BUSINESS ENGLISH 2
RESOURCE BANK
2014/15
DEPARTMENT OF BUSINESS FOREIGN LANGUAGES
1
COURSE CONTENTS
TOPIC
INTRODUCTION
BUSINESS MEETINGS
REPORT WRITING
DESCRIBING GRAPHS
AND CHARTS
TRADE
BANKING
INSURANCE
FINANCE
THE BUSINESS
CYCLE
TEXT
SOURCE
Course Contents
RB Contents
Business English II: Information for
Students
Introduction
Structure of meetings
Language of meetings
Role-play
Memo, agenda and minutes
Introduction
Structure
Useful phrases
Report writing tasks
Types of graphs and charts
Verbs
Nouns
Adverbs and adjectives
Prepositions
Describing graphs in a paragraph
Practice
Retail trade: Storm Clouds over the Mall
E- commerce: Clicks and Bricks
International trade
Barriers to trade: Oh, sweet reason
Visible and invisible trade
European Union: Fit at 50?
A brief history of the EU enlargement
Banking
The bare essentials
Bank Statements
Banking crisis: Northern Rock
Central banking functions
Exchange rates
Insurance
RB*
Accounting and financial statements
The financing of corporate activity
Stocks and shares
Bonds
Takeovers
Derivatives
The Business Cycle
The Crisis
Capitalist Fools
MK UNIT 19 + RB
RB
MK UNIT 17 + RB
MK UNIT 16 + RB
MK UNIT 21
MK UNIT 18
MK UNIT 23
RB
RB
RB
RB
RB
RB
RB
MK UNIT 27 + RB
RB
RB
RB
RB
MK** UNIT 14
RB
RB
RB
RB
MK UNIT 26
RB
RB*- Resource Bank compiled by the Department of Business Foreign Languages
MK**- Coursebook English for Business Studies (MacKenzie, I. (2010) Third Edition, CUP),
with the number indicating the unit related to the specific topic
2
RESOURCE BANK CONTENTS
TOPIC
INTRODUCTION
BUSINESS MEETINGS
TEXT
Course Contents
RB Contents
Introduction - Business English II:
Information for Students
Introduction
Structure of meetings
Language of meetings
Downtoning
Role-play
Memo, agenda and minutes
PAGE
2
3
4-5
REPORT WRITING
Introduction
Structure
Useful phrases
Report writing tasks
DESCRIBING GRAPHS
AND CHARTS
Types of graphs and charts
Verbs
Nouns
Adverbs and adjectives
Prepositions
Describing graphs in a paragraph
Practice
Retail trade: Storm Clouds over the Mall
E- commerce: Clicks and Bricks
International trade
Barriers to trade: Oh, sweet reason
Visible and invisible trade
European Union: Fit at 50?
A brief history of the EU enlargement
Banking
The bare essentials
Bank Statements
Banking crisis: Northern Rock
Central banking functions
Insurance
6-7
8
9-10
11-13
14
15-16
17-18
19-21
22-24
25-26
27-28
29-31
31-32
32-33
33-34
35-36
37-38
39-42
43-44
45-48
49-50
51
52-53
54-55
56-57
58
59-60
61
62-64
65-68
Introduction to business finance
Accounting and financial statements
The financing of corporate activity
Stocks and shares
Bonds
The Crisis
Capitalist Fools
69
70-76
77-79
77-79
77-79
80
81-84
TRADE
BANKING
INSURANCE
FINANCE
THE BUSINESS
CYCLE
3
1 INTRODUCTION
Business English 2
Information for Students
COURSE AIMS
This course aims to:
☐ develop students’ business communication skills (written and oral)
☐ help students acquire specialist vocabulary (on selected business topics)
☐ strengthen students’ academic skills
☐ help students understand the difference between written/spoken language and formal/informal
language
☐ develop students’ critical thinking skills (analysis, synthesis, foreseeing, deducing, selecting…)
☐ help students learn how to use dictionaries and other reference material
COURSE REQUIREMENTS
1
Regular attendance and class participation
2
Passing one oral progress test (a role-played meeting)
3
Passing two written progress tests or one comprehensive written test at the end of the term
4
Passing the final oral exam
A The written tests will examine:
☐ reading skills: understanding texts concerned with contemporary business issues and
academic content
☐ writing skills: ability to write reports using the appropriate style (register, layout, coherence,
clarity, concision, visual appeal)
B The role-played meeting should demonstrate:
☐ successful team work
☐ thorough research
☐ a clear structure
☐ the effective use of the language of meetings
C At the final oral exam you are expected to:
☐ demonstrate your ability to clearly and coherently present business topics covered by the
course
☐ express a viewpoint on a topical issue (advantages, disadvantages, agreeing, disagreeing…)
and ask relevant questions.
4
REQUIRED LITERATURE
1
2
MacKenzie, I. (2010) English for Business Studies, Third Edition, CUP
Business English Resource Bank 2, 2013/14
RECOMMENDED LITERATURE
1
2
3
Longman Business English Dictionary (most recent edition)
Špiljak, V. ed. (2000) Englesko-hrvatski poslovni rječnik, Masmedia
Englesko-hrvatski poslovni rječnik, Školska knjiga, 2006
SUGGESTED ADDITIONAL SOURCES
☐ Business Week, The Financial Times, The Economist…
☐ CNBC, Bloomberg, business programmes on BBC and CNN
☐ web sites: bized.com, investopedia.com, quickmba.com, startup.wsj.com, dictionary.com,
harvardbusinessonline.hbsp.harvard.edu, encarta.msn.com, acronymfinder.com, uefap.com,
cusd.com/calonline/econ
5
2 BUSINESS MEETINGS
1
2
3
4
5
6
Introduction
The structure of meetings
The language of meetings
Downtoning
Role-play
Memo, agenda and minutes
1 INTRODUCTION
I Discuss these questions before reading the text.
1
2
3
4
Why are business meetings usually held?
What are the typical problems associated with meetings?
What makes meetings effective?
What is the role of the chairperson in a meeting?
II Read the text and find out.
EFFECTIVE BUSINESS MEETINGS
The functioning of many business organizations today relies heavily on complex work
organization, which requires effective communication between different departments, layers of
management, customers and business partners. In other words, it is really difficult to imagine a
modern workplace in which people don’t spend any time in meetings, either to discuss critical
issues, solve problems or make important decisions.
Although thousands of business meetings are held every day, not all of them are effective.
Ineffective meetings usually have no clear purpose, take too much time and produce no clear
outcomes. The chairperson of the meeting is probably the first to blame for an unsuccessful
meeting because if s/he does not prepare well, the discussion easily gets sidetracked and
participants lose focus and interest. Many business people often complain that meetings can
really be a waste of their precious time.
No wonder then that effective and productive meetings are everyone’s goal. Successful meetings
are usually well-planned, have a clear purpose and follow-up. When preparing the meeting, it is
important for the chairperson to announce the meeting in good time, state the venue and circulate
the agenda. The agenda contains the items which will be discussed in a meeting so that people
who attend the meeting can prepare in advance.
The chairperson opens, runs and concludes the meeting. He or she makes sure that all
participants are included in the discussion. She or he allocates time for each item to keep the
discussion on track. It is very important to assign responsibility for each action point discussed so
that all participants know what they are expected to do after the meeting. The chairperson can
appoint a minute taker who will take the minutes, or write down the most important things said at
the meeting. When most items on the agenda have been discussed, the chairperson asks if there
is any other business, often abbreviated to AOB, and closes the meeting.
If the meeting is well-planned and well-chaired, participants will be able to present information,
contribute their ideas and proposals and express their opinions. For meetings to be really
productive, many different arguments need to be heard so that listening to speakers, asking
questions and offering counterarguments are all welcome steps in the process of reaching
consensus or the final decision.
6
III Find the words in the text for these definitions.
1
2
3
4
5
6
7
the last item on the agenda, usually used as an abbreviation
a place where the meeting is held
one subject or issue discussed in the meeting
a person who writes down the things said and decided at the meeting
a list of subjects to be discussed in the meeting
a person who is in charge of the meeting
an official written record of what is said and decided at the meeting
IV Complete the sentences with the missing verbs below.
attend
announce
1
run
discuss
make
contain
circulate
state
solve
In business meetings participants ____________ different issues, _____________ problems
and ____________decisions.
2
If the chairperson doesn't know how to _____________ the meeting well, the meeting will
probably lose focus.
3
The chairperson should ____________ the meeting in good time, _____________ the venue
and _____________ the agenda.
4
Agendas _______________ items to be discussed so that those who _____________ the
meeting can prepare in advance.
V Complete the sentences with the missing nouns.
1
The chairperson usually appoints the _______________ who writes down the most important
points from the meeting.
2
A good chairperson should allocate ______________ for each item to keep the meeting on
track.
3
It is important to assign ____________ to participants who are in charge of a certain action
point.
4
In some meetings participants vote in favour of or against a ______________.
7
2 THE STRUCTURE OF MEETINGS
I Look at the table below. How many parts does the meeting consist of? Then tick
the corresponding box next to each function depending on who does it: the
chairperson, participants or both?
HOW TO BEGIN?
FUNCTION
CHAIRPERSON
PARTICIPANTS
√
☐ start the meeting
☐ welcome the participants
☐ introduce everyone if necessary
☐ state the objective of the meeting
☐ go through the agenda
☐ say when the meeting will finish
WHAT HAPPENS DURING THE MEETING?
☐ ask for opinion
☐ state an opinion
☐ comment on opinion
☐ (dis)agree
☐ ask for clarification
☐ interrupt
☐ express doubt
☐ make a suggestion
☐ check understanding
☐ keep to the agenda
☐ vote
HOW TO END THE MEETING?
☐ conclude the main points
☐ summarize
☐ emphasise action points
☐ close the meeting
8
3 THE LANGUAGE OF MEETINGS
I Read the useful phrases used in the meeting and copy the phrases from the box
below in the appropriate place in the table.
The purpose of this meeting is to…
I think we’ve covered everything.
AT THE BEGINNING
☐ start the meeting
☐ welcome the participants
☐ introduce everyone if
necessary
☐ state the objective of the
meeting
☐ go through the agenda
☐ say when the meeting will
finish
DURING THE MEETING
☐ ask for opinion
☐ state an opinion
☐ comment on opinion
☐ disagree
☐ Agree
☐ ask for clarification
☐ interrupting and dealing
with interruptions
☐ express doubt
☐ make a suggestion
☐ check understanding
☐ keep to the agenda
☐ Vote
AT THE END
☐ conclude the main points
☐ summarize
☐ emphasise action points
☐ close the meeting
I couldn’t agree more.
I see what you mean.
Why don’t we…?
Just let me finish…
USEFUL PHRASES
Let’s get started.
We’ve got a very tight agenda, so we’d better get down to
business.
I’m very glad to welcome you here (on behalf of…)
Thank you all for coming here today.
This is XY. She is in charge of…She deals with…
Let me introduce you to…
We’re here today to…
1 _________________________________________________
There are three items on the agenda. Firstly, we’ll deal with…
Secondly, we’ll…,Thirdly,… Finally,…
I’d like to finish by…
The meeting is due to finish by…
USEFUL PHRASES
What do you think about this?
What’s your opinion on this?
In my opinion,…
If you ask me,…
That’s a good point.
So, what you’re saying is…
2 _________________________________________________
I’m afraid I disagree.
I have to disagree.
It’s out of the question!
I agree completely.
That’s a good idea!
3 _________________________________________________
What exactly did you mean by…?
Could you be more specific about…?
Could you please elaborate on that?
Excuse me, may I interrupt?
Can I just finish what I was saying…?
4 _________________________________________________
I agree to some extent, but…
I suppose you’re right but…
I think we should…
5 _________________________________________________
Is that clear everyone?
Let’s now move on to the next item on the agenda.
We’ll come to that later.
Let’s put this to a vote. Everyone in favour of this proposal?
Against?
USEFUL PHRASES
Let’s go over the main points again.
So, we’ve agreed that…
As far as…is concerned, we’ve agreed that…
So, to sum up…
Ana is in charge of completing the report by 14 January.
So John, can you please write the report?
That brings us to the end of our meeting today.
6 __________________________________________________
9
II In which part of the meeting will you hear the following?
Let me introduce you to…
If I understand you correctly…
We’ve got a very tight
agenda, so we’d better get
down to business…
The meeting is due to finish by…
It’s out of the question…
We’ll deal with … first, then
we’ll discuss…, and finally
we’ll…
Thank you for coming here…
To recap, John, you’re in charge
of the report. Ann is in charge of
the draft plan. Sue will inform the
team, right?
The objective of today’s
meeting is …
III Match the phrases that are similar in meaning.
1
I couldn't agree more.
☐
I agree to some point, but..
2
What's your opinion?
☐
Why don't we buy from ABC Ltd.?
3
I agree to some extent, but...
☐
4
I see what you mean.
☐
As far as this item is concerned, we’ve agreed
that…
I totally agree.
5
Ann is in charge of the report.
☐
What do you think about this?
6
So, we’ve agreed that…
☐
I see, what you're saying is ...
7
To summarize the meeting…
☐
Ann is responsible for writing the report.
8
I advise you to buy from ABC Ltd.
☐
To sum up,…
IV Fill in the gaps in this introduction to a meeting.
Good morning, everyone. Are you all here? OK....
Let's get s_____________ then. Thanks for c_____________ to today's meeting.
Have you all got a copy of the a_____________? Good.
As you can see, we've got a very t_____________ agenda today so I suggest we get down to
b_____________.
The p_____________ of today’s meeting is to decide what we can do to improve the financial
situation of the company.
So, first we'll d_____________ with the financial report.
T_____________, we'll have a look at Simon's proposal for consolidation. I'd like to hear everyone's
o_____________ on the proposal then.
Finally, we'll m_____________ a decision on the financial plan for the next quarter.
I think we should spend around 15 minutes on each i_____________, so we’ll finish by 3.
10
4 DOWNTONING
I Sort out these phrases:
Absolutely!
I suppose so.
MILD
AGREEMENT
I don’t quite agree.
That’s out of the question!
That’s absurd!
Exactly!
That’s true, I guess.
That’s not really how I see it.
MILD
DISAGREEMENT
STRONG
AGREEMENT
STRONG
DISAGREEMENT
II React to this sentence from a meeting using the prompt from the bracket.
I believe that our department should be given more freedom to make decisions.
1
(disagree mildly) _____________________________________________________________.
2
(disagree strongly) ___________________________________________________________.
3
(ask for clarification) __________________________________________________________.
4
(agree mildly) _______________________________________________________________.
5
(agree strongly) _____________________________________________________________.
III Fill in the gaps in this conversation from a meeting. The first letters will help you.
Chair:
Ok, everyone. Let’s get s_____________. Does everybody have a copy of the
a____________? …
All right then. We are here today to d___________ the problem of sales. For three months
in a row we have seen a steady fall. So, I’d like us to focus on three issues today.
First of all, we’ll look at our sales figures in the last quarter. After t__________, Mary will
give her projection for the next quarter on the basis of current trends. F____________, I’d
like to hear your proposals for reversing this negative trend.
Ann:
Sorry to i____________, but I think we should discuss the performance of sales force as
well
(…)
I’m sure Mary will mention that as she gives us the sales report. Right Mary?
Could you please take the m___________, Ann?
Chair:
Chair:
(…) So, we’ve seen the sales figures. Let’s now m___________on to projections.
Mary:
Thank you, well, as you can see from this g____________, sales will continue to fall. I have
to insist that my sales force are doing all they can …
Ann:
E_________ me, but they are the most responsible…
Mary:
In my o____________, we should blame the falling demand and not my sales force (…)
Chair:
So to s_________up, the negative trend, I’m a___________, is going to continue. We all
a___________that we should focus on marketing more and perhaps consider cutting the
sales force.
So, if there are no more q____________, I’d like us to meet in 10 days’ time.
11
IV What are the implications of aggressive language for a business deal? Read the
text and study the table below.
“You must reduce the price or else…!”
If you want to be an effective communicator, you should know how to soften your points by
avoiding aggressive, uncompromising and confrontational language.
Remember that in effective business meetings it is important
to make your point firmly but politely.
SOFTEN BY USING:
EXAMPLE:
☐ WE / LET’S
Let’s reconsider the price, shall we?
We could reduce the price.
☐ PERHAPS / MAYBE
Perhaps we can reduce the price?
☐ A BIT / JUST / A LITTLE /
The price is a little bit high, don’t you think?
Can we reduce the price slightly?
SLIGHTLY
☐ WOULD / COULD / MAY / MIGHT
☐ PLEASE
Would it be possible to reduce the price a bit?
Could we reduce the price a bit?
The price may be a bit lower.
Please confirm your attendance via e-mail.
☐ I’M AFRAID
I’m afraid the price is too high.
☐ “NOT” AS A MODIFIER
It wouldn’t be bad if the price was lower.
V Rewrite the following sentences by using the words and phrases in the brackets.
1
We won’t give you a discount (afraid).
__________________________________________________________________________.
2
You must finish the report! (please)
__________________________________________________________________________.
3
Your prices are way too high. (a little bit)
__________________________________________________________________________.
4
These figures are false! (not)
__________________________________________________________________________.
5
He is not available. (afraid)
__________________________________________________________________________.
6
So, we’ll find another buyer! (perhaps)
__________________________________________________________________________.
12
VI Read the dialogues and underline different verb structures for making
suggestions.
A: It seems we have the wrong documents.
A: I suggest that we should relocate next
B: I advise we contact the Berlin office
year.
immediately!
B: I completely agree.
A: Can we postpone the meeting?
A: I suggest we read the draft now.
B. Yes, I suggest putting it off for next week.
B. I agree.
A: I propose that we wait for the new scheme
A: I suggest relocation.
to be
B. That's out of the question!
put in place.
B: You really propose waiting for another
month?
A: Who should we elect?
B: I propose Tom.
REMEMBER!
SUGGEST
PROPOSE
☐
☐
☐
☐
☐ Propose that somebody do something
Suggest that someone do something
Suggest that someone should do something
Suggest doing something
Suggest something
☐ Propose doing something
☐ Propose somebody (in voting)
BUT NOT: suggest to do something
suggest somebody to do something
ADVISE
☐ advise doing something
☐ advise somebody to do something
☐ advise that somebody do something
BUT: ADVISE (verb) ≠ ADVICE (noun)
VII Translate the following into English.
1
Predlažem da povisimo cijene.
2
Predlažem izvoz u Italiju.
3
Predlažem Johna.
4
Predlažem da ti vodiš zapisnik.
5
Predlažem da IT odjel preseli u novi ured.
13
5 ROLE-PLAY
I Make groups of four. Read the situation first and assign roles.
