新编金融英语教程 Chapter1 Money

货币（Money）1,1货币的定义：货币是指在支付购买商品和服务的款项方面以及在清偿债务方面为人们所普遍接受的事物。

currency(指纸币和硬币)显然符合这一定义，是money的一种类型。

然而，money仅仅是被定义为currency对于现在的人们来说太狭隘了，因为事实上不仅可以通过currency(货币，指硬币和纸币)进行支付，还可以通过支票转账和电子转账来进行支付。

因此，支票也作为被接受的用于购买的支付工具，支票账户存款也被认为是种货币。

有时，就有必要使用货币（money）的广义定义，因为如果money可以很便捷的转换为currency,那么像储蓄存款等实际上也可以发挥货币的作用。

1.2货币的类型1.2.1商品货币：商品货币或者实物货币是一种其价值来源于制作商品的货币，制作商品货币或实物货币的商品本身也拥有价值同时也可作为货币来使用。

曾被用来作为交换媒介的商品有金、银、铜、盐、大的石头、装饰的腰带、贝壳、酒、烟、大麦等。

实际上，在过去的4000年期间，主要的商品货币是贵金属：大多数是银、金，也称为足值货币，贵金属货币阶段是商品货币的阶段之一。

几乎所有的国家都曾经经历过贵金属货币（是货币的一种完美的形式）阶段。

1.2.2代用货币：代用货币或者代用足值货币是指完全有贵金属作为支持的货币。

代用货币的价值与商品有着直接固定的关系，然而它们本身并不是由商品构成。

在20世纪30年代，经济与金融危机爆发，纸币不再能兑换为贵金属，金本位制或者银本位制瓦解，主要的西方国家不得不脱离金属本位制。

因此，纸币不能再被兑换为黄金。

自那时开始，代用货币退出流通领域，信用货币就出现了。

1.2.3信用货币：信用货币既不是由特定的有价值的商品构成的也不代表特定的有价值的商品。

信用货币的价值取决于其普遍接受程度（而普遍接受程度又是以发行者的信用为基础的），信用货币是通过信用流程发行的。

信用货币有两个特征：一是和贵金属的联系，另一个其价值是基于国家政府和银行的信用。

Chapter One MONEYWarming upLook at the pictures above and try to answer the following questions.1.What do the pictures show?2.How many stages of development can you recognize from the pictures shown above?3.What are the advantages and disadvantages of the different forms of monies? Text AWHAT IS MONEYP1 If you had lived in America before the Revolutionary War, your money might have consisted primarily of Spanish doubloons (silver coins that were also called pieces of eight). Before the Civil War, the principal forms of money in the United States were gold and silver coins and paper notes, called banknotes, issued by private banks. Today, you use not only coins and dollar bills issued by the government as money, but also checks written on accounts held at banks. Money has been different things at different times, but it has always been important to people and to the economy.P2 To understand the effects of money on the economy, we must understand exactly what money is. In this chapter, we develop precise definitions by exploring the functions of money, looking at why and how it promotes economic efficiency, tracing how its forms have evolved over time, and examining how money is currently measured.1.Meaning of moneyP3 As the word money is used in everyday conversation, it can mean many things, but to economists, it has a very specific meaning. To avoid confusion, we must clarifyhow economists’ use of the word money differs from conventional usage.P4 Economists define money (also referred to as the money supply) as anything that is generally accepted in payment for goods or services or in the repayment of debts. Currency, consisting of dollar bills and coins, clearly fits this definition and is one type of money. When most people talk about money, they’re talking about currency (paper money and coins). If, for example, someone comes up to you and says, “Your money or your life,” you should quickly hand over all your currency rather than ask, “What exactly do you mean by ‘money’?”P5 To define money merely as currency is much too narrow for economists. Because checks are also accepted as payment for purchases, checking account deposits are considered money as well. An even broader definition of money is often needed, because other items such as savings deposits can, in effect, function as money if they can be quickly and easily converted into currency or checking account deposits. As you can see, no single, precise definition of money or the money supply is possible, even for economists.P6To complicate matters further, the word money is frequently used synonymously with wealth. When people say, “Joe is rich—he has an awful lot of money,”they probably mean that Joe not only has a lot of currency and a high balance in his checking account but also has stocks, bonds, four cars, three houses, and a yacht. Thus, while“currency”is too narrow a definition of money, this other popular usage is much tooP7broad. Economists make a distinction between money in the form of currency, demand deposits, and other items that are used to make purchases and wealth, the total collection of pieces of property that serve to store value. Wealth includes not only money but also other assets such as bonds, common stock, art, land, furniture, cars, and houses.2.Functions of MoneyP8Whether money is shells or rocks or gold or paper, it has three primary functions in any economy: as a medium of exchange, as a unit of account, and as a store of value. Of the three functions, its function as a medium of exchange is what distinguishes money from other assets such as stocks, bonds, and houses.2.1 Medium of ExchangeP9In 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 minimizing the time spent in exchanging goods and services. To see why, let’s look at a barter economy, one without money, in which goods and services are exchanged directly for other goods and services.P10Take the case of Ellen the Economics Professor, who can do just one thing well: give brilliant economics lectures. In a barter economy, if Ellen wants to eat, she must find a farmer who not only produces the food she likes but also wants to learn economics. As you might expect, this search will be difficult and time-consuming, and Ellen might spend more time looking for such an economics-hungry farmer than she will teaching. It is even possible that she will have to quit lecturing and go into farming herself. Even so, she may still starve to death.P11The time spent trying to exchange goods or services is called a transaction cost. In a barter economy, transaction costs are high because people have to satisfy a “double coincidence of wants”—they have to find someone who has a good or service they want and who also wants the good or service they have to offer.P12Let’s see what happens if we introduce money into Ellen the Economics Professor’s world. Ellen can teach anyone who is willing to pay money to hear her lecture. She can then go to any farmer (or his representative at the supermarket) and buy the food she needs with the money she has been paid. The problem of the double coincidence of wants is avoided, and Ellen saves a lot of time, which she may spend doing what she does best: teaching.P13As this example shows, money promotes economic efficiency by eliminating much of the time spent exchanging goods and services. It also promotes efficiency by allowing people to specialize in what they do best. Money is therefore essential in an economy: It is a lubricant that allows the economy to run more smoothly by lowering transaction costs, thereby encouraging specialization and division of labor.P14The need for money is so strong that almost every society beyond the most primitive invents it. For a commodity to function effectively as money, it has to meet several criteria: (1) It must be easily standardized, making it simple to ascertain its value; (2) it must be widely accepted; (3) it must be divisible, so that it is easy to “make change”; (4) it must be easy to carry; and (5) it must not deteriorate quickly. Objects that have satisfied these criteria have taken many unusual forms