English for banking and finance

HANOI OPEN UNIVERSITY FACULTY OF BANKING AND FINANCE ENGLISH FOR BANKING & FINANCE MA Pham Thi Bich Diep ENGLISH FOR BANKING & FINANCE MA Pham Thi Bich Diep INTRODUCTION English for Banking & Finance is for students who are assumed to have reached a level of at least intermediate English The book is designed to provide topic areas relevant to the field of finance and banking The thematic units enable students to enrich their specialized vocabulary as they provide contexts for terms, essential words and phrases in finance and banking Besides, a variety of texts complied in each unit are to encourage students to improve their reading skills This simultaneously allows students to revise and consolidate theoretical knowledge related to their major Topic areas are subsequently presented in six units, each of which comprises an overview to the theme, explanation of terms, particular contents, and a summary of core features mentioned The Discussion-questions section offers students chance to revise what they have learnt so far in the unit Additionally, with the Practice section, consisting of a vocabulary exercise, two reading passages and texts for translation, students are exposed to the practical side of language use which they may encounter when possessing sources of information released by various mass media Hopefully, students will find the thematic design with the combination of theoretical and practical sides helpful when improving English language skills and consolidating the knowledge on a specialized field, finance and banking Hanoi, 20th August 2015 MA Pham Thi Bich Diep TABLE OF CONTENTS Page Table of contents ii List of abbreviations vi Unit 1: The Rate of Exchange I An overview of exchange rates Definition Classification of exchange rates Economic rationale II Determinants of exchange rates Review of theories Factors influencing the supply and demand of a currency III Exchange rate intervention Direct instruments Indirect instruments IV Summary V Discussion questions VI Practice 1 1 5 8 9 Unit 2: The Foreign Exchange Market I An overview of the foreign exchange markets The concept of foreign exchange Description of the foreign exchange market II The roles of the foreign exchange market III The forex market features and benefits of forex trading forms The forex market features The benefits of forex trading forms IV The forex market participants Central banks Other banks Interbank brokers Commercial companies Retail brokers Hedge funds Investors and speculators V Basic principles in forex transaction Concepts The bid/ask spread Factors affecting the market VI Summary 15 15 15 15 16 16 16 19 21 22 23 23 23 24 24 24 25 25 26 28 29 VII Discussion questions VIII Practice 29 29 Unit 3: Balance of Payments I An overview of balance of payments Definitions The roles of balance of payments II Principles in the compilation of the balance-of-payment statement III Components of balance of payments Current account Capital and financial account IV Summary V Discussion questions VI Practice 34 34 34 34 35 38 38 42 44 44 45 Unit 4: Commercial Banks I Definitions II The roles of commercial banks Lending and deposit business Securities issuing Asset management Foreign exchange trading III Functions of commercial banks and the scope available Functions The scope available to banks IV Commercial bank services Lending services Deposit accounts Online and electronic banking options Other services V Types of loans granted by commercial banks Secured loans Unsecured loans VI Commercial bank assets Cash Securities Loans VII Summary VIII Discussion questions IX Practice 51 51 51 53 54 55 56 57 57 58 59 59 59 60 60 60 60 62 64 64 64 65 67 68 68 Unit 5: International Payment I Introduction to international payment II Payment instruments Bill of exchanges Promissory notes Cheque Transfer Bank cards Letters of credits III Methods of payments Remittance Documentary collections Open account IV Summary V Discussion questions VI Practice 76 76 76 76 77 77 78 78 79 81 81 85 87 90 90 90 Unit 6: Trade Finance I Definition II Trade finance