UNIT 4: BANKING

A bank is a place where they give you an umbrella in good weather

and ask for it back when it starts to rain.
Types of banks

Commercial banks are the most important banks. They offer many services, different forms of accounts and
loans, both to businesses and individuals.
Central banks manage the banking system in a country.
Investment banks do not take or keep the money of individuals. They work with organizations and large
companies: give financial advice and help raise money on the international financial markets.
Online banks can often give their customers more interest because they do not have the expenses that physical
banks do. They can be accessed over the Internet and are becoming more and more popular.
S&Ls or savings and loan banks (associations) are financial institutions that accept deposits and provide homemortgage loans. These are specialized banks created to promote affordable homeownership. Although interest
rates are higher, such banks offer up to 30-year mortgages. Customers pay back their loan through a monthly
payment that they can afford.
Development banks are financial organizations that help Third World Countries. They not only provide money
for nations in Africa, but also send aid workers and offer technical help.
Islamic banks offer interest-free banking. They do not charge interest on loans or pay interest on savings,
because it is against certain ethical or religious beliefs. Instead they invest in companies and share the profits with
their depositors.
Private banks manage the assets of rich people or high net worth individuals.
Clearing banks pass cheques and other payments through the banking system.
Central bank

Most countries have a central bank that provides financial services to the government and to the banking
system. The central bank, depending on the country, may be called the State Bank or the National bank (as in our
country). It bears the name of the Federal Reserve System in the USA, the Bank of England in the UK, and the
European Central Bank in single-currency Europe. In a way it is the bank for all the other banks in a country. It
oversees the banking system. The central bank may be owned and controlled by the government or it may have
considerable political independence.
There are three common duties that all central banks perform: holding reserves, assuring stability of the
banking and monetary systems, and lending money to commercial banks and the government.
Holding reserves. Central banks are sometimes called reserve banks. Commercial banks lend only a part of
their funds to individuals and businesses and keep the rest in reserve. The central bank holds these reserves to
influence the amount of loanable funds banks have available. This allows the central bank to control the money
supply.
Assuring stability. Central banks assure stability in the national banking and monetary systems. They are
responsible for monetary policy trying to control the rate of inflation to maintain financial stability. The central bank
supervises and regulates the banking system and the whole financial sector. It also collects financial data, publishes
statistics and provides financial information for consumers. Also, it prints and issues currency.
Lending money. The final duty of the central bank involves one of the primary functions of all the banks it
lends money. However, its lending practices are unlike those of other banks. It serves private banks and the
government rather than individual customers and businesses.
Commercial bank
A bank is a company that works with the money that people give it. If you give your money to a bank, it not
only protects it but pays you interest so that it can work with the money. This is one of the reasons why people save
their money in a bank. Money may also be safer there than at home.

Banks lend money to other businesses and customers. They collect extra money called fees with which they
pay interest to savers as well as salaries for their workers. Banks make a profit because they collect more interest than
they pay to savers.
Without banks the world economy would not be able to grow. Investors would not find the money they need
for new projects. Industries could not buy new machines and modern technology.
Thus, a commercial bank is a privately owned profit-making organization that accepts deposits, makes loans,
and provides related services to its customers. So, it is a financial middleman that specializes in bringing lenders and
borrowers together. Its inputs are money in the form of deposits, for which it pays interest. Its primary output is loans,
for which it charges interest. As banks deal with money belonging to individuals and businesses, they must conform to
state banking regulation and are subject to unannounced inspections by Central Banks auditors.
Study and learn the following VOCABULARY
to raise money
savings
and
loan
association
(S&L)
affordable
to charge interest
interest rate
high net worth individuals
clearing bank
to oversee
to assure
loanable funds

input
output
auditor

asociaia de economii i mprumut /

-

rata dobnzii /
a rich person who has at least $1 million
available to make investments with
a bank that does business with other banks
through a clearing house
to supervise
to do everything possible in order to make
certain that something happens
money that can be given on loan to people

