МІНІСТЕРСТВО ОСВІТИ І НАУКИ,
МОЛОДІ ТА СПОРТУ УКРАЇНИ
НАЦІОНАЛЬНИЙ УНІВЕРСИТЕТ ХАРЧОВИХ ТЕХНОЛОГІЙ
ЗАТВЕРДЖУЮ
Ректор _________ _______________
(Підпис)
(Прізвище, ініціали)
«___» _______________2011 р.
ІНОЗЕМНА МОВА
(АНГЛІЙСЬКА МОВА)
МЕТОДИЧНІ ВКАЗІВКИ
до практичних занять та самостійної роботи
для студентів IV курсу напряму підготовки 6.030509 Фінанси і кредит
факультету обліку, фінансів та підприємницької діяльності
денної та заочної форм навчання
Реєстраційний номер
електронних методичних
вказівок у НМУ ______________
Київ НУХТ 2011
Схвалено
на засіданні кафедри
іноземних мов
Протокол № 10
від 21 лютого 2011р.
Іноземна мова (англійська мова): Метод. вказівки до практичних занять та
самостійної роботи для студентів ІV курсу напряму підготовки 6.030509
фінанси і кредит факультету обліку, фінансів та підприємницької діяльності
ден. та заоч. форм навч. / Уклад.: Г.А. Чередніченко, Л.Ю. Шапран, О.В.
Кияшко – К: НУХТ, 2011. – 109с.
Рецензент А.Л. Верба, ст. викладач
Укладачі:
Г.А. Чередніченко, доц., кандидат пед. наук
Л.Ю. Шапран, доц.
О.В. Кияшко, ст. викладач
Відповідальний за випуск Г.А. Чередніченко, завідувач кафедри, доц.
2
ВСТУП
Дані методичні вказівки розраховані на студентів 4 курсу, які навчаються з
напряму підготовки 6.030509 Фінанси і кредит.
Вибір Україною курсу на входження в європейський економічний та
освітній простір, інтеграція з європейськими країнами, інтернаціоналізація
ділових стосунків у різних сферах діяльності людини підвищують попит на
спеціалістів, які б вільно володіли іноземною мовою та культурою
іншомовного спілкування. У цьому контексті важливого значення для якісної
вищої освіти набуває підготовка висококваліфікованих фахівців, які зможуть
ефективно працювати в умовах глобалізації, мобільності й розвитку
міжнародних контактів.
Мета даних методичних вказівок — розвиток в студентів умінь та навичок
читання, перекладу й мовлення на матеріалі оригінальних текстів фахової
тематики, відпрацювання навичок роботи з інформацією, розвиток професійної
культури студентів, формування професійної комунікативної компетенції в
межах ситуативного контексту, пов’язаного зі спеціалізацією в сфері фінансів,
вивчення специфіки ділового мовлення за фахом (професійної лексики та
термінології), розвиток професійної культури та набуття навичок оцінювання з
професійно значущих питань, розширення світогляду студентів.
Тематика, лексичний мінімум, система практичних вправ базується на
навчальному матеріалі, відібраному з урахуванням професійних потреб
студентів у іншомовному спілкуванні та спрямовані на досягнення головної
мети. Предметні сфери, ситуації та типи текстів конкретизовані відповідно до
пов’язаних з роботою професійних потреб. Перевага надана тим навчальним
потребам, що найбільше забезпечують адекватну мовленнєву поведінку
студентів у їх майбутній професійній діяльності.
Методичні вказівки складаються з 3 основних розділів, що містять тексти та
завдання, які сприяють подальшому розвиненню набутих мовних навичок для
задоволення практичних та професійних потреб в сфері фінансів.
Кожний розділ містить автентичний текстовий матеріал, систему вправ, які
будуються на фаховій лексиці та професійно-орієнтованих завдань, що
сприяють розвитку як мовленнєвої так і професійної комунікативної
компетенції.
Методичні вказівки сприятимуть формуванню у студентів професійноорієнтованих комунікативних мовленнєвих компетенцій та є додатковим
спонукальним мотивом для удосконалення навичок усного мовлення в
професійній сфері.
3
Introduction
Definition and Scope of Finance
Finance is the study of concepts, applications, and systems that affect the value
(or wealth) of individuals, companies, and countries over the short and long term.
Finance affects the daily lives of people and organizations. Though financial
dealings have existed for centuries, their presence and importance have become even
more apparent in our modern era of technology, information, consumption, and
investment. Indeed, the penetration of finance is so thorough that we needn’t look far
to see its impact: on any given day we are likely to be aware of economic growth and
inflation estimates, stock market and interest rate quotes, oil price trends, credit and
mortgage loan offers, corporate earnings announcements, and takeovers and
bankruptcies. A financial transaction occurs every time we place savings into a
deposit account or the stock market, or make a purchase on a credit card. A financial
transaction also occurs when a company borrows money from its bankers or issues
bonds to investors or acquires a competitor. And a financial transaction occurs when
a government agency issues bonds to finance its budget requirements, sells stateowned assets to the private sector, or changes its interest rate policies. It’s easy to
imagine that, when each one of these individual transactions is multiplied by
thousands or millions of similar transactions, asset prices and capital flows can
change and affect the fortunes of individuals, companies, and countries.
The Goals of Finance
A company exists to produce goods and services, and doing so successfully leads to
the creation of an enterprise with value. In fact, a company operating in a free market
economy aims to maximize the value of its operation. Naturally, this is just one
primary goal – we can easily imagine that a company may also try to achieve other
goals, such as building market share, establishing competitive leadership, creating an
international presence, developing brand name recognition, promoting
employee/community support, and so forth. Ultimately, however, a company seeks
to create a maximum level of enduring enterprise value. This, in turn, can be
accomplished by maximizing profits, managing liquidity and solvency, and
managing financial and operating risks.
Careers in Finance
Finance is an industry segment that covers any of the service industries whose
primary concern is managing money. This may take the form of banking services,
insurance, mortgages, or accountancy services. Money may be borrowed, lent,
invested, bought, sold, recovered, analyzed, taxed, or advised upon.
Each and every aspect of finance has its own dedicated set of agents, advisors,
and employees. Finance education enables a person to pursue a career within the
finance industry.
Investment banking, commercial banking, money management, financial
planning, insurance, private equity, real estate, pensions, and corporate finance are all
4
areas where you may find that finance degrees are highly valued. You may want to
become a financial analyst, financial manager, bank manager, pensions advisor, or
financial examiner.
Exercise 1.
a.
b.
c.
d.
e.
f.
g.
h.
i.
Find in the text the English equivalents to the Ukrainian words and
phrases.
багатство, статки
фондовий ринок
відсоткова (процентна) ставка
поглинення
фінансова операція (оборудка)
облігація; боргове зобов'язання
урядова установа
активи; майно; фонди
рух капіталу
j.
k.
l.
m.
n.
o.
p.
q.
питома вага на ринку
платоспроможність
страхування
інвестиційно-банківська діяльність
кредитно-депозитарна діяльність
Комерційна банківська справа
нерухомість
фінансовий експерт
Exercise 2. Answer the following questions.
1. What is finance?
2. What impact does it have on our everyday lives?
3. When does a financial transaction occur?
4. What are the goals of company finance?
5. What job opportunities does a person with finance degree have?
6. Where would you like to work?
7. Is it easy or difficult to find a job with finance degree? What can help you to
find a job easier?
8. What do you do to enhance you marketability on the labour market?
Exercise 3.
FINANCE DISCUSSION
STUDENT A’s QUESTIONS (Do not show these to student B)
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
What comes to mind when you hear the word finance’?
Do you think finance has different meanings to different people?
Are you happy with the state of your finances?
Do you think it’s important for children to learn about finance in school?
Are you interested in reading news about the financial world?
Are you good at saving and sticking to budgets?
Do you have any interest in talking to a personal financial advisor?
Have you ever risked money in financial markets?
Does the finance minister/secretary in your country do a good job?
Is it better to keep your money under your bed?
5
FINANCE DISCUSSION
STUDENT B’s QUESTIONS (Do not show these to student A)
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
What does the area of finance cover?
What personal finance decisions have you had to make recently?
What are the biggest personal finance decisions you’ll have to make?
What kinds of decisions do executives have to make regarding finance?
Would you like to work in finance?
What did your parents tell you about finance?
Do you have a head for finance?
Do you spend too much time and energy sorting out your finances?
Do people who always talk about money and finance bore you?
Are you worried about your financial security in your old age?
6
Part 1
Unit 1
1
Money
What is Money?
Money reigns supreme in the modern world. As J.K. Galbraith puts it aptly:
“Most things in life – automobiles, children, cancer – are important only to those who
have them. Money, in contrast, is equally important to those who have it and those
who don’t.”
Money is anything that is generally accepted as (a) payment for goods and
services, (b) repayment of debts.
Primary functions of money include: (1) medium of exchange; (2) unit of
account; (3) store of value; (4) standard for deferred payment; (5) transfer of value.
Under contingent functions, the following functions are included: (i) distribution of
social income; (ii) equalisation of marginal utility of expenditure; (iii) basis of credit
system; (iv) imparting uniformity to wealth.
Advantages of money:
Disadvantages of money:
highly liquid as compared to stocks and bonds.
loses value during inflationary periods or episodes.
Discussion Questions:
1. Can the following be considered as money?
· Credit card
· Currency in your wallet
· Wealth
· Income
2. What function of money does the quotation Today’s income can be spent
tomorrow refer to?
3. Is money the best store of value? Why people save money?
4. Do you agree that in modern world deferred payments (payments after a lapse
of time) are of immense importance? Why?
7
5.
In what way can money nowadays remove the possibility of transferring value
from one person to another and from one place to another?
Activity 1. Money Matters
A By yourself
There are lots of different ways you can get money. Here are five:
earn it
steal it
win it
inherit it
find it
Which are the most common? Put them in order.
B With a partner
Compare your answers. Discuss the differences, if any.
C By yourself
There are also lots of things you can do with money. Here are six:
lose it
spend it
give it away
invest it
save it
waste it
Of these six, which give you the most pleasure and happiness? Put them in order.
D With a partner
Compare your answers. Discuss the differences, if any.
E By yourself
Complete the sentences below with adjectives from the box (or any others you would
like to use).
stupid
1.
2.
3.
4.
5.
6.
7.
8.
generous lucky dishonest
careless
careful
Someone who steals a lot is _______.
Someone who inherits money is _______.
Someone who gives their money away is _______.
Someone who often loses money is _______.
Someone who wastes their money is _______.
Someone who saves most of their money is _______.
Someone who earns a lot of money is _______.
Someone who invests most of their money is _______.
8
wise
clever
Money
by Richard Armour
Workers earn it,
Spendthrifts burn it,
Bankers tend it,
Women spend it,
Forgers fake it,
Taxes take it,
Dying leave it,
Heirs receive it,
Thrifty save it,
Misers crave it,
Robbers seize it,
Rich increase it,
Gamblers lose it...
I could use it.
spendthrift – марнотратник, розтринькувач Syn. waster
forger – фальшивомонетник, підроблювач
thrifty – економний, ощадливий, бережливий
miser – скупій, скнара
crave – жадати, прагнути Syn.want, desire
Put the words in the box on the scale below.
hardly ever
occasionally
often
sometimes
quite often
always
_________
_________
_________
_________
_________
never
F With a partner
In pairs, ask each other the questions below. Try to use the words from E in your
answers.
Model: A: Do you lose money?
B: Hardly ever.
1. Do you ever find money?
2. Do you give money to strangers in the streets if they ask you for money?
3. Do you carry a lot of money on you when you go out?
4. Do you tip waiters?
5. Do you keep your money in a wallet or a purse?
9
6.
7.
8.
9.
10.
11.
12.
Do you keep a record of the money you spend?
Do you plan your weekly/monthly expenditure?
Do you pay for things with a credit card?
Do you check your change in shops?
Do you lend money to friends?
Do you pay in cafes/restaurants for your friends?
Do you buy expensive presents to your relations/friends?
Activity 2 Saving and Spending Money
A By yourself
What are your attitudes about money? Answer the following questions.
B With a partner
Compare your answers. Then discuss these questions.
•
Do you have the same habits? Which ones?
•
How much money do you spend a day?
•
How much money do you think most people your age spend?
C With a partner
Look at these ways to save money. Which do you think are the best?
Do things yourself.
Buy things used.
Use coupons.
Shop at outdoor markets.
Buy things on sale.
Rent things.
10
D With the whole class
Discuss these questions.
•
How do you save money? Do you do any of the things in part A?
•
What other ways can you save money?
E With a partner
Imagine that a friend from abroad is visiting you and wants to buy some souvenirs.
Suggest a souvenir for each of these people.
mother
grandmother
older sister
best friend
father
grandfather
younger brother
co-worker
F With the whole class
Take turns. Present your suggestions to the rest of the class.
Chose the best souvenirs for each of these people.
2
World Currencies
Most Commonly Used Currencies
€ = Euro
$ = Dollar
£ = Pound (Sterling)
Swiss Franc
11
¥ = Yen
In economics, the term currency can refer to a particular currency, for example, the
Euro, or to the coins and banknotes of a particular currency, which comprise the
physical aspects of a nation's money supply.
Over 150 types of currencies exist in the world. The most common are:
• E.U.: Euro – EUR
• U.S.: Dollar – USD
• U.K.: Pound – GBP
• Switzerland: Swiss Franc – CHF
• Japan: Yen – JYP
Other widely known currencies are:
• Mexico: Peso – MXN
• Sweden: Krona – SEK
• India: Rupee – INR
• Russia: Ruble – RUB
Extra Facts – How Currencies Got Their Names
Country
Currency
Origin of Name
Brazil
England
Russia
Spain
German
France
India
Peru
cruzeiro
pound
rouble
peso
mark
franc
rupee
sol
The Southern Cross
a pound of silver
means '’to cut’
means ‘weight of a silver dollar’
means ‘to mark’ in old German
comes from an inscription on coins, Francorum Rex
comes from silver
means ‘the sun’
Hard and Soft Currencies
12
One of the most important aspects of currency is the differences between hard
and soft currency. Let us first start out with the text book definition of hard currency.
Wikipedia.com defines hard currency as currency in which investors have
confidence, such as that of a politically stable country with low inflation and
consistent monetary and fiscal policies, and one that if anything is tending to
appreciate against other currencies on a trade-weighted basis. Examples of hard
currencies at this time include the United States dollar, the euro, the Japanese yen, the
British pound and the Swiss franc.
Soft currency on the other hand is defined as a country's currency which is not
acceptable in exchange for currency of other countries, due to unrealistic exchange
rates. Soft currency is normally a product of new countries and countries that do not
have the industry or the resources to have a strong and stable platform to grow a
society on. This currency not only fluctuates greatly in value, but is also under the
constant risk of loosing some or all of its value. Unlike hard currency, soft currency is
also not easily exchanged into other currency.
In some nations, there is a mixture of soft and hard currency. This was common
in many Soviet Bloc nations during the 1980s. In these nations, the citizens used the
soft currency associated with the national economy, while visitors had hard currency
which they could spend in certain venues.
Exchange Rates
Exchange rate is the price at which one currency can be exchanged for another
(e.g. how many yen are needed to buy a euro). In theory, exchange rates should be at
the level that gives purchasing power parity (PPP). This means that that a cost of a
given selection of goods and services (e.g. a loaf of bread, a kilowatt of electricity)
would be the same in different countries. So if the price level increases because of
inflation, its currency should depreciate – its exchange rate should go down in order
to return to PPP. For example, if inflation increases in the US, the dollar exchange
rate should go down so that it takes more dollars to buy the same products in other
countries.
In fact, PPP does not work, as exchange rates can change due to currency
speculation – buying currencies in the hope of making a profit. Financial institutions
all buy currencies, locking for high interest rates or short-term capital gains if a
currency increases in value or appreciates. This means exchange rates change due to
speculation rather than PPP. Over 95% of the word’s currency transactions are purely
speculative, and not related to trade. Banks and currency traders make considerable
profits from the spread between a currency’s buying and selling prices.
Fixed and floating rates
For 5 years after World War II, the levels of most major currencies were
determined by governments. They were fixed or pegged against the US dollar (e.g.
from 1947-67, one pound was worth $2.80), and the dollar was pegged against gold.
One dollar was worth one thirty-fifth of an ounce of gold, and the US Federal
Reserve guaranteed that they could exchange an ounce of gold for $35. This system
was known as gold convertability. These fixed exchange rates could only be
13
adjusted if the International Monetary Fund agreed. Pegging against the dollar ended
in 1971, because following inflation in the USA, the Federal Reserve did not have
enough gold to guarantee the American currency.
Since the early 1970s, there has been a system of floating exchange rates in
most western countries. This means that exchange rates are determined by people
buying and selling currencies in the foreign exchange markets. A freely floating
exchange rate means one which is determined by market forces: the level of supply
and demand. If there are more buyers of a currency than sellers, its price will rise; if
there are more sellers, it will fall.
Since the introduction of a common currency in 2002, fluctuating exchange
rates among many European countries are no longer a problem. But the euro
continues to fluctuate against the US dollar, the Japanese yen and other currencies.
Government Intervention
Governments and central banks sometimes try to change the value of their
currency. They intervene in exchange markets, using foreign currency reserves to buy
their own currency – in order to raise its value – or selling to lower it. The resulting
rates are known as managed floating exchange rates. But speculators generally have a
lot more money than a government has in its reserves of foreign currency, so central
banks or governments only have limited power to influence exchange rates.
Exercise 1.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Are the following statements True or False? Find reasons for your
answers in the text.
Purchasing power parity is a theory that doesn’t apply in reality.
Inflation should lead to an increase in the value of a country’s currency.
Speculators buy currencies when they expect their value to increase.
Speculators generally sell currencies if their interest rate rises.
Currency traders offer different buying and selling prices.
A lot more currency is exchanged for buying or selling goods than for
speculation.
The Federal Reserve will no longer exchange US dollars for gold.
Most exchange rates used to be fixed, now they float.
If more people want to buy a currency than sell it, its price will go down.
Exercise 2.
1.
2.
3.
4.
5.
6.
How much do you know about other currencies? Decide whether
the following statements are true or false.
There are 100 centimes to the franc. .
The dollar and the cent are now the legal tender of Kenya.
The Channel Islands have their own printed money.
There are 1,000 agorot in the Israeli shekel.
The smallest denomination in the Japanese currency is the sen.
The New Zealand pound is the currency of New Zealand.
14
7.
8.
9.
10.
11.
12.
13.
14.
15.
The plural of the Romanian leu is 'lei'.
The qintar is Albanian currency.
The dirham is legal tender in the United Arab Emirates.
Only Vatican City lira can be used in the Vatican.
The Belgian franc can also be used in Luxembourg.
The forint and fil are the currency of Hungary.
The currency of Brazil changes every two years.
Yen means circle, because money should circulate.
Chinese coins were originally carried around people's necks.
Exercise 3.
a
Currency
Match the questions on the left with the responses on the right:
1. Is it true that there was a a. Because in reality, they are often determined
by the massive amount of currency
time when you could go to a
speculation that goes on. Currencies
bank in America and demand
appreciate or depreciate for reasons that often
gold in exchange for your
have little to do with the countries' economic
dollars?
performance or international trade.
2. Who was he?
3. So they could never change? b. "In God We Trust." Not "Gold"!
c. Not who, what. Or where. It was an
international conference held in New
Hampshire in 1944 – It fixed the value of the
4. But it's all different now?
US dollar at 1/35 of an ounce of gold, and
"pegged" or fixed most other major currencies
against the dollar.
5. No, what?
d. Oh sure, they can try to intervene on currency
markets by buying or selling billions of dollars,
6. So how does it work now?
or pounds, or whatever. But the speculators
have much more money than governments.
e. Only if they were officially devalued or
7. Why "theoretically"?
revalued by the government or the central bank.
8. So
there's
nothing
f. We have floating exchange rates, determined
governments can do?
by supply and demand. Theoretically, the
rates should reflect purchasing power parity the cost of a given selection of goods and
services in different countries.
g. Well, in theory, yes. That was the result of
Bretton Woods.
h. Yes. The Bretton Woods system collapsed in
the early 1970s because of inflation. There
were too many dollars and not enough gold,
so President Nixon ended gold convertibility.
You know what it says on dollar bills now?
15
1
b.
2
3
4
5
Add appropriate words to these sentences:
1.
Another verb for fixing exchange rates against
something else is to _________ them.
