BANKING

DEPOSIT - money placed in a bank

LOAN - a sum of money borrowed from a bank
CAPITAL - the money invested in a business
SHARES - certificates representing part-ownership of a company
BONDS - certificates of debt issued by governments or companiesto raise money
MERGEL EQUAL STATUS - when one company combines with another one
TAKE OVER when one company offers to buy or acquire another one
STOCKBROKING - buying and selling stocks or shares for clients
PORTFOLIO - all the investment owned by an individual or organisation
RETURNS - the profits made on investmenst
TO GO BUST DOWN/TO BANKRUPT - unable to pay debts or continue to do business
THE REFULATION - the ending or relaxing of legal restrictions
CONGLOMERATES - a group of companies, operating in different fields, which have joined together
INTEREST - the price paid for borrowing money, paid to the lenders

CHARGE interest DO business GIVE advice
ISSUE stocks or shares MAKE profits OFFER services
PASS laws PAY interest PROVIDE services
RAISE capital RECEIVE deposits SHARE profits



credit rating estimates of people's abilitiy to fulfill their financial commitents
default failure to repay a loan
collateralized with property or another asset used as a guarantee of payment
cash flow the money generated by an investment
write off cancel a bad debt or a worthless asset from an account

1. receive deposits
2. charge/pay interest
3. offer/provide/grant loans/services
4. raise capital
5. issue shares/bonds

current ACCOUNT credit CARD foreign CURRENCY
internet BANKING standing ORDER debit ACCOUNT
deposit ACCOUNT investment ADVICE hedge FUND

Lenders granted mortgages to 'subprime' borrowers
The mortgage lenders sold mortgage-backed securities to financial
institutions
American house prices fell and many borrowers stopped repaying
The value of MBSs fell to almost zero and many banks lost billions of
dollars
Some went bankrupt, and others had to be rescued by governments
There was a credit crisis as there was little capital left for lending and
borrowing

1. bank charges - what customers pay the bank in return for its services
2. interest rate - the price paid for borrowing money, paid to the lenders
3. savings - money kept in the bank to earn interest
4. overdraft - take out more money than you have in your bank account
5. standing order - instruction to a bank to pay an amount at regular intervals
6. loan - a sum of money borrowed from a bank
7. mortgage- money lent to buy property, the property being the security
8. portfolio - all the investments owned by an individual or organization

What banks are for
In developed economies, nearly everyone has a bank account, because keeping cash under a mattress is neither safe
nor convenient. Banks are an essential feature of national life, like buses, post offices and hospitals. Any money that is
not floating around as cash, in the form of notes or coins, is either sitting in a bank account, or is in transit in a
payment system between banks. Banks operate by taking deposits from private people, on which they pay low
interest or none at all, and using the money to make longer-term
loans to other customers, charging them higher interest rate. Banking is based on trust, but banks sometimes misuse
depositors' money or make losses on their loans, and depositors do not usually have the time, the inclination or the
capacity to monitor their banks. They are happy to leave that task to the governments. Governments also help banks
cope with temporary cash shortgages by providing access to the "discount window" so they can borrow money from
the central bank. The bank deposits are often insured in a pool of arrangement or by the government itself, in case the
bank goes bust.
cartels, payments, debit, securities, financial services, regulator,s credi,t payment system, transaction, foreign
currency, investments
Banks are also needed to make paymets, sending money from one bank account to another, whether in the same bank
or in any other one the world over. Even a payment by debit or credit card or a mobile-phone billing account, ends up
as part of a transaction with a bank. These days most banks do a lot more besides, offering a wide range of financial
services. For example, they give financial advice, exchange foreign currency, deal in securities and derivatives, and
manage investment on behalf of clients. Regulators have an interest in making sure that these businesses are run
properly; but their chief concern remains that banks are sound, that those deposits are safe and that the payment
system runs smoothly. Regulating banking systems is an uncertain business. Banks have to be discouraged from
forming protectionist cartels and encouraged to compete with each other, but not so fiercly that they cut each other's
throats. It is a delicate balance for regulators to strike.

