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INTRODUCTION……………………………………………………………………….….2 000 1. MARKET ECONOMY………………………………………………………………….3 1.1 Business………………………………………………………………………… 1.2 The Economics of Business……………………………………………………. 1.2.1 Planned Economies………………………………………………………… 1.3 Supply, Demand, Price and Competition……………………………………… 2. THE FORMS OF BUSINESS OWNERSHIP……………………………………… 22 2.1 Sole Proprietorships……………………………………………………………. 2.2 Partnerships……………………………………………………………………. 2.3 Corporations…………………………………………………………………… 3. MONEY AND BANKING……………………………………………………………… 41 3.1 What is Money? 3.2 The Supply of Money 3.3 The Banking Industry 3.3.1 Other Financial Institutions…………………………………………………. 3.3.2 Services Provided by the Financial Institutions……………………………… 4. SECURITIES MARKETS……………………………………………………………….61 4.1 How Securities Are Bought and Sold………………………………………..… 4.2 The Role of the Stockbroker……………………………………………………. 5. FINANCIAL MANAGEMENT………………………………………………………….71 5.1 What is Financial Management?………………………………………………. 5.2 Sources of Unsecured Short-Term Financing…………………………………. 5.3 Sources of Secured Short-Term Financing……………………………………. 5.4 Sources of Long-Term Financing……………………………………………… 6. ACCOUNTING………………………………………………………………………… 89 6.1 Accounting and Accountants…………………………………………………. 6.2 The Accounting Equation, The Balance Sheet and the Income Statement….. 7. MANAGEMENT………………………………………………………………………105 7.1 Management Resources……………………………………………………….. 7.2 Basic Management Functions…………………………………………………. 7.3 Levels and Areas of Management……………………………………………… 7.4 Key Management Skills………………………………………………………… 8. MARKETING…………………………………………………………………………..126 8.1 The Value Added by Marketing………………………………………………… –1–
A. Talp ă , O. Calina 8.2 The Marketing Concept. Its Evolution and Implementation…………………. 8.3 Markets and Their Classifications……………………………………………… 8.4 Developing Marketing Strategies………………………………………………
ENGLISH FOR ECONOMIC PURPOSES
The study of business, a major component of our economy, is increasingly important to all. Everyone in our economy interacts with business – through the products we buy, the advertisements we hear, the jobs we hold and the money we invest. From many perspectives, it is important that young people understand the role of business in our society and begin to comprehend what their relationship is to business and the economy in which they live. The fundamental objectives of this book focus on introducing students to the world of business and helping prepare them for a more meaningful and beneficial interaction with businesses and our economy. A basic understanding of the business world and the knowledge of economics are needed by everyone who plans a career in business. The materials presented are designed to facilitate the accomplishment of the following main goals: - Aid students in acquiring a vocabulary of business and economic terms; - Provide students with an understanding of the many activities, problems and decisions involved in operating a business successfully under the present economic conditions; - Help students enrich their economic culture. This book comprises eight basic chapters (1 - 4 chapters are written by Olga Calina, 5 - 8 chapters – by Adela Talpă) and each chapter is accompanied by many other sub-chapters. Each new theme contains the explanation of business and economic terms in English, their translation into Romanian and Russian. The texts are followed by many activities such as pair-work, group-work, individual work, and by such communicative instructive methods as simulation, role-play, problematization, case study, etc. This book is intended primarily for the students of cycle I who study English for economic purposes and for all the others who are interested to study business in English and such aspects of economic realities as management, marketing, accounting, finance, etc. This book also presents some historical data on the money and banking industry development, the accounting origin and others. As this is a language course we can give only a general view of the economic sectors, we do recommend those ones interested in enhancing the sectorial knowledge to consult the books on the reference list. We wish to express a great deal of appreciation to all the teachers at the Chair of Applied Modern Languages who have supported us in publishing this book. The Authors
A. Talp ă , O. Calina
1. MARKET ECONOMY
“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own self-interest” Adam Smith
Learning objectives: 1. Distinguish the main economic systems 2. Understand the definition of business, its risks and rewards 3. Evaluate the chances of starting and operating a business in the Republic of Moldova Study and Learn the Words:
English shares (n) free enterprise a large park where people go to enjoy themselves and where much of the entertainment is connected with one subject: e.g. A westernstyle theme park a thing that happens as a result of sth else English equivalents Romanian acţiuni, titluri de valoare iniţiativă liberă Russian акции частное предпринимательство
parc de distracţie
shareholder (n) competition (n) by-product (n) raw materials to furnish to process tangible goods legal advice automatic transmission power seats remote-control side mirror stick shift to go rough sales revenue to deduct challenge (n) to retail to wholesale income (n) not to go well (about business) seats whose position can be changed automatically
acţionar concurenţă produs secundar materie primă a aproviziona a prelucra bunuri materiale consultaţie juridică cutie de viteză automată
акционер конкуренция побочный продукт сырьё предоставлять перерабатывать материальные товары юридическая консультация автоматическая коробка передач
telecomandă oglinda laterală cutie de viteză manuală venit din vânzări a scădea sarcina grea a vinde cu amănuntul a vinde angro, a vinde cu ridicata venit
дистанционное управление боковое зеркало ручная коробка передач доход от продаж вычитать трудная задача продавать в розницу продавать оптом доход
ENGLISH FOR ECONOMIC PURPOSES
outright (adv) ownership (n) to rent immediately proprietate, drept de proprietate a închiria, a da cu chirie, a arenda собственность, право собственности арендoвать, давать в аренду
There are four types of economic systems: 1) Traditional economy is one in which economic behaviour is based primarily on tradition, custom and habit. 2) Command/planned economy is one in which some central authority or state determines economic behaviour. 3) Market economy is one in which markets play a dominant role in taking economic decisions process. 4) Mixed economy is one in which both free markets and governments have significant effects on the allocation of resources and the distribution of income. Perhaps the most important characteristic of American business is the freedom of individuals to start a business, to work for a business, to buy or sell ownership shares in a business, and to sell a business outright. Within certain limits imposed mainly to ensure public safety, the owners of a business can produce any legal product or service they choose and sell it at any price they set. This system of business, in which individuals decide what to produce, how to produce it, and at what price to sell it, is called free enterprise. It is rooted in the traditional and constitutional right to own property. The American system of free enterprise ensures, for example, the right of Walt Disney to start an entertainment company, to hire an assortment of artists, and to experiment in developing theme parks. Their system gives the current executives at Disney and its shareholders the right to make a profit from the company's success, it gives Disney's management the right to compete with 20th Century Fox, and it gives movie-goers the right to choose between films produced by the two companies and many others. Competition like that between Disney and 20th Century Fox is a necessary and extremely important by-product of free enterprise. Because many individuals and groups can open businesses, there are sure to be a number of firms offering similar products. But a potential customer may want only one such product—say, a Jeep Cherokee or a Chevrolet S-10 Blazer—and not be interested in purchasing both. Each of the firms offering similar products must therefore try to convince the potential customer to buy its product rather than a similar item made by someone else. In other words, these firms must compete with each other for sales. Business competition, then, is essentially a rivalry among businesses for sales to potential customers. In free enterprise, competition works to ensure the efficient and effective operation of American business. Competition also ensures that a firm will survive only if it serves its customers well. Several airlines, for example, have failed because they were unable to serve customers as efficiently and effectively as their competitors did.
Business is the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society's needs. The general term business refers to all such efforts within a society (as in "American business") or within an industry (as in "the steel business"). However, a business is a particular organization, such as American Airlines, Inc., or Sunnyside Country Store & Gas Pumps, Inc. –5–
A. Talp ă , O. Calina No person or group of persons actually organized American business as we know it today. Rather, over the years individuals have organized their own particular businesses for their own particular reasons. All these individual businesses, and all the interactions between these businesses and their customers, have given rise to what we call American business. A person who risks his or her time, effort, and money to start and operate a business is called an entrepreneur. To organize a business, an entrepreneur must combine four kinds of resources: material, human, financial, and informational. Material resources include the raw materials used in manufacturing processes, as well as buildings and machinery. Human resources are the people who furnish their labour to the business in return for wages. The financial resource is the money required to pay employees, purchase materials, and generally keep the business operating. And information is the resource that tells the managers of the business how effectively the other resources are being combined and utilized. Businesses are generally of three types. Manufacturing businesses (or manufacturers) are organized to process various materials into tangible goods, such as delivery trucks or towels. Service businesses produce services, such as haircuts or legal advice. And some firms—called middlemen—are organized to buy the goods produced by manufacturers and then resell them. For example, the General Electric Company is a manufacturer that produces clock radios. These products may be sold to a retailing middleman, which then resells them to consumers in its retail stores. Consumers are individuals who purchase goods or services for their own personal use rather than to resell them. All three types of businesses may sell either to other firms or to consumers. In both cases, the ultimate objective of every firm must be to satisfy the needs of its customers. People generally don't buy goods and services simply to own them; they buy products to satisfy particular needs. People rarely buy an automobile solely to store it in a garage; they do, however, buy automobiles to satisfy their need for transportation. Some of us may feel that this need is best satisfied by an airconditioned BMW with stereo cassette player, automatic transmission, power seats and windows, and remote-control side mirrors. Others may believe that a Ford Taurus with a stick shift and an AM radio will do just fine. Both products are available to those who want them, along with a wide variety of other products that satisfy the need for transportation. When firms lose sight of their customers' needs, they are likely to find the going rough. But when the businesses that produce and sell goods and services understand their customers' needs and work to satisfy those needs, they are usually successful. In the course of normal operations, a business receives money (sales revenue) from its customers in exchange for goods or services. It must also pay out money to cover the various expenses involved in doing business. If the firm's sales revenue is greater than its expenses, it has earned a profit. So profit is what remains after all business expenses have been deducted from sales revenue. A negative profit, which results when a firm's expenses are greater than its sales revenue, is called a loss. The profit earned by a business becomes the property of its owners. So in one sense profit is the return, or reward, that business owners receive for producing goods and services that consumers want. Profit is also the payment that business owners receive for assuming the considerable risks of ownership. One of these is the risk of not being paid. Everyone else—employees, suppliers, and lenders—must be paid before the owners. And if there is nothing left over (if there is no profit), there can be no payments to owners. A second risk that owners run is the risk of losing whatever they have put into the business. A business that cannot earn a profit is very likely to fail, in which case the –6–
ENGLISH FOR ECONOMIC PURPOSES owners lose whatever money, effort, and time they have invested. For business owners, the challenge of business is to earn a profit in spite of these risks.
Verb collocations: To run a business = to be in charge of a business (e.g. to run a hotel, to run a store) To run a newspaper = to be the chief editor of a newspaper To run a test = to do a test To run a risk = to risk To run a temperature = to have a temperature that is higher than normal. Use the above phrases of words in your own sentences.
A. Talp ă , O. Calina
WORD STUDY The word BUSINESS has several meanings. Depending on the meaning this word can be countable or uncountable. It is uncountable when it refers to: - the activity of making, buying, selling or supplying goods or services for money. Syn.: trade, commerce. E.g. big business, small business, to do business, to go into business - the work that is part of your job. E.g. to be away on business. - something that concerns a particular person or organization, their responsibility. E.g. It is my business to organize the exhibition. - a matter, an event, a situation E.g. the business of the day. It is countable when it refers to: - a commercial organization such as a company, shop or factory. E.g. to have several businesses. I. VOCABULARY PRACTICE A) Find the words in the text that are the synonyms of: 1. to buy = 6. intermediary= 2. to persuade= 7. fundamental goal= 3. to employ= 8. businessman= 4. to go bankrupt= 9. to provide sb with sth= 5. to produce= 10. merchandise= B) Find in the text the English equivalents for the following words and phrases: 1. Economie de piaţă/ рыночная экономика 2. Economie mixtă/ смешаная экономика 3. Economie planificată/ плановая экономика 4. A vinde la un preţ/ продавать по цене 5. Furnizor/ поставщик 6. Creditor/ кредитор 7. A nu avea success, a merge prost (despre afaceri)/ не иметь успеха, идти плохо (о делах) 8. A satisface necesităţile clienţilor săi/ удовлетворять нужды своих клиентов 9. A-şi asuma un risc/ взять на себя риск 10. A fi disponibil pentru cineva/ быть в наличии для кого-либо 11. A fi interesat în cumpărare/ быть заинтересованным в покупке 12. Venit din vânzări/ доход от продаж. II. COMPREHENSION Give answers to the following questions: 1. What economic system is characteristic of the Republic of Moldova? 2. What is the most important characteristic of American business? 3. What is the important by-product of free enterprise? 4. What is business and who organized the modern American business?
ENGLISH FOR ECONOMIC PURPOSES 5. What resources must be combined in order to start a business? What do you think, what kind of resources is of greatest importance nowadays? Give your reasons. 6. What types of businesses do you know? To your mind, what type is widespread in our Republic and why? 7. What is the ultimate objective of every firm? Do you agree with it? 8. What is profit and what is a loss? In your opinion, if the firm’s expenses are equal to its sales revenue, can such firm still function or not? 9. What risks are assumed by businessmen? 10. Do you agree or disagree with the statement: “Life in general is a risky business”?
III. What is the usual antonym in the following pairs? 1) to sell 7) to fire 2) producer 8) intangible goods 3) to wholesale 9) to prosper 4) profit 10) to gain 5) borrower 11) to add(e.g. 2+5) 6) employer 12) failure IV. DISCUSSION 1. Is it easy or difficult to start and operate a business in our Republic? 2. What does one need in order to start his/her own business and to be a successful entrepreneur? Choose out of these 3 most important things and give your reasons: - business knowledge - courage - leadership - financial support - tremendous drive (= a very strong desire to do sth) - impertinence - true entrepreneurial spirit - brilliant ideas - communication skills - patience 3. If you had a chance to start a business, in what sphere would you like to work?
1.2. The Economics of Business
Learning objectives: 1. Grasp the economics and economy concepts 2. Analyze Adam Smith’s view about self-interest pursued by private individuals 3. Recognize the four main features of laissez-faire capitalism 4. Comprehend how the 3 basic economic questions are answered in the free-market economy Study and Learn the Words:
English to decide on sth to stem from to argue English equivalents to choose to prove Romanian a izvorî din Russian происходить
A. Talp ă , O. Calina
to pursue to endeavor to employ one’s capital to promote an end capital goods to derive sth from crucial (adj) umpire (n) conflicting interpretations to intent on one’s interest orderly economic system to cast “dollar votes” going price to ease production interest (n) off on a urmări to try, to make efforts to use one’s capital to achieve a goal mijloace producţie to get sth from sth important arbitrator arbitru interpretare contradictorie to give all your attention to sth that interests you organized economic system to make one’s choice by paying dollars present, current price to reduce production dobândă, procent ofertă; aprovizionare cerere invers процент предложение; снабжение спрос наоборот de средства производства третейский судья противоречивое толкование преследовать
supply of sth (n) demand for sth (n) conversely (adv) hence
as a result
Economics is the study of how wealth is created and distributed. By wealth we mean anything of value, including the products produced and sold by business. "How wealth is distributed" simply means "who gets what." According to economic theory, every society must decide on the answers to three questions: 1. What goods and services—and how much of each—will be produced? 2. How will these goods and services be produced? (That is, who will produce them and which resources will be used to do so?) 3. For whom will these goods and services be produced? (This is the question "Who gets what?") The way in which a society answers these questions determines the kind of economic system, or economy, that society has chosen. In the United States, their particular answers have provided them with a mixed economy, which is based on laissez-faire capitalism, or private enterprise. Their free enterprise business system is the practical application of this economic system. Laissez-Faire Capitalism Laissez-faire capitalism stems from the theories of Adam Smith, a Scot. In 1776, in his book The Wealth of Nations, Smith argued that a society's interests are best served when the individuals within that society are allowed to pursue their own self-interest. Every individual endeavors to employ his capital so that its produce may be of greatest value… And he is in this led by an INVISIBLE HAND to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of Society more effectually than when he really intends to promote it.
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ENGLISH FOR ECONOMIC PURPOSES In other words, Smith believed that each person should be allowed to work toward his or her own economic gain, without interference from government. In doing so, each person would unintentionally be working for the good of society as a whole. And society would benefit most when there was the least interference with this pursuit of economic self-interest. Government should therefore leave the economy to its citizens. The French term laissez faire implies that there shall be no interference in the economy; loosely translated, it means "let them do" (as they see fit).
The features of laissez-faire capitalism are: Private Ownership of Property Smith argued that the creation of wealth (including products) is properly the concern of private individuals, not of government. Hence the resources that are used to create wealth must be owned by private individuals. Economists recognize three categories of resources: land, labor, and capital, also known as the factors of production. Land includes the land and the natural resources on and in the land. Labour is the work performed by people. Capital includes financial resources, buildings, machinery, tools, and equipment that are used in an organization's operations. We have referred to these resources as material, human, and financial resources, and we shall continue to do so. Today, business people use the term capital to mean both capital goods and the money needed to purchase them. The private ownership and use of both kinds of capital give us the names capitalism and private enterprise for our economic system. Smith argued further that the owners of the factors of production should be free to determine how these resources are used. They should also be free to enjoy the income and other benefits that they might derive from the ownership of these resources. Economic Freedom Smith's economic freedom extends to all those involved in the economy. For the owners of land and capital, this freedom includes the right to rent, sell, or invest their resources and the right to use their resources to produce any product and offer it for sale at the price they choose. For workers, this economic freedom means the right to accept or reject any job they are offered. For all individuals, economic freedom includes the right to purchase any good or service that is offered for sale by producers. These rights, however, do not include a guarantee of economic success. Nor do they include the right to harm others during the pursuit of one's own self-interest. Competitive Markets A crucial part of Smith's theory is the competitive market composed of large numbers of buyers and sellers. Economic freedom ensures the existence of competitive markets, because sellers and buyers can enter markets as they choose. Sellers enter a market to earn profit, rent, or wages; buyers enter a market to purchase resources and want-satisfying products. Then, in a free market, sellers compete for sales and buyers compete for available goods, services, and resources. This freedom to enter or leave a market at will has given rise to the name freemarket economy for the capitalism that Smith described. Limited Role of Government In Smith's view, the role, of government should be limited to providing defense against foreign enemies, ensuring internal order, and furnishing public works and education. With regard to the economy, government should act only as rule maker and umpire. As rule maker, government should provide laws that ensure economic freedom and promote competition. As umpire, it should act to settle disputes arising from conflicting interpretations of its laws. Government, according to Adam Smith, should have no major economic responsibilities beyond these. – 11 –
A. Talp ă , O. Calina What, How and for Whom in the Free-Market Economy
Smith's laissez-faire capitalism sounds as though it should lead to chaos, not to answers to the three basic economic questions. How can millions of individuals and firms, all intent only on their own self-interest, produce an orderly economic system? One response might be simply, “They can and they do." Most of the industrialized nations of the world exhibit some form of modified capitalist economy, and these economies do work. A better response, however, is that these millions of individuals and firms actually provide very concrete and detailed answers to the three basic questions. What to Produce? This question is answered continually by consumers as they spend their dollars in the various markets for goods and services. When consumers buy specific products, they are casting "dollar votes" for these products. These actions tell resource owners to produce more of this product and more of the capital goods with which the product is manufactured. Conversely, when consumers refuse to buy a product at its going price, they are voting against the product, telling producers to either reduce the price or ease off on production. In each case, consumers are giving a very specific answer concerning a very specific product. How to Produce? The two parts of this question are answered by producers as they enter various markets and compete for sales and profits. Those who produce for a particular market answer the question "Who will produce?" simply by being in that market. Their answer, of course, is "We will.” Competition within various markets determines which resources will be used. To compete as effectively as possible in the product markets, producers try to use the most efficient (least-cost) combination of resources. When a particular resource can be used to produce two or more different products, then producers must also compete with each other in the market for that resource. And, if the price of one needed resource becomes too high, producers will look for substitute resources— say, plastics in place of metals. The resources that will be used to produce are those that best perform their function at the least cost. For Whom to Produce? In a market economy, goods are distributed to those who have the money to purchase them. This money is earned by individuals as wages, rents, profit, and interest—that is, as payment for the use of economic resources. Money is therefore a medium of exchange, an artificial device that aids in the exchange of resources for goods and services. The distribution of goods and services ("who gets what") therefore depends on the current prices of economic resources and of the various goods and services. And prices, in their turn, are determined by the balance of supply and demand. I. VOCABULARY PRACTICE Find antonyms (1-7), synonyms (8-14) in the text to the following words and phrases: 1. public (adj) 8. to try 2. to prohibit 9. profit 3. rarely 10. at wish 4. to accept a job 11. to secure 5. to do good 12. to resolve conflicts 6. to spend money 13. to replace 7. exactly translated 14. to help II. COMPREHENSION A) Give words to the following definitions: 1. The system through which a society answers the 3 economic questions.
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ENGLISH FOR ECONOMIC PURPOSES 2. The study of how wealth is created and distributed. 3. An economic system characterized by private ownership of property, free entry into markets, and absence of government interference. 4. Capital goods and the money needed to purchase them. 5. The right to buy any good or service that is offered for sale by producers. 6. A place in which buyers and sellers of a good or service meet. 7. Land, labour and capital. 8. An economic system in which individuals and firms are free to enter and leave markets at will. 9. A person who settles disputes arising from conflicting interpretations of some official acts. 10. An artificial device that aids in the exchange of resources for goods and services.
B) Answer the following questions: 1. What economic system is there in the USA? 2. Speak about the history of Laissez-faire capitalism. What are its features? 3. What does the right of private property entitle the owner to do? 4. What is land, labour and capital? 5. What is economic freedom? What does it mean for the owners of land and capital, for workers and for all individuals? 6. What are competitive markets? 7. What is the role of government in this economic system? 8. What are the 3 economic questions that every society must answer in order to set up an economic system? 9. What economy do most of the industrialized nations of the world exhibit? 10. Who answers the questions “What to produce?’ ‘How to produce?’, and “For whom to produce?”? C) Finish the sentences: 1. The 3 basic economic questions are… 2. By pursuing his own interest every individual…. 3. For workers economic freedom means… 4. The question “What to produce?” is answered by… 5. If the price of one needed resource becomes too high, the producer…. 6. Prices are determined by… III. DEBATE Which of the 2 points of view concerning Adam Smith’s famous statements about self-interest do you adhere to? Form two teams. Each team should set forth as many arguments as possible to defend their statements. Team A Adam Smith’s statements regarding self-interest are actually statements about greed. The capitalist economic system is effective only because of the greedy behaviour of individuals who are concerned with their own “self-interest”. Team B Smith did not feel self-interest and selfishness were the same, and people are wrong to believe that they are. Smith meant that it is only natural that every person tries to better his own condition. Also, one person’s gain is not necessarily obtained at the other person’s expense.
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A. Talp ă , O. Calina
IV. FOCUS ON GRAMMAR Fill in prepositions where necessary: 1. According ____ economic theory, every society must decide ____ the answers ____ 3 questions. 2. The American particular answers have provided them _____ a mixed economy based ____ private enterprise. 3. Government should leave the economy ____ its citizens. 4. Entrepreneurs can produce any product and offer it ____ sale ____ the price they choose. 5. Buyers and sellers can enter ____ a market and leave it ____ will. 6. When consumers refuse to buy a product ____ its going price, they are voting _____ the product. 7. The distribution of goods and services depends ____ the current prices of economic resources. 8. If a product is sold ___ high price, the demand ____ this product decreases.
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ENGLISH FOR ECONOMIC PURPOSES 1.2.1. Planned Economies
Learning objectives: 1. Comprehend how the 3 basic economic questions are answered in planned economies 2. Differentiate between market economy and planned economies 3. Understand what every operating economy represents in reality Study and Learn the Words:
English at least to some degree utilities (n) real property projected needs professed aims waste (n) to advocate to set prices to fare to outweigh static (adj) to attain subsidy (n) to wind up (wound, wound) to resort to staff (n) unemployment (n) debt (n) on behalf of sb planned needs aims that have been publicly made known devastare to propagate, to sustain to establish prices a o duce a depăşi not changing developing to stop running company and close completely personnel şomaj datorie din partea cuiva or a atinge, a ajunge la subvenţie, subsidiu a it a recurge la прибегнуть к безработица долг от имени кого-л. достичь субсидия English equivalents Romanian cel puţin în oarecare măsură servicii publice proprietate imobiliară Russian по крайней мере в той или иной степени коммунальные услуги недвижимость
разорение поживать перевешивать
As we have briefly discussed the workings of supply and demand in a market economy, let us look quickly at two other economic systems that contrast sharply with the capitalism of Adam Smith. These systems are sometimes called planned economies, because the answers to the three basic economic questions are determined, at least to some degree, through centralized government planning. Socialism In a socialist economy, the key industries are owned and controlled by the government. Such industries usually include transportation, public utilities, communications, and those producing important materials such as steel. (In France, the major banks are nationalized, or transferred to government control. Banking, too, is considered extremely important to a nation's economy.) Land and raw materials may also be the property of the state in a socialist economy. Depending on the country, private ownership of real property (such as land and buildings) and smaller or less vital businesses is permitted to varying degrees. People usually, may choose their own occupations, but many work in state-owned industries. What to produce and how to produce it are determined in accordance with national goals, which are based on projected needs, and the availability of resources—at least for government-owned industries. The distribution of goods and services is also controlled by the state to the extent that it controls rents and wages. Among the professed aims of socialist countries are the equitable – 15 –
A. Talp ă , O. Calina distribution of income, the elimination of poverty and the distribution of social services such as medical care to all who need them, smooth economic growth, and elimination of the waste that supposedly accompanies capitalist competition. Britain, France, Sweden, and India are democratic countries whose mixed economies include a very visible degree of socialism. Other, more authoritarian countries may actually have socialist economies; however, we tend to think of them as communist because of their almost total lack of freedom. Communism If Adam Smith was the father of capitalism, Karl Marx was the father of communism. In his writings (during the mid-nineteenth century), Marx advocated a classless society whose citizens together owned all economic resources. He believed that such a society would come about as the result of a class struggle between the owners of capital and the workers they had exploited. All workers would then contribute to this communist society according to their ability and would receive benefits according to their need. The People's Republic of China, Cuba, and North Vietnam are generally considered to have communist economies. Almost all economic resources are owned by the government in these countries. The basic economic questions are answered through centralized state planning, which sets prices and wages as well. In this planning, the needs of the state generally outweigh the needs of its citizens. Emphasis is placed on the production of capital goods (such as heavy machinery) rather than on the products that consumers might want, so there are frequent shortages of consumer goods. Workers have little choice of jobs, but special skills or talents seem to be rewarded with special privileges. Various groups of professionals (bureaucrats, university professors, and athletes, for example) fare much better than, say, factory workers. The so-called communist economies thus seem to be far from Marx's vision of communism, but rather to practice a strictly controlled kind of socialism. There is also a bit of free enterprise here and there. For example, in the former Soviet Union, the farmers' markets (rinki in Russian) not only were allowed but were also essential to the nation's food supply. However, like all real economies, these economies are neither pure nor static. Every operating economy is a constantly changing mixture of various idealized economic systems. Some evolve slowly; others change more quickly, through either evolution or revolution. And, over many years, a nation, such as Great Britain, may move first in one direction—say, toward capitalism—and then in the opposite direction. It is impossible to say whether any real economy will ever closely resemble Marx's communism.
I. VOCABULARY PRACTICE A) Explain the meaning of the following phrases: 1. to contrast sharply 2. the key industries 3. public utilities 4. banks are nationalized 5. smooth economic growth 6. to change through either evolution or revolution B) Find English equivalents: 1. În dependenţă de ţară/в зависимости от страны 2. Avere imobiliară/недвижимость 3. Într-o măsură oarecare/в той или иной степени 4. Ramurile industriei care aparţin statului/отрасли промышленности, принадлежащие государству 5. În concordanţă cu scopurile statului/в соответствии с целями государства
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ENGLISH FOR ECONOMIC PURPOSES 6. Printre scopurile proclamate/среди провозглашённых целей 7. Distribuirea echitabilă a venitului/справедливое распределение дохода 8. Lichidarea devastării, care ipotetic însoţeşte concurenţa capitalistă/ликвидация разорения, которое предположительно сопровождает капиталистическую конкуренцию 9. Practic lipsa totală a libertăţii/практически полное отсутствие свободы 10. Deficitul frecvent al mărfurilor de larg consum/частый дефицит товаров широкого потребления.
II. COMPREHENSION A) Answer the following questions: 1. Why are socialism and communism sometimes called planned economies? 2. Who owns the key industries in a socialist economy? 3. Does private ownership of property exist in a socialist economy? 4. Where can people work in socialist countries? 5. Who controls the distribution of goods and services in a socialist society? 6. What economies do Britain, France, Sweden and India have? 7. Who was the father of communism and what did he advocate? 8. What countries are considered to have communist economies? 9. Who answers the 3 economic questions in a communist society? 10. Do the so-called communist economies correspond to Marx’s vision of communism? 11. What does every operating economy represent in reality? B) Read the text more carefully and mark the statements with TRUE or FALSE: 1. Planned economy is an ecomomy in which the answers to the 3 basic economic questions are given by private individuals. 2. The key industries of any country are transportation, utilities, communications, and banking. 3. What to produce and how to produce it in a socialist economy depends on the availability of resources. 4. One of the professed aims of socialist countries is the distribution of social services to all who have money to pay for them. 5. India is a social democratic country. 6. In a communist society there is a slogan „Everybody will contribute according to their ability and will receive according to their need”. 7. In a communist society prices and wages are set by the state. 8. Workers in a communist economy can choose any job they like. 9. Land and raw materials may belong to the state in a socialist economy. 10. There is no free enterprise in planned economies. 11. In a communist economy capital goods are produced in larger quantities than consumer goods. 12. In the real world no economy attains „theoretical perfection”. III. Match the words in column A with their definitions in column B: A B 1. subsidy a) The state of a company which is unable to pay its debts and has to be wound up. 2. overstaffing b) Inability to find a job 3. c) A component of the market forces which when it prevails unemployment makes prices of goods rise. – 17 –
4. supply 5. demand 6. ownership 7. bankruptcy
d) e) f) g)
A. Talp ă , O. Calina A payment by a government to producers of certain goods to enable them to survive in a difficult economic situation. Rights over property Employment of personnel in excess of the real necessities A component of the market forces which when it prevails makes prices of goods fall
IV. Fill in the gaps with the words from the list at the end of the text: A market economy is based on private ...(1) in contrast to planned economy where ...(2) ownership prevails. In a free market economy efficiency is the key word, while on the other hand planned economy most likely leads to ...(3). In a free market economy inefficient businesses go ...(4), whereas in a planned economy businesses are ... (5), thus allowing them to survive in spite of their non-satisfactory economic performance. This enables the latter type of economy to resort to ...(6), that is employing more personnel than actually required. Market economy leads to high ... (7) of goods and services, while on the other hand planned economy will not focus on offering high quality goods and services to ... (8). This is due to the fact that in the latter type of economy there is actually no ... (9), as there are ...(10) monopolies and therefore the options of customers are severely restricted. On the other hand in a market economy companies freely ...(11) for a larger ...(12) share, and are thus forced to be efficient and ...(13) staff according to real necessities and ... (14) their resources with utmost care. Bankrupt; compete; competition; customers; inefficiency; manage; state; overstaffing; ownership; quality; market; employ; government; subsidized. V. On the basis of the above text complete the table giving the characteristic features of 2 types of economic systems, the first one has already been done for you: Market economy - private ownership Planned economy - state ownership -
VI. Match the following 3 defintions with the words: Capitalism, Socialism, Communism. 1. An economic system in which everyone has an equal right to a share of a country’s wealth and the government owns and controls the main industries. __________________ 2. An economic system in which the state controls the means of producing everything on behalf of people. __________________ 3. An economic system in which a country’s businesses and industry are controlled and run for a profit by private owners rather than by government. _____________________ VII. DISCUSSION Give extensive answers to the following questions: 1. What are the professed aims of a socialist economy? 2. Do you know the countries in which poverty does not exist?
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ENGLISH FOR ECONOMIC PURPOSES 3. Is it ever possible to eliminate poverty completely or it is something unreal?
VIII. DEBATE Work in groups. Do you agree or disagree with the following statements? Give your reasons: 1. The rich cannot exist without the poor. 2. The state has an obligation to take care of homeless and poor people. 3. The only thing that can remove poverty is sharing. 4. Poverty is not just being without food. It is the absence of affection.
1.3. Supply, Demand, Price and Competition
Learning objectives: 1. Comprehend how supply and demand determine the price 2. Characterize the four forms of competition 3. Analyze the possible advantages and disadvantages competition both for the customers and for the sellers Study and Learn the Words:
English to affect bushel shift (n) inflation (n) generic product brand name Bayer warranty (n) recession (n) to follow suit wariness (n) scrutiny (n) English equivalents to influence a unit for measuring grain, fruit change a general rise in the prices of goods and services not using the name of the company that made it the name given to a product by the company that produces it the name of a famous pharmaceutical company guarantee to follow an example Romanian Russian
recesiune, criză precauţiune, prudenţă cercetare, verificare meticuloasă împrumut, credit
экономический спад осмотрительность, осторожность внимательный осмотр; наблюдение, исследование заём, ссуда
WORD STUDY to rise, to raise, to arise – 19 –
A. Talp ă , O. Calina The verb to rise (rose, risen) is used without object. It means to move from a lower to a higher position: E.g. She rose from the chair. Gas rose in price. Unemployment is rising.
