Профессиональный английский язык для экономистов. Учебное пособие

Unit 2. Banking, Bank functions, Central bank, commercial banks, different funds

Learning objectives

1.Define the term “banking”.

2.Enumerate the main functions on banks in a modern banking system.

3.List the traditional and the newest services the banks offer.

4.Differentiate the peculiarities of central and financial banks.

5.Explain pros and cons of investing into mutual funds.

6.Discuss the operation of pension funds in different countries.

Terms to learn

Banking, wholesale, retail, deposit function, payment function, credit function, currency exchange, valuables, trust services, tax return, cash management, insurance, brokerage, the Fed, ID, mutual fund, diversified investment, pension fund, assets, liabilities, mortgage, branch, overdraft, remuneration

Pre-texts discussions

1.What are the main functions of banks?

2.How can banks be differentiated?

3.What is a mutual fund?

4.What are the reasons why people invest money into mutual funds?

5.Why do many investors prefer diversification?

6.What are the roles of pension funds in countries?

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Reading

Text I. Bank functions

Banking is the business of operating a bank or providing the services of a bank. Banks are among the most important financial institutions in the economy that produce and sell financial services. Most banks offer a combination of wholesale and retail banking such as they provide large-scale services to companies, government agencies and other banks and small-scale services to the general public respectively. Both types of banking, however, have three essential functions. The function are as follows:

deposit function – receiving customers’ deposits and offering interest-bearing deposits;

payment function – making payment on behalf of customers for their purchases;

credit function – lending and investing money.

Banks offer different services, such as:

carrying out currency exchange. A bank trades one form of currency for another in return for a service fee. In today’s financial marketplace trading in foreign currency is usually carried out by the largest banks due to currency risk and the expertise needed to fulfil cash transactions;

safekeeping of valuables. During the Middle Ages banks began the practice of holding gold, securities and other valuables owned by their customers in secure vaults. Clients still leave articles of value, wills, precious stones and many other things which are locked in boxes. The bank keeps duplicate keys of safety boxes in case of emergency, but does not use them except in the presence of the customer or by his express authority;

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trust services. For many years banks have offered to manage the financial affairs and property of individuals and business firms in return for fee.

Banking is not static business today. Banks are undergoing sweeping changes in function and form. Among the newest services provided by the banks are:

financial advertising. Customers usually ask for financial advice, especially about loans, savings and investments. Many banks offer a wide range of financially advisory services from the help to prepare tax returns and financial planning for business managers and checking on credit standing of firms and individuals who deal with one of the bank’s business customers;

cash management. A bank agrees to handle cash collections and disbursements for a business firm and to invest any temporary cash surpluses in short-term inter- est-bearing securities and loans until the cash is needed;

selling insurance policies. Banks offer selected insurance to their customers such as regular life insurance or property-casualty policies;

security brokerage services. Banks help their customers to buy stocks, bonds and other securities without dealers and brokers.

Text II. Central and commercial banks

A central bank or monetary authority is a monopolized and often nationalized institution given privileged control over the production and distribution of money and credit. In modern economies, the central bank is usually responsible for the formulation of monetary policy and the regulation of member banks. The central bank of the United States is the Federal Reserve System, or “the Fed,” which Congress established with the 1913 Federal Reserve Act.

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The critical feature of a central bank ‒ distinguishing it from other banks ‒ is its legal monopoly status, which gives it the privilege to issue bank notes and cash. Privately owned commercial banks are only permitted to issue demand liabilities, such as checking deposits.

Functions of Central Banks

Although their responsibilities range widely, depending on their country, central banks' duties usually fall into three areas.

Central banks control and manipulate the money supply: issuing currency and setting interest rates on loans and bonds. They manage monetary policy to guide the economy and achieve economic goals.

They regulate member banks through capital requirements, reserve requirements (which dictate how much banks can loan to customers, and how much capital they must keep on hand) and deposit guarantees, among other tools. They also provide loans and services for a nation’s banks and its government, and manage foreign exchange reserves.

Finally, a central bank also acts as an emergency lender to distressed commercial banks and other institutions, and sometimes even a government. By purchasing government debt obligations, for example, the central bank provides a politically attractive alternative to taxation when a government needs to increase revenue.

A commercial bank is an institution that provides services such as accepting deposits, providing business loans, and offering basic investment products. Commercial banks carry out a number of similar functions but in different ways. They channel savings to corporate investment, and they serve as intermediaries between borrowers and lenders. Banks also provide liquidity for depositors and, of course, play a special role in the economy's payment systems. Insurance companies allow policyholders to pool risks.

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The cost of capital is the minimum acceptable rate of return on capital investment. It's an opportunity cost, that is, a rate of return that investors could earn in financial markets. For a safe capital investment, the opportunity cost is the interest rate on safe debt securities, such as high-grade corporate bonds. For riskier capital investments, the opportunity cost is the expected rate of return on risky securities, investments in the stock market, for example.

Translating_________________________________________________________

Банк Англии – центральный банк Объединенного Королевства, один из старейших банков в Европе. Основан в 1694 году как частная компания. Банк играет ключевую роль в осуществлении правительственной денежной политики. Все служащие банка ‒ часть общей правительственной команды.

