UNIT 5 Module I

UNIT FIVE ON FINANCE

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OBJECTIVES: After studying this unit you should be able to:

o o o o o o know and explain about the history of money origins and types of money describe the functions of money understand and present the banking system present functions of the Central Bank and its role in a market economy explain, learn and use specific vocabulary practise language: the passive voice: theoretical framework, practice

MODULE I LEAD-IN
What is the importance of money in an economic system? How did it appear? What forms of money do you know?

MONEY HISTORY AND FUNCTION

A. For thousands of years, gold was the ultimate money. It could buy anything including hearts. It was wealth and power to be sure, but it was also enchantment, with a special luster and reassuring weight and feel. The lure of gold drive ships across stormy seas and explorers across rugged mountains to places as remote as Canadas Klondike region near the Arctic Circle. Gold isnt used as money anymore. It still glitters, but its treated more like soy beans of pork bellies than a ransom fit for a king. Money didnt exist in ancient time, so people had to trade with each other or barter to obtain the items they wanted. The first trades were probably animal skins for grain, or cotton for livestock. But these exchanges were cumbersome, and some common place commodities, such as grains, started to assume the role of money. In early Egypt, for example, barley, an important source of food, became the accepted means of payment for goods and services. By 700 B.C., though, the Egyptians had abandoned barley and adopted gold as their primary instrument of exchange. A rare and beautiful metal, gold had become the universal symbol of wealth and power. And, being portable and durable, it was an ideal form of money. B. Gold Coins as Money By the 15th century B.C. trade and commerce had expanded tremendously. When King Croesus of ancient Lydia (now western Turkey) had gained control of Asias richest gold mines for the Persian Empire, he wanted others to recognise his new-found power and ordered the first gold coin to be made. Bearing the image of a lion and a bull, the coin became the standard of exchange for all trade and commerce.

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Business Issues

A new need appeared for a new, less cumbersome system of making payments. The goldsmiths met this need. Their system worked this way. People would deposit their gold coins at their local goldsmiths. In return, the goldsmith would give them a receipt. Eventually, the receipt began to circulate as money because they could always be redeemed for the gold itself. Gradually, countries came to adopt a form of goldsmiths system. Their governments printed currency and backed it up with gold they held in official reserves. And so the gold standard for currencies was born. One of the first countries to adopt the gold standard was Great Britain in 1816. It made its currency the pound, equal in value to an ounce of gold. The Coinage Act of 1792 first put the Young American nation on a bimetallic standard, backing the dollar, which was a coin then both gold and silver. With the world at war for the first time, people were seeking security, they exchanged their currency for gold. But governments soon saw their gold reserves run seriously low, as a result. By 1914 most countries, except the United States, abandoned the gold standard to protect their reserves. By the mid 1930s, practically all the major nations had adopted the gold exchange standard. Governments would accumulated dollars which they could redeem for gold at the U.S. Treasury. Of course, gold will always be the metal of choice for the affluent, who like to adorn their homes with gold-leaf sinks, bathrooms and picture frames. Today, gold can be bought and sold in several different forms: coins, bullion or perhaps just as a paper claim to the metal. There are two types of gold coins: bullion and numismatic. The bullion coins are produced by countries as legal tender, which means they can be spent as money. Prices are based on the local gold price in London (The London fix). Numismatic gold coins no longer circulate as money. Their value derives more from their condition and rarity that their actual gold content. Many investors hold paper claims to gold in the form of future contracts. These contracts are nothing more than a commitment to buy or sell gold at a future time at a pre-agreed price. Typically, the buyer and seller meet at a commodity exchange to work out future contracts. Today, gold has assumed the role of a commodity such as wheat or cotton. And like any other commodity, its price is determined in a free market by the forces of supply and demand.

VOCABULARY
trade, n. = schimb de bunuri sau servicii pentru bani sau alte bunuri; comer] commerce = comer], nego], rela]ii de afaceri; negustorie affluent, adj. = prosper, cu un `nalt standard de via]\ to redeem, v. = a r\scump\ra to back up, v. = a sprijini, a acoperi; a face duplicat de rezerv\ (back up risk) lustre (e.b)/luster (e.a.) = str\lucire; lucire discret\ reflectat\ de o suprafa]\ lustruit\ to barter, v. = a schimba direct bunuri, a face troc means of payment = mijloace de plat\ barley = orz to exchange, v. = a face schimb portable, adj. = u[or de transportat bullion, n. = lingou numismatics, n. = studiul monedelor [i al medaliilor commitment, n. = angajament, promisiune, antrenare future contract (pl. futures), n. = contracte prin care se cump\r\ bunuri la un pre] stabilit, dar livrate [i achitate la o dat\ ulterioar\ paper claim, n. = preten]ie scris\ mint, n. = trezorerie; imprimeria statului; nou, `n condi]ii perfecte

UNIT 5 Module I
COMPREHENSION I
1. 2. 3. 4. 5. 6. 7. 1.1. Answer the following questions: What is the role of money in any economy? What forms of money do you know in ancient times? How did gold become the symbol of wealth and power? Explain what is the goldsmiths system. What countries were first to adopt the gold standard? What were the effects of the first world war over the gold resources? Why is gold now considered a commodity?

