Практический курс английского языка = Practical Course of English for Students of Economics. Учебное пособие для студентов экономических специальносте

lishment of a joint venture and dictate the percentage of equity that the outside investor may hold. This directly affects the decision-making control of the international marketing manager because his ability to conduct marketing planning becomes restricted.

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Channels of Distribution

A channel of distribution is the combination of middlemen that a company uses to move its products to ultimate purchasers. The two major types of middlemen that can be used are wholesalers and retailers.

Wholesalers purchase goods and resell them to retailers, other wholesalers, industrial users, institutes, commercial firms and government agencies. Wholesalers do not sell directly to ultimate consumers, but retailers do. There are three major types of wholesalers. Merchant wholesalers take title to the products they purchase and often offer a wide range of services. Merchandise agents and brokers bring buyers and sellers together; they do not take title to merchandise. Manufacturers establish sales branches and sales offices in order to perform the wholesaling function themselves.

Middlemen make a number of contributions to the economy. They reduce distribution costs by minimizing the number of transactions required. They perform all the marketing functions. Because they are specialists, they efficiently perform these marketing functions. Their operations result in increased value because time and place utility are created. They bring buyers and sellers together and act as information sources. Middlemen can be especially valuable for companies that are going into new markets, small firms, companies that are

Bringing out new products, and companies that do not have sufficient financial resources.

Firms that market consumer goods tend to use middlemen extensively. In all, approximately 95% of all consumer products flow through wholesalers and retailers. Industrial goods, however, tend to go directly to purchasers and not through middlemen. Around 80% of all industrial goods are marketed directly.

There are four major types of retailing establishment in the United States. By far the most dominant of these are stores. Automatic vending, direct selling, and mail order are much less important than stores. Within the store category, chain operations (operations that have two or more establishments under one ownership) tend to dominate.

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Unit 3

A D V E R T I S I N G

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Advertising All Over The World

In the world of advertising, selling products is the most important goal. As the companies are becoming more global, they are looking for new ways to sell their products all over the world. It is true that because of global communication, the world is becoming more smaller today. But it is also true that the problems of global advertising – problems of language and culture – have become larger than ever before. For example, Braniff Airlines wanted to advertise its fine leather seats. But when its advertisement was translated from English into Spanish, it told people that they could fly naked! Another example of wrong translation is when Chevrolet tried to market the Chevy Nova in Latin America. In English, the word “nova” refers to a star. But in Spanish, it means “doesn’t go”. Would you buy a car with this name?

To avoid these problems with translation, most advertising firms are now beginning to write completely new ads. In writing new ads, global advertisers must consider different styles of communication in different countries. In some cultures, the meaning of an advertisement is usually found in the exact words that are used to describe the product and to explain why it is better than the competition. It is true in such countries as the United States, Britain and Germany. But in other countries, such as Japan’s, the message depends more on situations and feelings than it does on words. For this reason, the goal of many TV commercials in Japan will be to create a positive mood or feeling about the product.

Global advertisers must also consider differences in laws and customs. For instance, certain countries will not allow TV commercials on Sunday, and others will not allow TV commercials for children’s products on any day of the week. In some parts of the world, it is forbidden to show dogs on television or certain types of clothing, such as jeans. The global advertiser who does not understand such laws and customs will soon have problems.

Finally, there is a question of what to advertise. People around the world have different customs as well as different likes and dislikes. So the best advertisement in the world means nothing if the product is not right for the market. Even though some markets around the world are quite similar, companies such as McDonald’s have found that it is very important to sell different products in different parts of the world.

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All of these products must be sold with the right kind of message. It has never been an easy job for global advertisers to create this message. But no matter how difficult this job may be, it is very important for global advertisers to do it well. In today’s competitive world, most new products quickly fail. Knowing how to advertise in the global market can help companies win the competition for success.

