motives most relevant to...; a capital loss, which swamps any dividend payment to which they arc entitled; will not put all their eggs in one basket; avoid absolute disaster at hard times; to sacrifice a high average rate of return; in the short run

II. Replace the parts in italics by synonyms

gives rise to; to take advantage of the opportunity, to meet contingencies, to foresee, a more predictable rate of return

III. Fill in the gaps with the words and expressions from the text

1. The narrowest measure Ml of the money supply is __ outside the banking system plus __ of commercial banks.

2. The money supply is partly __ of the Bank and partly a liability of

3. The demand for money is __ people are willing to have in hand at any given moment.

4. Holding money is not the same as __ money, as we hold money, in order to __. ,

5. It is in two main functions of money, that is, its use as a medium of __ and a store of __, that we must seek the reasons why __.

6. Without money, making transactions by __ would be __ in time and effort.

7. We need to hold money between __ and __.

8. How much money we need to hold depends on __ we wish to make and the degree __.

9. We need a given amount of __ to undertake a given quantity of __.

10. The uncertainty about __ of receipts and payments gives rise to __.

11. The precautionary motive for holding money is a decision to hold money to meet __ the exact nature of which we cannot __.

12. Together, __ and __ provide the main reasons for holding the medium of exchange as they are the motives __ to the benefits from __.

13. Some assets, such as __, on average pay a high rate of return but are also __.

14. When share prices fall, __ can make __, which __ any dividend payment to which __.

15. Since people dislike risk, they will not __.

16. Although on average __ will earn a lower rate of return, it will help avoid __ at hard times.

17. People are prepared to sacrifice __ to obtain a portfolio with a lower but __ rate of return.

IV. Find in the text English equivalents for the following

наличность в обращении; денежные обязательства банка; текущий (чековый) счет; путем непосредственного обмена; трансакционный мотив накопления денег; мотив накопления денег на непредвиденные цели;

прожить на небольшие деньги; быть готовым к случайностям, непредвиденным обстоятельствам; получать доходы и производить платежи; мотив накопления денег в качестве активов; портфель ценных бумаг

V. Answer the questions

1. What is the money supply?

2. What determines the demand for money?

3. What are the reasons for holding money? How do people hold their money?

4. Dwell on each motive for holding money.

VI. Translate into English using all the active possible

1. Одна из причин спроса на деньги состоит в том, что люди нуждаются в деньгах как в средстве обращения, то есть в удобном способе приобретения товаров и услуг. Домашние хозяйства должны иметь достаточное количество денег, чтобы делать покупки, платить по счетам и т. д. Предприятиям деньги нужны для оплаты труда, материалов, энергии и т. д. Необходимые для этих целей деньги называются спросом на деньги для сделок.

2. Другая причина, по которой люди держат деньги, вытекает из их функции как средства сбережения. Люди могут держать свои финансовые активы в различных формах, например: в виде акций, частных или государственных облигаций или в деньгах. Отсюда, естественно, следует, что существует спрос на деньги, как на финансовые активы.

3. В узком смысле предложение денег, обозначаемое Ml, состоит из двух элементов: наличности, то есть металлических и бумажных денег, находящихся в обращении, и чековых (бессрочных) вкладов, то есть вкладов в коммерческих банках, различных сберегательных учреждениях, на которые могут быть выписаны чеки.

THE MONEY MARKET (РЫНОК ДЕНЕГ)

The money market comprises the demand for money and the money supply. The equilibrium in the money market is such a state of balance when the demand for money from households and businesses is satisfied by the quantity of the money supplied. The equilibrium in the money market is reached by changing bond prices.

People can hold their wealth in various forms -- money, bonds, equities, and property. For simplicity we assume that there are only two assets: money, the medium of exchange that pays no interest, and bonds, which we use to stand for all other interest-bearing assets that are not directly a means of payment. As people earn income, they ad to their wealth. As they spend, they deplete their wealth. How should people divide their wealth at any instant between money and bonds to gain the best profits possible and not to incur losses?