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PRACTICE I
2.1. Fill in the blanks with the suitable word in the box: 1. money 2. acquire currency get acquainted foreign currency learn 4. stabdard 5. passed as rate of exchange considered measure of value viewed as Coins The coins we use as (1) today have a history that goes back 2,700 years. Ancient peoples used metals, especially gold and silver, to mint coins. Rulers soon (2) to standardise their coins and define them (3) fixed quantities of gold and silver, thus establishing (4) a between the two metals. In ancient times, the greatest stimulus to trade came when rulers such as Alexander the Great and the Roman emperor Augustus established uniform coinage system that were widely recognised and accepted. Today, most currency is paper money, and coins (5) as small change. Modern coins have a government approved design and value stamped on them, like the earliest coins did. Most historians think the city-states of Greece and kingdoms of Asia Minor invented the first coins in th the 7 century B.C. The Lydian coins, called STATERS, were first made of electrum, an alloy of gold and silver. 2.2. Fill in the blanks the missing words according to their meaning; find suitable titles for the following three fragments: 1. The use of money as a of exchange makes possible a great extension of the principle of In an advanced society the use of money allows to hours of labour for an amazing variety of goods and services: two weeks for a holiday abroad just as easily as we can exchange it for a piece of furniture or a years on a television set. Such exchanges are taken for granted yet they would be inconceivable without the use of a. specialisation; b. labour; c. exchange; d. medium; e. money; f. rent 3. under conditions of in terms of according to

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Business Issues

2. The first step in the use of money was probably the adoption of some as a unit of account or measure of value. Money, most likely came into use within the system as a means whereby the values of different goods would be compared. The direct exchange of for goods raise all sorts of problems regarding valuation. How many bushels of corn are equal in value to one sheep if twenty sheep exchange for three owes and one cow for ten bushels of corn? This problem of exchange rates is easily solved when all other commodities are valued in terms of a single commodity which then acts as a of value. Money now serves as such a standard when all economic goods are given money Like prices, we know immediately the value of one commodity in terms of any other. a. goods; b. commodity; c. standard; d. barter; e. value; f. exchange 3. Once a commodity becomes universally acceptable, in exchange for goods and services, it is possible to store wealth by holding a of this commodity. It is a great convenience to hold wealth in the form of money. Consider the problems of holding wealth in the form of some other , say wheat. It may deteriorate, it is costly to store, it must be and there will be significant handling costs in accumulating and distributing it. In addition its money may fall while it is being stored in the form of money has become very apparent in recent years during periods of its exchange value falls. a. insure; b. inflation; c. commodity; d. stock; e. wealth; f. value 2.3. Give synonyms for: money, standard, value goods, wealth, measure, trade; ingot, stock; interest, revenue, lend, insurance, allowance; manager, regulation, production, monetary unit, development. 2.4. Give adjectives corresponding to the following nouns: war, money, gold, need, system, receipt, government, standard, coin, contract, price, market, commitment, investor, demand, environment, rate, finance, insurance, investment, payment, interest, profit, bank, deposit, indicator, information.

FOCUS ON LANGUAGE PRACTICE II

3.1. Transform the following Active Constructions into Passive Constructions, paying attention to the adverb of manner (preceding or following the past participle in the Passive Voice) and the adverb of recent time (following the first auxiliary). They have restored the old buildings in the city. (recently) They have redecorated their house. (already) They have roasted the potatoes. (carefully) They will have opened the study of the artist by the time the first visitors come. (also) They have opened the new conference hall. (just)

1. 2. 3. 4. 5.

