8.

Banking

I. Introduction to the topic

The Hungarian two-tier banking system is made up of the National Bank of Hungary and the
commercial banks.

The National Bank of Hungary acts as banker to other banks. It is the lender of last resort
when there is no other source to borrow from. It is an independent financial institution
responsible for the countrys monetary policy. Its primary target is achieving and maintaining
price stability.
The central bank of the UK is the Bank of England. The Federal Reserve System is a
decentralised institution performing central banking functions in the United States.
Some of the functions of a central bank are to:
issue banknotes
set the long-term interest rate
make open market transactions (e.g. issues treasury bonds)
regulate the exchange rate of the national currency
regulate the amount of money in circulation
guard the gold reserves and foreign currency reserves of the country
maintain contact with international institutions
maintain the capital adequacy ratio


Commercial banks either separate the commercial function from the investment function
(Anglo-Saxon model) or handle both (universal banking). The most important requirements for
banks are liquidity and solvency. They provide a wide range of services for private individuals
and corporate clients for which they charge a handling fee. Their major source of profit is the
interest margin.
Commercial banks perform the following services:
extend loans in the national and foreign currencies
manage current accounts: meet standing orders, issue credit cards and debit cards,
make transfers, operate cash dispensers, send monthly statements of credits and
debits
manage deposit/savings accounts
offer insurance services
provide factoring and leasing services
deal with project financing
exchange foreign currency
trade in securities
provide safe boxes and night safe
provide private banking services
offer Internet banking, SMS banking and telebanking services

The IMF the International Monetary Fund

The IMF was established to promote international monetary cooperation, exchange stability, and
orderly exchange arrangements. It fosters economic growth and high levels of employment. It
also provides short-term financial assistance to countries to help ease balance of payments
adjustment.
Since the IMF was established, its purposes have remained unchanged but its operations which
involve surveillance, financial assistance, and technical assistance have developed to meet the
changing needs of its member countries.balance of payment problems.

The IBRD (the International Bank for Reconstruction and Development)
The objective of the IBRD, also known as the World Bank, is to help borrowers reduce poverty
and improve the standard of living in the developing countries. It provides cheap loans for
developing countries for major industrial development projects (like dam building, power
plants) and other long-term investment projects.








Formatted: Font color: Black, English (Canada)
Formatted: Font color: Black, English (Canada)
Formatted: Font color: Black, English (Canada)
Formatted: Font color: Black, English (Canada)
Vocabulary exercises based on the introductory text
A. Match each word or phrase in the left-hand column with one similar in meaning
from the list opposite.

1. two-tier a. difference between the interest on loans
and deposits
2. liquidity b. ask in payment for something
3. solvency c. records of money spent or owed
4. charge d. taking over the administration of a
companys money due to be received
5. interest margin e. accounts used for saving money
6. current accounts f. having enough to pay all money owed
7. credits g. having two levels
8. debits h. accounts that can be used for bill payments
9. deposit accounts i. ability of a bank to pay back to clients what
they have put in
10. factoring j. records of money added to a bank account
B. For each item listed below, find in the text a word or phrase similar in meaning.
1. produce by printing
2. interest rate set by the Central Bank (two words) .
3. price at which a currency can be bought with another one
4. sums of money borrowed
5. currencies of other countries (two words)
6. arrangements to regularly pay a fixed amount of money (two words)
7. ATMs (two words)
8. giving the right to use something in return for payment ..
9. personalised financial service (two words)
10. banking over the phone


II. Hungarian text
Exercise 1 Formatted: Font color: Black, English (Canada)
Cover the English words and expressions given in the footnotes and try to guess the English equivalents
of the underlined parts of the Hungarian text.
Exercise 2
After checking your guesses against the footnotes, give an oral summary of the text in English.

