Study the following and answer the questions. 

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Study the following and answer the questions.

From the exporter to the agent bank:

The exporter will acknowledge the agent bank's letter, and send them the documents they asked for and their draft.


Delta Computers Ltd.   Bradfield Estate, Bradfield Road, Wellingborough, Northamptonshire NN84HB   Telephone: 0933 16431/2/3/4 Reg. England 1831713 Telex: 485881 VAT-241962114 Fax: 0933 20016 Your Ref. __________ Our Ref: ___________   Mr. P.Medway 24 May 20— Eastland Bank Ltd. 401 Aldgate, London EC 1   Dear Mr. Medway,   Thank you for your advice of the 15 May. We have now effected shipment to our customers in New Zealand and enclose the shipping documents you asked for and our draft for £23,100, which includes your discount, commission, plus charges. Will you please accept the draft and remit the proceeds to our account at the Midland Bank, Oxford Street, London Wl. Yours sincerely,   N. Smith Senior Shipping Clerk     Enc. Bill of lading (6 copies) Commercial invoice c.i.f. Wellington (four copies) A.R. Insurance certificate for £24,200 Draft 2152/J  


From the exporter to the importer:

Delta Computers notify their customers in New Zealand that the consignment is on its way to them.

Delta Computers Ltd. Bradfield Estate, Bradfield Road, Wellingborough, Northamptonshire NN8 4HB   Telephone; 0933 16431/2/3/4 Reg. England 1831713 Telex: 485881 VAT 2419 62114 Fax. 0933 20016 Your Ref.__________ Our Ref.___________ V. Mr. M. Tanner 25 May 20— N.Z. Business Machines Pty. 100 South Street Wellington New Zealand   Dear Mr. Tanner,   We are pleased to inform you that your order, No. 8815, has been shipped today on the SS Northern Cross, which is due in Wellington in four weeks. The shipping documents, including bill of lading, invoice, and insurance have been passed to the Eastland Bank, London, and willbeforwarded to the New Zealand Bank, Wellington, who will advise you. As agreed, we have drawn on the Eastland Bank at 60 days for the net amount of £23,100 which includes the bank's discount commission and charges. We are sure that you will be pleased with the consignment, and look forward to hearing from you soon. Yours sincerely,   N. Smith Senior Shipping Clerk




1. When will the consignment arrive?

2. What has happened to the shipping documents?

3. How has the bank earned money on the transaction?

4. Who is the agent bank in this transaction?

5. What do the letters SS stand for?

6. What expressions are used to mean: arrive; sent; made out a b/e; notify?


From the importer's bank to the importer:

The New Zealand Bank now advises NZ Business Machines that their account has been debited, and that the documents are ready for collection. When he has picked up the documents, Mr Tanner will be able to take delivery of his goods.


New Zealand Bank Chairman: Sir Francis Tuckmon Directors: L.N Bowman, P.O. Shearing. L.D. Nesterman Takapuna House, Takapuna Street, Wellington 8 Telephone: 448135/6/7/8 Telex: Newbon NZ 28131 Fox: 806358 Mr. M. Tanner 29 May 20— N.Z. Business Machines Pty. 100 South Street Wellington   Dear Mr. Tanner,   In accordance with your instructions of 3 May our agents, Eastland Bank, London, accepted a draft for £23,100 drawn by Delta Computers Ltd. on presentation of shipping documents for a consignment sent to you on 24 May. We have debited your account with the amount plus our charges of $280 NZ. The documents are now with us and will be handed to you when you call. Yours sincerely,   I. Close Manager


From the importer to the exporter:

This letter, from the buyer (importer) in London to the seller (exporter) in Hong Kong, is the first step in our second example of a documentary credit transaction. Note that international Crafts ask for a certificate of origin, which they need since they intend to re­export the dinghies to France, which is an EEC country. Note also that they will use their bank's agents to verify the quality of the boats.