UNIT 5 Module I
6. 7. 8. They will have executed the orders. (promptly) They have repaired the period furniture (beautifully) Max has sent for the doctor. (already) 3.2. Use the two possible forms, according to the following example: Parents offer their children presents on Christmas. Children are offered presents on Christmas. Presents are offered to children on Christmas. The secretary handed a telegram to the manager. We must send an invitation to the delegation. The policeman gave the report to his superior. His friend had given their colleague a nice present the very day before. The housekeeper is showing the new house to the guests. The children gave their grandma the 90 roses. Translate into English:

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T\bli]ele de lut g\site stau m\rturie c\ mai `nainte `nc\ de legiferarea l\sat\ de Hammurabi, templele din Babilon aveau o activitate ce poate fi asem\nat\ cu aceea a institu]iilor bancare moderne. Bog\]ii imobiliare [i mobiliare, p\m>nturi, cirezi, ateliere, unelte, sclavi, depozite de cereale, stocuri de lingouri din metale pre]ioase erau acumulate de a[ez\mintele `nchinate zeilor. Aceste avu]ii nu conteneau s\ fie sporite at>t prin munca sclavilor, c>t [i prin `mprumuturi purt\toare de dob>nzi mari, condi]iile tranzac]iilor fiind precis stabilite prin `nscrisuri. S-au g\sit dovezi conving\toare c\ opera]iunile de credit erau frecvente [i c\ templele din Babilon ]ineau eviden]e contabile am\nun]ite. Pe `nscrisuri de lut se men]ionau prevederi ce prefigureaz\ cadrul juridic modern bancar, precum ipoteca sau girul unor persoane considerate solvabile, urm\rirea for]at\ `n caz de neplat\.

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UNIT FIVE
MODULE I KEY LEAD-IN PRACTICE I
2.1. money; learnt; in terms of; rate of exchange; are passed. 2.2. Functions of money 1. medium; exchange, specialisation, labour, lent, money; unit of value 2. commodity, barter, goods, exchanges, standard, value exchange value 3. stock, commodity, insured, wealth, inflation means of accumulation

Business Issues

2.3. currency, quality (parity); worth, merchandise/commodity, value, standard, commerce/business; bullion, share; yield, income, borrow, assurance/insurance, discount; director, rule, output, currency, evolution. 2.4. warless, monetary, golden, needless, systemic, receivable, governmental, standard (serving as); coinage, contractual, priceless, marketable, committed to, investing, demanding, environmental, rating, financing, insuring, investing, paid, profitable, banking, deposited, indicating, informative, interesting.

FOCUS ON LANGUAGE PRACTICE II

3.1. The old buildings have been recently restored. Their house has already been redecorated. 3.2. According to the model

UNIT 5 Module II
UNIT FIVE
MODULE II LEAD-IN
1. 2. What is a Central Bank? What is its role in a market economy?

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THE BANK OF ENGLAND

The Bank of England was established in 1694 by an Act of Parliament and Royal Charter as a corporate body; the entire capital stock was acquired by the Government under the Bank of England Act 1946. The Banks main functions are to execute monetary policy, to act as banker to the Government, to act as a noteissuing authority and to exercise prudential supervision over and to provide banking facilities for the banking system. As an agent for the Government, the Bank of England is responsible for arranging government borrowing and for managing the National Debt. It also manages the Exchange Equalisation Account and maintains the register of holdings of government securities on behalf of the Treasury. More generally, the Bank has a responsibility for overseeing the soundness of the financial system as a whole. The Bank of England has the sole right in England and Wales to issue bank notes. The note issue is fiduciary, that is to say, it is no longer backed by gold but by government and other securities. The Scottish and Northern Ireland banks have limited rights to issue notes; these issues, apart from a small amount specified by legislation for each bank, must be fully covered by holdings of Bank of England notes. The Bank is able to influence money-market conditions through its dealings with the discount houses which developed in the nineteenth century as bill brokers for industrialists. The discount houses hold mainly Treasury, local aothority and commercial bills and negotiable certificates of deposit financed by short-term loans from the banks. If on a particular day there is a shortage of cash in the banking system as a result, for example of large tax payments, the Bank relieves the shortage either by buying bills from the discount houses or by lending directly to them. This permits the banks to replenish their cash balances at the Bank by recalling some of their short-term loans to the discount houses. The Bank is also responsible for the supervision of the main wholesale markets in London for money, foreign exchange and gold bullion. The markets are wholesale in the sense that the participants are professional operators dealing in large amounts of money. Deposit-taking organisations require authorisation from the Bank of England (unless they are specifically exempted) and are subject to the Bank of Englands supervision. The banking legislation increased the Banks power to modify the conduct of banking institutions, to investigate cases of illegal deposit-taking, to block bank mergers and takeovers, require information to be supplied to it by banks. The Bank may also intervene in the foreign exchange market to check undue fluctuations in the exchange value of sterling. As Europe moves towards economic and monetary union (EMU), we are hearing more of the likely status of the Bank of England if or when it joins a European Central Bank, which is likely to have its central office in Frankfurt. The new bank will be independent of instructions.

