Миловидов В.А. Английский разговорный язык. Практическое пособие по развитию устной речи
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One of life's disappointments is discovering that the man who writes the bank's ads is not the
one who makes the loans.
:
additional –
butcher –
disappointment –
discover –
engrave –
fiancee –
inside –
jeweler –
resale –
get married – ()
wedding ring – ()
bank's ad –
Bank Runs
A run on a bank occurs when a large number of depositors, fearing that their bank will be
unable to repay their deposits in full and on time, try to withdraw their funds immediately. This
creates a problem because banks keep only a small fraction of deposits on hand in cash; they
lend out the majority of deposits to borrowers or use the funds to purchase other interest-
bearing assets like government securities. When a run comes, a bank must quickly increase its
liquidity to meet depositors' demands. It does so primarily by selling assets, frequently at fire-
sale prices. Losses on these sales can make the bank insolvent.
The danger of bank runs has been overstated. For one thing, a bank run is unlikely to cause
insolvency. Suppose that depositors, worried about their bank's solvency, start a run and switch
their deposits to other banks. If their concerns about the bank's solvency are unjustified, other
banks in the same market area would generally gain from recycling funds they receive back to
the bank experiencing the run. They would do this by making loans to the bank or by purchasing
the bank's assets at non-fire-sale prices. Thus, a run is highly unlikely to make a solvent bank
insolvent.
Of course, if the depositors' fears are justified and the bank is economically insolvent, other
banks would be unlikely to throw good money after bad by recycling their funds to the insolvent
bank. As a result the bank could not replenish its liquidity and would be forced into default. But
the run would not have caused the insolvency; the insolvency had already been incurred, but
not fully recognized. The recognition of the existing insolvency caused the run.
:
bear – ,
concerns –
default – ,
incur – (), ()
insolvent –
justified –
liquidity –
occur – ,
overstate –
recognition – ,
recognize – ,
repay –
replenish – ()
solvency –
switch –
unjustified –
unlikely –
withdraw –
run on a bank– «» ()
repay in full –
interest-bearing assets – ,
meet demand –
fire-sale price – «» ( «» )
throw good money after bad –
Exercise 2
Answer the questions:
1. When does a run on a bank occur?
2. Why does a run on a bank create problems for the bank?
3. What should a bank do if it is run on by depositors?
4. What can happen to a bank if it sells its assets at a fire-sale price?
5. Why are the dangers of bank runs usually unjustified?
6. How do banks cooperate in case a run on one bank occurs?
7. Why would banks not help another bank in case of a bank run?
8. What usually causes the bank run?
1
A guy walks into a bank and says to the teller at the window, «I want to open a helluva checking
account.»
To which the lady replied, «I beg your pardon, what did you say?»
«Listen up dammit, I said I want to open a helluva checking account right now.»
«Sir, I'm sorry but we do not tolerate that kind of language in this bank!»
The teller left the window and went over to the bank manager and told him about her situation.
They both returned and the manager asked, «What seems to be the problem here?»
«There's no damn problem,» the man said, «I just won 50 million in the lottery and I want to
open a helluva checking account in this damn bank!»
«I see, sir,» the manager said, «and this damn old gal is giving you a hard time?»
2
If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the
bank's problem.
:
helluva ( hell of a) – ,
language –
lottery –
owe –
teller –
tolerate –
checking account – ,
I beg your pardon –
no damn problem –
damn bank –
old gal –
a hard time –
Capital Flight
Capital flight is the widespread currency speculation, leading to cross-border movements of
private funds that are large enough to affect national financial markets. The distinction between
«flight» and normal capital outflows is a matter of degree, much like the difference between a
«bank run» and normal withdrawals. The most common cause of capital flight is an anticipated
devaluation of the home currency. No one wants to be caught holding assets that lose 20 or 30
percent of their value overnight, so everyone tries to buy gold or foreign currency. These
episodes are usually short-lived, as the so-called «hot money» returns after the devaluation.
Capital flight is usually a symptom rather than a cause of financial crisis. Occasionally, however,
rumors of a devaluation can trigger capital outflows. Expectations of devaluation can become
self-fulfilling, as depletion of the central bank's reserves force it to devalue. In these cases
capital flight becomes a source of financial instability, much as withdrawals by worried
depositors can cause an otherwise sound bank to fail.
Not surprisingly, episodes of capital flight are most frequent when exchange rates are unstable.