There is an obvious cost of holding money. The opportunity cost of holding money is the interest one would have gained if he (she) had held bonds. It naturally follows that people will hold money rather than bonds only if there is a benefit to offset this cost, only if holding money is more profitable than holding bonds. It may happen only when interest rates on bonds are too low to make it profitable to hold bonds.

Suppose the money market is in equilibrium when the interest rate on interest-bearing assets (e.g. Treasury bills and other securities) is 6% and the amount of money demanded is $200 mm. Now suppose the interest rate goes down, say, to 4%. In this case interest-bearing assets are no longer profitable as they can't earn a sufficient return. Hence the demand for money will rise and will lead to a temporary lack of money in the money market. If they lack money, households and businesses are likely to sell bonds they possess for cash. That will cause an increase in the bond supply, which lowers bond prices and rises interest rates on interest-bearing assets. With a higher interest rate the amount of money people are willing to have in hand will decrease again. Consequently, the money supply will adjust to a current demand to reflect a new higher interest rate.

Conversely, the increase in the money supply creates its temporary surplus, which results in the demand for bonds and bond prices going up. The interest rate falls thus restoring balance in the money market, but at a new lower interest rate.

VOCABULARY NOTES

equities (syn. ordinary shares, equity shares, ordinary stocks) - обыкновенные акции

to deplete - истощать, исчерпывать obvious - очевидный

to offset - возмещать

Treasury bills - казначейские векселя

consequently - следовательно, поэтому

conversely - наоборот

temporary surplus - временный избыток, излишек

Assignments

I. Suggest the Russian equivalents

interest-bearing assets are no longer profitable; to sell bonds they possess for cash; the supply will adjust to the current demand; we use to stand for all other interest-bearing assets; thus restoring balance

II. Replace the parts in italics by synonyms

to offset this cost

III. Fill in the gaps with the -words and expressions from the text

1. The money market comprises __ and __.

2. The equilibrium in the money market is such __ when the demand for money from __ is satisfied by the quantity of __.

3. The equilibrium in the money market is reached by __.

4. Money is the medium of __ that __.

5. We use bonds to stand for all other __ that are not directly __.

6. As people cam income, they __ their wealth. As they spend, they __ their wealth.

7. __ of holding money is the interest one __ if he (she) __ bonds.

8. People will hold money rather than bonds only if holding money is __ than holding bonds, that is when __ on bonds are __ to make it profitable to

9. In case the interest rate goes down __ are no longer profitable as they can't __.

10. The demand for money will rise and will lead to __ in the money market.

11. If they lack money, households and businesses are likely to __ they possess __.

12. If there is an increase in the bond supply, it will __ bond prices and __ interest rates on __.

13. The money supply will __ to a current demand to __ a new higher interest rate.

14. The increase in the money supply creates its __, which results in __.

IV. Find in the text English equivalents for the following

равновесие денежного рынка; временная нехватка (избыток) денег;

иметь на руках; быть в равновесии; восстанавливать равновесие; достичь равновесия; активы (облигации), приносящие процентный доход; увеличивать богатство; исчерпывать (истощать) богатство; для простоты допустим, что...; альтернативные издержки владения деньгами; компенсировать издержки

V. Answer the questions

1. Explain in your own words the term "opportunity costs". What is the opportunity cost of holding money?

2. What's the equilibrium in the money market? How can it be reached?

3. How does the money market work?

VI. Translate into English using all the active possible

1. Для экономики плох как недостаток, так и избыток денег, так как первый ведет к снижению расходов во врем|я упадка, а последний - к обесценению денег и снижению их покупательной способности во время инфляции.

2. Денежный рынок объединяет спрос и предложение денег для определения равновесной ставки процента.

