1、BUSINESS Financial Sector: An Introduction,Feb. 28 2011,Scottish Qualifications Authority,HIGHER NATIONAL DIPLOMA,Money,Gold? Yellow, glittering, precious gold? No, Gods, I am no idle votarist! . Thus much of this will make black white, foul fair, Wrong right, base noble, old young, coward valiant.
2、. Why, this Will lug your priests and servants from your sides, Pluck stout mens pillows from below their heads: This yellow slave Will knit and break religions, bless the accursed; Shakespeare in Timon of Athens:,Money,What is money?Money is a token that is widely accepted as a medium of exchange.
3、The token can be tangible like a coin or note, or intangible like a bank deposit.,Money,The history of Moneycommodity money 实物货币 金属货币convertible on demand into a valuable commodity like gold fiat money 信用货币 If the tokens are intrinsically worthless and inconvertible, the government must endow them w
4、ith a special status to make them viable as money.,Money,Barter,Money,How did currency begin to solve the problems of bartering?From 1200 B.C. to 50 B.C. different currencies were invented around the world. The Chinese used a type of shell called Cowrie shells and metal tools as money, while the Ath
5、enians used nails and the Saxons, sword blades. Even polished volcanic rock was used as money in parts of America.The objects were easy to carry and tough so could be kept and be stored for along time.However, there were still problems. Objects werent easy to divide into smaller amounts, so you coul
6、dnt make up differences in amounts (or give people change), and with so mangy different currencies being used, people couldnt always agree on what things were worth.So, there were still lots of problems with using these objects as currency. Coins and notes were the way forward.,Money,How did currenc
7、y begin to solve the problems of bartering?,Money,Qualities of Money (P48) Acceptability - if money is to be an effective medium of exchange, it has to be universally acceptable (or at least acceptable within the country or origin). Divisibility - money has to be able to be conveniently split into m
8、ultiple units for convenient payment. (Cows might be a useful source of money but they would certainly lose their value if cut up to pay for small items!) Portability / convenience - money has to be convenient to carry around. (Ever tried slipping a cow into your back pocket?) Difficult to counterfe
9、it - a lot of effort goes into ensuring that people cannot easily copy money. Durability - money has to last well if it is to act as a store of value and standard of deferred payment. Your money wont fulfill these functions very well if you end up smoking it or losing it in a card game! There is a r
10、eal issue with this even with notes and coins - Five pound notes have a short life span because they are used too regularly - how long before we get a five pound coin? Uniformity - money has to be of a uniform quality to ensure that it remains universally acceptable. Limited in supply - if it is to
11、maintain its value, the supply of money has to stay limited. Using leaves as money, for example, would create a money supply problem in the autumn! This last point is the reason why cigarettes have been used as currency in the past - it is because they were limited in supply relative to the demand a
12、nd therefore had some value!,Money,Functions of money A medium of exchange - probably the most obvious function of money, we need money to be able to spend. We need something that is generally acceptable as a means of payment for goods and services. A store of value - we also want to be able to use
13、money to store our wealth. We want to be able to keep money and spend it in the future as well as the present. If money is to fulfil this function, there must be price stability (low inflation), or money will lose its value over time. In other words we want to be certain (or as certain as possible)
14、that the 10 in our pocket today will buy the same amount of goods and services as 10 in three weeks time, or three months time or even three years time! A unit of account - money has to act as a way for people to measure values of goods and services. We all have different views about the value of th
15、ings. The ring given to us by a loved one may be very valuable to us personally and may be regarded as priceless This can be overcome to some extent by a common unit of account - we all have some idea of what 10 is worth to us. A standard of deferred payment - money has to be valid for future claims
16、 as well as present ones. Firms will want to set the level of wages for the future; they want to be able to pay bills after a period of credit has expired and so on. Money has to act as a way of setting these future payments. I want to know what that the monthly wage I am going to earn will be in si
