Always in balance

1. 1
В посібнику вміщені вправи та завдання професійного спрямування
англійською мовою для учнів ПТНЗ, які навчаються за професією «Обліковець з
реєстрації бухгалтерських даних». Матеріал посібника поділений на чотири
розділи: тексти для читання, цікаві вправи та завдання, тести по рівнях складності
та словник професійних термінів.
Призначений для викладачів іноземної мови, учнів ПТНЗ, а також для
широкого кола осіб, які вивчають англійську мову.
Укладач: Фірчук Н.В., викладач іноземної мови Камінь-Каширського ВПУ.
Рецензент: Бряник Н. А., вчитель-методист райметодкабінету відділу освіти
і науки Камінь-Каширської райдержадміністрації.
Обговорено та схвалено на засіданні методичної комісії викладачів
гуманітарних дисциплін.
Протокол № 6 від 14. 02. 2013 року.
Обговорено та схвалено на засіданні методичної ради Камінь-Каширського
ВПУ.
Протокол № 4 від 21. 03. 2013 року.

2. 2
Даний посібник розрахований на учнів професійно-технічних навчальних
закладів, які вивчають англійську мову за програмою загальноосвітньої школи.
Посібник в жодному разі не заміняє підручник англійської мови, а є лише
доповненням до нього. Він повинен допомагати викладачам профтехучилищ
наблизити вивчення іноземної мови до профілю професії, що вивчається учнями.
Посібник ставить перед собою конкретне завдання: навчити дітей правильно
читати й перекладати тематичні тексти, виконувати вправи та завдання і
ознайомити їх з основною термінологією за даною спеціальністю.
Посібник містить:
І. Тексти для читання та перекладу.
ІІ. Цікаві вправи та завдання.
ІІІ. Тести (чотири рівні складності).
ІV. Словник тематичних слів та термінів.
Автор надіється, що даний посібник викличе додатковий інтерес учнів до
вивчення англійської мови, допоможе викладачам профтехучилищ у вирішенні
основної методичної проблеми викладання іноземної мови в профтехучилищах –
закріпленню міжпредметних зв’язків.

3. 3
Contents
Передмова………………………………………………………………………
Зміст……………………………………………………………………………...
Розділ І. Тексти для читання та перекладу……...……………………...……
The History of Accounting……………………………………...…………………
Bookkeepers, Accountants and Controllers ………………………………………
The History of Bookkeeping ………...……………………………………………
What Bookkeepers Do ………………………………………………………….....
Finance Investment Bank Accounts ………………………………………………
Accountants Know How to Count ………………………………………………..
Accounting and Bookkeeping ……………………………………….……….……
Auditing …………………………………..……………………………………….
The audit report ………...….………………..…………………………………….
National accounting ………….……………………………………………………
Business and Investment Opportunities in Ukraine:
Ukraine Open for Business ………………………………………………………
About Foreign Investments ………………………………………………………
New Investment Fund Classifications ……………………………………………
Planning in Business ………………………………………………………………
Financing a Business ……………………………………………………………...
The History of Money ……………………………………….……………………
Money ………………………………….…………………………………………
The Functions of Money ………………………………...………………………
Business Loans …………….……………………………………………………
Inflation …………………………………………………...……………...………
Setting the Price …………………………………………………………………
New Business and Job Creation ………………………………………….……..
The History of Money in Ukraine………………………………………………..
Money in the USA …………………………………………………………….…
The History of Banking ………………………………….………………………
Bank’s Profit ………………………………..…………………...……………….
Selecting a Bank …………..……………………...………………………………

4. 4
Bank Loans……………………...…………………………….…………………
Bank Investments ……………………...…………………………………………
Saving Bonds, Stocks (U.S.)…………………………………………………….
Depositing Money With a Bank ………...………………………………………
Banking Systems …………………………...…………………………………....
Cheques ………...………………………………………..……………………….
Means of Payment ……………………………………………..…………………
Ukraine’s Banking System ……………………………………………………….
History of Central Banking in Great Britain and the United States ………...……
London and Finance …………………………………...…………………………
The Bank of England …………………………………………………………….
Kinds of Taxes ……………………………………………………………………
Direct and Indirect Taxation …………………………..…………………………
Local Government Taxation …………..………………………….……………
State Taxes: Income, Sales, and Property …………………..……………………
Income tax ……………………………………………………………...………...
Sales tax …………………………………………………………………………..
Property taxes ……………………………………….……………………………
Professional Contacts Good Manners — Good Business ………..………………
«When in Rome, do as the Romans do»
Here are some final tips for travellers …………………………………………..
Розділ ІІ. Цікаві вправи та завдання………………………………………...
Розділ ІІІ. Тестові завдання…………………………………………………...
І рівень складності………………………………………………………….
ІІ рівень складності…………………...……………………………………
ІІІ рівень складності………………………………………………………..
ІV рівень складності……………………………………………….……….
Розділ ІV. Словник……………………………………………………………..
Cписок використаної літератури………………………………………………
Список використаних інтернет-джерел……………………………………….

5. 5

6. 6
The History of
Accounting
Accounting has a long history. Some scholars
claim that writing arose in order to record
accounting information. Account records date
back to the ancient civilization of China,
Babylonia, Greece, and Egypt. The rules of
these civilizations used accounting to keep track of
the cost of labour and materials used in building
structures like the great pyramids.
Accounting developed further as a result of the information needs of merchants in the
city-states of Italy during the 1400s. In that commercial climate the monk Luca Pacioli,
a mathematician and friend of Leonardo da Vinci, published the first known description
of doubleentry bookkeeping in 1494.
The pace of accounting development increased during the Industrial revolution as
the economies of developed countries began to mass- produce goods. Until that time,
merchandise had been priced based on managers’ hunches about cost, but increased
competition required merchants to adopt more sophisticated accounting systems.
In the nineteenth century, the growth of corporations, especially those in the
railroad and steel industries, spurred the development of accounting.
Corporation owners — the stockholders — were no longer necessarily the
managers of their business. Managers had to create accounting systems to report to the
owners how well their business was doing.
The role of the government has led to still more accounting developments. When
the federal government started the income tax, accounting supplied the concept of
expanded roles in health, education, labour, and economic planning. To ensure that the
information that it uses to make decisions is reliable, the government has required strict

7. 7
accountability in the business community.
Bookkeepers, Accountants and
Controllers
Bookkeepers deal in taxes, cash flow, which includes cash receipts and cash
disbursements, sales, purchases and different business transactions of the company.
Bookkeepers first record all the appropriate figures — in books of original entry,-or
Journals. At the end of a period usually a month — the totals of each book of original
entry are posted into the proper page of the Ledger. The Ledger shows all the
expenditures and all the earnings of the company. On the basis of all the totals of each
account in the Ledger, the bookkeeper prepares a Trial Balance. Trial Balances are
usually drawn up every quarter. The accountant’s responsibility is to analyze and
interpret the data in the Ledger and the Trial Balance.
The accountant is to determine the ways in which the business may grow in the
future. No expansion or reorganization is planned without the help of the accountant.
New products and advertising campaign are also prepared with the help of the
accountant. The work of accountants is rather sophisticated. Many accountants have
special certificates after passing examinations at the Institute of Accountants. Certified
accountants in England are called charted accounts. In the U.S.A. the certified

8. 8
accountants are called certified
public accountants. But it is not
necessary to have a certificate to
practise accounting. Junior
employees in large companies,
for example, often practise
accounting and then take the
examination. The chief accoun-
ting officer of a large company
is the Controller, or
Comptroller. Controllers are responsible for measuring the company’s performance.
They interpret the results of the operations, plan and recommend future actions. This
position is very close to the top executives of the company.
Need for services has arisen in connection with the isolation of the interests of
those who are directly engaged in the operation of business (administration, managers),
who put means in their activity, (proprietors, shareholders, investors), and also state as
the consumer of the information about the results of activity of the enterprises.
The presence of the authentic information allows to raise efficiency of the
functioning of the market of the capital and enables to estimate and to predict
consequences of acceptance of economic decisions. The realization of check even when
it is not obligatory, undoubtedly, has the important meaning. In conditions of the
market of the enterprise, credit establishments, other managing subjects enter the cont-
ractual attitudes on use of property, money resources, realization of commercial
operations and investments. Trust of these attitudes should be supported with an
opportunity to receive and to use the financial information by all participants of the
bargains. The reliability of the information proves to be true by independent audit.
Nowadays the accountants are of great demand too. It’s not a secret that the
demand of our enterprises of all spheres of activity in the effective accounting system is
increasing from day to day. The profession of the accountant is rather honorary and

9. 9
important. But at the same time it’s also a very difficult and responsible job. As the
example, enterprises make settlements with each other and individuals for account of
funds received from cash offices of banks and for account of cash proceedings. They
are made through the cash office of an enterprise which accepts, pays out and holds
cash, valuables and cash documents. And all this is only a part of the accountant’s
work. How to reflect taxes in your declaration? What is new in the legislative base?
How to protect and to improve your business? These questions are all from accountant
jurisdiction. Not so long ago Ukraine had started a radical accounting reform in
accordance with international standards.
Accounting is the recording,
classifying, summarizing and interpreting
of financial events and transactions to
provide management and other interested
parties with the information they need to
make better decisions.
Journals, or books of original entry,
are designed to record information about
different transactions, including sales, pur-
chases, cash receipts, cash disbursements,
and many others. Journals have two or
more columns to record increases or decreases in the accounts affected by the
transaction, and they often have
space for a date and an explanation of the transaction.
All transactions affect at least two accounts. Each transaction must be analyzed
to determine which accounts are affected, and whether they should be increased or
decreased. An entry made on the left-hand side or column of an account is called a
debit, while an entry made on the right-hand side or column is a credit. Debit, usually
abbreviated DR, at one time meant value received, or literally it owes. Credit, usually
abbreviated CR, meant value parted with, or literally it trusts. In modern

