| 1) provide | a) international accounting standards |
| 2) draw | b) cash flow controlling decisions |
| 3) develop | c) profitability of business |
| 4) take | d) precise evaluations of assets |
| 5) assessment of | e) quarterly reports |
| 6) prepare | f) conclusions regarding efficiency |
| 7) comply with | g) new financial strategies |
B) Compose your own sentences using the above word combinations.
UNIT V
CENTRAL BANKING
Warm up
1. What organization is responsible for the collection of state budget revenues in Russia?
2. Can you name any authorities responsible for maintaining the stability of monetary systems in Europe?
3. Do you think that central banks of developed countries are independent from government fiscal policies in their decisions?
Section A
Reading 1
Discussion
Answer the following questions:
1) What was the main responsibility of central banks at the time when currencies were pegged to the gold standard?
2) Why did the gold standard help to maintain price stability?
3) What kind of a central bank was needed to stabilize economies and monetary systems of post war countries in Europe?
4) What do central banks do as the lenders of last resort?
5) Do central banks in liberal economies have to closely follow government fiscal policies?
Reading 2
Discussion
Answer the following questions:
1) Are central banks state owned and directly regulated by the government?
2) What are the relations between the Bank of Russia and the government?
3) Does governments economic strategy have anything to do with the Bank of Russias planning?
4) What is the Right of Issuance given to the central bank?
5) What powers do central banks have in respect of the commercial banks?
6) What do central banks typically do to reduce the risk of commercial banks overextending themselves in lending money?
7) Under what circumstances does a central bank act as a lender of last resort?
Reading 3
Discussion
Answer the following questions:
1) What do central banks do in the capacity of monetary authorities?
2) What are primary objects of management of central banks?
3) Do central banks control interest rates and exchange rates?
4) What are the results of exchange rate going down or up?
5) How do central banks create money?
6) What are direct results of selling and buying securities by the central bank?
7) What can a central bank do to set a desirable interest rate in the interbank market?
8) What are the main results of managing the money supply and of market interventions by central banks?
Section B
Exercise 5.
Part a) Fill in the gaps in the table below.
| Noun | Verb | Person |
| purchaser | ||
| save | ||
| employment | ||
| keeper | ||
| carry | ||
| consumption |
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Part b) Complete these sentences using the words from the above table.
1. The Chinese central bank _____huge deposits of gold bullion.
2. _____market of Russia is undergoing sustained development.
3. Personal _____were withdrawn from bank accounts during the financial crisis.
4. _____of new banking products lately are not very active.
5. The salaries of bank _____were raised because of high inflation in the country.
6. The buyer claimed compensation because the ____did not deliver goods in time.
Over to you
Give your written opinion why monetary policy is important in economic life of every country.
UNIT VI
Warm up
1. What do you think of Russias role in the world trade?
2. What are the biggest trade partners of Russia?
3. How can payments be made if you buy goods in other countries?
Section A
Reading 1
International Payments
Despite the fact that cash participate in any commercial transaction, selling or buying goods in foreign markets is normally accomplished through the mechanism of international payments. This mechanism requires that any payment for products delivered or services provided to a foreign client should be made on the basis of a commercial contract. In respect of products such contract must specifically feature their description, the terms of delivery, date and means of payment, the currency in which settlement is to be effected, and the list of documents required to arrange clearance of the products through customs.
Financing of international transactions within this mechanism involves trade in the currency specified in contracts. It can be the currency of the exporter, the currency of the importer or any other convertible currency agreed by both parties to a contract. Foreign currency has to be purchased in a market governed by supply and demand. The demands for payment by the sellers in one country are balanced with those of another through clearing institutions, mainly the banks in the leading financial centers. There exists an interconnected international network of banks that have checking accounts with one another and can shift funds back and forth. The overall balancing of the accounts between nations is accomplished through movements of capital from one country`s bank balances to another`s, borrowing from the International Monetary Fund, and even (in the past) actual shipments of gold.
Currencies are traded by dealers in a foreign exchange market. Currency supply is formed by exports of products and services, by foreign direct investment and foreign loans, etc. whereas imports, foreign direct investment abroad and other factors create demand for currency. Under these circumstances the balance of supply and demand constantly changes, resulting in fluctuations of a currencys exchange rate. If a contract stipulates the payment in a currency other than that in which the exporter (or the seller) usually operates, such exporter is exposed to the risk of exchange rate fluctuations. Devaluation of the contract currency can have even more dramatic financial consequences for the seller.
