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The Eurocurrency Market

One of the most well-developed sectors of the Global Financial Market is the Eurocurrency Market. The Market refers to funds channelled via financial intermediaries from international lenders to international________. The large multinational banks dominate this business and have played a________role in the development and growth of these "offshore" markets.

The Eurocurrency markets_________the short to medium term debt required by banks, corporate customers, and government borrowers. The sources of these funds are domestic _________ deposits whose ownership is transferred to banks outside the controlled domestic monetary systems.

The Eurocurrency market is therefore_________and sustained by the large international banks and operates at two levels. Firstly, there is the very competitive wholesale market_________in London, in which these banks sell their funds to each other at the London interbank offering rate (LIBOR). This business is mainly________ via telephone, and thus only the highest quality banks can________ in the wholesale market. Secondly, smaller banks, corporate borrowers, national governments (in the late 1970s from Eastern Europe or developing countries and now primarily the Western industrialized countries) can_________loans from this market. In this large-scale "retail" loan market the large international banks only lend the offshore deposits after detailed credit investigation of the The Eurocurrency markets _________ three basic functions.

Firstly, they are extensively used for foreign exchange hedging purposes as the banks_________to balance out their foreign assets and liabilities. The banks therefore take positions in the Eurocurrency market to cover the forward commitments they have made with their customers. Secondly, Eurocurrency markets can at times bypass domestic channels of financial intermediation, especially when governments impose tight credit _________ . For example, US corporations can acquire Eurodollars in London. These deposits may be US domestic dollar deposits that have been transferred abroad, during a US domestic credit squeeze. The third_________is the full international intermediation role of channelling surplus liquid resources from, say, OPEC countries to those countries or corporations who________to borrow.

Words you may need:

via через, посредством

to take position устанавливать позицию

at times по временам, время от времени

bypass v обходить

credit squeeze «сжатие кредита» (мероприятия государства по ограничению кредита потребителям)

Discussion

Ex. 12. a) Read the text and single out its main facts.

b) Present them in a short review.

c) Discuss the problem raised in the text, offer your solution to the problem.

Tougher Measures Needed to Counter Macroeconomic Effects of Money Laundering

The globalization of the world economy and the growing efficiency of capital markets allow individuals and firms to shift vast amounts of money relatively freely between domestic financial markets and from one country to another. The efficiency of capital markets and their freedom from restrictions on capital movements have also provided criminal elements with an easy means to launder internationally money acquired from illegal activities in particular countries. Although difficult to measure, the magnitude of the sums involved and the extent of the criminal activities that generate this "income" have implications for both the domestic and the international allocation of resources and macroeconomic stability.

Money laundering and measures to counter it have therefore become the focus of intense international attention in recent years.

Money laundering is, by definition, a concealed activity. The-"dirty" money that is cycled through the international capital "laundromats" is generated by criminal activities that take place far from the eyes of the authorities. These activities include, in particular, the production and distribution of illegal drugs, as well as theft and embezzlement, insider trading, traffic in nuclear materials, usury, and prostitution. Although it is impossible to measure directly the size of the net financial gains that accrue annually to those who engage in these activities worldwide, the value of the total stock of laundered money is probably much larger than the GDP of many countries.

The concentration of vast sums of money in laundering operations has generated progressively more sophisticated attempts to launder the assets. Laundering transactions now involve a broad range of financial instruments, including derivatives. And the intermediaries have increasingly included such traditional financial institutions as banks and near-banks, brokers and dealers in securities, and foreign exchange dealers, as well as unconventional and parallel financial markets.

This huge money stream may exert an impact on macroeconomy.

At the national level, large financial flows related to money laundering could influence variables such as exchange rates and interest rates. At the international level, capital movements originating in one center can easily spread to others, thus transforming a national problem into a systemic one.

The transparency and soundness of financial markets are key elements in the effective functioning of economies, and money laundering can threaten both. Criminally obtained money can corrupt financial market officials, and the damage can be long-lasting, because the credibility of markets, though quickly lost, takes a long time to be rebuilt.

Although domestic money laundering can often be fought at the national level, an effective solution to the international money laundering problem is only possible at the international level.

Words you may need:

money laundering отмывание денег

counter v противостоять

magnitude n размер(ы), масштаб(ы)

implication n подтекст, смысл

concealed activity тайная деятельность

drugs n наркотики

theft n кража

embezzlement n растрата

traffic (in) (зд.) торговля (чём-л.)

usury n ростовщичество

accrue v увеличиваться, расти, (зд.) поступать

derivatives n pl производные ценные бумаги

to exert an impact оказывать воздействие

Ex. 13. Read the dialogue, sum up its content and act it out:

Russian: I know that starting from January 1999, the new European currency-the Euro-has been traded in the foreign exchange markets. How will the introduction of the Euro affect the European Union countries?

Foreigner: First of all it is an important step towards European integration. European countries have already set up the EU Council, the European Parliament and the European Central Bank.

R.: How will the monetary policy of the EU be regulated?

F.: By the European Central Bank and its system. It will be using usual financial instruments: interest rates, open-market operations, reserve requirements, etc.

R.: Who will benefit from the Euro?

F.: We all, particularly our business. Business firms will get wider possibilities, first of all, in the money and capital markets. Frontiers are being eliminated, business is becoming international.

R.: As far as I know, some countries of Europe failed to enter the Euro zone, didn't they?

F.: To be exact, the UK and Switzerland refused to enter the Euro system. Others simply failed to comply with some economic and legal requirements.

R.: At the moment the Euro is used in parallel with the currencies tied to it and only for non-cash payments. When will the cash Euro be introduced?

F.: Starting with July 1, 2002, when the national currencies will cease to exist.

R.: I foresee a serious problem here. As soon as the currency issuance and monetary policy become the function of the European Central Bank, the countries will lose their independence.

F.: Yes, it is a serious drawback. But the economic benefits will outweigh it.

Ex. 14. Give extensive answers to these discussion questions:

1. Do rates of exchange influence the external trade of a country?

2. What are the meaning and purpose of Forward Exchange?

3. What are the objectives and methods of Exchange Control?

4. What is "convertibility" as applied to a currency?

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