The merchant banks

The bill of exchange

Foreign Banks

Most have only the one office in or near the City of London. A small number of North American and Western European banks have had a London office since before World War II, in some cases since the nineteenth century, but for the most part these foreign banks are comparative newcomers. Most arrived during the 1960s and 1970s.

Table 1. Foreign Banks: Abridged Balance Sheet. 30 September 1991 (£m)

Sterling Liabilities
Deposits: UK banks	32.922
other United Kingdom	41.426
overseas	44.127
CDs & other short-term paper	24.030
Foreign Currency Liabilities
Deposits: UK banks	62,218
other United Kingdom	44.064
overseas	408.298
CDs & other short-term paper	58.758
Items in suspense and transmission, capital and other funds (sterling and other currencies)	20,892
Total Liabilities	736,736
Sterling Assets
Notes, coins and balances with Bank of England (including cash-ratio deposits)
Market loans: UK banks and discount houses	30.368
UK bank CDs	6,582
UK local authorities
overseas	17,004
Bills
Advances: United Kingdom	80,457
overseas	8,944
Investments	7,625
Other Currency Assets
Market loans and advances: UK banks (including CDs)	65,868
other United Kingdom	64,444
overseas	396,843
Bills and investments	45,073
Miscellaneous (sterling and other currencies)	12,424
Total Assets	736,736
Acceptances outstanding	14,657
Eligible liabilities	102.163

VII. Translate the text in writing:

The bill of exchange is an important means of financing trade credit. It is a kind of post-dated cheque; that is, a cheque made out as pay­ment for goods received but payable at some future date, usually 3 months after the date on which it is signed. It is used in the finance of domestic and international trade. It works something like this: when a trader sells goods he draws up a bill of exchange and sends it to the buyer. The bill is in the form of a promise to pay and specifies the sum of money owed and the due time for payment. It. bears a stamp, which makes it legally acceptable. The purchaser of the goods duly signs the bill and returns it to the seller who now has a legal acknowledgement of the buyer's indebtedness. Bills of exchange normally mature in 3 months so that the purchaser of the goods has been granted 3 months' credit.

Many merchant banks' date back to the nineteenth century when they were simply merchant houses trading in various parts of the world. Some of these houses grew in reputation and turned to the finance of trade as a specialised business. While the finance of international trade remains an important function of merchant banks other functions have tended to become rather more important. The main activities of the merchant banks are summarised below.

Acceptance business. The principal merchant banks are members of the acceptance Houses Committee and their work consists of accept­ing (i.e. guaranteeing) certain promises to pay issued by merchants engaged in home and overseas trade. In other words they are pro­viding a form of trade credit.

Financial advice to companies. Their best-known activity is the hand­ling of mergers and take-overs. Merchant banks advise and act for the parties concerned, but they will also advise on any aspect of a com­pany's financial affairs.

Share issues. Merchant banks act as Issuing Houses. As well as advis­ing on the method of raising funds they will usually carry out all the work involved in floating a new issue.

Investment managers. In addition to their advisory role, merchant banks will take over the active management of investments on behalf of other institutions and they also operate a number of investment and unit trusts.

Wholesale banking. These banks operate extensively in the Eurocur­rency market, and in wholesale banking (dealings in very large deposits for periods of one year or more).

VIII. Read and retell the following text.

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