International Crafts Ltd.   Thameside, Walworth, London SE3 2EL Chairman: B. Valour   Telephone: 081834 2179.081834 2710 Cable: INTERCRA Telex: 315620 Fax:081-8344431   Lee Boat Builders Ltd. 9 Aprils 20__ Dock 23 Mainway HONG KONG   Dear Sirs,   We spoke to your representative, Mr. Chai, at the Earls Court Boat Show in London last week, and he showed us a number of dinghies which you produce, and informed us of your terms and conditions. We were impressed with the craft, and have decided to place a trial order for ten of them, your Cat. No. NR17. The enclosed order, No. 90103, is for delivery as soon as possible as the summer season is only a few weeks away. As Mr. Chai assured us that you could meet any order from stock, we have instructed our bank, Northern City Ltd., to open a confirmed irrevocable letter of credit for £7,300 in your favour, and valid until 1 June 19—. Our bank informs us that the credit will be confirmed by their agents, Cooper & Deal Merchant Bank, Pekin Road, Hong Kong, once you have contacted them, and they will also supply us with a certificate of quality once you have informed them that the order has been made up and they have checked it. You may draw on the agents for the full amount of the invoice at 60 days,andyour draft should be presented with the following documents: Six copies of the bill of lading. Five copies of the commercial invoice, c.i.f.London Insurance certificate for £7,140 (A.R.) Certificate of origin Certificate of quality The credit will cover the invoice, discounting, and any other bank charges. Please cable us confirming that the order has been accepted and the craftcanbe delivered within the next six weeks. Yours faithfully,   B. Valour International Crafts Ltd.   Enc. Order No. 90103


From the exporter to the importer:


Northern City Ltd., who are International Crafts' bankers, have now notified their agents in Hong Kong, Cooper & Deal, who have in turn advised Lee Boat Builders that the credit is available -Meanwhile Lee have cabled International Crafts confirming that they have accepted the order, and can deliver within six weeks. They follow this by sending this letter, advising shipment.


Lee Boat Builders Ltd. Dock 23, Mainway, Hong Kong Telephone: 385162 Telex: 349512 Fax: 662553 Cable: LEBATS International Crafts Ltd., 6 May 20— Thameside, Walworth, London SE3 2EL UNITED KINGDOM Dear Mr Valour, Order No. 90103 We are pleased to inform you that the above order has been loaded on to the SS Orient which sails tomorrow and is due in Tilbury (London) on 3 June. The dinghies and their equipment have been packed in polystyrene boxes in ten separate wooden crates marked 1-10, and bearing our brand A. The shipping documents (see list attached) have been handed to Cooper & Deal, Hong Kong, with our draft for £7,293.50 at 60 d/s. This covers all, charges and discounting. Cooper & Deal will forward the documents to Northern City Bank Ltd. who will advise you within the next few weeks. We are sure you will be extremely pleased with the consignment. We noticed that you require a certificate of origin, and have supplied one. However, we wondered if this was for re-exporting purposes. We should point out that your customers will have the same guarantee as yourself only if the boats are not modified in any way, as this will be outside the terms of the guarantee. Thank you for your order, and we hope you will contact us again in the future. Meanwhile, please confirm delivery, when you receive the consignment. Yours sincerely,   J.Lee Director




1. When will the consignment arrive in London?

2. How have the dinghies been packed?

3. What documents were requiredbyInternational Crafts Ltd.?

4. What does '60 d/s' mean?

5. Who are Cooper & Deal, and what role do they play in the transaction?

6. What will the Northern City Bank advise International Crafts?

7. What restrictions do Lee Boat Builders put on their guarantee?

8. What must International Crafts do once they have received the consignment?

9. Which words in the letter correspond to the following: should arrive; small boats; boxes; pays for; send; warranty?

Points to remember:


1. Merchant banks and commercial banks in the UK offer similar services, but commercial banks encourage private account holders to use their facilities, as well as commercial concerns.

2. Commercial bank facilities include current accounts, deposit accounts, credit cards, standing orders, loans, and overdrafts.

