t o a c t as an  intermediary between depositors who wish to make interest on their 116

savings, and borrowers who wish to obtain capital The bank is a reservoir 
of loan able money, with streams of money flowing in and out. For this 
reason, economists and financiers often talk of money being “liquid”, or of 
the “liquidity” of money. Many small sums which might not otherwise be 
used as capital are rendered useful simply because the bank acts as a 
reservoir.
The system of banking rests upon a basis of trust. Innumerable acts 
of trust build up the system of which bankers, depositors and borrowers are 
part. They all agree to behave in certain predictable ways in relation to 
each other, and in relation to the rapid fluctuations of credit and debit. 
Consequently, business can be done and cheques can be written without 
only legal tender visibly changing hands
Exercises
1. Answer the questions:
1. How are all values in the economic system measured?
2. What kind of money is used for general business?
3. What is the wider sense of the word “money”?
4. What originally served as a store of value?
5. What backs the US dollar?
6. How are national currencies judged nowadays?
7. Who can issue paper notes?
8. What name is given to arrangements like cheques?
9. When is credit offered?
10. When is a man’s credit good?
11. What phrase do economists use for the value of money?
12. How do we reckon the demand for money?
13. What word is used to describe the flow of money round the economic 
system?
14. What is inflation?
15. In what way do banks co-operate with governments?
2. Which of the following is true?
1. The US dollar is constant store of value.
2. Instruments of credit are accepted because they can be converted easily 
into substitute money.

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