throughout human history, ranging from wampum (strings of beads) used by Native Americans; to tobacco and whiskey, used by the early American colonists; to cigarettes, used in prisoner-of-war camps during World War II. The diverse forms of money that have been developed over the years is as much a testament to the inventiveness of the human race as the development of tools and language.2.2 Unit of AccountP15The 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 terms of money, just as we measure weight in terms of pounds or distance in terms of miles. P16 To see why this function is important, let’s look again at a barter economy, in which money does not perform this function. If the economy has only three goods—say, peaches, economics lectures, and movies—then we need to know only three prices to tell us how to exchange one for another: the price of peaches in terms of economics lectures (that is, how many economics lectures you have to pay for a peach), the price of peaches in terms of movies, and the price of economics lectures in terms of movies. If there were 10 goods, we would need to know 45 prices to exchange one good for another; with 100 goods, we would need 4,950 prices; and with 1,000 goods, 499,500 prices.P17 Imagine how hard it would be in a barter economy to shop at a supermarket with 1,000 different items on its shelves and be faced with deciding whether chicken or fish is a better buy if the price of a pound of chicken were quoted as 4 pounds of butter and the price of a pound of fish as 8 pounds of tomatoes. To make it possible to compare prices, the tag on each item would have to list up to 999 different prices, and the time spent reading them would result in very high transaction costs.P18 The solution to the problem is to introduce money into the economy and have all prices quoted in terms of units of that money, enabling us to quote the price of economics lectures, peaches, and movies in terms of, say, dollars. If there were only three goods in the economy, this would not be a great advantage over the barter system, because we would still need three prices to conduct transactions. But for 10 goods we would need only 10 prices; for 100 goods, 100 prices; and so on. At the 1,000-goods supermarket, now only 1,000 prices need to be looked at, not 499,500!P19 We can see that using money as a unit of account lowers transaction costs in an economy by reducing the number of prices that need to be considered. The benefits of this function of money grow as the economy becomes more complex.2.3 Store of ValueP20Money also functions as a store of value; it is a repository of purchasing power over time. A store of value is used to save purchasing power from the time income is received until the time it is spent. This function of money is useful, because most of us do not want to spend our income immediately upon receiving it, but rather prefer to wait until we have the time or the desire to shop.P21Money is not unique as a store of value; any asset—whether 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?P22The answer to this question relates to the important economic concept of liquidity, the relative ease and speed with which an asset can be converted into a medium of exchange. Liquidity is highly desirable. Money is the most liquid asset of all becauseit is the medium of exchange; it does not have to be converted into anything else to make purchases. Other assets involve transaction costs when they are converted into money. When you sell your house, for example, you have to pay a brokerage commission (usually 4–6% of the sales price), and if you need cash immediately to pay some pressing bills, you might have to settle for a lower price if you want to sell the house quickly. Because money is the most liquid asset, people are willing to hold it even if it is not the most attractive store of value.P23How good a store of value money is depends on the price level. A doubling of all prices, for example, means that the value of money has dropped by half; conversely, a halving of all prices means that the value of money has doubled. During inflation, when the price level is increasing rapidly, money loses value rapidly, and people will be more reluctant to hold their wealth in this form. This is especially true during periods of extreme inflation, known as hyperinflation, in which the inflation rate exceeds 50% per month.P24 Hyperinflation occurred in Germany after World War I, with inflation rates sometimes exceeding 1,000% per month. By the end of the hyperinflation in 1923, the price level had risen to more than 30 billion times what it had been just two years before. The quantity of money needed to purchase even the most basic items became excessive. There are stories, for example, that near the end of the hyperinflation, a wheelbarrow of cash would be required to pay for a loaf of bread. Money was losing its value so rapidly that workers were paid and given time off on several occasions during the day to spend their wages before the money became worthless. No one wanted to hold on to money, so the use of money to carry out transactions declined and barter became more and more dominant. Transaction costs skyrocketed, and, as we would expect, output in the economy fell sharply.3.Evolution of the Payments SystemP25We can obtain a better picture of the functions of money and the forms it has taken over time by looking at the evolution of the payments system, the method of conducting transactions in the economy. The payments system has been evolving over centuries, and with it the form of money. At one point, precious metals such as gold were used as the principal means of payment and were the main form of money. Later, paper assets such as checks and currency began to be used in the payments system and viewed as money. Where the payments system is heading has an important bearing on how money will be defined in the future.3.1 Commodity MoneyP26To obtain perspective on where the payments system is heading, it’s worth exploring how it has evolved. For any object to function as money, it must be universally acceptable; everyone must be willing to take it in payment for goods and services. An object that clearly has value to everyone is a likely candidate to serve as money, and a natural choice is a precious metal such as gold or silver. Money made upof precious metals or another valuable commodity is called commodity money, and from ancient times until several hundred years ago, commodity money functioned as the medium of exchange in all but the most primitive societies. The problem with a payments system based exclusively on precious metals is that such a form of money is very heavy and is hard to transport from one place to another. Imagine the holes you’d wear in your pockets if you had to buy things only with coins! Indeed, for large purchases such as a house, you’d have to rent a truck to transport the money payment.3.2 Fiat MoneyP27The next development in the payments