10. 10
bookkeeping, debit refers only to the left-hand side of an account, whereas credit
refers to the right-hand side. Some bookkeepers use a fir right-hand column to keep
an up-to-date balance of the account.
Accounting shows a financial picture of the firm. An accounting department
records and measures the activity of a business. It reports on the effects of the
transactions on the firms financial condition. Accounting records give a very important
data. It is used by management, stockholders, creditors, independent analysis, banks
and government.
Most businesses prepare regularly the two types of records. That is the income
statement and balance sheet. These statements show how money was received and
spent by the company.
One major tool for the analysis of accounting records is ratio analysis. A ratio
analysis is the relationship of two figures. In finance we operate with three main
categories of ratios. One ratio deals with profitability, for example, the Return on
Investment Ratio. It is used as a measure of a firms operating efficiency.
The second set of ratios deals with assets and liabilities. It helps a company to
evaluate its current financial position. The
third set of ratios deals with the overall
financial structure of the company. It
analyses the value of the ownership of the
firm.
The History of
Bookkeeping
Bookkeeping is an essential
accounting tool. A small business or
company may employ only one

11. 11
bookkeeper, who records all of the financial data by hand; large organizations
may employ many bookkeepers, who use electronic and mechanical equipment for
a large part of their work. Each organization has its own bookkeeping
requirements, but all systems operate on the same basic principles. The
bookkeepers themselves must be accurate, good in Maths, and meticulous; that is,
they must be very careful to record each detail in its proper place.
About 3,000 B.C., the Sumerians, the Egyptians, and other peoples of the Middle
East developed the first known business records. The results of tax collections, farming
harvests, and the transactions of merchants were recorded by means of written numbers.
The Romans, too, were prolific keepers of records. Indeed, Roman numerals were used
in many parts of Europe until the fifteenth century A.D. The stimulus for modern
bookkeeping came with the introduction of Arabic, or Hindu-Arabic, numerals and the
decimal system in the twelfth century A.D. Most people today use Arabic numerals.
The two basic systems of bookkeeping are double-entry and single- entry. The
double-entry method was perfected by the merchants of Venice during the fifteenth
century and is still used today. The basic principle of double-entry bookkeeping is that
every transaction has a twofold effect. In other words, a value is received and a value is
yielded or patted with. Both effects, which are equal in
amount, must be entered completely in the bookkeeping
records.
An account is a record of the financial transactions
that concern one item or a group of similar items. The
account includes categories of financial data for each area
of interest during a specific period: the value at the
beginning of a period, changes in value during the same
period, and the value at the end of a period. The broad
areas of interest can be labelled assets, liabilities, and net
worth. Income and expense accounts are totalled at regular intervals, and the resulting
profit or loss is posted to a capital account. Bookkeeping involves the recording of

12. 12
business transactions. It is a rather mechanical process and does not demand the finan-
cial training and insights of accounting. Bookkeeping is an important part of
accounting, but accounting goes far beyond the mere recording of data. Accountants
classify and summarize the data provided by bookkeepers. They interpret the data and
report them to management. They also suggest strategies for improving the financial
condition and progress of the firm. Accountants are especially valuable for income tax
preparation and financial analysis.
Now that you have some understanding about what accountants do and for whom
they do it, we can get down to the fundamental aspects of bookkeeping and accounting.
Accounting, remember, involves the gathering and recording of transactions (for
example, the sale of merchandise, the payment of a bill, or the receipt of merchandise
into storage), and the periodic preparation of financial statements that summarize those
transactions. While reading the texts the goal is not to learn how to be an accountant,
just to learn the terms and concepts.
What Bookkeepers Do
If you were a bookkeeper, the first task you would perform would be to divide all
of the firm’s paperwork into meaningful categories. Those categories would probably
include the following:
• Sales documents (sales slips, cash register receipts and invoices)
• Purchasing documents.
• Shipping documents
• Payroll records.
• Rank documents (checks, deposit slips).

13. 13
• Various expense documents.
If you collected all this
information, you would have
several piles of papers, much like
the piles that are generated in the
preparation of income tax forms. If
this information is not compressed
somehow, it will become too
unmanageable. Therefore, the
bookkeeper must begin to record
the data from the original
transaction documents (the sales slips and so forth) into record books called journals.
Journals are the books where accounting data are first entered. The term journal comes
from the French word jour, which means day. A journal, therefore, is where the day’s
transactions are kept.
So a bookkeeper is busy keeping the books of account of a business, recording a
profit and loss account and compiling the balance sheet.
Finance Investment Bank Accounts
Companies and individuals often borrow money and it is important to find a
favourable interest rate. Rates are variable and can rise or fall depending on the market.
Many investors, (people who use their money to earn more money), choose foreign or
offshore bank accounts because they are tax free.
Anyone can buy shares in a public company to become a shareholder. All public
companies in the UK are obliged by law to publish their financial results at the end of
the tax year. They do this in their annual report to shareholders. Annual reports include
profit and loss accounts which show turnover, or the total sum of money which is
coming into the company.

14. 14
If you want to send your money
offshore, you need the best account
available, with the flexibility to meet
your investment goals. For a start you’ll
get an on-demand, interest-bearing
account offered in more than 25 different
currencies. Plus, you can switch between
currencies free of charge to take full advantage of interest and exchange-rate benefits,
regardless of the currency of your deposit. You can even have a VISA card.
Account offers so many advantages that it is only a proper name for it.
Professional account managers are well-informed as to current market developments,
and are pleased to draw up a proposal
which matches your requirements. You’ll always receive a high level of
friendly, personal service.
Individuals. People use accounting information in day-to-day affairs to manage
their bank accounts, to evaluate job prospects, to make their bank accounts, to make
investments, and to decide whether to rent or to buy a house.
Business. Managers of businesses use accounting information :o set goals for their
organizations, to evaluate their progress toward those goals, and to take a corrective
action if necessary. Decisions based on accounting information may include which
building and equipment to purchase, how much merchandise to keep on hand, and bow
much cash to borrow.
Investors and Creditors. Investors provide the money that business needs to begin
operations. To decide whether to help start a new venture, potential investors evaluate
what income they can reasonably expect on their investment. This means analyzing the
financial statements of the new business. Those people who invest monitor the progress
of the business by analyzing the company’s financial statements and by keeping up
with its developments in the business press, for example, The Wall Street Journal, Busi-
ness Week, Forbes and Fortune.

15. 15
Accountants Know How to Count
Keeping things straight in business might once have been as simple as adding one
to one, but as finances grew complicated, the people who were in charge of the large
visions of buying, selling, producing and marketing for a flourishing company simply
got bored and confused with keeping track of the mundane numbers game. That is how
the profession of an accountant rose to prominence.
The accountant basically handles the language of business in a company. He/she is
the one who communicates the financial standing of the company to the outside world.
He/she collects, organizes, classifies, summarizes and interprets those often confusing
numbers of the amounts paid and the
money made.
All the financial information about a
company can basically be condensed into
two financial statements: the balance sheet
and the income statement.he balance
sheet, as its name amply clarifies, is
simply the balance between a company’s
assets and liabilities showing the financial
position of a business at a certain date, usually the end of a financial year.
The income statement or profit and loss-statement shows how well the company
has performed within an accounting period. Both of these documents are of obvious
interest to people who might wish to invest in the company.
The accounting profession will always attract fastidious people who enjoy
numerical organization, and it seems that there will be quite a few opportunities for
them. Having this in mind, many young people may just choose accounting as a career.
Given that jobs today are hard to find and that the opportunities in accounting are many
and varied, the field will, probably, attract many bright young graduates. Provided that
they are willing to work, they will, no doubt, find satisfaction in their profession.

