aworld without money

first , there would not be any pay days ! instead ,we would all receive some of what we were producing and then we would try to swap it for what we needed . for instance ,if we were bakers , living in the time before money was developed ,we would try to exchange our loaves for clothes ,drink, fuel and shelter .let us consider the many problem that we would have :
- to clothe ourselves we would need to find a tailor who actually wanted a loaf or two of bread : technically,this is a double coincidence of wants . not too difficult , you might say,but nobody would swap address or coat for one or two loaves of bread .how many scores of loaves would you exchange for one dress for an average-sized person ?
we would then need to agree an exchange rate ,say 144 loaves to one standard-sized coat .but the tailor could not eat 144 loaves at one go .so we might agree to deliver the loaves over a five -month period -deferring the supply of them.
- our loaves would soon go stale ,so we would have to swap them within 48 hours of the baking . lucky old tailors or dressmakers - at least they can hang their products in acuboard for amounth or two! they can store their products .
- our loaves cannot be stored - for freezers have not been invented - so we have another proplem :how can we put things by for old age or for when we are ill and cannot work? the answer must be that we must bake more loaves ,swap them for clothes ,fuel ,etc,and then save these items until we need them .
probaly,we would spend such along time swapping and storing these commodities that the time remaining for baking -our main occupation - would be much reduced .
NOT SURPRISINGLY , SOCIETIES throughout the world developed money.at frist ,popular commodities such as animals were used to determine the rate of exchange and wich goods were swapped .for instance,one sheep might equal five loaves and one standard-sized coat equal 30 sheep.we still swapped the loaves and the coats but in ratios related to their value in sheep .
later ,people began to see an advantage in swapping good via their sheep price not directly but indirectly ,ie into sheep first and then out of sheep into what was realy needed .this brought another problem:sheep are difficult to carry-try carrying three or more! also they do not last forever ,although far longer than aloaf ; they cannot be divided like aloaf and some are bigger or healthier others.
so,people changed from using animals as aprimitive from of money to using precious metals . the latter could be carried easily ,were quickly recognizable and could be divided. moreover,they lasted much longer than animals .societies now had reached aform of money which would be an asset used for swapping goods and services and paying debts.

market loans

these are very important because they act a'top-up'to replenish the bank is balance at the bank of england . interest is earned on them .
they comprise largely unsecured market loans , mainly in the inter-bank market . included here are each bank is holding of certificates of deposits (CDs) issued by other banks and builing societies . the major interest rate in the sterling inter-bank market is LIBOR (LONDON INTER BANK OFFER RATE ) WHICH is used to calculate interest rates on loans to large company ( corporate) borrowers and as ameasure of the cost of funds raised in the enter-bank market .
as well as the inter-bank marked there are other wholeasale money markets : CDs, local authority , finance house , commercial paper (cp) ang inter-company . as you might expect from its name, the inter-company market does not involve banks directly , because all the parties are companies use their banks only to process their cheques and not provide the finance .
commercial paper is much like aCD ,except that it is usually issued by company whose shares are quoted on the stock exchange and with apaid up share capital of at least $25m . banks , building societies and local authorities can also issue cp.

cheques (2)

in spite of these problem , cheques are widely used bacause they are easier for traders to transport than cash and are certainly less attractive to thieves. the latter prefer cash every time .
without the backing of cheque cards ,cheques are still widely accepted for certain types of transactions . for example , where the goods are to be delivered after payment has been made and the cheque cleared:were the customers and his or her address are known to the shopkeeper\trader ,eg anewsagent who delivers papers dally or amail-order transaction with acatalogue holder;where the customer and the supplier have along-standing relationship;were the item being paid for relates to the customer is house, eg quarterly gas and electricity bills .
cheques are preferrd by business users for reasons of convenience and because cheques allow businesses to enjoy a 'float' while acheque is being cleared and before it is applied to abank account . acheque also provides evidence of receipt and evidence of non-payment should it be returned unpaid

cheques (1)

acheque is defined as an instruction in writing to abanker ordering him to pay athird party the amount stated . (see next chapter for adetailed look at this definition .) cheques have been apopular method of payment , particularly if used in conjunction with acheque guarantee card . for very small amounts they are not acceptable and , many shops will not eccept them for $5 or less.the reason for this unwillingness to eccept cheques for small-value transaction is that the traders may have to pay bank charges of between 8p and 65p for each cheque paid into their bank. this compares with 50p per $100 for cash handling .
for anybody who accepts acheque there can be problems .first , has the person enough funds in the account or will the cheque be returned unpaid for lack of funds ? second , is the person offering it the true owner of the cheque or will it be returned unpaid ,marked 'signature differs ' or 'orders not to pay ' or 'no acount '? third , is the cheque correctly drawn or will it be raturned marker 'out of data ' or 'words and figures differ'?