undivided profit

sth. that you put into work to make it succeed

the result of the performed work
a person who officially examines the business
and financial records of a company
cashier
office worker
an amount of money or goods that is left
because a country or business has more than it
needs
retained profit

business year

accounting year, fiscal year

teller
clerical worker
surplus

financial statement

fonduri de mprumut /

profit neredistribuit /

an de gestiune /
,
raport financiar /

Use the vocabulary units from the above table to complete the following sentences.
1. A bank is managed by the president and vice-president. They, in their turn, appoint the treasurer, and
other . who are responsible for the day to day running of the bank.
2. Banks customers are discouraged by high .
3. Central bank the banking system of a country.
4. The banks is money in the form of deposits for which it pays interest.
5. The banks primary is loans for which it . .
6. The central bank holds the reserves to influence the amount of . .

7. The objective of a ... is to provide information about the financial position,

performance and changes in financial position of an enterprise that is useful to a wide range of users in making
economic decisions.
8. . is neither distributed as dividends to stockholders nor transferred to the earned surplus
account; it can be used for future growth of the company.
9. The job of an is to officially examine the financial records of a company, organization or person
to see that they are accurate.
10. At the end of each it is decided how much of the profit should be distributed to the shareholders
as dividends, and how much should be retained in reserve accounts.
11. Congress is debating whether to spend the budget .
12. Private banks provide their services to . .
Answer the questions.
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)

What is a central bank? Who does it provide its services to?

How may it be called depending on the country?
What does a central bank do?
What can you say about the interrelation between the central bank and the government?
What common duties do all central banks perform?
What kind of reserves do central banks hold? What for?
What kind of stability do central banks assure? How do they do it?
Whom do central banks lend money?
What is a commercial bank?
Whom does it bring together?
What are the inputs and outputs of commercial banks?
Why do people save their money in a bank?
How do commercial banks manage to make a profit?
Who can inspect commercial banks?
What is the role of commercial banks in the world economy?

READING. Read the dialogue and answer the questions given after it.
Student
:
Banker:
Student
:
Banker:
Student
:
Banker:
Student
:
Banker:

Student
:
Banker:

Student
:
Banker:

Who really owns the bank?

The stockholders own it. At first, they put up the necessary capital and are granted a charter from the
government.
Are the members of the board of directors stockholders?
Oh, yes. They are chosen by the other stockholders to operate the bank.
And the board hires the president and the vice-president to manage it?
Thats right. They, in their turn, appoint the treasurer, tellers and other clerical workers who are responsible
for the day to day running of the bank.
I suppose most of your work has to do with checking and savings accounts and making loans.
Yes, but we invest money too. Planning the banks investments is also very important. On the one hand, the
bank must use the funds wisely to make a profit and, on the other hand, funds must be available for
depositors to withdraw when they wish to do so.
Do you divide all the profits among the stockholders?
Not all of them. At the end of each business year the Directors recommend and the Annual General
Meeting decides how much of the profit should be distributed to the shareholders as dividends, and how
much should be retained in reserve accounts.
I think it is rather difficult. And how are all the shareholders informed about the decisions of the AGM?
Heres a copy of our last published financial statement. You see, the reserves are shown here as surplus and

undivided profits. All the accounting information of our bank is made public, either in economic press or
on our website, so it is available to anyone who is interested in the affairs of our bank.
1)
2)
3)
4)
5)
6)
7)

What form of business ownership does a commercial bank represent?

Who owns the bank?
How does a bank start?
Who chooses the board of directors and who hires the employees?
What are the banks main activities?
How are the profits distributed?
How are the stockholders kept informed about the banks operation?
The National Bank of Moldova

