Unit 5

Finance and Banking

Commercial Banks
Commercial banks provide a vast range of services to the general public and are usually the
best-known banks in the country. Examples include Barclay’s in the UK, Citibank in the USA
and Commerzbank in Germany.
Services include payments, savings, deposits, investments, foreign exchange transactions and
credit facilities.
They offer customers current (BE) or checking (AE) accounts with credit transfer facilities
for transferring funds from one account to another. The employer pays the salary of its
employees into their current account and they can withdraw money to pay their everyday
bills. Every month the customers receive a bank statement showing their transactions and the
final balance. They can withdraw money at a cash point/cash machine (AmE ATM) and also
arrange an overdraft (a temporary negative balance) for a small fee. If they have a negative
balance, they are in the red (as opposed to in the black or in credit). Nobody likes being in
debt/ getting into debt and most people try to clear their overdraft as soon as possible.
Commercial banks also engage in standing order (where a bank customer instructs his/her
bank to make payments to a payee for fixed amounts such as hire purchase instalments or
rent) and direct debit (where a bank customer authorizes a payee to withdraw money from the
customer’s account, normally used for transactions such as a telephone bill where the amount
paid varies from month to month). Another service includes issuing traveler’s cheques and
foreign exchange.
Commercial banks also provide night safe (for lodging cash, cheques, etc. outside banking
hours) and strongroom facilities for storing valuables.
They also offer a range of credit cards (which give customers free credit for a period on
purchases, but unless the account is cleared by the due date, high interest charges must be
paid on the outstanding balance). Examples include Visa or Mastercard. Buying with plastic is
very convenient, but paying off what one has spent each month is important, so they do not
have to pay the high interest rates (higher than for overdrafts).
Examples of cards and their functions include:
- cheque card = guaranteeing payment of a cheque to a prearranged limit
- cash card = ATM withdrawals and bank statement printouts
 - debit card = used for purchases, e.g. in a store, where the amount is automatically
taken from the holder’s account
Usually all these functions are performed by one card which is often reffered to as a bank
card.
These banks can also provide cheques, which are unconditional orders in writing, drawn by a
person on a drawee (bank or financial institution), signed by the drawer (person who writes or
issues the cheque) requiring the bank or financial institution to pay on demand a certain sum
in money to a payee (specified person or bearer). A bank will honour, i.e. pay a cheque if the
account has sufficient funds and if the cheque is drawn correctly.
An open cheque can be cashed, but a crossed cheque, which has two parallel lines drawn
across its face, must be lodged onto the payee’s account.
Savings, deposits, investments services of commercial banks include:
- providing savings and deposit account facilities for customers, for keeping money
longer term. The account pays interest, but not very much, especially after tax.
- offering insurance and stockbroking facilities for the buying and selling of securities
- engaging in leasing, e.g. with large car dealers
- advising customers on income tax
- providing advice for retail (private) and corporate customers relating to investment,
financial planning, etc.
An important function of a bank is granting credits in the form of bank overdrafts, loans or
mortgages (also known as home and property loans). By lending money, banks support
economic activities by enabling consumers to make significant purchases and businesses to
invest in growth opportunities.
A bank client may need to take out/get a loan from the bank. The bank charges interest on the
loan and the borrower pays interest on the loan. The interest rate is usually given as an APR
(annual percentage rate) which shows the overall cost of credit including bank charges as well
as interest. The loan is repaid in monthly instalments. The borrower will usually be asked to
provide security (collateral AE) which must be normally more valuable than the loan, stable
in value, liquid and easily realisable, (easy for the bank to establish title to, i.e. possess or take
control of).
Technology has transformed the way commercial banks operate, offering enhanced services
and efficiency. Key technological advancements include online and mobile banking, that
allows customers to conduct banking transactions from their computers or mobile devices,
providing convenience and 24/7 access to banking services. Automated Teller Machines
(ATMs) also provide customers with easy access to cash withdrawals, deposits, and other
banking services without visiting a branch. Technologies such as contactless payments,
mobile wallets, and online payment gateways have revolutionized how transactions are
conducted, making them faster and more secure.
Merchant Banks (Investment Banks AE)
Merchant banks provide banking and financial services for the corporate customer with a very
limited branch network. Examples include Internationale Handelsbank AG in Germany and
Rothschild’s in London. They provide specialized services that facilitate the functioning of
capital markets, corporate finance, and international trade.
The main functions of merchant banks are:
- to provide bridging finance and international loans
- involvement in mergers, takeover bids and rationalization of companies
- to manage investment portfolios on behalf of large investors
- to engage in leasing and factoring i.e. the sale of a company’s debts (accounts
receivable) to a factoring firm (factor) which accepts the responsibility of debt
collection and credit risk
- to provide advice and underwriting facilities for companies wishing to go public
- to offer expert service in transactions in foreign exchange
Investment banks assist companies in raising capital by underwriting and issuing securities.
This process involves buying securities from the issuing company and selling them to
investors.
They also offer advisory services for mergers, acquisitions, and other corporate restructuring
activities. They help companies identify potential targets, negotiate terms, and structure deals
to optimize financial outcomes.
Investment banks offer asset management services, managing investment portfolios on behalf
of institutional and retail clients. This includes managing mutual funds, pension funds, and
hedge funds, aiming to achieve specific investment objectives. They conduct extensive
research and analysis on markets, industries, and individual companies and produce research
reports that provide valuable insights and recommendations for investors. This research
supports the bank’s trading activities and provides clients with informed investment advice.
Central Banks
The aim of a Central Bank is to safeguard the integrity of the national currency. Famous
examples are the Federal Reserve (Fed) in the USA and the Bank of England in Europe.
They are responsible for implementing monetary policy, regulating financial institutions, and
ensuring economic stability.
The concept of central banking dates back to the 17th century, with the establishment of the
world’s first central bank, the Sveriges Riksbank in Sweden in 1668. However, the Bank of
England, founded in 1694, is often credited with pioneering many functions of modern central
banking. Central banks evolved significantly over the centuries, particularly during the 20th
century, as their roles expanded in response to economic crises and changing economic
theories.
Member states of the EU are involved in the European System of Central Banks (ESCB),
which is composed of the European Central Bank (ECB) based in Frankfurt and the
National Central Banks (NCBs) of all the member states. The Eurosystem is the term used to
describe those states which have agreed to adopt the euro - those that have not adopted the
euro have a special status, being allowed to conduct their respective national monetary
policies, but are not allowed to participate in the decision-making process regarding single
monetary policy for the euro zone.
A major difference to the USA is that the Federal Reserve deals with only one government,
while the ECB is faced with a variety of national governments that all have their own fiscal
policies, not to mention different cultures, languages and traditions. EU participation
countries have agreed on a stability and growth pact that aims to keep fiscal policies in line.
The standard functions of central banks are the following:
- lender of last resort - the Central Bank is ready to lend to banks and other financial
institutions in serious financial difficulties, especially when they are so big that their
failure would have a devastating effect on the economy.
- banker to the government - in many countries the Central Bank is responsible for
implementing the government’s monetary policy and keeping inflation under control
through: open market operations (activities such as the buying and selling of
government securities undertaken to influence the money supply), adjusting the
quantity of new notes being put into circulation, imposing reserve requirements
(where financial institutions have to keep a certain percentage of their liquid assets and
also hold cash balances with the Central Bank), setting the discount rate (the
percentage rate originally used to discount bills of exchange but nowadays used more
to decrease or increase interest rates) as appropriate, administering the national debt
- sole right to issue notes and mint coins - they control the production and distribution
of notes and coins, ensuring an adequate supply of currency for the economy.
 - responsible for exchange controls, i.e. restricting the availability of certain foreign
currencies to importers
- supervision of the financial institutions
The government collects money from citizens through taxes. Income tax is the tax collected
on wages and salaries. Inheritance tax is collected on what people inherit from others.
Customs or excise duties have to be paid on goods imported from other countries. VAT or
value added tax is a tax paid on most goods and services when they are bought or purchased.
Companies pay corporation tax on their profits. If somebody pays too much tax, he/she
should be given some money back, a tax rebate.
The government also sometimes pays out money to people in need, e.g. unemployment
benefit (also known informally as the dole) disability allowances and student grants.
Every country has its own special currency. Every day the rates of exchange are published
and you can discover, for example, how many dollars there are currently to the pound sterling.
A company may sell shares to members of the public who are then said to have invested in
that company. They should be paid a regular dividend on their investment, depending on the
profit or loss made by the company.

