BANKINGDEPOSIT - money placed in a bankLOAN - a sum of money borrowed from a bankCAPITAL - the money invested in a businessSHARES - certificates representing part-ownership of a company BONDS - certificates of debt issued by governments or companiesto raise moneyMERGEL EQUAL STATUS - when one company combines with another oneTAKE OVER when one company offers to buy or acquire another oneSTOCKBROKING - buying and selling stocks or shares for clientsPORTFOLIO - all the investment owned by an individual or organisationRETURNS - the profits made on investmenstTO GO BUST DOWN/TO BANKRUPT - unable to pay debts or continue to do businessTHE REFULATION - the ending or relaxing of legal restrictionsCONGLOMERATES - a group of companies, operating in different fields, which have joined togetherINTEREST - the price paid for borrowing money, paid to the lenders

CHARGE interest DO business GIVE advice ISSUE stocks or shares MAKE profits OFFER services PASS laws PAY interest PROVIDE services RAISE capital RECEIVE deposits SHARE profits

credit rating estimates of people's abilitiy to fulfill their financial commitentsdefault failure to repay a loancollateralized with property or another asset used as a guarantee of paymentcash flow the money generated by an investmentwrite off cancel a bad debt or a worthless asset from an account

1. receive deposits 2. charge/pay interest 3. offer/provide/grant loans/services 4. raise capital5. issue shares/bonds

currentACCOUNT credit CARD foreign CURRENCY internet BANKING standing ORDER debit ACCOUNTdeposit ACCOUNT investment ADVICE hedge FUND

1. bank charges - what customers pay the bank in return for its services2. interest rate - the price paid for borrowing money, paid to the lenders3. savings - money kept in the bank to earn interest4. overdraft - take out more money than you have in your bank account 5. standing order - instruction to a bank to pay an amount at regular intervals6. loan - a sum of money borrowed from a bank7. mortgage- money lent to buy property, the property being the security8. portfolio - all the investments owned by an individual or organization

What banks are for In developed economies, nearly everyone has a bank account, because keeping cash under a mattress is neither safe nor convenient. Banks are an essential feature of national life, like buses, post offices and hospitals. Any money that is not floating around as cash, in the form of notes or coins, is either sitting in a bank account, or is in transit in a payment system between banks. Banks operate by taking deposits from private people, on which they pay low interest or none at all, and using the money to make longer-term loans to other customers, charging them higher interest rate. Banking is based on trust, but banks sometimes misuse depositors' money or make losses on their loans, and depositors do not usually have the time, the inclination or the capacity to monitor their banks. They are happy to leave that task to the governments. Governments also help banks cope with temporary cash shortgages by providing access to the "discount window" so they can borrow money from the central bank. The bank deposits are often insured in a pool of arrangement or by the government itself, in case the bank goes bust.cartels, payments, debit, securities, financial services, regulator,s credi,t payment system, transaction, foreign currency, investmentsBanks are also needed to make paymets, sending money from one bank account to another, whether in the same bank or in any other one the world over. Even a payment by debit or credit card or a mobile-phone billing account, ends up as part of a transaction with a bank. These days most banks do a lot more besides, offering a wide range of financial services. For example, they give financial advice, exchange foreign currency, deal in securities and derivatives, and manage investment on behalf of clients. Regulators have an interest in making sure that these businesses are run properly; but their chief concern remains that banks are sound, that those deposits are safe and that the payment system runs smoothly. Regulating banking systems is an uncertain business. Banks have to be discouraged from forming protectionist cartels and encouraged to compete with each other, but not so fiercly that they cut each other's throats. It is a delicate balance for regulators to strike.

take deposit pay interest make/give/grant loans charge interest manage depositors' money make losses borrow money go bust make payments provide/offer financial services give financial advice exchange foreign currency deal in securities and derivatives make investments

Vesna Baki is an accountant (raunovoa). When she started working she opened a current account (tekui raun) with her bank. Her company credits (uplauje sredstva na) her account every month. She can withdraw money from her account in the bank during office hours or from an ATM (bankomat) any time she wants. She has arranged with her bank to pay electricity and other bills by standing order (trajni nalog). Every month on a certain day the bank sends her a bank statement (bankovni izvod) which tells her the balance (stanje), the exact amount on her account, i.e. whether she is in the red (minus) or in the black (plus). Vesna is happy to have a credit card for paying goods and services, but she is not happy when her account is debited (tereen) too much.