Increasing the value of an otherwise fixed exchange
rate is called_________.
Gold _________ ended in the early 1970s.
The current system is one of _________ exchange
rates.
A currency can appreciate if lots of _________ buy it.
In fact we have managed floating exchange rates, because governments and
_________ banks sometimes intervene on currency markets.
2.
3.
4.
5.
6.
Exercise 4.
Verb
depreciate
6
7
8
Complete the table with necessary forms of the words.
Noun(s)
appreciation
Noun for people
-------------------------------------------------------------------------------------
Adjective
converted
---------------------interventionary
speculative
Now complete the newspaper headlines with the correct forms of words.
16
Exercise 5.
1.
2.
3.
4.
Is the hryvnia a hard or a soft currency?
Where can you exchange currency in Ukraine?
What are current exchange rates (the hryvnia to dollar, euro, pound)?
What has happened to the value of you currency in the past few years? What do
you think were the probable causes of any changes?
Exercise 6.
1.
2.
3.
4.
5.
6.
7.
8.
Answer the following questions.
Look at the different types of money. Which words describe
British money, and which describe American?
a ten pence piece
a quarter
a one pound coin
a dollar bill
a five pound note
a penny
a dime
fifty cents
Exercise 7.
Money in the United States.
Choose the right variant to complete the sentences.
1.
A piece of round, metal money is called a ___.
a. money
b. cash
2. A piece of paper money is called a ___.
a. bank
b. bill
3. The one cent coin is called a ___.
a. cent
b. nickel
4. The symbol for "cent" is ___.
a. c
b. ¢
5. There are 100 ___ in one dollar.
a. cents
b. pennies
6. The symbol for "dollar" is ___.
a. &
b. $
7. "Buck" is a slang word which means ___.
a. dollar
b. cent
8. "Grand" is a slang word which means ___.
a. $1,000,000
b. $100
9. The five cent coin is called a ___.
a. penny
b. cent
10. The ten cent coin is called a ___.
17
c.
coin
c.
card
c.
penny
c.
©
c.
coins
c.
S
c.
pound
c.
$1,000
c.
nickel
11.
12.
13.
14.
15.
16.
17.
18.
19.
a. penny
b. dime
The twenty-five cent coin is called a ___.
a. copper
b. silver
The fifty cent coin is called a ___ or a ___.
a. half dollar
b. silver
The one dollar coin is called a ___.
a. silver dollar
b. silver
Whose picture is on the $1 bill?
a. Thomas Jefferson
b. John Adams
Whose picture is on the $5 bill?
a. Abraham Lincoln
b. Grover Cleveland
Whose picture is on the $10 bill?
a. James Monroe
b. John Quincy Adams
Whose picture is on the $20 bill?
a. Andrew Johnson
b. Andrew Jackson
Whose picture is on the $50 bill?
a. Ulysses S. Grant
b. Herbert Hoover
Whose picture is on the $100 bill?
a. Benjamin Harrison
b. Benjamin Franklin
Exercise 8.
c.
copper
c.
quarter
c.
copper
c.
native silver
c.
George Washington
c.
Games Madison
c.
Alexander Hamilton
c.
John Tyler
c.
Chester Arthur
c.
Theodore Roosevelt
A Short History of the European Monetary System
Complete the short history of the European monetary system, using the words from
the box.
composite
revised
commercial
falling
alternative
weightings
collapse
intervene
management
restricted
calculated
risk
The first stage was a system of exchange rate (1) _______ called the Snake.
This began operating in 1972. Movement of member countries was (2) _______ to a
band of +/- 2.25 per cent. The Snake was allowed to move within a band of 4.5 per
cent against the US dollar. Under this system a country with a (3) _______ currency
was forced to (4) _______ and support it. The Snake system had a very short life
because of pressure resulting from the oil crisis. Its (5) _______ was mainly due to
lack of political commitment.
In 1979 the European Monetary System began operating. In some ways the
EMS is an (6) _______ to monetary union. The EMS comprises three elements: the
European Currency Unit (ECU), the Exchange Rate Mechanism and the financial
support mechanism.
As the ECU is a (7) _______ currency it is perceived as having less (8)
_______.The weightings of individual currencies are (9) _______ every five years, or
sooner should the need arise. These (10)_______ are (11) according to size of
18
country, relative size of Gross Domestic Product and relative share of total European
Union trade.
The ECU is gradually becoming more widely used for European Union debt
issues, (12) _______ banking purposes and international transactions.
Exercise 9.
Reading: Interesting Facts About Money
Before reading the fact sheet, try to complete the following quiz.
1. The nation with the highest income per person is _______.
a. Saudi Arabia
b. China
c. Kuwait
2. First Chinese coins had a shape of _______.
a. square
b. shell
c. diamond
3. The first paper money to appear in North America was printed _______.
a. on cut newspaper b. on playing cards
c. on wrapping paper
4. Until 1857, any foreign coins made of precious metal were _______ in the
United States.
a. illegal
b. legal tender
c. melted
5. 48% of the notes printed in the USA are _______.
a. $1 notes
b. $10 notes
c. $100 notes
6. Your paper note will tear if you fold it _______ times.
a. 1,000
b. 2,000
c. 4,000
7. On a Canadian two dollar bill, the flag flying over the Parliament Building is a
_______ flag
a. Canadian
b. USA
c. UK
8. There are ways to make change for a dollar.
a. 136
b. 293
c. 350
9. Probably, the oldest of all forms of money are _______.
a. shells
b. cattle
c. skulls
10. The first paper currency appeared in the year 806.
a. Egypt
b. India
c. China
Now read the facts about money and check your answers.
· The nation with the world's highest income per
person is not the United States. Nor is it
Switzerland, Germany, or even Saudi Arabia. It
is Kuwait. Here the Average Income for every
man, woman, and child is $15,480 per year. The
per capita Income of Switzerland, second on the
list, is slightly more than half of Kuwait's.
Sweden follows Switzerland, and the United
States is fourth, with a per capita income of
$7,890.
· Before the sixth century B.C. Chinese Coins
were cast in the shapes of miniature shells,
19
·
·
·
·
·
·
·
·
spades, and knives. These objects had been the principal items of barter in China
prior to the minting of Coins.
The first paper money to appear in North America was printed on playing cards.
In 1685 the French colonial government in Canada, suffering from a lack of
francs, began issuing money printed on pasteboards from the standard playing
deck of the time. These cards were signed by the colonial governor and were
circulated throughout French Canada. Though this odd form of Currency was
intended to be used only until the money arrived from France, it was so popular
among the colonists that it was kept in circulation for the next hundred years.
Until 1857, any foreign coins made of precious metal were Legal Tender in the
United States.
48% of the notes printed in the USA are $1 notes.
Have you ever wondered how many times you could fold a piece of currency
before it would tear? About 4,000 double folds (first forward and then backwards)
are required before a note will tear.
On a Canadian two dollar bill, the flag flying over the Parliament Building is an
American flag.
There are 293 ways to make change for a dollar.
Cattle are probably the oldest of all forms of money. Cattle as money dates back
to 9000 B.C. Some cattle were still used as money in parts of Africa in the middle
of the 20th century.
The first paper currency appeared in China in the year 806.
Exercise 10. Eurocurrencies
Sentences 1 to 10 make up a short text about Eurocurrencies. Complete each
sentence, by taking a middle part from the second box and an end from the third box:
1.
2.
3.
4.
5.
6.
7.
8.
A Eurocurrency is any currency held
Thus Eurocurrencies do not necessarily
The Euromarket developed during the Cold War in the early 1950s,
This pool of dollars was later augmented by
The Euromarkets are still concentrated in London because
Since banks are not obliged to deposit any of their Eurocurrency assets
Therefore, international companies
Because the United States was, by definition,
20
9. Consequently in the early 1980s,
10. This succeeded in bringing
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
1.
m.
n.
o.
p.
q.
r.
s.
t.
American trade deficits, and, after the 1974 and 1979 oil price rises,
at zero interest with the central bank,
have anything to do with Europe,
outside its country of origin,
some Eurodollar business
the American government allowed US banks special international banking
facilities,
the one country that could not do Eurodollar business,
there are fewer governmental regulations there than in most other financial
centres,
using US dollars for trade,
when the Russians, who were afraid that the Americans might freeze their dollar
accounts in New York,
American banks were losing business.
and because the European time-zone is half-way between those of Japan and the USA.
back to New York City.
millions of "petrodollars" deposited by the newly-rich oil-producing countries,
often prefer to borrow Eurodollars,
so the name is not a very good one.
such as US$ in France, Yen in the US, or Euros in Japan.
they can give better interest rates (to both borrowers and depositors) than USbased banks,
transferred them to Europe, particularly to banks in London,
without reserve requirements and interest rate limits.
Sentence 1: __________________________________________________________
__________________________________________________________
Sentence 2: __________________________________________________________
__________________________________________________________
Sentence 3: __________________________________________________________
__________________________________________________________
Sentence 4: __________________________________________________________
__________________________________________________________
Sentence 5: __________________________________________________________
__________________________________________________________
Sentence 6: __________________________________________________________
__________________________________________________________
Sentence 7: __________________________________________________________
21
__________________________________________________________
Sentence 8: __________________________________________________________
__________________________________________________________
Sentence 9: __________________________________________________________
__________________________________________________________
Sentence 10:__________________________________________________________
__________________________________________________________
Exercise 11. Foreign Exchange Terms
Match the words from the box with their definitions (1-12).
legal tender
intaglio
coinage
devaluation
fluctuate
fiduciary issue
The Royal Mint
intervention
Bretton Woods system
sound money
promissory note
issue
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
The acceptable form of currency in a country.
To move up and down.
A written promise to pay an amount of money to another party.
Money with dependable value, backed by gold reserves.
To put into circulation.
British agent producing coins by stamping metal.
Lowering the value of a nation's currency.
The participation of a government or bank to cause change.
A set of monetary units made of stamped metal.
A method of fixing the major currencies against the dollar, used until 1973.
A method of producing banknotes which creates a complex design and is
difficult to counterfeit.
12. The production of money backed by securities, not gold.
Exercise 12. The History of the Foreign Exchange Market
Use the words from the box to complete the text about the foreign exchange market.
banknotes
mint
gold reserves
forgery
issue
fiduciary issue
barter
watermark
monetary policy
promissory notes
sound money
coinage
In the days before money was created, traders exchanged one type of goods for
another. This was called (1) _______ trade. Later, countries produced units made of
gold. This was called (2) _______ and was produced in a (3) _______. Originally, the
total value of metal coins produced by a country was backed by its (4) _______ and
was called (5) _______. However, in some countries the amount of gold held by a
country does not correspond to the value of coins in circulation, but may instead
represent securities. This system is called the (6) _______.
22
The main disadvantage of using money made of metal was that it was difficult to
transport. So, traders began using documents which promised to pay a sum of money
in return for goods. These documents were called (7) _______.
Banks also began to (8) _______ papers to clients to confirm that they had
deposited money in the bank. These papers were issued in standardized amounts and
were called (9) _______.
To prevent (10) _______, or the copying of banknotes, banks adopted a number
of security devices such as a design on the sheets of paper used to make money. This
design is called a (11) _______.
Nowadays, each country has its own system of safeguarding the currency. This
system is called (12) _______.
Exercise 13.
Currency Dealing
The world of foreign exchange dealing has, like any other profession, a language of
its own. Clients and customers do not normally use market terminology, but it has
been developed over the years for the convenience of the dealers.
Complete this text using the words from the box.
big figure
value date
spot
base currency
cable
deal slip
spread
cross rates
When dealers talk about a (1)_______ deal, they mean a purchase or sale of one
currency for another, with the delivery date two working days after the dealing day.
The delivery date is often called the (2)_______, the day funds are delivered to your
account.
When referring to currency prices, a dealer may ask for a (3)_______, the
sterling/dollar quote, or he may want to know the (4)_______, the first three digits of
a quote. When giving quotes between two currencies, dealers may refer to the
(5)_______, that is the currency quoted first. If more than two currencies are
involved, dealers talk about (6)_______, the rate between currency A and currency B,
calculated from market rates between A and Band C.
Before making a purchase or sale, dealers will calculate the (7) _______, their
margin on the deal. On completion of a deal the dealer will complete the (8) _______,
a piece of paper which records vital details about the deal, i.e. amount, currency, and
counterparty.
3
Types of Money
What gives money its value? Or does it even have real value? What makes it any
more special than any other product of paper and ink?
23
An economist would tall you that what gives money its value depends on what type
of money it is: commodity money, representative money, or fiat money.
Commodity Money
Cattle and small domestic animals, shells, pearls, whale teeth, feathers, implements,
jewelry, stones, salt, grain, dried fish, cocoa beans, tea, sugar, cotton cloth, furs,
tobacco, metal, paper … the range of goods that have been used as money is virtually
boundless. Depending on the time and location, money substitutes have been used
time and again even in highly developed monetary economies. Immediately after
World War II, for example, cigarettes, coffee and other prized goods were accepted
legal tender.
Problems:
·
when valuable resources are used as money, those resources cannot be used for
consumption. Copper used to make pennies cannot be used to make electrical
wire.
·
There exists an incentive to debase the currency. Rulers would reduce the
amount of the precious metal in a coin. People would tend to circulate the
altered coins and save the coins which still had the greater amount of the
precious metal. This is known as Gresham’s law: bad money drives out good.
·
The supply of money is determined by supply of the commodity. The money
supply could fluctuate substantially. The discovery of new gold would mean
that the supply of money would increase and the price level would rise.
Cowrie shells = marine
shells. Were used in
Egypt as early as 2000
B.C. as a means of
payment.
Tea brick, 19th century,
China/Mongolia
Knife money, Chinese,
Chou dynasty (1122 B.C.
to 255 B.C.)
The next type, representative money, can be redeemed for something of real value.
In the past, most representative money was backed by gold and silver. Countries
pegged the value of their currency to a certain amount of the precious metal and
promised to exchange their currency for the metal on demand. In other words, if you
had a hundred dollar bill, you could walk into the U.S. Mint and exchange your paper
for a hundred dollars' worth of gold. Gold was a real thing with real value; the paper
money had value only because it was redeemable for gold.
Finally, we get to fiat money, which is money because the government says it
is. It is not backed by gold or any other substance of real value. It has no real use or
value other than its value as a form of currency. And its value is thus set by the
24
market forces of supply and demand, just like everything else. As long as people
want dollars, they will have value. If everyone in the world suddenly decided
tomorrow that dollars are worthless... well, then they'd be worthless.
Advantages of fiat money:
·
uses relatively little of society’s resources
·
no incentive to debase this type of currency
·
supply not tied to commodity. Therefore it potentially has less susceptibility to
lead to fluctuation in the money supply. It can grow with the economy.
Problem:
·
government controls money supply and it may cause inflation by printing too
much money
Types of Money Used Today
Whatever is used as money today must be what is
known as “legal tender”. Legal tender means that the
government approves it as the form safely accepted for
the payment of goods and services. The person
receiving the money can be confident that the
government will stand behind the currency because it
has approved it as legal. Money can be tangible, such
as a coin or note, or it can be intangible such as a
direct credit into a bank account.
Today's monetary system is highly fiduciary.
Whenever, any bank assures the customers to pay in
different type of money and when the customer can sell the promise or transfer it to
somebody else, it is called the fiduciary money. Fiduciary money is generally paid in
gold, silver or paper money. There are checks and bank notes, which are the
examples of fiduciary money because both are some kind of token which are used as
money and carries the same value.
Commercial bank money or demand deposits are claims against financial
institutions that can be used for the purchase of goods and services. A demand
deposit account is an account from which funds can be withdrawn at any time by
check or cash withdrawal without giving the bank or financial institution any prior
notice. Banks have the legal obligation to return funds held in demand deposits
immediately upon demand (or 'at call'). Demand deposit withdrawals can be
performed in person, via checks or bank drafts, using automatic teller machines
(ATMs), or through online banking.
The types of money used today include:
· Coins
· Paper currency
· Bank drafts
· Money orders
· Stocks
25
·
·
·
·
·
·
·
·
·
·
Bonds
Treasury bills
Credit cards
ATM cards
Options
Gift certificates
Cheques
Travellers cheques
Electronic money
Many more
When talking about people’s about savings and investments, there are three types of
money: Accumulated Money, Lifestyle Money, and Transferred Money.
1. Accumulated Money is what you currently have in your savings and investment
accounts. This is typically the money that you are saving for things like college
educations or retirement. Most people focus most of their time and attention to
this type of money even though for the first time in America, we now have a
negative savings rate.
2. Lifestyle Money is the money that is spent to maintain our standard of living.
You spend this money on your home, cars, vacations, and the rest of your
everyday living expenses.
3. Transferred Money is the money that you are transferring away either
unknowingly or unnecessarily. These transfers are made in the form of:
· Income taxes and other taxes
· Financing cars
· Credit cards
· Home mortgage
· Mortgage insurance
· Disability insurance
· Homeowners insurance
· Major Medical Insurance
· Wills & trusts
· Term Insurance
· Long-term care
Exercise 1. Answer the following questions.
1. What are the main types of money?
2. What objects were used as money in old times? Why?
3. Why did commodity money give way to representative of fiat money?
4. What is ‘legal tender’?
5. Why is today's monetary system considered to be highly fiduciary?
6. What is commercial bank money?
7. What types of money are used today?
26
8.
What types of money are distinguished when talking about people’s savings and
investments?
9. What types of money do you use?
10. Do you save money? In what way?
Exercise 2. Choose the correct alternative to complete each sentence.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Money in notes and coins is called ____________.
a. cash
b. capital
c. reserves
The dollar, the mark and the yen are all ____________.
a. currencies
b. funds
c. monies
Money borrowed from a bank is a ____________.
a. deposit
b. income
c. loan
Borrowed money that has to be paid back constitutes a ____________.
a. debt
b. fund
c. subsidy
All the money received by a person or a company is known as ____________.
a. aid
b. income
c. wages
The money earned for a week's manual work is called ____________.
a. income
b. salary
c. wages
The money paid for a month's (professional) work is a ____________.
a. loan
b. salary
c. wages
Money placed in banks and other savings institutions constitutes ____________.
a. capital
b. deposits
c. finance
Money paid by the government or a company to a retired person is a ________.
a. pension
b. rebate
c. subsidy
The money that will ultimately be used to pay pensions is kept in a __________.
a. budget
b. deposit
c. fund
The money needed to start a company is called ____________.
a. aid
b. capital
c. debt
The money paid to lawyers, architects, private schools, etc. is called _________.
a. fees
b. instalments
c. wages
Regular part payments of debts are called ____________.
a. deposits
b. loans
c. instalments
Part of a payment that is officially given back (for example, from taxes) is
called a ____________.
a. gift
b. instalment
c. rebate
Estimated expenditure and income is written in a ____________.
a. budget
b. reserve
c. statement
A person's money in a business is known as his or her ____________.
a. deposit
b. fund
c. stake
Money given to producers to allow them to sell cheaply is called a
____________.
a. loan
b. rebate
c. subsidy
27
18. Money given to developing countries by richer ones is known as
____________.
a. aid
b. debt
c. subsidy
Exercise 3. Forms of Money
Find 20 words defining the forms of money in the square. You can read some from
left to right, some from top to bottom and some diagonally.
Y
E
A
A
C
A
P
I
T
A
L
E
R
R
I
H
K
T
N
I
Y
O
N
U
G
C
D
H
N
C
S
R
A
O
T
R
U
S
S
E
O
O
A
N
M
I
E
R
U
A
M
M
P
L
F
S
D
B
R
B
C
E
E
E
A
I
T
N
A
E
S
T
T
G
D
S
N
A
E
T
N
I
B
A
D
A
G
A
K
P
E
C
D
E
T
N
F
W
N
E
X
D
Y
Y
D
S
U
E
E
C
R
E
S
E
R
V
E
F
U
N
E
Now use some of them in the appropriate form in the following sentences.
1.
2.
3.
4.
The number of units of _______ required to buy a commodity is the price of the
commodity.
The personal or family _______ is a financial plan that helps individuals to
balance income and expenses.
Frequently, a business will categorize all of its assets that can be converted
readily into cash, such as finished goods or stocks and bonds, as liquid _______.
Sources and uses of money within a business operation are called _______ flow.
28
5.
Old-age _______, granted by a government to its employees, first appeared in
France in the early 19th century and in Great Britain in 1834, and were
instituted in newly unified Germany in 1873.