1. Answer the following questions:

1. What are the main services offered by commercial banks?

2. Name three well-known commercial banks in different countries.
3. What types of accounts do commercial banks offer for salary deposits and daily
transactions?
4. How do customers receive information about their transactions and final balance from their
bank?
5. What is an overdraft and how is it typically used by customers?
6. Explain the difference between being in the red and in the black in banking terms.
7. What is the difference between a standing order and a direct debit?
8. What are night safe facilities used for in commercial banks?
9. What is the purpose of a cheque card?
10. How is a cash card typically used by bank customers?
11. What is the difference between an open cheque and a crossed cheque?
12. What services related to savings and investments do commercial banks offer?
13. What is the difference between a loan and a mortgage?
14. What kind of security might a bank require for a loan?
15. How has technology changed the services provided by commercial banks?
16. What distinguishes merchant banks from commercial banks?
17. What are some services provided by merchant banks?
18. How do investment banks assist companies in raising capital?
19. What types of advisory services do investment banks offer?
20. What are the main functions of a central bank?
21. Name two famous central banks and their respective countries.
22. What is the European System of Central Banks (ESCB)?
23. How does the Federal Reserve in the USA differ from the European Central Bank?
24. What is the role of the central bank as a lender of last resort?
25. How does a central bank act as a banker to the government?
26. What types of taxes do governments collect?
27. What is VAT and how is it applied to goods and services?
28. What is a tax rebate?
29. Describe different types of government benefits provided to people in need.
30. What is a dividend and how is it determined?

