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Because of bank’s importance in the functioning of the economy, there is a set of rules developed by the Government to guide bankers and protect society.
ØQuestions for comprehension check-up and discussion:
1. What was the primary function of bankers?
2. Why is the speciality of a banker popular nowadays?
3. What disciplines do future bankers study at the university?
4. What banking procedures and operations do you have to get an insight into?
5. Why do you think banks have more customers than before?
6. What kind of services do banks provide for their clients?
23. IMF AND THE WORLD BANK
Lead-in:
1. the IMF – МВФ (Міжнародний Валютний Фонд)
2. statutory purpose – установлений законом намір
3. global prosperity – глобальний добробут
4. stability of exchange rates – стабільність валютного курсу
5. labour market – ринок праці
6. sustainable economic growth – сталий економічний ріст
7. poverty reduction – зниження бідності
8. budget transparency – прозорість бюджету
9. to bolster the social sector – підтримувати суспільний сектор
The International Monetary Fund is a specialized agency of the United Nations set up in 1945 to help promote the health of the World economy. The IMF was conceived in 1944 at a United Nations Conference at Bretton Woods, when representatives of 45 governments agreed on a framework for economic cooperation. This cooperation was designed to avoid a repetition of the disastrous economic policies of the Great Depression.
The statutory purposes of the IMF today are the same as when they were formulated in 1944, but they have become more important because of the expansion of its membership. The number of IMF member countries has more than quadrupled from the 45 states involved in its establishment and now the Fund has 184 members.
The IMF works for global prosperity by promoting the balanced expansion of world trade, stability of exchange rates, monitoring economic and financial developments, giving advice to its members. The IMF also lends to member countries to support reform policies, provides the governments and central banks of its member countries with technical assistance and training. After the collapse of the Soviet Union, for example, the IMF helped the Baltic States, Russia, Ukraine and other former Soviet countries in the transition from planned to market-based economic systems.
The IMF’s main business is a macroeconomic and financial sector policies.
The IMF focuses mainly on a country’s macroeconomic policies – that is, policies relating to the government’s budget, the management of money and credit, and the exchange rate. It also concentrates on financial sector policies, including the regulation and supervision of banks and other financial institutions. In addition, the IMF pays due attention to structural policies that effect macroeconomic performance – including labour market policies.
The IMF advises each member on how its policies in these areas may be improved to achieve such goals as high employment, low inflation and sustainable economic growth. Strengthening the international financial system, promoting sound economic policies among its member countries, the IMF is helping to make globalization work for the benefit of all.
At the same time as IMF was created, the International Bank for Reconstruction and Development (IBRD), more commonly known as the World Bank, was set up to promote long-term economic development. The IMF and the World Bank Group – which includes the International Finance Corporation (IFC) and the International Development Association (IDA) – complement each other.
The World Bank is concerned mainly with longer-term development and poverty reduction issues.The activities include lending to developing countries and countries in transition to finance infrastructure projects, the reforms of particular sectors of the economy, and broader structural reforms.
Each institution must focus on its areas of expertise, but in areas where they both have expertise – such as fiscal management, budget execution, budget transparency, tax and customs administration – they coordinate closely.
And now a few words about partnership of the World Bank and Ukraine.
The agreement was signed in September 1992 at the ceremony at the US State Department and Ukraine became the 167th member of the Bank. Since 1992 partnership between Ukraine and the World Bank resulted in a number of joint projects.These projects were designed to improve the public and private sectors, to raise agriculture and energy, to protect the environment, to bolster the social sector. The World Bank has launched the preparation of the new 2004 to 2006 Country Assistance Strategy for Ukraine and this project will involve cooperation with a wide range of stakeholders.
ØQuestions for comprehension check-up and discussion:
1. When was the IMF set up?
2. What was the purpose of the fund?
3. What does the IMF mainly focus on?
4. Are there any more questions that the IMF pays due attention to?
5. What institutions does the World Bank Group include?
6. Can you characterize the spheres that each institution of the World Bank Group must focus on?
7. Name the sectors of the economy where Ukraine and the World Bank cooperate.
24. 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 takeovers and 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 insurance company, 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.
ØQuestions 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?
25. 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.
ØQuestions 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?
26. TAXATION
Lead-in:
1. to raise revenue – підвищувати дохід, прибуток
2. excise duties – акцизний збір
3. tax on profit – податок на прибуток
4. income tax – прибутковий податок
5. to levy taxes – стягувати податки
6. the Board of Inland Revenue – Податкова Управа (Англія)
7. PAYE – Pay Аs You Earn – виплачування податків відрахуванням з заробітної плати
8. income tax liability – загальна сума податку, що підлягає виплаті
9. health insurance – страхування здоров’я
10. tax haven – фіскальний оазис, “податкове сховище”
11. money laundering – відмивання грошей
The primary function of taxation is to raise revenue to finance government expenditures, but taxes can have other purposes. Indirect excise duties, for example, can be designed to dissuade people from smoking and drinking.
Governments can also permit various measures reducing companies’ tax bills.
There is always a lot of debate as to the fairness of tax systems.
Business profits, for example, are generally taxed twice: companies pay tax on their profit (corporation tax in Britain, income tax in the USA), and shareholders pay income tax on dividends.
The most important taxes are personal and corporate income tax.
Income tax in most countries is progressive; it is one of the ways by which governments can redistribute wealth.
For tax purposes, corporate income is defined as revenue minus expenses.
UK personal taxation is both simple and relatively low. There are two rates: 25 per cent on taxable income up to £ 23.700, and 40 per cent on income above this figure.
How is personal tax levied?
