FINANCE AND

BANKING

ECONOMICS

UNIT 1. MONEY
Neither a borrower nor a lender be.
From Hamlet by William Shakespeare
:
1. What do you think of when you see the term money?
2. Can you give a definition of money using some of your ideas?
3. Have you ever borrowed money from anyone?
4. Have you ever lent money to anyone?
5. Are you in debt at the moment?
6. Does anyone owe you any money?
7. Do you spend more than you earn, or less than you
earn?
8. Do you have a budget for your money?
9. Do you keep a record of your expenses?
VOCABULARY
,
:
be quoted [kwoutid]
exchange
swap (swapped) [swop]
medium of exchange
unit of account
standard of value
monetary unit
coin
commodity money
paper note
token money
direct exchange of goods
store of value
unit of value
I. of:
The main feature of money, the means of payment, a medium of exchange, a
standard of value, a unit of account, a store of value, a standard of deferred
payment, a money economy, a system of direct exchange of goods, more
practical system of exchange, examples of commodity money.
II.
:
a) for buying or selling goods, a money economy based on coins and paper
notes, having value, they considered to be of equal value.
b) Somebody could exchange a sheep for anything in the market place that
they considered to be of equal value1. When made into coins, they were
portable, durable, recognizable and divisible. We accept money not to

FINANCE AND BANKING

consume it directly but because it can subsequently be used to buy things we

wish to consume. To see that society benefits from a medium of exchange,
imagine a barter economy. In order to see a film, you must handover in
exchange a good or service that the cinema manager wants. Goods are traded
directly or swapped for other goods. Money is also of value because it can be
used to make purchases in future. The seller and the buyer each must want
something the other has to offer. To be accepted in exchange, money has to
be a store of value.
III. Money and its Functions
:
1.Why do we accept money? 2. What does the society benefit from money as
a medium of exchange? 4. How does a barter economy work? 5. How many
functions does money have in society? 6. What is the main feature of money?
7. What is token money?

1.2 MONEY AND ITS FUNCTIONS.

Although the main feature of money is its acceptance as the means of
payment or medium of exchange, it serves as a standard of value, a unit of
account, a store of value and as a standard of deferred payment. We discuss
each of the functions of money in turn.
The Medium of Exchange
Money is used for buying or selling goods. Almost every society now has a
money economy based on coins and paper notes of one kind or another.
However, this has not always been true. In primitive societies a system of
barter was used. Barter was a system of direct exchange of goods. Barter,
however, was a very unsatisfactory system because a persons precise needs
seldom coincided. People needed a more practical system of exchange, and
various money systems developed, based on goods, which the members of a
society recognized as having value. Cattle, grain, teeth, shells, feathers,
skulls, salt, elephant trunks and tobacco have all been used. Precious metals
gradually took over because, when made into coins, they were portable,
durable, recognizable and divisible into larger and smaller units of value. To
see what society benefits from a medium of exchange, imagine a barter
economy. A barter economy has no medium of exchange. Goods are traded
directly or swapped for other goods. In a barter economy the seller and the
buyer each must want something the other has to offer. Each person is
simultaneously a seller and a buyer. In order to see a film, you must handover
in exchange a good or service that the cinema manager wants. There has to be
a double coincidence of wants. You have to find a cinema where the manager
wants what you have to offer in exchange.

ECONOMICS

Money, the medium of exchange, is used in one-half of almost all

exchange. Workers exchange labor services for money. People buy and sell
goods in exchange for money. We accept money not to consume it directly
but because it can subsequently be used to buy things we wish to consume,
Money is the medium through which people exchange goods and services.
Other Functions of Money
Money can also serve as a standard of value. Society considers it convenient
to use a monetary unit to determine relative costs of different goods and
services. In this function money appears as the unit of accounts the unit in
which prices are quoted and accounts are kept.
In Russia prices are quoted in rubles; in Britain, in pounds sterling; in the
USA, in US dollars; in France, in French francs. It is usually convenient to
use the units in which the medium of exchange is measured as the unit of
account, as well. However there are exceptions. During the rapid German
inflation of 1922-1923 when prices in marks were changing very quickly,
German shopkeepers found it more convenient to use dollars as the unit of
account. Prices were quoted in dollars even though payment was made in
marks, the German medium of exchange.
Money is also of value because it can be used to make purchases in future.
To be accepted in exchange, money has to be a store of value. Nobody would
accept money as payment for goods supplied today if the money was going to
be worthless when they tried to buy goods with it tomorrow. But money is
neither the only nor necessarily the best store of value. Houses, stamp
collections, and interest-bearing bank accounts all serve as store of value.
Different Kinds of Money
In prisoner - of- war camps, cigarettes served as money. In the I9th century
money was mainly gold and silver coins. These are examples of commodity
money, ordinary goods with industrial uses (gold) and consumption uses
(cigarettes) which also serve as a medium of exchange 'To use a commodity
money, society must either cut back on other uses of that commodity or
devote scarce resources to producing additional quantities of the commodity.
But there are less expensive ways for society to produce money.
A token money is a means of payment which value or purchasing power as
money greatly exceeds its cost of production or value in uses other than as
money.
A $10 note is worth far more as money as a 3 x 6 inch piece of high-quality
paper Similarly, the monetary value of most coins exceeds the amount you
would get by melting them down and selling off the metals they contain. By
collectively agreeing to use token money, society economizes on the scarce

