Banking Infrastructure in Ukraine

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Banking Infrastructure in Ukraine

Ukraine is a country of immense potential, rich in human and natural resources. It has a well-educated population. Ukraine like the other soviet successor states, is attempting an uncharted and complex three-fold transition to independent sovereignty, democracy and a market economy. July 16,1990 marks the beginning of a new era for Ukraine - the era of the independent state. Among the basic political, economic and social goals of the new state was the creation of an independent, modern financial system.

In March 1991 the Supreme Council of Ukraine passed a law on banks and banking activities.

The two-tier banking system has been defined by law: first the National Bank as the central state bank and the authoritative body in charge of issues and finances and second, the commercial banks.

The Ukrainian government has set out on a course of reform and privatization. The development of the cooperative movement in Ukraine has given impetus to the formation of cooperative banks. There are banks whose company capital consists of between 500000 and one million roubles. These were the first banks to appear on the and they demonstrated the feasibility of working without assistance and independently in their day-to-day activities.

In 1991 the setting up of commercial banks has got under way. Thus in July 1991, a joint-stock company by the name of Kontsern-Electron was set up. If was this concern that initiated the creation of the joint-stock commercial Electron Bank. By the end of 1991, 47 commercial banks had been registered in Ukraine. New commercial banks are being actively founded alongside the existing state-owned banks. The ownership of these banks is of the joint-stock type and their founders include state ventures and firms, joint-stock companies, limited companies and private individuals. Now the customer has been given the right to choose his service bank and to change from one bank to another. The banks now have to compete for clients, particularly for the financially secure and rich ones (this has forced the state-owned banks to revise their relationships with their customers).

From the practical viewpoint, all the commercial banks operating at die moment are universal ventures, offering a wide range of banking services. The basic ones include payroll transfer operations with or without cash to customer accounts; allocation of credits, investment activity; trust and factoring operations; and services for private individuals, including, attractive resources from deposit operations. The commercial banks have discovered a new direction for their activities, including the servicing of export and import operations, work connected with guarantees from Western companies and giving the guarantees on behalf of Ukrainian firms, deposit operations in Western banks and so on.

Implementation of this activity is possible with the backing of a General License, which is granted by the National Bank of Ukraine.

The banks that have obtained the General License have established links with leading banks in Western Europe and the USA. There is no doubt that working with Western banks has made it essential for the Ukrainian commercial banks to operate more professionally.

Answer the following questions:

1. What is Ukraine transferring to?

2. What does July 16,1990 mark?

3. What are the basic goals of the new state?

4. What is meant by the phrase 'the two-tier banking system"?

5. What banks were the first to appear?

6. What has given the impetus to the formation of cooperative banks?

7. What did these banks demonstrate?

8. What initiated the creation of the joint-stock commercial Electro-Bank?

9. What services do commercial banks offer to their customers?

10. Explain the reason for which the banks have to compete for clients?

11. What in necessary for the implementation of commercial banks activity?

12. What makes the state-owned banks revise relationship with their customers ?

13. What is meant by the world “three-fold transition”?

Ex.1. Find these words and phrases in the text and translate sentences with them into your mother tongue:

Uncharted and complex three-fold transition; market economy, modern financial system; a law on banks and banking activities; two-tier banking system; central state bank; issues, a course of reform and privatization; impetus, feasibility; day-to-day activities, joint-stock company; commercial Electron Bank; service bank; to compete for clients; a wide range of banking services; General License; Western Banks.

Ex.2. Study the following definitions:

market economy system where the government does not

interfere in business activity in any way

company capital money, property and assets used in a


joint-stock company company whose shares are held by many


limited company company where a shareholder is responsible

for repaying the company's debts only to the

face value of the shares he owns

financially secure a company (or a customer) which is profitable

and has strong assets

allocation of credit dividing a sum of money in various ways;

giving money to people who have applied

for it.

investment activity placing of money so that it'll increase in

value and produce an income

factoring operations business of buying debts at a discount

deposit operations operations with money placed in a bank

Ex.3. Express it in other way:

to offer services, to give guarantees, goal, creation, state-owned bank,

get under way, feasibility.

Ex.4. Fill in the gaps with the appropriate words or phrases:

From the practical viewpoint, ail the commercial banks operating at the moment are ... offering ... of banking services. The banks now have ... for clients, particularly for... and ... ones.

The banks that have obtained ... have established ... with leading banks in Western Europe and the USA. They demonstrated ... of working without... in their... activities.

(the General License, universal ventures, a wide range, links, to com­pete, financially secure, rich, the feasibility, assistance and independ­ently, day-to-day)



Read and memorize the following words and word combinations:

property нерухомість
ownership власність
transition перехід
complete повний
allocation розміщення
utilities комунальні служби
gap розрив
evolve виникати
fringe benefits додаткові вигоди
interaction взаємодія
consumer споживач
owing to завдяки
tremendous benefits величезні вигоди
restrict обмежувати

Market economy

Economic systems are usually defined as either capitalist, socialist or mixed. However it is possible to classify economic systems according to the method of resource allocation and control (market economy or command economy) and to the type of property ownership (private ownership or public ownership).

The ownership of factors of production can be viewed as a transition from complete private ownership at one end to complete public ownership at the other. In reality, no country belongs wholly at one and or the other. For example, the United States of America is considered to be the prime example of private enterprise, yet the government owns some factors of production and actively produces in such sectors of economy as education, the military, the postal service and certain utilities.

In market economy, two societal units are very important: the individual and the firm. Individuals own resources and consume products, while firms use resources and produce products. The market mechanism involves an interaction of price, quantity, supply, and demand of resources and products.

The key factors that make the market economy work are consumer sovereignty and the freedom of the enterprise to operate the market.

The market economy has been highly successful in industrial countries, especially in the USA. But market economy in the USA is not perfect owing to three major factors: large corporations, labor unions, and the government. The large corporations can reduce market procedures somewhat by exerting control over the purchase of resources or the resale of products. Because of the large size of the firm and relative smallness of each individual shareholder, there is a vide gap between ownership and control of decision making. Decision may not be strictly motivated by the market.

Labor unions evolved to response to the power exerted by the owners and managers of business over the labor market. Unions have won tremendous benefits in terms of salaries, fringe benefits, work conditions, but market forces have been disrupted seriously. Many unions control entry into the work force and restrict the freedom of workers to change occupation in response to supply and demand.

Answer the following questions:

1.How are economic systems usually defined?

2. How can we usually classify economic systems?

3. What can be viewed as a transition from complete private ownership to complete public ownership?

4. Which units are very important in market economy?

5. What does the market mechanism involve?

6. Can we name market economy in the USA perfect?

7. How can large corporations reduce market procedures?

8. Why there is a wide gap between ownership and control of decision making?

9. What benefits have unions won?

10. What do many unions control and restrict?

Exercises in word study:

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