Task1. Read the text. Determine whether these statements are true (T) or false (F).

Bank credit has some peculiarities and seems to be created out of thin air. When the bank places purchasing power in its customers’ hands by making loans to them it creates the purchasing power for that very purpose. It hasn’t reduced anyone else’s purchasing power. This is what distinguishes bank credit from other kinds of credit.

Note carefully. When a store gives open book credit in response to your request to “Charge it!”, the store is using up funds it could otherwise employ to replace the goods you bought. When the United States Treasury or a corporation sells you a bond, your cash balance is reduced by the amount the corporation’s is increased. When a savings bank lends you on mortgage, you get cash which the savings bank parts with. When somebody borrows from a bank, or sells an asset to a bank, what that person receives is a specially-created bank deposit: except as it loses cash, the bank parts with nothing, and it costs the bank nothing to satisfy the customer.

Conversely, when you pay your account at the store, your cash is diminished and the store’s cash increased by the amount of the payment. When a bond you are holding matures and you are repaid by check, the debtor’s bank deposit is reduced just as yours is increased. As you repay a mortgage, you lose cash but your creditor gains it. But when you repay a bank loan or buy an asset from a bank, the money you give, i.e. your bank deposit, just is cancelled: money is destroyed. This difference between bank credit and other kinds of credit is fundamental. When banks lend or are repaid, the money stock is increased or diminished. When other lenders lend or are repaid, money is transferred, and the ownership of the money stock is altered but its size is not changed. Why is the difference?

We have defined money as currency plus demand deposits. A demand deposit – the liability of a bank, which it can create at will – is a generally acceptable means of payment. The rest of us, too, can create liabilities (provided we can find someone to lend to us): but our liabilities are not money, for our creditors cannot use their claim on us to settle with their creditors. This is the basic distinction between bank credit and other forms of credit.

Yet this distinction must not be pressed too far, fundamental though it be. When other people than bankers go into debt the assets they create are not used as a medium of exchange, but if liquid they can and do increase the liquidity of the economy. When the Treasury sells short-term debt-instruments, these can be used as a store of value, and hence as a substitute for money in one of its uses. Such instruments can also facilitate the creation of demand deposits by commercial banks by furnishing the latter with a very liquid type of asset. Still other types of credit, such as open book credit in the form of charge accounts and credit cards, can economize money in its use as a medium of exchange by reducing the need to hold precautionary balances and raising money’s velocity to levels higher than would otherwise obtain. These are reasons why, if money is our topic, in discussing credit we cannot safely confine our attention to bank credit, even though the latter is by far the most important type of credit which we must examine.

1. When a bank makes loans to its customers it doesn’t create any purchasing power for that purpose and at the same time a bank hasn’t reduced anyone else’s purchasing power.

2. A person receives a specially-created bank deposit when he or she borrows from a bank or sells an asset to a bank.

3. When a customer pays his or her account at the store a customer’s cash is diminished and the store’s cash is actually reduced by the amount of the payment.

4. Suppose a customer repays debts of various kinds and loses cash, his or her creditor gains cash, but when a customer repays a bank loan his or her bank deposit is just cancelled.

5. The difference between bank credit and other types of credit is not very substantial.

6. A demand deposit, being an asset of a bank, is an acceptable means of payment.

7. When people go into debt, the assets they create are usually used as a medium of exchange and even if liquid they cannot increase the liquidity of the economy.

8. Short-term debt instruments which can be used as a store of value can also provide the creation of demand deposits by commercial banks by furnishing them with a liquid type of asset.

9. It is evident that other kinds of credit can economize borrowers’ money in its use as a medium of exchange by reducing the need to hold precautionary balances.

10. In discussing credit we can confine our attention to bank credit onlythough it is not by far the most important type of credit.

Task2. Read the text. For each number (1-10) choose the best word (А, В, С or D) to fill each gap.

Unimportant …(1)… group is the London clearing banks. The clearing banks are so named because they have a central clearing house for…(2)… payments by cheque.The clearing banks are the main banks in Britain. Clearing banks use the central clearing house in London to …(3)… with other banks.

In some European countries, notably Germany, Austria, and Switzerland, there are universal banks which …(4)… deposit and loan banking with share and bond dealing, investment advice, etc. Yet even …(5)… banks usually form a subsidiary, known as a finance house, to lend money – at several per cent over the base lending …(6)… – for hire purchase or …(7)… credit, that is, loans to consumers that are repaid in regular, equal monthly amounts.

In Britain, the USA and Japan, however, there is, or used to be a strict …(8)… between commercial banks and banks that do stockbroking or bond dealing. Thus in Britain, merchant banks specialize in …(9)… funds for industry on the various financial markets, financing international trade, …(10)… and underwriting securities, dealing with takeovers and mergers, issuing government bonds, and so on. They also offer stockbroking and portfolio management services to rich corporate and individual clients.

l a) alone	b) combined	c) single	d) solitary
2 a) ruling	b) handling	c) offering	d) supporting
3 a) provide	b) support	с) succeed	d) deal
4 a) combine	b) add up	c) sum up	d) mix
5 a) branch	b) clearing	с) universal	d) central
6 a) course	b) rate	c) standard	d) ratio
7 a) personal	b) long term	c) short term	d) instalment
8 a) separation	b) supervision	c) allocation	d) assessment
9 a) rising	b) raising	с) searching	d) establishing
10 a) collecting	b) acquiring	c) issuing	d) requiring