2. Are the following statements about banking true or false (Explain your reasoning):

1. One refers to the local agency of a high-street bank.

2. Americans refer to current accounts as check accounts.
3. A joint account is held by more than one person.
4. If you put 10,000 euro into a new account and spend 11,000 euro, you have an
overdraft of 1,000 euro and you are in the red.
5. An account for saving money is called a safe account.
6. An account that pays a lot of interest has a high interest rate.
7. Current accounts pay more interest than savings accounts.
8. Traveller’s cheques are safer for tourists than carrying foreign currency.
9. If you pay for something with a credit card, you can say informally, that you use
plastic to pay for it.
10. Mortgage is a loan to buy property.
11. A savings account is an account that cheques are drawn on for day-to-day use.
 12. Barclay’s in the UK, Citibank in the USA, and Commerzbank in Germany are
examples of commercial banks.
13. Commercial banks only offer payments and savings services.
14. Employers pay the salaries of their employees into their savings accounts.
15. An overdraft is a temporary negative balance that can be arranged for a small fee.
16. Being in the red means having a positive balance.
17. Standing orders involve fixed payments instructed by the bank customer.
18. Direct debit allows a payee to withdraw varying amounts from the customer’s account.
19. Visa and Mastercard are examples of credit cards.
20. An open cheque cannot be cashed.
21. A crossed cheque must be lodged into the payee’s account.
22. Savings accounts pay very high interest rates.
23. Banks grant credits in the form of bank overdrafts, loans, or mortgages.
24. The interest rate for loans is given as an APR (annual percentage rate).
25. Borrowers usually provide security (collateral) which is more valuable than the loan.
26. Merchant banks do not provide services related to mergers or international loans.
27. Investment banks assist companies in raising capital by underwriting and issuing
securities.
28. Merchant banks are involved in mergers, takeovers, and company rationalizations.
29. Investment banks manage mutual funds, pension funds, and hedge funds.
30. The concept of central banking started in the 20th century.
31. The Bank of England was founded in 1694.
32. The Eurosystem describes states that have adopted the euro.
33. The Federal Reserve deals with only one government, while the ECB deals with
multiple governments.
34. Central banks act as a lender of last resort to financial institutions.
35. Central banks do not issue notes and mint coins.
36. Income tax is collected on wages and salaries by the government.
37. VAT is a tax paid on most goods and services when they are bought.

3. Match the following terms with the correct definitions:

1. current account
2. overdraft
3. deposit account
4. cash dispenser
5. credit card
6. subsidiary
7. mortgage
8. collateral
9. internet banking
10. standing order
11. share price
12. stock market index
13. turnover
14. portfolio
15. bull market
16. panic selling
17. bear market

A. The total value of shares bought and sold in a given period.

B. An arrangement with a bank which pays the customer’s regular bills charging them to
his/her account.
C. A measure that represents the overall value of shares traded on a stock market.
D. A set of shares and bonds or other securities owned by a bank’s customer
E. An agreement allowing account holders to spend more money than they have in their
account, up to a certain limit.
F. Conducting banking transactions online, using the internet.
G. An automatic cash machine from which the customer can withdraw cash at any time
using a cash card.
H. A savings account for keeping money for the longer term, which pays interest.
I. A type of bank account for everyday transactions and payments.
J. A market condition characterized by falling share prices and pessimism.
K. The price at which a company’s shares are currently trading on the stock market.
L. A company that is partly or wholly owned by another one.
M. A market condition characterized by rising share prices and optimism.
N. A guarantee for a loan.
O. A financial card that allows users to make purchases on credit.
 P. A loan used to buy a house or property.
Q. A situation where investors rapidly sell their shares, causing a sharp decline in prices.

4. Choose the correct word:

1. Customers not paying on time often leads to ................... problems.

a) cashflow b) equity c) asset
2. Our state-of-the art machinery is our major .....................
a) possession b) asset c) equity
3. The ................. rate on the loan was 12%.
a) fee b) charge c) interest
4. They could not pay their debts and faced .......................
a) bankruptcy b) warranty c) overpayment
5. Burbank has gone into .................. with debts of about £50 million.
a) indemnity b) investment c) administration
6. The finance a company raises from issuing shares rather than taking out loans is known
as .................... capital.
a) equity b) dividend c) stock
7. The ..................... is the original amount of a loan not including any interest charged.
a) instalment b) principal c) subsidy
8. A/ An ................... is a particular type of loan for the purchase of property.
a) credit b) overdraft c) mortgage
9. If a company defaults on a loan, it means they miss a/an ............................
a) budget b) instalment c) collateral
10. Money lent to start-up businesses is known as risk or ..................... capital.
a) share b) venture c) working

