This week we are going to discuss Banking. As the topic is considered to be rather wide and complex, we have decided to divide it into three parts: Banking in a nutshell, Types of Banks and Products of Banks.
Banking in a nutshell
Commercial banks are business that trade in money. They receive and hold deposits, pay money according to customers' instructions, lend money, etc.
These days there are hardly any people who do not have a bank account. Traditionally we receive our wages or salaries in the form of a transfer paid directly into our bank accounts.
A current account usually pays little or no interest, but allows the holder to withdraw his or her cash with no restrictions. Deposit accounts [in the US also called time or notice accounts] pay interest. They do not usually provide cheque facilities and notice is often required to withdraw money. Standing order and direct debits are ways of paying regular bills at regular intervals.
Banks offer both loans and overdrafts. A bank loan is a fixed sum of money, lent for a fixed period, on which interest is paid; banks usually require some form of security or guarantee before lending. An overdraft is an arrangement by which a customer can overdraw an account, i.e. run up a debt to an agreed limit; interest on the debt is calculated regularly.
Banks make a profit from the spread or differential between the interest rates they pay on deposits and those they charge on loans. They are also able to lend more money than they receive in deposits because depositors rarely withdraw all their money at the same time. In order to optimize the return on their assets, bankers have to find a balance between yield and risk, and liquidity and different maturities, and to match these with their liabilities. The maturity of a loan is how long it will last; the yield of a loan is its annual return - how much money it pays - expressed as a percentage.
Exercise 1: Match the headings to the paragraphs below.
central banks, commercial banks, supranational banks, building societies, merchant banks, universal banks, finance houses, investment banks
Types of Banks
1 _______________________
These banks supervise the banking system; fix the minimum interest rate; issue bank notes; control the money supply; influence exchange rates; and act as lender of last resort.
2 _______________________
These banks are businesses that trade in money. They receive and hold deposits in current and savings accounts, pay money according to customers' instructions, lend money, and offer investment advice, foreign exchange facilities, and so on. In some countries such as England these banks have branches in all major towns; in other countries there are smaller regional banks. Under American law, for example, banks can operate in only one state. Some countries have banks that were originally confined t a single industry, e.g. Crédit Agricole in France, but there now usually have a far wider customer base.
3 _______________________
In some countries, notably Germany, Austria, and Switzerland, these banks combine deposit and loan banking with share and bond dealing, investment advice, etc.
4 _______________________
These are known as subsidiaries of universal banks. They lend money - at several per cent over the base lending rate - for hire purchase or instalment credit, that is, loans to consumers that are repaid in regular, equal monthly amounts.
5 _______________________
These banks specialise in raising funds for industry on the various financial markets, issuing government bonds, and so on. They also offer stockbroking and portfolio management services to rich corporate and individual clients.
6 _______________________
These banks in the USA are similar to merchant banks, but they can only act as intermediaries offering advisory services, and do not offer loans themselves.
7 _______________________
These institutions provide mortgages, i.e. they lend money to homebuyers on the security of houses and flats, and attract savers by paying higher interest rates than the banks. These associations in the United States served a similar function, until most of them went spectacularly bankrupt at the end of the 1980s.
8 _______________________
These are, for example, the World Bank or the European Bank for Reconstruction and Development, which are generally concerned with economic development.
KEY: 1 - central banks 2 - commercial banks 3 - universal banks 4 - finance houses 5 - merchant banks 6 - investment banks 7 - building societies 8 - supranational banks
Exercise 2: complete the text using these words
cash dispenser, current account, investment advice, overdraft, deposit account, loan, pension, credit card, mortgage, standing order
Products of Banks
My salary is paid directly into a low-interest 1 _______________. I can withdraw money from automatic 2 _______________ with a cashcard, so I hardly ever actually go into a bank. I pay regular, monthly bills by way of 3 _______________: the bank pays them according to my instructions, and debits my account.
I also have a 4 _______________, which is useful for ordering things by post or on telephone, and for travelling worldwide. I also use it in shops and restaurants, but try not to spend more than I can pay when the bill comes a month later, as this is a very expensive way of borrowing money. The annual interest is exorbitant - well over 20 %.
I used to have a 5 _______________ in a building society which paid higher interest than the current account at the bank, but had restrictions as to how and when I could withdraw my money. But then we bought a flat. I got a 90 % 6 _______________from the building society: i.e. we had to pay a deposit of 10 % with our own savings.
This is why I have no more money and no more deposit accounts. In fact I have arranged an 7 _______________with the bank, which means I can occasionally withdraw more money than is actually in my account. Last year I asked the bank for a 8 _______________to buy a car. I bought a second-hand car.
My bank is also always trying to sell me a private 9 _______________ plan, for when I retire, but I'm not interested. They also keep offering me 10 _______________about shares, bonds, mutual funds and so on. I am not interested as I could not afford to buy all these things.
KEY: 1 - current account 2 - cash dispenser 3 - standing order 4 - credit card 5 - deposit account 6 - mortgage 7 - overdraft 8 - loan 9 - pension 10 - investment advice
Exercise 3: find seven expressions from the previous texts
| 1 | a person who puts money in a bank account |
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| 2 | to take money out of a bank account |
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| 3 | the total amount of profits or income that you get from an investment or from a business |
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| 4 | a person or an organization that helps other people or organizations who are unable or unwilling to deal with each other directly to reach an agreement |
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| 5 | the act of moving money from one account to another |
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| 6 | the total amount of money that has been paid into bank accounts in a particular area |
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| 7 | a valuable item that you agree to give to somebody if you are unable to pay back the money that you have borrowed from them |
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KEY: 1 - depositor 2 - withdraw 3 - yield 4 - intermediary 5 - transfer 6 - deposit 7 - security
Pripravené v spolupráci s Empire jazyková škola.