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Advertising Agencies

Most advertising or promotion can be divided into three parts. One is the agency that plans and prepares the campaign. Another is the advertiser who pays the bills and whose name usually appears in the advertisement. And finally there are the media that carry the message to the public.

The function of the modern advertising agency, to help a company to market and advertise its goods and services efficiently, is fundamentally different from the function of the original advertising agents who were agents for the newspapers and magazines rather than the advertisers. The original agents acted as media brokers selling advertising space to anyone they could persuade to advertise and receiving commissions from the publications for the space they sold. Agencies began to employ copywriters, to think up and write effective advertising copy. Then, as it became more important to make advertisements stand out from the editorial and from an increasing number of other advertisements, graphic artists were employed. Finally, production staff were employed to order the printing services, ensure the best possible reproduction of advertising literature, arrange for TV and radio adverts to be produced.

Nowadays an advertising agency is an independent organization of creative people and businesspeople who specialize in developing and preparing advertising plans, advertisements, and other promotional tools. The agency also arranges or contracts for the purchase of advertising space and time in the various media. It does all this on behalf of different advertisers, or sellers – its clients – in an effort to find customers for their goods and services.

This definition offers some good clues as to why so many advertisers hire advertising agencies. The definition points out that agencies are independent: the are not owned by the advertiser, the media, or the suppliers. This independence allows the agency to bring an outside, objective viewpoint to the advertiser’s business. Good agencies possess the savvy, skill, and competence to serve the needs of a variety of clients because of their daily exposure to a broad spectrum of marketing situations and problems.

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Criticisms Of Advertising

Advertising is widely criticized not only for the role in selling products but also for its influence on our society. Some critics charge that at its worst advertising is downright untruthful, and, at best, it presents only positive information about products. Others complain that advertising psychologically manipulates people to buy things they can’t afford. There are many discussion questions on the topic.

Does advertising debase our language? The defenders of traditional English usage don’t like advertising. They feel advertising copy is too breezy, too informal, too casual, and therefore improper. Advertising, the believe, has destroyed the dignity of the language. The fact is that advertising must speak to people, must be understandable and readable. Some critics don’t acknowledge that ads are designed for specific audiences and therefore should reflect different language usage. Advertising research shows that people respond better to a conversational tone than to a more formal tone.

Does advertising make us too materialistic? Some critics claim advertising adversely affects our value system by suggesting that the means to a happier life is the acquisition of more material things instead of spiritual or intellectual enlightenment. Advertising, they say, encourages people to buy more things than they need – all with the promise of greater status, greater social acceptance. But These critics fail to realize that they often tend to force their own values on others. Some people prefer a simple life, others enjoy the material pleasures of a modern, technological society. Proponents of advertising also point out that, through its support of the media, advertising has brought literature, opera, drama to millions who otherwise might never have experienced them.

Does advertising manipulate us into buying thing we don’t need? An oftheard criticism is that advertising forces people to buy thing they don’t need by playing on their emotions. Some critics believe advertising’s persuasive techniques are so powerful that consumers are helpless to defend themselves. Some specialists point out that the persuasive power of advertising has been exaggerated. Advertising powerful ideas doesn’t guarantee a sale if people aren’t interested.

Is advertising excessive? One of the most common complaints about advertising is simply that there is too much of it. Experts say the average American is exposed to over 500 commercial messages a day. We are constantly bombarded at hone with ads on radio and television, in newspapers, and through the mail. Advertisements also reach us in our cars and in elevators, parking lots, hotel lobbies, movie theatres, and subways.

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Is advertising offensive or in bad taste? Many people find advertising offensive to their religious convictions, morality, or political perspectives. Others find advertising techniques that emphasize violence or body functions in bad taste. Taste is highly subjective. What is good for some is bad taste to others. And tastes change. What is considered offensive today may not be offensive in the future. Often the products themselves are not offensive, but the way they are advertised may be open to criticism.