5. The history of money. Fill in the following words in the text:

paper money - spices - currency - shells - value - euros - berries - metal pieces - trade
in kind - mark - animals - banknotes - pearls - coins - cocoa beans
 In the Stone Age, people did not know anything about money. They got what they
needed to live from nature. They either collected _____________ in the forest or they killed
____________ to eat the meat. At the same time, they used the animal’s fur for a coat. Over
time, people discovered that they could divide the work among themselves. Some were good
at picking berries, others were skilled at hunting animals. And others could make warm coats
from the animal’s fur. So people began to trade what they had collected, hunted or made with
each other. Such an exchange is called ________________. This could be quite complicated,
namely when the farmer needed a fur from the hunter who did not need grain. Then the
farmer had to keep looking until he found someone who wanted his grain. This could take a
while, and the farmer had to be careful that his grain did not go bad. He also had to carry it
around with him at all times or store it for a long time. So people thought about something
that was more durable than previous barter goods and easier to transport. People paid with
_____________ and ______________. And there was another problem. How much grain did
the farmer have to give up to get a nice bear skin from the hunter? People asked about the
______________ of the barter goods and looked for something that was equally valuable to
everyone. So they invented primitive money. Most of the time this money consisted of things
- such as mussels, beautiful snail shells, feathers, pearls - or long-lasting foodstuffs such as
_____________ or ______________. Everyone found these things or foodstuffs valuable
because they were particularly beautiful or particularly rare. If the farmer needed a new skin,
he could trade his grain for mussels. And he could trade the mussels for the hunter’s skin.
Because people in different countries found different things valuable, there were different
forms and types of this primitive money in the world. A little later, people started paying with
_______________. Pieces of gold bars, copper wire or silver pieces were chopped off and
weighed. This form of money is therefore also called hack money or weighing money.
The first ______________ made of silver and gold appeared around 2,700 years ago in the
Kingdom of Lydia in what is now Turkey. The rule was: the heavier the coin, the higher its
value. The king in this region was called Croesus. He was said to have been very rich and
many people liked his coin money, which quickly spread throughout the world. As carrying
coins around was cumbersome, the Chinese developed the ______________ around a
thousand years ago. When too many were put into circulation, it lost value and was abolished
again. People still trusted the value of copper, gold and silver. They therefore looked for a
solution that could avoid the cumbersome carrying of these pieces of metal. And so the first
_______________ were produced in Sweden after 1660. Banks issued banknotes in exchange
for the heavy copper plates that their customers deposited with them. These banknotes were
actually storage certificates for copper plates, a type of receipt. If necessary, the banknote
could be exchanged for the copper plate again.
In the Federal Republic of Germany, cash, i.e. coins and notes, were called Deutsche
_____________ for about 50 years. At that time, every European country had its own
_______________. In the past, anyone who went on holiday to Italy had to first exchange the
German money for Italian lire. This is no longer necessary today. Since January 1, 2002, most
European countries have been paying with _____________.

6. Underline the correct words:

1. Another word for ‚revenue’ is profit / turnover.

2. Another word for ‚profit’ is earnings / dividends.
3. The word that means ‚total before things are taken away’ is brute / gross.
4. The word that means ‚total after things are taken away’ is liquid / net.
5. ‚Assets’ are everything that the company owes / owns.
6. ‚Liabilities’ are everything that the company owes / owns.
7. Money owed by the company to suppliers is called accounts payable / accounts
receivable.
8. To keep the business running, pay its bills, etc. a company needs daily capital /
working capital.

7. Rearrange the letters to make words and phrases from an income statement. Use the
definitions in brackets to help you.

1. cost of doogs losd (direct cost of making the products eg materials costs)
___________
2. opatering costs (general costs eg utilities, marketing) ___________________
3. renevue (turnover; money from sales) ____________________
4. ssrog prifot (profit before other things are taken away) ___________________
5. oteparing prifot (profit from the business activities of the company)
________________
6. ten prifot after axt (profit that remains after all costs and taxes are taken away)
_________________
7. divendids (money paid to the shareholders) _______________
 8. decperiation (loss in value of machinery, vehicles, etc) ________________
9. axt (money paid to the government) ___________________
10. renaited prifot (profit that remains, after dividends have been paid, that can be
reinvested in the company) _________________

8. Put the correct word in each space:

account - back - banknotes – borrowed - change - coin - currency – earn - lent - note -
salary – spend - sum - wages - waste - win

