Unit

Banking

Vocabulary

Match up the terms with the definitions:

7 Cash card 3 cash dispenser or ATM 2 credit card 8 home banking

4 Loan 6 mortgage 1 overdraft 5 standing order or direct debit

9 Current account or checking account

10 Deposit account or time or notice account

1 an agreement by which a customer can withdraw more form a bank account

2 a card which guarantees payment for goods and services purchased by the cardholder, who pays back the bank or finance company at a later date

3 a computerized machine that allows bank customers to withdraw money, check their balance and so on

4 a fixed sum of money on which interest is paid, lent for a fixed period, and usually for a specific purpose

5 an instruction to a bank to pay fixed sums of money to certain people or organization at stated times

6 a loan, usually to buy property, which serves as a security for the loan

7 a plastic card issued to bank customers for use in cash dispensers

8 doing banking transactions by telephone or from one's own personal computer

9 one that generally pays little or no interest, but allows the holder to withdraw his or her cash without any restrictions

10 one that pays interest, but usually cannot be used for paying cheques or checks, and on which notice is often required to withdraw money

Discussion

1. Which of the banking facilities do you use?

2. What services do commercial banks offer in your country?

3. What changes have there been in personal banking recently?

4. What future changes do you foresee in the future?

The banking industry

Reading

Read the text below and write short headings for each paragraph

Types of bank

1...Commercial banking.........................................

Commercial or retail banks are businesses that trade in money. They receive and hold deposits, pay money according to customer's instructions, lend money, offer investment advice, exchange foreign currencies, and so on. They make a profit from the difference (known as a spread or a margin) between the interest rates they pay to lenders or depositors and those they charge to borrowers. Banks also create credit, because the money they lend , from their deposits, is generally spent (either on goods or services, or to settle debts), and in this way transferred to another bank account – often by way of a bank transfer or a cheque (check) rather than the use of notes and coins - from where it can be lent to another borrower, and so on. When lending money, bankers have to find a balance between yield and risk, and between liquidity and different maturities.

2...Investment banking..........................................

Investment banks, often called merchant banks in Britain, raise funds for industry on the various financial markets, finance international trade, issue and underwrite securities, deal with takeover and mergers, and issue government bonds. They also generally offer stock broking and portfolio management services to rich corporate and individual client. Investment banks make their profits from the fees and commissions they charge for their services.

3.....Universal banking..........................................

In some European countries (notably Germany, Switzerland and Austria) there have always been universal banks combining deposit and loan banking with share and bond dealing and investment services, but for much of the 20th century, American legislation enforced a strict separation between commercial and investment banks. The Glass-Steagall Act, passed during the Depression in 1934, prevented commercial banks from underwriting securities. This act was repealed in 1999. The Japanese equivalent was abolished the previous year, and the banking industry in Britain was also deregulated in 1990s, and financial conglomerates now combine the services previously offered by banks, stockbrokers, and insurance companies.

4....Interest rates...........................................

A country's minimum interest rate is usually fixed by the central bank. This is the discount rate, at which the central bank makes secured loans to commercial banks. Banks lend to blue chip borrowers (very safe large companies) at the base rate or the prime rate; all other borrowers pay more, depending on their credit standing (or credit rating, or credit worthiness): the lender's estimation of their present and future solvency. Borrowers can usually get a lower interest rate if the loan is secured or guaranteed by some kind of asset, known as collateral.

5....Eurocurrencies.............................................

In most financial centers, there are also branches of lots of foreign banks, largely dong Eurocurrency business, A Eurocurrency is any currency held outside its country of origin. The first significant Eurocurrency market was for US dollars in Europe, but the name is now used for foreign currencies held anywhere in the world (e.g. yen in the US, euros in Japan). Since the US$ is the world's most important trading currency – and because the US for the many years had a huge trade deficit – there is a market of many billions of Eurodollars, including the oil-exporting countries' 'petrodollars'. Although a central bank can determine the minimum lending rate for its national currency it has no control over foreign currencies. Furthermore, banks are not obliged to deposit any of their Eurocurrency assets at 0% interest with the central bank, which means that they can usually offer better rates to borrowers and depositors than in the home country.

Reading comprehension tasks

1. Summarize the text

2. Find the words or expressions in the text which mean the following

A to place money in a bank; or money placed in a bank deposit

B the money used in countries other than one's own foreign currencies

C How much money a loan pays, expressed as a percentage yield

D available cash, and how easily other assets can be turn into cash liquidity

E the date when a loan becomes repayable maturiry

F to guarantee to buys all the new shares that a company issues, if they can not be sold to the public underwrite

G when a company buy or acquires another one takeover

H when a company combines with another one merger

I buying and selling stocks or shares for clients stockbroking

J taking care of all a client's investments portfolio management

K the ending or relaxing of legal restrictions deregulation

L a group of companies, operating in different fields, that have joined together conglomerate

M a company considered to be without risk blue chip

N ability to pay liabilities when they become due solvency

O anything that acts as a security or guarantee for a loan collatteral

3. Match up the verbs and nouns below to make common collocations

Charge

Do

Exchange

Issue

Make

Offer

Pay

Raise

Receive

Underwrite

Advice

Bonds

Business

Currencies

Deposits

Funds

Interest

Loans

Profits

Security issues

Do business exchange currencies issue bonds make loan make profits offer advice offer loans make loans make profit raise funds receive deposits pay interest underwrite securities issues

Exercises

Exercise 1

This exercise defines the most important kinds of bank. Fill in the blank the name of each type of bank:

(1).central bank............................................ supervise the banking system; fix the minimum interest rate; issue bank notes, control the money supply; influence exchange rates; and act as lender of last resort.

