1. Make up several sentences of your own using the vocabulary notes. Read them aloud for your group-mates and ask someone to translate.

2. Read and translate the dialogue

Board Member: I notice that our cash and cash-in-banks have been building up above the amount required by law.

President: I've had the same thoughts. And right now there is a new offering of municipal bonds that can be bought at a price that will yield 3.5%. В. M.: Are they general obligation bonds?

P: Yes, they are. I prefer those to revenue bonds, don’t you?

В. M.: I do. Does this issue have an AA rating?

P.: Yes. And they can be had in five to ten-year maturities. They're tax-exempt, you know.

В. M.: Do you think we might also buy some stocks to keep our portfolio well diversified?

P.: Well, we might. But stocks are much more speculative,

В. M.: Unless we stick to blue chip issue. They show less price fluctuation.

3. Answer the following questions based on the dialogue:

1. What problem is being considered by the President and the Board Member?

2. How can the bank invest its funds profitably at present?

3. Why does the President prefer to invest in general obligation bonds?

4. What does the President know about a new offering of municipal bonds?

5. Where else can they invest the bank's funds?

6. What sort of stocks are they going to invest in and why?

4. Read and translate Text a Text a

The investment policy of a bank is based upon the reconciliation of two conflicting aims. On the one hand the bank wants to make as much profit as it can and for this reason it must take the risks of lending money. On the other hand its funds belong to its depositors and must be available whenever they wish to make withdrawals.

There are two things that the bank must therefore do. First it must keep a proportion of its assets in the form of cash to meet demands. The amount of it varies very little from one bank to another or from one day to another and experience suggests that it is about six percent. As a cushion against unexpected demands a further proportion of funds is invested at low rates of return in highly liquid lending mostly to firms in the money and capital markets.

The second thing that the bank must do is to ensure that the investments it chooses are safe. This also means that they are relatively low yielding since high yields are associated with risk and with lending for long periods of time. Much of a bank's investment is in short and medium term government and local government bonds. They yield certain incomes and are readily saleable should the occasion demand.

Advances by a bank to its customers are the least liquid of their assets since there are few borrowers who could repay a loan at very short notice. However, they are also the most profitable of them yielding the highest rate of return. Advances to customers are likely to account for more than two thirds of the banks investment portfolio although this will vary on a day to day basis since overdrafts are the most common form of advance and are not immediately controllable by the bank.

In general banks do not lend to industry for long periods of time or for investment projects. They regard themselves as providing working capital rather than fixed capital.