Topic 4 Money

1. What are the functions of money?

- a medium of exchange (legal tender)
- a measure of value
- a store of value
- a standard for deferred payments
2. What are main characteristics of money?
- acceptability, stability of value, portability, durability, divisibility
3. What is inflation?
a steady rise in the average price level the value of money deteriorates
4. What are the consequences of inflation?
- the value of money deteriorates; purchasing power falls
- people can buy fewer things for their money
- changes the value of money, causes political and economic uncertainty
- some groups gain, others lose money (lenders, borrowers, importers and exporters,
workers, employees, etc.)
- affects interest and exchange rates
- a stable currency protects the interests of businesses, promotes the creation of wealth,
leads to a higher standard of living
5. What is monetary policy?
- the governments control of a countrys currency and its system for lending and
borrowing money
- governments and central banks control a countrys money supply and implement
monetary policy trying to maintain price stability
- keeping inflation low
- promoting price stability
- promoting employment growth
6. What is currency exchange?
the trading of one currency against another at a set exchange rate, importers have to buy
currencies in the foreign exchange market
7. Why do exchange rates move?
- appreciation = arise in the price if the currency
- depreciation: a fall in the price of the currency
- changes in demand or supply in the foreign exchange market, it is affected by capital
flow between countries
- goods, services, securities have an influence on the flow of founds
- inflation rate is another factor

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THE BANKING SYSTEM, BANKING SERVICES

1. What is banking?
Banking means dealing in money and refers to a wide range of financial services such as
making loans, collecting deposits, holding accounts, giving advice, etc.
2. Types of banks
a) The Central Bank (The National Bank): - the governments bank
- the bankers bank
b) Investment Banks: offer services to rich individual and corporate clients
c) Commercial or Retail Banks: offer services to the public and to small and medium-sized
companies
d) Universal Banks: combine the services of Investment and Commercial Banks
3. What are the functions of the Central Bank?
- the governments bank (manages the governments bank accounts; advises and assists
the government in its monetary policy; makes arrangements for government
borrowing)
- issues banknotes
- the bankers bank: supervises commercial banks
- fixes the minimum and maximum interest rates
- has international responsibilities (services for other central banks and for international
organisations e.g. IMF)
4. Services provided by Investment Banks
- raise money for industry
- finance international trade
- issue securities (shares and bonds)
- deal with takovers and mergers
- offer stockbroking and portfolio management services
5. What are the main services of modern commercial banks (retail banks)?
a) receive deposits from individuals and corporations
b) hold accounts:
- current account for the safekeeping of funds needed for current use; it pays little or no
interest; allows the use of debit cards to withdraw money from cash dispensers or to
make purchases in shops; can be overdrawn (= you may withdraw more money from
your account than there is in it)
- deposit account: the money deposited is tied up for a certain period, pays higher
interest; does not allow the use of debit cards, cannot be overdrawn
- foreign exchange account: dollar-account, euro-account
c) offer credit facilities:
- loan: a sum of money which the bank lends to a customer for a fixed period of time for a
fixed interest; the loan is repaid over a longer period of time in
monthly/quarterly/yearly instalments
- overdraft: a sum of money with which a current account can be overdrawn; interest is
calculated daily; the money is repaid automatically when your account is credited
- mortgage: a special loan for house purchase
d) offer investment advice

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e) provide plastic money: credit and debit cards