Match the definitions to the corresponding headings.

This is the amount the bank charges to maintain your account. Monthly maintenance charge The number that uniquely identifies your account. Account numberThis area shows your previous balance, the total deposits, the total withdrawals and service charges and calculates your new balance. Account summaryEach check that has been cashed is listed here by number with the date cashed and the amount. The * indicates that a check number has been skipped. Detailed check list This section lists all transactions where money has gone into your account. Deposits and other creditsAll transactions taking place between these two are on the statement. Statment periodHere each withdrawal you have made is listed with the location, date and amount of withdrawal. Withdrawal listAny ATM you have used in the statement period is listed here. ATM locations usedThis section lists all transactions where money has come out of your account. Checks and other debitsBANK STATEMENTa) dateb) detailsc) debits = money outd) credits = money ine) balance = money in the accountMONEY TRANSFERencashment (at the counter)b) ATM/cash machine/cash dispenserbank credit cardsd) standing orderADVANCES a) credit cardsb) overdraftsc) mortgagesd) business loans

BANK SERVICES:1. deposit taking2. money transfer3. advances (money which a bank lends)4. other servicesDEPOSIT TAKING1. CURRENT ACCOUNT2. DEPOSIT ACCOUT3. FOREIGN CURRENCY ACCOUNT4. GIRO ACCOUNTMOVEMENTS IN THE ACCOUNT put money into the account withdraw money from the account be in credit (in the black) be in debit (in the red, overdrawn) direct debit (paying bills on POS) direct credit (paying in salaries)e) personal loansOTHER SERVICESa) insuranceb) night safec) safe deposit (box/vaults)d) unit truste) investment managementf) executor and trustee (wills, property)g) taxation advice

TYPES OF BANKSBANK OF ENGLAND/HNB (CENTRAL BANK) 1. Implements monetary policy limits the fluctuations of the interest rate prints or destroys money buys and sells government bonds to and from commercial banks 2. Supervises exchange rates 3. Supervises commercial banking 4. acts as a lender of last resort (bankers bank) 5. manages the accounts of government departments 6. manages the Public Sector borrowing and the national debt

COMMERCIAL/CLEARING BANKS Make profit from SPREAD (MARGIN) a) receive and hold deposits b) pay money according to customers instructions c) lend money d) exchange foreign currencies e) offer advice

MERCHANT BANKS Make profit from fees and commissions a) raise funds for industry b) finance international trade c) issue and underwrite securities d) deal with takeovers and mergers e) issue government bonds f) offer stockbroking and portfolio services

EXCHANGE RATESGold convertibility ended in the early 1970s.In fact we have managed floating exchange rates, because governments and central banks sometimes intervene on currency markets.Another verb for fixing exchange rates against something else is to peg them.Increasing the value of an otherwise fixed exchange rate is called revaluation.A currency can appreciate if lots speculators buy it.In most western countries there is a system of floating exchange rates determined by supply and demand.

What's gold convertibility?A system in which the Federal Reserve could exchange gold for all the paper money, if necessary.Why system of gold convertibility crushed?Because of inflation.By who were exchange rates deterined in a new system?By the number of buyers and sellers.What mean that exchange rates should give purchasing powe parity?The cost of a given selection of goods and services would be the same.What's the purpose of the speculators?To get a higher interest rate or make a capital gain.How much world's currency transactions are related to speculations?About 95%.What's the way to hedge against currency fluctuations?By buying future contracts.Why attempts to manage a floating exchange rate have limited succes?Because speculators have much more money than governments.