The National Bank of Moldova (NBM) is the central bank of the Republic of Moldova. It was set in 1991. It
is a legal, public, autonomous person responsible to the Parliament. The main objective of the NBM is the
achievement and maintenance of the stability of the national currency. The NBM periodically informs the public
about macroeconomic analysis, financial market evolution and statistic data, including on money supply,
credit granting, balance of payments and foreign exchange market.
1. The basic attributions of the NBM. Match the two parts of the phrases.
1
2
3
4
5
6
7

to formulate and to promote the state monetary and

to act as banker and
to license, supervise and regulate the activity of
to supervise the payment
to facilitate the efficient functioning of the interbank
to issue
to establish, through consultations with the Government, the
foreign exchange regime of the
8 to manage foreign exchange
9 to settle the balance of
10 to carry out the foreign exchange regulation on the

a
b
c
d
e
f
g

financial institutions
payment system
the domestic currency
foreign exchange policy
national currency
territory of the RM
fiscal agent of the state

h
i
j

system of the Republic of Moldova

payments of the country
reserves of the state

2. Fill in the words.

policy
law

important
financial

interests
inflation

independent
efficient

stability
transition

economy
currency

responsible
risk

The National Bank plays an role in the process of of the RM to

market . Since 1991 the NBM has worked out and implemented a range of
measures directed towards the of the monetary and credit environment.
The most important step was the introduction on 29 November 1993 of the national Moldovan Leu and the further promotion of an anti-inflationary monetary and credit . The
galloping was stopped and the domestic currency stabilized.
In accordance with the the NBM is in exercising its attributions
and is to the Parliament. Its target is the formation of a strong and competitive
sector, the prevention of an excessive and the protection of depositors
.

EXERCISES
1 Mark the statements with TRUE or FALSE and correct the false ones.
1) The central bank is the most important financial institution in the banking system of a country.
2) Central banks render their services to legal and natural persons.

3)
4)
5)
6)
7)
8)

The central bank of the US is the Bank of America.

Cenral banks are subordinate to commercial banks.
Commercial banks offer different kinds of banking services to any type of enterprise as well as to individuals.
Commercial banks charge interest on the money they lend and pay interest on the money they borrow.
A commercial bank is an intermediary between the government and the public.
Commercial banks collect extra money called fares with which they pay interest to savers as well as salaries for
their workers.
2

Match the words on the left with the definitions on the right.

loan
service
interest
account
credit card
bill
cash
withdraw
depositor
variable
fixed
funds
percentage
limit
investor
mortgage
credit rating
credit limit
3

Match the words with their opposites.

1) spend
2) varia
ble
3) withd
raw
4) borro
w
5) defau
lt
6) purch
ase
4

1) help, advice or other things you offer a customer

2) an opinion on how well you can pay back a loan
3) the extra money you pay back when you have a loan or what a bank gives you when you leave
your money there
4) a written piece of paper that shows how much you have to pay for something
5) the amount of money you borrow from a bank
6) a loan to buy a house or property
7) part of the whole
8) the maximum you can borrow
9) take out
10) sth. that stays the same over time
11) to stop sth. from getting higher or more
12) small piece of plastic with which you can pay
13) person who gives money to a company and expects to get profit from it
14) banknotes and coins
15) the place where your money is kept
16) someone who puts money in a bank
17) money
18) sth. that changes over time

a) dep
osit
b) lend
c) save
d) sell
e) fixe
d
f) pay
bac
k

The extracts below are from websites. Which types of banks do the websites belong to?

1) The Federal Reserve was founded by Congress in 1913 to provide the nation with a safer, more flexible, and
more stable monetary and financial system.
2) We provide a full range of products and services, including advising on corporate strategy and structure, and
raising capital.
3) How can we help you? We can:
build a long-term, one-to-one relationship with your banker;
manage you familys diverse business and personal assets;
build a portfolio tailored to your familys unique needs;
play an active role in managing your assets.
4) Nearly twelve million cheques and credits pass through the system each working day. Cheque volumes reached a

peak in 1990 but usage has fallen since then, mainly owing to increased use of plastic cards and direct debits by
personal customers.
5) Why bank with us?
A comprehensive range of accounts and services.
Over 16,000 branches, many with Saturday opening.
Free withdrawals from over 31,000 cash machines.
Online and telephone banking for round-the-clock access to your accounts.
5
1)
2)
3)
4)
5)
6)

Banks lend savers deposits

They also create credit by
How much credit banks can create
Before lending money,
The interest rate on a loan
Banks always need liquidity,
6

1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)

Match the two parts of the sentences.

a)
b)
c)
d)
e)
f)

banks have to assess the risk involved.

depends on the reserve requirements.
depends on how risky it is for the bank to lend the money.
so they cant lend all their money in loans with long maturities.
lending the same original deposit several times.
to people who need to borrow money.