FINANCE AND BANKING

resources required to produce money as a medium of exchange. Since the

manufacturing costs are tiny, the essential condition for the survival of token
money is the restriction of the right to supply it. Private production is illegal.
IV. ,
:
( _ ) Almost every society now has a money economy based on coins and
paper notes of one kind or another. ( _ ) Barter was a system of direct
exchange of goods. ( _ ) Cattle, grain, teeth, shells, feathers, skulls, salt,
elephant trunks and tobacco have all been used. ( _ ) Although the main
feature of money is its acceptance as the means of payment or medium of
exchange, it serves as a standard of value, a unit of account, a store of value
and as a standard of deferred payment. ( _ ) Money, the medium of exchange,
is used in one-half of almost all exchange ( _ ) Precious metals gradually took
over because, when made into coins, they were portable, durable,
recognizable and divisible into larger and smaller units of value. ( _ ) A barter
economy has no medium of exchange. ( _ ) Money is also of value because it
can be used to make purchases in future. ( _ ) It is usually convenient to use
the units in which the medium of exchange is measured as the unit of
account. ( _ ) The unit in which prices are quoted and accounts are kept. ( _ )
Money can also serve as a standard of value. ( _ ) But money is neither the
only nor necessarily the best store of value. ( _ ) A token money is a means of
payment whose value or purchasing power as money greatly exceeds its cost
of production or value in uses other than as money. ( _ ) The essential
condition for the survival of token money is the restriction of right to supply
it. ( _ ) Houses stamp collections, and interest-bearing bank accounts all serve
as stores of value.
V. money .
,
.
VI.
Money.

ECONOMICS

UNIT 2 ACCOUNTING
:
1. What do you think of the term accounting?
2. What actions does an accountant take to provide
financial information about a business?
3. Is there a difference between the terms accountant and
bookkeeper?
I. :
a) language of business, financial information, a company's accounting
system, an effective accounting system, the financial status of an
organization, financial performance of a company
b)interested parties informed financial decisions, accurate collecting,
recording, classifying, summarizing, interpreting, and reporting of
information In order to achieve a standardized system amount of money
involved, common procedures for handling and presenting financial
information interested in the financial and business activity of the enterprise.
VOCABULARY
,
, :
incoming money (revenues)
outgoing money (expenditures)
transactions
financial statements
proprietary theory
external financial information
liquidity
IAS (International Accounting Standards)
SEC (the Securities and Exchange
Commission)
the International Accounting Standards
Committee (IASC)

the balance sheet

the income statement
liabilities
assets
proprietors capital
entity's assets
acquisition price
the Chart of Accounts
the Cost_Pnncjple
loan applications

II. :
at one point in time, at one point in time, on a salary basis, public
accountants, private accountants, governmental accountants, commonly
accepted accounting systems, organizational decision-making.

FINANCE AND BANKING

. :
a) :
a firm = an organization = a business = a unit; incoming money = revenues;
the financial status of an organization = a financial position of a business
outgoing money = expenditures; financial information = financial data;
a trade = a profession = an occupation; ownership = proprietor capital;
rules and regulations = standards = norms
b) :
revenues expenditures, incoming money outgoing money,
assets liabilities; hirefire.

