THE BANKING INDUSTRY

Lead-in:

1. to earn profit –заробляти прибуток

2. to pay and to charge interest rates –сплачувати i стягувати (нараховувати) відсотки

3. lenders and borrowers –кредитори і позичники

4. takeovers and mergers –злиття та поглинання підприємств

5. Government bonds –урядові облігації, державні цінні папери

6. Annual General Meeting –щорічні загальні збори

7. mortgage loan –заставна позика

8. fluctuate –коливатися, хитатися

9. insurance services –страхове обслуговування

Banks are one of the most important financial institutions. The first and most important function of a central bank is to accept responsibility for advising the government on the country’s financial policy.

There are two types of banks: commercial banks and investment banks – or merchant banks as they are called in Great Britain. The aim of commercial banks is to earn profit; they make a profit from the difference between the interest rates they pay to lenders and those they charge to borrowers. Commercial banks deal mainly with individual customers, e.g. private citizens, small businesses. They receive and hold deposits, pay money according to customer’s instructions, lend money, exchange foreign currencies, give credit, and so on. Investment banks – or merchant banks – raise funds for industry on the various financial markets, finance international trade, deal with takeoversand mergers, issue government bonds. Investment banks make profits from fees and commissions they charge for their services. Banks are usually organized to follow their functions and supply the services as efficiently as possible.

The English commercial banks have branches in all the major towns and have a similar structure. Their owners are shareholders, they provide the necessary capital. They are all organized on the joint stock principle and are registered public companies. The Chairman and Board of Directors are elected by the ordinary shareholders at the Annual General Meeting and responsible for the efficient management of the bank. The Board will appoint a Managing Director and senior executives who will be responsible for the running of the bank. At the end of each business year the Directors recommend and the Annual General Meeting decides how much of the profit should be distributed by the shareholders as a dividend, and how much should be retained in the business. Preparing for the Annual General Meeting, a bank publishes its Report and Accounts. These must be sent to every shareholder and are available for anyone with an interest in the affairs of the bank.

In recent times the difference between commercial and investment banks has been slowly disappearing as the so-called “financial supermarkets” replace them. These are a combination of a commercial bank, an investment bank, and an insurancecompany, offering the full range of financial services.

Whether depositing or borrowing money, a customer is most interested in the bank’s interest rate. The minimum interest rate is usually determined by the central bank, and the interest rates offered by other banks sometimes fluctuate.

There has been an explosion of new service options in banking recently. Trust services are one of the most important and rapidly growing bank service areas today.Apart from that banks introduce such services as cash management services, mortgage loans, investment services, insurance services, etc.

Ø Questions for comprehension check-up and discussion:

1. What is the most important function of a central bank?

2. Name two types of banks.

3. What do commercial banks deal with?

4. What functions do investment banks perform?

5. How is the Board of Directors elected in English commercial banks?

6. What questions are discussed at the Annual General Meeting?

7. What is a ‘financial supermarket’ and what services does it provide?

8. Can you name new service options in the sphere of banking?

MONEY

Lead-in:

1. medium of exchange –засіб обміну

2. unit of account –одиниця розрахунку

3. store of value –засіб збереження

4. notes and coins –банкноти і монети

5. purchasing power –купівельна спроможність

6. standard of deferred payment –стандарт відкладеного платежу

7. Legal Tender –законний платіжний засіб

8. bank liabilities –банківські зобов’язання

The main function of money is a medium of exchange, but it performs other functions: a unit of account and a store of value.

The use of money as a medium of exchange is as fundamental to the development of economic systems as the invention of the wheel for transport. In all advanced economies the greater part of the supply of money consists of deposits in bank accounts, rather than notes and coins.

To act as an efficient medium of exchange, money must also function as a store of value. With money, the act of purchase can be separated from the act of sale, money then acts as a temporary means of holding purchasing power.When the overall price level is stable, or even falling, money can be more than a temporary store of value.

Even in periods of rapid inflation people continue to hold money in order to carry out transactions, because of the great convenience it allows.There may be better stores of value, but they lack the liquidity (i.e. the ability to be used directly to make purchases) which is the characteristic of money. Other assets may be better stores of value, but they can not be converted into purchasing power without some cost.

Money also acts as a measuring unit to assess the relative values of different commodities. Money performs this measurement function when it becomes a standard of deferred payment: if I wish to borrow a given sum now an interest charge will be added to it so that I know how much I will have to repay in the future. Inflation erodes the usefulness of money in this role.

One of the requirements for money is that the item should be limited in supply. The supply of the monetary unit should also be relatively stable. From the convenience point of view it is desirable that money should be portable and durable, and also homogeneous. Money should also be divisible into small units for minor transactions.

In Britain, the most obvious form of money is the currency in circulation, known as Legal Tender.Since the greater part of money supply now consists of bank deposits, it is necessary to mention the banking system. The banking system of Great Britain consists of a number of institutions, with the Bank of England playing a crucial role. The Bank of England regulates the supply of money, influences interest rates and oversees the operations of commercial banks; it also manages the National Debt. Banks are distinguished from other intermediaries by the fact that their liabilities (bank deposits) can be spent directly as money, which makes them the focus of monetary policy.

Ø Questions for comprehension check-up and discussion:

1. What are the main functions of money?

2. Why do people continue to hold money even in periods of rapid inflation?

3. What is liquidity?

4. Explain the term ‘standard of deferred payment’.

5. Why is it necessary that money should be portable, durable and homogeneous?

6. What are the functions of the Bank of England?

7. What is the main difference between banks and other intermediaries?