SITUATION
Four managers are in a meeting to decide whether to lay off their colleague Ann. The reason why
Ann might be dismissed is that recently she hasn’t performed well and her abrasive style is seen as
offensive. If she is laid off, the managers need to decide how much severance pay to give her.
ROLES
Students 1 and 2 think Ann should be dismissed. Think of additional details why she should be
fired.
Students 3 and 4 think Ann should stay because of her experience and work discipline. Think of
additional details why she should stay.
II Now role-play the meeting following the prompts below. The meeting should last
about 5 minutes. The prompts below help you to get started, but as you go, invent
more details and finish the meeting yourselves. Remember what the purpose of the
meeting is. Then report your decision to the class.
Student 1:
Good afternoon, everyone. I see we’re all here, so I suggest we get down to
business right away because I’d like to finish by 4.
Student 2:
Excellent. I have another meeting to attend at 4.30.
Student 1:
So, have you all got a copy of the agenda?
Students 2, 3, 4:
Yes.
Student 1:
Ok, we have to decide if we should let Ann go. If we do, we have to decide
how much severance pay to give her.
So, to begin, you all realize that we need to cut costs and her recent results
are quite disappointing. What do you think, John?
Student 2:
Ok, I think it is quite clear why Ann should go. First of all,
__________________________________________. Then,
__________________________________________.
Student 3:
I’m afraid I can’t agree with you. Ann is one of the most experienced
workers __________________________________________. Besides, she
is __________________________________________.
And __________________________________________.
Student 2:
Excuse me, may I interrupt? Look at her sales results from last months!
__________________________________________!
Student 4:
Come on! Are you saying that she’s not a good worker? I think she is
doing all she can. But this crisis ______________________________.
Student 1:
Hmm, true…
14
6 MEMO, AGENDA AND MINUTES
I Study this sample memo and circle the correct word in the sentences on the right
outlining the basic rules for writing memos.
MEMO
Memos are usually used for
internal/external communication.
To: All department heads
From: Mary Fitch, HR Manager
Date: 2 February 2014
Subject: Visit of Germanica Ltd. representative
Please note that Sandra Keiths, a representative of
Germanica Ltd., a company specializing in offering
Business German courses, will visit us on Friday, 5
February.
There will be a presentation of the courses, followed
by a meeting at 1 p.m. that you should all attend.
If you wish to join us for lunch at a local restaurant,
please let me know as soon as possible.
MF
They should include the following
headings: To, From, Date, and
Subject/Topic.
They should be long/short and
include only relevant information.
The tone of a memo may be/must be
formal, informal or neutral.
It is usual to end with your full
signature/initials.
Adapted from: Market Leader Intermediate, p. 144, Longman.
II Study the agenda below and complete the explanation next to it.
Department Heads Meeting
AGENDA
Date: 5 February
Time: 1 p.m.
Venue: Room 12, Angus House
1
2
3
Presentation: Germanica Ltd.
Course organization
AOB
Adapted from: Market Leader Intermediate, p. 144, Longman.
Agendas contain the following
information: the title, the date, and the
____________ (place).
Larger or more formal meetings may
also include the following:
a) Apologies for absence
b) Matters
arising
from
last
meeting
c) Correspondence
d) Date of next meeting.
____________ is reserved for other
relevant issues that were not included
in the agenda.
III Read the paragraph below and explain the main purpose of action minutes.
For most business meetings, action minutes are more useful than full minutes. Action minutes are
intended to make sure that decisions of the meeting are understood and carried out. There is a brief
summary of the discussion for each item on the agenda. The initials of the person responsible for
carrying out any action required are given on the margin, along with the deadline.
15
IV Read the action minutes below. Then, explain the layout and the structure of the
action minutes by answering these questions:
1
2
3
4
What do the initials on the right margin stand for?
What do the dates on the right margin stand for?
Where do we include information about the time and the venue of the meeting?
What are action points and where are they included?
Minutes of the Department Heads' Meeting
_____________________________________________________
Date: 5 February 2014, 1 p.m.
Venue: Room 12, Angus House
Present: Mary Fitch, Christina Bilich (Germanica Ltd.), Joe Piscarelli, Ann
Murray, Vince Wallace
1 Presentation: Germanica Ltd.
Following the Board's decision to provide Business German courses for our
employees, the representative of Germanica Ltd. made a presentation of the
courses, detailing the necessary steps for the organization of the courses in
our premises.
MF
10
FEB
We all agree that Mary Fitch should make the necessary arrangements with
Christina Bilich to organize classification testing. Department heads will be
informed about the time and place for testing of their employees.
2 Course organization
We agreed that the courses will be offered at different language levels on
Mondays, Wednesdays and Fridays after 4 p.m.
All department heads should rearrange their staff's regular work activity to
allow them regular attendance of the courses. These arrangements should
be sent to the HR Manager in a written form.
JP
AM
VW
15
FEB
Next meeting: 8 February, 10 a.m.
Venue: To be confirmed
16
3 REPORT WRITING
1 Introduction
2 Structure
3 Useful phrases
4 Report writing tasks
1 INTRODUCTION
WHAT IS A REPORT?
☐ A report is a piece of factual writing, usually based on some kind of research or real-life
experience.
☐ It usually focuses on factual information about the past, but may also include recommendations.
☐ A report is not a letter.
PURPOSE
☐ You may be asked to give information, evaluate something or make suggestions or
recommendations.
TARGET READER
☐ Usually the person who is asking for the report.
☐ This may be an official group of people in authority, your employer or a group of colleagues you
study or work with.
A FEW QUESTIONS TO THINK ABOUT BEFORE WRITING A REPORT
☐ What have I been asked to do?
☐ Who is this report for? What kind of information do you think the target reader will be interested
in? What will they expect to achieve by reading the report?
☐ What specific areas do I need to cover?
☐ What factual information do I need to present?
☐ What will I discover?
☐ What are my general opinions on the result?
☐ What particular recommendations do I wish to make? (Am I in the position to make any?)
CONTENT- WHAT INFORMATION SHOULD I INCLUDE?
☐ Ensure that you fully understand the purpose of the report.
☐ Make a number of points in answer to the question.
☐ Use section headings for clarity.
☐ Include facts or results of a survey or research.
☐ Give description and explanation in support of each argument.
☐ Summarise your conclusions in the final part and conclude with a personal recommendation.
17
REGISTER
☐ It depends on the target reader, but the report will almost always be FORMAL
☐ Do not use colloquial phrases (e.g. ‘masses of’). Replace them with formal ones (e.g. ‘ a large
amount of’)
☐ Do not use contractions (e.g. ‘don't’, ‘haven't’, 'cos, etc.). Replace them with their full forms instead
(e.g. ‘do not’, ‘have not’, ‘because’, etc.)
☐ Avoid phrasal verbs (e.g. pick up, set up, etc.). Replace them with one-word verbs (e.g. 'take a
look at' with 'investigate')
☐ Replace general verbs with the specific ones (e.g. 'got' with 'received')
☐ Replace extreme adjectives with less extreme ones (e.g. 'huge' with 'large')
Adapted from: http://elc.polyu.edu.hk/cill/eiw/reportformality.aspx
CONTENT
☐ Include true facts, precise wording, supporting data and reference to sources.
CLARITY
☐ Organise the text clearly by using sections, subsections, headings, subheadings, paragraphing,
numbering and bulleting.
CONCISION
☐ Avoid any unnecessary detail and sentences that are too long.
☐ Avoid repetitions.
☐ Give essential information, your evaluation and recommendation.
OBJECTIVITY
☐ Include all the relevant information, do not be biased.
☐ Use an impersonal tone (avoid the overuse of the pronoun 'I', use passive and reporting structures
instead, e.g. It was decided...; Most employees agreed that...; A lot of people expressed their
dissatisfaction with... It was generally felt that...).
ACCURACY
☐ Use precise and correct language (grammar, spelling and punctuation).
LAYOUT
☐ Start with a TITLE.
☐ Use CLEAR HEADINGS to organize your thoughts and to help the reader see how the report is
organised. Make sure there is a line space between headings.
☐ Give each SECTION in the report its own PARAGRAPH. Where appropriate divide sections into
paragraphs.
☐ Use NUMBERS (1) or BULLETS (•) to make important items stand out, especially if you want to
single them out.
☐ Companies often have their own format of standard reports and do not completely follow the
structure presented below.
18
2 STRUCTURE
TITLE
(e.g. REPORT ON THE COMPANY IMAGE)
TERMS OF REFERENCE (or INTRODUCTION or BACKGROUND)
It states the purpose and the subject of the report and outlines the essential information – Who
asked for it?
What is to be investigated? What kind of information is required? When should it be submitted?
PROCEDURE (or METHOD)
It outlines the steps taken to make an investigation. It explains how the data were collected,
listing sources consulted.
FINDINGS
It sets out the information itself, with appropriate headings and subheadings, if the report covers
more than one topic.
CONCLUSION(S)
This section summarizes the main findings and assessments, and draws conclusions.
RECOMMENDATION(S) (if required)
The writer may suggest the solution to the problem investigated, so that the recipient will be able
to make a decision if necessary.
I Decide if the statements about REPORTS below are TRUE (T) or FALSE (F).
1
Reports should include the same opening and closing as formal letters.
2
They are informal in register.
3
Reports are based on facts and personal opinions.
4
Impersonal tone is achieved by using passive and reporting structures.
5
It is advisable to use detailed descriptions and long sentences.
6
They are divided into sections with clear headings.
7
They may contain numbers and bullet points.
8
It is not necessary to use a line space between different sections.
9
The sources used in your research are mentioned in the introduction.
□
□
□
□
10 The findings of the research are presented in the conclusion.
□
□
□
□
□
□
19
II Copy the following headings above the corresponding paragraphs below. Then,
put the sections in the right order to get the STRUCTURE OF THE REPORT.
☐
☐
☐
☐
☐
☐
RECOMMENDATION(S) (if required)
TITLE
CONCLUSION(S)
PROCEDURE (or METHOD)
FINDINGS
TERMS OF REFERENCE (or INTRODUCTION or BACKGROUND)
☐ ______________________
The information for this report was gathered from different sources:
 Extensive research conducted among consumers of our products
 Detailed analysis of our competitive position on the market
 The company's annual reports
 Materials available on the company’s website
☐ ______________________
The following points summarize our key findings:
 Our products are perceived as old-fashioned and expensive.
 We have enough funds to start with modifying the established range of products and
introducing the new ones which are trendier and more affordable.
 Competition is fierce in Croatia, but there are expansion prospects on some untapped
markets.
☐ ______________________
Report on the possibilities of launching a new range of products
☐ ______________________
It is clear that our company needs to focus on launching a new range of products which would
meet the market expectations more adequately, thus being more competitive. Design and style
should be given equal consideration as production costs.
☐ ______________________
We strongly recommend, therefore, that:
 We should hire an internationally acclaimed designer to design our new range of
products and revamp our company's image.
 The company should consider outsourcing production abroad to reduce the production
costs.
☐ ______________________
The aim of this report is to consider the possibilities of launching a new range of products. The
report was requested by Hillary Swift, the CEO and it was to be submitted by 26 May 2013.
Mathew Sloane
Brand Manager
20 May 2013
20
III Make these sentences more formal by rewriting them in the PASSIVE FORM.
1) We enclose payment together with our order.
Payment ______________________________________________________________________.
2) The customer should receive the delivery by Friday.
The delivery ___________________________________________________________________.
3) According to a recent report the group is making similar investments in other parts of the world.
Similar investments ______________________________________________________________.
4) We will produce the components at our Sao Paolo factory.
The components ________________________________________________________________.
5) We would reduce costs if we used less paper.
_____________________________________________________________________________.
6) They should enlarge the premises to fit more offices.
______________________________________________________________________________.
IV Edit the text below by replacing the INFORMAL WORDS and phrases with the
FORMAL ONES.
Here are some formal words you could use. You might need to change the tenses,
parts of speech or turn an active sentence into passive.
reliable
currently
very disappointing
investigate
decline
no
design
distribute
little
discuss
conduct
large-scale
To take a look at the problem of declining numbers of visitors to Hong Kong, we decided to do
a really big survey. We made a questionnaire and handed it out to 2,000 people. We did this
because right now we don't have any hard data on why tourist numbers are declining. There's
not much information available either on what might bring them back to Hong Kong. The
return rate for the questionnaire was really bad at only 13% but this figure should provide a
firm enough basis for talking about why tourist numbers are going down.
Source:http://elc.polyu.edu.hk/cill/eiw/reportformality.aspx
21
3 USEFUL PHRASES
I Copy the following FUNCTIONS above the corresponding PHRASES in the table:
☐
☐
☐
☐
☐
☐
☐
☐
STATING PURPOSE
OUTLINING INTRODUCTORY INFORMATION
DESCRIBING PROCEDURE
PRESENTING FINDINGS
INTRODUCING OTHER PEOPLE'S OPINIONS
SIGNALLING
SUMMARIZING AND CONCLUDING
MAKING SUGGESTIONS AND RECOMMENDATIONS
____________________________________
 This report aims to…/sets out to…
 The aim/purpose of this report is to…
 The aim of this report is to recommend/
analyse/give feedback on...
 The purpose of this report is to analyse the
results of...
 This report will consider/examine/
compare/comment on/explain...
 The report is intended to assess/evaluate/ outline
...
 This report is based upon…
_________________________________
 The following areas of concern have
been highlighted.
 There are a number of reasons for…
 There are several factors which affect…
 This raises a number of issues.
 As might have been expected,…
 Contrary to expectations,…
____________________________________
________________________________










It is suggested/proposed/recommended that…
We (strongly) recommend that…
It is essential to…
It would be advisable to...
In view of this, I (would) recommend/ suggest
(that)...
It could be recommended for the following
reasons...
Both... and... would be most valuable/of utmost
importance for...
Neither of the previously mentioned solutions are
recommendable/advisable.





It was felt/assumed that...
Some participants claimed/argued/
believed...
It was unanimously agreed that...
They were universally criticized as...
There was general agreement that...
Most employees were in favour of...
Most employees expressed their
dissatisfaction with...
____________________________________
________________________________







It was decided/agreed/felt that…
It is clear that…
No conclusions were reached regarding…
In general/In short/In conclusion,...
To sum up/All in all...
Taking everything into account/All things
considered,...

The data were collected/gathered from
the following sources:
1.
2.
3.
The findings are based on
a questionnaire that was sent to...
____________________________________
________________________________




It was found that…
The following points summarize our key findings:
The key findings are outlined below:

The report was commissioned/
requested by XY.
The report was to be submitted by 9
January 2014.
22
II Which of the phrases from the table above would you use in different SECTIONS OF
A REPORT: TERMS OF REFERENCE, PROCEDURE (or METHOD), FINDINGS,
CONCLUSION(S) or RECOMMENDATION(S)?
III Complete the missing parts of the Report on Improving Project Team
Communication with the phrases from the box below.
 results in situations outlined in Point 1
 should
 The aim of this report is
 key issues
 Although
 submitted
 found
 The key findings are outlined below:
 on
 recommend
 it is essential
 interviews
 by
 Furthermore
 40% of the respondents said
 It was also found that
 questionnaire
 It is recommended
 It is clear
 suggested
REPORT (1) __________________ IMPROVING PROJECT TEAM COMMUNICATION
Introduction
(2) _______________________ to identify communication problems within the new project team
and (3) _______________________ ways of improving this communication. The report was to be
(4) _______________________ to Ian Woods, Human Resources Manager
(5) _______________________ 15 April 2012.
Procedure
Individual (6) _______________________were held with all eight team members. Each team
member also completed a (7) _______________________, which was designed to highlight the
effectiveness of communication within the team. Several (8) _______________________ arose
from this feedback.
Findings
(9) _______________________
1
2
3
(10) _______________________ individual team members meet fairly frequently to discuss the
project, the outcome of these discussions is not shared amongst other team members.
(11) _______________________, these individual meetings are creating mini-teams within the
team. This damages team spirit.
(12) _______________________ the eight team members are located in different parts of the
Building. This does not encourage contact and (13) _______________________.
(14) _______________________ that team members do not make enough effort to share
information by email. Messages are sent to one person only and not copied to colleagues.
Conclusion
No evidence of personnel problems was (15) _______________________ amongst team
members. (16) _______________________ that the lack of communication is due to difficulty with
procedures and location, both of which should be easy to solve.
Recommendations
(17) _______________________ that the whole team meet on a weekly basis to share information
and time together. Team members (18) _______________________ remember to copy colleagues
in on emails relating to the project. This may require some training with the email software,
therefore (19) _______________________ that the firm provides this training to those who need it.
It is (20) _______________________ that the team attend a team-building seminar or adventure
weekend.
23
IV Skim-read the article Storm Clouds over the Mall (The Economist, 8 Oct 2005), and
match the paragraphs of the article to the corresponding sections of the report below.
Then, complete the report with the missing words or phrases.
REPORT ON UK RETAIL INDUSTRY IN 2005
T _________________________ OF R _________________________
Ian Sullivan, Retail Department Manager, has r ________________ this report on UK retailing in
2005. The report was to be s _________________ to him by 01 June 2006.
P _________________________
The data for this report were g _________________ from the following s _________________:
1 a survey of retailing by the Confederation of British Industry
2 consumer confidence data p _________________ by GfK Martin Hamblin; The Conference
Board
3 press r _________________ and public statements made by the leading UK retailers (e.g.
Boots, Tesco, Wal-Mart)
4 Supermarket Wars (a book by Andrew Seth and Geoffrey Randall)
5 The Economist of 8 October 2005, p. 67
F ________________________
I
4.
Two main d__________________ for UK retailers in 2005
Consumer s__________________ down (reason: increase in fuel costs and household
debt)
4. Fierce c_________________ (victims: smaller supermarkets, chain stores, department
stores all attacked by huge supermarkets)
II
1
2
3
4
5
Different survival s__________________ applied:
M__________________ customers’ wishes (finding specific niches, e.g. designer goods,
organic food, ...)
E___________________ into specific regions (e.g. Slovakia, the Czech Republic, China, ...)
B___________________ trust with own brands: either through pricing or service
I___________________ changes in the supply chain (e.g. fewer but fast fashion lines
coming from local production and not from China)
D____________________ e-commerce through a) on-line sales and b) extra service
supported by the internet which drives in-store sales (e.g. sending digital pictures and order
prints in a local store)
C ________________________
As consumer spending slowed in 2005, competition was getting increasingly
f _________________ and UK retailers developed a range of strategies to retain their
c _________________ edge.
R ________________________
1
2
It is r _________________ to research the UK retail market also in 2006 to obtain a better
picture of the current situation.
The five mentioned strategies (Findings, Section II) should be thoroughly
a _________________ in terms of their results.