6. _______ or refunds are usually given by a governmental body for overpayment
of tax or by a seller for returned goods.
7. _______ buying and selling, in commerce, is an exchange of consumer goods
whereby the purchaser makes an initial payment, or down payment, and agrees
to pay the balance of the purchase price in a series of periodic payments.
8. When government intends to support a desirable enterprise or policy, usually
one that is not viable or competitive under existing economic conditions it gives
a payment called a _______.
9. Financial _______ are accumulations of wealth that support the integrity of
banks or indicate the relative economic strength of nations or their currencies.
10. _______ includes coins and paper money.
4
Handling Personal Finance
Income
What income is to be managed? This question is a first step in wise management of
financial resources. All consumers must manage their finances, but incomes vary.
“Stretching” income to meet needs and wants is a part of financial management;
knowing how to develop goals for spending, based on a realistic understanding of
income, is a basic part of financial literacy.
Money Management
Money management is the process of planning how to get the most from money —
how to use money to meet needs and wants. Budgeting, either by a formal or informal
plan, is a first step in deciding what needs and wants must be met and what resources
are available. Money management includes plans for saving and investing, not just
29
spending. Too often consumers spend all of their income, which means no money is
left for saving.
Saving and Investing
Consumers must set goals for saving and investing, because their choices of
vehicles for saving and investing depend on those goals. Saving, contrasted to
investing, may be thought of as safeguarding money for future use. Saving may not
provide a return on money. Investing, however, may be defined as putting money to
use in order to earn a return. Providing for the future can mean short-term savings
and long-term investments. If a goal is to provide retirement income, a consumer
should consider long-term investment. Buying a new small appliance, on the other
hand, may require only short-term saving.
Income, money management, saving and investing, and the use of credit require
consumer planning and decision-making skills. Underlying all aspects of financial
literacy is the knowledge and skills for wise use of all financial resources a consumer
may accumulate over a lifetime.
Use of Credit
Consumers use credit to buy durable and nondurable goods, large and small. Credit
provides a convenient way to “buy now, pay later.” Buying on credit enables a
consumer to build a credit rating, a necessity for mortgages and loans. All consumers
should be aware of the ways in which they can use credit as a convenient way to
purchase goods and services, but they should also know the costs of credit and how to
avoid the pitfalls of unwise use of credit.
Personal Financial Planning
An important investment individuals can make is in planning their use of the financial
resources they have. While there are skilled financial advisers in all types of financial
services institutions, individuals should have some knowledge about their own
affairs. Individuals who take time to learn about money matters will receive a rich
reward— dividends in understanding that in the long run will maintain their financial
position at a level that is in line with their expectations.
Exercise 1.
1.
2.
3.
4.
5.
6.
Answer the following questions.
Why should any person be financially literate?
What does “stretching” income mean?
What does money management involve?
What is the difference between ‘saving’ and ‘investing’?
What do consumers use credit for?
Why is personal financial planning important?
30
Ways of Paying
cash
cheque(s)
credit
There are different ways to pay for things, each with their advantages and
disadvantages. Whichever method you choose, make sure you stay safe.
You’re probably used to paying for things in cash, and possibly by debit card,
store card or credit card. But there are many different ways to pay for things, and the
way we pay for things depends on what we are paying for, who we are paying and the
methods accepted. Paying with cash can be convenient for some things, such as a bus
fare, newspaper or a few groceries, but other methods can be more convenient for
regular bills, sending money to friends, or buying items like a washing machine or
car.
You can also pay for things with credit or store cards as well as taking out a
loan or hire-purchase agreement.
Exercise 2.
1.
2.
3.
Answer the following questions.
What way of paying for things is the most convenient?
What way of paying for things is the safest?
In what way do you usually pay for things in Ukraine?
Personal Banking
Current accounts
A current account is an account that allows customers to take out or withdraw
money, with no restrictions. Money in the account does not usually earn a high rate or
interest: the bank does not pay much for ‘borrowing’ your money. However, many
people also have a savings account or deposit account which pays more interest but
has restrictions on when you can withdraw your money. Banks usually send monthly
statements listing recent sums of money going out, called debits, and sums of money
coming in, called credits.
Nearly all customers have a debit card allowing them to make withdrawals and
do other transactions as cash dispensers. Most customers have a credit card which can
be used for buying goods and services as well as for borrowing money. In some
countries, people pay bills with cheques. In other countries, banks don’t issue
checkbooks and people pay bills by bank transfer. These include standing orders,
which are used to pay regular fixed sums of money, and direct debits, which are used
when the amount and payment date varies.
31
NOTE!
BrE: current account; AmE: checking account
BrE: cash dispenser, cash machine; AmE: ATM (Automated Teller Machine)
BrE: cheque; AmE: check
Banking Products and Services
Commercial banks offer loans – fixed sums of money that are lent for a fixed
period (e.g. two years). They also offer overdrafts, which allow customers to
overdraw an account – they can have debt, up to an agreed limit, on which interest is
calculated daily. This is cheaper than a loan if, for example, you only need to
overdraw for a short period. Banks also offer mortgages to people who want to buy a
place to live. These are long-term loans on which the property acts as collateral or a
guarantee for the bank. If the borrower doesn’t repay the mortgage, the bank can
repossess the house or flat – the bank takes it back from the buyer, and sells it.
Banks exchange foreign currency for people going abroad, and sell traveller’s
cheques which are protected against loss or theft. They also offer advice about
investments and private pension plans – saving money for when you retire from
work. Increasingly, banks also try to sell insurance products to their customers.
NOTE!
BrE: traveller’s cheque; AmE: traveler’s check
E-Banking
In the 1990s, many commercial banks thought the future would be in telephone
banking and internet banking or e-banking. But they discovered that most of their
customers preferred to go to bank – especially ones that had longer opening hours,
and which were conveniently situated in shopping centres.
NOTE!
BrE: shopping centre; AmE: shopping mall
Exercise 1. Are the following statements true or false? Find reasons for your
answers in the text.
1. Current accounts pay more interest than savings accounts.
2. There is less risk for a bank with a mortgage than with unsecured loans without
collateral.
3. Traveller’s cheques are safer for tourists than carrying foreign currency.
4. The majority of customers prefer to do their personal banking at the bank.
5. Bank branches are now all in shopping centres.
Exercise 2. Find in the text words with the following meaning.
1. what you can earn when you leave your money in the bank.
32
2.
3.
4.
5.
6.
7.
an amount of money borrowed from a bank for a certain length of time, usually
for a specific purpose
something that acts as a security or a guarantee for a debt
an arrangement to withdraw more money from a bank account than you have
placed in it
a long-term loan to buy somewhere to live
an arrangement for saving money to give you an income when you stop working
to take back property that has not been completely paid for
Exercise 3. Answer the following questions.
1. Do you have bank accounts?
2. Do you prefer to go to a local branch of your bank, or to use the internet or the
telephone? Why?
3. Why do you think most customers still prefer to go to the bank?
Exercise 4.
Complete the given advertisement using the words from the box.
credit card
direct debit
savings account
current accounts
statements
standing order
debit card
foreign currency
traveller’s cheques
CALLING ALL STUDENTS
ABC Bank now offers 1% interest on (1) _______ and 2.5%
on (2) _______. We will give you a chequebook and plastic:
a free (3) _______ for use in cash dispensers, and the
possibility to apply for a (4) _______. You can pay fixed
monthly bills by (5) _______, and other bills by (6) _______.
There are no account charges as long as you remain in
credit, and we send you free monthly (7) _______. We can
also sell you (8) _______ for your next holiday, or (9)
_______ for grater security. What are you waiting for? Call
us today.
Exercise 5.
Match the words with their opposites.
spend
variable
withdraw
borrow
default
purchase
(a) deposit
(b) lend
(c) save
(d) sell
(e) fixed
(f) pay back
33
Exercise 6.
1.
2.
3.
4.
5.
Fill in a preposition to complete the sentence.
If you owe money, you are ___ debt.
If you have a savings account, you are keeping your money ___ the bank.
If you take money out of your bank account, you are withdrawing funds ____
your account.
If you move money from a savings account to a cheque account, you are
transferring funds ___ cheque.
When you give back money that you borrowed you are paying ___ your debts or
paying ____ your debts.
Exercise 7.
Explain the difference using whereas:
Model: A savings account usually has a high interest rate,
whereas a cheque account has a low interest rate.
1.
2.
3.
A fixed interest rate doesn’t change with time,
Your gross income is your income before you pay taxes,
A deposit is when you put money into your account,
Exercise 8. Banking Products
Complete the text using the words in the box.
cash dispensers
current account
investment advice
overdraft
cheque
deposit account
loan
pension
credit card
foreign currency
mortgage
standing order
My salary is paid directly into a low-interest (1) ___________.I can withdraw
money from automatic (2) ___________ with a cashcard, so I hardly ever actually go
into a bank. I pay regular, monthly bills by way of a (3) ___________: the bank pays
them according to my instructions, and debits my account. I pay irregular bills by (4)
___________.Nearly everyone I know in Britain has a chequebook, but when I lived
on the Continent, I found that people hardly used them. They often paid cash, or paid
bills at a post office with a paying-in slip.
I also have a (5) ___________, which is useful for ordering things by post or on
the telephone, and for travelling worldwide. I also use it in shops and restaurants, but
try not to spend more than I can pay when the bill comes a month later, as this is a
very expensive way of borrowing money. The annual interest is exorbitant - well over
20%.
I used to have a (6) ___________ in a building society which paid higher interest
than the current account at the bank, but had restrictions as to how and when I could
withdraw my money. But then we bought a flat. I got a 90% (7) ___________ from
the building society: i.e. we had to pay a deposit of 10% with our own savings.
34
That is why I have no more money and no more deposit account. In fact I have
arranged an (8) ___________ with the bank, which means I can occasionally
withdraw more money than is actually in my account. Interest is calculated daily.
Last year I asked the bank for a (9) ___________ to buy a car. I (only!) wanted two
months salary, but they refused. Since I don't like the high interest rates that the
garage's hire purchase people charge, I bought a cheap second-hand car instead.
I always use the bank to buy (10) ___________ when I go abroad, because their
rates are better than the bureaux de change. I don't like travellers' cheques, and I've
never had my money stolen - yet.
My bank is also always trying to sell me a private (11) ___________ plan, for
when I retire, but I'm not interested. They also keep offering me (12) ___________
about shares, bonds, unit trusts, mutual funds, and so on. They don't seem to realize
that if I could afford to buy all these things, I wouldn't need an overdraft.
Exercise 9. Reading.
Read the following text and answer the questions which follow.
Ubix Computers Financial Profile
Ubix computers is a publicly traded corporation actively traded on the
NASDAQ. The company was launched in 1999 with an IPO raising $70 million.
Shareholders own more than 80% of the company while upper level management and
employee stock options own the remaining 20%. Ubix is located in Denver, Colorado
with manufacturing plants in Taiwan and Indonesia. The total cash flow during 2000
was $365 million. While total operating expenses for the past fiscal year totalled
$180 million resulting in a pre-tax profit of $175 million. Ubix Computers market
share in the US domestic market has grown from 2% to 5% during the past 18
months. Future plans include the development of a line of laptop computers to export
to the Chinese Market. CEO, Robin Lancaster, was optimistic in his vision of the
future. While other computer manufactures are loosing market share, we are
increasing our market share at over 100% annually. Ubix offers consumers computers
that are made to meet their specific requirements, while pricing these computers at
mass market prices. This unique combination ensures Ubix will be a major market
player in the near future.
Questions.
1. Which market is Ubix traded on?
2. How much money did the IPO raise?
3. Who owns 80% of stock?
4. Where are Ubix manufacturing plants located?
5. How much has market share grown over the past 18 months?
6. How much did Ubix spend on operating expenses?
7. Which market is Ubix trying to enter with its new line of laptop models?
8. What prediction is made about Ubix in the future?
35
Borrowing and Lending
A loan is the commitment of a borrower to
pay a predetermined amount of cash at one or more
predetermined times in the future (the final one
being called maturity), usually for cash upfront
today. A bond is a particular kind of loan, named so
because it binds the borrower to pay money. Thus,
“buying a bond” is the same as “extending a loan.”
Bond buying is the process of giving cash today and receiving a promise for money
in the future. Similarly, instead of “taking a loan,” you can just say that you are
“giving a bond,” “issuing a bond,” or “selling a bond.” Loans and bonds are also
sometimes called fixed income instruments, because they “promise” a fixed income
to the holder of the bond.
Is there any difference between buying a bond for $1,000 and putting $1,000
into a bank savings account? Yes, a small one. The bond is defined by its future
promised payoffs — say, $1,100next year — and the bond’s value and price today
are based on these future payoffs. But as the bond owner, you know exactly how
much you will receive next year. An investment in a bank savings account is defined
by its investment today. The interest rate can and will change every day, and next
year you will end up with an amount that depends on future interest rates, e.g., $1,080
(if interest rates will decrease) or $1,120 (if interest rates will increase).
If you want, you can think of a savings account as consecutive 1-day bonds:
when you deposit money, you buy a 1-day bond, for which you know the interest rate
this one day in advance, and the money automatically gets reinvested tomorrow into
another bond with whatever the interest rate will be tomorrow. Incidentally,
retirement plans also come in two such forms: defined benefit plans are like bonds
and defined by how much you will get when you retire; and defined contribution
plans are like bank deposit accounts and defined by how much money you are putting
into your retirement account today—in the real world, you won’t know exactly how
much money you will have when you will retire.
The net return on a loan is called interest, and that the rate of return on a loan is
called the interest rate. One difference between interest payments and non-interest
payments is that the former usually has a maximum payment, while the latter can
have unlimited upside potential. Not every rate of return is an interest rate. For
example, the rate of return on an investment in a lottery ticket is not a loan, so it does
not offer an interest rate, but just a rate of return. In real life, its payoff is uncertain —
it could be anything from zero to an unlimited amount. The same applies to stocks
and many corporate projects.
Exercise 1. Answer the following questions.
1. What is the difference between a loan and a bond?
2. Why are loans and bonds called fixed income instruments?
3. What is interest?
36
4.
5.
What is interest rate?
What rates of return are not interest rates?
Exercise 2. Choose the correct alternative to complete each sentence:
1. If you possess something, you can say that you ____________.it.
a. owe
b. own
c. owner
2. If you have to reimburse or repay someone, you ____________.money.
a. owe
b. own
c. yield
3. To let someone else have the use of your money for a certain period of time,
after which it must be paid back, is to ____________.
a. borrow
b. lend
c. credit
4. To take money that has to be repaid is, on the contrary, to ____________.
a. borrow
b. lend
c. steal
5. An amount of money lent is a ____________.
a. debit
b. debt
c. loan
6. A person who has borrowed money is a ____________.
a. creditor
b. debtor
c. owner
7. Another word for a lender is a/an ____________.
a. creditor
b. debtor
c. owner
8. The income received by someone who lends money is called ____________.
a. dividends
b. interest
c. interests
9. The borrower has to pay back the loan itself, also known as the ____________.
a. principal
b. principle
c. premium
10. The amount of money a lender receives for a loan or an investment, expressed
as a percentage, is known as its return or ____________.
a. credit
b. income
c. yield
Exercise 3. The following famous quotations are about credit and borrowing
and lending. Can you complete them?
1. In business, one way to obtain _______ is to create the impression one already
has it.
2. Neither a _______ nor a _______ be.
3. An acquaintance is someone we know well enough to _______ from, but not
well enough to _______ to _______.
4. A _______ card is an anaesthetic which simply delays the pain.
Exercise 4.
Circle the best answer from the choices in parenthesis ().
(Whose/Who/Who's) can afford a house? Not every person (whose/who/who's)
has good credit can get a loan these days. A lender will not only look at an applicant
(whose/who/who's) credit score is high. They also look at people (whose/who/who's)
spending habits are under control. For example, they consider people
(whose/who/who's) pay their bills on time and (whose/who/who's) existing loans
37
aren't overdue. Basically, they are looking for a person (whose/who/who's)
responsible. Reputable lenders also look closely at a borrower (whose/who/who's)
selling their house and an applicant (whose/who/who's) down payment is at least 10%
of the sale price. Banks also consider lending to a person (whose/who/who's)
committed to their work such as those (whose/who/who's) have worked in their field
for a long time. They want to make sure the people (whose/who/who's) receive their
money are able to pay it back. Borrowers looking to finance a house also have to be
careful about (whose/who/who's) they borrow from. Lenders (whose/who/who's) offer
unbelievably good rates to borrowers (whose/who/who's) are in desperate need to
receive financing often take higher risks. If you don't want to be one of the thousands
(whose/who/who's) house is foreclosed on, do your research. If the offer sounds too
good to be true, it probably is.
Exercise 5.
Complete this text using the words from the box.
limit
debt
default
purchase
afford
pay back
cash advance
interest
funds
Credit Cards
Credit cards are convenient way to 1) ___________
goods. They also come in handy when you have a shortage of
2) ____________. If you need a little extra money for the
weekend, you can take out a 3) ___________ ____________.
In spite of these benefits, credit card 4) _________ can
also cause serious problems for people. People spend more
than they can 5) _________. And because of the high 6)
_________ on money borrowed, the credit card debt becomes
harder and harder to 7) _______ _______. Eventually, some people are forced to 8)
__________ on their payments. This is why credit card companies put a 9) ________
on the amount that people can borrow
Exercise 6.
Complete this text using the words from the box.
credit risk
savings
afford
default
mortgage
co-sign
credit evaluation
Mortgages
Most people don’t have enough in ___________ to
purchase a house so they take out a house loan, which is
called a _________. Before you get a mortgage, the bank
will do a thorough ________ __________ to make sure
you can __________ the loan. If the bank feels you are a
________ ________ they may ask you to find somebody
else to __________ your mortgage. This person will be
responsible to pay your mortgage if you __________.
38
Exercise 6.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Match the column on the right with the definitions.
mortgage
default
funds
variable
fixed
co-sign
cash
advance
credit rating
credit evaluation
credit limit
annual
savings
cheque
afford
interest
net income
gross income
prime
a
b
c
d
e
f
g
h
i
j
k
l
m
n
o
p
q
r
5
Money.
Stays the same over time.
Guarantee a loan for somebody else.
Money that you borrow on a credit card.
A check to see how well you can pay back a
loan.
The maximum you can borrow.
A loan to buy a house or property.
A bank account you use to save money.
Be able to pay for goods or pay back a loan.
Changes over time.
Not pay back a loan.
The cost of borrowing money.
An opinion on how well you can pay back a
loan.
Your income after you pay income taxes and
expenses.
The basic interest rate that banks use.
A bank account you use for day to day
expenditures.
Yearly.
Your income before you pay taxes.
Developing Your Money Vocabulary
General Money Vocabulary
bank
cash box
39
cash machine/ cash
dispenser/ ATM
cheque book
coin
banknote/bill (US)
piggy bank
safe
purse
till/cash register
wallet
traveller’s check
bureau de change/
currency exchange
rich
poor
Build Up A - Z of money terms
account
balance
bank
n. a record of money a person deposits into a bank
n. the difference between credits and debits in an account
n. a building in which commercial banking is transacted.
40
n. money paid to a bank for the bank's services etc
n. a cheque drawn on the bank (or building society) itself against
either a cash deposit or funds taken directly from your own
bank account.
v. to trade without using money.
barter
v. to ask for the temporary use of money on the condition of
borrow
repayment and at a set rate of interest.
n. local office or bureau of a bank
branch
building society n. A building society is like a bank, but it is owned by its members
- savers and borrowers - and not by shareholders. Its traditional
purpose was to lend money to individuals to purchase or
remortgage their homes. This money used to come exclusively
from individual saving members who are paid interest on their
deposits. Now, an increasing proportion, but still a minority of
the funds are raised on the commercial money markets.
n. cash earnings minus cash outflows for fixed- and workingcashflow
capital investment.
n. an employee of a bank or building society who receives and
cashier
pays out money.
n. book containing detachable cheques
chequebook
n. written order to a bank to pay the stated sum from one's account
cheque
n. fake money made in order to deceive - also v.
counterfeit
n. money in a bank a/c; sum added to a bank a/c; money lent by a
credit
bank - also v.
n. (plastic) card from a bank authorising the purchasing of goods
credit card
on credit
n. money that is used by a country such as the United Kingdom.
currency
current account n. bank a/c from which money may be drawn at any time; checking
account US
n. a sum deducted from a bank account, as for a cheque - also v.
debit
n. you use a debit card in much the same way as a credit card but
debit card
instead of receiving credit after making your purchase, the
funds are automatically (within a few days usually) withdrawn
from your bank account.
n. the state of owing something (especially money).
debt
denomination n. a number that expresses the value of a coin or bill. A five pound
note and a ten pound note represent two denominations.
n. an amount of money placed with a bank
deposit
deposit account n. bank a/c on which interest is paid; savings account US.
v. to add written information to a document to make it complete.
fill in
n. money paid for borrowing money, or money that a bank or
interest
building society pays a customer for putting money into their
bank.
n. the percentage of an amount of money which is paid for the use
interest rate
of that money over a period of time.