system was paper currency (pieces of paper that function as a medium of exchange). Initially, paper currency carried a guarantee that it was convertible into coins or into a fixed quantity of precious metal. However, currency has evolved into fiat money, paper currency decreed by governments as legal tender (meaning that legally it must be accepted as payment for debts) but not convertible into coins or precious metal. Paper currency has the advantage of being much lighter than coins or precious metal, but it can be accepted as a medium of exchange only if there is some trust in the authorities who issue it and if printing has reached a sufficiently advanced stage that counterfeiting is extremely difficult. Because paper currency has evolved into a legal arrangement, countries can change the currency they use at will. Indeed, this is what many European countries did when they abandoned their currencies for the euro in 2002.P28Major drawbacks of paper currency and coins are that they are easily stolen and can be expensive to transport in large amounts because of their bulk. To combat this problem, another step in the evolution of the payments system occurred with the development of modern banking: the invention of checks.3.3 ChecksP29 A check is an instruction from you to your bank to transfer money from your account to someone else’s account when she deposits the check. Checks allow transactions to take place without the need to carry around large amounts of currency. The introduction of checks was a major innovation that improved the efficiency of the payments system. Frequently, payments made back and forth cancel each other; without checks, this would involve the movement of a lot of currency. With checks, payments that cancel each other can be settled by canceling the checks, and no currency need be moved. The use of checks thus reduces the transportation costs associated with the payments system and improves economic efficiency. Another advantage of checks is that they can be written for any amount up to the balance in the account, making transactions for large amounts much easier. Checks are also advantageous in that loss from theft is greatly reduced and because they provide convenient receipts for purchases.P30 Two problems arise, however, with a payments system based on checks. First, it takes time to get checks from one place to another, a particularly serious problem ifyou are paying someone in a different location who needs to be paid quickly. In addition, if you have a checking account, you know that it often takes several business days before a bank will allow you to make use of the funds from a check you have deposited. If your need for cash is urgent, this feature of paying by check can be frustrating. Second, the paper shuffling required to process checks is costly; currently, the cost of processing all checks written in the United States is estimated at over $10 billion per year.3.4 Electronic PaymentP31The development of inexpensive computers and the spread of the Internet now make it cheap to pay bills electronically. In the past, you had to pay bills by mailing a check, but now banks provide websites at which you just log on, make a few clicks, and thereby transmit your payment electronically. Not only do you save the cost of the stamp, but paying bills becomes (almost) a pleasure, requiring little effort. Electronic payment systems provided by banks now even spare you the step of logging on to pay the bill. Instead, recurring bills can be automatically deducted from your bank account. Estimated cost savings when a bill is paid electronically rather than by a check exceed one dollar per transaction. Electronic payment is thus becoming far more common in the United States.3.5 E-MoneyP32Electronic payments technology can substitute not only for checks but also for cash, in the form of electronic money (or e-money)—money that exists only in electronic form. The first form of e-money was the debit card. Debit cards, which look like credit cards, enable consumers to purchase goods and services by electronically transferring funds directly from their bank accounts to a merchant’s account. Debit cards are used in many of the same places that accept credit cards and are now often becoming faster to use than cash. At most supermarkets, for example, you can swipe your debit card through the card reader at the checkout station, press a button, and the amount of your purchases is deducted from your bank account. Most banks and companies such as Visa and Master-Card issue debit cards, and your ATM card typically can function as a debit card.P33A more advanced form of e-money is the stored-value card. The simplest form of stored-value card is purchased for a preset dollar amount that the consumer pays up front, like a prepaid phone card. The more sophisticated stored-value card is known as a smart card. It contains a computer chip that allows it to be loaded with digital cash from the owner’s bank account whenever needed. In Asian countries, such as Japan and Korea, cell phones now have a smart card feature that raises the expression “pay by phone” to a new level. Smart cards can be loaded from ATM machines, personal computers with a smart card reader, or specially equipped telephones.P34A third form of electronic money is often referred to as e-cash, which is used on the Internet to purchase goods or services. A consumer gets e-cash by setting up anaccount with a bank that has links to the Internet and then has the e-cash transferred to her PC. When she wants to buy something wiThe-cash, she surfs to a store on the Web and clicks the “buy”option for a particular item, whereupon the e-cash is automatically transferred from her computer to the merchant’s computer. The merchant can then have the funds transferred from the consumer’s bank account to his before the goods are shipped.P35Given the convenience of e-money, you might think that we would move quickly to a cashless society in which all payments are made electronically. However, this hasn’t happened.4. Measuring MoneyP36The definition of money as anything that is generally accepted in payment for goods and services tells us that money is defined by people’s behavior. What makes an asset money is that people believe it will be accepted by others when making payment. As we have seen, many different assets have performed this role over the centuries, ranging from gold to paper currency to checking accounts. For that reason, this behavioral definition does not tell us which assets in our economy should be considered money. To measure money, we need a precise definition that tells us exactly which assets should be included.The Federal Reserve’s Monetary AggregatesP37The Federal Reserve System (the Fed), the central banking authority responsible for monetary policy in the United States, has conducted many studies on how to measure money. The problem of measuring money has recently become especially crucial because extensive