store cards

store cards are atype of credit card but they are issued by stores rather than by banks . for customers , they have two disadvantages : they can usually be used only in selected stores and their interest rates are higher than those charged by VISA and Access . an advantage is that cardholders can receive discounts on purchases and visit previews of sales . for example , occasional late-night receptions or pre-christmas sales events can be held for cardholders.
from the store is viewpoint their advantages are that their cardholers constitute aknown customer base ,to whom they can send details of sales and special offers , and that they do not have to pay commission to visa and access .to some extent the stores must charge higher interest rates because of the absence of any "merchants" commission", as it is called .A disadvantage can arise if the average transaction is too small . boots , for example ,withdrew its charge card in 1988 mainly because the processing costs of numerous small transactions were more than the interest received on the outstanding balances .
marks&spencer is charge card is probably the best known storecard . it now has alarge cardholder base of well over 3 million ,and it has used this base to launch itis own unit trust . personal loans are also available and apension scheme and life insurance have been introduced . there is also abudget account with acredit limit of 25 times the monthly payment by the cardholder .
cardit cards , along with all forms of "plastic money" ,are the fastet-changing part of banking and finance - further changes can be expected every year.

london international financial futures and options exchange (LIFFE)

LIFFE was founded in 1982 and provides opportunities to buy and sell both future and options in currencies ,gilts ands comparable foreign securities . it became the third largest such market in the world , after the two in Chicago , where futures began last century (in agricultural products ).
however ,it has faced severe competition from the from the french derivatives exchange (MATIF ) and from direct deals between international banks in what are termed OTC (over -the-counter ) transactions .
a future is a commitment ,ie an obligation , to buy or sell currency or a security at acertain future data . the firm owning the commitment can always sell it before the data arrives , if it wishes to do so .
an option is aright , but not an obligation , to buy or sell currency , etc up to a certain data .
futures and options are given atechnical name- derivatives - because their prices are derived from the prices of the instruments and currencies on the ordinary (cash) markets .

the london stock exchange

it is correct title is the international stock exchange and it underwent considerable changes in the mid 1980 s , culminating in "big bang " on 27 October 1986 . prior to that , it is member firms were of two kinds :
- brokers ,with their incomes form commissions charged to investors , and acting purely as agents .
- jobbers , who owned the stock and shares , making an income from profits arising from the margins between their buying and selling prices to the brokers .

big bang comprised a series of changes , agreed with the government ,to make the exchange more competitive with the NEW YORK and TOKYO exchanges ,which are it is major competitors. until big bang ,the rule was single capacity - a firm could be either a broker or jobber but not both .also ,until big bang commissions charged were not negotiable and this lack of competition caused international business to move to new york and Tokyo .

big bang also made the following changes :
- minimum commissions were abolished .
- firms could be brokers and jobbers ,known as market makers , although many smaller ones preferred to
the main market of the London stock exchange is divided in to two :
- gilt-edged (gilts ) and other fixed-interest stocks ؛
- Equities

monetary policy

monetary policy is how the government tries to improve the country is economy by using banks and money ,acting on the level of deposits and loans , and on interest rates and exechange rates .
as well as keeping inflation low , agovernment will seek to keep unemployment low and output rising . however,it cannot do all three things at the same time . for instance ,if it is very successfull in lowering unemplpoyment, the shortages of workers may cause wages to rise, as employers bid for more employees. the workers will spend their increased wages in the shops and this may cause prices to rise-thereby causing inflation to rise . agovernment may have to choose therefore between aims or goals . recent governments chose the reduction of inflation as the goal that should be given the utmost priority. unemployment,economic growth and the enormous gap between exports and imports were not

exchange rates and interest rates

as we saw when we DISCUSSED the FUNCTIONS of money , there are other things we can do with it apart from SPENDING it ,for INSTANCE ,we can exchange it for the money of other countries, using aprice called the rate of exchange. this rate of interest is the price or cost of money to the borrower whether he or she is in the UK Or overseas , he or she has another way of acquiring pounds - buying them in exchange for another currency on the foreign exchange market . this possibility of choosing between borrowing pounds on te money markets or buying them means that interest rates and exchange rates are closely linked , as traders switch from currency to currency and market to market to seek the most attractive returns on their funds . usually an increase in interest rates in country leads to arise in the exchange rate of it is currency , as more people buy it , unless the foreign exchange markets lose confidence in that currency .

inflation and deflation

money is a measuring rod of value for goods and services which can change , sometimes quite rapidly . in June 1989 ,prices were rising at 8.3% a year , so that they would double every eight or nine years . but in Argentina ,prices were doubling every month ,with disastrous results . by October 2001 UK prices were rising at only 1.6% ayear , so that they would double only every 21 years .and in Argentina , prices were falling at about one per cent a year . inflation in a country causes people to move away from that country is money ,wherever possible ,and in to assets such as houses ,gold ,stocks and shares and foreign currency .inflation benefits borrowers , because they pay back their loans with money which buys a great deal less ( is worth alot less ) than the money they borrowed . inflation hurt lenders , who receive less in purchasing power than they lent to the borrowers and hurt all who have their income or their capital ( savings ) fixed in terms of money , which buys less each month . however , money does not always fall in value , because prices do not always rise . sometimes ,deflation occurs as prices fall and the purchasing power of money ( it is value ) rises .