41
bank charges
banker's draft
lend
loan
mortgage
overdraft
pay in
payee
paying-in slip
pence
standing order
statement
withdraw
withdrawal
v. to give the temporary use of money on the condition of
repayment and at a set rate of interest.
n. money lent by a bank etc and that must be repaid with interest also v.
n. most of us do not buy our homes outright for cash - instead we
borrow money to do so.
n. deficit in a bank account caused by withdrawing more money
than is paid in
v. to deposit or put money in to a bank account
n. person to whom money is paid
n. small document recording money that you pay in to a bank
account
n. more than one penny.
n. an instruction to a bank to make regular payments
n. a record of transactions in a bank account
v. to take money out of a bank account
n. the act of taking out money.
Some Of The Most Important Words Used When Talking About Money.
Money Buying
Money Earning
Money Giving
Money Verbs
Other
Related
Words
Money Related
Adjectives
bargain
bill
cost
expense
instalments
price
purchase
purse
receipt
reduction
refund
spend
wallet
bonus
earn
earnings
income
gross
income
net income
rise
salary
wage
collection
donate
donation
fee
fine
grant
income tax
inherit
inheritance
pension
pocket
money
rent
scholarship
tip
winnings
add up
go up /
down
make ends
meet
pay back
pay into
put down
put towards
run out
save up
take out
profit
property
valuable
value
waste of
money
wealth
worth
worthless
affluent
broke
generous
hard-up
mean
poor
prosperous
rich
stingy
wealthy
well off
42
Rich man / Poor man
There are lots of ways to describe how rich or poor someone is. Here are a few –
from very rich to very poor.
filthy rich – незліченно багатий
stinking rich – дуже багатий
rolling in it – купається в грошах
wealthy – багатий, заможний
rich – багатий, заможний
prosperous– багатий, заможний
affluent – багатий, заможний
well off – багатий, заможний
poor – незаможний, бідний
impoverished – незаможний,
poverty-stricken – бідний, нужденний
destitute – дуже бідний, злиденний
hard-up – той, хто дуже потребує грошей, бідний
needy – убогий, вбогий, злиденний, нужденний
skint – без грошей в кишені, ‘на мілині’
penniless, broke – без грошей, бідний
Do you like to share your money, or do you keep it all to yourself?
If you gladly share your money you are: charitable - generous - sharing - unselfish
If you keep all your money you may be considered: mean - miserly - selfish - stingy tight - uncharitable - ungenerous
Collocations with Money
Adjectives + "Money"
The following list includes adjectives that are commonly used with the noun 'money'.
Adjectives that are similar in meaning are grouped together. Each adjective or
adjective group has an example sentence to illustrate usage.
easy
He thinks working in marketing is easy money. I think he'll find it's quite a different
story.
bonus, extra
If you complete the project before next Tuesday, there'll be some bonus money.
hard-earned
The best way to feel good about any purchase is if it's been made with hard-earned
money.
government, public, taxpayers'
It's not right to waste taxpayers' money on projects that benefit those who are already
wealthy.
43
pocket, spending
Would you like a little extra pocket money this weekend?
gas, lunch, petrol, rent, etc
Could you lend me some lunch money today?
prize, grant, scholarship
They won a lot of grant money for their research into DNA.
stolen, dirty, bribe, ransom
I don't want your dirty money!
hush, protection
That gang is demanding protection money from every store on the street. It's
scandalous!
pension, retirement
We plan to move to Hawaii with our retirement money.
counterfeit, fake
The police discovered more than $2 million in fake money.
Verb + "Money"
The following list includes verbs that are commonly followed by the noun 'money' or
an amount of a particular type of money or currency. Verbs that are similar in
meaning are grouped together. Each verb or verb group has an example sentence to
illustrate usage.
coin, print
The government printed a lot of money in 2001.
count
Let's count your money and see if you have enough to buy that.
bring in, earn, make,
The company brought in more than $4 million.
borrow
Could I borrow some money for this weekend?
lend
I'll lend you some money until next month.
bank, deposit, pay in, pay into the bank, put in the bank
I deposited a large amount of money last Friday.
draw out, get out, take out, withdraw
She took $500 out of our account.
pay out, shell out, spend
They paid out more than $300 dollars for that lamp.
fritter away, squander, throw away
I hate it when you squander our savings!
hoard, save, set aside, stash away
They set aside $200 each week for savings.
contribute, donate, give
They donated more than $200,000 to charity last year.
44
give back, pay back, refund, repay
I'll pay you back the money by the end of next week.
owe
She owes Thomas a lot of money.
share
Let's share the money we've found!
accept, take
I'm afraid I can't accept your money.
be worth
That painting is worth a lot of money.
change, exchange
I'd like to change twenty dollars please. Could you give me four five dollar bills?
allocate, earmark
The committee decided to allocate $50,000 for the project.
channel, direct, funnel
The program directs more than $5 billion to help the homeless.
embezzle, extort, siphon off, steal
He was charged with embezzling money from the company.
launder
They used the internet to launder the stolen money.
"Money" + Verb
The following list includes verbs that commonly follow the noun 'money'. Verbs that
are similar in meaning are grouped together. Each verb or verb group has an example
sentence to illustrate usage.
come from something
Money for the exhibit comes from donations to the museum.
go to something
The money goes to research.
come in , flow in, pour in
The money just kept pouring in! It was amazing!
buy something
Who says that money can't buy happiness?
"Money" + Noun
The following list includes nouns that commonly follow the noun 'money'. Nouns
that are similar in meaning are grouped together. Each noun or noun group has an
example sentence to illustrate usage.
management, manager
I think you should hire a money manager for your savings.
supply
The money supply is very tight at the moment.
order
You can pay by money order.
45
Phrases with "Money"
The following list includes phrases made with the noun 'money'. Each phrase has an
example sentence to illustrate usage.
bet money on something
Let's bet $400 dollars on the race.
get money off something
Ask if you can get some money off the display model.
get your money's worth
Make sure to spend the whole day at the park to get your money's worth.
on the money
Your prediction was on the money!
the smart money is on
The smart money is on Tom for the director's position.
throw money at something
Don't just throw money at the project. Make sure you demand results.
throw your money around
Peter throws his money around like it meant nothing.
Phrasal Verbs about Money
Spending Money lay out – to spend money. especially a large amount
splash out – to spend a lot of money on something you don't need, but is very
pleasant
run up – to create a large debt
fork out, fork over – to pay for something, usually something you would rather not
have to pay for.
shell out – to pay for something, usually something you would rather not have to pay
for.
cough up – to provide money for something you do not want to
Having Just Enough Money get by – to have just enough money for your needs
scrape by – to manage to live on very little money
Helping Someone with Money bail out – to help a person or organization out of a difficult situation
tide over – to help someone with money for a period of time until they have enough
Paying Debts pay back – to return money owed to someone
pay off – to finish paying all money that is owed
46
Saving Money save up – to keep money for a large expense in the future
put aside – to save money for a specific purpose
Using Saved Money dip into – to spend part of your saved money
break into – to start to use money that you have saved
Here is an example of using some of the above vocabulary.
Well, last week I finally dipped into that money that I had been putting aside for the
past year and a half. I decided that I should really enjoy myself so I splashed out and
had a great meal at Andy's. Next, I went to Macys on Saturday and laid out $400 for
that suit I'd told you about. Of course, I used a great deal of what I had saved up to
pay back that bill I had run up on my Visa card. It feels great to finally have some
money after all those years of scraping by. Thanks again for tiding me over during
that long winter of '05. I don't think I would have got by without your bailing me
out. Unfortunately, I also had to cough up about $250 in insurance costs. Oh well, I
guess shelling out the cash for those things is just as necessary as anything else...
One last tip
Make sure that when you are studying new verbs in the dictionary to read the entire
entry. Don't just learn the main verb; take time to look at the phrasal verbs that are
constructed using the verb. This will save you a lot of time in the long run. Believe
me, if you haven't been to an English speaking country, chances are that one of the
biggest difficulties for you will be understanding phrasal verb usage. If you already
live in a country where English is the primary language you certainly have already
experienced this.
1.
2.
3.
4.
Quiz: Phrasal Verbs
My friend Tim only has one fault. He tends to a) ramble on b) go about c) go in
about subjects that only interest him.
_____
I would love to a) get by b) splash out c) run up and get a new modem for my
computer.
_____
Last week I had to a) put by b) put into c) cough up $50 dollars to pay for a
parking ticket!
_____
Peter was talking about his latest adventures in Rome when he a) shut off b)
broke off c) butt in because Jane walked into the room.
_____
47
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Don't worry about a) paying me back b) giving me up c) bailing me out before
you have enough to pay your bills.
_____
I really hate it when people a) come into b) butt in c) butt off on conversations!
_____
Jacob a) ran up b) ran into c) put aside a bill of $2,000 when he went on
vacation last summer.
_____
By this time next year, I will have a) paid out b) paid into c) paid off my
mortgage on the house!
_____
The funnies thing happened the other day at the meeting. I was in the middle of
my speech when suddenly I a) dried up b) came up short c) went on and couldn't
remember what to say next.
_____
He's been saving for about a year and thinks he has a) put over b) put aside c)
come along $1,500 for a new stereo.
_____
I really hate it when someone a) talks down b) speaks over c) asks into me.
_____
He didn't want to a) drag about b) harp on c) complain over her weaknesses but
he couldn't help it.
_____
Jack is amazing he can a) rattle off b) reel about c) rattle of the name of every
major basketball player in the NBA today.
_____
Jennifer a) helped along b) helped get over c) bailed out Mary last year and now
Mary has finished paying her back.
_____
I hope this $100 dollars can a) tide you over b) get you over c) help you over
until next week.
48
Unit 2
1
The Organisation of the Financial Industry
Financial Institutions
Types of Financial Institutions
Twenty-five years ago the financial industry in most countries had two key
characteristics. One was that pretty well all the banks and financial institutions in that
country were owned in that country, and there were few international links – in many
cases none. So they were national banks belonging to that country. The other key
feature was that financial institutions were specialised, so in Britain there were
institutions that lent to people who wanted to borrow to buy houses – that means
arranging mortgages – so there were specialised things called building societies
doing that. There were retail banks where individuals and companies kept bank
deposits and which made loans to cover short-term outlays and in some cases longerterm investment. Then there was another range of institutions like insurance
companies to provide life insurance or pensions, and investments banks –
sometimes called merchant banks. These weren’t retail banks; they didn’t deal with
individuals, they dealt with big companies. They gave the companies financial
advice, maybe arranging mergers, or fighting off takeover bid, and helped to raise
capital, for example by issuing shares or bonds.
NOTE!
BrE: merchant bank; AmE: investment bank
BrE: retail bank, commercial bank, High Street bank; AmE: retail bank, commercial
bank
BrE: building societies; AmE: savings and loans associations
Deregulation
The financial industry changed radically in 1980s and 90s when it was deregulated.
· Before deregulation: rules and regulations in the US, Britain and Japan prevented
commercial banks doing investment banking businesses. Some other countries
49
(Germant, Switzerland) already had universal banks doing all kinds of financial
business.
· Today: many large international conglomerates offer a complete range of financial
services. Individuals and companies can use a single financial institution for all
their financial needs.
Specialized banks
Other types of banks still have specialized function:
· central banks issue currency and carry out the government’s financial policy.
· private banks manage assets of rich people or high net worth individuals
· clearing banks pass cheques and other payments through the banking system
· non-bank financial intermediaries such as car manufacturers, food retailers and
department stores now offer products like personal loans, credit cards and
insurance.
Here are some abbreviations used in banking.
EFT
Electronic Funds Transfer
SWIFT
Society for Worldwide Interbank Financial Telecommunications
GATT
General Agreement on Tariffs and Trade
CHAPS
Clearing House Automated Payment System
IMF
International Monetary Fund
PIN
Personal Identification Number
APR
Annual Percentage Rate
VAT
Value Added Tax
NSF
Not Sufficient Funds
AIBD
Association of International Bond Dealers
SP
Standard and Poor’s
OTC
Over the Counter
BIN
Bank Identification Number
UCC
Uniform Commercial Code
NBA
National Banking Association
MIS
Management Information System
VRM
Variable Rate Mortgage
MAC
Message Authentication Code
Exercise 1. Find words in the text with the following meanings.
1. a company offering financial services
2. the money company uses, raised by way of shares and bonds
3. when two formerly separate companies agree to join together
4. the ending of some rules or restrictions
5. when a company offers to buy the shares of another company to gain control of it
50
Exercise 2.
1.
2.
3.
4.
5.
6.
7.
8.
Before financial deregulation, which types of financial institutions
did these types of business?
arranging mergers
offering life insurance
issuing shares and bonds
providing mortgages
receiving deposits and making loans to individuals and small companies
giving financial advice to companies
organizing (or defending against) takeover bids
providing pensions
Exercise 3.
The abstracts below are from websites. Which types of banks do
the websites belong to?
1.
The Federal Reserve was founded by Congress in 1913 to provide the
nation with a safer, more flexible, and more stable monetary and
financial system.
2.
We provide a full range of products and services, including advertising on
corporate strategy and structure, and raising capital in equity and debt markets.
3.
How can we help you? We can…
· Build a long-term, one-to-one relationship with your banker.
· Manage your family’s diverse business and personal assets.
· Build a portfolio tailored to your family’s unique needs.
· Play an active role in managing your assets.
4.
Nearly twelve million cheques and credits pass through a system each
working day. Cheque volumes reached a peak in 1990 but usage has fallen
since then, mainly owing to increased use of plastic cards and direct debits
by personal customers.
5. Why bank with us? Because we offer:
· A comprehensive range of accounts and services
· Over 1,600 branches, many with Saturday opening
· Free withdrawals from over 31,000 cash machines
· Online and telephone banking for round-the-clock
access to your accounts
Exercise 4.
Quiz
How much do you know about banks? Decide if these statements are true or false.
1.
2.
The first banking transaction known in history was recorded on a stone tablet.
Forgery carried the death penalty in England until 1832.
51
3.
4.
5.
6.
7.
8.
9.
10.
The safest haven for keeping money is the Cayman Islands.
The Bank of Luxembourg issued the first European banknote in 1661.
The original capital of the Bank of England was £1,200.
UK banknotes are printed by the Royal Mint.
The founder of the Financial Times spent five years in jail.
The World Bank is owned by the governments of 180 countries.
Gold has been mined since 4000 BC.
Coins were invented in Egypt.
Exercise 5.
This exercise defines the most important kinds of bank. Complete
the text using the words in the box.
building societies
universal banks
central banks
investment banks
merchant banks
supranational banks
finance house
commercial banks
(1) ___________ supervise the banking system; fix the minimum interest rate;
issue bank notes; control the money supply; influence exchange rates; and act as
lender of last resort.
(2) ___________are businesses that trade in money. They receive and hold
deposits in current and savings accounts, pay money according to customers’
instructions, lend money, and offer investment advice, foreign exchange facilities,
and so on. In some countries such as England these banks have branches in all major
towns; in other countries there are smaller regional banks. Under American law, for
example, banks can operate in only one state. Some countries have banks that were
originally confined to a single industry, e.g. the Credit Agricola in France, but these
now usually have a far wider customer base.
In some European countries, notably Germany, Austria, and Switzerland, there
are (3) ___________ which combine deposit and loan banking with share and bond
dealing, investment advice, etc. Yet even universal banks usually form a subsidiary,
known as a (4) ___________, to lend money – at several per cent over the base
lending rate – for hire purchase or instalment credit, that is, loans to consumers that
are repaid in regular, equal monthly amounts.
In Britain, the USA and Japan, however, there is, or used to be, a strict
separation between commercial banks and banks that do stockbroking or bond
dealing. Thus in Britain, (5) ___________ specialise in raising funds for industry on
the various financial markets, financing international trade, issuing and underwriting
securities, dealing with takeovers and mergers, issuing government bonds, and so on.
They also offer stockbroking and portfolio management services to rich corporate and
individual clients. (6) ___________in the USA are similar, but they can only act as
intermediaries offering advisory services, and do not offer loans themselves.
Yet despite the Glass-Steagall Act in the USA, and Article 65, imposed by the
Americans in Japan in 1945, which enforce this separation, the distinction between
commercial and merchant or investment banks has become less clear in recent years.
Deregulation in the US and Britain is leading to the creation of "financial
52
supermarkets" - conglomerates combining the services previously offered by
stockbrokers, banks, insurance companies, etc.
In Britain there are also (7) ___________that provide mortgages, i.e. they lend
money to home-buyers on the security of houses and flats, and attract savers by
paying higher interest than the banks. The savings and loan associations in the United
States served a similar function, until most of them went spectacularly bankrupt at the
end of the 1980s.
There are also (8) ___________ such as the World Bank or the European Bank
for Reconstruction and Development, which are generally concerned with economic
development.
Exercise 6. Answer the following questions.
1. What kinds of financial institutions are there in Ukraine?
2. What services does your bank offer? Which of them do you use?
3. What area of finance would you like to work in, and why?
Exercise 7.
bonds
loan
client
FT
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Match the words from the box with their definitions (17).
clearing
forex
securities
fees
term
deposit
EFT (Electronic Funds Transfer)
cheque
credit
guarantee
debit
overdraft
account
Money borrowed against payment of interest.
Permission to withdraw extra funds from one's account.
Financial assets, including shares, government stocks, and bonds.
The length of an agreement or loan.
A registered sum of money kept in a bank, which may be added to or taken
from.
To officially put money or valuables in a safe place, especially a bank.
Charges added to a service.
A person paying a professional person or organisation for help and advice.
A bank department responsible for dealing with cheque payments.
To pay for, and another word for lend.
Foreign exchange shortened.
An agreement by a third party to be responsible for the fulfilment of someone
else's debt, if they cannot pay it.
Abbreviation for a UK financial publication.
A personalised means of paying for goods and services.
Abbreviation for the electronic method of sending money.
Government or industry promises to pay back with interest.
A ledger entry of money spent or owed.
53
Exercise 8. Services
Match the bank services from the box with the given situations (1-15).
business loan
safe deposit box
overdraft
mortgage
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
credit card
cash card
standing order
personal loan
executor
deposit account
cheque encashment
portfolio services
night safe
SWIFT transfer
direct debit
A client has a lot of bills to be paid this month and does not have enough funds
in the account to pay for them.
A manufacturing company wants to buy new premises.
A casino needs to deposit large amounts of money at 4 a.m. every morning.
A client wants to invest money in several banking products and needs advice.
A client has to pay several bills on a regular basis.
A client wants a bank to act on his or her behalf.
A client wants her jewellery to be kept in the bank.
Ms. Massant wants to send $5,000 to her son in New York as quickly as
possible.
A client travels a lot and has to pay hotel and restaurant bills regularly.
A client works irregular hours and does not have time to visit the bank to
withdraw money from his or her account.
A client wants to withdraw money against a personal cheque.
A client wants to earn a higher rate of interest by depositing money for a fixed
period of time.
A client wants a long-term loan to purchase a house.
A client allows a creditor to withdraw money from his account at regular
intervals to pay for goods and services.
A client wants to borrow money to renovate his house.
Exercise 9.
Bank Procedures
Look at the flow diagram, which shows the stages involved in processing a cheque in
the United States. Then number the stages below, according to the diagram.