3. The two main methods used in settling overseas accounts - bills of exchange and documentary credits-involve banks at home and abroad.

4. Bills of exchange can be at sight, i.e. payable on presentation, or after sight, payable at a stipulated date in the future. The exporter can send the bill to the importer direct, or to his bank with the documents and will obtain either payment on presentation, or acceptance against the bill. The advantage of a bill is that the exporter can get money immediately if the bill is discounted, and the importer can obtain credit if the bill is not a sight draft. The disadvantage is that the bill can be cancelled, or not paid on the due date.

5. A confirmed irrevocable documentary credit cannot be cancelled (unlike a revocable credit), and the importer's bank and its agent can guarantee payment. The importer is protected by the bank checking documents and can get a certificate of quality to ensure that the goods are up to standard. The exporter is assured of payment, and, with discounting facilities, does not have to wait for his -money if the bank agrees that he can draw against the credit.


Words to remember:

a commercial bank a merchant bank to open an account a current/deposit/savings/budget account a specimen signature a balance a transaction Giro system a cheque/Eurocheque/traveller's cheque a cheque card cash card cash dispenser a credit card to honour a cheque to cancel a cheque. to stop a cheque a paying-in/withdrawal/transfer slip notice of withdrawal a counterfoil a cashier negotiable securities a guarantor a loan an overdraft to overdraw overdraft facilities to call in an overdraft interest minimum lending rate (MLR) inflation bank charges a standing order a direct debit overseas customer credit status confirming houses new issue/bullion/Euro-bond market shipping/insurance/foreign exchange market a bill ofexchange a drawer a drawee a sight draft/bill days after sight (d/s) documents against payment (D/P) documents against acceptance (D/A) a foreign bill an inland bill a clean bill to discount a bill to endorse a bill a dishonoured bill to protest a bill a letter of credit (L/C) a revocable/irrevocableletter of credit an importer an exporter an agent confirmed credit commission confirming bank




Text A

Wholesale banks


The wholesale banks represent a diverse group of institutions within the UK financial system. They comprise three broad groups:

- British merchant bank;

- Other British banks;

- Overseas banks, which in turn are divided into American, Japanese and “other overseas banks”.


British merchant banks


The group of wholesale banks called the British merchant banks comprises around 40 institutions, with assets totalling £ 44.8bn in April 2000. Histori­cally, a major element of their business lay in the 'acceptance' of bills of exchange. This involves the bank in guaranteeing payment of the bill upon maturity to whoever is then holding the bill. The bank receives a fee for fulfilling this underwriting role. and hence acceptances are an early example of a bank providing non-intermediary services. Such acceptances feature on the balance sheets of the accepting bank only as a footnote - contingent liabilities offset by contingent (possible) claims against the drawers if the bills. Once a bill is accepted by a reputable bank it becomes much more market­able, and as a consequence the merchant banks facilitate the use of bills as a significant source of short-term corporate finance.

The risk involved in accepting bills of exchange is that the debtor may default when the bill matures. As a consequence, the key to running a profitable acceptance activity was being able to evaluate accurately the default risk associated with bills, and to do this the merchant banks had to acquire con­siderable information and expertise. Subsequently, they found they could use tills information and expertise in other areas, and as a result the British mer­chant banks have progressively diversified away from acceptances as the main element of their business. The majority now offer a wide range of banking services to corporate customers so that in addition to taking in deposits and making loans on a wholesale basis and the acceptance activity, the merchant banks as a group now offer:

- Management and underwriting of capital issues by companies:

- Management consultancy services, especially with regard to financial aspects;

- Advice on mergers and takeovers:

- Fund management services for pension funds, insurance companies, unit and investment trusts;

- Trading in foreign exchange markets:

- Trading in the bullion (gold and silver) markets;

- Trading in the eurocurrency markets:

- Trading in the derivatives markets.

