ESP Banking&Finance PDF

FOREIGN TRADE UNIVERSITY
91 Chua Lang Street, Dong Da District
Hanoi, Vietnam
Tel: 84-4-3835 6800 – Ext: 555
http://www.ftu.edu.vn Faculty of English For Specific Purposes
English for Specific Purposes – INTERNATIONAL BANKING AND FINANCE
Phan Kim Thoa (MA), Le Hong Linh (PHD), Nguyen Thu Huong A (MA), Duong Thị Thanh Thuy
(MCom), Nguyen Huong Giang (MA), Tran Nguyen Ha (MBus), Nguyen Thu Huong B (PHD)
HANOI-2017
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ESP – INTERNATIONAL BANKING AND FINANCE
Phan Kim Thoa (MA), Le Hong Linh (PHD), Nguyen Thu Huong A (MA), Duong Thi Thanh Thuy
(MCom), Nguyen Huong Giang (MA), Tran Nguyen Ha (MBus), Nguyen Thu Huong B (PHD)
Compiled from:
Business School – University of Bedfordshire (2008) Core

Program – Level 2, Pearson Custom Publishing
Emmerson, P. (2007) Business English Handbook: Advanced,

Macmillan
Frendo, E. & Mahoney, S (2007) English for Accounting –

Express Series, Oxford University Press
Johnson, C. (2000) Banking and Finance – Business English,

Longman.
MacKenzie, I. (2002) English for Business Studies: A Course

for Business Studies and Economics Students, Cambridge
University Press.
Mackenzie, I. (1997) Financial English, Thompson, Heinle
Mackenzie, I. (2008) English for the Financial Sector

Learning, Cambridge University Press.
Sweeney, S. (2002) Test Your Professional English:

Management, Penguin
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PREFACE
Hello and welcome to the “English for Specific Purposes -International Banking and
Finance”!
This textbook is designed to meet the needs of students studying the majors involving
international banking and finance in terms of language. Each chapter of this book contains six
parts. The first part deals with different Terms, Theories and Definitions about the topic of
the chapter. These are essential for you to imagine and road map the context that you are
going to discover about.
The second part focuses on the Vocabulary issue with which you may find helpful to read
any piece of reading related to the topic in the chapter without difficulty. This part also aims
at enhancing your practical usage of vocabulary in the real financial world.
The third part contains one or more Readings on the topic of the chapter. These readings are
originated from both theoretical issues and practical views and articles. They are chosen to
offer you a thorough and critical understanding of the topic.
The fourth part specializes on Reading Comprehension Exercises which follows the readings
in the third part. The fifth part is Follow-up exercises to revise all the issues being discussed
in the previous parts. The final part- Extension Activities- gives you some extending activities
to work in a group which are mainly conducted in the form of speaking practice.
Naturally, it is advisable to follow these parts of each chapter in its designed structure. You
certainly may find certain concepts, ideas and theories more familiar than others depending
on the background you have accumulated from other courses of your major at your university.
However, the textbook is designed to also provide readers of different backgrounds with
essential language tools to survive in the financial world. From that perspective, we hope that
you find the textbook a valuable tool in helping you enhance your English language capability
in your finance - related profession.
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ABOUT THE COURSE
This course provides students with opportunities to learn the basic concepts of different areas
of financial business, including international banking, finance, M&A etc. To that end, students
will be able to build up a substantial reservoir of banking and financial vocabulary throughout
the course with reading, discussion and other practices.
The “ESP- International Banking and Finance” is for students of English anywhere in general
and for the fourth-year students of the Foreign Trade University in particular whose primary
reason in learning English is for the purpose of conducting business and finance. Many of
them will find this book useful for learning business and financial terminology and concepts.
This is to help them operate more effectively their business dealings in the international
marketplace where communication is mostly conducted in English.
The course is organized as two classes per week, for 10 weeks in total, incorporating
instructions and various practices such as group-work, discussion, and mini group
presentations and essay writing on a professional topic.
The course emphasizes several skills which students need to develop if they are to conduct
business and finance in English. There are also different types of vocabulary exercises.
Emphasis is placed on developing the ability to learn meaning from context. Reading
exercises give an overview of a particular topic, introduce key business, financial and
economic concepts and teach students to grasp what has been said by analyzing the passage
to find the main ideas, to note details, and to make inferences. Writing exercises given by the
teacher during the study are included in order to help students develop and express their own
thoughts or opinions about a topic- related to the lesson. There are also additional proposals
for debates, discussion or group presentations to enable students to use orally some of the
words and ideas that have been learned in the course of the unit. The variety and scope of the
exercises, together with the information given in the reading selections, should further
develop both English language skills and student comprehension of the basic elements of
finance and banking. This book not only provides a good foundation for students to continue
a more specialized study in the field but also illustrates techniques that shall be useful to the
professionals in understanding and writing up presentations in the world of business and
finance.
Students are expected to actively participate and contribute in each class. For each class
students should:
• Prepare the topic and/or the handouts BEFORE the class
• Participate in class activities
• Do assignments.
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CONTENTS
Preface 3
About the course 4
Topics
1 Banking 6
2 Financing Foreign Trade 14
3 Accounting and Financial Statements 25
4 Stocks and Bonds 34
5 Futures and Derivatives 40
6 Mergers and Acquisitions 53
7 Central Banking 62
8 Exchange Rates 74
9 Interest Rates 85
10 Cost Accounting 94
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Unit 1: Banking
A. TERMS, THEORIES AND DEFINITIONS
1. Bank: An organization, usually a corporation, chartered by a state or federal government, which

does most or all of the following: receives demand deposits and time deposits, honors instruments
drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities;
collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.
2. Banking: The business activity of accepting and safeguarding money owned by other individuals
and entities, and then lending out this money in order to earn a profit.
3. Cheque: A written order of a depositor upon a bank to pay to or to the order of a designated party
or to bearer, a specified sum of money on demand.
4. A bank overdraft: When someone is able to spend more than what is actually in their bank
account.
5. Underwriting: The process by which investment bankers raise investment capital from investors
on behalf of corporations and governments that are issuing securities.
Overdraft: Thấu chi
Current account: Tài khoản vãng lai
Mortgage: Thế chấp
Direct debit current account: Tài khoản ghi nợ trực tiếp
Deposit: Tiền gửi
Deposit account: Tài khoản tiền gửi
Liquidity: Thanh khoản
Maturity: Kỳ hạn
Portfolio management service: Dịch vụ quản lý danh mục đầu tư
Financial conglomerates: Các tập đoàn tài chính
Liabilities: Trách nhiệm pháp lý
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B. VOCABULARY EXERCISES
Match up the terms with the definitions:
cash card cash dispenser or ATM credit card home banking

loan mortgage overdraft standing order
direct debit/current account or checking account deposit account or time or notice account
1. an arrangement by which a customer can withdraw more from a bank account than has been
deposited in it, up to an agreed limit; interest on the debt is calculated daily
2. a card which guarantees payment for goods and services purchased by the cardholder, who
pays back the bank or finance company at a later date
3. a computerized machine that allows bank customers to withdraw money, check their balance
and so on
4. a fixed sum of money on which interest is paid, lent for a fixed period, and usually for a
specific purpose
5. an instruction to a bank to pay fixed sums of money to certain people or organization at stated
times
6. a loan, usually to buy property, which serves as a security for the loan
7. a plastic card issued to bank customers for use in cash dispensers
8. doing banking transactions by telephone or from one’s own personal computer
9. one that generally pays little or no interest, but allows the holder to withdraw his or her cash
without any restrictions
10. one that pays interest, but usually cannot be used for paying cheques or checks, and on which
notice is often required to withdraw money
C. READING
Read the text below and write short headings for each paragraph:
Types of Bank
1............................................
Commercial or retail banks are businesses that trade in money. They receive and hold deposits, pay
money according to customer’s instructions, lend money, offer investment advice, exchange foreign
currencies, and so on. They make a profit from the difference (known as a spread or a margin) between
the interest rates they pay to lenders or depositors and those they charge to borrowers. Banks also
create credit, because the money they lend, from their deposits, is generally spent (either on goods or
services, or to settle debts), and in this way transferred to another bank account – often by way of a
bank transfer or a cheque (check) rather than the use of notes and coins - from where it can be lent to
another borrower, and so on. When lending money, bankers have to find a balance between yield and
risk, and between liquidity and different maturities.
2.............................................
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Investment banks, often called merchant banks in Britain, raise funds for industry on the various
financial markets, finance international trade, issue and underwrite securities, deal with takeover and
mergers, and issue government bonds. They also generally offer stock broking and portfolio
management services to rich corporate and individual client. Investment banks make their profits
from the fees and commissions they charge for their services.
3...............................................
In some European countries (notably Germany, Switzerland and Austria) there have always been
universal banks combining deposit and loan banking with share and bond dealing and investment
services, but for much of the 20th century, American legislation enforced a strict separation between
commercial and investment banks. The Glass-Steagall Act, passed during the Depression in 1934,
prevented commercial banks from underwriting securities. This act was repealed in 1999. The
Japanese equivalent was abolished the previous year, and the banking industry in Britain was also
deregulated in 1990s, and financial conglomerates now combine the services previously offered by
banks, stockbrokers, and insurance companies.
4...............................................
A country’s minimum interest rate is usually fixed by the central bank. This is the discount rate, at
which the central bank makes secured loans to commercial banks. Banks lend to blue chip borrowers
(very safe large companies) at the base rate or the prime rate; all other borrowers pay more, depending
on their credit standing (or credit rating, or creditworthiness): the lender’s estimation of their present
and future solvency. Borrowers can usually get a lower interest rate if the loan is secured or guaranteed
by some kind of asset, known as collateral.
5.................................................
In most financial centers, there are also branches of lots of foreign banks, largely dong Eurocurrency
business, A Eurocurrency is any currency held outside its country of origin. The first significant
Eurocurrency market was for US dollars in Europe, but the name is now used for foreign currencies
held anywhere in the world (e.g. yen in the US, euros in Japan). Since the US$ is the world’s most
important trading currency – and because the US for the many years had a huge trade deficit – there
is a market of many billions of Eurodollars, including the oil-exporting countries’ ‘petrodollars’.
Although a central bank can determine the minimum lending rate for its national currency it has no
control over foreign currencies. Furthermore, banks are not obliged to deposit any of their
Eurocurrency assets at 0% interest with the central bank, which means that they can usually offer
better rates to borrowers and depositors than in the home country.
D. READING COMPREHENSION EXERCISES
1. Summarize the text

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2. Find the words or expressions in the text which mean the following
a. to place money in a bank; or money placed in a bank: …………………………….
b. the money used in countries other than one’s own: ………………………………..
c. how much money a loan pays, expressed as a percentage:…………………………
d. available cash, and how easily other assets can be turned into cash:…………………
e. the date when a loan becomes repayable: ………………………………………….
f. to guarantee to buy all the new shares that a company issues, if they cannot be sold to
the public: ………………………………………………………………….
g. when a company buy or acquires another one: ……………………………………
h. when a company combines with another one: …………………………………….
i. buying and selling stocks or shares for clients: ……………………………………
j. taking care of all a client’s investments: …………………………………………...
k. the ending or relaxing of legal restrictions: ………………………………………..
l. a group of companies, operating in different fields, that have joined together:
……………………………………………….
m. a company considered to be without risk: …………………………………………
n. ability to pay liabilities when they become due: ………………………………….
o. anything that acts as a security or guarantee for a loan: …………………………..
3. Match up the verbs and nouns below to make common collocations
charge advice
do bonds
exchange business
issue currencies
make deposits
offer funds
pay interest
raise loans
receive profits
underwrite security issues
E. FOLLOW-UP EXERCISES
Exercise 1
This exercise defines the most important kinds of bank. Fill in the blank the name of each type
of bank:
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(1)............................................. supervise the banking system; fix the minimum interest rate; issue
bank notes, control the money supply; influence exchange rates; and act as lender of last resort.
(2)............................................. are businesses that trade in money. They receive and hold deposits in
current account and saving accounts, pay money according to customer’s instructions, lend money,
and offer investment advice, foreign exchange facilities and so on. In some countries such as England
these banks have branches in all major towns, in other countries there are smaller regional banks.
Under American law, for example, banks can operate in only one state. Some countries have banks
that were originally confined to a single industry, e.g. the Credit Agricole in France, but these now
usually have a far wider customer base.
In some European countries, notably Germany, Austria, and Switzerland, there are
(3)............................................. which combine deposit and loan banking with share and bond dealing,
investment advice, etc. yet even universal banks usually from a subsidiary, known as a
(4)............................................., to lend money – at several per cent over the base lending rate – for
hire purchase or instalment credit, that is, loans to consumers that are repaid in regular, equal monthly
amounts.
In Britain, the USA and Japan, however, there is, or used to be, a strict separation between commercial
banks and banks that do stockbroking or bond dealing. Thus in Britain,
(5)............................................. specialize in raising funds for industry on the various financial
markets, financing international trade, issuing and underwriting securities, dealing with takeovers and
mergers, issuing government bonds, and so on. They also offer stockbroking and portfolio
management services to rich corporate and individual clients. (6)............................................. in the
USA are similar, but they can only act as intermediaries offering advisory services, and do not offer
loans themselves.
Yet despite the Glass-Steagall Act in the USA, and Article 65, imposed by the Americans in Japan in
1945, which enforce this separation, the distinction between commercial and merchant or investment
banks has become less clear in recent years. Deregulations in the US and Britain is leading to the
creation of “financial supermarkets” – conglomerates combining the services previously offered by
stockbrokers, banks, insurance companies, etc.
In Britain there are also (7)............................................. that provide mortgages, i.e. they lend money
to home-buyers on the security of house and flats, and attract savers by paying higher interest than
the banks. The saving and loan associations in the United States served a similar function, until most
of them went spectacularly bankrupt at the end of the 1980s.
There are also (8)............................................. such as the World Bank or the European Bank for
Reconstruction and Development, which are generally concerned with economic development.
Exercise 2
Complete the text using these words:
accounts bank loan cheque customers’
current account debt depositors deposits
lend liabilities liquidity optimize
overdraft salary spread standing order
return transfer wages withdraw
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Commercial banks are businesses that trade in money. They receive and hold (1)..............................,
pay money according to (2).............................. instructions, (3).............................. money etc.
There are still many people in Britain who do not have bank (4)............................... Traditionally,
factory workers were paid (5).............................. in cash on Fridays. Non-manual workers, however,
usually receive a monthly (6).............................. in the form of cheque or a (7).............................. paid
directly into their bank account.
A (8).............................. usually pays little or no interest, but allows the holder to
(9).............................. his or her cash with no restrictions. Deposit accounts pay interest. They do not
usually provide (10).............................. facilities, and notice is often required to withdraw money.
(11).............................. and direct debits are ways of paying regular bills at regular intervals.
Banks offer both loans and overdrafts. A (12).............................. is a fixed sum of money, lent for a
fixed period, on which interest is paid, bank usually require some form of security or guarantee before
lending. An (13).............................. is an arrangement by which a customer can overdraw an account,
i.e. run up a debt to an agreed limit; interest on the (14).............................. is calculated daily.
Banks make a profit from the (15).............................. or differential between the interest rates they
pay on deposits and those they charge on loans. They are also able to lend more money than they
receive in deposits because (16).............................. rarely withdraw all their money at the same time.
In order to (17).............................. the return on their assets (loans), bankers have to find a balance
between yield and risk, and (18).............................. and different maturities, and to match these with
their (19).............................. (Deposits). The maturity of a loan is how long it will last; the yield of
the loan is its annual (20).............................. – how much money it pays – expressed as a percentage.
Exercise 3
Match the words with the correct definitions:
1 dispenser A the remaining amount of money in an account

2 teller B money paid into a bank
3 cashier C a record of the financial transactions of a person or business
4 withdrawal D an amount of money in an account
5 balance E note to a bank asking it to pay money from your account to a named
person or business
6 deposit F money in the form of bank notes and coins
7 cheque G an amount of money deducted from an account
8 credit H the removal of money from an account
9 debit I a machine or person who count out money
10 cash J a container designed to give out money in regulated amounts
11 statement K a clerk who pays out and receive cash at a bank
Exercise 4
Match the verbs with the correct explanations:

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1 honour A pass the cheque through the clearing system
2 present B write a cheque
3 draw C make two accounts agree
4 clear D change an account
5 cross E move around the country
6 reconcile F draw two lines down the middle of a cheque
7 adjust G show and ask for payment
8 circulate H pay
Exercise 5
Put the correct prepositions to complete each sentence:
1. A cheque is simply an order to your bank to pay money ....................... your account
....................... someone else’s.
2. A customer can pay ....................... cheque ....................... goods and services.
3. With a bank card, the customer’s bank guarantees payment ................a limit, say $500.
4. When an account holder pays a cheque ....................... her bank, the bank credits the amount of
the cheque ....................... her account and sends the cheque to be presented ....................... the
drawer’s bank.
5. In Britain the clearing system is operated ....................... the Clearing House in London.
6. The Clearing House adds up the total each bank owes to each other bank and reconciles the
difference ....................... the bank’s accounts ....................... the Bank of England.
7. This process, from the time when the payee pays the cheque ....................... her bank until the
cheque is debited ....................... the drawer’s bank account, takes three days.
F. EXTENTION ACTIVITIES
1. Which banking facilities do you use?
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2. What services do commercial banks offer in your country?
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3. What changes have there been in personal banking recently?
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4. What changes in personal banking do you foresee in the future?
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Unit 2: Financing Foreign Trade
1. Payment Terms in Foreign Trade.
a) Four Principal Means:
1. Cash in advance
2. Letter of Credit
3. Drafts
4. Open Account
b) Cash in Advance
1. Minimal risk to exporter
2. Used where there is:
a. Political unrest
b. Goods made to order
c. New and unfamiliar customer
c) Letter of Credit (L/C)
1. A letter addressed to seller
a. Written and signed by buyer’s bank
b. Promising to honor seller’s drafts.
c. Bank substitutes its own commitment
d. Seller must conform to terms
2. Advantages of an L/C to Exporter
a. Eliminates credit risk
b. Pre-shipment risk protection
3. Advantages of L/C to Importer
a. Shipment assured.
b. Documents inspected.
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c. May allow better sales terms.
d. Relatively low-cost financing.
e. Easy cash recovery if discrepancies arise.
4. Types of L/Cs
a. Documentary
b. Irrevocable
c. Confirmed
d) Draft:
1. Definition:
- Unconditional order in writing
- Exporter’s order for importer to pay
- At once (sight draft) or
- In future (time draft)
2. Three Functions of Drafts
a. Clear evidence of financial obligation.
b. Reduce financing costs.
c. Can be a financial product for investors.
(i.e., may be converted to a banker’s acceptance)
3. Types of Drafts
a. Sight
b. Time
e) Open Account:
1. Creates a credit sale
2. To importer’s advantage
3. More popular lately because