16. 16
In accounting, there are several avenues for career growth. There are public
accountants, private accountants, and government accountants. Private accountants
might help a private individual
prepare his/her income taxes. The
accountant, knowing all the private
affairs of his/her clients, thus
becomes a trusted person. Public
accountants, who have fulfilled
rigorous training obligations and
passed numerous exams, earn the
title CPA (Certified Public
Accountant). They usually work in public companies and charge a fee (and a rather
high one) for their services.
Government accountants will, as a rule, be salaried and work in government
offices. They are certainly not as well paid as either private or public accountants. On
the other hand, their jobs are far more secure.
Accounting and Bookkeeping
• :What is Accounting?
•:Accounting has been called «the language of business». Perhaps a better term is
«the language of financial decisions». The better you understand the language, the
better you can manage the financial aspects of living.
A. :Do you mean the daily life of a person?
B. :Right. Personal financial planning, investments, loans, car payments,
income taxes and many other aspects of daily life are based on accounting.
A. :What do the business managers know for sure?
B. :It is more important for college students to learn accounting than any
other subject — persons trained in accounting and finance make it to the top of their

17. 17
organizations in greater numbers than persons trained in any other field.
A. :Is accounting the system that measures business activities and processes
that information into reports?
B. :Sure, financial statements are the documents that report on an individual’s
or an organization’s business in monetary amounts.
1. :Is our business making a profit? Should we start up a new line of
women’s clothing? Are sales strong enough to warrant opening a new branch outlet?
2. :You know, the most intelligent answers to business questions like these
use accounting information. Decision makers use the information to develop sound
business plans. As new programs affect the business’s activities, accounting makes the
company’s financial pulse beat. The cycle continues as the accounting system measures
the result of activities and reports the results to decision makers.
A. :And what about the bookkeeping?
B. :Bookkeeping is a procedural
element of accounting as arithmetic is a
procedural element of mathematics. Increasingly,
people are using computers to do much of the
detailed bookkeeping work at all levels — in
households, business and organizations of all
types.
A. :What does the bookkeeper deal
with?
B. :Bookkeepers deal with taxes and cash flow which reflect business
transactions of a company, such as sales and purchases, receipts and disbursements.
A. : What are the functions of bookkeepers?
B. : Well, bookkeepers first record figures in the books of journals, of course,
the books of today are computer files. At the end of each period bookkeepers post the
totals of each book into the Ledger.
1. :So, what is the difference between accountants and bookkeepers?

18. 18
2. :As we see bookkeepers are not librarians, who also keep books. They are
not bookmakers, who «make books» as well. They are specialists who record business
transactions and periodically do a trial to see if both sides of an account book match.
A. :What is the aim of accounting?
B. :Accountants, however,
analyze financial records and decide how
to present them. In short, accountants
make financial information
understandable for users.
A. :Does it mean that
accountants determine the ways in which
the business will grow in the future?
B. :Right. They help to expand
or reorganize the business.
Auditing
Auditing is closely connected with Accounting. The traditional definition of
auditing is review and an evaluation of financial records by a second set of accountants.
There is another more modern definition. «An audit is the independent
examination of, and expression of opinion on the financial statements of an enterprise
by an appointed auditor in compliance with statutory obligation». (David Choppy).
Auditing, the oldest area of practice, remains the largest for many firms. An audit
is a CPA’s (Certified Public Accountants) examination of a company’s financial
statements in order to express an opinion about the fairness of those statements in
accordance with generally accepted accounting principles. When a company wants to
borrow funds from a bank or have its stock listed on a stock exchange, it must present
statements regarding its financial affairs. Because these statements are prepared by

19. 19
independent auditors, those interested in the information know it has been presented
fairly and accurately.
The main purpose of the audit is to give the user of the financial statements
confidence that they give a true presentation of the position of the company at a certain
date. There are the two types of audit.
An internal audit is a review of financial statements and records by an accountant
not belonging to the company. Such auditors have to judge if the accounts present a true
and fair view of the company’s financial position. In the USA they use the term «a fair
presentation» which means the same what British term «a true and fair view» means.
Even those companies that do not conduct
an internal audit need to maintain a system of
internal control. Most good auditors will provide
accounting controls against errors, as well as a
division of duties to reduce the possibility of
misappropriations. An example of a business
paper used in an internal control system is the
petty cash voucher. Vouchers indicate receipt of
payment. In the case of petty cash vouchers, they
are a record of payment from the small cash fund
that most companies keep for minor transactions for which cash is needed.
Who appoints auditors? Senior executives and advisors of the company do it. Then
the candidates are to be approved by the owners of the share capital at the company’s,
assembly (meeting).
Auditors write an audit report. They also may write a «management letter» to
directors. They may underline some weak points and recommend to improve operating
procedures.
The auditor is required to belong to one of the professional accounting bodies
recognized by the companies and act. Act for this purpose. The companies’ Act states
that the company must publish the report of the independent auditor on the truth and

20. 20
fairness of the accounts.
He must also add here to the Auditing Standarts producted by the APC and
enforced by the professional body when collecting evidence to support his opinion and
in drafting his report
.
The audit report
The audit report is a brief statement. When the auditor does not have any material
reservations about the accounts, which the directors propose to publish, the report is
said to be «unqualified». An unqualified report should be always seen as a statement of
opinion or fact.
The audit report is addressed to the members of the company. The auditor may not
have considered the needs
of any other group of users
when arriving at his
opinion. Other users may
need to conduct their own
investigations.
The creation of the
audit function is linked to
the growth of the joint-
stock company. They
entrust this role to the directors. The directors, in their turn, need to account to the
members of the company during each financial period.
The role of the financial statements is to show the way the company was run
during this period. Therefore, the report of the auditor is addressed to the members of
the company.
The auditor tries to ensure that the accounts give a true picture :f the position. To
achieve this the auditor needs beyond the accounting function within the company.

21. 21
The auditor often looks at the way in which the other parts of the business work. It
is common for the auditor to discuss the activities with the members of the staff
working in different departments of the company, not only in the accounting or finance
departments. The understanding of the business as a whole is very important for
auditing.
It is also important to keep in mind such two points.
First, the auditor gives his opinion in the report. The latter gives some level of
assurance. But this assurance is never considered to be absolute.
Second, the auditor has no duty relating to the prevention of fraud or other errors.
On the other hand, if the auditor does find any fraud he must make futher
investigations.
Independent auditing is
done by accountants who are
not employees of the
organization whose books they
examine. The independent
accountant is almost always a
CPA. His or her clients are
generally the owners of the
business or their representatives, the board of directors.
An independent auditor who examines company’s records follows certain
standards of field work. These deal with the planning and supervision, if necessary, of
the audit. The independent auditor must also review internal controls as a basis for the
applications of tests of their effectiveness. Furthermore, he or she is responsible for
obtaining a reasonable and appropriate amount of evidential material from business
papers, ledgers, and other sources in arriving at an opinion on the accuracy of the
financial statements.
The reporting standards deal with the contents of the report. The report must state
whether the financial statements of the organization have been prepared in accordance

22. 22
with generally accepted accounting principles. Furthermore, these principles must have
been observed in the current accounting period in relation to the previous period.
Unless the report states otherwise, the auditor verifies that the financial statements can
be considered sufficient. The report must either express an opinion on the condition of
the fiscal records or state that no opinion can be expressed, listing the reasons for the
conclusion.
National accounting
National-income accounting is the measurement of aggregate economic activity,
particularly national income and its components. The measurement of aggregate
economic activity by national-in-
come accounting serves two basic
functions. First, it enables us to
identify economic problems. The
second function of national-income
accounting is to provide an objective
basis for evaluating policy.
National-income accounts help
us not only to measure the economy
but also to understand how it
functions.
Gross national product (GNP) is the total market value of all final goods and
services produced in a given time period.
GNP per capita is a total population: average GNP. GNP per capita relates the total
value of annual output to the number of people who share that output; it refers to the
average GNP per person.
Even when we focus on domestic market activity we encounter problems in

23. 23
calculating GNP. A very basic problem arises from the fact that the production of
output typically involves a series of distinct stages. Consider the production of bread,
for example. For bread to reach the supermarket, the farmer must grow some wheat, the
miller must convert it to flour, and the baker must make bread with it.
We must focus on the value of final goods and services and exclude intermediate
goods from our calculation.
Intermediate goods are goods or services purchased for use as input in the
production of final goods or services.
Nominal GNP is the value of final
output produced in a given period,
measured in the prices of that period
(current prices).
To distinguish increases in the
quantity of goods and services from
increases in their prices, we must
construct a measure of GNP that takes
into account price level changes. We do
so by distinguishing between real GNP
and nominal GNP. Nominal GNP is the value of final output measured in that year’s
prices, whereas calculating real GNP, we value goods and services at constant prices.
Inflation is an increase in the average level of prices of goods and services.
Production possibilities are the alternative combinations of final goods and
services that could be produced in a given time period with all available resources and
technology.

24. 24
Business and Investment Opportunities in
Ukraine: Ukraine Open for Business
Having recently gained its independence, Ukraine is a country comparable in
geographical size and population to Italy and France. The country possesses numerous
competitive strengths, namely a strategic geographical position and mild climate, rich
natural resources, a sizeable consumer market, highly educated labour force, well
developed transport infrastructure, significant achievements in natural sciences, a
military-related research, and a sophisticated research and development infrastructure.
However, the Ukrainian
economy is currently in a
critical position. This is due
to the fact that the economy
of Ukraine was previously
quite isolated, not oriented
towards satisfying the
national interest of the
country. The pricing policy was basically inappropriate because the prices for raw
materials and fuel supply were very low and were not stimulating their rational use and
the introduction of high technology to industry.
Ukrainian efforts to be integrated to the world market were, over the first three
years, very reticent and did not realize the national potential.
Prior to independence, more than 80 percent of total «exports» and «imports» were
accounted for by inter-republic trade. As well as being tightly integrated with the
economy, Ukraine accounted for a major share about 25 per cent of the Net Material
Product
i NMP) of the former Soviet Union.
Needless to say, at independence the severance of the interre- public links had a

25. 25
particularly disruptive effect on Ukrainian enterprises and on the national economy as*
a whole.
The foreign trade linkages of Ukraine will no doubt play a key role m the recovery
of the Ukrainian economy in this transition period.
Upon gaining independence in 1991, Ukraine has become an equal member of the
international community. There is little doubt :hat the economic, scientific and human
potential of Ukraine is one of the most promising in Europe and offers many business
and divestment opportunities.
Attraction of new investments in the Ukrainian economy, including foreign
investments, is one of the effective ways of overcoming this situation.
About Foreign Investments
What kinds of values can be Invested in Ukraine?
All kinds of values invested by the foreign investors into objects of enterprise
activity and other kinds of activities for obtaining profit (income) or achieving social
effect are considered
to be the foreign
investments in
Ukraine.
Values which can
be used for making
foreign investments
include currency, in
particular the currency
used on the territory of
Ukraine, movable and real property, securities, rights of intellectual property, rights to
carry out economic activity, paid services, and other values.
Into what objects can values be invested?

