UNIT 1 Money Matters Basic Terms

Section 1 Personal Finance

Lead in

All the money a person receives or earns as payment is his or her income. This can include:

--- a salary: money paid monthly by an employer, or wages: money paid daily, hourly or weekly;

--- overtime: money received for working extra hours;

--- commission: money paid to salespeople and agents-- a certain percentage of the income an employee generates;

--- a bonus: extra money given for meeting a target or for the good financial results;

--- fees: money paid to professional people such as lawyers and architects;

--- social security: money paid by the government to unemployed and sick people;

--- a pension: money paid by a company or the government to a retired person.

Salaries and wages are often paid after deductions such as social security charges and pension contributions.

Amounts of money that people have to spend regularly are outgoings. These often include:

---living expenses: money spent on everyday needs such as food, clothes and public transport;

---bills: requests for the payment of money owed for services such as electricity, gas and telephone connections;

--- rent: the money paid for the use of a house or flat;

---a mortgage: repayments of money borrowed to buy a house or a flat;

--- health insurance: financial protection against medical expenses for sickness or accidental injuries;

--- tax: money paid to finance government spending.

Vocabulary

income	доход
overtime	плата за сверхурочную работу
commission	комиссионное вознаграждение
bonus	премия, премиальное вознаграждение, премиальная надбавка
fees	гонорар, оплата услуги, плата за услугу
social security	социальные пособия
outgoings	расходы
living expenses living standards	расходы на проживание, стоимость жизни уровень жизни, жизненный уровень, материальное благосостояние
bill	счет к оплате
rent	квартирная плата, арендная плата
mortgage	ипотека/ ипотечный кредит, ссуда на покупку недвижимости
health insurance	медицинская страховка
VAT tax	налог на добавленную стоимость
take-home pay of wage and salary earners Syn. net earnings	чистая зарплата рабочих и служащих, чистый заработок
benefits Syn. fringe benefits, perks	соцпакет, льготы, компенсации (как правило, имеющие не денежный характер), льготы

NOTE:

1) BrE: social security; AmE: welfare

2) Do not use wages before a noun. Use wage • wage earners

Vocabulary Practice

1. Put each of the following words or phrases in its correct place in the passage below.

commute salary prospects promotion retire

pension ambitious perks increments commission

Job satisfaction is important but I have a wife and baby so I have to think about money too. If a job interests me, I need to know what (a) ___________ it offers and also whether there are regular annual increases, called (b) __________ . I want to know if I will receive a (c) ______________ when I (d) __________ at the age of 60 or 65. If the job is selling a product, I ask if I'll receive a percentage of the value of what I sell, called (e) __________. It is also important to know if there are extra advantages, like free meals or transport, or the free use of a car. These are called (f)__________ or fringe benefits. Are the future (g) _____________ good? For example, is there a good chance of (h) ______________ to a better job, with more money and responsibility? Is the job near my home? If it isn't, I'll have to (i) ____________ every day and this can be expensive. I am very keen to be successful. I am very (j) _____________ . I don't want to stay in the same job all my life.

Gross vs Net

	Gross	Net
Meaning	Gross refers to the total amount before anything is deducted. Many important accounting statistics use this method, such as gross earnings and gross profit.	Net refers to the amount remaining after certain adjustments have been made for debts, deductions or expenses.
Gross vs Net Income	Gross income is the pre-tax net sales minus cost of sales. Also called gross profit.	Net income is what remains after subtracting all the costs (namely, business, depreciation, interest, and taxes) from a company’s revenues. It is sometimes called the bottom line. Also called earnings or net profit.
Examples	This is called double taxation because the corporation's gross income is taxed and the dividends paid out to owners are taxed again.	Net income is one of the most closely followed numbers in finance. Shareholders look at net income closely because it is the main source of compensation to shareholders of the company, and if a company cannot generate enough profit to adequately compensate owners, the value of shares will plummet. Conversely, if a company is healthy and growing, higher stock prices will reflect the increased availability of profits.