Complete the text from the website of the Federal Reserve, the central bank of the USA.

Today the Federal Reserves duties fall into four general areas:
conducting the nations ....................... policy;
....................... and regulating banking institutions and protecting the credit rights of consumers;
maintaining the ....................... of the financial system;
providing certain ....................... services to the US government, the public, financial institutions, and foreign
official institutions.
7 Fill in prepositions.
I want to open an account ..... your bank.
You have only $100..... your account.
Dont borrow money ..... this bank. They charge very high interest ..... a loan.
Banks also make their profits ..... the fees and commisions they charge ..... their services.
Yesterday the Dresdner Bank announced an interest rate increase ..... 0.5%.
Because some customers cant afford to pay ..... cash, businesses sell goods and services ..... credit.
Commercial banks offer many services, different forms .. accounts and loans, both .. businesses and
individuals.
Islamic banks do not charge interest .. loans or pay interest .. savings.
If you owe money, you are .. debt.
If you have a savings account, you are keeping your money .. the bank.
If you take money out of your bank account, you are withdrawing funds .. your account.
8

Make sentences using each of the three parts below.

1

Investment banks
If someone cannot pay back a loan
In most countries
A mortgage is a written agreement
Banks make profit
Banks give their customers plastic
cards
Online banking
Central banks are responsible
Checking accounts

2
which lets you pay back a loan
allows you to pay bills
the bank can take away things
let you pay your bills
for the circulation of money
the government limits the amount of
money
help organizations and companies
with which they can
because they collect more interest
Banking Services

3
that banks can offer as loans.
in their own country.
withdraw money from an ATM.
by typing in a series of numbers.
over many years.
than they pay.
without using cash.
that belong to them.
raise money on international markets.

The three most important banking services are accepting deposits, making loans, and providing electronic funds
transfers. Banks also exchange foreign currency for people going abroad, sell travellers cheques which are protected
against loss or theft, keep peoples valuables in safe-deposit boxes. They also offer advice about investments.
In general, banks provide their customers with a number of services:
acceptance of demand / time deposits with or without the interest rate;
opening and management of checking / savings accounts;
providing credit services;
foreign currency operations;
providing services of keeping, cashing and transportation of money and values;
issuance and service of banking cards;
providing services of money transfers;
acceptance of payments in favour of beneficiaries (e.g. utilities);
financial advice;
trust services.
The deposit side of banking. Firms and individuals deposit money in checking or savings accounts (demand /
time deposits). A checking (current) account is an account which allows customers to take out or withdraw money,
with no restrictions. With this account they can pay their bills. Money in this account does not usually earn a high rate
of interest. However, many people also have a savings account or deposit account which pays more interest but has
restrictions on when you can withdraw your money. Savings accounts (time deposits) provide a safe place to store
money and a very conservative means of investing.
In some countries, people can pay by checks, in other countries, banks dont issue checkbooks. A check is a
slip of paper that tells the bank how much money it should withdraw from your account and pay to someone else .
Today more and more people use the Internet, also a banking service, to pay their bills by bank transfer. These include
standing orders, which are used to pay regular fixed sums of money, and direct debits, which are used when the
amount and payment date varies.
Banks usually send monthly statements listing recent sums of money going out and coming in.
The lending side of banking. Commercial banks offer short- and long-term loans fixed sums of money that
are lent for a fixed period of time. They also offer overdrafts, which allow customers to overdraw an account they
can have a debt, up to an agreed limit, on which interest is calculated daily. This is cheaper than a loan if you only
need to overdraw for a short period. Banks also offer mortgages to people who want to buy a place to live. These are
long-term loans on which the property acts as a collateral or a guarantee for the bank. If the borrower doesnt repay
the mortgage, the bank can repossess the house or flat the bank takes it back from the buyer, and sells it.
E-banking. The newest service provided by financial institutions is electronic banking. An electronic funds
transfer (EFT) system is a means for performing financial transactions through a computer terminal. Banks give their
customers plastic cards with which they can get money from their account everywhere and whenever they want. They
can also use them to pay without cash at shops, gas stations etc. Nearly all customers have a debit card allowing them
to make withdrawals and do other transactions at cash dispensers (cash machines or ATMs). Many customers have a
credit card which can be used for buying goods and services as well as for borrowing money. The difference between
a debit card and a credit card is the following: with a debit card, money is deducted immediately from your account,
while credit card transaction involves a short-term loan made to you by the bank or credit card company.
Present EFT systems can be used in several ways:
1. Automated teller machines (ATMs): An ATM is an electronic bank teller a machine that provides almost any
service a human teller can provide. Once the customer is properly identified, the machine can dispense cash from
the customers checking or savings account or can make a cash advance charged to a credit card. ATMs can also
provide information about current account balances. Customers have access to them at all times of the day or
night.
2. Point-of-sale (POS) terminals: A POS terminal is a computerized cash register that is located in a retail store and
connected to a banks computer. Heres how it works. You select your merchandise. At the cash register, you pull