Kate Oakley
Market Research Department
25 May 2006
24
4 REPORT WRITING TASKS
TASK 1
Read the following text and use it to write a report. Do not forget about giving it a title.
Last month we sent a team of three members of staff to assess the town of Camford as a
potential location for a new English language college for speakers of other languages.
There are a number of basic geographical reasons why Camford would appear to be an
attractive location for a language college. Firstly, it is situated at a distance of only fifty miles from
London and there are good rail and bus connections with the capital. Secondly, although Camford
is mainly known for its ancient university, it also has a number of other further education colleges
so that there are substantial groups of young people in the city in term-times. Moreover, links
between local industry, much of which is based on modern technology, and the educational
institutions are growing so that the economy of the area is relatively healthy. Due to the strong
economy of the town and the young population, there are a lot of entertainment facilities in town.
These include a sports complex with, among other things, a skating rink and a swimming pool.
There are also five cinemas and a large concert hall in town.
Despite its many fine points, Camford has, nevertheless, a couple of significant
disadvantages. First of all, there is a lack of appropriate rented accommodation available. In
addition, public transport within the city is extremely poor.
The best solution for us would be to find a location in Camford within walking distance of
the town centre. We could also think about the possibility of providing residential accommodation
for our students.
TASK 2
Your Managing Director has asked you to write a report on the proposed merger with
Unibank, together with your recommendations. This was requested in his memo of 15
January, and you were asked to submit the report by 28 February. You have collected
information from different sources, including Unibank’s publicity materials, financial
publications, annual reports, and materials on its official website. Organise and
expand the following notes to write a report.









Unibank - well-established and highly respected bank, over forty branches
important corporate clients, profitable investment department and modern communication
system + covers areas where we are not represented
cutting costs by closing down unprofitable branches and thus reducing staffing costs
possibility of recession → the prospects for growth not good
different management styles: Unibank is cautious and conservative
the Chairman of Unibank might not be willing to play a secondary role
unions strongly oppose staff cuts
suggestions: an in-depth study of Unibank’s financial situation + a meeting between the
chairmen of both banks to discuss the advantages of the merger
mergers with other banks should also be considered
Adapted from: Cotton D., Kent S. (2002): Practice File, Market Leader, Longman
25
TASK 3
Fowlers is a company making electrical appliances. One of their best-selling products
used to be their coffee maker. However, in recent years sales have fallen dramatically.
Due to losses the firm has made, the old management team has resigned and the new
team asked you, a management consultant, to carry out a study to establish the
reasons behind this problem.
a) Decide what information you would put into each section. What kind of research
would you carry out?
b) Read the following sentences and decide which section of the report they belong
to.
c) Write a report. Incorporate the sentences from Task 3b) and invent any necessary
details.
1
2
3
4
5
6
7
8
Fowlers coffee makers are perceived as old-fashioned and expensive by 75% of women
between 25-40.
Clearly, immediate action must be taken to guarantee short-term survival.
Fowlers has long been a household name for its high-quality coffee-makers, but more recently
the majority of the market perceives it as old-fashioned.
Fowlers should immediately hire a world-class designer to produce a new range of products.
Following the resignation of the old management team, we were invited to evaluate the
company’s position.
Between 1999 and 2005 Fowlers introduced a new product per year. Since 2005, however,
Fowlers has not launched a new product or redesigned its coffee-maker.
Once an innovative and pioneering company, Fowlers has relied too heavily on its established
range of products.
We conducted research among a wide range of consumers.
Adapted from: Jon Naunton, Head for Business: Upper-Intermediate Students' Book. OUP. p. 81-82
TASK 4
You are the Site Manager of Texan Chicken, a fast-food business. Your General
Manager, Edward Thomas, has asked you to write a report on two possible locations in
your area for a new restaurant. He telephoned you with his instructions on 10 April,
saying, ‘Let me know the advantages and disadvantages of each site, and give me a
firm confirmation please, with your reasons. Can you let me have the report by 30 April
as I have a board meeting on the following day?’
Floor space in sq. metres
Parking
Location
Building
Rent per week
Security of area
Estimated customer
numbers
Site A
330
Car park
(Maximum 20 cars)
High street.
Residential area nearby.
Ground floor of historic
building. A lot of renovation
needed.
£520
High crime rate. Shops
broken into and
vandalised.
Now: 1,000
In 5 years: 5,000
Site B
180
Unrestricted street parking. No car park.
On corner in the city centre.
New building in excellent condition.
£350
Low crime rate because near the police
station.
Now: 2,000
In 5 years: 3,000
Source: Cotton D., Kent S. (2002): Practice File, Market Leader, Longman
26
4 DESCRIBING GRAPHS
1 Types of graphs and charts
2 Verbs
3 Nouns
4 Adverbs and adjectives
5 Prepositions
6 Describing graphs in a paragraph
7 Practice
1 TYPES OF GRAPHS AND CHARTS
I Label each chart.
flow chart
line graph
bar chart
diagram
table
_______________________
_______________________
_______________________
_______________________
pie chart
27
_______________________
_______________________
II Answer these questions about charts and graphs.
1
2
Which type of chart is useful for describing a process?
Which type of chart is useful when we want to show the sizes of components that make up
some whole?
What is an explanatory drawing that shows how some parts are arranged?
Which type of chart is used when we want to show how the size of something varies through
time?
Which chart helps in comparing two or more values?
What can be used to present different categories of data organized into rows and columns?
3
4
5
6
III Label the parts of this line graph with the right word from the box.
vertical axis
horizontal axis legend
dotted line
values
peak
trough
solid line
100
90
80
70
60
50
40
30
20
10
0
broken line
East
West
North
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
28
2 VERBS
I Read the verbs in the box and decide where they belong in the table.
grow
decline
rise
fluctuate
slash
level out
plummet boost jump
rally
slump
soar
bring down
fall
plunge
rocket decrease
increase
drop
vary
raise
stagnate
GO UP
STAY THE SAME
GO DOWN
CHANGE
II Read through the list of verbs again, and choose the ones that mean a sudden
movement.
1
2
3
4
5
6
______________________
______________________
______________________
______________________
______________________
______________________
29
III Look at the line graph representing the sales figures of a company and write a
sentence to describe each year.
80
70
60
50
40
30
20
10
0
2002
2003
2004
2005
2006
2007
2008
______________________________________________________ in 2003.
______________________________________________________ in 2004.
______________________________________________________ in 2005.
______________________________________________________ in 2006 and 2007.
______________________________________________________ in 2008.
IV TRANSITIVE AND INTRANSITIVE VERBS
In English some verbs cannot be followed by an object, these are called intransitive
verbs. The verbs that have to be followed by an object are called transitive verbs.
Some verbs can be both. Sort out the verbs from Exercise I.
TRANSITIVE
______________________
______________________
______________________
______________________
INTRANSITIVE
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
BOTH
______________________
______________________
V Now use these verbs to fill in the gaps in these sentences. Use the grammatically
correct form.
1
2
3
4
The government _____________ the price of fuel by 2%, it now costs $1.02, instead of $1.
Prices _____________ all year. It was very difficult to make plans in a situation when we
couldn’t know what to expect.
The government's decision to decrease sales taxes _____________ the economy.
The new expansionary fiscal policy _____________ unemployment figures in the country.
30
5
6
Due to the efficient management of the company, we _____________ sales by 25% this year.
Unemployment _____________ from 200,000 to 600,000 in 3 months due to the closure of
several factories in the country.
The higher income that resulted from the suddenly increased sales _____________ the
company's deficit by half.
The economy _____________ for five years. The GDP growth was around 1% and there was
a high unemployment.
7
8
VI Complete the table with the missing forms of these verbs.
INFINITIVE
to rise
to raise
to arise
PAST SIMPLE
PAST PARTICIPLE
VII Now fill in the gaps in these sentences with the correct form of the verbs from
above.
1
2
3
4
5
6
7
8
The Sun ____________ every morning.
____________ your hand if you agree.
The problem ____________ from the lack of quality control.
Last year we ____________$2 m in capital.
The cash flow crisis ____________ because the company did not receive payment from its
debtors.
Retail prices ____________by 7% last year.
The Fed will probably ____________interest rates by 0.5%.
The mistakes that have ____________ this week are due to a lack of communication
between the staff and the management.
3 NOUNS
I Turn these verbs into nouns.
VERB
NOUN
VERB
grow
fall
rise
decline
increase
slump
boost
plunge
jump
decrease
improve
drop
stagnate
fluctuate
peak
bottom out
NOUN
31
II Write a sentence about each year represented on the graph using a verb. Then
rewrite the sentence so that you are using a noun instead of a verb. Use the
prompts provided.
80
70
60
50
40
30
20
10
0
2002
2003
2004
2005
2006
EXAMPLE: Rice production decreased in 2002.  There was a decrease in rice production in
2002.
1 _____________________________________________________________________________.
The chart shows a(n) _____________________________________________________________.
2 _____________________________________________________________________________.
We see a(n) ____________________________________________________________________.
3 _____________________________________________________________________________.
There was a(n) __________________________________________________________________.
4 _____________________________________________________________________________.
2006 brought a(n) _______________________________________________________________.
4 ADVERBS AND ADJECTIVES
Adverbs and adjectives can be used to describe changes in more detail.
I Finish the sentences.
Adverbs go after _________________. Adjectives go before _________________.
II Change these adjectives into adverbs.
SIZE
ADJECTIVES
ADVERBS
SPEED
ADJECTIVES
big
quick
significant
sharp
substantial
dramatic
massive
sudden
small
slow
slight
steady
insignificant
moderate
ADVERBS
32
III Underline the correct word in each sentence.
1
2
3
4
5
6
There was a CONSIDERABLE / CONSIDERABLY fall in oil prices last week.
The demand for the older model of the phone decreased SLIGHT / SLIGHTLY when the newer
model was launched.
There was a SUBSTANTIAL / SUBSTANTIALLY upturn in exchange rates.
The government decreased taxes MODERATE/ MODERATELY.
They reported a DRAMATIC / DRAMATICALLY downturn in the price of shares last year when
the CEO was fired.
We managed to raise our profits RAPID / RAPIDLY when we increased our advertising budget.
IV Now rewrite your sentences from section 3, exercise II by adding an adverb or an
adjective.
EXAMPLE: Rice production decreased moderately in 2002.  There was a moderate decrease
in rice production in 2002.
1 _______________________________________________________________________________.
_______________________________________________________________________________.
2 _______________________________________________________________________________.
_______________________________________________________________________________.
3 _______________________________________________________________________________.
_______________________________________________________________________________.
4 _______________________________________________________________________________.
_______________________________________________________________________________.
5 PREPOSITIONS
I Study the sentences and circle the prepositions in them. Then, complete the rules
with the missing prepositions.
1
A growth of 20% in sales.
N + __________ + (%, number) + __________+ (topic of the graph)
2
Sales grew by 20%.
V + __________+ (%, number)
3
Sales grew from $8m to $15m. (Sales are now $15m.)
V + __________+ (number) + __________ + (number)
4
Sales are currently standing at 15m.
Sales peaked at 25m.
Sales bottomed out at 4m.
Current position on a graph: __________
33
II Fill in the gaps with prepositions from the box below.
from
1
2
3
4
5
6
between
to
in
by
at
of
Last year sales fell ______ $3m ______ $1.5m.
This year in our town there was a growth ______ 20% ______ marriages.
The employment ratio in the country reached a trough ______ 30% last year.
The competition’s advertising spending has fluctuated ______ €5m and €5.75m this year.
Our market share plummeted ______ 20% when a new company broke into the market.
Currently we control 15% of the market and we are making enormous losses.
Our market share plummeted ______ 20% from 45%, which is a 25% drop.
III Write a sentence about each year represented on this chart using the data provided.
80
70
60
50
40
30
20
10
0
73
66
55
55
13
2002
2003
2004
2005
2006
5
__________________________________________________________________________.
5
__________________________________________________________________________.
5
__________________________________________________________________________.
5 __________________________________________________________________________.
5
__________________________________________________________________________.
34
6 DESCRIBING GRAPHS IN A PARAGRAPH
I Read the text and fill in the gaps with the words from the box below.
at
fluctuated
decline
peak
by
leveled off
moderate
doubled
substantially
dramatic
Market share of Mintel and Orefon
100
90
80
70 70
60
50
40
30
20
10 10
0
2002
Mintel
55
Orefon
60
50
40
50
40
55
40
60
40
33
20
2003
2004
2005
2006
2007
2008
The graph shows the changes in the market share of two telecommunications companies,
Mintel and Orefon, between 2002 and 2008. As it can be seen, the overall trend shows a
decreasing of the difference between the market shares of the two companies.
Mintel, represented by the solid line, lost a considerable portion of its market share during this period.
Mintel was the market leader in 2002, however, with Orefon’s entry into the market it saw a steady
(1) ___________ in the next five years. By 2006 its market share fell (2) ___________ 37%, reaching
a trough (3) ___________ 33%. This period was followed by a (4) ___________ growth of 7%. At the
end of the examined time period Mintel’s market share (5) ___________ at 40%.
Orefon’s market share grew dramatically during the examined years. It entered the market in 2001
and by 2002 it owned 10% of the market. In the next two years this company’s market share (6)
___________ each year, reaching 40% in 2004. In 2006 it reached a (7) ___________ at 60%.
Between 2006 and 2008 the market share (8) ___________ between 60% and 55%.
To sum up, the years between 2002 and 2008 is the period when Orefon surpassed Mintel. During the
6 years represented on the graph, Mintel saw a (9) ___________ decline while Orefon’s market share
increased (10) ___________. In 2008 the competition between the two companies was much more
even than in 2002.
II Read the text again and decide what function the following sections have.
☐ The first sentence.
☐ The second sentence.
☐ The sentences in italics.
☐ The final paragraph.
35
WRITING TIPS FOR DESCRIBING GRAPHS
☐ Start with saying what the topic and the time frame of the graph is.
☐ Check what the labels and the numbers represent. (a percentage, a currency, are they in
thousands or millions?)
☐ Describe the overall situation, find the most important trends.
☐ Do not describe every change, do not go into too much detail.
☐ Try not to repeat the same language and sentence structures.
☐ Conclude by summarising what we learn from the chart.
III Describe this graph in no more than 300 words.
Units sold in millions (2013)
100
80
60
airconditioners
40
heaters
20
0
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
36
7 PRACTICE
I Read this article and rewrite the sentences in bold with the help of the prompts. Do
not use the same words as in the original sentences.
Croatia's economy: Finnish lessons for
Croatia
The Economist
Jun 17th 2013, 16:27 by L.O.
“AT FIRST glance Croatia and Finland share a great
many common features,” said Esko Aho (pictured),
a former prime minister of Finland, when visiting
Zagreb a few weeks ago. Mr Aho visited Croatia to
talk about the reforms he introduced during his
years in power to a small crowd hopeful that the
Finish experience might offer some answers to the
problem of Croatia’s protracted recession.
Besides an (1) approximately corresponding
population size, Finland and Croatia seem to share
other similarities when comparing Finland’s crisis in
the early 1990s and Croatia’s current recession. (2)
Croatia’s exports fell by 25% in 2009 partly
thanks to the general recession in the European
Union just as Finland’s exports dropped a
quarter after the dissolution of the Soviet Union.
In both cases the fall in exports would not have hit
them so hard had they been otherwise economically
sound.
A housing bubble played a big role in Finland’s and
Croatia’s respective pre-crisis growth and
subsequent decline. A large and costly bureaucracy
in both countries, a high tax burden, restrictive
monetary policy and faltering consumer confidence
led to soaring unemployment and a drop in GDP. (34) Croatia’s unemployment rose from 7% to just
below 20% while GDP plunged by 6.9% in 2009.
Finland’s unemployment rose from 2.1% to
19.9% while GDP slumped by 13% between 1991
and 1994.
Finland emerged from the crisis by 1995, with
international trade growing to a third of its GDP
today. (5) Croatia’s economy continues to shrink
this year. While Finland struggled for recovery with
a comprehensive tax reform, deep cuts in federal
and municipal spending as well as export-focused
currency devaluations, the Croatian government
shied away from structural reforms.
The best example of Croatia’s and Finland’s
diametrically opposite solutions to almost
identical problems is tax reform. Aiming to
bolster both consumption and private-sector
development, Finland reduced taxes while
maintaining tax revenue by reducing
deductibility. (6) The personal income-tax
rate was reduced from 51% to 39% and the
corporate tax rate was cut from 33% to 19%.
Jelena Lovric, a Croatian political analyst,
summarised the Finish tax cuts in a recent
newspaper column: “(7) Finland literally
halved its high taxes, increasing budget
revenue from taxes by an incredible 350% [by
2000]” with corporate income tax revenue in
2000 seven times higher than in 1994.
Meanwhile in Croatia personal consumption has
been in free fall over the past four years, bar a
month or two during the tourist season. (8) Last
year, value-added tax was raised from 23% to
25% while income tax is the third highest globally,
after Belgium and Greece. The corporate tax
burden was reduced by a modest 2% in statutory
healthcare insurance contributions. Ms Lovric
argues that (9) Croatia “has increased the tax
burden while state budget tax revenues are
dwindling”.
The Croatian government recently caved in to the
threat of a national labor union strike and
committed to retracting the 3% public sector wage
cut instituted in February as soon as GDP growth
returns for three consecutive quarters. An
analysis by Bisnode, a business-intelligence
company, estimates average Croatian public
sector wages to be 73% higher than average
wages in the private sector.
Many Croatian economists have called for currency
depreciation to support the fledgling export sector,
yet both central bank and political leadership
discard this possibility. Exports are key to recovery
of smaller countries: if not helped by currency
depreciation, the fiscal system must favour
exporters.
Finland is also an excellent example of bold bets
on new sectors. With substantial investments in
the ICT and education sectors, the country fueled
its growth over the past two decades. (10) The
World Bank recently revised its forecasts for
the Croatian economy, predicting it would
grow at a weak 1.5% in 2014. However, to
sustain more robust growth politically costly
moves are necessary—a lesson Mr. Aho learnt
when he lost his re-election. It remains to be seen
if Croatia’s leadership will rise to the task at hand.
37
(1) The number of inhabitants in both countries is _______________________________.
(2) Both countries’ exports _______________________________.
(3) In both countries the number of people out of work _____________, in Croatia this was
_______________________________, while Finland saw a
_______________________________.
(4) The GDP in both countries _________________, in Finland
_______________________________, in Croatia _______________________________.
(5) Croatia’s GDP ________________ this year.
(6) Personal income tax was _________________ by ___________________, the corporate tax
rate was _________________ by __________________ in Finland.
(7) Finland ________________ its taxes by _____________%.
(8) Last year there was a _________________ in value-added tax in Croatia.
(9) In Croatia taxes _______________, while income from taxes is ________________.