Section 2 Business Finance

Lead in

A) CAPITAL

When people want to set up or start a company, they need money, called capital. Companies can borrow this money, called a loan, from banks. The loan must be paid back with interest: the amount paid to borrow the money. Capital can also come from issuing shares or equities - certificates representing units of ownership of a company. The people who invest money in shares are called shareholders and they own part of the company. The money they provide is known as share capital. Individuals and financial institutions, called investors, can also lend money to companies by buying bonds- loans that pay interest and are repaid at a fixed future date.

Money that is owed - that will have to be paid - to other people or businesses is a debt. In accounting, companies’ debts are usually called liabilities. Long-term liabilities include bonds; short-term liabilities include debts to suppliers who provide goods or services on credit - that will be paid for later.

The money that a business uses for everyday expenses or has available for spending is called working capital or funds.

Vocabulary

to set up a company start a company found a company establish a company	основать, учредить компанию
interest interest rate	процент, процентный доход процентная ставка
loan Syn. borrowing interest-free loan	заем, ссуда, кредит заимствование, заем, кредит беспроцентный займ
shares Syn. equities, stocks, stock shares in a company to issue shares share capital Syn. equity capital, stockholders' equity, owners' equity, equity financing, share capital shareholder	акции акции компании выпускать в обращение акции, производить эмиссию акций акционерный капитал акционер
unit of ownership Syn. interest in a company Stake	доля участия в капитале компании
working capital Syn. operating capital,funds	оборотный капитал, оборотные средства
bonds T-bonds ( Treasury Bonds )	облигации казначейские облигации США
liabilities assets and liabilities	пассивы, долговые обязательства, задолженность активы и пассивы
individual legal entity	физическое лицо юридическое лицо

NOTE:

1) BrE: shares; AmE: stock

2) BrE: shareholder; AmE: stockholder

Vocabulary Practice

B) REVENUE

All the money coming into a company during a given period is revenue. Revenue minus the cost of sales and operating expenses, such as rent and salaries, is known as profit, earnings or net income. The part of its profit that a company pays to its shareholders is a dividend. Companies pay a proportion of their profits to the government as tax, to finance government spending. They also retain, or keep, some of their earnings for future use. Companies give information about their financial situation in financial statements. The balance sheet shows the company’s assets - the things it owns; its liabilities - the money it owes; and its capital. The profit and loss account shows the company’s revenues and expenses during a particular period, such as three months or a year.

UNIT 1 Money Matters Basic Terms - student2.ru share capital revenue dividents

capital

company

UNIT 1 Money Matters Basic Terms - student2.ru tax

Vocabulary Practice

Deficit vs. Debt

When discussing government or corporate finances the terms of deficit and debt get thrown around a lot. While they are closely related they are two separate concepts.

The deficit typically refers to the current financial period and relates to a shortfall in revenues when compared to expenses. In a government context, more is being paid out than is being collected in taxes. Any shortfall has to be funded somehow, so an organization will pay this deficit out of assets it already has or by incurring more debt.

The debt typically refers to the total outstanding liabilities of a government, or corporation. Most governments are in some form of debt position, owing money to a combination of other governments and private holders of items like treasury bills or government bonds. In a government context, the debt is usually an accumulation of running a deficit for many years. If you have a shortfall every year when comparing how much you take in to how much you pay out, this consistent deficit will add to your debt every year.

Being in a debt position or incurring a deficit is not necessarily a bad thing, governments and organizations sometimes need to spend more in a current period than they have on hand. The issue comes from consistently being in a deficit position and building up your debt to the point where your interest payments become unsustainable. As the financial crisis has played out, numerous countries have needed bail outs and support because they could not even pay the interest on their debt. So as you can see above, deficit vs. debt really becomes deficit and debt as one leads to another.

by incurring more debt	(зд.) за счет новых кредитов
outstanding liabilities	неуплаченные долги, непогашенные финансовые обязательства
treasury bills	казначейские векселя
bail out	экстренная финансовая помощь

Lead in

Finance and economics

Finance is:

■ money provided or lent for a particular purpose.

■ the management of money by countries, organizations or people.

■ the study of money management.

High finance involves large amounts of money used by governments and large companies. A person’s or organization’s finances are the money they have and how it is managed, etc. The related adjective is financial.

Economics is:

■ the study of how money works and is used.

■ calculations of whether a particular activity will be profitable.