The verb to raise must have an object and it means to lift sth to a higher position or to increase it: E.g. She raised her eyes from her work. Government has raised taxes. to raise money = to collect money The verb to arise (arose, arisen) means to happen, to occur, to start to exist. E.g. A new crisis has arisen. Now complete the following sentences with the 3 studied verbs. Use them in the appropriate tenses. 1. Our supplier ___________ the price of electric equipment. 2. If any misunderstandings ___________ I’ll let you know. 3. The prices of raw materials ________________ recently. 4. The management of the company decided _______________ the salaries. 5. It will be necessary ____________ money if we want to extend the business. 6. We keep them informed of any changes as they ______________ . 7. This book _____________ many important questions. 8. Several new industries _____________ in the town. 9. Those who agree are asked ___________ a hand. 10. Profits _____________ last year by 25%. The supply of a particular product is the quantity of the product that producers are willing to sell at each of various prices. Supply is thus a relationship between prices and the quantities offered by producers, who are usually rational people, so we would expect them to offer more of a product for sale at higher prices and to offer less of the product at lower prices. The demand for a particular product is the quantity that buyers are willing to purchase at each of various prices. Demand is thus a relationship between prices and the quantities purchased by buyers, who are rational people too, so we would expect them to buy more of a product when its price is low and to buy less of the product when its price is high. This is exactly what happens when the price of fresh strawberries rises dramatically. People buy other fruit or do without and reduce their purchases of strawberries. They begin to buy more strawberries only when prices drop. Forms of Competition A free-market system implies competition among sellers of products and resources. Economists recognize four different degrees of competition, ranging from ideal competition to no competition at all. These are pure competition, monopolistic competition, oligopoly, and monopoly. Pure (or perfect) competition is the complete form of competition. It is the market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product. The above definition includes several important ideas: - there is a demand for a single product;
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ENGLISH FOR ECONOMIC PURPOSES - all sellers offer the same product for sale; - all buyers and sellers know everything there is to know about the market; - the market is not affected by the actions of any one buyer or seller. In pure competition the sellers and buyers must accept the going price. But who or what determines the price? Actually, everyone does. The price of each product is determined by the actions of all buyers and all sellers together, through the forces of supply and demand. It is this interaction of buyers and sellers, working for their best interest that Adam Smith referred to as the “invisible hand” of competition. Neither sellers nor buyers exist in a vacuum. What they do is interact within a market. And there is always one certain price at which the quantity of a product that is demanded is exactly equal to the quantity of that product that is produced. Suppose producers are willing to supply 2 million bushels of wheat at a price of $5 per bushel and that buyers are willing to purchase 2 million bushels at a price of $5 per bushel. In other words, supply and demand are in balance, or in equilibrium, at the price of $5. This is the "going price" at which producers should sell their 2 million bushels of wheat. Economists call this price the equilibrium price or market price. Under pure competition, the market price of any product is the price at which the quantity demanded is exactly equal to the quantity supplied. In theory and in the real world, market prices are affected by anything that affects supply and demand. The demand for wheat, for example, might change if researchers suddenly discovered that it had very beneficial effects on users' health. Then more wheat would be demanded at every price. The supply of wheat might change if new technology permitted the production of greater quantities of wheat from the same amount of acreage. In that case, producers would be willing to supply more wheat at each price. Either of these changes would result in a new market price. Other changes that can affect competitive prices are shifts in buyer tastes, the development of new products that satisfy old needs, and fluctuations in income due to inflation or recession. For example, generic or "no-name" products are now available in supermarkets. Consumers can satisfy their needs for products ranging from food to drugs to paper products at a lower cost, with quality comparable to brand name items. Bayer was recently forced to lower the price of its very popular aspirin because of competition from generic products. Pure competition is only a theoretical concept. Some specific markets may come close, but no real market totally exhibits perfect competition. Many real markets, however, are examples of monopolistic competition. Monopolistic competition is a market situation in which there are many buyers along with relatively many sellers who differentiate their products from the products of competitors and it is very easy to enter into this market. The various products available in a monopolistically competitive market are very similar in nature, and they are all intended to satisfy the same need. However, each seller attempts to make its product somewhat different from the others by providing unique product features — an attention-getting brand name, unique packaging, or services such as free delivery or a "lifetime" warranty. Product differentiation is a fact of life for the producers of many consumer goods, from soaps to clothing to personal computers. Actually, monopolistic competition is characterized by fewer sellers than pure competition, but there are enough sellers to ensure a highly competitive market. By differentiating its product from all similar products, the producer obtains some limited control over the market price of its product. An oligopoly is a market situation (or industry) in which there are few sellers (2-8). Generally these sellers are quite large, and sizable investments are required to enter into their market. For this reason, oligopolistic industries tend to remain
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A. Talp ă , O. Calina oligopolistic. Examples of oligopolies are the American automobile, industrial chemicals, and oil refining industries. Because there are few sellers in an oligopoly, each seller has considerable control over price. At the same time, the market actions of each seller can have a strong effect on competitors' sales. If one firm reduces its price, the other firms in the industry usually do the same to retain their market shares. If one firm raises its price, the others may wait and watch the market for a while, to see whether their lower price tag gives them a competitive advantage, and then eventually follow suit. All this wariness usually results in similar prices for similar products. In the absence of much price competition, product differentiation becomes the major competitive weapon. A monopoly is a market (or industry) with only one seller. Because only one firm is the supplier of a product, it has complete control over price. However, no firm can set its price at some astronomical figure just because there is no competition; the firm would soon find that it had no sales revenue, either. Instead, the firm in a monopoly position must consider the demand for its product and set the price at the most profitable level. The few monopolies in American business don't have even that much leeway in setting prices because they are all carefully regulated by government. Most monopolies in America are public utilities, such as we find in electric power distribution. They are permitted to exist because the public interest is best served by their existence, but they operate under the scrutiny and control of various state and federal agencies.
I. VOCABULARY PRACTICE A) Match the words with their definitions:
1. to range from A to B 2. beneficial 3. 4. 5. 6. 7. recession packaging warranty to retain supplier a) the act of taking goods to the people who have ordered them b) the amount of freedom you have in order to do sth in the way you want to c) to continue to have sth d) to vary from one thing to another e) a person or company that provides goods or services f) having a helpful or useful effect g) a written agreement in which a company selling sth promises to repair or replace it if there is a problem with it within a particular period of time h) a difficult time for the economy of a country when there is less trade and more people are unemployed. i) materials used to wrap goods that are sold in shops j) careful and thorough examination
8. leeway 9. scrutiny 10 delivery
B) Find in the text the antonyms to the following words: 1. supply 2. generic product 3. customer 4. to be reluctant to do sth 5. deflation 6. to reduce the price 7. to ban II. COMPREHENSION A) Mark the statements with TRUE or FALSE: 1. Monopoly is a form of competition. 2. There is no product differentiation in pure competition. 3. All sellers offer the same product for sale in monopolistic competition.
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ENGLISH FOR ECONOMIC PURPOSES 4. American automobile industry is an example of pure competition. 5. Product differentiation is a fact of life for the consumers of many goods. 6. A monopolist can set any price he/she wants. 7. In oligopoly there can be 6 sellers. 8. There are more sellers in monopolistic competition than in pure competition. 9. Because of competition from generic products many famous companies are forced to lower the prices of their brand-name products. 10. Oligopolists usually offer similar prices for similar products.
B) Choose the best variant (sometimes 2 variants are possible): 1. Competition offers consumers choices in a) price c) style b) quality d) all of the above 2. In order for competition to exist there must be a) many products b) 2 or more companies in the same business c) 2 or more companies in different businesses d) profits 3. An oligopoly exists when the control of the goods and services is in the hands of a) 1 large company c) 2 big companies in the same business b) several small companies d) 10 sizable companies 4. Many real markets are examples of a) monopoly c) monopolistic competition b) oligopoly d) pure competition 5. By differentiating his product the producer obtains a) many consumers c) profit b) control over price d) monopoly 6. Product differentiation is characteristic of a) monopoly c) monopolistic competition b) oligopoly d) pure competition 7. Barriers to enter the market are characteristic of a) monopoly c) monopolistic competition b) oligopoly d) pure competition III. DISCUSSION 1. Comment on the statement: „Business competition encourages efficiency of production and leads to improved product quality”. 2. List the possible advantages and disadvantages of competition. 3. What kind of competition is there in the market of mobile communication in our country? 4. Give examples of monopolies in our country. Why are monopolies prohibited in some countries? IV. CASE STUDY Read the following text and answer the questions: Business Philosophy at the J.M. Smucker Company „With a name like Smucker’s, it has to be good”. Based on Smucker’s recent success and growth in the jam, jelly, preserves and marmalade industry, it would be hard for anyone to doubt that statement. The total jam and jelly sales for Smucker’s – 23 –
A. Talp ă , O. Calina is over $1billion a year. By first chasing and then surpassing jelly giants Kraft, Inc. and Welch’s, Smucker’s now has a 37 percent share of the total jam and jelly market and is the leading manufacturer in the industry. The J.M.Smucker Company, based in Orrville, Ohio, is a family-run operation. In 1897 Jerome Monroe Smucker decided to bring in extra income by making apple cider and apple butter from old family recipes. On the same property where today’s modern factory now stands, Jerome carefully monitored the quality of his products, personally signing the paper tied over each container of apple butter. Now, at all of Smucker’s ten plants around the country, a devotion to quality remains a key element of Smucker’s business. Soon after Jerome began his business, other members of the Smucker family became involved. They took most of their earnings and poured them back into the company. In 1969 the Smucker family decided to take their company public. They retained 30% of the stock, selling 25% to institutions and pension funds and the rest to individual investors. Paul Smucker (the chief executive and grandson of the founder) and his sons are not taking their number-one position in the jam and jelly market for granted. They know they must fend off foreign jam companies, as well as variety of domestic competitors. Smucker’s must also respond to the new waves of health awareness and calorie consciousness in the USA, as well as changes in consumers’ tastes. Part of the Smucker’s strategy for keeping on top is the introduction of new products. Recently, Smucker’s has had a number of successful new entries into the market. „Simply Fruit”, a fruit with no preservatives or artificial flavours and no extra sugar added, has been well received. Smucker’s is also happy with the sales of its Fresh Pack Strawberry Preserves, available for only a few weeks each year. The Smuckers pride themselves on innovations of all kinds. Smucker’s, sensing the coming of a trend, was the first company in the jam amd jelly industry to print nutritional information on individual product label. It was the first company to use re-sealable lids on its jars. Smucker’ even has a special „invention group” that gets together to discuss ideas. All ideas, no matter how outrageous, are encouraged. All negative comments in these meetings are prohibited. Quality, integrity, and customer relations make up the foundation of Smucker’s company philosophy. Quality comes first, earnings and sales growth come after. Paul Smucker personally writes thank-you notes to all new shareholders. He also suggests that they tell a friend to try Smucker’s products. Smucker’s refuses to purchase advertising time during any television show that contains violence or sex scenes. It wants to mantain its wholesome, old-fashioned image. Smucker’s also pays for full-time federal government inspectors to monitor the entire jam and jelly manufacturing process. Because of this, Smucker’s is the only company to carry the Agricultural Department’s top U.S. Grade A designation on all its products.
COMMENTARY: Preserve (n) = a type of jam made by boilig fruit with a large amount of sugar To chase = to catch up with sb To surpass = to become better than sb else Apple cider = a drink made from the juice of apples that does not contain alcohol Plant = factory Earnings = the profit the company makes To pour sth into sth = to provide a large amount of money for sth To take the company public = to start selling shares of the company on the stock exchange
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ENGLISH FOR ECONOMIC PURPOSES To fend off = to defend or protect yourself from competitors who are attacking you Preservative (n) = a substance used to prevent food from decaying Outragious (adj) = very unusual and slightly shocking Integrity = the quality of being honest Wholesome (adj) = good for your health Grade A designation = having the status of offering the best quality
Questions: 1. What is the business that the J.M. Smucker Company is in? Can such business be profitable in our country? 2. How many plants of this company function and where are they situated? 3. How much percent of shares did this company sell to individual investors? 4. Economists recognize 4 different degrees of competition. In which type of competitive situation does Smucker’s participate? 5. What is the Smucker’s strategy for mantainig the leading position in the industry? 6. What are the major components of Smucker’s business philosophy that have helped this organization survive for over 90 years? 7. Why has Smucker’s been able to compete against jelly giants such as Kraft and Welch’s?
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A. Talp ă , O. Calina
2. THE FORMS OF BUSINESS OWNERSHIP
„That business does not prosper which you transact with the eyes of others” Sir Roger L’Estrange
Learning objectives: 1. Define the three most common forms of business ownership: sole proprietorship, partnership, and corporation 2. Be aware of the advantages and disadvantages of sole proprietorships 3. Grasp the unlimited liability concept 4. Analyze how the sole proprietorships function both in the USA and in the Republic of Moldova Study and Learn the Words:
English sole proprietorship partnership (n) corporation (n) instance (n) to account for (ph.v) corner grocery catering services appliance store to seek sth income tax to get one’s hands on sth unlimited liability assets (n) to seize continuity (n) mortgage loan to be incapacitated on occasion janitor (n) expertise (n) to quit to leave one’s job a credit for which only real estate is pledged to be unable to live or work normally sometimes caretaker to take sth using force continuitate, succesiune credit ipotecar преемственность ипотечный кредит to find or get sth răspundere nelimitată active, avere неограниченная ответственность активы, имущество to ask sb for sth impozit pe venit a small shop that sells food and other things, esp. the one situated near people’s houses the work of providing food and drinks for meetings or social events magazin de electrocasnice particular example, case a constitui, a reprezenta, a se cifra la составлять English equivalents Romanian întreprindere individuală parteneriat, asociere societate pe acţiuni Russian индивидуальное предприятие партнёрство, товарищество акционерное общество
магазин бытовой техники подоходный налог
знание дела, компетенция
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ENGLISH FOR ECONOMIC PURPOSES The three most commmon forms of business ownership in the United States are the sole proprietorship, partnership, and corporation. In terms of ownership, corporations are generally the most complex, and sole proprietorships are the simplest. In terms of organization, however, all three usually start small and simple. Some, like IBM, grow and grow.
2.1. Sole Proprietorships
A sole proprietorship is a business that is owned (and usually operated) by one person. Sole proprietorship is the oldest and simplest form of business ownership, and it is the easiest to start. In most instances, the owner (the sole proprietor) simply decides that he or she is in business and begins operations. Some of the largest of today's corporations, including Ford Motor Company, H.J. Heinz Company, and J.C. Penney Company, started out as tiny sole proprietorships. There are more than twelve million sole proprietorships in the United States. They account for more than two-thirds of the country’s business firms. Sole proprietorships are most common in the retailing, agriculture, and service industries. Thus the specialty clothing shop, corner grocery, and television repair shop down the street are likely to be sole proprietorships. Most of the advantages and disadvantages of sole proprietorships arise from the two main characteristics of this form of ownership: simplicity and individual control. Advantages of Sole Proprietorships Ease and Low Cost of Formation and Dissolution No contracts, agreements, or other legal documents are required to start a sole proprietorship. Most are established without even an attorney. A state or city license may be required for certain types of businesses, such as restaurants or catering services, that are regulated in the interest of public safety. But beyond that, a sole proprietor does not pay any special start-up fees or taxes. Nor are there any minimum capital requirements. If the enterprise does not succeed, or the owner decides to enter another line of business, the firm can be closed as easily as it was opened. Creditors must be paid, of course. But the owner does not have to go through any legal procedure before hanging up an "Out of Business" sign. Retention of All Profits All profits earned by a sole proprietorship become the personal earnings of its owner. This provides the owner with a strong incentive to succeed—perhaps the strongest incentive—and a great deal of satisfaction when the business does succeed. It is this direct financial reward that attracts many entrepreneurs to the sole proprietorship form of business. Flexibility The sole owner of a business is completely free to make decisions about the firm's operations. Without asking or waiting for anyone's approval, a sole proprietor can switch from retailing to wholesaling, move a shop's location, or open a new store and close an old one. A sole owner can also respond to changes in market conditions much more quickly than the operators of other forms of business. Suppose the sole owner of an appliance store finds that many customers now prefer to shop on Sunday afternoons. He or she can make an immediate change in business hours to take advantage of that information (provided that state laws allow such stores to open on Sunday). The manager of one store in a large corporate chain may have to seek the approval of numerous managers before making such a change. Furthermore, a sole proprietor can quickly switch suppliers – 27 –
A. Talp ă , O. Calina to take advantage of a lower price, whereas such a switch could take weeks in a more complex business. Possible Tax Advantages The sole proprietorship's profits are taxed as personal income of the owner. Thus a sole proprietorship does not pay the special state and federal income taxes that corporations pay. (As you will see later, the result of these special taxes is that a corporation's profits are taxed twice. A sole proprietorship's profits are taxed only once.) Also, recent changes in federal tax laws have resulted in higher tax rates for corporations than for individuals at certain income levels. Secrecy Sole proprietors are not required by federal or state governments to publicly reveal their business plans, profits, or other vital facts. Therefore, competitors cannot get their hands on this information. Of course, sole proprietorships must report certain financial information on their personal tax forms, but that information is kept secret by taxing authorities.
Disadvantages of Sole Proprietorships Unlimited Liability Unlimited liability is a legal concept that holds a sole proprietor personally responsible for all the debts of his or her business. This means there is no legal difference between the debts of the business and the debts of the proprietor. If the business fails, the owner's personal property—including house, savings, and other assets—can be seized (and sold if necessary) to pay creditors. Unlimited liability is thus the other side of the owner-keeps-the-profits coin. It is perhaps the major factor that tends to discourage would-be entrepreneurs from using this form of business organization. Lack of Continuity Legally, the sole proprietor is the business. If the owner dies or is declared legally incompetent, the business essentially ceases to exist. In many cases, however, the owner's heirs take over the business and continue to operate it, especially if it is a profitable enterprise. Limited Ability to Borrow Banks and other lenders are usually unwilling to lend large sums to sole proprietorships. Only one person—the sole proprietor—can be held responsible for repaying such loans, and the assets of most sole proprietors are fairly limited. Moreover, these assets may already have been used as the basis for personal borrowing (a mortgage loan or car loan) or for short-term credit from suppliers. Lenders also worry about the lack of continuity of sole proprietorships: Who will repay a loan if the sole proprietor is incapacitated? The limited ability to borrow can keep a sole proprietorship from growing. It is the main reason why many business owners change from the sole proprietorship to some other ownership form when they need relatively large amounts of capital. Limited Business Skills and Knowledge Managers perform a variety of functions (including planning, organizing, and controlling) in such areas as finance, marketing, human resources management, and operations. Often the sole proprietor is also the sole manager—in addition to being a salesperson, buyer, accountant, and, on occasion, janitor. Even the most experienced business owner is unlikely to have expertise in all these areas. Consequently, the business can suffer in the areas in which the owner is less knowledgeable, unless he or she obtains the necessary expertise by hiring assistants or consultants. Lack of Opportunity for Employees The sole proprietor may find it hard to attract and keep competent help. Potential employees may feel that there is no room for advancement in a firm whose owner assumes all managerial responsibilities. And when those who are hired are ready to take on added responsibility, they may find that the only way to do so is to quit the sole proprietorship and either work for a larger firm or start up their own business.
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ENGLISH FOR ECONOMIC PURPOSES
I. VOCABULARY PRACTICE A) Find in the text the words that are synonyms of: 1. very small 6. to lure 2. lawyer 7. to change from sth to sth 3. proprietor 8. to stop 4. promotion 9. very important, essential 5. stimulus 10. responsibility B) Match the words on the left with their definitions on the right:
1. contract 2. license 3. tax on sth 4. start-up fee 5. flexibility 6. business hours 7. dissolution 8. heir 9. assistant 10. savings 11. loan 12. earnings a) the ability to change very quickly in order to suit new conditions b) money that is lent to sb by a bank or another financial organization c) a person who helps or supports sb in their work d) money that you have saved, especially in a bank e) an official written agreement between two parties f) money that you pay in order to set up a new business g) the profit that a company makes h) an official document that shows that permission has been given to do, own or use sth i) the act of officially ending a business j) the hours in a day that a shop or company is open k) money that you have to pay to the government l) a person who has the legal right to receive sb’s property and continue the work after their death
C) Find in the text the English equivalents for the following phrases of words: 1. atelierul pentru reparaţia televizoarelor/мастерская по ремонту телевизоров 2. a lua decizii/принимать решения 3. a cere aprobarea managerului/спрашивать разрешения менеджера 4. a achita un împrumut/выплатить заём 5. a reacţiona la schimbările în condiţiile de piaţă/реагировать на изменения в рыночных условиях 6. viitor antreprenor/будущий предприниматель 7. un credit pe termen scurt/краткосрочный кредит 8. magazin de electrocasnice/магазин бытовой техники 9. a se folosi de informaţia/воспользоваться информацией 10. a-şi asuma răspunderea adăugătoare /взять на себя дополнительную ответственность II. COMPREHENSION A) What do these numbers in the text refer to? 3; 1; 2/3; 12; 2; 5. B) Choose the item that best completes each sentence: 1. Most United States businesses are a) corporations b) partnerships c) sole proprietorships 2. Unlimited liability means that the owner a) has unlimited ability to borrow b) must be liable for his/her company debts – 29 –
A. Talp ă , O. Calina c) cannot be held responsible for his/her company debts 3. All the following are advantages of a sole proprietorship EXCEPT a) the owner is only answerable to himself/herself b) there is no requirement to submit profit accounts c) the possibility to have competent employees 4. If a sum of money was lent to a sole proprietorship, the responsibility to repay the loan is assumed a) by the owner himself/herself b) by the owner’s family members c) by the owner’s staff 5. The major factor that discourages from starting up a sole proprietorship is a) limited ability to borrow b) unlimited liability c) limited business knowledge 6. Employees don’t want to work for a single owner because a) they are given too many responsibilities b) they are not paid as they deserve c) they don’t have the chance to be promoted.
III. Fill in the gaps with the appropriate words whose parts of speech are given in brackets in order to facilitate your task: 1. There are _________ advantages of sole proprietorships. (Numeral) 2. It is _________ and relatively _________ to start and end such form of business. (Adjectives) 3. All the ___________ go to the owner of business. (Noun) 4. The sole proprietor is free _____________ ______________ about everything what refers to his/her firm. (Verb + noun) 5. The sole proprietor pays __________ the tax on his personal income. (Adverb) 6. The single owner is sure that competitors ____________ nothing about his/her business plans, profits or other vital facts. (Verb) IV. Now describe the disadvantages of a sole proprietorship using just one sentence for each of them. V. DISCUSSION 1. What is a start-up fee for a would-be entrepreneur in our country? 2. Try to analyze the advantages and disadvantages of a sole proprietorship by putting them on the scales. To your mind, what pan outweighs – the one with advantages or another one with disadvantages? Give your reasons. VI. FOCUS ON GRAMMAR Comparative and Superlative Degrees: A) Complete the sentences using a comparative form; the first one has been done for you: 1. It’s too noisy here. Can we go somewhere quiter? 2. This coffee is very strong. I like it a bit ____________ 3. The hotel was very cheap. I expected it to be ________________ 4. I was surprised how easy it was to get a loan. I thought it would be _______________
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ENGLISH FOR ECONOMIC PURPOSES 5. You are standing too near the camera. Can __________________ away?
B) Use the superlative degree and underline the correct variant: 1. (large) company in the world is (IBM, General Motors, Chrysler). 2. (rich) country in the world is (Russia, USA, Luxembourg). 3. (tall) building in Europe is in (Germany, France, Great Britain). 4. (USA, India, China) has (large) population. 5. (high) waterfall in the world is in (South Africa, USA, Venezuela).
Learning objectives: 1. Define the word partnership 2. Know different types of partners within a partnership and distinguish between a general and a limited partner 3. Comprehend the importance of the articles of partnership 4. Be aware of the advantages and disadvantages of a partnership Study and Learn the Words:
English to translate receipt (n) to pool real estate personal estate to incur debts prospective partner to file to draw up Secretary of State the terms of the partnership to list to spell out to maintain accounts to extend credit concerned (adj) franchise (n) English equivalents to change sth into a different form Romanian intrare, venit a uni, a pune în comun avere imobiliară avere mobilă a face datorii would-be partner a depune, a prezenta a întocmi Secretar de stat condiţiile parteneriatului a face o listă to explain sth in a clear way to lend money preocupat, interesat a formal permission given by the government to sb who wants to operate a business dead partner a ţine contabilitatea Russian приход объединять недвижимое имущество движимое имущество влезть в долги предоставить составлять Государственный секретарь условия партнёрства предоставить список вести бухгалтерию обеспокоенный, зaинтересованный
The major disadvantages of a sole proprietorship stem from its one-person control—and the limited amount that one person can do in a workday. One way to reduce the effect of these disadvantages is to have more than one owner. Multiple ownership translates into more time devoted to managing, more management expertise, and more capital and borrowing ability. – 31 –
A. Talp ă , O. Calina The Uniform Partnership Act, which has been adopted by many states, defines a partnership as an association of two or more persons to act as coowners of a business for profit. There are approximately 2 million partnerships in the United States. They account for about $370 billion in receipts. However, this form of ownership is much less common than the sole proprietorship or the corporation. In fact, partnerships represent only about 10 percent of all American businesses. Although there is no legal maximum, most partnerships have only two partners. (However, most of the largest partnerships in accounting, law, and advertising have many more than two partners.) Often a partnership represents a pooling of special talents, particularly in such fields as law, accounting, advertising, real estate, and retailing. Also, a partnership may result from a sole proprietor taking on a partner for the purpose of obtaining more capital.
Types of Partners All partners need not be equal. Some may be fully active in running the business, whereas others may have a much more limited role. General Partners A general partner is one who assumes full or shared operational responsibility of a business. Like sole proprietors, general partners are responsible for operating the business. They also assume unlimited liability for its debts, including debts that have been incurred by any other general partner without their knowledge or consent. The Uniform Partnership Act requires that every partnership have at least one general partner. This is to ensure that the liabilities of the business are legally assumed by at least one person. General partners are active in day-to-day business operations, and each partner can enter into contracts on behalf of all the others. Each partner is taxed on his or her share of the profit—in the same way a sole proprietor is taxed. (The partnership itself pays no income tax.) If one general partner withdraws from the partnership, he or she must give notice to creditors, customers, and suppliers to avoid future liability. Limited Partners A limited partner is a person who contributes capital to a business but is not active in managing it; his or her liability is limited to the amount that he or she has invested. In return for their investment, limited partners share in the profits of the firm. Not all states allow limited partnerships. In those that do, the prospective partners must file formal articles of partnership. They must publish a notice regarding the limitation in at least one newspaper. And they must ensure that at least one partner is a general partner. The goal of these requirements is to protect the customers and creditors of the limited partnership. Partners can also be nominal, ostensible, active, secret, dormant, or silent. What type of partner individuals choose to be depends a great deal on how much involvement they want in a particular business or what special abilities they bring to a firm. The six different types of partners have the following characteristics: 1 Nominal partner: not a party to the partnership agreement or a true partner in any sense; by adding his or her name to the partnership, becomes liable as if he or she were a partner if persons have given credit to the firm because of such representation 2. Ostensible partner: active and known to the public as a partner 3. Active partner: active in management but may or may not be known to the public 4. Secret partner: active, but not known to the public as a partner 5. Dormant partner: inactive and not known as a partner 6. Silent partner: inactive, but may be known to the public as a partner The Partnership Agreement
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ENGLISH FOR ECONOMIC PURPOSES
Some states require that partners draw up articles of partnership and file them with the secretary of state. Articles of partnership are a written agreement listing and explaining the terms of the partnership. Even when it is not required, an oral or written agreement among partners is legal and can be enforced in the courts. A written agreement is obviously preferred because it is not subject to lapses of memory. The articles generally describe each partner's contribution to, share of, and duties in the business. They may outline each partner's responsibility—who will maintain the accounts, who will manage sales, and so forth. They may also spell out how disputes will be settled and how one partner can buy the interests of another. Advantages of Partnerships Ease and Low Cost of Formation Like sole proprietorships, partnerships are relatively easy to form. The legal requirements are often limited to registering the name of the business and purchasing whatever licenses are needed. It may not even be necessary to consult an attorney, except in states that require written articles of partnership. However, it is generally a good idea to get the advice and assistance of an attorney when forming a partnership. Availability of Capital and Credit Partners can pool their funds so that their business has more capital than would be available to a sole proprietorship. This additional capital, coupled with the general partners' unlimited liability, can form the basis for a good credit rating. Banks and suppliers may be more willing to extend credit or grant sizable loans to such a partnership than to an individual owner. This does not mean that partnerships can easily borrow all the money they need. Many partnerships have found it hard to get long-term financing simply because lenders worry about enterprises that take years to earn a profit. But, in general, partnerships have greater assets and so stand a better chance of obtaining the loans they need. Retention of Profits As in a sole proprietorship, all profits belong to the owners of the partnership. The partners share directly in the financial rewards. Thus they are highly motivated to do their best to make the firm succeed. Personal Interest General partners are very much concerned with the operation of the firm—perhaps even more so than sole proprietors. After all, they are responsible for the actions of all other general partners, as well as for their own. Combined Business Skills and Knowledge Partners often have complementary skills. If one partner is weak in, say, finances, another may be stronger in that area. Moreover, the ability to discuss important decisions with another concerned individual often takes some of the pressure off everyone and leads to more effective decision making. Possible Tax Advantages Like sole proprietors, partners are taxed only on their individual income from the business. The special taxes such as the state franchise tax that corporations must pay are not imposed on partnerships. Also, at certain levels of income, the new federal tax rates are lower for individuals than for corporations. Disadvantages of Partnerships Unlimited Liability As we have noted, each general partner is personally responsible for all debts of the business, whether or not that particular partner incurred those debts. General partners thus run the risk of having to use their – 33 –
A. Talp ă , O. Calina personal assets to pay creditors. Limited partners, however, risk only their original investment. Lack of Continuity Partnerships are terminated in the event of the death, withdrawal, or legally declared incompetence of any one of the general partners. However, that partner's ownership share can be purchased by the remaining partners. In other words, the law does not automatically provide that the business shall continue, but the articles of partnership may do so. For example, the partnership agreement may permit surviving partners to continue the business after buying a deceased partner's interest from his or her estate. However, if the partnership loses an owner whose specific skills cannot be replaced, it is not likely to survive. Effects of Management Disagreements The division of responsibilities among several partners means the partners must work together as a team. They must have great trust in each other. If partners begin to disagree about decisions, policies, or ethics, distrust may cloud the horizon. Such a mood tends to get worse as time passes – often to the point where it is impossible to operate the business successfully. To reduce disagreements, a number of issues can be settled when forming the partnership. Frozen Investment It is easy to invest money in a partnership, but it is sometimes quite difficult to get it out. This is the case, for example, when remaining partners are unwilling to buy the share of the business that belongs to the partner who is leaving. To prevent such difficulties, the procedure for buying out a partner should be included in the articles of partnership. In some cases, a partner must find someone outside the firm to buy his or her share. How easy or difficult it is to find an outsider depends on how successful the business is.
I. VOCABULARY PRACTICE A) Explain the meaning of the following phrases of words: 1. to incur debts 2. partnerships find it hard to get long-term financing 3. to stand a better chance of doing sth 4. to be highly motivated to do one’s best 5. distrust may cloud the horizon 6. to have a good credit rating 7. to have complimentary skills 8. frozen investment B) Find in the text synonymous phrases to the following: 1. to conclude a contract 2. to give big loans 3. to be reluctant to purchase sth 4. to inform lenders 5. to leave a partnership C) In each horizontal group underline the odd word (which does not belong to the group of synonyms): 1. partner sole proprietor owner master 2. heir successor legatee legator 3. profit income revenue receipt 4. dispute difference discharge disagreement
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5. mortgage 6. to found 7. responsible 8. termination 9. 10. expertise
ENGLISH FOR ECONOMIC PURPOSES capital investment fund
to establish liable dissolution extension ownership explanation
to form up answerable cancellation property experience
to put up languorous disjunction estate competence
II. COMPREHENSION A) Answer the following questions: 1. What is a partnership? 2. What is the legal maximum of co-owners in a partnership? 3. What are the two main types of partners and what is the difference between them? 4. How is each partner taxed? 5. What must the general partner do if he wants to withdraw from a partnership? 6. What are the articles of partnership and what do they describe? 7. What are the similarities and the differences between advantages and disadvantages of a sole proprietorship and partnership? 8. Why is it sometimes difficult to get your money out of business when you want to withdraw from a partnership? B) Mark the statements with TRUE or FALSE: 1. A partnership can consist only of limited partners. 2. Partnerships are the least popular form of business ownership. 3. Partnerships are taxed twice. 4. The status of a general partner is equal to the status of a limited partner. 5. A partnership can comprise no more than 4 partners. 6. The share in the profit of a partner depends on the size of his/her capital investment. 7. The problem sharing in a partnership leads to more effective decision making. 8. If a partnership fails, the debts are paid with the personal assets of both general and limited partner. C) Underline the correct variant to complete the definition: 1. This partner doesn’t exist in reality, his name is added to the partnership in order to obtain a loan from a bank – (dormant, limited, nominal). 2. This partner is active and everybody knows him as a partner – (active, ostensible, general). 3. This partner is not active and risks only the original investment – ( silent, limited, secret). III. DISCUSSION 1. If you had a chance to start a business, would you like to be a sole proprietor or to work in a partnership? 2. When forming a partnership what kind of partner would you like to be – a general or a limited one? Give your reasons. 3. What do you think about family business when all the partners are family members? – 35 –
A. Talp ă , O. Calina Would you form a partnership with your spouse or any other close relative? What conflicts may arise in such a partnership? 4. To your mind, compatibility between partners – is it important or not so much?