17、x months time - it gives me a standard to measure future payments made and received.,Money,Legal Tender Legal tender or forced tender is payment that, by law, cannot be refused in settlement of a debt.Legal Tender in England and Wales Bank of England notes are the only banknotes that are legal tende
18、r in England and Wales and are issued for in the amount of 5, 10, 20 and 50. United Kingdom coinage is legal tender, but in limited amounts for coins below 1.Legal Tender in Scotland and Northern Ireland Scottish notes are not legal tender anywhere in the UK, including Scotland where only the coins
19、are legal tender. Although this is the case, Scottish notes are widely accepted in return for goods throughout the UK; they have a similar legal standing to cheques or debit cards, in that their acceptability as a means of payment is essentially a matter for agreement between the parties involved.,M
20、oney,What benefits might there be for Scottish Banks issuing their own notes?PrestigeFree advertisingThere are no costs associated with holding the notes in safekeeping before putting them into circulation. They only have to be backed by a bank of England note when placed in circulation. Bank of Eng
21、land notes held by the banks have to be paid for. Any bank of England notes lying in safekeeping are a cost to the bank and are earning them no return in the interim.,Money,Coinage throughout the whole UKIn the United Kingdom, only coins valued 1 pound Sterling, 2 pounds, and 5 pounds Sterling are l
22、egal tender in unlimited amounts throughout the territory of the United Kingdom. In accordance with the Coinage Act 1971,gold sovereigns are also legal tender for any amount. The face values of sovereigns are 50p, 1, 2 and 5; their value in material worth is much higher. The United Kingdom legislati
23、on that introduced the 1 pound coin left no United Kingdom-wide legal tender banknote. Currently, 20 pence pieces, 25 pence coins and 50 pence pieces are legal tender in amounts up to 10 pounds; 5 pence pieces and 10 pence pieces are legal tender in amounts up to 5 pounds; and 1 penny pieces and 2 p
24、ence pieces are legal tender in amounts up to 20 pence.9,Money,Other Definitions used when describing MoneyConvertible and Inconvertible Money Primary Money Secondary Money Near Money or Quasi-Money Government Definitions of Money M0 (narrow monetary) M4 (broad monetary),Money,M-0: Measure of the mo
25、ney supply that includes only the most liquid (spendable) forms of money Currency: Government-issued paper money and metal coins Operational deposits at the Central Bank,Money,M-0 plus the Convertible Money Supply: M-4M-4: Measure of the money supply that includes all the components of M-0 plus the
26、forms of money that can be easily converted into spendable form Check account balance Time Deposit: Bank funds that cannot be withdrawn without notice or transferred by check Money Market Mutual Fund: Fund of short-term, low-risk financial securities purchased with the assets of investor-owners pool
27、ed by a nonbank institution Savings Deposits Credit Cards Demand Deposit: Bank account funds that may be withdrawn at any time,Introduction (P4-7),Purpose of this unitOutcomes of this UnitFinancial institution Capital market Money market,Introduction,Surplus unitsSurplus units are defined as those w
28、hose earnings from all sources is greater than their expenditure. Surplus units include households with savings.What can surplus units do with their extra amount of money?To buy things To lend to others To Repay debts To Accumulate funds,Introduction,Deficit Units Deficit units are defined as those
29、whose spending is greater than their current revenue.What are the options for deficit units to survive?To borrow from others To sell their assets on hand,Introduction,A double coincidence of wantsThe phrase double coincidence of wants was used in Jevons (1893). “The first difficulty in barter is to
30、find two persons whose disposable possessions mutually suit each others wants. There may be many people wanting, and many possessing those things wanted; but to allow of an act of barter there must be a double coincidence, which will rarely happen.“ That is, the double coincidence is the situation w
31、here the supplier of good A wants good B and the supplier of good B wants good A.,Introduction,Banks role in funds transfer from surplus unit to deficit unit,Introduction,Direct vs Indirect Lending The financial system offers two different ways to lend: direct lending through financial markets, and
32、indirect lending through financial intermediaries, such as banks, finance companies, and mutual funds.,Introduction,Direct lendingDirect lending involves the transfer of funds from the ultimate lender to the ultimate borrower, most often through a third party. An example is a private party purchasin
