Кафедра «Иностранные языки -3»
РОССИЙСКОЙ ФЕДЕРАЦИИ»
Кафедра «Иностранные языки -3»
Н.В. Банина, О.С. Гайсина, Н.Б. Голубева
ENGLISH for the FINANCIAL SECTOR.
SUPPLEMENTARY COURSE
Учебное пособие
к учебнику “English for the Financial Sector”
для студентов 2 и 3 курсов факультета «Налоги и
налогообложение»
Москва 2015
Федеральное государственное образовательное бюджетное учреждение
высшего профессионального образования
«ФИНАНСОВЫЙ УНИВЕРСИТЕТ ПРИ ПРАВИТЕЛЬСТВЕ
РОССИЙСКОЙ ФЕДЕРАЦИИ»
Кафедра «Иностранные языки -3»
Н.В. Банина, О.С. Гайсина, Н.Б. Голубева
АНГЛИЙСКИЙ ЯЗЫК ФИНАНСОВОГО СЕКТОРА
Учебное пособие
к учебнику “English for the Financial Sector”
для студентов 2 и 3 курсов факультета «Налоги и
налогообложение»
Москва 2015
УДК
ББК
Рецензенты:
М.В.Мельничук, д.э.н., к.п.н, профессор, зав. кафедрой «Иностранные языки – 3» Финансового университета
О.П. Чигишева, к.п.н., доцент, доцент кафедры образования и педагогических наук Южного федерального университета, директор Международного исследовательского центра «Научное сотрудничество»
Банина Н.В., Гайсина О.С., Голубева Н.Б.
Английский язык финансового сектора: учебное пособие по английскому языку к учебнику Яна Маккензи “English for the Financial Sector” для студентов 2 и 3 курсов факультета «Налоги и налогообложение». – М.: Финансовый университет, 2015. - 141 с.
Учебное пособие является дополнением к учебнику Яна Маккензи “English for the Financial Sector” и предназначено для изучения английского языка в сфере финансов. Пособие предлагает информативные материалы по специальной тематике учебника, упражнения для развития навыков чтения, говорения и письма, а также темы для мультимедийных презентаций с использованием программы Power Point. Предлагаемое толкование терминов по специальности и глоссарий также могут способствовать формированию у студентов коммуникативных и социально-культурных компетенций.
Для студентов 2 и 3 курсов, обучающихся по направлению «Экономика», профилю «Налоги и налогообложение» (программа подготовки бакалавра).
УДК
ББК
ISBN © Банина Н.В. 2015
ISBN © Гайсина О.С. 2015
© Голубева Н.Б. 2015
Federal State-Funded Educational
Institution of Higher Professional Education
“FINANCIAL UNIVERSITY
INDER THE GOVERNMENT OF THE RUSSIAN FEDERATION”
Foreign Languages Department -3
N.V. Banina, O.S. Gaissina, N.B. Golubeva
ENGLISH for the FINANCIAL SECTOR.
SUPPLEMENTARY COURSE
Manual
for 2nd and 3rd year students
of the faculty of “Taxes and taxation”
Moscow 2015
Reviewers:
M.V.Melnichuk, doctor of economic sciences, candidate of pedagogical sciences, professor, head of the chair “Foreign languages – 3”, Financial University.
O.P. Chigisheva, candidate of pedagogical sciences, associate professor of the chair “Education and pedagogical sciences” of the Southern Federal University, director of the International research center “Scientific cooperation”.
Banina N.V., Gaissina O.S., Golubeva N.B.
English for the Financial Sector. Supplementary Course: manual for 2nd and 3rd year students of the faculty of “Taxes and Taxation”. – M.: Financial University, 2015. – 141 p.
ISBN
ISBN
The manual is a supplementary course to the student’s book “English for the financial sector” by Ian MacKenzie. It offers information in key areas of finance. The manual provides original texts and exercises to help students to improve their reading, writing and speaking skills. A number of topics are offered for the power point presentations. Explanations of specialist vocabulary in the list of useful words and in glossary can also be helpful for the formation of communicative and socio-cultural competence.
For 2nd and 3rd year students studying “Economics”, specialization “Taxes and Taxation” (bachelor-level program).
УДК
ББК
ISBN © Banina N.V.
ISBN © Gaissina O.S.
© Golubeva N.B.
ВВЕДЕНИЕ
Настоящее учебное пособие предназначено для студентов 2 и 3 курсов, обучающихся по направлению «Экономика», профилю «Налоги и Налогообложение». Пособие составлено в соответствии с требованиями Федеральных образовательных стандартов и является дополнением к учебнику Яна Маккензи “English for the Financial Sector”.
Пособие включает 12 тематических разделов, построенных по единому принципу и соответствующих тематике разделов учебника: организация финансовой деятельности, банковское дело, бухгалтерский учёт, финансирование международной торговли, обмен валюты, акционерный капитал, слияния и поглощения, управление активами и др. Материал учебного пособия по каждой из тем структурирован по единому принципу. Для закрепления тем, после каждого специального текста в части А (Section A) даны упражнения для достижения его правильного понимания и обсуждения. В части В (Section B) предлагаются упражнения, имеющие целью закрепление специальной лексики по теме в устной и письменной речи на английском языке, а также грамматические упражнения на лексической основе данной темы.