Related adjectives: a profitable activity is economic; an unprofitable one is uneconomic. If something is economical, it is cheap to buy, to use or to do. If not, it is uneconomical.

Economic indicators are figures showing how well a country’s economy (economic system) is working.

1. Complete these sentences with expressions from above.

1. Eating pasta, potatoes and rice rather than meat and fish is .......... .

2. Buying your food at a small local shop rather than at a big supermarket is .......... .

3. Someone who arranges multibillion-dollar loans to governments works in ........... .

4. Someone who is heavily in debt has problematic ........... .

5. If you obtain money for investment in a business project, you raise ........... .

6. Someone who teaches about trade between countries is a teacher of ........... .

7. Pig farming is at present unprofitable and ........... .

2.Notable Quotable. Comment on the following:

It's good to have money and the things that money can buy, but it's good, too, to check up once in a while and make sure that you haven't lost the things that money can't buy.

George H. Lorimer

3. Read and translate the text. Answer the following questions:

a) Explain in your own words the term Homo Economicus .

b) Who was the first to explain the idea?

c) How is the idea of Homo Economicus related to the notion of costs and benefits? Give examples.

d) Why do you think people mostly take quick decisions based on past experience, habit, and rules of thumb?

e) Why is the idea of "economic man" still useful nowadays?

Economic man

Most economic models are underpinned by the assumption that humans are essentially rational, self- interested beings. This is Ноmo Economicus, or “economic man. The idea - which applies equal to men and women - assumes that every individual makes decisions designed to maximize their personal well-being, based on a level-headed evaluation of all the facts. They choose the option that offers the greatest utility (satisfaction) with the least effort. This idea was first expounded by Adam Smith in his 1776 work, The Wealth of Nations.

Smith’s central belief was that human economic interaction is governed mainly by self-interest. He argued that "it is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest”. In making rational decisions, suppliers seek to maximize their own profit; the fact that this supplies us with our dinner matters little to them. Smith's ideas were developed in the 19th century by the British philosopher John Stuart Mill. Mill believed people were beings with desire to possess wealth, by which he meant not just money, but a wealth of all things good. He saw individuals as motivated by the will to achieve the greatest well-being possible, while at the same time expending the least possible effort to achieve these goals.

Today, the idea of Homo Economicus is referred to as rational choice theory. This says that people make all kinds of economic and social decisions based on costs and benefits. For example, a criminal thinking of robbing a bank will weigh up the benefits (increased wealth, greater respect from other criminals) against the costs (the chances of getting caught and the effort involved in planning the raid), before deciding whether to commit the crime.

Economists consider actions to be rational when they are taken as a result of a sober calculation of costs and benefits in relation to reaching a goal. Economics may have little to say about the goal itself, and some goals may appear to be quite irrational to most people. For example, while to most of us it may seem a dangerous decision to inject the human body with unverified performance-enhancing drugs, for numerous athletes - in the context of the desire to be the best - the decision may be a rational one.

Some people have questioned whether the idea of Homo Economicus is realistic. They argue that it does not allow for the fact that we cannot weigh up every relevant factor in a decision - the world is too complex to collate and evaluate all the relevant facts needed to calculate costs and benefits for every action. In practice we often take quick decisions based on past experience, habit, and rules of thumb.

The theory also falters when there are conflicting long- and short-term goals. For instance, someone might buy an unhealthy burger to stave off immediate hunger, despite knowing that this is an unhealthy choice. Behavioural economists have begun to explore the ways in which humans act differently to Homo Economicus when making choices. The ideas of "economic man" may not be entirely accurate for explaining individual behaviour, but many economists argue that it remains useful in analysing the actions of profit-maximizing firms.

economic man

экономически мыслящий человек: в традиционной экономической теории утверждается, что только экономически мыслящий человек, т.е. человек способный определять задачи и добиваться их решения, способен найти рациональное решение

behavioural economists

экономисты, сторонники поведенческой теории

4. Summarise the article using the outline given below:

1) As individuals we are self interested.

2) We aim to improve our personal well-being by consuming goods and services, and achieving goals.

3) We make decisions by collecting information and calculating which actions will help us achieve our aims without being too costly.

4) Man is a cold rational thinker.