В .: That's right.
5.: To become member of the System, was your hank
required to subscribe to any slock in the Reserve Bank in your District?
В .: Yes. And, to explain further, all national banks
must be members of the System. Incorporated State Banks, including commercial hunks, mutual savings banks, trust companies and industrial banks, may join the System.
S.: Other than handling items of exchange, what ser-
vices do Federal Reserve Banks offer member banks?
B.: As fiscal agents of the United Stales Treasury, they assist in the issue and redemption of government bonds and the refinancing of bonds that have reached maturity. They'll also accept from us any paper thai can be rediscounled, if our cash reserve becomes low.
Questions on the dialogue:
1. What services do correspondent banks render each other?
2. What are Ihe functions of central banks?
3. If you remit by the check drawn on one bank an amount
due on your note to another bank, what route does your
check usually lake?
4. What does the United States Federal Reserve System con
sist of?
5. What is the collection charge on checks and olher items
(lowing through the Federal Reserve Banks?
6. Whul does "endorsed with recourse" mean?
7. What does a bank have to do to become a member of the
System?
8. Which banks must be members of the System and which
banks may be?
9. What services do Federal Reserve Banks offer to member
banks?
Dotted about the City, but mostly close to Ihe Bank of England are Ihe eleven discount houses. These relatively small City businesses make their living by borrowing money from those who have it to spare and investing il ij) various easily liquidated paper assets. In particular, they finance the Government by buying its Treasury bills each week. To the Bank of England this "covering" of the weekly Treasury bill issue by the discount houses is a useful service. The quid pro quo of this arrangement is that the Bank of England will act as "lender of the last resorl" to the houses, if il so chooses, or buy paper assets from the houses lo provide them'with cash when they can'l obtain il elsewhere.
To understand the role of lender of last resort it is necessary first lo have grasped Ihe extremely delicate nature of the discount houses' business. Practically all the money which they invest has itself been lent lo Ihem. Whal is more, mosl of il will have been lent lo them for very short periods of. lime like a week or even overnighl, or else il will be subject
10 recall al very short notice. Using this'sort of money, Ihe
houses purchase bills and even bonds in Ihe open market,
some of which might not be repurchased or redeemed from
them for months or years. This practice is known as "bor
rowing short and lending long" and can be hazardous. Should
I hose who have lenl lo the houses recall their money, the
houses-would have some difficulty gelling il back in a hurry.
On any given day, each house will find some of ils assets
falling due for repayment and will also receive new loans,
but it quite often happens thai the proceeds of these transac
tions are insufficient lo provide for all Ihe calls lhal arc made
lhat day by those who have lent to Ihe house. Il is then lhal
Ihe Bank may help in one of a variely of ways. In particular,
11 may offer lo buy back some Treasury bills lo provide Ihe
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necessary money, or it may lend the required sum charging at least the minimum lending rate. This rate is defined as the lowest rale at which the Bank of England will lend and is fixed each week a little above the Treasury bill rate for that week.
The chief sources for cash for the discount houses — often known collectively as the discount market — are the banks, particularly the commercial banks. These are the ordinary High Street banks with which we arc all familiar. Their business requires them to hold a certain proportion of the money which the general public has deposited with them in a liquid form, that is in the form of cash or some assets which can be turned into cash quickly and without losing its value. For example, a building or something like that is not a liquid asset because it takes lime to sell, a quick sale can only be achieved if Ihc owner is prepared lo see it go at a knockdown price. Loans lo the discount market are ideal from the point of view of the commercial or any other type of bank. They can be at an agreed rale for an agreed period, allhough il can be for as shorl as Ihey like, in which case the houses call Ihem "fixtures", or they can be simply "al call", again al an agreed rale, and Ihen Ihcy can be withdrawn whenever the lender needs them. An important part of the job of the money manager in a discount house is to make sure lhat he has the right balance between fixtures and call money. If there is a general trend in lhc_markel for rates of interest lo rise so that borrowers have lo pay more this week than last and will have lo pay more next week than this, it is in the interests of Ihe house lo persuade inslilutions to lend lo it for fixed periods. Otherwise call money will be quickly withdrawn and offered back to Ihem again al a higher rale! Similarly, when Ihc rate in the markel is rising, Ihe houses Ihcm-selves take care not lo make loo many long-term loans, the rale of interest on which will soon fall below the general markel rale. The houses lhat can judge best which way things will go make the grealesl profit.
Questions on the text:
1. In what way do the discounl houses earn money?
2. On what terms is Ihe money lent to the discount houses?
3. How do Ihe discount houses invesl Ihe money lenl lo Ihem?
4. Why can Ihe praclice known as "borrowing shorl and lend-
ing long" be hazardous?