IV. FOCUS ON LANGUAGE The word ACCOUNT Match the meaning of the words in bold with their definition in the right:
1. The consulting company has won 2 new accounts in Singapore 2. On no account should these products be released before they are checked. 3. Labour accounts for 45% of the manufacturing costs. 4. Mrs Baker is our regular customer and she may buy on account. 5. By all accounts, we will benefit greatly if we are going to expand next year. 6. Agents buy and sell on their own account. 7. I cannot account for this unexpected decrease in sales. 8. Our development project has to be adjusted on account of the shortage of personnel. 9. Our solicitor has received a detailed account of all our new customers’ business deals. 10. A good manager should take the good performance of his employees into account. a) b) represents on credit
c) because of d) for themselves e) big customers
f) explain g) consider h) under no circumstances i) report j) people say
V. CASE STUDY Imagine that you have a partnership with your best friend. A serious conflict arose between you due to his/her dishonest behaviour towards you. Right now you don’t have the money to buy his/her share of business and you don’t want to sell your share to him/her because your business is rather profitable. What would you do in this situation? VI. TRANSLATION 1. Asociatul meu a făcut datorii fără ştirea mea şi acum eu trebuie să le achit. Мой партнёр влез в долги без моего ведома и теперь мне придется их выплачивать. 2. Înainte de a forma parteneriatul eu m-am consultat cu avocatul meu. Прежде чем создать партнёрство, я проконсультировался со своим адвокатом. 3. Uneori este destul de dificil să te retragi din parteneriat. Иногда бывает очень трудно выйти из партнёрства. 4. Eu şi asociatul meu am hotărât să punem în comun capitaluri pentru a primi un credit mai mare de la bancă. Мой партнёр и я решили объединить наш капитал, чтобы получить более весомый кредит в банке. VII. ROLEPLAY Work in pairs. Imagine that you are a sole proprietor and you own a restaurant. You want to offer 30 percent partnership to your chef. Discuss with him the terms on which you are going to start a mutually profitable business. Use the following questions: – 36 –
ENGLISH FOR ECONOMIC PURPOSES How will the profits be divided between partners? Who will approve payments and sign checks? Will profits be poured back into business or distributed to partners? Which employees will report to which partners? How will the responsibilities be divided between partners? What happens if one partner is dissatisfied with the way another partner handles a particular responsibility? How much time will each partner be required to devote to business? If the business goes rough, how will the partners decide whether to give up or to try to turn it around? How will the conflicts be settled? Will they be ended by deferring to the partner with the most expertise in the matter or by a neutral expert third party?
Learning objectives: 1. Define such form of business ownership as corporation 2. Comprehend how a corporation is formed, who owns it, and who is responsible for its operation 3. Be aware of stockholders’ rights 4. Recognize the basic structure of a corporation Study and Learn the Words:
English to derive from sth to plague restraint (n) to hinder to despose of property binding (adj) on sb to issue stock return (n) the nation (n) lenient (adj) headquarters (n) to entitle sb to sth common stock English equivalents to come or develop from sth to create problems Romanian Russian
restricţie, limită a împiedica a dispune de proprietate care angajează din punct de vedere juridic a emite acţiuni
ограничение мешать, препятствовать распоряжаться собственностью обязательный с юридической точки зрения выпускать акции снисходительный штаб-квартира, главный офис простые акции
income the USA îndulgent, îngăduitor sediu principal to give sb the right to do sth
acţiuni obişnuite, ordinare
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A. Talp ă , O. Calina
preferred stock claim on sth issue (n) proxy (n) Board of directors to set a goal to develop a plan to trade corporate officer chairman (n) treasurer (n) to carry out a strategy to report to sb stockbroker (n) to raise capital legal person natural person unless to recruit in effect perpetual (adj) to take sth over eternal, interminable to gain control of a company by buying its shares to collect money if not to find new employees for a company de fapt financial manager a realiza o strategie a fi în subordinea cuiva agent de schimb (pentru acţiuni) persoană juridică persoană fizică question, matter procură Consiliu de administraţie a stabili un scop a elabora un plan a comercializa funcţionar al corporaţiei preşedinte acţiuni privilegiate pretenţie, drept привилегированные акции претензия, право доверенность Совет директоров поставить цель разработать план торговать служащий корпорации председатель правления реализовать стратегию подчиняться кому-л, давать отчёт биржевой маклер, брокер юридическое лицо физическое лицо
a person who is in a position of authority in a corporation
в сущности, в действительности
The advantages of a partnership over a sole proprietorship derive mainly from the added capital and expertise of the partners. However, some of the basic disadvantages of the sole proprietorship also plague the general partnership. Unlimited liability and restraints on capital resources and borrowing, for example, can hinder a partnership's growth. A third form of business ownership, the corporation, succeeds in overcoming some of these disadvantages. Corporation is an artificial person created by law, with most of the legal rights of a real person. These include the right to start and operate a business, to own or dispose of property, to borrow money, to sue or be sued, and to enter into binding contracts. Unlike a real person, however, a corporation exists only on paper. There are more than 3.2 million corporations in the United States. They comprise only about one-fifth of all businesses, but they account for more than nine-tenths of all sales revenues and more than three-quarters of all business profits. Corporate ownership: The shares of ownership of a corporation are called its stock. The people who own a corporation's stock—and thus own part of the corporation— are called its stockholders, or sometimes its shareholders. Once a corporation has been formed, it may sell its stock to individuals. It may also issue stock as a reward to key employees in return for certain services, or as a return to investors (in place of cash payments). A close corporation is a corporation whose stock is owned by relatively few people and is not traded openly (that is, in stock markets). A person who wishes to – 38 –
ENGLISH FOR ECONOMIC PURPOSES sell the stock of such a corporation generally arranges to sell it privately, to another stockholder or a close acquaintance. An open corporation is one whose stock is traded openly in stock markets and can be purchased by any individual. General Motors, the largest industrial company in the USA, is an example. Most large firms are open corporations, and their stockholders may number in the millions. For example, AT&T is owned by more than 3 million shareholders.
Forming a corporation The process of forming a corporation is called incorporation. The people who actually start the corporation are its incorporators. They must make several decisions about the corporation before and during the incorporation process. Where to Incorporate A business is allowed to incorporate in any state it chooses. Most small and medium-sized businesses are incorporated in the state where they do the most business. However, the founders of larger corporations, or of those that will do business nationwide, may compare the benefits provided to corporations by various states. Some states are more hospitable than others, and some offer low taxes and other benefits to attract new firms. Delaware is acknowledged as offering the most lenient tax structure. A huge number of firms (more than 75,000) have incorporated in that state, even though their corporate headquarters may be located in another state. An incorporated business is called a domestic corporation in the state in which it is incorporated. In all other states where it does business, it is called a foreign corporation. Scars, Roebuck, for example, is incorporated in New York, where it is a domestic corporation. In the remaining forty-nine states, it is a foreign corporation. A corporation chartered by a foreign government and conducting business in the United States is an alien corporation. Volkswagen, Sony, and Toyota are examples of alien corporations. The Corporate Charter Once a "home state" has been chosen, the incorporators submit articles of incorporation to the secretary of state. If the articles of incorporation are approved, they become the firm's corporate charter. A corporate charter is a contract between the corporation and the state, in which the state recognizes the formation of the artificial person that is the corporation. Usually the charter (and thus the articles of incorporation) includes the following information: - Firm's name and address - The incorporators' names and addresses - The purpose of the corporation - The maximum amount of stock and the types of stock to be issued - The rights and privileges of shareholders - How long the corporation is to exist (usually without limit) Each of these key details is the result of decisions that the incorporators must make as they organize the firm—before the articles of incorporation are submitted. Let us look at one area in particular: stockholders’ rights. Stockholders' Rights There are two basic kinds of stock. Each type entitles the owner to a different set of rights and privileges. The owners of common stock may vote on corporate matters, but their claims on profit and assets are subordinate to the claims of others. Generally, an owner of common stock has one vote for each share owned. All common stock owners receive dividends but the amount of these dividends depends on the profitability of the company. The owners of preferred stock usually do not have voting rights, but their claims on profit and assets take precedence over those of common-stock owners. Preferred stock often pays a lower profit return than common stock dividends but that return is fixed and guaranteed. – 39 –
A. Talp ă , O. Calina Perhaps the most important right of owners of both common and preferred stock is to share in the profit earned by the corporation. Other rights include being offered additional stock in advance of a public offering (pre-emptive rights); examining corporate records; voting on the corporate charter; and attending the corporation's annual stockholders' meeting, where they may exercise their right to vote. Because common stockholders usually live all over the nation, very few actually attend the annual meeting. Instead, they vote by proxy. A proxy is a legal form that lists issues to be decided and requests that stockholders transfer their voting rights to some other individual or individuals. The stockholder registers his or her vote and transfers his or her voting rights simply by signing and returning the form. Organizational Meeting As the last step in forming a corporation, the original stockholders meet to elect their first board of directors. (Later, directors will be elected or re-elected at the corporation's annual meetings.) The board members are directly responsible to the stockholders for the way they operate the firm.
Corporate structure Board of Directors The board of directors is the top governing body of a corporation, and, as we noted, directors are elected by the shareholders. A corporation is an artificial person. Thus it can act only through its directors, who represent the corporation’s owners. Board members can be chosen from within the corporation or from outside it. Directors who are elected from within the corporation are usually its top managers—the president and executive vice presidents, for example. Those who are elected from outside the corporation are generally experienced managers with proven leadership ability and/or specific talents that the organization seems to need. In smaller corporations, majority stockholders may also serve as board members. The major responsibilities of the board of directors are to set company goals and develop general plans (or strategies) for meeting those goals. They are also responsible for the overall operation of the firm. Corporate Officers A corporate officer is appointed by the board of directors. The chairman of the board, president, executive vice presidents, and corporate secretary and treasurer are all corporate officers. They help the board make plans, carry out the strategies established by the board, and manage day-today business activities. Periodically (usually each month), they report to the board of directors. And once each year, at an annual meeting, the directors report to the stockholders. In theory, then, the stockholders are able to control the activities of the entire corporation through its directors. I. VOCABULARY PRACTICE A) Find in the text synonyms (1-6) and antonyms (7-12) to the following: 1. restriction 7. natural 2. to possess 8. to lend 3. aim 9. from within (the company) 4. power of attorney 10. publicly 5. to achieve a goal 11. tiny (adj) 6. whole (adj) 12. to forbid B) Choose the correct meaning of the following words: 1. to hinder means:
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ENGLISH FOR ECONOMIC PURPOSES a) to be very common at a particular time; b) to make it difficult for sth to happen; c) to understand the core of the situation. to sue means: a) to bring an action against sb; b) to bring sth into force; c) to bring the matter forward. lenient means: a) generous and friendly; b) using strong pressure; c) not as strict as expected. to submit means: a) to draw up a document; b) to present a document; c) to sign a document. to attend means: a) to be present at an event; b) to guess sth from an available information; c) to send sb a message.
II. COMPREHESION A) Give words to the following definitions: 1. A large business company ....................................... 2. A person who owns shares of a company …………………………….. 3. The process of forming a corporation …………………………….. 4. A contract between the state and the corporation which gives to the latter the legal status ………………………………. 5. A group of people who have power to make decisions and control a corporation …………………………. 6. A legal document through which a shareholder gives the authority to some other individual to vote instead of him ……………………………. B) Answer the following questions: 1. What is the difference between a close and an open corporation? 2. Who are incorporators? 3. Why have most American companies incorporated in Delaware? What do you know about this state? 4. What is the difference between domestic, foreign and alien corporations? 5. What information does the corporate charter include? 6. What rights do stockholders have? 7. In your opinion, what type of stock – common or preferred do the stockholders prefer to buy and why? 8. What does it mean to vote by proxy? 9. Arrange the following persons according to the hierarchy of corporate structure: a) corporate officers b) stockholders c) workers d) board of directors. To your mind, can a corporation be effectively controlled under such a system of levels? 10. What are the primary responsibilities of a corporation’s board of directors? – 41 –
A. Talp ă , O. Calina
C) Mark the statements with TRUE or FALSE: 1. The incorporators are the primary shareholders of the corporation. 2. A corporation chartered by a foreign government in the USA is called a foreign corporation. 3. All stockholders of a corporation have the right to vote at the company’s Annual Meeting. 4. The chairman of the board is a corporate officer. 5. Most large firms in the USA are close corporations. 6. Stockholders may also serve as members of the board of directors. 7. A corporation may comprise no more than 1 million shareholders. 8. Board members are chosen only from within the corporation.
Advantages of Corporations
Learning objectives: 1. Know advantages and disadvantages of a corporation 2. Grasp the limited liability concept Limited Liability One of the most attractive features of corporate ownership is limited liability. Each owner’s financial liability is limited to the amount of money she or he has paid for the corporation’s stock. This feature arises from the fact that the corporation is itself a legal being, separate from its owners. If a corporation should fail, creditors have a claim only on the assets of the corporation, not on the personal assets of its owners. Ease of Transfer of Ownership Let us say that a shareholder of a public corporation wishes to sell his or her stock. A telephone call to a stockbroker is all that is required to put the stock up for sale. There are usually willing buyers available for most stocks, at the market price. Ownership is transferred automatically when the sale is made, and practically no restrictions apply to the sale and purchase of stock. Ease of Raising Capital The corporation is by far the most effective form of business ownership for raising capital. Like sole proprietorships and partnerships, corporations can borrow from lending institutions. However, they can also sell stock to raise additional sums of money. Individuals are more willing to invest in corporations than in other forms of business because of the limited liability that investors enjoy and because of the ease with which they can sell their stock. Perpetual Life Because a corporation is essentially a legal “person,” it exists independently of its owners and survives them. Unless its charter specifies otherwise, a corporation has perpetual life. The withdrawal, death, or incompetence of a key executive or owner is not cause for the corporation to be terminated. Sears, Roebuck, incorporated almost a century ago, is one of the nation’s largest retailing corporations, even though its original owners, Richard Sears and Alvah Roebuck, have been dead for decades. Specialized Management Typically, corporations are able to recruit more skilled and knowledgeable managers than proprietorships and partnerships. This is because they have more available capital and are large enough to offer considerable opportunity for advancement. Within the corporate structure, administration, human resources, finance, sales, and operations are placed in the charge of experts in these fields. For instance, the Bechtel Group hired Caspar Weinberger, former Secretary of Defense. Disadvantages of Corporations
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ENGLISH FOR ECONOMIC PURPOSES
Difficulty and Expense of Formation Forming a corporation can be a relatively complex and costly process. The use of an attorney may be necessary to complete the legal forms and apply to the state for a charter. Charter fees, attorney’s fees, the costs of stock certificates and required record keeping, and other organizational costs all add up. These payments can amount to thousands of dollars for even a medium-sized corporation. The costs of incorporating, in both time and money, discourage many owners of smaller businesses from forming corporations. Government Regulation Most government regulation of business is directed at corporations. A corporation must meet various government standards before it can sell its stock to the public. Then it must file many reports on its business operations and finances with local, state, and federal governments. In addition, the corporation must make periodic reports to its stockholders about various aspects of the business. Also, its activities are restricted by law to those spelled out in its charter. Double Taxation Unlike sole proprietorships and partnerships, corporations must pay a tax on their profits. Then stockholders must pay a personal income tax on profits received as dividends. As a result, corporate profits are taxed twice— once as corporate income and again as the personal income of stockholders. Lack of Secrecy Because open corporations are required to submit detailed reports to government agencies and to stockholders, they cannot keep their operations confidential. Competitors can study these required corporate reports and then use the information to compete more effectively. In effect, every public corporation has to share some of its secrets with its competitors. I. VOCABULARY PRACTICE Find in the text the English equivalents for the following phrases of words: 1. A revendica proprietatea corporaţiei/претендовать на собственность корпорации; 2. A expune acţiunile pentru vînzare/выставить акции на продажу; 3. Doar dacă în carta corporaţiei nu este prevăzut altceva/ если только в уставе корпорации не предусмотрено иное; 4. A corespunde standartelor de stat/соответствовать государственным стандартам; 5. Activităţile stipulate în carta corporaţiei /деятельность, оговоренная в уставе корпорации; 6. Fostul Ministru al Apărării/бывший министр обороны. II. COMPREHENSION Match the words with their definitions:
1. limited liability 2. lending institutions 3. stockbroker 4. unlimited liability 5. dividend 6. management 7. chairman 8. board of directors a) the effective management committee of a corporation b) if the company fails, creditors have a claim on the personal assets of its owners c) the highest position on a company’s board of directors d) if the company goes bankrupt, the shareholders cannot be asked to pay more than the nominal value of their shares e) banks, insurance companies, building societies f) a person who buys and sells stocks for other people g) an amount of the profits that a company pays to its shareholders h) the people who run and control an organization
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III. Complete the table with the appropriate words describing the pluses and minuses of the corporation status. (Figures denote the number of words):
1. 2. 3. 4. 5. Advantages Limited (1) Unlimited (1) Unlimited ability (1) Ability to recruit (2) Lack of difficulty in (2) 1. 2. 3. 4. Disadvantages Its profits are (2) Difficult and Its activities are controlled by (1) Impossibility to keep its (2)
IV. FOCUS ON GRAMMAR Complete the sentences using an adjective from box A and a preposition from box B:
A similar interested critical good responsible serious satisfied binding different B of with for about from at to in on
1. Could you tell me who is _____________________________ customer complaints? 2. My current job is very _________________________________ my previous one. 3. Last month the company’s sales dropped dramatically. This is only ___________________ a slump registered 5 years ago. 4. Our shareholders are greatly ________________ the profit and loss account we publish twice a year. 5. The chairman opened the meeting by saying he was ____________________ the progress made. 6. The press were _________________________ the company because staff training had not improved. 7. My manager is _______________________ firing 2 people. 8. Tom was appointed as president of our corporation because he is very _______________ leading and motivating people. 9. The contract comes into force on the day of its signature and is _________________ both parties. REVISION Learning objectives: 1. Understand the basic differences among the 3 forms of business ownership 2. Give arguments for their choice of the most advantageous form of business ownership
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ENGLISH FOR ECONOMIC PURPOSES
I. Fill in the gaps with the necessary words: Businesses are organized in different ways. When there is one owner, the company is called a …(1) proprietorship. If two or more people associate to form a company they make up a …(2). In both these organizations the …(3) supply the capital and as a rule they assume the management of the organization. They also have …(4) liability and are entitled to take possession of all the profits the company makes and all … (5) are borne by them. On the other hand there are limited …(6) companies. Such types of companies are either …(7) or public. The former type involves that the public has not …(8) to the company, the shares are sold to a restricted number of people. …(9) are the parts into which the assets of a company are divided. The owners of the company are …(10) and they hold shares in proportion with the …(11) they invested in the company. The management of limited liability company is entrusted to a …(12) of directors elected by the …(13) at the Annual Meeting. A shareholder who cannot attend the meeting may vote by …(14). The shareholders are entitled to the …(15) made by the company and therefore receive …(16). When a stockholder is offered additional stock in advance of public it means that he has a …(17) right. II. What is the usual antonym in the following pairs? 1. general partner and 2. common stock and 3. private corporation and 4. short-term financing and 5. formation and 6. to borrow and 7. employer and 8. profit and III. Complete the following chart:
Characteristics 1. The number of owners 2. Organizational documents 3. Taxes paid 4. Liability 5. Ability to borrow 6. Government control 7. The most widespread form of doing business 8. The most profitable form of doing business Sole proprietorship Partnership Corporation
IV. DISCUSSION 1. What kind of organization would you like to work for (as an employee) in the future? 2. What do you think your first position will be? – 45 –
3. 4. 5.
A. Talp ă , O. Calina Do you expect to have one immediate boss, to work for more than one superior, or to be part of a team? Would you like to work for an organization where managers and workers are treated as equals or in a company in which there are status symbols such as big offices and company cars for senior staff? Give your reasons. In American corporations employees are offered a considerable opportunity for promotion. What are the chances to advance in our Moldavian corporations, say from a simple worker to a member of the board? If you were to start a business, which ownership form would you use? What factors might affect your choice of ownership form?
V. CASE STUDY Imagine finding yourself in the following situation: you are an executive vice president in a corporation A, which is not very successful. Another big corporationcompetitor B wants to take over the corporation you work in. They propose you to give away all the secret financial information and for this they promise you the position of the chairman of the board in the new big corporation. Besides you will be offered 3% of corporation’s shares. What would you do in this situation? VI. READING Arrange the following paragraphs into a coherent text and entitle it: (1) An individual like Henry Ford might want to begin a small enterprise and personally retain total responsibility, but once it starts to grow, a partnership or a corporation would need to be formed. The key factor in owning any company is the guarantee called limited liability: the owners of a company never have to pay more than they have invested in the company. Their liabilities are limited. When a company goes bankrupt, the owners can never be required to pay its unpaid bills. (2) Many countries make a clear distinction between public and private companies, with separate designations such as AG and GmbH in Germany, or Plc and Ltd in Britain. Public companies are those large enough to have their shares traded on stock exchanges. The shares of privately owned companies are not available to the general public. In the USA the distinction between public and private companies is not so great, that is why most companies simply bear the title Inc or “Incorporated”. The heart of capitalism is private ownership and a Limited Liability Company allows people to own almost anything – from skyscrapers to television stations – without risking their personal assets should the company go bankrupt. The names of companies around the world reflect this guarantee of limited liability. The abbreviations “GmbH” in Germany, “Inc” in the USA, or “Ltd.” in most other English-speaking countries, “SRL” in Moldova and Romania indicate that the firm is limited liability company and investors have nothing more to lose than the money invested in their shares. The “S.A.” in French and Spanish-speaking countries also refers to limited liability by defining shareholders as “anonymous”. Since the identity of shareholders can be kept secret, the creditors of a bankrupt company have no right to pursue them for the company’s unpaid debts.
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ENGLISH FOR ECONOMIC PURPOSES (5) The worst that can happen to investors in a limited liability company is losing their initial investment if the company fails. By limiting the downside risk for shareholders, companies are able to attract investors and raise large amounts of funds through sales of shares rather than by borrowing money at potentially high interest rates.
VII. FOCUS ON LANGUAGE Fill in to run or to do in the following sentences: 1. I ………. freelance work in my spare time. 2. I ……….. my own company from home. 3. My friend ………….. an agency for computer programs. 4. What do you …………… for a living? 5. Who ………… the business when you are away? 6. I have been …………….. business with this French firm for 2 years. 7. The business doesn’t…………. itself, you know! 8. The college ……… language courses for foreign students. 9. Our van ……… on diesel. 10. The car was …………….. 90 miles an hour.
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3. MONEY AND BANKING
“ Money represents the sixth sense that makes it possible for us to enjoy the other five”
Learning objectives: 1. Define the money concept 2. Enumerate the demands for money 3. Know the functions and important characteristics of money Study and Learn the Words:
English to trade sth for sth to go on the spree provided that necessities (n) commodity money currency (n) lifeblood (n) shelter (n) transaction (n) for a “rainy day” bank account precaution (n) demand (n) yardstick (n) to assign value to sth in terms of money yard pound (abbr. lb) to hold on to sth savings account to accommodate purchases odd amounts even amounts denomination (n) multiples handled (adj) to counterfeit to be uneasy about sth genuine (adj) to be unsure about sth authentic, real, not a copy standard, criterion to price sth unit for measuring length, equal to 0,9144 of a meter unit for measuring weight, equal to a 0,454 of a kilogram to keep sth to make purchases sume impare sume cu soţ valoare multiplu folosit, uzat a falsifica, a contraface нечётные суммы чётные суммы достоинство (монеты) кратные использованный, изношенный подделывать English equivalents to exchange sth that you have for sth that sb else has Romanian Russian
a petrece, a avea chef cu condiţia că articole de primă necesitate banii-marfă valuta, monedă sursă, putere de viaţă casă, adăpost transacţie, afacere pentru zile negre cont bancar prevedere, precauţie necesitate, trebuinţă exprimaţi în bani iard livră
кутить при условии предметы первой необходимости товарные деньги валюта, деньги источник кров сделка, дело на чёрный день банковский счёт предосторожность, предусмотрительность потребность в денежном выражении ярд фунт
cont de economii
The word money is uncountable and is used with the verb in singular: E.g. How much money is there in my account?
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ENGLISH FOR ECONOMIC PURPOSES Idioms with Money: match the meaning of the words in bold with their definition in the right.
1. For my money, he is one of the best financiers in our company. 2. People in our Republic pay good money to visit Paris. 3. His prediction was right on the money. 4. He will win the competition for the contract, I’d put money on it. 5. There is no such thing that he can’t afford, because he is made of money. a) very rich b) accurate c) in my opinion d) I’m sure about it e) a lot of money
Here are some sayings about money. Comment on them in pairs: - Money makes the world go round - Money is the root of all evil - Time is money - The only way to double your money is to fold the banknotes and put them into your pocket - Money talks - Easy come, easy go
3.1. What is Money?
Money is considered to be one of the greatest inventions of humanity along with the alphabet and wheel. Its role in a society’s life is still very important. As Shakespeare wrote: “Gold makes white out of black and a hero out of a coward”. So what is money? Money is anything used by a society to purchase goods and services or resources. The members of the society receive money for their products or resources; then they either hold that money or use it to purchase other products or resources, when and how they see fit. Before money was in general use, people traded goods and services for other goods and services. This system of the exchange of goods and services without the use of money is called barter system. For example, one family may raise vegetables and herbs on a plot of land; and another may weave cloth. To obtain food, the family of weavers trades cloth for vegetables, provided that the farming family is in need of cloth. The trouble with barter is that the two parties in an exchange must need each other’s product at the same time, and the two products must be roughly equal in value. It may work well when few products, primarily the necessities of life, are available. But even very primitive societies soon developed some sort of money to eliminate the inconvenience of trading by barter. Over the years, different groups of people have used all sorts of objects as money – whale’s teeth, stones, beads, seashells, salt, furs, tobacco, copper crosses, and such metals as gold and silver. Such items are known as commodity money. The first coins made of gold and silver appeared in China in the IXth century BC. Alexander the Great (356-323BC) was the first emperor who engraved his image on the coin of his empire. Later almost all the other monarchs followed suit. The use of paper money began in the early XVIIth century. Today, the most commonly used objects are metal coins and paper bills, which together are called currency. Money has been called "the root of all evil." It has also been described as the "lifeblood of commerce." But however you may look upon it, money remains in great demand. Many economists give three main reasons, or demands, for money: – 49 –
A. Talp ă , O. Calina 1. The need for money for payment of wages, rents, debts, and the costs of food, clothing, and shelter. This type of need is called a transaction demand. The money is needed for transactions of daily life. The transaction demand is the strongest among lower income people. They need almost all their money for the necessities of life. People with higher incomes can set aside part of their income for investments and savings. 2. The need for money for expenses that may arise in the future. The money is set aside for a “rainy day,” usually in a bank account; it is not usually invested in long-term or risky projects since the money must be at hand when needed. The demand for this “rainy day” money is called a precautionary demand. It is held as a precaution in the event of future needs. 3. The need for money for investment purposes. People may want to invest money in business, land, buildings, or antiques. These investments are risky. But people who invest in them are using their money to earn money. The demand for this money is called investments demand. There is always a chance of losing money in such investments. When the demand for money is for very risky projects, it is called a speculative demand.
The Functions of Money We have already noted that money aids in the exchange of goods and services for resources. And it does. But that’s a rather general way of stating money’s function. Let us look at three specific functions of money in any society: 1. Money Serves as a Medium of Exchange A medium of exchange is anything that is accepted as payment for products and resources. This definition looks very much like the definition of money. And it is meant to, because the primary function of money is to serve as a medium of exchange. The key word here is accepted. As long as the owners of products and resources accept money in an exchange, it is performing this function. Of course, these owners accept it because they know it is acceptable to the owners of other products and resources, which they may wish to purchase. For example, the family in our earlier example can sell their vegetables and use the money to purchase cloth from the weavers. This eliminates the problems associated with the barter system. 2. Money Serves as a Measure of Value A measure of value is a single standard or “yardstick” that is used to assign values to, and compare the values of, products and resources. Money serves as a measure of value because the prices of all products and resources are stated in terms of money. It is thus the “common denominator” that we use to compare products and decide which we shall buy. Imagine the difficulty you would have in deciding whether you could afford, say, a pair of shoes if it were priced in terms of yards of cloth or pounds of vegetables—especially if your employer happened to pay you in toothbrushes. 3. Money Represents a Store of Value Money that is received by an individual or firm need not be used immediately. It may be held and spent later. Hence money serves as a store of value, or a means for retaining and accumulating wealth. This function of money comes into play whenever we hold on to money—in a pocket, a cookie jar, a savings account, or whatever. Value that is stored as money is affected by fluctuations in the economy. One of the major problems caused by inflation is a loss of stored value: as prices go up in an inflationary period, money loses value. Suppose you can buy a Sony stereo system for $1,000. Then we may say that your $1,000 now has a value equal to the value of
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ENGLISH FOR ECONOMIC PURPOSES that system. But let us suppose that you wait a while and don’t buy the stereo immediately. If the price goes up to $1,100 in the meantime because of inflation, you can no longer buy the stereo with your $1,000. Your money has lost value because it is now worth less than the stereo.
Important Characteristics of Money To be acceptable as a medium of exchange, money must be fairly easy to use, it must be trusted, and it must be capable of performing its functions. Together, these requirements give rise to five essential characteristics: Divisibility The standard unit of money must be divisible into smaller units to accommodate small purchases as well as large ones. American standard is the dollar, and it is divided into one-hundredths, one-twentieths, one-tenths, onefourths, and one-halfs through the issuance of coins (pennies, nickels, dimes, quarters, and half-dollars, respectively). These allow people to make purchases of less than a dollar and of odd amounts greater than a dollar. Portability Money must be small enough and light enough to be carried easily. For this reason, paper currency, is issued in larger denominations— multiples of the standard unit. Five-, ten-, twenty-, fifty-, and hundred-dollar bills make our money convenient for almost any purchase. Stability Money should retain its value over time. When it does not (during periods of high inflation), people tend lo lose faith in their money. They may then turn to other means of storing value (such as gold and jewels, works of art, and real estate). In extreme cases, they may use such items as a medium of exchange as well. They may even resort to barter. Durability The objects that serve as money should be strong enough to last through reasonable usage. No one would appreciate (or use) dollar bills that disintegrated as they were handled or coins that melted in the sun. Difficulty of Counterfeiting If a nation’s currency were easy to counterfeit— that is, to imitate or fake—its citizens would be uneasy about accepting it as payment. Even genuine currency would soon lose its value, because no one would want it. Thus the countries that issue currency do their best to ensure that it is very hard to reproduce. I. VOCABULARY PRACTICE A) Find in the text the words that are the synonyms of: 1. on condition that= rise= 2. problem= out (adj)= 3. necessity= to forge= 4. to help= difficult= 5. outright (adv)= banknote= B) Explain the meaning of the following phrases of words: 1. to be roughly equal in value 2. to come into play 3. to be in great demand 4. to be at hand 5. to follow suit 6. to be fairly easy to use sth – 51 –
to worn8. 9.