take deposit
pay interest
make/give/grant loans
charge interest
manage depositors' money
make losses
borrow money
go bust
make payments
provide/offer financial services
give financial advice
exchange foreign currency
deal in securities and derivatives
make investments

Vesna Baki is an accountant (raunovoa). When she started working she opened a current account
(tekui raun) with her bank. Her company credits (uplauje sredstva na) her account every month. She can
withdraw money from her account in the bank during office hours or from an ATM (bankomat) any time
she wants. She has arranged with her bank to pay electricity and other bills by standing order (trajni nalog).
Every month on a certain day the bank sends her a bank statement (bankovni izvod) which tells her the
balance (stanje), the exact amount on her account, i.e. whether she is in the red (minus) or in the black
(plus). Vesna is happy to have a credit card for paying goods and services, but she is not happy when her
account is debited (tereen) too much.

Match the definitions to the corresponding headings.

This is the amount the bank charges to maintain your account.
Monthly maintenance charge
The number that uniquely identifies your account.
Account number
This area shows your previous balance, the total deposits, the total withdrawals and service charges and
calculates your new balance.
Account summary
Each check that has been cashed is listed here by number with the date cashed and the amount.
The * indicates that a check number has been skipped.
Detailed check list
This section lists all transactions where money has gone into your account.
Deposits and other credits
All transactions taking place between these two are on the statement.
Statment period
Here each withdrawal you have made is listed with the location, date and amount of withdrawal.
Withdrawal list
Any ATM you have used in the statement period is listed here.
ATM locations used
This section lists all transactions where money has come out of your account.
Checks and other debits

BANK SERVICES:
1. deposit taking
2. money transfer
3. advances (money which a bank lends)
4. other services
DEPOSIT TAKING
1. CURRENT ACCOUNT
2. DEPOSIT ACCOUT
3. FOREIGN CURRENCY ACCOUNT
4. GIRO ACCOUNT
MOVEMENTS IN THE ACCOUNT
put money into the account
withdraw money from the account
be in credit (in the black)
be in debit (in the red, overdrawn)
direct debit (paying bills on POS)
direct credit (paying in salaries)
e) personal loans
OTHER SERVICES
a) insurance
b) night safe
c) safe deposit (box/vaults)
d) unit trust
e) investment management
f) executor and trustee (wills, property)
g) taxation advice






BANK STATEMENT
a) date
b) details
c) debits = money out
d) credits = money in
e) balance = money in the account
MONEY TRANSFER
encashment (at the counter)
b) ATM/cash machine/cash dispenser
bank credit cards
d) standing order
ADVANCES
a) credit cards
b) overdrafts
c) mortgages
d) business loans


TYPES OF BANKS
BANK OF ENGLAND/HNB (CENTRAL BANK)
1. Implements monetary policy
limits the fluctuations of the interest rate
prints or destroys money
buys and sells government bonds to and from commercial banks
2. Supervises exchange rates
3. Supervises commercial banking
4. acts as a lender of last resort (bankers bank)
5. manages the accounts of government departments
6. manages the Public Sector borrowing and the national debt

COMMERCIAL/CLEARING BANKS
Make profit from SPREAD (MARGIN)
a) receive and hold deposits
b) pay money according to customers instructions
c) lend money
d) exchange foreign currencies
e) offer advice

MERCHANT BANKS
Make profit from fees and commissions
a) raise funds for industry
b) finance international trade
c) issue and underwrite securities
d) deal with takeovers and mergers
e) issue government bonds
f) offer stockbroking and portfolio services




























EXCHANGE RATES
Gold convertibility ended in the early 1970s.
In fact we have managed floating exchange rates, because governments
and central banks sometimes intervene on currency markets.
Another verb for fixing exchange rates against something else is to peg them.
Increasing the value of an otherwise fixed exchange rate is called revaluation.
A currency can appreciate if lots speculators buy it.
In most western countries there is a system of floating exchange rates
determined by supply and demand.

