english for banking

English for banking

1 A bank account

For the safety, convenience and many other benefits, more and more people open

a bank a/c An a/c is a record of a customer’s money transactions (deposits and

withdrawls) Its form is like the letter T with Debits on the left and Credits on the right An a/c can have either credit or debit balance A credit balance is the statement of an a/c when more money is deposited than withdrawn while a debit balance is when less money

is deposited than withdrawn Every month a/c holders are given an a/c statement

showing the month’s transactions, consiting Date, Detail, Debits, Credits and

Balance and pay an a/c charge, but if they can keep their a/c in credit, this service will

be free of charge

Banks will make a note of credit or debit entry in customer’s a/c when they pay money in or out their a/cs When a customer deposits $50 in his a/c, the bank credits this amount to the customer’s a/c and at the same time debits $50 to the bank’s a/c This is

an example of double entry

Deposits on an a/c may be demand or time Normally, the demand deposit a/c pays no or very little interest whereas the time to pays interest The interest rates paid by banks vary from bank to bank, depending on how long customers leave their money in the bank: short, medium or long term The longer the money remains in the bank,

the more interest it earns With time deposits, a/c holders usually withdraw their

money at maturity date but they can take the money out of the a/c before the maturity date if they want In this case, some interest will be lost

A withdrawal slip is usually used to withdraw money from an a/c However, current a/c holders can withdraw money from their a/c by writing cheques In this case, they do not need to write their names as the payee of the cheque, but write “cash” or “self”

To open an a/c, the applicant is required to fill in an a/c opening application

form and to deposit some money An a/c can be opened for individuals or a company

The former is the personal while the latter is the coporate or a business a/c In general,

the procedures of opening a coporate a/c are

(S = “The procedures of opening a coporate a/c” that’s why we use “are”)

more complicated than a personal one

To close an a/c, it is necessary to withdraw all the blance on it

There are different types of a/c to meet the various needs customers: current

(checking), deposit and savings a/c, sole and joint a/cs, personal and

coporate a/cs.

2 Cheque

A cheque is an order by the account holder to withdraw funds from his a/c, either is cash through payment to another party

Cheques provide both safety and convenience A cheque is a non-cash

payment instrument, i.e customer do not need to carry large amounts of cash with

them, which is easy to be lost or stolen In addtion, a cheque is only valid when it is signed by the a/c holder and is secured by a cheque card so your money can not be withdraw from your a/c if someone finds your cheque book Using cheques is convenient because they are easy to use The a/c holder can draw a cheque anywhere without going

to the bank such as in shops, supermarkets, restaunrants, hotels and so on

When drawing a cheque, it is obligatory to complete all The drawer must write cheques in ink and avoid as much blank as possible for fraudulence and use the ruler to cross out any blanks In the case of a blank cheque book being used, all the cheques need to be crossed, with “not negotiable” If the cheque is corrected or changed, the drawer must initial the correction in addition to his usual signature In effect, a cheque presented will be honoured if there is enough money in the drawer’s a/c

Different types of cheque book are supplied to a/c holders free of charge according

to their requirements either with or without stubs, bear or order, crossed or uncrossed Cheque books can be sent to an a/c holder by registered post, or may be given to him at the counter against his signed receipt

Cheque books are considered as security documents in view of danger of their misuse by persons trying to commit fraud

3 Money

All value in the economic is measured in terms of money Our goods and services are sold for money, and that money is in turn exchanged for our goods and services Coins are adequate for small transactions while paper notes are used for general

business There is additionally a wider sense of the word money, covering anything which

is used as a means of exchange whatever form it may take Originally, a valuable metal (gold, silver or copper) served as a constant store of value, and even today the America dollar is technically backed by the store of gold which the US government maintains Because gold has been universally regarded as a very valueable metal, national

currencies are considered to be as strong as the national economies which support them Valuable metal has generally been replaced by paper notes These notes are issued by government authorized bank, and are known as “legal tender” Other

arrangements such as cheques and money orders are not legal tender They perform the function of subsititue money and are known as “instrument of credit” Credit is offered only when creditors believe that they have a good chance of obtaining legal tender when they present such instruments at a bank or another authorized institution If a man’s assets are known to be considerable, then his credit will be good If his assets are in doubt, then it may be difficult for him to obtain large sums of credit or even to pay for goods with a cheque

The value of money is bassically its value as a medium of exchange, or as

economists put it, its purchasing power This puschasing power is dependent on supply and demand The demand for money is reckonable as the quantity needed to effect business transactions An increase in business requires an increase in the amount

of money coming into general circulation But the demand for money is related not only to the quantity of business but aslo to the rapidity with which the business is done The supply of money, on the other hand, is the actual amount in notes and coins availble for business purposes If too much money is availble, its value decreases, and it does not buy as much as it did, say, five years earlier This condition is known as inflation