3. Равновесие денежного рынка устанавливается посредством изменения цен на облигации. С изменением цен на облигации процентные ставки меняются в обратном направлении. При равновесной ставке процента цены на облигации постоянны, а спрос и предложение денег равны.

4. Уменьшение предложения создает временную нехватку денег на денежном рынке. Люди и учреждения пытаются получить больше денег путем продажи облигаций. Поэтому предложение облигаций увеличивается, что понижает цену на облигации и поднимает процентную ставку.

5. Увеличение предложения денег создает временный их избыток, в результате чего увеличивается спрос на облигации и цена на них становится выше. Процентная ставка падает, и на денежном рынке восстанавливается равновесие.

MARKETS AND INTEREST RATES (РЫНКИ И НОРМА ПРОЦЕНТА)

For each type of investment and for many of their derivatives there is a market. There is a market in money in London. It is not a physical marketplace: dealings take place over the telephone, and the price a borrower pays for the use of money is the interest rate. There are markets in commodities. And there is a market in government bonds and company shares:

the stockmarket. The important thing is that no market is entirely independent of the others. The linking factor is the cost of money (or the return an investor can get on money). If interest rates rise or fall there is likely to be a ripple of movement through all the financial markets. Money will gravitate to where it earns the best return, commensurate with the risk the investor is prepared to take and the length of time for which he can tie up his money. This is the most important mechanism in the financial sphere. As a general rule:

* The more money you have to invest, the higher the return you can expect.

* The longer you are prepared to tie your money up, the higher the return you can expect.

* The more risk you are prepared to take, the higher the return you can expect if all goes well.

In either type of market, the buyers and the sellers may deal direct with each other or they may deal through a middleman known as a marketmaker. If they deal direct, each would-be buyer has to find a corresponding would-be seller. If there is a marketmaker, a seller will sell instead to the marketmaker, who buys on his own account in the hope that he will later be able to find a buyer to whom he can sell at a profit. Marketmakers make a book in shares or bonds. They are prepared to buy shares in the hope of finding somebody to sell to or sell shares (which they may not even have) in the expectation of finding somebody from whom they can buy to balance their books. Either way, they make their living on the difference between the prices at which they buy and sell. Marketmakers (in practice there will normally be a number of them competing with each other) lend liquidity - fluidity - to a market. A potential buyer can always buy without needing to wait until he can find a potential seller, securities can readily be turned into cash.

VOCABULARY NOTES derivatives - производные the linking factor - связующий фактор, звено a ripple of movement through all the financial markets - движение, волнение на всех финансовых рынках to gravitate - стремиться commensurate with - соразмерный to tie up - вкладывать (капитал) a middleman - посредник a marketmaker - "делатель рынка"; брокерская фирма, постоянно котирующая ценные бумаги, товар

on one's own account - на свой страх и риск; самостоятельно fluidity - подвижность

Assignments

I. Suggest the Russian equivalents

the other side of the same coin; a ripple of movement; he can sell at a profit; they make a book in shares and bonds; buy to balance their books

II. Replace the parts in italics by synonyms

money will move to where it earns the best return; investor can tie up his money; who buys on his own account.

III. Fill in the gaps with the words and expressions/row the text

1. A market in money in London is not __: dealings take place __, and the price a borrower pays for __ is __.

2. __ is a market in government bonds and company shares.

3. If interest rates rise or fall there is likely to be __ through all the financial markets.

4. Money __ to where it earns the best return, __ with the risk the investor __ and the length of time for which he can __ his money.

5. The more money you __, the higher the return you __.

6. The longer you are prepared to __, the higher the return __.

7. The more risk you __, the higher __.

8. If the buyers and the sellers deal direct, each __ has to find a corresponding __.

9. A marketmaker buys __ in the hope that he will later be able to find a buyer to whom he can __.

10. Marketmakers are prepared to buy shares __ of finding somebody to sell to or sell shares __ of finding somebody from whom they can buy to __.