What's gold convertibility?
A system in which the Federal Reserve could exchange gold for all the paper money, if necessary.
Why system of gold convertibility crushed?
Because of inflation.
By who were exchange rates deterined in a new system?
By the number of buyers and sellers.
What mean that exchange rates should give purchasing powe parity?
The cost of a given selection of goods and services would be the same.
What's the purpose of the speculators?
To get a higher interest rate or make a capital gain.
How much world's currency transactions are related to speculations?
About 95%.
What's the way to hedge against currency fluctuations?
By buying future contracts.
Why attempts to manage a floating exchange rate have limited succes?
Because speculators have much more money than governments.

Forex Market is market where people buy or sell currencies and also speculate with them. The biggest center of that
type is in London, followed by New York and Tokyo. The US dollar is most traded currency, although is the biggest
center in London in the UK. It's global market and has one big advantage is easy to trade, because money is money.
You can be 100% sure that you buy it, and sell it, which is not the situation when you are buying wheat on stock.

REVALUATION to increase the value of a currency in an otherwise fixed system
DEVALUATION to decrease the value of a currency in an otherwise fixed system
PROPONENTS people who argue in favour of something
DEPRECIATION to fall in value in a market system
APPRECIATION to rise in value in a market system
TO HEDGE AGAINST to attempt to protect oneself against future price changes
FLUCTUATIONS continuous changes in a price or value
FUTURE CONTRACT agreements to buy somezhing at a fixed price several months ahead

Purchasing power parity (PPP)
A rate of exchange calculated for two currencies so that the amount paid for a range of goods and services in both
countries is the same

FOREIGN EXCHANGE RATES
Necessary for foreign trade/economic transaction
Determined by demand and supply

A strong kuna is bad for exporters, good for importers
the increased kuna > more expensive exports > fewer sales > fewer profits
the strong kuna > cheaper import of foreign products > cheaper import of raw materials cheaper > the
production costs loweR > must reduce domestic prices > lower profits
exchange rates affect
output/inflation/foreign trade
governments try to regulate
exchange markets to improve foreign trade
EXCHANGE RATE SYSTEMS
THE GOLD STANDARD
the Bretton Woods agreement, 1944
fixed exchange rates defined terms of gold and the US dollar
currencies could only be adjusted by the IMF (devaluated/revaluated)
abandoned in 1971 (not enough gold)
FLOATING EXCHANGE RATES
determined by supply and demand
reflect a countrys balance of payments and rate of inflation
currency speculation, the value of currencies is constantly fluctuating on foreign exchange market
MANAGED EXCHANGE RATES
governments and central banks influence the level of their currencies when necessary
governments buy or sell in order to increase or decrease the value of their currencies
(use their foreign currency reserves)























BONDS
borrow money
deduct interest payment/tax
finance activities
issue shares/bonds
pay interest/dividends/tax
raise money
repay principal
sell assets/bonds
1. Which gives the highest potential return to an investor?
a) a corporate bond b) a junk bond c) a government bond
2. Which is the safest for an investor?
a) a junk bond b) a corporate bond c) a government bond
3. Bondholders are guaranteed to get:
a) nothing b) some of their money c) all their money back
if a company goes bankrupt.

CASH FLOW - the money a company receives minus the money it spends during a certain period
EQUITY - part ownership of a company in the form of stocks and shares
MUTUAL FUND -funds operated by investment companies that invest people's money in various assets
PENSION FUNDS - funds that invest money that will be paid to people after they retire from work
PRINCIPLE - the amount of capital making up a bond or other loan
MATURITY - the lenght time for which a bond is issued (until it's repaid)
COUPON - the amount of interest that a bonds pays
INSOLVENT - unable to pay debts
CREDITORS, LENDERS - people or institutions to whom money is owed
DIVIDENDS - payments by companies to their shareholders
MARKET MAKERS - businesses that buy and sell securities
BID PRICE - the price at which a buyer is prepared to buy a security at a particular time
OFFER PRICE - the price at which a seller is prepared to sell a security at a particular time
YIELD - the rate of income an investor receives from a security

CORPORATE FINANCE(sources of funds)
COMPANIES:
1. generate internal cash flows / undistributed profits
2. issue shares (equity finance) / issue bonds (debt finance)
3. borrow from financial institutions - loans from:
- commercial banks
- building societies (S&L associations)
- insurance companies


Bondholders/investors
principal = sum of money invested to earn interest (received back on a fixed maturity date)
coupon = interest payments at regular intervals (six-monthly, annually)






