English for finance and banking

Author: Paris_french

Chapter 1: Money and Banking

1. Money: Money is any medium of exchange that is widely accepted in payment for goods and services and in settlement of debts. (Money also serves as a standard of value for measuring the relative worth of different goods and services).

2.Functions of money

2.1 Money as a medium of exchange: A medium of exchange is anything that is widely accepted in payment for goods and services and in settlement of debts (Money is the most common medium of exchange)

2.2 Money as a measure of value: The unit of account is the unit in which prices are quoted and accounts are kept. Ex: In Britain, prices are quoted in pound sterling, in United States dollar and in Vietnam VND.

2.3 Money as a store of value: Money is a store of value because it can be used to make purchases in the future.

2.4 Money as a standard of deferred payments: A standard of deferred payments or unit of account over time. When you buy something but do not pay for it immediately, your payment is expressed in terms of money to be paid in the future (stable, durable. Can pay later or spread payment over time)

3. Different kinds of money

3.1 Commodity money: Commodity money is a useful good that serves as a medium of exchange. (The principal materials used for this type of money have been gold, silver and copper)

3.2 Token money: Token money is a means of payments whose value or purchasing power as money greatly exceeds its cost of production or value in uses other than as money. Ex: A $10 note is worth far more as money than as a 3x6 inch piece of high quality paper.

4. Monetary standards

4.1 Standard money: The basic money of a country, into which other forms of money may be converted and which determines the value of other kinds of money, is called the money of redemption or standard money.

4.2 Monetary standard: The monetary standard of a nation refers to the type of standard money used in the monetary  system.

4.3 Commodity standard: Modern monetary standards have been either commodity standards, in which either gold or silver has been chiefly used as standard money, or fiat standard, consisting of inconvertible currency paper units.

4.4 Fiat standard: is the one in which the token currency is considered as a medium of exchange.

4.5 Metallic standard: is the standard in which only one metal is used as money.

4.6 Bimetallic standard: is the standard in which two metals are considered as money.

5.Money supply

5.1 Fractional currency: Pennies, nickels, dimes, quarters and half dollars are called fractional currency because they are valued at a fractional of a dollar. (There are also one-dollar coins, most coins are token money- the value of the mental is less than the face value of the coin.)

5.2 Checks

5.2.1 Checking account: Most money is kept on deposit in checking accounts at bank.

    People who have deposited their money in checking accounts, spend it by writing checks. A check is a written order directing a bank to pay a specified sum from one person's account to another person or to a business.

5.2.2 Traveller's checks: Travellers know that it is often difficult to use their personal checks in places they are not known. But most people do not want to carry lots of cash on business trips because it can easily be lost or stolen. One solution to this problem is to use traveller's checks. Most large banks sell these checks. Traveller's checks are widely accepted as payment in many countries.

5.3 M1: The money held by the public to use for current spending is usually called M1.  M1 is made up of coins, paper currency, demand deposits and other checkable deposits (Ex: Now accounts and share drafts in credit unions and traveller's checks)

5.4 Liquidity: The letter L stands for liquidity or overall ability to spend. Liquidity (L) shows the ability of all sectors of the economy to spend.

5.5 Debit card: Debit card is a kind of credit card which uses eletronic fund transfer (EFT) to move funds instantly from buyers to sellers.

Chapter 2:Financial Institution

1. Savings institution are the ones which persiade people who have money but don't have the immediate need to deposit into their savings accounts to receive interest.

2. Savings account is the account that offers depositors the interest rate for his deposited money in a certain period of time.

3. Demand deposit is an account that depositors can withdraw at anytime with or without interest.

4. Mutual savings bank is a saving institution whose money is pooled by a group of people with the same interest of doing business for example, making loans selling and purchasing securities.

5. Insurance companies are the ones which always persuade people to contribute their money into the fund in order to minimize the unexpected risk in the future.

6.Consumer credit institution also include small finance companies, credit unions, sales fiance companies and the small loan departments of commercial banks.

7. Central banking: is the first and foremost financial instituiton which is mainly government-owned and forcus on the nation's interest in all financial activities.

8. The liability of central banks is all coins and notes that circulate as the national currency.

Chapter 3: Inflation

1. Inflation: Inflation is generally defined as the rise in the average prices of most goods and services in one year as compared to those in the previous year. (In time of inflation, prices sometimes rise to the skies).