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Business Issues
A HISTORY OF THE BANKING SYSTEM IN ENGLAND

Modern Banking has its origins in the finance of foreign trade. In the great medieval trading states of Venice, Genoa and later Florence, a need arose to exchange one currency with another and the early moneychangers also began the practice of accepting deposits of cash and valuable for safekeeping. The merchants and money-changers of these cities also undertook the financing of commerce, the great medieval trade affairs, and they also called upon to provide finance for the rulers and the states in which they were established and they often became involved in financing the running (and the ways) of their own and other countries. Because of their power, they were seldom popular. Readily indefiable groups, such Jews, were persecuted and sometimes expelled, and the laws against usury were strict. Since modern banking originated in the cities or northern Italy , it is not surprising that some of its basic vocabulary has Italian roots. The word bank itself comes from the Italian word banco meaning a bench. The bankrupt has the same origin and refers to the practice of breaking the money-changers bench to indicate that he was no longer able to honour his obligations and therefore unable to continue his business. When the Jews were expelled from England by Eduard I in 1290, their place was taken by the Lombards, who were already established in England. They became the merchants and the important financiers in many European countries. The name of Lombard Street in the heart of the city of London is the permanent reminder of the importance of these early times. The accepting of deposits, the making of loans and the transfer of funds evolved during the 17th century with the growth of the goldsmith bankers who had by that time taken over from the Lombards as major financiers in England. Because of the nature of their trade, their premises had to be secure, and even before the 1640 seisure, there is evidence that they accepted coin on deposit from their customers, issuing receipts for them. The receipts entitled the holder to the return of his actual deposit, but they later became promissory notes, giving the holder the promise that he would be able to withdraw, on demand a sum equivalent to that deposited. Gradually, these notes themselves began to circulate among the merchants in settlement of their debts. Thus, these receipts became the forerunners of the modern banknote. Then, the words on bearer were added after the name of the original depositor and they became bearer instruments, giving them a greater circulation. The practice of placing money with goldsmiths with a given notice of required repayment had emerged, thereby originating what we call today deposit accounts. The private banknote came into being, but in the following century The Bank of England gradually took over the function of exclusive note issue, when it appeared as a historical necessity, in 1694, when the Government of the day was in need for funds to pursue the war against France. In 1773, the London private bankers also established a Clearing House that increased the ease of transfer and allowed the individual banks to keep a smaller total of cash in tills with which to meet withdrawals and transfers. The fluctuating economic conditions at the beginning of the 19th century were attributed to the relatively unrestricted right to issue banknotes and the problems caused by over-issue, so The Bank Charter Act provided the control of note issue that eventually led to the Bank of England acquiring a monopoly of the note issue. The Bank of England was nationalised in 1946. Further developments took place as legislation and other changes brought about a restructuring in the supply of financial services. Increasing overseas competition and the freedom of building societies offered a much wider range of financial services.

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This is a far cry indeed from the goldsmiths shops woollen mills and mercers premises were it all began three hundred years ago.

VOCABULARY
foreign trade = comer] exterior money changer = persoan\ care se ocup\ de schimb de bani call upon = a trebui/a fi obligat s\-[i `ndeplineasc\ (obliga]iile) expel = a expulza, a da afar\ prin for]\, a cur\]a goldsmith = giuvaergiu, aurar, bijutier receipt = chitan]\ promissory note = bilet la ordin (instrument de plat\) withdraw = a retrage settlements of debits/accounts = a achita datorii, a deconta, a regulariza conturile on bearer = la purt\tor money market = pia]\ de capital, pia]\ de credit pe termen scurt `ntre b\nci, `mprumuturile acordate de c\tre banca central\ guvernului foreign exchange market = pia]a devizelor bill broker = agent de scontare a cambiilor/tratelor discount house = 1. institu]ii unde se sconteaz\ instrumentele de plat\ ; 2. magazin apar]in>nd unei anumite comunit\]i [i care `[i vinde produsele la pre]uri de fabrica]ie sau de depozit corporate body = societate, firm\, `ntreprindere mare (`n SUA) note-issuing authority = banc\ central\ emitent\ securities (pl) = documente (titluri de valoare) care atest\ existen]a propriet\]ii asupra unui tren: ac]iuni, obliga]iuni ingot = lingou bill = factur\ capital market = pia]\ de capital merger = asociere (`ntre dou\ societ\]i), fuziune sponsor(s) = persoan\ care doneaz\ o sum\ de bani pentru o activitate bugetar\ (`nv\]\m>nt, medicin\) [i care, conform legii, este deductibil\ din sumele rulate impozabile takeover = preluare, cump\rare (a unei societ\]i) holding = un num\r important de ac]iuni de]inute `n mai multe societ\]i asociate cross holding = situa]ie `n care dou\ companii ob]in ac]iuni reciproc, pentru a preveni preluarea uneia de o a treia societate account = cont loan = `mprumut leasing = contrct de `nchiriere a unei cl\diri sau utilaj, pentru o perioad\ de timp, care poate intra in proprietatea celui care a `nchiriat dup\ expirarea perioadei de `nchiriere factoring = o afacere prin care se cump\r\ datorii cu rabat dealer = om de afaceri (care cump\r\/vinde) yield = dob>nd\ ca venit dintr-o investi]ie interest = dob>nd\ ca bun\ de pl\tit, calculat\ procentual, de pl\tit pentru utilizarea unor bani `mprumuta]i place money = a depune bani la deposit account (BE); time/notice account (AE) = cont curent clearing house = cas\ de compensa]ie issue = publica]ie, emisiune, a publica, a emite building societies = societ\]i de construc]ii; (BE): institu]ie financiar\ care preia depozite [i acord\ `mprumuturi pentru achizi]ionarea de locuin]e sau pentru amenajarea acestora