techniques Export working capital financing Export factoring Forfeiting Export credit insurance III Summary IV Discussion questions V Practice ……… 96 96 96 96 99 101 104 106 107 107 Word Lists… 113 References 123 LIST OF ABBREVIATIONS ABA ACH ADB ATM BIS BOP C CPI D/C ECI EFTS ET EU FDI FX GAAP GDP GMT IBRD IMF LC MIGA MPC MT NLP OMO OTC PIN ROA ROE SBV SWIFT T TT WB American bankers Association automated clearing house Asian Development Bank automatic teller machine Bank for International Settlements balance of payment commodity (currency) consumer price index documentary collection export credit insurance electronic funds transfer system electronic transfer European Union foreign direct investment foreign exchange generally accepted accounting principles gross domestic product Greenwich mean time International Bank for Reconstruction and Development International Monetary Funds letter of credit Multilateral Investment Guarantee Agency monetary policy committee mail transfer non-performing loans open market operation over the counter personal identification number return on assets return on equity State Bank of Vietnam Society for Worldwide Interbank Financial Telecommunication terms (currency) telegraphic transfer World Bank UNIT THE RATE OF EXCHANGE I AN OVERVIEW OF EXCHANGE RATES Definition Almost all nations in the world possess their own currency The fact that nations need to clear off transactions related to international trading, investment and other financial transactions, etc leads to the buying of and/or selling of currencies at certain rates known as the exchange rate Following are popular explanations which help clarifying the concept of exchange rate Firstly, T P Fitch (1997:169) presents the notion as ‘Exchange rate is conversion price for exchange one currency for another’ while P Collin (1996:87) states that ‘Rate of exchange or exchange rate is price at which one currency is exchanged for another’ Another author defines the term of exchange rate as ‘the price of one currency in terms of another’, K Pibean, (2006:4) Based on Eitenam (2007:21) exchange rate means the price of one country’s currency in units of another currency or commodity (typically gold or silver) Finally, in a recent publication, Mishkin (2009:433) states that the price of one currency in terms of another is called the exchange rate’ Regardless of differences in the wording and extent of the term to be defined, the key point is prominent in all the clarifications Thus, the rate of exchange is basically understood as the price of one currency in terms of another Classification of exchange rates According to different criteria, different types of exchange rates can be named According to the time the exchange rate is quoted, the opening and closing rates are introduced, whereas the terms buying or bid rate as opposed to the selling or ask/offer rate are employed to demonstrate the trading methods According to the means of transfer, the terms mail transfer (MT), telegraphic transfer (TT) and electronics transfer (ET) are used As is known, ET is the latest and fastest while the terms transfer rate and cash rate show the modes of transfer As related to the entities determining the rate of exchange, the official rate, market rate and black market rate are listed The last two terms spot rate and forward rate are employed to demonstrate the criterion of transaction terms The following exchange rate regimes are introduced according to the extent the central bank intervenes the management of the rate of exchange, or as seen from the national macroeconomic management policy a particular nation opts to practice An exchange-rate regime is the way an authority manages its currency in relation to other currencies and the foreign exchange market It is closely related to the monetary policy and the two are generally dependent on many of the same factors The basic types are a floating exchange rate, where the market dictates movements in the exchange rate; a managed float, where a central bank keeps the rate from deviating too far from a target band or value; and a fixed