В приложении к основной части приводится список тем для подготовки мультимедийных презентаций, а также лексика по специальности с переводом на русский язык для студентов 2 курса (Units 1-6) и глоссарий для студентов 3 курса (Units 7-12).
Данное пособие было выполнено членами авторского коллектива Гайсиной О.С. (Units 1-6), Баниной Н.В. (Units 7-9) и Голубевой Н.Б. (Units 10-12).
UNIT I
FINANCIAL SECTOR
Warm up
1. What organizations make up the financial sector?
2. Can you name some of the largest Russian banks?
3. Which of the services the banks typically offer did you personally use?
Section A
Reading 1
Financial Services Industry
National economy of any country is made up of different industries and business sectors. For the most developed countries the industry of financial services, also known as the finance and insurance industry, is one of the leading ones. Companies, providing financial services, are key players on the money, the currency, the stock, and the futures and derivatives markets. They perform a wide range of operations, such as investing, lending, insurance, securities trading and securities issuance. Financial sector includes such organizations as banks, investment funds, insurance companies, brokerage houses, real estate agencies, accounting and auditing firms, involved in the creation, storage, utilization, management, and manipulation of money.
The financial services industry constitutes the largest group of companies in the world in terms of earnings and equity market capitalization. 7% of all employees in the UK belong to the financial services sector. In the USA the proportion of finance industry in all corporate income has been on the rise for many decades. Presently this sector creates 7.5% of the GDP and represents about one fifth of the market capitalization of top 500 American companies. Finance industry in the United States comprises over half of total non-farm business profits.
However this industry is not the largest one in terms of revenue or the number of employees. Individuals often start small businesses that offer personal investment services. The industry is also slow growing and extremely fragmented. Numerous smaller banks and investment companies thrive in it side by side with major Wall Street firms, such as Merrill Lynch, Goldman Sachs and Citigroup.
Discussion
Answer the following questions:
1. Can you name a few markets dominated by financial services companies?
2. What is the share of the group of financial services companies in equity market?
3. What kind of operations do financial services companies perform?
4. Name a few organizations belonging to the financial sector involved in the storage, utilization and management of money.
Reading 2
Types of Banks
There are different types of banking institutions operating in different countries. However, all of them have common features, and the most important of them is making profits by attracting deposits and using the collected money to extend credits at higher interest rates. The bankers consider deposits to be their liabilities and loans are viewed as assets.
Banking organizations can be structured into the following categories:
Commercial or retail banks. Such banks mainly keep checking accounts of their clients, issue credit and debit cards, sell insurance and other financial products, deal in foreign exchange, offer consulting services on tax and investments and provide other basic banking services.
Investment or merchant banks. Their activities are focused on making profits by helping businesses and other organizations to seek relatively long-term funds and issue shares and bonds. They give advice on mergers and acquisitions, participate in management buy-outs.
Savings banks. Resembling retail banks in the offered services, they cater to the needs of small savers.
Building societies. Their aim is to take deposits and extend long-term loans (mortgages) to homebuyers. These societies offer mortgages and demand-deposit accounts and are often backed by insurance companies. The owners of such organizations are their members.
Universal banks. This category represents a banking system in which banks offer a wide variety of financial services, both commercial and investment. The services may include credit, loans, deposits, asset management, investment advisory services, payment processing, securities transactions, underwriting and financial analysis.
Discussion
Answer the following questions:
1. What banks are most suitable for the needs of retail clients?
2. How do commercial banks typically make money?
3. What are the functions of building societies?
4. What services do universal banks provide?
5. What kind of banks work with small savers?
Reading 3
Commercial Banks
Commercial banks are the most common financial institutions, usually called ‘banks’. Typically they handle the banking needs of large and small businesses. However, they can function as retail banks as well, working directly with individual customers. Banks that focus purely on retail clientele are relatively few, and most retail banking is conducted by separate divisions of large and small banks. The term commercial is meant to distinguish such banks from investment ones. But in fact, nowadays many large investment banks establish special divisions that offer the services of commercial or retail banks.
A commercial bank or the commercial division of a bank accepts deposits from customers, raises capital from investors or lenders, and then uses that money to make interest-bearing loans to other customers and offer attractive investment products. Banking loans (such as personal loans, commercial loans, and mortgage loans) are used by people and businesses to buy goods or expand business operations, which in turn leads to more deposited funds that make their way to banks. Efficient allocation of accumulated capital makes the bank more profitable and increases the price of its shares. If a bank can lend money at a higher interest rate than it has to pay for the collected funds, it makes money.
Commercial banks typically provide security and convenience to their customers by offering safe keeping for their money and documents not only in vaults and safe deposit boxes, but also in cash deposits in checking and savings accounts.