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a. Major surge in global trade.
b. Credit information improved.
c. More global familiarity with exporting.
4. Benefits of Open Accounts:
a. Greater flexibility in making a trade.
b. Lower transactions costs.
5. Major disadvantage:
- Highly vulnerable to government currency controls.
2. Documents used in Foreign Trade
Three most used documents:
- Bill of Lading (most important): Acts as a contract to carry the goods/ Acts as a
shipper’s receipt/ Establishes ownership over goods if negotiable type
- Commercial Invoice: Lists full details of goods shipped/ Names of importer/ exporter
given/ Identifies payment terms/ List charges for transport and insurance.
- Insurance Certificate: issued to show proof of insurance (transport by sea/ air).
3. Financing techniques
Four Types:
1. Bankers’ Acceptances
a. Creation: drafts accepted
b. Terms: Payable at maturity to holder
2. Discounting
a. Converts exporters’ drafts to cash minus interest to maturity and commissions.
b. Low cost financing with few fees.
c. May be with (exporter still liable) or without recourse (bank takes liability for
nonpayment).
3. Factoring: firms sell accounts receivable to another firm known as the factor.
a. Discount charged by factor
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b. Non-recourse basis: Factor assumes all payment risk.
c. When used:
1.) Occasional exporting.
2.) Clients geographically dispersed.
4. Forfaiting
a. Definition: Discounting at a fixed rate without recourse for

medium-term accounts receivable.
b. Use: Large capital purchases
c. Most popular in Western Europe
Collecting bank: ngân hàng thu

Issuing bank: ngân hàng phát hành
Bill of lading: vận đơn
Bill of exchange: hối phiếu ngoại thương
Collection: nhờ thu
Documentary Collection: Nhờ thu kèm chứng từ
Clean Collection: Nhờ thu phiếu trơn
Documentary (Letter of) Credit: Tín dụng chứng từ (Thư tín dụng)
Documents of Title: chứng từ sở hữu
Dishonor: không thanh toán
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Match these terms with their definitions. Example: 1 b
1. invoice a) document that shows details of goods being transported; it entitles the receiver
2. clean collection to collect the goods on arrival
3. documentary collection b) list of goods sold as a request for payment

c) bank that issues a letter of credit (i.e. the importer’s bank)
4. bill of exchange
d) bank that receives payment of bills, etc. for their customer’s account (i.e. the
5. bill of lading
exporter’s bank)
6. document of title
e) document allowing someone to claim ownership of goods
7. issuing bank
f) payment by bill of exchange to which documents are not attached
8. collecting bank g) signed document that orders a person or organization to pay a fixed sum of
9. confirming bank money on demand or on a specified date
10. letter of credit h) bank that confirms they will pay the exporter on evidence of shipment of
goods
i) method of financing overseas trade where payment is made by a bank in
return for delivery of commercial documents, provided that the terms and
conditions of the contract are met
j) payment by bill of exchange to which commercial documents (and sometimes
a document of title) are attached
C. READING
Open Account
The goods, and relevant documents, are sent by the exporter directly to the overseas buyer, who will
have agreed to remit payment of the invoice back to the exporter upon arrival of the documents or
within a certain period after the invoice date. The exporter loses all control of the goods, trusting that
payment will be made by the importer in accordance with the original sales contract.
Documentary Credit
Documentary Credit is often referred to as a Letter of Credit. This is an undertaking issued by an

overseas bank to a UK exporter through a bank in the UK, to pay for the goods provided that the
exporter complies fully with the conditions established by the Documentary Credit.
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Additional security can be obtained by obtaining the ‘confirmation’ of a UK bank1 to the transaction,
thereby transferring the responsibility from the importer’s bank overseas to a more familiar bank in
the country of the exporter.
Very few risks arise for the exporter because the potential problem areas of the buyer risk and country
risk can be eliminated. However, the exporter must present the correct documents and comply fully
with the terms and conditions of the credit. Failure to do so could result in the exporter losing the
protection of the credit.
Bills for Collection
Trade collections are initiated when an exporter draws a bill of exchange on an overseas buyer. This
is forwarded by the exporter’s bank in the importer’s country. Such collections may be either
‘documentary’ or ‘clean’2. A documentary collection is one in which the commercial documents and,
if appropriate, the documents of title to the goods are enclosed with the bill of exchange. These are
sent by the exporter’s bank to a bank in the importer’s country together with instructions to release
the documentation against either payment or acceptance of the bill.
The risks that the exporter has to face are that the importer fails to accept the bill of exchange or
dishonours an accepted bill3 upon maturity. This means that the exporter may have to consider
shipping the goods back to the UK, finding an alternative buyer or even abandoning the consignment,
all of which could be expensive.
In many areas of the world it is common practice to defer presentation4, payment or acceptance until
arrival of the carrying vessel. Collection and remittance charges can also be relatively high.
If the exporter retains control over the goods by remitting a full set of Bills of Lading5 through the
intermediary of the banking system, control of the goods will be handed over to the importer only
against payment or acceptance of the bill by the importer. If the documents are released against the
importer’s acceptance of the bill, control of the goods is lost and the accepted bill of exchange may
be dishonored at maturity.
Advance Payment
Exporters receive payment from an overseas buyer in full, or in part, before the goods are dispatched.
This means that the exporter has no risks associated with non-payment.
1. This bank is then known as the confirming bank.

2. Clean means that no documents are involved.
3. The importer does not pay, although he had previously agreed to pay.
4. This means to delay passing the bill to the importer.
5. This means sending all the necessary shipping documents.
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1. Understanding main points
Read the above text about payment methods for exporters and write the four methods in the correct
positions according to their risks for the exporter.
Least secure Payment method: 1. …………….open account...…………...

2. ……………………………………………
3. ……………………………………………
Most secure 4. ……………………………………………
2. Understanding details:
Mark these statements T (true) or F (false) according to the information in the text. Find the part
of the text that gives the correct information.
Open account
1. The importer pays for the goods after receiving the documents. T
2. There is no contract involved.
3. The exporter must be able to trust the buyer.
Documentary credit
4. If a letter of credit is issued, the importer’s bank agrees to pay for the goods without
conditions.
5. If a letter of credit is confirmed, the exporter’s bank takes responsibility for payment.
Bills for collection

6. Commercial documents and the document of title are always enclosed with a bill of exchange.
7. Importers may not accept the bill of exchange until the goods arrive.
8. Exporters can keep control of goods by sending bills of lading through the banking system.
9. Exporters reduce risk if documents are released against acceptance of the bill rather than
payment.
Advance payment
10. This means that the importer has to pay before any goods are dispatched.
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3. Information search
Match the risks (a-g) with the payment methods.

1. Open account a) Exporters must comply with the conditions of the credit
2. Documentary credit documents.
3. Bills for collection b) Importers may delay payment.
Vocabulary
4. AdvanceTasks
payment c) Importers may not pay at all.
d) It takes a long time to process payment in some countries.
e) Importers may not accept the bill of exchange.
f) Bank charges may be high.
g) Exporters must take care to present the correct
documents.
4. Word search
Find a word or phrase in the text that has a similar meaning.
1. promise or guarantee given to or by a bank (paragraph 2)

u…………………..
2. load of goods sent to a customer (paragraph 7)
c……………………
3. person or company that acts as a middleman in a transaction (paragraph 9)
i……………………
4. date when a bill of exchange is due for payment (paragraph 9)
m………………………
5. Complete the sentence
Use an appropriate form of the words in the box to complete the sentences which describe the
procedure for documentary collection.
Draw accept dishonour release remit forward dispatch

present
1. The first steppresent
the exporter takes is to ask his bank to …….…….... a bill of exchange on the
overseas buyer.
2. The exporter’s bank ………………. the bill of exchange, together with the commercial
documents, to the importer’s bank.
3. At the same time, the exporter…………………. the goods.
4. The exporter must take care to ………………….the correct documents to the bank.
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5. When the importer………………….the bill of exchange, the bank will……………….the
documents of title to the goods.
6. If the importer…………………..the bill, the exporter may have to find an alternative buyer
or ship the goods back again.
7. In some parts of the world, banks may be slow to ………………………..payment to the
exporter’s bank.
E. FOLLOW - UP EXERCISES
1. Read about the first four steps in a transaction involving a letter of credit, and number
the steps 1 to 4, using the diagram below to help you.
The advising bank authenticates the letter of credit and sends the beneficiary (the seller) the
details. The seller examines the details of the letter of credit to make sure that he or she can
meet all the conditions. If necessary, he or she contacts the buyer and asks for amendments to
be made.
The applicant (the buyer) completes a contract with the seller.
The issuing bank (the buyer’s bank) approves the application and sends the letter of credit
details to the seller’s bank (the advising bank).
The buyer fills in a letter of credit application form and sends it to his or her bank for approval.
2. Now read about the next six steps, and number them 5 to 10 using the diagram below.
If the documents are in order, the advising bank sends them to the issuing bank for payment
or acceptance. If the details are not correct, the advising bank tells the seller and waits for
corrected documents or further instructions.
The advising/confirming bank pays the seller and notifies him or her that the payment has
been made.
The issuing bank advises the advising (or confirming) bank that the payment has been made.
The issuing bank (the buyer’s bank) examines the documents from the advising bank. If they
are in order, the bank releases the documents to the buyer, pays the money promised or agrees
to pay it in the future, and advises the buyer about the payment. (If the details are not correct,
the issuing bank contacts the buyer for authorization to pay or accept the documents.) The
buyer collects the goods.
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The seller presents the documents to his or her bankers (the advising bank). The advising bank
examines these documents against the details of the letter of credit and the International
Chamber of Commerce’s rules.
When the seller (beneficiary) is satisfied with the conditions of the letter of credit, he or she
ships the goods.
Discuss these questions and briefly answer them in the blanks given.
1. What are some of the risks involved in trading internationally?

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
2. What payment methods do you know that are used when exporting or importing goods?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
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…………………………………………………………………………………………………
……………………………………………………………………………
3. What are the roles of the banks in international trade?
…………………………………………………………………………………………………
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…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
4. Imagine you are a banker talking to one of your customers who has never exported before.
Explain how documentary credit works.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
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…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………
5. Prepare a list of recommendations for either exporters or importers to have a smooth payment
transaction.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
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…………………………………………………………………………………………………
…………………………………………………………………………………………………
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Unit 3: Accounting and Financial Statements
Remind people that profit is the difference between revenue and expense. This makes you look smart
– Scott Adams (1957), creator of the Dilbert comic strip.
Preparation of the accounts

The accounting process starts with inputs, and these are things such as sales documents (e.g.
invoices), purchasing documents (e.g. receipts), payroll records, bank records, travel and
entertainment records. The data in these inputs is then processed by specialized software:
1. Entries are recorded chronologically into 'journals'.
2. Information from the journals is posted (= transferred) into 'ledgers', where it accumulates
in specific categories (e.g. cash account, sales account, or account for one particular
customer)
3. A 'trial balance' is prepared at the end of each accounting period: this is a summary of the
ledger information to check whether the figures are accurate. It is used directly to prepare
the main financial statements (income statement, balance sheet and cash flow statement).
The financial statements of large companies have to be checked by an external firm of auditors,
who 'sign off on the accounts' (= officially declare the accounts are correct). They are publicly
available, and appear in the company's annual report. Users of financial statements include:
shareholders, potential shareholders, creditors (lenders, e.g. banks), customers, suppliers,
journalists, financial analysts, government agencies, etc.
Profit and Loss Account
The profit and loss account (= income statement, or just 'the P&L') summarizes business activity
over a period of time. It begins with total sales (= revenue) generated during a month, quarter or
year. Subsequent lines then deduct (= subtract) all of the costs related to producing that revenue.
Balance Sheet
The balance sheet reports the company's financial condition on a specific date. The basic equation
that has to balance is: Assets = Liabilities + Shareholders' equity.
• An 'asset' is anything of value owned by a business.
• A 'liability' is any amount owed to a creditor.
• Shareholders' equity (= owners' equity) is what remains from the assets after all creditors
have theoretically been paid. It is made up of two elements: share capital (representing the
original investment in the business when shares were first issued) plus any retained profit
(= reserves) that has accumulated over time.
Note the order in which items are listed:

• Assets are listed according to how easily they can be turned into cash, with 'current assets'
being more liquid than 'fixed assets'.
• Liabilities are listed according to how quickly creditors have to be paid, with 'current
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liabilities' (= bank debt, money owed to suppliers, unpaid salaries and bills) being paid
before 'long-term liabilities'.
Figures for 'current assets' and 'current liabilities' are particularly important to a business. The
amount by which the former exceeds the latter is called 'working capital'. This gives a quick
measure of whether there is enough cash freely available to keep the business running.
Cash Flow Statement
Companies need a separate record of cash receipts and cash payments. Why is this? Firstly for the
reason given above -it shows the real cash that is available to keep the business running day to
day (profits are only on paper until the money actually comes in). Secondly, there are many
sophisticated techniques that accountants can use to manipulate profit, whereas cash is real money.
It is cash that pays the bills, not profits.
There are many reasons why companies can have a problem with cash flow, even if the business
is doing well. Amongst them are:
• Unexpected late payments and non-payments (bad debts).
• Unforeseen costs: a larger than expected tax bill, a strike, etc.
• An unexpected drop in demand.
• Investing too much in fixed assets.
Solutions might include:

• Credit control: chasing overdue accounts.
• Stock control: keeping low levels of stock, minimizing work-in-progress, delivering to
customers more quickly.
• Expenditure control: delaying spending on capital equipment.
• A sales promotion to generate cash quickly.
• Using an outside company to recover a debt (called 'factoring').
Accounting and Financial Statements
Study the simplified financial statements for an imaginary retail store. All figures are in €000s. The
convention in accounting is that a negative figure is shown by a bracket. To understand the figures,
work from the right:
• the right-hand column shows totals for each major category
• the central column shows information that is used in producing the figures to the right
• the left-hand column shows details of the calculations in the central column.
Vocabulary in financial statements is surprisingly non-standard, with many companies using a
mixture of US and European terms. See the right-hand column for alternatives, more detail, etc.
Profit and Loss Account (Income Statement)
‘Revenue’ (= income / turnover / sales / the top line)

