savings, and borrowers who wish to obtain capital
The bank is a reservoir
of
loan able money, with streams of money flowing in and out. For this
reason, economists and financiers often talk of money being “liquid”, or of
the “liquidity” of money. Many small sums which might not otherwise be
used as capital are rendered useful simply
because the bank acts as a
reservoir.
The system of banking rests upon a basis of trust. Innumerable acts
of trust build up the system of which bankers, depositors and borrowers are
part. They all agree to behave in certain predictable
ways in relation to
each other, and in relation to the rapid fluctuations of credit and debit.
Consequently, business can be done and cheques
can be written without
only legal tender visibly changing hands
Exercises
1. Answer the questions:
1. How are all values in the economic system measured?
2. What kind of money is used for general business?
3. What is the wider sense of the word “money”?
4. What originally served as a store of value?
5. What backs the US dollar?
6. How are national currencies judged nowadays?
7. Who can issue paper notes?
8. What name is given to arrangements like cheques?
9. When is credit offered?
10. When is a man’s credit good?
11. What phrase do economists use for the value of money?
12. How do we reckon the demand for money?
13. What word is used to describe the flow
of money round the economic
system?
14. What is inflation?
15. In what way do banks co-operate with governments?
2. Which of the following is true?
1. The US dollar is constant store of value.
2. Instruments of credit are accepted because they can be converted easily
into substitute money.
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