exchange rate, which ties the currency to another currency, mostly more widespread currencies such as the U.S dollar or the euro or a basket of currencies A fixed exchange rate: In a fixed exchange rate system, the monetary authority picks rates of exchange with each other currency and commits to adjusting the money supply, restricting exchange transactions and adjusting other variables to ensure that the exchange rates not move All variations on fixed rates reduce the time inconsistency problem and reduce exchange rate volatility, albeit to different degrees Fixed rates are those that have direct convertibility towards another currency A floating or fluctuating exchange rate: It is a type of exchange rate regime wherein a currency’s value is allowed to fluctuate according to the foreign exchange market A currency that uses a floating exchange rate is known as a floating currency Floating rates are the most common exchange rate regime today For example, the dollar, euro, yen, and British pound all are floating currencies A managed float rate: Since central banks frequently intervene to avoid excessive appreciation or depreciation, these regimes are often called managed float Managed float exchange rates are determined in the foreign exchange market Authorities can and intervene, but are not bound by any intervention rule, often accompanied by a separate nominal anchor, such as inflation target The arrangement provides a way to mix market-determined rates with stabilizing inflation (n) intervention (n) managed floating rate (np) market rate (np) nominal exchange rate (np) official rate (np) parity (n) preempt (v) prominent (adj) resemble (v) speculation (n) spot exchange rate (np) susceptible (adj) telegraphic transfer (np) transfer rate (np) transparency (n) upheaval (n) variables (n) verifiable target (np) volatility (n) lạm phát can thiệp tỷ giá thả có điều tiết tỷ giá thị trường tỷ giá danh nghĩa tỷ giá thức tương đương giành quyền ưu tiên bật, trội giống nhau, tương đương đầu tỷ giá giao dễ bị tổn hại chuyển tiền điện tín tỷ giá chuyển khoản minh bạch xê dịch, chuyển biến biến số, vật/lượng thay đổi mục tiêu thực bất ổn định, thay đổi đột ngột Unit absorb (v) bank-to-bank reimbursement bid/ask price (np) bill of exchange (np) brokerage fee (np) by virtue of (pre p) coincide (v) collection of payment (np) commodity currency (np) compel (v) thu hút chuyển tiền ngân hàng giá mua / bán hối phiếu phí mơi giới vì, trùng hợp nhờ thu đồng tiền yết giá bắt buộc, bắt ép, thúc ép 117 comprise (v) convertible capital (np) crawling band (np) crawling pegs (np) credit (n) currency board arrangements (np) currency futures (np) currency options (np) current account (np) decentralize (v) depreciation (n) derivative (adj) diffusion (n) dispersion (n) dominance (n) emergence (n) equity trading exchange broker (np) foreign exchange market (np) hedge (v) incremental extra time (np) indispensible (adj) instantaneous trade execution (np) inventories (n) justify (v) leverage (n) liquidity (n) market segment (n) mutual fund (n) over-the-counter trading (np) pertinent (adj) quoted price (np) securities dealer (np) speculator (n) gồm có, bao gồm vốn đổi, hốn cải biên độ trượt tỷ giá cố định trượt bút tốn ghi có chế độ vị tiền tệ nghiệp vụ tương lai nghiệp vụ quyền chọn tài khoản vãng lai phân quyền, phi tập trung hoá khấu hao phái sinh khuyếch tán phân tán thống trị lên thương mại bình đẳng nhà buôn ngoại tệ, hối phiếu thị trường ngoại hối tự bảo hiểm thời gian gia tăng thiếu thực giao dịch tức thời kho hàng chứng minh, bào chữa đòn bẩy khoản phân khúc/đoạn thị trường quỹ tín thác hỗ huệ giao dịch ngồi Sở giao dịch thích đáng, chỗ giá niêm yết người bn chứng khốn người đầu 118 spread (n) stability (n) stock market (np) tandem (n) treasurer (n) turnover (n) unified market (np) unilateral transfer (np) vulnerable (adj) chênh lệch ổn định thị trường chứng khoán cộng tác, đôi thủ quỹ doanh số, doanh thu thị trường thống chuyển chi đơn phương dễ bị tổn hại Unit accounting convention (n) accrual basic accounting (np) analogous (adj) auction (n) balance of payment (np) basic