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Text 2: Financial institutions

There are many important financial institutions which provide finance for companies. These institutions provide money in different ways.

  • Banks

Although banks specialise in supplying short-term loans, they are prepared to make loans for longer periods — up to 20 years in certain circumstances.

  • Insurance companies

The regular premiums paid by policy-holders are invested in govern­ment securuties, company shares, land, and property of all kinds. The income from these investments makes it possible for insurance companies to pay out interests which are greater than the total pay­ments made by policy-holders.

  • Pension funds

Although in many countries there is a state pension scheme to which all workers contribute, a large number of employed and self-employed people also belong to private pension schemes. The money which accumulates in these pension funds is invested and works in a very similar manner to the funds of insurance companies.

  • Investment trusts

These are limited companies buying shares in other companies which they believe will be the most successful ones. People who then buy shares in in­vestment trusts are paid dividends and investment funds obtain a profit too.

  • Unit trusts

These operate in a very similar manner to investment trusts. But they are not limited companies — they do not issue shares, they issue units. These units cannot be re-sold on the open market, but they can be sold back to the unit trust at any time.

  • Finance houses

These institutions provide the loans which finance hire-purchase schemes and leasing arrangements. Firms which sell goods on hire-purchase or who lease goods do not have to wait two or three years before their goods are fully paid for. They receive immediate payment from a finance house, and it is the finance house which collects the regular instalments paid by the purchaser.

There are many other specialist financial institutions

which provide finance for companies. Besides in many countries a government is an important source of finance for privately-owned firms.

Here is a table showing sources of funds for industrial and commercial companies in the UK in one of the recent years:

Percentage

of total

Internal funds (retained profits) 64.3

Issues of ordinary shares 11.6

Issues of preference shares 1.5

Bank borrowing 11.4

Other sources 11.2

100.0

Vocabulary

to specialize

спеціалізуватися

circumstance in certain

обставина

circumstances

за певними обставинами

in certain circumstances

за певних обставин

in the circumstances

за обставинами, що склалися

pension fund

пенсійний фонд

scheme

план, проект, програма

to accumulate

накопичувати

investment trust

інвестиційний траст

unit trust

пайовий траст

the open market

відкритий ринок

finance house

фінансовий дім