(10) The World Bank forecasted a (Adj + N + preposition) ________________________________
1.5% in 2014.
II Read The Guardian’s stock market report and match the numbered phrases in the
text with those in the box below.
A)
B)
C)
D)
E)
F)
G)
H)
plummeted
was losing the energy to do something
made losses
suddenly take away support from the recovery of the stock market
to cause something to fail
was removed
continued the same way as the day before
did something to cause trouble among people
World stock markets fall after Ben
Bernanke hints at easing stimulus
trading, adding to Wednesday's 206-point decline as
the global sell-off turned full circle.
Graeme Wearden and Nick Fletcher
guardian.co.uk, Thursday 20 June 2013 16.54 BST
Government sovereign debt also (5) suffered losses,
driving up the yield on Britain's 10-year gilts to 2.29%,
a level last seen in March 2012.
FTSE 100 falls nearly 3%, wiping more than £48bn off
the value of Britain's biggest companies
More than £48bn (1) was wiped off the value of
Britain's biggest companies as world stock markets fell
sharply on Thursday and UK government borrowing
costs hit a 15-month high.
The blue-chip FTSE 100 index (2) tumbled by 189
points, or nearly 3%, in its biggest percentage fall
since September 2011, after the chair of the Federal
Reserve gave the clearest signal yet that America's
huge stimulus package will be slowed this year.
Fears that China's economy (3) was running out of
steam were also blamed for heavy losses across all
major markets. On Wall Street, shares (4) picked up
where they left off on Wednesday night with the Dow
Jones index falling 200 points in early New York
Commodity prices also joined in the rout, with the gold
price falling below the $1,300 an ounce mark for the
first time since September 2010.
Traders blamed the sell-off on Ben Bernanke's
prediction on Wednesday night that the Fed will start to
ease its bond-buying programme later this year,
having seen evidence that the US economy is
recovering.
"Ben Bernanke has (6) put the cat well and truly
among the pigeons with his statement that asset
purchases would begin slowing by the end of this
year," said Yusuf Heusen, sales trader at IG. "It does
feel as if the Fed chairman has (7) pulled the rug
from underneath the stock market rally, and he
certainly seems to have (8) dealt a killer blow to
gold."
38
5 TRADE
RETAIL TRADE
I Anticipate some of the themes in the article from the following title: “Retailing: Storm
clouds over the mall: As consumer spending slows, rival strategies are being put to the
test”
II Read the opening sentence of each paragraph. Think of these sentences within the
context of the predictions you have made.
Storm clouds over the
mall: As consumer
spending slows, rival
strategies are being put
to the test
1 “CONDITIONS on the high
street are difficult, competition is
intense and there is nothing to
suggest this will change in the
coming months.” That was the
message of Richard Baker, the
chief executive of Boots, a chain
of British chemists, earlier this
summer. Since then, things
have only got tougher. This
week, Mr Baker announced the
£7 billion ($12 billion) merger of
his British retailing institution
with a rival chain—a move
widely seen as defensive. With
consumer spending declining in
Europe and America, retailers
are bracing for a thoroughly
awful Christmas.
2 Shopkeepers are notorious
Eeyores. But this time their fears
may be well founded. Britain's
economy grew at its slowest
annual rate for 12 years in the
second quarter, and a recent
survey of retailing by the
Confederation of British Industry
has reported the fastest-ever
year-on-year sales decline. In
Germany's mired economy,
retail sales in August fell for the
third month in a row. In the
same month, retail sales fell by
2.1% in America, led by a
plunge in sales of gas-guzzling
sports-utility vehicles. Consumer
confidence in the United States
is declining sharply (see chart).
3 A number of retailers have
seen this slowdown coming. Lee
Scott, the boss of Wal-Mart, the
world's biggest retailer, has
been warning for over a year
that higher fuel bills are cutting
into customers' spending. Sir
Terry Leahy, who heads
Britain's biggest retailer, Tesco,
is also worried about rising fuel
costs and increasing household
debt. Yet compared with many
smaller rivals, Wal-Mart and
Tesco are still doing well: WalMart's sales increased by 10.2%
to $76.8 billion in the second
quarter to July 31st, compared
with the same period a year
earlier. And in its first half to
August 13th, Tesco's sales were
up 14% to £18.8 billion. It is the
weaker players who are
suffering. In the United States,
Albertsons, the country's
second-biggest grocer, has put
itself up for sale after a long
struggle against discount
chains. Its 2,500 stores could
fetch around $16 billion.
4 But it is not just other
supermarkets that are feeling the
pressure from the likes of WalMart and Tesco. The giant
supermarket chains are
expanding into more product
areas, such as clothing, health,
beauty and electrical appliances.
This increases the pressure on
many high-street chains and
department stores. Without the
same buying power and
economies of scale as the biggest
supermarket chains, these
retailers seem destined to suffer
more from the present slowdown.
Change or checkout
5 How can a retailer ensure
that it is among the
survivors? The first thing
companies need to do
sounds easy, but is
notoriously difficult: provide
customers with what they
want. To compete against the
giants, retailers can
specialise in a narrower
range of products, often
aimed at a specific group of
consumers. Target, a more
upmarket version of WalMart, does this in America
and also employs star
designers to make products.
Whole Foods Market, another
successful American retailer,
has become the leader in
natural and organic products.
But this is a moving battle.
Wal-Mart is starting to offer
more designer goods and
organic produce.
6 Concentrating on specific
regions can also help. Even
successful retailers can
stumble in new markets. WalMart, for instance, has
struggled in Germany against
local discounters such as Aldi.
Unless they are among the
leaders in certain countries,
big retailers are now inclined to
throw in the towel. This week
Tesco said it would swap, with
a cash adjustment, its six
stores in Taiwan for 15
hypermarkets in Slovakia and
the Czech Republic owned by
France's Carrefour. The deal
allows each firm to quit
markets where it is weak.
7 It is still not clear if any retailer
will be able to dominate in all
the big markets, especially
China. However, a small group
of world leaders is emerging,
according to “Supermarket
Wars”, a new book by two
retail experts, Andrew Seth
and Geoffrey Randall. They
list the leaders, so far, as WalMart, Carrefour, Tesco and
39
Aldi. Among the supermarket
chains they believe will have
no global clout are Albertsons
and Sainsbury's—the latter in
third place in Britain behind
Tesco and Asda, which was
bought by Wal-Mart in 1999.
8 Successful retailers also need
to win the trust and confidence
of consumers, either through
pricing or service. Building trust
means consumers will give a
retailer the benefit of the doubt
when it introduces new lines or
own-branded products. So they
have been happy to buy things
such as DVD players,
microwave ovens and clothing
from supermarkets. Nowadays it
is becoming easier for retailers
to source high-quality products
globally and brand them as their
own.
9 Such changes in the supply
chain can transform an industry,
says Nick Greenspan, who
leads the European retail
practice of Bain & Company, a
business consultancy. He cites
fast-fashion as an example.
Instead of long supply lines with
garments ordered months in
advance from China, some
successful European retailers,
such as Spain's Inditex (which
owns Zara) and Sweden's
Hennes & Mauritz, order fewer
lines more locally. Production is
more expensive, but garments
are in the shops within weeks
and so are closer to the latest
fashion trends. And stock is not
replenished, but replaced with
new lines. According to Bain,
the profit margins and revenue
growth of fast-fashion retailers
greatly exceed those of many
other chains.
10 Finally there is the internet,
which every year takes a bigger
share of consumer spending.
half of all computers will be sold
online, along with almost a
quarter of cosmetics, 29% of
small electrical appliances and
more than 10% of clothes.
11 Yet the importance of the
internet goes beyond
cyberspace. A website can
also drive in-store sales.
Successful retailers are linking
the two. Wal-Mart, for
instance, is beefing up its
website, which now allows
customers to send in digital
pictures and order prints to be
picked up in an hour from a
local store. And because big
retailers can build virtual stores
even bigger than their bricksand-mortar ones, the breadth
of products on offer is growing
enormously. Online or offline, it
will not be a happy Christmas
for many retailers.
Source: The Economist,
6 October 2005
Online sales of general
merchandise in America will
exceed $100 billion this year,
according to Forrester, a research
company. Carrie Johnson,
Forrester's e-commerce
specialist, predicts that will double
by 2010, by which time more than
III Find and correct the mistake in each paragraph summary.
1
Consumer spending rises in Europe, competition is intense and some retail chains decide to merge
with rival chains.
2 While Britain's and Germany's GDP is falling, consumer confidence is on the rise around the world.
3 Rising fuel costs and household debts affect customers’ spending which in turn has a positive effect
on the sales of weaker retail players.
4 British supermarket chains expand into more product areas, and this affects negatively high-street
chains and department stores.
5 Retailers’ survival strategy should rely primarily on meeting a wide array of customers' needs.
6 Secondly, retailers should keep a foothold in as many regions as possible to reach economies of
scale.
7 Many retail chains have global clout.
8 Thirdly, retailers need to win consumer confidence through pricing, so the biggest supermarkets own
factories where they manufacture own-branded products cheaply.
9 Fourthly, some wholesalers introduce changes in the supply chain.
10 Consumer spending declines because of the use of the Internet.
11 Sales in virtual stores work against brick-and-mortar sales.
40
IV What suggestions does the text offer as a way for retailers to survive? Fill in the
missing verbs.
1
2
3
4
5
__________ in a narrower range of products __________ at a specific group of consumers.
__________ on specific regions, __________ markets where the company is weak.
The company needs to __________ the trust and confidence of consumers, either through pricing or
service.
__________ the supply chain: instead of long supply lines __________ fewer lines more locally.
__________ virtual stores to supplement in-store sales.
V Find the expressions in the text.
1
Which expressions mean the same as ‘consumer demand’? ____________________,
___________________, _____________________.
2
Find 8 types of retail outlets. ____________________, ____________________,
____________________, ____________________, ____________________,
____________________, ____________________, ____________________.
VI Find the expressions in the text which match the following explanations.
Paragraph 1
the primary business street of towns or cities, especially in the United
Kingdom
a shop that sells medications, medical supplies and toiletries
Paragraph 2
three months of a fiscal year
Paragraph 3
debt held by families, the opposite of public debt
a shop selling foodstuffs (e.g., meat, dairy, etc.)
a chain of retail outlets offering goods at a decreased price
Paragraph 4
the increase in efficiency of production as the number of goods being
produced increases
extent to which a person, firm, or group has available funds to make
purchases
Paragraph 7
influence, or power that can be felt all over the world
Paragraph 8
products that a large retailer buys from a manufacturer in bulk and
puts its own name on
Paragraph 9
a network of all the companies manufacturing parts for a product,
assembling it, delivering it and selling it
Paragraph 10
another word for goods
41
VII Online world vs offline world. Find the corresponding terms in the text.
ONLINE
OFFLINE
Online sales
E-commerce
Digital pictures
Virtual stores
42
E-COMMERCE
I What are some of the advantages of online shopping over buying in bricks-andmortar shops?
II Judging from what you read in the article Storm clouds over the mall, which was
published in 2005, do you think that by 2012 major retailers made strong efforts to
participate in e-commerce?
III Take a look at the list of large retailers mentioned in the text as examples. Find them
in the text and explain why they are mentioned.
1
2
3
4
United Retail Group
Walmart
Target
Amazon
Retailers and the internet
Clicks and bricks: Many retailers are
being
too
slow
in
reinventing
themselves for the age of online
shopping
5
6
7
8
Apple
Disney
Macy's
Borders
supermarket giant, until recently outsourced its ecommerce to Amazon, the biggest online retailer,
and is only now building its own e-business. Both
Walmart and Target still have a puny online
presence relative to their size.
Are you being served?
“WE TEND to overestimate the effect of a
technology in the short run and underestimate the
effect in the long run,” observed Roy Amara, an
American futurologist. This is certainly proving true
of retailers and their attitude to the internet. After a
panic at the turn of the millennium about the impact
on their industry of online shopping, bricks-andmortar stores settled into making only modest
alterations to their business model or, ostrich-like,
trying to ignore it. Few have so far made the radical
changes needed to meet the threats from, and tap
the enormous potential of, e-commerce.
Such inaction threatens retailers' survival. Online
sales are now approaching $200 billion a year in
America. Their share of total retail sales is creeping
up relentlessly, from 5% five years ago to 9% now.
People in their 20s and 30s do about a quarter of
their shopping online. True, few ladies who lunch
will buy their Christian Dior dresses online; and
bargain-hunters will still enjoy rummaging in
discount stores like Dollar General. But to attract
everyone in between, retailers will have to build a
strong online offering while making their shops
nicer, more conveniently located and, in the case of
many big-box retailers, smaller. Otherwise they are
likely to go under, as United Retail Group, an
American clothing chain, did this month.
To build a profitable online business retailers
must integrate it seamlessly with their bricks-andmortar operations. Many keep them separate,
increasing the risk that they fail to communicate
or work together properly. Walmart's online
operations are in Silicon Valley, far from its
Arkansas headquarters. Target, another
Retailers also need to be ruthless in chucking out
products that do not gain from being sold in a physical
store: not just things like CDs and DVDs, which can be
replaced by digital goods, but bulky stuff like nappies
(Amazon has become a big seller of Pampers). Their
shops must focus on those things, such as expensive
clothes and gadgets that customers will want to try
before they buy, and for which they will pay extra, such
as advice from competent sales assistants.
Stores have to become more fun to visit, so shoppers
feel it is worth the trip to the mall or high street. Apple's
shops thrive not only because they contain cool
products; they are beautifully designed, with helpful
staff. Disney stores may be an ordeal for parents but
they often succeed in giving their pint-sized clients “the
best 30 minutes of a child's day”. But too many
retailers think only of getting a quick sale, neglecting to
build relationships with customers. They are the most
at risk from “showrooming”: shoppers trying products
in physical stores before sneaking off to buy them
more cheaply online.
To survive in the new world of retail shopkeepers will
need large amounts of imagination—and money.
Macy's is investing $400m in the renovation of its
flagship store in New York. The losers will include
those (like Borders, an extinct chain of bookshops) that
keep selling things people are happy to buy online.
The biggest winners will be consumers. They can look
forward not only to ever-greater convenience thanks to
the internet. They will also find a growing number of
physical stores that compete to make shopping
a pleasure.
Source: The Economist, 25 February 2012
43
IV Answer these questions.
1
2
3
4
What kind of future changes in retailing is predicted in the first 2 paragraphs?
What did most retailers do so far to benefit from the growth of e-commerce?
How has e-commerce grown in the past few years?
Who will be the winners of the changes in the retail landscape? Why?
V What does the article suggest retailers should do to get the custom of people who
shop online? Use the prompts to write suggestions.
1
2
3
4
5
6
Retailers' physical stores should be ___________________________________________________.
Oversized stores ought to be ________________________________________________________.
The online and offline branches of a retailer should be ____________________________________.
Only goods that are ________________________________________________ should be sold in
bricks-and-mortar stores.
The experience of shopping in a bricks-and-mortar store ought to be ________________, where
there is a _________________ between retailers and customers.
____________________________________________________ have to be invested into
traditional stores.
VI Summarize the sections of this article in a sentence.
Paragraph 1: ________________________________________________________________________.
Paragraph 2: ________________________________________________________________________.
Paragraphs 2-6: _____________________________________________________________________.
Paragraph 6: ________________________________________________________________________.
VII What do these expressions mean? Choose the correct explanation.
1 Ladies who lunch
a. Women in managerial positions who eat lunch at work.
b. Well-off, well-dressed non-working women who meet each other for lunch during the working week.
2 Bargain-hunter
a. Someone who tries to find goods at discounted prices.
b. Someone who tries to negotiate the price of a product.
3 Big-box retailer
a. A retailer set up in a big box-like building with a large amount of floor-space, selling a wide range
of products at low prices.
b. A retailer selling large, high-value items at discounted prices in suburban areas.
4 To go under
a. To go bankrupt.
b. To downsize.
44
INTERNATIONAL TRADE
I Match these words and expressions from the box with the definitions below.
autarky
deficit
balance of payments
dumping
surplus
balance of trade
invisible imports and exports
tariffs
barter or counter-trade
protectionism
quotas
visible trade (GB) or merchandise trade (US)
1
trade in goods
2
trade in services (banking, insurance, tourism, and so on)
3
direct exchange of goods, without the use of money
4
the difference between what a country receives and pays for its exports and imports of goods
5
the difference between a country's total earnings from exports and its total expenditure on
imports
6
the (impossible) situation in which a country is completely self-sufficient and has no foreign
trade
7
a positive balance of trade or payments
8
a negative balance of trade or payments
9
selling goods abroad at (or below) cost price
10 imposing trade barriers in order to restrict imports
11 taxes charged on imports
12 quantitative limits on the import of particular products or commodities
II Read the text Protectionism and free trade and answer the following questions.
1
2
3
4
Why do most economists oppose protectionism?
Why do most governments impose tariffs and/or quotas?
Why were many developing countries for a long time opposed to GATT?
Why have many developing countries recently reduced protectionism and increased their
international trade?
PROTECTIONISM AND FREE TRADE
The majority of economists believe in the comparative cost principle, which proposes that all nations
will raise their living standards and real income if they specialize in the production of those goods
and services in which they have the highest relative productivity. Nations may have an absolute or a
comparative advantage in producing goods and services because of factors of production (notably
raw materials), climate, division of labour, economies of scale, and so forth.
This theory explains why there is international trade between North and South, e.g. semiconductors
going from the USA to Brazil, and coffee going in the opposite direction. But it does not explain the
fact that over 75% of the exports of the advanced industrial countries go to the other similar
advanced nations, with similar resources, wage rates, and levels of technology, education, and
capital. It is more a historical accident than a result of natural resources that the US leads in building
aircraft, semiconductors, computers and software, while Germany makes luxury automobiles,
machine tools and cameras.
45
However, the economists who recommend free trade do not face elections every four or five years.
Democratic governments do, which often encourages them to impose tariffs and quotas in order to
protect what they see as strategic industries – notably agriculture – without which the country would
be in danger if there was a war, as well as other jobs. Abandoning all sectors in which a country does
not have a comparative advantage is likely to lead to structural unemployment in the short (and
sometimes medium and long) term.
Other reasons for imposing tariffs include the following:
- to make imports more expensive than home-produced substitutes, and thereby reduce a balance
of payment deficit;
- as a protection against dumping (the selling of goods abroad at below cost price in order to destroy
or weaken competitors or to earn foreign currency to pay for necessary imports);
- to retaliate against restrictions imposed by other countries;
- to protect “infant industries” until they are large enough to achieve economies of scale and strong
enough to compete internationally.
With tariffs, it is impossible to know the quantity that will be imported, because prices might be
elastic. With quotas, governments can set a limit to imports. Yet unlike tariffs, quotas provide no
revenue for the government. Other non-tariff barriers that some countries use include so-called
safety norms, and the deliberate creation of customs difficulties and delays.