balance (np) capital account (n) cease (v) compensation (n) component (n) conversely (adv) correspondingly (adv) debit (n) derivative operations (np) disaggregation (n) discrepancy (n) documentary bill (np) documentary credits (np) double entry (np) entity (n) quy tắc kế toán hạch toán theo thời điểm phát sinh tương tự đấu giá cán cân toán quốc tế cán cân tài khoản vốn dừng, ngừng bồi thường thành phần trái lại theo trình tự bút toán ghi nợ nghiệp vụ phái sinh giải tán khác biệt hối phiếu kèm chứng từ tín dụng chứng từ bút toán kép thực thể 119 entry (n) equilibrium (n) equity (n) Euro bank (n) exert (v) foreign exchange broker (np) formulate (v) forward operations (np) forward points/ margins (np) freely floating rate (np) incomes (n) indicator (n) instant cash transfer intermediate (adj) launder (v) liability (n) non-tariff (n) preceding (adj) provision (n) quid pro quo (n) recession (n) reconciliation (n) reference (n) stimulus (n) succeeding (adj) supplement (v) synonymous (adj) turmoil (n) vis-a-vis (prep) visibility (n) warrant (adj) bút toán trạng thái cân vốn cổ đông ngân hàng hải ngoại chèn, thêm nhà môi giới ngoại hối hình thành, tạo thành nghiệp vụ kỳ hạn điểm kỳ hạn tỷ giá thả hoàn toàn cán cân thu nghập số chuyển tiền trung gian rửa tiền nợ phi biểu thuế đứng trước cung cấp vật bồi thường, trả lại suy thoái bù trừ tham chiếu động lực, thúc đẩy bổ xung đồng nghĩa hỗn loạn có liên quan đến dễ thấy, đốn bảo đảm Unit 120 collateral (adj) commercial bank (np) commitment (n) creditor (n) credit-related (adj) custody account (n) customize (v) default (n) diligence (n) demand deposit (np) depository (n) discretionary account (n) fundamental (adj) gauge (n) installment loans (n) intermediary (n) International Financial Corporation legal tender (np) limit order (np) loans (n) maintenance level (np) margin (n) mature (adj) monitor (v) mortgage (n) negative cash flows net foreign exchange position nominal value (np) offer/ask rate (n) official financing balance (np) option premium (np) overall balance (np) overdraft (n) thuộc tập đoàn ngân hàng thương mại cam kết chủ liên quan đến tín dụng tài khoản giám hộ tùy chỉnh mặc định chăm gửi tiền vô thời hạn kho, nơi ký gửi tài khoản tùy nghi bản, tiêu chuẩn đánh giá trả góp người trung gian Cơng ty tài quốc tế đồng tiền pháp định lệnh giới hạn khoản vay hạn mức trì tài khoản biên độ đáo hạn giám sát, điều chỉnh chấp luồng tiền âm trạng thái ngoại tệ ròng giá trị danh nghĩa tỷ giá bán cán cân bù đắp thức phí hợp đồng quyền chọn cán cân tổng thể thấu chi 121 performance bond (n) point-of-sale (n) regulatory body (np) reluctant (adj) secondary market (np) seize (v) staggering (adj) time deposit (np) utility (n) vain (adj) venture (n) withdrawal (n) trái phiếu thực hợp đồng điểm bán hàng quan điều hành, kiểm soát miễn cưỡng thị trường thứ cấp nắm bắt không ổn định tiền gửi có kỳ hạn việc sử dụng vơ vọng, tuyệt vọng liên danh rút lui Unit account terms (n) ACH akin (adj) bankcard (n) complication (n) crossed rate (np) devaluation (n) discrepant (adj) dispatch (n, v) documentary collection (np) equivalent (adj) factor (n) forfeiting (n) freight forwarder (n) identification code (np) inhibit (v) international payment (np) issuing bank (np) điều kiện toán hệ thống toán bù trừ tự động thân thuộc, na ná thẻ ngân hàng phức tạp tỷ giá chéo phá giá không quán, khác gửi đi, phái chứng từ nhờ thu tương đương cơng ty bao tốn bao tốn, chiết khấu người/bên chuyển hàng mã xác nhận cản trở toán quốc tế ngân hàng 122 letter of authority (np) letter of credit (np) mail transfer (np) open account transaction (np) payment instrument (np) positive cash flows (np) post-dated cheque (adj) promissory note (np) quoting bank (np) real interest rate (np) real money balance (np) reimbursement (n) remittance (n) revaluation (n) services (n) special drawing rights (np) specified sum (np) spot exchange rate (np) spot operations (np) sterilized intervention (np) stipulated document (np) stub (n) surplus (n) trigger (v) unconditional order (np) uncrossed (adj) voucher (n) wire transfer (np) working capital (np) thư ủy nhiệm thư tín