26. 26
Above-mentioned values can be invested into joint ventures with the membership
of Ukrainian businessmen, private enterprises, movable or real property, securities,
rights for land-tenure and concessions for exploitation of natural resources, and other
property rights.
If the foreign investments are no less than 20 per cent of the authorized fund of the
enterprise and reach the specified amount the size of which is differentiated according
to kinds of investments, the enterprise gets the status of the enterprise with foreign
investments.
In what currency can an investment be made?
Assessment of the foreign investments including payments to the authorized fund
of enterprises with foreign investments is made, according to a desire of a foreign
investor, in the foreign hard currency or in the national currency of Ukraine.
What is the legal basis for activities of foreign investors?
Relations associated with foreign investments in Ukraine are regulated by a
number of Ukrainian laws, Decrees of the Cabinet of Ministers, and other legal Acts of
the State.
Adoption of these Decrees by the Supreme Rada forms the legal basis for activities
of foreign investors on the territory of Ukraine and proves protection of their interests,
gives the amount of authority no less than that of state enterprises. It must contribute to
the primary investment in the priority industries and territories.
New Investment Fund Classifications
Joint investment activities will now be carried out through a «joint investment
institution», which can be either a «corporate investment fund» or a «share investment
fund». A corporate investment fund is an entity created in the form of an open joint and
Industry. Property imported into Ukraine as a contribution of a foreign investor whose
contribution to the authorized fund is from 10 000 to 50 000 US dollars during one year
after the date of payment of the specified amount, the privileged conditions of taxation

27. 27
are used which are similar to the conditions of taxation of the enterprises with foreign
investments.
The income tax is paid through non-cash transactions in the national currency of
Ukraine in evalution of profit subjected to taxation, the earnings received in foreign
currency are converted into the national currency of Ukraine according to the official
exchange rate on the date of receiving the income.
The object of value-added taxation is the turnovers from sale of goods (works,
services), excluding their sale for hard currency.
The object of taxation of imported goods (works, services) purchased for hard
currency is the difference between prices of
their sale for the national currency of Ukraine
and their purchase value, converted
according to the exchange rate determined by
the rate on the day of submitting a
declaration (purchasing goods, completing
works, rendering services).
Export of goods (works, services),
except barter (goods exchange) operations,
coal, coal bricks and electric power, as well
as some other goods, works, services is free
from value-added tax.
Peculiarities of taxing barter operations in the field of foreign economic activity
are determined by the corresponding Decree of the Cabinet of Ministers of Ukraine
given in Appendix 8.
The value-added tax is included in the price (tariff) of goods (works, services) at
the rate of 28 per cent of a turnover subjected to taxation, which does not include value-
added tax. The sum of tax is determined as the difference between the sum of tax
obtained from the buyer for sold goods (works, services) and the sum of tax paid out by
supplier for carried out works, services and purchased material resources.

28. 28
Planning in Business
In most western democracies there is no central economic planning agency, but in
the country like Saudi Arabia, where the entire economy depends on the huge profits of
the oil industry, central planning must be practiced. In most large corporations, long
term planning is absolutely essential. Although such planning is often facetiously
referred to as Econometrics and crystal-ball-gazing, it is nevertheless of great value. A
businessman must organize his planning with great care. A plan seen functioning
properly serves as a motivating force in business.
When business plans are made, a budget — that is an estimate of income and
expenses — must be projected. To avoid cash-flow problems it is advisable to plan on a
deposit on goods ordered. This can only be done if one can look back and learn from
previous experience — if not one’s own experience, — than the experience of others.
The cash flow — ready money that can be accessed when needed — is an essential
aspect of an active business venture, and it must be planned into the budget. If it is
lacking, a business can easily falter, even with a great many anticipated orders and a
superior product. Very often,
just to ensure a steady cash
flow finished goods must be
sold at a highly reduced rate.
Prices having fallen, they are
then not so easily brought
back to original value.
Forecasting techniques
mean setting up a schedule of
anticipated events such as ordering, production, advertising, atlending conferences, and
filling orders. Dates need to be set up for accounting periods. Such accounting periods
are, as a rule, related to the fiscal year, but this term means something quite different in

29. 29
separate parts of the world.
For example, December is mid winter in Europe and North America, and because
it is the Christmas season, it is a very active time commercially. However, in the
Southern Hemisphere and in places where a gift-giving season is not observed, things
may look quite different.
It is easy to see that planning
might become a very complex mat-
ter, particularly in a large-scale
business that would involve sur-
veyors, builders, carpenters,
plumbers, and interior decorators.
In such cases, there might well be
uncertainties about deliveries and
the kind of job outside contractors are likely to do. For such large-scale businesses,
linear programming is, probably, the best technique. Linear programming is a system
by which events that have to happen are put on a line prior to other events. The line is
seen as a road to that hoped-for business goal.
For a small business, even a simple checklist of things that have to be done by a
certain time is better than nothing. Even with very cursory plans made, one is given a
morale booster and a feeling that one is heading in the right direction. Without a plan, a
business venture is like a large threatening void. A businessman must at least look as
if trying to start on the right foot. However, even with the best-laid plan, every
businessman knows that flexibility must be an integral part of the planning. For as we
have learned through the now famous «Murphy’s Law», if anything can go wrong, it
will!
Financing a Business
If you have just won the national lottery, financing your new business will not be a

30. 30
problem for you. If, however, you are like most small entrepreneurs, you will wonder
how you can find enough cash to be able to pay for your equipment, your rent and your
advertising. Advertising is a crucial aspect of your business venture. Without it,
perhaps, there is no use bothering to create your product. After all, you will not sell a
single item if you do not find customers. One finds customers by advertising, and
advertising takes money. You need capital to get your business going, to buy inventory,
secure property, and purchase all necessary assets. The success of your business
depends much on your knowing how to manage your money.
If you hire anyone, you
will, of course, need to pay
a salary, and if you want
your business to expand,
you will need capital for re-
search, growth, and
expansion.
Fortunately for the new
businessman, there are two
basic ways of financing a business venture: debt financing and equity financing.
Debt financing is the money you borrow for your business. You can, of course,
always try to borrow from your rich uncle, you can also, if you prove to yourself the
risk is worth taking, borrow from a bank.
Equity financing is an interesting way of raising capital by using the potential
power of your business. This means that you can sell shares of stock of your business to
raise money, that is, the buyer of your stock owns a certain percentage of your business.
If someone buys 150 shares of your business, it means that this person owns 150 shares
of your resources, materials, plants, production, and profits. If such a person shares
your risk, he/she will naturally enough also share your gain. Besides selling shares, you
could also, possibly, sell corporate bonds. A corporate bond must be repaid with
interest at a pre-agreed-upon date (the date of maturation).

31. 31
Where would you get the money for a new business? If you are a millionaire or
have an uncle who is a millionaire and is willing to bet on your business success, then
you have no problem. But if you are starting from scratch, then even the most brilliant
of ideas will not bring you cold cash.
Nationalized industries, of course, have no
problems, they simply depend on the government
to raise taxes for them. Income tax, VAT (Value
Added Tax), and excise duty tax all help in
moving the wheels of nationalized industries.
Instead of reporting to the shareholders as normal
companies do, the chairman of a nationalized
company calls a press conference to inform the
mandatory «stockholders», otherwise known as
taxpayers.
A private company can obtain bank loans and
it can do what the government does by issuing bonds. These bonds attract other
investors because they have a fixed rate of interest. If your company becomes stable
and is known as a profit maker, you will be thought of as a «blue chip» company and
elderly widows will consider you a safe investment for the future of their grandchildren.
However, should your company not quite be so solid, you might consider the more
venturesome business of issuing risk-bearing shares. These are not quite as safe, but if
your company profits, your shareholders will be very pleased. They will have shared
the risk and they will share in the dividends. At any rate, it will be up to the majority of
shareholders of your company to decide what sort of investments you will make, how
you are to distribute your shares, and when to split shares, or to make a new issue of
shares. When making investments, you should always consider diversifying. Putting all
one’s eggs in one basket is invariably wrong.
For a company to prosper, the shareholders’ best interest must always be
considered. This is, as a rule, not difficult. Generally speaking, what is good for the