The General Agreement on Tariffs and Trade (GATT), an international organization set up in 1947,
had the objectives of encouraging international trade, of making tariffs the only form of protectionism,
and of reducing these as much as possible. The most favoured nation clause of the Gatt agreement
specified that countries could not have favoured trading partners, but had to grant equally favourable
conditions to all trading partners. The final Gatt agreement – including services, copyright, and
investment, as well as trade in goods – was signed in Marrakech in 1994, and the organization was
superseded by the World Trade Organization.
It took nearly 50 years to arrive at the final Gatt agreement because until the 1980s, most developing
countries opposed free trade. They wanted to industrialize in order to counteract what they rightly
saw as an inevitable fall in commodity prices. They practised import substitution (producing and
protecting goods that cost more than those abroad) and imposed high tariff barriers to protect their
infant industries.
Nowadays, however, many developing countries have huge debts with Western commercial banks
on which they are unable to pay the interest, let alone repay the principal. Thus they need to rollover
(or renew) the loans, to reschedule (or postpone) repayments, or to borrow further money from the
International Monetary Fund, often just to pay the interest on existing loans. Under these
circumstances, the IMF imposes severe conditions, usually including the obligation to export as
much as possible.
Quite apart from IMF pressure, Third World governments are aware of the export successes of the
East Asian “Tiger” economies (Hong Kong, Singapore, South Korea and Taiwan), and of the collapse
of the Soviet economic model. They were afraid of being excluded from the world trading system by
the development of trading blocks such as the European Union, finalized by the Maastricht Treaty,
and the North American Free Trade Agreement (NAFTA), both signed in the early 1990s. So they
tended to liberalize their economies, lowering trade barriers and opening up to international trade.
nd
Source: Ian MacKenzie, English for Business Studies, 2 Ed, pp. 155-7
46
III Write questions, relating to the text, to which these could be the answers.
1
__________________________________________________________________________?
Factors of production, most importantly raw materials, but also labour and capital, climate,
economies of scale, and so on.
2 ___________________________________________________________________________?
Because it doesn’t explain why the majority of the exports of advanced industrialized countries go
to other very similar countries.
3 ___________________________________________________________________________?
A recently developed one, that has not yet grown to the point where it benefits from economies of
scale, and can be internationally competitive.
4 ___________________________________________________________________________?
Unlike quotas, they produce revenue.
5 ____________________________________________________________________________?
Unlike tariffs, you know the maximum quantity of goods that will be imported.
IV Read the article and answer the questions.
1
2
3
4
5
6
How many types of trade barriers are mentioned in the text? List them.
Look back at the first reading in this unit and check the list of reasons why a country may impose
tariffs. Which ones apply in this situation?
Of what did the European trade commissioner accuse the Chinese?
What did the EU plan to do?
How was a trade war avoided?
What will the next point of contention be?
Sabres sheathed: The EU and China
have averted a trade war. Or have they?
THE European trade commissioner, Karel De
Gucht, has long been determined to take China to
task for unfair trade practices. As a result, it has
looked as though a trade war might break out
between China and the EU.
Two months ago, as part of an anti-dumping case
against China, the EU imposed punitive tariffs on
solar panels and related components, solar wafers
and cells. The initial penalty was set at roughly 12%,
but was to rocket to an average of nearly 50% on
August 6th. China had threatened to punish
European exports of wine and polysilicon.
Things looked bleak until suddenly, on July 27th, a
truce was announced. The EU will set a minimum
sales price, though far below the level expected. It
will also set a (generous) quota beyond which heavy
duties would apply. A deadline of August 8th looms
on a related dispute, but Jacquelyn MacLennan of
White & Case, a law firm, thinks further action on
solar panels is unlikely.Chinese officials are
pleased.
The ministry of commerce gushed that the deal
displayed wisdom as well as “pragmatic and flexible
attitudes”. China is also reconsidering its earlier threats
to curb EU exports.
Even so, it may be premature to celebrate. EU
ProSun, an industry lobby, is planning to appeal
against the decision. “This agreement is not a solution
but a capitulation,” it thundered. And indeed it is, in a
way. China forced Mr De Gucht to cave in by pressing
several European countries, notably Germany, into
speaking out against his investigations.
Telecoms is the other worry. Mr De Gucht has been
rattling his sabre about a possible investigation into
subsidies granted to Huawei and ZTE, two Chinese
telecoms giants. He went out of his way to say that
“mobile networks were not even mentioned” in the
recent solar talks.
Will he dare proceed, given the recent climbdown?
Expert opinion is divided, but one European finance
minister, who describes Mr De Gucht as “an extremely
stubborn man with nothing to lose”, thinks he might. If
he does, expect a battle royal.
Based on: The Economist, 3 August 2013
47
V Explain these sentences taken from the article with the help of the questions.
1 “Two months ago, as part of an anti-dumping case against China, the EU imposed punitive tariffs on
solar panels and related components….”
At what kind of price were Chinese solar panels sold in the EU? How did the EU want to stop this
unfavorable practice?
“…a truce was announced. The EU will set a minimum sales price, though far below the level
expected. It will also set a (generous) quota beyond which heavy duties would apply.”
Which parts of the compromise are advantageous to China and which to the EU? Why?
2
3 “China is also reconsidering its earlier threats to curb EU exports.”
Why was China threatening to limit EU exports?
4 “EU ProSun, an industry lobby, is planning to appeal against the decision.”
Why is the industry in the EU unhappy with the agreement?
5 “Mr De Gucht has been rattling his sabre about a possible investigation into subsidies granted to
Huawei and ZTE, two Chinese telecoms giants.”
Why are subsidies given by the Chinese government to Chinese firms seen as a problem in
Europe?
VI Find word partnerships with the following nouns.
1
2
3
4
5
6
7
a trade war b__________ o_____
i __________ a tariff
s__________ a price
s__________ a quota
c__________ exports
a__________ against the decision
g__________ a subsidy
VII Retell the article in your own words using the word partnerships from above.
48
PROTECTIONISM AND BARRIERS TO TRADE
I Discuss the following questions.
1
2
3
What are subsidies?
How do sugar producers profit from receiving subsidies?
What do you know about the European Union's Common Agricultural Policy (CAP)?
Trade
Oh, sweet reason
A report counts the cost of Europe's sugar subsidies on poor countries
AS THE Doha round of trade negotiations slowly
revives at the World Trade Organisation (WTO) in
Geneva, agricultural subsidies and tariffs have been
taking centre stage. A new report from Oxfam, a
campaigning group for poor countries, highlights the
absurdities of agricultural subsidies, by focusing on
those for sugar, a product that developing countries
are especially good at producing. In particular, the
report explains exactly how the European Union's
common agricultural policy (CAP) enriches a few
European farmers and sugar refiners at the
expense of the world's poorest.
Oddly, the EU is the world's second-biggest sugar
exporter. Though it does not have the right climate
for growing cane sugar, since Napoleon's time
Europeans have grown sugar beet instead. They do
not, however, do this efficiently: the cost of
producing a pound of sugar in the EU is more than
six-times higher than in Brazil, says Oxfam (see
chart). It argues that the EU subsidy is much bigger
than the €1.3 billion ($1.5 billion) it owns up to
publicly. Oxfam says there are €833m of “hidden
subsidies”, too.
Subsidising sugar producers is not just
economically stupid, it is morally indefensible, too.
For Europe's subsidies are not merely a quaint way
to keep a few farmers in business. They cause so
much sugar to be produced that the stuff is
exported to poor countries, hurting farmers who
might otherwise earn a living by growing it
themselves—and perhaps even exporting it to
Europe.
At most, only 1.5m tonnes of sugar a
year is bought in Europe from
preferred trading relationships with
African, Caribbean and Pacific
countries. Worse, the sugar provisions
of the CAP set poor countries against
each other. European subsidies mean
that its excess sugar ends up in places
such as Algeria, Ghana, Congo and
Indonesia, displacing sugar produced
in countries such as South Africa and
India.
Brazil and Thailand are the hardest hit, Oxfam
reckons. On its analysis, Brazil loses around
$500m a year, and Thailand about $151m, even
though these two countries are the most efficient
sugar producers in the world. Even less efficient,
and poorer, African countries lose out.
Mozambique will lose $38m in 2004—as much as
it spends on agriculture and rural development.
The costs to Ethiopia equal the sums it spends on
HIV/AIDS programmes.
The biggest winners, says Oxfam, are large
European sugar refiners. France's Beghin Say, it
claims, benefits by €236m a year, Germany's
Sudzucker by €201m, and Britain's Tate & Lyle by
€158m. Further progress at the WTO may depend
in part on whether such firms will accept the loss of
such subsidies. That fact should leave a very sour
taste in the mouth.
Source: The Economist, 15 April 2004
49
II Read the article Oh, Sweet Reason and decide if the following statements are
True (T) or False (F).
1
Developing countries are better at producing sugar than European countries.
□
2 The EU is the world's second-biggest sugar exporter because it has the best climatic
conditions for growing cane sugar.
3 The European Union's agricultural subsidies help poor farmers to reduce the cost of
producing sugar and thus becoming more competitive exporters of sugar.
4 Subsidizing European sugar producers is absurd because the cost of producing sugar in the
EU is more than six-times higher than in Brazil, for example.
5 African countries are the most efficient sugar producers in the world.
6 Hundreds of millions of dollars are lost globally due to the European Union's Common
Agricultural Policy (CAP).
7 Ethiopia is particularly affected because the sums of money lost equal the sums it spends on
HIV/AIDS programmes.
8 France, Spain and Italy are among the most influential European sugar refiners.
□
□
□
□
□
□
□
III Answer the following questions.
1
2
3
4
5
What does the EU do when it subsidizes sugar?
What are the main arguments against subsidies?
How are sugar subsidies a barrier to trade?
What do you think the WTO should do in the situation outlined in the article?
Which products does Croatia subsidize?
IV Use the following notes and write a SUMMARY of the article Oh, Sweet Reason.

1 ABSURDITIES OF AGRICULTURAL SUBSIDIES
The EU’s Common Agricultural Policy enriches a few farmers and refiners at the expense
of the world’s poorest
 The world’s 2nd exporter with the wrong climate
 cost of production: EU = 6 X Brazil!
2 GLOBAL IMPACTS
 subsidies – too much sugar – exports
hurting other exporters
hurting foreign farmers
3 LOSERS
Brazil $ 500m → the most efficient producers
Thailand $151m → in the world
Mozambique $38m
Ethiopia $ = AIDS programmes!
WINNERS
France $ 236m (Berghin Say)
Germany $201m (Sudzucker)
Britain $158m (Tate & Lyle)
 Doha negotiations depend also on large EU companies
50
VISIBLE AND INVISIBLE TRADE
I Study the chart below and explain the difference between:
☐
Primary / secondary products
☐
Visible / invisible trade
☐
Balance of trade / balance of payments
Foods and Produce
Manufactured Goods
Imports
Specialist Goods
Raw Materials
+
VISIBLE TRADE
Exports
→
BALANCE OF
TRADE
Electrical Appliances
Machine Tools
BALANCE OF
PAYMENTS
Government Payments
Shipping
Imports
Specialist Aviation
Travel
+
INVISIBLE TRADE
Exports
Banking
Other Services
II Look at the chart again and answer the following questions:
1
Can you add to the list of invisible exports and imports?
2
If you go abroad and buy music, clothes, books, or eat in a restaurant, is it recorded as imports or
exports for Croatia?
3
When foreign tourists come to Croatia and spend money in night clubs, shops, restaurants, buy
food, or pay for hotel rooms, is it imports or exports for Croatia?
4
If our transport companies ship foreign goods through Croatia, is it recorded as our exports or
imports in the balance of payments?
51
THE EUROPEAN UNION
I How many member states are there in the European Union today? When did they
accede to the EU?
II Read the text and decide which paragraphs are covered by the following headings.
1
2
3
4
5
6
7
Recent achievements
ECSC, EDC, EEC
Objection
EU responsibilities
The importance of the economy
Birth
Enlargement
Fit at 50?
A On MARCH 25th 1957 a gaggle of leaders from six European countries (France, West Germany,
Italy and the Benelux trio) met in the great hall of the Horatii and the Curiatii in Rome's Capitoline
museum. Behind them two 17th-century frescoes depicted ancient Rome's bloody history: a suitable
backdrop, since one of their concerns was to prevent a recurrence of Europe's internecine wars.
They signed a treaty to establish a European Economic Community (EEC), soon to become known
as the common market.
B True federalists actually saw the Treaty of Rome as a move away from the building of a European
superstate that they had hoped would develop from the European Coal and Steel Community, set up
in 1951. But in fact the EEC grew out of two other events: the French National Assembly's rejection
of the proposed European Defence Community in 1954 and the Suez crisis of 1956. The first pointed
to a reassertion of nation-states at the heart of Europe; the second led France to conclude that a
European community was in its vital interest.
C A bigger objection to the EEC was that it covered only a small part of Europe. Soviet-dominated
eastern Europe was excluded, as were fascist Spain and Portugal, because they were not
democracies. But Britain and others chose to stand aside, either because they disliked the political
integration implicit in the new grouping or because they wanted to preserve their neutrality.
D Fifty years later the European Economic Community has changed out of all recognition, having
metamorphosed into the European Union and grown far beyond the original six members. Despite
the EFTA experiment, Britain applied for membership only four years after the Treaty of Rome, but
was blocked by de Gaulle's veto and did not join until 1973, along with Denmark and Ireland.
E Several waves of further expansion followed, including Spain and Portugal in 1986. The biggest of
all saw the admission of ten new members, including many ex-communist central European
countries, on May 1st 2004. At the start of this year Romania and Bulgaria became the EU's 26th
and 27th members. The only countries that have chosen to stay out even though they would instantly
qualify for membership are Iceland, Norway and Switzerland.
F The European Union has also moved far beyond the economic sphere. The completion of the
single market was set in train only in the 1980s and remains a work in progress. The European
institutions have exploited single-market rules to extend their responsibilities into such areas as
social policy, welfare and the environment. Along the way the EU has acquired a single currency, a
common foreign policy, a passport-free travel zone and policies on justice and home affairs, plus a
nascent defence alliance with its own military-planning staff.
52
G This does not sound like an organisation in deep crisis. Even in the past two years the EU has
agreed on a seven-year budget and set out ambitious plans for an energy policy and for tackling
climate change. It has sent troops as far afield as Aceh and Congo and co-ordinated big national
deployments in Lebanon. It has started membership negotiations with Croatia and, most
momentously, with Turkey. Claims that this club has been unable to function since 2005 seem
overblown.
H It was the roaring economic growth of the EEC, above all else, that made it such a success in its
early days. It was this economic dynamism, too, that lured first Britain and then all the others to apply
for membership. Conversely, it was gloom about the economy, and particularly over persistent high
unemployment, that played the biggest part in the rejection of the constitution and in the spread of
Euroscepticism across the continent. If the EU is to flourish far beyond its 50th birthday, it is its
economy that most needs attention.
Adapted from: The Economist, Special Report, 15 March 2007
III Present the history of enlargement. The text does not provide complete information
on the years of accession for all member countries. Which countries are missing?
Find this information on the official web-pages of the EU: http://europa.eu/.
1957 (6 countries)
1973 (3 countries)
1981 (1 country)
1986 (2 countries)
1995 (3 countries)
2004 (10 countries – “Big Bang“)
2007 (2 countries)
2013 (1 country)
IV Do you know the meaning of the expressions below? How are they related to the EU?
Which of them can you find in the texts and exercises on the European Union?
single market
Accession
common market
pre-accession funds
member states
euroscepticism
harmonization
enlargement
single currency
euro area/euro zone
accede (to)
Treaty of Rome
candidate country
apply for membership
acquis communautaire
V Fill in the gaps with the words in the box.
harmonization
European Union
candidate
overview
treaties
Accession
accedes
opening
Member States
Accession Negotiations are the processes by which a (1) _______________ country
(2) _______________ to the (3) _______________ and adopts its founding (4) _______________. The
close of Accession Negotiations is followed by the signing of an international treaty between the EU
(5) _______________ and the candidate country called the (6) _______________ Treaty.
The formal (7) _______________ of the negotiating process is followed by the analytical
(8) _______________ and evaluation of the degree of (9) _______________ of national legislation with
the acquis communautaire, known as screening.
VI Discuss Croatia’s path to the European Union using appropriate terminology. Visit the
official web-pages of the EU to get reliable information and make notes here.
53
A BRIEF SUMMARY OF THE HISTORY OF EUROPEAN UNION ENLARGEMENT (2010)
I a) Read the gapped text and think about what words and expressions might be
missing. Then, fill in the gaps as you watch the video:
http://www.youtube.com/watch?v=RE6QgoykLZU.
The story of the European Union begins in 1951, with the (1) ______________ of the
European Coal and Steel Community. France, Italy, West Germany and the three Benelux countries
agreed to (2) ______________ their coal and steel markets. The idea being that economic
(3) ______________ would make a return to war […] materially impossible. The GDP of the six
members (4) ______________ steadily as the effects of the community rules on industrial production
and trade began to kick in.
Six years later, in 1957, the six countries (5) ______________ the Treaty of Rome creating
the European Economic Community. In 1961, the UK along with Ireland and Denmark
(6) ______________ to join, but France's President, Charles de Gaulle vetoed Britain's application. It
wasn't until 1973 that the EEC enlarged to take in the three countries.
[…]
The single European currency, the Euro, was (7) ______________ in 1999 with notes and
coins entering (8) ______________ in 2002.
[…]
In the twelve countries that joined in 2004 and 2007, the (9) ______________ process has
brought real benefits. According to the European Commission, between 2000 and 2008 the process
contributed an average 1.75 percentage points to annual GDP (10) ______________ in these
countries. The Commission also says that (11) _______________ has brought economic benefit to
existing EU members as new (12) ________________ markets opened up.
Today's EU (13) _______________ 27 member states, ranging in size from Germany down to
Malta. Under current rules, in the European (14) ________________, where heads of government
meet to take decisions, voting (15) _______________ are awarded roughly in proportion to a
country's (16) ________________, although smaller countries tend to do better, proportionately, than
larger ones.
The future of the EU enlargement is uncertain. Three countries: Croatia, Macedonia and
Turkey have had their (17) ________________ to join the Union officially accepted. Yet, many argue
that the EU needs more time to digest its recent eastward extensions before it embarks on further
serious enlargements. Of the three official (18) _______________, only Croatia looks likely to join in
the near future … (19) _______________ with Macedonia are being blocked by Greece, which has
(20) ______________ about the former Yugoslav republic’s name. Turkey’s movement towards
(21) _______________ has stalled owing to concerns among senior European leaders over whether
it belongs in the EU at all.