dụng chuyển tiền thư giao dịch tài khoản ghi sổ cơng cụ tốn luồng tiền dương chi phiếu đề lùi ngày kỳ phiếu ngân hàng yết giá mức lãi suất thực số dư tiền thực giải ngân kiều hối nâng giá cán cân dịch vụ quyền rút vốn đặc biệt khoản tiền cụ thể tỷ giá giao nghiệp vụ giao can thiệp ngoại hối trung lập văn bắt buộc cuống séc thặng dư khơi gợi, tạo nên lệnh đặt mua vô điều kiện chi phiếu không gạch chéo biên lai, chứng từ chuyển tiền điện tín vốn chu chuyển, vốn lưu động Unit aggregate (n, v) tập hợp, kết hợp 123 avalise (v) bank automated credit service (np) consigned goods (np) coverage (n) deductible (adj) distributor (n) eliminate (v) export factoring (np) expropriation (n) facilitate (v) forfeiter (n) guarantee (v) inconvertibility (n) internal equity (np) medium-sized (adj) mitigation (n) negotiable (adj) prepay (v) proceed (v) revolving lines of credit (np) swap operations (n) swap rate (n) tenor (n) term / quoted currency (np) the foreign exchange market (np) the over-the-counter market (np) trade balance (n) trade finance (n) transfer (n) two-way quotation (np) without recourse (prep) bảo lãnh dịch vụ tín dụng tự động hàng hóa gửi tốn khấu trừ nhà phân phối loại bỏ bao toán xuất truất hữu, chiếm đoạt hỗ trợ công ty bao tốn bảo đảm khơng hốn đổi vốn chủ sở hữu nội tầm trung, trung bình làm nhẹ, làm dịu đàm phán hồn trả tiến hành dịng tín dụng tuần hồn nghiệp vụ hốn đổi tỷ lệ hoán đổi kỳ hạn (hối phiếu) đồng tiền định giá thị trường ngoại hối thị trường phi tập trung cán cân thương mại tài thương mại lệnh chi/ giấy chuyển tiền tỷ giá hai chiều miễn truy đòi 124 REFERENCES Balance of Payments Textbook (1996) International Monetary Fund, Publication services, Washington, DC Cornett, M M & Tehranian, H (2004) An Overview of Commercial Banks: Performance, Regulation and Market Value, Review of Financial Economics 13, North Holland Dictionary of Banking and Finance, 3rd Edition (2005) A&C Black Publishers Ltd Hương, Nguyễn Thị Thu & Lâm Anh, Lại (2011) Thanh tốn & Tín dụng Quốc tế [International Payment and Credit], The Gioi publisher 125 Mackenzie, I (2006) Professional English in Use Finance, Cambridge University Press Marks, J (2007) Check Your English Vocabulary for Banking and Finance, Workbook, A&C Black Publishers Ltd Mishkin, F.S (2009) The Economics of Money, Banking and Financial Markets, 5th Edition, Westley Pilbean, K.S (2006) International Finance, Macmillan Business Sercu, P (2009) International Finance: Theory Into Practice, Princeton University Press Tiến, Nguyễn Văn (2011) Tài Quốc tế, [International Finance], Thong Ke Publisher Tiến, Nguyễn Văn (2011) Thanh toán Quốc tế Tài trợ Ngoại thương, [International Payment and Factoring], Thong Ke Publisher www.adb.org www.bis.org www.imf.org www.sbv.gov.vn www.tapchiketoan.com www.wb.org www.wikipedia.org ANSWER KEYS Unit 1 Vocabulary 1) card 2) account 3) bank 4) saving 5) debit card 6) cash withdraw 7) PIN code 8) unavailable 9) transaction 10) deposit Reading Text 1: A 126 a b c d closing rate popular press middle rate rough indication B a F Text 2: A at to b T for 10 in at 11 to e f g h i j k l distinction supply and demand aspect major currencies c T d F as 12 against e T between 13 against be caused by exceed strengthen weekend (lose value) f F of for 14 to 15 at to B Two ways of quotation: direct and indirect The ratio between the exchange rates of two foreign currencies expressed in terms of a third currency rates which fluctuate according to the demand and supply of one currency One currency may strengthen against another currency but may weaken against the third currency at the same time One currency may strengthen or weaken Unit Vocabulary a) b) c) d) e) overdraft cash point cash debts loan f) account g) borrow h) cheque i) overdrawn k) interest Reading Text 1: A a b c d e f outflows g maturity h mismatches i exceed j position of the reverse be performed ultimately to meet to result in inflows B a currencies purchased result in inflows and currencies sold result in outflows b positive when inflows is larger than outflows, negative when inflows is smaller than outflows 127 