'Cost of goods sold' (= direct costs) includes manufacturing costs, salaries of manual (= blue-collar)
workers etc.
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'Operating expenses' (= indirect costs / overhead) include salaries of sales and office staff, marketing
costs, utility bills etc.
'Non-operating income' includes profits from investments in other companies.
'EBITDA' stands for Earnings before Interest, Tax, Depreciation and Amortization.
'Earnings' (= profit / the bottom line)
'Depreciation' and 'Amortization' are very similar, and are often used in the same way. However,
'depreciation' can refer to the loss in value of a tangible asset (e.g. a vehicle), and 'amortization' to the
loss in value of an intangible asset (e.g. the purchase of a license or trademark). This loss over time
is treated as a cost and written off (= subtracted from the profit) over several years.
'Interest' refers to money paid to the bank for loans (or received from the bank for cash balances).
'Dividends' is money paid to shareholders.
'Retained profit' is transferred to the Balance Sheet, where it joins the amounts from previous years.
Profit and Loss Account (Income Statement) - For the Year Ended Dec 31, 20XX
Revenues
Gross sales 640
Less: Sales returns 6
Less: Sales discount 4
(10)
Net sales 630
Cost of goods sold
Purchases 290
Salaries of manual workers 30
Transport costs 30
Cost of goods sold (350)
Gross profit 280
Operating expenses
Selling expenses
Salaries for sales staff 82
Advertising 18
Total selling expenses 100
General expenses
Salaries for admin staff 52
Insurance 6
Rent 18
Light, heat and power 10
Office supplies 2
Miscellaneous 2
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Total general expenses 90
Total operating expenses (190)
Operating profit 90
Non-operating income 5
EBITDA 95
Depreciation (10)
EBIT 85
Interest paid on bank loans (6)
Net income before taxes 79
Less: Income tax (19)
Net income (or loss) after tax 60
Dividends (13)
Retained profit €47
Balance Sheet, December 31, 20XX
'Accounts receivable' is the amount owed to the business by customers (= creditors).
'Inventory' is the value of raw materials & stock.
'Current assets' may also include 'marketable securities' (= shares intended for disposal within one
year).
'Fixtures' are part of a building that cannot be moved, such as lights.
'Fixed assets' may also include long-term financial investments.
'Intangible assets' include patents, trademarks & 'goodwill' (reputation, contacts and expertise
of companies that have been bought).
ASSETS
Current assets
Cash at bank 15
Accounts receivable 200
Inventory 180
Total current assets 395
Fixed assets
Building and improvements 300
Less: accumulated depreciation (90)
210
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Equipment and vehicles 120
40
Furniture and fixtures 20
12
Total fixed assets 262
Intangible assets
Total intangible assets 20
Total assets 677
'Bank debt' (= loan capital) also includes any overdraft (= temporary negative balance).
'Accounts payable' is the money owed to suppliers.
'Accrued' items are those where an expense has been incurred, but the money is not yet paid. 'Accrued
salaries' typically includes future bonuses.
Another item, 'provisions', can appear under current liabilities. These are amounts set aside for
anticipated one-time payments that are not part of regular operations - perhaps a lawsuit, or a
compensation package for employees being laid off.
A 'mortgage' is a long-term bank loan to buy a property. With bonds, the 'principal' (= amount
raised by issuing the bonds) is repayable to the bond holders at 'maturity'.
'Share capital' (= common stock, AmE.) is amount raised at initial flotation on the stock market.
'Retained profit' (= Reserves / Retained earnings). The figure showing here is more than the €47,000
transferred from the income statement because it is an amount accumulated over several years.
LIABILITIES AND EQUITY
Current liabilities
Bank debt 20
Accounts payable 30
Accrued taxes 22
Accrued salaries 45
Total current liabilities 117
Long-term liabilities
Mortgage 100
Bonds payable (due mar 2018) 20
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Total long-term liabilities 120
Total liabilities 237
Shareholders’ equity
Shared capital (300,000 shares @ €1) 300
Retained profit 140
Total owners’ equity 440
Total liabilities & equity 677
Exercise 1: Fill in the missing letters
1. On a balance sheet, ‘assets’ are what you ow_ and ‘liabilities’ are what you ow_.
2. The loss in value of a tangible asset over time is called ‘d_ _ _ _ _ _ _ _ _ _n’. This loss is ‘w_ _
_ _en o_ _’ in the accounts over several years. The loss in value of an intangible asset is called
‘am_ _ _ _ _ _ _ _ _n’.
3. The term ‘debtor’ is now often replaced with ‘accounts rec_ _ _ _ _le’. Similarly, ‘creditor’ is
often replaced with ‘accounts p_ _ _ _ le’.
4. The total value of raw materials + work-in-progress + unsold stock is called ‘in_ _ _ _ _ _y’.
5. Expenses that have been incurred but are not yet paid are called ‘acc_ _ _d expenses’.
6. The extent to which a firm relies on debt financing rather than equity financing is called its ‘lev_
_age’.
Exercise 2: Underline the correct words from those in italics
The terms 'direct costs' and ‘variable costs' are close synonyms. They both refer to things like
raw materials costs and the wages of manual (= blue collar) workers. But:
• to emphasize costs which increase in proportion to any rise in output, say (1) direct costs/
variable costs
• to emphasize costs which can be identified with one particular product, say (2) direct costs
/ variable costs.
Similarly, the terms 'fixed costs', 'indirect costs' and 'operating costs' are close synonyms. They
all refer to things like advertising, rent and the salaries of office staff. But:
• to emphasize costs which stay the same at all levels of output in the short term, say (3) fixed
costs / operating costs
• to emphasize costs which result from the whole business (rent, utilities, etc.), not any
particular products, say (4) indirect costs / operating costs. A synonym here is 'overhead'
(BrE overheads).
• to emphasize costs resulting from the day-to-day activities of the business (products and
processes), say (5) fixed costs / operating costs.
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There are many other types of 'costs' referred to in finance and accounting. Two of the most important
are:
• (6) capital expenditure / capitalism expenditure - the costs of buying or upgrading physical
assets like buildings and machinery; often referred to in business as 'capex'
• (7) mark-up costs / marginal costs - the costs of increasing output by one more unit.
C. READING
Companies are required by law to give their shareholders certain financial information. Most
companies include three financial statements in their annual reports.
The profit and loss account shows revenue and expenditure. It gives figures for total sales or
turnover (the amount of business done by the company during the year), and for costs and
overheads. The first figure should be greater than the second: there should generally be a profit -
an excess of income over expenditure. Part of the profit is paid to the government in taxation, part
is usually distributed to shareholders as a dividend, and part is retained by the company to finance
further growth, to repay debts, to allow for future losses, and so on.
The balance sheet shows the financial situation of the company on a particular date, generally the
last day of its financial year. It lists the company's assets, its liabilities, and shareholders' funds. A
business's assets consist of its cash investments and property (buildings, machines, and so on), and
debtors - amounts of money owed by customers for goods or services purchased on credit. Liabilities
consist of all the money that a company will have to pay to someone else, such as taxes, debts, interest
and mortgage payments, as well as money owed to suppliers for purchases made on credit, which are
grouped together on the balance sheet as creditors. Negative items on financial statements such as
creditors, taxation, and dividends paid are usually printed in brackets thus: (5200).
The basic accounting equation, in accordance with the principle of double-entry bookkeeping, is
that Assets = Liabilities + Owners' (or Shareholders') Equity. This can, of course, also be written
as Assets - Liabilities = Equity. An alternative term for Shareholders' Equity is Net Assets. This
includes share capital (money received from the issue of shares), sometimes share premium (money
realized by selling shares at above their nominal value), and the company's reserves, including the
year's retained profits. A company's market capitalization - the total value of its shares at any
given moment, equal to the number of shares times their market price - is generally higher than
shareholders' equity or net assets, because items such as goodwill are not recorded under net assets.
A third financial statement has several names: the source and application of funds statement, the
sources and uses of funds statement, the funds flow statement, the cash flow statement, the
movements of funds statement, or in the USA the statement of changes in financial position.
As all these alternative names suggest, this statement shows the flow of cash in and out of the
business between balance sheet dates. Sources of funds include trading profits, depreciation
provisions, borrowing, the sale of assets, and the issuing of shares. Applications of funds include the
purchase of fixed or financial assets, the payment of dividends and the repayment of loans, and, in
a bad year, trading losses.
If a company has a majority interest in other companies, the balance sheets and profit and loss
accounts of the parent company and the subsidiaries are normally combined in consolidated
accounts.
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According to the text, are the following TRUE or FALSE?
1. Company profits are generally divided three ways.

2. Balance sheets show a company's financial situation on 31 Dec.
3. The totals in balance sheets generally include sums of money that have not yet been paid.
4. Assets are what you own; liabilities are what you owe.
5. Ideally, managers would like financial statements to contain no items in brackets.
6. Limited companies cannot make a loss because assets always equal shareholders' equity.
7. A company's shares are often worth more than its assets.
8. The two sides of a funds flow statement show trading profits and losses.
9. Depreciation is a source rather than a use of funds.
10. A consolidated account is a combination of a balance sheet and a profit and loss account.
Summarize the text in NO MORE THAN 80 words
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Put the words into the correct column.
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Accounts payable Cost of goods sold Ledger Shareholders’ equity
EBITDA Trial balance Invoices Operating expenses Current assets
Preparation of accounts Profit and loss account Balance sheet
33
Unit 4: Stocks and Bonds
1. What Are Stocks?
When you buy a stock you are buying a percentage of the company. The stock goes up and down
based on how the company grows and is expected to grow in the future.
If you buy a stock on a company that doubles their sales then you should see an increase in the price
of the stock that you bought. This is not always so simple, but that is the general idea.
In addition to benefiting from appreciation some stocks also pay dividends to their shareholders.
This is basically a percentage of the company’s earnings which gets spread out to all the
shareholders of the company. This provides a great way off making a somewhat steady income
from your investment.
2. What Are Bonds?
When a large company or government need to raise money they can issue a bond. This is similar to
people going to the bank to take out a loan. The only difference is that when a bond is issued it goes
to the free market where anyone can buy a share.
So when you buy a bond you are essentially giving the government or individual company a loan.
The company agrees to pay interest payments on the loan and agrees to pay the full price of the
bond when it matures.
current ratio: Tỷ lệ thanh toán hiện thời
quick ratio: Tỷ lệ thanh toán nhanh
debt/equity ratio: Tỷ lệ nợ/ vốn chủ sở hữu
market ratio: Tỷ lệ giá thị trường/giá trị sổ sách
price/earnings ratio: Tỷ lệ giá cả/ thu nhập
dividend payout ratio: Tỷ lệ chi trả cổ tức
profit margin: Tỷ suất lợi nhuận
return on total assets: Lợi nhuận trên tổng tài sản
return on equity: Lợi nhuận trên vốn chủ sở hữu
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Match these phrases with the ratio:
1. current ratio or working capital a common stock dividend

net income
2. quick ratio or acid test ratio b current assets
current liabilities
3. profit margin or return on sales c distributable profit
number of shares
4. productivity d liquid assets
current liabilities
5. earnings per share (EPS) e (long-term) loan capital
shareholders’ equity or net assets
6. price/earnings ratio (PER) f market value of stock, per share
past year’s earnings per share
7. debt/equity ratio or gearing g market value x number of shares
nominal value x number of shares
8. interest cover or times interest h pre-tax profit
earned interest charges
9. dividend cover or dividend payout i pre-tax profit
ratio (DPR) owners’ equity
10. return on equity (ROE) j pre-tax profit
sales
11. return on total assets k pre-tax profit
total assets
12. market/book ratio l _______sales volume_________
number (or wages) of employees
C. READING
COMPANIES
Individuals, and groups of people doing business as a partnership, have unlimited liability for debts,
unless they form a limited company. If the business does badly and cannot pay its debts, any creditor
can have it declared bankrupt. The unsuccessful business people may have to sell nearly all their
possessions in order to pay their debts. This is why most people doing business form limited
companies. A limited company is a legal entity separate from its owners, and is only liable for the
amount of capital that has been invested in it. If a limited company goes bankrupt, it is wound up and
35
its assets are liquidated (i.e., sold) to pay the debts. If the assets don’t cover the liabilities or the debts,
they remain unpaid. The creditors simply do not get all their money back.
Most companies begin as private limited companies. Their owners have to put up the capital
themselves, or borrow from their friends or a bank, perhaps a bank specializing in venture capital.
The founders have to write a Memorandum of Association (GB) or a Certificate of Incorporation
(US), which states the company’s name, its purpose, its registered office or premises, and the amount
of authorized share capital. They also write Articles of Association (GB) or Bylaws (US), which set
out the duties of directors and the rights of shareholders (GB) or stockholders (US). They send these
documents to the registrar of companies.
A successful, growing company can apply to a stock exchange to become a public limited company
(GB) or a listed company (US). Newer and smaller companies usually join ‘over-the-counter’
markets, such as the Alternative Investment Market in London or NASDAQ in New York. Very
successful businesses can apply to be quoted or listed (i.e. to have their shares traded) on major stock
exchanges. Publicly quoted companies have to fulfill a large number of requirements, including
sending their shareholders an independently audited report every year, containing the year’s trading
results and a statement of their financial position.
The act of issuing shares (GB) or stocks (US) for the first time is known as floating a company
(making a flotation). Companies generally use an investment bank to underwrite the issue, i.e. to
guarantee to purchase all the securities at an agreed price on a certain day, if they cannot be sold to
the public.
Companies wishing to raise more money for expansion can sometimes issue new shares, which are
normally offered first to existing shareholders at less than their market price. This is known as a rights
issue. Companies sometimes also choose to capitalize part of their profit, i.e. turn it into capital, by
issuing new shares to shareholders instead of paying dividends. This is known as a bonus issue.
Buying a share gives its holder part of the ownership of a company. Shares generally entitle their
owners to vote at a company’s Annual General Meeting (GB) or Annual Meeting of Stockholders
(US), and to receive a proportion of distributed profits in the form of a dividend – or to receive part
of the company’s residual value if it goes into liquidation. Shareholders can sell their shares on the
secondary market at any time, but the market price of a share – the price quoted at any given time on
the stock exchange, which reflects (more or less) how well or badly the company is doing – may
differ radically from its nominal value.
I. Answer the following questions

1. What are the obligations of companies whose shares are traded on stock exchanges?
…………………………………………………………………………………………………
……………………………………………………………………………………………
2. What is an over-the-counter market?
…………………………………………………………………………………………………
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3. What does a company normally do if it wishes to raise further share capital?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
4. What is a bonus issue?
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…………………………………………………………………………………………………
……………………………………………………………………………………………
5. What rights do shareholders have?
…………………………………………………………………………………………………
…………………………………………………………………………………………...
II. Find words in the text which mean the following
1. having a responsibility or an obligation to do something, e.g. to pay a debt:
................................................................
2. a person or organization to whom money is owed (for goods or services rendered, or as
repayment of a loan): ………………………………………………………………………
3. to be insolvent: unable to pay debts: ……………………………………………………….
4. everything of value owned by a business that can be used to produce goods, pay liabilities, and
so on: ………………………………………………………………………………….
5. to sell all the possessions of a bankrupt business: …………………………………………
6. money that a company will have to pay to someone else (bills, taxes, debts, interest and
mortgage payments, etc.): …………………………………………………………………..
7. to provide money for a company or other project: …………………………………………
8. money invested in a possibly risky new business: …………………………………………
9. the people who begin a new company: …………………………………………………….
10. the place in which the company does business: an office, shop, workshop, factory, warehouse,
and so on: ………………………………………………………………………
11. to guarantee to buy an entire new share issue, if no one else wants it: …………………….
12. a proportion of the annual profits of a limited company, paid to shareholders:
………………………………….
III. Find suitable word/s to complete the following:

1. Offering shares to the public for the first time is called ………………. a company.
2. A company offering shares usually uses a merchant bank to ……………… the issue.
3. The major British companies are ……………… on the London Stock Exchange.
4. In London, share transactions have to be ………………. every two weeks.
5. The value written on a share is its …………………
6. The value listed in the newspapers is its …………………….
IV. Complete the following sentences using the phases in the box:
barometer stocks blue chips defensive stocks
deferred shares equities growth stock
mutual fund ordinary shares participation certificates
preference shares or preferred stock
1. Another name for stocks and shares is …………………., because all the stocks or shares of
a company – or all those of a particular category – have an equal nominal value.
2. …………………… (US: common stock) are often the only kind of shares with voting rights.
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3. Some companies issue ………………… which, like shares, grant their holders part of the
ownership of a company, but usually without voting rights.
4. ……………………, as their name suggests, receive a fixed dividend, which must be paid in
full before any dividend is paid on other shares. But because interest payments are tax
deductible, and dividends are not, many companies now issue bonds instead.
5. ………………… (or stock), again as their name suggests, do not receive a dividend until other
categories of shares have had a dividend paid on them, but might earn a higher dividend if the
company does well.
6. Securities in companies that are considered to be without risk are known as
……………………..
7. Widely-held stocks (e.g. blue chips or 20-year Treasury Bonds) that can be considered as
indicators of present and future market performance, are known as …………………… (GB)
or bellwether stocks (US).
8. A ………………….. or share is one that is expected to appreciate in capital value; it usually
has a high purchasing price and a low current rate of return.
9. A …………………… or income stock or share is one that offers a good yield but only a
limited chance of a rise or decrease in price (in an industry that is not much affected by cyclical
trends).
10. A way of spreading risks is to invest in a unit trust (in Britain) or a ……………… (in the
US.), organizations that invest small investors’ money in a wide portfolio of securities.
Discussion: If you possess a large amount of money what are the advantages and disadvantages
of the following?
• putting it under the mattress
• buying a lottery ticket
• taking it all to Las Vegas or Monte Carlo
• putting it in a bank
• buying gold
• buying a Van Gogh painting
• investing in property or real estate
• buying bonds
• buying shares
Answer the following questions
1. Why do people form limited companies?

……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
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……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………..……………………………………
……………………………………………………………………………………………
2. Why do companies issue shares?
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
…………………………………………..……………………………………………..…
……………………………………………………………………………………………
……………………………………………………………………………………………
3. Why do people buy shares?
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
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Unit 5: Futures & Derivatives
Theories on futures & derivatives:
• Equity futures are a form of derivative that, if used for hedging, requires a special hedge
accounting treatment.
• A derivative is a financial security, such as an option or futures contract, whose value depends
on the performance of an underlying security or asset.
Futures contracts, forward contracts, options, and swaps are the most common types of
derivatives.
• A forward contract is an agreement between two parties to buy or sell an asset at a