Forex Market is market where people buy or sell currencies and also speculate with them. The biggest center of that type is in London, followed by New York and Tokyo. The US dollar is most traded currency, although is the biggest center in London in the UK. It's global market and has one big advantage is easy to trade, because money is money. You can be 100% sure that you buy it, and sell it, which is not the situation when you are buying wheat on stock.

REVALUATION to increase the value of a currency in an otherwise fixed systemDEVALUATION to decrease the value of a currency in an otherwise fixed systemPROPONENTS people who argue in favour of somethingDEPRECIATION to fall in value in a market systemAPPRECIATION to rise in value in a market systemTO HEDGE AGAINST to attempt to protect oneself against future price changesFLUCTUATIONS continuous changes in a price or valueFUTURE CONTRACT agreements to buy somezhing at a fixed price several months ahead

Purchasing power parity (PPP) A rate of exchange calculated for two currencies so that the amount paid for a range of goods and services in both countries is the same

FOREIGN EXCHANGE RATES Necessary for foreign trade/economic transaction Determined by demand and supply A strong kuna is bad for exporters, good for importers the increased kuna > more expensive exports > fewer sales > fewer profits the strong kuna > cheaper import of foreign products > cheaper import of raw materials cheaper > the production costs loweR > must reduce domestic prices > lower profits exchange rates affect output/inflation/foreign trade governments try to regulate exchange markets to improve foreign tradeEXCHANGE RATE SYSTEMSTHE GOLD STANDARD the Bretton Woods agreement, 1944 fixed exchange rates defined terms of gold and the US dollar currencies could only be adjusted by the IMF (devaluated/revaluated) abandoned in 1971 (not enough gold)FLOATING EXCHANGE RATES determined by supply and demand reflect a countrys balance of payments and rate of inflation currency speculation, the value of currencies is constantly fluctuating on foreign exchange marketMANAGED EXCHANGE RATES governments and central banks influence the level of their currencies when necessary governments buy or sell in order to increase or decrease the value of their currencies (use their foreign currency reserves)

BONDSborrow moneydeduct interest payment/taxfinance activities issue shares/bondspay interest/dividends/taxraise moneyrepay principalsell assets/bonds 1. Which gives the highest potential return to an investor? a) a corporate bondb) a junk bondc) a government bond2. Which is the safest for an investor? a) a junk bondb) a corporate bondc) a government bond3. Bondholders are guaranteed to get: a) nothingb) some of their moneyc) all their money back if a company goes bankrupt.

CASH FLOW - the money a company receives minus the money it spends during a certain periodEQUITY - part ownership of a company in the form of stocks and sharesMUTUAL FUND -funds operated by investment companies that invest people's money in various assetsPENSION FUNDS - funds that invest money that will be paid to people after they retire from workPRINCIPLE - the amount of capital making up a bond or other loanMATURITY - the lenght time for which a bond is issued (until it's repaid)COUPON - the amount of interest that a bonds paysINSOLVENT - unable to pay debtsCREDITORS, LENDERS - people or institutions to whom money is owedDIVIDENDS - payments by companies to their shareholdersMARKET MAKERS - businesses that buy and sell securitiesBID PRICE - the price at which a buyer is prepared to buy a security at a particular time OFFER PRICE - the price at which a seller is prepared to sell a security at a particular time YIELD - the rate of income an investor receives from a security

CORPORATE FINANCE(sources of funds)COMPANIES:1. generate internal cash flows / undistributed profits2. issue shares (equity finance) / issue bonds (debt finance)3. borrow from financial institutions - loans from: - commercial banks - building societies (S&L associations) - insurance companies

Bondholders/investorsprincipal = sum of money invested to earn interest (received back on a fixed maturity date)coupon = interest payments at regular intervals (six-monthly, annually)