A. Talp ă , O. Calina 7. to last through reasonable usage
C) Give English equivalents: 1. mijloc de schimb/ средство обмена 2. măsurare a valorii/мера стоимости 3. numitor comun/общий знаменатель 4. lot de pămînt/участок земли 5. conservarea valorii/сохранение стоимости 6. banknotele se emit în valoarea mai mare/денежные купюры выпускаются большим достоинством 7. a-şi pierde încrederea/потерять веру 8. proprietatea imobiliară/недвижимость 9. moneda veritabilă/подлинные деньги 10. oamenii cu un venit mai scăzut/люди с более низким доходом. II. COMPREHENSION A) Give answers to the following questions: 1. What is money and what do you know about its history? 2. What is barter and what is the trouble with it? 3. What is commodity money and who used this money? 4. Why do people need money? 5. Name the functions of money and characterize them. 6. Enumerate the characteristics of money. Which one seems the most appealing to you and why? 7. Why should the standard unit of money be divided into smaller units? Associate the following coins with the Moldavian ones: a) a penny – d) a quarter b) a nickel – e) a dime c) a half-dollar 8. Why is paper money issued in larger denominations? 9. When do people tend to lose faith in their money? What do they do in this case? 10. What do people usually do with handled or deteriorated bills or coins? 11. Why do issuers of currency make it very hard to be reproduced? 12. Money counterfeiting – is it a criminal or a civil case? What happens to counterfeiters according to the appropriate articles of law in our country? Do you agree with the punishment stipulated in these articles? B) Find in the text the words to the following definitions: 1. coins and paper money ________________ 2. the means of exchanging sth for sth without using money ________________ 3. the necessity to save money for a time when you will really need it _________ 4. anything that is accepted as payment for products and resources __________ 5. the quality of being steady and not changing in any way _________________ 6. a means for retaining and accumulating wealth _______________________ III. DISCUSSION 1. What role does money play in your life? For instance, you have been offered 2 jobs: I) a part-time, attractive, low-paid job II) a full-time, dirty (from the ethical point of view), rather well-paid job What would you choose and why?
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ENGLISH FOR ECONOMIC PURPOSES 2. If you possessed a large amount of money, what would the advantages and disadvantages of the following be? • putting it under the mattress • buying a lottery ticket • visiting a casino • depositing it in a bank • buying gold • investing it in your own business • buying a Van Gogh painting • buying shares of a corporation • investing it in real estate • going on a spending spree Choose out of these 3 items that would characterize your actions concerning your money. Give your reasons. Use the following structure: If I possessed a large amount of money I would … 3. How much money do you need to consider yourself to be a rich person? Is it possible to earn this sum of money in an honest way in our Republic? 4. When you see a person for the first time, can you detect whether the person is rich, with average income, or poor. If yes, than how? 5. Can everything be bought with money? 6. What would be the consequences of a world without money? Would there be no poverty? Could we use a barter system instead?
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A. Talp ă , O. Calina IV. FOCUS ON GRAMMAR Fill in prepositions: 1. Our company decided to trade our services ______ the products of our commercial partners. 2. The trouble ______ wax is that it melts _____ the sun. 3. Money eliminates the problems associated ______ the barter system. 4. I bought his share of business ______ $20000. 5. When people lose faith ____ their money, they may resort _____ barter.
3.2 The Supply of Money: M1, M2, M3
Learning objectives: 1. Grasp the money supply concept 2. Differentiate between a demand deposit and time deposit 3. Study the lexicon of public and personal finance Study and Learn the Words:
English money supply demand deposit checking account on demand to withdraw money from an account automated teller machine (ATM) time deposit near-monies securities (n) government bonds surrender value English equivalents Romanian ofertă monetară deposit la vedere cont curent la cerere a retrage bani de pe cont bancomat deposit la termen aproape bani hîrtii de valoare obligaţiuni de stat suma de bani care se înapoiază persoanei în caz dacă ea a renunţat la poliţa de asigurare agregat monetar which brings interest Russian предложение денег вклад до востребования, бессрочный вклад текущий счёт по требованию снимать деньги со счёта банкомат срочный вклад почти деньги ценные бумаги государственные облигации сумма, возвращаемая лицу, отказавшемуся от страхового полиса денежный агрегат
measure (M) interest-bearing (adj)
How much money is there in the United States? Before we can answer that question, we need to redefine a couple of concepts: A demand deposit is an amount that is on deposit in a checking account. It is called a demand deposit because it can be claimed immediately—on demand—by presenting a properly made-out check, withdrawing cash from an automated teller machine, or by transferring money between accounts. A time deposit is an amount that is on deposit in an interest-bearing savings account. Savings institutions generally permit immediate withdrawal of money from savings accounts. However, they can require written notice prior to withdrawal. The time between notice and withdrawal is what leads to the name time deposits. Time deposits are not immediately available to their owners, but they can be converted to cash easily. For this reason, they are called near-monies. Other near– 54 –
ENGLISH FOR ECONOMIC PURPOSES monies include short-term government securities, government bonds, and the cash surrender values of insurance policies. Money Supply is the total amount of money that exists in the economy of a country at a particular time. The M1 supply of money consists only of currency and demand deposits. (It is thus based on a narrow definition of money.) By law, currency must be accepted as payment for products and resources. Checks are accepted as payment because they are convenient, convertible to cash, and generally safe. The M2 supply of money consists of M1 (currency and demand deposits) plus certain specific securities and small-denomination time deposits. Another common definition of money — M3 — consists of M1 and M2 plus large time deposits of $100,000 or more. The definitions of money that include the M2 and M3 supplies are based on the assumption that time deposits are easily converted to cash for spending. So, there are at least three measures of the supply of money. (Actually, there are other measures as well, which may be broader or narrower than M1, M2, and M3.) So the answer to our original question is that the amount of money in the United States depends very much on how we measure it.
I. COMPREHENSION A) Mark the statements with TRUE or FALSE: 1. The amount of money that exists in the economy of a country depends on how the money is measured. 2. A time deposit is an amount that is on deposit in a checking account. 3. Demand deposit is money that you have on your credit card. 4. Time deposits are also called near-monies because they can be easily converted into cash. 5. There are only 3 measures of the supply of money. 6. The interest on money in a checking account is lower than the interest on money in a savings account. B) Complete the following formulae: M1 = M2 = M3 = Study the text and be ready to comment on it: PERSONAL FINANCE: Employees may receive the money they have earned as weekly wages in cash (if they are blue-collars), or as monthly salary in a current account (if they are professionals). In the latter case, the current account (U.S. checking account) is where they pay in their earnings and from where they withdraw money to pay their everyday bills. Holders can withdraw their money with no restrictions, but they receive little interest. The bank sends them a bank statement telling them how much money is in their account. They can also give an instruction to the bank to pay fixed sums of money to certain people at stated times by a standing order. Generally, people avoid having an overdraft because in the end they will pay a lot of interest. People may also save up money. They open a savings account where they deposit any extra money that they have and only take it out when they intend to spend it on something special. When they invest money in a deposit account (U.S. time or notice account), the customers receive a high rate of interest but withdrawals require 90 days’ notice. If they want to buy their own house, which is a – 55 –
A. Talp ă , O. Calina big investment, they may take a bank loan for which they must leave a pledge. If the bank grants them this loan, they have a mortgage. When you purchase in a shop, you may pay in cash or by credit card. In some shops it is possible not to pay outright, but on credit. If you buy in bulk you may be offered a discount. With such goods as cars, refrigerators or furniture, you may pay the full amount or you may pay in installments.
PUBLIC FINANCE: People, the disadvantaged ones in particular, may receive some money from the government as well, as a form of social security. For instance, the government pays out pensions, unemployment benefits, disability allowances, child allowance, and grants and scholarships to help students pay for studying. In order to be able to redistribute some money, the government has to form the budget first and cover its expenses according to its fiscal policy. The government levies the money it needs from citizens through various taxes. Income tax is the tax collected on individuals’ wages and salaries. Inheritance tax is levied on what people inherit from others as a legacy. III. Which words in the text given in bold are defined below? Give their translation: 1. money which is in the form of coins and banknotes _________________ 2. an amount of money you receive weekly in return for labour _______________ 3. extra percentage paid on a loan _______________________ 4. a fixed amount which is paid monthly to workers of higher rank _____________________ 5. the amount of money borrowed from a bank greater than that which is in your account _________________________ 6. loan to purchase property, used as security for this loan ______________________ 7. a piece of paper that shows how much you owe sb for goods and services _____________ 8. a guarantee for a loan ____________________________________________ 9. an account with a higher rate of interest but requiring notification in advance for withdrawing the funds ________________________ 10. an account with low interest but with no restrictions for withdrawal ________________ 11. money paid by the state to a person when he/she retires _____________________ 12. money given for education ______________________ 13. money paid to people that are made redundant ______________________ 14. money paid to people with a handicap ________________________ 15. money received from someone in his/her will ___________________________ IV. Find in the text from exercise II the English equivalents for the following: 1. extras de cont/выписка со счёта; 2. dispoziţie de plată/инструкция об уплате; 3. suma trasă din cont fără acoperire/превышение кредита; 4. a plăti în numerar/платить наличными; 5. a plăti în rate/платить в рассрочку; 6. a vinde pe credit/продавать в кредит; 7. a plăti pe loc/оплатить сразу;
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ENGLISH FOR ECONOMIC PURPOSES 8. a cumpăra în vrac/покупать в большом количестве.
V. Group the following words under the headings: Salary, bill, mortgage, debt, tax, fare, fine, bonus, fee, dividend, instalment, legacy, rent, premium, subsidy, deposit, royalties .
MONEY TO RECEIVE MONEY TO PAY
VI. Fill in the blanks with some of the words from the left column: 1. All the workers in our firm get a Christmas _____________ of $200. 2. Farmers are waiting for the new _________________ to help them grow cereals. 3. As her book was a best-seller, she got substancial ______________________. 4. After their uncle’s death they each received a _______________ of $25000. 5. The _________________ the shareholders received were quite significant since their company fared well last year. VII. Fill in the blanks with some words from the right column: 1. He paid a high ______________ for his insurance policy against the loss of his voice. 2. We made a ______________ of 25% to be sure that the shop will not sell the furniture we liked so much. 3. How much is the ______________ from the airport to the Hilton Hotel? 4. You have to pay a ______________ for breaking the speed limit. 5. I bought a fridge, which I have to pay back in six monthly ________________ of $100 each. VIII. WORD STUDY The word cash is uncountable: How much cash do you have on you? Choose the correct definition for the following vocabulary items that are formed with the word cash. 1. cash flow is a) the conversion rate between currencies; b) money which is immediately available; c) movement of money into and out of business. 2. petty cash is a) small denomination coins; b) money held in a business to cover small expenses; c) pocket money given to children. 3. cash dispenser is a) someone who spends money; b) machine in or outside a bank from which you can get money with a card; c) device used to sort out money. 4. cash register is a) machine used in shops to record the money; – 57 –
A. Talp ă , O. Calina b) a special book where you keep the record of money coming in and getting out; c) person who records money in a bank. cash-and-carry is a) method to pay for the transport of goods; b) large shop where goods are paid at cheaper prices and removed by customers; c) money you receive for delivering the goods. cash cow is a) animal bred to be sold; b) part of business that brings enough profits; c) someone you can cheat to get undue money. cash discount is a) reduction in a price if you pay immediately; b) reduction of the sum of money you owe; c) reduction in a price if you buy goods in bulk. cash desk is a) a table in which you keep money; b) a television company office that deals with monetary issues; c) place in a shop where you pay for goods that you have bought.
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ENGLISH FOR ECONOMIC PURPOSES
3.3. The Banking Industry
Learning objectives: 1. Describe the modern banking system 2. Understand the differences between commercial banks and other financial institutions in the banking industry Study and Learn the Words:
English Federal Reserve System to render services financially sound (adj) input (n) output (n) to charge interest comptroller (n) to outnumber Savings and Loan association (S&L) to become effective to stand for conservative investments English equivalents to offer services reliable from the financial point of view sth that you put into work to make it succeed the result of the performed work a cere procente controller a depăşi numeric asociaţia de economii şi împrumut a intra în vigoare a însemna investiţii moderate Romanian sistemul băncilor federale de rezerve Russian Федеральная резервная система
назначать проценты превосходить численно сберегательнозаёмная ассоциация вступать в силу означать умеренные инвестиции
In the USA, in every locality no matter how small it is, there is a church and a bank. Americans who are considered to be rather religious persons go to church to maintain and accumulate their “spiritual wealth”. And they go to the bank to keep and accumulate their material wealth. The modern banking system includes three groups of financial institutions: • the central bank; • commercial banks; • other specialized financial institutions that include both banking and non-banking organizations. The central bank, which depending on the country may be called the State Bank or the National bank (as in our country), bears the name of the Federal Reserve System in the USA. As a rule, this is a government institution and in a way it is the bank for all the other banks in a country. It controls the monetary policy of a state and it is responsible for the national currency stability. The name „commercial” appeared in the XVIIth century when banks generally served the commerce. The first banks were founded in the Italian republics, then in Amsterdam and London. They appeared as simple merchants that traded money. Nowadays the banks have a universal character. Very often they are called financial „department stores” rendering services to the industrial, agricultural, commercial and other enterprises. The Federal Reserve System (or simply "the Fed") is the government agency responsible for regulating the United States banking industry. It was created by Congress on December 23, 1913. Its mission is to maintain an economically healthy and financially sound business environment in which banks can operate. The Federal Reserve System is controlled by the seven members of its Board of Governors, who meet in Washington, D.C. Each governor is appointed by the – 59 –
A. Talp ă , O. Calina president and confirmed by the Senate for a fourteen-year term. The president also selects the chairman and vice chairman of the board from among the board members for four-year terms. These terms may be renewed. . The Federal Reserve System includes twelve Federal Reserve District Banks, which are located throughout the United States, as well as twenty-five branchterritory banks. Each Federal Reserve District Bank is actually owned—but not controlled—by the commercial banks that are members of the Federal Reserve System. All national banks must be members of the Fed. State banks may join if they choose to and if they meet membership requirements. A commercial bank is a profit-making organization that accepts deposits, makes loans, and provides related services to its customers. Like other businesses, the bank's primary goal—its purpose—is to earn a profit. Its inputs are money in the form of deposits, for which it pays interest. Its primary output is loans, for which it charges interest. If the bank is successful, its income is greater than the sum of its expenses, and it will show a profit. Because banks deal with money belonging to individuals and other firms, they are carefully regulated. They must also meet certain requirements before they are chartered, or granted permission to operate, by federal or state banking authorities. A national bank is a commercial bank that is chartered by the U.S. Comptroller of the Currency, There are approximately 5,500 national banks, accounting for about 53 percent of all bank deposits. These banks must conform to federal banking regulations and are subject to unannounced inspections by federal auditors. A state bank is a commercial bank that is chartered by the banking authorities in the state in which it operates. State banks outnumber national banks by about two to one, but they tend to be smaller than national banks. They are subject to unannounced inspections by both state and federal auditors.
3.3.1 Other Financial Institutions
Savings and Loan Associations A savings and loan association (S&L) is a financial institution that primarily accepts savings deposits and provides homemortgage loans. Originally, they were permitted to offer their depositors only savings accounts. But since Congress passed the Depository Institutions Deregulation and Monetary Control Act, which became effective on January 1, 1981, they have been able to offer interest-paying checking accounts (NOW accounts) to attract depositors. A NOW account is an interest-bearing checking account. (NOW stands for Negotiable Order of Withdrawal.) Credit Unions A credit union is a financial institution that accepts deposits from, and lends money to, only those people who are its members. Usually the membership is composed of employees of a particular firm, people in a particular profession, or those who live in a community served by a local credit union. Some credit unions require that members purchase at least one share of ownership, at a cost of about $5 to $10. Credit unions generally pay higher interest than commercial banks and S&Ls, and they may provide loans at lower cost. Credit unions are regulated by the Federal Credit Union Administration. Mutual Savings Banks A mutual savings bank is a bank that is owned by its depositors. Located primarily in the northeastern part of the United States, mutual savings banks accept deposits and lend money for home mortgages. The approximately 375 mutual savings banks in this country have no stockholders. Their profits are distributed to depositors. They operate much like S&Ls and are controlled by state banking authorities. Organizations That Perform Banking Functions There are three types of financial institutions that are not actually banks but that are nevertheless involved in various banking activities to a limited extent.
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ENGLISH FOR ECONOMIC PURPOSES Insurance companies provide long-term financing for office buildings, shopping centers, and other commercial real estate projects throughout the United States. They also invest in corporate and government bonds. The funds used for this type of financing are obtained from policyholders' insurance premiums. Pension funds are established by employers to guarantee their employees a regular monthly income upon retirement. Contributions to the fund may come either from the employer alone or from both the employer and the employee. Pension funds earn additional income through generally conservative investments in certain corporate stocks, corporate bonds, government securities, and real estate developments. Brokerage firms offer combination savings and checking accounts that pay higher-than-usual interest rates (so-called money-market rates). Many people switched to these accounts when their existence became widely recognized to get the higher rates. In the last few years, however, banks have instituted similar types of accounts, hoping to lure their depositors back.
I. VOCABULARY PRACTICE Find the English equivalents for the following: 1. a corespunde cerinţelor apartenenţei/соответствовать требованиям членства; 2. a da autorizaţie/давать разрешение; 3. prima de asigurare/страховая премия; 4. la ieşire la pensie/при выходе на пенсию; 5. hîrtii de valoare de stat/государственные ценные бумаги; 6. credit ipotecar/ипотечный кредит; 7. stabilitatea monedei naţionale/стабильность национальной валюты; 8. a fi supus unei inspectări neanunţate/подвергаться неожиданной инспекционной проверке; 9. deţinător de poliţă/держатель полиса; 10. comercianţi care vindeau şi cumpărau bani/торговцы, которые продавали и покупали деньги. II. COMPREHENSION A) Give answers to the following questions: 1. What is the name for the central bank in the USA? Describe it. What is its mission? 2. Give the definitions of a commercial, national and state banks. How do banks earn most of their profit? 3. What is a Savings and Loan Association? What did they offer to their depositors originally and what do they offer now? 4. What is a NOW account? 5. What is a Credit Union? Who can become its member? What do some credit unions require? 6. What is a mutual savings bank? What are the similarities and differences between a mutual savings bank and S&L? 7. What other financial institutions do you know? 8. How do insurance companies obtain their funds? Give examples of insurance companies in our country. What are their functions? 9. What are pension funds established for? How do they get the money to be paid out to pensioners? 10. What accounts are offered by brokerage firms? B) Mark the statements with TRUE or FALSE: – 61 –
4. 5. 6. 7. 8.
A. Talp ă , O. Calina 1. In the USA there are more national banks than state banks. 2. State banks must be members of the Fed. 3. Commercial banks own Federal Reserve District Banks, which are not under their control. If you want to buy a flat but you don’t have money, you can apply to S&L. Credit Unions are more advantageous than commercial banks. There are approximately 375 mutual savings banks in the USA and they have stockholders. Insurance companies, pension funds and brokerage firms are nonbanking organizations. Brokerage firms offer lower-than-usual interest rates.
III. FOCUS ON GRAMMAR A) Fill in prepositions: 1. I want to open an account ______ your bank. 2. You have only $100 _______ your account. 3. Don’t borrow money _______ this bank. They charge very high interest ____ a loan. 4. When you paid the hotel bill, did you pay _____ cash or _____ credit card? 5. Banks also make their profits ______ the fees and commisions they charge ______ their services. 6. Yesterday the Dresdner Bank announced an interest rate increase ______ 0,5%. 7. As soon as we receive your cheque _____ 2500$ we will despatch the goods which will reach you within a few days. 8. Because some customers can’t afford to pay ____ cash, businesses sell goods and services _____ credit. B) Choose the correct form of the verb: 1. She ... the bank to check her account. a) has just phoned; b) just phoned; c) just has phoned; d) phones just. 2. When the secretary entered Mr.Black ... to foreign businessmen. a) spoke; b) was speaking; c) has spoken; d) had spoken. 3. Our director ... the prices now. a) are discussing; b) was discussing; c) discussies; d) is discussing. 4. This firm ... Model A-5 for 4 years before they started producing Model A-6. a) produced; b) had been producing; c) has been producing; d) was producing. 5. He ... $100000 in Swiss bank account last spring. a) deposited; b) had deposited; c) has deposited; d) was depositing. 6. I am awfully tired because I ... all day. a) was working; b) had been working; c) have been working; d) have worked. IV. FOCUS ON LANGUAGE Choose the correct word for each sentence: 1. She works for an advertisement/advertising agency. 2. How will the increase in interest rates affect/effect your sales?
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ENGLISH FOR ECONOMIC PURPOSES 3. My bank manager has agreed to borrow/lend me another $2000. 4. We’ve had to cancel/postpone the meeting until next Monday. 5. My plane was delayed/postponed by an hour due to computer failure. 6. Before coming here, I studied economics/economy at university. 7. I am interested/interesting in your buildings projects in the Middle East. 8. She applied for a job/work as a personnel officer. 9. The cost of life/living has gone up again. 10. Please send precise measurements/measures when ordering. 11. We expect prices to raise/rise by at least 5%. 12. We only exchange goods if you produce a receipt/recipe. 13. I must remember/remind the boss about that meeting this afternoon. 14. Can you say/tell the difference between these two products? 15. The company is extremely sensible/sensitive to any criticism. 16. There’s some more paper in the stationery/stationary cupboard.
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A. Talp ă , O. Calina
3.3.2 Services Provided by the Financial Institutions
Learning objectives: 1. Be able to identify the primary services provided by commercial banks and other financial institutions 2. Evaluate the importance of banks to the economy of a community Study and Learn the words:
English array (n) payroll (n) English equivalents a list of people employed by a company showing the amount of money to be paid to each of them Romanian mulţime stat de plată Russian множество платёжная ведомость
balance (n) savings passbook to shop for a loan collateral (n) credit card to compete for a loan pledge a small plastic card that you can use to buy goods and services and pay for them later a plastic card that can be used to take money directly from your bank account when you pay for sth ATM card cashier the difference between the rates of interest
sold carnet de depuneri cauţiune, garanţie, gaj cartea de credit
сальдо, остаток сберегательная книжка залоговое обеспечение кредитная карта
cartea de debit
cash card teller (n) spread (n)
casier de bancă
кассир (в банке)
If it seems to you that banks and other financial institutions are competing for your business, you're right. That is exactly what is happening. Never before have so many different financial institutions offered such a tempting array of services to attract customers. The financial services provided by the banking industry are the following: 1. Demand deposits 2. Time deposits 3. Loans 4. Electronic transfer of funds 5. Financial advice 6. Trust services 7. Certified checks 8. Safe-deposit boxes The three most important banking services are accepting deposits, making loans, and providing electronic funds transfers. The Deposit Side of Banking Firms and individuals deposit money in checking accounts (demand deposits) so that they can write checks to pay for purchases. A check is a written order for a bank or other financial institution to pay a stated dollar amount to the business or person indicated on the face of the check. Today, most goods and services are paid for by check. Most financial institutions charge an activity fee (or service charge) for checking accounts. It is generally somewhere between $5 and $10 per month for individuals. For businesses, monthly
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ENGLISH FOR ECONOMIC PURPOSES charges are based on the average daily balance in the checking account and on the number of checks written. Savings accounts (time deposits) provide a safe place to store money and a very conservative means of investing. The usual passbook savings account earns about 5.5 percent in commercial banks and S&Ls, and slightly more in credit unions. Depositors can usually withdraw money from passbook accounts whenever they wish to. A depositor who is willing to leave money with a bank for a set period of time can earn a higher rate of interest. To do so, the depositor buys a certificate of deposit (CD). A certificate of deposit is a document stating that the bank will pay the depositor a guaranteed interest rate for money left on deposit for a specified period of time. The interest rate paid on CD depends on how much is invested and for how long. Depositors are penalized for early withdrawal of funds invested in CDs. The Lending Side of Banking Commercial banks, savings and loan associations, credit unions, and other financial institutions provide short- and long-term loans to both individuals and businesses. Short-term loans are those that are to be repaid within one year. For businesses, short-term loans are generally used to provide working capital that will be repaid with sales revenues. Long-term business loans have a longer repayment period—generally three to seven years but sometimes as long as fifteen years. They are most often used to finance the growth of a firm or its product mix. Most lenders prefer some type of collateral for both business and personal long-term loans. Collateral is real or personal property (stocks, bonds, land, equipment, or any other asset of value) that the firm or individual owns and that is pledged as security for a loan. For example, when an individual obtains a loan to pay for a new automobile, the automobile is the collateral for the loan. If the borrower fails to repay the loan according to the terms specified in the loan agreement, the lender can repossess the collateral pledged as security for that loan. Repayment terms and interest rates for both short- and long-term loans are arranged between the lender and the borrower. For businesses, repayment terms may include monthly, quarterly, semiannual, or annual payments. Repayment terms (and interest rates) for personal loans vary, depending on how the money will be used and what type of collateral, if any, is pledged. Borrowers should always "shop" for a loan, comparing the repayment terms and interest rates offered by competing financial institutions. Electronic Transfer of Funds The newest service provided by financial institutions is electronic banking. An electronic funds transfer (EFT) system is a means for performing financial transactions through a computer terminal. Present EFT systems can be used in several ways: 1. Automated teller machines (ATMs): An ATM is an electronic bank teller—a machine that provides almost any service a human teller can provide. Once the customer is properly identified, the machine can dispense cash from the customer's checking or savings account or can make a cash advance charged to a credit card. Most ATMs can also accept deposits and provide information about current account balances. ATMs are located in bank parking lots, supermarkets, drugstores, and even filling stations. Customers have access to them at all times of the day or night. 2. Point-of-sale (POS) terminals: A POS terminal is a computerized cash register that is located in a retail store and connected to a bank's computer. Here's how it works. You select your merchandise. At the cash register, you pull your debit card through a magnetic card reader and enter your four-to-seven-digit personal identification number (“PIN code”).
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A. Talp ă , O. Calina A central processing center notifies a computer at your bank that you want to make a purchase. Next, the bank's computer immediately deducts the amount of the purchase from your checking account. Then, the amount of the purchase is added to the store's account. Finally, the store is notified that the transaction is complete, and the cash register prints out your receipt. Notice the difference between a debit card and a credit card. With a debit card, money is deducted immediately from your account. A credit card transaction, on the other hand, involves a shortterm loan made to you by the bank or credit card company. The use of POS terminals has two advantages. First, you don't have to write a check to pay for your merchandise. Second, the retailer doesn't have to worry about nonpayment because the money is withdrawn from your account immediately. Our Moldavian banks offer such cards as Maestro and Visa card. The usage of cards is one of the most modern and convenient non-cash payment means. All our payment cards are designed to be convenient for us. The Maestro card is a valid payment card issued to private customers only. One can use it for the non-cash settlement of services or goods. It is also used for withdrawing cash at bank counters and at ATMs. The Visa card can be used worldwide for transactions at electronic devices only.
I. VOCABULARY PRACTICE A) Find the English equivalents for the following: 1. safeurile bancare/банковские ячейки; 2. pe suprafaţa cecului/на лицевой стороне чека; 3. proprietate mobilă/движимое имущество; 4. a lăsa în gaj/отдавать в залог; 5. locul parcării/место стоянки автотранспорта; 6. staţiune de alimentare a maşinilor/заправка; 7. registru de casă imprimă cecul/кассовый аппарат выбивает чек. 8. achitarea serviciilor sau mărfurilor prin virament/оплата услуг или товаров по безналичному расчёту. B) Match the verbs with their definitions:
1. to repossess 2. to penalize 3. to renew 4. to lure 5. to institute 6. to withdraw 7. to repay 8. to finance 9. to dispense 10. to notify a) to make sth valid for a further period of time b) to give out sth to people c) to provide money for a project d) to introduce a system e) to give information about sth f) to take back property or goods from sb who cannot pay for them. g) to make sb pay a fine for breaking a rule h) to make sb be interested in sth i) to take money out of a bank account j) to pay back the money you have borrowed from sb
II. COMPREHENSION A) Give answers to the following questions: 1. What are the 3 most important banking services? 2. What is a check? Do we have something like this in our country? 3. What is a cerificate of deposit? What does the interest rate paid on CD depend on? 4. What kinds of loans are provided by the financial institutions? What is the difference between these loans? 5. What is a collateral? 6. How are the repayment terms and interest rates for loans arranged?
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ENGLISH FOR ECONOMIC PURPOSES 7. What is an EFT and how it can be used? 8. Have you ever used an ATM and a POS terminal? Did you have any problems or not? What do you think about EFT system? 9. What is the difference between a debit card and a credit card? 10. What are the types of plastic cards that our citizens can use?
B) Mark the statements with TRUE or FALSE: 1. In order to be able to write a check one must deposit his/her money in a checking account. 2. Banks don’t charge fees for their services. 3. Depositors can freely withdraw funds invested in CDs whenever they wish to. 4. If you want to take a long-term loan you must present a collateral to the bank. 5. You can use the services of the POS terminal with a credit card. 6. ATMs work round the clock. II. Match the column A with the column B:
B Definitions a) a company pays salaries to its employees through the bank that transfers people’s money on their ATM cards. b) the bank gives you money to use for different purposes, on which you pay interest. c) an arrangement by which a bank has legal control of money or property that has been given to a person until he/she reaches a particular age. d) the bank keeps your valuables, securities or important documents in its vault. e) the bank keeps your money, pays you a little interest on it, and you can withdraw this money whenever you need it. f) bank managers consult you about different issues connected with investing money, concluding financial transactions and others.
A Banking services 1. trust services 2. safe-deposit boxes 3. financial advice 4. demand deposit 5. loans 6. payroll service
IV. Match each statement of potencial customers to the financial service needed: ATM card, insurance policy, personal loan, overdraft facilities, standing order, mortgage, high-interest deposit accounts, foreign currency, business loan, SWIFT transfer. 1. „I want my bills to be paid monthly” ________________________________ 2. „How can I get money when the bank is closed?” _______________________ 3. „I need some cash when I arrive in Cairo” _____________________________ 4. „I’d like to buy a new house” ____________________________________ 5. „I may be in debt next month” _________________________________ 6. „I want to save and get a good return on my money” __________________ 7. „I want to guard my house against damage” _________________________ 8. „I want to send $5000 to my son in Tokyo as quickly as possible” _________ 9. „I want to renovate my house” ________________________________ 10. „I am going to buy equipment for our new office” _________________ V. With a partner think of different ways of completing the following sentences: 1. If I want to save up my money, I can .................................................................. – 67 –
2. 3. 4. 5.
A. Talp ă , O. Calina The best way to money ........................................................................... I can borrow from..................................................................................... I can’t to............................................................................................... I like to spend my on ..............................................................................
invest money afford money
VI. Join correctly the words in column A with the words in column B: A B 1. commercial a) firm 2. certificate b) deposit 3. demand c) advice 4. cash d) bank 5. credit e) card 6. brokerage f) rate 7. financial g) of deposit 8. bank h) register 9. interest i) union 10.debit j) loan VII. INDIVIDUAL WORK Use the additional sources on banking system in the Republic of Moldova to answer the following questions: 1. What do you know about the National Bank of Moldova? 2. What commercial banks are there in our country? What services do they offer to their clients? 3. Is banking a profitable activity in our country? What proves it? 4. Are banks important to the economy of a country or people can do without them? VIII. FOCUS ON LANGUAGE Make and do collocations Make is used for constructive and creative actions. Do is used with unspecified actions and to talk about work. A) Group the following words under the headings do or make: Business, suggestions, progress, a job, mistakes, the accounts, a duty, the typing, an appointment, efforts, damage, a service, a complaint, trade, an apology, a trip, a profit, research, a loss, a decision, favour, shopping, a speech, a choice, a test, money, a report, friends/enemies, an investment, harm, good, right/wrong, one’s best, exercises, a promise, a good impression, an experiment, a will. B) Complete the sentences using one of the expressions in Exercise A in the correct form: 1. He __________________________ by introducing the new rules to see how employees are going to follow them. 2. She decided to ____________________________ in cherity projects. 3. The customer ___________________________ to the hotel manager about the bad service. 4. Some women are forced to ____________________________ between family and career. – 68 –
ENGLISH FOR ECONOMIC PURPOSES 5. Could you ___________________________ , please? Could you give me a lift to the airport? 6. My uncle died without __________________________ and it was very difficult for our family to sort out his money. 7. I like to keep fit, so I __________________________ every day. 8. An accountant is a person who ________________________________ . 9. He ____________________________ on economic situation in our country and presented it at the conference. 10. A research scientist is a person who _____________________________ .
IX. DISCUSSION Discuss in groups the following questions: 1. Do you often go to the bank? What banking services do you use? 2. If you had a pretty sum of money, would you deposit it in a bank? If yes, then in what currency (in the national or in the foreign one) and in what bank (in the savings bank or in a commercial one)? Give your reasons. 3. For instance, you would like to buy a house or anything else which is also a big investment, but you don’t have the money for it, would you apply to a bank for a loan? Substantiate your answer. 4. Is it easy or difficult to obtain a bank loan in our Republic? Is it possible to get a bank loan without a collateral? X. Complete the dialogue: A bank manager and his client are talking about opening an account with the bank. Complete the client’s part in the following dialogue. The first remark has been done for you: Client: Good afternoon! Bank Manager: Good afternoon! What can I do for you? C.: ........................................................................................................................ ..................... BM.:What kind of account would you like to open – a checking or a savings one? C.: ........................................................................................................................ ..................... BM.: Well, you know that time deposits are not immediately available to their owners. For what period would you like to deposit your money? C.: ........................................................................................................................ ..................... BM.: For this period the interest rate is lower than for one-year term. C.: ........................................................................................................................ ..................... BM.: It depends on how much you are going to deposit and in what currency. C.:. ....................................................................................................................... ....... BM.: For this we give an annual interest rate of 8%. If it suits you, you have to buy the certificate of deposit. C.: ........................................................................................................................ ........ XI. ROLEPLAY
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A. Talp ă , O. Calina Work in pairs. Imagine that your partner is a bank manager and you are a client who wants to take a personal long-term loan. Make up a dialogue using the studied vocabulary.