predetermined future point in time at a predefined price. The essence of the contract is that
the trade date and delivery date are distinctly different and the delivery date is a future date.
• A forward contract, being a derivative, is usually used to effectively hedge risk. However,
some use it as a mere tool for taking a leveraged unidirectional position.
• A forward contract that is traded on an exchange is called a futures contract.
• Exchange-traded futures contracts are not issued like securities; they are actually created when
one party buys a contract from another party.
• While both futures and forward contracts entail a promise to deliver an underlying asset on a
future date, they differ in several respects.
• An investor can enter into a futures contract with any of three intentions in mind, namely
hedging, speculation, or to get an arbitrage profit. The accounting treatment for hedging is
different from the other two, which are classified for the purposes of this book as non- hedging
activities.
• One of the key factors in a derivative instrument is that derivatives form an effective medium
of transferring risk to a person with risk appetite from another person who wants to avoid risk.
• Arbitrage means taking advantage of a price differential between two or more markets.
Arbitrage refers to the purchase and sale of similar products in two or more different markets
in order to take advantage of price discrepancy. A person who engages in arbitrage is called
an arbitrageur.
• Speculators in futures markets provide the essential function of assuming risk in the hope of
getting a reward. The speculator has no intention of taking actual delivery of the securities
purchased.
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• The forward market has serious limitations including liquidity issues, counterparty risk issues,
and lack of standardization.
• The futures market has the advantages of risk management such as low transaction cost,
performance guarantee by the clearinghouse, price discovery due to high liquidity, means of
speculation, being well regulated, and providing enormous arbitrage opportunities.
• There are some important components that should be present in a future contract, such as the
underlying asset, contract size, expiry, settlement terms, and margin details both initial margin
and variation margin.
• The initial margin is the sum of money that should be deposited by a buyer or a seller to the
stock exchange, typically meant to cover possible future loss in the position.
• The primary usefulness of a stock market index is that it provides a benchmark to compare
the performance of the stock market with the performance of any other type of asset
historically over a given period of time.
• Options on index futures provide a very powerful mechanism of hedging, allowing investors
to manage their risk according to their risk appetite.
Terms and definitions:
1. Futures: speculative purchases or sales of commodities for future receipt or delivery.
2. Derivatives: financial contracts whose value derives from the value of underlying stocks, bonds,
currencies, commodities, etc.
3. A futures contract is a standardized contract between two parties to exchange a specified asset
of standardized quantity and quality for a price agreed today (the futures price or the strike price)
with delivery occurring at a specified future date, the delivery date.
4. A forward contract is a non-standardized contract between two parties to buy or sell an asset at
a specified future time at a price agreed today
Equity (n): vốn cổ đông, tiền vốn
Forward contract (n): hợp đồng kỳ hạn
Futures contract (n): hợp đồng tương lai
Price discrepancy (n): sự chênh lệch giá
Option (n): quyền chọn (mua hoặc bán cổ phiếu)
Hedge (v): tự bảo hiểm
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Liabilities (n): công nợ, tài sản nợ
Spot market (n): thị trường giao ngay (giao hàng và trả tiền ngay)
Financial deregulation (n): bãi bỏ điều lệ quản lý tài chính
Speculate (v): đầu cơ
Swap (n): sự trao đổi hàng hóa/tiền tệ; tín dụng chéo
B. VOCABULARY
Match up the terms with the definitions:
1. futures A contract giving the right, but not the obligation, to buy or sell a
2. options security, a currency, or a commodity at a fixed price during a
3. commodities B certain period of time
4. derivatives contracts to buy or sell fixed quantities of a commodity,
5. hedging C currency, or financial asset at a future date, at a price fixed at
6. speculation the time of making the contract
D a general name for all financial instruments whose price
depends on the movement of another price
buying securities or other assets in the hope of making a capital
E gain by selling them at a higher price (or selling them in the
hope of buying them back at a lower price)
F making contract to buy or sell a commodity or financial asset
at a pre-arranged price in the future as a protection or
“insurance” against price changes
raw materials or primary products (metals, cereals, coffee, etc.)
that are traded on special markets
C. READING
Reading 1: FUTURES, OPTIONS AND SWAPS
Futures
Every weekday, enormous amounts of commodities, currencies and securities are traded for
immediate delivery at their current price on spot markets. Yet there are also futures markets
on which contracts can be made to buy and sell commodities, currencies, and various financial
assets, at a future date (e.g. three, six, or nine months ahead), but with the price fixed at the
time of the deal. Standardized deals for fixed quantities and time periods (e.g. 25 tons of
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copper to be delivered next June 30) are called futures; individual, non-standard, ‘over-the-
counter’ deals between two parties (e.g. 1.7 billion yen to be exchanged for dollars on
September 15, at a rate set today) are called forward contracts.
Hedging and speculating
Futures, options and other derivatives exist in order that companies and individuals may
attempt to diminish the effects of, or profit from, future changes in commodity and asset
prices, exchange rates, interest rates, and so on. For example, the prices of foodstuffs such as
wheat, maize, cocoa, coffee, tea and orange juice are frequently affected by droughts, floods
and other extreme weather conditions. Consequently many producers and buyers of raw
materials want to hedge, in order to guarantee next season’s prices. When commodity prices
are expected to rise, future prices are obviously higher than (at a premium on) spot prices;
when they are expected to fall then they are at a discount on spot prices.
In recent years, especially since financial deregulation, exchange rates and interest rates have
also fluctuated wildly. Many businesses, therefore, want to buy or sell currencies at a
guaranteed future price. Speculators, anticipating currency appreciations or depreciations, or
interest rate movements, are also active in currency futures markets, such as the London
International Financial Future Exchange (LIFFE, pronounced ‘life’)
Options
As well as currencies and commodities, there is now a huge futures market in stocks and
shares. One can buy options giving the right – but not the obligation – to buy and sell securities
at a fixed price in the future. A call option gives the right to buy securities (or a currency, or
a commodity) at a certain price during a certain period of time. A put option gives the right to
sell an asset at a certain price during a certain period of time. These options allow
organizations to hedge their equity investments.
For example, if you think a share worth 100 will rise, you can buy a call option giving the
right to buy at 100, hoping to sell this option, or to buy and resell the share at a profit.
Alternatively, you can write a put option giving someone else the right to sell the shares at
100: if the market price remains above 100, no one will exercise the option, so you earn the
premium.
On the contrary, if you expect the value of a share that you own to fall below its current price
of 100, you can buy a put option at 100 (or higher): if the price falls, you can still sell your
shares as this price. Alternatively, you could write a call option giving someone else the right
to buy the share at 100: if the market price of the underlying security remains below the
option’s exercise price or strike price, no one will take up the option, and you earn the
premium.
Swaps
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Options are merely one type of derivative instrument, based on another underlying price.
Many companies nowadays also arrange currency swaps and interest rate swaps with other
companies or financial institutions. For example, a French company that can borrow francs at
a preferential rate, but which also needs yen, can arrange a swap with a Japanese company in
the opposite position. Such currency swaps, designed to achieve interest rate savings, are of
course open to the risk of exchange rate fluctuations. A company with a lot of fixed interest
debt might choose to exchange some of it for another company’s floating rate loans. Whether
they save or lose money will depend on the movement of interest rates.
Exercise 1. Complete the following sentences:
1. The difference between futures and forward contracts is

…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………....
2. Producers and buyers often choose to hedge because

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
3. Speculators can make money on currency futures if

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
4. If you believe that a share price will rise, possible option strategies
include…………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
5. On the contrary, if you think a share price will fall, possible option strategies
include…………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
6. The risk with currency and interest rate swaps is that

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
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Exercise 2. Find words in the text that are in an obvious sense the opposite of the terms below.
1. appreciate 5. floating
2. call 6. hedging
3. discount 7. spot market
4. drought 8. strike price
Reading 2: Derivatives
Lead - in
• Do you know what the main types of derivatives are?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………
• What are the two mains uses of derivatives?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………
• Does the organization you work for use or trade derivatives?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………..
Reading the text and do the exercises
Derivatives is a collective term for financial market products whose value depends on (i.e. is derived
from) the price of another underlying asset such as a stock, a stock index (the average value of
representative stocks in a given market), a currency, a commodity, etc. The main derivatives are
futures, options and swaps. They were developed to allow companies to reduce uncertainty by
guaranteeing future prices, at a reasonable cost. This allows companies to plan more effectively.
Futures contracts are agreements to make or take delivery of specified commodities (foodstuffs,
metals, etc.) or financial instruments at a fixed future date, at a price determined when the contract is
made. Futures contracts allow both sellers and buyers to hedge or reduce risks. For example, a cocoa
grower can agree a price, quantity and delivery date with a chocolate manufacturer .The seller
eliminates the risk that the price will drop, and the buyer the risk that it will rise .The same logic led
45
to the development of financial futures: contracts to buy and sell stocks, stocks indexes, interest rates
and currencies at a future date.
Options differ from futures in that they give the right, but not the obligation, to buy or sell an asset at
a fixed price on or before a given date. Buying a call option gives you the right to buy an asset; buying
a put option gives you the right to sell an asset. For example, if you expect the price of a stock to rise
you can buy the right to buy that stock in the future at the current market price. If you think the price
of a stock will fall in the next few weeks or months you can buy the right to sell it in the future at the
current price. If you are wrong, you do not have to exercise the option to buy or sell the stocks, but
you lose the price of the options .This is the premium the writer or seller of the options receives from
the buyer. Obviously, the expectations of the writer of an option about the future value of the asset
are opposite to those of the buyer, and the writer does not expect the options to be exercised. Futures
and options are traded by speculators hoping to make a profit from price fluctuations, as well as by
companies seeking to hedge. In fact, much more derivative usage is based on speculation than hedging
nowadays.
Borrowers and lenders can also swap or exchange future interest payment. A company that has
borrowed money at a floating rate could protect itself from a rise in interest rates by exchanging this
for a fixed interest rate loan with another company or financial institution. These are interest rate
swaps. Companies can also undertake exchange rate swaps, exchanging funds in two different
currencies. At a future date the same amount of the currencies is re-exchanged at a predetermined
exchange rate. Over the term of the agreement, the counterparties exchange the fixed or floating rate
interest payment in their swapped currencies.
Exercise 1. Find words and phrases in the text to complete the sentences.
1. A __________ ___________ is contract giving the possibility to sell a specified quantity of

securities, foreign exchange or commodities in the future, if it is advantageous to do so.
2. ______________ are raw materials such as agricultural products and metals that are traded
on special exchanges.
3. ______________ are forward contracts for the purchase and sale of securities, precious
metals, etc., at a fixed price.
4. A___________ ___________ is a contract giving the buyer the right, but not the obligation,
to buy an asset in the future.
5. If you_____________ you make transactions that are designed to reduce risk regarding a
particular price, interest rate or exchange rate.
6. An ____________ _____________ ____________ is an exchange of future payments on

borrowed money according to specified terms.
46
7. If you _________________ an option you use or implement the option, taking up the
possibility to buy or sell something.
8. A ________________ anticipates future changes in a market and makes risky transactions,

hoping to make a gain.
9. A ________________ is the money the writer of an option receives
Exercise 2. Use a word or phrase from each box to make word combinations from the text. You
can use some words more than once. Then use some of the word combinations the complete the
sentences below.
determine interest payments eliminate option exercise

prices guarantee risks
reduce uncertainty swap
1. Companies with fixed and floating loans can choose to _________ __________
__________
2 Futures contracts allow you to ____________ short-term______________.
3. Hedging is the attempt to ___________ __________; speculating is the opposite.
4. If prices move the wrong way, the buyer of _________do not_________them.
5 With futures, you can __________ ___________ several months in advance.
Reading 3:
A. Options
Derivatives are financial products whose value depends on - or is derived - from another financial
product, such as a stock, a stock market index, or interest rate payments. They can be used to manage
the risks associated with securities, to protect against fluctuations in value, or to speculate. The main
kinds of derivates are options and swaps.
Options are like futures except that they give the right – give the possibility, but not the obligation –
to buy or sell an asset in the future(e.g. 1,000 General Electric Stocks on 31 March). If you buy a call
option it gives you the right to buy an asset for a specific price, either at any time before the option
ends or on a specific future date. However, if you buy a put option, it gives you the right to sell an
asset at a specific price within a specific price within a specified period or on a specific future date.
Investors can buy put options to hedge against falls in the price of stocks.
B. In-the-money and out-of-the-money
47
Selling or writing options contracts involves the obligation either to deliver or to buy assets, if the
buyer exercises the option- chooses to make the trade. For this the seller (writer) receives a fee called
a premium from the buyer. But the writers of options do not expect them to be exercised. For example,
if you expect the price of a stock to rise from 100 to 120, you can buy a call option giving the right to
buy the stock at 110. If the stock price does not rise to 110, you will not exercise the option, and the
seller of the option will gain the premium. Your option will be out- of- the- money, as the stock is
trading at below the strike price or exercise price of 110, the price started in the option. If, on the
other hand, the stock price rises above 110, you are in- the-money: you can exercise the option and
you will gain the difference between the current market price and 110. If the market moves in an
unexpected direction, the writers of options can lose enormous amount of money.
C. Warrants and swap
Some companies issue warrants which, like options, give the right, but not the obligation, to buy
stocks in the future at a particular price, probably higher than the current market price. They are
usually issued along with bonds, but they can generally be detached from the bonds and traded
separately. Unlike call options, which last three, six or nine months, warrants have long maturities of
up to ten years.
Swaps are arrangements between institutions to exchange interest rates or currencies (e.g. dollars for
yen). For example, a company that has borrowed money by issuing floating- rate notes could protect
itself from a rise in interest rates by arranging with a bank to swap its floating- rate payments for a
fixed- rate payment, if the bank expected interest rates to fall.
Exercise 1. Match the two parts of the sentences. Look at A to help you.
1. The price of a derivative always depends on a. future price changes.
2. Options can be used to hedge against b. the right to buy something.
3. A call option gives its owner c. the price of another financial product.
4. A put option gives its owner d. the right to sell something.
Exercise 2. Choose the correct ending for the sentences. Some sentences have more than one possible
ending. Look at A and B opposite to help you.
1. If you expect the price of a stock to rise, you can a. buy a call option.
b. sell a call option.
48
c. buy a put option.
d. sell a put option.
2. If you expect the price of a stock to fall, you can a. buy a call option
b. sell a call option.
c. buy a put option.
d. sell a put option.
3. If an option is out- of- the- money it will a. be exercised.
b. not be exercised.
4. If an option is in-the-money the seller will a. lose money
b. gain money.
5. The bigger risk is taken by a. writers of options.
b. buyers of options.
Exercise 3. Complete the definitions. Look at A, B and C to help you.
1. …………… are like call options, but with much longer time spans.
2………………. can be used to speculate on interest rate movements.
3……… ………… give the right to sell securities at a fixed price within a specified period.
Exercise 4. Complete these sentences using words from A, B and C.
1. If your put option is out-of-the-money, the seller will gain the ………….
2. You only exercise a call option if the market price is higher than the ………
3. If I expect a stock price to go up in the short term, I buy ………. …….. instead of the stock.
4. If I expect a big company’s stock price to go up in the long term, I sometimes buy their ……………
5. We needed Euros and had a lot of dollars in the bank, so we did a ……. with a German company which
needed dollars.
Futures
A. Commodity futures
49
Forward and futures contracts are agreements to sell an asset at a fixed price on a fixed date in the
future. Futures are traded on a wide range of agricultural products (including wheat, maize, soybeans,
pork, beef, sugar, tea, coffee, cocoa and orange juice), industrial metals (aluminium, copper, lead,
nickel, and zinc), precious metals (gold, silver, platinum and palladium) and oil. These products are
known as commodities. Futures were invented to enable regular buyers and sellers of commodities to
protect themselves against looser or to hedge against future changes in the price. If they both agree to
hedge, the seller (e.g. an orange grower) is protected from a fall in the price and the buyer (e.g. an
orange juice manufacturer) is protected from a rise in price.
Futures are standardized contracts – contracts which are for fixed quantities (such as one ton of copper
or 100 ounces of gold) and fixed time periods (normally three, six, or nine months) – that are traded
on a special exchange. Forwards are individual, non – standardized contracts between two parties,
traded over – the – counter – directly, between two companies or financial institutions, rather than
through an exchange. The futures price for a commodity is normally higher than its spot price – the
price that would be paid for immediate delivery. Sometimes, however, short – term demand pushes
the spot price above the future price. This is called backwardation.
Futures and forwards are also used by speculators – people who hope to profit from price changes.
B. Financial futures
More recently, financial futures have been developed. These are standardized contracts, traded on
exchanges, to buy and sell financial assets. Financial assets such as currencies, interest rates, stocks
and stock market indexes fluctuate – continuously vary – so financial futures are used to fix a value
for a specified future date (e.g. sell euros for dollars at a rate of euro 1 for $ 1.20 on June 30).
§ Currency futures and forwards are contracts that specify the price at which a certain currency
will be bought or sold on a specified date.
§ Interest rate futures are agreements between banks and investors and companies to issue fixed
income securities (bonds, certificates of deposit, money market deposits, etc.) at a future date.
§ Stock futures fix a price for a stock and stock index futures fix a value for an index e.g. the
Dow Jones or the FTSE) on a certain date. They are alternatives to buying the stocks or share
themselves.
Like futures for physical commodities, financial futures can be used both to hedge and to speculate.
Obviously the buyer and seller of a financial future have different opinions about what will happen
to exchange rates, interest rates and stock prices. They are both taking an unlimited risk, there could
be huge changes in rates and prices during the period of the contract. Futures trading is a zero – sum
game, because the amount of money gained by one party will be the same as the sum lost by the other.
Exercise 1. Match the word in the box with the definitions below. Look at A to help you.
Backwardation Commodities Forwards Futures
50
To hedge Over-the-counter Spot price
1. the price for the immediate purchase and delivery of a commodity
2. the situation when the current price is higher than the future price
3. adjective describing a contract made between two businesses, not using an exchange
4. contracts for non- standardized quantities or time periods
5. physical substance, such as food, fuel and metals, that can be bought or sold with futures
contracts
6. to protect yourself against loss
7. contracts to buy or sell standardized quantities
Exercise 2. Complete the sentences using a word or phrase from each box. Look at A and B to help
you.
A commodity futures allow W farmers
B interest rate futures allow X food manufactures
C currency futures allow Y importers
U banks Z investors
V companies
1…………………….. to charge a consistent price for their products
2…………………….. to be sure of the rate they will get on bonds which could be issued at a different
rate in the future
3…………………….. to know at what price they can borrow money to finance new projects
4…………………….. to make plans knowing what price they will get for their crops
5…………………….. to offer fixed lending rates
6…………………….. to remove exchange rate risks from future international purchases
Exercise 3. Are the following statements true or false? Find reasons for your answer in B.
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1. Financial futures were created because exchange rates, interest rates and stock prices all regularly
change.
2. Interest rate futures are related to stocks and shares.
3. Financial futures contracts allow companies to protect themselves against short- term changes in
exchange rates.
4. You can only hedge if someone who expects a price to move in the opposite direction is willing
to buy or sell a contract.
5. Both parties can make money out of the same futures contract.
F. EXTENSION ACTIVITIES
Students discuss in groups the following question:
Buying and selling options and swaps are highly risky; one party in the deal is guaranteed to lose. Would you
like to have a job which requires you to buy and sell these derivatives?
52
Unit 6: Mergers & Acquisitions
Theories:
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate
finance and management dealing with the buying, selling, dividing and combining of different
companies and similar entities that can aid, finance, or help an enterprise grow rapidly in its sector or
location of origin or a new field or new location without creating a subsidiary, other child entity or
using a joint venture. The distinction between a "merger" and an "acquisition" has become
increasingly blurred in various respects (particularly in terms of the ultimate economic outcome),
although it has not completely disappeared in all situations.
An acquisition is the purchase of one business or company by another company or other business
entity. Consolidation occurs when two companies combine together to form a new enterprise
altogether, and neither of the previous companies survives independently. Acquisitions are divided
into "private" and "public" acquisitions, depending on whether the acquiree or merging company (also
termed a target) is or is not listed on public stock markets. An additional dimension or categorization
consists of whether an acquisition is friendly or hostile.
Achieving acquisition success has proven to be very difficult, while various studies have shown that
50% of acquisitions were unsuccessful.The acquisition process is very complex, with many
dimensions influencing its outcome.
Whether a purchase is perceived as being a "friendly" one or a "hostile" depends significantly on how
the proposed acquisition is communicated to and perceived by the target company's board of directors,
employees and shareholders. It is normal for M&A deal communications to take place in a so-called
'confidentiality bubble' wherein the flow of information is restricted pursuant to confidentiality
agreements. In the case of a friendly transaction, the companies cooperate in negotiations; in the case
of a hostile deal, the board and/or management of the target is unwilling to be bought or the target's
board has no prior knowledge of the offer. Hostile acquisitions can, and often do, ultimately become
"friendly", as the acquiror secures endorsement of the transaction from the board of the acquiree
company. This usually requires an improvement in the terms of the offer and/or through negotiation.
"Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a
smaller firm will acquire management control of a larger and/or longer-established company and
retain the name of the latter for the post-acquisition combined entity. This is known as a reverse
takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a
private company to be publicly listed in a relatively short time frame. A reverse merger occurs when
a privately held company (often one that has strong prospects and is eager to raise financing) buys a
publicly listed shell company, usually one with no business and limited assets.
Distinction between mergers and acquisitions