Is advertising deceptive? Perhaps the greatest criticism of advertising is that it attempts to deceive the public. Critics define deceptiveness not only as false and misleading but also as any false impression conveyed, whether intentional or unintentional. Consumers must have confidence in advertising if it is to be effective.

Unit 4

B A N K I N G

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The Business of Banking

When asked why he had robbed a bank, Willie Sutton, a 19th-century American outlaw, replied: ‘Because that’s where the money is’. His reasoning is hard to fault: since modern banking emerged in 12th-century Genoa, banks and money have gone hand in hand.

Banks are still pre-eminent in the financial system, although other financial intermediaries are growing in importance. First, they are vital to economic activity, because they reallocate money, or credit, from savers, who have a temporary surplus of it, to borrowers, who can make better use of it.

Second, banks are at the heart of the clearing system. By collaborating to clear payments, they help individuals and firms fulfil transactions. Payments can take the form of money orders, cheques or regular transfers, such as standing orders and direct-debit mandates.

Banks take in money as deposits, on which they sometimes pay interest, and then lend it to borrowers, who use it to finance investment or consumption. They also borrow money in other ways, generally from other banks in what is called the interbank market. They make profits on the difference, called the margin or the spread, between interest paid and received. As this spread has been driven down by better information and the increasing sophistication of capital markets, banks have tried to boost their profits with fee businesses, such as selling mutual funds. Such income now accounts for 40 % of bank profits in America.

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Deposits are banks’ liabilities. They come in two forms: current accounts (in America, checking accounts), on which cheques can be drawn and on which funds are payable immediately on demand; and deposit or savings accounts. Some deposit accounts have notice periods before money can be withdrawn: these are known as time deposits or notice accounts. The interest rate paid on such accounts is generally higher than on demand deposits, from which money can be immediately withdrawn.

Banks’ assets also range between short-term credit, such as overdrafts or credit lines, which can be called in by the bank at little notice, and longer-term loans, for example to buy a house, or capital equipment, which may be repaid over tens of years. Most of a bank’s liabilities have a shorter maturity than its assets.

There is, therefore, a mismatch between the two. This leads to problems if depositors become so worried about the quality of a bank’s lending book that they demand their savings back. Although some overdrafts or credit lines can easily be called in, longer-term loans are much less liquid. This ‘maturity transformation’ can cause a bank to fail.

A more common danger is credit risk: the possibility that borrowers will be unable to repay their loans. This risk tends to mount in periods of prosperity, when banks relax their lending criteria, only to become apparent when recession strikes. In the late 1980s, for example, Japanese banks, seduced by the country’s apparent economic invincibility, lent masses of money to high-risk firms, many of which later went bust. Some banks followed them into bankruptcy; the rest are still hobbled.

A third threat to banks is interest-rate risk. This is the possibility that a bank will pay more interest on deposits than it is able to charge for loans. It exists because interest on loans is often set at a fixed rate, whereas rates on deposits are generally variable. This disparity destroyed much of America’s savings-and-loan (thrifts) industry. When interest rates rose sharply in 1979 the S&LS found themselves paying depositors more than they were earning on their loans. The government eventually had to bail out or close much of the industry.

One way around this is to lend at variable or floating rates, so as to match floating-rate deposits. However, borrowers often prefer fixed-rate debt, as it makes their own interest payments predictable. More recently, banks and borrowers have been able to ‘swap’ fixed-rate assets for floating ones in the interest-rate swap market.

Another way in which regulators have tried to keep banks’ heads above water is to force them to match a proportion of their risky assets (i. e., loans) with capital, in the form of equity or retained earnings. In 1988 bank regulators from the richest countries agreed that the capital of

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internationally active banks should, with a few variations, amount to at least 8 % of the value of their risky assets. This agreement, called the Basle Accord, is being revised, largely because the original makes only crude distinctions between loans’ different levels of risk.