32. 32
company is also good for the shareholders. Nevertheless, all shareholders should be
given the chance of agreeing or disagreeing with company policy. This is why most
companies schedule at least one meeting during the year to which all shareholders are
invited. They may not all have shown up, but at least they will have been given the fair
chance to have their say.
The History of Money
The history of money goes far back in antiquity. Most primitive tribes are known
to have made some use of it.
Money can be considered as
assets, i. e. something that you have and
is of value. It is part of a person’s
wealth, but it has a characteristic that is
different from all other forms of wealth.
This characteristic is that it can
immediately be exchanged for any
other form of wealth, goods or service
you may require. Although, many forms of wealth can be transferred or exchanged for
other assets, the one most widely used and acceptable in a country is money. This
attribute is called liquidity. It means that a liquid asset (money) can be exchanged for
other goods or services without paying a high cost for the privilege of the transfer. An
example of an asset with less than perfect liquidity is shares in a company quoted on the
Stock Exchange. If you wish to sell these shares, you must in the first instance
telephone a broker to sell on your behalf. You will be required to pay a commission to
him for doing so. Having sold these shares, it is quite likely that you will not receive the
amount of your original investment — you may receive more or you may receive less.
Finally, you will receive settlement of the debt due to you from your stockbroker some
two or three weeks later. Money can be converted to other assets with ease, but money

33. 33
will always have the same nominal value2
.
History has shown us that in early civilizations commodities, particularly metals,
were used as money. Such commodities as salt, horses, sheep, dogs teeth, tobacco, and
so on, were all at some time, somewhere, used as media of exchange. In time it was
realized that metals — iron, brass, and copper and later, silver and gold — were
superior to other commodities. Although metals served the community well as money,
bars of metal were not easy to carry on the person; thus coins were produced, making
money portable and easily, divisible by
weight.
In the market-place, it meant that the
trader had two functions: first, to weigh the
metal to see that it conformed to current stan-
dards; then, if it did, to weigh the goods the
customer wished to buy. Obviously the
weighing of metal coins was time-
consuming, so the size and weight of the
coins of the realm were eventually
standardized and stamped as was the case in Roman Britain, with an impression of the
emperor’s head. England’s own coins, which were originally made of silver, were not
standardized until the reign of Edward II, when a gold coin bearing his image was
struck, it was called a sovereign a name which, of course, exists to this day. Other
familiar English coins have names with interesting origin. Guineas were made of gold
which was brought back from Guinea, and the florin minted when silver coins were
needed for circulation, was named after the Italian city of Florence. As the need for
coins developed, so pennies, half-pennies, and farthings (quarter of a penny) were
minted and used.
At this point it should be remembered that the early coinage was worth its stated
value in metal content. That is, if you were the holder of a silver or gold coin, then
melted it down, you would be able to receive more or less the same value as the coin

34. 34
itself. Thus the unscrupulous began to trim the edges of coins or made forgeries from
debased metal; merchants had to be very wary of the coins they took in exchange for
their goods. To defeat the trimming of coins, the London Mint edged silver coins that
any clipping would be immediately noticeable.
It is probably very difficult to imagine a time when the ordinary person did not use
notes for the purpose of everyday buying and selling. However, it should be
remembered that prior to the seventeenth
century the vast majority of the population in
Great Britain were almost self-sufficient. Their
wants were small, travel was difficult, and
communication outside the village or small
town was often unnecessary. With the gradual
expansion of wealth, more and more merchants
needed a safe place to keep their wealth.
The goldsmiths fulfilled this need. As
evidence of the deposits, they issued receipts, which additionally incorporated a
promise to repay the owner on demand. As depositors became more and more confident
in the trustworthiness of the goldsmith, the receipts began to circulate, because it was
realized that withdrawing a given number of coins from the goldsmith, then taking it to
a creditor, who would then deposit it with another goldsmith, was not only time-
consuming and cumbersome but also somewhat risky. In due course many of the
goldsmiths became full-time bankers, since it was often more profitable than their
original profession. The receipts — which were frequently odd amounts — very
gradually disappeared and in their place the early bankers issued their own banknotes
for regular amounts such as J1, J5, and so on.
Money
What is money? Money can be anything that is generally accepted in payment for

35. 35
goods and services.
Although anything can serve as money, as a practical matter the material should
possess the following qualities:
Stability. The value of money should be more or less the same today as tomorrow.
In societies where value of money fluctuates (goes up and down) people will hoard it in
the hope that its value will increase, or spend it immediately thinking it will be worth
less tomorrow. Either action could be harmful to the economy.
Portability. Modern money has to be small enough and light enough for people to
carry. Bowling balls would not be a practical form of money.
Durability. The material chosen has to have
a reasonable life expectancy. For that reason
most countries use a very high quality paper for
their money.
Uniformity. Equal denomination of money
should have the same value. It’s easy to see that
if some quarters or dollar bills were worth more
than others, things could be pretty confusing.
Divisibility. One of the principal
advantages of money over barter is its ability to be divided into parts. In other words,
while making change for a dollar is easy, making change for a chicken is more difficult.
Recognizability. Money should be easily recognized for what it is and hard to
copy. The quality of the paper and the engravings make paper money extremely
difficult to counterfeit.
We can also define money by what it does, which is to provide: A Medium of
Exchange; A Measure of Value; A Store of Value.
A Medium of Exchange. The principal difference between a barter economy and a
money economy is that in a barter economy you must find someone who has what you
want and wants what you have. In a money economy people can sell what they have to
anyone and use the money to buy what they want. Money, therefore, is the medium that

36. 36
enables exchanges to be made easily.
A Measure of Value. Money enables us to state the price of something in terms that
everyone can understand. We can say the eggs we have for sale are worth 85 cents a
dozen. That is far simpler than having to figure out how much milk or meat or clothing
we would expect in payment for a dozen eggs.
A Store of Value. Money enables us to use the value of something that we sell
today to make a purchase sometime in
the future. For example, our egg seller
could put the money from the day’s
sale toward a college education
sometime in the future. You can
imagine the difficulties if that person
tried to save one or two year’s worth of
eggs toward a college education.
Currency. The money you are
most familiar with, currency, consists of the paper money and coins that you almost use
daily. The next important step in the history of money was the evolution of paper...
Artisans who worked with gold require ... safes, and public began to ... gold with such
... for safekeeping. Goldsmiths would give their depositors receipts promising to hand
over the gold on... The ... needed only to transfer the goldsmith’s ... to seller, who
would accept it as long as they were confident that the goldsmith would pay over the
gold whenever it was needed. The convenience of using ... of paper instead of gold is
obvious. When it first came into being, paper ... represented a promise to pay so much
gold on demand. In this case, the promise was made first by goldsmiths and later by...
Such paper money was backed by precious ... and was convertible on demand into this
metal. In nineteenth-century America, private banks commonly issued paper money,
called..., nominally convertible into gold. The word money derives from Latin
«moneta» which was one of the names of the Roman goddess Junona. It is known that
in her temples ancient coins were minted.

37. 37
The Functions of Money
•A medium of exchange.
As we have already explained, the use of money as a medium of exchange makes
(possible) a great extenuation of the principle of specialization.
In an advanced society the use of money allows us to exchange hours of labour for
an amazing variety of goods and services. We can exchange, for example, two weeks
labour for a holiday abroad just as easily as we can exchange it for a piece of furniture
or a year’s rent on a television set. Such exchanges are taken for granted, yet they
would be inconvenient without the use of money.
• A measure of value.
The first step in the use of money was probably the adoption of some commodity
as a unit of account or measure of value.
Money, most likely, came into use within
the barter system as a means whereby the
values of different goods could be
compared. The direct exchange of goods
for goods would raise all sorts of
problems regarding valuation. For
example «How many bushels of corn are
equal in value to one sheep, if twenty
sheep exchange for three cows and one cow exchanges for ten bushels of corn?» The
problem of exchange rates is easily solved when all other commodities are valued in
terms of a single commodity which then acts as a standard of value. Money now serves
as such a standard and when all economic goods are given money values (i.e. prices),
we know, immediately, the value of one commodity in terms of any other commodity.
• A store of value.
Once a commodity becomes universally acceptable in exchange for goods and
services, it is possible to store wealth by holding a stock of this commodity. It is a great

38. 38
convenience to hold wealth in the form of money. Consider the problems of holding
wealth in the form of some other commodity, say wheat. It may deteriorate, it is costly
to store, may be insured, and there will be significant handling costs in accumulating
and distributing it. In addition, its money value may fall when it is being stored. The
great disadvantage of holding wealth in the form of money has become very apparent in
recent years — during periods of inflation its exchange value falls.
• A means of making deferred payments.
An important function of money in the modern world, where so much business is
conducted on the basis of credit, is to serve as a means of deferred payment. When
goods are supplied on credit the buyer has immediate use of them but does not have to
make an immediate payment. The goods can be paid for three, or perhaps six, months
after delivery. In the case of hire purchase contracts, the buyer takes immediate delivery
but pays by means of installments spread over one, two, or three years.
A complex trading organisation based upon a system of credit can only operate in
a monetary economy. Sellers would be most unlikely to accept promises to pay in the
future which were expressed in terms of commodities other than money. They would
have no idea how much of the commodities they would need in the future, and if they
do not want them, they face the trouble and risks involved in selling them. Sellers will
accept promises to pay expressed in terms of money because, whatever the pattern of
their future wants, they can be satisfied by
using money.
Business Loans
Most of the money used by business
comes from the sale of its products and
services. Since these funds come from within
the firm they are described as internal funds.
The rest must come from outside, or external funds.