2.1. ACCOUNTING
Accounting is frequently called the "language of business because of its
ability to communicate financial information about an organization. Various
interested parties, such as managers, potential investors, creditors, and the
government, depend on a company's accounting system to help them make
informed financial decisions. An effective accounting system, therefore, must
include accurate collecting, recording, classifying, summarizing, interpreting,
and reporting of information on the financial status of an organization.
In order to achieve a standardized system, the accounting process
follows accounting principles and rules. Regardless of the type of business or
the amount of money involved, common procedures for handling and
presenting financial information are used. Incoming money (revenues) and
outgoing money (expenditures) are carefully monitored, and transactions are
summarized in financial statements, which reflect the major financial
activities of an organization.
Two common financial statements are the balance sheet and the income
statement. The balance sheet shows the financial position of a company at
one point of time, while the income statement shows the financial
performance of a company over a period of lime. Financial statements allow
interested parties to compare one organization to another and/or to compare
accounting periods within one organization. For example, an investor may
compare the most recent income statements of two corporations in order to
find out which one would be a better investment.
People who specialize in the field of accounting are known as
accountants. In the United Stales, accountants are usually classified as public,
private, or governmental. Public accountants work independently and provide
accounting services such as auditing and tax computation to companies and
individuals. Public accountants may earn the title of CPA (Certified Public
Accountant) by fulfilling rigorous requirements. Private accountants work

ECONOMICS

solely for private companies or corporations that hire them to maintain

financial records, and governmental accountants work for governmental
agencies or bureaus. Both private and governmental accountants are paid on a
salary basis, whereas public accountants receive fees for their services.
Through effective application of commonly accepted accounting systems,
private, public, and governmental accountants provide accurate and timely
financial information that is necessary for organizational decision-making.
The business transactions are first recorded in the journal. The journal is
the book of original entry. The bookkeeper transfers figures from the journal
to the ledger. The bookkeeper posts the journal figures in the book containing
all the accounts. The sales transactions are posted in the sales account. Cash
received is posted in the cash account. Accounts are records of similar types
of accounts. Bookkeeping involves recording sales and expenditures in the
journal and posting them to the ledger. Bookkeepers record the financials
transactions.
Accounting is more sophisticated than bookkeeping. Accountants
design bookkeeping and accounting systems. Accountants construct and
interpret financial statements.
IV. ,
Accounting:
1. What steps does an accountant take to provide accurate financial
information about a company?
a) ncoming and outgoing money is carefully monitored.
b) Through effective application of commonly accepted accounting systems
accountants provide accurate financial information.
c) An accountants actions must include accurate collecting, recording,
classifying, summarizing, interpreting and reporting financial information
about a company.
d) Transactions are summarized in financial statements, which reflect the
major financial activities of an organization.
2. How is a standardized accounting system achieved?
a) By means of the balance sheet and the income statement.
b) Through effective application of different accounting systems.
c) Common procedures are used in handling financial information.
d) All companies use identical accounting systems.
3. What do the balance sheet and the income statement have in common?
a) The balance sheet and the income statement show the same financial data.
b) The balance sheet and the income statement show the financial position of
a business at one point of time.
c) The balance sheet and the income statement are two common financial

FINANCE AND BANKING

statements that provide accurate financial information for interested

parties.
d) Both the balance sheet and the income statement reflect the major financial
activities of a business over a period of time.
4. What kinds of services do accountants provide?
a) Accountants work solely for private companies and corporations.
b) Accountants provide accounting services to companies, governmental
agencies, bureaus, and individuals.
c) Accountants provide such services as auditing, and tax computations.
d) Accountants work solely as governmental accountants.
5. What are revenues and expenditures?
a) Accountants salary
b) Financial statements
c) Accounting standards
d) Incoming and outgoing money
V. , ,
:
1. Accounting is often called language of business because of its
ability_________ financial data about an organization.
a) to achieve
c) to compare
b) to show
d) to communicate
2. An effective ___________must include accurate collecting, recording,
classifying summarizing, and reporting financial information.
a) financial statements
c) common procedures
b) standardized system,
d) accounting system
3. Accounting information is used by ___________________ to help them
make financial decisions.
a)managers
c) creditors
b) potential investors
d) all of the above
4. Regardless of the type of business or the amount of money involved,
_____________.
a) balance sheets are more important than income statements
b) no standardized accounting systems are employed
c) every organization uses identical accounting systems
d) common procedures are used in handling financial data.
5. Business monetary transactions are summarized in ___________.
a) bank books
c) computer software
b) financial statements
d) tax computations

