Lesson 9

1. Read and act out the dialogue:

Credit Card

Mr. Lerch goes to his bank to ask his teller for advice. He is going to his company’s head office in London on business.

L: Good morning, Miss Smith. Well, I am going abroad soon, so I'll need some foreign currency.

T: Fine. Where are you going? L: I'm going to our head office in London, then to San Francisco, and finally to Brussels.

T: Quite a long trip! Well, I wouldn't take large quantities of cash: US dollar traveler's checks could be the answer.

P: Yes, that's what I had in mind.

T: On the other hand, there is something else you might find useful – a Eurocard.

P: I've heard of that. What is it exactly?

T: It's a credit card. You can use it to pay for hotels, plane tickets, shopping and so on, in most countries of the world. It saves you having to carry so much in cash or checks.

P: That sounds very practical. Can you tell me more about it?

T: Certainly, but when are you leaving?

P: In about a fortnight. The date hasn't been fixed yet.

T: Then I'd better give you a leaflet telling you all the advantages of the Eurocard and how to use it.

P: Thank you. That's good suggestion. Good bye.

2. Read and translate the text:

The Credit-Financial System

The credit-financial system of a country performs two central functions: it creates different financial assets and liabilities and provides specific financial services.

All banking operations and the methods of controlling them are part of the credit system of the country. Banks and other financial institutions fulfill the role of financial intermediation between the savers and investors. The state of business activities in any country greatly depends on the credit system.

Credit is trust in the borrower's promise to repay a loan; or transferring ownership from one party to another, or buying goods today but paying for them sometime in the future.

There are different classes of credit: commercial credit (businesses give to one another to finance production, trade and distribution). This class of credit is sometimes called trade credit. This means that a business is able to buy goods and services today and pay for them sometime in future. When a firm buys goods, it receives an invoice (proforma-invoice, bill). It often contains terms such as «2/10, net 30». This means mat the Buyer can take a 2 percent discount for paying within 10 days The total invoice is due in 30 days if the discount is not taken. It is important for the finance manager to pay attention to such discounts, because the firm would lose 2 percent for every 20-day period if it doesn't pay its bills earlier (36 percent a year);

investment credit (businesses use to finance their construction, equipment, bonds issue)

bank credit (secured and unsecured loans, overdrafts, factoring, credit cards, so on);

consumer (or personal) credit (buying goods and services for personal use). At present we notice a rapid growth in consumer credit - that is lending to people so they can buy things if they promise to repay the money later. This is done now by plastic money, or credit card. With a credit card you receive credit from a number of shops and department stores, just by filling in some simple forms.

real-estate credit (buying or building property - mortgage). Mortgage is a loan for buying or building some property (e.g. a house) and the property itself is used as collateral for the lender. If the borrower fails to repay the loan the lender transfers the ownership for tie property to itself;

public or government credit (bonds issued by government). These bonds are considered to be the conservative ones, as they are backed (secured) by the government, their interest rate is stable and they are attractive to businesses;

international credit (is given by other governments or by international banks such as the International Bank for Reconstruction and Development).

Credit is made for a price, known as interest. Interest rate is changeable, it depends on the risk, demand and supply of credit.

Commentary:

it creates different financial assets and liabilities – вона (система) створює різні фінансові активи і пасиви

marketability; maturity; liquidity – придатність до продажу, товарність; високий рівень розвитку; ліквідність

insurance, pension arrangement – страхування; пенсійне узгодження

financial intermediation – фінансове посередництво

transferring ownership to – перенос права власності на

invoice (bill, proforma-invoice) – рахунок, проформа-рахунок

factoring - факторинг

collateral - застава

bonds issued by government – облігації, які випущені урядом

3. Say what you have learnt about:

1. the functions performed by the country’s credit system;

2. the role of banks and other financial institutions in the country’s credit system;

3. the definition of the word credit;

4. classes of credit;

5. the reason credit is made for.

4. Answer the questions:

• What does the credit system of any country consist of?

• What does the state of business activity within a country depend on?

• Picture the interrelation between two parties: transferor and transferee.

• List all different classes of credit.

• What is the difference between commercial and consumer credit?

• Why should businesses use commercial credit?

• Why do financial institutions make loans?

• How does the value of interest vary and what does it depend on?

• What is the difference between an unsecured loan and loan backed by collateral?

• What do we call credit instruments?

5. Make a short oral report in class about the credit system of Ukraine. How does it influence the state of business activity within our country?

6. Read, translate and retell the texts.