1. In the USA, "quarters" (25 cents) and "dimes" (10 cents) are types of _______________.
2. In the United Kingdom, "a tenner" means a ten pound _______________.
3. The US dollar, the Yen and the Euro are types of _______________.
4. Hundred dollar bills and twenty pound notes are _______________.
5. 2,000,000 Swiss francs is a large _______________ of money.
6. I need to _______________ some Euros into Australian dollars.
7. My friend _______________ a hundred pounds from me.
8. I _______________ a hundred pounds to my friend. When she can, she'll pay me
_______________
9. I buy a lottery ticket every week, but I never _______________ anything.
10. Most dentists _______________ at least £30,000 a year.
11. __________ are paid to employees weekly. _______________ are paid to employees
monthly.
12. In business, you have to _______________ money to make money.
13. A: Do you have a bank _______________?
B: Yes. I bank with the Bank of Scotland.
14. In my opinion, eating in expensive restaurants is a _______________ of money.

9. Match the words on the left with the words on the right:

1. a small a. a profit
2. an income b. amount of money
3. donate c. cash
4. high d. cost of living
5. make e. credit card
6. pay by f. losers
7. pay in g. money to charity
8. winners and h. of £25,000 a year

10. Choose the correct word:

1. Spain now uses the euro. Pesetas are no longer ____________.

a. good money b. legal money c. legal tender
2. I bought a TV which doesn't work. I’ll take it back to the shop to get ___________.
a. my money returned b. a refund c. a repayment
3. In a shop, to get a refund, you usually have to show the ___________.
a. receipt b. recipe c. payment ticket
4. I'm paying for my new car in 36 monthly __________.
a. instalments b. pieces c. parts
5. I earn a lot of money, but I have a lot of _________.
a. payouts b. expenses c. paying
6. Famous paintings are usually sold by __________.
a. bid b. highest price c. auction
7. In an auction, the item is sold to the person who makes the highest __________.
a. bid b. price c. offer
8. In Japan, the US dollar is __________ .
a. foreign money b. strange money c. a foreign currency
9. In Britain, it’s not usual to discuss your personal __________
a. money b. finances c. money arrangements
10. You can _________ a house and __________ a car.
a. hire / rent b. hire / hire c. rent / rent or hire
11. Here’s the fifty dollars I __________.
a. owe you b. pay you back c. must return
12. The best things in life are __________.
a. free b. not for sale c. not bought and sold

11. Match the method of payment with the definition:

1. Credit card
2. Debit card
3. Charge card
4. Cheque
5. Traveller’s cheque
6. Charge account

a. A piece of paper which transfers money from your account to somebody else’s account.
b. Similar to a credit card, but usually operated by a chain of shops or other retailer.
c. The money is deducted from your bank account almost immediately.
d. These can be exchanged for foreign currency, or in some cases used instead of cash.
e. You owe the card provider money. You can pay it back in one instalment, or over a longer
period if you wish.
f. You owe the retailer money

12. Match the formal phrases on the left with the informal phrases on the right:

1. I deposited some money. a. The money’s been sent.

2. I withdrew some money. b. I paid in some money.
3. The funds have been transferred. c. It goes out of my account every month.
4. My account is overdrawn. d. I went to a cashpoint.
5. It's paid by standing order. e. I took out some money.
6. My account was debited. f. I’m in the red.
7. My account was credited. g. I checked my balance.
8. I used an ATM. h. It went into my account.
9. I made a balance enquiry. i. It went out of my account

13. Choose the right answer:

1. A ____________________ bank account is one that you share with another person.
a. joined b. together c. joint
2. This investment will yield a higher ___________________. ( = you will make more
money with this investment)
a. return b. cash c satisfaction
3. In banking terms, someone's portfolio is a collection of their ___________________.
 a. investments b. investors c. graphic design projects
4. Proponents of diversification believe that you shouldn't put all your eggs
___________________.
a. in one basket b. in one bag c. in one backpack
5. Last July’s crisis sent financial markets into a ___________________. ( = they went
down considerably)
a. tailspin b. conundrum c. crisis
6. He took a ___________________ ( = agreed to earn less money) to work here.
a. pay cut b. salary increase c. payback
7. In finance, a "writedown" refers to the process of reducing the book value of an asset
because it is ___________________ ( = worth too much) compared to the market
value.
a. overvalued b. undervalued c. valued
8. That bank did better than was expected last year because it took risks that it didn't
fully ___________________ ( = let people know about).
a. discuss b. close c. disclose
9. Banks usually ___________________ higher rates on long-term loans.
a. in charge b. charge c. provide
10. Great news! Our bank is now ___________________ higher rates on certain savings
and checking accounts.
a. charging b. offering c. practicing

14. Fill in the following terms:

open - standing order - exchange office - in the red - counter - amount - rate -
account statement - interest - account number - invoice - exchange rate

a. There is currently little ______________ for savings accounts.

