Учебное пособие для студентов заочной формы обучения для специальностей 190701 «Организация перевозок и управление на транспорте (водном)»

Banking system
Banking system is one of the most important instruments of the economy.

It is an open secret that banks are the most important link in the world of money. This is because, first of all, banks nowadays perform the main part of the work of transferring money from a customer to a seller, by operating the system of payments in the economy. Almost everyone in the world uses or has used banking services. Families keep their savings there, and banks pay them interest rates on their deposits and give them loans to buy expensive goods. Companies conduct payments through them. Commercial organizations, which work at the market and in production, take loans for their needs and conduct all payments with buyers and sellers through them. Landowners and owners of real estate take loans from the banks to buy an estate or to make use of it and pay back loaned money.

Banking services

Structure of banking system.

The various services provided by banks are summarized bellow.

1) The provision of safe deposit facilities for money and valuables.

2) The lending of money: this is the most profitable activity of the banks and the one which provides most of their income.

Bank loans

■ Can be short-term and long-term

■ Mortgages are usually long-term loans given to the client to help him in buying a house or a flat.

■ Mortgages cover no more than 70% of the cost of real-estate.

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3) The issuing of banknotes: in England and Wales this right is restricted to the Bank of England. But some banks in Scotland and Northern Ireland retain the right to issue their own banknotes.

4) The provision of efficient money transmission services (e.g. cheques, credit cards). In addition to these basic functions, modern banks provide a wide range of other financial services.

5) Brokerage (forming an investment portfolio). Establishing a bank account

■ Bank accounts can be short-term and long-term

■ Short-term accounts are usually called current. The money from such account can be withdrawn anytime

■ Long-term accounts are called deposits (or savings the term can vary from 1 month to several years)

■ The interest rate depends on the length of the term of the deposits.

One of the first things should do after you started your own life is establish a bank account. It is not a good idea to carry large amounts of cash or keep it in your living quarters.

Most banks have main offices in the center of cities and towns, and also have smaller offices, called «branches», in other parts of the city or town, as well as in suburban locations. Banks are generally open Mondays through Fridays, usually from 9:00 a.m. to 17:00 noon.

Remember that banks are private businesses. They are all different and each wants to get your business. You should check with several banks to determine which bank offers the best services for your needs.

You should plan to open both a checking and savings account at the same bank, simply because it will be more convenient for you. For example, if you have a savings account and a checking account in the same bank, you can often telephone and ask to transfer funds from your saving account to your checking account. Interests rates on saving and checking accounts vary from bank of bank. Investigate and compare various banks and their rates of interests on accounts before you decide where to open an account.
Cashier's checks

A cashier's check is a check written for you by your bank. You give the bank the money (or it is taken from your account) and the clerk writes a cashier's check, charting a small fee for the service. Usually cashier's checks are written for large amounts to transfer money from one place to another.

A cashier's check is easier to cash than a personal check, and it is safer than carrying a large amount of cash. You do not have to cash a cashier's check at a branch of your bank — it can be cashed at any bank or business.


Personal checks

If you need to buy something expensive and you are short of cash you may use a check. Checks are usually issued by a bank to the client and are stapled into a check-book, containing 10-30 checks.
Filling out a check

1. Write the name of the person or organization to whom the check is payable.

2. If you want the check to be paid only to the person whose details are written on the checks, erase the word «order», and write the word «only» after the name.

3. If you wish to ensure that the check will only be deposited in an account, and will not be exchanged for cash, draw 2 lines // on the top left-hand corner of the check.

4. Write the amount payable in figures.

5. Write the amount payable in words.

6. Write the date, when you want the bank to honor the check. (If you do not write a date, the check will be honored on the date when it is presented to the bank.)

7. Sign the check. The form of your signature should correspond to the sample signature on the account-opening form.

You should also sign next to any corrections made to the details of the check.

You are advised to write the name of the recipient, the amount payable and the date of the check on the check stub, so that you will be able to monitor the processing of the check in your account.

FALCON BANK Pay to order (1)	// (3)	(2)
Amount (5)		(4)
Signature (7)		Date (6)
Cheque No 9999999	Branch No 12/527	Account No 0000000000

Loss or theft of the checks

Inform the bank branch immediately if you discover that the check or check book has been lost or stolen.
The banks of England

Most countries have a central bank, which is responsible for the operation of the banking system. The central bank in the UK is the Bank of England, which was taken into public ownership in 1946. It has many responsibilities, which are summarized below and discussed in more detail later in this chapter.

1) It is the government's bank. It handles the income and expenditure of Exchequer and other government departments. 2) The clearing banks maintain accounts at the Bank of England. The final cash settlements within the banking system and between the banking system and the Bank of England take place through these accounts. The Bank is a banker for about 100 overseas central banks and international monetary institutions.

3) It manages the national debt. This is a major responsibility which involves making repayments on government securities when they mature, undertaking new issues of long-term securities, making regular payments on interest to holders of existing government securities, and handling the weekly issues of Treasury bills. The management of the national debt, as we shall see later, has important effects on the supply of money and the rate of interest.

4) It is the lender of last resort. The Bank of England stands ready to come to the assistance of the banking system in times when it is threatened by a shortage of cash.

5) It acts as the government's agent in the foreign exchange market, in which it can intervene to influence the value of sterling against other currencies.

6) It has the responsibility for carrying out the government's monetary policy.

7) It has legal powers to supervise the operations of other banks. All banks are expected to supply the Bank of England with information about their business, and they have to respond to directives given to them by the bank.