54
b) Make a list of the other countries that would like to join the EU in the future.
☐ _____________
☐ Countries of the Western Balkans:
 ______________

______________
●
applied for membership
●
some way off yet
 ______________

______________
 ______________
☐ _____________: a large, poor country wrecked by instability and _____________.
☐ _____________: aspires to EU membership but there is no real prospect of this in the short- or even
medium term.
II Answer the questions.
1
What was the non-economic reason for establishing the European Coal and Steel Community?
2
Did the enlargement have a positive outcome for the countries that joined in 2004 and 2007?
3
How about the countries that were already members?
4
What is the purpose of the European Council?
5
Explain this sentence: “In the European Council … voting rights are awarded roughly in proportion
to a country's population, although smaller countries tend to do better, proportionately, than large ones.”
6
What is the official term for countries that want to join the EU?
III Match the phrases with the same meaning.
1
unify their coal and steel markets
a) to make larger
2
war would be materially impossible
b) the yearly increase in a country’s income
3
applied to join
c) economically unviable
4
vetoed Britain's application
d) create a single market
5
annual GDP growth
e) expressed a wish to enter the EU
6
to enlarge
f)
banned Britain from joining
IV Match the word partnerships.
launch
benefit
economic
process
accession
rights
voting
a currency
Based on: http://www.youtube.com/watch?v=RE6QgoykLZU
55
6 BANKING
Banking
The bare essentials
I Use the words below to fill in the gaps.
goes bust
deposits
loans
interest
in
depositors
cash
borrow
interest rates
shortages
bank account
central bank
What banks are for
In developed economies, nearly everyone has a (1) __________________, because keeping
(2) __________________ under a mattress is neither safe nor convenient. Banks are an essential
feature of national life, like buses, post offices and hospitals. Any money that is not floating around as
cash, in the form of notes or coins, is either sitting (3) __________________ a bank account, or is in
transit in a payment system between banks.
Banks operate by taking (4) __________________ from private people, on which they pay low
(5) __________________ or none at all, and using the money to make longer-term
(6) __________________ to other customers, charging them higher (7) __________________. Banking
is based on trust, but banks sometimes misuse depositors' money or make losses on their loans, and
(8) __________________ do not usually have the time, the inclination or the capacity to monitor their
banks. They are happy to leave that task to the governments.
Governments also help banks cope with temporary cash (9) __________________ by providing access
to the "discount window" so they can (10) __________________ money from the
(11) __________________. The bank deposits are often insured in a pool of arrangement or by the
government itself, in case the bank (12) __________________.
cartels
regulators
payments
credit
debit
securities
payment system
transaction
investments
financial services
foreign currency
Banks are also needed to make (13) __________________, sending money from one bank account to
another, whether in the same bank or in any other one the world over. Even a payment by
(14) __________________ or (15) __________________ card or a mobile-phone billing account, ends
up as part of a
(16) __________________ with a bank.
These days most banks do a lot more besides, offering a wide range of (17) __________________. For
example, they give financial advice, exchange (18) __________________, deal in
(19) __________________ and derivatives, and manage (20) __________________ on behalf of
clients. Regulators have an interest in making sure that these businesses are run properly; but their chief
concern remains that banks are sound, that those deposits are safe and that the
(21) __________________ runs smoothly.
Regulating banking systems is an uncertain business. Banks have to be discouraged from forming
protectionist (22) __________________ and encouraged to compete with each other, but not so fiercely
that they cut each other's throats. It is a delicate balance for (23) __________________ to strike.
Source: The Economist, May 19th 2005
56
II Follow the text and find verbs that collocate with the words below.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
t__________________ deposit
p__________________ interest
m__________________ loans
c__________________ interest
m__________________ depositors' money
m__________________ losses
b__________________ money
g__________________ bust
m__________________ payments
o__________________ financial services
g__________________ financial advice
e__________________ foreign currency
d__________________ securities and derivatives
m__________________ investments
III Use the words from the box below to translate the words in brackets into English.
debited
ATM
bank statement
credits
red
accountant
balance
black
standing order
current account
Vesna Bakić is an __________________ (računovođa). When she started working she opened a
__________________ (tekući račun) with her bank. Her company __________________ (uplaćuje
sredstva na) her account every month. She can withdraw money from her account in the bank during
office hours or from an __________________ (bankomat) any time she wants. She has arranged with
her bank to pay electricity and other bills by __________________ (trajni nalog). Every month on a
certain day the bank sends her a __________________ (bankovni izvod) which tells her the
__________________ (stanje), the exact amount on her account, i.e. whether she is in the
__________________ (minus) or in the __________________ (plus). Vesna is happy to have a credit
card for paying goods and services, but she is not happy when her account is __________________
(terećen) too much.
57
BANK STATEMENTS
I Match the headings with the corresponding sections of the bank statement.
Source: Invest Ed My Money Handbook
(http://www.investedok.org/MyMoneyHandbook/2012_My_Money_Handbook.pdf)
II Match the definitions to the corresponding headings.
1
This is the amount the bank charges to maintain your account. ______________________
2
The number that uniquely identifies your account. _______________________
3
This area shows your previous balance, the total deposits, the total withdrawals and service
charges and calculates your new balance. _______________________
4
Each check that has been cashed is listed here by number with the date cashed and the amount.
The * indicates that a check number has been skipped. _______________________
5
This section lists all transactions where money has gone into your account. ____________________
6
All transactions taking place between these two dates are on the statement. ___________________
7
Here each withdrawal you have made is listed with the location, date and amount of withdrawal.
_______________________
8
Any ATM you have used in the statement period is listed here. _______________________
9
This section lists all transactions where money has come out of your account.
________________________
58
BANKING CRISIS
I Before reading about the first run on a British bank for generations match up the words
and definitions below.
the Treasury
1
2
3
4
5
6
bank run
solvent
the Chancellor
credit squeeze
shakeout
the concerted action of depositors who try to withdraw their money from a bank because they think
it will fail
an elimination of some competing businesses, products, etc., as a result of intense competition in a
market of declining sales or rising standards of quality.
the department of government that has control over the collection, management, and disbursement
of the public revenue.
a restraint or limitation of credit; restricted bank lending that is accompanied by rising short-term
interest rates and a decline in economic growth
the British cabinet minister responsible for finance
having enough money to pay your debts at the time they must be paid
II Read the introductory paragraph and find out what happened and how it happened.
Can you predict what came next?
Northern Rock Banking Crisis
The Times, Friday September 21th, 2007
The shake-out from the global credit squeeze led
to the first run on a British bank for generations.
Northern Rock's customers rushed to withdraw
their savings after the Bank of England offered
the mortgage lender emergency funding. The run
continued despite assurances that North Rock
was solvent. It was only halted after the
government (eventually) guaranteed all its
deposits.
III Scan the rest of the text and match the questions to the corresponding paragraphs.
1 Who is to blame for the Northern Rock crisis?
2 Why did the Bank of England not act earlier?
3 Why did the Treasury get involved?
4 Are critics convinced by the Bank's response?
5 What does the Chancellor's guarantee for Northern Rock cover?
6 What about investors who lent money to Northern Rock?
7 How much is the guarantee worth and how long will it last?
A If the bank goes bust, the Treasury will repay
investors who made unsecured loans but will not
cover those who bought the bank's covered bonds,
securities issued by Northern Rock's structured
investment vehicle or subordinated debt.
B Questions remain about why the Governor
retreated. Some believe he came under pressure
from the Chancellor, Alistair Darling, and the
Treasury. Others feel the Bank made the move to
cover up some other, as yet unknown, banking
losses.
Paragraph ______
Paragraph ______
Paragraph ______
Paragraph ______
Paragraph ______
Paragraph ______
Paragraph ______
C The Treasury said yesterday that the guarantee
would last "during current instability in the financial
markets."
D Most people point the finger at management, who
borrowed over their heads in the money markets to
provide mortgages on the cheap. Others blame the
Financial Services Authority, the banking regulator,
and the Bank of England for not spotting trouble early
enough.
59
E The Treasury has promised to protect all retail
and commercial accounts opened by midnight on
September 19. The guarantee covers interest
payments, the movement of money between
accounts and deposits into existing accounts. The
Treasury will also protect accounts opened at the
bank by customers who closed their accounts
between September 13 and September 19.
F Because the Bank's guarantee to Northern Rock
was not enough, the only way to stem the panic
was for the Government to step in and guarantee
100 per cent of all deposits.
G The Governor said the Bank was hampered by
the interaction of four pieces of legislation. The first
was the Market Abuse Directive, which prevented it
from following its preferred course of action – a
covert bailout of Northern Rock. The Directive,
introduced in 2005, meant that any such action had
to be carried out in a overt, transparent manner.
IV Match the following words from the text to the corresponding explanations:
1
unsecured debt
a. at a low cost
2
bailout
b. to prevent, hinder
3
on the cheap
c. issued with a guarantee (an asset)
4
to stem
d. to notice that something is going wrong
5
to hamper
e. to stop
6
covered bonds
f.
7
run on a bank
8
to spot trouble
9
to come under pressure
10 subordinated debt
borrower
g. providing money to get somebody out of
financial trouble
h. an organization that makes loans for buying
11 (to borrow) over their heads
12 mortgage lender
debt that is not supported by any assets of a
property with the property as security
i.
when many depositors try to withdraw their
money because they think a bank will fail
j.
more than would be reasonable, intelligent
k. to feel pushed to act
l.
debt that will only be repaid after all the other
debts have been paid
V Read the text again and underline:
a)
words that appear in Subprime Meltdown (MK, p. 75) or The Crisis of Credit (to be found on
YouTube or Vimeo: http://vimeo.com/3261363)
b)
any unknown words
60
CENTRAL BANKING
I Gabriel Mangano is an economics research student, specializing in monetary policy.
You will hear him outlining the functions of a central bank. Listen to the interview with
him, and fill in the gaps.
The first one is actually to implement monetary policy. There are roughly three ways to do it. First
(1a) _____________________________________, which means limiting, upwards or downwards,
the fluctuations of the interest rate. The second way to implement monetary policy is simply
(1b) ___________________________ - coins, banknotes. The third one, which is a bit more
modern, is those (1c) ______________________________, which are simply buying and selling
government bonds to and from commercial banks.
So that was the first main task of a central bank. The second one is (2) ___________________,
I would say. (...)
Third main task, yes, (3) _______________________________________, I would say - make sure
that the commercial banks have enough liquidities, for instance, to avoid any bank run. (...)
The fourth main task of the central bank would be to (4) ___________________________, in case,
actually, one of these commercial banks goes bankrupt and the investors, the people putting money
in the bank, have to get back their money.
II Read the six sentences below, which also summarize central banking functions,
but slightly differently, and match them up with the six expressions you have
written in the first task.
A controlling the amount of banknotes in circulation
B establishing maximum and minimum lending rates, thereby controlling the credit system
C ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their
deposits when they want
D intervening on foreign exchange markets, buying or selling large amounts of the national
currency, to prevent major fluctuations
E lending money to a commercial bank in danger of going bankrupt
F selling government bonds to commercial banks or buying them back, in order to alter the
amount of credit the banks can offer (and thereby alter the money supply)
Source: Ian MacKenzie, English for Business Studies, 2
nd
Ed, p. 133
61
CENTRAL BANKING: HOW CAN MONETARY POLICY HELP THE ECONOMY?
I Discuss the following questions.
1 What are central banks responsible for? Does Croatia have a central bank? Do
you know the meaning of the following acronyms and abbreviations: ECB (S), the Fed,
CNB (HNB)?
2 Do you understand the words below? Which of them did you mention in your
economics classes? Are they related to monetary policy issues?
full employment
reserve requirement
money supply
discount rate
lending capacity
output
loan availability
market participants
income redistribution
a ggregate demand
investment
bonds
loan approval
scarce goods
consumption
borrow
inflation
open market
3 How can monetary policy help the economy? Read the the extract from Schiller,
B.R. (1996). Essentials of Economics. McGraw-Hill and explain.
The ultimate goal of all macro policy is to stabilize the economy at its full-employment potential.
Monetary policy contributes to the goal by increasing or decreasing the money supply as economic
conditions require.
Expansionary policy
When the economy is in recession, it produces less than its full-employment potential. Monetary policy
may then be used to stimulate the economy to increase the rate of output and aggregate demand. If
the Fed lowers reserve requirements, drops the discount rate, or buys more bonds, it will increase
bank lending capacity. The banks in turn will try to use that expanded capacity and make more loans.
By offering lower interest rates or easier approvals, the banks can encourage people to borrow and
spend more money.
Restrictive policy
Monetary policy may also be used to cool an overheating economy. Excessive aggregate demand
may put too much pressure on the economy's production capacities. As market participants bid
against each other for increasingly scarce goods, prices will start rising. The resulting inflation will
redistribute real incomes (perhaps unfairly) and may disrupt investment and consumption plans.
The goal of monetary policy in this situation is to reduce aggregate demand. To do this, the Fed can
reduce the money supply by (1) raising reserve requirements, (2) increasing the discount rate, or (3)
selling bonds in the open market. All of these actions will reduce bank lending capacity. The
competition for this reduced pool of funds will drive up interest rates. The combination of higher
interest rates and lessened loan availability will curtail investment consumption and even government
spending. This was the intent of the Fed's money restraint in 1994. The Fed was worried that the US
economy was growing so fast that it would overshoot the full-employment goal. To avert those
inflationary pressures, it reduced money-supply growth and raised interest rates.
Source: Schiller, B.R. (1996). Essentials of Economics. McGraw-Hill Schiller
62
II Read the text again and fill in the table.
MONETARY
POLICY
PROBLEM
What has gone
wrong?
GOAL
What should be
done?
MEASURES
How should it be
done?
EXPANSIONARY
(LOOSE)
RESTRICTIVE
(TIGHT)
III Work in pairs. Present one type of monetary policy (expansionary or restrictive) to
your colleague using the framework below.
If the economy ............................................, the central bank should...................................................
This can be done by ........................................................ the reserve requirement,
....................................... the discount rate, or by....................................................... bonds on the
open market.
IV MONETARY AND FISCAL POLICY
a) Fill in the gaps with the correct form of the words in the box. Then decide which
paragraph refers to monetary policy, and which one to fiscal policy.
wish
spending
reduce
greater
inflation
demand
monetary
fiscal
unemployment
hire
expansionary
make
restrictive
______________ policy
Reducing taxes and increasing government ______________ have the same effect –
______________ spending in the economy. The difference is that when you ______________ taxes,
the extra spending is done by individuals. Governments will do this if they want to reduce
______________ – the extra spending will increase ______________ for products which firms will
meet by ______________ more workers. This is called a(n) ______________ _____________
policy. A problem is that inflation might increase ______________ a result.
If the government ______________ to reduce inflation it might increase taxes or reduce spending –
a(n) ______________ _____________ policy. There will be less spending, and firms will
______________ less profit.
63
rate
opposite
bank
less
monetary
borrow
more
fiscal
spend
______________ policy
When the interest ______________ is cut, it is cheaper to ______________ money and you get less
interest when you put money in the ______________. So both firms and consumers borrow and
spend ____________ and save ______________. What kind of policy is this?
Increases in interest rate have the ______________ effect – it is better to save than
______________, so both firms and consumers spend ______________. What kind of policy is
this?
b) UP OR DOWN? Decide how the two types of fiscal and monetary policies change the
following:
EXPANSIONARY
Up
RESTRICTIVE
Money supply
Down
Interest rate
Public spending
Taxes
Demand
Bank savings
Growth
Unemployment
Inflation
V PROJECT - ECONOMY AROUND US
Find business headlines, international or local, talking about the impact of central
banking on the economy (e.g. the Fed and the Great Recession of 2008, Croatian news
dealing with the CNB etc.). Prepare a talk in English on each piece of news (no more
than 3-4 short sentences).
64
7 INSURANCE
I Do you know the answers to the following questions:
1
2
3
4
5
What is insurance?
Why do people and businesses purchase insurance cover?
What does a person or a business have to do if they want to purchase insurance?
Do you know how the insurance business works?
What happens if you suffer a loss?
II Read the text and find the answers to those questions.
How Insurance Works
People and businesses attempt to avoid the financial consequences of replacing personal lost or
damaged property resulting from their exposure to risks of fire, theft, earthquake, or other accidents by
purchasing insurance cover. Insurance is actually a type of risk management where the risk is shifted
to the insurance company in exchange for payments or premiums.
If a person or a business wants to purchase insurance, he/she contacts an insurance broker who
advises on the best type of insurance policy for him/her. This is a legally binding contract that
describes all the rights, responsibilities and obligations of both interested parties – the insured and the
insurance company. If the insured suffers losses covered in the policy, he/she files a claim describing
what is lost or damaged and its value, and asking to be reimbursed up to the amount of the policy –
the insured sum. If the policy is for $5,000 that is the maximum amount the insured person can get.
When individuals or businesses take out insurance policies, all the premiums are combined into the
insurance pool. Insurance companies assess their exposure to risk trying to predict the amounts of
claims for losses or damages they will have to compensate. Based on this statistics they will
determine the amount of the premium for each particular case. This is called underwriting. As the vast
majority of insured do not suffer the losses or damages their insurance policies cover, the insurance
companies make huge profits. However, in order to be able to pay out the occasional huge
compensations insurance companies increase their pool of premiums by acting as institutional
investors, i.e. by trading in securities together with pension funds, hedge funds and the likes. In order
to protect themselves most insurance companies minimise their underwritten risks by reinsuring risk
with larger insurers.
Adapted from: http://www.ehow.com/how-does_4675265_insurance-work.html
III Find the words in the text which match the following explanations.
1
2
3
4
an application for payment under an insurance policy ______________________
a payment for an insurance policy (usually monthly, yearly etc.) ______________________
an act of lowering risk exposure ______________________
a contract on insurance cover between the insurer and the insured (also called the policy holder)
______________________
5 the person or business taking out the insurance ______________________
6 to evaluate the risks of insuring a particular person or asset ______________________
7 a chance or possibility of injury, loss etc. ______________________
8 the amount of money a policy holder claims upon suffering a loss ______________________
9 to insure the risk of one insurance company by another ______________________
10 an independent agent who advises on best insurance deals ______________________
65
IV Match the verbs with the appropriate nouns to make collocations.
*to take out...
to refund...
to pay...
to issue...
to claim…
to cover...
to bear...
to file...
to assess...
to cancel...
to make…
to settle...
to insure against...
to draw up...
to purchase…
.
to take out
an insurance
cover
compensation
a policy
risks
a claim
V Read the gapped text and think about what kind of words and expressions might be
missing. Then, fill in the gaps as you watch the video:
http://www.youtube.com/watch?v=ID9aevs-els
You pay a (1) _________________ to a company that provides you with insurance and in the
event of a loss they will provide you some sort of benefit (...)