b. I would like to _______________ a checking account.
c. If you could please give me your ________________ and bank code again, I will
make sure that the _________________ is transferred to you today.
d. The ATM isn’t working. I need to withdraw money at the bank’s ________________.
e. I will have the __________________ sent to me.
f. After the holidays my account is usually _____________ .
g. I have a ______________________ for the rent.
 h. I must change some currency, do you know what the ______________ is right now?
i. I would not change the currency the airport _______________, there the ___________
is always very bad.
j. Do you want the _________________ in large or small denominations?

increase - credit - installment - deposit - refund - additional payment – pay in - change

- pay out - safe - overdrawn

a. My account is _______________ quite a bit this month. I had a high

___________________ for the heating and then the washing machine broke down.
b. Interest rates for _____________________ are currently low, but they will
_____________________ again.
c. The first _________________ for the loan is due.
d. The bonus will be ___________________ at the end of the year.
e. The securities are in the bank’s ________________.
f. If my salary is __________________, my account is no longer in debit.
g. I would like to make a ______________ on my checking account.
h. Our secretary will _____________ your expenses.
i. Here you can ________________ euros into British pounds at the daily rate with no
extra charges.

15. Choose the correct words to complete each definition:

1. Being in the red/black means you are in credit.

2. A loan/grant is money which doesn’t need to be repaid.
3. A creditor/debtor owes money.
4. An interest/A dividend payment is part of a profit paid to shareholders.
5. Assets/liabilities are the total amounts of money owed by a business.
6. An overdraft/A return is the amount of profit made on an investment.
7. To go into liquidation/debt is when a company stops operating because of financial
difficulties.
8. A deposit/collateral is security for a loan in the form of assets which could be sold if
the debt is unpaid.
 16. What are the advantages and disadvantages for a private individual of borrowing
money from these sources?
a. a bank
b. a friend or colleague
c. a loan shark
d. a member of your family
e. a pawnbroker
f. a credit-card company

17. Fill in the blanks with suitable words or phrases:

ceilings - central bank - clients’ - demand - destroying - employment -
implementation - interest - lender of last resort - open market - output - printing
- interest - reserve - runs - scarce - spend - supervision - supply

The Bank of England is a _____________ . One of the functions of such banks is the
___________ of monetary policy. This includes setting of ___________ rates, ___________
and floors, in other words establishing maximum and minimum lending rates. It controls the
credit system and money ____________ and thereby exerts an influence on decisions to
_____________, as well as on such variables as ____________ and ____________, because
if money is tight people buy less and consequently factories diminish their productive
activities. This influences the level of ___________, because when production falls the
number of staff decreases, too. The money supply is also influenced by the Bank of England
by setting ___________ requirements to commercial banks, that is the latter have the
obligation of keeping a certain percent of their liquidity with the Central Bank at zero
__________ . If the percentage required to be deposited with the Central Bank increases
money becomes ____________ on the capital market.
The _____________ of the commercial banks by the central bank signifies that the latter
checks that the former have enough liquidity at any time to meet their ___________ demands
for withdrawals and in this way panic among depositors and bank ___________ can be
avoided.
Controlling the amount of money in circulation involves ___________ and ___________
banknotes or coins. In case a commercial bank faces bankruptcy the central bank will act as
___________, thereby depositors might be able to get their money out.
Buying and selling government bonds from and to commercial banks means performing
__________ operations.

18. Colour idioms. Fill in the sentences with the correct colour.

a. I must be on some kind of __________ list because I have a lot of difficulty getting
credit.
b. After years of losses, the company finally reported that it is now in the __________.
c. We are waiting for the ___________ light from head office to launch the new product.
d. The CEO received a __________ handshake when he retired after 30 years with the
company.
e. Getting the necessary permits took forever due to all the ________ tape.
f. Local residents protested when they heard a factory was going to be built in a
________ belt area.
g. The company had been in the __________ for several years before they finally had to
declare bankruptcy.
h. Among the _________ goods, washing machines are our best sellers.
i. That is a bit of a _________ area. It’s difficult to say who exactly has responsibility
for recruitment.
j. We lose millions in tax revenue every year because of the _________ economy.
k. Investing in _________ chip stocks is generally considered safe and profitable.
l. They are looking for a __________ knight to help them fight the hostile takeover bid.
m. Then, out of the ___________, she offered me a job managing her new restaurant.
n. We have to roll out the __________ carpet for him as he is one of our most important
customers.
o. Every family has a ________ sheep, and in this company, it’s Joe with his
unconventional ideas.
p. With her ________ thumb, she transformed the company’s rooftop into a beautiful
garden.
q. Embezzlement, computer fraud and insider dealing are examples of ___________
collar crime.
r. To avoid hurting his feelings, she told him a ________ lie about his performance.
s. Mentioning the competitor’s failed project was a ________ herring to distract from
our issues.
t. ________ collar workers often have hands-on jobs, unlike their office-based
counterparts.
u. Landing the new client was a _________ opportunity for the struggling sales team.
v. Investing in ________ energy projects is both environmentally friendly and cost-
effective.