ECONOMICS

VI. Accounting as a Profession

1. .
2. (1) . ,
.
3. (2) . .
4. (3) .
(2) .
2.2.ACCOUNTING AS A PROFESSION
(1) The transition of accounting from a trade into a profession began
in Scotland and England in the late 19th century with the establishing of the
Institute of Chartered Accountants in England and Wales in 1880. This was
followed in the U.S. by the establishment of the American Institute of
Certified Public Accountants in 1887.
The professionalizing of accounting was facilitated by several factors
including:
a) the development of a common body of knowledge;
b) a system of "due process" for the development of rules and regulations
(standards);
c) the incorporation of the common body of accounting knowledge into a
university curriculum;
d) the development of a qualifying examination and experience
requirements necessary for entrance into the profession;
(2) Proprietary theory. In the late nineteenth century most economic
activity was being performed by small business with no separation of
management and ownership. During this period accounting operated under
the Proprietary Theory, which can be expressed by:
Assets - Liabilities = Proprietor Capital
This theory recognized that the owners had direct ownership of the
entity's assets and were directly liable for the liabilities.
In most cases, banks in support of loan applications primarily required
external financial information. This led to the following developments:
a) the need for independent verification of the financial information;
b) an emphasis on financial position as the security for the loan, with
particular focus on liquidity;
c) the development of the Cost_Pnncjple which required assets, in most
cases, to be recorded at acquisition price, due to the relative ease of
verification.
Generally, the Cost Principle did not allow for the re-valuation of the
asset after acquisition due to the subjectivity inherent in that process.

FINANCE AND BANKING

The need for independent verification of financial information was .the major
impetus for the development of firms of independent public accountants to
perform this and other functions (tax and management advisory services)
(3) Russian Accounting Since 1985. The beginning of Russia's
conversion to a market economy in 1985 was hindered by the lack of
accounting systems and standards relevant for that purpose. Gradually there
has been an evolution toward IAS.
A major development in Russian accounting occurred with the approval of
the Regulation on Accounting and Reporting in the Russian Federation by
decree of the government in1992.
This document, which is used in conjunction with the Chart of
Accounts approved by the Ministry of Finance in 1991, established the
following objectives of accounting:
a) maintenance of control over the availability, movement, and use of
material, manpower, and monetary resources according to approved norms;
b) timely prevention of negative events in business activity, and the
mobilization of interim reserves;
c) provision of full and reliable information about the performance and
financial results of an enterprise, which is indispensable for operational
management as well as for investors, suppliers, customers and creditors,
tax, financial and bank authorities, and others interested in the financial and
business activity of the enterprise.

ECONOMICS

UNIT 3. FINANCIAL STATEMENTS

:
1. What is a balance sheet?
2. How many financial statements do you know?
I. a
financial statement.
VOCABULARY
,
:
accounts receivable
accounting transactions
accounting equation
owners equity
assets - liabilities
inventories
long-term liabilities
the owners share

3.1 THE BALANCE SHEET

Financial statements are the final product of the accounting process.
They provide information on the financial condition of a company. The
balance sheet, one type of financial statement, provides a summary of what a
company owns and what it owes on one particular day.
Assets represent everything of value that is owned by a business, such as
properly, equipment, and accounts receivable. On the other hand, liabilities
are the debts that a company owesfor example, to suppliers and banks. If
liabilities are subtracted from assets (assets - liabilities), the amount
remaining is the owners' share of a business. This is known as owners' or
stockholders' equity.
One key to understanding the accounting transactions of a business is to
understand the relationship of its assets, liabilities, on owners equity. This is
often represented by the fundamental accounting: assets equal liabilities plus
owners' equity.
ASSETS = LIABILITIES + OWNERS EQUITY
These three factors are expressed in monetary terms and therefore are
limited to items that can be given a monetary value. The accounting equation
always remains in balance; in other words, one side must equal the other.
The balance sheet expands the accounting equation by providing more
information about the assets, liabilities, and owners equity of a company at a
specific time (for example, on December 31, 1993) It is made up of two
parts. The first part lists the company assets, and the second part details
liabilities and owners equity. Assets are divided into current and fixed assets.