(2).commercial bank............................................ are businesses that trade in money. They receive and hold deposits in current account and saving accounts, pay money according to customer's instructions, lend money, and offer investment advice, foreign exchange facilities and so on. In some countries such as England these banks have branches in all major towns, in other countries there are smaller regional banks. Under American law, for example, banks can operate in only one state. Some countries have banks that were originally confined to a single industry, e.g. the Credit Agricole in France, but these now usually have a far wider customer base.

In some European countries, notably Germany, Austria, and Switzerland, there are (3)universal banks............................................. which combine deposit and loan banking with share and bond dealing, investment advice, etc. yet even universal banks usually from a subsidiary, known as a (4) finance house............................................., to lend money – at several per cent over the base lending rate – for hire purchase or instalment credit, that is, loans to consumers that are repaid in regular, equal monthly amounts.

In Britain, the USA and Japan, however, there is, or used to be, a strict separation between commercial banks and banks that do stockbroking or bond dealing. Thus in Britain, (5).merchant banks............................................ specialize in raising funds for industry on the various financial markets, financing international trade, issuing and underwriting securities, dealing with takeovers and mergers, issuing government bonds, and so on. They also offer stockbroking and portfolio management services to rich corporate and individual clients. (6).investment banks............................................ in the USA are similar, but they can only act as intermediaries offering advisory services, and do not offer loans themselves.

Yet despite the Glass-Steagall Act in the USA, and Article 65, imposed by the Americans in Japan in 1945, which enforce this separation, the distinction between commercial and merchant or investment banks has become less clear in recent years. Deregulations in the US and Britain is leading to the creation of "financial supermarkets" – conglomerates combining the services previously offered by stockbrokers, banks, insurance companies, etc.

In Britain there are also (7).building societies............................................ that provide mortgages, i.e. they lend money to home-buyers on the security of house and flats, and attract savers by paying higher interest than the banks. The saving and loan associations in the United States served a similar function, until most of them went spectaculary bankrupt at the end of the 1980s.

There are also (8)supranational banks............................................. such as the World Bank or the European Bank for Reconstruction and Development, which are generally concerned with economic development.

Exercise 2

Complete the text using these words:

4 accounts

8 current account

3 lend

13 overdraft

20 return

12 bank loan

14 debt

19 liabilities

6 salary

7 transfer

10 cheque

16 depositors

18 liquidity

15 spread

5 wages

2 customers'

1 deposits

17 optimize

11 standing order

9 withdraw

Commercial banks are businesses that trade in money. They receive and hold (1).............................., pay money according to (2).............................. instructions, (3).............................. money etc.

There are still many people in Britain who do not have bank (4)............................... Traditionally, factory workers were paid (5).............................. in cash on Fridays. Non-manual workers, however, usually receive a monthly (6).............................. in the form of cheque or a (7).............................. paid directly into their bank account.

A (8).............................. usually pays little or no interest, but allows the holder to (9).............................. his or her cash with no restrictions. Deposit accounts pay interest. They do not usually provide (10).............................. facilities, and notice is often required to withdraw money. (11).............................. and direct debits are ways of paying regular bills at regular intervals.

Banks offer both loans and overdrafts. A (12).............................. is a fixed sum of money, lent for a fixed period, on which interest is paid, bank usually require some form of security or guarantee before lending. An (13).............................. is an arrangement by which a customers can overdraw an account, i.e. run up a debt to an agreed limit; interest on the (14).............................. is calculated daily.

Banks make a profit from the (15).............................. or differential between the interest rates they pay on deposits and those they charge on loans. They are also able to lend more money than they receive in deposits because (16).............................. rarely withdraw all their money at the same time. In order to (17).............................. the return on their assets (loans), bankers have to find a balance between yield and risk, and (18).............................. and different maturities, and to match these with their (19).............................. (deposits). The maturity of a loan is how long it will last; the yield of the loan is its annual (20).............................. – how much money it pays – expressed as a percentage.

Exercise 3

Match the words with the correct definitions:

1 dispenser j

2 teller i (US –k)

3 cashier k

4 withdrawal g

5 balance a

6 deposit d

7 cheque e

8 credit b

9 debit h

10 cash f

11 statement c

A The remaining amount of money in an account

B Money paid into a bank

C A record of the financial transactions of a person or business

D An amount of money in an account

E Note to a bank asking it to pay money from your account to a named person or business

F Money in the form of bank notes and coins

G An amount of money deducted from an account

H The removal of money from an account

I A machine or person who count out money

J A container designed to give out money in regulated amounts

K A clerk who pays out and receive cash at a bank

Match the verbs with the correct explainations:

1 honour h

2 present g

3 draw b

4 clear a

5 cross f

6 reconcile c

7 adjust d

8 circulate e

A pass the cheque through the clearing system

B write a cheque

C make two account agree

D change an account

E move around the country

F draw two lines down the middle of a cheque

G show and ask for payment

H pay

Exercise 4

Put the correct prepositions to complete each sentence:

1. A cheque is simply an order to your bank to pay money ..........from/ out of............. your account .........to.............. someone else.

2. A customer an pay .......by................ cheque .........for.............. goods and services

3. With a bank card, the customer's bank guarantees payment .........up to.............. a limit, say $500

4. When an account holder pays a cheque ........into............... her bank, the bank credits the amount of the cheque ...........to............ her account and sends the cheque to be presented ..............to......... the drawer's bank.

5. In Britain the clearing system is operated .........by.............. the Clearing House in London.

6. The Clearing House adds up the total each bank owes to each other bank and reconciles the difference ........in............... the bank's accounts ..........with............. the Bank of England.

7. This process, from the time when the payee pays the cheque ........into............... her bank until the cheque is debited ............to........... the drawer's bank account, takes three days.

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