Text 4. Banks: the history of their development and types



Text 1. What is Business?

Business is a word which is commonly used in many different languages. But what does it mean exactly? The concepts and activities of business have increased in modern times. Traditionally, business simply meant exchange or trade for things people wanted or needed. Today it has a more technical definition. One definition of business is production, distribution and sale of goods and services for a profit. To examine this definition we will look at its various parts.

First, production is the creation of services or the changing of the materials into products. One example is the conversion of iron ore into metal car parts.

 Next these products need to be moved from the factory to the marketplace. This is known as distribution. A car might be moved from a factory in Detroit to a car dealership in Miami.

Third is the sale of goods and services. Sale is the exchange of a product or service for money. A car is sold to someone in exchange for money. Goods are products which people either need or want; e.g. cars can be classified as goods. Services, on the other hand, are activities which a person or group performs for another person or organization. For instance, an auto mechanic performs a service when he repairs a car. A doctor also performs a service by taking care of people when they are sick.

Business, then, is a combination of all these activities: production, distribution and sale. However, there is one other important factor. This factor is the creation of profit or economic surplus. A major goal in the functioning of an American company is making a profit. Profit is the money that remains after all the expenses are paid. Creating an economic surplus or profit is, therefore, a primary goal of business activity.


 

Text 2. Unemployment

We say that unemployment exists where people capable and willing to work are unable to find suitable paid employment. But where an economy is adapting to changing conditions, there will always be some persons unemployed as they change jobs or as seasonal work comes to an end.

Unemployment may occur for many different reasons. There will always be some people changing jobs. In certain occupations, e.g. unskilled labour in the construction industry, workers are not employed regularly by one employer. When a contract is completed, labour is not required. Occasionally workers are discharged when a factory is being reorganized.

Unemployed workers usually register at the local employment exchange from which employers can hire them. The unemployed are paid certain benefits.

Employment in some industries, e.g. building, fruitpicking is seasonal in character. Sometimes there are unemployed workers of a particular occupation in one part of the country but a shortage of the same type of work in other parts. Thus today there is a surplus of unskilled and manual labourers in the north if England, whereas firms in the London area have vacancies unfilled. Two main reasons can be suggested for this type of unemployment – ignorance of opportunities and immobility of labour.

Workers may be in “between jobs”. Some of them are looking for better jobs, others are seeking better salaries. Young people search for their first jobs. This is called “frictional unemployment”. This type is usually short-term and regarded as inevitable.

Unemployment may also be caused by important changes in the structure of consumer demand and in technology. As a result some workers find that their skills and experience are unwanted by these changes. This type of employment is more long-term and regarded as more serious. It is known as structural unemployment. The full-employment or natural rate of unemployment ranges between 5 and 6 percent.


Text 3. History of Money

 

These days money is hi-tech. We have notes and coins which are specially made. We use credit cards. Banks and stock exchanges can move millions at the touch of a button. But how did money develop? Where, for example, were notes and coins first produced? Why? What did people use as money before that?

Each country has its own individual culture. That is as true today as it was thousands of years ago. But although nations vary enormously, in some ways they are all the same. Each has developed its own language, for example – its own religion, arts, form of government, and of course…its own money.

So money is universal – but why? The answer is very simple. Without it trade would be impossible and people in any society need to exchange goods in order to survive.

OK, so money is necessary, but what kind of money? Well, in the past most societies used objects. Some of these were valuable because they were rare and beautiful – others because they could be eaten or used. There are some examples…

Animal skin……….Alaska/Canada/Russia/Scandinavia

Cattle……………...East Africa

Cocoa beans……….Mexico

Feathers……………North America

Grain ……………...India

Knives…………….China

Rats……………….Easter Island

Salt……………….Nigeria

Shells…………….Thailand/Paraguay

Tobacco………….America


 

Text 4. Banks: the history of their development and types

In ancient Italy the word “banco” meant a money exchange bench. Hence the word “bank”. Historians find the rudiments of the banking system already in the slave-holding society. Financiers assert the banking business which is similar to the current one to have been formed by the beginning of the 17th century.

A present-day bank is a financial institution with numerous functions. It accumulates, stores funds, makes mutual payments with clients, grants credits, puts banknotes and securities into circulation. Banks are an important element and subtle instrument of economics. Through money and securities they influence industry, consumption and social progress. Most of the advanced world countries have a two-level banking system.

The first level is a central bank, the second one is presented by commercial banks. The Central bank has exclusive rights to issue money and public securities, manages the country’s credit system, keeps free funds and commercial banks’ reserves.

And what do commercial banks represent? They can be both private and national, but function as commercial firms. Their basic aim is to get profit from money and securities operations.