financial innovation has produced new types of assets that might properly belong in a measure of money. Since 1980, the Fed has modified its measures of money several times and has settled on the following measures of the money supply, which are also referred to as monetary aggregates (see Table 1).P38The narrowest measure of money that the Fed reports is M1, which includes the most liquid assets: currency, checking account deposits, and traveler’s checks. The components of M1 are shown in Table 1. The currency component of M1 includes only paper money and coins in the hands of the nonbank public and does not include cash held in ATMs or bank vaults. Surprisingly, more than $3,000 cash is in circulation for each person in the United States. The traveler’s checks component of M1 includes only traveler’s checks not issued by banks. The demand deposits component includes business checking accounts that do not pay interest, as well as traveler’s checks issued by banks. The other checkable deposits item includes all other checkable deposits, particularly interest-bearing checking accounts held by households. These assets are clearly money because they can be used directly as a medium of exchange.P39Until the mid-1970s, only commercial banks were permitted to establish checkingaccounts, and they were not allowed to pay interest on them. With the financial innovation that has occurred, regulations have changed so that other types of banks, such as savings and loan associations, mutual savings banks, and credit unions, can also offer checking accounts. In addition, banking institutions can offer other checkable deposits, such as NOW (negotiated order of withdrawal) accounts and ATS (automatic transfer from savings) accounts, which do pay interest on their balances.P40 The M2 monetary aggregate adds to M1 other assets that are not quite as liquid as those included in M1: assets that have check-writing features (money market deposit accounts and money market mutual fund shares) and other assets (savings deposits and small-denomination time deposits) that can be turned into cash quickly at very little cost. Small-denomination time deposits are certificates of deposit with a denomination of less than $100,000 that can be redeemed only at a fixed maturity date without a penalty. Savings deposits are nontransaction deposits that can be added to or taken out at any time. Money market deposit accounts are similar to money market mutual funds, but are issued by banks. The money market mutual fund shares are retail accounts on which households can write checks.Table 1[Frederic S. Mishkin. The Economics of Money, Banking, and Financial Markets, 10The d., Chapter 3 What Is Money? 2013, pp.52-59]Listening Signpost words/phrases to listen forWhether in a lecture or a speech, there is much information and it’s impossible (nor is it necessary) for an English-as-a-foreign-language (EFL) student to understand every single word and phrase used by the lecturer or the speaker. Being able to listen for and catch certain signal words and phrases may help an EFL student to better get the big picture and the key points of the lecture or speech.There are two types of signal words and phrases often used by a speaker to either summarize the point(s) already elaborated or wake up and attract (or re-attract) the attention of the audience. These signal words and phrase include, but not limited to, so, therefore, but you know what, let me show you something, etc. Once these words and phrases are used, the audiences will know what comes next will be a brief summary or repetition and clarification of some previously mentioned point(s), or something important such as a new point of view, or a piece of evidence, or a keen observation, etc.Task 1 Watch the video titled Hidden Secrets of Money, from 9:00 minutes to 21:00 minutes. Listen for and write down the signpost words and phrases you have got and appreciate their function in the talk.Task 2 Below is a summary of the designated part of the video on money. Please fill in the missing words from the video.The American dollar is viewed as unreliable as __________(1) of value because it has lost much of its purchasing power since its creation as __________(2) money in 1913. It’s not backed by gold like it used to be in the past. Actually it becomes a __________(3) check against nothing. Instead of maintaining value, the dollar is said to be a __________(4), and __________(5) away people’s wealth, their purchasing power. On the other hand, __________(6) is praised as the _________(7) form of gold because it is divisible, permanent, and cannot be manipulated.Inflation is the result of __________(8) currency supply. With the __________(9) system replaced with a single currency, and without the constraint of gold, every government is racing to increase their ___________(10) currency by printing money to allow for deficit spending and bailouts of troubled institutions. As a result, inflation runs out of control and leads to revolutions in certain parts of the world.ReadingTask 1Read the text and choose the best answer from the choices for the following questions.1.The example of “Your money or your life” in para.? is meant toA.warn readers of the danger of taking currency while going out.B.point out a setback of coins and paper money.C.demonstrate how people understand money in daily life.D.suggest that economist would respond differently from common people in such a situation.2.Which of the following is NOT a purpose of the example of “Joe is rich--he has an awful lot of money” in para. ?? toA.show that people sometimes confuse money with wealth.B.disapprove a certain definition of money.C.give the word richness a new definition.D.clarify the differences between money and wealth.3.The author mentions the barter economy in para.?? mainly toA.prove that ancient people aren’t as smart as people today.B.explain the necessity of introducing a better form of exchange.C.indicate that barter should have never been used by any society.D.imply that the more specialized people are, the cheaper products will be.4.Which of the following statements about money as a store of value is the LEAST likely to be true ?A.Money is the most attractive form of store of value.B.A person who is bullish on gold may not want to hold money as a store of value.C.A person expecting deflation may want to hold on to his/her money.D.Rapid price increases may lead people to lose confidence in money as a store of value.5.In Where the payments system is heading has an important bearing on how money will be defined in the future in para.25, the word “bearing” is closest in meaning to which of the following words?A.enduranceB.supportC.mannerD.interconnection6.Which of the following is NOT one of the prerequisites to fiat money?A.advanced printing technologyB.confidence in the issuing authoritiesC.Convertibility into precious metalsernment order7.The first form of e-money isA.credit cardsB.debit cardsC.stored-valued cards。