4 Bank and banking

Banks are closely concerned with the flow of money into and out of the economy They often cooperate with gorvernments in efforts to stabilize economies and prevent inflation They are specialist in the business of providing capital, and in allocating funds

on credit Banks originated as places to which people took their valuables for

safe-keeping, but today the great banks of the world have many functions in addition to acting

as guardians of valuable private possessions

Banks normally receive money from their customers in two distinct forms: on current a/c and on deposit a/c With a current a/c, a customer can issue personal

cheques No interest is paid by the bank on this type of a/c With a deposit a/c, however, the customer undertakes to leave his money in the bank for a minimum specified period

of time Interest is paid on this money

The bank in turn lends the deposited money to customers who need capital This activity earns interest for the bank, and this interest is almost always at a higher rate than any interest which the bank pays to its depositors In this way, the bank makes its main profits

We can say the the primary function of a bank today is to act an intermediary between depositors who wish to make interest on their savings, and borrowers who wish

to obtain capital The bank is a reservoir of loanable money, with streams of money flowing in and out For this reason, economics and financies often talk of money being liquid, or of the liquidity of money Many small sums which might not otherwise be used

as capital are rendered uesful simply because the bank acts as a reservoir

The system of banking rests upon a basis of trust Innumerable acts of trust build

up the system of which bankers, depositors and borrowers are part They all agree to behave in certain predictable ways in relation to each other and in relation to the rapid fluctuations of credit and debit Consequently, business can be done and cheques can be written without any legal tender visibly changing hands

4 Credit Card

Credit cards are a means of exchange, not a payment Ultimate payment by the

card user occurs at the end of the month when a cheques is written or a bank a/c is

debited to settle the outstanding balance In that respect, credit cards are akin to trade

credit for the users, and a substitute credit long extended by retailers to customers However, to the seller of goods, sales made to the credit card users have similarities to those made to cheque writers Costs and fee may differ, but credit card sales vouchers can be effectively credited to the merchant’s bank a/c in a similar manner to cheque received Because the voucher is a claim on the credit card company or card issuing bank, the risk of non payment is lower

In the ways that most are currently structured, credit card system can be thought of

as similar to the cheque payments system Paper (i.e vouchers) flows in a similar

direction, the major difference being the timing of transactions and liabilities incurred along the way The card holder/voucher writer is given short-term credit (a short-term loan or long-term float) by the card issuing body between the immediate unconditional

credit to the merchant involved and delayed collection of value from card holder The combination of float to card holders and more or less immediate reimbursement to stores is thought to be one factor inhibiting the great use of EFTPOS system, in which

float is absent

5 Debit card vs credit card

A few years ago it was easy to tell the difference between a credit card and a debit card You used your debit card at the ATM with a personal identification number, and you used your credit for purchases But today both types of cards carry familiar credit

company logos, both can be swiped at the checkout counter and both can be used to make online purchases

Government regulations and voluntary steals your credit card you’re only

responsible to pay the first $50 of unauthorized charges And if you notify the issuer before the thief makes any charges, you may not be out of anything You’re also free from liability if unauthorized purchases occur when the card is not physically presented, say in an interest purchases Zero liability policies, like those offered by Visa and

Mastercard, add a second layer of protection Under these programs you won’t pay anything if someone fraudulently uses your credit card online or off

The rules are similar for debit cards, but there are a few restrictions For examples, your liability under federal law is limited to $50, but only if you notify the issuer within two business days of discovering the card’s loss of theft Your liability could jump to $500 if you put it off Federal protections are a bit more generous if a thief just steals your debit card number (and not the actual card), but you still have 60 days after receiving your bank statement to report any unauthorized transactions The Visa and Mastercard Zero liability policies also apply to debit cards, but only to non-PIN transactions If a thief steals

your card and your PIN, the federal rules are your only defense.

6 Cost accounting

One of these main objectives of industry is to determine the selling price of the products or the cost of services that are provided by a company To calculate a selling price that ensures a profit, it is first necessary to determine the cost of making the product

or of providing the service This is the purpose of cost accounting

For manufacturing, where raw materials are assembled into a final product, job-order cost accounting is used With this method, the account determines the cost of an individual item or a batch of identical goods

The accountant must first determine the direct cost of the product This includes the material and labor costs These costs are found by analyzing inventories of raw material, products in the process of being manufactured and final goods These records are kept in

different ledgers.