f) offer mobilebank, telebank, and online banking facilities
g) exchange foreing currency, provide travellers chequers (=cheque for a fixed amount
that can be bought from a bank and cashed for local currency in another country)
h) money transfer facilities: standing order (= payment of a fixed sum at regular intervals),
direct debit
i) financial advice, portfolio management, private pension funds, private health
schemes
j) insurance services
k) bank statements, bank cards, cash dispensers, night safe
l) safe deposit box
6. What is online/electronic banking? What are its advantages?
- service provided by banks that allows people to pay money from one account to another,
pay bills etc. from ones personal computer over the Internet
- convenient, fast, available from anywhere at any time
7. What services are available through telebanking/telephone banking?
- 24-hour automatic or live voice service, from touch tone phones, a wide range of
services (checking balances, making payments, etc.)
8. What are mobilebank services?
- text messages to customers (purchases, cash withdrawals, balance)
METHODS OF PAYING
1. How are cheque payments made?
a written order to the bank to pay money from your account to the person named on the
cheque (the payee); the account holder writes the cheque and gives it to the payee who
takes it to the account holders bank to have the money cashed or transferred to a bank
account
2. What is a bank giro?
a method of transfer (credit transfer) of funds directly into the account someone else, who
may hold his account at another branch or even a different bank to the person making the
payment
3. Why are travellers cheques a safe method of payment? Where can they be bought
and sold?
- easy to use; protect you from losing cash and theft
- can be stopped and replaced in 24 hours
- accepted worldwide (shops, banks, restaurants, hotels, etc)
- bought at banks, travel agencies, foreign exchange offices
4. What a plastic money?
all types of plastic cards, to obtain cash and make payments without cash or cheques
(=cashless society)

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5. How can you obtain a bank card?

- at any bank branch office; bank account with regular income
- application form, identification; pay some fees
6. What are the different types of bank cards?
- credit cards and debit cards
- charge cards (similar to credit cards, but you have to repay the bill in full each month,
many companies use them for business trips)
7. In what way are debit cards different from credit cards?
- debit cards: you spend the money which you have in your account; you cannot spend
more than you have in your account, it cannot be used to obtain credits without prior
agreement
- credit cards: you spend the banks money; the bank pays the trader and the customer
later pays the money to the bank, you must always pay a minimum amount of the bill
each month, no interest is charged if the account is paid immediately, e.g. Visa,
MasterCard, American Express (international card payment schemes, their logos are
displayed on shop doors)
- with both cards there is a danger of overspending
8. How do you pay with credit cards? What is credit limit?
- transactions are recorded; interest rate is paid off later
- credit limit: the maximum you can owe at a time; by the bank
- danger: overspending
9. What are the advantages of using bank cards?
- convenient, easy and quick to use
- purchases with cards are mostly free
- safe, you dont have to carry large amounts of money on you
- you can avoid the inconvenience of not having enough cash available
- you can use them when purchasing goods by phone or over the Internet (24-hour
shopping)
10. What are the disadvantages of using bank cards?
- high interest charges, annual fee for cards, commission for ATM transactions
- it can get lost or stolen
- card fraud (somebody else using your card without your knowledge)
- risk in online selling and buying: data security, privacy (Advice: never disclose your
PIN, destroy transaction slips which show your card number, save receipts and check
them, report any questionable charges to the card issuer)
- you run the risk of possible debt problems (overspending)
- slower than paying in cash
- there might be shops where you cannot pay by card as they are not connected to the
electronic payment system

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11. How can you withdraw money at an ATM?

- automated teller machine/cash machine=cash dispenser, 24-hour access;
- insert the card into the slot provided
- key in your PIN code (Personal Identification Number)
- key in the amount your want to withdraw
- commission is charged
12. What do you do if your card gets lost or stolen?
- contact the card issuer
- 24-hour toll-free number for emergencies
- stop transactions (freeze it), replace the card later
13. What is a credit card fraud? How can you avoid it?
- someone uses your card without your knowledge
- using your account number illegally, extra imprints from your card
- PIN; limits on greater value transactions
14. Is it safe to make online payments? How can online sellers increase security of
payment?
- greater risk (data security, privacy)
- asking for mailing addresses, telephone numbers, faxed customer signature
15. Advantages and disadvantages of paying in cash:
- accepted everywhere
- quicker than paying by card
- no risk of running into debt
- can be lost or stolen
- you need to check how much cash you have on you
Roleplay
Banking
You work for a Hungarian bank. A foreign client asks you about how he/she can open a bank
account at your bank. Inform him/her about the necessary requirements (necessary
documents, interest, regular income transferred to the account etc.) The client wants to use the
account together with his wife/her husband. He/She is also interested in chequebooks and
bank cards that could be used with the account.

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