11. Marketmakers make their living on __ at which they buy and sell.

12. Marketmakers lend __ to a market.

IV. Find in the text English equivalents for the following

рынок товаров; рынок акций; лежать в основе; перемещаться; вложить деньги; наибольшая прибыль, соизмеримая (соразмерная) с риском;

посредник, известный как "создатель рынка"; потенциальный (2 варианта) покупатель и продавец; на свой страх и риск; в надежде (2 варианта)

V. Check your grammar

the + comparative... the + comparative

e.g. the sooner the better

Make sentences using this construction, like this:

much money to invest - a high return

The more money you have to invest, the higher the return you can expect.

1. to produce goods and services -- to enjoy a high standard of living

2. a high standard of living - a lot of expenditure on luxury items

3. wide advertising -- high sales

4. high prices for some goods - low sales

5. a great demand - high prices - much profit

6. injections into the economy -- the size of the circular flow of income and the level of the activity in the economy increase

7. the severe inflation - the rise in the general price level - the fall in the purchasing power

Add some more sentences of your own on inflation, the money supply and the demand for money, the money market etc.

VI. Answer the questions

1. What are different types of investment and what are the corresponding markets? Dwell on each item.

2. What is a marketmaker? How does he make the market?

VII. Translate into English using all the active possible

1. Вкладывая деньги в различные банки и инвестируя их в различные фонды, инвестор всегда преследует цель получить наибольшую прибыль, соизмеримую с риском.

2. Фондовая биржа - это посредник между потенциальными покупателями и продавцами государственных облигаций, акций компаний и других ценных бумаг.

3. В основе любого рынка, в т.ч. рынка ценных бумаг, лежит принцип равновесия между теми, кто хочет продать, и теми, кто хочет купить акции.

PRIMARY AND SECONDARY MARKETS (ПЕРВИЧНЫЙ И ВТОРИЧНЫЙ РЫНКИ)

Fixed-interest securities and ordinary shares are the main stock-in-trade of the securities markets and the Stock Exchange is the main securities market in the UK (and the New York Stock Exchange is the largest in the USA). By buying one or the other, investors arc helping - directly or indirectly - to provide the finance that government or industry needs. Why "directly or indirectly"? Because the stockmarket is two markets in one: a primary market and a secondary market.

A primary market is one in which the government, companies or other bodies can sell new securities to investors to raise cash.

A secondary market is a market in which the investors can buy and sell these securities among each other. The buying and the selling in the secondary market does not directly affect the finances of government and companies. But if investors did not know they could buy and sell securities in the secondary market they might well be reluctant to put up cash for the government or companies by buying securities in the primary market when they were first issued. And the prices established by the buying and selling by investors in the secondary market help to determine the price that government and companies will have to pay next time they need to issue further securities for cash in the primary market. A reasonably liquid secondary market is normally considered vital for a healthy primary market.

VOCABULARY NOTES

stock-in-trade - товарная наличность; товар

the Stock Exchange - Лондонская фондовая биржа

to be reluctant to do smth - неохотно делать что-либо

Assignments

I. Suggest the Russian equivalents

sell securities to raise cash; might be reluctant to put up cash for the government; to issue further securities for cash

II. Replace the parts in italics by synonyms

might be reluctant to put up cash for the government; directly affect the finances; are helping to provide the finance; is considered vital

III. Fill in the gaps with the words and expressions from the text

1. By buying __ and __ investors are helping to __ that government or industry needs.

2. The stockmarket is two markets in one: a __ market and __ market.

3. A primary market is a market in which the government, companies or other bodies can sell __ to investors to __.

4. A secondary market is a market in which __ can buy and sell these securities __.

5. If investors did not know they could trade securities in __ they might __ to put up cash for the government or companies by buying securities __ when they were __.

6. The prices established by investors in the secondary market help to __ the price that government and companies will have to pay next time they need to __ further securities __ in __.