19. Match the economic terms to the respective descriptions:

1. recession
2. inflation
3. deflation
4. gross domestic product (GDP)
5. economic cycle
6. economic growth
7. unemployment rate
8. deficit
9. excess
10. demand
11. offer
12. stagflation
13. investments
14. fiscal policy

a. The total amount of goods and services produced within a country.

b. The decline in economic activity and growth over a prolonged period of time.
c. The rate of price increases for goods and services.
d. The difference between a country’s income and expenditure.
e. The quantity of goods and services that can be purchased by consumers at a given
price.
f. The increase in economic activity and economic growth over a longer period of time.
g. The totality of public policies to control the money supply and the interest rate.
h. The rate of unemployment in a particular country or region.
i. A lack of money and credit that leads to falling prices and declining economic activity.
j. The total quantity of goods and services offered by producers.
 k. The simultaneous existence of inflation and recession.
l. The funds invested in the purchase of fixed assets such as real estate or stocks.
m. The difference between a company’s income and expenses.
n. The increase in the money supply and credit by the central bank to promote economic
growth.

20. For each set of words, identify the word that does not belong in the context:

1. a) current account b) savings account c) credit card d) bill payments

2. a) overdraft b) deposit account c) interest d) cheques
3. a) credit card b) blue chips c) mortgage d) plastic
4. a) FTSE b) DAX c) Nikkei d) bull market
5. a) turnover b) panic selling c) spectacular gains d) psychological barrier
6. a) bill payments b) Internet banking c) bear market d) mortgage
7. a) credit card companies b) Internet banking c) Dow Jones Industrial Average
d) building society
8. a) panic selling b) blue chips c) credit card d) Internet banking
9. a) mortgage b) overdraft facility c) credit crunch d) Internet
banking
10. a) bearish b) positive c) spectacular gains d) bullish

21. Choose the right answer:

1. When someone spends more money than is in his/her current account, what does (s)he
go into?
a. green b. black c. red d. yellow
2. What is an overdraft facility?
a. a loan from a friend b. an agreement with the bank c. a credit card
d. a savings account
3. What happens if your account goes overdrawn?
a. you earn interest b. you receive a bonus c. charges are taken from the
account d. you get a credit limit increase
4. What type of account does one have for longer-term savings?
a. current account b. credit card account c. savings account
d. mortgage account
 5. What type of bank does one have a mortgage with?
a. building society b. commercial bank c. investment bank d. credit
union
6. What type of account do commercial banks offer for salary deposits and daily
transactions?
a. savings account b. investment account c. current (BE) or checking (AE)
account
d. fixed deposit account
7. How often do customers receive a bank statement from their commercial bank?
a. weekly b. monthly c. quarterly d. annually
8. What is a standing order used for?
a. one-time payments b. fixed amount payments at regular intervals c.
payments that vary month to month d. foreign exchange transactions
9. What is a direct debit typically used for?
a. one-time payments b. fixed amount payments c. variable amount
payments such as utility bills d. ATM withdrawals
10. What facility allows for lodging cash and cheques outside banking hours?
a. ATM b. night safe c. strongroom d. safe deposit box
11. Which type of card is used for ATM withdrawals and bank statement printouts?
a. credit card b. cheque card c. cash card d. debit card
12. Which type of cheque can be cashed directly?
a. crossed cheque b. open cheque c. post-dated cheque d. bearer cheque
13. What type of account is used for keeping money longer term and pays interest?
a. current account b. savings and deposit account c. checking account d.
overdraft account
14. What is the purpose of APR in the context of loans?
a. to show the interest rate only b. to show the overall cost of credit including bank
charges and interest c. to show the loan duration d. to show the collateral
required
15. What must a borrower usually provide to secure a loan?
a. guarantee b. collateral c. insurance d. letter of credit
16. What is a primary function of merchant banks?
a. providing savings accounts b. facilitating capital markets c. issuing credit
cards d. conducting foreign exchange transactions
 17. What service do merchant banks offer related to mergers and acquisitions?
a. tax advice b. investment advice c. advisory services d. loan
applications
18. How do investment banks help companies in raising capital?
a. by opening savings accounts b. by underwriting and issuing securities c.
by providing direct debits d. by offering night safe facilities
19. What is the main goal of a central bank?
a. to open accounts for customers b. to safeguard the integrity of the national currency
c. to provide credit cards d. to issue traveler's cheques
20. Which central bank is based in the USA?
a. Bank of England b. European Central Bank c. Federal Reserve d.
Barclays
21. What historical significance does the Sveriges Riksbank hold?
a. first central bank in the world b. first commercial bank c. first investment bank
d. first merchant bank
22. What is the Eurosystem composed of?
a. European Central Bank and National Central Banks of euro-adopting states
b. Federal Reserve and National Banks of the USA
c. Bank of England and European Banks
d. merchant banks and investment banks
23. What is a major difference between the Federal Reserve and the ECB?
a. the Federal Reserve deals with multiple governments
b. the ECB deals with one government
c. the ECB deals with multiple national governments
d. the Federal Reserve issues credit cards
24. Which role does a central bank play in financial crises?
a. lender of last resort b. issuer of credit cards c. provider of stockbroking services
d. offering night safe facilities
25. What function does the central bank serve for the government?
a. issuing cheques b. banker to the government c. providing savings accounts
d. offering credit card services
26. Which tax is collected on wages and salaries?
a. inheritance tax b. customs duty c. income tax d. VAT
27. What is VAT?
 a. tax on inheritances b. tax on imported goods c. tax on most goods and
services when bought d. tax on company profits
28. What financial support does the government provide to students?
a. inheritance tax b. grants c. customs duties d. VAT rebates
29. What do companies issue to members of the public for investment?
a. cheques b. shares c. bonds d. credit cards
30. What do investors receive based on the company’s profit or loss?
a. dividends b. interest c. savings d. loans
31. Which type of financial institution helps companies in raising capital?
a. central banks b. commercial banks c. investment banks d. merchant
banks
32. Which financial institution is responsible for setting the discount rate?
a. commercial banks b. central banks c. merchant banks d. investment banks
33. What is the function of open market operations conducted by central banks?
a. providing foreign exchange b. influencing the money supply c. issuing
traveller’s cheques d. offering current accounts
34. Which term describes the fee paid for borrowing money from a bank?
a. APR b. overdraft fee c. interest d. collateral
35. Which term does not fit into the series?
a. check b. bank statement c. credit card d. bill of exchange
36. What is meant by “cost of living”?
a. the tax to be paid on individual consumer goods
b. the average expenditure on typical goods and services of a person or household in a given
period
c. the costs incurred by the state by the entire population
d. the money necessary for the minimum subsistence level
37. Which of the following countries is not a Eurozone country?
a. Greece b. Luxembourg c. Great Britain d. Italy
38. What can be seen on the front of the euro banknotes?
a. bridges b. countries c. windows or gates d. map of Europe
39. What does IBAN mean?
a. International Bank Account Number b. Identification Bank Assets Number c.
Illegal Bank Authorization Number d. Real Estate Bank Recognition Number
40. When and where did the first coins appear as a means of payment?
 a. in the 8th century BC in Egypt b. in the 7th century BC in Lycia c. in
the 6th century BC in Cilicia d. in the 5th century on Crete
41. Which European country was the first to declare banknotes legal tender?
a. Germany b. Switzerland c. France d. Great Britain
42. ‘Peconia non olet’ means:
a. Money doesn’t buy happiness. b. Money is everything. c. Money doesn’t
stink. d. The money is in the petunias.