39. 39
As a firm sells its products or services, it receives money, which uses to meet its
expenses. One of these expenses, depreciation, represents the cost of replacing assets
(like tools, machinery, and buildings) that wear out. Typically, businesses use internal
funds to cover the cost of depreciation.
Business loans are generally classified as either short-term or 'long-term loans. For
short-term loans, the principal (the amount borrowed) must be repaid within one year.
Long-term loans mature (come due) in more than a year.
Short-term loans are used to finance the everyday costs of doing business, such as
payrolls, raw materials and merchandise. Long- term loans are more likely to be used to
purchase equipment, buildings and
other high cost items.
All corporations issue common
stock; some, however, also issue
preferred stock. Unlike common
stockholders, preferred stockholders
usually do not have voting rights.
A security exchange is a market
where brokers meet to buy and sell
stocks and bonds for their customers.
The largest of the securities exchanges are the New York Stock Exchange and the
American Stock Exchange.
There is some risk, of default (failure to pay interest or principal) on the bonds of
even the strongest corporations. For this reason many people invest in mutual funds.
Mutual funds are corporations that sell stock and use the proceeds to invest or speculate
in the security markets.
Two of the most important pieces of information contained in every prospectus
and annual report are the balance sheet and the income statement. The balance sheet
summarizes a corporation’s assets, what it owns; its liabilities, what it owns; and its net
worth, the difference between the two sums at a given time. The income statement

40. 40
summarizes a firm’s revenues, costs, and the difference between the two (the profit or
loss) over a period of time.
Inflation
Inflation is generally defined as a persistent rise in the general price level with no
corresponding rise in output, which leads to a corresponding fall in the purchasing
power of money. In this section we shall look briefly at the problems that inflation
causes for business and consider whether there are any potential benefits for an
enterprise from an inflationary period.
Inflation varies considerably in its extent and severity. Hence, the consequences
for the business community differ according to circumstances. Mild inflation of a few
per cent each year may pose few difficulties for business. However, hyperinflation,
which entails enormously high rates of
inflation, can create almost insurmountable
problems for the government, business,
consumers and workers. In post-war Hungary,
the cost of living was published each day and
workers were paid daily so as to avoid the
value of their earnings falling. Businesses
would have experienced great difficulty in
costing and pricing their production while the
incentive for people to save would have been removed.
Most people associate inflation with price increases on specific goods and services.
The economy is not necessarily experiencing an inflation, however, every time the price
of a cup of coffee goes up. We must be careful to distinguish the phenomenon of
inflation from price increases for specific goods. Inflation is an increase in the average
level of prices, not a change in any specific price.
We first determine the average price of all output — the average price level —

41. 41
then look for changes in that average. A rise in the average price is referred to as
relation.
The average price level may fall as well as rise. A decline in average prices — a
deflation — occurs when price decreases on some goods and services outweigh price
increases on all others. Relative price is the price of some goods in comparison with the
price of other goods.
Because inflation and deflation are measured in terms of average price levels, it is
possible for individual prices to rise or fall continuously without changing the average
price level. Nominal income is the amount of money you receive in a particular time
period; it is measured in current dollars. Real income, by contrast, is the purchasing
power of that money, as measured by the quantity of goods and services your dollars
will buy. If the number of dollars
you receive every year is always
the same, your nominal income
doesn’t change — but your real
income will rise or fall with
price changes.
There are two basic lessons
about inflation to be learned:
C. Not all prices rise at the same rate during an inflation. Typically, some
prices rise very rapidly, others only modestly, and still others not at all.
D. Not everyone suffers equally from inflation. Those people who consume
the goods and services that are rising faster in price bear a greater burden of inflation;
their real incomes fall more. Other consumers bear a lesser burden, or even none at all,
depending on how fast the prices rise for the goods they enjoy.
Money illusion is the use of nominal dollars rather than real dollars to gauge
changes in one’s income or wealth.
The most common measure of inflation is the Consumer Price Index (CPI). As its
name suggests, the CPI is a mechanism for measuring changes in the average price of

42. 42
consumer goods and services.
Inflation Rate is the annual rate of increase in the average price level.
Price stability is the absence of significant changes in the average price level
officially defined as a rate of inflation of less than 3 percent. Our goal of «full»
employment is defined as the lowest rate of unemployment consistent with stable
prices.
The most familiar form of inflation is called demand-pull inflation. Demand-pull
inflation is an increase in the price level initiated by excessive aggregate demand. The
name suggests that demand is pulling the price level. If the demand for goods and
services rises faster than production, there simply won’t be enough goods and services
to go around.
Cost-push inflation is an increase in the price level initiated by an increase in the
cost of production. In 1979, for example, the Organization of Petroleum Exporting
Countries (OPEC) sharply increased the price of oil. For domestic producers, this action
meant a significant increase in the cost of producing goods and services. Accordingly,
domestic producers could no longer afford to sell goods at prevailing prices. They had
to raise prices. The result was a cost- push inflation.
Setting the Price
How are prices set? Through most of history, prices were set by buyers and sellers
negotiating with each other. Sellers
would ask for a higher price than
they expected to receive, and buyers
would offer less than they expected
to pay. Through bargaining, they
would arrive at an acceptable price.
Setting one price for all buyers
is a relatively modern idea. It was

43. 43
given impetus by the development of large-scale retailing at the end of the nineteenth
century. F.W. Woolworth, Tiffany and Co., John Wanamaker.J.L. Hudson, and others
advertised a «strictly one-price policy» because they carried so many items and super-
vised so many employees.
Through most of history, price has operated as the major determinant of buyer
choice. This is still true of poorer nations, among poorer groups, and with commodity-
type products. However, nonprice factors have become relatively more important in
buyer-choice behaviour in recent decades. Yet price still remains one of the most
important elements determining company market share and profitability.
Price is the only element in the marketing mix that produces revenue; the other
elements represent costs. Yet maпvy companies do not handle pricing well. The most
common mistakes are: pricing is too cost oriented; price is not revised often enough to
capitalize on market changes; price is set independently of the rest of the marketing
mix rather than as an intrinsic element of market-positioning strategy; and price is not
varied enough for different product items and market segments.
Companies handle pricing in a variety of ways. In small companies, prices are
often set by top management rather than by the marketing or sales department. In large
companies, pricing is typically handled by divisional and product-line managers. Even
here, top management sets the general pricing objectives and policies and often
approves of «the prices proposed» by lower levels of management. In industries where
pricing is a key factor (aerospace, railroads, oil companies), companies will often
establish a pricing department to set prices or assist others in determining appropriate
prices. This department reports either to the marketing department or top management.
Others who exert an influence on pricing include sales managers, production managers,
finance managers, and accountants.

44. 44
New Business and Job Creation
One of five Americans leaves his or her job each year. One in ten Americans
changes occupations each year, and many will have four to five careers in a lifetime.
While most job switching probably occurs early in one’s career, we live in a rapidly
changing world where new jobs and
careers are being created every day.
The personal questions involved in
finding and keeping a job are likely
to be a regular part of life.
Financing New Businesses.
The number of new businesses and
the amount of money necessary for
them to operate and expand is stag-
gering. There are 1.3 million new enterprises formed each year. Approximately half of
these incorporate. If each of the 1.3 million new firms requires $25,000 of financial
capital to begin, over $30 billion is needed to finance the start-ups each year. Another
half a million firms need an additional $100,000 to continue to grow. Capital
requirements for these firms total roughly $80 billion dollars.
Where do these funds come from? Business people called «venture capitalists»,
who specialize in investing in new firms, provide about $2 billion a year. One quarter
of the capital comes from overseas. Stock markets, where new common stock is sold,
provide an additional $15-20 billion. Banks and other financial institutions will also
provide funds. A large portion of funds needed for start-up and expansion, however,
comes from entrepreneurs risking their personal savings or property. This may mean
taking a second mortgage on a house, depleting savings and retirement funds, and
coaxing investors (primarily friends, neighbours, and family) to make loans or buy
ownership in the new firm.

45. 45
State Financing of New Businesses. States interested in stimulating economic
growth compete for jobs and new
businesses in a variety of ways.
They provide tax incentives and
special funds to lure foreign or
domestic companies to move to their
state. They advertise and market
their strengths to convince
businesses to relocate in their state.
They emphasize the quality of their
schools, roads and highways, the availability of skilled workers, and their clean air and
beautiful scenery — whatever businesses will find attractive. Governors will even
travel to other countries in an effort to secure new investment.
What Jobs Are Available? The creation of new businesses and new jobs can mean
new opportunities for you. What types of jobs are growing in importance in your
community? What jobs are fading in importance? National statistics indicate the service
sector is providing the lion’s share of new jobs. Opportunities are available in medical
care, retailing, and business services such as law, consulting and accounting. The
Bureau of Labour Statistics estimates that the fastest growing jobs will be in the areas
of high-skill service occupations such as engineering, medical technology, computer
programming and systems analysis. The table that follows provides some information
about the fastest growing and the fastest declining jobs in America.
The History of Money in Ukraine
Greek — Scythian period
VII c. BC — I c.AD
Money circulation in the Southern territory of modern Ukraine was born in epoch
of Greek’s movement here from Asia Minor and development of trade relationship

46. 46
between them and other Greek world, and also between aborigen Scythian tribes.
The end of the VII-VI century BC. The first equivalent of money in the Northern
Black Sea Coast were tipos of arrows with blunt and
round ends and other configurations what excluded
them from the using as a weapon. They were issued
in Scythian country and also in Greek’s settlements
in Berezan island and in Olbia. In the VIth
century
BC the cast coins in the shape of «dolphins» and
«fishes» appeared in Olbia. At the end of this
century Panticapeum started to issue silver coins.
V century BC. Olbia put into circulation
bronze cast coins — «ases» of round shape with Athena and Gorgona images and later
Demetra and also their fracases. In Kerkinitida the first coins were also cast coins
«arrows» and «fishes». Nikoniy issued series of cast coins with the town protector’s
name — Scythian king Skil. Also cast imitations of the money of the town of Istriya
were issued by him. Panticapeum continued to mint the coins, the Temple of Apollon
began minting the coins.
The end of the Vth
-Vrh
started century BC almost all of the Greek towns in the
Northern Black Sea Coast were crossed to mint their own silver and copper coins.
Sindy, Nimfey, Theodosia, Chersonessos,
Tyra, Phanagoria. The golden coins were
minted also in Olbia and Panticapeum. As
we know, the Scythian coins were good
imitations of the silver drachmas by the
Macedonian king Philip II. The coins of
the Western and Southern Pontos and
other Greek town — policies were
included into money circulation of the
Northern Black Sea Coast states.