There exist several types of commercial banks. Deposit banks take deposits, grant credits. Besides they get a certain interest on credit and make payments of interest for deposits. Innovation banks grant credits to introduce scientific and technical achievements. Sometimes they agree to a venture financing. Mortgage banks grant long-date immovable property mortgage credits. Savings banks attract and keep free funds of the population. For doing this they pay depositors a certain interest that grows with storage life. Savings banks also carry out other transactions in the interest of population: grant credits, remit money on behalf of somebody.

Commercial banks are differentiated in features. According to the way the authorized fund is formed, they may be private, joint, with and without foreign capital. According to financial operations they can be specialized and universal. By the territory they are regional, federal, international.


 

 

Text 5. Banks, loans

Banks make their profits by lending the money which customers deposit with them to others who need it for personal or business reasons. Most people need more money than they have currently.

To be a borrower you must be a customer of the bank because the money will be given to you through a bank account. There are two ways in which you may borrow. The first, and easy, is to spend more money than you have in your current account – to overdraw. The second, and the normal way of borrowing larger amounts or for a long period of time is the loan. If a loan is granted it will be a fixed sum immediately available for a fixed period of time. The principal and the interest on it may all become due for payment at the end of that period but for personal loans it is common to arrange that the loan and interest are repaid in equal regular instalments over the period of the loan. A separate account is opened to record the repayments as they are made.

Whether you are seeking money for business or personal reasons there are a number of things that the manager will want to know before he is prepared to grant your request. The obvious facts will be the amount that you seek and the arrangements for payment that you are able to suggest. You need to tell him something about the purpose of the loan.

The purpose of the loan. For many personal customers applications for a loan are straightforward because the purpose is clear – to buy a car, to double glaze of the house, to build an extension, etc. for many small businesses requests will be equally obvious – to purchase a plain paper copier, a computer or other machine. Other business schemes may not be nearly so clear-cut. They may involve long-term commitments, and the present loan may only be forerunner of other similar requests. A bank manager needs to be able to assess such schemes on their merits, and to probe the customer’s ideas with searching questions. The applicant may in fact be unsure of certain aspects of the proposal and reveal flaws in planning which would, if not solved, eventually mean failure. Only if the manager understands the project and the risks he assessed and the loan will be agreed.


 

 

Text 6. Financial careers

 

There is a surprisingly wide range of jobs to choose from in the financial world, for example, you can raise money for charities or sell famous paintings or write about economics as a financial journalist or run your own company.

Fund-raiser. There are thousands of different charities these days, e.g. ''for children'', "cancer research", "the disabled", "Aids research". They all do important work and they all need to raise money. That 's why they employ fund-raisers. What does the job involve? Well, it is very varied, but basically fund-raisers organize special events like concerts, ask governments for money, try to get support from local companies and organizations. Most major charities have fund-raising departments which employ teams or workers. Some of these people do office work - others visit companies or arrange special events.

Financial journalist. Financial journalists work in three main areas - newspapers, radio and television. Their job is to understand what's happening in the financial world and explain it as quickly and accurately as possible. Economic journalists don't just report today's news, but they need the ability to predict future events, too. Will interest rates rise or fall? Will the stock market go up or down? Are exports going to increase or decrease? To become a financial journalist you train as a general reporter first. Then you specialize in finance and economics. And when you've done that you'll get a job in the media. But financial journalism is a very competitive career. In Britain only 2000 jobs are available.

Dealer. Dealers work for companies which sell and buy, e.g. foreign currencies or commodities like oil or steel. They work in large, noisy rooms called dealing rooms and do most of their business over the phone and on computer screen. The majority of them are under 35. Most of them also earn very big salaries because their work involves huge amounts of pressure and responsibility. You don’t need a degree to be a dealer. What you need is talent, energy, confidence and ambition.


Text 7. Securities

Securities are a juridical document entitling an owner to a share of the property of the organization having issued these securities and consequently to a part of the incomes. In other words securities are an article. It brings money from sale to the organization-seller that has issued these securities. To the buyer it entitles to claim a property and income share of the organization. Just as there exist trading houses, shops, purchase and sale markets, there exist special structures to sale securities (stock exchanges etc.). There exist several kinds of securities. Here are the main ones among them.

The share is a security issued by a company. It certifies that its owner paid in a certain sum of money and consequently has the right to dividends.

Bonds are securities issued by enterprises. It assures that its owner paid in a certain sum of money and confirms that it is to be made up by the stipulated time with a fixed interest paid. If under the bond a regular profit payment is intended, it is made as a rule in the form of coupons. A coupon is a tear-off check with a figure of coupon rate printed on it. The fact of the profit payment is marked by cutting out the coupon.

The bill of exchange is a debenture undertaken by a bill debtor that he is sure to pay the debt and an interest on it to the owner of the bill by the fixed time.