5. In whal circumstances does the Bank of England act as
"lender of last resort"?
6. Why do commercial banks lend money willingly to the
discount houses?
7. Whal are "fixtures" and "call money"?
8. Whal must the money manager in a discount house do to
make the greatesl profil?
Vocabulary Exercises
I
Five lypes of banks are menlioned in the dialogue. Find them and match Ihem wilh the definitions given below.
1. A bank which regulales the supply of currency within an
area, also serving as a clearing house.
2. A bank wilh which anolher bank has regular dealings.
3. A bank on which an item of .exchange is drawn.
4. A bank which makes loans for Ihc purchase or manufac-
lure of induslrial products, using a repayment plan of cer
tificate purchased by instalment which permits higher le
gal rales of interest than on other loans.
5. A savings bank which is owned by the deposiliors.
II
Using the words in brackets as a guide, explain the meaning of the following terms:
1. clearing house (checks drawn on one another, exchange,banks, an office, where)
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87
| 5. "to be held liable for Hie amount" means: a) to be the parly to whom a payment is made, b) to be required to make payment. 6. "lo be subject lo recall at very short notice" means: a) the money is lenl on Ihe condition that il will be re b) the money is lenl on Ihc condition that Ibe lender will 7. "borrowing short and lending long" means: a) small amounts of money are borrowed and large b) money is borrowed for shorl periods and lenl for longer |
2. 
collection (an item of exchange, obtaining payment of, the process of)
3. instalment, (an obligation, several payments on, one of)
4. endorse (to transfer ownership, the back of the document,
to place one's signature on)
5. debentures (issued by a corporation, an obligation, but
is, which pays interests, often unsecured)
6. to honour a cheque (payment, make, on)
7. subscribe (financing, agree, a business operation, to lake
a share in)
8. rediscount (less than, at a price, sell, its maturity value, a
note or other investment)
9. transit department (to do with, other banks, having,
drawn, on, the collection of checks)
10. discount house (institution, the City of London, promis
sory notes, buys, resells)
III
Choose the best answer:
1. "to clear items of exchange at par" means:
a) to exchange checks between banks at their face value,
b) to make profit out of exchanging check between banks.
2. "commercial papers" in the U.S.A. arc:
a) business letters,
b) short-term obligations of industrial companies.
3. "a quotation on listed slocks" is:
a) making a bid for slocks accepted for sale on a slock ex
change,
b) a slalemcnl of the current price of slocks accepted for
sale on a slock exchange.
4. "to endorse a check with recourse" means:
a) to be legally responsible for making payment of the
amount due,
b) to endorse in such a way thai the parly which endorses
it must make payment if the other parly to the transac
lion refuses payment.
IV
Say what is true and what is false. Correct the false, sen tences:
1. Correspondent banks make a collection charge on any item
of exchange from Iheir central banks.
2. Central banks seldom advise correspondent banks on their
investments, like commercial papers and shorl-lcrm de
bentures.
3. Every bank which handles an item of exchange endorses ilv
wilh recourse.
4. Federal laxes are paid into the United Slates Treasury.
5. Commercial banks and industrial banks must be members
of the Federal Reserve System.
6. All the money which the discount houses invest has been
lenl lo Ihem.
7. The proceeds of daily transactions carried out by a dis
count house are sufficient lo repay Ihe calls made any day.
X. Minimum lending rale is the same as Ihe Treasury bill
rale.
i). Your car is your liquid asset. K). If rales of interest are on the increase, banks are willing
to lend money for fixed periods.
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Word groups. For each of the verbs listed below, find two
nouns which are related to them:
assist invest
collect manage
draw pay
endorse subscribe
VI
Using prefixes un-, in-, dis-, etc., give negative adjectives
which are related to the, following:
active important
cleared licensed
direct listed
endorsed regular
honoured sufficient
VII
| minimum national paper rale reserve short-term stale transil Treasury trust value |
| debentures discount district federal face house instalment issue lending letter loan market |
Combine the words listed below into meaningful livo or three word expressions:
asset
account
bank
bill
correspondent
central
collection
charge
company
commercial
daily
department
VIII
Fill in the blanks:
The central banking system of the United States is called
..... It differs from that of most other countries'.... in that
it consists not of one bank but of twelve and some twenty
four branches under the control of the Federal Reserve Board in Washington. The Federal Reserve Banks perform a lot of
services for ...... Checks flowing through the System are
cleared at ...... These checks are endorsed in such a way
that the parties who endorse them must make payment if the
other ..... to the transaction refuse .. The checks are
................. The Federal Reserve Banks assist their
banks in many other ways. For instance when their cash..
becomes low, the Federal Reserve Banks will accept frohr
them any notes that can be sold below their value at matu
rity. They will accept any notes that can be...... They also
help in the .... of new bonds to replace ones that have ma
tured.