A bankfikok
i
tde vesztesges
ii

VG 2005. november 3. Farkas Barbara
Az eurpai banki gyfelek
iii
szmra vltozatlanul
iv
a fikok jelentik a legfbb rtkestsi
csatornt
v
. Ezzel egytt gy tnik, hogy a versenyre nekik is reaglniuk
vi
kell, hiszen egytdk
vesztesgesen mkdik
vii
.
A legtbb nyeresges
viii
bankfik Kelet-Kzp-Eurpban
ix
tallhat - hangzott el a European
Financial Management Marketing (EFMA) barcelonai kongresszusn
x
.
A fik sikernek elsdleges kulcst
xi
az rtkestkben
xii
ltjk a hitelintzetek
xiii
, m a msodik
helyet illeten
xiv
mr megoszlanak a vlemnyek
xv
: a kzp-eurpai trsgben az
gyflkapcsolat-menedzsmentet
xvi
(CRM) soroljk ide, mg a kontinens tbbi rszben magt a
fikvezett
xvii
. A fikok szerepe nvekszik
xviii
azzal, hogy a fikvezetnek kell eldntenie hny
kollgt foglalkoztat
xix
, melyik gyflszegmenst milyen termkekkel clozza meg
xx
, s milyen
razst alkalmaz
xxi
, hiszen ezt helyben jobban ltja. A fikok szerepe nmileg vltozik is, hiszen
az j technolgikat be kell vetni az j szolgltatsok kifejlesztsnek
xxii
rdekben is.
A vltoz krlmnyekhez val alkalmazkodsra
xxiii
j plda a spanyol Solbank, amelyet a Banco
Sabadell hozott ltre
xxiv
s kifejezetten
xxv
az orszgban tbb hnapot tartzkod klfldieket
xxvi

clozta meg. A ngy v alatt 20-rl 90 tagra bvl fikhlzatot
xxvii
a Fldkzi-tenger
partvidkn
xxviii
hoztk ltre, a megclzott gyflkr
xxix
pedig komoly fizetkpes keresletet
xxx

takar.
A bankfikok szerepnek jvjt egyes bankszakemberek
xxxi
nmileg mskpp ltjk
xxxii
. A
Danske Bank gyvezetje
xxxiii
Per Damborg Skovhus a fikok szmnak tovbbi cskkenst
vetti elre
xxxiv
, amelyek kisebb ltszmmal
xxxv
mkdnnek, minimalizldna a
kszpnzforgalom
xxxvi
, s a fikokban csupn komplex tancsadi tevkenysg
xxxvii
zajlana.
Hasonl trendet jsol
xxxviii
a finn Nordea menedzsmentpartnere, Pentti Tirkkonen is: szerinte
egyre kevesebben
xxxix
hasznljk tranzakciikhoz a fikokat, a netbankkal ugyanis minden gyle-
tet elvgezhet
xl
az gyfl, kivve a kszpnzfelvtelt
xli
.
III. English text

Central banks expected to hold key rates steady
Wall Street Journal, 7 November 2007
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian
Formatted: Font color: Black, Hungarian

1. The European Central Bank and the Bank of England are widely expected to keep their
main interest rates steady tomorrow, as the central banks evaluate a mixed bag of reports showing
slowing economic growth and continuing fallout from the summer's subprime-lending crisis.
2. The central banks are meeting to set interest rates at a time of deep uncertainty in the global
financial system. Recent data have indicated that euro-zone inflation is on the rise, while
Europe's previously strong economic growth appears to be slowing.
3. Banks are continuing to tally the damage from the summer's lending crisis. The Bank of
England's governor, Mervyn King, said yesterday that it could be "several more months" before
all the losses suffered this summer are exposed and accounted for.
4. "I think most people expect we have several more months to get through before the banks
have revealed all the losses that have occurred and have taken measures to finance their obliga-
tions that result from that, but we're going in the right direction," Mr. King said in an interview
with BBC Radio.
5. In the euro zone, consumer prices in October were up 2.6% from the same month last year
the highest rate since September 2005 and putting the ECB on course to miss its inflation goal of
just below 2% for the eighth year running. ECB watchers say they don't expect the central bank
to increase its target for the refinance rate from the current 4% tomorrow, but they do expect it
to signal a future increase in interest rates. "We would expect the ECB council to retain a
tightening bias at the press conference," said Morgan Stanley economist Elga Bartsch.
6. ECB President Jean-Claude Trichet is expected to reiterate that the ECB closely monitors
price risks in the euro zone and stands ready to act "in a firm and timely manner." Financial
market participants will see this as confirmation that the ECB still entertains the idea of an
interest-rate increase.
7. But the ECB will struggle to raise rates, given that recent rate cuts by the U.S. Federal
Reserve speeded the dollar's decline.
1724 n