your bank card through a magnetic card reader and enter your personal identification number (PIN code). A
central processing center notifies a computer at your bank that you want to make a purchase. Next, the banks
computer immediately deducts the amount of the purchase from your checking account. Then, the amount of the
purchase is added to the stores account. Finally, the store is notified that the transaction is complete, and the cash
register prints out your receipt.
EXERCISES

1)
2)
3)
4)
5)
6)
7)
8)

1 Mark the statements with TRUE or FALSE and correct the false ones.
In order to be able to write a check one must deposit his/her money in a checking account.
With a savings account you can pay your bills.
Current account pays more interest than savings account.
Banks dont charge fees for their services.
Depositors can freely withdraw funds invested in savings account whenever they wish to.
If you want to take a long-term loan you must present a collateral to the bank.
There is less risk for a bank with a mortgage than with unsecured loans without collateral.
Travellers cheques are safer for tourists than carrying foreign currency.
2

Match the verbs with their definitions.

to repossess
to penalize
to lure
to institute
to withdraw
to repay
to finance
to dispense
to notify
to afford

1)
2)
3)
4)
5)
6)
7)
8)
9)

a)
b)
c)
d)
e)
f)

to give out sth. to people

to provide money for a project
to be able to pay goods or pay back a loan
to introduce a system
to give information about sth.
to take back property or goods from smb. who cannot pay for
them.
g) to make smb. pay a fine for breaking a rule
h) to make smb. be interested in sth.
i) to take money out of a bank account
j) to pay back the money you have borrowed from smb.

3 Write the words corresponding to the following meanings.

what you can earn when you leave your money in the bank
an amount of money borrowed from a bank for a certain length of time, usually for a specific purpose
something that acts as security or guarantee for a debt
an arrangement to withdraw more money from a bank account than you have placed in it
a long-term loan to buy somewhere to live
to take back property that has not been completely paid for
a computerized cash register that is located in a retail store and connected to a banks computer
a machine that provides almost any service a human teller can provide
personal identification number
4

Complete the advertisement with the words from the box.

foreign currency
travellers cheques

savings account
current account

statements
standing order

credit card
debit card

ABC BANK now offers 1% interest on .............................. and 2.5% on .............................. . We will give you a
checkbook and plastic: a free .............................. for use in cash dispensers, and the possibility to apply
for .............................. . You can pay fixed monthly bills by .............................. . There are no account charges as long
as you remain in credit, and we send you free monthly .............................. . We can also sell you ..............................
for your next holiday, or .............................. for greater secutiry. What are you waiting for? Call us today!!!