In addition to the direct labor and material costs, the accountants must include

overhead to obtain factory cost Overhead is an expense that is not directly connected

to the manufacture of one particular good Some examples are depreciation of

machines, property taxes for the manufacturing plant, and the salary of the plant

manager These indirect costs must be allocated to different products on the basis of a predetermine rate or percentage called the burden rate

Cost accounting provides a systematic and logical process by which the cost of a product can be determined This cost can then be used as a basis for determining the

best selling price of a product It is also a valuable decision-making tool management.

7 Current account

A current a/c, known as checking a/c in USA, is the most popular bank a/c It provides both safety and convenience Like any other types of bank a/c, it is safe

because the a/c holders do not need to carry cash, which can be easily lost or stolen It is also convenient since the holders are given a cheque book-small booklet full of cheques – to pay their daily bills easily and to withdraw money from their a/cs Moreover, current a/c holders may be provided with a cash card, which can be used to withdraw money from their a/cs by using ATMs (Automated Teller Machines) and a debit card used to pay for goods or services through auto-payment system without making out a cheque

However, current a/c do not usually pay interest since money on this is usually demand deposit, which can be withdrawn at any time This does not allow banks to use this deposit to lend out with interest to those who need capital

Current a/c holders may overdraw their a/cs up to a limit called agreed overdraft limit Sometimes customers write a cheque for more money than they have in their a/c This is called bouncing a cheque And if a current a/c holder bounces a cheque the

bank usually charges a bounced cheque fee This is necessary to prevent the holders from writing bad cheques In practice, however, banks usually require that the holders keep a minimum amount of money in the a/c This guarantees that the banker will at least

be able to lend out a certain amount with interest to pay the costs of processing cheques

If the depositors withdraw money and the balance falls below the minimum the bank will then charge a service charge-a small fee each month

8 Documentary collection

Collection is method of international payment The term collection refers to the process of presenting an item, such as a check, to the maker for payment

Collections are divided into two categories: clean and documentary Clean

collections means that there are no shipping documents attached Traveler’s checks and money order are examples of clean collections

Documentary collections means that there are documents included in the collection order which is sent to the exporter’s bank for collection of the payment from the importer The exporter tells his bank to present the draft and documents to the importer for

collection The exporter bank uses a bank in the importer’s country to accomplish this This correspondent bank will work with the importer’s bank, and collect the funds and present the bill of lading and other documents to the importer The bank receives a fee for acting as the exporter’s agent in the collection process

Banks that are actively engaged in such collections may have form letters that

give explicit instructions as to how the payments are to be made, the documents that

are involved, and other pertinent information

The basic difference between the collection method and a letter of credit is that an irrevocable letter of credit is an obligation of the issuing bank, whereas an exporter’s draft

is drawn on the importer The collection is less costly than a letter of credit and is

frequently used when the risks to the exporter are relatively small

9 Finance analysis

There are four critical areas of a company’s business which can be analyzed by applying ratio These are liquidity, capital structure, activity and efficiency, and profitability.

Measurements of liquidity should answer the question: Can a company pay its short-term debts? There are two ratios commonly used to answer this question Firstly,

the current ratio, which measures the current assets against the current abilities In most cases, a healthy company would show a ratio above “1”, in other words more current assets than current liabilities Another method of measuring liquidity is so-called

quick ratio – this is particularly appropriate in manufacturing industries where stock

levels can disguise the company’s true liquidity The ratio is calculated in the same way

as above but the stocks are deducted from the current assets

The balance sheet will also reveal the gearing of the company – this is an indicator

of the company’s capital structure and its ability to meet its long-term debts The ratio expresses the relationship between shareholder’s funds and loan capital Income gearing is also important and show the ratio between profit and interest paid on

borrowings Highly geared companies generally represent a greater risk for investors The balance sheet and the profit and loss account can be used to assess how efficiently a company manages its assets Basically, sales are compared with investment

in various assets For examples, in the retail sector, an important ratio which indicates efficiency measurements is to calculate the average collection period on debts This is found by dividing debtors’ by the sales per day This can vary tremendously from

industry to industry In the retail sector it may well be as low as one or two days, whereas

in the heavy manufacturing and service sectors it can range from thirty to ninety days.

Finally, profitability ratios show the manager’s use of the company’s resources

The profit margin figure (profit before tax divided by sales and expressed as a

percentage) indicates the operational day-to-day profitability of the business Return on

capital employed can be calculated in a number of ways One common method is to

take profit before taxes and divide by the total assets – this is a good indicator of the use

of all the assets of the company From the shareholder’s point of view, the return on owner’s equity will be an important ratio; this is calculated by dividing the profit before

taxes by the owner’s equity and the expressing it as a percentage – If the company does not earn a reasonable return, the share price will fall and thus make it difficult

to attract additional capital.