7. A __ secondary market is normally considered __ for a __.

IV. Find in the text English equivalents for the following рынок ценных бумаг; фондовая биржа; первичный рынок; вторичный рынок

V. Answer the questions

1. What is a primary market?

2. What is a secondary market?

3. How are they interconnected?

VI. Translate into English using all the active possible

Все рынки взаимосвязаны: процентные ставки влияют на цены облигаций и акций на фондовом рынке; цены акций и облигаций влияют на состояние финансов компаний и правительства, что меняет ситуацию на денежном рынке. Это, в свою очередь, имеет огромное значение для состояния экономики в целом и поднимает или понижает стоимость национальной валюты на внешнем валютном рынке (the foreign exchange market).

MONETARY POLICY (КРЕДИТНО-ДЕНЕЖНАЯ ПОЛИТИКА)

Monetary policy is one of the main instruments of macroeconomics. It is based on the ability of the Central bank to control the money supply, which leads to changes in interest rates and the exchange rate, and therefore in the amount of investment, which influences directly the national output. This method of controlling the economy centres on adjusting the amount of money in circulation in the economy and so the level of spending and economic activity. Monetary policy was first employed as a means of control in the 1950s, but has been more widely used since the 1970s. The Central Bank plays a major role in the implementation of a nation's monetary policy. In some countries (for example, Germany) the Central Bank operates monetary policy independent of government policy. However, the UK's Central Bank, the Bank of England, implements monetary policy on behalf of the government. Monetary policy has three main aspects:

Controlling the money supply

Controlling interest rates

Managing the exchange rate

In this section we study the ways in which a central bank can control the supply of money in the economy. The aim of the authorities when controlling the money supply is to limit the amount borrowed, and hence spent, by businesses and individuals during a inflationary period. It is hoped in this way to limit the level of overall demand in the economy and thus to remove or reduce inflationary pressure. During a recession monetary policy is aimed at increasing the money supply to encourage spendings. We now describe the three most important instruments available to affect the money supply: open market operations, reserve requirements and the discount rate.

Open Market Operations. Операции на открытом рынке

Open market operations are the most important way of controlling the money supply. It refers to the Bank trading government bonds in the open market - that is when they are bought from and sold to commercial banks and individuals.

When the Bank sells government bonds in the open market, the Bank withdraws the money from population and reduces the money supply. When the Bank buys government bonds in the open market, it increases the amount of money in circulation and hence the money supply.

Reserve Requirements. Резервные требования

To understand the way a central bank can influence the money supply we should consider the creation of money by commercial banks and in this connection introduce the money multiplier.

Banks have to hold a proportion of their assets as a reserve in case customers demand repayment of their deposits. This required reserve has to be in a liquid form, that is easily convertible into cash. Many banks indeed hold a significant proportion of this reserve as notes and coin either in their vaults or at the central bank. A required reserve ratio (%) is a minimum ratio of cash reserves to deposits that the central bank requires commercial banks to hold. Commercial banks can hold more than the required cash reserves (this amount of money is called excess reserves and is used to create new money), but they cannot hold less. If their cash falls below the required amount, they must immediately borrow cash, usually from the central bank, to restore their required reserve ratio.

Commercial banks can make loans, i.e. they can create money and increase their excess reserves. Suppose somebody deposited $100 with bank A. If a required reserve ratio is 20%, the bank has $20 as required reserves and $80 as excess reserves, which can be lended. If a borrower draws a cheque for this whole sum and deposits it with bank B, then bank В gets $80 as its assets. Bank В is to hold 20% of this sum (that is $16) as required reserves. It means it has $64 of excess reserves, which it can lend to somebody. Tabl. 8 illustrates the process with banks C, D, E, etc. being involved.