47. 47
Ill century BC. The town — policies Olbia, Tyra, Chersonessos, Panticapeum were
continued to produce the coins. The mint was finished in Theodosia and Kerkinitida.
Theodosia was placed under the control of the Bospor’s state and Kerkinitida was
placed under the control of Chersonessos policy. The Celtic tribes in Pridnestro- vye
Region and in the land near Danube minted their own golden and silver states.
C. century BC. Money circulation in the Northern Black Sea Coast didn’t
change. The coin yards of Pantikapeum, Olbia, Tyra, Chersonessos continued issues.
Olbia was placed under the control of Scythian kings Skilur and Akrossa.
I century BC. All main town-policies of the Northern Black Sea Coast were placed
under the state of the king of Pontos Mithradates VI the Great. These conquest caused
coins supply from the Pontos towns Sinope, Amisos, Amastris and others into the
Northern Black Sea Coast and their partly remint on
the coin-yards. In the middle of the Ist
century BC
Olbia and Tyra were under the Gets invasion and in
that time they stopped to mint the coins.
Kiev-European period X-XIII centuries
X-XI century in the Kievan Rus continue issue
gold and silver coins of Grand princes Vladimir,
Svaytopolk, Jaroslav the Wise and so on. Fast
stopping the minting of ancient Russian silver coins
maybe link with that they on the whole had low standard of silver and the market took
them badly, at which was get into the habit to lowstandarding of Kufic derhams. Also
it’s possible that it’s happened because of abundant spread into ancient Russian market
of lowstandarding silver coins of Europian countries — dina- rius — and also of
Bizantine gold, silver and copper coins. Besides it in circulation was still staying a
significant quantity of east coins (dirhams). From the middle of the XIth
century Kievan
Rus began issuing cast silver coin — grivna — which the became general coin of Rus,
and also its dropped parts — rubles. At the first part of the XIth
century Chersonessos
stopped minting it. Its last coins were issued with initials of Bizantine Emperor Roman

48. 48
IV.
XIII — beginning of XIII century. The general coin of Kievan Rus was silver
ingots — grivna. Except Kiev, Chernigov, Novgorod and Litva were also issuing them.
In the circulation were European denarius, Bizantine silver and copper coins and also
coins of Muslim countries of the East. Because of constant wars with polo- vets, money
circulation began gradually to go out and started changing into barter. After invasion of
Mongol-Tatar in 1240 money circulation on the territory of Kievan Rus — Ukraine
died.
Russian-Soviet period the end of XVIII-1991
The end of XVII-XIX c.c. The coins of Russian Empire circulated practically on
all the territory of Ukraine by the end of XVIII c. Larger part of Poland was annexed to
Russian territory. A little amount of coins of
Poland and also Western Prussia, Livonia, Mol-
dova — Valahia, Finland, Georgia and other states
were included temporary or constantly in staff and
were circulating there. The coins of these states
started spreading in the Russian empire in a little
amount. In the main Austrian and Hungarian coins
were circulating in the western lands of Ukraine
which were included in the staff of Dual Empire.
XX c.c. Over the years of the first world war temporary money and metallic bons
were put into circulation on the occupied territory. This money like coins of Germany,
Russia and Austrian empires circulated on the territory of Ukraine at that time. In 1918-
1920 Ukraine became independent and managed to make a few issues of its own paper
money, but didn’t manage to mint coins. During the postrevolution time some
Ukrainian establishments issued money mixes — metal bonns which had limited use.
The Period of Independence since 1991

49. 49
August of 1991. Ukraine became the new independent European country with the
population of more than 50 million people. As its historical predecessor Kievan Rus
which in X-XI centuries declared its sovereignty to
all the civilized world by its own coins since 1995
Ukraine has minted its own coins. Its first
commemorative coins started functioning on the 7th
of May in 1995. They were dedicated to the 50th
Anniversary of the Victory in the Great Patriotic
War. As the first gold and silver coins which were
minted in the period of Vladimir the Great and
Yaroslav the Wise, the Ukrainian coins are stamped
with the ancient national emblem — Trizub of Kievan Rus. In 1996 there was realized
the money reform and the new national currency started to function. It was called
grivna traditionally. The next 1997 was marked by functioning the first Ukrainian
golden coins. Kievan coin yard was opened in the same year. It mints the
commemorative coins and coins for regular circulation by modern technologies.
Money in the USA
FUNCTIONS OF MONEY
Money is a medium of exchange that is generally acceptable by all persons within
the immediate community. For you, the immediate community is the United States and
its territories and possessions. In addition to serving as a medium of exchange, money
serves as:
C. a store of value (your savings)
D. a unit of account (your means of comparing prices of goods and services)
E. a standard of deferred payment (your claim on goods and services that can
be exercised now or in the future)

50. 50
UNITED STATES NOTES
These notes make up less than one per cent of our paper money. Since 1969, only
the $100 denomination has been issued. Prior to 1969, $2 and $5 denominations were
also issued. The $2 bill was discontinued in 1966, and the $5 bill was discontinued in
1968. The Treasury seal and serial numbers on U.S. notes are printed in red.
OTHER TYPES OF PAPER MONEY
Many other types of paper money have been issued over the years. National
Currency notes were issued by
national banks until 1935. Gold
certificates, paper money that
could be exchanged for gold,
were issued until 1934. Silver
certificates were issued until
1957. One-dollar silver
certificates made up most of the
$1 bills until the first $1 Federal
Reserve notes were issued in 1963.
SIZE
All currently issued United States paper money is of uniform size regardless of
type or denomination. Today’s notes measure approximately 6.14 x 2.61 inches, are
about 0043 inches thick, and weigh 03 troy ounces. Prior to July 1929, most notes
measured 7.42 by 3.125 inches and, because of their large size, were often referred to as
«blanket bills».
HOW MONEY GETS INTO CIRCULATION
An important function of the Federal Reserve System is to ensure that the
economy has enough paper money and coins to meet public demand. Paper money and
coins are placed in or retired from circulation by the Federal Reserve Banks, which use
depository institutions as channels of distribution. When banks and other depository
institutions need to replenish their supply of paper money and coins, they order the cash

51. 51
from the Federal Reserve Bank or Branch in their area, and the face value of that cash is
charged to their accounts at the Federal Reserve. When the public’s need for paper
money and coins declines and depository institutions return excess cash to a Federal
Reserve Bank, the value of the money returned by a given institution is credited to the
account of that depository institution.
MONEY CONTROL
Money is a medium of exchange. Credit is the postponement of the payment of
money. The supply of these two
factors available at any specific time
can have an effect on our economy.
Through its ability to influence the
supply of money and credit in the
economy, the Federal Reserve
System contributes to the attainment
of the nation’s economic goals. As
the nation’s central bank, the Federal
Reserve attempts to ensure that growth in money and credit over the long run is
sufficient to encourage growth in the economy in line with its potential and with
reasonable price stability.
VALUE OF MONEY
Money is actually a substitute for goods and services. Thus money’s real value can
be measured only in terms of the amount of goods and services that it will buy. This
means that when prices of goods and services rise, money has less value. When prices
fall, money has more value. Put very simply, one can say that the value of money goes
in the opposite direction of the general price level.
Money, like anything else, derives its value from its scarcity. Assuming a constant
rate of use, if the volume of money grows more rapidly than the «rate at which goods
and services are produced, prices will rise». This will happen because there will be
more money to spend than goods and services to buy at prevailing prices. On the other