In the twenties and thirties the demise of the gold standard led to numerous speculative attacks
on the French franc and German mark. When the Bretton Woods system of fixed exchange
rates began to break apart in the late sixties, the United States tried to defend the dollar with
capital controls and by refusing foreign banks' demands to convert dollars to gold. (U.S. citizens
were already barred from owning gold.) After exchange rates were set free in 1973, the U.S.
dollar replaced gold as the flight vehicle of choice. Convertible to most currencies, dollars also
earn interest in convenient offshore or Eurodollar accounts.
Since the Third World debt crisis in the eighties, the term «capital flight» has been applied more
broadly to capital outflows from residents of developing countries. One reason that capital fled
the debtor countries is that domestic investors felt their government would give precedence to
its foreign rather than its domestic debt obligations. This situation contrasts with the earlier
experience with direct foreign investment, when domestically owned assets were considered
safe from expropriation while foreign-owned assets were at risk.
Governments can adopt different measures to prevent capital flight.
When fixed exchange rates fail, governments often resort to capital controls, as the United
States did in the sixties. Imposing controls during or just after a capital flight episode, however,
is a little worse than closing the barn door after the horse has fled. Controls further reduce
confidence in local financial markets and make capital that has flown less likely to return. Capital
controls encourage black markets for foreign currency and other costly methods of evasion.
Those who import or export goods can also export money by simply overstating the value of the
goods they import or by understating their export earnings. Even the most draconian measures
to limit capital flight often fail. Capital flight from the Weimar Republic continued in 1931, despite
the fact that capital expatriation was made an offense punishable by death.
Another strategy that governments can use to limit capital flight is to make holding domestic
currency more attractive by keeping it undervalued relative to other currencies or by keeping
local interest rates high. The drawback to this approach is that raising interest rates and making
imported equipment more expensive can reduce domestic investment. A more sophisticated
defense against hot money flows, but one that is harder to execute, is for the central bank to
occasionally turn the tables on speculators. A classic «squeeze» of this type was engineered by
Lazard Frures for the French government in 1924. Using a $100 million loan from J. P. Morgan,
they bid the franc from 124 to 61 per dollar in a few weeks. Speculators who had sold the franc
short in the expectation that its value would fall were hit by big losses. Italy, the United States,
and Sweden have also used this unexpected intervention tactic from time to time.
:
anticipate – ,
barn – ,
bid – , )
broadly –
confidence –
convert –
convertible –
currency –
demise –
depletion – ()
devaluation –
devalue – )
distinction – ,
domestic –
draconian –
drawback – ,
expatriation – ()
expectation –
expropriation –
flee (fled) –
flight –
frequent –
instability –
intervention –
notorious –
offense – ,
otherwise – ,
outflow –
precedence – ,
punishable –
resident – , ()
resort – ,
sophisticated –
sound – , , ,
squeeze – ,
symptom –
tactic –
trigger – : , «» (. )
undervalued –
unstable –
widespread –
withdrawal – (), ()
worried –
cross-border –
a matter of degree –
short-lived –
"hot money" – «»
self-fulfilling – ,
gold standard –
break apart –
bar from – ()
flight vehicle of choice –
debt crisis–
debtor countries –
debt obligations –
black market –
turn the tableson –
Exercise 3
Answer the questions:
1. What is capital flight?
2. What can the distinction between «flight» and normal capital outflows be compared with?
3. What is the most common cause of capital flight?
4. Why do people carry their money away from their home country?
5. What are the best vehicles for the capital flight?
6. When is the capital flight most likely to occur?
7. How did the term «capital flight» change in the eighties?
8. What measures can be adopted to prevent the capital flight?
9. Why were the capital controls inefficient in the US in the sixties?
10. How can a government make the domestic currency more attractive?
1
At a country-club party a young man was introduced to an attractive girl. Immediately he began
paying her court and flattering her outrageously. The girl liked the young man, but she was
taken a bit aback by his fast and ardent pitch. She was amazed when after 30 minutes he
seriously proposed marriage.
«Look,» she said. «We only met half an hour ago. How can you be so sure? We know nothing
about each other.»
«You're wrong,» the young man declared. «For the past 5 years I've been working in the bank
where your father has his account.»
2
A young banker decided to get his first tailor-made suit. So he went to the finest tailor in town
and got measured for a suit. A week later he went in for his first fitting. He put on the suit and he
looked stunning, he felt that in this suit he can do business.