XII. Match the words with their definitions:
1. deposit 2. credit union 3. 4. 5. 6. S&L NOW account certificate of deposit check a) a written order for a bank to pay out the money b) a computerized cash register that is located in a store and connected to a bank’s computer c) an amount paid for the use of money d) money that is placed in a bank account by a customer e) a guarantee for a loan f) a financial institution that mainly handles savings accounts and makes loans to home buyers g) difference between interest rate paid by a bank to its depositors and the rate it charges from its borrowers h) a document which insures that the depositor will be paid a guaranteed interest rate for the deposited money i) a financial institution formed by workers in the same organization that serves only its members j) a checking account that earns interest
7. interest 8. POS terminal 9. collateral 10. spread
XIII. Fill in the gaps with the words given at the end of the text: Banks fall mainly into two categories: ... (1) and wholesale banks. Retail banking refers to banks which offer services to ... (2) customers, while wholesale banks deal mainly with corporations. The most obvious type of retail bank is the commercial bank. Commercial banks receive money on deposit, pay money according to customers’ ... (3), negotiate loans, buy and sell foreign exchange. They make a ... (4) from the ... (5), i.e. the difference between the interest rate paid to account holders and the interest rate charged to borrowers. There are different types of accounts opened with comercial banks. ... (6) accounts have no restrictions as concerns the withdrawal of funds. However, the rate of interest is rather ... (7). On the other hand ... (8) accounts offer a higher rate of interest, but withdrawals are restricted by the fact that the ... (9) has to keep the funds for a specified period in the bank account or must ... (10) his withdrawal decision some time in advance. ... (11) are offered to customers in need of funds and are conditional upon the supplying of ... (12) by borrowers. Besides loans banks offer ... (13) to their customers, which means that people who have an account with the bank are allowed to draw more money from their account than there actually is in it. The customers can use certain banking products. Thus banks can pay regular bills for their clients, according to the instructions of the latter, this instrument being called ... (14) order. Irregular payments can be made by ... (15) from cheque books the banks make available to their customers. When a customer needs cash he can withdraw it from an automatic cash ... (16) by means of a cash ... (17). In Britain a merchant bank is a wholesale bank. It offers services to ... (18) such as the raising of ... (19) on various financial markets, the financing of international trade, the issuing of ... (20), investment advice. In the USA similar services are made available by investment banks, which, however, do not offer loans. Companies, standing, low, spread, overdrafts, retail, depositor, securities, cheque, collateral, individual, funds, time, dispenser, notify, card, checking, profit, instructions, loans. XIV. TRANSLATION
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ENGLISH FOR ECONOMIC PURPOSES Translate into English: Certificatul bancar de depozit. Certificatul bancar de depozit este un document, care atestă că D-ră aţi depus o anumită sumă de bani pe depozit, şi pe care o puteţi schimba pe bani după expirarea unei perioade anumite de timp. Puteţi sa dispuneţi de certificatul bancar de depozit la dorinţa D-ră. De exemplu, să-l dăruiţi cuiva la ziua lui de naştere. Acesta va fi întradevăr un cadou reuşit. Cu siguranţă, des vă aflaţi în situaţia, cînd trebuie să felicitaţi pe cineva din rude sau prieteni, dar aveţi o problemă cu alegerea cadoului. Certificatul bancar de depozit în această situaţie este indispensabil. Pe lîngă aceasta, certificatul bancar de depozit poate fi vîndut şi în schimb puteţi să primiţi banii înainte de termen fără pierderea dobînzii. Deci, certificatul bancar de depozit este o hîrtie de valoare emisă de către bancă şi se prezintă în calitate de o alternativă a depozitului bancar. Certificatul bancar de depozit poate fi transferat de la o persoană la alta spre deosebire de contul bancar obişnuit.
Депозитный сертификат. Депозитный сертификат – это документ, который свидетельствует о том, что вы положили определённую сумму денег на депозит, и которую по истечении определённого срока можно обменять на деньги. Банковским сертификатом вы можете распоряжаться по своему усмотрению. Например, подарить на день рождения. Это будет действительно удачный подарок. Наверняка, вы нередко сталкиваетесь с ситуацией, когда нужно поздравить кого-нибудь из родных или друзей, а с выбором подарка у вас проблема. Банковский сертификат в этой ситуации незаменим. Кроме того, банковский сертификат можно продать и получить вложенные деньги досрочно, без потери процентов. Таким образом, банковский сертификат – это ценная бумага, которая выпускается банком и выступает в качестве альтернативы банковскому депозиту. Банковский сертификат может передаваться от одного человека другому, в отличие от привычного нам счёта в банке.
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A. Talp ă , O. Calina
4. SECURITIES MARKETS
„Emotions are your worst enemy in the stock market” Don Hays
4.1. How Securities Are Bought and Sold
Learning objectives: 1. Understand how securities are bought and sold in the primary and secondary markets 2. Distinguish between a securities exchange and an over-thecounter market 3. Be aware of how the New York Stock Exchange functions Study and Learn the Words:
English stock (n) bond (n) stockbroker (n) primary market secondary market securities (n) to be satisfied that… mutual fund gross proceeds commission (n) securities exchange to handle over-the-counter market to be listed tangible assets earnings (n) to subscribe subscriber (n) perception (n) stringent (adj) to sell off to precipitate to redeem CEO (Chief Executive Officer) to make sth, esp. sth bad, happen sooner that it should top manager of a company to trade in sth English equivalents Romanian pachet de acţiuni bon (de tezaur), obligaţiune agent de bursă piaţa primară piaţa secundară hîrtii de valoare societate de investiţii cu capital variabil venit brut comision, remiză bursa de valori, piaţa a efectelor de schimb piaţa neoficială a efectelor de schimb, piaţa extrabursieră a fi cotat active materiale the profit that a company makes to apply to buy shares in a company the ability to understand sth strict and that must be obeyed a vinde totul cu reducere a subscrie pentru un număr de acţiuni abonat Russian пакет акций облигации, боны брокер первичный рынок вторичный рынок ценные бумаги инвестиционная компания открытого типа валовый доход комиссионное вознаграждение фондовая биржа
to be convinced that…
to be quoted=to be given a market price
рынок незарегистрированных ценных бумаг котироваться (на бирже) материальные активы подписаться на покупку акций абонент, подписчик
распродавать со скидкой
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ENGLISH FOR ECONOMIC PURPOSES To purchase a sweater, you simply walk into a store that sells sweaters, choose one, and pay for it. To purchase stocks, bonds, and many other investments, you have to work through a representative— your stockbroker. In turn, your broker must buy or sell for you in either the primary or secondary market.
The Primary Market The primary market is a market in which an investor purchases financial securities (via an investment bank or other representative) from the issuer of those securities. An investment banking firm is an organization that assists corporations in raising funds, usually by helping sell new security issues. For a large corporation, the decision to sell securities is often complicated, time-consuming, and expensive. There are basically two methods. First, a large corporation may use an investment banking firm to sell and distribute the new security issue. This method is used by most large corporations that need a lot of financing. If this method is used, analysts for the investment bank examine the corporation's financial condition to determine whether the new issue is financially sound and how difficult it will be to sell the issue. If the analysts for the investment banking firm are satisfied that the new security issue is a good risk, the bank will buy the securities and then resell them to the bank's customers—commercial banks, insurance companies, pension funds, mutual funds, and the general public. The investment banking firm generally charges 2 to 12 percent of the gross proceeds received by the corporation issuing the securities. The size of the commission depends on the quality and financial health of the corporation issuing the new securities and the size of the new security issue. The commission allows the investment bank to make a profit while guaranteeing that the corporation will receive the needed financing. The second method used by a corporation trying to obtain financing through the primary market is to sell directly to current stockholders. Usually, promotional materials describing the new security issue are mailed to current stockholders. These stockholders may then purchase securities directly from the corporation. Why would a corporation try to sell its own securities? The most obvious reason for doing so is to avoid the investment bank's commission. Of course, a corporation's ability to sell a new security issue without the aid of an investment banking firm is tied directly to the public's perception of the corporation's financial health. The Secondary Market After securities are originally sold through the primary market, they are traded through a secondary market. The secondary market is a market for existing financial securities that are currently traded between investors. Usually, secondarymarket transactions are completed through a securities exchange or the over-thecounter market. Securities Exchanges A securities exchange is a marketplace where member brokers meet to buy and sell securities. The securities sold at a particular exchange must first be listed, or accepted for trading, at that exchange. Generally, securities issued by nationwide corporations are traded at either the New York Stock Exchange or the American Stock Exchange. The securities of regional corporations are traded at smaller regional exchanges. These are located in Chicago, San Francisco, Philadelphia, Boston, and several other cities. The securities of very large corporations may be traded at more than one of these exchanges. Securities of American firms that do business abroad may also be listed on foreign securities exchanges—in Tokyo, London, or Paris, for example. – 73 –
A. Talp ă , O. Calina The largest and best-known securities exchange in the United States is the New York Stock Exchange (NYSE). It handles about 70 percent of all stock bought and sold through organized exchanges in the United States. The NYSE lists approximately 2,250 securities issued by more than 1,500 corporations, with a total market value of $3 trillion. The actual trading floor of the NYSE, where listed securities are bought and sold, is approximately the size of a football field. A glassenclosed visitors' gallery enables people to watch the proceedings below, and on a busy day the floor of the NYSE can best be described as organized confusion. Yet, the system does work and enables brokers to trade an average of more than 160 million shares per day. The origin of the NYSE can be traced to May 17, 1792 when the Buttonwood Agreement was signed by 24 stockbrokers outside of 68 Wall Street in New York. On March 8, 1817 the organization drafted a constitution and renamed itself the “New York Stock & Exchange Board”. This name was shortened to its current form in 1863. The Exchange was closed after the beginning of World War I (July 1914), but it was re-opened on November 28 of that year in order to help the war effort by trading bonds. On September 16, 1920 a bomb exploded outside the NYSE building on Wall Street in a terrorist attack, killing 33 people and injuring more than 400. The perpetrators were never found. The NYSE building and some buildings nearby still have marks in the façade caused by the bombing. The Black Thursday crash of the Exchange on October 24, 1929 and the sell-off panic which started on Black Tuesday, October 29, precipitated the Great Depression. On October 1, 1934 the exchange was registered as a national securities exchange with the US Securities and Exchange Commission, with a president and a 33 member board. The frequently seen electronic display boards mounted on the walls of the exchange were first installed in 1966 along with radio pagers. A highly technical wireless data system increasing the speed in which trades were executed was introduced in 1996. This allows for trading to be done with hand-held laptop – these are computers carried by the floor traders. Today the exchange opens at 9:30 AM and closes at 4:00 PM. Before a corporation's stock is approved for listing on the New York Stock Exchange, the firm must meet five criteria: 1) annual earnings before taxes are $2.5 million 2) shares of stock held publicly – 1 million 3) market value of publicly held stock - $9 million 4) number of stockholders owning at least 100 shares is 2.000 5) value of tangible assets - $18.000.000 When companies first list on the NYSE, often the company’s CEO or other official is invited to ring the opening bell in the Trading Floor. Ringing the bell, which signals the start and close of the trading day, is part of the NYSE’s rich heritage and is considered an honour. The American Stock Exchange handles about 10 percent of U.S. stock transactions, and regional exchanges account for the remainder. These exchanges have generally less stringent listing requirements than the NYSE. The Over-the-Counter Market The over-the-counter (OTC) market is a network of stockbrokers who buy and sell the securities of corporations that are not listed on a securities exchange. Usually each broker specializes, or makes a market, in the securities of one or more specific firms. The securities of these firms are traded through its specialists, who are generally aware of their prices and of investors who are willing to buy or sell them. Most OTC trading is conducted by – 74 –
ENGLISH FOR ECONOMIC PURPOSES telephone. Currently, more than 5,300 stocks are traded over the counter. Since 1971, the brokers and dealers operating in the OTC market have used a computerized quotation system call NASDAQ—the letters stand for the National Association of Securities Dealers Automated Quotation system. NASDAQ displays current price quotations on terminals in subscribers’ offices.
I. VOCABULARY PRACTICE A) Find synonyms (1-6) and antonyms (7-12) in the text to the following words and phrases: 1. shares 7. simple 2. to help 8. to forbid 3. profit 9. to purchase 4. to collect money 10. time-saving 5. to be connected with sth 11. to delay 6. notebook 12. cheap B) Find in the text the English equivalents for the following: 1. piaţa primară a hîrtiilor de valoare/первичный рынок ценных бумаг; 2. emisiunea a noilor acţiuni/эмиссия новых акций; 3. a fi sigur din punct de vedere financiar/ быть надежным с финансовой точки зрения; 4. a face un profit/получать прибыль; 5. materialele publicitare sunt trimise prin poştă acţionarilor/рекламные материалы посылаются акционерам по почте; 6. a urmări desfăşurarea evenimentelor ce au loc jos/наблюдать за происходящим внизу; 7. a corespunde criteriilor/соответствовать критериям; 8. a fi la curent cu preţurile lor/быть в курсе их цен. C) Match the words with their definitions:
1. 2. 3. 4. bonds securities analyst broker a) b) c) d) a person or an organization that applies to buy shares in a company a person whose business is buying and selling a particular product a statement of the current value of stocks a company that offers a service to people by investing their money in various different businesses e) a type of security – issued either by a company or by government – bearing a fixed interest every year, which is redeemed after a stated period f) a person who can advise investors and buy and sell shares for them g) the general term for all stocks, shares and bonds h) an amount of money that is charged for providing a particular service i) a person whose job involves examining facts in order to give an opinion of them and to forecast the possible result j) a person who buys shares in a company in the hope of making a profit
5. mutual fund 6. 7. 8. 9. commission investor subscriber quotation
II. COMPREHENSION A) Answer the following questions: 1. Whose services must one use in order to buy securities? 2. What types of securities markets do you know? Give the definition of a primary market. 3. What is an investment banking firm? 4. What are the two methods used by large corporations when they decide to sell a new security issue? Why do some corporations choose the second method? 5. What is a secondary market? – 75 –
A. Talp ă , O. Calina 6. What is a securities exchange? What is the necessary condition for the securities to be sold at a particular exchange? 7. What is the largest and best-known securities exchange in the USA? Describe it. What do you know about its history? 8. What are the criteria that a corporation must meet in order to sell its stock on the NYSE? 9. Indicate how much percent of U.S. stock transactions do the following exchanges handle? the NYSE _______ the American Stock Exchange _______ regional exchanges ________ 10. What is an over-the-counter market?
B) Mark the statements with TRUE or FALSE: 1. One can purchase securities without using the services of a stockbroker. 2. A new security issue can be sold only in the primary market. 3. Most large corporations that need a lot of financing sell their securities directly to current stockholders in order to avoid commission. 4. The customers of the investment banking firm are mutual funds, commercial banks, insurance companies, pension funds and different natural persons. 5. The investment banking firm buys the corporation’s securities only if they are financially sound. 6. The investment banking firm charges 2 to 20% of the corporation’s gross proceeds. 7. The securities of regional corporations are traded at either the NYSE or the American Stock Exchange. 8. An American company that does business in France can trade its securities both at the NYSE and at the securities exchange in Paris. 9. Brokers trade an average of more than 160 million shares per day at the American Stock Exchange. 10. Today more shares are traded “over the counter” than at a securities exchange. III. DISCUSSION Discuss the following questions: 1. It is thought that the best way to invest your money is to buy securities. Do you agree or disagree with it? 2. The job of a financial analyst is to evaluate the financial standing of a corporation and to forecast whether its shares are a good risk or not. To your mind, is it easy or difficult to do this job? What qualities must a good analyst possess? 3. Your corporation has issued new securities. In what market are you going to sell them? What decision would you take: to sell these securities through an investment banking firm or directly to your current shareholders? Substantiate your answer. 4. You are a shareholder and you want to sell your shares. In what market are you going to sell them? 5. In your opinion, what do the Americans prefer: to buy shares at a securities exchange or in the over-the-counter market? Give your reasons. IV. FOCUS ON LANGUAGE Business idioms
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ENGLISH FOR ECONOMIC PURPOSES Fill in the gaps with a suitable prepositional phrase from the list below:
On closer inspection, on order, on holiday, on approval, on condition, on paper, on schedule, on behalf of, on display, on the phone, on the spot, on business, on loan, on request. 1. You will find our new product ________________ at our showroom. 2. We have a sales engineer __________________ who can fix the fault this week. 3. The goods arrived ____________________. 4. We have had the goods ________________ for 3 months, but they haven’t arrived yet. 5. We accepted delivery of the goods as undamaged, but _____________________ we found that 5 of the components are unusable. 6. I spoke to him ______________ last week about this. 7. We can have the goods for 4 weeks ____________________. We can return them or pay for them. 8. He traveled to England _______________ but managed to do a little sightseeing while he was there. 9. I’m afraid Mr Smith is _________________ till the end of the month – can I help you? 10. We can offer you the job ________________ that you start work on the first of the next month. 11. The candidate doesn’t look very good _____________________ but she is very impressive in person. 12. You can’t keep it permanently, but you may have it __________________ till the end of the month. 13. She signed the letter _____________________ her boss. 14. Let us not waste time and act __________________.
4.2 The Role of the Stockbroker
Learning objectives: 1. Analyze the role of the stockbroker and how they fulfill their goals 2. Comprehend the mechanics of a stock transaction 3. Differentiate between a full-service broker and a discount broker 4. Understand how commission is charged for trading stocks 5. Recognize different types of shares Study and Learn the Words:
English discretionary order to relay booth (n) to receive and send on a small enclosed place where you can English equivalents Romanian instrucţiune discreţionară (de a cumpăra orice titlu de valoare) Russian поручение, согласно которому брокер может действовать по своему усмотрению
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A. Talp ă , O. Calina
do sth privately, for ex. to vote ticker (n) charge (n) fee (n) commodity (n) option (n) teleimprimator automat care înregistrează cotaţiile la bursă cost, preţ onorariu goods the right to buy shares in a company on some future date at a pre-arranged price opţiune биржевой телеграфный аппарат цена гонорар опцион, сделка с премией
blue chip floating (n) equities (n) rights issue
bonus issue par value=face value, nominal value merger (n) donation (n) the value that a share in a company had originally
acţiune cu capitalizare bursieră foarte mare lansarea pentru prima dată a acţiunilor unei firme acţiuni obişnuite acordarea către acţionari a dreptului de a cumpăra noi acţiuni la un preţ avantajos acţiuni distribuite acţionarilor în locul dividendului cuvenit
акция с наименьшим инвестиционным риском первоначальный выпуск акций простые акции предоставление акционерам права покупать акции по более выгодной цене акции, полученные акционерами вместо дивидендов
fuziune sth that is given to a person or an organization as a charity, in order to help them to exclude, to say that sth is not suitable energie atomică
to rule sth out nuclear energy
An account executive (or stockbroker) is an individual who buys or sells securities for clients. (Actually, account executive is the more descriptive title because account executives handle all securities—not only stocks. Most also provide securities information and advise their clients regarding investments.) Account executives are employed by stock brokerage firms, such as Merrill Lynch, Dean Witter Reynolds, and Prudential-Bache Securities. To trade at a particular exchange, a brokerage firm must be a member of that exchange. For example, the NYSE has a limited membership of 1,366 members, or "seats," as they are often called. Membership on the NYSE is called a “seat” because until 1871 members sat in assigned chairs during the calls of stocks. In the early 1800s, a seat cost $25. Today the price of membership is more than $2 million. Seats are sold or leased by their current owners rather than being bought directly from the NYSE. The Mechanics of a Transaction Once an investor and his or her account executive have decided on a particular transaction, the investor gives the account executive an order for that transaction. A market order is a request that a stock be purchased or sold at the current market price. The broker's representative on the exchange's trading floor will try to get the best possible price, and the trade will be completed as soon as possible.
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ENGLISH FOR ECONOMIC PURPOSES A limit order is a request that a stock be bought or sold at the price that is equal to or better (lower for buying, higher for selling) than some specified price. Suppose you place a limit order to sell General Dynamics common stock at $49 per share. Then the broker's representative sells the stock only if the price is $49 per share or more. If you place a limit order to buy General Dynamics at $49, the representative buys it only if the price is $49 per share or less. Limit orders may or may not be transacted quickly, depending on how close the limit price is to the current market price. Usually, a limit order is good for one day, one week, one month, or good until canceled (GTC). Finally, it is possible for investors to place a discretionary order. A discretionary order is an order to buy or sell a security that lets the broker decide when to execute the transaction and at what price. Financial planners advise against using a discretionary order for two reasons. First, a discretionary order gives the account executive a great deal of authority. If the account executive makes a mistake, it is the investor who suffers the loss. Second, financial planners argue that only investors (with the help of their account executive) should make investment decisions. A typical stock transaction includes five steps: 1. Account executive receives customer’s order to sell stock and relays order to stock-exchange representative. 2. Firm’s clerk signals transaction from booth to partner on stockexchange floor. 3. Floor partner goes to trading post where stock is traded with a stockexchange member with an order to buy. 4. Floor partner signals transaction back to clerk in booth. Sale is recorded on card inserted into card reader and transmitted to ticker. 5. Sale appears on ticker, and confirmation is phoned to account executive, who notifies customer. The entire process, from receipt of the selling order to confirmation of the completed transaction, takes about twenty minutes. Commissions Brokerage firms are free to set their own commission charges. Like other businesses, however, they must be concerned with the fees charged by competing firms. Full-service brokers—those that provide information and advice as well as securities-trading services—generally charge higher fees than discount brokers, which buy and sell but may offer less advice and information to their clients. On the trading floor, stocks are traded in round lots. A round lot is a unit of 100 shares of a particular stock. An odd lot is fewer than 100 shares of a particular stock. Brokerage firms generally charge higher per-share fees for trading in odd lots, primarily because several odd lots must be combined into round lots before they can actually be traded. Commissions for trading bonds, commodities, and options are usually lower than those for trading stocks. The charge for buying or selling a $1,000 corporate bond is typically $10. No matter what kind of security is traded, the investor generally pays a commission when buying and when selling. Payment for the securities and for commissions is generally required within five business days of each transaction. It is important to remember that a broker has two goals: to help investors achieve their financial objectives and to promote his or her own interests and those of the brokerage firm, (These goals do not necessarily conflict with one another, but the fact that the broker and brokerage house receive a commission on every trade may sometimes lead to recommendations to trade more frequently than necessary.) With this fact in mind, it is obvious that investors should be involved in planning their investment programs.
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A. Talp ă , O. Calina
I. VOCABULARY PRACTICE A) Choose the correct meaning of the following words according to the context: 1. to cancel means: a) to stop paying attention to sth: b) to say that you no longer want to continue with an agreement that has been legally arranged; c) to change from one thing to another. 2. to decide on a transaction means: a) to choose the best possible transaction; b) to form an opinion about the transaction; c) to publicly tell people about the transaction. 3. to trade means: a) to buy and sell things; b) to rent things; c) to resell things. 4. primarily means: a) shortly; b) particularly; c) mainly. 5. option means: a) the freedom to choose what you want to do; b) the right to buy shares on some future date; c) the instruction what to do. B) Fill in the table with nouns, verbs and adjectives from the same word family:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Noun receipt investor advise reason complete compete financial charge Verb cancel Adjective discretionary
II. COMPREHENSION Answer the following questions: 1. Who is a stockbroker and what services does he provide? What is the difference between an account executive and a stockbroker? 2. Where does an account executive work? 3. Describe the mechanics of a stock transaction. What orders can an investor give to his account executive? 4. List the advantages and disadvantages of each order both for the investor and for the broker. 5. How many steps are included in a typical stock transaction? How much time is needed to effect such a transaction? 6. What is a commission and who charges it? 7. What is the difference between a full-service broker and a discount broker?
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ENGLISH FOR ECONOMIC PURPOSES 8. How are stocks traded on the trading floor? Why do brokerage firms charge higher per-share fees for trading in odd lots? 9. When is the payment for the securities and for commissions due? 10. What goals does the broker have?
III. Fill in the blanks with the words given at the end of the exercise: In order to … (1) capital companies …(2) shares or stocks and offer them for … (3) to the public. When it is the first time that a company does it, this is called … (4) a company. Shares of important companies are … (5) on the Stock Exchange. A stock exchange is a … (6) where stocks and shares are … (7). It performs an important economic function in a country’s economy by … (8) buyers and sellers together. A company that cannot meet all the … (9) for being admitted on the stock exchange has to transact its shares on the … (10) market. The value of a share as written on the share certificate is its … (11) value. This could be significantly different from the market … (12) at a given moment, which is influenced by supply and … (13) for the shares under consideration. There are different types of shares. … (14) are common shares. Those shares whose holders are paid a fixed dividend before any other type of shares are called … (15). Shares of very secure companies with a minimal risk are … (16). Sometimes companies want to raise extra capital and issue new shares offering them to their shareholders at a lower price than their market value. This is known as a … (17) issue. If companies resort to offering new shares to shareholders instead of payment of dividends this is called … (18) issue. Value, market, bringing, blue chips, rights, sale, traded, equities, requirements, raise, listed, preferred, bonus, issue, par, over-the-counter, floating, demand. IV. FOCUS ON GRAMMAR Fill in prepositions where necessary: 1. To purchase securities one must act ……. a stockbroker. 2. An investment banking firm assists ……. corporations ……. raising funds. 3. The size ….. the commission depends …… the financial health …… the corporation. 4. The most obvious reason ……. selling its own securities is to avoid the investment bank’s commission. 5. The securities sold ……. a particular exchange must first be accepted ……. trading ……. that exchange. 6. Brokers advise …….. their clients regarding investments. 7. Once the investor has decided …….. a particular transaction he gives ……. the broker an order … that transaction. 8. Brokerage firms must be concerned …the fees charged …….competing firms. 9. Usually the stockbroker acts entirely ….. his own interest. V. DISCUSSION Discuss the following questions: 1. If you were an account executive would you take discretionary orders from your clients? Give your reasons. 2. In your opinion, what order do most investors prefer to give to their brokers? 3. If you were an investor would you give a discretionary order to your account executive? Substantiate your answer. – 81 –
A. Talp ă , O. Calina 4. To your mind, a stockbroker – is it a well-paid job or not?
VI. INDIVIDUAL WORK Make a report on the securities exchange in our Republic and identify the role of the stockbroker. VII. FOCUS ON LANGUAGE Rather than endlessly repeating the words rose and fell, financial journalists use a large number of verbs and phrases to describe the movements of security prices. Classify the following sentences, according to whether you think the underlined verb or expression means: A B C D E to rise after previously falling to rise a little to rise a lot to fall a little to fall a lot
1. Boeing stocks rocketed after rumours of a forthcoming merger with another leading aircraft manufacturer. 2. The Dow-Jones index crashed after continuing rumours about the President’s health. 3. Exxon stocks shot up after a new deal to pump Siberian natural gas was announced. 4. The Footsie rallied in London in the afternoon, gaining 30 points in late trading. 5. In Paris, the CAC-40 plummeted, after the unions called for a three-day general strike next week. 6. Leading shares were slightly weaker in Tokyo, the Nikkei losing 6 points. 7. Most shares were a little stronger in Milan this morning, when the exchange reopened after yesterday’s public holiday. 8. Procter&Gamble stocks plunged after it was revealed that the company had lost over $100 million as a result of a derivative deal. VIII. CASE STUDY Imagine that you have $100.000 and you want to invest it in a company in a most profitable way. You have to choose one of the companies that perform the following activities: (only you have to bear in mind that your money will help the company to extend its operations) • emitting a large quantity of carbonic acid (CO2) into atmosphere • making donations to political parties • manufacturing weapons • producing nuclear energy • selling alcohol • selling tobacco • testing cosmetic products on animals • relocating production to countries with lower labour costs Are you going to listen to your broker’s advice or you can take the decision yourself? Which of the following activities would cause you to rule out a company as a possible investment?
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ENGLISH FOR ECONOMIC PURPOSES IX. Underline the correct word: 1. Being a doctor is very demanding. Furthermore/However, it is a job in which there is no room for mistakes. 2. Exercising helps us keep feet. Nevertheless/Moreover, it can be lots of fun. 3. Driving to work can be convenient. On the other hand/Similarly, finding a place to park can be a problem. 4. Living in a foreign country can be very difficult. In contrast/Furthermore one can often feel lonely and homesick. 5. Going on holiday is a great way to relax. Similarly/Nevertheless, taking short trips at the weekend can also be enjoyable. 6. Cities are noisy. Also/In contrast, the countryside is quiet. 7. Living on your own teaches you to be independent. Also/However, it helps you to become more responsible.
5. FINANCIAL MANAGEMENT
“Finance is an art that makes money go from person to person until it disappears” French proverb
5.1 What is Financial Management?
Learning objectives: 1. Define “financial management” 2. Appreciate the need for financing 3. Compare short-term financing needs and long-term financing needs 4. Speak on the evolution of financial management Study and Learn the Words:
English peak period cash flow promotional campaign evenly (adv) over the long run to get smth under way to raise money merger (n) outmoded (adj) fund (v) facility (n) English equivalents period during which the maximum of production is sold Romanian perioada de vârf ale vânzărilor flux de numerar companie de reclamă exactly, precisely a period during which something flows moving, advancing, making progress to collect money a combining of two or more companies, corporations no longer in fashion or accepted, obsolete to provide money for building, special room, equipment, cu precizie în perioada de activitate a merge înante, a avansa, a progresa a aduna bani contopire, fuziune învechit, demodad a furniza mijloace băneşţi pentru clădire, echipament Russian период наиболее интенсивной продажи движение платежей рекламная компания с точностью в период деятельности прогрессировать собирать деньги слияние, обьединение вышедший из моды, устаревший финансировать оборудование, аппаратное обеспечение, производственные помещения ресурсы
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A. Talp ă , O. Calina
for supplying a business
The field of financial management is an exciting and challenging one. Students who choose to major in finance will find a wide range of rewarding job opportunities in the fields of corporate financial management, investment analysis and management, banking, real estate, insurance and the public sector. Any business – whether large or small, profit seeking or not for profit – is a financial concern and its success or failure depends in a large part on the quality of its financial decisions. Managers daily face questions like the following: - Will a particular investment be profitable? - Where will the funds come from to finance the investment? - Does the firm have adequate cash or access to cash – through bank borrowing agreements, for example to meet its daily operating needs? - What kind of credit should be granted the firm’s customers, and which customers should be given credit privileges? - How much inventory should be held? - How should profits be used or distributed? The Need for Financial Management Without financing there would be very little business. Financing gets a business started in the first place then it supports the firm’s production and marketing activities. Many firms have failed because their managers did not pay enough attention to finances. Proper financial management can ensure that: - Financial priorities are established in accordance with organizational objectives - Spending is planned and controlled - Sufficient financing is available when is needed, both now and in the future - Excess cash is invested in certificates of deposit (CDs), government securities, or conservative marketable securities A financial plan is a plan for obtaining and using the money that is needed to implement an organization’s goals. Financial planning begins with the establishment of a set of valid objectives. An objective as you know is a specific statement detailing what the organization intends to accomplish within a certain period of time. Next, planners must assign costs to these objectives. That is, they must determine how much money is needed to accomplish each one and what revenues they will get. A budget is a statement that projects income and/or expenditures over a specified period of time. Usually, the budgeting process begins with the construction of individual budgets for sales and for each of the various types of expenses: production, human resources, administration and so on. Finally, financial planners must identify available sources of financing and decide which to use. The four primary sources of funds are: sales revenue, equity capital, debt capital, and proceeds from the sale of assets. Sales generally provide the greatest part of a firm’s financing. Equity capital is money received from the sale of shares of ownership in the business. It is used almost exclusively for long-term financing. Debt capital is money obtained through loans of various types. Selling assets is a drastic step. However, it may be a reasonable last resort when neither equity capital nor debt capital can be found. The Need for Financing
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ENGLISH FOR ECONOMIC PURPOSES Money is needed both to start a business and to keep it going. The original investment of the owners, along with money they may have borrowed, should be enough to get operations under way. Then, it would seem that income from sales could be used to finance the firm's continuing operations and to provide a profit as well. This is exactly what happens in a successful firm—over the long run. But sales revenue does not generally flow evenly. Both income and expenses may vary from season to season or from year to year. Temporary funding may be needed when expenses are high or income is low. Then, too, special situations, such as the opportunity to purchase a new facility or expand an existing facility, may require more money than is available within a firm. In either case, the firm looks to outside sources of financing. Short-Term Financing Needs Short-term financing is money that will be used for a period of one year or less and then repaid. A firm might need short-term financing to pay for a new promotional campaign that is expected to increase sales revenue. Or the purchase of a computer-based inventory-control system, which will "pay for itself" within a year, might be funded with short-term money. Although there are many short-term financing needs, two deserve special attention. First, certain necessary business practices may affect a firm's cash flow and create a need for short-term financing. Cash flow is the movement of money into and out of an organization. The ideal is having sufficient money coming into the firm, in any period, to cover the firm's expenses during that period. But the ideal is not always achieved. For example; a firm that offers credit to its customers may find an imbalance in its cash flow. Such credit purchases are generally not paid until thirty or sixty days (or more) after the transaction. Short-term financing is then needed to pay the firm's bills until customers have paid theirs. An unexpectedly slow selling season or unanticipated expenses may also cause a cash-flow problem. A second major need for short-term financing that is related to a firm's cashflow problem is inventory. Inventory requires considerable investment for most manufacturers, wholesalers, and retailers. Moreover, most goods are manufactured four to nine months before they are actually sold to the ultimate customer. As a result, manufacturers that engage in this type of speculative production often need short-term financing. The borrowed money is used to buy materials and supplies, to pay wages and rent, and to cover inventory costs until the goods are sold. Then, the money is repaid out of sales revenue. Wholesalers and retailers may need shortterm financing to build up their inventories before peak selling periods. Again the money is repaid when the merchandise is sold. Long-Term Financing Needs Long-term financing is money that will be used for longer than one year. Long-term financing is obviously needed to start a new business. It is also needed for executing business expansions and mergers, for developing and marketing new products, and for replacing equipment that becomes outmoded or inefficient.