Tabl. 8. The expansion of the money supply by a system of commercial banks

Bank

Reserves and Loans, $

Required Reserves, $

Excess Reserves, $

Created Money (the amount of money to lend), $

Bank A Bank В Bank С BankD Other banks

100,00 80,00 64,00 51,20 204,80

20,00 16,00 12,80 10,24 40,96

80,00 64,00 51,20 40,96 163,84

80,00 64,00 51,20 40,96 163,84

The total amount of the money created

400,00

The money multiplier (m) shows the maximum amount of money, which can be created by one dollar of excess reserves, the required reserve ratio given. The money multiplier is Inversely proportional to the required reserve ratio, or

m = 1 / R, where

m - a money multiplier

R - a required reserve ratio

So we can see that the larger the required reserve ratio is the smaller the money multiplier is; the less money can be created and the less the money supply is.

Now suppose the commercial banking system has $1 million in cash and for strictly commercial purposes would normally maintain cash reserves equal to 5% of sight deposits. Since sight deposits will be 20 times cash reserves, the banking system will create $20 million of sight deposits against its $1 million cash reserves:

cash reserves $1 mln - 5%

sight deposits x - 100%

x = $1 mln x 100% : 5% = $20 mm.

Suppose the Bank now imposes a reserve requirement that banks must hold cash reserves of at least 10% of sight deposits. Now banks can create only $10 million sight deposits against their cash reserves of $1 million. Thus a reserve requirement acts like a tax on banks by forcing them to hold a higher fraction of their total assets as bank reserves and a lower fraction as loans earning high interest rates.

Thus, when the central bank imposes a reserve requirement in excess of the reserve ratio that prudent banks would anyway have maintained, the effect is to reduce the creation of bank deposits, reduce the value of the money multiplier, and reduce the money supply. Similarly, when a particular reserve requirement is already in force, any increase in the reserve requirement will reduce the money supply.

The Discount Rate. Учетная ставка

The second instrument of monetary control available to the central bank is the discount rate.

The discount rate is the interest rate that the Bank charges when the commercial banks want to borrow money.

Suppose banks think the minimum safe ratio of cash to deposits is 10%. Say their cash reserves are 12% of deposits. How far dare they let their cash reserves fall towards the minimum level of 10%?

Banks have to balance the interest rate they will get on extra lending with the dangers and costs involved if there is a sudden flood of withdrawals, which push their cash reserves below the critical 10% figure. This is where the discount rate comes in. Suppose market interest rates are 8% and the central bank makes it known it is prepared to lend to commercial banks at 8%. Commercial banks may as well lend up to the hilt and drive their cash reserves down to the minimum 10% of deposits. The banks are lending at 8% and, if the worst comes to the worst and they are short of cash, they can always borrow from the Bank at 8%. Banks cannot lose by lending as much as possible.

Suppose however that the Bank announces that, although market interest rates arc 8%, it will lend to commercial banks only at the penalty rate of 10%. Now a bank with cash reserves of 12% may conclude that it is not worth making the extra loans at 8% interest that would drive its cash reserves down to the minimum of 10% of deposits. There is too high a risk that sudden withdrawals will then force the bank to borrow from the Bank at 10% interest. It will have lost money by making these extra loans. It makes more sense to hold some excess cash reserves against the possibility of a sudden withdrawal.

Thus, by setting the discount rate at a penalty level in excess of the general level of interest rates, the Bank can induce commercial banks voluntarily to hold additional cash reserves. Since banks have to hold more cash as reserves, the money multiplier is reduced, less money can be created and the money supply is lower.