BONDS
lender
less risky(get their money back)
pay fixed rate of interest(regular intervals)
maturity date (principal)
tax deductible (interest payments before paying tax)
SHARES (STOCKS)
owner
uncertain investment (depends on profit)
pay dividends on a profit (may be higher return)
no maturity date
dividends paid out of already taxed profits
Government bonds
The US:
a) Treasury notes a maturity of 2 to 10 years (short-term)
b) Treasury bonds a maturity of 10 to 30 years (long-term)
The UK
Gilt-edged stock (gilts)

MARKET MAKERS
The yield of a bond (how much income it gives) depends on its purchase price and its coupon (the amount of interest
a bond pays):
Interest rates rise existing bonds lose value
Interest rates fall existing bonds increase in value

Bond investments
a) very low risk government securities / blue chip companies
b) moderate degree of risk other companies
c) very high risk - junk bonds risky companies

Types of investors
1. Institutional investors
(banks, mutual funds, pension funds, insurance companies)
2. Companies
3. Individuals
4. Government

Creditworthiness (financial health of the company)
investment grade AAA, ABB, BBB, CCC
higher rating lower interest of borrowing
price fluctuates according to interest rates

BOND RISKS
1. Financial health of the company
2. Selling prior to maturity less gains
3. Changes in interest rates
4. Inflation the principal is smaller












INSURANCE
COMMON FUND
The pooling of risk = a large number of people each pay a sum of money/premium
The risk is spread/shared between many people
If anyone suffers a loss, he/she will be compensated with money from the fund

People in insurance
the insured covered by insurance
insurer gives insurance cover
agent employed by one insurer (commission)
broker independent, works for a number of insurers
underwriter estimates the risks/premiums
loss adjuster independent person/company decides if claims are valid and how much to pay for compensation

Common insurance terms
premium monthly/yearly payment for a policy
comprehensive all-inclusive, complete protection

compensation (indemnity) money for suffering damage, loss, injury
proposal form application by a person/company requesting insurance
claim request by a policyholder for compensation under the policy
reinsurance insuring of risk by one insurance company with another

Types of insurance
General insurance
Household insurance
Motor insurance
Comprehensive insurance
Fire insurance
Insurance against burglary
Accident insurance
Life assurance/insurance

Contract
Insurance policy(contract of indemnity except for life assurance, personal accident, sickness)
Renewal notice(Invites to renew the Cover)

Application process
Proposal form request to cover risk
Premium sum of money paid each year
Policy contract
Insurance certificate motor insurance
Renewal notice

Claims process
The insurer takes risks >The insured suffers a loss/damage > The insured submits a claim >A loss adjuster estimates
the damage > Compensation - money paid for loss

Thousands of people pay premiums to insurance companies, which use the money to pay claims to people who
suffer loss or damage. A part of the money goes for running expenses. The rest of the pool of premiums can be
invested in the form of lending to industry, government, or individuals in order to earn profit. In this way insurance
companies become large institutional investors that place great sums of money in various securities .

If you want to take out an insurance policy, you can either go to an insurance company or to a broker who will help
you decide which company has the best policy for you. First you say what you want your insurance to cover. The
broker will tell you how much money or premium you will have to pay, so that you can get money back from the
insurer if an accident happens. If an accident does happen, you make a claim and if the company agrees to it, you
receive money. This is the settlement of your claim. In the case of a claim on an assured life, the beneficiary the
person who gets the money when someone dies is usually a member of the policyholders family.


