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COMPREHENSION I

Business Issues

1.1. Answer the following questions in your own words 1. Can you define the relationship between the market economy and the banking system? 2. Make a comparison between the role of the banking system in a market economy and a command system. 3. Where are the origins of money-changers placed? 4. What does Lombard Street suggest to you? 5. What is the forerunner of the modern banknote? 6. How did the promissory note appear? 7. How did the Bank of England acquire the monopoly of the note issue? 8. What is the role of competition and economic freedom in the supply of financial services?

FOCUS ON LANGUAGE
1.2. Match up these terms with the definitions below: dividend consumer credit equities bank charges deposit banknote basket of currencies bankruptcy bullion collateral 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. The amount charged to a customers account by a bank as a handling charge or a charge for any special services. An item of paper currency issued by a central bank. The state of an individual who is unable to pay his debts against whom a bankruptcy order has been made by a court. A group of selected currencies to establish a value for some other unit of currency. Gold, silver or some other precious metal used in bulk in the forms of bars or ingots rather than in coin. A form of security especially an impersonal form such as a life insurance policy or shares used to secure a bank loan. Short-term loan to the public for the purchase of goods. A sum of money left with an organisation such a bank, for safe keeping or to earn interest, or with a broker, dealer as a security to cover any traded losses incurred. The distribution of a part of a companys earnings to its shareholders. Ordinary shares of a company, especially those of a publicly owned company.

UNIT 5 Module II
1.3. Types of banks.

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& Read the text below and add short headings (one or two words) for each paragraph: 1. Merchant banks have traditionally been concerned primarily with the accepting (or guaranteeing) of commercial bills and with the sponsoring of capital issues on behalf of their customers. Today they have a widely diversified and complex range of activities with important roles in international finance and the short-term capital markets: the provision of expert advice and financial services to British industrial companies especially where mergers, takeovers and other forms, of corporate reorganisation are involved; the management of investment holdings, including trusts, pensions and other funds. A number of merchant banks have become part of financial conglomerates, offering an even wider range or financial services than hitherto. The main largest retail banks all have merchant banking subsidiaries. 2. The major retail banks or commercial banks are those with a significant branch network, offering a full range of financial services to both individuals and companies. They provide current accounts including, generally interest-bearing current accounts, deposit accounts and various kinds of loan arrangements, together with a full range of money transmission facilities increasingly featuring plastic card technology. With the growth of the financial services sector since the 1970s, and with a relaxation of restrictions on competition among financial institutions, the major banks have increasingly diversified the services they provide. They have lent more money for house purchase, and have established or acquired substantial interests in finance houses, leasing and factoring companies, merchant banks, securities dealers, insurance companies, unit trust companies and estate agencies. This type of banks provide loan facilities to industrial companies and they have also become important providers of finance for small firms. Most retail banks also conduct extensive international operations which account for a substantial proportion of their business. 3. Building societies are mutual institutions, owned by their savers and borrowers. They raise short-term deposits from savers, who are generally able to withdraw their money on demand or at short notice. The societies provide long-term loans, mostly at variable rates of interest, against the security of property usually private dwellings purchased for owner-occupation. Building societies are the major lenders for house purchase and the principal repository for the personal sectors liquid assets. A growing number of societies provide current account facilities such as cheque books and automatic teller machines. Societies may also now operate throughout the European Community. However, their main business will continue to be the provision of financial and housing-related services to individuals. a. b. 2.1. Rewrite the following texts in the passive They have shot dead a candidate of the Democratic Party of the next weeks election. They threw bombs and fired shots at him from close range. The 18th and 19th century classical economists, most notably Adam Smith argued in favour of laissezfaire and insisted that natural forces such as self-interest and competition naturally determine prices and income. Yet, the great depression of the 1990s demonstrated that, in a short term, the market system does not automatically lead to full employment. The profit and loss account show revenue and expenditure. It gives figures for total sales or turnover (the amount of business done by the company during the year) and for costs and overheads.

c.