53
Although often used synonymously, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly establishes itself as the new owner, the purchase
is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer
"swallows" the business and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms agree to go forward as a single new
company rather than remain separately owned and operated. This kind of action is more precisely
referred to as a "merger of equals". The firms are often of about the same size. Both companies' stocks
are surrendered and new company stock is issued in its place. For example, in the 1999 merger of
Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new
company, GlaxoSmithKline, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company will
buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action
is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative
connotations; therefore, by describing the deal euphemistically as a merger, deal makers and top
managers try to make the takeover more palatable. An example of this would be the takeover of
Chrysler by Daimler-Benz in 1999 which was widely referred to as a merger at the time.
A purchase deal will also be called a merger when both CEOs agree that joining together is in the
best interest of both of their companies. But when the deal is unfriendly (that is, when the target
company does not want to be purchased) it is always regarded as an acquisition.
1. Acquisition (n): Acquiring control of a business or corporation
2. Merger (n): the joining together of two or more companies.
3. Acquisition accounting (n) a full consolidation, where the assets of a subsidiary company which
has been purchased are included in the parent company’s balance sheet, and the premium paid for
the goodwill is written off against the year’s earnings
4. Takeover (n) an act of buying a controlling interest in a business by buying more than 50% of its
shares.
5. Takeover bid (n) an offer to buy all or a majority of the shares in a company so as to control it
6. To make a takeover bid for a company to offer to buy most of the shares in a company
7. To withdraw a takeover bid to say that you no longer offer to buy the shares in a company
8. The company rejected the takeover bid the directors recommended that the shareholders
should not accept the offer
8. Takeover target a company which is the object of a takeover bid

54
Hibernation (n): sự ngủ đông/ tạm ngừng hoạt động
Acquisition (n): sự thôn tính
Merger (n): sự sát nhập
Takeover (n): sự mua lại để giành quyền kiểm soát công ty
Synergy (n): tính hiệp trợ
Reverse takeover (n): thôn tính ngược
Reverse merger (n): sát nhập ngược
Euphemistically (adv): theo cách nói hoa mỹ
Endorsement (n): sự xác nhận; sự tán thành
B. VOCABULARY
Match the words on the left with the words on the right.
1. make / reject / accept / improve / retract a. a code of practice
2. buy up some b. a controlling interest
3. subscribe to / follow / ignore c. a deal
4. an unregulated d. activity / industry
5. do / close e. unwanted subsidiary
6. gain f. an offer / a bid
7. consolidate g. our position in the market
8. sell off an h. shares / smaller companies
C. READING
Reading 1: Read the article below and decide if the author is generally optimistic or pessimistic
about future strategic alliances.
55
Spring in their steps. Some notes for company bosses out on the prowl.
(Adapted from The Economist. February, 2004.)
1 After a long hibernation, company bosses are beginning to rediscover their animal spirits. The
$145 billion-worth of global mergers and acquisitions announced last month was the highest for any
month in over three years. There are now lots of chief executives thinking about what target they
might attack in order to add growth and value to their companies and glory to themselves. Although
they slowed down for a while because of the dot-com boom, they are once again on the prowl.
2 What should CEOs do to improve their chances of success in the coming rush to buy? First of
all, they should not worry too much about widely-quoted statistics suggesting that as many as three
out of every four deals have failed to create shareholder value for the acquiring company. The figures
are heavily influenced by the time period chosen and in any case, one out of four is not bad when
compared with the chances of getting a new business started. So they should keep looking for good
targets.
3 There was a time when top executives considered any type of business to be a good target. But
in the 1990s the idea of the conglomerate, the holding company with a diverse portfolio of businesses,
went out of fashion as some of its most prominent protagonists - CBS and Hanson Trust, for example
-- faltered. Companies had found by then that they could add more value by concentrating on their
'core competence', although one of the most successful companies of that decade, General Electric,
was little more than an old-style conglomerate with a particularly fast-changing portfolio.
4 Brian Roberts, the man who built Comcast into a giant cable company, was always known for
concentrating on his core product -- until his recent bid for Disney, that is. It is not yet clear whether
his bid is an opportunistic attempt to acquire and break up an undervalued firm, or whether he is
chasing the media industry's dream of combining entertainment content with distribution, a strategy
which has made fortunes for a few but which regularly proves the ruin of many big media takeovers.
5 If vertical integration is Comcast's aim, then it will be imperative for Mr. Roberts to have a clear
plan of how to achieve that. For in the end, CEOs will be judged less for spotting a good target than
for digesting it well, a much more difficult task. The assumption will be that, if they are paying a lot
of money for a business, they know exactly what they want to do with it.
6 If CEOs wish to avoid some of the failures of the 1990s, they should not forget that they are
subject to the eternal tendency of business planners to be over-confident. It is a near certainty that, if
asked, almost 99 per cent of them would describe themselves as 'above average' at making mergers
and acquisitions work. Sad as it may be, that can never be true.
7 They should also be aware that they will be powerfully influenced by the herd instinct, the feeling
that it is better to be wrong in large numbers than to be right alone. In the coming months they will
56
have to watch carefully to be sure that the competitive space into which the predator in front of them
is so joyfully leaping does not lie at the edge of a cliff.
D.READING COMPREHENSION EXERCISES
Exercise 1. Read the article again. Are these statements true or false?
1. In the first paragraph, the author says that CEOs can no longer find targets for mergers and
acquisitions.
2. Studying facts and figures from the recent past won't necessarily help CEOs to form a successful
alliance.
3. The trend in the 1990s was for companies to build portfolios with diverse investments.
4. The author suggests that media mergers are always likely to improve share value.
5. CEOs need above all to find the right company to acquire.
6. If business planners wish to avoid some of the errors of the 1990s, they should be prudent when
taking risks.
Exercise 2. Vocabulary Practice:
Find the works in italics in the text and match them with their meaning below.
_______________ A collection of companies.
_______________ An offer to buy.
_______________ Most important activity.
_______________ Controlling all stages of one particular type of business.
_______________ Organization comprising several companies.
_______________ What stocks in a public company are worth.
Reading 2:
A Successful companies generally want to diversify; to introduce new products or services, and
enter new markets. Yet entering new markets with new brands is usually a slow, expensive
and risky process, so buying another company with existing products and customers is often
cheaper and safer. If a company is too big to acquire, another possibility is to merge with it,
forming a new company out of the two old ones. Apart from diversifying, reasons for acquiring
companies include getting stronger position in a market and a larger market share, reducing
competition, benefiting from economies of scale, and making use of plant and equipment.
57
There are two ways to acquire a company: a raid or a takeover bid. A raid simply involves
buying as many of a company’s stocks as possible on the stock market. Of course if there is
B more demand for stock than there are sellers, this increases the stock price. A takeover bid is
a public offer to a company’s stockholders to buy their stocks at a certain price (higher than
the current market price) during a limited period of time. This can be much more expensive
than a raid, because if all the stockholders accept the bid, the buyer has to purchase 100% of
the company’s stocks, even though they only need 50% plus one to gain control of a company.
(In fact they often need much less, many stockholders do not vote at stockholders’ meetings.)
If stockholders accept a bid, but receive stocks in the other company instead of cash, it is not
always clear if the operation is a takeover or a merger – journalists sometimes use both terms.
Companies are sometimes encouraged to take over other ones by investment banks, if
researchers in their Mergers and Acquisitions departments consider that the target companies
are undervalued. Banks can earn high fees for advising on takeovers.
C
Yet there are also a number of good arguments against takeovers. Diversification can damage
a company’s image, goodwill and shared values (e.g. quality, good service, innovation). After
a hostile takeover (where the managers of a company do not want it to be taken over), the top
executives of the newly acquired company are often replaced or choose to leave. This is a
problem if what made the company special was its staff (or ‘human capital’) rather than its
D products and customer base. Furthermore, a company’s optimum size or market share can be
quite small, and large conglomerates can become unmanageable and inefficient. Takeovers do
not always result in synergy. In fact, statistics show that most mergers and acquisitions reduce
rather than increase the company’s value.
Consequently, corporate raider and private equity companies look for large conglomerates
(formed by a series of takeovers) which have become inefficient, and so are undervalued. In
other words, their market capitalization (the price of all their stocks) is less than the value of
their total assets, including land, buildings and – unfortunately – pension funds. Raiders can
borrow money, usually by issuing bonds and buy the companies. They then split them up or
sell off the assets, and then pay back the bonds while making a large profit. Until the law was
changed, they were also able to appropriate the pension funds. This is known as asset-
E stripping, and such takeovers are called leveraged buyouts or LBOs. If a company’s own
managers buy its stocks, this is a management buyout or MBO.
Exercise 1.Understanding main points
Read the text and match the titles (1- 5) to the paragraphs (A-E).
58
1 Disadvantages of takeovers
2 Raiders and assets-stripping
3 Raids and bids
4 The ‘make-or-buy’ decision
5 The role of banks
Exercise 2.Understanding details
Find words or phrases in the text that mean the following:
Adding new and different products or services

1
A company’s sales expressed as a percentage of the total sales

2
in a market
Reductions in costs resulting from increased production

3
Money paid to investment banks for work done

4
All the individuals or organizations that regularly or

5
occasionally purchase goods or services from a company
6 Best, perfect or ideal (adjective)
Combined production or productivity that is greater than the

7
sum of the separate parts
People or companies that try to buy and sell other companies

8
to make a profit
Large corporation or groups of companies offering a number

9
of different products or services
Buying a company in order to sell its most valuable assets at a

10
profit
59
Exercise 1. Choose the best word from each pair in bold type.
1. Anderson Accounting has been taken over / taken up by Berlin Brothers.
2. Collins Corporation has made a bid / play for Dacher Deutsche
3. The board of Dacher Deutsche rejected / denied Collins Corporation's offer.
4. Eastern Electricity has joined / merged with Grampian Gas
5. Inter-tek has been sold by its father / parent company, Harrison Holdings.
6. Inter-tek has been acquired / got by Johnson & Johnson
7. Harrison Holdings is expected to sell more of its subsidiaries / children in the future.
Exercise 2. Put the words below into the correct spaces.
conditional bid controlling interest hostile takeover
merger "poison pill" shareholder
target company unconditional bid "white knight"
Takeover bids
In a takeover bid, another person or business makes an offer to the (1)______________ to buy their
shares at a fixed price. The aim of this is to take control of the (2)______________.
If it is a welcome takeover bid, the directors of the company advise the shareholders to accept the
offer. If the shareholders accept the offer, the result is usually called a (3)______________.
If the bid is unwelcome, the directors advise the shareholders against accepting it. The bidders may
then write to the shareholders explaining the advantages of the takeover, and perhaps improving the
offer for the shares. This is known as a (4)______________ bid.
To avoid an unwelcome takeover bid, the directors may devise a (5)______________ – a tactic that
will mean the company is worth much less if the takeover bid is successful.
Alternatively, they may look for a (6)______________ – an alternative bidder for the company whose
takeover would be more welcome.
In an (7)______________, the bidder offers a price for each share regardless of how many shares it
can buy. In a (8)______________, the offer price depends on the bidder being able to buy enough
shares to gain a (9)______________ in the target company.
60
Exercise 3. Choose the best word to go into the space.
1. Berlin Brothers bought a __________ shareholding in Anderson Accounting.
a. more-than-half b. biggest c. majority
2. In the UK, mergers and acquisitions are not __________ by the government.
a. controlled b. checked c. regulated
3. However, they are subject to a voluntary __________.
a. code of conduct b. code of practice c. way of doing things
4. Buying a company for less than the value of its assets, then selling those assets to make a profit is
called__________.
a. asset stripping b. profiteering c. exploitation
5. Sometimes a controlling interest in a company is bought by its managers. This is called a

management__________.
a. buy-out b. buy-up c. buy-in
6. In the past, a lot of small banks were __________ by larger ones.
a. bought up b. eaten up c. chewed up
7. In other words, there was __________ in the banking industry.
a. amalgamation b. combining c. consolidation
8. A takeover of a foreign company is known as a __________ deal.
a. cross-boundary b. cross-border c. cross-state
F. EXTENSION ACTIVITIES
Students discuss in groups the following questions.
1 What is a merger?
2 What is a takeover?
3 Why do companies merge?
4 Why do companies buy other companies?
5 Think of recent merger or takeover that was reported in the press: what were the reasons
behind it?
61
Unit 7: Central Banking
Theories:
A central bank, reserve bank, or monetary authority is a public institution that usually issues the
currency, regulates the money supply, and controls the interest rates in a country. Central banks often
also oversee the commercial banking system of their respective countries. In contrast to a commercial
bank, a central bank possesses a monopoly on printing the national currency, which usually serves as
the nation's legal tender. Examples include the European Central Bank (ECB), the Federal Reserve
of the United States, Reserve Bank of India and the People's Bank of China.
The primary function of a central bank is to provide the nation's money supply, but more active duties
include controlling interest rates (ie. price fixing), and acting as a lender of last resort to the banking
sector during times of financial crisis (eg. bailouts). It may also have supervisory powers, intended to
prevent banks and other financial institutions from reckless or fraudulent behaviour. Central banks in
most developed nations are independent in that they operate under rules designed to render them free
from political interference.
Activities and responsibilities
Functions of a central bank may include:
• implementing monetary policy
• determining Interest rates
• controlling the nation's entire money supply
• the Government's banker and the bankers' bank ("lender of last resort")
• managing the country's foreign exchange and gold reserves and the Government's stock
register
• regulating and supervising the banking industry
• setting the official interest rate (i.e. price fixing) – used to manage both inflation and the
country's exchange rate – and ensuring that this rate takes effect via a variety of policy
mechanisms
Monetary policy is the process by which the monetary authority of a country controls the supply of
money, often targeting a rate of interest for the purpose of promoting economic growth and stability.
The official goals usually include relatively stable prices and low unemployment.
62
Money supply or money stock is the total amount of money available in an economy at a particular
point in time. There are several ways to define "money," but standard measures usually include
currency in circulation and demand deposits (depositors' easily accessed assets on the books of
financial institutions).
Bailout (n): sự cứu trợ
Political interference (n): dùng chính trị can thiệp (thị trường, tỷ giá lãi suất…)
Fraudulent (adj): có ý gian lận, lừa lọc
Reckless (adj): thiếu thận trọng, khinh suất
Base lending rate (n): lãi suất cho vay cơ bản
Expansionary monetary policy (n): chính sách tiền tệ mở rộng
Triple digit inflation rate (n): tỷ lệ lạm phát 3 con số
Allocation of financial resources (n): phân bổ các nguồn lực tài chính
Interest rate liberalization (n): tự do hóa lãi suất
B.VOCABULARY
You are going to read about the major functions of the Bank of England. Before you read, check
your understanding of the words (1-9) below by matching them with their definitions (a-i).
1 policy a) a level or situation which you intend to achieve
2 threats b) a general, continuous increase in prices
3 oversight c) an agreed plan of what to do
4 target d) basic and most important
5 core (adjective) e) in good condition
6 sound (adjective) f) paid
7 sterling g) potential sources of danger
8 inflation h) supervision
9 remunerated i) the name of the British currency
63
C. READING
Reading 1: The Bank of England
The Bank of England has two 1) ______________ purposes. One is ensuring monetary stability,
i.e. having stable prices – low 2) ______________ – and consequently confidence in the currency.
The government sets an inflation 3) _____________, and the Bank’s Monetary Policy Committee
tries to meet it by raising or lowering the official interest rate when necessary.
UK banks and building societies have to hold reserves at the Bank. These are 4) ______________
at the Bank’s official interest rate. If British banks need to borrow short-term funds they do this
in the 5) _____________ money markets.
The Bank can influence the amount of money and the interest rates in these markets – this is how
it implements its monetary 6) _____________.
The Bank also deals in the foreign exchange market. It can use the UK’s foreign currency and
gold reserves to try to influence the exchange rate if needed.
The Bank’s other core purpose is to maintain the stability of the financial system. The Bank has
to detect and reduce any 7) ____________ to financial stability, and make sure the overall system
is safe and secure. It monitors and analyses the behavior of the major participants in the financial
system and the wider financial and economic environment, and tries to identify potential risks. A
8) ____________ and stable financial system is important, and is also necessary for carrying out
monetary policy efficiently.
The Bank’s role also includes 9) _______________ of payment systems for transactions between
individuals, businesses and financial institutions.
The Bank sometimes acts as ‘lender of last resort’ to financial institutions in difficulty, to prevent
panic or a loss of confidence spreading through the whole financial system.
Exercise 1. Complete the text with the words (1-9) from the Vocabulary exercise in section B.
Exercise 2. According to the text, are the following statements true or false?
1 The Bank of England wants to prevent prices rising.
2 The government sets a figure for what it thinks should be the maximum inflation rate.
3 The government makes decisions about interest rates.
4 Commercial banks have to keep some of their funds at the Bank of England.
5 The Bank does not pay interest on commercial banks’ deposits.
6 The Bank can try to change the sterling exchange rate.
7 The Bank has to eliminate threats to financial stability.
64
8 The Bank supervises the clearing system: the settlement of claims between banks.
9 The Bank always lends money to financial institutions in danger of going bankrupt.
Reading 2:
US Federal Reserve System – by Alexander Davidson
The US Federal Reserve System, known informally as the Fed, was founded by Congress in 1913 as
the central bank of the United States. The Fed performs the usual services of a central bank, including
monetary policy, and acts as a supervisor and regulator of banking institutions.
The Fed is an independent, central government agency, and has its own source of funds, but is subject
to oversight by the US Congress, which can pass laws affecting it. It is constructed in a non-
centralized way, with 12 regional Federal Reserve Banks in 12 districts.
Each regional Fed bank has its own board of governors and issues stock to commercial banks, known
as member banks, which must buy shares valued at 6 per cent of their capital. The banks cannot trade
the shares, but receive dividends and participate in choosing directors and the president of the regional
Federal Reserve Bank. They keep deposits at this Federal Reserve Bank and can borrow from it.
The Fed has a board of governors in Washington DC and a Federal Open Market Committee (FOMC).
The FOMC, whose members include all the governors, the New York Fed’s president and four
regional Fed banks in rotation, oversees open market operations. These are the purchase or sale of
securities, mainly US government bonds, in the open market, to influence overall monetary
conditions.
Monetary policy
When money and credit grow too fast against the supply of goods and services, we have inflation.
The Fed sees its task as keeping this growth neither too fast nor too slow. If money flows fast into the
economy, banks are given more to lend and interest rates decline. Conversely, if less money flows,
banks have less to lend, which mean that consumers borrow less and spend less leading to price
declines.
The Fed, like other central banks, can control the money supply by increasing or decreasing reserves
in the banking system through the buying and selling of securities in open market operations. If the
Fed wants to increase the money supply, it buys government securities. In practice, the domestic
trading desk at the New York Federal Reserve Bank, one of its regional Federal Reserve banks, buys
on behalf of the Federal Reserve System from a group of securities dealers. The Fed creates the funds
by crediting the account that the dealers’ banks have at the New York Federal Reserve Bank. The
transactions mean that the banking system has extra reserves.
In the meantime, the Fed collects interest on the government securities it has bought and uses this to
pay its expenses, passing anything left to the US treasury. As a reverse transaction, the Fed decreases
the money supply by selling government securities and taking the cash.
65
The Fed does not issue the securities in which it deals. They are backed by the US Treasury, an
entirely separate entity. As a department of the federal government, the Treasury collects taxes, makes
payments on the government’s behalf and issues government securities to cover the budget deficit,
paying interest on them and redeeming them at face value.
On a day-to-day basis, the Fed typically engages in outright repurchase agreements, known as repos,
which change the money supply only briefly. These are government security purchases or sales that
are quickly reversed. In the credit crisis of 2007–09, the Fed has bought toxic mortgage-backed
securities from banks, which has increased the money supply.
In addition, the Fed sets the discount rate, at which it lends cash to depository institutions. As a way
to control the money supply, this is its second most important monetary policy instrument after open
market operations. If the Fed changes the discount rate, it is signaling its intentions to the market. The
Fed has sometimes set a target for the federal funds rate, by which banks lend to banks, and which it
can influence indirectly.
In practice, banks need not hold more than the minimum reserves required by the Fed. Should they
need to top them up, they can go to the Fed’s discount window and borrow what they need at the
discount rate. They do not do this much or it would suggest that they were problem banks. The banks
can otherwise borrow at the federal funds rate from other banks. If they have excessive reserves, they
can lend to other banks.
As a third policy instrument, one that it rarely uses, the Fed can change reserve requirements, which
are the proportion of deposits a bank must hold in its reserves as it lends the rest out.
The Fed’s methods have attracted critics, including, at the extreme, conspiracy theorists. Some think
that the Fed’s power to create money should be held in check with a return to the gold standard, by
which the dollar represented an amount of gold that never changed. The United States dropped the
gold standard in 1933 two years after the United Kingdom had dropped it. Soon other countries
followed suit. Under the gold standard, the Fed had been forced to keep interest rates high so that
people would put funds on deposit rather than change them into gold, and this had damaged the
economy.
The widely held view is that government intervention works better than the gold standard. There are
limitations. Printing money to stimulate the economy can lead to rampant inflation in the long run, as
in Weimar, Germany in the 1920s and in Zimbabwe today. In the credit crisis of 2007–09, some
feared that the Fed, with its rescue programs, was moving in that direction. In a lecture on 13 January
2009 at the London School of Economics, Ben Bernanke, chairman of the Fed, said that the Fed’s
lending had resulted in a large increase in excess reserves held by banks, but they left most of this
money idle, on deposit with the Fed. This, coupled with weak global economic activity and low
commodity prices, meant that the Fed saw little inflation risk in the short term.
Answer the following questions:

66
1 Are the Fed’s policies directly influenced by the US Congress?
…………………………………………………………………………………………………
2 How many Federal Reserve Banks are there in the United States?
…………………………………………………………………………………………………
3 What are the obligations and rights of commercial banks toward the regional Fed bank?
…………………………………………………………………………………………………
4 How many main monetary policy instruments does the Fed use to control the money supply?
What are they? What is the most important instrument?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
5 What can the Fed do with government securities if it wants the banking system to have extra
reserves?
…………………………………………………………………………………………………
6 Who issues government securities in the United States?
…………………………………………………………………………………………………
7 What short-term open market operations that were used by the Fed in the credit crisis of 2007–
09?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
8 What can banks do when they want to increase their reserves?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
9 What are reserve requirements?
…………………………………………………………………………………………………
………………………………………………………………………………………………...
10 What people tend to do under the gold standard?
…………………………………………………………………………………………………
11 Why do some people worry about Fed’s methods in the credit crisis of 2007–09?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
12 How did the chairman of the Fed justify these methods?
…………………………………………………………………………………………………
………………………………………………………………………………………………....
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Reading 3:
Text A:
ORGANISATION OF THE EUROPEAN SYSTEM OF CENTRAL BANKS (ESCB)
The ESCB composed of the European Central Bank (ECB) and the national central banks (NCBs)
of the European Union member states. In accordance with the ESCB Statute, the primary objective
of the ESCB is to maintain price stability.
The basic tasks to be carried out by the ESCB are:
- to define and implement monetary policy of the EU;

- to conduct foreign exchange operations;
- to hold and manage the official foreign reserves of the Member States; and
- to promote the smooth operation of payment systems.
In addition, the ESCB contributes to the smooth conduct of policies relating to supervision of
credit institutions and the stability of the financial system. It also has an advisory role on matters
which fall within its field of competence. Finally, in order to undertake the tasks of the ESCB, the
ECB shall collect the necessary statistical information.
Text B: European Central Bank- by Wolfgang Munchau
Success of ECB Critical for banking industry
The ECB is run by a six-member executive board headed by the ECB President and Vice-president.
The four other members are in charge of payment systems, banking supervision, international
relations, organization, statistics, banknotes and information systems.
The ECB took over from national central banks in setting interest rates from January 1999.
Interest rates are now set by the ECB’s governing council which consists of the six-member
executive board and the presidents of the national central banks of the participant countries.
The all-powerful council will ensure the continued influenced of national central banks in the
decision-making process. The majority of the presidents of the NCBs versus the six ECB ‘insider’
will not be ignored under EMU1.
Some critics have argued that this could give rise to a potentially destabilizing situation. The
ECB’s legal mandate is to pursue monetary policy with a view to the whole of the EMU area and
without favouring one country over another. Yet if several national central bank presidents were
to form voting pacts, they could in theory outmanoeuvre the six executives.
Compared to the national central banks, the ECB will be relatively small. While the Bank of
France and the Bundesbank each employ more than 10,000 staff, the ECB will have to do with
only 500 employees. The comparison is not entirely fair because the ECB’s staff will be primarily
68
engaged in research, security and payments systems, while most of the staff at NCBs are involved
in areas such as logistics and administration.
Because the national central banks will remain large and important, the transition to the new
regime will not mark a sudden shift. The Bundesbank will continue to exist and fulfill all its current
functions except setting interest rates.
FINANCIAL TIMES
World Business newspaper
1. European Monetary Union
Exercise 1. Understanding main points
Read the two short texts on the European System of Central Banks (ESCB) and complete the
information below.
1 The ESCB is composed of the European Central Bank and the EU national central banks.
2 The ECB is run by the ____________________.
3 The organization of the ECB executive board:
a) _________________________________
b) _________________________________
c) _______________ c) _______________ c) _______________ c) _______________
4 The members of the executive board are in charge of:
a) ____________________________ e) ______________________________
b) ____________________________ f) ______________________________
c) ____________________________ g) ______________________________
d) ____________________________
5 The ECB’s governing council consists of:
a) ____________________________ b) ______________________________
Of these c) ____________________________________ have the majority.
6 The main objective of the ESCB is to _______________________.

7 The NCBs fulfil all functions except ________________________.
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8 Interest rates are set by the _______________________________.
Exercise 2. Understanding details
Mark these sentences T (true) or F (false) according to the information in the texts. Find the part
of the text which gives the correct information.
1. The NCBs have no influence on the stability of the euro.

2. The ECB must consider the needs of all EMU countries equally.
3. The NCB presidents could overrule ECB decisions if they wanted to.
4. The staff of Bundesbank is 20 times larger than that of the ECB.
5. ECB staffs carry out the same tasks as NCB staff.
6. The creation of the ECB forced rapid changes to be made in Europe’s central banking system.
Exercise 1. Word fields
Write these words and phrases in the appropriate columns.
consist of contribute to give rise to compared to ensure shift

transition be composed of be run by take over from be in charge of
be headed by undertake relatively small
organizational structure responsibility change
___consist of________ contribute to give rise to
___________________ ______________ ________________
___________________ ______________ ________________
___________________ ______________ ________________
Exercise 2. Definitions
Match these terms with their definitions.
70
1 in accordance with a) an obligation conferred by law
2 versus b) to get an advantage by being more skilful

than your opponents
3 legal mandate
c) in opposition to
4 voting pact
d) conforming to a law or regulation
5 out-manoeuvre
e) an agreement between several parties to
vote in the same way for their own advantage
Exercise 3. Collocations
Match these verbs and nouns as they occur in the texts.
1 set a) monetary policy
2 fulfill b) foreign exchange operations
3 conduct c) foreign reserves
4 hold/ manage d) interest rates
5 define/ implement/ pursue e) statistical information
6 collect f) price stability
7 maintain g) all functions
Exercise 4. Word families
Complete the chart.
Verb Adjective Noun
supervise supervisory 1 supervision
advise 2 ________________ advice
participate 3 ________________ 4 ______________
(de)stabilize 5 ________________ (de)stabilization
influence influential 6 ______________
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Activity 1: Discussion:
According to what you have learnt from the Reading tasks, which of the 15 activities listed below
are done by central banks? (A=Always, S= Sometimes, N= Never)
1 act as banker to the government and the commercial banks

2 attempt to influence the exchange rate
3 clear cheques between commercial banks
4 decide the country’s minimum interest rate
5 decide all of a country’s interest rates
6 issue banknotes
7 issue securities for companies
8 keep minimum deposits of commercial banks’ reserves
9 lend money to banks in difficulty
10 lend money to small businesses
11 maintain financial stability
12 manage reserves of gold and foreign currencies
13 manage the assets of wealthy individuals
14 publish monetary and banking statistics
15 supervise the banking system
Activity 2: Decide what you think a central bank would typically do in the following situations,
and then explain why to the class.
1 A provincial savings bank has had debts of $300 million and may go bankrupt because it lent
too much money to property speculators, and the value of their investments has gone down
by 40%.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
2 Inflation has increased by 1.25% in three months, which is half the country’s annual inflation
target. The economy seems to be working at full capacity.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
3 A trader at a large universal bank has lost $450 million in disastrous derivatives trades. This
bank now has absolutely no liquidity.
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…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
4 Demand for consumer goods has declined for the sixth successive month, and unemployment
has increased by 1.75% in three months.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
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Unit 8: Exchange Rates
Theories:
In finance, an exchange rate (also known as the foreign-exchange rate, forex rate or FX rate)
between two currencies is the rate at which one currency will be exchanged for another. It is also
regarded as the value of one country’s currency in terms of another currency.[1] For example, an inter-
bank exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (US$) means that ¥91 will
be exchanged for each US$1 or that US$1 will be exchanged for each ¥91. The actual rate quoted by
money dealers in the retail market will usually be different for selling or buying currency, which will
incorporate an allowance for the dealer's margin (or profit) in trading, or else the margin may be
recovered in the form of a "commission" or other fee.
The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an
exchange rate that is quoted and traded today but for delivery and payment on a specific future date.
• Quotations
An exchange rate is usually quoted in terms of the number of units of one currency that can be
exchanged for one unit of another currency - e.g., in the form: 1.2290 EUR/USD. In this example, the
US$ is referred to as the "quote currency" (price currency, payment currency) and the Euro is the
"base currency" (unit currency, transaction currency).
• Free or pegged
If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and
is determined by the market forces of supply and demand. Exchange rates for such currencies are
likely to change almost constantly as quoted on financial markets, mainly by banks, around the world.
A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the
devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi (RMB)
was pegged to the United States dollar at RMB 8.2768 to $1.
The "real exchange rate" (RER) is the purchasing power of two currencies relative to one another. It
is based on the GDP deflator measurement of the price level in the domestic and foreign countries
(P,Pf), which is arbitrarily set equal to 1 in a given base year. Therefore, the level of the RER is
arbitrarily set depending on which year is chosen as the base year for the GDP deflator of two
countries. The changes of the RER are instead informative on the evolution over time of the relative
price of a unit of GDP in the foreign country in terms of GDP units of the domestic country. If all
goods were freely tradable, and foreign and domestic residents purchased identical baskets of goods,
purchasing power parity (PPP) would hold for the GDP deflators of the two countries, and the RER
would be constant and equal to one.
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• Bilateral vs. effective exchange rate
Bilateral exchange rate involves a currency pair, while an effective exchange rate is a weighted
average of a basket of foreign currencies, and it can be viewed as an overall measure of the country's
external competitiveness. A nominal effective exchange rate (NEER) is weighted with the inverse of
the asymptotic trade weights. A real effective exchange rate (REER) adjusts NEER by appropriate
foreign price level and deflates by the home country price level. Compared to NEER, a GDP weighted
effective exchange rate might be more appropriate considering the global investment phenomenon.
• Fluctuations in exchange rates
A market based exchange rate will change whenever the values of either of the two component
currencies change. A currency will tend to become more valuable whenever demand for it is greater
than the available supply. It will become less valuable whenever demand is less than available supply
(this does not mean people no longer want money, it just means they prefer holding their wealth in
some other form, possibly another currency).
Increased demand for a currency is due to either an increased transaction demand for money or an
increased speculative demand for money. The transaction demand for money is highly correlated to
the country's level of business activity, gross domestic product (GDP), and employment levels. The
more people that are unemployed, the less the public as a whole will spend on goods and services.
Central banks typically have little difficulty adjusting the available money supply to accommodate
changes in the demand for money due to business transactions.
The speculative demand for money is much harder for a central bank to accommodate but they try to
do this by adjusting interest rates. An investor may choose to buy a currency if the return (that is the
interest rate) is high enough. The higher a country's interest rates, the greater the demand for that
currency. It has been argued that currency speculation can undermine real economic growth, in
particular since large currency speculators may deliberately create downward pressure on a currency
by shorting in order to force that central bank to sell their currency to keep it stable (once this happens,
the speculator can buy the currency back from the bank at a lower price, close out their position, and
thereby take a profit).
• Manipulation of exchange rates
Countries may gain an advantage in international trade if they manipulate the value of their currency
by artificially keeping its value low, typically by the national central bank engaging in open_market
operations.
Exchange rate (rate of exchange or foreign exchange rate or currency exchange rate): Rate at which
one currency may be converted into another. The exchange rate is used when simply converting one
currency to another (such as for the purposes of travel to another country), or for engaging in
speculation or trading in the foreign exchange market. There are a wide variety of factors which
75
influence the exchange rate, such as interest rates, inflation, and the state of politics and the economy
in each country.
Forward exchange rate (n): tỷ giá ngoại hối kỳ hạn

Spot exchange rate (n): hối suất ngoại hối tiền mặt
Speculation (n): sự đầu cơ, tích trữ/hoạt động đầu cơ
Manipulation (n): sự thao túng
Gold convertibility (n): tính chuyển đổi của vàng
Convertible currency (n): tiền tệ hoán đổi; đồng tiền chuyển đổi
Diverge (v): lệch; khác nhau
Bond (n): trái phiếu
Floating exchange rate (n): tỷ giá thả nổi
Gold standard (n): bản vị vàng
Versatility (n): tính linh hoạt
B. VOCABULARY
Exercise 1.Match up the half-sentences below
1. To ‘peg’ a currency A the amount of a country’s money that residents were able
against something means to change into foreign currencies
to
2. A clean floating
exchange rate B fix its value in relation to it.
3. Exchange controls used C make a profit by making capital gains or by investing

to limit at higher interest rates
4. Speculators buy or sell D is determined by supply and demand

currencies in order to
5. ‘Market forces’ means E trying to insure against unfavorable price movements by

way of futures contract
6. ‘Hedging’ means F the determination of price by supply and demand ( the