It is not just the failure of individual banks that gives regulators sleepless nights. The collapse of one bank can spread trouble throughout the financial system as depositors from other, healthy, banks suddenly fear for their money. Regulators step in because they want to prevent a collapse of the entire system. Governments try to minimise the risk of such failure in several ways. One is to impose harsher regulation on banks than on other sorts of companies; often, the regulator is the central bank. Another tack is to try to prevent runs on banks in the first place. Following the collapse of a third of all American banks in 1930-33, the government set up an insurance scheme under which it guaranteed to repay depositors, up to a certain limit, in the event of bank failure.

Following America’s lead, other countries have also introduced de- posit-guarantee schemes. Even where they have not, depositors often assume that there is an implicit guarantee, because the government will step in rather than risk a collapse of the whole system. In this decade, the Japanese government went to the extreme of guaranteeing all lenders (not just depositors) to the country’s biggest banks until the end of the century.

Some argue that these guarantees make bank failures more likely, because they encourage depositors to be indifferent to the riskness of banks’ lending. Moreover, as banks get bigger, they are also likely to conclude that they are ‘too big to fail’, which is an incentive to take more risk. Both are a form of moral hazard.

To combat moral hazard, regulators try to be ambiguous about how big is too big, and to restrict the amount of insurance they provide. In recent years, none of these measures has prevented ill-advised lending by banks around the world. Failures include the excessive loans of American banks to Latin America in the 1980s; and banking crises in Japan, Scandinavia and East Asia.

In many countries, governments have responded to emergencies by nationalizing the worst banks, often pledging to inject capital, take on their dud loans, and re-privatize them. This is fine in theory, but in practice it often distorts the market for the remaining privately owned banks by keeping too many banks in business and by allowing nationalized banks with the benefit of a government guarantee to borrow more cheaply.

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Types of Bank

Commercial or retail banks are businesses that trade in money. They receive and hold deposits, pay money according to customers’ instructions, lend money, offer investment advice, exchange foreign currencies, and so on. They make a profit from the differences (known as a spread or a margin) between the interest rates they pay to lenders or depositors and those they charge to borrowers. Banks also creates credit, because the money they lend, from their deposits, is generally spent (either on goods or services, to settle debts), and in this way transferred to another bank account – often by way a bank transfer or a cheque (check) rather than the use of notes or coins – from where it can be lent to another borrower, and so on. When lending money, bankers have to find a balance between yield and risk, and between liquidity and different maturities.

Merchant banks in Britain raise funds for industry on the various financial markets, finance international trade, issue and underwrite securities, deal with takeovers and mergers, and issue government bonds. They also generally offer stockbroking and portfolio management services to rich corporate and individual clients. Investment banks in the USA are similar, but they can only act as intermediaries offering advisory services, and do not offer loans themselves. Investment banks make their profits from the fees and commissions they charge for their services.

In the USA, the Glass-Steagall Act of 1934 enforced a strict separation between commercial banks and investment banks or stockbroking firms. Yet the distinction between commercial and investment banking has become less с ear in recent years. Deregulation in the USA and Britain is leading to the creation of ‘financial supermarkets’: conglomerates combining the services previously offered by banks, stockbrokers, insurance companies, and so on. In some European countries (notably Germany, Austria and Switzerland) there have always been universal banks combining deposit and loan banking with share and bond dealing and investment services.

A country’s minimum interest rate is usually fixed by the central bank. This is the discount rate, at which the central bank makes secured loans to commercial banks. BANKS lend to blue chip borrowers (very safe large companies) at the base rate or the prime rate; all other borrowers pay more, depending on their credit standing (or credit rating, or creditworthiness): the lender’s estimation of their present and future solvenсу. Borrowers can usually get a lower interest rate if the loan is secured or guaranteed by some kind of asset, known as collateral.