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Business Issues

2.2. Write a report on some event/activity of insurance you have been involved in recently When talking about what you did, make yourself the focus: When talking about what the government did, make the activity the focus. Use the following: Insurance contract against stop working at the age of 60 or 65, percentage of the premium, assume responsibilities; life insurance policy, to place amounts, institutional investors, demand for payment for natural disasters. Translate into English: Ordinul Tempierilor ocup\ un loc cu totul aparte, reprezent>nd cel mai `ntins [i puternic imperiu financiar constituit din antichitate p>n\ `n epoca modern\. Pelerinii care veneau la Ierusalim dup\ cucerirea sa de la arabi erau proteja]i de Ordinul cavalerilor s\raci ai lui Hristos, `nfiin]at `n 1119 `n apropierea ruinelor templului ridicat c>ndva de regele Solomon. Primind privilegii de la regi [i seniori, Ordinul s-a extins `n toat\ Europa [i a preluat o bun\ parte din rulajul monetar la scara continentului. Chiar capetelor `ncoronate [i numero[ilor pontifi li se ofereau locuri de siguran]\ destinate depozit\rii banilor [i obiectelor pre]ioase, convoaie secrete pentru transportul valorilor, `mprumuturi imense pentru cruciadele spre locurile sfinte [i pentru soldele trupelor. Ascensiunea lor a fost rapid\ [i spectaculoas\ [i datorit\ `ns\rcin\rii acestora cu percepera taxelor [i impozitelor legale. Ac]iunea ce avea s\ duc\ la dizolvarea Ordinului a fost conceput\ de regele francez Filip cel Frumos, pentru ca bunurile acestora s\ fie preluate formal de alte ordine religioase din Fran]a, Spania, Portugalia, dar faptic tot de c\tre patrimoniul regilor, din pricina situa]iei financiare dezastruoase a regatelor lor. Dup\ dispari]ia Ordinului Templierilor, c>mpul de ac]iune al acestora a fost disputat de casele c\m\t\re[ti din ]\rile `n care se ramificase, [i unde a constituit chiar re]ele internationale.

UNIT 5 Module II
UNIT FIVE
MODULE II KEY FOCUS ON LANGUAGE
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 1.2. Match up these terms with the definition below: bank charges banknote bankrupt or bankruptcy currency basket bullions collateral consumer loan deposit dividend equities

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UNIT FIVE
MODULE III LEAD-IN
1. 2. 3. 4. 5.

Business Issues

Have you ever borrowed or lent money? What do you think of the famous adage: Neither a borrower nor a lender be? We can often hear this: An acquaintance is someone we know well enough to borrow money form, but not well enough to lend money to. Do you agree to it? What are the institutions where you can apply for loans? What sorts of services can banks provide?

BORROWING AND LENDING

One of the basic functions of a bank is leading money. The interest earned from loans brings in most of the revenue to pay the expenses of the bank, including staff salaries, and gives a sufficient surplus to pay shareholders a dividend and retain funds in reserve accounts for the expansion of the bank. It should always be remembered that the funds that are put out on loan belong to the customers. It is their money that is put at risk; consequently, if a bank is continually making bad or unprofitable loans, this will sooner or later be reflected in the deposits. On the other hand, if banks are able to lend profitably and, as far as possible, risk free, this will enhance the reputation of the bank and improve its public image. Before giving and advance, it is necessary for the bank manager to know the purpose of the loan. The lending officer may ask whether the loan is for a legal purpose (for example, if a customer wanted to borrow money to buy drugs, or weapons, the bank should enquire about the license to purchase that type of commodity). At the same time the loan should comply with the Central Bankss directives on lending policy, or with the respective banks particular policy (the latter may have certain instructions issued to managers and other officials on amounts, persons, projects, and so on, that they would not lend money on). When a customer applies for a loan he must answer questions like the following: How much is required? This question is self-evident, the bank must know how much money the customer needs; at the same time the bank must be aware that whatever sum is required, it should not cover the whole project. The customer must be prepared to put some of his own money at risk. The total financial risk must not be the banks alone. The purpose of the loan? The purpose of the loan must be legal, moral and within the policy of the government and the bank; moreover, it must not break legal requirements. Length of time the advance is required? An agreement between the bank and the customer should include the length of time the money is required and whether the outstanding debt will be repaid monthly, quarterly or whatever. The source of repayment? The answer to this question is important to the bank. Any customer must have sufficient resources to repay the bank within the stipulated agreed time not only the capital, but the interest as well. The sources of repayment could be from wages, salary, dividends, an inheritance, [profits, and so on.