I. COMPREHENSION A) Enlarge on: 1. What job opportunities does financial management open for the students who want to advance in this field? 2. What questions do financial managers face daily? 3. What is the role of financial management? Define: financial plan, objective, budget, equity capital. 4. Define the word “financial management” and describe the liabilities of the financial manager within a business organization. 5. Outline the uses of money in an entity. 6. When does a firm look to outside sources of financing? – 85 –
A. Talp ă , O. Calina 7. Define the word “short-term financing”. 8. Name five short-term financing needs and explain their reason. 9. Define the word “long-term financing needs” and explain what they are.
B) Read about the evolution of financial management and be ready to speak on it: Prior to 1930s the field of financial management was confined to descriptive discussions of various financial markets and the securities traded in those markets. Thus, finance as a field of study traditionally focused on the liabilities and stockholders’ equity side of the balance sheet and on fund raising. The field underwent a number of significant changes during the Great depression, when it became more involved with legal matters of bankruptcy, reorganization, and government regulation. Through the 1940s and into the 1950s the teaching of financial management continued to be basically qualitative and descriptive. During the 1950s financial management was expanded to include the asset side of the balance sheet, or the uses of a firm’s funds, in addition, the application of discounted cash flow techniques to the problems of capital expenditure analysis was being refined and perfected. Also, financial researchers were making significant breakthroughs in developing techniques for measuring the cost of capital and valuing financial assets. Progress in both the capital budgeting and the cost of capital areas has continued to the present days. During the 1960s mathematical models using statistical and optimization techniques were applied to the allocation of current assets such as cash, accounts receivable and inventories, and fixed assets. During the decade of the 1980s there will be an increasing emphasis on applying computer technology to assist in financial decision-making. Financial management consists of all those activities that are concerned with obtaining money and using it effectively. Within a business organization, the financial manager must not only determine the best way (or ways) to raise money. She or he must also ensure that projected uses are in keeping with the organization’s goals. Effective financial management thus involves careful planning. It begins with determination of the firm’s financing needs.
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ENGLISH FOR ECONOMIC PURPOSES C) Specify the needs for financing. The first one has been done for you: Short-Term Financing Long-Term Financing To get operations under way To start a new business
II. FOCUS ON GRAMMAR A) Insert prepositions: 1.Wholesalers and retailers may need short-term financing to build …. their inventories before peak selling periods. 2.Then, the money is repaid ….. of sales revenue. 3. As a result, manufacturers that engage ….. this type of speculative production often need short-term financing. 4. Or the purchase of a computerbased inventory-control system, which will "pay for itself" within a year, might be funded …… short-term money. 5. Financial management consists …. all those activities that are concerned ….. obtaining money and using it effectively. 6.Cash flow is the movement of money ….. and out of an organization. B) Business Vocabulary In English, nouns and verbs frequently share the same base (root). Many verbs may add the ending –ion (or often – tion, or – ation) to form a noun. Ex: createcreation Notice that the final – e of the verb disappears in the noun form. In every case, the ending – ion means “process,” “act,” or “state of being.” Creation is the act of creating, or it is what has been created. a) Make nouns from the following verbs. Use your dictionaries: a. to protect = b. to intend = c. to promote = d. to violate = e. to deprive = f. to commend = g. to tempt = h. to perceive = b) Write the verb form of the word beside its meaning in the list below: 1. ____________ to gain understanding, to realize 2. ____________ to keep something from someone 3. ____________ to guard, to keep from danger 4. ____________ to raise to a more important job or rank 5. ____________ to have a purpose in mind 6. ____________ to praise, to approve of 7. ____________ to break a rule or law 8. ____________ to create a desire c) Now write the noun form next to its meaning: 9. ____________ the act of approving, praising 10. ____________ the act of breaking a law or rule 11. ____________ the result or process of gaining understanding 12. ____________ the fact of having a purpose in mind 13. ____________ the act of keeping something from someone 14. ____________ an advancement in job or rank – 87 –
A. Talp ă , O. Calina 15. ____________ the act of keeping from danger 16. ____________ the creation of a desire d) From among the sixteen forms you have written, choose the one which is appropriate for each blank in the following memo.
MEMORANDUM Date: November 23, 2006 To: Robert Ellison From: Deborah Weaver Subject: Age Bias I have just read a recent magazine article in Business Week which discusses age bias in business. The article comments on the fact that many businesses ____________ the rights of many older managers in business by not giving them a ____________ as they approach sixty-five years of age and by cutting their pensions. Companies are frequently ____________ to fire older executives or to force them to retire early. However, many of the affected businessmen are seeking the ____________ of the 1998 Age Discrimination in Employment Act (ADEA). Under this law, any business which has ____________ a person of his/her job and pension benefits may be in ____________ of the law and can be sued by the person affected. The Equal Employment Opportunity Commission ____________ to reinforce the law whenever possible. Robert, please check the personnel files on all our departments’ older employees. Find out if any have been given a written ____________for good work within the last three years or if any have been given ____________ to a higher position within the last two years. It is not the ____________ of this department to ____________ older managers of any legal rights. Please report your findings within the week. Thanks. III. VOCABULARY PRACTICE A) Match the words with their definitions: Long-term financing, budget, debt capital, short-term financing, equity capital, cash flow, financial management 1. All those activities that are concerned with obtaining money and using it effectively. 2. The movement of money into and out of an organization. 3. Money that will be used for longer than one year. 4. Money that will be used for a period of one year or less and then repaid. 5. A statement that projects income and/or expenditures over a specified period of time. 6. Money received from the sale of shares of ownership in the business. 7. Money obtained through loans of various types. B) Insert nouns, verbs, adjectives:
NOUN expansion practice continuing to spend VERB to finance ADJECTIVE speculative
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ENGLISH FOR ECONOMIC PURPOSES
promotional rise to fund merger
C) Find English Equivalents in the text: finanţare pe termen scurt/ краткосрочное финансирование _____________________ finanţare pe termen lung/ долгосрочное финансирование ______________________ în cadrul unei organizaţii/ в рамках организации______________________ sursă de finanţare din exterior/ внешний источник финансирования__________ a folosi banii efectiv/ рационально использовать деньги ________________ a continua o afacere/ продолжить дело_______________________________ cheltuieli neanticipate/ непредвиденные затраты _________________ banii sunt achitaţi din/ деньги выплачиваются из _____________________ client final/ конечный покупатель _____________________________ D) Find the synonyms (a-e) and antonyms (f-j) in the text: a. final customer = f. to be in vogue = b. tempting profession = g. efficient = c. last step = h. balance = d. risky step = i. expectedly = e. unsuccess of a business = j. profit seeking = IV. DISCUSSION Your company is undergoing hard times. This year expenses have been higher and income - very low. If you do not take corrective actions it is expected to fail. As a chief executive officer organize a meeting with the marketing manager, financial manager, operations manager and discuss the advantages and disadvantages of obtaining financing. Use the following expressions: - I think we should ....... - One way to .......... - My viewpoint is .......... - We are absolutely convinced that .......... - The advantage of ........... is .............
5.2 Sources of Unsecured Short-Term Financing
Learning objectives: 1. Define “unsecured financing” 2. Characterize each device of short-term capital Study and Learn the Words:
English collateral (n) commercial paper English equivalents pledge securities such as: drafts, promissory notes Romanian capital circulant sau de rulaj Russian легкореализуемые ценные бумаги
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reluctant (adj) prospects of repayment to back up to pledge collateral draft (n) invoice (n) at maturity drawer (n) drawee (n) to discount a draft unwilling possibility of repayment to help, to support to leave smth as security for the loan bill of exchange a document listing the goods and services and the price for them when the time falls due the person who makes out the draft a person who is requested to pay the draft to calculate the real value of the draft according to the formula: Actual value = Face value - Discount perspectivă de plată, posibilitatea efectuării plăţii a susţine a amaneta, a zălogi cambie factură la scadenţă tragator tras a sconta o cambie перспективы оплаты поддерживать, финансировать закладывать вексель фактура наступление срока трассант трассат вычитать вексель
Unsecured financing is financing that is not backed by collateral. A company seeking unsecured short-term capital has several options; they include trade credit, promissory notes, bank loans, commercial papers and commercial drafts. Trade Credit We know that wholesalers might provide financial aid to retailers by allowing them thirty to sixty days (or more in which to pay for merchandise. This delayed payment, which may also be granted by manufacturers, is a form of credit known as trade credit. More specifically, trade credit is a payment delay that a supplier grants to its customers. Between 80 and 90 percent of all transactions between businesses involve some trade credit. Typically, the purchased goods are delivered along with a bill (or invoice) that states the credit terms. Promissory Notes Issued to Suppliers A promissory note is a written pledge by a borrower to pay a certain sum of money to a creditor at specified future date. Suppliers that are uneasy about extending trade credit may be less reluctant to offer credit to customers that sign promissory notes. Unlike trade credit, however, promissory notes usually provide that the borrower pay interest. Unsecured Bank Loans Commercial banks offer unsecured short-term loans to their customers at interest rates that vary with each borrower’s credit rating. The prime interest rate (sometimes called the reference rate) is the lowest rate charged by a bank for a short-term loan. This lowest rate is generally reserved for large corporations with excellent credit ratings. Banks generally offer loans through promissory notes, a line of credit, or a revolving credit agreement. Most promissory notes specify repayment periods of 60 to 180 days. The line of credit – in essence, is a prearranged short-term loan. A bank that offers a line of credit may require that a compensating balance be kept on deposit at the bank. This balance may be as much as 20% of the line-of-credit amount. The bank may also require that every commercial borrower clean up (pay off completely) its line of credit at least once each year and not use it again for a period of 30 to 60 days. This second requirement ensures that the line of credit is used only to meet short-term needs and that it doesn’t gradually become a source of long-term financing. Even with a line of credit, a firm may not be able to borrow on short notice if the bank does not have sufficient funds available. For this reason, some firms prefer a revolving credit agreement, which is a guaranteed line of credit. Under this type
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ENGLISH FOR ECONOMIC PURPOSES of agreement, the bank guarantees that the money will be available when the borrower needs it. In return for the guarantee, the bank charges a commitment fee ranging from 0.25 to 1.0 percent of the unused portion of the revolving credit. The usual interest is charged for the portion that is borrowed. Commercial Paper is short-term promissory notes issued by large corporations. Commercial paper is secured only by the reputation of the issuing firm; no collateral is involved. It is usually issued in large denominations, ranging from $5,000 to $100,000. Corporations issuing commercial paper pay interest rates slightly below those charged by commercial banks. Thus, issuing commercial paper is cheaper than getting short-term financing from a bank. Commercial Drafts A commercial draft is a written order requiring a customer (the drawee) to pay a specified sum of money to a supplier (the drawer) for goods or services. It is often used when the supplier is unsure about the customer's credit standing. The draft would be completed as follows: 1. The draft form is filled out by the drawer. The draft contains the purchase price, interest rate, if any and maturity date. 2. The draft is sent by the drawer to the drawee. 3. If the information contained in the draft is correct and the merchandise has been received, the drawee marks the draft "Accepted" and signs it. 4. The customer returns the draft to the drawer. Now the drawer may (a) hold the draft until maturity, (b) discount the draft at its bank (c) use the draft as collateral for a loan. In this case, the draft is similar to an ordinary check with one exception: The draft is filled out by the seller and not the buyer. A sight draft is a commercial draft that is payable on demand—whenever the drawer wishes to collect. A time draft is a commercial draft on which a payment date is specified. Like promissory notes, drafts are negotiable instruments that may be discounted or used as collateral for a loan. They are legally enforceable.
I. COMPREHENSION A) Answer the following questions: 1. Short-term financing is easier to obtain. Why? 2. When do most lenders require collateral for short-term financing? 4. Define the word: “trade credit”. What document states the credit terms? 6. Define the word: “promissory note”. 7. What are the two advantages of a promissory note? 8. Define the word: “unsecured bank loans”. 9. Explain what the line of credit is. Give examples. 10. What are the revolving credit agreement, commercial papers and commercial drafts? 11. What collateral can be used for short-term financing? B) True or False? 1. The shorter repayment period means there is risk of nonpayment. 2. Unsecured financing is financing that is not backed by collateral. 3. Between 70 and 100% of all transactions between businesses involve trade credit. 4. Suppliers that are uneasy about extending credit may be more reluctant to offer credit to customers that sign promissory notes. 5. Commercial paper is a short-term promissory note issued by sole proprietorships. 6. The customer returns the draft to the drawer. Now the drawer may: (a) hold the draft until maturity (b) discount the draft at its bank or (c) use the draft as collateral for a loan. – 91 –
A. Talp ă , O. Calina 7. Most promissory notes specify repayment periods of 60 to 180 days. 8. The purchased goods are delivered along with a contract that states the credit terms. 9. The draft is filled out by the buyer and not the seller.
II. FOCUS ON GRAMMAR Insert prepositions: Typically, the purchased goods are delivered (1)………. (2) …….. a bill that states the credit terms. The terms (3) ……… a cash discount are specified (4) ………. the invoice. The customer buying (5) ……….. credit is called the maker. Commercial banks offer unsecured short-term loans (6) ……….. their customers (7) ……… interest rates that vary (8) ….. each borrower’s credit rating. The draft is filled (9) ……… by the seller and not by the buyer. They arise primarily (10) …… trade credit and are usually due (11) ….. less than 60 days. In addition, (12) …….. the interest (13) ……. the loan, the borrower must also pay (15) ….. storage (16) …. a warehouse. III. VOCABULARY PRACTICE A) Finish the sentences: 1. Commercial paper is secured only by …..…………………… 2. A sight draft is ………………….…………………………….. 3. Even with a line of credit ……………………………………… 4. Organizations with good to high ratings may …………………… 5. Most lenders do …………………………………………………. B) Supply: Synonyms 1. supplier – 2. questionable – 3. interest – 4. drawer – 5. collateral Аntonyms 6. short-term loan 7. secured loans 8. borrower 9. favourable 10. partial -
C) Match the words with their definitions: Unsecured financing, trade credit, promissory note, prime interest rate, revolving credit agreement, commercial paper, commercial draft. 1. A guaranteed line of credit. 2. A written order requiring the customer to pay a specified sum of money to the supplier. 3. Short-term promissory notes issued by large corporations. 4. The lowest rate charged by a bank for a short-term loan. 5. Financing that is not backed by collateral. 6. A written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date. 7. A payment delay that a supplier grants to its customers. IV. DISCUSSION 1. Have you ever bought goods on credit? When do people decide to buy goods in this way? What shops offer such services? What is the usual interest rate charged by them? 2. List the advantages and disadvantages of buying a computer on credit? The first one has been done for you:
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ENGLISH FOR ECONOMIC PURPOSES
1. You do not pay the total sum of money immediately 1. Interst is $10 paid dayly
3. Are commercial drafts largely used in our country? Make an investigation and be ready to speak on it.
5.3 Sources of Secured Short-Term Financing
Learning objectives: 1. Define the modes of secured-short- term financing 2. Describe the relative advantages and disadvantages of different modes of secured short-term financing. Study and Learn the Words:
English storage (n) release (v) floor planning English equivalents the cost of keeping goods stored to free from method of financing where the title to merchandise is given to lenders in return for short-term financing sellers of devices or machines performing specific esp. those that are worked mechanically or by electricity Romanian plată pentru depozitare a elibera Russian плата за хранение освобождать
vînzător de aparate, dispozitive
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notification plan to notify the borrower's credit customers to make their payments directly to the lender to hand over, to transfer a firm that specializes in buying other firms' accounts receivable/ agent of sale the value printed or stamped on a bill manage, move marketable, that can be sold firm, strong, stable plan de avizare план сообщения
to be due to turn over factor (n)
a fi achitat a înmâna, a transfera factor
подлежать выплате перепоручать агент, комиссионер
face value shift (v) salable (adj) secure (adj)
valoare nominală a menaja comerciale, care pot fi vândute ferm, stabil
номинальная стоимость управлять ходовой, пользующийся спросом крепкий, стабильный
Financially secure firms prefer to save collateral for long-term borrowing needs. Yet, if a business cannot obtain enough capital via unsecured short-term financing, it must put up collateral to obtain the additional financing it needs. Almost any asset can serve as collateral. However, inventories and accounts receivable are the assets that are most commonly used for short-term financing. Loans Secured by Inventory Normally, marketing intermediaries and producers have large amounts of money invested in finished goods or merchandise inventories. In addition, producers carry raw materials and work in-process inventories. All three types of inventory may be pledged as collateral for short-term loans. However, lenders prefer the much more salable finished goods to the other inventories. A lender may insist that inventory used as collateral be stored in a public warehouse. In such a case, the receipt issued by the warehouse is retained by the lender. Without this receipt, the public warehouse will not release the merchandise. The lender releases the warehouse receipt— and the merchandise—to the borrower when the borrowed money is repaid. In addition to the interest on the loan, the borrower must also pay for storage in the public warehouse. As a result, this type of loan is more expensive than an unsecured loan. A special type of secured financing called floor planning is used by automobile, furniture, and appliance dealers. Floor planning is a method of financing where the title to merchandise is given to lenders in return for short-term financing. The major difference between floor planning and other types of secured short-term financing is that the borrower maintains control of the inventory. As merchandise is sold, the borrower repays the lender a portion of the loan. To ensure that the lender is repaid a portion of the loan when the merchandise is sold, the lender will occasionally check to ensure that the collateral is still in the borrower's possession. Loans Secured by Receivables Accounts receivable are amounts that are owed to a firm by its customers. They arise primarily from trade credit and are usually due in less than sixty days. It is possible for a firm to pledge its accounts receivable as collateral to obtain short-term financing. A lender may advance 70 to 80 percent of the dollar amount of the receivables. First, however, it conducts a thorough investigation to determine the quality of the receivables. (The quality of the receivables is the credit standing of the firm's customers.) If a favorable determination is made, the loan is approved. Then whenever the borrowing firm collects from a customer whose account has been pledged as collateral, the money
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ENGLISH FOR ECONOMIC PURPOSES must be turned over to the lender as partial repayment of the loan. An alternative approach is to notify the borrower's credit customers to make their payments directly to the lender. This approach, often called the notification plan, may raise questions about the borrowing firm's financial health and cause customers to take their business elsewhere.
Factoring Accounts Receivable Accounts receivable may be used in one or another way to help raise shortterm capital: They can be sold to a factoring company (or factor). A factor is a firm that specializes in buying other firms' accounts receivable. The factor buys the accounts receivable for less than their face value, but it collects the full dollar amount when each account is due. The factor's profit is thus the difference between the face value of the accounts receivable and what the factor has paid for them. Even though the selling firm gets less than face value for its accounts receivable, it does receive needed cash immediately. Moreover, it has shifted both the task of collecting and the risk of nonpayment to the factor, which now owns the receivables. Generally, customers whose accounts receivable have been factored are given instructions to make their payments directly to the Factor. I. COMPREHENSION A) Enlarge on: 1. Identify the assets that are most commonly used for short-term financing. 2. Specify the advantages and disadvantages of loans secured by inventory. 3. Explain the difference between floor planning and other types of secured short-term financing. 4. Explain the procedure of using loans secured by receivables. 5. What is the importance of the operation called “Factoring Accounts Receivable”? B) Say if the statements are true or false: 1. The factor's profit is thus the difference between the actual value of the accounts receivable and what the factor has paid for them. 2. The major difference between floor planning and other types of secured short-term financing is that the borrower does not maintain control of the inventory. 3. However, inventories and accounts receivable are the assets that are most commonly used for short-term financing. 4. All three types of inventory may be pledged as collateral for long-termterm loans. 5. Generally, customers whose accounts receivable have been factored are given instructions to make their payments directly to the Factor. 6. To ensure that the lender is repaid a portion of the loan when the merchandise is sold, the borrower will occasionally check to ensure that the collateral is still in the borrower's possession. 7. Without this receipt, the public warehouse will not release the merchandise. II. FOCUS ON GRAMMAR Insert prepositions: 1. They arise primarily ….. trade credit and are usually due … less than sixty days. 2. Then whenever the borrowing firm collects ….. a customer whose account has been pledged as collateral, the money must be turned over ….. the lender as partial repayment of the loan. 3. In addition ….. the – 95 –
A. Talp ă , O. Calina interest …. the loan, the borrower must also pay for storage in the public warehouse. 4. Yet, if a business cannot obtain enough capital via unsecured short-term financing, it must put ….. collateral to obtain the additional financing it needs. 5. However, lenders prefer the much more salable finished goods ….. the other inventories. 6. Moreover, it has shifted both the task ….. collecting and the risk of nonpayment … the factor, which now owns the receivables.
III. VOCABULARY PRACTICE A) Match the words with their definitions: 1. A firm that specializes in buying other firms' accounts receivable. 2. Amounts that are owed to a firm by its customers. 3. An alternative approach to notify the borrower's credit customers to make their payments directly to the lender. 4. A method of financing where the title to merchandise is given to lenders in return for short-term financing. Accounts receivable, floor planning, factor, and notification plan B) Find English Equivalents in the text: cel mai des întrebuinţate/ используемые чаще всего firmele asigurate financiar/ финансово-стабильные фирмы a ridica o întrebare/ поднять вопрос într-un mod sau altul/ по-разному creanţe/ счета к получению datorii/ долги comerciant de dispozitive/ продавец бытовой техники valoare nominală/ номинальная стоимость drept de retenţie asupra mărfii/ право собственности на товар termenul de valabilitate a contului expiră/ срок действия счёта заканчивается C) Supply synonyms (a-e) and antonyms (f-j): a) agents = f) full amount of = b) sound (financially) (adj) = g) unfinished goods = c) through smth.= h) accounts payable = d) marketable (adj) = i) payment = e) to transfer = j) from time to time =
5.4 Sources of Long-Term Financing
Learning objectives: 1. Define “equity financing” and “debt financing”
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ENGLISH FOR ECONOMIC PURPOSES 2. Evaluate the advantages and disadvantages of “equity financing” and “debt financing” from the corporation’s standpoint
Study and Learn the Words:
English equity capital standpoint drawback сlaim (n) сoncession to redeem pool of bylaw English equivalents net worth opinion disadvantage request a special right or privilege that is given to someone to repay gathering of a law made by a local authority and which applies only in their area. a change of law keeps increasing steadily in quantity or degree face value earnings which are not distributed the part of a company’s capital readily convertible into cash and available for paying bills, wages any of the parts of a debt or other sum of money to be paid at regular times over a specified period Romanian capital propriu punct de vedere dezavantaj cerere, pretenţie concesiune a răscumpăra adunătura lege locală Russian собственный капитал точка зрения недостаток требование, претензия уступка, скидка выкупать, погашать пул, объединение уставные нормы, правила поправка кумулятивный номинальная стоимость нераспределенная прибыль оборотный капитал
amendment cumulative par value retained earnings working capital
amendament cumulativ valoare la paritate, preţ nominal profituri nerepartizate capital de rulment
plată parţială, în rate
Sources of long-term financing vary with the size and type of business. If the business is a sole proprietorship or partnership, equity capital is acquired by the business when the owner or owners invest money in the business. For corporations, equity-financing options include the sale of stock and the use of profits not distributed to owners. The available debt-financing options are the sale of corporate bonds and long-term loans. Equity Financing Some equity capital is used to start every business—sole proprietorship, partnership, or corporation. In the case of corporations, equity capital is provided by stockholders who buy shares in the company. There are at least two reasons why equity financing is attractive to large corporations. First, the corporation need not repay money obtained from the sale of stock, and it need not repurchase the shares of stock at a later date. Thus equity financing does not have to be repaid. Occasionally a corporation buys its own stock, but only because such an investment is in its own best interest. In 1989 Mapco, Inc.—a large oil, gas, and energy company—purchased thousands of shares of its own – 97 –
A. Talp ă , O. Calina stock with uninvested profits. The firm's top management believed the purchase was the best investment available at that particular time. A second advantage of equity financing is that a corporation is under no legal obligation to pay dividends to stockholders. A dividend is a distribution of earnings to the stockholders of a corporation. Investors purchase the shares of stock of many corporations primarily for the dividends they pay, However, for any reason (if a company has a bad year, for example), the board of directors can vote to omit dividend payments. Earnings are then retained for use in funding business operations. Thus a corporation need not even pay for the use of equity capital. Of course, the corporate management may hear from unhappy stockholders if expected dividends are omitted too frequently. There are two types of stock: common and preferred. Common Stock A share of common stock represents the most basic form of corporate ownership. Owners may vote on corporate matters, but their claims on profits and assets are subordinate to those of preferred-stock owners. In return for the financing provided by selling "common stock, management must make certain concessions to stockholders that may restrict or change corporate policies. By law, every corporation must hold an annual meeting, at which the holders of common stock may vote for directors and approve (or disapprove) major corporate actions. Among such actions are (1) amendments to the corporate charter or bylaws, the sale of certain assets, (3) mergers, (4) the issuing of preferred stock or bonds, and (5) changes in the amount of common stock issued. Many states require that a provision for pre-emptive rights be included in the charter of every corporation. Pre-emptive rights are the rights of current stockholders to purchase any new stock that the corporation issues before it is sold to the general public. By exercising their pre-emptive rights, stockholders are able to maintain their current proportion of ownership of the corporation. This may be important when the corporation is a small one and management control is a matter of concern to stockholders. Money that is acquired through the sale of common stock is thus essentially cost-free, but few investors will buy common stock if they cannot foresee some return on their investment. Preferred Stock The owners of preferred stock usually do not have voting rights, but their claims on profit and assets precede those of common-stock owners. Thus holders of preferred stock must receive their dividends before holders of common stock are paid, provided dividends are distributed at all. Moreover, they have first claim (after creditors) on corporate assets if the firm is dissolved or declares bankruptcy. Even so, like common stock, preferred stock does not represent a debt that must be legally repaid. The dividend to be paid on a share of preferred stock is known before the stock is purchased. It is stated, on the stock certificate, either as a percentage of the par value of the stock or as an amount of money. The par value of a stock is an assigned (and often arbitrary) dollar value that is printed on the stock certificate. When the corporation exercises a call provision, the investor usually receives a call premium. A call premium is a dollar amount over value that the corporation has to pay an investor for redeeming cither preferred stock or a corporate bond. When considering the two options, management will naturally obtain the preferred stock in the less costly way. Added Features for Preferred-Stock Issues To make their preferred stock particularly attractive to investors, some corporations include cumulative, participating and convertible features in various issues. Cumulative preferred stock is preferred stock on which any unpaid dividends accumulate and must be paid before any cash dividend is paid to the holders of common stock. – 98 –
ENGLISH FOR ECONOMIC PURPOSES Participating preferred stock is preferred stock whose owners share in the corporation's earnings, along with the owners of common stock. Here's how it works: First, the required dividend is paid to holders of the preferred stock. Then a stated dividend, usually equal to the dividend amount paid to preferred stockholders, is paid to the common stockholders. Finally, any remaining earnings that are available for distribution are shared by both preferred and common stockholders. Convertible preferred stock is preferred stock that can be exchanged at the stockholder's option for a specified number of shares of common stock. This conversion feature provides the investor with the safety of preferred stock and the hope of greater speculative gain through conversion to common stock. Retained Earnings Most large corporations distribute only a portion of their after-tax earnings to shareholders. The remainder, the portion of a corporation's profits that is not distributed to stockholders, is called retained earnings. Retained earnings are reinvested in the business. Because they are undistributed profits, they are considered a form of equity financing. Retained earnings represent a large pool of potential equity financing that does not have to be repaid. The amount of a firm's earnings that is to be retained in any year is determined by corporate management and approved by the board of directors. For a large corporation, retained earnings can amount to a hefty bit of financing. Most small and growing corporations pay no cash dividend—or a very small dividend—to their shareholders. All or most earnings are reinvested in the business. Stockholders don't actually lose because of this. Reinvestment tends to increase the value of their stock while it provides essentially cost-free financing. More mature corporations may distribute 40 to 60 percent of their after-tax profits as dividends. Utility companies and other corporations with very stable earnings often pay out as much as 80 to 90 percent of what they earn.
Debt Financing For a small business, long-term debt financing is generally limited to loans. Large corporations have the additional option of issuing corporate bonds. Corporate Bonds A corporate bond is a corporation’s written pledge that it will repay a specific amount of money, with interest. It includes the interest rate and the maturity date. The maturity date is the date on which the corporation is to repay the borrowed money. It also has spaces for the amount of the bond and the bond owner’s name. Large corporations issue bonds in denominations of from $1,000 to $50,000. The total face value of all the bonds in an issue usually runs into the millions of dollars. An individual or firm buys a bond generally through a securities broker. Between the time of purchase and the maturity date, the corporation pays interest to the bond owner—usually every six months—at the stated rate. The method used to pay bondholders their interest depends on whether they own registered or coupon bonds. A registered bond is a bond that is registered in the owner's name by the issuing company. Interest checks for registered bonds are mailed directly to the bondholder of record. When a registered bond is sold, it must be endorsed by the seller before ownership can be transferred on the company books. A coupon bond, sometimes called a bearer bond, is a bond whose ownership is not registered by the issuing company. To collect interest on a coupon bond, bondholders must clip a coupon and then redeem it by following procedures outlined by the issuer. At the maturity date, the bond owner returns the bond to the corporation and receives cash equaling its face value. Coupon bonds are less – 99 –
A. Talp ă , O. Calina secure than registered bonds. If coupon bonds are lost or stolen, interest may be collected and the bond may be redeemed by anyone who finds it. For this reason, most corporate bonds are registered. Maturity dates for bonds generally range from fifteen to forty years after the date of issue. In the event that the interest is not paid or the firm becomes insolvent, bond owners’ claims on the assets of the corporation take precedence over stockholders'. Some bonds are callable before the maturity date. For these bonds, the corporation usually pays the bond owner a call premium. The amount of the premium is specified, along with other provisions, in the bond indenture. The bond indenture is a legal document that details all the conditions relating to a bond issue. From the corporation's standpoint, financing through a bond issue differs considerably from equity financing. Interest must be paid periodically and in the eyes of the Internal Revenue Service; interest is a tax-deductible business expense. Furthermore, bonds must be redeemed for their face value at maturity. If the corporation defaults on (does not pay) either of these payments, owners of bonds could force it into bankruptcy. A corporation may use one of three methods to ensure that it has sufficient funds available to redeem a bond issue. First, it can issue the bonds as serial bonds, which arc bonds of a single issue that mature on different dates. For example, Seaside Productions used a twenty-five-year $50-million bond issue to finance its expansion. None of the bonds matures during the first fifteen years. Thereafter, 10 percent of the bonds mature each year, until all the bonds are retired at the end of the twenty-fifth year. Second, the corporation can establish a sinking fund. A sinking fund is a sum of money to which deposits are made each year for the purpose of redeeming a bond issue. Third, a corporation can pay off an old bond issue by selling new bonds. Although this may appear to perpetuate the corporation's long-term debt, a number of utility companies and railroads have used this repayment method. A corporation that issues bonds must also appoint a trustee, which is an independent firm or individual that acts as the bond owners' representative. A trustee's duties are most often handled by a commercial bank or other large financial institution. The corporation must report to the trustee periodically regarding its ability to make interest payments and eventually redeem the bonds. In turn, the trustee transmits this information to the bond owners, along with its own evaluation of the corporation's ability to pay. Most corporate bonds arc debenture bonds. A debenture bond is a bond that is backed only by the reputation of the issuing corporation. To make its bonds more appealing to investors, however, a corporation may issue mortgage bonds. A mortgage bond is a corporate bond that is secured by various assets of the issuing firm. Or the corporation can issue convertible bonds. A convertible bond can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock. The corporation can gain in two ways by issuing convertible bonds. They usually carry a lower interest rate than nonconvertible bonds. And once a bond owner converts a bond to common stock, the corporation no longer has to redeem it. Long-Term Loans Many businesses finance their long-range activities with loans from commercial banks, insurance companies, pension funds, and other financial institutions. Manufacturers and suppliers of heavy equipment and machinery may also provide long-term financing by granting extended credit terms to their customers. When the loan repayment period is longer than one year, the borrower must sign a term-loan agreement. A term-loan agreement is a promissory note that – 100 –
ENGLISH FOR ECONOMIC PURPOSES requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual installments. Long-term business loans are normally repaid in three to seven years. Although they may occasionally be unsecured, in most cases the lender requires some type of collateral. Acceptable collateral includes real estate, machinery, and equipment. Lenders may also require that borrowers maintain a minimum amount of working capital. The interest rate and other specific terms are often based on such factors as the reasons for borrowing, the borrowing firm's credit rating, and the collateral.