SHARES (STOCKS)owneruncertain investment (depends on profit)pay dividends on a profit (may be higher return)no maturity datedividends paid out of already taxed profitsBONDSlenderless risky(get their money back)pay fixed rate of interest(regular intervals)maturity date (principal)tax deductible (interest payments before paying tax)

Government bondsThe US:a) Treasury notes a maturity of 2 to 10 years (short-term)b) Treasury bonds a maturity of 10 to 30 years (long-term)The UK Gilt-edged stock (gilts)

MARKET MAKERSThe yield of a bond (how much income it gives) depends on its purchase price and its coupon (the amount of interest a bond pays):Interest rates rise existing bonds lose valueInterest rates fall existing bonds increase in value

Bond investmentsa) very low risk government securities / blue chip companiesb) moderate degree of risk other companiesc) very high risk - junk bonds risky companies

Types of investors1. Institutional investors (banks, mutual funds, pension funds, insurance companies)2. Companies3. Individuals4. Government

Creditworthiness (financial health of the company)investment grade AAA, ABB, BBB, CCChigher rating lower interest of borrowingprice fluctuates according to interest rates

BOND RISKS1. Financial health of the company2. Selling prior to maturity less gains3. Changes in interest rates4. Inflation the principal is smaller

INSURANCECOMMON FUNDThe pooling of risk = a large number of people each pay a sum of money/premiumThe risk is spread/shared between many peopleIf anyone suffers a loss, he/she will be compensated with money from the fund

People in insurancethe insured covered by insuranceinsurer gives insurance coveragent employed by one insurer (commission)broker independent, works for a number of insurersunderwriter estimates the risks/premiumsloss adjuster independent person/company decides if claims are valid and how much to pay for compensation

Common insurance termspremium monthly/yearly payment for a policycomprehensive all-inclusive, complete protection compensation (indemnity) money for suffering damage, loss, injuryproposal form application by a person/company requesting insuranceclaim request by a policyholder for compensation under the policyreinsurance insuring of risk by one insurance company with another

Types of insuranceGeneral insuranceHousehold insuranceMotor insurance Comprehensive insuranceFire insuranceInsurance against burglaryAccident insuranceLife assurance/insurance

ContractInsurance policy(contract of indemnity except for life assurance, personal accident, sickness)Renewal notice(Invites to renew the Cover)

Application processProposal form request to cover riskPremium sum of money paid each yearPolicy contractInsurance certificate motor insuranceRenewal notice

Claims processThe insurer takes risks >The insured suffers a loss/damage > The insured submits a claim >A loss adjuster estimates the damage > Compensation - money paid for loss

Thousands of people pay premiums to insurance companies, which use the money to pay claims to people who suffer loss or damage. A part of the money goes for running expenses. The rest of the pool of premiums can be invested in the form of lending to industry, government, or individuals in order to earn profit. In this way insurance companies become large institutional investors that place great sums of money in various securities .

If you want to take out an insurance policy, you can either go to an insurance company or to a broker who will help you decide which company has the best policy for you. First you say what you want your insurance to cover. The broker will tell you how much money or premium you will have to pay, so that you can get money back from the insurer if an accident happens. If an accident does happen, you make a claim and if the company agrees to it, you receive money. This is the settlement of your claim. In the case of a claim on an assured life, the beneficiary the person who gets the money when someone dies is usually a member of the policyholders family.

ACCOUNTINGBOOKKEEPING (to do bookkeeping) recording of transactions (money received credits AND money paid out - debits) ledger- a book or computer file for recording the money paid and received (purchase ledger/sales ledger)journals dnavno izvjeetrial balance . probna bilancaACCOUNTANCY(ACCOUNTING) checking accounts calculating of costs and expenses analysing financial records preparation of financial statements and tax returns Inland Revenue (IR) - GB Internal Revenue Service (IRS) USA