Although the Governor of the Bank of England has a certain amount of independence and his advice is sought and heeded, the Bank is subordinate to the Treasury which may give introductions to the Governor at any time.

Everything in the economy is controlled by money, and banks are a tool-kit for the economy controlling the money circulation between firms, depositors and loaners, and offering services to make that circulation easier for them.

A healthy and stable economy of any country depends on healthy banking services.
GLOSSARY

Foreign exchange market
Trade and payments across national borders require that one of the parties to the transaction contract to pay or receive funds in a foreign currency. At some stage, one party must convert domestic money into foreign money. Moreover, knowledgeable investors based in each country are aware of the opportunities of buying assets or selling debts denominated in foreign currencies when the anticipated returns are higher abroad or when the interest costs are lower. These investors also must use the foreign exchange market whenever they invest or borrow abroad. The foreign exchange market is the largest market in the world in terms of the volume of transactions. That the volume of foreign exchange trading is many times larger than the volume of international trade and investment reflects that a distinction should be made between transactions that involve only banks and those that involve banks, individuals, and firms involved in international trade and investment.

The phenomenal explosion of activity and interest in foreign exchange markets reflects in large measure a desire for self-preservation by businesses, governments, and individuals. As the international financial system has moved increasingly toward freely floating exchange rates, currency prices have become significantly more volatile. The risks of buying and selling dollars and other currencies have increased markedly in recent years. Moreover, fluctuations in the prices of foreign currencies affect domestic economic conditions, international investment, and the success or failure of government economic policies. Governments, businesses, and individuals involved in international affairs find it is more important today than ever before to understand how foreign currencies are traded and what affects their

relative values. In this work, we examine the structure, instruments, and price-determining forces of the world's currency markets.

The foreign exchange markets are among the largest markets in the world, with annual trading volume in excess of $160 trillion. The purpose of the foreign exchange markets is to bring buyers and sellers of currencies together. It is an over-the-counter market, with no central trading location and no set hours of trading. Prices and other terms of trade are determined by negotiation over the telephone or by wire, satellite, or telex. The foreign exchange market is informal in its operations: there are no special requirements for market participants, and trading conforms to an unwritten code of rules.

Almost every country has its own currency for domestic transactions. Trading among the residents of different countries requires an efficient exchange of national currencies. This is usually accomplished on a large scale through foreign exchange markets, located in financial centers such as London, New York, or Paris—in order of importance—where exchange rates for convertible.currencies are determined. The instruments used to effect international monetary payments or transfers are called foreign exchange. Foreign exchange is the monetary means of making payments from one currency area to another. The funds available as foreign exchange include foreign coin and currency, deposits in foreign banks, and other short-term, liquid financial claims payable in foreign currencies. An international exchange rate is the price of one (foreign) currency measured in terms of another (domestic) currency. More accurately, it is the price of foreign exchange. Since exchange rates are the vehicle that translates prices measured in one currency into prices measured in another currency, changes in exchange rates affect the price and, therefore, the volume of imports and exports exchanged. In turn the domestic rate of inflation and the value of assets and liabilities of international borrowers and lenders is influenced. The exchange rate rises (falls) when the quantity demanded exceeds (is less than) the quantity supplied. Broadly speaking, the quantity of U.S. dollars supplied to foreign exchange markets is composed of the dollars spent on imports, plus the amount of funds spent or invested by U.S. residents outside the United States. The demand for U.S. dollars arises from the reverse of these transactions.

Many newspapers keep a daily record of the exchange rates in the highly organized foreign exchange market, where currencies of different nations are bought and sold. For instance, the Wall Street Journal shows the price of a currency in two ways: first the price of the other currency is given in U.S. dollars, and second the price of the U.S. dollar is quoted in units of the other currency. Pairs of prices represent reciprocals of each other. These rates refer to trading among banks, the primary marketplace for foreign currencies.

The foreign exchange market is extremely competitive so there are many participants, none of whom is large relative to the market. The central institution in modern foreign exchange markets is the commercial bank. Most transactions of any size in foreign currencies represent merely an exchange of the deposits of one bank for the deposits of another bank. If an individual or business firm needs foreign currency, it contacts a bank, which in turn secures a deposit denominated in foreign money or actually takes delivery of foreign currency if the customer requires it. If the bank is a large money center institution, it may hold inventories of foreign currency just to accommodate its customers. Small banks typically do not, hold foreign currency or foreign currency-denominated deposits. Rather, they contact large correspondent banks, which in turn contact foreign exchange dealers.

The major international commercial banks act as both dealers and brokers. In their dealer role, banks maintain a net long or short position in a currency, and seek to profit from an anticipated change in the exchange rate. (A long position means their holdings of assets denominated in one currency exceed their liabilities denominated in this same currency.) In their broker function, banks compete to obtain buy and sell orders from commercial customers, such as the multinational oil companies, both to profit from the spread between the rates at which they buy foreign exchange from some customers and the rates at which they sell foreign exchange to other customers, and to sell other types of banking services to these customers.

Frequently, currency-trading banks do not deal directly with each other but rely on foreign exchange brokers. These firms are in constant communication with the exchange trading rooms of the world's major banks.Their principal function is to bring currency buyers and sellers together.

In main all participants of an exchange market are usually divided in two groups. The first group of participants is called speculators; by definition, they seek to profit from anticipated changes in exchange rates.

The second group of participants is known as arbitragers. Arbitrage refers to the purchase of one currency in a certain market and the sale of that currency in another market in response to differences in price between the two markets. The force of arbitrage generally keeps foreign exchange rates from getting too far out of line in different markets.