Exercise 1.This exercise defines the most important kinds of bank. Complete the text using these words:
| central banks commercial banks merchant banks | universal banks finance house investment banks |
(1) … 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) … are businesses that trade in money. They receive and hold deposits in current ans saving accounts, pay money according to customers’ 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 Americal law, for example, banks can operate in only one state. Some countries have banks that were originally confined to a single industry, e.g. 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) … which combine deposit and loan banking with share and bond dealing, investment advice, etc. Yet even universal banks usually form a subsidiary, known as a (4) …, 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) … 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 stockbrocking and portfolio management services to rich corporate and individual clients. (6) … in the USA are similar but theuy can only act as intermediaries offering advisory services, and do bot offer loand themselves.
Exercise 2.Complete these sentences about Central banks using the words below.
| act control | fix function | implement influence | issue supervise |
Central banks, such as the Bank of England, the Federal Reserve Board in the USA, and the Bundesbank in Germany:
1. … as banks for the government and for other banks.
2. … monetary policy – either the government’s, as in Britain, or their own,
if they are independent, as in Germany and the USA.
3. … the money supply, measured by different aggregates such as M0, M1,
M2 etc.
4. … the minimum interests rate.
5. … as lender of last resort to commercial banks with liquidity problems.
6. … coins and bank notes.
7. … (floating) exchange rates by intervening in foreign exchange markets.
… the banking system.
Exercise 3.Complete this paragraph using these words:
| assets cash interest | liquid maturity reserve |
Because a commercial bank can lend most of money deposited with it to other borrowers, who in turn may lend it to another borrower, each sum of money deposited in a bank is multiplied several times. To ensure the safety of the banking system, central banks impose (1) … requirements, obliging commercial banks to deposit a certain amount of money with the central bank at zero (2) … . Central banks in different countries also impose different “prudential ratios” on commercial banks. These are ratios between deposits and liquid (3) … that are considered sufficient to meet demands for (4) … . For example, a bank’s capital ratio is between its capital and reserves on the one hand, and its total assets on the other. The reserve asset ration is between deposits with a (5) … of under two years, called “eligible liabilities”, and reserve assets, which include cash and assets that are (6) … - i.e. quickly convertible into cash – such as reserve deposits held by central bank, and securities such as treasury bills.
Exercise 4.Complete the words below to match the given meanings.
1. The person to whom a cheque is written p_ _e_
2. Money provided by a bank to a customer, for an agreed period
l_ _ _
3. A bank which offers a full range of services to individuals and companies c_m_ _ _ _ _ _ l b_ _ _
4. A type of bank with a strong local or regional identity, mainly used by small, private investors, who get interest on their deposits.
s_ _ _ _ _ _ b_ _ _
5. An instruction from one bank to another bank asking it to make payment to a supplier _ _ _k d_ _ _ _
6. An agreement that an account can remain in debit up to a certain amount for an agreed time period. o_ _ _ _ _ _ _ _
7. The time taken from when a cheque is presented to a bank to when the receiving accounts is credited. c_ _ _r_ _ _e
8. Fees charged by a bank for services provided. _ _n_ c_ _ _ _ _s
9. A computer printout sent by a bank to a customer, showing recent activity on her/his account. S_ _ _ _ _ _ _
10. The lowest level of interest that a bank charges for lending money.
b_ _ _ r_ _ _
Exercise 5.Choose words to complete each sentence. In some cases there is more than one possibility.
1. The Bank of England fixes a minimum interest rate, called the discount rate, at which makes secured loans to … .
| a. big companies | b. private individuals | c. commercial banks | d. new businesses |
2. British commercial banks lend to blue-chip borrowers at the … . The American equivalent is the prime rate.
| a. base rate | b. basic rate | c. discount rate | d. market rate |
3. All other borrowers pay more, depending on lender’s estimation of their present and future solvency, also known as their creditworthiness or … or … .
| a. credit | b. credotors | c. credit standing | d. credit rating |
4. Borrowers can usually get a … interest rate if the loan is guaranteed by securities or other collateral.
| a. higher | b. long-term | c. lower | d. riskier |
5. Bank make their profits from the difference between the interest rate charged to borrowers and that paid to depositors, also known as a … or … .
| a. margin | b. mistake | c. range | d. spread |
6. Long-term interest rates are generally higher than short-term ones, except when the central bank temporarily reduces the money supply i.e. makes money … or … .
| a. loose | b. scarce | c. tight | d. uncommon |
7. These days many loans are made with … or variable interest rates that change according to the supply and demand for money.
| a. drowning | b. floating | c. sinking | d. swimming |
8. Borrowers and lenders can sometimes arrange lomits beyond which rates cannot move. The upper limit is called a … or a … .
| a. cap | b. ceiling | c. roof | d. summit |
9. The lower limit on a variable rate loan is known as a … .
| a. bottom | b. carpet | c. floor | d. maturity |
Exercise 6.Small group brainstorming (3-4 students in the group).
Imagine thet you have come to some country for a year. You need to rent an apartment and make a number of regular payments. You will work and receive a salary of $1,500 a month. That will be sufficient for your expenses. But you have also brought $5,000 with you. You will definitely have to open a bank account. What kind of account(s) will you open? Why? Will you try to get a check card or a credit card? Why? Which card will be easier for you to get? Why? Will you try to open a minimum balance account or an account with no required balance? Why? After the discussion, tell your decision and reasons for it to the group.