As payment agents, banks make commercial transactions much more convenient; it is not necessary to carry around large amounts of physical currency when merchants can accept checks, drafts, debit or credit cards and Letters of credit issued by the banks. Processing payments with the use of such instruments, banks actually underwrite financial transactions by lending their reputation and credibility to the transaction. A check is basically just a promissory note between two people, and without a bank's name and information on that note, no merchant would accept it. The use of debit cards allows account holders to pay for goods without cash at hand and to arrange wire transfers.
Retail banking likewise is the business of taking deposits, making consumer loans, mortgages and the like, offering different banking products. Customer deposits gathered by retail banking represent an extremely important source of funding for most banks. Retail banking is the banking that almost everybody will find most familiar. Also known as consumer banking or personal banking, retail banking is the visible face of banking to the general public, with bank branches located in abundance in most major cities.
Discussion
Answer the following questions:
1. What kind of banks do small businesses mostly rely on?
2. Why is retail banking an important part in the scope of operations of most banks?
3. Why are the banks interested in extending commercial loans?
4. What do you think must a bank do to be able to increase payments for collected funds?
5. What should commercial banks do to have the price of their shares go up?
6. What are the alternatives of physical currency offered by banks?
7. What are the most popular ways of safe keeping of clients’ money in banks?
8. What are the uses of debit cards?
Section B
Exercise 1.
a) Translate into Russian the following sentences:
1)After the great depression the U.S. Congress required that commercial banks only engage in banking activities, whereas investment banks were limited to capital market activities. This separation was mostly repealed only in the 1990s.
2)Commercial banks often function as retail banks as well, serving individual members of the public along with businesses.
3)A commercial bank can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
4) A commercial bank accepts various types of deposits, payable after a certain time period, such as current account deposits, saving account deposits, fixed deposits.
5) For a client with a variety of financial needs, doing business with a single diversified firm is highly convenient, because this reduces the imperative to shop around for services from different providers and makes unnecessary to have too many accounts and complicated record keeping.
b) Make sure you have learned these expressions in English:
1) участвовать в банковской деятельности
2) также выполнять функции розничных банков
3) заниматься депозитами и займами
4) принимать текущие депозиты, сберегательные и срочные депозиты
5) искать услуги у различных провайдеров
UNIT II
RETAIL BANKING
Warm up
1. Can you name some world famous firms, offering investment services?
2. Which of the two banks – commercial or investment – acts as an intermediary between the issuer of stocks and investors?
3. Are there any reasons for investors to buy bonds issued by companies with a bad credit rating?
Section A
Reading 1
Investment Banking
Investment banks, also called merchant banks, function primarily in higher finance. They play a huge role in the workings of Wall Street and are represented by such giants of financial business as Goldman Sachs, Morgan Stanley, JPMorgan, Wells Fargo, UBS, Credit Suisse and Deutsche Bank.
The main and most traditional function of such financial institutions is to help companies, business owners and even government agencies to raise capital for their operations by selling investment securities to the general public. For example, when a company wants to raise money for expansion or other needs by issuing stocks or bonds, investment bankers facilitate its access to respective markets, introducing there new stock or bond issues through an IPO (initial public offering). By doing so, investment banks act as the agents, brokers or intermediaries between the issuer and investors. They can insure bonds, help to find buyers for the securities, and handle all paperwork, along with a team of lawyers and accountants. On the buy side, such banks work with pension funds, mutual funds, hedge funds and the investing public to help them maximize returns when trading or investing in securities. Of course, the banks charge a commission on the securities they sell or buy.
But the banks can also earn money by creating securities, including stocks and bonds, and trading them for their own accounts. Besides originating and distributing new security issues, investment banks may underwrite securities by buying large blocks of previously issued shares and then reselling them to institutional investors, such as mutual fund companies. An investment bank can use its own money to speculate in gold futures, acquire call options on gold mining firms or purchase gold bullion for storage in secure vaults.
Performing a variety of other tasks, the banks can act as consultants on mergers, acquisitions and other corporate reorganizations, prepare the company prospectus, which presents important data about the company to potential investors.
For high-net-worth individuals some private banks arrange exclusive wealth management and tax planning. Such investment banking services are more personalized than those of normal retail banks.
Discussion
Answer the following questions:
1. What is the main and most traditional function of merchant banks?
2. What is the role of investment banks in relations between security issuers and investors?
3. What interest do investment banks get for trading in securities on behalf of their clients?
4. In what other ways do investment banks earn money?
5. What do banks do to underwrite securities?
Reading 2
Discussion
Answer the following questions:
1. Why are some banks called universal?
2. What is the main trend in the efforts of financial companies to stay competitive and satisfy a wider range of financial needs of their clients?
3. Do you think that by taking on the functions of commercial banks investment banks make their business riskier?
4. Why are some players of the financial services industry called empires?
5. How did Citigroup emerge and diversify its financial services?
Reading 3
Loans and Bonds
The most significant function of commercial banks is the creation of credit. The banks can extend major loans for real and capital purchases because they are required to hold only a fraction the money deposited by its customers as cash reserves. While sanctioning a loan, they do not provide cash to a customer, but open a deposit account from which the borrower can withdraw.
