Goldsmiths and banking

Text A

Read the text and be ready to do the tasks.

Read the following words paying attention to the stress displacement and translate them.

'regulate – 'regular – 'regulative – regu'lation re'late – 'relative – re'lation – 'relatively 'devastate – 'devastating – deva'station to fi'nance – 'finance – fi'nancial

'maximize – maximi'zation to in'crease – 'increase signi'fy – sig'nificance

Once upon a time people used gold bullion as money. Wanting a safe place to store this bullion, people deposited it with goldsmiths – people who worked with gold and had guarded vaults for storing it safely – and picked it up when it was needed for making payments.

Two developments turned goldsmiths from safe keepers into bankers. First, people found that, instead of physically handing over gold as a means of payment, they could give the seller of goods a letter of transferring the ownership of the gold held by the goldsmith. This letter was what today we would call a cheque. Once cheques became acceptable in payment of purchases, people felt that the gold at the goldsmith’s was as good as gold in their pocket. The amount at the goldsmith’s for safekeeping was called a deposit. Since letters of gold ownership were more convenient to carry around than heavy gold, the invention of deposits made the payments more efficient. Second, and of greater significance, the goldsmiths noticed that they had a lot of gold lying idle in their values. People changed titles of ownership much more frequently than they came to withdraw gold from the vaults.

The goldsmith realizes some of the gold in the vault can be lent to the firm, which will eventually repay it with interest. Although the goldsmith is temporarily short of gold, it is unlikely that all the people who have previously deposited gold will suddenly ask for it back at the same time. The reserves are the amount of gold immediately available to meet depositors’ demand. The reserve ratio is the ratio of reserves to deposits.

Modern Banking. The goldsmith bankers were an early example of a financial intermediary. A financial intermediary is an institution that specializes in bringing lenders and borrowers together. In what sense are banks financial intermediaries standing between lenders and borrowers? A bank is a business and its owners or managers aim to maximize profits. A bank makes profits by lending and borrowing. To get money in, the bank offers favourable terms to potential depositors. British clearing banks offer interest on sight deposits only to important customers, but they usually offer free chequing facilities to people whose sight deposits or current accounts do not fall below a certain level. They do not charge directly for the expenses of clearing and processing cheques. And they offer interest on time deposits.

Next, the banks have to find profitable ways to lend what has been borrowed. Most is lent out as advances of overdrafts to households and firms, usually at interest rates well in excess of the rate simultaneously being paid to the bank customers with time deposits. Some is used to purchase securities such as a long-term government bonds. Some is more prudently invested in liquid assets. Although these do not pay such a high rate of interest, the bank knows it can get its money back quickly if people start withdrawing a lot of money from their sight deposits. And some money is held as cash, the most liquid asset of all.

What economic services does the bank provide? It is transforming household loans to the bank into bank loans to a wide range of people – governments wishing to finance a budget deficit, firms borrowing to build a new factory, and individuals borrowing to start a new business or buy a new home. The bank is using its specialist expertise to acquire a diversified portfolio of investments though depositors merely observe that they get an interest rate on their time deposits or free chequing facilities. Without the existence of the intermediary, depositors would have neither the time nor the expertise to decide which of these loans or investments to make. That is the economic service that the bank as an intermediary provides.

Modern banks create money by granting overdraft facilities, issuing sight deposits in excess of the cash reserves in the bank vaults. Without depositing any cash, some people are told they now have money in their bank accounts. These bank accounts are money because people can write cheques against them and use them as a means of payment.

Banks actually create money when they lend it. Here's how it works: Most of bank's loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank once again holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times.

Most of us store our money in banks. While the first banks were simply places to safely deposit money, today's banks function quite differently. Our banking system is dependent on lots of money moving around a whole lot. Banks reward people who move money through their accounts, allowing them to borrow even more money to buy ever more expensive cars, houses, and businesses. Because banking and so much of the rest of life in our society is so dependent on large stores of money moving around, those without money or those with little money are kept out of the economic system. People living on their own land, producing or trading for most of their daily needs, are considered economically unproductive for the most part, despite the material and social richness of their lives. In contrast, business people who may be millions of dollars in debt, are considered wealthy simply because they are moving a lot of money through the system.

Match a line in A with a line in B (as in the text).

A	B
1. meet 2. remain 3. reach 4. become 5. borrow 6. issue 7. write 8. maximize 9. grant 10. offer	a) sight deposits b) cheques c) acceptable d) more money e) terms f) stable g) a record h) profits i) demands j) overdraft facilities

Match up the words with a close meaning.

1. deposit 2. transfer 3. vault 4. convenient 5. prudent 6. diversity 7. wealthy 8. despite 9. grant 10. acquire 11. change

a) put down, lay, store for safekeeping b) safe, storehouse, depository c) suitable, handy, easy d) careful e) rich f) in spite of g) gain, obtain, receive, get h) present, subsidize, agree i) alter j) variety k) change position, move

Дата добавления: 2014-11-29