quantity available and the quantity bought and sold).
Exercise 2. Which six of these verbs are defined below?
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abolish adjust appreciate convert diverge
establish fluctuate peg suspend revalue
1 to make changes to something
2 to change something into something else
3 to end something permanently
4 to end something temporarily
5 to go up or down (in quantity, value, etc.)
6 to move away from what is considered normal
C.READING
Reading 1:
Exchange rates
The Bretton Woods agreement of 1944 established fixed exchange rates, defined in terms of gold and
the US dollar, i.e. their parities with the US dollar were fixed. In this period, a US dollar was a
promissory note issued by the United States Treasury. If anybody requested it, the Treasury had to
exchange the note for 1/35th of an ounce of gold. Under this system, overvalued or undervalued
currencies could only be adjusted with the agreement of the International Monetary Fund. Such
adjustments are called devaluations and revaluations. The Bretton Woods system of gold
convertibility and pegging against the dollar was abandoned in 1971, because following inflation, the
Federal Reserve did not have enough gold to guarantee the American currency.
Gold convertibility was replaced by a system of floating exchange rates. (Today, the US dollar- the
unofficial world currency- is merely a piece of paper on which is written ‘In God We Trust.’ God!
Not gold!) A freely (or clean) floating exchange rate is determined purely by supply and demand.
Theoretically, in the absence of speculation, exchange rates should reflect purchasing power parity-
the cost of a given selection of goods and services in different countries. Proponents of floating
exchange rates, such as Milton Friedman, argued that currencies would automatically establish stable
exchange rates which would reflect economic realities more precisely than calculations by central
bank officials. Yet they underestimated the impact of speculation, and the fact that companies and
investors frequently follow short-term money market trends even if these are contrary to their own
long-term interests.
In the late 1970s and early 1980s, the American, British and other governments deregulated their
financial systems, and abolished all exchange controls. Residents in these countries are now able to
exchange any amount of their currency for any other convertible currency. This has led to the current
77
situation in which 95% of the world’s currency transactions are unrelated to transactions in goods but
are purely speculative. Enormous amounts of money move round the world, chasing high interest
rates or capital gains, as investors- including rich individuals, companies and pension funds- seek to
maximize the value of their assets. In London alone, in the late 1990s, over $300 billion worth of
currency was traded on an average day- the equivalent of about 30%of the value of the goods Britain
produces each year. Banks, of course, make a profit from the spread between a currency’s buying and
selling prices.
Few governments, however, leave exchange rates wholly at the mercy of market forces. Most of them
attempt to influence the level of their currency when necessary. Managed (or dirty) floating exchange
rate are more common than freely floating ones. For example, in the 1980s, most Western European
governments joint the EMS (European Monetary System) which established parities between member
currencies. There was also an Exchange Rate Mechanism (ERM): if the rate diverged by more than
plus or minus 2¼ per cent from the central parity, central banks had to intervene in exchange market,
buying and selling in order to increase or decrease the value of their currency.
Yet international speculators can be more powerful than governments. For example, on a single day
in September 1992 the Bank of England lost five billion pounds in a hopeless attempt to support the
pound sterling. For weeks, all the world’s financial institutions and rich individuals had been selling
their pounds, as everyone except the British Government believed that the pound had been seriously
overvalued ever since it belatedly joined the ERM in 1990. When the British central bank ran out of
reserves and could no longer buy pounds, the currency was withdrawn from the ERM and allowed to
float, instantly losing about 15% of its value against the D-mark. The next year, speculators attacked
five other European currencies, and the European Monetary System was suspended. It was later
reintroduced in a looser form.
Many manufacturers are in favor of fixed exchange rates, or a single currency. Although it is possible
to some extent to hedge against currency fluctuations by way of futures contracts, forward planning
is difficult when the price of raw materials bought from abroad, or the price of your products in export
markets, can rise or fall by 50% in only a few months. (Since exchange controls were abolished,
currencies including the US$ and the £ sterling have in turn appreciated by up to 100% and then
depreciated by more than 50% against the currencies of major trading partners).
Pressure from industrialists and government led to the introduction of the euro. Twelve countries
fixed their exchange rates against the new currency, and beginning in 1999 the new currency was
used as a mean of payment between companies and in foreign trade, and bonds were denominated in
it. The euro came into existence as a real currency in 2002, when the old notes and coins in the twelve
member countries were withdrawn.
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Are the following statements TRUE or FALSE?
1. Gold convertibility was abandoned because there was too much gold. …………………..
2. It is now impossible to exchange dollars for gold. ……………………..
3. Only a pegged currency can be devalued or revalued. ……………………….
4. A floating currency can either appreciate or be devalued. ………………………..
5. Central banks sometimes attempt to decrease the value of their currency. …………………
6. The EMS was designed to stabilize exchange rate. ……………………….
7. To speculate is to take risks; to hedge is to try to avoid risks. ……………………..
8. Under the system of floating exchange rates, currencies can depreciate 100% in a short time.
……………………
Reading 2:
What is the gold standard?
What is gold, and why is it so important? Is it still the basis that our modern monetary system rests
on? First, a little history.
Gold is thought to be one of the first known metals. The word “gold” came from an old English word
geolo, meaning yellow. The ancient Egyptians were very proficient goldsmiths — hammering gold
into leaf so thin that it took 367,000 leaves to make a one inch pile. Gold has been a valuable metal
throughout the ages because it is scarce. It is a beautiful metal that has a lovely yellow color and a
soft metallic glow. It is soft and easy to work with. It can be drawn into a fine wire, and as the
Egyptians discovered, hammered into thin leaf. It is very malleable and can be easily shaped into
various forms. It is highly resistant to rust and is corrosion-resistant.
Because of gold’s versatility, it can be used in many applications. One of its primary uses is as
jewelry and adornment. In Mesopotamia (now Iraq) gold cups and jewelry have been excavated
that date back to 3500 B.C. In the Egyptian tombs, jewelry and masks made of gold have been
discovered. During the Middle Ages a science called “alchemy” evolved as a way to try to artificially
create gold.
Worldwide, the gold rush led to the development of frontiers. The largest U.S. gold strike occurred
in the 1900’s near Carlin, Nevada. In 1965 an open-pit mine began operating there and the Carlin
mine added about 10 percent to the annual gold production of the U.S. United States wasn’t the only
country to have gold rushes. In 1851 gold was discovered in Australia and that rush saw the
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population of Australia triple in the following nine years. New Zealand experienced a gold rush in
1861 and their population also grew tremendously. Johannesburg in South Africa was founded as a
result of the 1886 gold rush. Canada’s Yukon Territory was developed as result of a gold rush that
started in 1897. It appears that gold rushes played an important part in developing territories in many
parts of the world.
Gold (AU is the chemical symbol) is also used today in many electrical components. But it’s most
well-known use as money — as a medium of exchange. Money used to actually be made out of gold.
Gold coins were traded for goods and services. In today’s market, what place does gold maintain?
The phrase “gold standard” is defined as the use of gold as the standard value for the money of a
country. If a country will redeem any of its money in gold it is said to be using the gold standard.
The U.S. and many other Western countries adhered to the gold standard during the early 1900’s.
Today, however, gold’s role in the worldwide monetary system is negligible. Britain abandoned the
gold standard 1931; the USA abandoned it 1971. Holdings of gold are still retained because it is an
internationally recognized commodity, which cannot be legislated upon or manipulated by interested
countries. On August 15, 1971, the world entered the first era in its history in which no circulating
paper anywhere was redeemable in gold, by anyone. At one point in time it was illegal for a U.S.
citizen to own gold. President Richard Nixon of U.S. closed the “gold window.” This action broke
the last tie between gold and circulating currency, resulting in our modern financial system which is
called a “floating currency” system.
Since 1976 the U.S. government no longer sets the gold value of a dollar. The price of gold rises and
falls in relation to the demand for the metal. Gold coins have not been minted as legal currency since
1933. In 1986 the U.S. Mint did begin to issue gold coins for collectors four denominations: $50,
$20, $10, and $5. And there really is a Fort Knox! Since 1937 most of the nation’s gold has been
stored there, underground.
Even though the world’s monetary systems are no longer based on the value of gold, people are still
intrigued and impressed with it. It is a valuable metal with many high-tech uses, and a beautiful
metal that still adorns the artifacts of kings.
1. Briefly describe the importance of gold and gold standard.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
2. Under the gold standard, currencies were convertible into gold. This convertibility was
abolished for most currencies in early 1970s. Why?
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…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
Exercise 1. Add appropriate words to these sentences:
1. Another verb for fixing exchange rates against something else is to ..................................
them.
2. Increasing the value of an otherwise fixed exchange rate is called ..................................
3. Gold .................................. ended in the early 1970s.
4. The current system is one of .................................. exchange rates.
5. A currency can appreciate if lots of .................................. buy it.
6. In fact we have managed floating exchange rates, because governments and

.................................. banks sometimes intervene on currency markets.
7. Bartering is based on the exchange of ............................ for goods.
8. The Bretton Woods Agreement stipulated that all members would express their currencies in
............................
9. When central banks intervene in the foreign exchange markets at the intervention points, this
is called the system of ............................ exchange rates. The opposite is called the system of
............................ exchange rates.
10. If dealers buy currency forward but do not sell forward simultaneously, their position is said
to be ............................
Exercise 2. Matching
There are some key dates in the development of exchange rate systems around the world (1944, 1971,
1973, 1992, 2002). Match the dates with the events below:
1. Most industrialized countries switched to a system of floating rates. However, governments

and central banks occasionally attempted to influence exchange rates by intervening in the
markets. So there was a system of managed floating exchange rates. ………………..
2. The Bank of England lost over £5 billion in one day attempting to protect the value of the
pound sterling. After this, governments and central banks intervened much less, so there was
almost a freely floating system. ………………….
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3. A fixed exchange rate system was started. The values of many major currencies were pegged
to the value of the US dollar. The American central bank, the Federal Reserve, guaranteed
that it could exchange an ounce of gold for $35. …………………….
4. Twelve states of the European Union introduced a single currency, the euro, to replace their
national currencies. ……………………..
5. Gold convertibility ended because the Federal Reserve no longer had enough gold to back to
dollar, due to inflation. …………………………..
Exercise 3. Fill in the missing words. Then number these stages in order, 1 to 6.
funds identification prevailing
sterling tradable working days
Making a priority payment from the UK
If the payment is in a foreign currency, the bank carries out the currency
exchange at the _________________ rate.
The payment is sent by SWIFT.
Instruct your bank to make the payment. If transferring __________ to a bank
account, quote the beneficiary's IBAN (International Bank Account Number).
The transfer usually takes three or four _________________
The payment is credited to the beneficiary's account, or can be collected by
the beneficiary upon production of a suitable means of _________________
Decide if you want to send the payment in _________________ or in another
_________________ currency.
Exercise 4. Today's exchange rates
1 US dollar = Euro 0.82 GB Pound 0.53
1 Euro = US dollar 1.23 GB Pound 0.65
1 GB pound = US dollar 1.90 Euro 1.54
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A. Which is correct? (Choose one from each group.)
1 a. There are 1.23 dollars to a Euro.
b. There are 1.23 dollars for a Euro.
c. There are 1.23 dollars to the Euro.
2 a. The euro is currently at 1.23 against the dollar.
b. The euro is currently at 1.23 for the dollar.
3 a. No. 1 above is how ordinary people say it; No.2 is how it's reported in the news.
b. No. 2 above is how ordinary people say it; No.1 is how it's reported in the news.
B. Look at the exchange rate chart, and write words or numbers into the spaces.
1. At the moment there are _________________ euros to the pound.
2. The pound is standing _________________ _________________ against the dollar.
3. You'll get just _________________ two dollars to the pound.
4. A dollar is worth just _________________ fifty pence.
5. How many euros will I _________________ for £100?
6. How much is $39.95 _________________ pounds?
7. I'd like to change these pounds _________________ euros please.
8. I'd like to exchange these pounds _________________ euros please.
Exercise 5. Choose the best words.
1. When the government doesn't control the exchange rate in any way, the currency is __________.
a. freely convertible b. totally convertible c. absolutely convertible
2. The Japanese yen is trading for less than its usual value. You can talk about __________.
a. a small yen b. a bad yen c. a weak yen
3. The Mexican peso is trading for more than its usual value. You can talk about __________.
a. a big peso b. a good peso c. a strong peso
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4. A sovereign is a coin made of 7.3 grams of gold, and is worth a lot of money. However, its
__________ is just one pound.
a. front value b. face value c. written value
5. Changes in the values of currencies are called __________.
a. currency fluctuations b. currency alterations c. currency changes
6. An Internet site which does currency calculations based on the latest exchange rates is called a
__________.
a. currency changer b. currency converter c. currency setter
7. When you change money, you usually have to pay a __________.
a. commission b. percentage c. fee
8. When changing money, banks tend to offer a _________ exchange rate than bureaus de change.
a. better b. nicer c. fatter
9. Traders sometimes agree to trade currency in the future for an agreed rate. A "long position" means
that the trader will make a profit if the currency __________.
a. goes up b. goes down c. stays the same
10. A "short position" means that the trader will make a profit if the currency __________.
a. goes up b. goes down c. stays the same
Discussion
1. If you keep a banknote in your pocket, you know that it will almost certainly be worth less
after a few months. If you deposit it in a bank, of course, it will be worth a little more. Why?
2. If you change your bank notes into another currency, you will receive a certain amount of
notes and coins, but this amount can change every day, or more than once a dat. Why?
3. Why does international trade require a system for exchanging currencies between nations?
84
Unit 9: Interest rates
Theories:
An interest rate is the cost of borrowing money. Or, on the other side of the coin, it is the compensation
for the service and risk of lending money. Without it, people would not be willing to lend or even
save their cash, both of which require a deferment of the opportunity to give up spending in the
present.
• Real vs nominal interest rates
The nominal interest rate is the amount, in money terms, of interest payable.
For example, suppose a household deposits $100 with a bank for 1 year and they receive interest of
$10. At the end of the year their balance is $110. In this case, the nominal interest rate is 10% per
annum.
The real interest rate, which measures the purchasing power of interest receipts, is calculated by
adjusting the nominal rate charged to take inflation into account.
If inflation in the economy has been 10% in the year, then the $110 in the account at the end of the
year buys the same amount as the $100 did a year ago. The real interest rate, in this case, is zero.
• How Interest Rates are Determined:
- Supply and Demand: Interest rate levels are a factor of the supply and demand of credit: an
increase in the demand for credit will raise interest rates, while a decrease in the demand for
credit will decrease them. Conversely, an increase in the supply of credit will reduce interest
rates while a decrease in the supply of credit will increase them.
- Inflation
Inflation will also affect interest rate levels. The higher the rate of inflation, the more interest
rates are likely to rise. This occurs because lenders will demand higher interest rates as
compensation for the decrease in the purchasing power of the money they will be repaid in
the future.
- Government
The government has a say in how interest rates are affected. When the government buys more
securities, banks are injected with more money than they can use for lending, and the interest
rates then decrease. When the government sells securities, money from the banks is drained
for the transaction, rendering less funds at the banks' disposal for lending, forcing a rise in
interest rates.
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An interest rate is the rate at which interest is paid by a borrower for the use of money that they
borrow from a lender. For example, a small company borrows capital from a bank to buy new assets
for their business, and in return the lender receives interest at a predetermined interest rate for
deferring the use of funds and instead lending it to the borrower. Interest rates are normally expressed
as a percentage rate over the period of one year
Purchasing power (n): sức mua/khả năng mua (hàng hóa…)
Mortgage (n): nợ thế chấp/sự cầm cố
Buoyant (adj): nổi, có xu thế lên giá
Variable rate (n): chứng chỉ tiền gửi có lãi suất khả biến
Ward off (v): tránh, đỡ
Yield to maturity (n): hoa lợi khi đáo hạn, suất thu nhập khi đến hạn thanh toán
Coupon bond (n); trái phiếu có kèm phiếu trả lãi
Discount bond (n): trái phiếu chiết khấu (được bán dưới bình giá
Current yield (n): suất thu lợi hiện hành
Face value (n): giá trị danh nghĩa, mệnh giá
B.VOCABULARY
Match the words on the right with their definitions on the left:
1.mortgage (a) Money.
2.default (b) Stays the same over time.
3.funds (c) Guarantee a loan for somebody else.
4.variable (d) Money that you borrow on a credit card.
5.fixed (e) A check to see how well you can pay back a loan.
6.co-sign (f) The maximum you can borrow.
7.cash advance (g) A loan to buy a house or property.

86
8.credit rating (h) A bank account you use to save money.
9.credit evaluation (i) Be able to pay for goods or pay back a loan.
10.credit limit (j) Changes over time.
11.annual (k) Not pay back a loan.
12.savings (l) The cost of borrowing money.
13.chequing (m) An opinion on how well you can pay back a loan.
14.afford (n) Your income after you pay income taxes and expenses.
15.interest (o) The basic interest rate that banks use.
16.net income (p) A bank account you use for day to day expenditures.
17.gross income (q) Yearly.
18.prime (r) Your income before you pay taxes.
C.READING
Reading 1:
Bank of England raises interest rate to 5%
1. Mortgage repayments, along with the cost of

6. Many homeowners will face higher monthly
overdrafts and credit card debts, are set to rise
bills through increased mortgage costs,
after the Bank of England surprised the City
especially those with variable rate and base-rate
yesterday by announcing its first rise in interest
tracker mortgages. If mortgage lenders pass on
rates for more than a year.
the rise in full, it will add around £20 to the
2. News of the quarter-point rise to 5% was
monthly repayments on a £100,000 mortgage.
cautiously welcomed by some financial
According to Sarah Parker of the Family
institutions, but was largely condemned by
industry and trades unions.
87
3. A statement from the Bank of England’s Income Monitoring Unit, the average family
monetary policy committee said that strong will need to find around another £40 a month.
growth, a recent recovery in consumer
7. Few analysts predicted a rate increase, and
spending, buoyant export markets and signs of
some had even been expecting a decrease to
a pick-up in investments meant that action was
help boost a subdued housing market. Many
necessary in order to meet the government’s
were talking about the increase being a pre-
2.5% inflation target.
emptive strike, with the small increase in
4.The statement said: “With inflation likely to
borrowing costs now intended to ward off the
remain above target for some while, it was
need for a more painful rise later.
judged necessary to bring consumer prices
8. In the City’s money markets, however, there
inflation back to target in the medium term.”
were expectations of a further tightening of the
5. A response from the London Board of
Bank’s policy and further interest rate rises -
Businesses and Exporters described the move as
perhaps up to 5.75% – unfolding over the next
premature, and likely to damage businesses,
twelve months. Fears that further rate increases
especially those dependent on export earnings
would affect consumer spending wiped £17bn
off the value of the London stock market
Exercise 1. Choose the definition which is closest to the meaning in the article.
1. the City (paragraph 1)
a. the people of London b. financial professionals working in London
2. a quarter-point rise (paragraph 2)
a. a 0.25% rise b. a 2.5% rise
3. consumer spending (paragraph 3)
a. money spent by businesses b. money spent by ordinary people
4. a pick-up in investments (paragraph 3)
a. an increase in share prices b. a drop in share prices
5. in the medium term (paragraph 4)
88
a. over the next few months b. over the next few years
6. a pre-emptive strike (paragraph 7)
a. an action taken before it becomes necessary b. an action taken after it becomes necessary
Exercise 2. Find words in the article with the same meaning as the following.
7. steady economic expansion (paragraph 3) s______________ g______________
8. higher than desired (paragraph 4) a______________ t______________
9. too soon (paragraph 5) p______________
10. avoid (paragraph 7) w______________ o______________
11. occurring (paragraph 8) u______________
Exercise 3. Complete the definitions.
12. The move was condemned by industry means businesspeople thought the action was
____________
a. a good thing b. a bad thing c. neither good nor bad
13. Most banks passed on the 0.25% rise in full means that most banks increased their lending
rates by…
a. less than 0.25% b. 0.25% c. more than 0.25%
14. Base-rate tracker mortgages are ____________ the Bank of England's interest rate.
a. lower than b. the same as c. linked to
15. I'll need to find an extra £40 a month means that I'll have to ____________ another £40 a
month.
a. pay b. earn c. save
16. A further tightening of policy is another ____________
a. review of targets b. policy reversal c. unpopular implementation of policy
17. £17bn was wiped off the value of the London stock market means that
a. fewer shares were traded in the UK b. UK share prices mostly went down
c. a lot of UK companies went bankrupt
89
Reading 2:
1. The yield to maturity, which is the measure that most accurately reflects the interest rate, is the
interest rate that equates the present value of future payments of a debt instrument with its value
today. Application of this principle reveals that bond prices and interest rates are negatively related:
When the interest rate rises, the price of the bond must fall, and vice versa.
2. Two less accurate measures of interest rates are commonly used to quote interest rates on coupon
and measures are misleading guides to the size of the interest rate, a change in them always signals a
change in the same direction for the yield to maturity.
3. The return on a security, which tells you how well you have done by holding this security over a
stated period of time, can differ substantially from the interest rate as measured by the yield to
maturity. Long-term bond prices have substantial fluctuations when interest rates change and thus
bear interest-rate risk. The result is discount bonds. The current yield, which equals the coupon
payment divided by the price of a coupon bond, is a less accurate measure of the yield to maturity the
shorter the maturity of the bond and the greater the gap between the price and the par value. The yield
on a discount basis (also called the discount yield) understates the yield to maturity on a discount
bond, and the understatement worsens with the distance from maturity of the discount security. Even
though these capital gains and losses can be large, this is why long- term bonds are not considered to
be safe assets with a sure return.
4. The real interest rate is defined as the nominal interest rate minus the expected rate of inflation. It
is a better measure of the incentives to borrow and lend than the nominal interest rate, and it is a more
accurate indicator of the tightness of credit market conditions than the nominal interest rate.
Matching task.
1. A discount bond a. is what economists mean when they use the term interest rate.
2. A coupon bond b. make payment only at their maturity dates.
3. The yield to c. is bought at a price below its face value, and the face value is
maturity repaid at the maturity date.
4. Discount bonds d. have payments periodically until maturity.
5. Coupon bonds e. pays the owner of the bond a fixed interest payment (coupon
payment) every year until the maturity date, when a specified
final amount (face value or par value) is repaid.
90
Exercise 1. Fill in the blanks with the vocabulary items listed above each paragraph:
Limit default afford cash advance funds
Debt purchase pay back interest
Credit Cards
Credit cards are a convenient way to