Chapter 1The international money market trades short-term claims with an original maturity of one year or less.The international capital market trades capital market instruments with an original maturity greater than one year.The foreign exchange market is the one where foreign currencies are bought and sold in the course of trading goods, services, and financial claims among countries. Chapter 21.Money：Economists define money (also referred to as the money supply) asanything that is generally accepted in payment for goods or services or in the repayment of debts.2.Currency：One type of money：dollar bills and coins3.Medium of Exchange：In almost all market transactions in an economy, money inthe form of currency or checks is a medium of exchange; it is used to pay for goods and services.4.Transaction Cost：The time spent trying to exchange goods and services is called atransaction cost.5.Store of Value：Money also functions as a store of value; it is a repository ofpurchasing power over time. A store of value is used to save purchasing power from the time income is received until the time it is spent.6.Liquidity：Liquidity is a measure of the ease with which an asset can be turnedinto a means of payment, namely money.7.Inflation：Inflation is a sustained rise in the general price level—that is, the priceof everything goes up more or less at the same time.8.Money aggregates: We have drawn the line in a number of different places andcomputed several measures of money, called the money aggregates: M1, M2, and M3.M1=currencycurrency and various deposit accounts on which people can write checks +Traveler’s checks+Demand deposits+Other checkable depositsM2=M1M2 equals all of M1 plus assets that cannot be used directly as a means of payment and are difficult to turn into currency quickly+Small-denomination time deposits+Savings deposits and money market deposit accounts+Money market mutual fund shares (non-institutional)M3=M2M3 adds to M2 a number of other assets that are important to large institutions but not to individuals.+Large-denomination time deposits+Money market mutual fund shares (institutional)+Repurchase agreements+EurodollarsChapter 31. Depository institutions：Depository institutions are financial institutions that accept deposits from savers and make loans to borrowers .W e use the term “banks” as an alternative.2.bank：A bank is a financial institution where you can deposit your money.mercial Banks：A commercial bank is an institution that accepts deposits anduses the proceeds to make consumer, commercial, and mortgage loans. Originally established to meet the needs of businesses, many of these banks now serve individual customers as well4.holding company：A holding company is a corporation that owns a group of otherfirms.munity Banks：Small banks—those with assets of less than $1 billion—thatconcentrate on serving consumers and small businesses.These are the banks that take deposits from people in the local area and lend them back to local businesses and consumers.6.Regional and Super-Regional Banks：larger than community banks and muchless local. Besides consumer and residential loans, these banks also make commercial and industrial loans.7.Money Center Banks：do not rely primarily on deposit financing. These banks relyinstead on borrowing for their funding8.Savings Institutions：Savings institutions, which are sometimes referred to as“thrift institutions” or “thrifts”, are financial intermediaries that were established to serve households and individuals.9.Credit Union：Credit unions (CUs) are nonprofit organizationsThey are composed of members with a common bond, such as an affiliation with a particular labor union, church, university, or even residential area.Chapter 4Insurance Companies: Insurance companies are intermediaries whose primary function is to allow households and businesses to shed specific risks by buying contracts called insurance policies that pay cash compensation if certain specified events occur.1.Insurance:Insurance is a financial arrangement that redistributes the costs ofunexpected losses.2.Insurance System: An insurance system accomplishes the redistribution of thecost of losses by collecting a premium payment from every participant in the system.Marine Insurance —The large majority of ship owners resort to marine insurance for the protection of their ships, freight and other interests against marine perils.Life Insurance—Life insurance pays a stated amount of money on the death of the insured individualFire Insurance —Fire insurance covers losses due to fireProperty Insurance —property insurance covers damage to the properties of the assured subject to an agreed limit.Motor Insurance—a legally required insurance covering the driver of a car for potential damages to other road users or their vehicles from accidents caused through their fault.Accident Insurance—this type of insurance provides compensation in the event of an accident causing death or injury.Liability Insurance —this type of insurance is to protect the policyholder who is sued for damages arising from negligence.Property and casualty insurance--- Policies that cover accidents, theft, or fire are called property and casualty insurance.Health and disability insurance--- Policies that cover sickness or the inability to work are called health and disability insuranceLife insurance---Policies that cover death are called life insurance3.Premiums: Payments made to insurance companies for the insurance they provideare called premiums.4.Reinsurance: Insurance companies commonly obtain reinsurance, whicheffectively allocates a portion of their return and risk to other insurance companies.（1）Pension Funds: Like an insurance company, a pension fund offers people the ability to make premium payments today in exchange for promised payments under certain future circumstances.