Unit 14 money and banking

Section A. Your task: Read the text. Copy out words pertaining to the field Money and banking to start forming your own glossary on the topic. Answer the questions below. Be prepared to produce a sight translation in class.

Banking as a Business

John Davies is a coal miner in South Wales and is saving up for his summer holidays. He is hoping to take his family to Spain again in the summer. He collects his pay on Friday and every Saturday morning his wife, Jane, deposits £20 with the Building Society* which has a branch office in their town. The Building Society in turn have an account with Barclays Bank and transfer their surplus cash to the bank from time to time.

David Miller is the Quality Control Manager in a motor assembly plant in Coventry. His salary is paid monthly and the firm credit has cheque account at the local Barclays branch. David spends most of his salary during the month but maintains an average balance of £1,000 so the Bank does not make an administration charge for the cheques he draws.

The bank looks after the money of many customers like David and John. However, just having enormous funds at their disposal does not give them profit. They have to put these funds to work. That brings us to British Petroleum. This company is drilling for oil in the Irish Sea. It looks promising but they are in need of funds to purchase another oil rig. They turn to Barclays for help and the bank gives them a loan for £1,000,000. They only lend the money to the oil company for a fixed time, say two years, and at the end of that time the loan will have to be repaid. In the meantime the oil company will have to pay interest on the loan.

Of course banking is a risky business. Loans like these are usually repaid, but sometimes the borrower defaults and then the bank loses its money. Customers like David Miller will still expect to be paid cash when they present their cheques over the counter, and that is why bank managers grant loans warily. On the one hand, they want to grant loans because the interest they earn gives them their profits, but they also have to make sure they have enough funds available to meet the claims of their depositors. Banks are always having to choose between profitability and liquidity*.

Perhaps John will not be happy to know his money is being used to provide us with more oil. He is a coal miner and if more oil is available the demand for coal will go down. However, we all stand to be richer if the drilling is successful.

At the head of our banking system is the Bank of England. In the same way that our surplus cash ends up with the commercial banks like Barclays, National Westminster, Midland and Lloyds (now joined by the Trustee Savings Bank), their surplus cash is held at the Bank of England. Each of these banks has an account with the Bank of England, which is also known as the Central Bank. The Bank of England is the banker's bank. It is also the Government's Bank and holds all the surpluses of the various government departments. From time to time the government and the commercial banks will need funds from the Central Bank and the rate of interest they are charged will influence interest rates in the rest of the economy.

Your tasks

1. Explain the meanings of the highlighted words or phrases.

2. Why do banks have to choose between liquidity and profitability

3. Why might John not be happy to know his money is being used to drill for oil in the Irish Sea?

4. Who are likely to benefit if British Petroleum find oil in the Irish Sea?

5. Summarize the role of the banks in about 30 words.

Section B. Fill in the blanks

Your task: Fill in the blanks in this passage, using words from the list given below.

income	withdrawal	excess	approach
amount	interest	addition	grant
credit	conducted	surplus	then