III. Fill in the blanks. Rewrite the passage filling in the blanks from the list of words below

Nature

THE FINANCIAL SYSTEМ

Text B

A financial system is composed of institutions and markets which fulfil a variety of economic functions. Central to all is arranging or facilitating the lending of funds from one economic agent to another. Most other financial services are ancillary to, or derived from, this one. The lending of funds from one economic agent to another - from lender to borrower - can be ac­complished in many different ways; but all can be classified into just two distinct approaches.

Firstly, the lender can lend direct to the borrower, albeit perhaps with the assistance of brokers who act in an agency capacity. This is what happens when a person subscribes to a new issue of government stock, deposits money with a local authority or buys a share in a public company. In each case, the person is lending direct to the borrower and is incurring all the risks that such lending involves. This may be called direct finance.

The second approach, which may be called indirect finance, involves a financial intermediary standing between borrower and lender. The lender lends his funds to the intermediary, e.g. a bank or a building society. The intermediary collects the funds from many lenders and decides to whom it will lend. Borrowers approach the intermediary and, if creditworthy, they receive loans. There is no direct contract between lender and borrower. Each deals with the intermediary, each has his contact with the intermedi­ary; instead of one transaction, there are two.

This form of finance seems at first sight to be more roundabout, and to involve the use of more real resources of capital and labour than direct finance. But financial intermediaries are numerous and indirect finance more common than direct finance. What, then, are its advantages? They are many, and they derive from the ability of financial institutions to use their size and expertise to transform financial claims, so that they can offer savers a wider choice of assets than ultimate borrowers are able to do. At the same time, they can offer borrowers a more varied choice of credit terms than ultimate lenders are able to do.

Such a bank accepts deposits of all sizes and on a variety of terms. In the United Kingdom, the largest banks each have many millions of individual deposits, which in the aggregate sum to more than £50bn. They know that, every day, many depositors will withdraw money, but that many others will make new deposits. The law of averages, in normal circumstances, ensures that the total sum of money deposited does not vary greatly. In consequence, banks can allow depositors the freedom to withdraw funds at little or no notice, whilst at the same time making loans to borrowers which last for many years. The banks are said to engage in maturity transformation, that is, they borrow short and lend long. It is not only banks that do this. Building Societies lend money on mortgages for periods up to thirty years, whilst still allowing most depositors to withdraw funds on demand or at short notice.

I. Key terms:

Borrower	- позичальник – legal entity that attracts borrowed money through loaning or issuing securities
Lender	- кредитор – legal entity that stands ready to lend money for a certain period of time and commission
Fund	- фонд, запас, кошти; ощадна або інвестиційна установа – a reserve of money or investments held for a specific purpose, e.g. to provide a source of pensions or to sell as units (unit trust, etc.)
Broker	- брокер – an intermediary between a buyer and a seller in a highly organized market, e.g. a stockbroker, a commodity broker or a market operator working on their own account, such as insurance broker, pawnbroker or bill broker.
Transaction	- - ділова операція – conducting through business with somebody; buying and selling of financial instruments.
Default	- - невиконання зобов’язань несплата – usually a failure to make payments or repayments of interest or principal on the due date.
Bad debts	- безнадійні борги – debts that are not likely to be repaid (the reserves are made to redeem them).
Mortgage	- застава, іпотечний кредит – a legal agreement conveying conditional ownership of assets as security for a loan and becoming void when the debt is repaid.

II. Answer the following questions:

1. What is the central economic function of a financial system?

2. What are the two distinct approaches to the classification of the main economic function?

3. Compare direct and indirect finance. What are the advantages and disadvantages of them.

4. What is the main function of the general-purpose bank?

5. What is “maturity transformation”?

6. Are only banks engaged in “maturity transformation”?

Financial intermediaries not only transform..., they also transform risk. With direct finance, the ultimate lender bears the risk of default by the..., e.g. a person who buys a share in company X stands to lose money if company X goes into.... The retail banks, who between them have millions of loans outstanding, also stand to lose when borrowers.... But because they are large institutions with trained staff able to judge to whom it is safe to... and to whom it is not, they are usually able to keep... losses to a small proportion of total... advanced. And as past experience enables them to... the likely amount of bad debts, they can allow for this by adding a risk premium to the... they charge borrowers. In this way banks, like other..., can bear... and absorb losses, whilst depositors, in normal times, can know that their... are virtually riskless.

