VI. Operations in the Money Markets

a) Fill in the gaps with appropriate words from the box below.

b) Read the text carefully and answer the questions below:

PART III. BANKING

interest	accounts	short-term	shortages
base	market	monetary	Treasury
funds	commercial	mortgage	money

1. What is the main instrument of monetary policy available to the authorities?

2. Who is the Bank of England banker to?

3. Where does the operation of government accounts create a shortage?

4. What does the Bank of England want to avoid regarding short-term interest rates?

5. Who sets the base rates?

6. Is a building society a construction company or a mortgage specialist bank?

7. Which authorities regard short-term interest rates as their major policy instrument?

8. How frequent are the Bank of England's operations in the money markets?

9. What kind of role has the Bank of England regarding public and private sectors?

10. When does the Bank of England act each day in order to relieve shortages?

The instrument of the (1)_____ policy available to the authorities in the short-term (2)

__ rate, which is influenced through the Bank of England's daily operations in the (3)

__ markets. The Bank of England is both banker to the government and banker to the

(4)___ banks, and this central role gives it the ability to act each day to even out the flows

between the public and private sectors. As a general rule, the operations of the

Government (5)____ (including the weekly issue of (6)______ bills to the market) tends to

create daily shortages in the money market - i.e. net flows of money to the public sector -

and the Bank will act at pre-determined times each day to relieve some of those (7)________,

either by buying bills or by lending to the market. On a day-to-day basis, the Bank's

objective is to avoid sharp fluctuations in (8) _______ interest rates. When the authorities

decide that a change in short-term rates is appropriate, the Bank will change the rate at

which it is prepared to provide (9)_____ to the market. This will quickly be reflected in the

(10)___ rates generally, and significant changes in these rates will trigger (приводити в

дію) movements in the (11)_____ rates set by the commercial banks for lending to their

customers, and eventually in other rates like building society (12)________ rates. The money

markets thus provide an extremely sensitive channel through which the authorities can act on monetary conditions generally. Short-term interest rates are the major policy instrument of the monetary authorities.

VII. Writing Practice. Make a short summary about the Bank of Britain from the text "Bank of England". Use the opening phrases from Appendix 1.

UNIT 2. CENTRAL BANKS

SECTION D. The National Bank of Ukraine.

discussion 1. Has the role of the NBU changed over the last years?

2. How will the Ukrainian banking business be developing?

reading THE NATIONAL BANK OF UKRAINE

The creation of an entirely new banking system in Ukraine stems from the Law "On Banks and Banking" passed by the Verkchovna Rada of Ukraine in March of 1991. Under this Law the Ukrainian banking system is defined as two-tier structure consisting of the National Bank of Ukraine and commercial banks of all types and forms of ownership. From the very first days of the National Bank of Ukraine foundation its activities have been aimed on strengthening the position of the Ukrainian statehood on the world level.

According the Law of Ukraine "On banks and banking',' the National Bank of Ukraine was formed on the base of the Ukrainian division of the State Bank of the USSR in March 1991. The NBU is a state institution. It is responsible to the Verkchovna Rada of Ukraine and is entitled to a legisla­tive initiative. The National Bank maintains contacts with the Government of Ukraine and with the Ministry of Finance.

The National Bank is managed by a Board of Governors consisting of fifteen members. It's staff is: a Governor, four Vice-Governors and other members. The Governor of the National Bank of Ukraine is appointed by the President and is approved by the Verkchovna Rada for a period of four years. The Governor directs the work of the Board. The Vice-Governors and all members of the Board are appointed by the Governor and approved by the Presidium of the Verkchovna Rada of Ukraine.

The Board's decisions are adopted by a simple majority vote and are documented in the Board's Minutes.

The Board of Governors of the National Bank:

• analyses the status of money in circulation and recommends mone­tary and credit policies which are subject to approval by the Verkcho­vna Rada;

• determines the levels of reserve requirements and the rates of inter­est to be charged on commercial banks;

• approves regulations on issues within the power of the National Bank of Ukraine;

• exercises all other activities authorized by the Bank's Charter.
The National Bank of Ukraine serves as:

a) the central bank which conducts uniform state policy in the area of monetary circulation and credit and ensures the stability of the national currency. To carry out the state's monetary policy; the National Bank as the central bank uses the following means:

PART III. BANKING

• influences interest rates through control of the rate on 'refinancing credits' granted to commercial banks;

• sets minimum reserve requirements for commercial banks;

• restricts credits through imposing 'credit ceilings'.

The National Bank keeps the State registry of banks, foreign currency exchanges and other financial institutions.

Ukrainian commercial banks and foreign banks may be engaged in banking activities only after having been registered in the State registry of banks.

The National Bank maintains relations with other countries' central banks, international banks and other financial institutions on behalf of Ukraine.

b) issuing center. The National Bank of Ukraine has an exclusive right
to issue currency into circulation and to introduce banknotes and coins of
the national currency. To print banknotes Banknote Printing and Minting
Works of the NBU has been set up. The minting of coins in Ukraine is
done to the order of the National Bank.

The cash supply to the economy is carried out through the network of the National Bank's regional departments to the commercial banks' order.

c) foreign exchange authority. The NBU determines and regulates foreign exchange policy. To control foreign exchange the NBU exercises control over compliance with the rules for foreign exchange transactions in Ukraine.

d) supervisory body. The National Bank of Ukraine is responsible to ensure that commercial banks would comply with banking legislation and banking regulations, which is fixed by the NBU and the commercial banks themselves.

e) bank of the banks. For banking system support and banking reserves expansion, the National Bank of Ukraine grants credits to commercial banks in order to meet their immediate cash requirements. It also gives directed credits in connection with the reorganization and modernization of production, the development of different economic sectors and struc­tural reconstruction of national economy. The Bank gives short term cre­dits to commercial banks through the auction process. This gives commercial banks equal access to centrally available credit resources.

f) bank of the government. The National Bank provides cash manage­ment of the Ukrainian state budget through the banking system, manages government securities, grants credits to the Government on general terms.

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