Like the retail banks, the British merchant banks have also suffered from increased competition within their spheres of activity. Many have perceived themselves to be too small to withstand this competition, especially from in­stitutions abroad, as their activities become increasingly international in character. In addition, the ability to participate in the capital markets has become increasingly attractive to the retail banks. This has meant that many of the merchant banks have become part of larger banking groups, either UK-based or overseas. For other merchant banks the consequence has been a rethinking of their strategy and the basis of future competition, which has led to some of the smaller banks competing on the basis of expertise within specialist market niches. The larger ones are tending to be known as invest­ment banks, derived from their trading in investments.

Other British banks


This group comprises around 150 different institutions, with assets totalling £ 62bn in April 2000. Given the size of the group, it is not surprising that it constitutes a rather disparate range of institutions. Having said that, a sig­nificant proportion of the group's activities are overseas, stemming from the fact that many of these banks originated when the UK was a major colonial power and banks were needed to service the needs of companies and indi­viduals with dealings in the colonies. This need has declined, but banking services are still required within the former colonies and the status of London as a major financial centre has meant that it has been appropriate for these banks to retain their base in Britain.

Other banks in this group include wholesale banks that provide corporate banking services on a regional basis or that specialise in services to particular industries, and former finance houses that have taken on full banking status.

Overseas banks


The overseas banks represent the largest group of banks within the UK Finan­cial system, totalling around 350. Their dominance in numbers is matched by their assets, totalling almost £ 100bn, (about 10 times the size of the British wholesale banks) as at 30 April 2000. They have exhibited very rapid growth since the early 1970s, in terms of both assets and numbers.

The overseas banks came to London originally to meet the business require­ments of firms in their own countries. While they still perform that function. they are now important participants within the eurocurrency markets, and as such facilitate tlie taking-up of deposits from a wide range of sources and the financing of a wide range of different projects, with their activities no longer particularly related to their home countries. London's status as the major centre of eurocurrency market activity has facilitated this develop­ment and made it necessary for a bank of any size, wherever it is based in the world, to have a London office.

In addition to these wholesale banking activities, many overseas banks have moved into other areas of activity. This has in some cases included retail financial services, and in other cases has, as a consequence of the deregula­tion of the capital markets, included market-making and stockbroking activities. Some of the overseas banks have become major investment banks.


I. Key terms


Acceptance - акцепт - agreeing to honour the Bill of exchange by extension the document itself;
Bill of exchange - вексель - an order in writing addressed by one person to another and signed by the person giving it, requiring the person to whom it is addressed to pay, on demand or at a fixed date, a specified sum of money. The bill is made out by the signatory (the drawer) always with the consent of the person to whom it is addressed, who signs or accepts it;
Drawer - трасант - the party that presents a cheque or other bill of exchange for payment;
Underwrite - гарантувати - to guarantee to buy or find buyers for all or part of the issue of a security. Normally done in return for a fee by a bank or group of banks to ensure sale of any part of an issue not bought by the public to which it is directed;
Contingent liability - позабалансовий пасив - off balance sheet liability;
Derivative - похідні; дериватив - a general term for futures, options and swaps, i.e. instruments derived from conventional direct dealings in securities, currencies and commodities;
Certificate of deposit - депозитний сертифікат - a negotiable claim issued by a bank in return for a term deposit. The document is normally a bearer security. The advantage of the CD to depositors is that the latter can place their money in a fixed-term or long-term maturity deposit, so obtaining a higher rate of interest while knowing that they can sell the CD in the secondary market whenever they may need to recover the money;
Investments - інвестиції - 1) the act of placing monetary resources into the creation of assets, in the manufacturing and services sectors of the economy. Only real capital formation, such as the production of machinery, adds to the stock of investment goods; 2) the act of placing monetary resources into financial assets, namely the purchase of shares and bonds. Shifting money from a bank account to securities in this way simply moves from one form to another; 3) the sum of money itself so invested, or the total of financial assets so acquired;
Overseas banks - зарубіжні банки - 1) banks operating in the UK but foreign controlled; 2) UK owned banks that conduct their business mainly abroad;
Solvency - платіжеспроможність - the ability to pay one’s debts in full on the due date;
LIBOR - Лондонська ставка пропонування за міжбанківськими депозитами - the rate of interest offered on loans to first-class banks in the London interbank market for a specified period (usually three or six months). Owing to the heavy volume of interbank dealing, the three-month and six-month rates have come to be widely used as a basis of reference for the setting of many other interest rates. It is closely related to base rate but is closer to prime rate in US terms. The rate may apply to sterling or eurodollars;
Negotiable - ті, які вільно обертаються - 1) subject to agreement between the parties involved in transaction; 2) a negotiable instrument, e.g. a crossed cheque or bearer share, is one in which the title of ownership is transferred freely from hand to hand; 3) the propensity of a financial claim, e.g. bill of exchange, certificate of deposit, Treasury bill or bond, to be traded in financial markets, e.g. in the money market. The term is interchangeable in this sense with transferable and marketable;
Letter of credit - акредитив - a non-negotiable order from a bank to a bank abroad, authorising payment to a named person of a particular sum of money or up to a limit of a certain sum;
Standby letter of credit - резервний (гарантійний) акредитив - a commitment under which a bank agrees to provide funds to a customer where no goods are involved;
Custodian services - послуги заощадження, зберігання - services dealing with keeping valuables or managing the assets of investment trust.


