7. Make up sentences using these words:

1. limits, of, economics, to, study, the, of, aspects, the, material, itself, life.

2. problem, an, is, underlying, economics, in, that, sur­vival, of.

3. seem, may, a problem, very, this, remote.

4. very, starvation, a, prospect, millions, for, real, human, beings, is, of.

5. peasants, an, Indian, have, living, of, the, low, extremely, standard.

6. people, great, experience, poverty, these.

8. Home reading. Read and translate the text. Give a short summary of it change of banking practices.

The idea of banking, insurance and consulting business all being offered by the same organization is increasingly affecting traditional banking practices. In pursuit of a new source of profit, many banks have strayed far from the business of taking and safeguarding the public's deposits and running the payment systems. The change made banks look different in from a decade ago.

This change is already seen in America, Europe and Japan. American and Japanese commercial banks are pushing their merchant banking as deeply into the securities business as they feel the regulators will let them get away with. In America, Bankers Trust, Chase Manhattan, Citicorp and J.P. Morgan have all been allowed to set up securities - underwriting affiliates slipping through the Section 20 loophole of the legislation separating commercial and investment banking.

For their part, investment banks and securities houses have become direct suppliers of credit to a wide range of customers.

Though forbidden from commercial banking in their home markets, American and Japanese investment banks and securities houses happily run such affiliates abroad.

It is not only the boundaries between the banking and securities industries that are becoming blurred. So are those with insurance and commerce.

Everywhere ordinary commercial firms are making deep incursions into financial services, Retailers and manufacturers own securities companies, insurance firms, thrifts and nоn-bank banks. They offer a wide range of credit, investment-banking and insurance services, to companies and individuals alike.

Unit 6 banking and monetary policy

Financial intermediaries:

The main function of the financial institutions which make up the British banking system is to collect deposits from those with surplus cash resources and to lend the funds to those with an immediate need for them. This is the function of a financial intermediary. There are many advantages of the funds being channeled through a financial institution rather than being loaned directly by savers to borrowers.

1. Many savers want to save relatively small sums. They will also want liquidity — the ability to withdraw their money when they want it. Most borrowers want to borrow for definite periods of time-often for quite long periods. Financial intermediaries can aggregate many small sums of savings and make relatively large loans. They can offer savers liquidity by borrowing for short periods of time and lending for long periods. Depositors can be allowed to with­draw funds because such withdrawals are likely to be matched by new deposits. If such an institution retains the confidence of its depositors there is no reason why the funds available for lending should fall significantly.

2. Savers will tend to look for security — they want to feel that their money is 'safe'. By spreading its loans over many different types of borrower, a financial intermediary greatly reduces the risk of losses. It can take to account of like­ly losses in the rate of interest it charges to borrowers.

3. Financial intermediaries can use their size and expertise to offer savers a wide range of savings schemes and to offer borrowers several different types of loan.

Some of these financial intermediaries have been dis­cussed earlier for example, insurance companies, pension funds, building societies and finance houses. In this chapter we are concerned mainly with the most important of these institutions — namely, those in the banking sector.

Banking services:

The operations of the main banking institutions are explained later in this chapter. The various services provided by banks are summarized below.

(a) The provision of safe deposit facilities for money and valuables.

(b) The lending of money: this is the most profitable activity of the banks and the one which provides most of their income.

(c) The issuing of banknotes: in England and Wales this right is restricted to the Bank of England, but some banks in Scotland and Northern Ireland retain the right to issue their own banknotes.

(d) The provision of efficient money transmission services (e.g. cheques, credit cards, standing orders, direct debits, giro systems and the provision of cash).