Банк Англии выполняет следующие функции в государстве:

контроль над уровнем инфляции, обеспечение покупательной способности национальной валюты и стабильности ее обменного курса;

поддержание надежности финансовой системы страны;

обеспечение эффективности работы банковского сектора.

Банк Англии обеспечивает выпуск банкнот и монет. Для этого используется сложное современное оборудование. Одна из важнейших задач – защитить банкноту от подделок. Воспользоваться услугами банка можно только в том случае, если вы работаете в нем. Для служащих предлагаются обычные услуги: счета и налоги могут быть оплачены через банк, вы можете снять наличные, обменять иностранную валюту, открыть счет и получать по нему проценты.

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Translating

Use the following words and expressions:

to be worth doing something ‒ стоит сделать что-то;

foodstuff – съедобные продукты;

cell ‒ ячейка;

ID (identification document) ‒ удостоверение личности;

to stipulate by the contract ‒ обговаривать контрактом.

Защити свое

Еще один год скоро закончится, приближаются Рождество и Новый год, а значит, и долгожданный отдых. Независимо от того, как вы планируете провести свои каникулы, отправившись к родственникам или на пляж в дальние страны, необходимо подумать, что делать с деньгами и ценными вещами, как их защитить, пока вас не будет дома.

Не стоит прятать драгоценности дома. В то время, пока вы наслаждаетесь отдыхом за тысячи миль от дома, доверьте заботу о ваших вещах профессионалам. Банки обеспечивают сохранность любых ценностей: наличных, документов, драгоценных камней и золота, предметов искусства. Как правило, банки не принимают незарегистрированное оружие, взрывчатые вещества, радиоактивные материалы, лекарства и наркотики, токсичные и ядовитые вещества и съедобные продукты.

Для того, чтобы заключить договор аренды банковской ячейки, клиент должен предъявить паспорт, или в случае с некоторыми банками, любой другой документ, удостоверяющий личность. Чтобы получить доступ к своей ячейке, клиент должен иметь с собой договор аренды, паспорт, или любой документ, обговоренный контрактом.

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Плата за хранение ценностей зависит от размера ячейки и продолжительности хранения. Услуга пользуется большой популярностью, так как людям есть, что хранить и доверие к банкам высокое.

Additional reading

Text III. Mutual and Pension funds

By Kimberly Amadeo

A mutual fund is a collection of stocks, bonds, or other securities. Mutual fund shares are traded continuously, but their prices adjust at the end of each business day. Stock funds focus on corporations that are publicly traded on one of the stock market exchanges. Some mutual funds invest according to the company's size. These are small, mid, or large-cap funds. People should invest in mutual funds instead of stocks if they don't want to research each company's financial statements. Mutual funds also provide instant diversification, they invest into many financial instruments: shares, foreign currency, real estate, governmental, etc. bonds. For that reason, mutual funds are less risky than individual stocks. If one company goes bankrupt, the investment is not lost. For that reason, mutual funds provide many of the benefits of stock investing without some of the risks.

Pension funds are investment pools that pay for employee retirement commitments. Funds are paid for by either employees, employers, or both. Corporations and all levels of government provide pensions. The fund managers invest these contributions conservatively. They must avoid losing the principal but still beat inflation. There are two types of pension funds: Defined Benefit fund and Defined Contribution fund.

It's obligated to pay a fixed income to the beneficiary, regardless of how well the fund does. The employee pays a fixed amount. The fund manager must receive

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enough of a return on the investment to pay for the benefits. The employer must pay for any shortfall. Employers assume the funds will return 7 to 8 percent annually. Actual returns are 6 to 7 percent. As a result, most employers don't contribute enough.

In the second type of a fund the employee's benefits depend on how well the fund does. The employer doesn't have to pay out defined benefits if the fund drops in value. All the risk is transferred to the employee. The shift in risk is the most important difference between the defined benefit and the defined contribution plan.

Defining the terms

Writing

1.Many people think that credit cards are very convenient and important in our modern life while others consider they are dangerous.

2.Identifying the future pension needs explain how pension funds can be invested to provide sufficient capital and income in retirement.

3.Describe the situations when it is reasonable for people to take a mortgage.

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Unit 3. Accounting, types of financial statements, P&L, cash flow

Learning objectives

1.Learn about the three fundamental financial statements.

2.List the important characteristics for each of these statements, including the essential accounts in each.

3.Construct a balance sheet using the offered items and details.

4.Identify the major users of these financial statements.

5.Discuss the main rules of T-accounts.

6.Explain why profit does not equal cash.

Terms to learn______________________

P&L, balance sheet, cash flow, YTD, A&L, equation, equity, accounts receivable, accounts payable, notes payable, POS, liquidity, cash budget, trial balance, double entry system, T-account, debit side, credit side, balance, ledger

Pre-texts discussions

1.What is the importance of accounting in business?

2.What types of accounting exist?

3.What main financial documents do you know?

4.What are journal entries in accounting?

5.Why does profit not equal cash?

6.What does “liquidity” mean?

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