Important terms

The European Central Bank (ECB) responsible for monetary policy in the euro
zone.

subprime-lending crisis the bankruptcy of subprime mortgage lenders caused
by millions of subprime mortgage foreclosures, resulting in the
collapse of prices

subprime loans - mortgages offered to customers with low credit ratings in return
for high interest rates (a million people in the US have lost their
homes as a result of these loans)

refinance rate the key rate or benchmark rate (i.e. the benchmark refinancing
rate)

Extended vocabulary

a mixed bag (of reports): a lot of different kinds
fallout: negative side-effects or results
on the rise: increasing
to tally (the damage): to calculate (the amount of losses)
eighth year running: the eighth year in a row /eighth consecutive year
retain a tightening bias: continue to favour keeping interest rates low
reiterate: say something again for the sake of emphasis
to entertain the idea of sg: to consider sg


Comprehension questions

1. What line is the ECB expected to take at the interest-rate-setting meeting in response to the
subprime-lending crisis?



2. What recent economic indicators is the ECB taking into consideration as it sets interest rates?



3. What was Europes economic growth like prior to the recent global uncertainty?



4. When will banks know how much money theyve lost as a result of the lending crisis?



5. What are these banks expected to do when they have fully assessed their losses?



6. What effect will higher consumer prices have on the ECB?



7. What is the ECBs current benchmark interest rate?



8. What approach to interest rates is the ECB expected to take in the future?




IV. Discussion questions

A. Discussion questions related to the article


1. In what way do interest rate adjustments made by the central bank influence inflation?

2. Who do you think is ultimately responsible for the subprime lending crisis greedy lenders who charge
excessively high interest on mortgages, or the borrowers themselves who have shown bad debt
management?


B. Additional discussion questions

1. What are some of the functions of a central bank?

2. What kinds of services do commercial banks provide for their clients?

3. What are the advantages of e-banking?

V. Role-play

15. Cutting company and overhead costs

Student:
You work for a subsidiary of an international company. Your head office has sent their
representative with instructions that production costs at your plant should be reduced by 10%
next year. You meet with this representative to discuss options for reducing costs.


Examiner:
You are the representative of an international company and have been sent to one of your
subsidiaries to communicate that costs at the subsidiary must be reduced by 10% next year.
You want to hear about their options for reducing costs.


16. Franchising

Student:
You are the manager of a well-known franchised fast-food outlet in Budapest. A friend of yours
would like to open up a fast-food restaurant in another city, and asks you for advice about the
advantages and disadvantages of being independent or operating a franchise.

Examiner:
You are planning to open a fast-food restaurant, but cannot decide whether to be independent or
buy a franchise in a well-known fast-food chain. You are meeting with your friend who manages
a franchise to learn from his experience.









i
bank branches
ii
loss-making
iii
clients
iv
still
v
sales channel
vi
react to
vii
operate at a loss
viii
profitable
ix
East-Central Europe
x
congress
xi
primary key
xii
salespeople
xiii
credit institutions
xiv
concerning
xv
opinions differ
xvi
customer relations management
xvii
branch manager
xviii
role increases
xix
employs
xx
targets
xxi
what kind of pricing he applies
xxii
development
xxiii
adaptation to the changing environment
xxiv
set up
xxv
specifically
xxvi
foreigners
xxvii
branch network
xxviii
on the coast of the Mediterranean
xxix
clientele
xxx
solvent demand
xxxi
bank experts
xxxii
see it differently
xxxiii
managing director
xxxiv
anticipates a further fall
xxxv
smaller staff
xxxvi
cash turnover
xxxvii
consulting activity
xxxviii
predicts
xxxix
fewer and fewer people
xl
can perform every transaction
xli
cash withdrawal