II. Answer the following questions:

1. What is an 'acceptance'?

2. List the main areas of activity currently undertaken by British merchant banks.

3. Why have many British merchant banks felt it necessary to reappraise their strategy in recent years?

4. What types of activities are undertaken by 'other British banks'?

5. How important are overseas banks within the UK Financial system?

6. Examine the main types of activities undertaken by the overseas banks in the UK.

III. Find in the text the following words and word combinations and translate the sentences in which they are used:


underwriting role; acceptance; short-term corporate finance; bill of exchange; non-intermediary service; upon maturity; contingent liability; reputable bank; default risk; management consultancy services; foreign exchange market; eurocurrency market; derivatives market; unit and investment trusts; capital markets; specialist market niches; regional basis; market making activities; stockbroking activities; disparate range of institutions; mergers; takeovers.


IV. Fill in the blanks:


investment; service; supported; alliances; raised; assets; development; engagement; longer-term; directions; corporate; proportion; accepting; certificates; merchants; banking; creditworthiness; borrowers; underwriting; thrust; adjunct to; finance; management; advantage; medium-term; activities

Many British merchant banks originated as _____ in the nineteenth century, developing banking services as an _____ their merchanting business. Since the main _____ of their banking services was the business of _____ bills, they acquired the name "accepting houses." Their knowledge about their trading areas gave them a distinctive _____ in evaluating the _____ of potential _____ abroad in the early days. With diversification in business over the years, today they deal primarily with the _____ sector and engage in wholesale _____. Their primary sources of funds are time deposits and _____ of deposit (CDs), whereas on the _____ side they mainly concentrate on _____ lending. Unlike commercial banks, early on they were engaged in _____ financing such as _____ financing. For example, for the development of the Americas, British colonies, and other developing territories, which were _____ by some £3.6 billion between 1870 and 1913, about 40 percent of loans were _____ by London accepting houses. Reflecting their heavy _____ in international banking, their foreign-currency-denominated assets are about 30 percent of total assets, twice as large as the _____ for retail banks.

Nonetheless, their major contribution to corporate _____ comes from their _____ banking activities, _____ not only sterling securities but also Eurocurrency bonds and equity. For the last few decades, they have diversified their _____ in a number of _____ including investment fund _____, merger and acquisition _____, factoring, leasing, as well as the formation of _____ with stockbroking and stockjobbing firms.