  In extreme cases, inflation can become so bad that prices simply "run-away" inflation and economists refer to such kind of inflation as "run-away" inflation. Perhaps the most notorious "run-away inflation" known in the history of inflation was the one that took place in Germany after World War I. In 1913 $1 = 4 trillion marks.

2. Deflation: Deflation is the opposite of inflation. Deflation is generally defined as the fall in the average prices of most goods and services in one year as compared to those in the previous year (Deflation rarely occurs.)

3. The purchasing power of money: The purchasing power of money as mentioned earlier is the value of a nation's currency. The purchasing power of the USD is measured by what is called the Consumer Price Index (CPI).

4.Consumer Price Index (CPI): The Consumer Price Index is a measure of the change in the prices of about 400 items of goods and services that us consumers use on a daily basis. These goods and services include food, shelter, clothing, transportation, medical care, fuel oil, gas and electricity, and telephone service.

5. Index number: - The measure of one year's prices as compared with another year's is expressed as an index number. Index numbers allow us to see how parts of the economy are behaving from year to year.

- The index number of a base period is always 100.

- To determine the percentage change from the base, find the difference between the index number and the base.

6. Velocity of circulation: -Money circulates in the economy from consumers to producers and back to consumers several times a year. The rapidity with which money changes hands in this way is called velocity of circulation or simply velocity.

- Velocity is the speed with which money changes hands (Ex: If the number of times dollars ( on the average) change hands during a year increases from three to six the velocity has doubled. The use of electronic banking devices increases velocity.)

7. The equation of exchange

MV=PT

Where: M is the money supply (currency+checkable deposits)

V is the velocity of circulation

P is the general price level (index number)

T is the total business transactions in the economy

8. What causes inflation?

8.1 Demand-pull: Rising Demand ( a type of inflation where prices rise as a result of increasing demand)

- An inflation that results from rising demand is called a demand-pull inflation. This means that the demand of buyers is pulling prices of goods and services to higher and higher levels.

- Economists describe demand-pull inflation as "to much money chasing too few goods". This is another way of saying that there are not enough goods and services avaiable to satisfy the demand for them at current prices.

8.2 Cost-Push: Incresing Costs ( a type of inflation in which prices are pushed up by costs). The increasing costs of doing business are a second reason for inflation. When the owners of your local grocery stores discover that they have to pay more for the goods they sell, it is certain that they will raise their prices. If costs also rise for other grocery stores and businesses around the country, they will certainly do the same. i.e to raise their prices.  Other costs can rise too, such as saw materials, taxes and insurance.

9. Effects of inflation on the economy

9.1 Who are the victims of inflation?

- Retired people: usually live on incomes from private pensions, bonds and social security. Private pension incomes are fixed. They are not likely to increase very much over the years. When prices suddenly increases as they do during inflation, the elderly are often forced to spend less.

- People with savings: People who put all their extra cash into savings accounts may find that because of inflation, their money is worth less after a period of years than when they deposited it.

- People with low income: Those who earn low wages are hurt by inflation. These individuals have little enough to spend to begin with. Low income people face increasing problems as prices rise.

9.2 Who are the beneficiaries?

- People who owe money: Those who borrow money before the start of an inflation may benefit from it. They can repay their loans with dollars that are worth less than when they took out the loans.

- People who own real estate: People who own homes or other properties are likely to find that their value has increased during a time of inflation. Fot example, a home purchased for $75,000 in 1975 might sell for $200,000 in US 2000.

Chapter 4: Savings and investments

1. Interest: is the amount of money which is paid for the use of other people's money.

2.Dividend: is a part of the corporation's profit distributed to stockholder.

3. Stock: is a kind of certificate which shows one's share of ownership in a corporation (is a part of legal capital of a corporation or a stock company, shows the ownership of the holder to the company)

4.Bond: is a credit instrument that promises to pay a sum of money at a particular time under certain conditions to its holder.

5. Capital gain: is an increase in the value of stocks from the time a stockbroker purchases and the time he sells his stock.

6. Bulls are those who predict that in the future the price of stock will increase. At the moment they will purchase a lot of stocks and wait until the increase in the price to gain profit.

7. Bears are those who predict the reduction in price of stocks, now they will sell them out and enjoy profit when the price actually decreases.

8. The mutual fund is a fund of people who pool money together in order to invest into many different kinds of corporate securities.