FINANCE AND BANKING

Cash, accounts receivable, and inventories are all current assets. Property,
buildings, and equipment make up the fixed assets of a company. The
liabilities section of the balance, sheet is often divided into current liabilities
(such as accounts payable and income taxes payable) and long-term liabilities
(such as bonds and long-term notes)
The balance sheet provides a financial picture of a company on a
particular date, and for this reason it is useful in two important areas.
Internally, the balance sheet provides managers with financial information for
company decision-making. Externally, it gives potential investors data for
evaluating the company's financial position.
II. , :
1. Everything of value that is owned by a business, such as property,
equipment, and accounts receivable is called _______.
a) property
c) accounting equation
b) receivable
d) assets
2. _______ are the debts that a company owes.
a) accounts
c) assets
b)liabilities
d) equipment
3. Money which should be paid to a company during the present business
cycle is _______.
a) statement
c) transaction
b) record
d) receivable
4. _______ is a financial report which usually shows totals and balances.
a) take over
c) current asset
b) record
d) statement
5. The difference between the value of the asset and the value of the
liabilities of a company is _______.
a) a financial document
c}.net worth, owners equity
b) a record of financial transactions
d) payable
III. :
1. What is the final product of the accounting process?
a) current assets
c) financial statements
b) long term liabilities
d) accounts payable
2. What does the balance sheet provide?
a) series of transactions
b) particular results of the company business activity
c) a summary of what a business owns and what it owes on a particular
date
d) a financial picture of a company over a period of time
3. What is the difference between assets and liabilities?
a) Assets are money and everything of value to a company, and liabilities

ECONOMICS

are the companys debts.

b) Money which was spent.
c) The increase in size of a business activity.
d) The gross income minus the expenses.
4. How does a company determine its net worth?
a). It is the difference between the value of a companys assets and the
value of its liabilities.
b). Net worth (owners equity) is equal to liabilities plus current accounts.
c). It is a business activity, which involves the transfer of money.
d). It is the gross income minus the expenses.
5. How would you as a manager find a balance sheet useful?
a). It can show current and long-term liabilities.
b). Both assets and liabilities would show accounts payable.
c). The balance sheet would show long term notes payable.
d). The balance sheet would provide me with financial information for
organizational decision making.
IV. ,
:
Finance
The Balance Sheet
Companies and their Capital
Assets and Liabilities
One of the primary considerations when going into business is money.
Without sufficient funds a company cannot begin its operation. A new
business needs capital not only for ongoing expenses but also for purchasing
necessary assets. These assets - inventories, equipment, buildings, and
property represent an investment of capital in the new business.
How this new company obtains and uses money will, in large measure,
determine its success. The process of managing this acquired capital is
known as financial management. In general, finance is securing and utilizing
capital to start up, operate, and expand a company.
To start up or begin business, a company needs funds to purchase
essential assets, support research and development, and buy materials for
production. Capital is also needed for salaries, credit extension to customers,
advertising, insurance, and many other day-to-day operations. In addition,
financing is essential for growth and expansion of a company. Because of
competition in the market, capital needs to be invested in developing new
product lines and production techniques and in acquiring assets for future
expansion.
In financing business operations and expansion, a business uses both shortterm and long-term capital. A company, much like an individual, utilizes
short-term capital to pay for items that last a relatively short period of time

FINANCE AND BANKING

An individual uses credit cards or charge accounts for items such as clothing
or food, while a company seeks short-term financing for salaries and office
expenses. On the other hand, an individual uses long-term capital such as a
bank loan to pay for a home or car goods that will last a long time.
Similarly, a company seeks long-term financing to pay for new assets that are
expected to last many years.
When a company obtains capital from external sources, the financing can
be either on a short-term or a long-term arrangement. Generally, short-term
financing must be repaid in less than one year, while long-term financing can
be repaid over a longer period of time.
Finance involves the securing of funds for all phases of business
operations. In obtaining and using this capital, the decisions made by
managers affect the overall financial success of a company.
Corporate form of enterprise. Although proprietors performed most
enterprise prior to the twentieth century, the corporate form of business began
to be utilized by larger companies, characterized by limited liability for
shareholders, transferability of shares, and absentee ownership. The
following significant effects on accounting accompanied this development:
a) Joint Stock Companies Act of 1844 was enacted in England, which
required a "full and fair" balance sheet to stockholders.
b) German Companies Act of 1884 required companies to declare their
profits and present balance sheets with assets valued at cost or the lower of
cost or market.
c) In England the Companies Act of 1900 required creasing amounts of
"disclosure" in the financial statements.
d) The growth of "holding companies" (corporations owning shares in
other corporations) in the U.S. in the 1890s, leading to the development of
consolidated financial statements by U.S. Steel in 1901 which quickly
spread to other holding companies.
e) Requirement of the New York Stock Exchange in 1900 that all
corporations listed on the exchange publish balance sheets and income
statements with appropriate disclosure.
The industrial revolution. The industrial revolution led to the advent of large
corporations during the early twentieth century. These corporations were
characterized by divisions and subsidiaries located in many different locales.
This required accounting firms to have offices in several cities to adequately
serve their clients, which was the major cause of the development of national
and international accounting firms.
The industrial revolution also led to major advances in managerial and cost
accounting. Manufacturers required more sophisticated methods for costing
their inventory and accounting for their considerable investment in
machinery, equipment and factories. This led to the following:

