U5 Lesson 1 2024

1st year English / semester 2
Unit 5: The money and its importance in the world of business
MONEY
 Money and its Functions Historically:
Money is defined as anything that is generally accepted in payment for goods and services
or in the repayment of debts. The basis of the market economy is voluntary exchange. In the
economy, the exchange usually involves money in return for a good or service.
This concept of money must be distinguished from two other terms:
 Wealth: value of all property or assets, including currency and bank deposits, but also
including stocks, real estate, etc.
 Income : flow of earnings per unit of time.
 History of money :
Nowadays most people think of money as bills, coins, and checks. Historically, and
in other economies, money might be shells, gold, or even goods such as sheep…; many
commodities, ranging from precious metals to cigarettes, have been used as money. In
prisoner-of-war camps, cigarettes served as money.
In the nineteenth century, money was mainly gold and silver coins. In most modern
societies, however, commodities are rarely used as money because they are expensive.
Instead, they use fiat money that is mainly paper currency issued by governments and
deposits in checking accounts that are accepted as a means of payments for goods and
services.
The essential condition for the survival of fiat money is the restriction of the right to
supply it. Private production is illegal. Society enforces the use of fiat money by making it
legal tender. The law says it must be accepted as a means of payment.
In modern economies, fiat money is supplemented by IOU (I owe you) money. IOU
is an informal written agreement rather than a legally binding commitment.‫ ا‬Dating as far
back as the 18th century, but still very much in use.
IOU money is a medium of exchange based on the debt of a private firm or
individual; i.e. If you lend money to someone he will owes you however if you borrow
money from someone you will owe him. Moreover, if you make bank deposit it will be
considered, as a debt to the bank so the bank will owes you money.
 Functions of money: There are three principal functions of money.

A. Medium of Exchange: Money is used in one-half of almost all exchanges. Workers
exchange labor services for money. People buy or sell goods in exchange for money. Money
is the medium through which people exchange goods and services.
- Money promotes economic efficiency ‫الكفاءة االقت‬be reducing transaction costs: the time and
effort spent in exchange. Without money, trade must take place through barter. A barter
economy has no medium of exchange. Goods are traded directly or swapped for other goods.
- In a barter economy, the seller and the buyer each must want something the other has to offer.
Each person is simultaneously a seller and a buyer. There has to be a double coincidence of
wants. Trading is very expensive in a barter economy. People must spend a lot of time and
effort finding others with whom they can make mutually satisfactory swaps. However, the use
of money can solve this problem, since everyone will accept it.
B. Unit of Account:
The unit of account is the unit in which prices are quoted and accounts are kept .In the United
States, this base unit of value is the dollar. In Japan, it is the yen; In Britain, pounds sterling;
in European Union, the euro. An item for sale is marked with a price that indicates its value in
terms of that unit.
C. Store of value:
To be accepted in exchange, money has to be a store of value. Nobody would accept
money as payment for goods supplied today if the money was going to be worthless, when
they tried to buy goods with it tomorrow. Other assets also serve as a store of value: stocks,
bonds, real estate, etc. But money is unique in terms of its liquidity- the ease and speed with
which an asset can be converted into a medium of exchange.
It is important to note that money pays no interest , and its real purchasing power is eroded
by inflation (a general rise in the prices of all goods), so money is less able to act as a store of
value. Otherwise, there are almost certainly better ways to store value in periods of rapid and
unpredictable inflation.
D. Standard of deferred payment: ‫معيار للدفع المؤجل‬
Money must serve as a standard of deferred payment. This means that if money is usable
today to make purchases, it must also be acceptable to make purchases today that will be paid
for in the future. i.e., The term deferred payment refers to a loan or credit account for which
the consumer does not pay the full amount immediately. eg.. Many types of loans, such as
credit cards and mortgages, allow customers to postpone payments for certain periods.
Activities:
Activity 01: Answer the questions.
1. What example of commodity money is given in the text?
2. What is fiat money?
3. Why can a bank deposit serve as an example of IOU money?
4. How are goods exchanged in a barter economy?
5. Why is trading expensive in a barter economy?
6. What else can be used instead of money as a store of value?
7. What are the four functions of money?
Activity 2: Say whether the following is true or false.
1. Money eliminates the need for barter.
2. Any item can successfully serve as money.

3. Money is said to be liquid because it is immediately available to spend for goods.
Activity 3 : The text contains a number of common verb-noun partnerships (eg. to store
money, to make purchases….). Match up the verbs and nouns below to make common
collocations.
1) consume a)prices
2) exchange b) interest
3) quote ‫تحديد‬ c) money
4) keep d)goods and services
5) bear ‫تتحمل‬ e) payments
6) deferred ‫مؤجل‬ f) accounts
7) serve g) As a store of value
Activity4: give the synonyms and the opposites of the words in the table below
words synonyms words opposites
profits lend
corroded ancient
overpriced common

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1st year English / semester 2

Unit 5: The money and its importance in the world of business

 Functions of money: There are three principal functions of money.

Activity 2: Say whether the following is true or false.

1. Money eliminates the need for barter.

2. Any item can successfully serve as money.

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