54
___ The bank in Ohio sends the cheque to the Cleveland Federal Reserve Bank.
___ A New Yorker gives a cheque to a store owner in Ohio for $200.
___ The New York Federal pays funds to the Cleveland Federal from its reserves.
___ The Ohio branch credits the store owner for the amount of the cheque.
___ The buyer's bank deducts $200 from the New Yorker's account and tells the New
___ York Federal to deduct the amount from the bank's account.
___ The Cleveland Federal sends the cheque to the New York Federal for collection.
___ The New York Fed send the cheque to the buyer's New York Bank.
___ The store owner deposits the cheque at the Ohio branch.
Exercise 10. Development Banks
Use the words in the box to complete the text about the activities of the European
Bank.
commitments
foster
comprise
promote
cooperation
gearing ratio
entrepreneurial
institution
plan
former
capital
financing
operating
assesses
assist
units
denominated
projections
market-oriented
The EBRD
The European Bank for Reconstruction and Development is an international (1)
_______ whose members currently (2) _______ 60 countries, together with the
European Community and the European Investment Bank. The bank is based in
London, and began its work in April 1991, (3) _______ in the countries of central and
eastern Europe, including the (4) _______ Soviet Union. The stated aims of the bank
are "to (5) _______ private and (6) _______ initiative, and (7) _______ the transition
to open (8) _______ economies" and it provides loans, equity investments,
guarantees, advice, and technical (9) _______.
The bank (10) _______ whether to finance projects by analysing the project
business (11) _______ and financial (12) _______. It can normally provide one-third
of the (13) _______, often in the form of loans, and may (14) _______ in finding
finance for the remaining two-thirds. Loans can be (15) _______ in any of the major
currencies or in currency (16) _______.
In 1996, the bank doubled its basic (17) _______ to ECU 20 billion. The (18)
_______ is one-to-one and for this reason the bank is able to make total (19) _______
of ECU 20 billion.
55
Exercise 11. Bonds
What can be found on a bond? Complete the short text that follows, using the words
in the box.
regular
due
par value
interest rate
maturity
retired
percentage
price
paid
issued
last
What is a Bond?
A bond certificate is an IOU which represents money that has been lent to a
government or corporation. The bond certifies that the loan has been made and
describes the terms of this loan.
Most bonds are (1) _______ with three vital pieces of information.
First of all, the (2) _______ is displayed, which shows the (3) ________ which
will be (4) _______ in interest on a (5) _______ basis.
The (6) _______ or expiry date is also shown, when payment is (7) ________
and the bond will be (8) _______. Bond maturities vary and can (9) _______ from
one to forty years. Finally, the certificate gives the (10) _______ which is the amount
the, (11) _______ of the bond will be.
Now find similar expressions in the box for the words in italic in the passage below.
bring about
bilateral
amount
receiver
safeguard
demand
entities
regard
backer
promises
vital
related to
A bond is issued by a guarantor (1) _______ - usually a bank or an insurance
company, on behalf of an exporter. It is a guarantee to the buyer that the exporter will
fulfil his contractual (2) _______ obligations.
If these obligations are not fulfilled, the guarantor undertakes (3) _______ to
pay a sum of money to the buyer in compensation.
Bonds are usually required in connection with (4) _______ overseas contracts,
or with the supply of capital goods and services. When there is a buyer's market, the
provision of a bond can be made an essential (5) _______ condition for the granting
of the contract. Bonds have, for some time, been required by Middle Eastern
countries, but nowadays many other countries require them. For instance, most
international aid agencies, such as the World Bank or the European Development
Fund, and most government purchasing organisations (6) _______ in the developing
world, plus major purchases of goods and services in the oil sector now require bonds
from sellers.
Banks are usually prepared to assist their customers by giving or becoming a
party to bonds, guarantees and indemnities. Once issued a bank will incur
(7)_______ a liability to honour (8) _______ that guarantee and must consider its
customer undoubted for the sum (9) _______ involved. However, banks will always
56
take a counter-indemnity from their customers in order to protect (10) ________
themselves against a possible claim from the beneficiary.
In some cases, guarantees can be issued direct to the beneficiary (11) _______
in which case the issuing bank will specify that its own laws apply. In other cases, the
beneficiary may insist, or a local law may stipulate (12) _______, that the guarantee
be issued by a local bank against the issuing bank's counter-indemnity.
2
Central Banking
The Functions of Central Banks
Most countries have a central bank that provides financial cervices to the
government and to the banking system. If a group of countries have a common
currency, they also share a central bank, such as the European Central Bank in
Frankfurt.
Some central banks are responsible for monetary policy – trying to control the
rate of inflation to maintain financial stability. This involves changing interest rates.
The aim is to protect the value of the currency – what it will purchase at home and in
other currencies.
In many countries, the central bank supervises and regulates the banking system
and the whole financial sector. It also collects financial data and publishes statistics,
and provides financial information for consumers. In most countries, the central bank
prints and issues currency and settling debts among commercial banks.
The Central Bank and the Commercial Banks
Commercial banks have to keep reserves – a certain amount of their deposits –
for customers who want to withdraw their money. These are held by the central bank,
which can also change the reserve-asset ratio – minimum percentage of its deposits a
bank has to keep in its reserves.
If one bank goes bankrupt, it can quickly affect the stability of the whole
financial system. And if depositors think a bank is unsafe they might all try to
57
withdraw their money. If this happens it’s called a bank run or a run on the bank, and
the bank will quickly use up its reserves. Central banks can act as a lender of last
resort, which means lending money to financial institutions in difficulty, to allow
them to make payments. But central banks don’t always bail out or rescue banks in
difficulty, because this could lead banks to take risks that are too big.
Central Banks and Exchange Rates
Central banks manage a country’s reserves of gold and foreign currencies. They can
try to have an influence on the exchange rate – the price at which their currency can
be converted into other currencies. They do this by intervening on the currency
markets, and moving the rate up or down by buying or selling their currency. This
changes the balance of supply – how much is being sold – and demand – how much
is being bought.
The National Bank of Ukraine
The National Bank of Ukraine - is the central bank of Ukraine, the main
responsibility of the bank is providing stability of the Ukrainian national currency,
assisting in implementing the united state policy in the sphere of money turnover.
The National Bank of Ukraine is the:
- central bank;
- issue centre;
-
currency body;
-
banking supervision body;
-
bank of banks;
bank of the state;
-
organiser of inter-bank settlements
Exercise 1. Match the two parts of the sentences.
1. The central bank will sometimes lend money
2. Banks would probably start taking too many risks
3. Central banks are usually responsible for
4. The central bank can alter
5. There will be low and stable inflation
a.
b.
c.
d.
e.
if they could always be sure of rescue by the central bank.
If there is a run on a commercial bank.
If monetary policy is successful.
Printing and distributing banknotes.
The amount of money commercial banks are able to lend.
58
Exercise 2.
Complete the text from the website of the Federal Reserve, the
central bank of the United States (You may consult the text The
Functions of Central Banks).
Today the Federal Reserve’s duties fall into four general areas:
· Conducting the nation’s (1) _______ policy;
· (2) _______ and regulating banking institutions and protecting the credit rights of
consumers;
· Maintaining the (3) ________ of the financial system; and
· Providing certain (4) _______ services to the US government, the public, financial
institutions, and foreign official institutions.
Exercise 3.
Make word combinations using a word from each box. One word
can be used twice. Then use the word combinations to complete
the sentences below.
markets
run
system
policy
rate
stability
bank
currency
exchange
financial
monetary
1.
2.
3.
_______ _______, including setting interest rates, is designed to maintain
_______ _______.
If there is a _______ _______ and the bank goes bankrupt, this can have a rapid
effect on the whole _______ _______.
On one day in 1992, the Bank of England lost over £1 billion (more than half of
the country’s foreign reserves) in the _______ _______, trying to protect the
_______ _______ of the pound.
Exercise 4. Answer the following questions.
1. Is the central bank in your country independent from the government?
2. What powers and responsibilities does it have?
Exercise 5.
Complete these sentences about Central Banks using the words in
the box.
In most countries, the central bank performs the general task of monitoring banking
activities, setting monetary policy and issuing banknotes.
59
Complete the article about the Bank of England and the Federal Reserve System
using the words in the boxes.
The Bank of England
borrowings
bullion
shareholders
customers
cover
assists
institutions
founded
operational balances
national debt
payments
services
reserves
central
clearing
commercial
(1)_______ in 1694, the Bank of England is one of the oldest banking
(2)_______ in the world. It started as a (3) _______ bank with private (4) _______,
but it also arranged (5) _______ for the government.
The Bank of England offers a similar range of (6) _______ to any other bank.
There are three important groups of (7) _______: the commercial banks, other (8)
_______ banks, and the Government. All the (9) _______ banks keep accounts at the
Bank of England.
The banks are obliged to keep (10) _______ large enough to (11) ______ their
needs. Other central banks keep accounts and gold at the Bank of England and
conduct foreign exchange and (12) _______ business through the bank. The
Government keeps its main banking accounts at the Bank of England in order to
receive and make (13) _______. The bank manages the UK's (14) _______ of gold
and foreign exchange, arranges Government borrowing, and (15) _______ in
managing the (16) _______.
The Federal Reserve System
Senate
safeguard
central
pressures
accumulation
controlled
gold reserves
feature
gold vault
consists
nations
constitutes
President
office
governors
regulate
The Federal Reserve System is the (1) _______ bank of the USA and (2) _______ of
12 national banks spread across the country. It is (3) _______ by a board of seven (4)
_______ who are appointed by the (5) _______ and confirmed by the (6) _______.
Terms of (7) _______ last fourteen years to insulate Governors from political
(8)_______ .The most important function of the Federal Reserve System is to
(9)_______ the supply of money and (10) _______ the position of the currency. The
most popular (11) of the Federal Reserve Bank is the (12) _______, a massive
underground safe under Manhattan. It contains the largest known (13) _______ of
gold in the world. The gold (14) _______ about one-third of the (15) _______ of the
world's non-communist (16) _______.
60
Exercise 6.
assets
Complete this paragraph using the words from the box:
cash
interest
liquid
maturity
reserve
Because a commercial bank can lend most of the money deposited with it to
other borrowers, who in turn may lend it to another borrower, each sum of money
deposited in a bank is multiplied several times. To ensure the safety of the banking
system, central banks impose (1) _______ requirements, obliging commercial banks
to deposit a certain amount of money with the central bank at zero (2)_______.
Central banks in different countries also impose different "prudential ratios" on
commercial banks. These are ratios between deposits and liquid (3) _______ that are
considered sufficient to meet demands for (4)_______ A bank's assets are its loans,
which should, in theory, all be paid back one day, and its liabilities are the customers'
deposits, which can all be withdrawn one day.) For example, a bank's capital ratio is
between its capital and reserves on the one hand, and its total assets on the other. The
reserve asset ratio is between deposits with a (5) _______ of under two years, called
"eligible liabilities," and reserve assets, which include cash and assets that are
(6)_______ – i.e. quickly convertible into cash – such as reserve deposits held by the
central bank, and securities such as treasury bills.
Exercise 7. Central Banking Activities
Match the activities in the box with the definitions (1-9).
prudent supervision
consolidated supervision
EU directives
1.
2.
3.
4.
5.
6.
7.
8.
9.
Capital Adequacy Directive
Risk Asset Ratio (RAR)
Deposit Protector Scheme
provisions
banking ombudsman
Basle Concordat
Amounts of money which are set aside to cover large loans.
Documents which explain the responsibility of supervisors of international
banks.
Guidelines for banking supervision Issued through the EU.
Deposits put aside by banks to protect depositors.
Banking supervision which focuses on financial strength.
A representative of a central bank or monetary body who acts as the mediator in
disputes between banks and clients.
A bank's method of calculating how much capital is needed to operate safely.
Banking supervision carried out by a group of central banks.
A stipulation which specifies the minimum ratio of capital to assets that a bank
should hold legally in a country.
61
Exercise 8. Tricky Situations
The expressions below are all used to describe unusual or difficult conditions in
banking. Match the words with their correct definitions.
bear squeeze
dirty-float
problem bank
belly up
red flag
rubber cheque
bank run
Chinese wall
flight capital
watch list
1.
A policy barrier between the trust department and the rest of the bank to prevent
inside information from being released to other departments.
2. Money which is moved out of a country in the case of a political or economic
crisis.
3. A warning that something may not be right when reviewing a credit application.
4. A corporation or lender which is unable to pay its obligations or creditors.
5. A series of sudden cash withdrawals caused by lack of confidence or fear that a
bank may be in trouble.
6. The official intervention by central banks in the FX markets to force currency
speculators who are short-selling a currency to cover their positions.
7. A bank with a high ratio of non-performing loans to its total capital.
8. A cheque which is drawn on an account with insufficient funds to cover it.
9. A foreign exchange rate which is influenced by market intervention by the
country of issue's monetary body.
10. A list of banks which are in danger of bankruptcy or suspected of having
financial troubles.
Exercise 9. The World Bank
Complete the article about the World Bank using the words in the box.
stands for loans
set up
sources
capital
function
headquarters develop
sales
funds
bonds
The World Bank was (1) _______ in 1944 and its (2) _______ are in Washington.
The World Bank is the short name for the IBRD, which (3) _______ the International
Bank for reconstruction and Development. The (4) _______ for the World Bank
comes from three main (5) _______; firstly, its 180 member countries; secondly, (6)
_______ of its own (7) _______; and, finally, interest on its (8) _______. The main
(9) _______ of the World Bank is to provide (10) _______ for poor countries to help
them to (11) _______.
62
Exercise 10.
The International Monetary Fund
Complete the article about the International Monetary Fund using the words in the
box.
purpose
establish
member
cooperative
balance
of
payments
exchange rate
The IMF stands for the international Monetary Fund. It was set up after World War
III and its main (1) _______ was to (2) _______ a fixed (30_______ system. The
IMF is a (4) _______ deposit bank. The IMF offers credit to (5) _______ countries
experiencing (6) ___________ difficulties.
3
Commercial and Retail Banking
Commercial and Retail Banks
When people have more money than they need to spend, they may choose to
save it. They deposit in on a bank account, at a commercial or retail bank, and the
bank generally pays interest to the depositors. The bank then uses the money that has
been deposited to grant loans – lend money to borrowers who need more money than
they have available. Banks make a profit by charging a higher rate of interest to
borrowers than they pay to depositors.
Commercial banks can also move or transfer money from one customer’s bank
account to another one, at the same or another bank, when the customer asks them to.
Credit
Banks also create credit – make money available for someone to borrow –
because the money they lend, from their depositors, is usually spent and transferred to
another bank account.
The capital the bank has and the loans it has made are its assets. The customers’
deposits are liabilities because the money is owed to someone else. Banks have to
keep a certain percentage of their assets as reserves for borrowers who want to
withdraw their money. This is known as the reserve requirement. For example, if the
reserve requirement is 10%, a bank that receives a €100 deposit can lend €90 of it. If
the borrower spends the money and writes a cheque to someone who deposits the
€90, the bank receiving that deposit can lend €81. As the process continues, the
banking system can expand the first deposit of €100 into nearly €1,000. In this way, it
creates credit of almost €900.
Loans and Risks
Before lending money, a bank has to assess or calculate the risk involved.
Generally, the greater the risk for the bank of not being repaired, the higher the
interest rate they charge. Most retail banks have standardized products for personal
63
customers, such as personal loans. This means that all customers who have been
granted a loan have the same terms and conditions – they have the same rules for
paying back the money.
Banks have more complicated risk assessment methods for corporate customers
– business clients – but large companies these days prefer to raise their own finance
rather than borrow from banks.
Banks have to find a balance between liquidity – having cash available when
depositors want it – and different maturities – dates when loans will be repaid. They
also have to balance yield – how much money a loan pays – and risk.
Exercise 1.
1.
Complete the sentences from banks’ websites. Use the words from
the text.
If you need instant access to all your money, this is the _______
_______ for you.
2.
Our products for _______ _______ include business overdrafts, loan
repayments that reflect your cash flow, and commercial mortgages.
3.
Our local branch managers are encouraged to help local businesses and are authorized
to _______ _______ and overdrafts.
4. We offer standardized loans: you can be sure you
won’t get less favourable terms are _______ than our
other _______.
Exercise 2.
1.
2.
3.
4.
5.
6.
Match the two parts of the sentences. Use the text above to help
you.
Banks lend savers’ deposits
They also create credit by
How much credit banks can create
Before lending money,
The interest rate on a loan
Banks always need liquidity
a.
b.
c.
d.
e.
f.
banks have to access the risk involved.
depends on the reserves requirements.
depends on how risky it is for the bank to lend the money.
so they can’t lend all their money in loans with long maturities.
lending the same original deposit several times.
to people who need to borrow money.
64
Exercise 3.
Find verbs in the text above that can be used to make word
combinations with the nouns below. Then use some of the verbs to
complete the sentences.
_______ interest
_______ interest
1.
2.
3.
_______ money
_______ money
_______ risks
_______ risks
With standardized products, all customers are _______ the same interest rate.
Banks generally know from experience how much cash to keep in their reserves
for customers who want to _______ it.
Banks carefully study the financial situation of a company to _______ the risk
involved in lending it money.
Exercise 4. Bank Websites.
Look at some commercial bank websites from your country. Which bank offers the
best rates to borrowers and lenders?
Exercise 5. Complete the text using the words in the box.
accounts
current account
lend
overdraft
return
bank loan
debt
liabilities
salary
transfer
cheque
depositors
liquidity
spread
wages
customers'
deposits
optimize
standing orders
withdraw
Commercial banks are businesses that trade in money. They receive and hold
(1)___________ pay money according to (2) ___________ instructions,
(3)___________ money, etc.
There are still many people in Britain who do not have bank (4) ___________
.Traditionally, factory workers were paid (5) ___________ in cash on Fridays. Nonmanual workers, however, usually receive a monthly (6) ___________ in the form of
a cheque or a (7) ___________ paid directly into their bank account.
A (8) ___________ (US: checking account) usually pays little or no interest, but
allows the holder to (9) ___________ his or her cash with no restrictions. Deposit
accounts (in the US also called time or notice accounts) pay interest. They do not
usually provide (10) ___________ (US: check) facilities and notice is often required
to withdraw money. (11) ___________ and direct debits are ways of paying regular
bills at regular intervals.
Banks offer both loans and overdrafts. A(12) ___________ is a fixed sum of
money, lent for a fixed period, on which interest is paid; banks usually require some
form of security or guarantee before lending. An (13) ___________ is an
65
arrangement by which a customer can overdraw an account, i.e. run up a debt to an
agreed limit; interest on the (14) ___________ is calculated daily.
Banks make a profit from the (15) ___________ or differential between the
interest rates they pay on deposits and those they charge on loans. They are also able
to lend more money than they receive in deposits because (16) ___________ rarely
withdraw all their money at the same time. In order to (17) ___________ the return
on their assets (loans), bankers have to find a balance between yield and risk, and
(18) ___________ and different maturities, and to match these with their (19)
___________ (deposits). The maturity of a loan is how long it will last; the yield of a
loan is its annual (20) ___________ how much money it pays – expressed as a
percentage.
4
Develop Your Banking Vocabulary
Banking Verbs
Exercise 1.
Complete the crossword puzzle.
Across
1. "Of course I don't have that kind of money. I had to _______ it." (6)
4. See 10 across.
5. "I showed the bank my business plan, and they offered to _______ me
everything I asked for." (4)
7. With the cheque guarantee card, shops know that the bank will _______ any
cheque up to £100. (6)
9. "When I discovered my mistake, I immediately called the bank and asked them
to _______ the cheque." (4)
10. and 4. The borrower was unable to repay the principal, and asked the bank to
_______ the loan. (4, 4)
12. "I had to stand in a queue for fifteen minutes just to _______ a five pound
cheque." (4)
13. and 18. down. An important function of a central bank is to act as lender of
_______ (4, 6)
16. "We nearly went bust, but at the last minute the bank agreed to _______us out."
(4)
19. "When I pointed out to the bank that it was their mistake, they agreed to
_______ me all the extra charges I'd paid." (9)
21. See 22 across.
22. and 21. When it becomes obvious that it has a bad debt, the bank has to _______
it _______ (5,3)
23. Investment banks usually in stocks and bonds. (5)
24. An investment with a high risk is usually compensated by way of a
high_______. (5)
66
Down
2. "I can't borrow any more; I already _______ the bank over £10,000." (3)
3. "This wonderful piece of plastic allows me to _______ cash all over Europe!"
(8)
4. "With all that money you got for your birthday you should go and _______ a
savings account." (4)
6. "Did you know that they even have machines now where you can _______ as
well as take out money?" (7)
8. Since they clearly couldn't afford to pay back the loans then, the banks had to
agree to _______ the debt. (10)
9. The clearing system makes it much easier to _______ inter-bank debts. (6)
11. "They agreed to grant me a _______ for six months." (4)
14. "If they make another big mistake like that I'm going to _______ all my
connections with that bank." (5)
15. It is usually the role of the central bank to _______ the minimum interest rate. (3)
17. Many Third World countries are unable to _______ their debts, let alone repay
the principal. (7)
18. See 13 across.
20. Companies generally use investment banks to _______ new shares or bonds for
them. (5)
67
Exercise 2. Banking Services
Add the words and expressions that complete the following sentences to the wordbox
below.