52. 52
hand, if the growth» in the money supply does not keep pace with the economy’s
current production of goods and services, prices will fall, and the value of money will
increase.
The History of Banking
Is banking a phenomenon of the present day? Certainly not. Banking in one form
or another is as old as civilization itself. The earliest banks go back to biblical days;
about 4,000 years ago. We also know from early records that the ancient civilizations of
Rome, Greece, Babylon, China
and Egypt all made use of banks.
How can the banks of
antiquity be related to the modern
computerized banks of today? It
should be remembered that for all
the sophistication of modern-day
banking, the most basic service of
all banks, no matter where or
when they were in existence, is the safe-keeping of customers’ funds. In early times
most men and women were unable to read or write. Most did not need money — they
worked for a master who provided them with food, clothing and shelter sufficient for
their needs. The rich, the rulers, merchants and landowners had money in the form of
gold and silver, so it was they who needed banks to look after their funds and valuables.
The literate men of the community were priests, and consequently they, with their
ability to keep records, were the first bankers. Additionally, because they were priests
they were considered honest and trustworthy. Not only could valuables confidently be
left in their charge, but also temples, churches and other sites of worship were seen as
places of safe-keeping. They were well guarded and it was a serious, criminal offence
to desecrate holy ground; for example, no one would dare break down the door of a

53. 53
church and destroy any part of its interior — the punishment would probably be death.
Very gradually, business of banking was withdrawn from the hands of priests and
became part of normal trade and commerce. Indeed, one of the most successful periods
for banks was in Italy during the eleventh and twelfth centuries, particularly in the sta-
tes of Venice, Lombardy and Genoa; there banking prospered and grew to a
considerable degree. Merchants in these states not only maintained the accounts of
customers and looked after their funds, but were agents for collection, in as much as
they originated the bill of exchange, which was used to facilitate the movement of
funds and assist in the settlement of international trade within the Mediterranean area.
These days banks consider the latter function — to act as an agent for collection —
to be the most vital service. Each working day, cashiers at every branch at every bank
are taking in cheques in favour of their customers, crediting the account and sending
these cheques to the clearing house for collection and final payment.
Bank’s Profit
Banks made their profits by lending the money which customers deposit with them
to others who need it for personal or business reasons. Most people need more money
than they have currently available at some time in their lives.
To be a borrower you must
be a customer of the bank
because the money will be lent to
you through a bank account.
There are two ways in which you
may borrow. The first, and easy,
is to spend more money than you
have in your current account —
to overdraw. The second and the
normal way of borrowing larger amounts or for a long period of time is the loan.

54. 54
If a manager permits an overdraft on a current account he is likely to set a limit to
the size of the overdraft and may stipulate a date by which the account is back in credit.
Businesses whose payments and receipts are often irregular will frequently need to use
overdraft facilities and they are often granted to private customers as well particularly
when the manager knows that regular payments are made directly into the account.
If a loan is granted it will be a fixed sum immediately available for a fixed period
of time. The principal and the interest on it may all become due for payment at the end
of that period but for personal loans it is common to arrange that the loan and interest
are repaid in equal regular
installments over the period
of the loan. A separate
account is opened to record
the repayments as they are
made.
Sometimes people do
not ask for enough money
because they are anxious
about the burden of the repayments. The manager will be wise enough to try and ensure
that you will have sufficient amount of money to do what you want to do. Finally he
will consider whether or not you really will be able to repay and what kind of security
you can offer against the possibility that you do not repay. In the case of a business the
manager may want to see well prepared, relevant documents such as profit and loss
accounts and balance sheets for the most recent years. He would also ask about the
expected return from the use of the money and want to see some figures upon which
you have based your calculations. For a business good security might be one or more of
the assets of the business whilst personal loans are often secured by such things as life
insurance policies on which the bank is making regular payment for you or the deeds of
your house.

55. 55
Selecting a Bank
The most important thing in the choice of a bank is its integrity. The size and the
type of the bank must be taken into consideration too.
If you are going into business, there is an advantage for a small business to account
in a small bank. The staff of such a bank knows each customer and can estimate your
business better.
However, there are the advantages of a larger bank. It is true, that dealings of large
bank are more impersonal. But, it is also true, that a large bank can offer more facilities.
Large banks can make a loan at more favourable interest rate. They also can make as
large a loan as it is desired.
In any case, selecting a bank
people learn as much information
about the reputation of a bank as
possible.
As a summary, therefore, the
following six guides are
suggested.
C. Choose a bank whose
officers possess character, leadership, and the willingness to assume a risk provided,
there is a reasonable chance of repayment
D. Choose a progressive bank — one whose officers are alert to current
industrial trends and are willing to make loans for new products and more efficient
processes.
E. Choose a bank that stresses an attitude of friendliness to a small business.
F. Choose a bank that has confidence in the future of your community and is
willing to invest in it.
G. Choose a bank that quotes reasonable interest rates.
H. Choose a bank that gives good service.

56. 56
Bank Loans
Recently banks have started to offer many new facilities (services) to their
customers. There are new types of accounts, cheque cards, cash cards, credit cards,
insurance cover, investment services (methods for the bank to invest your money for
you).
However, (but) one of the most important services banks offer is that they lend
money to the customers. The methods
available for a customer to borrow from
his/her bank and the rate of interest he/she is
charged vary from country to country and
bank to bank.
One way of borrowing is to overdraw
(draw out more than you have in) on your
account. This is useful if you only wish to
borrow a small amount for a short time. The
interest rate on overdrafts depends upon the bank rate (rate fixed by government). In the
UK at the moment it is 12% over the base rate, i.e. 23% (that is).
Of course you can only have an overdraft with your manager’s permission.
Another way is to arrange a «personal loan». A personal loan is for a short period
of time, usually 3-5 years. Many people take out a personal loan, for example, to buy a
car. Each month the customer makes a payment on the loan to the bank. The main
advantage of a personal loan is that the interest rate is fixed. In the UK at the moment it
is 19%.
In many countries it is possible to borrow money for longer periods, e.g. up to 25
years. This is often necessary when buying a house or a business.
The interest rate on long-term loans depends upon the base rate. At the moment it
is 1.25% over the base (minimum lending rate). Of course, for both a personal loan and
a long-term loan the bank requires some kind of security, e.g. shares.

57. 57
All banks lend money.
An overdraft is an expensive way to borrow money.
The base rate is 11 % .
Long-term loans are cheaper than personal loans.
Bank Investments
The investment policy of a bank is based upon the reconciliation of two conflicting
aims. On the one hand the bank wants to make as much profit as it can and for this
reason it must take the risks of lending
money. On the other hand its funds
belong to its depositors and must be
available whenever they wish to make
withdrawals.
There are two things that the bank
must therefore do. First it must keep a
proportion of its assets in the form of
cash to meet demands. The amount that
this needs to be varies very little from one bank to another or from one day to another
and experience suggests that it is about six percent. As a cushion against unexpected
demands a further proportion of funds is invested at low rates of return in highly liquid
lending mostly to firms in the money and capital markets.
The second thing that the bank must do is to ensure that the investments it chooses
are safe. This also means that they are relatively low yielding since high yields are
associated with risk and with lending for long periods of time. Much of a bank’s
investment is in short and medium term government and local government bonds. They
yield certain incomes and are readily saleable should the occasion demand.
Advances by a bank to its customers are the least liquids of their assets since there
are few borrowers who could repay a loan at very short notice. However, they are also

58. 58
the most profitable of them yielding the highest rate of return. Advances to customers
are likely to account for more than two thirds of the banks investment portfolio
although this will vary on a day to day basis since overdrafts are the most common
form of advance and are not immediately controllable by the bank.
In general banks do not lend to industry for long periods of time or for investment
projects. They regard themselves as providing working capital rather than fixed capital.
Saving Bonds, Stocks (U.S.)
If you want to save and earn interest on your savings, you don’t have to put your
money in a bank, there are other ways to save. One is to buy U.S. savings bonds. When
you buy savings bonds, you are lending money to the U.S. government.
U.S. savings bonds have
a number of advantages, one
is that you don’t have to pay
income tax on the interest you
earn each year; you can
postpone paying the tax until
you «cash in» the bond — that
is, until you ask Uncle Sam to
repay the loan.
There are many other ways to save, some people like to put their savings into the
stock market — that is, they buy stocks, or shares in corporations.
When you buy stocks, you can earn a return in two ways, first, you may receive
dividends — that is, a share of the company profits. Also, if the company does well, the
value of your stocks may go up, and if you want, you can then sell the stocks for more
than you paid for them.
Stocks have the potential to give you a much higher return than a bank account
does. But there is also a risk when you buy stocks. Their value can drop.

59. 59
You can reduce the risk of buying stocks by investing in mutual funds, which buy
shares in many different companies. The professionals who manage a mutual fund
decide what companies to buy shares in. Then, even if some companies do badly, your
loss will be limited, because other companies will do better.
A disadvantage is that some mutual funds charge an annual fee for managing your
savings.
Depositing Money With a Bank
In general, people who are in their peak earning years are most able to save. On the
other hand, people who are just starting their careers often dissave — that is, they spend
more than they earn, because they expect to earn much more in the future.
Similarly, retirees, whose incomes
are lower than the incomes they
enjoyed while working, also frequently
dissave.
In general, the longer you are
willing to leave savings in a bank, the
higher the rate of interest you can earn.
The reason involves something called
«liquidity».
The word «liquidity» refers to the readiness with which any can be converted into
cash without losing at least some of its value. The money you deposit in a savings
account is very liquid, because you can withdraw it at any time.
However, if you agree to leave your savings on deposit in what called a
«certificate of deposit» for, say, two years or five yean you sacrifice liquidity and you
receive a higher rate of interest return for that sacrifice.
Another reason interest rates are higher on longer-term deposits has to do with
inflation, or rising prices, inflation erodes the value of your savings, even if you earn