9. Stock exchange= stock market: is a market for the sale and purchase of securities of corporations and municipalities.

Chapter 6: Stock market

1. Common stocks: are stocks with the last claim to the residual equity in a corporation (are major in the corporate securities, it represents a part of the legal capital and shows a part of ownership.)

2. A preferred stock: is a kind of corporate securities that gives the holder some preference.

3. Redeemable stock: is a preferred one that can be repurchased by the corporation according to the holder's will under certain conditions.

4. Convertible stocks are those that allow holders to convert the preferred stock into the common ones in certain conditions.

5. Investment bonds: are those issued by the government or the municipal government or the large corporation when they really need capital for different projects on social services such as improving infrastructure, buidings, roads, school, hospitals.

6. Open-end fund: is a mutual fund which has a great amount of contributed capital. Therefore it allows to have a certain large amount of out standing.

7. Close-end fund: (or publicly traded mutual fund) is one that is bought and sold just like the shares of a regular stock. The number of shares in a closed-end mutual fund stays fixed. This is the way in which it differs drastically from an open-end fund. Close-end funds also have a commission which gets paid to brokers because the shares of these funds are traded over-the-counter or in the same way that stocks are.

8. Voting stocks are common stocks taht give owners the right to vote in any corporation elections.

9. Non-voting stocks are preferred stocks.

10. Vetoing stocks are preferred stocks that give the owners the right to vote in some circumstances.

Chapter 8. Taxation

1. What kinds of taxes do Americans pay?

*) Taxes are payments required by the law.

1.1 Income taxes: Income tax, a tax levied by a government on the income of individuals and business firms. Taxes on personal income and business profits are major revenue sources for most industrialized nations; they play a growing role in the tax structures of many developing countries as well.

1.2 Excise taxes: Excise, tax imposed on the domestic manufacture sale or consumption of specific commodities, or on licenses to pursue certain occupations and exercise certain corporate privileges.

1.3 Sales taxes: sales tax, tax imposed on the sale of goods or services.

1.4 Payroll taxes: A business firm pays taxes based on its payroll. These are known as payroll taxes. The most important payroll tax is used to finance the government's social security programme. - Payroll taxes are also used to pay for social insurance programmes and unemployment insurance.

1.5 Property taxes: The most important source of income for local government is the property tax. This tax is based upon the value of tax payers' possessions- usually their homes and land. In some states and localities, valuable personal belongings such as jewelry, furs, boats, and automobiles are also subjects to property taxes.

1.6 Estate and gift taxes: People who inherit sizable sums of money or who makes large gifts of money to relatives have to pay taxes on these funds. These estates and gift taxes, however, are not major sources of government income.

2. What effect does a tax have on tax payers

*) Progressive taxes: A tax that takes a larger percentage of a person's total income as that income increases is a progressive tax (Income taxes are charged as a percentage of an individual's earnings. But not everything that a taxpayer earns is subject to this tax.)

Ex: Taxable income           $ 5,000     10,000      20,000

       Tax rate (percent)            6              10              15

       Tax owed                     $299           1,308     3,054

*) Regressive tax: A tax that takes a larger proportion from a taxpayer with a low income than from a taxpayer with a high income is a regressive tax. Ex: ranging from $5,000 to $100,000 per annum had to pay the same amount of $1,000 tax.

*) Proportional taxes: also called flat-tax. A tax that requires all persons to pay the same percentage of their total income in taxes is a proportional tax.

Ex: Taxable income     $5,000      10,000          20,000

     Tax rate (percent)  10                10                  10

     Tax owed                  $500           1,000           2,000

3. How are taxes collected?

*) Indirect taxes: (V.A.T, turnover tax (taxes on retail prices and prices charge by manufacturers and wholesalers). An indirect tax is one that can be passed on or shifted, to some one other than person making payment to the government. In the case of the property tax, landlords pass its costs to tenants in the form of higher rents. A tariff is another example of an indirect tax. Although the tariff is paid by the seller to the federal government, this tax can be-and is-passes on to consumers in the form of higher prices.

*) Direct taxes:  (income taxes, inheritance taxes, estate taxes) Unlike indirect taxes, a direct tax is paid by taxpayers who can not pass the cost to others. The income tax, the sale tax, the inheritance taxes and estate taxes are examples of direct taxes. Those who pay a direct tax know exactly when and how much they are being taxed.