（2）Pension plan: A pension plan is an asset pool that accumulates over an individual’s working years and is paid out during the nonworking years.5.Installment Loans: Consumer finance firms provide small installment loans toindividual consumers.This kind of consumer credit allows people without sufficient savings to purchase appliances such as television sets, washing machines, and microwave ovens6.Mutual Funds:A mutual fund is a portfolio of stocks, bonds, or other assetspurchased in the name of a group of investors and managed by a professional investment company or other financial institution.7.Open-end mutual funds: Open-end mutual funds are willing to repurchase theshares they sell from investors at any time.8.Closed end: Closed-end mutual funds do not repurchase the shares they sell.9.Investment Bank:It is a financial institution that helps corporations raise funds.10.Securities Brokers:Securities brokers and dealers conduct trading in secondarymarkets.11.Brokers: Brokers are pure intermediaries who act as agents for investors in thepurchase or sale of securities.12.Securities Dealers: Security dealers link buyers and sellers by standing ready tobuy and sell securities at given prices.anized Exchange: An organized exchange actually functions as a hybrid of anauction market (in which buyers and seller trade with each other in a central location14.dealer market: A dealer market (in which dealers make the market by buying andselling securities at given prices)Chapter 51.Interest rate：The willingness to postpone purchases into the future is a function ofthe reward.2.Future Values: future value is the value on some future date of an investmentmade today.3.Present Value:Present value is the value in the present of a payment that ispromised to be made in the future.4.Nominal Interest Rates: interest rate that is adjusted for expected changes in theprice level so that it more accurately reflects the true cost of borrowing.补：The interest rate before taking inflation into account. The nominal interest rate is the rate quoted in loan and deposit agreements. The equation that links nominal and real interest rates is:(1 + nominal rate) = (1 + real interest rate) (1 + inflation rate).It can be approximated as nominal rate = real interest rate + inflation rate.5.Real Interest Rates: （补）An interest rate that has been adjusted to remove theeffects of inflation to reflect the real cost of funds to the borrower, and the real yield to the lender. The real interest rate of an investment is calculated as the amount by which the nominal interest rate is higher than the inflation rate.Real Interest Rate = Nominal Interest Rate - Inflation (Expected or Actual) Chapter 6Money Market：Money market is the market for short-term creditMoney market provides short term debt financing and investment.1.Treasury Bills：A short-term debt obligation backed by the U.S. government witha maturity of less than one year. T-bills are sold in denominations of $1,000 up toa maximum purchase of $5 million and commonly have maturities of one month(four weeks), three months (13 weeks) or six months (26 weeks).2.Negotiable Certificates of Deposit (CDs)：The term CD stands for Certificate ofDeposit. A CD is simply a short- to medium-length investment. Most CDs have a maturity of 1-12 months.mercial Paper：Commercial paper securities are unsecured promissory notes,issued by corporations that mature in no more than 270 days.4.Banker’s Acceptance：Banker’s acceptances are money market instrumentscreated in the course of financing international trade.An acceptance is a financial instrument designed to shift the risk of international trade to a third party willing to take on that risk for a known cost.5.Repurchase Agreements：Repurchase agreements (repos) are short-termagreements in which the seller sells a government security to a buyer and simultaneously agrees to buy the government security back on a later date at a higher price.6.Money Market Mutual Funds：MMMFs are funds that aggregate money from agroup of small investors and invest it in money market instruments.7.open-ended fund：An open-ended fund is one that invests in securities and sellsdirect claims on the securities to investors.Chapter 71.Central Bank：The central bank is the financial institution designed to regulateand control the money supply of a nation, with the goal of fostering economic growth without inflation.2.expansionary policy：lower interest rates, raises both growth and inflation over theshort run3.restrictive policy：Higher interest rates, reduces both growth and inflation.4.Dollar hegemony: dollar hegemony means that managing the US dollar thereforenot only affects the US economy but all economies.Chapter 81.Monetary policy：Defined as the use of various tools by the central bank tocontrol the availability of loanable funds in an effort to achieve national economic goals, such as full employment and reasonable price stability.2.Reserve Requirements: Reserve requirements are a percentage of depositoryinstitutions' demand deposit liabilities that must be kept on deposit at the central bank as a requirement of banking regulations.3.Discount Rate：Discount rate is the interest rate charged by a central bank on loansto commercial banks.4.Open Market Operations：Open market operations, the central ban k’s purchase orsale of bonds in the open marketOpen market purchases：Open market purchases expand reserves and the monetary base, thereby raising the money supply and lowering short-term interest rates.Open market sales：Open market sales shrink reserves and the monetary base, lowering the money supply and raising short-term interest rates.Chapter 9Capital Market：The capital market is the market in which long-term debt (generally those with original maturity of one year or greater) and equity instruments are traded.1.The primary market：The primary market is where new issues of stocks and bondsare introduced. Investment funds, corporations, and individual investors can purchase all