10 Lending

The role of lending at commercial bank in the United State has changed

dramatically over the years In the distant past, short-term, self-liquidating loans were

the standard Today, banks provide loans of all maturities and methods of repayment The principal categories of loans are commercial and industrial, real estate, and individual (consumer) loans

This paper provides the background information about commercial and industrial loans Such loans are used to finance temporary and permanent business assets Lines

of credit and transaction loans are used for temporary assets and involving loans and term loans are used for permanent assets A/cs receivable, inventory, and real property and equipment are the most commonly used types of collateral for commercial and industrial loans The maximum amount that national banks can lend to any customer is limited to 25% of their equity capital Most banks will not risk too much on one customer

The amount that they will loan depends on their size, geographic location, and the risk

they are willing to face Some of these limits of other are explained in a bank’s written loan policies The Board of Directors of the bank, which has the ultimate responsibility for all loans that are made, acts as a guideline for those involved in the lending process

11 Overdraft

An overdraft occurs when a check is written on uncollected funds In other words,

an overdraft is a facility which allows an individual to with draw funds from his checking a/c in excess of the credit balance If a bank pays on a check written against uncollected

balances, it is an unsecured loan Some overdraft loan are written with prior permission

of the bank, but most are not In the latter case, overdraft loan can be for less than one day (daylight overdraft), such as when a check is written in the morning and the deposit

to cover that check is not made until that afternoon, or for one or more days The

customer is charged interest only on the amount he uses and the rate of interest is calculated daily on the prime rate Normally no regular repayment is set The customer can repay any amount at any time simply by paying money

12 The growth òf bank credit

In recent years, lending associated bank credit cards has been the fastest growth

area in consumer lending Bank credit cards first became popular nearly 30 years ago At that time, individual banks issued the cards to their existing customers and recruited local retailers who agreed to accept them from the customers Participating retailers daily presented the bank with sales vouchers signed by their card-using customers The

retailer’s bank a/cs then received immediate credit, less the bank’s discount.

This service provided benefits to all three parties: issuing bank, cardholder and retailer The bank collected fee derived from discounting retailer’s sales vouchers and

charged interest on cardholder outstanding balances Cardholders enjoyed

unquestionable credit from participating retailers, avoided the burden of carrying cash for large purchases, and were not worried about uncertain acceptance of written checks Retailers expanded their sales appeal to a growing pool of cardholders

However, the local bank credit card had serious drawbacks The card’s usefulness was restricted to a circle of participating retailers in the card bank’s market areas Also, there was strong competition among local banks that issued credit cards These

drawbacks were overcome in the late 1960s when two national credit card authorities emerged to replace the local bank cards

14, Types and uses of working capital

Profitability is determined in part by the way in which a company manages its

working capital Basically there will be a drop in profits if working capital is raised

without a corresponding rise in production So one of the principal functions of financial management is to provide the correct amount of working capital at the right time and in the right place to realize the greatest return on investment.

Working capital can initially be broken down into two types: permanent and temporary Permanent working capital is tied up in keeping the business flowing throughout the year, while temporary working capital is needed from time to time to take account of seasonal, cyclical or unexpected fluctuations in the business The latter type is usually serviced from an overdraft facility

Both types of working capital have three major applications: firstly inventories, secondly debtors and finally cash

Inventories can be further divided into inventories of raw materials, work in progress and finished goods There three can soak up an enormous amount of excess working

capital if not well managed It is the job of the financial manager to minimize the stocks of raw materials, the level of work in progress and the quantity of finished goods However,

over-stringent control can lead to disruption in production caused by the delay in receiving raw materials, a failure to take account of costly price rises in the pipeline, a failure to keep the production volume required by future sales, and resulting expensive and damaging effects on customer goodwill As one can see from the foregoing

diagram , this can become a vicious circle where the loss of goodwill finally leads to loss

of sales and results once again in stringent cost controls

The just-in-time philosophy, developed in Japan, is aimed at reconciling these

often conflicting interest and keeping inventory cost to a minimum

On the debtor side, working capital is required to finance the gap between payment

due to suppliers and payment owed by customers It is the task of financial management

to see that generous credit terms are negotiated with suppliers but minimal credit is

offered to customers Again a balance must be achieved between getting and giving good credit terms in order to attract customers and maintain relationship with suppliers

on one hand, and minimizing cash outlay on the other hand

Finally, cash is needed for both normal and abnormal requirements Sound cash management will ensure that adequate cash is available for meeting the company’s day-to-day debts and there is also a small reserve on hand to meet contingencies.