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In most financial centers, there are also branches of lots of foreign banks, largely doing Eurocurrency business. A Eurocurrency is any currency held outside its country of origin. The first significant Eurocurrency market was for US dollars in Europe, but the name is now used for foreign currencies held anywhere in the world (e.g. yen in the US, DM in Japan). Since the US$ is the world’s most important trading currency – and because the U.S. has for many years had a huge trade deficit – there is a market of many billions of Eurodollars, including the oil-exporting countries’ ‘petrodollars’, Although a central bank can determine the minimum lending rate for its national currency it has no control over foreign currencies. Furthermore, banks are not obliged to deposit any of their Eurocurrency assets at 0% interest with the central bank, which means that they can usually offer better rates to borrowers and depositors than in the home country.

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Banker to the U.S. Government

In addition to acting as banker to banks, the reserve banks fulfill a second major function: banker to the federal government. Like business firms, or even households, the U.S. government requires certain banking services. Receipts come in and payments continually go out, mostly in checks, and the two are rarely synchronized perfectly. At times, receipts exceed payments, and the surplus must be invested. More often, payments must be made before receipts come in, or payments exceed expected receipts, and the shortages must be financed for short or long periods. The Federal Reserve assists either directly or indirectly with these and similar needs of the U.S. government and with some needs of federal agencies.

As banker to the federal government, the 12 Federal Reserve banks and their branches handle the Treasury’s ‘checking account,’ that is, they handle the Treasury’s tax receipts and expenditures. The most straightforward way to handle this account would be for the U.S. Treasury to deposit in the Federal Reserve banks all tax checks from the public and to have the Treasury pay all the expenditures of the U.S. government with Federal Reserve checks, that is, checks drawn against the U.S. Treasury’s account with the Federal Reserve banks.

Actually, only the second part of this proposition is what really happens: All payments by the U.S. government are made with Federal Reserve checks (paper or electronic). The funds for these checks, however, are in commercial banks and other depository institutions, where they stay until needed to support the checks drawn against the Federal Re-

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serve account. At that time the funds are transferred from these depository institutions to the reserve bank against which the check is drawn. In other words, all government funds are deposited with private institutions, which benefit from this arrangement, and not with the federal government’s federal bank.

Some might conclude that this beneficial arrangement for banks is the result of lobbying by the powerful banking industry. Actually, there is no sinister motive; this symbiotic relationship between the public and private sectors actually improves the conduct of monetary policy because it gives the Fed better control over nonborrowed reserves. As a matter of fact, until recently, tax receipts were deposited with reserve banks, and the Treasury’s expenditures were made by drawing checks on those accounts at the reserve banks. This procedure, however, caused problems for the Fed. Treasury deposits with the Fed are one of the ‘other liabilities’ in the Fed’s balance sheet and, hence, are a technical factor affecting reserves. Like currency, these deposits are a competing use of reserves, or a factor absorbing reserve funds. As a result, increases in Treasury deposits drain reserves from the banking system, reserves that could otherwise be used to support deposits.

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Discounting, Rediscounting and Discount Window Loans

The interest rate Federal Reserve banks charge on loans to banks in their district is called the discount rate. The facility, or division, through which these loans are provided is called the discount window, and the loans are called discount window loans. The least mysterious of these terms is the window, referring to the actual window where at one time Fed tellers made loans to banks. But why the term discount? What is discounted? Today, nothing is discounted; discount loans are merely loans of reserve funds to banks in need of reserves.

The Federal Reserve Act of 1913, which created the Federal Reserve System, provided for the Fed to make loans to banks. Actually, the act provided for ‘rediscounting commercial paper.’ All of these terms have their origins in the early history of central bank practices, especially in Europe and Japan, on which the Fed’s practices were patterned.

To understand discounting and rediscounting, let us imagine ourselves back at the early years of the Fed’s life. (This also permits us to use the present rather than the past tense.) Imagine a retailer in Raincity, Washington, who places an order with a manufacturer in New York for 100 umbrellas to be delivered in three months, in time for the coming rainy season. He signs and gives to the manufacturer an IOU, or ‘bill

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