I. COMPREHENSION Answer the following questions: 1. What do the sources of long-term financing depend on? In what way is equity capital acquired by a business? 2. Who provides equity capital in the case of corporations? 3. Why is equity financing attractive to large corporations? 4. Define the word “dividend”. What happens if a company has a bad year? 5. What kinds of stock do you know? 6. Describe the advantages and disadvantages of common stocks and preferred stocks. 7. What do some corporations include to make their preferred stock attractive to investors? 8. Compare the cumulative preferred stock and the participating preferred. What do they have in common? 9. What is “returned earnings”? Give examples. 10. Explain the terms: corporate bonds, coupon bonds and bond indenture. II. FOCUS ON GRAMMAR A) Insert prepositions: Long-term business loans are normally repaid (1) .. there (2) … seven years. To make its bonds more appealing (3) …. Investors, however, a corporation may issue mortgage bonds. Serial bonds are bonds (4) … a single issue that mature (6) … different dates. Maturity dates (7) … bonds generally range (8) … fifteen (9) … fifty years after the date (10) … issue. The amount (11) … the premium is specified (12) … (13) …. Other provisions in the bond indenture. (14) …. the eyes (15) … the International Revenue Service, interest is a tax-deductible business expense. Sources of long-term financing vary (16) … the size and type of business. (17) …. Law, every corporation must hold an annual meeting, (18) …. Which the holders of common stock may vote (19) … directors. B) COMPLEX VERBS Choose one suitable verb to fill in the gaps so as to form complex verbs with the adverbial particle out. to carry; come; get; give; go; set; take; turn; wear; wipe; work; 1. This year’s loses have … out last year’s profits. 2. Fixed assets gradually …. out. 3. The factory …. out 5, 000 pairs of shoes a week. 4. He is not at home, he has …. out. 5. One of the plane’s engines … out. 6. I’ll … out some money from my current account. 7. It has … out that you were right. 8. She … out first in the competition. 9. We will …. the new textbook out by October Ist. 10. he will … out early in the morning. 11. Our customer’s order has been … out . 12. I have … out your share at the expenses of our company at $50. III. VOCABULARY PRACTICE – 101 –
A. Talp ă , O. Calina
A) Finish the sentences: 1. The owners of preferred stock usually …………………… 2. The remainder, the portion of a corporation profits ………………….. 3. Large corporations ……………………………. 4. Maturity dates for bonds generally …………………………… 5. Many businesses finance their long-range activities with …………………….. B) Supply: Synonyms 1. standpoint 2. to default 3. trustee 4. earnings 5. to occur Antonyms 6. short-range activities 7. extended credit – 8. common stock – 9. loss – 10. subordinate (adj) -
C) Match the words with their definitions: Dividend, common stock, pre-emptive rights, preferred stock, par value, call premium, cumulative preferred stock, participating preferred stock, convertible preferred stock, retained earnings, corporate bond, maturity date, registered bond, coupon bond, bond indenture, serial bonds, sinking fund, sinking fund, trustee, debenture bond, mortgage bond, convertible bond, term-loan agreement. 1. 2. 3. 4. Bonds of a single issue that mature on different dates. A bond whose ownership is not registered by the issuing company. The portion of a business profits that is not distributed to stockholders. Preferred stock that may be exchanged at the stockholder’s option for a specified number of shares of common stock. 5. An assigned dollar value printed on the face of a stock certificate. 6. Stock whose owners may vote on corporate matters but whose claims on profit and assets are subordinate to the claims of others. 7. The dollar amount over par value that the corporation has to pay an investor for redeeming either preferred stock or a corporate bond. 8. A distribution of earnings to the stockholders of a corporation. 9. A bond that is registered in the owner’s name by the issuing company. 10. A corporate bond that is secured by various assets of the issuing firm. 11. A legal document that details all the conditions relating to a bond issue. 12. A bond that can be exchanged for a specified number of shares of the corporation’s common stock. 13. A corporation’s written pledge that it will repay a specified amount of money with interest. 14. Preferred stock on which any unpaid dividends accumulate and must be paid before any cash dividend is paid to the holders of common stock. 15. The rights of current stockholders to purchase any new stock that the corporation issues before it is sold to the general public. 16. Preferred stock whose owners share in the car’s earnings, along with the owners of common stock. 17. A sum of money to which deposits are made each year for the purpose of redeeming a bond issue. 18. Stock whose owners usually do not have voting rights but whose claims on profits and assets have precedence over those of common stock owners.
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ENGLISH FOR ECONOMIC PURPOSES 19. An independent firm or individual that acts as the bond owner’s representative. 20. A bond backed only by the reputation of the issuing corporation. 21. A corporation bond that is secured by various assets of the issuing firm.
IV. DISCUSSION 1. Drexel Burnham Lambert helped finance many of the corporate takeovers during the 1980s. By 1986 it was the most profitable firm on Wall Street. Then in 1990 the firm filed for bankruptcy. What factors led to the decline of Drexel Burnham Lambert? 2. What does a financial manager do? How can he monitor a firm’s financial success? 3. Why would a supplier offer both trade credit and cash discounts to its customers? 4. You want to borrow funds to finance next year’s college expenses. Set up a budget showing your expected income and expenses, and determine how much money you will need to borrow. Then outline a plan for repaying the borrowing funds. Provide enough detail to convince your financing source to advance you the money.
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A. Talp ă , O. Calina
6.1 Accounting and Accountants
“Accounting is the language of business”
Learning objectives: 1. Know what accounting is and what accountants do 2. Make the difference between accounting and bookkeeping 3. Be able to understand the categories of accountants 4. Identify the users of accounting information Study and Learn the Words:
English to trace back to be concerned with accurate (adj) up-to-date to chalk up rigorous (adj) accounts receivable to commit to payroll (n) English Equivalents to describe how it developed to give attention to precise latest, the newest to gain strict debts owed to our organization you decide definitely that you will do it a list of people employed by a company showing the amount of money to be paid to each of them connected to verification of authenticity of financial statements by an independent professional accountant a learned or erudite person esp. one who has profound knowledge of a particular subject simultaneous production of a debit and a credit from processing a transaction a formal and systematic exposion in writing of the principles of a subject handmade things indirect costs Romanian a-şi lua originea, a se dezvolta a se ocupa de cu precizie modern, original riguros creanţe a se angaja stat de plată Russian развиваться заботиться точный современный строгий, неукоснительный счета к получению, дебиторская задолженность взять на себя обязательства платежная ведомость
pertaining (adj) auditing
legat de audit
contabilitatea dublei înregistrări
система бухгалтерского учета по методу двойной записи глиняные таблички научный трактат
clay tablets treatise
tabliţe din lut tratat ştiinţific
lucru manual cheltuieli indirecte
ремесло накладные расходы
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ENGLISH FOR ECONOMIC PURPOSES Accounting is the process of systematically collecting, analyzing, and reporting financial information. The Evolution of Accounting
“To understand accounting today and predict it tomorrow, one must know the history of accounting” Fra Luca Paciolli
The history of accounting is as old as civilization, key to important phases of history, among the most important professions in economics and business. Accountants participated in the development of cities, trade and the concept of wealth and numbers. They invented writing and took part in the development of money and banking, invented double-entry bookkeeping, helped develop capital markets and are central to the information revolution that is transforming the global economy. It can be argued that as a profession accounting is very young; however, as a service activity it dates back several thousand years. Among the earliest records are those of Egyptians and Babylonians (from approx. 3000 B.C.), who recorded on clay tablets such transactions as the payment of wages and taxes. As early as 1494, a famous Italian Franciscan monk, Fra Luca Paciolli, mathematician, scholar and philosopher published a treatise containing the essential elements of double-entry accounting system that is still in use today. His important work was entitled “Summa de Aritmetica, Geometrica, Proportioni et Proportionalita”, which contained a detailed description of accounting as practiced at that age. This book became the most widely read book on mathematics in Italy and firmly established Paciolli “the Father of Accounting”. During the Industrial revolution technological advances not only provided new machinery but required new types of expenditures as well. Cost accounting systems had to be developed to analyse and control the financial operations of those manufacturing processes. Modern accounting in the United States can be traced back to the establishment of the American Institute of Certified Public Accountants (AICPA) in 1887. By the early 1900s, accounting instruction was offered (but was optional) at many colleges and universities. Today, accounting courses are required for virtually every type of business degree. Accounting or Bookkeeping Many people confuse accounting with bookkeeping, but there are important differences between the two. Accounting deals with the entire system for providing accurate and up-to-date financial information—from design of the system through its operation to interpretation of information that is obtained. To become an accountant, an individual must undergo years of training and chalk up a great deal of practical experience. Bookkeeping, on the other hand, is the routine, day-to-day record keeping that is a necessary part of accounting. Bookkeepers are responsible for obtaining the financial data that the accounting system processes. Accounting system cannot operate without good, accurate bookkeeping but a bookkeeper can generally be trained within a year or so. Classification of Accountants Accountants are people who are trained and experienced in the methods and systems of accounting. They are generally classified as private accountants or public accountants. – 105 –
A. Talp ă , O. Calina A private (or nonpublic) accountant is an accountant who is employed by a specific organization. A medium-sized or large firm may employ one or several private accountants to design its accounting system, manage its accounting department, and prepare the variety of reports required by management or by law, and provide managers with advice and assistance. Private accountants provide their services only to their employers. Smaller and medium-sized firms that don't require full-time accountants can hire the services of public accountants. A public accountant is an accountant whose services may be hired on a fee basis by individuals or firms. Public accountants may be self-employed, or they may work for accounting firms. Accounting firms range in size from one-person operations to huge international firms with hundreds of accounting partners and thousands of employees. Most accounting firms include on their staffs at least one certified public accountant (CPA), an individual who has met state requirements for accounting education and experience and has passed a rigorous three day accounting examination. The examination is prepared by the American Institute of Certified Public Accountants and covers accounting practice accounting theory, auditing, and business law. State requirements usually include a college accounting degree and from one to three years of on the-job experience. Details regarding specific requirements for practice as a CPA in a particular state can be obtained by contacting the respective State Board of Accountancy. Certification as a CPA brings both status and responsibility. Only an independent CPA can officially verify the financial contents of a corporation's annual report and express an opinion regarding the acceptability of the corporation's accounting practices.
Users of Accounting Information The primary users of accounting information are managers. The firm's accounting system provides a range of information dealing with revenues, costs, accounts receivable, amounts borrowed and owed, profits, return on investment, and the like. This information can be compiled for the entire firm; for each product; for each sales territory store, or individual salesperson; for each division or department; and. generally in any way that will help those who manage the organization. Much of this accounting information is proprietary; it is not divulged to anyone outside the firm. However, certain financial information is demanded by individuals and organizations that the firm must deal with. Lenders require at least the information that is contained in the firm’s financial statements before they will commit themselves to short- or long-term loans. Suppliers generally ask for this information before they will extend trade credit to a firm. Stockholders must, by law, be provided with a summary of the firm’s financial position in each annual report. In addition, potential investors must be provided with financial statements in the prospectus for each securities issue. Government agencies require a variety of information pertaining to the firm's tax liabilities, payroll deductions for employees, and new issues of stocks and bonds. The firm's accounting system must be able to provide all this information in the required form. An important function of accountants is to ensure that such information is accurate and thorough enough to satisfy outside groups. Accounting can be viewed as a system for transforming raw financial data into useful financial information. I. COMPREHENSION
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ENGLISH FOR ECONOMIC PURPOSES A) Answer the following questions: 1. Define the word “accounting”. 2. What do you know about the history of accounting? When did the first book of accounting principles appear? Who wrote it? 3. What do you know about modern accounting in the USA? 4. What is the difference between accounting and bookkeeping? 5. Who are accountants? How are they classified? 6. Who is a private accountant? What are his liabilities? 7. Who is a public accountant? 8. Who is a CPA? What examination should he pass? What does it cover? 9. Who are the primary users of accounting information? What does this information include? 10. What other users of accounting information do you know? Characterize them.
B) True or False? 1. The firm’s accounting system must be able to provide information about bank activities in the required form. 2. Much of the accounting information is revealed publicly. 3. Most accounting firms include on their staffs at least one CPA. 4. The primary users of accounting information are lenders. 5. A bookkeeper can generally be trained within a year or so. 6. Accounting and Bookkeeping deal with the same systems. 7. Private accountants provide their services only to their employees. 8. It can be argued that as a profession accounting dates for about several years ago. 9. Cost accounting systems had to be developed to analyse and control the financial operations of the manufacturing processes during the Industrial Revolution. 10. Suppliers generally ask for this information before they will commit themselves to short- or long-term loans. C) List the differences between accounting and bookkeeping
ACCOUNTING 1. 2. 3. 4. 5. BOOKKEEPING 1. 2. 3. 4. 5.
D) Here is a list of accountant’s characteristics. Put a tick next to the one which corresponds to the category of accountants.
Characteristics They have passed a rigorous three-day accounting examination Their services may be hired on a fee basis by individuals or firms They are employed by specific organizations They may be self-employed or may work for accounting firms The examination they pass covers: accounting practice, theory, auditing and business Private accountants Public accountants CPAs
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A. Talp ă , O. Calina
law They design accounting systems, manage accounting departments, prepare the variety of reports They must have a college accounting degree and from 1 to 3 years of on-the-job experience
II. VOCABULARY PRACTICE A) Find the synonyms in the a. = b. c. d. = e. f.
1. American Institute of Certified Public Accountants 2. Auditing 3. Capital market 4. Double-entry-accounting 5. Copyright
text: practically =
money to be received
friar = h. explanation = exact = i. information= to gain experience = j. to offer credit very big = k. detailed = to gather information = l. linked to =
B) Match the words with their definitions:
a) Gives the owner the executive right to publish, use and sell a literary, musical, or artistic piece of work for a period not to exceed 50 years after the author’s death b) Simultaneous production of a debit and a credit from processing a transaction c) A place where securities with a maturity greater than one year are traded d) Governing body of accounting practices, which limits its membership to only those individuals who pass the CPA examination e) Verification of authenticity of financial statements by an independent professional accountant
C) Match the words with their synonyms:
1. 2. 3. 4. 5. 6. 7. 8. 9. Scholar (n) To argue Liabilities (n.pl.) Handicraft (n) Monk (n) Ongoing (adj) Assets (n.pl.) Conservatism (n) Would-be (adj) a) Made by hands b) Friar c) Potential, future d) Erudite person e) To prove f) Debts g) Lasting h)Wealth i) Prudence
D) Match the words with the definitions: Overheads, to post, book of prime entry, double-entry bookkeeping, tax return, voucher. a. a record in which certain types of transaction are recorded before becoming part of a double-entry bookkeeping system; b. a form to be filled in every year by every citizen stating incomes and personal circumstances that will be used to assess the amount of tax payable;
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ENGLISH FOR ECONOMIC PURPOSES c. a method of book keeping in which each transaction is recorded twice in two different accounts that are balanced: the debit and the credit sides of an account; d. to make a bookkeeping entry in an account book from a book of prime entry; e. any document that supports an entry in a book of account; f. indirect costs.
E) Fill in the gaps with suitable words from the list given at the end of the exercise: Accounting is a ……(1) of economics whose purpose is to …(2) information in financial terms on the …..(3) of an organization, on how past …..(4) decisions have influenced these resources and consequently it can be a useful instrument for decision-making concerning the ….(5) of resources for the future. As we see accounting looks both into the past and into the future of the resources of a company. The historical aspects are the concern of ….(6) accounting, whereas the …..(7) useful for future decision-making are the province of ……(8) accounting. The former type of approach is useful for the creditors and ….(9) of a company, the latter is required by the managers. Accountancy is the name of the profession and used only in U.K. Accountants are the professionals in the field of ….(10). They usually belong to specialized bodies. Thus ….(11) accountants are members of the Association of Certified Accountants (U.K.). They are recognized by the Department of Trade as qualified to ….(12) the accounts of limited companies. …. (13) accountants are members of one of the Institutes of Chartered Accountants (in England and Wales, Scotland, Ireland). In the U.S.A. the correspondent is the certified …(14) accountant, a member of the American Institute of Certified Public Accountants. Accountants produce …(15) statements, draw up cash flow forecasts, audit accounts of organizations, prepare …(16) returns, and calculate production costs as well as … (17). To be able to produce such financial documents they must rely on the recording of transactions in account ….(18). Bookkeeping is a branch of accounting whose task is to record transactions. There are books of prime entry in which transactions are recorded in the order in which they are made. They are …(19)books, daybooks, and journals. Later the transactions are …(20) to the ledger. This is a book in which all the accounts of a business using ….(21)-entry bookkeeping are contained. It is the ultimate record book, showing all transactions of the business and their result. Nowadays many companies use computer-…(22) information instead of the classical ledger. Double-entry bookkeeping means that in this system each transaction is entered …(23). An asset that is bought is recorded with its value. On the other hand the money paid for it is recorded in a separate account. The ….(24) side of an account should balance the debit side of it. Each entry is based on …(25). These can be invoices and ….(26). The latter is confirmation of a payment made. The former is a document stating the amount due for some goods or services supplied. It gives a description of the goods, states delivery and shipment details, alongside of unit price and ….(27) price. Accounting; allocation; audit; books; branch; cash; certified; chartered; credit; double; financial (2 times); forecasts; management; managerial; overheads; posted; public; receipts; resources; shareholders; stored; supply; tax; total; twice; vouchers. III. FOCUS ON GRAMMAR – 109 –
A. Talp ă , O. Calina
A) Insert prepositions: Lenders require (1) …. least the information that is contained in the firm’s financial statements before they will commit themselves (2) …… either short or long-term loans. Stockholders must (3) …. law, be provided (4) …. a summary (5) …. the firm’s financial position (6) …. each annual report. The information can be compiled (7) …. the entire firm. Public accountants may be self-employed, or they may work (8) … accounting firms. Because (9) … its great value business owners have been concerned (10) … financial information (11) …. hundreds of years. B) WORD FORMATION a) Make compound words (adjectives) by using the pattern Credit+ Worthy=Creditworthy. Use the following nouns to combine with “worthy”: praise; blame; note; sea; air; road; trust. Which of these correspond to the Romanian words listed below: 1.care are bonitate/платежеспособный 2.demn de laudă/заслуживающий похвалы 3.remarcabil, demn de luat in consideraţie/стоящий внимания 4.în stare bună de navigabilitate/мореходный 5.demn de încredere/заслуживающий доверия 6.apt pentru a circula pe drumurile publice/пригодный к поездке 7.condamnabil/заслуживающий порицания 8.apt de zbor/годный к полёту b) From these compounds, nouns can be formed on the pattern: ”creditworthy+ness”=creditworthiness. Mind the replacement of “y” by “i”. Now combine the adjectives you obtained in exercise to create nouns. Which of them means? 1. credibilitate (bonitate)/платежеспособность 2. stare de navigabilitate/мореходность 3. caracter reprobabil/порицание 4. caracter laudabil/похвальность 5. caracter demn de remarcat/достопримечательность IV. COLLOCATIONS Fill in the table and put “+” in the square where the combination of the two elements is possible:
a decisio n Make Meet Record Provide Supply sense data goods transactions a requireme nt
V. DISCUSSION POINT A) Comment on the following statements: 4. There is no accounting for tastes. 5. Accounting has been surprisingly interconnected with technology. 6. History does not repeat itself. But it rhymes. (M.Twain) 7. A successful merchant needs three things: sufficient cash or credit, an accounting system that can tell him how he’s doing and a good bookkeeper to operate it.
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ENGLISH FOR ECONOMIC PURPOSES B) Accounting jokes
Read them and find out what characteristics accountants have: 1. An accountant is having a hard time sleeping and goes to see his doctor: “Doctor, I just can’t get to sleep at night”. “Have you tried counting sheep?” “That’s the problem – I make a mistake and then spend three hours trying to find it”. 2. An accountant visited the National History Museum. While standing near the dinosaur he said to his neighbour: “This dinosaur is two billion years and ten months old”. “Where did you get this exact information?” “I was there ten months ago and the guy told me that the dinosaur is two billion years old”. 3. - When does a guy decide to become an accountant? When he realizes he doesn’t have the charisma to succeed as an undertaker. - What do you call an accountant who is seen talking to someone? Popular.
5. - What’s an extroverted accountant? - One who looks at your shoes while he’s talking to you instead of his own. VI.WRITING Translate into English: Dezvoltarea contabilităţii şi a funcţiei acesteia Contabilitatea a apărut în stadiul timpuriu al dezvoltării umane în scopul reflectării cantitative a mijloacelor unor producători. Obiectul, scopul şi funcţiile contabilităţ ii caracterizează particularităţ ile acelui nivel al dezvoltării sociale, procesele căruia aceasta le reflectă. Rolul contabilităţii a crescut, mai ales, în legătură cu crearea centrelor comerciale mari. Treptat contabilitatea a început să se transforme în ştiinţă, având obiectul şi metoda de cunoaştere proprii. Contabilitatea s-a dezvoltat mai pe larg în Roma Antică. Primii care au expus regulile dublei înregistrări au fost Benedict Cotrulli şi Luca Paciolo (sec.XV). Autorul operei „Cu privire la comerţ şi comerciantul onest”, în care, în special, sunt expuse regulile înregistrărilor în registrele contabile este Benedict Cotrulli. Fondatorul contabilităţii se consideră Luca Paciolo (1445 – 1515) care este cunoscut ca autorul primei cărţi de contabilitate. El a fost profesor de matematică, însă numele lui a intrat în istorie datorită tratatului consacrat utilizării conturilor şi înregistrărilor contabile. Dezvoltarea contabilităţii a dus la apariţia profesiei de contabil sau socotitor. Cuvântul „contabil” (omul care ţine registrele) a apărut de asemenea în sec. XV. În anul 1448 împăratul Imperiului Roman Maximilian I l-a numit în calitate de primul contabil pe Christofer Stechter. Începând de la acest moment contabilitatea se consideră profesie. Însă abia în sec. XIX contabilitatea a devenit o ştiinţă veritabilă. În mijlocul sec. XX în Italia, Franţa, Elveţia şi Germania au apărut multe opere despre obiectul, scopul şi metoda contabilităţii. – 111 –
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6.2 The Accounting Equation, the Balance Sheet, and the Income Statement
“A person should not go to sleep at night until the debits equal credits ” (Fra Luca Paciolli)
Learning objectives: 1. Understand the accounting equation 2. Know how to read and interpret a balance sheet 3. Explain what an income statement is Study and Learn the Words:
English balance sheet (n) English equivalents financial statement summarizing the assets, liabilities and net worth of an individual or a business at a given date: so called because the sum of the assets equals the total of the liabilities plus the net worth an itemized list or catalogue of goods, property every possession an organization has the debts of a person or business Romanian bilanţ contabil Russian балансовый отчет
inventory (n) assets (n,pl.) liabilities (n,pl.) owners’equity (n) raw data double-entry bookkeeping
inventar active pasive capital propriu
инвентарь активы пассивы собственный капитал необработанные данные система бухгалтерского учета по методу двойной записи легкореализуемы е ценные бумаги счета к получению, дебиторская задолженность страховой взнос обесценивание, амортизация векселя к получению распределять расходы нематериальные активы патент
marketable securities receivables or accounts receivable, debtors insurance premium depreciation (n) notes receivable to apportion the cost intangible assets patent (n)
not processed, edited, interpreted information a system of bookkeeping in which every transaction is entered as both a debit and a credit in conformity with the underlying accounting equation which states that assets equal liabilities plus net worth securities that can be sold easily accounts suitable for acceptance
date neprelucrate contabilitatea dublei înregistrări
capital de rulaj sau circulant conturi de încasat, creanţe primă de asigurare depreciere, devalorizare, amortizare cambii spre recepţionare a distribui, a împărţi costurile active nemateriale patent
the amount payable or paid, in one sum or periodically, for an insurance policy a decrease in value of property through wear, deterioration, or obsolescence to divide and distribute costs assets that have no real existence a document granting the exclusive right to produce, sell, or get profit from an invention, process, for a specific number of years the exclusive right to the publication,
drept de autor
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ENGLISH FOR ECONOMIC PURPOSES
trademark (n) production, or sale of the right to the literary, dramatic, or artistic work a symbol, design, word, letter used by a manufacturer or dealer to distinguish a product or products from those of competitors a written promise to pay a certain sum of money to a certain person or bearer on demand or on a specified date debts that must be paid to an organization marcă comercială ordin de plată коммерческая марка долговое обязательство, вексель счета к оплате, кредиторская задолженность нести затраты поправка на сомнительные счета
promissory note (n) accounts payable, creditors to incur expenses allowance for doubtful accounts
datorii spre plată, conturi de creditor a avea cheltuieli corecţii la creanţe dubioase
The accounting equation is a simple statement that forms the basis for the accounting process. It shows the relationship among the firm’s assets, liabilities, and owners' equity. Assets are the things of value that a firm owns. They include cash, inventories, land, equipment, buildings, patents, and the like. Liabilities are the firm's debts and obligations—what it owes to others. Owners' equity is the difference between a firm's asset and its liabilities— what would be left over for the firm's owners if its assets were used to pay off its liabilities. The relationship among these three terms is almost self-evident: Owners’ equity = assets - liabilities. By moving terms algebrically, we obtain the standard form of the accounting equation: Assets = liabilities + owners' equity Implementation of this equation begins with the recording of raw data that is, the firm's day-to-day financial transactions. It is accomplished: through the doubleentry system of bookkeeping. The concept of Balance Sheet is very old. No one knows exactly when and who invented this accounting device. Like accounting the balance sheet is an anonymous opera and generations of authors, theoreticians have contrinuted to its development since the civilization appeared. It is prepared and presented on a specified date: 31st March, 30th June, 30th September, and 31st December. Also it can be prepared quarterly, annually, and semiannually. The word “balance sheet” corresponds to the notion of “weighing machine” with two scales that must always be in balance and it derives from the word “bi” – two and “lanx” – scale of the balance. The specifics of the balance sheet in the Republic of Moldova is that it is composed of two parts: the left side is called assets and the right side is called liabilities. In the USA the BS has only one section and the assets, liabilities and owners’equity follow this order. The Balance Sheet A balance sheet (or statement of financial position) is a summary of a firm's assets, liabilities, and owners' equity accounts at a particular time, showing the various dollar amounts that enter into the accounting equation. The balance sheet must demonstrate that the accounting equation does indeed balance. That is, it must show that the firm's assets are equal to its liabilities plus its owners' equity. – 113 –
A. Talp ă , O. Calina As previously noted, the balance sheet is prepared at the end of the accounting period, which usually covers one year. Most firms also have balance sheets prepared semiannually, quarterly, or monthly. Assets
In the USA on a balance sheet, assets are listed in order, from the most liquid to the least liquid. The liquidity of an asset is the ease with which it can be converted into cash. Current Assets Current assets are cash and other assets that can be quickly converted into cash or that will be used within one year. Because cash is the most liquid asset, it is listed first. Following that are marketable securities—stocks, bonds, and so on—that can be converted into cash in a matter of days. Next are the firm's receivables. Its accounts receivable, which result from the issuance of trade credit to customers, are generally due within sixty days. However, the firm expects that some of these debts will not be collected. Thus it has reduced its accounts receivable by a 5 percent allowance for doubtful accounts. The firm's notes receivable are receivables for which customers have signed promissory notes. They are generally repaid over a longer period of time. Merchandise inventory represents the value of goods that are on hand for sale to customers. These goods are listed as current assets because they will be sold within the year. For a manufacturing firm, merchandise inventory can also represent raw materials that will become part of a finished product or work in process that has been partially completed but requires further processing. Prepaid expenses are assets that have been paid for in advance but not yet used. An example is insurance premiums. They are usually paid at the beginning of the policy year for the whole year. The unused portion (say, for the last four months of the policy year) is a prepaid expense—a current asset. Fixed Assets Fixed assets are assets that will be held or used for a period longer than one year. They generally include land, buildings, and equipment. The values of fixed assets are decreased by their accumulated depreciation. Depreciation is the process of apportioning the cost of a fixed asset over the period during which it will be used. The amount that is allotted to each year is an expense for that year, and the value of the asset must be reduced by that expense. Intangible Assets Intangible assets are assets that do not exist physically but have a value based on legal rights or advantages that they confer on a firm. They include patents, copyrights, trademarks, and goodwill. By their nature, intangible assets are long-term assets. They are of value to the firm for a number of years. Goodwill is the value of a firm's reputation, location, earning capacity, and other intangibles that make the business a profitable concern. Goodwill is not normally listed on a balance sheet unless the firm has been purchased from previous owners. Liabilities and Owners’ Equity The firms' liabilities are separated into two groups—current and long-term—on the balance sheet. These liability accounts and the owners’ equity accounts complete the balance sheet. Current Liabilities A firm’s current liabilities are debts that will be repaid within one year. Accounts payable are short-term obligations that arise as a result of making credit purchases. Notes payable are obligations that have been secured with promissory notes. They are usually short-term obligations, but they may extend beyond one year. Only those that must be paid within the year are under current liabilities. Many companies also list salaries payable and taxes payable as current liabilities. These
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ENGLISH FOR ECONOMIC PURPOSES are both expenses that have been incurred during the current accounting period but will be paid in the next accounting period. Such expenses must be shown as debts for the accounting period in which they were incurred. Long-Term Liabilities Long-term liabilities are debts that need not be repaid for at least one year. Owners' Equity For a sole proprietorship or partnership, the owners’ equity is shown as the difference between assets and liabilities. In. partnership, each partner's share of the ownership is reported separately by each owner's name. For a corporation, the owners' equity (sometimes referred to as shareholders' equity) is shown as the total value of its stock plus retained earnings that have accumulated to date.
The Income Statement An income statement is a summary of a firm's revenues and expenses during a specified accounting period. The income statement is sometimes called the earnings statement or the statement of income and expenses. It may be prepared monthly, quarterly, semiannually, or annually. The main elements of an income statement are: revenues cost of goods sold, operating expenses, and net income. I. VOCABULARY PRACTICE A) Match the words with their definitions: Assets, liabilities, owners’ equity, balance sheet, liquidity, current assets, marketable securities, notes receivable, prepaid expenses, fixed assets, depreciation, intangible assets, accounts payable, promissory notes. 1. 2. 3. 4. The ease with which an asset can be converted into cash. Assets that have been paid for in advance but not yet used. Receivables for which customers have signed promissory notes. Stocks, bonds, and so on—that can be converted into cash in a matter of days. 5. The things of value that a firm owns. They include cash, inventories, land, equipment, buildings, patents, and the like. 6. Cash and other assets that can be quickly converted into cash or that will be used within one year. 7. A summary of a firm’s assets, liabilities, and owners’ equity accounts at a particular time, showing the various dollar amounts that enter into the accounting equation 8. The difference between a firm’s asset and its liabilities—what would be left over for the firm’s owners if its assets were used to pay off its liabilities. 9. The firm’s debts and obligations—what it owes to others. 10. Assets that will be held or used for a period longer than one year. 11. Sort-term obligations that may extend beyond one year. 12. Short-term obligations that arise as a result of making credit purchases. 13. Assets that do not exist physically but have a value based on legal rights or advantages that they confer on a firm. 14. Process of apportioning the cost of a fixed asset over the period during which it will be used. B) Complete the text about balance sheets with the following words. The first one has been done for you: – 115 –
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assets, balance sheet (2 times), cash, cash held at bank, creditors, debtors, depreciation, draw up, liabilities, lists, owes, owns, statement, valuation Every year a company will 1) draw up a 2) ________ to see how it stands financially. This document consists of two 3) _______ and is called a 4) _______ . One list will contain all the things the company 5) _______ . These are its 6) _______ . The other list consists of the things the company 7) _______ and these are its 8) _______ . Every item has to be valued. One item will be the amount of 9) _______ the company has on its premises and another will be the amount standing on the bank account. This is called 10) _______ . Some items can be valued exactly, but others can only be given an approximate 11) _______ . Machinery or equipment, for instance, suffers from „wear-and-tear” and gradually loses its value. This process of losing value is assumed over a period of time and it is called 12) _______ . Other assets include 13) _______ . This item is the total amount owed by customers. Among liabilities there are 14) _______ , that is the total amount owed to suppliers. When the 15) _______ is drawn, the company will be able to see how things are going. C) Match the words with their translations: 1. venit pe acţiune/ прибыль на акцию 2. dobândă/ процент 3. profit nedistribuit/ нераспределённая прибыль 4. acţiune ordinară/ простая акция 5. costuri sociale/ социальные затраты 6. salarii/ зарплаты 7. acţionari/ акционеры 8. obligaţiune/ облигация 9. cont de profituri şi pierderi/ статья прибыли и убытков 10. costuri de exploatare/ эксплуатационные расходы 11. profit înaintea impozitării/ прибыль до налогообложения 12. dividend preferenţial/ дивиденд с привелигированной акции 13. cifră de afaceri/ общий торговый оборот 14. pensie/ пенсия 14. impozit pe firmă/ корпоративный налог a. Shareholders i. earnings per share b. corporation tax j. ordinary share c. operating costs k. wages and salaries d. debenture l. interest e. turnover m. retained profit f. pension n. social security costs g. profit before tax o. profit and loss account h. preference dividend D) Match the words or phrases 1. consolidated statement 2. assets 3. liabilities 4. entity 5. equity 6. current liabilities a. accounts are kept; with their definitions: 7. fixed assets 8. treasury bill 9. liquid assets 10. current assets 11. intangible assets 12. inventory an organization for which
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ENGLISH FOR ECONOMIC PURPOSES b. what a company owes to people/ corporations from outside the entity; c. debts to be paid within a year from the issuing of the financial statement; d. what a company owns; e. the claims of creditors and owners against the assets of an entity; f. combination of accounting statements of different entities having the same shareholders, as if they formed a single entity; g. anything owned by a company that can be readily turned into cash; h. a short term bond sold by government to cover cash requirements, usually redeemable in three months; i. amount of goods stored ready for sale (U.S.A.); j. items belonging to a business that cannot be sold or turned into cash, being necessary for the operation of the company; k. something a company ownes which cannot easily be computed and turned into cash; l. something a company owns and will be turned into cash in the regular course of business (usually within one year).