c gap is maturity mismatches d forex dealers and money market dealers, banking institutions f delivery of currencies, changes in exchange rates Text 2: A innovations management compared 10 taking 13 alternative managing `` 5exposure taken 11 conversely 14 similarly importance disadvantages enormously 12 movements 15 obligation B Futures, options and swaps Long and short positions risky position: asset sensitive → short position; liability sensitive → long position Options have the advantages of smaller initial outlay in order to accomplish the interest rate risk management The bank is able through the swap to reduce its exposure to interest rate fluctuation, whether asset sensitive or liability sensitive Unit Vocabulary (1) booming (2) loans (3) buyers (4) real estate (5) granted (6) floating (7) subprimes Reading Text 1: A a exports b positive entry c a debit d a payment e borrowing B a 2.b b a Text 2: A (8) rise (9) debts (10) turmoil (11) went (12) auction (13) growth (14) recession f g h i j b 128 a a flow out of purchase result in overseas parties similarly d a equal f net b be matched by g generate c inflows h due to d outflows i resident e be divided into j double-entry B 1F 2F 3T 4F 5T Unit Vocabulary 1) sell 2) exchange 3) promotion Reading 4) to go shopping 5) cost 6) secondhand 7) price 8) afford 9) to my shopping 10) expensive Text 1: A a) b b) c c) c d) b e) b f) d g) c h) a i) b j) c B a b c d e withdrawals credits debit balance in credit freeof charge f g h i j time deposits double entry withdrawal slip open an account the former k business account l in general m sole account n complicated C a) safety/safe b) beneficial c) unlike d) individuals e) procedures D a two: credit and debit balances b when he/she deposits money in his/her account c the interest on time is higher than that on demand 129 d when he/she wants to withdraw money from his/her account e to withdraw all the money left in the account Text 2: A 1c 2d 3a 4b 5e B 1F 2F 3F 4F 5T C withdraw terns/conditions liabilities reserves requirements evaluate the risk Unit Vocabulary 1) mortgage 2) account 3) save 4) broke Reading Text 1: A a) uncertainties maturity 5) lend 6) change b) address 7) loan 8) cheque c) on receipt of 9) savings account 10) exchange rate d) at a discount e) at B a .draft which the importer has to pay on receipt of goods & draft b .exporter can use it as security to borrow funds from his bank c draft which allows a specified period of time after goods are delivered d by buying the Acceptance from the exporter at the appropriate discount Text 2: A 1c B 2d 3b Raise living standards Absolute and comparative advantage Local products Invisible protectionism Unit 130 Vocabulary a) broke c) bargain b) overdrawn d) wealthy e) lends f) afford g) owe h) on i) earns j) cost Reading Text 1: A a) T b) T c) F d) F B a) factoring service c) credit period e) T b) on credit d) hindered e) item C a) on credit b) because capital is tied up in unpaid invoices, which leads to shortage of money for further production c) through their subsidiaries d) buying receivables (unpaid invoice) for goods which have been sold Text 2: A B a) no recourse d) immediately b) spread c) come due e) credit insurance a) to obtain necessary finance b) medium-term finance where guaranteed promissory notes are bought at a discount c) sell notes immediately in the secondary market d) terms, currencies, credit rating of availing bank and country risk e) quote selling price to get net profit, no recourse, no need to arrange credit insuranc 131 .. .ENGLISH FOR BANKING & FINANCE MA Pham Thi Bich Diep INTRODUCTION English for Banking & Finance is for students who are assumed to have reached a level of at least intermediate English. .. the foreign exchange market III The forex market features and benefits of forex trading forms The forex market features The benefits of forex trading forms IV The forex... field of finance and banking The thematic units enable students to enrich their specialized vocabulary as they provide contexts for terms, essential words and phrases in finance and banking Besides,