33、g the securities issued by a firm. The securities are usually sold to the public through an underwriter, someone who purchases them from the issuer with the intention of reselling them at a profit. The underwriter negotiates the terms of the contract with the borrower and appoints a trustee, typical
34、ly a commercial bank, to monitor compliance. Because of the costs involved, the issue of securities makes sense for the borrower only when the amount to be raised is substantial. If the security is a bond issue, the borrower is obligated to return the principal at maturity and to pay interest during
35、 the period of the loan. If the securities are equities, the borrower has no obligation to return the principal, but is expected to pay dividends. What if the lender needs his money back immediately? The only solution is to sell the security in the secondary market. However a secondary market will e
36、xist only if someone has created it.,Introduction,Indirect lendingIndirect lending is lending by the ultimate lender to a financial intermediary who pools the funds of many lenders in order to re-lend at a markup over the cost of the funds. The ultimate borrowers are normally unknown to the ultimate
37、 lenders. A lender faces less risk in indirect lending because, as a specialist in the field, the intermediary normally has a well-established credit standing. Of course, lower risk usually means less gain for the lender. Indirect lending generally offers lower cost to the ultimate borrower for smal
38、l or short-term loans. Most borrowers lack sufficient credit standing to borrow directly. Borrowers who do have that option may find it cheaper, especially for large sums. In fact it may not even be possible to borrow large sums indirectly through intermediaries. The capacity of the direct financial
39、 markets is much larger than that of even the largest intermediaries.,Introduction,Comparison of Risks The two types of lenders face different problems with borrowers in financial difficulty. With direct lending, rescheduling a loan is problematic because the relationship is generally at arms length
40、 and legalistic. The risks are often unknown to the lender. With indirect lending, the intermediary is usually in a much better position to know whether the problem is permanent or temporary. As the sole lender, the intermediary can alter the terms without having to obtain the agreement of others.,T
41、he Bank of England,History of the bank of EnglandThe Bank of England (formally the Governor and Company of the Bank of England) is the central bank of the United Kingdom and is the model on which most modern, large central banks have been based. The bank was founded by the Scotsman William Paterson
42、in 1694 to act as the English Governments banker. He proposed a loan of 1.2m to the government; in return the subscribers would be incorporated as The Governor and Company of the Bank of England with long-term banking privileges including the issue of notes. Public finances were in so dire a conditi
43、on at the time that the terms of the loan were that it was to be serviced at a rate of 8% per annum, and there was also a service charge of 4000 per annum for the management of the loan. The first governor was Sir John Houblon, who is depicted in the 50 note issued in 1994.,The Bank of England,What
44、is meant by a “Joint stock bank” ?A company that issues its shares to the public. The purchasers of these shares, the shareholders, have limited liability. Limited liability means that, once they have paid for their shares in full, the shareholders have no further liability for any debts incurred by
45、 the company in the normal course of business.,The Bank of England,The Bank Charter Act 1844 (P61) Allow the bank to control the money supply by regulating note issueThe creation of two departments of the bank of England The Issue Department The Banking Department,Situational dialog in banking indus
46、try (1),王华是银行的职员，她在开户窗口工作，负责接待新开户的顾客。今天她迎来的第一位顾客是史密斯先生。WangHua: Good morning, sir！ Can I help you?Mr.Smith: Good morning！Id like to open a bank account. WangHua：What sort of account do you want to open？Mr.Smith：It all depends. Would you please make some suggestions to me？,Situational dialog in banki
47、ng industry (1),WangHua：Certainly. Here is the introduction of our bank services. By the Way，do you open the account for your private use or for your company？Mr.Smith： For our company. WangHua：I see. Then，I suggest that you open a checking account. We can offer various check accounts. Mr.Smith：Whats
48、 your annual interest rate on checking account？WangHua：The interest rates vary from time to time. At present，it is 2.5percent.,Situational dialog in banking industry (1),Mr.Smith：Thats not bad. What procedure should I take if I want to open a current checking account？ WangHua：Quite simple. Would you please fill out these forms？ Mr.Smith： Certainly！Here you are. WangHua：Thank you. Now everything is ready. Mr.Smith：I appreciate your help. WangHua：You are welcome.,