ECONOMICS

a) the distinction between product cost (material, labor and overhead

used in the production process which were included as assets until the
product was sold) and period costs (non-manufacturing operating costs
which were charged against income in the period incurred);
b) the recording of depreciation on operating assets such as machinery,
equipment and factory buildings as a charge against income.
Capital Markets. The necessity of large amounts of capital resulted in the
development of capital markets where debt and equity securities could be
readily purchased and sold. This resulted in the following:
a) Increased importance of published financial statements which were
used to assist in making investment decisions
b) The shift in emphasis from the balance sheet to the income statement
which was considered to be, more useful in determining return on
investment
c) Increased emphasis on uniformity of accounting policies to allow for
the comparability of an entity's performance over time and the comparison
of an entity with different entities
The role of the banking sector. The need for uniform accounting standards
was emphasized by the U.S. banking sector leading to the publication in the
Federal Reserve Bulletin in 1917 of "Uniform Accounting, and in 1918 of
"Approved Methods for the Preparation of Balance-Sheet Statements." These
publications and their successors emphasized the following:
a) increased emphasis on the cost basis of valuation and the "going
concern" concept;
b) greater consistency in application of procedures;
c) recognition that the income statement was at least as important as the
balance sheet;
d) the separation of non-operating and extraordinary items from operating
income;

FINANCE AND BANKING

UNIT 4. BANKING
:
1. What is a bank?
2. Have you ever borrowed money from a bank?
3. Do you have your personal savings in a bank?
I. a
bank. :
A bank is a form of business that ___________.
VOCABULARY
,

ommodity
causes the demise
fraught bankruptcy
shifting money
profit
lending rates
interest
to take out
insurance
a cashless society
the debit card
the "stored value" card
II. :
a) Like any business, a bank is after a profit at an annual six-percent interest.
They seek to reduce their lending rates. A bank keeps up to date with the
market situation.
b) progress in industry; keeping most of their money in circulation; in their
pursuit of high profit; involved in risky operations fraught with bankruptcy.
III. Banking :
1. Is there any difference between a bank and any other business?
2. What are banks busy doing?
3. Can population centers in any country do without a bank?

4.1. BANKING
No population center in America, even the smallest one, is conceivable
without a bank building. A small town may have several banks, and in a big
city there are tens of them.
Like any business, a bank is after a profit, above all. Money is the
commodity it sells. To put it simply, a bank seeks to "buy" money cheaply
(not necessarily from the Federal Reserve Bank), at an annual six-percent
interest, for example, and to sell it dearly (as, say, credit to a building
company) at the annual interest rate of 11 percent. This is what the banks are
busy doing. There are many variations within this pattern of course.
Naturally, the banks put their money where it brings them the highest

ECONOMICS

profit. That is why they always keep up to date with the market situation. By
shifting money of various "costs" from sphere to sphere, from one
geographical region to another, the banks activity stimulate progress in
industry, construction and agriculture. Besides this, the bank promote the
growth - or causes the demise - of individual population centers or even
whole regions.
The banks are interested in keeping most of their money in circulation
so that it should bring them profit. They seek to reduce their lending rates in
order to attract buyers. In their pursuit of high profit, the banks sometimes get
involved in risky operations fraught with bankruptcy. Therefore the Federal
government takes measures to minimize the danger of banks going broke.
Every bank is obliged to take out insurance against robbery or bankruptcy
lest the clients should lose their money in any case.
IV. ,
:
1. Why is a bank compared to any other business?
2. How does a bank buy and sell its commodity?
3. How can a bank promote the growth or cause the demise
[d`maz] of whole regions?
4. Why do banks reduce their lending rates?
5. Why are banks obliged to take out insurance against robbery or
bankruptcy?
V. Future of Banking .
:
1. cashless
4. the electronic check register
2. EDI (electronic data interchange)
5. automated funds transfers
3. electronic banking

4.2. FUTURE OF BANKING

All organizational and individual financial activity in the twenty-first
century is going to take place in a cashless society.
Leading the charge into the cashless world is electronic data interchange
(EDI) Japanese producers began reducing costs years ago by moving funds
automatically from their accounts to those of suppliers.
It's time to put this technology to work at the consumer level. Every
year, Americans receive billions of bills. The checks they write then pass
through many hands. The cost of all this? At least $20 billion!
We're starting to see electronic banking through computer networks like
Quickness alliances with various banks. But what most people don't realize
is that most of these systems still require someone to cut a check or notify a

FINANCE AND BANKING

bank using paper.