(1)__________ goods. They also come in handy
when you have a shortage of (2)___________. If
you need a little extra money for the weekend,
you can take out a (3)__________
____________.
In spite of these benefits, credit card (4)________ can also cause serious problems for people.
People spend more than they can (5)________. And because of the high (6)________ on money
borrowed, the credit card debt becomes harder and harder to (7)______ _______. Eventually,
some people are forced to (8)__________ on their payments. This is why credit card companies
put a (9)_______ on the amount that people can borrow.
Exercise 2. Fill in the blanks with the vocabulary items listed above each paragraph:
Credit risk Afford Mortgage Co-sign
Savings Default Credit evaluation
91

Mortgages
Most people don’t have enough in _(1)__________ to
purchase a house so they take out a house loan, which is
called a _(2)________. Before you get a mortgage, the
bank will do a thorough _(3)_______ __________ to
make sure you can _(4)_________ the loan. If the bank
feels you are a _(5)_______ ________ they may ask you
to find somebody else to (6)__________ your
mortgage. This person will be responsible to pay your mortgage if you

(7)_________.
Exercise 3. Match the types of mortgage with the definition.
1. repayment mortgage a. The mortgage interest rate is linked to the interest rate of
country's central bank.
2. interest-only mortgage
b. The mortgage interest rate stays the same.
3. endowment mortgage
c. You pay the capital sum and the interest.
4. offset mortgage
d. You pay the interest in installments, and you pay the capital sum
5. fixed rate mortgage by another method.
6. base-rate tracker e. The mortgage interest rate can only rise as far as a certain level.
mortgage
f. An interest-only mortgage, with the capital repaid by an
7. variable rate mortgage endowment.
8. capped mortgage g. Your current and mortgage accounts are combined to reduce the
interest.
h. The mortgage lender can change the interest rate as they wish.
92
Group discussion:
1. If there is a decline in interest rates, which would you rather be holding, long-term bonds or
short-term bonds? Why? Which type of bond has the greater interest-rate risk?
2. You have just won $10 million in the state lottery which promises to pay you $1 million (tax
free) every year for the next ten years. Have you really won $10 million?
93
Unit 10: Cost Accounting
1. What are costs?
Costs are expenditures (decreases in assets or increases in liabilities) made to obtain economic
benefit, usually resources that can produce revenues. Costs can also be defined as sacrifices made to
acquire a good or service. Used in this sense, a cost represents an asset. An expense is a cost that has
been used by the company in the process of obtaining revenue, i.e., the benefits associated with the
good or service have expired. Costs can be classified in many ways including:
1. Direct and indirect costs:

o Direct costs are outlays that can be identified with a specific product, department, or
activity. For example, the cost of material and labor that are identifiable with a
particular physical product are direct costs for the product.
o Indirect costs are those outlays that cannot be identified with a specific product,
department, or activity. Taxes, insurance, and telephone expense are common
examples of indirect costs.
2. Product and period costs:
o Product costs are outlays that can be associated with production. For example, the
direct costs of materials and labor used in the production of an item are product costs.
o Period costs are expenditures that are not directly associated with production, but are
associated with the passage of a time period. The president's salary, advertising
expense, interest, and rent expenses are examples of period costs.
3. Fixed, variable, and mixed costs:
o Fixed costs are costs that remain constant in total (not per unit) regardless of the
volume of production or sales, over a relevant range of production or sales.
o Variable costs are costs that fluctuate in total (not per unit) as volume of production or
sales fluctuates. Direct labor and direct material costs used in production and sales
commissions are examples of variable costs.
o Mixed costs are costs that fluctuate with production or sale, but not directly in
proportion to production or sales. Mixed costs contain elements of fixed and variable
costs. Costs of supervision and inspection are usually mixed costs.
94
4. Controllable and uncontrollable costs:
• Controllable costs are costs that are identified as a responsibility of an individual or

department, and that can be regulated within a given period. Office supplies would ordinarily
be considered controllable costs for an office manager.
• Uncontrollable costs are those costs that cannot be regulated by an individual or department
within a given period. For example, rent expense is an uncontrollable cost for the factory
manager.
5. Out-of-pocket costs and sunk costs:
• Out-of-pocket costs are costs that require the use of current economic resources. Taxes and
insurance are out-of-pocket costs.
• Sunk costs are outlays or commitments that have already been incurred. The cost of equipment
already purchased is a sunk cost.
6. Incremental, opportunity, and imputed costs:
• Incremental cost (or differential cost) cost is the difference in total costs between alternatives.
• Opportunity cost is the maximum alternative benefit that could be obtained if economic
resources were applied to an alternative use.
• Imputed costs are costs that can be associated with an economic event when no exchange
transaction has occurred.
7. Relevant cost is an expected future cost and a cost that represents the difference in costs among
alternatives.
2. What is accounting?
Accounting is the collection and aggregation of information for decision makers – including
managers, investors, regulators, lenders, and the public. Accounting systems affect behavior and
management and have affects across departments, organizations, and even countries. Information
contained within an accounting system has the power to influence actions. Accounting information
systems are particularly strong behavioral drivers within the context of a corporation - where profits
and the bottom line are daily concerns. In order for environmental concerns to be important criteria
95
in everyday business management decisions, they need to be encapsulated within the accounting
systems of the organization.
3. Types of accounting systems
There are three main types of accounting systems - each with a different purpose and involving
data gathering at different levels of aggregation:
National Accounting Systems
National accounts are national income and production accounts, such as the Gross National Product
(GNP) and Gross Domestic Product (GDP) which aim to measure and track an economy’s
contribution to the well-being of its inhabitants. National income accounts show the national demand
for goods and services and are used to track and measure economic growth.
An international Standard System of National Accounts (SNA) and procedural rules for calculating
GNP were agreed upon in 1968 and are codified in the “blue book” produced by the UN Statistical
Office.
Gross Domestic Product: is the total production of a country measured as: i) the monetary value of
final goods and services; ii) the expenditures on goods and services produced; or iii) the income
received for goods and services.
Gross National Product: is the total income of a country including GDP PLUS payments, profits,
interest etc. flowing in from abroad, minus profits, interest, payments etc. flowing out to other
countries.
Per Capita GDP or GNP: GDP or GNP divided by the population. This is a crude estimate of the
average standard of living.
Net National Product GNP: minus an allowance for depreciation of capital.
Net Income NNP: minus any indirect taxes paid by producers to the government.
Financial Accounting Systems
Financial accounts, such as balance sheets and income statements are used to keep track of business
incomes and outflows. These financial reports are for use by persons outside the firm - for example,
lenders or investors. There are relevant to the enterprise as a whole and are generally subject to strict
government rules.
The most common financial accounting reports are for external use by are the financial statements in
a firm’s annual report to shareholders. In the United States and most developed countries, these
reports conform to generally accepted accounting principles developed predominantly by the
Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC).
96
The overall objectives of a firm’s financial accounting statements are:
1) To provide information useful for making rational investment and credit decisions.
2) To allow investors and creditors to assess the amount, timing, and uncertainty of cash flows.
3) To provide information about the economic resources of a firm and the claims on those resources.
4) To provide information about a firm’s operating performance during a period.
5) To provide information on how a firm obtains and uses money and other financial resources.
6) To provide information on how management has discharged its stewardship responsibility to
owners and the public.
Management or Cost Accounting Systems and Capital Budgeting
Management or cost accounting systems are part of an enterprise’s information system and refer to
the internal cost tracking and allocation systems to track costs and expenditures. These are internal
rather than external accounting systems. There are no fixed rules governing how an entity should keep
track of cash flows internally, although there are many formal methods available for users. Capital
budgeting is basically a form of predictive cost accounting over a set time frame which is used to
analyze the costs of alternative projects or expenditures over the specified period of time.
Managerial or cost accounting measures are the predominant financial drivers in day to day business
decision making affecting every aspect of the firm’s activities. Good cost accounting is vital to
understanding the profitability of current activities and to predicting the profitability of future
activities.
The main objectives of managerial/cost accounting are:
1) Providing managers with information for decision making and planning.
2) Assisting managers in directing and controlling operations.
3) Motivating managers towards the organization’s goals.
4) Measuring the performance of managers and sub-units within the organization.
Four basic cost accounting activities are:
1. cost determination, which involves determining the actual cost of a product or an activity,
such as marketing;
2. cost recording, whereby costs are recorded in journals and ledgers;
3. cost analyzing, which refers to accountants and managers analyzing the data to help solve
problems and make plans; and
97
4. cost reporting, which entails showing the costs in detail, including showing how the costs
were measured, what characteristics the costs have, and what the costs actually mean and
how they should be interpreted.
4. What is Full Cost Accounting?

Full cost accounting describes how goods and services should be priced to reflect their true costs
(including environmental and other social costs). Depending on the type of accounting system
involved it can thus relate to national, financial, or managerial/cost accounting. With full cost
accounting, natural resources would be factored into calculations of a country’s GDP; natural
resources would be redefined as assets on company ledgers; and environmental costs would be built
into a product’s cost.
B. VOCABULARY
Fill the following words in the correct sentences:

Profitability; Internal; Capital; Fixed; Management; Drivers; Variable; Motivates;
Performance; Implemented
1. ....................... or cost accounting systems are part of a company's information system and are
used for tracking costs and allocations to judge operational efficiency.
2. This is an ........................... accounting system, rather than one for outside reporting.
3. There are no ............................ rules governing how a company should keep track of cash
flows for cost accounting purposes.
4. ........................... budgeting is a form of forecasted cost accounting for long-term projects or
expenditures.
5. Cost accounting applications are major financial ......................... in everyday corporate
decision-making.
6. Cost accounting is important for estimating the ...................... of current and future activities.
7. When good cost accounting procedures are ......................., the company may find out that
they have been producing a non-profitable product or service.
8. Cost accounting ............................ managers toward company goals.
9. It also measures the ......................... of managers and departments in the company.
10. .......................... costs change in proportion to the level of production activity, while fixed
costs remain unchanged.
C. READING
98
One of the main industry’s objectives is to determine the selling price of the products or the cost
of services that are provided by the company. To calculate the selling price that ensures a profit, it is
first necessary to determine the costs of making the product or of providing the service. This is the
purpose of cost accounting.
For manufacturing, where raw materials are assembled into a final product, job-order cost
accounting is used. With this method, the accountant determines the cost of an individual item or a
batch of identical goods.
The accountant must first determine the direct cost of the product. This includes the material and
labor costs. These costs are found by analyzing inventories of raw materials, products in the process
of being manufactured and final goods. These records are kept in different ledgers.
In addition to the direct labor and material costs, the accountants must include overhead to obtain
factory cost. Overhead is an expense that is not directly connected to manufacture of one particular
good. Some examples are depreciation of machines, property taxes for the manufacturing plant, and
the salary of the plant manager. These indirect costs must be allocated to different products on the
basis of a predetermined rate or percentage called the burden rate.
Cost accounting provides a systematic and logical process by which the cost of a product can be
determined. This cost can then be used as a basis for determining the best selling price of a product.
It is also a very valuable decision-making tool for management.
Exercise 1: Choose the best answer

1. The first thing which needs to be done in cost accounting is to:
a. Make profit
b. Calculate selling price
c. Determine cost of making a product
2. To ensure to get profits:
a. Cost must be less than selling price
b. Cost must be more than selling price
c. Direct cost must be less than indirect cost
3. Direct cost includes:
a. Material cost b. Labor cost c. Both a and b
4. Inventories consist of:
a. Raw materials b. Unfinished goods c. Finished goods d. a, b and c
99
5. Indirect cost means:
a. Material cost b. Overhead c. Direct expense
6. Overhead may be:
a. Labor cost b. Wages to workers c. Salary to manager
7. To obtain factory cost,
a. Direct cost is calculated to make a product
b. Indirect cost is calculated to make a product
c. a and b
8. To determine the selling price we need to calculate:
a. Cost of making a product b. Labor cost c. material cost
Exercise 2: Answer the following questions:
1. What is the purpose of cost accounting?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
2. What can be determined with job-order cost accounting?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
3. How are indirect cost calculated to a product?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
4. What is burden rate?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
5. Why is cost accounting valuable to the manager?
…………………………………………………………………………………………………
…………………………………………………………………………………………………
The following sentences make up a short text about cost accounting. Decide which order they should
go in:
a. But to this have to added all the factory’s overheads – rent or property taxes, electricity for
lighting and heating, the price of the machine used, the maintenance department, the stores,
the canteen, and so on.
100
b. Finally, where a company does not want to calculate the price of specific orders or processes,
it can use full costing or absorption costing, which allocates all fixed and variable costs to the
company’s products.
c. For example, if you produce 500 wooden door-knobs, each one requiring 100 grams of wood
and taking the machine operator two minutes to make, you can easily calculate the direct cost.
d. It is fairly easy to calculate the prime cost or direct cost of manufactured article.
e. One of these is job-order cost accounting, which involves establishing a price for an individual
item or a particular batch (a quantity of goods assembled or manufactured together).
f. There are also lots of other expenses of running a business that cannot be charged to any one
product, process or department, and companies have to price their products in such a way as
to cover their administration and selling expenses, the finance department, the research and
development department, and so on.
g. This is the sum of the direct costs of the raw materials or components that make up the product
and the labour required to produce it, which, of course, vary directly with production.
h. This is impossible where production involves a continuous process as with steel, flour, or
cement. In this case, companies often use process cost accounting, which determines costs
over a given period of time.
i. Various methods can be used to allocate all these expenses to the selling price of different
products.
1..... 2...... 3....... 4...... 5...... 6....... 7....... 8...... 9......
Complete the following sentences:
1. Manufacturers have to find a way of ......................all fixed and ........................costs to their
various products.
2. They have to cover the factory’s ......................., and things like administration and
selling...............................
3. The direct cost of ................................and is easy to calculate.
101

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FOREIGN TRADE UNIVERSITY

91 Chua Lang Street, Dong Da District

Tel: 84-4-3835 6800 – Ext: 555

http://www.ftu.edu.vn Faculty of English For Specific Purposes

English for Specific Purposes – INTERNATIONAL BANKING AND FINANCE

Business School – University of Bedfordshire (2008) Core

Emmerson, P. (2007) Business English Handbook: Advanced,

Frendo, E. & Mahoney, S (2007) English for Accounting –

Johnson, C. (2000) Banking and Finance – Business English,

MacKenzie, I. (2002) English for Business Studies: A Course

Mackenzie, I. (1997) Financial English, Thompson, Heinle

Mackenzie, I. (2008) English for the Financial Sector

Sweeney, S. (2002) Test Your Professional English:

About the course 4

2 Financing Foreign Trade 14

3 Accounting and Financial Statements 25

4 Stocks and Bonds 34

5 Futures and Derivatives 40

6 Mergers and Acquisitions 53

1. Bank: An organization, usually a corporation, chartered by a state or federal government, which

Overdraft: Thấu chi

Current account: Tài khoản vãng lai

Mortgage: Thế chấp

Direct debit current account: Tài khoản ghi nợ trực tiếp

Deposit: Tiền gửi

Deposit account: Tài khoản tiền gửi

Liquidity: Thanh khoản

Portfolio management service: Dịch vụ quản lý danh mục đầu tư

Financial conglomerates: Các tập đoàn tài chính

Liabilities: Trách nhiệm pháp lý

Match up the terms with the definitions:

cash card cash dispenser or ATM credit card home banking

D. READING COMPREHENSION EXERCISES

1. Summarize the text

1 dispenser A the remaining amount of money in an account

Match the verbs with the correct explanations:

1. Payment Terms in Foreign Trade.

a) Four Principal Means:

1. Minimal risk to exporter

2. Used where there is:

b. Goods made to order

c. New and unfamiliar customer

c) Letter of Credit (L/C)

1. A letter addressed to seller

a. Written and signed by buyer’s bank

b. Promising to honor seller’s drafts.

c. Bank substitutes its own commitment

d. Seller must conform to terms

2. Advantages of an L/C to Exporter

a. Eliminates credit risk

b. Pre-shipment risk protection

3. Advantages of L/C to Importer

d. Relatively low-cost financing.

e. Easy cash recovery if discrepancies arise.

- Unconditional order in writing

- Exporter’s order for importer to pay

- At once (sight draft) or

- In future (time draft)

2. Three Functions of Drafts