Financial intermediaries provide other.... Retail banks not only offer deposits withdrawable on..., they also provide facilities for deposits to be... from one account to another, and thereby provide a... system. Sight deposits in banks have become a superior form of... to notes and coin for most purposes, other than small day-to-day.... Life assurance companies, whose main... nowadays is accepting regular... from lenders of funds, over a number of years, combine this business with... against death. Thus, while the lender expects to... a certain sum of money after, say, 20 years, he knows that should he die..., the same or another... sum will be paid to his....

maturities services borrower demand liquidation transferred outstanding

money-transfer default money lend transactions loan business

sums payments estimate insurance interest receive

intermediaries prematurely risks guaranteed deposits dependants

IV. Match the Ukrainian and English equivalents:

1) To withdraw money, funds	a) Кінцевий позичальник
2) Government stock	b) Закон усереднення
3) General-purpose bank	c) Брати на себе збитки, пов’язані з позиками
4) Money-transfer system	d) На вимогу
5) Maturity transformation	e) Банкрутувати, припинити існування
6) At little or short notice	f) Універсальний банк
7) On demand	g) Позичати гроші під заставу (як правило, під нерухомість)
8) To borrow short and lend long	h) Надприбуток
9) The law of averages	i) Гарантована сума
10) To lend money on mortgages	j) Ощадний сертифікат (6 та 30 місячний дежавний позичковий інструмент зі ставками, прив’язаними до казначейських векселів)
11) Bear, incur risk	k) Безнадійні борги, борги, які скоріш за все не будуть повернені
12) Ultimate lender	l) Збільшувати кількість грошей
13) To keep loan losses	m) Державні цінні папери
14) Loans outstanding	n) Підлягати ризику несплати
15) To bear the risk of default	o) Система переказу грошей в безготівковій формі
16) Creditworthy	p) З короткостроковим повідомленням
17) To go into liquidation	q) Брати позику на короткий термін і надавати позику на довгий термін
18) Total sums advanced	r) Знімати гроші, кошти з рахунку
19) Bad debts	s) Трансформація строків
20) Guaranteed debts	t) Приріст капіталу
21) Capital gains	u) Брати на себе ризик
22) Extra returns	v) Несплачені позики
23) Saving certificate	w) Загальні суми позик
24) Premium bond	x) Преміальна облігація (облігація, ринкова ціна якої вища за номінальну)
25) Raise money	y) Кредитоспроможний (спроможність позичальника виконати свої зобов’язання по позичках у встановлені строки)

V. Read the passage below. Explain the meanings of the words and phrases which have been highlighted:

Financial intermediaries perform many functions. And for this reason, many lenders and borrowers find it preferable to deal with intermediaries, rather than to deal direct with each other. This is especially true of small lenders and borrowers, for whom the time-and-trouble costs of direct dealing would normally outweigh any gain in terms of a more favourable interest rate. But there is still need for direct finance. Many wealthy persons are prepared to incur risk by lending direct to private enterprises in the hope of earning extra returns. If the enterprises fail, they lose money, but if the enterprises prosper, they receive increased returns in the form of both higher dividends and capital gains. Further, many persons, rich and poor alike, are happy to lend direct to the Government as here the risk of default is considered negligible. Those with large sums to lend can buy gilt-edged stock (marketable government bonds) but small savers can also lend direct to the Government by purchasing such assets as savings certificates and premium bonds.

During the last 20 years, the financial system, both in the United Kingdom and elsewhere, has been changing rapidly. Banks have introduced new financial instruments; they have developed new techniques of raising funds and making loans; new financial markets have been created. This process – known as financial innovation – has had a profound impact on the way in which financial services are provided, what costs are involved, and where financial services are provided.