Historically, commercial banks, as their name implies, drew most of their earnings from commercial and consumer loans. But changes in banking laws enabled them to extend more mortgage loans - the kind of debt instrument used to purchase real estate, such as a home, property or business. In such arrangements commercial banks are given security - a lien on the title to the house - until the mortgage is paid off in full. If the borrower defaults on the loan, the bank can use its legal right to repossess the house and sell it to recover the originally lent money. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount. Banks also give demand loans to all types of clients against proper security. The loans, where the borrower pledges some asset or property to the creditor as collateral for the loan, are called secured.
Most of loans however are not secured by connecting them to the borrower's collateral. Instead, almost all monetary loan agreements contain a credit insurance policy that protects the lender if the consumer defaults. The range of unsecured loans is really great: from credit cards for small businessmen to significant credit lines to large corporations. The unsecured loans may also be available from banks in different forms or marketing packages such as bank overdrafts, personal loans, cash credit, bill discounting, money at call, corporate bonds, etc.
When small companies need to borrow, they only rely on bank loans. But well-known big businesses can finance long-term investment projects by issuing bonds. This longer-term debt instrument is used as receipt for the money borrowed from banks, which act as lenders or creditors. The bonds can be traded by banks, making profit on the difference (called spread) between the bid price at which they buy and the offer price at which they sell. If credit standing (rating) of the company goes down, investors into its bonds expect a premium (a higher interest rate, or yield, or coupon) for greater risk. In this case the bonds lose value. However some investors buy such junk bonds as they are prepared to take the risk of default (non-repayment of the principal at maturity) in return for a higher interest rate.
Discussion
Answer the following questions:
1. Why is credit creation an important function of commercial banks?
2. How are mortgage loans secured?
3. What can be done if collateral is not enough to pay off debt?
4. How can a lender protect himself while extending unsecured loans?
5. What happens to the bonds of the company, which faces a credit rating fall?
Section B
Translate the following sentences into Russian:
1. The interest rate at which company is able to borrow largely depends on its credit standing.
2. The main function of investment banks is to help companies, business owners and government agencies to raise capital for their operations by selling investment securities to the general public.
3. When a company wants issue stocks or bonds to raise money, investment bankers facilitate its access to respective markets by introducing there new stock or bond issues through an IPO.
4. Investment banks do not seek cash deposits from customers in the form of checking and savings accounts, and do not make traditional interest-bearing loans to individual customers.
5. Traditionally, large commercial banks underwrite bonds, and have dealings with currency, interest rates, and credit-related securities
6. Large commercial banks usually have an investment branch that is involved in some typically investment related activities.
Part b) Make sure you have learned these expressions in English:
1) заимствовать по низкой процентной ставке
2) привлекать капитал путем продажи инвестиционных ценных бумаг
3) инвестиционные банки облегчают доступ компаний к рынкам акций и облигаций
4) предоставлять процентные кредиты для индивидуальных клиентов
5) гарантировать облигации и иметь дело с валютой, процентными ставками и ценными бумагами
6) создать подразделение по инвестиционной деятельности
Exercise 2.
Part a) Fill in the gaps in the table below.
| Noun | Verb | Person |
| judge | ||
| credit | ||
| competition | ||
| investor | ||
| Share | ||
| manager | ||
| hedge |
Part b) Complete these sentences using the words from the table above.
1.______ banks act as the agents, brokers or intermediaries between the issuer and investors.
2. Banks work with pension funds, mutual funds, _____funds and the investing public to help them maximize returns when trading or investing in securities.
3. For high-net-worth individuals some private banks arrange exclusive wealth _____ and tax planning.
4. The results of the company’s work were presented to _____at the annual General meeting.
5. Commercial banks have to _____in offering credits to small businesses.
6. If the sale of the collateral does not raise enough money to pay off the debt, the _____can obtain a deficiency _____against the borrower.
7. Every month I _____5% of my salary in a fund.
Over to you
Explain in writing what investment banks do in their capacity of intermediaries between the issuer of stocks or bonds and investors.
UNIT III
ACCOUNTING WORK
Warm up
1. What do you think was the use of accounting in ancient times?
2. What is the most important document drawn up by accountants?
3. Why does the law make it obligatory to submit accounting reports to government agencies?
Section A
Reading 1
History of Accounting
The history of accounting dates back to ancient times. Accounting records were discovered by archeologists doing research on such diverse civilizations as those which existed in China,Babylonia, Greece, and Egypt. Huge building projects were realized there, so the rulers of those civilizations received regular quantitative reports regarding the incurred expenses in labor and materials.
In the fifteenth century the merchants of city-states of Italy have succeed in impressive development of the art of accounting, servicing the flourishing trade. In 1494 a friend of Leonardo da Vinci, a monk and mathematician Luca Pacioli published the first known description of double-entry bookkeeping.