V. Rearrange the following sentences to make up a coherent and logical text about other British banks. The first sentence is given to help you:

Other British banks (ISO)

Included in this group are subsidiaries of the clearing banks specializing in international, merchant, and wholesale banking. Funds are used for medium-term loans, installment loans, mortgage loans, international loans, etc., depending on their specialized field. In addition, among the offshore banking institu­tions in the Isle of Man and the Channel Islands (such as Jersey and Guernsey), those British institutions which opted to submit their returns to the Bank of England are included. They acted as efficient allocators of financial resources between different geographical locations and functioned as central banks of British colonies in the past. Also included are finance houses, now authorized as banks, and British overseas banks such as Standard Chartered Bank. Despite the large number of banks, their market share in the banking industry is relatively small, only 4.4 percent. British overseas banks are those which have their head offices in London but their branches located outside the UK, mainly in the UK's old colonies. Subsidiaries of the clearing banks and finance houses depend heavily on interbank and CD markets for their funding needs.


VI. Prepare a brief summary of the text:


In Bank of England statistics, the domestically-owned banks which are not retail banks are divided into two groups: British merchant banks and other British banks. The former group is comprised of large and often old-established institutions that, as well as providing banking services for a limited range of companies and wealthy individuals, act as advisers on corporate finance; in particular they tend to be involved with mergers and acquisitions. It includes well-known names such as Rothschilds, Warburgs and Barings.

The banking business of the British merchant banks is composed largely of wholesale banking-dealing with large corporate clients and operating in the short-term money markets. Their retail business is small and only a minority of such banks have offices in mainland Britain outside London. It can be seen that approximately one-third of deposits are in currencies other than sterling. Nearly 20% of all deposits originate abroad and over 30% of all deposits are derived from the interbank markets. Correspond­ingly, on the assets side of the balance-sheet, much lending is through the various money markets. Large sums are lent on the domestic interbank market and a large amount is lent abroad, much of it to banks abroad. Direct advances to non-bank customers represent a smaller proportion of total assets than in the case of the retail banks. Eligible liabilities are relatively low.

Merchant banks also undertake a number of other financial activities. They act as issuing houses; that is to say, they act for companies wishing offer shares to the public and make all arrangements necessary including drawing up the prospectus, receiving applications for shares and making the initial allotment. They also act as fund managers and manage the investments of wealthy individuals, companies, pension funds, etc. Many run unit trusts, and a number are prominent as financial advisers, notably in the field of corporate mergers and takeovers.

The category of "other British banks" comprises a large number of banks of varying origins. Some are specialized subsidiaries of other financial insti­tutions, some have more the characteristics of a charitable trust but are obliged to register as banks in order to be able to accept deposits. But for many the main business is that of a finance house: raising money in the wholesale markets and lending to industry, for the purchase of capital equipment, and to persons, for the purchase of consumer durables. Many of these banks are relatively small.

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
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

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.


The merchant banks


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.


Foreign banks

The number of foreign banks in London has expanded rapidly in recent years and there are now more than 300 of them. United States and Japanese banks are the most numerous. One reason why banks establish foreign networks is to meet the requirements of their customers’ international operations and this is particularly important

in these days of large multinational companies. There has also been a large increase in the practice of raising loans abroad by governments, nationalised industries, and large joint stock companies. Large sums of money now move from one international financial centre to another seeking either, higher interest rates or greater security against the loss in real value which occurs when a currency depreciates against other currencies. Foreign banks play an important part in the London Money Market.

It was during these decades that a new international banking system was developing. This system, often referred to as the eurodollar market or, more accurately, the euro-currency markets, proved a magnet to banks world­wide. All large banks, as well as many medium-sized ones, sought to become involved. And while the euro-currency markets were truly international, with active dealing in many centres in Western Europe and elsewhere. London was, and still remains, the single most important centre. So it was to London that most foreign banks went, when they decided to compete for a share of the new international banking business, although, naturally, the larger banks also established offices in other important centres of the market as well.

For present purposes it is sufficient to note that virtually all of the foreign banks have as their main business wholesale banking in foreign currencies, and that much of this business is conducted with companies, persons and banks outside the UK. Having come to London primarily to do international banking, many of the foreign banks have, nonetheless, been ready to compete for domestic business as well. In a small number of cases, foreign banks have opened offices in provincial centres, such as Birmingham or Manchester.