ACCOUNTING
BOOKKEEPING (to do bookkeeping)
recording of transactions
(money received credits AND money paid out - debits)

ledger- a book or computer file for recording the money paid and received
(purchase ledger/sales ledger)
journals dnavno izvjede
trial balance . probna bilanca
ACCOUNTANCY(ACCOUNTING)
checking accounts
calculating of costs and expenses
analysing financial records
preparation of financial statements and tax returns
Inland Revenue (IR) - GB
Internal Revenue Service (IRS) USA

The basic rule for accounting
keep records accurately enough to file tax returns
find tax-deductable expenses
Financial reporting
Annual reports Chairmans statement
directors report
auditors report
People involved in accounts:
bookkeepers
accountants
auditors

FINANCIAL STATEMENTS
1. PROFIT AND LOSS ACCOUNT - GB
(INCOME STATEMENT US)
earnings - income, turnover, revenue
expenses - costs, expenses, overheads
_________________________________
profit - to pay:tax, dividends, retained profit
net profit = revenue - costs

2. BALANCE SHEET
ASSETS
LIABILITIES
SHAREHOLDERS EQUITY

3. CASH FLOW STATEMENT
sources of funds (inflow)
(trading profits, depreciation
provisions, sales of assets,
borrowing, issuing of shares)
applications of funds (outflow)
(purchases of assets, payment of dividends,
repayment of loans, trading losses)




ASSETS
fixed assets
-land, buildings, machinery,
- intangible assets
(goodwill, patents, copyrights, trade marks)
current assets
- materials, finished goods, cash, debtors
LIABILITIES
current - creditors, taxes, interest
long-term - loans, bonds

OWNERS EQUITY(Shareholders equity)
Share capital (common stock)
share premium (paid-in surplus)
companys reserves (retained profit)


























































TAKEOVERS AND MERGER
GROWTH OF COMPANIES
1. invest in R&D new products
2. diversify enter new markets
3. take over other companies
4. merge with another company

take over = buy = acquire (part-ownership)

MERGERS
company too big to buy to merge = combine the twocompanies to form a single new one

TAKEOVER
a) RAID buying as many of a companys stocks on the stock market
demand increases the stock price rises
b) TAKEOVER BID public offer to buy the stocks at a certain price during a limited period of time
a) friendly bid / friendly takeover (the board agrees)
b) hostile bid / hostile takeover (the board does not agree)
INVESTMENT BANKS
large mergers / acquisitions departments
analyze the value of listed companies
earn high fees

TAKEOVERS
horizontal integration
acquiring a competitor in the same field of activity:
a) a larger market share
b) reduces competition
vertical integration
taking over a business involved in the supply chain to achieve cost savings:
a) backward integration acquiring suppliers of raw materials
b) forward integration taking over distributors or retail outlets
BUYOUTS
takeovers large conglomerates (different firms)
inefficient
undervalued on the stock market
market capitalization lower than assets
financiers corporate raiders private equity funds

RAIDERS LEVERAGED BUYOUTS
leveraged = financed by borrowed capital
issue bonds borrow money
-buy the companies
-asset-stripping (sell off the subsidiaries / assets)
-pay back the bonds
= earn profit

LEVERAGED BUYOUTS(LBOs)
Takeovers using borrowed money against the security of the shares to be bought
Leverage means having a large proportion of debt compared to equity capital
Buying companies in order to strip assets
Targets for buyouts
Companies with huge cash reserves
Companies with successful subsidiaries
Companies in fields not sensitive to a recession (food/tobacco)
A company that wants to grow or diversify can launch a raid, simply buy a large quantity of another companys
shares on the stock exchange. This will immediately increase the share price, and may persuade other shareholders
to sell for the raider to take control of the company. It is also possible to make a takeover bid: a public offer to a
companys shareholders to buy their shares. A friendly takeover has the consent of the board of the company whose
shares are being acquired. A hostile takeover bid is against the wishes of the board of directors. A company can
attempt to find a white knight another buyer whom they prefer.

To expand into new fields. diversification
Buying another companys shares on the stock exchange, hoping to persuade enough other shareholders to sell to
take control of the company. To raid
A public offer to a companys shareholders to buy their shares at a particular price during a particular period.
Takeover bid
To merge or take over other firms producing the same type of goods or services. horizontal
A merger with or the acquisition of ones suppliers. Backward vertical
Joining with firms in other stages of the production or sale of a product. vertical
A merger with or the acquisition of ones marketing outlets. Forward vertical
A large organisation formed by joining together a group of companies with different business activities.
conglomerates
Takeovers using borrowed money. lbos
Selling off the assets of poorly performing or under-valued companies. Asset stripping
Bonds that are considered to be risky but which pay a high rate of interest. Junk funds