The pace of development of accounting has fastened during the so called Industrial Revolution as the economies of developed countries focused on the mass production of goods. In the nineteenth century, the growth of corporations, especially those in the railroad and steel industries, has further spurred the progress of accounting. Corporation owners - the stockholders - no longer needed to personally manage the work of their enterprises. That function was more often performed by hired managers, who created diverse accounting systems making it possible to report to the owners on the efficiency of their businesses. Stockholders relied on this information making decisions regarding the development of their businesses. To protect the interests of owners against fraudulent statements of hired managers, the same accounting reports were ordered to be submitted to regulatory authorities, certifying that the company’s disclosure of accounting information was in accordance with special rules and regulations set in order to protect the interests of the stakeholders.
The increased involvement of government in the economic life in the USA and Europe went hand in hand with the diversification of accounting reporting. When the US federal government introduced the income tax, the accounting concept of ‘income’ was legally defined in every detail. Government and tax authorities needed to make sure that every business is fulfilling their legal duties, and in particular that they are paying enough tax. The financial statements gave a good idea of how much tax the business should be paying over. Strict regulations regarding financial accountability imposed on the business community enabled government bodies at all levels to play more active roles in health, education, labor and economic planning.
Discussion
Answer the following questions:
1. What were the countries where accounting appeared first?
2. Who published the first known description of double-entry bookkeeping?
3. How did Industrial Revolution influence the development of accounting?
4. How did accounting help managers to report to owners on the efficiency of their businesses?
5. What documents help to determine how much tax a business should pay?
Reading 2
The Work of Accountants
Different stages of accounting work involve specialized personnel to perform respective functions. Therefore accounting professions include bookkeepers, accountants, controllers and auditors.
Bookkeepers deal in taxes, cash flow, which includes cash receipts and cash disbursements, sales, purchases and different business transactions of the company. Bookkeepers first record all the appropriate figures in the books of original entry, or Journals. At the end of a period - usually a month - the totals of each book original entry are posted into the proper page of the Ledger. The Ledger shows all the expenditures and all the earning of the company. On the basis of all the totals of each account in the Ledger, the bookkeeper prepares a Trial Balance. Trial Balances are usually drawn up every quarter.
The accountant’s responsibility is to analyze and interpret the data in the Ledger and the Trial Balance. So managerial decisions regarding the ways in which the business may grow in the future are normally taken with the active participation of company’s accountant. His help is needed to prepare new products and advertising campaigns, to plan for expansion or reorganization of the business. The work of accountants is rather sophisticated, but it is not necessary to have a certificate to practice accounting. Junior employees in large companies, for example, often practice accounting for some time and only later take the examination and get a certificate from a specialized school. Certified accountants in England are called chartered accountants. In the USA the certified accountants are called public accountants.
The chief accounting officer of a large company is called the Controller, or Comptroller. Controllers are responsible for measuring the company’s performance. They interpret the results of the operations, plan and recommend future action. This position is very close to the top executives of the company.
Every year public companies are required to use the services of a public accountant for the conduct of an audit of their financial statements. This work is done by an auditor, appointed by an incorporated or registered firm, who inspects and verifies the accuracy of a company's operational and financial records. Having examined
the submitted accounting records, he prepares an Auditor’s report - a document certifying the accounting records and financial position of a firm. This audit report along with the audited financial statements must be filed with the appropriate regulatory authority.
Discussion
Answer the following questions:
1) What are major accounting professions?
2) What company operations are included into cash flow?
3) What do bookkeepers do with the totals of each book of original entry?
4) What is a Trial Balance based on?
5) What is the accountant’s responsibility in respect of the Ledger and the Trial Balance?
Reading 3
Accounting Documents
Financial statements represent a formal record of any firm’s financial activities during a specific period of time – accounting period. These are written reports that quantify the financial strength, performance and liquidity of a company. Such accounting reports reflect the effects of business transactions and events on financial situation of the entity.
Among different financial statements the most important are the balance sheet, the income statement and the statement of cash flows.
Balance sheet (or the statement of financial position) details assets, liabilities and equity of the enterprise at a specific point in time. Everything a business owns or controls, such as cash, inventory, factory plant and its machinery are called assets. All the debts of a business to creditors, its bank loans and other obligations are featured among liabilities. The amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities is called equity. Equity therefore represents the difference between the assets and liabilities. It is the net worth of a business. The balance sheet is always drawn up annually, but most companies also require monthly, quarterly and semiannual statements.
Income statement (also known as the profit and loss statement or the statement of income and expenses) is used to evaluate the company’s financial performance over a specific accounting period. Therefore an income statement for the previous year must be included in the company’s annual report to its shareholders.
The statement is composed of two elements – Income and Expenses. Income summarizes what the business has earned over the reported period, its sales and other revenue and profits, dividend income. The Expenses part features salaries and wages, rental charges, other costs and losses of the enterprise. Net profit or loss is determined by deducting expenses from income.
Statement of cash flows specifies the movement of money into and out of the business. It covers its operating, investing and financing activities.
These three reports are central to understanding the financial health of the business and are a key component in making smart business decisions.
Discussion
Answer the following questions:
1) What do financial statements represent?
2) What are the most important reports revealing the financial health of the business?
3) What do assets of a company include?