UNIT 5 Module III

VOCABULARY
to lend, lent, lent, v. = a da cu `mprumut, a `mprumuta cuiva to borrow, v. = a lua cu `mprumut, a `mprumuta de la cineva loan, n. = `mprumut to make a loan, v. = a face un `mprumut to earn interest, v. = a realiza dob>nd\ to bring in revenue, v. = a aduce venit shareholder, n. = ac]ionar dividend, n. = dividend reserve account, n. = cont de rezerv\ expansion, n. = extindere, dezvoltare to put out funds on loan, v. = a disponibiliza fonduri pentru `mprumut to put something at risk, v. = a risca ceva, a supune riscului deposit, n. = depozit, depunere advance, n. = avans lending officer/credit officer, n. = ofi]er de credit to enquire about, v. = a se interesa (despre) a `ntreba, a se informa despre licence, n. = licen]\ to purchase, v. = a achizi]iona, a cump\ra, a procura to comply with directives/regulations, v. = a se conforma cu directivele/regulamentul to break legal requirements, v. = a `nc\lca cerin]ele legale agreement, n. = `n]elegere, acord outstanding debt, n. = datorie exigibil\ monthly, adv. = lunar quarterly, adv. = trimestrial to repay/ to pay back, v. = a rambursa repayment, n. = rambursare within the stipulated agreed time, adv. = `n timpul convenit wage(s), n. = salariu, plat\ salary, n. = salariu inheritance, n. = mo[tenire

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COMPREHENSION I
1.1. Answer the following questions on the next: 1. What is the basic function of a bank? 2. What brings in most of the revenue to pay the expenses of the bank? 3. How can the reputation of the bank be enhanced? 4. What should the loan comply with? 5. What kind of questions must a customer who applies for a loan answer?

PRACTICE I
1. 2. 3. 4. 5. 6. 2.1. Choose the best alternative (a, b, c or d) to fill in the blanks: If you let someone else use your money for a certain period of time, after which it has to be returned, you it to that person. a. borrow b. lend c. take d. credit To take money that has to be repaid is to it. a. lend b. borrow c. steal d. give If you posses something you can as well say that you it. a. owe b. own c. owner d. owed On the contrary, if you have to give the money back, you money. a. owe b. own c. yield d. borrow Someone who has borrowed money is a/an a. owner b. owned c. creditor d. debtor A synonym for a lender is a. payer b. creditor c. debtor d. owner

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7. 8.

Business Issues

The income received by someone who lends money is called a. dividend b. credit c. interest d. share The borrower has to pay back the loan (also known as the ) and the interest. a. premium b. principal c. principals d. lend

2.2. Banking vocabulary All the words below form partnerships with the word bank or banking; add one of them either before or after each of the following words: 1. statement 2. offshore 3. retail ...... 4. wholesale 5. deposit ... 6. manager .. 7. balance .. 8. account .. 2.3. Banking Products Match the following words in the box with their corresponding definitions: mortgage overdraft joint account cheque travellers cheque pension 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. current account cash dispenser loan standing order credit card deposit account foreign currency 9. .. commercial 10. merchant .... 11. investments 12. system ....... 13. note ............ 14. clearing ...... 15. interest ...... 16. loan ...........

An arrangement with the bank by which we can withdraw more money than you actually have in your account A cheque issued by a bank or a financial institution to tourists travelling abroad in order to enable them to withdraw cash in a foreign currency You can pay regular bills by way of a and the bank pays your bills according to your instructions. In Britain nearly everyone has a chequebook as they pay their bills by I dont like travellers cheques and that is why, when I go abroad I buy from my local bank as their rates are better than the exchange office. My friend wanted to build a house and obtained an 85% from the building society and had to pay a deposit of 10% with his own savings. A bank account from which you can withdraw money at any time and which pays low interest I can withdraw money from an automatic with a cashcard, so I dont need to go to the bank; this is also called an ATM/automatic teller machine. Besides a cashcard, I also have a with which I pay in restaurants, shops, or I can order my shopping by telephone. An account with a bank from which you cannot withdraw money at any time and which pays higher

UNIT 5 Module III

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11. 12. 13.

interest A bank account held in the names of two or more people The banks in this country may have some special plans, for people when they retire. This spring I asked my bank to grant me a to buy a new car, but they turned down my application.