Match the banking services with their definitions.

trust services
safe-deposit boxes
financial advice
demand deposit
loans
payroll service

6
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)

a) a company pays salaries to its employees through the bank that transfers peoples
money on their ATM cards.
b) the bank gives you money to use for different purposes, on which you pay interest.
c) an arrangement by which a bank has legal control of smb.s money or property
d) the bank keeps your valuables, securities or important documents in its vault.
e) the bank keeps your money, pays you a little interest on it, and you can withdraw this
money whenever you need it.
f) bank managers consult you about different issues connected with investing money,
concluding financial transactions and others.

Match each statement of potential customers to the financial service needed.

I want my bills to be paid monthly.

How can I get money when the bank is closed?
I need some cash when I arrive in Cairo
Id like to buy a new house.
I may be in debt next month.
I want to save and get a good return on my money.
I want to guard my house against damage.
I want to send $5000 to my son in Tokyo as quickly as possible.
I want to renovate my house.
I am going to buy equipment for our new office.

a)
b)
c)
d)
e)
f)
g)

ATM card
insurance policy
personal loan
overdraft facilities
standing order
mortgage
high-interest
deposit
accounts
h) foreign currency
i) business loan
j) SWIFT transfer

Fill in the blanks with the vocabulary items listed above each paragraph.
Credit Cards
limit
default
afford

cash advance
funds
debt

purchase
pay back
interest

Credit cards are a convenient way to .. goods. They also come in handy when you have a
shortage of .. . If you need a little extra money for the weekend, you can take out a ... .
In spite of these benefits, credit card .. can also cause serious problems for people. People
spend more than they can .. . And because of the high .. on money borrowed, the credit
card debt becomes harder and harder to .. . Eventually, some people are forced to .. on
their payments. This is why credit card companies put a .. on the amount that people can borrow.
Mortagages
credit risk

afford

mortgage

co-sign

savings

default

credit evaluation

Most people dont have enough in .. to purchase a house so they take out a house loan, which is
called a .. . Before you get a mortgage, the bank will do a thorough . to make
sure you can .. the loan. If the bank feels you are a .. they may ask you to find somebody
else to .. your mortgage. This person will be responsible to pay your mortgage if you .. .
8

Fill in the gaps.

Commercial banks receive money on .................... , pay money according to customers

instructions, .................... loans, buy and sell foreign exchange. They make a .................... from the spread, i.e. the
difference between the interest rate paid to account holders and the interest rate charged to borrowers.
There are different types of accounts opened with comercial banks. .................... accounts have no restrictions as
concerns the withdrawal of funds. However, the rate of interest is rather .................... . On the other hand ....................
accounts offer a higher rate of interest, but withdrawals are restricted by the fact that the .................... has to keep the
funds for a specified period in the bank account or must notify his withdrawal decision some time in advance.
.................... are offered to customers in need of funds and are conditional upon the supplying of .................... by
borrowers. Besides loans banks offer .................... to their customers, which means that people who have an account
with the bank are allowed to draw more money from their account than there actually is in it.
The customers can use certain banking products. Thus banks can pay regular bills for their clients, according to
the instructions of the latter, this instrument being called .................... order. Irregular payments can be made
by .................... from cheque books the banks make available to their customers. When a customer needs cash he can
withdraw it from an .................... by means of a cash card.
9

Complete the dialogue. A bank manager (BM) and his client are talking about opening an account with the
bank. Complete the clients part in the following dialogue.

Client
:
BM:
Client
:
BM:
Client
:
BM:

Good afternoon!
Good afternoon! What can I do for you?
................................................................
What kind of account would you like to open a checking or a savings one?
.................................................................
Well, you know that time deposits are not immediately available to their owners. For what period would you
like to deposit your money?
.................................................................
For this period the interest rate is lower than for one-year term.
.................................................................
It depends on how much you are going to deposit and in what currency.
.................................................................
For this we give an annual interest rate of 9%. If it suits you, you can buy the certificate of deposit.
.................................................................

Client
:
BM:
Client
:
BM:
Client
:
BM:
Client
:

10