In Great Britain the Board of Inland Revenue obliges employers to operate a PAYE (Pay As You Earn) scheme, which means the tax is deductible at source, from empoloyees’ wages or salaries; in other words, by the employers before making out the monthly salary cheque or bank transfer to the employee. The tax is then collected directly from the employer.
At the same time we should mention that the employer is obliged to deduct National Insurance from the employee’s salary – the employee’s contribution being roughly 9 per cent of income, the employee’s ranging from 5 to 10 per cent.
The higher the tax rates, the more people are tempted to cheat.
Lots of people have undeclared, part-time evening jobs with small and medium-sized family firms, on which no one pays any tax or national insurance.
To reduce income tax liability, some employers give highly-paid employers lots of “perks” instead of taxable money, such as company cars, free health insurance. Life insurance policies, pension plans by which individuals can postpone the payment of tax, are known as tax shelters. Donations to charities that can be subtracted from the income on which tax is calculated are described as tax deductible.
Companies have a variety of ways of avoiding tax on profits. They can make a tax loss, multinational companies often set up their head offices in such countries as Monaco, the Bahamas, where taxes are low; such countries are known as tax havens.
Criminal organizations practise “money laundering” – they pass money through a series of companies in order to disguise its origin from tax inspectors.
Different tax systems in different countries create problems, so the question of the tax harmonisation within the European Community is being discussed.
Changes in tax-planning techniques will create a number of tax opportunities: companies in low-tax countries will have a competitive advantage over those in high-tax ones.
ØQuestions for comprehension check-up and discussion:
1. What is the main function of taxation?
2. Why do you think there is a lot of debate about the fairness of tax systems?
3. What are the most important taxes?
4. What do some employers do to reduce income tax liability?
5. How do companies avoid tax on profits?
6. What is money ‘laundering’?
7. Do you think the question of tax harmonisation is likely to be solved?
27. STOCK EXCHANGE
Lead-in:
1. currency market – валютна біржа
2. commodity exchange – товарна біржа
3. labour exchange – біржа праці
4. stock market – фондова біржа
5. gilt-edged securities – першокласні цінні папери
6. bid price – курс покупця
7. offer price – курс продавця
8. bull – ‘бик’, спекулянт, що грає на підвищення ціни
9. bear – ‘ведмідь’, той, що грає на пониженні ціни
10. stag – ‘олень’,той, що купує нові акції, щоб їх одразу продати
11. put option – опціон продавця
12. call option – опціон покупця
13. over-the-counter market – ринок позабіржової торговлі
There are different kinds of exchanges: currency markets, commodity exchanges, labour exchanges. We shall try to consider stock markets and stock exchanges, which are the most important financial institutions in the sphere of international economic relations.
Stock markets play a significant role in the economy of any country.
Stock markets are control centres where businesses and governments come to raise money and expand their operations.
There are actually two different markets for stocks: the new issues market or the primary market, where stocks are offered for sale for the first time, and the secondary market, where stocks can be bought and sold by individuals and institutions.
The phrase “the stock market” means many things: it is a place where stocks are traded, and it also refers to the biggest and most important stock exchanges in the world: the New York Stock Exchange, the London Stock Exchange, the Nasdaq Stock Market, based in Washington, DC, and the Over-the Counter Market (OTC).
A stock exchange is a market for dealings in stock and shares, handling gilt-edged and all kinds of commercial and industrial shares. The London Stock Exchange provides a market for British government stocks and the stocks and bonds of a large number of foreign governments and corporations. Only members are admitted to the stock exchange and business is transacted according to a prescribed set of rules.
Before the “Big Bang” on 27 October 1986 there were about 4,100 Stock Exchange members (jobbers, middlemen who bought and sold shares from other traders on the Stock Exchange, and brokers).
There are no jobbers in the Stock Exchange now, they are market makers. A market maker buys and sells securities making money by charging a commission on each transaction.
Anyone who wants to buy or sell shares on the Stock Exchange does it through the broker who acts as a middleman between a seller and a buyer for a commission.
Companies apply to the Stock Exchange to have their shares listed. Only “quoted” shares can be bought or sold on the Stock Exchange. A Stock Exchange quotation is the price of a share which usually gives the bid price and an offer price. The bid price (or the selling price) differs from the offer price and the difference between them is called the “spread”. The Stock Exchange quotations appear daily in the financial press and the financial section of newspapers.
The greater part of the business transacted on stock exchanges is investment business, but a small part consists of speculative operations. There are three kinds of speculators: bulls, bears and stags.
Speculation is also possible in the form of options: call options, put options and put and call options.
The price of the stock in the market reflects investor demand. The tendencies of the market are indicated by indexes. Some of the most important indexes are: FT Actuaries Share Indices, FT - Stock Exchange 100 Share Index (FT - SE 100 or Footsie), based on the prices of 100 leading companies (this is the main London index, DOW JONES, FAS, NIKKEI, etc.).
The biggest and the most important stock market in the world is the New York Stock Exchange.
NYSE is also known as the Big Board and the Exchange, it was founded in 1792 and is located at 11 Wall Street in New York City.Brokers buy and sell stock in about 2,570 different companies at the NYSE.
AMEX stands for American Stock Exchange; it has the second biggest volume of trading in the US, here brokers buy and sell Stocks in over 840 companies.
There is one more market place: it is trading of common stock “over-the-counter” or “ OTC”.
Most securities other than common stock are traded over-the-counter, through vast telephone and other electronic networks that link traders.
ØQuestions for comprehension check-up and discussion:
1. What types of exchanges do you know?
2. How many markets are there for stocks?
3. What is a stock exchange?
4. What is the role of a market maker?
5. What is a Stock Exchange quotation?
6. Give the names of the most important stock exchange indexes.
7. What do the letters “OTC” stand for?
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