In order to get prepared for participation in the class discussion of the questions, write a short essay on:

a) Services provided by banks.

b) Your attitude to the bank's work (see the main dialogue).

c) Different kinds of accounts opened by banks.

d) History of banking and its present-day developments.

e) The influence of modern technology on banking.

Ex. 15. Prepare a short talk on the following:

a) Explain how banks earn profit, how they act as financial intermediaries, how they create new money.

b) Have you ever turned to a bank either as a depositor or a borrower? Have you ever done business with banks offering intermediation services?

c) Do you have a credit card or a debit card? What was the most recent purchase you made with your cards? Describe the sequence of connected events with the use of the cards.

d) If you have a bank account and heard that your bank was not honouring its obligations towards depositors, what would you do about your account?

Ex. 16. Scan several business newspapers and make conclusions about the attitude of businessmen to the presence of foreign banks in Russia.

Reading practice

Ex. 17. Read the article below quickly to find out the functions the discount market performs.

The Discount Market

The discount market is the fusion of the London markets for sterling money-market security and short-term sterling deposits in the operations of the discount houses.

For many years it was synonymous with the London money market but with the rise to prominence of the parallel markets it became known as the "traditional" money market in comparison especially with the interbank market in sterling funds. The discount market is a comparatively recent development in English monetary history. Its origins lie in the London bill market of the early 19th century.

Now this market in short-term financial instruments consists of ten big discount houses, who are members of the London Discount Market Association, and simple bill-brokers (discount houses) who do not have a large portfolio. Through this market the Bank of England fine-tunes the nation's money supply.

The participants in the market specialize in "bill-broking" form of banking, i.e. the provision of short-term money by way of discounting bills to borrowers. Some twenty years ago much of the discount market's business was in treasury bills. Now the market deals in a wider range of short-term assets, in particular, bank bills and certificates of deposit. Generally speaking, the discount market performs the same function for the banks as the banks themselves perform for their clients: it employs profitable funds which are temporarily unused by banks and other financial houses. It participates substantially in the financing of the short-term requirements of the government by buying Treasury Bills; it holds short-term government bonds and thereby carries some of the Government's unfunded debt; and it accepts and discounts bills of exchange, thereby financing short-term commercial operations and foreign trade.

Words you may need:

discount market учетный рынок

fusion n (зд.) слияние, объединение

prominence n важность, значимость

bill market рынок векселей

fine-tune v (букв.) «точно настраивать» (регулировать колебания рыночных тенденций)

"bill broking" учет векселей

unfunded debt срочный долг, текущая задолженность

Ex. 18. Look through the text and name the facts which are new to you.

A crucial aspect of the development of a country's domestic banking system and financial markets is the payment system, which is used by enterprises and individuals to discharge obligations incurred in a market economy. Payment systems are the foundations on which a stable and efficient economy can be built. The principal objective of the payment system is to support the country's economy. Moreover, the payment system is one of the first places where financial stress will manifest itself, as firms in financial difficulty fail to meet their payment obligations.

The payment system is the apparatus through which obligations resulting from economic activity are discharged by transfers of monetary value. Obligations can be discharged through the payment system using cash or deposits held in banks. In the case of payments made using bank deposits, it is necessary to use some form of payment instrument, such as a paper or electronic credit or debit payment, to move funds. For a debit payment, such as a check, the receiver of money (the payee) initiates an instruction to the bank holding the deposit of the sender of money (the payer), ordering the paying bank to pay. This is done by presenting a check, which must be honoured by the payer, who is the customer of the paying bank, once the check is authenticated.

For a credit payment, such as a payment order, the party making the payment initiates an instruction to his bank to pay money to the intended receiver by initiating a payment order.

When using deposit money in banks to make payment, the process for discharging an obligation can be divided into two parts. The first part is clearing, the process by which payment information is conveyed between the payer and payee and between the banks holding the accounts of the two parties to the transactions. Once a payment is initiated, clearing should take place quickly and reliably in order to minimize financial risk as funds are being transferred. Commercial banks play an important role as intermediaries in the clearing process because they provide account services to the public.