4) What kind of a company’s obligations are called liabilities?
5) How can you calculate equity of a business?
6) Why is the Income statement featured in the company’s annual report to its shareholders?
7) How can profit or loss of a business be determined?
Section B
Exercise 6.
a) Use a word or phrase from each box to make common word combinations (you can use words from the left box more than once).
| Fulfill | a business' financial performance |
| apply for | expenses |
| draw up | strict regulations |
| Incur | confidential information |
| evaluate | legal duty |
| rely on | a balance sheet |
| Impose | an overdraft |
b) Compose your own sentences using the above word combinations.
Over to you
Give a brief written description of what accounting documents reveal.
UNIT IV
Warm up
1. Do you think that a business can do without accounting?
2. What is the purpose of collecting data regarding financial deals and transactions by a company’s management?
3. Name a few users of accounting reports of business companies.
Section A
Reading 1
Accounting: General Concept
Accounting is a vital part of all businesses, sometimes referred to as “the language of business”. The American Institute of Certified Public Accountants has described it as the art of recording, classifying, and summarizing transactions and events which are, in part at least, of financial character, and interpreting the results thereof.
The first stage of accounting activities involves collecting, recording, summarizing, analyzing, verifying and assessing various data regarding financial deals and transactions of a particular individual or business entity. After completion of this time-consuming work these data have to be presented or reported. Accounting reporting is the process of generating accounting reports, also commonly referred to as financial statements, from a business's accounting data.
Therefore, at the second stage the collected financial and other relevant information is used as the basis for reports, financial statements and declarations (such as balance sheets and income declarations). Such documents provide precise evaluations of assets and liabilities of respective business enterprises, as well as the results of their financial operations. They are the end-product of accounting, giving a clear picture of effectiveness of business activities of economic organization in the period of time under consideration.
The completion of an accounting task is normally followed by another stage of finance work, which requires financial directors to draw conclusions regarding the efficiency of the existing structure of management, to develop new financial strategies, to take cash flow controlling decisions and other steps in the field of corporate governance.
Discussion
Answer the following questions:
1) What is the first stage of accounting work?
2) What are accounting documents based upon?
3) What is the end-product of accounting?
4) What do accounting reports, statements and declarations help us to evaluate?
5) How do financial directors use the accounting reports?
Reading 2
Financial Accounting
The main purpose of financial accounting is to provide information, vital for the assessment of profitability, liquidity, solvency and stability of business organizations. Though this information is primarily for outside users, it is very helpful for internal decision making and planning, arranging corporate managerial work in accordance with regulatory requirements. Such information is the scorecard by which a company’s past performance is judged by government agencies (such as taxation authority), stockholders, potential shareholders, creditors, banks, economists, analysts, etc. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company.
Preparing financial accounting statements is mandatory, especially for publicly traded firms, i.e. limited companies or whose shares are bought and sold on an open market. The frequency of financial reporting is well-defined. Reports are usually created for a set period of time, such as a fiscal year or a shorter term. Accountants typically prepare annual, semi-annual and quarterly reports, summarizing an organization’s financial data that are taken from its records.
Statutory accounts are required to comply with specific local and international accounting standards and formats, such as International Financial Reporting Standards (IFRS), used in over 110 countries around the world, including those in the European Union. Financial accounting in the USA, however, is still drafted according to GAAP - Generally Accepted Accounting Principles. The law requires that annual reports are audited by independent auditing organizations, such as Certified Public Accounting (CPA) firms in the USA.
Discussion
Answer the following questions:
1) What kind of information does financial accounting provide?
2) Who are major users of financial accounting documents?
3) Is financial accounting future or past oriented?
4) What is the frequency of financial accounting reports?
5) Do they prepare statutory accounts as directed by the company’s management?
6) Are there any standards to regulate accounting work?
Reading 3
Managerial Accounting
Managerial (or management) accountingis another major branch of accounting, basically dealing with confidential financial reports for the exclusive use of top management within an organization. Such documents are not required by the law and are not necessarily related to a certain time span. In management accounting systems there is no requirement for an independent external review. Managerial reports are used in planning and controlling operations, in decision making and risk management. Therefore, they are future-oriented and have forecasting value to those within the company. Such reports may include sales forecasting reports, budget and comparative analysis, feasibility studies, merger or consolidation reports.
Unlike financial accounting, relating to the entire organization, management accounting may be selectively focused on particular products and their costs, on work efficiency. The central element in managerial accounting is cost accounting, which is based on the concept of calculating costs that are assigned to a product or service. There are other important concepts of management accounting. Lean accounting, for example, is about accounting for lean enterprise. Resource consumption accounting (RCA) provides managers with information needed in an organization’s optimization. Throughput accounting facilitates the introduction of modern production processes. Transfer pricing is used in manufacturing and banking.
Discussion
Answer the following questions:
1) Is managerial accounting intended to reveal the situation within business organizations to the general public?
2) Is managerial accounting work mandatory and required to be performed on the regular basis?
3) What is the use of managerial reports?
4) What managerial accounting product can forecast the results of a planned company merger?