The Foreign Exchange Risk described above is not the only one in exporting or importing transactions. The range of other risks facing participants of international trade includes Payment Risk, Interest Rate Risk, Delivery Risk, Counterparty/bank Risk, etc. The sides to a contract can lower the risks involved and facilitate the conduct of commercial transactions by attracting various intermediaries such as banks and other financial institutions.
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Discussion
Answer the following questions:
1. What are international payments based upon?
2. What currencies are used in international payments?
3. How do the clearing institutions accomplish the overall balancing of the accounts between nations?
4. What is the use of borrowings from the International Monetary Fund?
5. Are actual shipments of gold commonly used nowadays to balance the accounts between nations?
6. Why are some exporters exposed to the risk of exchange rate fluctuations?
7. How is it possible to facilitate the conduct of commercial transactions and lower the risks involved?
Reading 2
Discussion
Answer the following questions:
1. Why do contracting parties use different methods of paying for goods?
2. What method of payment is the most secure for the seller?
3. Why do buyers prefer direct payments?
4. How can modern information systems help in trade finance?
5. How does the cash against documents procedure help to mitigate trade risks?
6. What is the condition of handing over the shipping documents to the importer in the documents against acceptance transactions?
7. What is the role of banks in documents against payment transactions?
Reading 3
Discussion
Answer the following questions:
1. What is the most secure way to solve the problem of unknown creditworthiness of buyers?
2. What kind of order does the letter of credit actually give to the advising bank?
3. What is the name or the trade finance document giving the most reliable guarantee that payment for the goods will be made on time and in full?
4. What can be done with the letter of credit to make sure that the beneficiary will get paid even if the issuing bank fails to meet its obligations?
5. What must the buyer do if he has accepted a bill of exchange?
6. When are the buyers obliged to pay up bills of exchange?
7. When can a buyer receive shipping and other receiving documents from the bank, keeping the relevant bill of exchange?
Note 1:
Bill of Lading (B/L, BoL) is in fact a receipt issued by a shipping line or its agent (carrier) proving that the goods have been loaded onto the vessel. The document specifies the names of the consignor and consignee, the type of cargo, its quantity, the point of origin of the consignment and its destination, and route. It can be used for insurance and customs purposes. Bill of Lading assigns title to the goods, and requires the carrier to release the merchandise to the holder of the title or a named party at the destination port. If this document is issued to bearer, the title to the goods during shipment can be transferred to this person.
Waybill is a similar, but a lesser document, which is very often issued instead of B/L. In the case of an Air Waybill some additional items are listed, such as the flight number and departure time. The main difference of a Waybill is that it does not confer title of the goods to the bearer as a Bill of Lading does, so there is no need for the physical document to be presented for the goods to be released. The carrier will automatically release the goods to the consignee once the import formalities have been completed.
However, for Letter of Credit transactions it is important to retain title to the goods until the transaction is complete. That is why the Bill of Lading still remains a vital document within international trade.
Note 2:
Cash against Documents. In CAD transactions the seller retains ownership of the product until payment is made. The documents that specify the terms of the transaction are held by an intermediary, most often a bank, chosen by both the buyer and seller. Once payment is remitted, the bank releases the documents showing that the buyer can take ownership of the product.
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The primary advantage of a CAD transaction is for the buyer. It is less expensive for him than a Letter of Credit since it does not tie up his bank line of credit, which could be used to pay other vendors. In some cases, the bank may even require a cash deposit from the buyer to secure the amount of the Letter of Credit.
A CAD is riskier for the seller: if the buyer refuses delivery, the seller does not receive payment. But the buyer must pay to have the product transported back to the port of origin.
Section B
Exercise 1. Read the following words and phrases and translate them into Russian:
Convertible currency; fluctuation; International Monetary Fund; collection of payment proceeds; beneficiary; fiduciary; method of settlement; remit payment; creditworthiness; risk mitigation; foreign exchange risk; shipping documents; customs clearance; tracking; air waybill; irrevocable confirmed letter of credit; to fulfill/meet ones obligations; release documents.
