Vocabulary:

trade flow – товаропотік

interdependence – взаємозалежність

standard of living – рівень життя

current account movements – зміни (рух) поточного рахунку

capital account movements – зміни (рух) рахунку руху капіталів

net – чистий

surplus – профіцит, надлишок

(un)favorable – (не)сприятливий

disturbing effect – шкідливий вплив (ефект)

shipping – відвантажування, відправка

to lend (lent; lent) – надавати в кредит

debtor – боржник, позичальник

to restore – відновлювати

payment in advance – передоплата, достроковий платіж

letter of credit (LC; L/C; LOC) – акредитив

open account – контокорент (відкритий, поточний рахунок)

instrument – документ; цінний папір

method of settlement – метод здійснення розрахунків (оплати)

SWIFT (Society for Worldwide Interbank Financial Telecommunication) – організація всесвітнього міжбанківського фінансового зв’язку

draft – тратта

Bill of Exchange – вексель

demand deposit – безстроковий вклад, вклад до запитання

savings deposit – ощадний внесок

Questions:

1. What can you say about the history of the international financial system?

2. Speak about capital flows. How are they classified?

3. What accounting concept have nations developed?

4. How are the deficits financed?

5. What terms are economic and financial transactions measured in? Explain how it happens.

6. What are the fields of exchange rate movements?

7. What methods of payment do you know?

8. Enumerate all methods of settlement by which the payments are made.

9. How may financial institutions be classified?

Credit system

The credit-financial system of a country performs two central functions: it creates different financial assets and liabilities and provides specific financial services. This system is a set of markets and institutions embracing: a payments mechanism; the borrowing and lending of funds; the creation of financial assets and liabilities with different characteristics with respect to marketability, maturity, liquidity, etc.; the provision of specific financial services such as insurance, pension arrangements; markets to enable wealth holders to adjust the volumes and structure of their portfolio of assets and liabilities. Credit-financial systems can perform these roles in various ways, and they are done differently as between different countries and within the same country at different times.

All banking operations and the methods of controlling them are part of the credit system of the country. Banks and other financial institutions fulfill the role of financial intermediation between the savers and investors. The state of business activities in any country greatly depends on the credit system.

Credit is trust in the borrower's promise to repay a loan; or transferring ownership from one party to another, or buying goods today but paying for them sometime in the future.

There are different classes of credit:

Commercial credit (businesses give to one another to finance production, trade and distribution). This class of credit is sometimes called trade credit. This means that a business is able to buy goods and services today and pay for them sometime in future. When a firm buys goods, it receives an invoice (proforma-invoice, bill). It often contains terms such as «2/10, net 30» This means that the buyer can take a 2 percent discount for paying within 10 days. The total invoice is due in 30 days if the discount is not taken. It is important for the finance manager to pay attention to such discounts, because the firm would lose 2 percent for every 20-day period if it doesn't pay its bills earlier (36 percent a year);

Investment credit (businesses use to finance their construction, equipment, bonds issue);

Bank credit (secured and unsecured loans, overdrafts, factoring, credit cards, so on);

Consumer or personal credit (buying goods and services for personal use). At present we notice a rapid growth in consumer credit – that is lending to people so they can buy things if they promise to repay the money later. This is done now by plastic money, or credit card. With a credit card you receive credit from a number of shops and department stores, just by filling in some simple forms.

Real-estate credit (buying or building property – mortgage). Mortgage is a loan for buying or building some property (e.g. a house) and the property itself is used as collateral for the lender. If the borrower fails to repay the loan the lender transfers the ownership for the property to itself;

Public or government credit (bonds issued by government). These bonds are considered to be the conservative ones, as they are backed (secured) by the government, their interest rate is stable and they are attractive to businesses;

International credit (is given by other governments or by international banks such as the International Bank for Reconstruction and Development).

Credit is made for a price, known as interest. Interest rate is changeable; it depends on the risk, demand and supply of credit.