5) Can managerial accounting help to foresee the costs of introducing a new product line?
6) What kind of managerial accounting can help to optimize the use of resources by an enterprise, to make the work of an enterprise more cost-efficient?
Section B
Exercise 6.
a) Use a word or phrase from each box to make common word combinations (you can use words from the left box more than once).
| 1) provide | a) international accounting standards |
| 2) draw | b) cash flow controlling decisions |
| 3) develop | c) profitability of business |
| 4) take | d) precise evaluations of assets |
| 5) assessment of | e) quarterly reports |
| 6) prepare | f) conclusions regarding efficiency |
| 7) comply with | g) new financial strategies |
b) Compose your own sentences using the above word combinations.
UNIT V
CENTRAL BANKING
Warm up
1. What organization is responsible for the collection of state budget revenues in Russia?
2. Can you name any authorities responsible for maintaining the stability of monetary systems in Europe?
3. Do you think that central banks of developed countries are independent from government fiscal policies in their decisions?
Section A
Reading 1
Discussion
Answer the following questions:
1) What was the main responsibility of central banks at the time when currencies were pegged to the gold standard?
2) Why did the gold standard help to maintain price stability?
3) What kind of a central bank was needed to stabilize economies and monetary systems of post war countries in Europe?
4) What do central banks do as the lenders of last resort?
5) Do central banks in liberal economies have to closely follow government fiscal policies?
Reading 2
Discussion
Answer the following questions:
1) Are central banks state owned and directly regulated by the government?
2) What are the relations between the Bank of Russia and the government?
3) Does government’s economic strategy have anything to do with the Bank of Russia’s planning?
4) What is the Right of Issuance given to the central bank?
5) What powers do central banks have in respect of the commercial banks?
6) What do central banks typically do to reduce the risk of commercial banks overextending themselves in lending money?
7) Under what circumstances does a central bank act as a lender of last resort?
Reading 3
Discussion
Answer the following questions:
1) What do central banks do in the capacity of monetary authorities?
2) What are primary objects of management of central banks?
3) Do central banks control interest rates and exchange rates?
4) What are the results of exchange rate going down or up?
5) How do central banks “create money”?
6) What are direct results of selling and buying securities by the central bank?
7) What can a central bank do to set a desirable interest rate in the interbank market?
8) What are the main results of managing the money supply and of market interventions by central banks?
Section B
Exercise 5.
Part a) Fill in the gaps in the table below.
| Noun | Verb | Person |
| purchaser | ||
| save | ||
| employment | ||
| keeper | ||
| carry | ||
| consumption |
Part b) Complete these sentences using the words from the above table.
1. The Chinese central bank _____huge deposits of gold bullion.
2. _____market of Russia is undergoing sustained development.
3. Personal _____were withdrawn from bank accounts during the financial crisis.
4. _____of new banking products lately are not very active.
5. The salaries of bank _____were raised because of high inflation in the country.
6. The buyer claimed compensation because the ____did not deliver goods in time.
Over to you
Give your written opinion why monetary policy is important in economic life of every country.
UNIT VI
Warm up
1. What do you think of Russia’s role in the world trade?
2. What are the biggest trade partners of Russia?
3. How can payments be made if you buy goods in other countries?
Section A
Reading 1
International Payments
Despite the fact that cash participate in any commercial transaction, selling or buying goods in foreign markets is normally accomplished through the mechanism of international payments. This mechanism requires that any payment for products delivered or services provided to a foreign client should be made on the basis of a commercial contract. In respect of products such contract must specifically feature their description, the terms of delivery, date and means of payment, the currency in which settlement is to be effected, and the list of documents required to arrange clearance of the products through customs.
Financing of international transactions within this mechanism involves trade in the currency specified in contracts. It can be the currency of the exporter, the currency of the importer or any other convertible currency agreed by both parties to a contract. Foreign currency has to be purchased in a market governed by supply and demand. The demands for payment by the sellers in one country are balanced with those of another through clearing institutions, mainly the banks in the leading financial centers. There exists an interconnected international network of banks that have checking accounts with one another and can shift funds back and forth. The overall balancing of the accounts between nations is accomplished through movements of capital from one country`s bank balances to another`s, borrowing from the International Monetary Fund, and even (in the past) actual shipments of gold.
Currencies are traded by dealers in a foreign exchange market. Currency supply is formed by exports of products and services, by foreign direct investment and foreign loans, etc. whereas imports, foreign direct investment abroad and other factors create demand for currency. Under these circumstances the balance of supply and demand constantly changes, resulting in fluctuations of a currency’s exchange rate. If a contract stipulates the payment in a currency other than that in which the exporter (or the seller) usually operates, such exporter is exposed to the risk of exchange rate fluctuations. Devaluation of the contract currency can have even more dramatic financial consequences for the seller.
The Foreign Exchange Risk described above is not the only one in exporting or importing transactions. The range of other risks facing participants of international trade includes Payment Risk, Interest Rate Risk, Delivery Risk, Counterparty/bank Risk, etc. The sides to a contract can lower the risks involved and facilitate the conduct of commercial transactions by attracting various intermediaries such as banks and other financial institutions.