VI. Render the following text into English:

Трансформаційні функції комерційних банків

Вирішальну роль відіграють комерційні банки в трансформаційній функції. Досить ваго­ма роль їх і в функції створення нових грошей, в поповненні та регулюванні грошової маси. Менш вагома їх роль в функції забезпечення сталості банківської діяльності та грошового ринку, ос­кільки погоня за високими прибутками підштов­хує їх до найбільш ризикових операцій. Тому в цій функції визначальна роль належить централь­ному банку, проте недооцінювати і роль комер­ційних банків теж не слід.

Зупинимося докладніше на трансформа­ційній функції комерційних банків. Вона включає декілька напрямків:

— трансформацію ризиків;

— трансформацію строків;

— трансформацію капіталу;

— просторову трансформацію.

Трансформація ризиків полягає в тому, що банки, діяльність яких пов'язана з високим ри­зиком, вживаючи відповідних заходів, можуть звести ці ризики для своїх вкладників та акціо­нерів до мінімуму. До таких заходів належать: ди­версифікація активних операцій, створення ре­зервів, диференціація процентних ставок в залеж­ності від ризиковості кредитів, страхування депо­зитів тощо. Завдяки цим заходам банки беруть на себе переважну частину ризиків непогашення позичок.

Трансформація строків полягає в тому, що мобілізуючн значні обсяги короткострокових коштів і постійно поповнюючи їх, банки одер­жують можливість деяку їх частину спрямову­вати в довгострокові позички та інші довготри­валі активи. Це вигідно не тільки банкам (вони одержують більш високий доход), а й їх клієнтам. Позичальники одержують можливість профінансувати свої довгострокові проекти, а кредитори банків одержать більший доход по своїх вкладах в банки.

Трансформація капіталів полягає в тому, що мобілізуючи великі обсяги дрібних вкладів, банки одержують можливість акумулювати великі маси капіталу для реалізації масштабних про­ектів. Без банків ці кошти залишались би роз­порошеними, використовувалися б з низькою від­дачею чи взагалі не використовувалися.

Просторова трансформація полягає в то­му, що банки можуть акумулювати ресурси з ба­гатьох регіонів і навіть з інших країн і спряму­вати на фінансування проектів одного регіону, однієї країни, одного об'єкта. Таким чином розсу­ваються географічні межі грошового ринку, він перетворюється у міжнародний і світовий, що полегшує балансування попиту і пропозиції на грошовому ринку в будь-якому місці світового ринку.

VII. Choose the correct alternative to complete each sentence:

If you possess something, you can say that you ………. it.

a) owe b) own c) owner

If you have to reimburse or repay someone, you ………. money.

a) owe b) own c) yield

To let someone else have the use of money for a certain period of time, after which it must be paid back, is to ………..

a) borrow b) lend c) credit

To take money that has to be repaid is, on the contrary, to ………..

a) borrow b) lend c) steal

An amount of money lent is a ………..

a) debit b) debt c) loan

A person who has borrowed money is a ………..

a) creditor b) debtor c) owner

Another word for a lender is a/an ………..

a) creditor b) debtor c) owner

The income received by someone who lends money is called ………..

a) dividends b) interest c) interests

The borrower has to pay back the loan itself, also known as the ……….

a) principal b) principle c) premium

The amount of money a lender receives for a loan or an investment, expressed as a percentage, is known as its return or ………..

a) credit b) income c) yield

VIII. Complete the following sentences using words and word-combinations given below:

1. If you borrow money you have to pay....

2. When the loan matures you have to pay back....

3. Many developing countries are now heavily....

4. To service a debt is to....

5. To default on a debt is to....

6. To bail someone out is to....

7. To rollover a debt is to....

8. To reschedule a debt is to....

9. To write off a debt is to....

pay the interest; postpone the repayment; rescue them (financially); principal; abandon it as a bad debt that will never be paid; interest; fail to pay the interest or repay the principal; indebted; renew it (to borrow again for a further period)

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