3. Questions for discussion:

1. Why does foreign trade take place?

2. Why do nations try to maintain a favourable balance of trade?

3. Can a nation import more than it exports? Give an example.

4. What is a rate of exchange? What does 'floating rate' mean?

5. What is meant by settlement?

6. How is a nation's rate of exchange determined?

7. How does a nation's balance of payments affect its exchange rate?

4. Speak on the topics:

1. International Finance.

2. Balance of Payment.

3. International Methods of Payment and Settlement.

Texts for Additional Reading

1. The Bank of England

Britain is a major financial centre, housing some of the world's leading banking, securities and other financial services and markets. The heart of the industry is the collection of banks and other financial institutions in and around the "Square Mile" in the City of London. This area has the greatest concentration of banks in the world - responsible for about 20 per cent of total international bank lending, the largest foreign exchange market in the world, with an average daily turnover of about $ 200,000 million.

The Bank of England is the central bank of the United Kingdom. Most countries have their own central bank: the National Bank in Ukraine, the Federal Reserve System in the United States, the Deutsche Bundesbank in Germany, the Banque de France, the Bank of Japan.

The Bank of England was founded in 1694 and it is one of the oldest central banks of the world. It started as a commercial bank with private shareholders, and developed a large private banking business, but after 1946 itbegan to act as public institution carrying out public functions. Now it is considered to be the government's bank. The Bank has always had the right to issue bank notes in England and Wales, and acquired the monopoly after theBank Charter Act of 1844. It is known as banker to either banks or the government increasing its influence on monetary policy. It accepts responsibility for advising the government to make the country's financial policy. The Bank also takes on a degree of responsibility for maintaining money and capital markets in London, and watches over the soundness of thebanks.

The Bank's functions are: first, maintaining the value of the nation's money, mainly through policies and market operations agreed with the government, it regulates the money supply in the country which is one of themost important functions; second, ensuring the soundness of the financial system, including direct supervision of banks and participants in some City financial markets; andthird, promoting the efficiency and competitiveness of the financial system, notably in the field of domestic and international payment and settlement systems, so that the City of London can serve industry andcommerce at home and maintain its place as the world's leading international financial centre.

2. The Federal Reserve System

The American banking system consists of the Federal Reserve System as its Central bank and four types of commercial banks and organizations:commercial banks, savings and loan associations, Credit Unions, and mutual savings banks.

The Federal Reserve System of the United States performs many of the functions of the Central bank of other countries. It was designed to control the banking system and the money supply in the country. The territory of the United States is divided into twelve Federal Reserve Districts, each one of which has a Federal Reserve Bank in a major city. Policies of these twelve banks are uniform, however, because they are set by the Board of Governors of the Federal Reserve System. The FRS carries out operations similar to those that are the responsibility of central banks in other countries: conducting certain open market operations that can affect the money supply in the county, extending credit to member banks through advances or rediscounts (the rediscounting rate is set by each of the individual member banks), issuing national currency, advising the Government on making the country's financial system, regulating money supply, and supervising commercial banks and other financial institutions in the country. The Board can buy or sell US Government securities, thus increasing or decreasing the amount of money in circulation. Besides, another open-market interventions of the FRS include the purchase and sale of investments such as bankers' acceptances and bills of exchange.

The Federal Reserve Board can influence the volume of activity on the Stock Exchanges by setting margin requirements for the purchase of securities. In other words, the FR Board can set the percentage of the market price of securities that a buyer must pay when buying stocks or bonds with a loan.Margin requirements thus limit the amount of credit that buyers of securities may be given to finance their investment activity. By raising or lowering margin requirements, the Federal Reserve Board may limit or expand the volume of stock purchases.

The FRS supervises American commercial banks. A number of restrictions have been placed on banks for the fear they might monopolize the kinds of investments made. No bank may have branches outside the state it operates in. Stocks are to be bought or sold at separate brokerage housessubordinated to the FRS. Banks chartered by the FRS are less likely to be a risk for the depositor as the FRS insures lost deposits against bankruptcy.