This could be a homeowner’s insurance where you pay a premium and the insurance company
will help you (2) _________________that loss of a home or a damaged property (...)
Insurance companies are in the business to make money. […] They take your money and they
are taking a (3) _________________ (...)
They are taking in a ton of risk and they are kind of (4) _________________ it around.
Maybe they’ll take on 20, 30, 40 people and only one or two of them have any type of auto
(5) _________________, so they are able to make money by spreading that risk around (...)
Oftentimes insurance companies will even do something called (6) _________________ where
there’ll be another insurance company that will (7) _________________ that risk from the
insurance company that you go through (...) The [other] insurance company can help
(8) _________________ their level of risk that they are undertaking by offering reinsurance.
VI What kinds of insurance are mentioned in the talk?
____________________________, ___________________________,
____________________________.
66
VII Put the following steps in the chronological order.
How to take out insurance
☐ The insurer quotes a premium.
☐ You find an insurance company and contact an agent or a broker.
☐ The underwriting process (risk assessment) takes place.
☐ You decide to protect your property against an accident, loss or damage.
☐ The insured pays the first premium.
☐ The insurer issues the policy (the contract).
☐ The insurer is willing to provide cover.
☐ You apply for insurance.
VIII Fill in the missing words with the help of the above exercises.
_______________ for
an insurance
_______________ a policy
_______________ cover
_______________ a premium
_______________ a premium
_______________ something against
theft
_______________ a loss
_______________ a claim
insure _______________ something
_______________ the risk
IX Identify the different types of insurance cover:
full/all-risks cover/policy
fire risk only
burglary insurance
car insurance
casualty insurance
liability insurance
life assurance
malpractice insurance
marine insurance
multi-risk policy
credit insurance
extended coverage
non-medical policy
obligatory insurance
ordinary life assurance
general insurance
goods-in-transit/cargo
hail insurance
re-insurance
pet insurance
theft insurance
voluntary insurance
travel/voyage insurance
war risks
whole life assurance
industrial accident insurance
social security insurance
partial/total disability
insurance
government subsidised
insurance
comprehensive motor policy
1 If you are going on holidays and are concerned with being burgled what insurance would you take
out? ____________________
2 If you are selling insurance to surgeons, what insurance would you offer? ____________________.
3 If you are considering buying a yacht, you must count on the expense for ____________________
insurance.
4 If you are planning to raise a home mortgage the banks will oblige you to take out
__________________ assurance.
5 A ____________________ insurance policy will not cover damages incurred by defective packing.
6 There are 3 basic types of ____________________: third party, fire and theft and comprehensive
insurance.
7 As a manufacturer of potentially dangerous products, you may want to purchase product
____________________ insurance to cover yourself if a product causes damage to the purchasers.
8 If your job involves danger of mishap your employer should cover you with
a ____________________.
9 For trips abroad particularly, it is recommended to take out ____________________ insurance.
10 ____________________ insurance will cover the insured for all possible types of hazards,
mishaps or accidents.
67
X Discuss or look up the remaining types of insurance, choose some you are
particularly interested in, and make your own sentences:
1 _____________________________________________________________________________.
2 _____________________________________________________________________________.
3 _____________________________________________________________________________.
4 _____________________________________________________________________________.
5 _____________________________________________________________________________.
XI Read the article below and comment: How do disasters affect a) insurers and
b) the insured?
Lloyd’s tsunami exposure limited
By Robert Orr in London
Lloyd’s of London confirmed it had only limited
exposure to the Asian tsunami and said the
market’s net loss would be about £100m ($188m).
Moreover, while the tsunami affected many
thousands of miles of coastline, it did not hit a large
metropolis. Many insurance policies also include
specific exclusions for “acts of God” such as
hurricanes and tsunamis.
Several Lloyd’s members, including Amlin, SVB
and Wellington, have already said their tsunami
exposure would be minimal.
“This is not a big number in insurance terms,” said
Nick Johnson, analyst at Numis Securities.
Munich Re and Swiss Re, the leading reinsurers,
have put their exposure at less than €100m
($130m) and SFr100 ($83.8m) respectively.
Charles Coyne, at KBC Peel Hunt, added: “The
cost of an ordinary hurricane hitting Florida is $1bn;
a bad one costs $5bn. This is clearly nothing like
that.”
While the tragedy on December 26 killed more
than 250,000 people and caused widespread
devastation, the insurance industry escaped
relatively unscathed. Economic losses have been
put at $10bn although insured losses are taught to
be less than half that, and could possibly be as low
as $2bn.
This is partly because the penetration of insurance
in affected countries such as Sri Lanka, Indonesia
and Thailand is particularly low.
The average insurance spent in Sri Lanka is $7
per head, compared with $2.000 per head in the
US.
Despite this, 2004 was still the worst year on
record in terms of insurance losses, with worldwide
claims. About $27bn of these were caused by the
hurricanes that struck Florida and the Caribbean in
the autumn.
Japan also experienced its highest number of
typhoons for a decade, the largest of which,
Typhoon Songda, caused property claims of
$2.5bn.
However, despite the record year, the industry is
still experiencing good profitability. One effect of
the record losses has been to prevent an even
greater softening of premium rates, something that
has been welcomed by the industry.
Source: Financial Times, January, 2005
PROJECT
XII Research Lloyd's at http://www.lloyds.com/lloyds/about-us/what-is-lloyds and find out
more about A) members, B) syndicates and 3) re-insurance.
68
8 FINANCE
INTRODUCTION TO BUSINESS FINANCE
I Read the text and find out about the different ways of raising and using capital. In
addition, find out about the difference between assets and liabilities.
RAISING CAPITAL
When people want to set up a company, they need money, called capital. There are many different
ways how people can raise capital.
For instance, they can borrow money from friends or use their personal assets. Or, they they can
borrow from banks by taking out a loan. The loan must be paid back with interest, the amount paid to
borrow the money. Capital can also come from issuing shares or equities – certificates representing
units of ownership of a company. The people who invest money in shares are called shareholders and
they own part of the company. The money they provide is known as share capital. Individuals and
financial institutions called investors, can also lend money to companies by buying bonds – loans that
pay interest and are repaid at a fixed future date.
Money that is owed (that will have to be paid) to other people or businesses is debt. In accounting,
companies' debts are usually called liabilities. Long-term liabilities include bonds; short-term liabilities
include debts to suppliers who provide goods or services on credit (that will be paid for later). In
contrast, all the things that a company owns are called assets.
The money that a business uses for everyday expenses or has available for spending is called
working capital or funds.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.
II Find the words and expressions in the text that match the following definitions.
1
2
3
4
5
6
7
8
The amount of money owed to other people.
The amount of money borrowed from a bank which has to be repaid with
interest.
An accounting term for companies' debts.
The money that a business uses for everyday expenses or has available
for spending.
The people who invest money in shares.
Everything a company owns.
Certificates representing units of ownership of a company.
A type of liabilities which have to be repaid within a year and include debts
to suppliers who provide goods or services on credit.
III Fill in the gaps with the verbs from the box below.
repay
pay back
issue
own
owe
raise
borrow
set up
1
If you want to _______________a company, you first have to ____________capital.
2
If you _____________from a bank, you will have to ____________the loan with interest.
3
If you __________shares, you will have to ___________ dividends to shareholders.
4
If you __________ a lot of assets, you can try to sell them to __________your debts.
5
Borrowers ___________ money to the bank.
pay
69
ACCOUNTING AND FINANCIAL STATEMENTS
I Read the text and fill in the notes below.
FINANCIAL REPORTING AND THE ANNUAL REPORT
Financial reporting deals with financial transactions that involve money. These transactions can include
making payments, or expenditure, and receiving money, or income. Financial transactions are recorded
in the accounting system of a business. Each type of transaction is entered in a record known as
an account.
The accounts are dealt with by bookkeepers, accountants, and auditors. Bookkeepers' job is to enter
data and keep the financial records (ledgers) of companies’ accounts. Accountants check and examine
the accounts prepared by bookkeepers, and auditors (internal and external specialists) are in charge of
the oversight, i.e. checking the accounts. It is important to record financial transactions in order to see
how much a business is earning and how much it has to pay. Managers want to know who owes them
money (debtors) and to whom they owe money (creditors). Public limited companies, that are listed or
quoted on stock exchanges, are required by law to publish their financial reports as parts of their annual
report.
The annual report presents the company's performance in the course of the previous year. It consists of
the following principal parts: the chairman's statement, which gives an overview of the company's past
and present situation, the director's report, which shows the principal activities of the business, the
results and dividends, investments, employment policies, and the auditor's report granting that the
accounts give a “true and fair view“ of the company's financial performance. This is reflected in the
crucial part of the annual report, the three financial statements: the profit and loss account (UK) or
income statement (US), i.e. the records of a company’s income and expenditure, the balance sheet
showing assets, liabilities and owners’ equity, and the cash flow statement that records cash inflow and
cash outflow.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.
NOTE-FORM SUMMARY
PEOPLE INVOLVED IN COMPANIES' ACCOUNTS
_____________________
______________________ _____________________
PARTS OF THE ANNUAL REPORT
the_______________statement the_______________report the_______________report
three _______________statements: 1 _____________________
2 _____________________
3 _____________________
70
II Match these terms to their definitions.
1
ACCOUNTING
□
2
BOOKKEEPING
□
3
AUDITING
□
examining a company's systems of control and the accuracy or
exactness of its records, looking for errors or possible fraud where the
company may have deliberately given false information
day-to-day recording of transactions such as sales, purchases, debts,
expenses
recording and summarizing an organization's transactions and business
deals, such as purchases and sales, and reporting them in the form of
financial statements
III Fill in the missing words.
ACTIVITY
PERSON
accounting
bookkeeping
auditing
IV Which financial statements are defined below?
1
2
3
The ____________________ shows the company's assets, its liabilities and its capital.
The ____________________ shows the company's revenues and expenses during a particular
period.
The ____________________ shows how effectively a company generates and manages cash.
V Read the text and underline the definitions and examples of assets, liabilities and
capital. How should assets, liabilities and capital balance?
THE BALANCE SHEET
The balance sheet is a document which has two sides. The totals of both sides are always the same,
so they balance.
One half shows the business's assets, which are things owned by the company, such as factories and
machines that will bring future economic benefits. The other half shows the company's liabilities, and its
capital or shareholders' equity.
Liabilities are obligations to pay other organizations or people: money that the company owes, or will
owe at a future date. These often include loans, taxes that will soon have to be paid, future pension
payments to employees, and bills from suppliers: companies which provide raw materials or parts.
Shareholders’ equity or capital consists of all the money belonging to shareholders. Part of this is share
capital, the money raised by selling its shares. Part of it includes retained earnings: profits from
previous years that have not been distributed to shareholders as dividends.
Assets are shown as debits. The total value of assets must correspond with the total sum of credits
(liability + capital) because that is the amount of money spent on purchasing the assets. Therefore,
assets equal liabilities plus capital.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP
71
VI Look at the ASSETS section of the balance sheet below and fill in the gaps in the text
that follows.
MacKenzie Inc.New York balance Sheet 31 December 2012 ($'000)
FIXED ASSETS
Property, plant and equipment
Goodwill
4,500
950
Long-term investments
6,265
Total fixed assets
11,715
CURRENT ASSETS
Cash and equivalents
3,415
Accounts receivable
8,568
Inventory
5,699
Other
5,562
Total current assets
23,244
TOTAL ASSETS
34,959
Fixed assets (or non-current assets) and investments, such as buildings and (1) _______________,
will continue to be used by the business for a long time. Current assets are things that will probably
be used by the business in the near future. They include (2) _______________, money available to
spend immediately, (3) _________________ (or debtors) i.e. companies or people who owe money to
be paid in the near future and stock or (4) __________________.
Assets can also be classified as tangible and intangible. Tangible assets are assets with a physical
existence - things you can touch - such as (5) __________________, (6) ________________ and
equipment. Intangible assets include brand names, patents, copyrights and trade marks, loyal
customers, trained staff, skilled management, etc. Because it is difficult to give an accurate value for
any of these things, companies normally only record tangible assets. If a company buys another one
at above its net worth (or net assets) because of its intangible assets, the difference in price is
recorded under assets in the balance sheet as (7) __________________.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP
VII Read the text on LIABILITIES and translate the bold parts into Croatian.
Liabilities are amounts of money that a company owes, and are generally divided into two types –
long-term and current.
Long-term liabilities or non-current liabilities have to be paid back in more than 12 months, and
include bonds, loans, mortgage payments, deferred income taxes, etc. Current liabilities are
expected to be paid within a year of the date of the balance sheet. They include accounts payable
(or creditors) – largely suppliers of goods and services to the business who are not paid at the time of
purchase, planned dividends, and deferred taxes – money that will have to be paid as tax in the
future, although the payment does not have to be made now.
Accrued expenses are expenses that have accumulated or built up during the accounting year but
will not be paid until the following year, after the date of the balance sheet. So accrued expenses are
deducted from profits even though the bills have not yet been received or the cash paid.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.
72
CURRENT LIABILITIES
Short-term debt
1,555
Accounts payable
5,049
Accrued expenses
8,593
Total current liabilities
15,197
LONG-TERM LIABILITIES
Deferred income taxes
950
Long-term debt
3,402
Other non-current liabilities 1,201
Total non-current liabilities
5,533
TOTAL LIABILITIES
20,750
SHAREHOLDERS' EQUITY
Common stock
Retained earnings
Total
10,309
3,900
14,209
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
34,959
VIII Sort out the following into ASSETS and LIABILITIES.
accounts payable
inventory
land and buildings
accounts receivable
accrued expenses
investments
deferred taxes
dividends
cash and equivalents
long-term debt
ASSETS
LIABILITIES
IX Sort out the following into FIXED, CURRENt or INTANGIBLE ASSETS.
cash
debtors (accounts receivable)
copyright
FIXED ASSETS
plant
equipment
brand names
land
CURRENT ASSETS
inventory
trade marks
property
patents
INTANGIBLE ASSETS
73
X Read the text on the profit and loss account and find one mistake in the sample
profit and loss account below.
THE PROFIT AND LOSS ACCOUNT
This financial statement shows the difference between the revenues and expenses of a period. At
the top of the statement is total sales revenue or turnover: the total amount of money received
during a specific period. Next is the cost of sales, also known as cost of goods sold (COGS): the
costs associated with making the products that have been sold, such as raw materials, labour and
factory expenses. The difference between the sales revenue and the cost of sales is gross profit.
There are many other costs or expenses that have to be deducted from gross profit, such as rent,
electricity and office salaries. These are often grouped together as selling, general and
administrative expenses (SG&A). The statement also usually shows EBITDA (earnings before
interest, tax, depreciation and amortization) and EBIT (earnings before interest and tax). The first
figure is more objective because depreciation and amortization expenses can vary depending on
which system a company uses.
After all the expenses and deductions have been calculated, we get the net profit, often called the
bottom line. This profit can be distributed as dividends (unless the company has to cover past
losses), or transferred to reserves.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP
Searby PLC
Annual Profit and Loss Account, 1/2013
(£'000)
Sales Revenue
48,782
Cost of Sales
33,496
Gross Profit
15,286
Selling, General and Administrative Expenses
10,029
Earnings Before Interest, Tax, Depreciation and Amortization
5,257
Depreciation and Amortization
1,368
Earnings before Interest and Tax
3,889
Interest expenses
257
Income Tax
1,064
Gross Profit
2,568
XI Sort out the following terms into PROFIT AND LOSS ACCOUNT or BALANCE
SHEET.
revenue
fixed assets
inventory
cost of sales
current liabilities
operating expenses
PROFIT AND LOSS ACCOUNT
equity
accounts payable
EBIT
goodwill
net profit
BALANCE SHEET
74
XII Read the text and answer the questions.
1
What does the cash flow statement consist of?
2
What can a company do with cash surplus?
THE CASH FLOW STATEMENT
This financial statement gives details of cash flows – money coming into the business (cash inflows
or sources of funds) and money leaving the business (cash outflows or applications of funds),
relating to operations (day-to-day activities), investing (buying or selling property, plant and
equipment), and financing (issuing or repaying debt, or issuing shares). The cash flow statement
shows how effectively a company generates and manages cash. If a company is consistently
generating more cash than it is using, the company will be able to increase its dividend, buy back
some of its stock, reduce debt, or acquire another company. All of these are perceived to be good
for stockholder value.
Sources: Professional English in Use: Finance, Ian MacKenzie, CUP; http://www.accountingcoach.com/onlineaccounting-course/06Xpg01.html#statement-of-cash-flows-intro
XIII Would the following appear as OPERATING, FINANCING or INVESTING
ACTIVITIES? Check in the sample cash flow statement below.
amortization
dividends paid
GODWIN- MALONE INC, New York
purchase of property
20__
20__
1,811
1,274
924
683
33
-6
2,768
1,951
Proceeds from issuing new stock
234
167
Stock dividends paid
-14
CASH FLOW STATEMENT ($'000)
Earnings
Amortization
Other adjustments to Earnings
Net Cash provided from operations
Net Cash provided from financing
220
167
Additions to property, plant and equipment
-2,351
-1,755
Net cash used for investing
-2,351
-1,755
Change in cash and equivalents during year
356
97
Cash and equivalents, beginning of year
2,150
2,014
Cash and equivalents, end of year
2,506
2,111
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.
75
ACCOUNTING VOCABULARY
I Fill in the gaps in the sentences with the words from the box.
cash outflows
income (2x)
annual report
amortization (2x)
profit and loss account
shareholders' equity
balance sheet
assets
accountants
bookkeepers
auditors
depreciation (2x)
expenditure (2x)
liabilities
cash inflows
(1) ________________ enter data and record transactions in journals of companies accounts.
(2) ________________ turn data into meaningful financial information and prepare financial
statements.
(3) _________________ are in charge of internal and external oversight of accounts.
The (4) _________________ gives details about the company’s performance throughout the
preceding year.
The (5) __________________ is a financial statement which shows profitability.
The (6) ___________________ is a financial statement which shows the financial position of a firm
at a particular time. It consists of (7) _________________, (8) __________________, and
9) __________________.
The cash flow statement is a financial statement which gives information on liquidity. It shows
(10) ___________________ and (11) ____________________.
The profit and loss account shows (12) _________________ and (13) ________________.
(14) _________________ means making payments to creditors, to the government, to shareholders
and to suppliers. On the other hand, (15) _______________ means receiving money from debtors,
customers or investors.
(16) __________________ is the deduction of capital expenses over a specific period of time
(usually over the asset's life). While it is often used interchangeably with (17) ________________,
technically this is an incorrect practice because (18) ___________________ refers to intangible
assets and (19) __________________ refers to tangible assets.