As he was preening himself in front of the mirror he reached down to put his hands in the
pockets and to his surprise he noticed that there were no pockets. He mentioned this to the
tailor who asked him, «Didn't you tell me you were a banker?»
The young man answered, «Yes, I did.»
To this the tailor said, «Who ever heard of a banker with his hands in his own pockets?»
3
A man walks into a New York City bank and says he wants to borrow $2,000 for three weeks.
The loan officer asks him what kind of collateral he has. The man says «I've got a Rolls Royce –
keep it until the loan is paid off – here are the keys.» The loan officer promptly has the car
driven into the bank's underground parking for safe keeping, and gives the man $2,000.
Three weeks later the man comes into the bank, pays back the $2,000 loan, plus $10 interest,
and regains possession of the Rolls Royce. The loan officer asks him, «Sir, if I may ask, why
would a man who drives a Rolls Royce need to borrow two thousand dollars?»
The man answers, «I had to go to Europe for three weeks, and where else could I store a Rolls
Royce for that long for ten dollars?»
:
amaze –
ardent – ,
attractive –
collateral – ,
fitting –
flatter –
immediately –
introduce – ,
marriage –
outrageous –
pitch –
preen –
promptly –
propose – ()
store –
stunning –
country-club party –
pay court – )
taken aback – , ,
a bit –
tailor-made suit – ,
got measured –
underground parking –
safe keeping –
regain possession –
8.
(Supplementary Reading)
New Forex Tool for Currency Investors
Investors have been given a new tool for trading in the global currency markets, with the launch
of the first standardised foreign exchange indices on Monday.
These new products enable investors to place bets on the value of single currency, such as the
dollar, in terms of a trade-weighted basket – instead of being forced to express foreign
exchange views in pairs of currencies, such as the movement of the dollar against the euro.
This shift could potentially attract a new group of retail investors into the foreign exchange
markets, some investment bankers claim. But it could also facilitate the creation of a new
branch of advanced derivatives, since complex structured products are usually created using
standardised indices – which have generally been lacking in the foreign exchange sector so far.
The new foreign exchange index, which will be called iBoxxFX, has been created by
International Index Company, which is based in Frankfurt and jointly owned by a dozen major
investment banks and Deutsche Börse.
Although IIC is not widely known outside the financial sector, it is a major player in the business
of running independent market indices, such as the iTraxx index in credit derivatives.
«Customers can now trade single currencies or specific macroeconomic blocks. This will
facilitate the development of structured products based on indices,» said David Mark, chief
executive of IIC.
He added that the development of such indices was particularly «timely» given the current
investor attention to the dollar and euro.
The world of foreign exchange has until now lacked any major, well-established indices, in
sharp contrast to the equity, credit or commodity sectors. Some investment banks have
attempted to develop proprietary indices, but these have never become widespread.
As a result, investors who wanted to express a view on a currency usually had to do so in a way
that forced them to make a judgement about two countries, rather than just one.
However, the iBoxxFX indices, which will cover most of the largest currencies, will let investors
express a view about a single currency in isolation.
By Gillian Tett
:
branch – ,
commodity –
complex – ,
dozen –
equity –
euro –
facilitate –
global – ,
index (. . indices) –
isolation –
jointly –
lack –
launch – , ,
proprietary –
retail –
sector –
shift –
single –
standardise –
tend – , ()
timely –
widespread –
place bets –
in terms of –
trade-weighted basket –
foreign exchange views –
pair of currencies – ()
advanced derivatives – (
)
International Index Company –
investment bank –
Deutsche Börse –
so far –
credit derivative –
macroeconomic blocks –
well-established indices –
in sharp contrast –
Argentine Beef Farmers Warn of More Strikes
When President Nstor Kirchner implored the Argentines to eat less beef soon after imposing a
surprise ban on beef exports in March, it was not because he was concerned about their health.
Argentines eat more beef than anyone else in the world – more than 60 kilos per head a year –
but this move was another attempt by the government to tackle broader problems of ensuring
adequate supply in the domestic market and curbing inflation, already aggravated by high
international prices of agricultural goods.
Persistent government interventions in the sector – including export bans and restrictions on
beef, wheat, corn and milk products, rising export duties and price controls – provoked farmers
to go on strike this month for the second time this year. The strike, which involved withholding
produce from the market, ended on Monday but no agreement was reached with the
government, and leaders of farming associations are already threatening more and longer
strikes in 2007.