IX. After reading the following dialogue translate the passages concerning recent changes and the range of services provided by the bank:

Presenter: Clive Regis is interviewed about his bank's organization.
Interviewer: First of all, could you tell me how you’re organized?
Clive: Yes, certainly. Just to give you the background, we were established as a merchant bank as long ago as 1869. We operated independently as one of the major merchant banks in the City until 1976, when Metropolitan and Provincial acquired a one third interest in us, and as of last year we are now a wholly-owned subsidiary of that bank.
Interviewer: Oh, really? I didn't realize that.
Clive: Mmm. One of the consequences of our acquisition was that we sold off our non-banking related activities, though of course we still cover a full range of international banking services. Now in terms of management structure, we have an Administration Division which looks after all administrative matters. These include planning, group financial control, accounting and audit, computer services, legal services, personnel, premises and so forth.
Interviewer: Ah, yes. That's cost centre services then?
Clive: That's cost centre services, right. Next we have the Banking Division and they deal with loans, syndicated loans, project finance, overdrafts, documentary credits and correspondent hanking.
Interviewer: I see.
Clive: We're very active in the markets and so therefore we have a Dealing Division. They cover foreign exchange, currency options, money market transactions, bonds, floating rate notes, Eurodollar CDs,...
Interviewer: CDs?
Clive: Certificates of Deposit.
Interviewer: Oh, I see. Yes.
Clive: CDs, financial futures and bullion. Then there's our Corporate Finance Division which has expanded quite rapidly over the last couple ot years. They provide advice to a large number of UK and international companies. The activities of the Corporate Finance Division include mergers, takeovers, acquisitions and divestments, as well as stock marker and USM flotations in London, and of course capital raising.
Interviewer: Mmm, I see.
Clive: We also have an Investment Management Division which provides services to companies: pension funds, investment trusts, unit trusts and offshore funds. And finally there's a Leasing Division which organizes leasing packages for lessors and lessees. Well, that's who we are, and what we do. I think that sums it up.
Interviewer: Ah, yes indeed. Now if we could move on to the...
Presenter: That was Clive describing the structure of a merchant bank in London.


X. Study the divisions of the bank and their areas of responsibilities:


Administration Division Planning Group financial control Accounting and Audit Computer services Legal services Personnel Premises   Banking Division Loans, syndicated loans Proiect finance Overdrafts Documentary credits Correspondent banking     Dealing Division Foreign excnange Currency options Money market transactions Bonds Floating rate notes Eurodollar CDs Financial futures Bullion   Corporate Finance Division Mergers Takeovers Acquisitions Divestments Stock market and USM flotations Capital raising     Investment Management Division Companies Pension funds Investment trusts Unit trusts Offshore funds     Leising Division Packages for lessois and lessees  


XI. Look at the terms in the left-hand column. Match each one with its correct definition in the right-hand column:



  1) merchant bank 2) clearing bank 3) wholly-owned subsidiary 4) accounting and audit 5) syndicated loan 6) overdraft 7) documentary credit 8) correspondent banking 9) currency options 10) bonds 11) floating rate note 12) Eurodollar CDs 13) financial futures 14) merger 15) takeover 16) divestment 17) USM flotation 18) investment trust 19) unit trust 20) offshore funds 1) The selling-off of interests. 2) A very large loan for one borrower, arranged by several banks. 3) Money overdrawn on bank accounts to agreed limits. 4) Documents promising to pay sums of money at specified times. 5) Money placed in countries with very low taxes. 6) The joining of two or more companies into one. 7) A bank which is a member of a central organization through which cheques are presented for payment. 8) Activities were one bank acts as an agent for another bank. 9) A contract where the buyer has the right to demand purchase or sale of a specified currency, but no obligation to do so. 10)A bank mainly concerned with the financing of international trade. 11)An organization which collects and pools money from many small investors and invests it in securities for them. 12)A company entirely owned by another company. 13)A limited company formed to invest in securities. 14)A method of financing international trade where the bank accepts a bill of exchange from the exporter for the invoice amount, in return for receipt of the invoice and certain shipping documents. 15)The buying of the majority of the shares of companies. 16)Contracts to buy or sell currencies, bonds and bills, etc. at a stated price at some future time. 17)Note on which interest rates are fixed periodically, and which can be traded on the market. 18)Document given for a deposit repayable on a fixed date, the currency being dollars which are deposited outside the USA. 19)The keeping of financial records and their periodic examination. 20)The starting of a new limited company, where the shares are not included in the official list on the Stock Exchange.