securities offered in the primary market.anized Securities Exchanges：Exchange rules govern trading to ensure theefficient and legal operation of the exchange, and the exchange’s board constantly reviews these rules to ensure that they result in competitive trading.3.Over-the-Counter Markets：Securities that are not listed on one of the exchangestrade in the over-the-counter market. This market is not organized in the sense of having a building where trading takes place.4.NSADAQ：shows bid and asked prices for thousands of OTC-traded securities onvideo screens hooked up to a central computer system.5.Bonds：Bonds are securities that represent a debt owed by the issuer to theinvestorMunicipal bonds：These are issued by state and local governments or their agencies to pay for public improvements, reducing debt, or other purposesCorporate bonds：These are issued by corporations that want to raise money for their business venture, ranging from balancing their cash flow to buying new equipment, building new facilities, or spending on new research.Government bonds：Issued by the Federal government or one of the its agencies.6.Treasuries: Treasuries bills, notes and bonds are collectively called “Treasuries”.Treasury Bills (T-bills): These are short-term securities that mature in a year or less. You buy them at a discount price and at the end of the term, you are repaid the full price.Treasury Notes: Theses are issued for the intermediate term, such as 2 years up to10 years. Expect to earn a little higher interest rate than what you could get from aT-bill. Interest is paid every 6 months.Treasury Bonds: Theses are issued for the long term, generally from 10 years to30 years. Expect to earn a higher interest rate than what you could get from aT-note. Interest is paid every 6 months.Savings Bonds: They are government bonds designed especially for individual investors. As such, they can generally only be redeemed by their original owner, except in limited circumstances.7.Primary market:bonds sold for the first time.Secondary market: the resale of bonds some time after their initial offering.8.Face Value: The face value, or par value, of a bond is the value of the bond atmaturity, the date when the loan is paid off. A common face value is $1,000 per bond.9.Coupon Rate: A bond’s coupon rate refers to the amount of interest that will bepaid based on the face value of the bond.10.Yield:The yield is the discount rate or interest rate that an investor wants frominvesting in a bond.11.Stocks:A share of stock in a firm represents ownershipCommon stock:makes up the majority of stocks. As a common stock holder, you have a right to claim dividends and get to have one vote per share when electing board of directors.Preferred stock:does not usually include voting rights and pays a specified dividend, because of which the stock price does not rise and fall along with the company profits.Bull Market: indicates the constant upward movement of the stock market.Bear Market: indicates the continuous downward movement of the stock market.12.Mortgages: Mortgages are loans to households or firms to purchase housing, land,or other real structure, where the structure or land itself serves as collateral for the loans.13.Discount points: Discount points are interest payments made at the beginning of aloanChapter 10Financial derivatives:Financial derivatives are financial contracts, or financial instruments, whose values are derived from the value of something else ( known as the underlying).1.Exchange-traded derivatives (ETD): are those derivatives products that are tradedvia specialized derivatives exchanges or other exchanges.Over-the counter (OTC) derivatives:They are contracts that are traded ( and privately negotiated) directly between two parties, without going through an exchange or other intermediary.2.Forward: A forward, or forward contract, is an agreement between a buyer and aseller to exchange a commodity or financial instrument for a specified amount of cash on a prearranged future date.3.Future: a future, or futures contract, is a forward contract that has beenstandardized and sold through an organized exchange.Hedger: tries to minimize risk by buying or selling now in an effort to avoid risking or declining futures pricesSpeculator: try to profit from the risks by buying or selling now in anticipation of rising or declining future prices4.Initial margin: represents a good faith deposit that serves to cover losses if pricesmove against the trader.5.Options:Options are contracts that give the purchaser the right to buy or sell theunderlying financial instrument at a specified price within a specific period of time(1)There are two basic options: puts and calls:A call gives the holder the right to buy an asset at a certain price within a specificperiod of timeA put option gives the holder the right to sell an asset at a certain price within aspecific period of time.(2)There are two types of option contracts:American options can be exercised at any time up to the expiration date of the contract,European options can be exercised only on the expiration date(3)How to Read An Option TableColumn 1: Strike price: This is the stated price per share for which an underlying stock may be purchased (for a call) or sold ( for a put) upon the exercise of the option contract. Option strike prices typically move by incrementsof $2.50 or $5 (even though in the above example it moves in $2. increments).Column 2: Expiry date: This shows the termination date of an option contract.Remember that US listed options expire on the third Friday of the expiry month.Column 3: Call or Put: This column refers to whether the option is a call or put.Column 4: V olume: This indicates the total number of options contracts traded for the day. This volume of all contracts is listed at the bottom of each table.Column 5: Bid: This indicates the price someone is willing to pay for the options contract.Column 6: Ask:This indicates the price at which someone is willing to sell an options contract.Column 7: Open Interest: Open interest is the number of options contracts that are open; these are contracts that have neither expired nor been exercised.6.Swaps: A swap is an agreement between two parties to exchange sequences ofcash flows for a set period of time.Interest Rate Swap:Interest rate swaps involve the exchange of one set of interest payments for another set of interest payments, all denominated in the same currency.Currency Swap:It involves exchanging principal and fixed interest payments on a loan in one currency for principal and fixed interest payments on a similar loan in another currency.Chapter 11foreign exchange rates：The prices of foreign currencies expressed in terms of other currencies are called foreign exchange rates.1．