IX
Demonstrate Ihe meaning of Иге following expressions in sentences of your own:
1. to clear an item of exchange through a bank
2. to effect the collection
3. to present for collection
4. to endorse a check with/without recourse
5. to clear a check at par
6. to be liable for the amount
7. to rediscount some paper
8. to provide the necessary money
9. to charge the minimum lending rate
10. to make the greatest profits
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Unit Nine Foreign Exchange
Active Vocabulary
aptly
capital movements
claim
conclude (v)
conversion
convertibility
current transactions
dealer
dealings
domicile (v)
- соответствующим образом,
быстро, легко
-движение капитала
-требование, претензия
-заключать
-конверсия
-конвертируемость
-текущие сделки
-дилер, посредник
-коммерческие сделки
-обозначать место платежа по
векселю
| Eurodollar market excess funds foreign exchange money movements non-resident place
two-tier market
|
международный евродолларовыи рынок
-избыточный капитал
-иностранная валюта
-движение денег
-нерезидент
-частичная конвертуемость
-размещать, выпускать на рынок
l
Foreign Exchange
International trade and more important international money and capital movements are the basis of foreign exchange dealings. Take a simple example: if a Swiss exporter sells a machine to a Japanese buyer, to conclude the transaction the yen which the Japanese businessman has available will have lo be changed into Swiss francs, the currency sought by the supplier of the machine. Or if Continental banks want to place excess funds in the Eurodollar'market ralher than in Iheir own domestic, markets, they have lo buy dollars against local currency. The observation of the French economist Gaelan Pirou, that foreign exchange deals spring from "tbe coexistence between Ihe internationalism of trade and the nationalism of currencies", thus aptly descrilxjs at least the oldest origin of this metier. Clearly, the day that sees the arrival of a single world currency will also witness the disappearance of foreign exchange business.
All claims to foreign currency and payable abroad, whether consisting of funds held in foreign currency with banks abroad, or bills or cheques, again in foreign currency and payable abroad, arc termed foreign exchange. All these claims play a part in Ihe relations between a bank and its customers. In the trading of foreign exchange between banksr which is the job of the foreign exchange dealer, only foreign currency held with banks abroad is concerned.
Foreign bank notes are not foreign exchange in the narrower sense. They can be converted into foreign exchange, however, provided they can be placed without restriction lo the credit of an ordinary commercial account abroad. The exchange regulations of some countries do not allow this conversion of bank notes into foreign exchange, although the operation in reverse is nearly always permitted.
A currency, whether in foreign exchange or bank notes, is usually (railed eonvertible if the person holding it can convert it, in other words change it freely into any other cur-
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93
rency. A distinction needs to be made, however, between unrestricted convertibility and the various forms of partial convertibility. The Swiss franc, for example, is fully convertible whether the holder is resident in Switzerland or abroad and regardless of whether it is a matter of current payments or financial transactions.
Many countries, on the other hand, recognize only external or non-resident convertibility. This is for instance still the case with the United Kingdom: if a German exporter, for ',, example, has sterling funds in a British bank, he can simply -: instruct the bank to convert his pounds into any other cur- ^ rency and remit the proceeds abroad; but a person domi- f, ciled in Britain cannot as a general rule export capital ex- ^ cepl with the consent of the Bank of England.
Exchange regulations may also draw a distinction, as far as convertibility is concerned, between funds arising from current transactions (goods and services) and those coining from purely financial operations, only the latter in general being subject in some degree to a restriction on convertibility. In a few countries this distinction between commercial and financial transactions culminated in the establishment of two-tier markets, this is the case in Belgium, and it applied temporarily to France and Italy in recent years.
Exercises to the text
I
Find the proper answer:
1. "foreign exchange dealings":
a) financial operations connected with settling payments
in foreign trade as well as international money and capi
tal movements,
b) concluding agreements with foreign firms,
c) converting one currency into another.
2. "the yen which the Japanese businessman has available":
a) wants to exchange,
b) has in abundance,
c) has at his disposal.
3. "foreign exchange deals spring from":
a) refer to,
b) are the result of, -*
c) imply.
4. "placed to the credit of:
a) entered on the credit side of an account,
b) considered to be favourable for, \
c) a credit granted to. \
5. "the operation in reverse": Y
a) conversion of foreign exchange into the currency of a
given country, <
b) conversion of bank notes into foreign exchange,
c) remitting bank notes abroad.