Discussion
Answer the following questions:
1. What are international payments based upon?
2. What currencies are used in international payments?
3. How do the clearing institutions accomplish the overall balancing of the accounts between nations?
4. What is the use of borrowings from the International Monetary Fund?
5. Are actual shipments of gold commonly used nowadays to balance the accounts between nations?
6. Why are some exporters exposed to the risk of exchange rate fluctuations?
7. How is it possible to facilitate the conduct of commercial transactions and lower the risks involved?
Reading 2
Discussion
Answer the following questions:
1. Why do contracting parties use different methods of paying for goods?
2. What method of payment is the most secure for the seller?
3. Why do buyers prefer direct payments?
4. How can modern information systems help in trade finance?
5. How does the cash against documents procedure help to mitigate trade risks?
6. What is the condition of handing over the shipping documents to the importer in the documents against acceptance transactions?
7. What is the role of banks in documents against payment transactions?
Reading 3
Discussion
Answer the following questions:
1. What is the most secure way to solve the problem of unknown creditworthiness of buyers?
2. What kind of order does the letter of credit actually give to the advising bank?
3. What is the name or the trade finance document giving the most reliable guarantee that payment for the goods will be made on time and in full?
4. What can be done with the letter of credit to make sure that the beneficiary will get paid even if the issuing bank fails to meet its obligations?
5. What must the buyer do if he has accepted a bill of exchange?
6. When are the buyers obliged to pay up bills of exchange?
7. When can a buyer receive shipping and other receiving documents from the bank, keeping the relevant bill of exchange?
Note 1:
Bill of Lading (B/L, BoL) is in fact a receipt issued by a shipping line or its agent (carrier) proving that the goods have been loaded onto the vessel. The document specifies the names of the consignor and consignee, the type of cargo, its quantity, the point of origin of the consignment and its destination, and route. It can be used for insurance and customs purposes. Bill of Lading assigns title to the goods, and requires the carrier to release the merchandise to the holder of the title or a named party at the destination port. If this document is issued to bearer, the title to the goods during shipment can be transferred to this person.
Waybill is a similar, but a lesser document, which is very often issued instead of B/L. In the case of an Air Waybill some additional items are listed, such as the flight number and departure time. The main difference of a Waybill is that it does not confer title of the goods to the bearer as a Bill of Lading does, so there is no need for the physical document to be presented for the goods to be released. The carrier will automatically release the goods to the consignee once the import formalities have been completed.
However, for Letter of Credit transactions it is important to retain title to the goods until the transaction is complete. That is why the Bill of Lading still remains a vital document within international trade.
Note 2:
Cash against Documents.In CAD transactions the seller retains ownership of the product until payment is made. The documents that specify the terms of the transaction are held by an intermediary, most often a bank, chosen by both the buyer and seller. Once payment is remitted, the bank releases the documents showing that the buyer can take ownership of the product.
The primary advantage of a CAD transaction is for the buyer. It is less expensive for him than a Letter of Credit since it does not tie up his bank line of credit, which could be used to pay other vendors. In some cases, the bank may even require a cash deposit from the buyer to secure the amount of the Letter of Credit.
A CAD is riskier for the seller: if the buyer refuses delivery, the seller does not receive payment. But the buyer must pay to have the product transported back to the port of origin.
Section B
Exercise 1. Read the following words and phrases and translate them into Russian:
Convertible currency; fluctuation; International Monetary Fund; collection of payment proceeds; beneficiary; fiduciary; method of settlement; remit payment; creditworthiness; risk mitigation; foreign exchange risk; shipping documents; customs clearance; tracking; air waybill; irrevocable confirmed letter of credit; to fulfill/meet one’s obligations; release documents.
Exercise 2. Part a) Fill in the gaps in the table below.
| Noun | Verb | Person |
| drawer; drawee | ||
| guarantee | ||
| trade | ||
| cash | ||
| collection | ||
| ship | ||
| pay |
Part b) Complete these sentences using the words from the table above.
1. The exporter preferred that _____ for the goods had to be made in his country’s currency.
2. The _____ accepted the draft by writing the word "accepted" on the face of the draft, signing it and indicating the date.
3. Clearing institutions in the leading financial centers are actively involved in financing international _____.
4. It was not easy for the exporter to find a _____, which could deliver his goods to this country.
5. The importer managed to _____ money on his insurance only after presenting all the relevant documents.
6. The bank had to pay the _____ amount to the exporter when the buyer failed to meet his obligations.
7. The buyer could not receive shipping documents before making payment for the goods because the contract was made on ” _____ against documents” terms.
8. The _____ insisted that the goods should be paid by a bill of exchange on sight draft terms.
UNIT VII
FOREIGN EXCHANGE
Warm up
Do you know denominations of the most
important currencies in circulation? Have
you ever changed rubles into any other currency?
Why is it important to follow the exchange rate of our currency?
Section A
Reading 1
Foreign Exchange Market
The foreign exchange market (forex, FX, or currency market) is a global decentralized