Spot Transaction：A spot transaction is a straightforward (or “outright”) exchange of one currency for another. (This trade represents a “direct exchange” between two currencies and has the shortest time frame2．Outright Forwards：An outright forward transaction, like a spot transaction, is a straightforward single purchase/sale of one currency for another3．FX Swaps：A swap is an agreement between two parties to exchange payments based onidentical notional principle. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later dateIn the FX swap market, one currency is swapped for another for a period of time, and then swapped back, creating an exchange and re-exchange.short-dated swap：both dates are less than one month from the deal dateforward swap：one or both dates are one month or more from the deal date5.Currency Swaps：In a typical currency swap, counterparties will(1)exchange equal initial principal amounts of two currencies at the spot exchangerate,(2)exchange a stream of fixed or floating interest rate payments in their swappedcurrencies for the agreed period of the swap, and then(3)re-exchange the principal amount at maturity at the initial spot exchange rate.6.Over-the-Counter Currency Options:A foreign exchange or currency option contract gives the buyer the right, but notthe obligation, to buy (or sell) a specified amount of one currency for another at a specified price on (in some cases, on or before) a specified date.6.Exchange-Traded FuturesIn the U.S. exchanges, a foreign exchange futures contract is an agreement between two parties to buy/sell a particular (non-U.S. dollar) currency at a particular price on a particular future date, as specified in a standardized contract common to all participants in that currency futures exchange.7.Exchange-Traded Currency OptionsExchange-traded currency options, like exchange-traded futures, utilize standardized contracts—with respect to the amount of the underlying currency, the exercise price, and the expiration date.The option buyer—who has no further financial obligation after he has paid the premium—is not required to make margin payments.The option writer—who has all of the financial risk—is required to put up initial margin and to make additional (maintenance) margin payments if the market price moves adversely to his position.Chapter 12Balance of Payments：A country’s balance of payments is commonly defined as the record of transactions between its residents and foreign residents over a specified period.A debit entry records a transaction that results in a domestic resident making apayment abroad. A debit entry has a negative value in the balance-of-payments account.A credit entry records a transaction that results in a domestic resident receiving apayment from abroad. A credit entry has a positive value in the balance-of-payment account.1.The Current Account：The current account measures the flow of goods, services,and income across national borders.（1）Goods：The goods category includes imports and exports of tangible goods such as cars, computers, clothes, televisions, etc.If a country’s imports more than it exports in this category, then it is said to have a trade deficit.If a country’s exports more than imports it in this category, then it is said to have a trade surplus.（2）Services：The services category includes flows of payment in exchange for services countries provide to each other: transportation, insurance, banking, tourism, etc.（3）income: The income category measures cross-border compensation of employees.（4）Transfer Payments：Transfer payments include unilateral gifts or payments from private citizens and government of a country to people living abroad or vice versa.3．The Capital and Financial Account：The capital and financial account includes a variety of sub-accounts all dealing with purchases and sales of financial assets or real estate (stocks, bonds, land, buildings, businesses, etc.).4．The Official Settlements Balance：The official settlements balance measures the transactions of financial assets and deposits by official government agencies.5.Deficits and Surpluses in the Balance of Payments：The so-called balance-of-payments deficit or surplus is something other than the overall balance of payments.A balance-of-payments deficit refers to a situation in which the official settlements balance is positive.A balance-of-payments surplus：A situation where the sum of the debits and credits in the current and the capital and financial account is positive means that private payments received from foreigners exceed private payments made to foreigners. In this case, the official settlements balance is negative, and there is a balance-of-payments surplus.A balance-of-payments equilibrium refers to a situation where the sum of the debits and credits in the current account and capital and financial account is zero, and thus the official settlements balance is zero.Chapter 131.Letters of Credit A letter of credit is an internat ional bank’s future promise to payfor goods stored overseas or for goods shipped between two countries。