XII. Scan the following text in about 100 words. Give the proper title to the text:


Banks provide a wide variety or services to companies, and a company operating internationally is likely to use several banks around the world to meet its various needs. Banks keep in touch with these customers by telephone and perhaps with regular meetings, to maintain the relationship and to market new services.

Most companies use banks at one time or another to finance their operations. As with any other type of loan, hanks charge interest on corporate loans. Interest rates for loans in Britain, for example, can be charged in one of three ways:

- at a margin above the bank's base rare. Each bank decides its own base rate, and then charges the company a rare of interest which is related to this. A big customer with a very good reputation may be charged the bank's base rate plus 0.5%, for example, while a smaller company might be charged the base rate plus 3%;

- at a margin above LIBOR, the margin again depending on the bank's assessment of the corporate customer.

- at a fixed rate of interest for the period of the loan.

The first two ways are variable and are adjusted periodically to reflect movements in interest rates on the market. They may also lie negotiable. The third may be dangerous for the bank when market rates are erratic.

A company involved in a business where income and expenditure are subject to constant changes needs a variable borrowing facility. This is met most simply by an overdraft facility. The company opens an account with the bank, and an overdraft with a specified limit is grained on the account.

A standby letter of credit is a commitment under which a bank agrees to provide funds to a customer where, unlike most other forms of documentary credits, no goods are involved. The standby letter of credit is a flexible form of lending and can cover a variety of situations, in which procedures are reduced to a statement of the documents to be received before payment is made to the third party-Many companies make a profit not only from the goods or services which they sell, but also from the money that they have. Cash managers utilize funds at their disposal, buying and selling shares, treasury bills and so on, to generate profit in the form of investment income. Rather than move valuable foreign shares and securities around the world by post, a company will deposit them for safe keeping with a bank in the foreign country. A company in Sweden which buys shares on the American marker, for example, will use the custodian services of a US bank. Banks naturally charge tees and/or commissions for custodian services.


XIII. Read the following information:


  Bank B provides services for Company C. Principally, these are as follows:   1. Standby letter of credit. The charge is 3/4% on the outstanding volume. The average outstanding volume last year was £400.000. 2. Overdraft facility, with a limit of £2 million. The charge is Bank B’s base rate (10%) plus 3/4%. The average overdrawn amount last year was £ 500.000. 3. Custodian services. Company C pays £50 per equity transaction. Last year there were 550 such transactions.


Work in pairs, one person representing Bank B and the other representing Company C. If you represent Bank B, look at the following instructions.


Bank B: You have some news for your customer: your bank’s base rate is being increased by 1/2%. Your margins in general are about right – you could afford to decrease them a little, but not only too much.


If you represent Company C, look at the following instructions.


Company C: Your company is becoming very cost conscious. You have been through Bank B’s charges with your boss, and he wants you to reduce them overall by at least 10%. See what you can do.


Negotiate in accordance with your instructions.


What factors are important for the financial success of a bank operating internationally? Look through the list of factors below and when you have decided on their relative order of importance, write the number of your choice in column A. Number 1 should show the factor which you consider most important and number 10 the least. You will be told how to fill in column B.


  A B
Use of advanced technology    
Strong national economy    
Skilled and efficient staff    
Wide range of high quality products    
Broad network of correspondent banks    
Good management    
Wide geographical spread of local representation    
Good market reputation    
Established and diverse customer base    
Other (specify)    




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