Write an essay on the following topic.

Suppose you are interested in opening a business importing exotic fruits and vegetables. Give the list of the potential problems you may encounter doing business overseas and offer the solutions to them.

Unit 12 BANKING

I. Anticipating the Issue

Discuss your answers to the following questions.

1. What functions do banks perform?

2. What is the Belarusian main financial institution? Do its functions differ from those performed by other banks?

II. Background Reading

Read the following text. Focus on the meaning of the boldfaced words. Determine whether what you anticipated coincides with the text.

Banking

1. Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process.

The following table illustrates where financial markets fit in the relationship between lenders and borrowers:

Relationship between lenders and borrowers
Lenders	Financial Intermediaries	Financial Markets	Borrowers
Individuals Companies	Banks Insurance Companies Pension Funds Mutual Funds	Interbank Stock Exchange Money Market Bond Market Foreign Exchange	Individuals Companies Central Government Municipalities Public Corporations

Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow.

2. Commercial or retail banks are businesses that trade in money. They receive and hold deposits, pay money according to customers' instructions, lend money, offer investment advice, exchange foreign currencies, and so on. They make a profit from the difference (known as a spread or margin) between the interest rates they pay to lenders or depositors and those they charge to borrowers. Banks also credit because the money they lend, from their deposits, is generally spent (either on goods or services, or to settle debts), and in this way transferred to another bank account – often by way of a bank transfer or a cheque (check) rather than the use of notes or coins – from where it can be lent to another borrower, and so on. When lending money, bankers have to find a balance between yield and risk, and between liquidity and different maturities.

Merchant banks in Britain raise funds for industry on various financial markets, finance international trade, issueand underwrite securities, deal with takeovers and mergers, and issue government bonds. They also generally offer stockbroking and portfolio management services to rich corporate and individual clients.

Investment banks in the USA are similar, but they can only act as intermediaries offering advisory services, and do not offer loans themselves. Investment banks make their profits from the fees and commissions they charge for their services.

In the USA, the Glass-Steagall Act of 1934 enforced a strict separation between commercial banks and investment banks or stockbroking firms. Yet the distinction between commercial and investment banking has become less clear in recent years.

3. Deregulation in the USA and Britain is leading to the creation of 'financial supermarkets': conglomerates combining the services previously offered by banks, stockbrokers, insurance companies, and so on. In some European countries (notably Germany, Austria and Switzerland) there have always been universal banks combining deposit and loan banking with share and bond dealing and investment services.

4. A country's minimum interest rate is usually fixed by the central bank. This is the discount rate, at which the central bank makes secured loans to commercial banks. Banks lend to blue chip borrowers (very safe large companies) at the base rate or the prime rate; all other borrowers pay more, depending on their credit standing (or credit rating, or creditworthiness): the lender's estimation of their present and future solvency. Borrowers can usually get a lower interest rate if the loan is secured or guaranteed by some kind of asset, known as collateral.

5. The National Bank of the Republic of Belarus is the central bank and a government agency of the Republic of Belarus operating exclusively in the interests of the Republic of Belarus. Among others, it performs the following functions: develops the Republic of Belarus Monetary Policy Guidelines and pursues, in concert with the Government of the Republic of Belarus, common monetary policy of the Republic of Belarus, following the manner prescribed by legislative acts of the Republic of Belarus; issues money; carries out foreign exchange regulation; acts as a central depositary of Government and National Bank securities, carries out state registration of banks and non–bank financial institutions; prescribes procedures for cash and non–cash settlements in the Republic of Belarus; in consultation with the President of the Republic of Belarus, establishes gold and foreign exchange reserves and manages them within the scope of its authority; sets prices for purchasing/selling precious metals and precious stones in carrying out banking operations.

6. Unfortunately, the key terms of finance have been recently associated with the word “crisis”. The global financial crisis of 2008–2009 emerged in September 2008 with the failure, merger, or conservatorship of several large United States-based financial firms and spread with the insolvency of additional companies, governments in Europe, recession, and declining stock market prices around the globe. The causes leading to the crisis had been reported in business journals for many months before September 2008, with commentary about the financial stability of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis.

Beginning with failures caused by misapplication of risk controls for bad debts, collateralization of debt insurance and fraud, large financial institutions in the United States and Europe faced a credit crisis and a slowdown in economic activity. The impacts rapidly developed and spread into a global shock resulting in a number of European bank failures and declines in various stock indexes, and large reductions in the market value of stock and commodities. World political leaders, national ministers of finance and central bank directors coordinated their efforts to reduce fears, but the crisis continued. At the end of October 2008, a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many new independent economies to seek aid from the International Monetary Fund.