6. "a currency is usually called convertible":
a) only residents of a country can remit their payments
abroad,
b) it can be changed into any other currency without any
restrictions, \
c) non-resident can instruct the bank to convert their earn
ings into any other currency.
7. "a person domiciled in Britain":
a) one being on a business trip,
b) one living permanently in,
c) one touring the country.
8. "the proceeds":
a) money arising from converting one currency into
another,
b) earnings from the export of goods,
c) foreign currency held with banks abroad.
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9. "except with the consent of the Bank of England":
a) provided you apply for a permission to the Bank of
England,
b) only in case the Bank of England grants a permission,
c) only if one has an account with the Bank of England.
1.0. "the latter":
a) funds arising both from current transactions and finan
cial operations,
b) funds arising from current transactions,
c) funds arising from purely financial operations.
11. "being subject..... to a restriction on convertibility":
a) being externally convertible,
b) being freely convertible,
c) being under control of exchange regulations.
12, "two-tier markets":
a) economies which draw distinctions between current
transactions and financial operations as regards ex
change regulations,
b) two-storey department stores,
c) oeonomies permitting free money and capital move
ments.
6. A person domiciled in Britain can as a general rule ex
port capital only wilh the consent of the Bank of En
gland.
7. In Belgium funds arising from current transactions are
subject to a restriction on convertibility.
Ill
Answer the following questions:
1. What is the basis of foreign exchange dealings?
2. What would a Japanese buyer have to do if he wanted to
purchase a machine from a Swiss exporter?
3. What would happen to foreign exchange dealings if a
single world currency were created?
4. How would you define "foreign currency''?
5. What is the job of a foreign exchange dealer?
6. On what condition do foreign bank notes liecome foreign
exchange?
7. What is a fully convertible currency?
8. What is a partially convertible currency?
9. Give examples of currencies which are fully convertible
and partially convertible.
II
Say what is true and what is false. Correct Hie. false, sen te,nce.s:~
1. To facilitate foreign exchange dealings single world cur
rency should be created.
2. In the trading of foreign exchange between banks only
foreign currency held with banks abroad is concerned.
3. Foreign bank notes are foreign exchange.
4. The conversion of foreign exchange into bank notes of
the given country is nearly always permitted.
5. The holder of Swiss francs can convert them into other
currencies provided he is a resident of Switzerland.
IV
Vocabulary study. Supply the missing member of the, pair in each case:
| Verb | Noun |
| to move to exchange to convert | supplier dealer, dealings restriction |
| to permit to instruct | establishment disappearance |
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97
|
|
Collocation. Find the nouns which are qualified in the text
by these adjectives and write one. noun to each adjective:
convertible international
current local
domestic ordinary
external partial
financial unrestricted
foreign
VI
Combine the. words listed below into meaningful two or
three word expressions as possible. Some are used in Hie
text (capital movement, foreign exchange dealings).
business foreign
bank money
capital movement
currency market
dealings notes
dealer regulation
exchange two-tier
Eurodollar world
VII
For each of the following phrases find the expression in the text which it explains and note, that expression.
1. International trade and international money and capital
movements.
2. Extra money held by a bank.
3. Money used within a country.
4. Money in circulation abroad.
5. Funds, bills, cheques held with banks abroad in foreign
currency and payable abroad.
6. A currency that can be changed freely into any other
currency.
7. Money coming from the sale of goods and services.
VIII
Complete the following sentences in English:
1. If a bank wants to place excess funds in the Eurodollar
market ......
2. Foreign bank notes can become foreign exchange provided
3. A currency is called convertible if..... \
4. Sterling funds are partially convertible because only...
5. In Belgium, France and Italy a distinclio\i is drawn be
tween....... \
IX
Demonstrate the meaning of each of the following expres sions in sentences of your own:
1. to conclude the transactions ,-— '" ' '
2. to place excess funds [
3. to buy dollars against local currency
4. to convert into
5. to remit the proceeds abroad
6. to export capital
7. to be subject to a restriction
8. to be fully (partially) convertible
X
In the sentences of this text every sixth word has been left out. Write in the word that fits best:
The Foreign-Exchange market is ..... market which has
no central..... place, but operates through the..... offices of
the banks concerned.... overseas trade. The main preoccu-
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pation .... the foreign-exchange dealers is ... secure sup
plies of foreign currency .... required lo finance interna
tional trade..... price of foreign currencies, like.... prices,
is determined by the.... for that currency and the..... of it.
The demand for..... currency depends on the demand ....
that country's goods and services ..... foreigners, and the
supply of... currency depends on how many... goods and
services its home.... wish to buy. Capital movements......
also affect the exchange rale.... making supplies of a cur
rency .... on lorig-lerm loans or
Unit Ten
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