1.
2.
When I opened the account, they gave me a_______ (10) and a paying in book.
Banks' basic business used to be making _______ (5), but they now often earn
more from securities trading and financial services.
3. Most banks are able to offer _______ (10,6) to rich clients.
4. An importer who has to pay a bill in a foreign currency, and so cannot use a
cheque, can arrange to pay by _______ (7,5).
5. Outside banking hours, shops and other businesses can deposit money in the
bank's _______ (5,4).
6. Before travelling abroad, I always get some currency from the _______ (7,8)
department of the bank.
7. I pay regular bills every month with a _______ (8,5).
8. My salary is paid directly into my account every month by an automatic
_______ (8).
9. Nearly all restaurants accept payment by _______ (6,4).
10. Most people in Britain who buy a house take out a _______ (8).
11. Since I sometimes spend more than I have in my current account, I have
arranged an _______ (9).
68
12. If you want higher interest, and don't need to withdraw money too often, you
should get a _______ (7,7).
13. A _______ (6,2,6) is a paper issued by a buyer's bank which guarantees that the
seller will be paid.
14. If you want to write cheques and have easy access to your money at any time,
you should have a _______ (7,7).
15. People with valuables often keep them in a _______ (4,7, 3) in a bank.
Exercise 3. Word Partnerships - Bank
All the words below can be combined with bank or banking in a two-word
partnership, e.g. bank holiday or off-shore banking. Add the word bank or
banking either before or after each of the words below:
1. ______account______
2. ______balance______
3. ______central______
4.______clerk______
5. ______commercial
6. ______deposit______
7. ______holiday______
8. ______investment______
9. ______manager______
10.______merchant______
11.______note______
12.______off-shore ______
13.______retail ______
14.______robbery______
15.______savings______
16.______statement______
17.______system______
18.______wholesale______
Now complete the following sentences:
In my country the most important types of banks are: _____________________
________________________________________________________________
The banking services that I use are: ___________________________________
________________________________________________________________
69
Unit 3
1
Financial Markets
Money Supply and Control
Money supply is the stock of money and the supply of new money. The currency
in circulation – coins and notes that people spend – makes up only a very small part
of the money supply. The rest consists of bank deposits.
There are different ways of measuring money supply. It depends on whether you
include time deposits – bank deposits that can only be withdrawn after a certain
period of time. The smallest measure is called narrow money. This only includes
currency and sight deposits – bank deposits that customers can withdraw whenever
they like. The other measures are broad money. This includes savings deposits and
time deposits, as well as money market funds, certificates of deposit, commercial
paper, repurchase agreements, and things like that.
To measure money you also have to know how often it is spent in a given
period. This is money’s velocity of circulation – how quickly it moves from one
institution or bank account to another. In other words, the quantity of money spent is
the money supply times its velocity of circulation.
Changing the Money Supply
The monetary authorities – sometimes the government, but usually the central
bank – use monetary policy to try to control the amount of money in circulation, and
its growth. This is in order to prevent inflation – the continuous increase in prices,
which reduces the amount of things that people can buy.
· They can change commercial banks’ reserve-asset ratio. This sets the
percentage of deposits a bank has to keep in its reserves (for depositors who
wish to withdraw their money_, which is generally around 8%. The more a
bank has to keep, the less it can lend.
· The central bank can also buy or sell treasury bills in open-market
operations with commercial banks. If the banks buy these bonds, they have
less money (and can lend less), and if the central bank buys them back, the
commercial banks have more money to lend
70
Monetarism
Monetarist economists are those who argue that if you control the money supply, you
can control inflation. They believe the average levels of prices and wages depend on
the quantity of money in circulation and its velocity of circulation. They think that
inflation is caused by too much monetary growth: too much new money being added
to the money stock. Other economists disagree. They say money supply can grow
because of increased economic activity: more goods being sold and more services
being performed.
Exercise 1.
1.
2.
3.
4.
5.
Are the following statements true or false? Find reasons for your
answers in the text above.
Money exists on paper, in bank accounts, rather than in notes and coins.
Banking customers can withdraw time deposits whenever they like.
The amount of money spent is the money supply multiplied by its velocity of
circulation.
Central banks can try to control the money supply.
Commercial banks can choose which percentage of their deposits they keep in
their reserves.
Exercise 2.
Use the words in the box to make word combinations with
‘money’.
broad
supply
narrow
Now use the word combinations to complete the following sentences.
1.
2.
3.
The _______ _______ is the existing stock of money plus newly created money.
The smallest or most restrictive measure is _______ _______.
_______ _______ is a measure of money that includes savings deposits.
Exercise 3.
Find the words in the text above to make word combinations with
‘monetary’.
monetary _______, _______, _______
1.
2.
3.
The _______ _______ are the official agencies that can try to control the
quantity of money.
The attempt to control the amount of money in circulation and rate of inflation
is called _______ _______.
Monetarism is a theory that the level of prices is determined by _______
_______.
71
Exercise 4. Answer the following questions.
1. What is wrong in having inflation?
2. What is the current inflation rate in your country?
3. Has it changed over the past 20 years?
4. What factors caused these changes?
5. To what extend is banking regulated in your country? What are advantages and
disadvantages of this?
Exercise 5.
Insert the words in the box to complete the following paragraph.
bonds
prices
commercial
tight
velocity
monetarist
Following the (1) ___________ argument that the average level of
(2)___________ and wages is determined by the amount of money in circulation, and
its (3) ___________ of circulation, many central banks now set money supply targets.
By increasing or decreasing the money supply, the central bank indirectly influences
interest rates, demand, output, growth, unemployment and prices. The central bank
can reduce the reserves available to (4) ___________ banks by changing the reserve
requirements.
This reduces the amount of money that banks can create and makes money (5)
___________ or scarce. Alternatively, the central bank can engage in what are called
open market operations, which involve selling short-term government (6)
___________ (such as three-month Treasury bills) to the commercial banks, or
buying them back.
Exercise 6.
Insert the words in the box to complete the following paragraph.
credit
interest rates
inflation
output
the exchange rate
unemployment
aggregate demand
When money is tight,
1. ___________ rise, because commercial banks have
to borrow at a higher rate on the inter-bank market.
2. ___________ falls, because people and businesses
borrow less at higher rates.
3. ___________ falls, because people and businesses
buy less, as they have less money.
4. ___________ falls too, because with less consumption, firms produce less.
5
rises, because companies are producing and selling less, and so require less
labour.
5. ___________ falls, because there is less money in circulation.
72
6.
7.
___________ will probably rise, if there is the same demand but less money, or
if there is higher demand, as foreigners take advantage of the higher interest
rates to invest in the currency.
___________ increasing the money supply, by making more reserves available,
has the opposite effects.
Exercise 7. Regulation and Deregulation.
Match the words (1-8) with their definitions (a-h).
1.
2.
3.
4.
5.
conglomerates
depositors
deregulated
fines
prohibited
6.
7.
8.
regulation
repeated
underwriting
a.
b.
c.
d.
e.
abolished or ended rules and restrictions
sums of money paid as penalties foe braking the law
groups of companies that have joined together
control of something by rules or laws
guaranteeing to buy a company’s newly issued stocks
if no one else does
f. made it illegal to do something
g. people who place money in bank accounts
h. cancelled or ended [a law]
Now complete the text using these words.
Regulation and Deregulation
In the late 1920s, several American commercial banks that were (1) _______
security issues for companies weren’t able to sell the stocks to the public, because
there wasn’t enough demand. So they used money belonging to their (2) _______ to
buy these securities. If the stock price later fell, their customers lost a lot of money.
This led the government to step up the (3) _______ of banks, to protect
depositor’s funds, and to maintain investors’ confidence in banking system. In 1933,
the Glass-Steagall Act was passed, which (4) _______ American commercial banks
from underwriting securities. Only investment banks could issue stocks for
corporations. In Britain too, retail or commercial banks remained separate from
investment or merchant banks. A similar law was passed in Japan after World War II.
Half century later, in the late 1980s and 90s, many banks were looking for new
markets and higher profits in a period of increasing globalization. So most
industrialized countries (5) _______ their financial systems. The Glass-Steagall Act
was (6) _______. A lot of commercial banks merged with or acquired investment
banks and insurance companies, which created large financial (7) _______. The
larger American and British banks now offer customers a complete range of financial
services, as the universal banks in Germany and Switzerland have done for a long
time. The law forbidding US commercial banks for operating in more than one state
was also abolished. In Britain, many building societies, which specialized in
mortgages, started to offer the same services as commercial banks.
Yet, in all countries, financial institutions are still quite strictly controlled, either
by the central bank of another financial authority. In 2002, ten of Wall Street’s
73
biggest banks paid (8) _______ of $1.4 billion for having advised investors, in the
1990s, to buy stocks in companies that they knew had financial difficulties. They had
done this in order to get investment banking business from these companies – exactly
the kind of practice that led the US governments to separate commercial and
investment banking in the 1930s.
2
Interest Rates
Interest Rates and the Monetary Policy
An interest rate is the cost of borrowing money: the percentage of the amount of
a loan paid by the borrower to the lender for the use of the lender's money. A
country's minimum interest rare (the lowest rate that any lender can charge) is usually
set by the central bank, as part of monetary policy, designed to keep inflation low.
This can be achieved if demand (for goods and services, and the money with which
to buy them) is nearly the same as supply. Demand is how much people consume and
businesses invest in factories, machinery, creating new jobs. etc. Supply is the
creation of goods and services, using labour – paid work – and capital. When interest
rates fall, people borrow more, and spend rather than save, and companies invest
more. Consequently, the level of demand rises. When interest rates rise, so that
borrowing becomes more expensive, individuals tend to save more and consume less.
Companies also invest less, so demand is reduced.
If interest rates are set too low, the demand for goods and services grows faster
than the marker's ability to supply them. This causes prices to rise so that inflation
occurs. If interest rates are set too high, this lowers borrowing and spending. This
brings down inflation, but also reduces output the amount of goods produced and
services performed, and employment – the number of jobs in the country.
Different Interest Rates
The discount rate is the rare that the central bank sets to lend short-term funds to
commercial banks. When this rate changes, the commercial banks change their own
base rate. the rate they charge their most reliable customers like large corporations.
74
This is the tare from which they calculate all their other deposit and lending rates for
savers and borrowers.
Banks make their profits from the difference, known as a margin or spread,
between the interest rates they charge borrowers and the rates they pay to depositors.
The rate that borrowers pay depends on their creditworthiness, also known as credit
standing or credit rating. This is the lender's estimation of a borrower's present and
future solvency: their ability to pay debts. The higher the borrower's solvency, the
lower the interest rate they pay. Borrowers can usually get a lower interest rate if the
loan is guaranteed by securities or other collateral. For example, mortgages for which
a house or apartment is collateral are usually cheaper than ordinary bank loans or
overdrafts – arrangements to borrow by – spending more than is in your bank
account. Long-term loans such as mortgages often have floating or variable interest
rates that change according to the supply and demand for money.
Leasing or hire purchase (HP) agreements have higher interest rates than bank
loans and overdrafts. These are when a consumer makes a series of monthly
payments to buy durable goods (e.g. a car, furniture). Until the goods are paid for, the
buyer is only hiring or renting them, and they belong to the lender. The interest rate is
high as (here is little security for the lender: the goods could easily become damaged.
NOTE!
BrE: base rate; AmE: prime rate
Exercise 1.
creditworthy
spread
1.
2.
3.
4.
5.
6.
7.
8.
Match the words in the box with the definitions (1-8).
floating rate
output
invest
solvency
labour
interest rate
the cost of borrowing money, expressed as a percentage of the loan
having sufficient cash available when debts have to be paid
paid work that provides goods and services
a borrowing rate that isn't fixed
safe to lend money to
the difference between borrowing and lending rates
the quantity of goods and services produced in an economy
to spend money in order to produce income or profits
Exercise 2. Name the interest rates and loans. Then put them in order, from
the lowest rate to the highest. Look at the text above to help you.
a. _______: a loan to buy property (a house, flat, etc.)
b. _______: borrowing money to buy something like a car, spreading payment
over 36 months
c. _______: commercial banks' lending rate for their most secure customers
75
d.
e.
_______: occasionally borrowing money by spending more than you have in the
bank
_______: the rate at which central banks make secured loans to commercial
banks
1
lowest
2
3
4
5
highest
Exercise 3.
1.
2.
3.
4.
5.
6.
Are the following statements true or false? Find reasons for your
answers in the text above.
All interest rates are set by central banks.
When interest rates fall, people rend to spend and borrow more.
A borrower who is very solvent will pay a very high interest rate.
Loans are usually cheaper if they are guaranteed by some form of security or
collateral.
If banks make loans to customers with a lower level of solvency, they can
increase their margins.
One of the causes of changes in interest rates is the supply and demand for
money.
Exercise 4. Answer the following questions.
1. What are the average interest rates paid to depositors by banks in your country?
2. How much do borrowers have to pay for loans, overdrafts, mortgages and card
debts?
3. Is there much difference among competing banks?
Exercise 5.
1.
2.
3.
4.
Choose words to complete each sentence. In some cases there is
more than one possibility.
The Bank of England fixes a minimum interest rate, called the discount rate,
at which it makes secured loans to_______.
a. big companies
c. commercial banks
b. private individuals
d. new businesses
British commercial banks lend to blue-chip borrowers (big, secure companies)
at the _______.The American equivalent is the prime rate.
a. base rate
b. basic rate
c. discount rate
d. market rate
All other borrowers pay more, depending on the lender's estimation of their
present and future solvency, also known as their creditworthiness or _______ or
_______.
a. credit
b. creditors
c. credit standing d. credit rating
Borrowers can usually get a _______ interest rate if the loan is guaranteed by
securities or other collateral.
a. higher
b. long-term
c. lower
d. riskier
76
5.
Banks make their profits from the difference between the interest rate charged to
borrowers and that paid to depositors, also known as a _______ or _______.
a. margin
b. mistake
c. range
d. spread
6. Long-term interest rates are generally higher than short-term ones, except when
the central bank temporarily reduces the money supply i.e. makes money
_______ or _______.
a. loose
b. scarce
c. tight
d. uncommon
7. These days many loans are made with _______ or variable interest rates that
change according to the supply and demand for money.
a. drowning
b. floating
c. sinking
d. swimming
8. Borrowers and lenders can sometimes arrange limits beyond which rates cannot
move. The upper limit is called a _______or a _______.
a. cap
b. ceiling
c. roof
d. summit
9. The lower limit on a variable rate loan is known as a _______.
a. bottom
b. carpet
c. floor
d. maturity
10. A _______ is an arrangement that fixes both the upper and lower limits.
a. collar
b. tie
c. shirt
d. suit
11. Central banks cannot determine the minimum lending rate for so-called
Eurocurrencies – currencies held _______.
a. outside their country of origin
b. in Europe
12. Banks are able to offer better rates to borrowers of Eurocurrencies because there
are no _______ imposed by the central bank.
a. discount rates
c. money supplies
b. maturities
d. reserve requirements
3
Financial Regulation And Supervision
Government Regulation
The financial services industry was deregulated in the 1980s: lots of
government controls were removed to make the market freer and more efficient. But
a lot of regulations still exist. We're still regulated and supervised by government
agencies. For example, in Britain there's the Financial Services Authority (FSA), and
here in the Stares there's the Federal Reserve (or the Fed) and the Securities and
Exchange Commission (SEC).
The Fed supervises banks, and the SEC tries to protect investors by requiring
full disclosure: it makes sure that public companies make all significant financial
information available. And it tries to prevent fraudulent or illegal practices in the
securities markets, such as companies artificially raising their stock price by using
dishonest accounting methods or issuing false information.'
77
Internal Controls
The bank has to make sure no one employee does any insider trading or dealing
– buying or selling securities when they have confidential or secret information about
them. For example the bank mergers and acquisitions department often has advance
information about takeovers. This information is usually price-sensitive: if you used
it you could make the share price change. This gives the people in M&A huge
opportunities for profitable insider dealing, but the bank tries to keep what is called
"Chinese walls" around departments that have confidential information. This means
having strict rules about not using or spreading information.
Another issue is conflicts of interest – situations where what is good for one
department is not in the best interests of another department. For example, if banks
want to win investment banking business from a company, their analysts in the
research department could produce inaccurate reports exaggerating the client
company's financial situation and prospects. This could lead the fund management
and stockbroking departments to buy securities in that company, or recommend them
to clients, because of false information.'
Sarbanes-Oxley
Because of lots of serious conflicts of interest in banks, the US government
passed the Sarbanes-Oxley Act in 2002. This requires research analysts to disclose
whether they hold any securities in a company they write a research report about, and
whether they have been paid by the company.
Another outcome of Sarbanes-Oxley was the establishment of a board to
oversee or supervise the auditing of public companies, and to prevent auditors doing
non-audit services while they're auditing a company. That's because an auditing firm
that is also doing lucrative – profitable – consulting work with a company might be
tempted not to audit the accounts very carefully, and to ignore evidence of illegal
practices or "creative accounting".
Another task is making sure no criminal organization uses the bank for money
laundering – converting illegal or criminal funds into what looks like legitimate or
legal income, by passing it through a lot of transactions, companies and bank
accounts.
Exercise 1.
Match the words in the box with the definitions below. Look at the
text above to help you.
compliance
money laundering
1.
2.
3.
4.
disclosure
price-sensitive
fraudulent
oversee
insider dealing
adjective meaning able to influence or change a price
behaving according to regulations, rules, policies, procedures, etc.
buying or selling stocks when you have confidential information about a
company
disguising the source of money acquired from criminal activities
78
5.
6.
7.
adjective meaning dishonest and illegal (intending to get money by deceiving
people)
giving investors and customers all the information they need
to watch something to make certain that it is being done correctly
Exercise 2. Match the two parts of the sentences.
1. Criminal organizations try to hide the origin of illegally received money
2. People with privileged, confidential information about a stock could make
money
3. Some banks might try to get business from companies, e.g. issuing stocks and
bonds,
4. Some companies might try to make their auditors less rigorous
5. Some companies try to raise their stock price
a. by acting on that information and buying and selling the stock.
b. by also paying them to do consulting work.
c. by moving it through lots of different companies and bank accounts.
d. by not following accepted accounting methods or by publishing false
information.
e. by publishing reports that overstate the companies' financial health.
Exercise 3.
Chinese walls
deregulation
Complete the newspaper headlines with words from the box.
conflicts of interest
laundering money
compliance offer
insider traders
1.
FSA warns that criminal gangs are still _______ through bureaux de change
2.
Sarbanes-Oxley has greatly reduced _______ for auditing firms, report says
3.
Senator says even the smallest financial company needs a
_______
4.
5.
6.
FSA says it's time to get tough on _______: they are almost never prosecuted
Fed says _______ not functioning in investment banks; suspicious trading is
increasing
25 years after _______ bankers say there's still too much government control
Exercise 4. Answer the following questions.
1. Have there been any major cases of financial institutions breaking the law in
your country recently?
2. What happened and what could be done to stop it occurring again?
79
4
The Business Cycle
Expansion and Contraction
All market economies have periods when consumption – spending on goods and
services – rises. Consumers buy more, companies invest more, and production,
income, profits and employment increase. These periods are always followed by
periods when spending and investment fall, and unemployment rises. This is the
business cycle.
A period during which economic activity increases and the economy is
expanding is an upturn or upswing. If it lasts a long time it is called a boom. The
highest point of the business cycle is a peak, which is followed by a downturn, during
which the amount of economic activity decreases. If the economy keeps contracting
for more than six months, the downswing is called a recession. A serious, longlasting recession is called a depression or a slump. The lowest point of the business
cycle is a trough, which is followed by a recovery, when economic activity increases
again, and a new cycle begins.
Note!
A downturn is also called a downswing or a period of contraction;
a recovery is also called an upturn, an upswing or a period of expansion.
Fiscal Policy
Governments and central batiks use fiscal policy, which involves changing the
levels of government expenditure and taxation to try to limit the extent of the
business cycle. If an economy is moving into a recession, the government might have
a reflationary fiscal policy. This means trying to stimulate the economy by increasing
government spending, or by cutting levels of direct or indirect tax so that individuals
and companies have more money to spend.