FOCUS ON LANGUAGE PRACTICE II

3.1. Change the sentences into the passive by using the words given. Example: Last week the board appointed a new bank manager. A new bank manager was appointed last week. 1. 2. 3. 4. 5. 6. Florio Ltd. are supplying our company with office equipment. The Queen opened the Parliament last month. We havent made any decision yet. We put up a notice about the new project on the notice board yesterday. The bank clerks were checking the transactions on the screen. Nobody has seen Brown since the day he borrowed money from the bank. was supplied by No was were been

1. 2. 3. 4. 5.

3.2. Rewrite each sentence so that it contains a form of have something done. Do not include the agent: A painter painted our office last month. We had our office painted last month. Someone has stolen my car. The dentist has taken out my bad tooth. The men are coming to put in the new central heating next week. Isnt time someone fixed your computer? 3.3. Complete the following sentences with the appropriate passive form of the verb given in brackets: This year 50 percent of our production (make) at our Asian plant. At present, our companys range of services (expand). The commission paid to agents recently (increased) by the Sales Manager. Protective clothing must (wear) by employees inside the production area. Our headquarters currently (relocate) in the north of the region. The merger proposal (consider) for most of last year.

1. 2. 3. 4. 5. 6.

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COMPREHENSION II

Business Issues

4.1. Red the letter that Andrew Richards of Florio Ltd. sent his bank manager in order to obtain either a loan or an overdraft to expand his office furniture factory. Answer the questions that follow:

Dear Mr. Brown, I would like to make an appointment with you to discuss either a loan or an overdraft so that I could expand my business. Over the past six months I have been testing the market with six new sets of office furniture and have found that the incredible demand for these sets has exceeded my expectations. I have recently had over 100 orders, half of which I could not fulfil because of my limited resources. I will need a loan for about $8,000 to buy additional equipment and raw materials. I can offer $4,000 in IBM ordinary shares and $3,000 in government bonds as part security for the loan. I estimate it will take me about ten months to repay the loan. I also enclose an audited copy of the companys current balance sheet, which I imagine you will wish to inspect. I look forward to hearing from you. Yours sincerely, Andrew Richards

4.2. Answer the following questions: 1. What kind of furniture is he going to put on the market? 2. Why does he need a loan or an overdraft? 3. Does he offer any evidence that his company is in a healthy state? 4. What security is he offering? 4.3. Find words in the letter corresponding to the following: Example: talk about = discuss; enlarge; gone further; meet (orders); checked by an accountant. 4.4. Translate into English: Creditele `n valut\ r\m>n forma perfect\ de finan]are pentru societ\]ile comerciale din Rom>nia. Dob>nda mult mai mic\ dec>t a celor contractate `n lei, chiar dac\ se ]ine cont de evolu]ia ratei de schimb leu/dolar, le face mult mai atractive. Mai ales `n cazul `n care se achizi]ioneaz\ utilaje din str\in\tate, plata acestora prin `mprumuturi bancare `n lei [i transformarea `n valut\ nu este utilizat\. COmpartativ cu depozitele `n valut\ ale reziden]ilor, volumul creditelor `n dolari est e mai mare `n toat\ perioada analizat\. Evolu]ia comparativ\ a economiilor popula]iei depuse `n b\nci comerciale cu volumul creditelor contractate de agen]ii economici `n perioada octombrie 1997-noiembrie 1998 eviden]iaz\ lipsa de interes pentru acest tip de finan]are.

UNIT 5 Module III

KEY PRACTICE I
2.1. 1-b; 2-b; 3-b; 4-a; 5-d; 6-b; 7-c; 8-b. 2.2. 1. bank statement 2. off-shore banking 3. retail banking 4. wholesale banking 5. bank deposit 6. bank manager 7. bank balance 8. bank account 2.3. 1. overdraft 2. travellers cheque 3. standing order 4. cheque 5. foreign currency 6. mortgage 7. current account 9. commercial bank 10. merchant bank 11. investment bank 12. banking system 13. bank note 14. clearing bank 15. bank interest 16. bank loan

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8. cash dispenser 9. credit card 10. deposit account 11. joint account 12. pension plans 13. loan

PRACTICE II
1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 3.1. Our company is supplied with office equipment by Florio Ltd. The Parliament was opened by the Queen last month. No decision has been made yet. A notice about the new project was put on the board yesterday. The transactions were being checked on the screen (by the bank clerks). Brown hasnt been seen since the day he borrowed money from the bank. 3.2. I have had my car stolen. I have had my bad tooth taken out. We are having the new central heating put in next week. Isnt it time you had your computer fixed?

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3.3. 1. 2. 3. 4. 5. 6.

Business Issues

has been made are being expanded have been recently increased must be worn are currently being relocated was being considered

COMPREHENSION II
4.3. enlarge = expand; gone further = exceeded; meet (orders) = fulfil; checked by an accountant = audited.