6.14 Comprehension questions

1. What is the most important activity of banks?

2. Where do the bank’s funds come from?

3. What types of accounts do customers deposit money in?

4. What does a banker have to do in order to limit risk while executing a loan?

5. What are the three C’s of credit?

6. What is the integrity of the borrower determined by?

7. What does the borrower’s ability to repay depend on?

8. How does a bank determine the financial position of the borrower?

9. What does the financial statement of the borrower consist of? 10. What period of time does the financial statement of the borrower usually cover?

Lesson 7

Active vocabulary

7.1 Study the following words and phrases:

season (n)	- сезон; время года
seasonal (adj)	- сезонный
to cover (v)	- покрывать
emergency (n)	- экстренная необходимость
factor (n)	- фактор; агент, занимающийся скупкой неоплаченных долгов, факторная (факторинговая) фирма
normally (adv)	- обыкновенно
invoice (n)	- инвойс, счет фактура, квитанция
to settle (v)	- устанавливать, устраивать
to arrange (v)	- организовывать
arrangement (n)	- сделка
net	- чистый (вес, стоимость и т. д.)
line of credit	- кредитная линия
to notify (v)	- извещать
unsecured loan	- необеспеченный кредит
secured loan	- обеспеченный кредит
accounts receivable	- дебиторская задолженность; суммы, подлежащие получению
commercial paper	- простой или переводной вексель

7.2 Read and translate the text Sources of funds I

1. The seasonal financial needs of a company may be covered by short term sources of funds. The company must pay them off within one year. Businesses spend these funds on salaries and for emergencies. The most popular outside sources of short term funds are trade credit, loans, factors, sales finance companies, and government sources.

2. About 85 percent of all US business transactions involve some form of trade credit. When a business orders goods and services, it doesn’t normally pay for them. The supplier provides them with an invoice requesting payment within a settled time period, say thirty days. During this time the buyer uses goods and services without paying for them. A company can use the trade credit as a source of savings. A typical trade arrangement is 2/10, net 30. If a buyer pays within 10 days instead of 30, he gets a 2 percent discount. The savings a buyer obtains can be used as a source of short term funds.

3. Commercial banks lend money to their customers by direct loans or by setting up lines of credit. A line of credit is the amount a customer can borrow without making a new request, simply by notifying the bank. If the business doesn’t pledge collateral when it borrows, the loan is an unsecured loan. Only customers with an excellent credit rating can get an unsecured loan. They usually repay it within a year’s time. When a company wants to borrow a large amount of money it pledges collateral to back up the loan. Such a loan is a secured one.

4. Sometimes a company might sell its accounts receivable to a special financial broker: a factoring company, a factor. The factor immediately pays the firm cash, usually 50 to 80 percent of the value of the accounts receivable. When customers make the payments on their accounts, the money goes directly to the factor. Some big firms obtain funds by selling commercial paper. Because commercial paper has no collateral behind it, only firms with a good financial reputation can sell it. In special cases, a business may obtain short term funds from the federal government.