II Fill in the missing letters.
1
Assets are things that you OW_ and liabilities are things that you OW_.
2
The term “debtors” is often replaced by “accounts REC_ _ _ ABLE”. Similarly, “creditors” is often
replaced by “accounts PA_ _ BLE”.
3
Expenses that have been incurred but are not yet paid are called “A _ _ R_ _ D” expenses.
4
The total value of raw materials + work in progress + unsold stock is called IN_ _ _T_ _Y.
5
Revenue or TU_ _ O_ _R is also called the T_ P line.
6
Net profit or net IN_ _M_ is also called the B_TT_M line.
Source: Business English Handbook Advanced, Paul Emmerson, MacMilllan
76
THE FINANCING OF CORPORATE ACTIVITY
I Group the words below as to whether they specifically relate to stocks or to bonds.
vote
ownership
interest
principal
loan
dividend
retained earnings
legally prior claim
Words related to stocks:
_______________________________________________________________________________
Words related to bonds:
_______________________________________________________________________________
II Do you know the meaning of the following words/expressions?
1
undistributed corporate profits ________________________________
2
common stock ________________________________
3
IOU ________________________________
4
maturity date ________________________________
5
face value
6
unincorporated business ________________________________
7
prior to maturity ________________________________
8
purchasing power ________________________________
________________________________
III Which of the words above have their synonyms in Exercise I?
IV Read the text and put the proposed headings in their right positions in the text:
a. Stocks vs Bonds
b. Corporate Finance
c. Bond Risks
The Financing of Corporate Activity (Stocks and Bonds)
1
_____________________________
Generally speaking, corporations finance their activities in three different ways. First, a very large
portion of a corporation's activity is financed internally out of undistributed corporate profits.
Second, like individuals or unincorporated businesses, corporations may borrow from financial
institutions. For example, a small corporation planning to build a new plant may obtain the funds
from a commercial bank, a savings and loan association, or an insurance company. Third, unique
to corporations, they can issue common stocks and bonds.
2
_____________________________
A common stock is an ownership share. The purchaser of a stock certificate has the right to vote
for corporate officers and to share in dividends. If you buy 1000 of the 100,000 shares issued by
Specific Motors, Inc. (hereinafter SM), then you own 1 percent of the company, are entitled to 1
percent of any dividends declared by the board of directors, and control 1 percent of the votes in
the annual election of corporate officers.
77
In contrast, a bond is not an ownership share. A bond purchaser is simply lending money to a
corporation. A bond is merely an IOU, in acknowledgment of a loan, whereby the corporation
promises to pay the holder a fixed amount at some specified future date and other fixed amounts
(interest payments) every year up to the bond's maturity date. For example, you might purchase a
ten-year SM bond with a face value of $1000 with a 10 percent stated rate of interest. This means
that in exchange for your $1000 Specific Motors guarantees you a $100 interest payment for each
of the next years and then to repay your $1000 principal at the end of that period.
There are clearly important differences between stocks and bonds. First, as noted, the bondholder
is not an owner of the company, but is only a lender. Second, bonds are considered to be less
risky than stocks for two reasons. On the one hand, bondholders have 'legally prior claim' upon a
corporation's earnings. Dividends cannot be paid to stockholders until all interest payments that
are due to bondholders have been paid. On the other hand, holders of SM Stock do not know how
much their dividends will be or how much they might obtain for their stock if they decide to sell. If
Specific Motors falls on hard times, stockholders may receive no dividends at all and the value of
their stock may plummet. Provided the corporation does not go bankrupt, the holder of an SM
bond is guaranteed a $100 interest payment each year and the return of his or her $1000 at the
end of ten years.
3
_____________________________
But this is not to imply that the purchase of corporate bonds is riskless. The market value of your
SM bond may vary over time in accordance with the financial health of the corporation. If SM
encounters economic misfortunes which raise questions about its financial integrity, the market
value of your bond may fall. Should you sell the bond prior to maturity you may receive only $600
or $700 for it (rather than $1000) and thereby incur a capital loss.
Changes in interest rates also affect the market prices of bonds. Specifically, increases in interest
rates cause bond prices to fall and vice versa. Assume you purchase a $1000 ten-year SM bond
this year when the interest rate is 10 percent. This obviously means that your bond provides a
$100 fixed interest payment each year. But now suppose that by next year the interest rate has
jumped to 15 percent and SM must now guarantee a $150 fixed annual payment on its new $1000
ten-year bonds to be issued next year. Clearly, no sensible person will pay you $1000 for your
bond which pays only $100 of interest income per year when new bonds can be purchased for
$1000 which pay the holder $150 per year. Hence, if you sell your bond before maturity you will
suffer a capital loss.
Bondholders face another element of risk due to inflation. If substantial inflation occurs over the
ten-year period you hold a SM bond, the $1000 principal repaid to you at the end of that period will
represent substantially less purchasing power than the $1000 you loaned to SM ten years earlier.
You will have lent 'dear' dollars, but will be repaid in 'cheap' dollars.
Based on McConnell, R., Brue, S. L. (1996) Economics. McGraw-Hill, Inc.
78
V Well-organized texts use different features to help readers understand their
structure. These are topic sentences, text headings, paragraphing, linking words
(e.g. connectors) etc. Fill in the table as it is suggested in the instructions below.
a)
The structure of the previous text can be presented as shown in the table below.
Read the text and fill in the left column.
Find features of the text indicating its structure and fill in the right column.
b)
NOTES
PARTS OF THE ARTICLE
SHOWING TEXT STRUCTURE
Part 1 (paragraph 1)
THREE WAYS OF CORPORATE FINANCE:
1
____________
2
____________
3
____________
(e.g. ___________ )
Part 2 (paragraphs 2-4)
STOCKS
vs.
BONDS
● ownership
● lending
● risky for investors
● less risky due to : 1 _________
2 _________
Part 3 (paragraphs 5-7)
BOND RISKS
1
___________
2
___________
3
___________
VI Make a two-minute PRESENTATION on stocks and bonds as sources of corporate
finance.
VII Write a short SUMMARY of the text based on the notes above.
79
9 THE BUSINESS CYCLE
THE CRISIS
I What is a business cycle? (MK, U 23)
II Can government institutions help the economy? (RB, p. 63)
III What may be the chronology of the events below?
a. Poor borrowers go bankrupt, so houses are returned to lenders. ________
b. Central banks help to prevent system collapse. ________
c. Poor borrowers can no longer repay their loans. ________
d. Some lenders go bust as they cannot sell the property, and some lenders sell loan obligations
to investors who also suffer as their assets keep losing value. ________
e. Poor borrowers obtain loans to buy houses. ________
f.
Because of low interest rates, it is easy to borrow. ________
g. But after some time, interest rates go up. ________
II Which of the words/expressions in italics can be replaced by the words below?
mortgage lenders
subprime borrowers
default
hedge funds
release liquidity
III Check if you understand how the global crisis developed. Establish the chronology.
a. Central banks came in to release liquidity into the market place which allowed most struggling
lenders and investors to continue their operations. ______
b. As a result, housing prices were going up. Mortgage lenders created non-traditional mortgages
which made it easy even for people with poor credit (financially unstable) to obtain a housing loan.
______
c. However, interest rate climbed back up. Many subprime borrowers (those with poor credit
rating) could not repay their obligations and went bankrupt when their mortgages were reset to
much higher monthly payments. ______
d. Not knowing what to do, many mortgage lenders sold mortgages to investors and hedge funds
who also suffered as they were left with property that was quickly losing value. ______
e. This left mortgage lenders with property that was worth less than the loan value because the
housing prices went down. Defaults increased, the problem snowballed and several lenders went
bankrupt. ______
f.
There is now a lot of debate if private financial institutions should be helped with taxpayers'
money. ______
g. Nearly for a decade, the Federal Reserve stimulated the economy by cutting interest rates. It
was easy to borrow money from financial institutions. ______
IV Check the order of the events on Investopedia’s website:
http://www.investopedia.com/terms/s/subprime-meltdown.asp
80
THE FINAL REVISION – CAPITALIST FOOLS
I Before reading the text browse through your course book (MacKenzie, 2010) and
the Resource Bank 2, and answer the questions using the words in brackets.
1. What are central banks responsible for? How does monetary policy affect the economy?
(expansionary, restrictive, money supply, supervise, control)
2. Find arguments for and against taxation. (redistributive taxation, theft, income tax, penalize)
3. Describe a typical business cycle of an economy. (upturn, downturn, prices, inflation, bubble)
4. How did the subprime crisis break out in the US in 2008? (housing loans, subprime borrowers,
default, hedge funds, bankruptcy, liquidity, bailout)
5. Briefly describe financial derivatives. What is the purpose of such financial instruments? Who
takes most risk when using them? (underlying, futures, swaps, call/put options).
6. Discuss the banking business in terms of the Glass-Steagall Act (retail/commercial, investment,
repeal, deregulation).
7. Explain the role of credit rating agencies. (bonds, rating)
8. Present the difference between Keynesians and believers in free markets (durable equilibrium,
unemployment, intervention, excess savings, interest rates, neutral, inflation).
II Check if you know the meaning of the words below. Use your knowledge of the
topics covered in Business English classes or internet sources.
The Fed
________________________________________________________
Regulator
________________________________________________________
Credit-default swaps
________________________________________________________
A+++
________________________________________________________
Market bubble
________________________________________________________
Leverage
________________________________________________________
Tax cuts
________________________________________________________
Enron, WorldCom
________________________________________________________
Sarbanes-Oxley Act
________________________________________________________
Moody’s, Standard & Poor’s ______________________________________________________
Lehman Brothers
________________________________________________________
81
Capitalist Fools
Behind the debate over
remaking U.S. financial policy
will be a debate over who’s to
blame. It’s crucial to get the
history right, writes a Nobellaureate economist, identifying
five key mistakes—under
Reagan, Clinton, and Bush II—
and one national delusion.
There will come a moment when
the most urgent threats posed
by the credit crisis have eased
and the larger task before us will
be to chart a direction for the
economic steps ahead. This will
be a dangerous moment.
Behind the debates over future
policy is a debate over history—
a debate over the causes of our
current situation. The battle for
the past will determine the battle
for the present. So it’s crucial to
get the history straight.
What were the critical decisions
that led to the crisis? Mistakes
were made at every fork in the
road—we had what engineers
call a “system failure,” when not
a single decision but a cascade
of decisions produce a tragic
result. Let’s look at five key
moments.
No. 1: Firing the Chairman
In 1987 the Reagan
administration decided to
remove Paul Volcker as
chairman of the Federal
Reserve Board and appoint
Alan Greenspan in his place.
Volcker had done what central
bankers are supposed to do.
On his watch, inflation had
been brought down from more
than 11 percent to under 4
percent. In the world of central
banking, that should have
earned him a grade of A+++
and assured his reappointment. But Volcker also
understood that financial
markets need to be regulated.
Reagan wanted someone who
did not believe any such thing,
and he found him in
[Greenspan].
Greenspan played a double role.
The Fed controls the money
spigot, and in the early years of
this decade, he turned it on full
force. But the Fed is also a
regulator. If you appoint an antiregulator as your enforcer, you
know what kind of enforcement
you’ll get. A flood of liquidity
combined with the failed levees of
regulation proved disastrous.
Greenspan presided over not one
but two financial bubbles. After
the high-tech bubble popped, in
2000-2001, he helped inflate the
housing bubble. The first
responsibility of a central bank
should be to maintain the stability
of the financial system. If banks
lend on the basis of artificially
high asset prices, the result can
be a meltdown – as we are
seeing now, and as Greenspan
should have known [...].
Of course, the current problems
with our financial system are not
solely the result of bad lending.
The banks have made mega-bets
with one another through
complicated instruments such as
derivatives, credit-default swaps,
and so forth. With these, one
party pays another if certain event
happen – for instance, if Bear
Sterns goes bankrupt, or if the
dollar soars. These instruments
were originally created to help
manage risks – but they can also
be to gamble. [...] Even [under
Clinton], it was clear that
derivatives posed a danger. [To]
put it as memorably as Warren
Buffet – who saw derivatives as
‘financial weapons of mass
destruction’. And yet, for all the
risk, the deregulators in charge of
the financial systems [...] decided
to do nothing, worried that any
action might interfere with
‘innovation’ in the financial
system. But innovation, [...] can
be bad [...] as well as good.
No. 2: Tearing Down the Walls
The deregulation philosophy
would pay unwelcome dividends
for years to come. In November
1999, Congress repealed the
Glass-Steagall Act – the
culmination of a $300 million
lobbying effort by the banking and
financial-services industries [...].
Glass-Steagall had long
separated commercial banks
(which lend money) and
investment banks (which organize
the sale of bonds and equities); it
had been enacted in the
aftermath of the Great
Depression and was meant to
curb the excesses of that era,
including grave conflicts of
interest. For instance, without
separation, if a company whose
shares had been issued by an
investment bank, with its strong
endorsement, got into trouble,
wouldn’t its commercial arm, if it
had one, feel pressure to lend
money, perhaps unwisely? An
ensuing spiral of bad judgment is
not hard to foresee. [...]
The most important consequence
of the repeal of Glass-Steagall
Act was indirect – it lay in the way
repeal changed an entire culture.
Commercial banks are not
supposed to be high-risk
ventures; they are supposed to
manage other people’s money
very conservatively. It is with this
understanding that the
government agrees to pick up the
tab should they fail. Investment
banks, on the other hand, have
traditionally managed rich
people’s money – people who
can take bigger risks in order to
get bigger returns. When repeal
of Glass-Steagall brought
investment and commercial
banks together, the investmentbank culture came out on top.
There was a demand for the kind
of high returns that could be
obtained only through high
leverage and big risktaking [which
lead to reckless use of
derivatives...].
82
No.3: Applying the Leeches
Then along came the Bush tax
cuts, enacted first on June 7,
2001, with a follow-on
installment two years later. The
president and his advisers
seemed to believe that tax cuts,
especially for upper-income
Americans and corporations,
were a cure-all for any economic
disease – the modern-day
equivalent of leeches. The tax
cuts played a pivotal role in
shaping the background
conditions of the current crisis.
Because they did very little to
stimulate the economy, real
stimulation was left to the Fed,
which took up the task with
unprecedented low-interest
rates and liquidity. The war in
Iraq made matters worse,
because it led to soaring oil
prices. With America so
dependent on oil imports, we
had to spend several hundred
billion more to purchase oil –
money that otherwise would
have been spent on American
goods. Normally, this would
have led to an economic
slowdown, as it had in the
1970s. But the Fed met the
challenge in the most myopic
way imaginable. The flood of
liquidity made money readily
available in mortgage markets,
even to those who would
normally not be able to borrow.
And, yes, this succeeded in
forestalling an economic
downturn; America’s household
saving rate plummeted to zero.
But it should have been clear
that we were living on borrowed
money and borrowed time. [...]
No.4: Faking the Numbers
Meanwhile, on July 30, 2002, in
the wake of a series of major
scandals – notably the collapse
of WorldCom and Enron –
Congress passed the SarbanesOxley Act. The scandals had
involved every major American
accounting firm, most of our
banks, and some of our premier
companies, and made it clear
that we had serious problems
with our accounting system.
Accounting is a sleep-inducing
topic for most people, but if you
can’t have faith in a company’s
numbers, then you can't have
faith in anything about a
company at all. Unfortunately, in
the negotiations over what
became Sarbanes-Oxley a
decision was made not to deal
with what many [...] believed to
be a fundamental underlying
problem: stock options. Stock
options have been defended as
providing healthy incentives
toward good management, but
in fact they are ‘incentive pay’ in
name only. If a company does
well, the C.E.O. gets great
rewards in the form of stock
options: if a company does
poorly, the compensation is
almost as substantial as is
bestowed in other ways. This is
bad enough. But a collateral
problem with stock options is
that they provide incentives for
bad accounting: top
management has every
incentive to provide distorted
information in order to pump up
share prices.
The incentive structure of the
rating agencies also proved
perverse. Agencies such as
Moody’s and Standard & Poor’s
are paid by the very people they
are supposed to grade. As a
result, they’ve had every reason
to give companies high ratings,
in a financial version of what
college professors know as
grade inflation. [...] We had seen
this same failure of the rating
agencies during the East Asia
crisis of the 1990s: high ratings
facilitated a rush of money into
the region, and then a sudden
reversal in the ratings brought
devastation. But the financial
overseers paid no attention.
No.5: Letting it Bleed
The final turning point came with
the passage of a bailout package
on October 3, 2008 – that is, with
the administration’s response to
the crisis itself. [...] As America’s
banks faced collapse, the
administration veered from one
course of action to another. Some
institutions (Bear Stearns, A.I.G.,
Fannie Mae, and Freddie Mac)
were bailed out. Lehman Brothers
was not. Some shareholders got
something back. Others did not.
The original proposal by Treasury
Secretary Henry Paulson, a
three-page document that would
have provided $700 billion for the
secretary to spend at his sole
discretion, without oversight or
judicial review, was an act of
extraordinary arrogance. He sold
the program as unnecessary to
restore confidence. But it didn’t
address the underlying reasons
for the loss of confidence. The
banks had made too many bad
loans. There were big holes in
their balance sheets. No one
knew what was truth and what
was fiction. [...]
Was there any single decision
which, had it been reversed,
would have changed the course
of history? [...] The truth is most
of the individual mistakes boil
down to just one: a belief that
markets are self-adjusting and
that the role of the government
should be minimal. [...] The
embrace by America - and much
of the rest of the world – of this
flawed economic philosophy
made it inevitable that we would
eventually arrive at the place we
are today.
Source: Joseph E. Stiglitz*, January 2009, Vanity Fair
*The author of the article is Joseph E. Stiglitz, a Nobel Prize winning economist and a professor at Columbia
University.
83
III In his comment on the flaws in the US economy J. Stiglitz sends clear messages
on how economies should operate. Read the article Capitalist Fools and decide
which paragraphs (i.e. mistakes numbered 1- 5, e.g. No.1 ) show that this advice
was not followed.
1
Advice: It is essential to have sound accounting practices in the economy. If not, the
system can start acting in a corrupt way. (No. 4)
2
Advice: Central banks should introduce order in financial markets and control the money supply in
order to keep the economy stable. (No.
□)
□)
3
Advice: Governments should be much more involved in correcting market imperfections. (No.
4
Advice: Financial institutions should not be allowed to take risks with ordinary people’s money.
(No.
5
□)
Advice: Careful with tax reductions - this does not necessarily encourage sufficient economic
activity. (No.
□)
IV What actually happened in the US economy? Discuss each piece of advice from
exercise III, compare it to the text, and find the flaws of the system (mistakes 1- 5)
as discussed by the author (e.g. According to Stiglitz, … Stiglitz claims/argues
that…, However, …).
84
85