Before lending money, a bank has to assess or calculate the risk involved. Generally, the greater the risk for the bank of not being repaid, the higher the interest rate they charge. Most retail banks have standardized products for personal customers, such as personal loans. This means that all customers who have been granted a loan have the same terms and conditions - they have the same rules for paying back the money.
Banks have more complicated risk assessment methods for corporate customers business clients - but large companies these days prefer to raise their own finance rather than borrow from banks.
Banks have to find a balance between liquidity - having cash available when depositors want it - and different maturities - dates when loans will be repaid. They also have to balance yield - how much money a loan pays - and risk.
Ex. 1Match up the words fromAandB.
A:bank, to grant, reserve, to write, to calculate, to raise, risk;
B:assessment, the risk, finance, loans, requirements, a check, account.
Ex. 2Match up the words from A with their synonyms from B.
A: clients, move, assets, debts, percentage, assess, terms;
B: transfer, conditions, ratio, funds, calculate, customers, liabilities.
Ex. 3 March the two parts of the sentences.
1 Banks lend savers deposits
2 They also create credit by
3 How much credit banks can create
4 Before lending money
5 The interest rate on a loan
6 Banks always need liquidity,
a banks have to assess the risk involved.
b depends on the reserve requirements.
c depends on how risky it is for the bank to lend the money.
d so they can't lend all their money in loans with long maturities.
e lending the same original deposit several times.
f to people who need to borrow money.
Ex. 4 Change the sentences into a negation, a yes-no and a wh-question.
1. The bankuses deposited money to grant loans.
2. The loanshavebeengranted on the same terms.
3. The loanswillberepaid when they mature.
Ex. 5 Complete the sentences.
1 With standardized products, all customers are the same interest rate.
2 Banks generally know from experience how much cash to keep in their reserves for customers who want to it.
3 Banks carefully study the financial situation of a company to the risk involved in lending it money.
Ex. 6 Ask 5 questions on the content of the text.
Ex. 7 Translate the text.