Vocabulary

accounts payable = cont creditor

accounts receivable = cont debitor
annual percentage rate (APR) = dobânda anuală efectivă
asset = activ (al unei companii)
balance = soldul (contului), balanța (contului)
bank charge = taxă bancară
bank statement = extras de cont
bankruptcy = faliment, ruină
bill = factură, notă de plată, bancnotă
branch = sucursală, filială
cashflow = fluxul de numerar
cash point = bancomat, ghișeu
commercial bank = bancă comercială
corporation tax = impozitul pe profit
crossed cheque = cec barat
currency = monedă, valută
current account = cont curent
customs duty = taxă vamală
debt = datorie, creanță
direct debit = debitare directă
dividend = dividend
drawee = tras, persoană asupra căreia se trage o poliță, un cec
drawer = emițător (de cecuri)
equity = capital propriu
excise duty = taxă de accize
grant = bursă
hedge funds = fonduri de investiții, fonduri speculative
income tax = impozit pe venit
inheritance tax = impozit pe succesiune
instalment = rată, transă
joint account = cont comun
liability = pasiv (al unei companii), obligație
merchant bank = bancă de investiții
merger = fuziune
mortgage = ipotecă, credit ipotecar
mutual funds = fonduri mutuale
night safe = seif de noapte, casă de bani
open cheque = cec simplu
overdraft = descoperit de cont
payee = beneficiar
principal = capital social
purchase = achiziție, cumpărare
rebate = reducere (a impozitului)
refund = rambursare, restituire
savings = economii
savings account = cont de economii
security = titlu de valoare
share = acțiune
standing order = ordin de plată
subsidiary = sucursală, filială
(to) swap = a transfera, a schimba
takeover bid = ofertă publică de preluare (a unei companii)
tax = impozit, taxă
turnover = cifră de afaceri
unemployment benefit = ajutor de șomaj
value added tax (VAT) = taxă pe valoare adăugată
venture capital = capital de risc
(to) withdraw = a retrage