The second part of the process for discharging an obligation using deposit money in banks is settlement, in which the actual transfer of monetary value associated with the payments is made. Banks play a role in settlement because it is through the accounts held on their books that the transfer of monetary value occurs. Commercial banks settle for the non-bank public and sometimes for other banks with which they have correspondent account relationships.

The central bank, where all commercial banks hold accounts, is often used by commercial banks as the settlement entity for interbank transfers.

Clearing and settling payments can be complex. Therefore, an efficient payment system requires a high degree of cooperation and coordination among banks, which usually occurs through a clearing house. A clearing house is a legal entity, owned and controlled jointly by its member banks. Its primary function is to coordinate the exchange and settlement of payments among its members.

The activities of the clearing house might be limited simply to coordinating the physical exchange of payments among banks, for example, by organizing efficient and speedy transportation of payment documents. Clearing houses may also provide processing services to their members, in which case they may operate fairly large data processing and data communications systems to process payment instructions. Payment systems face a number of risks, like liquidity risk, credit risk, cross-currency settlement risk and systemic risk.

Thus, confidence in a payment system is crucial in a market economy. In the long term each country is likely to need a safe and efficient payments system for households; legislation governing payments; and a sound financial sector, including financially and operationally sound banks.

Words you may need:

crucial adj решающий, критический

to discharge obligations выполнять обязательства

payee n получатель платежа

to initiate an instruction (зд.) дать указание

payer n плательщик

to honour the check оплатить чек

payment order платежное поручение

convey v передавать

correspondent account корреспондентский счет

systemic adj системный

Ex. 19. Read the article below carefully to find specific information about paper-based payment systems, electronic funds transfer systems, and recent tendencies in the development of payment systems.

Paper-based systems are slow and costly to operate, involving physical movement of paper which must be sorted and cleared. They are prone to error, delays or disruptions because of returned cheques, missing documents or errors in data capture.

In recent years some countries have speeded up the documentation flows due to the rapid innovation of telecommunications and bank computer technology which has revolutionized payment systems. It is particularly true of debit or credit card-based transactions, in which bank customers may give instructions to effect funds transfers electronically through automated teller machines (ATMs), terminals or at retail outlets which operate electronic funds transfer at point of sale (EFTPOS). EFT systems have the advantage of speed, accuracy, convenience and greater efficiency relative to paper-based systems, but are much more costly to install and technologically complex to maintain.

Most developed countries now maintain a mixture of paper-based and EFT systems.

Modern payment systems generally cover the following key components:

a. cheque clearing system;

b. automated clearing houses for bank EFT payments;

c. credit/debit card systems including ATMs and EFTPOS;

d. giro payment system;

e. interbank funds transfer system (such as Fedwire); and

f. securities market clearing/settlement system.

Modern banking technology enables payment systems to handle larger volumes of information faster, with greater accuracy, thus reducing the float and the time lag between a transaction and its settlement. As banking systems and financial markets become more inter-linked, payment systems have become increasingly interconnected through harmonized document and telecommunication standards. The greater the degree of harmonization of standards, the more efficient the information flows.

Banks that engage in foreign trade and foreign exchange transactions find it useful to become part of the international electronic message switching network operated by SWIFT (the Society for Worldwide Interbank Financial Telecommunications).

Since payment systems also develop hand in hand with the volume of market transactions, modern payment systems are increasingly integrated with financial market settlement systems, where market transactions are automatically matched with payment instructions and settled on time.

Words you may need:

paper-based system система, основанная на обработке документов в бумажном виде

to be prone to error приводить к ошибкам, не исключать ошибок

delay n задержка

disruption n срыв, нарушение

data capture (зд.) считывание данных

documentation flow документопоток

to effect funds transfer осуществлять перевод средств

terminal терминал retail outlet торговая точка

electronic funds transfer at point of sale (EFTPOS) система электронных платежей в пункте продажи

giro payment system система жироплатежей (почтовая)

Fedwire «Федуаер» – система электронной связи, принадлежащая Федеральной

резервной системе США

float n срок между предъявлением чека в банк и его оплатой

time lag временный лаг, отставание, запаздывание

SWIFT СВИФТ