VOCABULARY NOTE

instruments of macroeconoinics - макроэкономические инструменты

to control the money supply - контролировать предложение денег

the exchange rate - обменный (валютный) курс

the amount of investment - размер капиталовложений

to adjust the amount of money in circulation - корректировать количество денег в обращении

implementation of a nation's monetary policy - осуществление, проведение в жизнь национальной денежно-кредитной политики

to implement - выполнять, осуществлять, обеспечивать выполнение

the Bank of England - Банк Англии (Английский банк). The Bank of England is the UK's central bank. Established in 1694, it plays a key part in implementing the government's monetary policy. It ensures that interest rates are at the level desired by the government of the day and oversees the printing of notes and coin. It has wider responsibilities in managing the nation's debt and holding its reserves of foreign currency and gold. Thus, it holds responsibility for the country's monetary policy and its financial relations with other countries.

on behalf of - от имени

reserve requirements - резервные требования

a discount rate - учетная ставка

the money multiplier - денежный мультипликатор

required reserves - требуемые резервные фонды

easily convertible into cash - легко обратимый в наличные (напр., депозиты, ценные бумаги)

a required reserve ratio - требуемая резервная норма

cash reserves - кассовые резервы

excess reserves - избыточные резервы

to draw (syn. to write out, to make out, to issue) a cheque - выписать чек

created money - созданные деньги

inversely proportional (ant. directly proportional) - обратно пропорциональный

to maintain - поддерживать

to impose a reserve requirement - налагать (вводить) резервное требование

fraction - часть, доля

in excess of smth - сверх чего-либо

prudent - расчетливый, предусмотрительный

in force - в силе

to charge - назначать, начислять

to lend up to the hilt - зд. продолжать предоставлять ссуды

up to the hilt - полностью, целиком

drive their cash reserves down to... - довести (снизить) свои кассовые резервы до...

if the worst comes to the worst - если случится самое худшее

they are short of cash - у них не хватит наличных денег

the penalty rate - повышенная (штрафная) ставка

it is not worth making the extra loans - не стоит предоставлять дополнительных займов

to induce smb to do smth (syn. to cause smb to do smth) - заставить кого-то сделать что-то

voluntarily - сознательно, осознанно

Assignments

I. Suggest the Russian equivalents

to restore their required reserve ratio; maintain cash reserves equal to 5% of sight deposits; create $20 million of sight deposits; a higher fraction of their total assets; a lower fraction as loans; the interest rate that the Bank charges;

extra lending; impose a reserve requirement; the dangers and costs involved;

prudent banks; lend up to the hilt; the minimum safe ratio of cash to deposits;

flood of withdrawals; the Bank can induce banks voluntarily to hold additional cash reserves; the required reserve ratio given

II. Replace the parts in italics by synonyms

implements monetary policy; plays a major role; operates monetary policy;

extra lending; if the worst comes to the worst; they are short o/"cash; to affect the money supply; in excess of the reserve ratio

III. Fill in the gaps with the words and expressions from the text

1. Monetary policy is a method of controlling the economy that centres on __ the amount of money __ in the economy and so __ and __.

2. In some countries the Central Bank operates monetary policy __ government policy, but the UK's Central Bank implements monetary policy __ the government.

3. Monetary policy has three main aspects: controlling __, controlling __, managing __.

4. The aim of the authorities when controlling the money supply is __, and hence __, by businesses and individuals during __.

5. It is hoped to limit the level of __ in the economy and thus to remove or reduce __.

6. During a recession monetary policy is aimed at __ to __ spendings.

7. The three most important instruments __ the money supply are __ , __ and __.

8. Open market operations refer to the Bank trading government bonds __, that is when they are bought from and sold to __.

9. When the Bank sells __ in the open market, the Bank __ the money from population and __ the money supply.

10. When the Bank buys government bonds in the open market, it __ the amount of money __ and hence __.

11. Banks have to hold a proportion of their assets __ in case customers demand __.

12. The required reserve has to be __, that is easily __ into cash.

13. __ is a minimum ratio of __ to __ that the central bank requires commercial banks to hold.

14. If cash of commercial banks __ the required amount, they must immediately __ cash, usually from __, to restore their __.

15. Commercial banks can make loans, i.e. they can __ and increase __.

16. The money multiplier (m) shows __, which can be created by one dollar of __, the required reserve ratio __.

17. The money multiplier is __ to the required reserve ratio, it means that the larger __ is the smaller __ is; the less money __ and the less __ is.