The savings certificate is a certificate saying that a definite sum of money is deposited with a bank and its owner has the right to the get his deposit and interest on it on the expiry of a fixed period.

Treasury obligation is a kind of securities which is distributed by a government among the population on a contract basis. It assures that its holder put valuable means into the state budget and entitles to a fixed profit during the whole period of possessing it.


Text 8. Commodity Exchanges

Commodity Exchanges deal in raw materials and some items of produce, such as cotton, wheat, vegetable oil, etc. as these goods can be accurately graded and the grades practically remain unchanged every year. The goods are bought and sold at commodity exchanges according to grades or standards, and on the basis of standard contract terms. And commodity exchanges are called accordingly: the Wheat Exchange, the Metal Exchange and so on.

Thus for example, in Great Britain you can take part in sessions at the London Metal Exchange, the London Commodity Exchange dealing in cocoa, rubber and sugar, the Liverpool Cotton Exchange or the Bradford Wool Exchange, Yorkshire.

Nowadays Commodity exchanges are losing their role as markets of physical goods and becoming mainly futures exchanges where deals are chiefly made for speculation purposes or for hedging.

The goods like fur, tea spices whose quality varies from year to year, from lot to lot cannot be accurately graded and are sold at auctions according to sample. Before the auction begins, the lots are inspected by future buyers and then sold to the highest bidder.

Horses and other animals are also sold and bought at auctions. Trade by tenders is frequently used in developing countries for construction work or for delivery of goods. General terms and conditions of the future deal are announced beforehand and the contract is given to the Suppliers who offer the lowest price and the most favourable terms.


Text 9. Stock Markets

Stock Markets are the means through which securities are bought and sold. The origin of stock markets goes back to medieval Italy. During the 17th and 18th centuries Amsterdam was the principal centre for securities trading in the world. The appearance of formal stock markets and professional intermediation resulted from the supply of, demand for and turnover in transferable securities.

The popularity of transferable instruments as a means of finance continued to grow and at the beginning of the 20th century there was an increasing demand for the facilities provided by stock exchanges.

The largest, most active and best organized markets were established in Western Europe and the United States. Despite their common European origins there was no single model which every country copied.

Members of stock exchanges drew up rules to protect their own interests and to facilitate the business to be done by creating an orderly and regulated marketplace. Investors were interested in a far wider range of securities than those issued by local enterprises. Increasingly, these local exchanges were integrated into national markets.

The national development of communications allowed stock exchanges to attract orders more easily from all over the country and later the barriers that had preserved the independence and isolation of national exchanges, were progressively removed.


Text 10. Securities Markets

Securities are bought and sold at two types of securities markets: primary markets, which issue new securities, and secondary markets, where previously issued securities are bought and sold. If a company wants to sell a new issue of stock or bonds, it usually negotiates with an investment bank, or underwriter who sells the securities for it. The underwriter buys the securities from the corporation and resells then to individual investors through the secondary market.

Organized securities exchanges have developed to make the buying and selling of securities easier. The securities exchanges consist of the individual investors, brokers, and intermediaries who deal in the purchase and sale of securities. Securities exchanges do not buy or sell securities, they simply provide the location and services for the brokers who buy and sell.

Stock transactions are handled by a stockbroker. A stockbroker buys and sells securities for clients. Stockbrokers act on the clients’ orders. Stockbrokers receive a fee and are associated with a brokerage house. To trade on the exchange a “seat” must be purchased. A seat is a membership. The members represent stockbrokers. When a stockbroker calls in an order to sell, one member representing that broker looks for a buyer at the price requested. When a broker calls an order to buy, the exchange looks for a buyer at the price offered.

The largest and best known exchange in the USA is the New York Stock Exchange (NYSE), also called the “Big Board”- there are 1300 seats on the NYSE and approximately 2000 stocks and 3400 bonds are traded daily. In order to be dated on the NYSE, a firm has to meet the following requirements: 1) Pretax earnings of at least $ 2.5 million in the previous year.2) Tangible assets of at least $16 million. 3) At least 1 million shares of stock publicly held, and others.

The second largest stock exchange in the USA is the American Stock Exchange. It is located in Manhattan. AMEX operates in much the same way as NYSE, but smaller companies may qualify for listing.

There are also regional stock exchanges that serve regional markets.

About 5000 brokers sell & buy unlisted securities outside of the organized securities exchanges which are scattered all over the country. They trade unlisted stocks and bonds by phone and keep in contact with each other.

The prices of securities are established by supply and demand. Electronic screens in the offices of the brokerage firms display transactions, so brokers continually keep customers on the latest prices.

Options are trade on the major stock exchanges, but also on a special market bond options, the Chicago Bond Options Exchange (CBOE).


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