Innovations in plastic cards are also taking us closer to the cashless
society. One is the debit card, which transfers money from the owner's
account to that of any establishment. Another is the "stored value" card. Visa,
for example, offers the Travel-Money card. You buy it for any amount, and
then use it to get cash from 200,000 locations worldwide. When the amount
is used up, you toss it.
The electronic check register has the best near-term chance to reduce
unnecessary transaction costs.
The account holder plugs the device into any phone, and the register dials the
bank's automated system. It gives the bank the account number and transfers
any manual checks. The bank updates the register by adding automated funds
transfers (designated AFT) like payroll, bills, etc.
By plugging in each day, a customer can keep account balances fresh
with no need to reconcile. In addition, transferring funds automatically means
customers don't have to mail checks to creditors. They, in turn, have less
paper to process. This cuts costs for all.
VI. :
1. What is understood by a "cashless society"?
2. What is electronic data interchange?
3. What kind of innovations are there in plastic cards?
4. How does the electronic check register work?
5. How can electronic fund transferring cut costs for both the customer and
the bank?

ECONOMICS

UNIT 5. WORLD BANKING

5.1 CITIBANK
I. .

(a i):
The worldwide access you desire with the control you need.
Open a Citibank Current Account and you'll benefit from a package of
financial products and services that will change your expectations of a bank.
1
____. Well put you more firmly in control of your finances by giving you
unparalleled access to your money.
Citibank's state-of-the-art technology removes traditional banking limitations
of time and location and gives you free 24-hour telephone access to your
money.2 ____.
As a result, you'll enjoy the benefits of the world's most global banking
group, whether you are in your home, your high street, on holiday or on
business.
There are currently 22 million people in over 40 countries around the world
who enjoy the Citibank difference.3 ______.
International currency accounts
If you travel often, invest internationally or you are an expatriate, we have
personal Current Accounts in US Dollars, Sterling and Euro to help you
manage your financial affairs more efficiently.
Whether you want to pay in US Dollars on your regular trips abroad, or you
want to avoid hefty transaction charges when you send cheques to the US, or
you simply want to save on currency exchange costs, the US Dollar Account
is for you. 4 ____.
24-hour free telephone banking with CitiPhone Banking
Short of making deposits or cash withdrawals, CitiPhone lets you conduct
business conveniently over the phone.5 ____. You have a choice of methods,
a touch-tone phone will speed you through automated procedures, or
CitiPhone Bankers are on hand if you prefer the personal touch.
Total control of your finances, anytime, anywhere World Wide
Wishful-thinking?
With Citibank's Internet Banking, you can access your Citibank Account
from almost anywhere you have access to the Internet. 6 ____. Change a
standing order. Download your account details. Transfer funds between your
Citibank Accounts. And you'll see your balance change instantly.
At Citibank we're not just content with giving you total control of your

FINANCE AND BANKING

finances, worldwide, 365 days a year, plus no fees - with us your finances are
productive as well.
a) Call free in the UK or around the world 24 hours a day, 365 days a
year.
b) Alternatively, use our free Internet Banking or withdraw cash from
over 350,000 cashpoints worldwide.
c) Full additional overdraft facilities are available to you based on your
personal net worth and individual requirements.
d) You can pay bills.
e) Our service is based on a simple promise.
f) This account gives you the ability to buy, borrow, save and transfer
funds in Euro, and still withdraw cash in the local currencies.
g) We have harnessed the latest technology to deliver an easier, and more
accessible banking service.
h) We think you'll enjoy it too.
i) You will always have the power of the world's most international
currency when you travel on business or pleasure.
II. ,
:
1. open
a. interest
2. purchase
b. bills
3. earn
c. funds
4. make
d. an account
5. withdraw
e. a deposit
6. pay
f. financial data
7. transfer
g. cash
8. download
h. goods
III. 2:
1. The Citiard allows you to ____ take out money from cash points around
the world.
2. With Citibank, you can __: __ receive a percentage on your current
account balance.
3. Just fill out and return the application form or call a Citibank
Representative to ___ set up a banking arrangement.
4. You can ___put money into your account by post at Citibank branches and
Citicard Banking Centres.
5. On-line banking services let you ____ move money from one account to
another quickly and easily.
6. All you need is a modem or Internet connection to ____ transfer account
information onto your personal computer.
7. Just by using the keypad on your phone, Citihone Banking lets you ____

ECONOMICS

settle invoices from wherever you are.