18. Since sight deposits will be 20 times cash reserves, the banking system will create $20 million of__ against its $1 million __.

19. A reserve requirement acts like __ by forcing them to hold __ of their total assets as __ and __ as loans earning __.

20. When the central bank imposes a reserve requirement __ the reserve ratio, the effect is to reduce __, reduce __, and reduce __.

21. When a particular reserve-requirement is already __, any increase in __ will reduce __.

22. The discount rate is __ that the Bank __ when the commercial banks want __.

23. Banks have to balance __ they will get on extra lending with __ if there is __, which push their cash reserves __.

24. Commercial banks may as well lend up __ and __ their cash reserves __ to the minimum.

25. If the worst __ and commercial banks __, they can always __ the Bank.

26. The Bank announces that it will lend to commercial banks only at __.

27. If the Bank imposes a penalty rate, a commercial bank may conclude that __ making the extra loans.

28. There is too high a risk that __ will then force the bank to __ the Bank at the penalty interest rate.

29. It makes more sense to hold __ against the possibility of __.

30. By setting the discount rate at __ in excess of __ of interest rates, the Bank can __ commercial banks __ to hold __.

31. Since banks have to hold more cash as reserves, __ is reduced, less money can __ and __ is lower.

IV. Find in the text English equivalents for the following

от имени правительства; кредитно-денежная политика; для поощрения расходов; операции на открытом рынке; резервные требования; кассовый резерв; избыточные резервы; требуемая резервная норма (уровень резервных требований); создавать деньги; денежный мультипликатор;

обратно пропорциональный; сверх резервной нормы; дисконтная (учетная) ставка; повышенная ставка; изымать деньги

V. Explain in English

a money multiplier; required reserves; excess reserves; a required reserve ratio; a discount rate

VI. Answer the questions

1. What is the aim of monetary policy?

2. Why is it important to control the money supply?

3. Dwell on open market operations.

4. Explain the creation of money by commercial banks. What does a money multiplier show?

5. Why does the Bank impose a reserve requirement? What's the effect of the Bank imposing a reserve requirement?

6. Why does a reserve requirement act like a tax on banks?

7. What is a discount rate? How does it work?

VII. Translate into English using all the active possible

1. Основополагающей целью кредитно-денежной политики является помощь экономике в достижении общего уровня производства, характеризующегося полной занятостью и отсутствием инфляции. Кредитно-денежная политика состоит в изменении денежного предложения с целью стабилизации совокупного объема производства, занятости и уровня цен. Более конкретно: кредитно-денежная' политика вызывает увеличение денежного предложения во время спада для поощрения расходов, а во время инфляции, наоборот, ограничивает предложение денег для ограничения расходов.

2. Существуют три основных средства кредитно-денежного контроля:

операции на открытом рынке, изменение резервной нормы и изменение учетной ставки.

3. Операции на открытом рынке - наиболее важное средство контроля денежного предложения. Этот термин относится к покупке и продаже государственных облигаций центральным банком на открытом рынке, то есть к покупке и продаже облигаций коммерческим банкам и населению в целом.

4. При изменении резервной нормы меняется величина денежного мультипликатора и, следовательно, денежное предложение. В основе денежного мультипликатора лежит тот факт, что резервы, потерянные одним банком, получает другой.

5. Подобно тому, как коммерческие банки взыскивают процентные платежи по своим ссудам, центральный банк взыскивает процентные платежи по ссудам, предоставленным коммерческим банкам. Такая ставка процента называется учетной ставкой.

6. Снижение учетной ставки поощряет коммерческие банки к приобретению дополнительных резервов путем заимствования у центрального банка.

7. Готовность банков давать ссуды на основе избыточных резервов периодически меняется, и в этом кроется причина государственного контроля за денежным предложением с целью обеспечить экономическую стабильность.

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