80
If an economy is overheating – expanding too quickly – it means that industry is
working at full capacity and producing as much as it possibly can. Because demand is
greater than supply, leading to rising prices and inflation, the government might have
a deflationary fiscal policy. This means trying to cool down the economy, reducing
the amount of economic activity by raising tax rates or cutting government
expenditure. This reduces the level of demand in the economy and helps to reduce
inflation.
Monetary Policy
Governments or central banks can also use monetary policy – changing interest
rates and the level of the money supply – to influence the level of economic activity.
They can boost or increase economic activity if the economy is in a downturn by
reducing interest rates and allowing the rate of growth of the money supply to
increase. Alternatively, if the economy is growing too last and causing inflation, they
can slow it down by increasing interest rates and reducing the rate of growth of the
money supply. The main reason for having an independent central bank is to prevent
governments from creating a political business cycle – a cycle that will be at a high
point at the time of the next election. Governments can do this by beginning their
periods of office with a couple of years of policies designed to stop the economy
from growing, followed by tax cuts and monetary expansion in the two years before
the next election. This policy, sometimes called boom and bust, helps the government
get re-elected but is nor good for economic stability. An independent central bank
makes this less likely to happen.
Exercise 1.
boom
Label the graph with words from the box. Look at the text to help
you.
downswing
peak
recession
recovery
trough
1. _____________________
2. _____________________
3. _____________________
4. _____________________
5. _____________________
6. _____________________
81
Exercise 2. Match the two parts of the sentences.
1. If the government thinks the economy is contracting too much.
2. Fiscal policy involves
3. If there isn't an independent central bank, governments can
4. If the government thinks the economy is growing too quickly,
5. Monetary policy involves
a.
b.
c.
d.
e.
interest rates and the money supply.
it can raise tax rates and cut its expenditure.
manipulate the business cycle to their own advantage.
ir can cut taxes and increase its spending.
taxation and government spending.
Exercise 3.
Find verbs in the text above with the following meanings.
to get bigger or make bigger
__________ ___________
__________ ___________
__________ ___________
__________ ___________
to get smaller or make smaller
__________ ___________
__________ ___________
__________ ___________
Exercise 4. Answer the following questions.
1. Has the economy in your country expanded or contracted over the past three
years?
2. What do most economists think were the causes of these changes?
Exercise 5.
Look at the graph below which illustrates fluctuations in domestic
investment in the USA as a percentage of potential GNP, from
1929-1988. The level of investment is clearly linked to the business
cycle. Insert the words from the box in the text below.
82
boom
downturns
recession
contracted
expanded
recovery
depression
peak
upturns
A period of stock market speculation ended dramatically in October 1929 with the
infamous Wall Street Crash. There followed a dramatic (1) _________.The economy
(2) _________ again after World War II. There was a series of (3) _________ and
(4)_________ in the 1950s. There was a long (5) _________ in the 1960s.
Investment reached a (6) _________ in 1972, just before the first oil crisis. There was
a (7) _________ in 1975 and the economy (8) _________ again in 1982, but each
time there was a rapid (9) _________.
Now complete the following sentences, using expressions from page 90, and
these conjunctions:
as a result of
because owing to
Investment ............. in 1930 .............. the Crash of 1929.
Private investment ............during World War II ............money was needed for the
war effort.
There was a .............in investment in the 1960s .......... the government's incentive
policies.
Investment............ at the end of the 1970s.........the Federal Reserve's tight
monetary
policy.
1
1
1
1
5
Taxation
Direct Taxes
Governments finance most of their expenditure by
taxation. If they spend more than they levy or charge in
taxes, they have to borrow money.
Direct taxes are collected by the government from
the income of individuals and businesses.
·
Individuals pay income tax on their wages or
salaries, and most other money they receive,
·
Most countries have a capital gains tax on
profits made from the sale of assets such as
stocks or shares. This is usually imposed or
levied at a much lower rate than income tax.
·
A capital transfer tax (commonly called death
duty in Britain) is usually imposed on
83
·
·
inherited money or property. Other names for this tax are inheritance tax or
estate tax.
Companies pay corporation tax on their profits. Business profits are
generally taxed twice, because after the company pays tax on its profits,
the shareholders pay income tax on any dividends received from these
profits.
Companies and their employees also have to pay taxes (called national
insurance in Britain) which the government uses to finance social security
spending – unemployment pay, sick pay, etc.
NOTE!
BrE: corporation tax; AmE: income tax
Indirect Taxes
Indirect taxes are levied on the production or sale of goods and services. They are
included in the price paid by the final purchaser.
·
In most European countries, companies pay VAT or value-added tax
which is levied at each stage of production, based on the value added to the
product at that stage. The whole amount is added to the final price paid by
the consumer. In Canada, Australia, New Zealand and Singapore, this tax
is called goods and services tax or GST.
·
In the USA, there are sales taxes, collected by retailers, levied on the retail
price of goods.
·
Governments also levy excise taxes or excise duties – additional sales
taxes on commodities like tobacco products, alcoholic drinks and petrol.
·
Special taxes, called tariffs, are often charged on goods imported from
abroad.
Income tax for individuals is usually progressive: people with higher incomes
pay a higher rate of tax (and therefore a higher percentage of their income) than
people with lower incomes. Indirect taxes such as sales tax and VAT are called
proportional taxes, imposed at a fixed rate. Bur indirect taxes are actually regressive:
people with a low income pay a proportionally greater part of their income than
people with a high income.
NOTE!
BrE: petrol; AmE: gasoline
Non-payment of Tax
To reduce the amount of income tax that employees have to pay, some
employers give their staff advantages instead of taxable money, called perks, such as
company cars and free health insurance.
Multinational companies often register their head offices in tax havens – small
countries where income taxes for foreign companies are low, such as Liechtenstein,
Monaco, the Cayman Islands, and the Bahamas.
84
Using legal methods to minimize your tax burden – the amount of tax you have
to pay – is called tax avoidance. This often involves using loopholes – ways of
getting around the law, because of an error or a technicality in the law itself. Using
illegal methods – such as not declaring your income, or reporting it inaccurately – is
called tax evasion, and can lead to big penalties.
Exercise 1.
1.
2.
3.
4.
5.
6.
7.
What are the standard names for the tax or taxes paid on the
following? Look at the text above to help you.
alcoholic drinks and tobacco products
company profits
goods bought in stores
money received from relatives alter their death
salaries and wages
goods made in other countries
money made by selling stocks at a profit
Exercise 2. Find words in the text with the following meanings.
1. an adjective describing taxes on revenue or income
2. a tax that has one rate that is the same for everybody
3. money paid by the government to sick and unemployed people
4. a tax that has a higher rate for taxpayers with a higher income
5. an adjective describing taxes on consumption or spending
Exercise 3.
1.
2.
3.
4.
5.
6.
7.
8.
Are the following statements true or false? Find reasons for your
answers in the text above.
Capital gains are generally taxed at a higher rate than income.
The same sum of money can be taxed more than once.
Sales taxes can be both proportional and progressive at the same lime.
Excise duties are extra sales taxes on selected products.
Many international companies have their registered headquarters in small
countries where they do only a small proportion of their business.
Employees will generally pay less tax if their employer reduces their salary a
little and provides them with a car.
Tax avoidance is illegal.
Perks and loopholes are forms of tax evasion.
Exercise 4.
Find five verbs in the text above that can be used to make word
combinations with 'tax'.
_____________ tax
_____________ tax
_____________ tax
_____________ tax
_____________ tax
85
Exercise 5. Answer the following questions.
1. In your country, what percentage of national income goes to the government as
tax?
2. Do you know how this compares with other countries?
Exercise 6.
Sentences 1 to 10 make up a short text about government
spending. Complete each sentence, by taking a middle part from
the second box and an end from the third box:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
If tax revenues are higher
If, on the contrary, government expenditures exceed
A structural surplus or deficit
A cyclical surplus or deficit, on the other hand,
Budget deficits have to be funded by the sale of government bonds,
The higher the amount of government bonds sold in a country,
Neo-classical economists
On the other hand, if the money supply is expanded,
This is partly due to the acceleration principle,
But of course everybody knows
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
called gilt-edged securities in Britain,
call this "crowding out",
increased government spending
is the result of government policies such as
is the result of the business cycle:
money collected by taxes,
than government spending,
that increasing the money supply
the less capital is available
which is that increased demand for consumer goods
k.
1.
m.
n.
o.
p.
q.
r.
s.
t.
a country has a budget deficit.
a country has a budget surplus,
almost inevitably leads to inflation,
and Treasury bonds in the USA.
and use it as an argument against Keynesian fiscal policies,
can raise output and investment, at least in the short term,
changes in spending or revenues caused by a boom or a slump,
for private sector investment.
produces a greater increased demand for capital goods,
tax rates, welfare and defence spending, and so on.
86
Beginning
1
2
3
4
5
6
7
8
9
10
Middle
Ending
Exercise 7.
Choose the correct words to complete each sentence:
1. The tax on wages and salaries (and business profits in the US) is called _______
in Britain the tax on business profits is called corporation tax.
a. direct tax
b. income tax
c. wealth tax
2. A tax that is levied at a higher rate on higher incomes is called a _______ tax.
a. progressive
b. regressive
c. value-added
3. Property taxes, sales taxes, customs duties on imports, and excise duties on
tobacco, alcoholic drinks, petrol, etc. are _______ taxes.
a. direct
b. indirect
c. value-added
4. Most sales taxes are slightly _______ because poorer people need to spend a
larger proportion of their income on consumption than the rich.
a. progressive
b. regressive
c. repressive
5. A sales tax collected at each stage of production, excluding the already-taxed
costs from previous stages, is called a _______.
a. sales tax
b. value-added tax
c. added-value tax
6. Profits made from the sale of assets are liable to a _______ tax.
a. capital gains
b. capital transfer
c. wealth
7. Gifts and inheritances are usually liable to _______ tax.
a. capital gains
b. capital transfer
c. wealth
8. Reducing the amount of tax you pay to a legal minimum is called _______.
a. fiscal policy
b. tax avoidance
c. tax evasion
9. Making false declarations is called _______ and is obviously illegal.
a. creative accounting
b. tax avoidance
c. tax evasion
10. Bringing forward capital expenditure (on new factories, machines, and so on) so
that at the end of the year all the profits have been used up is known as making a
_______.
a. tax haven
b. mistake
c. tax loss
11. Multinational companies often set up their head offices in low-tax countries
such as Liechtenstein, Monaco, the Cayman Islands, and the Bahamas, known
as _______.
a. tax heavens
b. tax havens
c. tax shelters
12. Criminal multinationals such as the Mafia tend to pass money through a series
of companies in very complicated transactions in order to disguise its origin
from tax inspectors and the police; this is known as _______money.
a. cleaning
b. laundering
c. washing
87
Exercise 8. Word Partnerships - Tax
All the words below can be combined with tax or taxation in a two-word
partnership (e.g. tax accounting, progressive taxation). Add tax and/or
taxation before or after the following words:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
_________ accounting _________
_________ allowance _________
_________ authority _________
_________ avoidance _________
_________ consultant _________
_________ corporation _________
_________ deductible _________
_________ direct _________
_________ evasion _________
_________ free _________
_________ haven_________
_________ income_________
_________ indirect _________
_________ inspector _________
_________ loophole_________
_________ loss _________
_________ payer _________
_________ progressive _________
_________ rates _________
_________ rebate _________
_________ regressive _________
_________ return _________
_________ sales_________
_________ shelter _________
_________ withholding _________
_________year_________
Exercise 9. Use the correct form of the verbs in the box to complete the
sentences.
avoid
levy
1.
2.
3.
be liable
lower
deduct
pay
evade
raise
If you inherit a lot of money, you _________ for capital transfer tax.
In some countries, employers have to tax from your pay and _________ it direct
to
the tax authorities, so employees have no possibility of _________ income tax.
88
4.
7.
Some people hire expensive accountants to tell them how to _________ taxes –
legally, of course!
The government always tries to _________ taxes in the year before elections.
The government has a huge deficit and is going to have to _________ either the
rate of VAT or income tax.
The government _________ special taxes on petrol, alcohol and tobacco.
6
Money Markets
5.
6.
The Money Markets
The money markets consist of a network of corporations, financial institutions,
investors and governments, which need to borrow or invest short-term capital (up to
12 months), for example, a business or government that needs cash for a few weeks
only can use the money market. So can a bank that wants to invest money that
depositors could withdraw at any time. Through the money markets, borrowers can
find short-term liquidity by turning assets into cash. They can also deal with irregular
cash flows – in-comings and out-goings of money – more cheaply than borrowing
from a commercial bank. Similarly, investors can make short-term deposits with
investment companies at competitive interest rates: higher ones than they would get
from a bank. Borrowers and lenders in the money markets use banks and investment
companies whose business is trading financial instruments such as stocks, bonds,
short-term loans and debts, rather than lending money.
Common Money Market Instruments
Treasury bills (or T-bills) are bonds issued by governments. The most common
maturity – the length of time before a bond becomes repayable – is three months,
although they can have a maturity of up to one year. T-bills in a country's own
currency are generally the safest possible investment. They are usually sold at a
discount from their nominal value – the value written on them – rather than paying
89
interest. For example, a T-bill can be sold at 99% of the value written on it, and
redeemed or paid hack at 100% at maturity, three months later.
· Commercial paper is a short-term loan issued by major companies, also sold
at a discount. It is unsecured, which means it is not guaranteed by the
company's assets.
· Certificates of deposit (or CDs) are short- or medium-term, interest-paying
debt instruments – written promises to repay a debt. They are issued by
banks to large depositors who can then trade them in the short-term money
markets. They are known as time deposits, because the holder agrees to lend
the money – by buying the certificate – for a specified amount of time.
NOTE!
Nominal value is also called par value or face value.
Repos
Another very common form of financial contract is a repurchase agreement (or
repo). A repo is a combination of two transactions, as shown below. The dealer hopes
to find a long-term buyer for the securities before repurchasing them.
A dealer has
unsold securities.
Dealer tries to
find long-term
buyer for
securities.
Dealer
repurchases
securities.
Dealer sells
securities,
agreeing to
repurchase them
at a higher price
on a fixed future
date.
Short-term
investor sells
securities back to
dealer a few days
or weeks later.
Short-term
investor buys
securities.
Amount investor
lends to dealer,
by buying
securities, is less
than the market
value of the
securities. This is
so investor avoids
a loss if price of
securities, and
their value as
collateral, falls.
Dealer sells
securities to
long-term buyer
Exercise 1. Are these statements true or false?
1. Organizations use the money markets as an alternative to borrowing from banks.
2. Money markets are a source of long-term finance.
3. All money market instruments pay interest.
90
4.
5.
6.
Certificates of deposit are issued by major manufacturing companies.
Commercial paper is guaranteed by the government.
Some money market instruments can have more than one owner before they
mature.
Exercise 2.
cash flow
liquidity
redeemed
1.
2.
3.
4.
5.
6.
7.
8.
9.
March the words in the box with the definitions (1-9).
competitive
maturity
short-term
discount
par value
unsecured
a price below the usual or advertised price
adjective describing a good price, compared to others on the market
the ability to sell an asset quickly for cash
(in finance) adjective meaning up to one year
adjective meaning with no guarantee or collateral
repaid
the length of time before a bond has to be repaid
the movement of money in and out of an organization
the price written on a security
Exercise 3. Match the two parts of the sentences.
1. Most money market securities.
2. A treasury bill is safe because it
3. Commercial paper
4. Certificates of deposit (CDs)
5. Repurchase agreements (repos)
a.
b.
c.
d.
e.
is issued by corporations, so it is riskier than T-bills.
are short-term, liquid, safe, and sold at a discount,
is guaranteed by the government
are short-term exchanges of cash for securities
are issued to holders of time deposits in a bank.
Exercise 4. Answer the following questions.
1. What kind of money market instruments are you familiar with?
2. Which ones would be most useful for your company, or for a company you
would like to work for?
91
Unit 4
1
International Trade
The International Trade
Trade
Most economists believe in free trade – that people and companies should be
able to buy goods from all countries, without any barriers when they cross frontiers.
The comparative cost principle is that countries should produce whatever they
can make the most cheaply. Countries will raise their living standards and income if
they specialize in the production of the goods and services in which they have the
highest relative productivity: the amount of output produced per unit of an input
(e.g. raw material, labour).
Countries can have an absolute advantage – so that they are the cheapest in the
world, or a comparative advantage – so that they are only more efficient than some
other countries in producing certain goods or services. This can be because they
have raw materials, a particular climate, qualified labour (skilled workers), and
economies of scale – reduced production costs because of large-scale production.
Balance of Payments
Imports are goods or services bought from a foreign country. Exports are
goods or services sold to a foreign country.
A country that exports more goods than it imports has a positive balance of
trade or a trade surplus. The opposite is a negative balance of trade or a trade deficit.
Trade in goods is sometimes called visible trade. Services such as banking,
insurance and tourism are sometimes called invisible imports and exports. Adding
invisibles to the balance of trade gives a country's balance of payments.
NOTE!
BrE: visible trade; AmE: merchandise trade
92
Protectionism
Governments, unlike most economists, often want to protect various areas of
the economy. These include agriculture – so that the country is certain to have food –
and other strategic industries that would be necessary if there was a war and
international trade became impossible. Governments also want to protect other
industries that provide a lot of jobs. Many governments impose tariffs or import
taxes on goods from abroad, to make them more expensive and to encourage people
to buy local products instead. However, there •are an increasing number of free trade
areas, without any import tariffs, in Europe, Asia, Africa and the Americas.
The World Trade Organization (WTO) tries to encourage free trade and reduce
protectionism: restricting imports in order to help local products. According to the
WTO agreement, countries have to offer the same conditions to all trading partners.
The only way a country is allowed to try to restrict imports is by imposing tariffs.
Countries should not use import quotas – limits to the number of products which can
be imported – or other restrictive measures. Various international agreements also
forbid dumping – selling goods abroad at below cost price in order to destroy or
weaken competitors or to earn foreign currency to pay for necessary imports.
Exercise 1.
Complete the Crossword Puzzle.
Across
2
Countries that export a lot of oil or manufactured goods tend to have a positive
_______. (7,2,5)
5
A country exporting more than it imports has a trade _______. (7)
6
In a free trade area, governments cannot impose a _______ on imports. (6)
8
A limit to the quantity of goods that can be imported is a _______. (5)
10 and 9 down
Adding trade in services to trade in goods gives you the _______
of_______. (7,8)
93
11
14
15
Billions of dollars leave the USA every year because the country has a big
trade_______. (7)
Attempting to reduce imports in favour of local production is called ______ (13)
The import and export of goods is called
trade. (7)
Down
1
Producing in large quantities becomes cheaper because of economies of
_______ (5)
3 and 4
If a country can produce something more cheaply than anywhere else
in the world it has an
(8,9)
7
Many economists encourage governments to abolish import taxes and have
completely _______ (4,5)
9
See 10 across.
11 A number of international agreements make it illegal to _______ goods on
foreign markets at a price that doesn’t give a profit. (4)
12 The comparative _______ principle is that countries should make the things
they can produce the most cheaply. (4)
13 The _______ has established rules of trade between nations. (3)
Exercise 2.
Answer the following questions.
1. What are your country's major exports and imports?
2. Which industries in your country would find it difficult to compete if there was
completely free trade?
3. Does your country have a trade surplus or deficit?
4. Does it have a balance of payments surplus or deficit?
5. What are its chief exports?
6. Which industries or sectors are protected?
7. Which do you think should be protected?
Exercise 3. Ways of Selling 1
Match the words in the box with the definitions below:
agent
merchant
1.
2.
3.
4.
distributor
retailer
outlet broker franchisee
customer
middlemen
sales force
wholesaler
consumer
________: an agent in a particular market, such as securities, commodities,
insurance, etc.
________: a general term for agents, brokers, dealers, merchants, traders,
wholesalers, retailers, and other marketing intermediaries.
________: a merchant such as a shopkeeper who sells to the final customer.
________: a place where goods are sold to the public - a shop, store, kiosk,
market stall, etc.
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5.
________: a collective term for a company's sales representatives or
commercial travellers
6. ________: an intermediary who stocks goods from various suppliers and
delivers them to retailers when ordered.
7. ________: a person (generally a wholesaler) who stocks and resells components
or goods to manufacturers or retailers.
8. ________: a person (or company) who buys a product or service from a
producer or a shop.