8. The Citibank Euro Account allows you to ___buy products in local
currencies without paying any exchange rates.
IV. Raising Capital to Run a Firm :

5.2 RAISING CAPITAL TO RUN A FIRM

Britain works on what is called a capitalist system. This means that
anyone who has an idea for a new way of making a living can raise the
capital needed to go ahead with it. Capital is the money that is used to start a
business.
A very common way of raising money to start a business is to get a loan
from a bank or from one of the other finance houses.
Before they agree to give someone a loan, the people lending the money will
expect convincing answers to a lot of questions they will ask about the
business. They will want to make sure it has a good chance of making a profit
and that the person applying for the loan knows what he or she is doing and
will run the business along sound lines.
Larger companies often raise money by selling shares in the business
(this is called 'going public') The people who buy the shares become
shareholders. By lending their money to the company they have bought a
share of the business and get a say in how the company is run at shareholders'
meetings.
At the end of the year the firm divides some of the profits among the
shareholders. This is called the dividend. The company will keep some of the
profits so that it can invest in new equipment, or take on more employees.
If you are a shareholder and you want to get back the money you have
put into a company, you must sell your shares at the Stock Exchange. The
Stock Exchange is a place where shares are bought and sold.
The price of shares is controlled by the amount people are willing to pay
for them.
If the company is making a profit, other people may want to buy shares
in it, so you may be able to sell the shares at a higher price than you paid for
them. If you bought 100 shares at $100 each and you sold them later at $150
each, you would make J50 profit on the 100 shares, as well as keeping any
dividend paid during the period when you owned the shares.
But if business is not going well, other people may not be willing to pay
as much as $100 a share. If they think the company may do well in the end,
they might pay 80cents a share. If the business is really failing, no one will
buy the shares at all and you risk losing all your money.
Collateral analysis. A bank manager, who is determining if a customer
should receive a loan, looks at whether or not the customer will be able to

FINANCE AND BANKING

repay the loan. The manager reaches this decision after analyzing past
financial performance, projected financial perform-his capacity to repay,
character, and business conditions. However, no matter how credit-worthy
the borrower may appear, there is always a chance that he or she may not be
able to repay the loan. For this reason, the bank manager will also look at the
collateral position of the borrower.
Collateral analysis shows the lender how much of the outstanding debt
owed to them could be retrieved if the borrower were to declare bankruptcy
sometime in the future. (Bankruptcy occurs when the borrower is unable to
meet payment obligations as they fall due.) To determine the retrieval value,
the lender looks at the assets that appear on the borrower's Balance Sheet and
tries to assess their current value today.
V.

5.2:
1) Britain works on what is called ____.
2) A very common way of raising money to start a business is ____or
from one of the other finance houses.
3) Larger companies often raise money ____ (this is called 'going public')
4) The people who buy the shares become____.
5) By lending their money to the company they have bought a share of
the business and get a say in how the company is run at____.
6) But if business is not going well, other people may not be willing
____a share.
VI.
:
A few people invest large sums of money in company shares and make so
much profit from them that they never need to do a normal job at all.
1. What would these people have to be good at, to make sure that they didn't
put their money in firms that were failing?
2. Is it true to say that if people put their own money into a firm, they are
helping to create a job for someone else?
3. Is it fair that some people should not have to work to earn money? Are
these people living on other people's efforts?
4. Should a public company be run in the interests of its customers, its
workers or its shareholders? Or could these be combined?
October. This is one of the peculiarly dangerous months to speculate in
stocks. The others are July, January, September, April, November, May,
March, June, December, August, and February.

ECONOMICS

JOKES
A donkey is a horse designed by a study team.
A fool and his money are soon elected.
A fool and his money stabilize the economy.
THE WORK QUALIFICATION TEST

Murphy applied for an engineering position at an Irish firm

based in Dublin. An American applied for the same job and both
applicants having the same qualifications were asked to take a
test by the Department manager. Upon completion of the test
both men only missed one of the questions. The manager went
to Murphy and said.
Manager: "Thank you for your interest, but we've decided to
give the American the job"
Murphy: "And why would you be doing that? We both got nine
questions correct. This being Ireland and me being Irish I should
get the job!"
Manager: "We have made our decisions not on the correct
answers, but on the question you missed."
Murphy: "And just how would one incorrect answer be better
than the other?"
Manager: "Simple, the American put down on question #5, "I
don't know.", You put down "Neither do I."