The basic rule for accounting keep records accurately enough to file tax returns find tax-deductable expenses Financial reportingASSETS fixed assets -land, buildings, machinery, - intangible assets (goodwill, patents, copyrights, trade marks) current assets - materials, finished goods, cash, debtorsLIABILITIES current - creditors, taxes, interest long-term - loans, bonds

OWNERS EQUITY(Shareholders equity) Share capital (common stock) share premium (paid-in surplus) companys reserves (retained profit)

Annual reports Chairmans statement directors report auditors reportPeople involved in accounts:bookkeepersaccountantsauditors

FINANCIAL STATEMENTS1. PROFIT AND LOSS ACCOUNT - GB (INCOME STATEMENT US) earnings - income, turnover, revenue expenses - costs, expenses, overheads_________________________________ profit - to pay:tax, dividends, retained profit net profit = revenue - costs

2. BALANCE SHEET ASSETS LIABILITIES SHAREHOLDERS EQUITY

3. CASH FLOW STATEMENT sources of funds (inflow) (trading profits, depreciation provisions, sales of assets, borrowing, issuing of shares) applications of funds (outflow) (purchases of assets, payment of dividends, repayment of loans, trading losses)

TAKEOVERS AND MERGERGROWTH OF COMPANIES1. invest in R&D new products2. diversify enter new markets3. take over other companies4. merge with another company

take over = buy = acquire (part-ownership)

MERGERScompany too big to buy to merge = combine the twocompanies to form a single new one

TAKEOVERa) RAID buying as many of a companys stocks on the stock market demand increases the stock price rises b) TAKEOVER BID public offer to buy the stocks at a certain price during a limited period of time a) friendly bid / friendly takeover (the board agrees) b) hostile bid / hostile takeover (the board does not agree)INVESTMENT BANKSlarge mergers / acquisitions departmentsanalyze the value of listed companiesearn high fees

TAKEOVERShorizontal integration acquiring a competitor in the same field of activity: a) a larger market share b) reduces competitionvertical integration taking over a business involved in the supply chain to achieve cost savings: a) backward integration acquiring suppliers of raw materials b) forward integration taking over distributors or retail outletsBUYOUTStakeovers large conglomerates (different firms)inefficient undervalued on the stock market market capitalization lower than assetsfinanciers corporate raiders private equity funds

RAIDERS LEVERAGED BUYOUTSleveraged = financed by borrowed capitalissue bonds borrow money-buy the companies -asset-stripping (sell off the subsidiaries / assets) -pay back the bonds= earn profit

LEVERAGED BUYOUTS(LBOs)Takeovers using borrowed money against the security of the shares to be boughtLeverage means having a large proportion of debt compared to equity capitalBuying companies in order to strip assetsTargets for buyoutsCompanies with huge cash reservesCompanies with successful subsidiariesCompanies in fields not sensitive to a recession (food/tobacco)A company that wants to grow or diversify can launch a raid, simply buy a large quantity of another companys shares on the stock exchange. This will immediately increase the share price, and may persuade other shareholders to sell for the raider to take control of the company. It is also possible to make a takeover bid: a public offer to a companys shareholders to buy their shares. A friendly takeover has the consent of the board of the company whose shares are being acquired. A hostile takeover bid is against the wishes of the board of directors. A company can attempt to find a white knight another buyer whom they prefer.To expand into new fields. diversificationBuying another companys shares on the stock exchange, hoping to persuade enough other shareholders to sell to take control of the company. To raidA public offer to a companys shareholders to buy their shares at a particular price during a particular period. Takeover bidTo merge or take over other firms producing the same type of goods or services. horizontalA merger with or the acquisition of ones suppliers. Backward verticalJoining with firms in other stages of the production or sale of a product. verticalA merger with or the acquisition of ones marketing outlets. Forward verticalA large organisation formed by joining together a group of companies with different business activities. conglomeratesTakeovers using borrowed money. lbosSelling off the assets of poorly performing or under-valued companies. Asset strippingBonds that are considered to be risky but which pay a high rate of interest. Junk funds