9. ________: a person who buys (and takes possession of) goods, and sells them
on his or her own account.
10. ________: a person who buys an exclusive right to sell certain products in a
certain area (or to use a particular name).
11. ________: a person who negotiates purchases and sales in return for
commission or a fee.
12. ________: the end-user of goods or services, whose needs are satisfied by
producers.
NOTE!
BrE: sales representatives, commercial travellers;
AmE: salespersons, travelling salesmen.
Exercise 4. Ways of Selling 2
Complete the text by inserting the following words in the gaps:
agent
franchise
retailer
authorized dealer
industrial
sales reps
chain
outlet
telephone
end-users
premises
vending machines
Very few producers make their goods and sell them directly to their (1)
________ from the same (2) ________. There are usually specialized marketing
intermediaries involved in getting goods or services to the right place – a sales (3)
________ convenient to consumers – at the right time. These intermediaries
constitute a distribution channel or a (4) ________ of distribution.
The shortest channel exists in cases of direct marketing, where the manufacturer
sells direct to consumers, reaching them by (5) ________ or direct mail, or by way of
its own (6) ________ who contact existing and potential customers, and try to
persuade them to buy goods or services. More common are channels with a single
intermediary – e.g. a sales agent or broker for (7) ________ goods, a (8) ________
for consumer goods, an (9) ________ in the automobile industry, or a (10) ________
in the fashion, car hire and fast-food businesses. More complex channels add further
intermediaries such as wholesalers, and where goods are exported, very likely an (11)
________ as well.
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Marketing channels change over time. For example, in retailing, the
development of department stores, chain stores, mail order firms, supermarkets,
(12)________, hypermarkets on the edge of town, franchising systems, and so on, are
all twentieth century developments. The twenty-first century promises virtual reality
shopping.
Exercise 5. International Trade
Replace the underlined words and expressions in the text with the words and
expressions in the box:
balance of payments
climate
economies of scale
protectionism
balance of trade
commodities
factors of production
quotas
barter or counter-trade
division of labour
nations
tariffs
(1) Countries import some goods and services from abroad, and export others to
the rest of the world. Trade in (2) raw materials and goods is called visible trade in
Britain and merchandise trade in the US. Services, such as banking, insurance,
tourism, and technical expertise, are invisible imports and exports. A country can
have a surplus or a deficit in its (3) difference between total earnings from visible
exports and total expenditure on visible imports, and in its (4) difference between
total earnings from all exports and total expenditure on all imports. Most countries
have to pay their deficits with foreign currencies from their reserves, although of
course the USA can usually pay in dollars, the unofficial world trading currency.
Countries without currency reserves can attempt to do international trade by way of
(5) direct exchanges of goods without the use of money. The (imaginary) situation in
which a country is completely self-sufficient and has no foreign trade is called
autarky.
The General Agreement on Tariffs and Trade (GATT), concluded in 1994, aims
to maximize international trade and to minimize (6) the favouring of domestic
industries. GATT is based on the comparative cost principle, which is that all nations
will raise their income if they specialize in producing the commodities in which they
have the highest relative productivity. Countries may have an absolute or a
comparative advantage in producing particular goods or services, because of (7)
inputs (raw materials, cheap or skilled labour, capital, etc.), (8) weather conditions,
(9) specialization of work into different jobs, (10) savings in unit costs arising from
large-scale production, and so forth. Yet most governments still pursue protectionist
policies, establishing trade barriers such as (11) taxes charged on imports, (12)
restrictions on the quantity of imports, administrative difficulties, and so on.
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2
Financing International Trade
Documentary Credits
A company which sells goods or services to other countries is known as an
exporter. A company which buys products from other countries is called an
importer. Payment for imported products is usually by documentary credit, also
called a letter of credit. This is a written promise by a bank to pay a certain amount
to the seller, within a fixed period, when the bank receives instructions from the
buyer.
Documentary credits have a standard form. They generally contain:
· a short description of the goods
· a list of shipping documents required to obtain payment
· a final shipping date
· a final date (or expiration date) for presenting the documents to the bank.
Documentary credits are usually irrevocable, meaning that they cannot be
changed unless all the parties involved agree. Irrevocable credits guarantee that the
bank which establishes the letter of credit will pay the seller if the documents are
presented within the agreed time.
Bills of Exchange
Another method of payment is a bill of exchange or draft. This is a payment
demand, written or drawn up by an exporter, instructing an importer to pay a
specific sum of money at a future date. When the bill matures, the importer pays the
money to its bank, which transfers the money to the exporter's bank. This bank then
pays the money to the exporter after deducting its charges.
A bank may agree to endorse or accept a bill of exchange before it matures.
To endorse a bill is to guarantee to pay it if the buyer of goods does not. If a bill is
endorsed by a well-known bank, the exporter can sell it at a discount in the
financial markers. The discount represents the interest the buyer of the bill could
have earned between the date of purchase and the bill's maturity date. When the bill
matures, the buyer receives the full amount. This way the exporter gets most of the
money immediately, and doesn't have to wait for the buyer to pay the bill.
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Export Documents
Exporters have to prepare a number of documents to go with the shipment or
transportation of goods.
· The commercial invoice contains details of the goods: quantity, weight,
number of packages, price, terms of delivery, terms of payment, and
information about the transportation.
· The bill of lading is a document signed by the carrier or transporter (e.g.
the ship's master) confirming that the goods have been received for
shipment; it contains a brief description of the goods and details of where
they are going.
· The insurance certificate also describes the goods and contains details of
how to claim if they are lost or damaged in transit – while being
transported.
· The certificate of origin states where the goods come from.
· Quality and weight certificates, issued by private inspection and testing
companies, may be necessary, confirming that these are the correct goods in
the right quantity.
· An export licence giving the right to sell particular goods abroad is
necessary in some cases.
Exercise 1.
1.
2.
3.
4.
5.
6.
Are the following statements true or false? Find reasons for your
answers in the text above.
With a letter of credit, the buyer tells the bank when to pay the seller.
Letters of credit are only valid for a certain length of rime.
An exporter usually has the right to change a letter of credit.
The bill of lading confirms that the goods have been delivered to the buyer.
With a bill of exchange, the seller can get most of the money before the buyer
pays.
Bills of exchange are sold at less than 100%, but redeemed at 100% at maturity.
Exercise 2. Put the sequence of events in the correct order. The last stage is b.
a. A bank accepts or endorses the bill of exchange.
b. The accepting bank pays the full value of the bill of exchange to whoever
bought it.
c. The exporter sells the bill of exchange at a discount on the money market.
d. The importer receives the goods and pays its bank.
e. The importer's bank transfers the money to the accepting bank.
f.
The seller or exporter writes a bill of exchange and sends it to the buyer or
importer (and ships the goods).
1
2
3
4
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5
6
Exercise 3.
Find verbs in the text above that can he used to make word
combinations with the nouns below.
______________ a bill of exchange
______________ a bill of exchange
______________ a bill of exchange
______________ a bill of exchange
______________ a bill of exchange
______________ documents
______________ documents
______________ documents
______________ documents
______________ goods
______________ goods
______________ goods
______________ goods
Now use the correct forms of some of the verbs to complete the sentences.
1.
2.
3.
4.
5.
Exporters can get paid sooner if a bill of exchange is ______________ by a
bank.
The bill of lading and the insurance certificate both ______________ the goods.
Exporters ______________ goods to foreign countries.
The transporter ______________ a document confirming that it has
______________ the goods.
In order to be paid, the exporter has to ______________the shipping documents
to a specific bank.
Exercise 4. Answer the following questions.
1. Which banks in your country specialize in trade finance?
2. Which aspects of trade finance would be the most interesting if you worked in
this field?
Exercise 5
1.
2.
3.
4.
5.
6.
7.
This Exercise concerns methods of payment used in international
trade. Match the first half of the sentence (1-8) with the second
half (a-h):
A pro-forma invoice is the first draft of an exporter's bill to an importer
A commercial bill or a bill of exchange is a written order instructing someone
The opposite is a letter of credit - a paper issued by a buyer's bank as proof that
the seller will be paid;
Exporters can also sell their bills of exchange, at a discount,
A bill of lading is a document giving title to goods that acts as a receipt and a
contract to ship them;
Most industrialized countries, eager to increase their exports, have government
agencies
Some countries go even further,
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8.
A company short of liquidity and with a lot of "receivables" can sell them at a
discount
a.
(usually an importer) to pay someone else (usually an exporter) a certain sum on
a given date.
containing estimated prices, according to which the importer will decide
whether to buy or not.
giving loans to developing countries so that they can (eventually) buy their
exports.
shippers can use them as security when discounting bills of exchange.
that either give loans to exporters awaiting payment or guarantee exporters
against bad debts.
the seller can then sell the letter (at a discount) on the commercial paper market.
to accepting houses or other merchant banks (if the bank believes that the debtor
will pay up).
someone who will try to collect the debt (at full value); this is known as
factoring.
b.
c.
d.
e.
f.
g.
h.
3
Incoterms
Transport and Additional Costs
Companies exporting or importing goods use standard arrangements called
Incoterms – short for International Commercial Terms, established by the
International Chamber of Commerce (ICC) – that state the responsibilities of the
buyer and the seller. They determine whether the buyer or the seller will pay the
additional costs – the costs on top of the cost of the goods. These include
transportation or shipment, documentation – preparing all the necessary documents,
customs clearance – completing import documents and paying any import duties or
taxes, and transport insurance.
100
The E and F terms
There are 13 different Incoterms that can be divided into 4 different groups: an
E Term (Departure), the F Terms (Free, Main Carriage Unpaid), the C Terms (Main
Carriage Paid), and the D Terms (Delivered/Arrival). Each group of terms adds more
responsibilities to the seller and gives fewer to the buyer.
The E term is EXW or Ex Works. This means that the buyer collects the goods
at the seller's own premises – place of business – and arranges insurance against loss
or damage to the goods in transit.
In the second group, the F terms, the seller delivers the goods to a carrier
appointed by the buyer and located in the seller's country. The buyer arranges
insurance.
·
FCA or Free Carrier means that the goods are delivered to a named place
where the carrier can load them onto a truck, train or aeroplane.
·
FAS – Free Alongside Ship means that seller delivers the goods to the
quay next to the ship in the port.
·
FOB – Free On Board means that the seller pays for loading the goods
onto the ship.
The C and D terms
In the third group, the C terms, the seller arranges and pays for the carriage or
transportation of the foods, but not for the payment of customs duties and taxes.
Transportation of goods is also known as freight.
·
In CFR – Cost and Freight (used for ocean freight) and CPT – Carriage
Paid To ... (used for air freight and land freight), the buyer is responsible
for insurance.
·
In the terms OF – Cost, Insurance and Freight (used for ocean freight) and
CIP – Carriage and Insurance Paid To ... (used for air freight and land
freight), the seller arranges and pays for insurance.
In the fourth group, the D Terms, the seller pays all the costs involved in
transporting the goods to the country of destination, including insurance.
·
In DAF – Delivered At Frontier, the importer is responsible for preparing
the documentation and getting the goods through customs.
If the goods are delivered by ship to a port, the two parties can choose who pays
for unloading the goods onto the quay. The two possibilities are:
·
DES – Delivered Ex Ship – the buyer pays for unloading the goods from
the ship
·
DEQ – Delivered Ex Quay – the seller pays for unloading the goods from
the ship to the quay, and for the payment of customs duties and taxes.
If the goods go through customs and are delivered to the buyer, there are two
possibilities:
·
DDU – Delivered Duty Unpaid – the buyer pays any import taxes
·
DDP – Delivered Duty Paid – the seller pays any import taxes.
101
Exercise 1.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
1
Match the first half of the sentences (1-10) with the second half
(a-j).
EXW (Ex-works) means that the seller makes the goods available to the buyer
at the seller’s own premises;
Group F Incoterms, including FCA (Free carrier), mean that main carriage is
not paid by the seller,
For example "FAS Rotterdam" means "free alongside ship, Rotterdam"; this
price includes
"FOB Liverpool" means "free on board, Liverpool"; in other words the seller's
price
Group C Incoterms are shipment contracts to a named destination port, with
carriage paid by the seller; Group D
CFR is a price covering "cost and freight," but not insurance, to a named port
of destination; CIF
CPT means "carriage paid to" a destination, which could be inland, with the
risk of loss or damage transferred to the buyer, whereas
DAF (plus named place) means "delivered at frontier": the seller delivers
DES means "delivered ex ship"; i.e. the seller makes the goods available to the
buyer on board the ship, whereas DEQ
DDP is an inclusive
price for goods "delivered duty paid" to the buyer's
premises; i.e. the seller pays all customs taxes and charges;
also includes the cost of loading the goods onto the ship.
CIP is "carriage and insurance paid," where the seller is responsible for cargo
insurance.
DDU, "delivered duty unpaid," is the same except that the buyer is responsible
for importation charges.
i.e. the buyer bears all the costs and risks involved in transporting the goods.
is the same, except that the seller also arranges marine insurance.
means "delivered ex quay (duty paid)": the seller makes the goods available to
the buyer on the quay or wharf, and pays the import duties.
to the named point and place on the frontier, before customs clearance.
terms are arrival terms, where the seller also bears all the risk needed to bring
the goods to the country of destination.
transport as far as the port; the buyer pays for loading onto the ship, shipping,
and insurance.
who delivers the goods to a carrier named by the buyer.
2
3
4
5
6
102
7
8
9
10
Exercise 2.
Label the diagram using the abbreviations for Incoterms.
Exercise 3. Answer the following questions.
1. How do imported goods normally arrive in your country?
2. Are there taxes on imported products?
3. If you were an importer, would you prefer to organise transport yourself or let
the seller do it? Why?
103
Unit 5
Insurance
Insuring Against Risks
Insurance is protection against possible financial losses. Individuals, companies
and organizations can make regular payments, called premiums, to an insurance
company which accepts the risk (or possibility) of loss. When you buy insurance you
make a contract, called a policy, with the insurance company – also known as the
insurer. The contract promises that the company will pay you if you suffer loss of or
damage to property, or sickness or personal injury.
There are various losses which people or businesses can insure against:
·
theft - someone stealing their goods or possessions
·
damage from lire or other natural disasters such as floods, earthquakes and
hurricanes.
If property is stolen or damaged, the person or company who is insured makes a
claim – requests compensation – from the insurer. The insurer will then indemnify or
compensate them: that is, pay them an amount of money equivalent to the loss. As the
number of natural disasters seems to be increasing, so are the claims for damage to
property, and this will lead to higher insurance premiums.
In the past, many people buying insurance used independent brokers – people
who searched for insurance at the lowest cost, or agents – people working for the
insurance company. But like retail banking, the insurance industry has changed in
recent years. A lot of insurance is now sold direct, by telephone or on the internet.
This can be cheaper than insurance bought over the counter from a broker or an
agent.
Life Insurance And Saving
Life insurance (also called assurance) will pay an agreed sum to someone else,
for example your husband or wife, if you die before a certain age. People also use life
insurance policies as a way to save for the future: you can buy a policy that pays a
certain sum on a specific date, such as when you retire from work. As with pension
plans, life insurance policies are tax shelters, or a way of postponing payment of tax.
104
You do not have to pay income tax on life insurance premiums. However, a lump
sum – a single, large amount of money paid out when an insurance policy matures –
will be taxable.
Insurance Companies
Insurance companies have to invest the money they receive from premiums.
Like pension funds, they are large institutional investors that invest huge sums in
securities, especially low-risk ones like government bonds.
The largest insurance market in the world is Lloyd's of London. This is an
association of people called underwriters, who guarantee to indemnify other people's
possible losses. Lloyd's spreads risks among a number of syndicates: groups of
wealthy individuals, commonly known as 'names'. These people can earn a lot of
money from insurance premiums if the clients never claim for compensation, but they
also have unlimited liability or responsibility for losses.
If insurance companies consider that they have underwritten too many risks,
they can sell some of that risk to a reinsurance company. This is a company that will
receive some of the premium and also bear, or take, some of the risk.
Exercise 1.
Complete the crossword puzzle.
Across
1 and 10 across Some people buy life
insurance that pays a _________on
retirement. (4,3)
4 .... Many insurance companies now sell
_________, over the phone or the
internet. (6)
8
I have a theft policy, so the
insurance company will _________
me if my mobile phone is stolen. (9)
9..... If you make a big claim from your
insurance company, the cost of your
_________ will probably go up. (7)
10 See 1 across.
12 When 1 insured my house, I used a
_________ to find me the best deal.
(6)
13 Exporters have to insure goods in
transit in case somebody _________
them. (6)
14 I lost my job as an _________ for
an insurance company when people
stopped buying over the counter. (5)
105
15
17
19
Lloyd's spreads the risks it insures among _________ made up of groups of
underwriters. (10)
The individual underwriters at Lloyd's are commonly called _________. (5)
Natural disasters are expensive for insurance companies because they cause a
lot of _________ to buildings and their contents. (6)
Down
2
Lloyd's _________ risks worth over £14 billion. (11)
3
You should always read the small print – all the details – before you accept an
insurance _________. (6)
5
There are _________ companies that take on part of the risks underwritten by
smaller companies. (11)
6
Life insurance can be a tax _________ – a way of putting off paying tax till
later. (7)
7
Most people insure their personal _________ against loss, fire and theft. (8)
11 _________ of London is the world's largest insurance market. (6)
16 Fortunately, I've never had a car accident, so I've never had to _________
anything from the insurance company. (5)
18 Life insurance is also a way to _________ money and pay less tax. (4)
Exercise 2. Answer the following questions.
1. How many different insurance policies do you or your family have?
2. Are there any risks you cannot insure yourself against?
3. What insurance does your company or employer have?
Exercise 3.
affluent
gilts
huge
Number the following words with their underlined equivalents in
the text:
commission
underwritten
policy
indemnify
sums
catastrophes
retires
claims
insurance brokers
Insurance is designed to provide a sum of money to compensate for any
damage suffered as the result of a risk that has been insured against in a specific
insurance (1) contract, such as fire, accident, theft, loss, damage, injury or death.
Thousands of people pay premiums to insurance companies, which use the money to
(2) compensate people who suffer loss or damage, etc. Some people also use
insurance policies as a way of saving. Life assurance policies, for example, usually
pay a certain sum on a specific date – for example, when a person (3) stops working
at the age of 60 or 65 or whenever, or earlier if die person dies.
Insurance companies, like pension funds, are large institutional investors that
place great (4) amounts of money in various securities: shares, bonds, (5) British
government bonds, etc. Insurance companies generally employ their own agents who
106
sell insurance to customers, but there are also (6) other middlemen who work with
several companies, selling insurance in return for a (7) percentage of the premium.
If a particular insurance company considers that the risk it has (8) assumed
responsibility for is too big, it might share the business with other companies, by way
of reinsurance. Lloyds of London underwrites a great many risks which are spread
among lots of syndicates, made up of groups of (9) wealthy people known as
"names." In return for earning a percentage of the insurance premiums, die names
have unlimited liability for losses. After a series of (10) demands for payment
following lots of 11) natural disasters (shipwrecks, earthquakes, hurricanes, and so
on) in the late 1980s, many Lloyds syndicates had to make (12) enormous pay-outs,
and many names were bankrupted.
107
CONTENT
Introduction
Unit 1 Money
1
What is Money?
2
World Currencies
3
Types of Money
4
Handling Personal Finance
5
Developing Your Money Vocabulary
Unit 2 The Organisation of the Financial Industry
1
Financial Institutions
2
Central Banking
3
Commercial and Retail Banking
4
Develop Your Banking Vocabulary ...66
Unit 3 Financial Markets
1
Money Supply and Control
2
Interest Rates
3
Financial Regulation And Supervision
4
The Business Cycle
5
Taxation
6
Money Markets
Unit 4 International Trade
1
The International Trade
2
Financing International Trade
3
Incoterms
Unit 5 Insurance
108
4
7
7
11
23
29
39
49
49
57
63
70
70
74
77
80
83
89
92
92
97
100
104
Навчальне видання
ІНОЗЕМНА МОВА
(АНГЛІЙСЬКА МОВА)
МЕТОДИЧНІ ВКАЗІВКИ
до практичних занять та самостійної роботи
для студентів IV курсу напряму підготовки 6.030509 Фінанси і кредит
факультету обліку, фінансів та підприємницької діяльності
денної та заочної форм навчання
Укладачі:
Чередніченко Галина Анатоліївна
Шапран Людмила Юліївна
Кияшко Оксана Василівна
109