E) Fill in the gaps with suitable words selected from the list given at the end of the text: In accounting a set of accounts is kept for each company, corporation or store, each of them representing a separate ...(1), distinct for accounting purposes from its owners. An entity is therefore what may be called any organization for which separate accounts are kept. If a group of companies is treated as a single entity because the shareholders are the same, the accounting statements issued are called ...(2) statement. Assets are the economic ...(3) of an entity or we may say that assets are what the company ....(4). The claims of different parties against the assets of a company/entity are called ...(5). They are subdivided into liabilities and owners’equity. ...(6) are the claims of the creditors of a company, people from outside the organization. In a double- ...(7) bookkeeping system of accounting, the basic accounting .... (8) is Assets = Equity, as the two parts of an account must be balanced. An extended formulation of the equation will be Assets = Liabilities + owners’Equity. Assets are subdivided into two broad categories: ...(9) assets and fixed assets. Current assets are those that are part of the operating cycle of a business and are likely to be turned into ...(10) within one year. Here we include what is sometimes called ...(11) assets, that is funds readily available such as cash deposited in ...(12) accounts in banks, Treasury ...(13), that can be redeemed in three months, certificates of deposit, marketable securities, debtors (U.K.), or accounts ...(14) (U.S.A.) should also be included here. Insurance policies expiring within one year can be added to the category of current assets. ...(15) assets include tangible assets such as plants, buildings, factories, land, that is those assets that cannot be ...(16) into cash as they are required for the operation of the entity. Some ...(17) assets, that cannot be readily computed and turned into cash, can be added to the category of fixed assets. Examples in this respect are patents, trademarks, copyrights. – 117 –
A. Talp ă , O. Calina Liabilities are what the company ...(18) to people/corporations outside the entity. Here we include obligations of the company to supply money, goods or services to other parties. Current liabilities are those ....(19) due for payment within one year. They refer to creditors (U.K.) or accounts ...(20) (U.S.A.), taxation payable, and other debts due for payment in the near future. Long-term liabilities are to be ...(21) at some distant time. Examples are longterm borrowings or mortgages.
Bills; consolidated; cash; current (2 times); entity; entry; equation; equities; fixed; falling; intangible; liabilities; liquid; owes; owns; paid; payble; receivable; resources; turned. II. FOCUS ON GRAMMAR A) Insert prepositions: Merchandise inventory represents the value of goods that are ……. hand for sale to customers. 2. It must show that the firm's assets are equal ……. its liabilities plus its owners' equity. 3. The firms' liabilities are separated ……. two groups— current and long-term—on the balance sheet. 4. Long-term liabilities are debts that need not be repaid for ….. least one year. 5. These are both expenses that have been incurred during the current accounting period but will be paid ….. the next accounting period. 6. The amount that is allotted …. each year is an expense for that year, and the value of the asset must be reduced …. that expense. 7. Following that are marketable securities—stocks, bonds, and so on—that can be converted ……. cash …… a matter of days. 8. The balance sheet is prepared …… the end of the accounting period, which usually covers one year. B) COMPLEX VERBS Put the suitable verb in each gap to form a complex verb with the adverbial particle off : to cut; give; go; keep; pay; run; see; switch; take; turn; write. 1. As the debtor has gone under, the creditor will have to … off the debt. 2. The plane …. off at 10 and two hours later it landed. 3. The bombs … off. 4. The fire has …. off a tremendous heat. 5. While speaking on the phone with an important client I …. off. 6. Her father … her off without a penny. 7. … off the grass! 8. Could you … me off three copies of the document? 9. …off the radio, please, I can’t concentrate on my work if it is on. 10. Don’t …off the light yet. 11. My friends came to the airport to …. me off. 12. The ship’s crew has been … off. III. Group the following under the appropriate headings:
property (US estate), patents, stocks and shares, Treasury bills, goodwill, creditors, equipment, taxation payable, copyright, bills receivable, mortgages, debtors, trade marks, buildings, certificates of deposit, franchise, production plants, vehicles, debts due to trade, loan capital
ASSETS debtors creditors LIABILITIES
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IV. Consider your own capital, or personal wealth. Make a list of all your main capital possessions, add up the values to get your net capital asset worth. - house/flat (= market value – value of mortgage) ...................... - car/vehicle (= current value – value of any loans on it) ..................... - market price (current saleable value) of: ..................... electrical equipment (TV, hi-fi, etc.) ...................... musical instruments ...................... computer ...................... books ...................... - cash at bank (minus any debts) ..................... - investments (any shares you own) ...................... - other possessions (jewellery, clothes, etc.) ...................... Total value:
V. DISCUSSION POINT Discuss in groups of three: 1. Bankers usually insist that prospective borrowers submit audited financial statements along with a loan application. Why should financial statements be audited by a CPA? 2. What can be said about a firm whose owners’ equity is a negative amount? How could such a situation come about? 3. Why is it so important to compare a firm’s financial statements with those of previous years, those of competitors, and the average of all firms in the industry in which the firm operates. – 119 –
A. Talp ă , 4. Do the balance sheet and information you might want as other information would you like
O. Calina the income statement contain all the a potential lender or stockholder? What to have?
VI. CASE STUDY The case method of the study of business is commonly used in graduate and under-graduate business training. It requires study of one specific example of a business problem which typifies a wider business problem of concern to the students. After considering the case (problem) presented, the student should be able to apply knowledge gained to his own business needs. The aim of the case study is to propose the best possible solution and to defend that solution as strongly as possible. Typically, the solution is written in a special report form, which includes consideration of the following: 1. Background – a short summary of the most important information found in the case. This acts as an introduction to the next section. 2. Statement of the Problem – a concise statement of the major problem. 3. Discussion of the Problem – a lengthy discussion of all information related to the main problem; discuss here, also, the point of view from which you are going to be studying the problem (i.e., are you taking the position of a manager, consultant, employee). 4. Alternative Solutions – a list of all possible solutions to the problem. 5. Analysis of the Alternatives – an analysis of each of the alternative solutions stated above. Note the advantages and disadvantages of each. 6. Selection of the Best Alternative – an explanation of which alternative you have selected and why it was chosen. 7. Implementation – an explanation of how the solution is to be put into effect. Study the situation below and think about the questions given at the end, as a group, write a formal solution to the case. A Classic Case of Accounting Fraud In 1967, Equity Funding Life Insurance Company reported sales of $54 million and insurance in force totaling $109 million. By 1972, sales had grown to $1.32 and insurance in force had jumped to $6.5 billion. In the same five-year period, corporate profits increased nearly eightfold. For at least the first nine months of 1972, Equity Funding was ranked among the top ten American life insurance companies. It was the fastest-growing life insurance company in the USA. In early March 1973, acting on a tip from a former employee, investigators began to look into the company’s activities. By March 27, trading in Equity’s stock was suspended by the New York Stock Exchange. The price of the stock had dropped almost ten points in a week, to less than $15 a share. Shortly, after that, the stock was declared to be of “no value”. Equity’s 7,000 stockholders had lost at least $114 million. The investigators found that, of the 97,000 policies listed on the books of an Equity Funding subsidiary, approximately 58 percent were nonexistent. Moreover, other insurance companies that had bought these policies as reinsurers had paid millions of dollars for nothing. Reinsurance or the practice of a company’s issuing an insurance policy to a customer and then selling the policy to another insurance company to acquire cash, is not unusual in the insurance business. What was unusual in the Equity case was that there were no policyholders behind most of the policies. Nearly two-thirds of what the company claimed as its insurance business was based on bogus policies!
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ENGLISH FOR ECONOMIC PURPOSES The chairman and the president of Equity Funding received an annual salary of $100,000. In addition, in 1972 he was given a stock bonus then worth more than $150,000. He was a respected Los Angeles business leader, who until January 1972 had served as chairman of the business conduct committee of the Los Angeles branch of the National Association of Securities Dealers. He had a home with a gymnasium and tennis courts, a Rolls Royce, and a 35-foot yacht. On November 1, 1973, he and eighteen other executives of Equity Funding were indicted on 105 criminal counts. They were charged with committing felonies that included securities fraud, mail fraud, bank fraud, electronic eavesdropping, and filing false documents with the Securities and Exchange Commission. At the time, Equity Funding had a highly computerized accounting system that facilitated the mixing of phony policies with genuine policies. However, the hoax could easily have been discovered if the policies on the books had been verified with their supposed owners. Unfortunately, not one auditor for an outside accounting firm ever confirmed a policy directly with a policyholder until after the rumors of fraud began to circulate. It is not surprising that traditional auditing techniques failed to detect the phony policies. The company’s policies looked valid, and auditors generally tend to believe the computer. In the wake of the Equity Funding scandal, the American Institute of Certified Public Accountants formed a committee to study the techniques used in auditing insurance companies and to determine how they should be changed. One change was to require that auditors obtain policy information directly from policyholders.
Questions 1. Can strict accounting requirements stop fraudulent business practices? What group or groups should develop such requirements? Who should implement them? 2. How might an employee at Equity Funding have discovered the fraud? What would you have done if you were that employee?
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“Good management is better than good income” Portuguese proverb
Learning objectives: 1. Become aware of what management is 2. Understand the four basic management resources
7.1 Management Resources
Study and Learn the Words:
English tangible (adj) fiber-glass (n) assembly line (wc) house (v) day-care center English equivalents that can be touched, having real existence, glass made of plastic production line to provide or serve as a house for, to store in a house a medical institution that can provide services for protecting the health stimulus thing used to recover one’s spirit, benefit person who sells in bulk cash desk money paid for education money given to a college or another institution to provide it with an income bills used to pay for gas, water, electricity Romanian material, real, palpabil sticlă organică linie de producţie a găzdui, a adăposti, a depozita centru de ingrijire a sănătăţii Russian ощутительный, осязаемый, реальный стекловолокно линия производствa поселять, помещать центр здоровья
incentive (n) perk (n) wholesaler (n) check-out counter (n) tuition (n) endowment (n)
stimulent facilitate, înlesnire angrosist casă de achitare plată pntru învătămînt investiţie, dotare
побудительная причина льгота оптовый торговец касса плата за обучение вклад, пожертвование
utility bills prop-fan (short for propeller) airliner
bonuri de plată pentru serviciile comunale avion de pasageri
счета за коммунальные услуги авиалайнер
Management is the process of coordinating the resources of an organization to achieve the primary goals of the organization. Most organizations make use of four kinds of resources: material, human, financial, and informational. Material resources are the tangible, physical resources that an organization uses. For example, General Motoros uses steel, glass, and fiber-glass to produce cars and trucks on complex machine-driven assembly lines. Both the assembly lines and the buildings that house them are material resources, as are the actual materials from which vehicles are built. A college or university uses books, classroom buildings, desks
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ENGLISH FOR ECONOMIC PURPOSES and computers to educate students. And the Mayo Clinic uses beds, operating room equipment, and diagnostic machines to provide health care. Perhaps the most important resources of any organization are its human resources – people. In fact, some firms live by the philosophy that their employees are their most important assets. To keep people happy, a variety of incentives or perks are used, including higher- than-average pay, flexible working hours, recreational facilities, day-care centers, lengthy paid vacations, cafeterias offering inexpensive meals, and generous benefit programs. Financial resources are the funds that the organization uses to meat its obligations to various creditors. A Safeway store obtains money from customers at the check-out counters and uses a portion of that money to pay the wholesalers from which it buys food. Citicorp, a large New York bank, borrows and lends money. A college obtains money in the form of tuition, income from its endowment, and state and federal grants. It uses the money to pay utility bills, insurance premiums, and professors’ salaries. Each of these transactions involves financial resources. Finally, many organizations are increasingly finding that they cannot afford to ignore information. External environmental conditions – including the economy, consumer markets, technology, politics, and cultural forces – are all changing so rapidly that an organization that does not adapt will probably not survive. And, to adapt to change, the organization must know what is changing and how it is changing. Companies are finding it increasingly important to gather information about their competitors in today’s business environment. Companies such as Ford Motor Company and General Electric are known to collect information about their competitors. McDonnell Douglas used competitive intelligence to beat Boeing in the development of a new prop-fan airliner.
I. COMPREHENSION 1. Define the term management and name the kinds of resources it uses. 2. Identify the resources the Academy of Economic Studies of Moldova uses, the National Bank of Moldova and the Central Hospital. 3. How do these institutions strive to attract employees and keep them happy? II. FOCUS ON GRAMMAR A) Insert prepositions, where necessary: 1. …… fact, some firms live by the philosophy that their employees are their most important assets. 2. And, to adapt …… change, the organization must know what is changing and how it is changing. 3. A college obtains money ……. the form of tuition, income …… its endowment, and state and federal grants. 4. Most organizations make use ….. four kinds of resources: material, human, financial, and informational. 5. A Safeway store obtains money …… customers ….. the check-out counters and uses a portion of that money to pay the wholesalers from which it buys food. B) Write verbs, nouns and adjectives:
NOUN information to produce educational diagnosis to change various to philosophize to recreate ADJECTIVE achievable VERB
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C) Complete the following passages about leadership styles. Fill in the blanks with a, an, the or 0: ___(1) role of ___(2) leadership in ___(3)management is largely determined by ___(4), organizational culture of ___(5) company. It has been argued that ___(6) manager’s beliefs, assumptions and values are of ___(7) critical importance to ___(8) overall style of ___(9) leadership they adopt. There are several different leadership styles that can be identified within each of ___(10) following management techniques: ___(11) Autocrat ___(12) LAISSEZ-FAIRE Manager ___(13) Democrat ___(14) autocratic leader dominates ___(15) team-members, using ___(16) unilateralism to achieve ___(17) singular objective. Generally, ___(18) authoritarian approach is not ___(19) good way to get ___(20) best performance from ___(21) team. ___(22) Laisser-Faire manager exercises ____(23) little control over his group. ___(24) Laissez-faire technique is usually only appropriate when leading ___(25) team of motivated and skilled people, who have produced ___(26) excellent work in ___(27) past. ___(28) democratic leader makes ___(29) decisions by consulting ___(30) team, whilst still maintaining ___(31) control of ___(32) group. ___(33) good democratic leader encourages ___(34) participation and delegates wisely, but never loses ___(35) sight of ___(36) fact that he bears _____(37) crucial responsibility of ___(38) leadership. D) Discuss in groups of four what style you would adopt in your future business or relationship with your collegues, husband/wife, children etc. III. CASE STUDY “Trust the technology” Determined to regain his position at the top of the computer industry, Steven Jobs is betting his tarnished reputation and a substantial amount of cash on his new brainchild –the NeXT computer. Jobs is trying to prove that he really can build and manage a successful computer company, although some business analysts maintain that his triumphs as cofounder of Apple Computer, Inc. were mostly a fluke. After losing a power struggle at Apple to his one-time friend John Sculley, Jobs started a company called NeXT, Inc., and, with five formal Apple employees, attempted to build a revolutionary computer. Because of Jobs’ abilities and personality, and some impressive engineers feats, he achieved his objectives. During the three years it took to develop the NeXT computer, Jobs followed a simple managerial strategy: He demanded devotion, sacrifice, and, most importantly, perfection from his employees. Leaving Apple with a damaged ego and a reputation for throwing tantrums, Jobs used his charm and infectious enthusiasm to recruit the best personnel he could. Despite being extremely demanding at times, Jobs is able to keep morale high at NeXT by providing a work atmosphere teeming with competency and style. One of the first people Jobs hired after he set up headquarters in California was an interior designer. NeXT corporate headquarters and high-tech, automated computer-manufacturing plant are as slick as the NeXT computer itself. From the headquarters’ polished wood floors, white furniture, and exotic juice-stocked refrigerator to the stylish gray and black robots, NeXT employees are surrounded by testimonials to their elite (at least in the eyes of Jobs) standing. Jobs, a college dropout at 19 and a multimillionaire by 26, claims he is a better manager now then when he was at Apple. Today, in his thirties, he is proud of his new management style. “I think to myself as a pretty good operations person, ” says Jobs. “I am concerned about how things are going to work at NeXT and how to
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ENGLISH FOR ECONOMIC PURPOSES avoid too many layers of management. I don’t sit around in a dark room with a crystal ball. A lot of macro insights come after you’ve spent time on microscopic detail.” Jobs designed the NeXT computer especially for the academic community. Before product development began, he surveyed faculty members of thirty universities to determine what professors and students wanted in a personal computer. Some computer experts have expressed surprise and skepticism about Jobs’ pursuit of the academic market. The competition from other firms to supply colleges and universities with computers is fierce, and college students might have a difficult time paying the $ 6,500 price (a NeXT laser printer costs an additional $ 2,200). Nevertheless, Jobs is as confident as he ever was. He firmly believes in a slogan he often quotes to his employees: “Trust the technology”.
Questions 1. How would you characterize Steven Jobs’ leadership style? 2. Would you like to work for Jobs? Why or why not?
IV.READING A brief history of management “The end justifies the means” N. Machiavelli Ancient records in China and Greece already indicate the importance of organization and administration. Outstanding scholars have referred to management activities in the running of cities, states and empires. The Roman also effectively used many basic management ideas, e.g. the scalar principle and the delegation of authority. In the period 1400 to 1450, merchants in Venice, Italy, operated various types of business organizations, such as partnerships, trusts and holding companies. Concepts of the ideal state were considered by many 16 th century writers and philosophers. In Thomas More’s Utopia, for example, his comments upon the reform of the management of Britain were radical. In his best known work The Prince, Niccolo Machiavelli of Florence puts forth ideas which are still relevant today. The management of change states today that if you want your plans to be carried out you need to rely on the consent of the majority of people – exactly what Machiavelli was teaching his student a few centuries before. The object of writing the Prince was to assist a young prince in acquiring techniques of leadership. Machiavelli suggested that the leader should inspire people to greater achievements, offer rewards and incentives, and take advantage of all opportunities. He considered that survival was the main objectives of any organization and no matter what measures were taken to achieve this end, they should be taken. Scientific management was developed in 19th century. Frederic W.Taylor (1856-1917), an American engineer, was one of the main people to be associated with this movement. In 1911 he published his book Principles of Scientific Management in which he argued that work should be studied and analyzed in a systematic and throughout way. The foundations of the administrative management were laid by a French engineer Henry Fayol (1841-1925) in his book “Administration industrielle et generale”. Max Weber (1864-1920) was a – 125 –
A. Talp ă , O. Calina German academic with a university training in law and some years of experience as a civil servant. He became a professor of economics and one of the founders of German sociology. In his own design for an organization, Weber describes the bureaucracy. The word was originally a joke and nowadays it has a distinctly negative connotation, but to Weber it represented the ideal type for any large organization. In his conception the real authority is in the rules and the power of the officials. We are looking at a model of the organization as a well-oiled machine, which runs according to the rules.
Present a short overview of how basic management ideas appeared in various moments of history. V. DISCUSSION 1. Is management an art or a science? An instinct or a set of skills and techniques that can be taught? 2. What do you think makes a good manager? Which four of the following qualities taken from job advertisements for managerial positions do you think are the most important? a. being a good communicator and team-builder b. being a committed, innovative self-starter c. having excellent organizational, planning and analytical skills d. demonstrating problem solving skills e. being able to direct and delegate work f. being a strategic thinker with the ability to follow through g. being able to prioritize effectively h. being result-oriented i. having leadership skills: being able to motivate, inspire and lead people j. being decisive: able to make quick decisions k. being friendly and sociable l. being authoritative: able to give orders m. being persuasive: able to convince people to do things n. having good ideas VI. VOCABULARY PRACTICE A) Complete the following sentences with these words: Achieved, board of directors, communicate, manageable, performance, resources, setting innovation, supervise,
1. Managers have to decide how best to allocate the human, physical and capital _________ available to them. 2. Managers, logically, have to make sure that the jobs and tasks given to their subordinates are _______. 3. There is no point in _______ objectives if you do not _________ them to your staff. 4. Managers have to _________ their subordinates, and to measure, and try to improve their _______. 5. Managers have to check whether objectives and targets are being _______. 6. A top manager whose performance is unsatisfactory can be dismissed by the company’s _______. 7. Top managers are responsible for the _______ that will allow a company to adapt to a changing world.
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ENGLISH FOR ECONOMIC PURPOSES B) Choose the best alternative to complete each sentence: 1. You must keep staff _______, especially when things get difficult. a. generated b. motivated c. frustrated d. electrified 2. Weigh up the _______ of each alternative before deciding. a. checks and balances b. assets c. pros and cons d. profits 3. A good manager must be able to handle _______ situations. a. sensible b. impressive c. touching d. touchy 4. He decided to let things _______, so he dropped the subject until later. a. freeze b. ice over c. cool down d. flare up 5. It’s always difficult when a team is working _______ a deadline. a. in b. at c. to d. opposite 6. Try to ensure that each employee’s _______ is not too great. a. workload b. working place c. work-to-rule d. working part 7. Those who can’t manage their time efficiently always have high stress _______. a. grades b. standards c. performances d. levels 8. I hope the project continues to run as _______ as it has so far. a. calmly b. confidently c. smoothly d. wisely 9. After _______ many unforeseen obstacles they just managed to meet their deadline. a. overtaking b. overcoming c. overwhelming d. overriding 10. What can we do to improve _______ in this department? a. morale b. morality c. moral d. temperament
7.2 Basic Management Functions
Learning objectives: 1. Define the key words: goal, purpose, mission, objective, plan, optimization, strategy 2. Understand the four basic management functions: goal setting and planning, organizing, leading and motivating, and controlling Study and Learn the Words:
English end state means (n) go about (ph.v) morale (n) retailer (n) to span time be consistent with English equivqlents result methods, way come about the amount of enthuasism that a person has person who sells by pieces to take time in accord, compatible Romanian mijloc, cale a reieşi stare morală vânzător cu amănuntul a lua timp a corespunde cu Russian средства исходить моральное состояние розничный торговец брать время быть согласованным с
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frills (n.pl.) insight (n) versus (prep) to be sought-after outline (n) threaten (v) promote (v) occur (v) bookkeeper (n) to assist with to be spurred on ongoing (adj) standing plan policy superfluous thing added for smth a clear understanding of the inner nature in contrast with to be in great demand a general plan without details to be a menacing indication of (danger, harm, distress) to advertise to happen person who keeps a systematic record of business transactions to give help to to be motivated that is going on, actually in process, continuing set plan adăugări înţelegere, perspicacitate contra a se bucura de success schiţă a ameninţa ненужные украшения проницательность против пользоваться успехом план угрожать
a surveni socotitor a ajuta a fi motivat care continuă plan stabilit linie de conduită, politică
случаться счетовод содействовать, помогать быть мотивированным продолжительный установленный план линия поведения, политика
A number of management functions must be performed if any organization is to succeed. Some seem to be most important when a new enterprise is first formed or when something is obviously wrong. Others seem to be essentially day-to-day activities. In truth, however, all are part of the ongoing process of management. I. Goal Setting and Planning A goal is an end state that the organization is expected to achieve. Goal setting, then, is the process of developing a set of goals. Every organization has goals of several types. The most fundamental type of goal is the organization’s purpose, which is the reason for the organization’s existence. Texaco Inc.’s purpose is to earn a profit for its owners. Houston Community College System’s purpose is to provide an education for local citizens. The purpose of the Secret Service is to protect the life of the president. The organization’s mission is the means by which it is to fulfill its purpose. Apple Computer attempts to fulfill its purpose by manufacturing computers, whereas Ford Motor Company fulfills the same purpose (making a profit) by manufacturing cars. Finally, an objective is a specific statement detailing what the organization intends to accomplish as its goes about its mission. For McDonald’s, one objective might be that all customers will be served within two minutes of their arrival. Goals can deal with a variety of factors, such as sales, company growth, costs, customer satisfaction, and employee morale. They can also span various periods of time. The goals developed for these different levels must be consistent with one another. However, it is likely that some conflict will arise. A production department, for example, may have a goal of minimizing costs. One way to do this is to produce only one type of product and offer no “frills”. Marketing, on the other hand, may have a goal of maximizing sales. And one way to implement this goal is to offer prospective customers a wide range of products with many options available. As part of his or her own goal setting, the manager who is ultimately responsible for
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ENGLISH FOR ECONOMIC PURPOSES both departments must achieve some sort of balance between such competing or conflicting goals. This balancing process is called optimization. The optimization of conflicting goals requires insight and ability. Once goals have been set for the organization, managers must develop plans for achieving them. A plan is an outline of the actions by which the organization intends to accomplish its goals. The processes involved in developing plans are referred as planning. Just as it has several goals, the organization should develop several types of plans. An organization’s strategy is its broadest set of plans and is developed as a guide for major policy setting and decision making. A firm’s strategy defines what business the company is in or wants to be in and the kind of company it is or wants to be. When the Surgeon General issued a report linking smoking and cancer in the 1950s, top management at Philip Morris Companies recognized that the company’s very survival was threatened. Action was needed to broaden the company’s operations. Major elements in the overall Philip Morris strategy were first to purchase several non-tobacco-related companies and then to aggressively promote the company’s products. As a result of its strategy, Philip Morris seems to have attained the goal of being less dependent on tobacco sales. Most organizations also employ several narrower kinds of plans. A tactical plan is a smaller-scale (of smaller size) plan developed to implement a strategy. If a strategic plan will take five years to complete, the firm may develop five tactical plans, one covering each year. Tactical plans may need to be updated periodically as conditions and experience dictate. Their narrower scope permits them to be changed more easily than strategies. Another category of plans is referred to as standing plans. These result from – and implement – decisions that have previously been made by management. A policy is a general guide for action in a situation that occurs repeatedly. A standard operating procedure (SOP) is a plan that outlines the steps to be taken in a situation that arises again and again. A SOP is thus more specific than a policy. For example, a Sears, Roebuck department store may have a policy of accepting deliveries only between 9 a.m. and 4 p.m. Standard operating procedure might then require that each accepted delivery be checked, sorted, and stored before closing time on the day of the delivery.
II. Organizing the Enterprise After goal setting and planning, the second major function of the manager is organization. Organizing is the grouping of resources and activities to accomplish some end result in an efficient and effective manner. Consider the case of an inventor who creates a new product and goes into business to sell it. At first, he will probably do everything himself – purchase raw materials, make the product, advertise it, sell it, and keep his business records up to date. Eventually, as his business grows, he will find that he needs help. To begin with, he might hire a professional sales representative and a part-time bookkeeper. Later he might need to hire full-time sales personnel, other people to assist with production, and an accountant. As he hires each new person, he must decide what that person will do, to whom that person will report, and generally how that person can best take part in the organization’s activities. III. Leading and Motivating The leading and motivating functions are concerned with the human resources within the organization. Leading is the process of influencing people to work toward a common goal. Motivating is the process of providing reasons for people to work in the best interests of the organization. Together, leading and motivating are often referred to as directing. – 129 –
A. Talp ă , O. Calina We have already noted the importance of an organization’s human resources. Because of this importance, leading and motivating are critical activities. Obviously, different people do things for different reasons – that is, they have different motivations. Some are primarily interested in earning as much money as they can. Others may be spurred on by opportunities to get ahead in an organization. Part of the manager’s job, then, is to determine what things motivate subordinates and to try to provide those things in a way that encourages effective performance.
IV. Controlling Ongoing Activities Controlling is the process of evaluating and regulating ongoing activities to ensure that goals are achieved. Managerial control involves both close monitoring of the progress of the organization as it works towards its goals, and the regulating and adjusting required to keep it on course. The control function includes three steps. The first is setting standards, or specific goals to which performance can be compared. The second step is measuring actual performance and comparing it with the standard. And the third step is taking corrective action as necessary. The results of this third step may affect the setting of standards. I. COMPREHENSION A) Answer the following questions: 1. What are the purpose and the mission of a neighborhood restaurant? Of the Academy of Economic Studies of Moldova? What might be reasonable objectives for these organizations? 2. How do a strategy, a tactical plan, and a policy differ? What do they all have in common? 3. What exactly does a manager organize, and for what reason? 4. Why are leadership and motivation necessary in a business where people are paid for their work? 5. What is controlling and what does it involve? B) Say if the statements are True or False: 1. Together, leading and motivating are often referred to as planning. 2. Controlling is the process of evaluating and regulating ongoing activities to ensure that goals are achieved. 3. If a strategic plan will take five years to complete, the firm may develop five tactical plans, one covering each year. 4. The most fundamental type of goal is the organization’s mission, which is the reason for the organization’s existence. 5. The objective of the Secret Service is to protect the life of the president. 6. An organization’s strategy is its broadest set of plans and is developed as a guide for major policy setting and decision-making. 7. Obviously, different people do things for the same reasons – that is, they have the same motivations. 8. Part of the manager’s job, then, is to determine what things motivate subordinates and to try to provide those things in a way that encourages effective performance. 9. The leading and motivating functions are concerned with the material resources within the organization. 10. Optimization is a difficult process. II. FOCUS ON GRAMMAR A) Insert the following prepositions into the gaps:
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ENGLISH FOR ECONOMIC PURPOSES 1. The leading and motivating functions are concerned …. the human resources within the organization. 2. However, if profit has increased by only 1 percent after three months, some corrective action would be needed to get the firm …… track. 3. Some are primarily interested ….. earning as much money as they can. 4. Later he might need to hire full-time sales personnel, other people to assist ……. production, and an accountant. 5. Finally, an objective is a specific statement detailing what the organization intends to accomplish as its goes ……. its mission. 6. When faced …… the marketing-versus-production conflict we have just described, most managers would probably not adopt either viewpoint completely. 7. The goals developed for these different levels must be consistent …… one another. 8. A firm’s strategy defines what business the company is …. or wants to be in and the kind of company it is or wants to be. 9. Others may be spurred ….. by opportunities to get ahead in an organization. 10. The particular action that is required depends … the reason for the low increase in profit.
III. DISCUSSION Work in pairs and discuss the following issues: You are the owner and only employee of a firm that you started this morning. Your firm is to produce and sell hand-sewn canvas pants to clothing stores. (You, of course are an expert tailor). a) Write out your firm’s purpose, its mission, and at least two of its objectives. b) Write out your firm’s sales strategy and a tactical plan that follows from the sales strategy. Make sure the strategy is in keeping with your goals. c) Write out one sales policy to be followed by your firm, and one SOP that implements the policy. IV. VOCABULARY PRACTICE A) Match the words with their definitions: Goal, goal setting, purpose, mission, objective, plan, planning, strategy, tactical plan, policy, standard operating procedure, organizing, leading, motivating, directing, controlling. 1. the processes involved in developing plans 2. a general guide for action in a situation that occurs repeatedly 3. the process of evaluating and regulating ongoing activities to ensure that goals are achieved 4. the means by which an organization is to fulfill its purpose 5. a specific statement detailing what the organization intends to accomplish as its goes about its mission 6. the combined processes of leading and motivating 7. an end state that the organization is expected to achieve 8. the broadest set of plans and is developed as a guide for major policy setting and decision-making 9. the process of influencing people to work toward a common goal 10. the process of developing a set of goals 11. a plan that outlines the steps to be taken in a situation that arises again and again 12. the grouping of resources and activities to accomplish some end result in an efficient and effective manner 13. a smaller-scale plan developed to implement a strategy 14. the process of providing reasons for people to work in the best interests of the organization – 131 –
A. Talp ă , O. Calina 15. an outline of the actions by which the organization intends to accomplish its goals 16. the reason for the organization’s existence
V. WRITING A) Translate into English: Planul de afaceri – itinerarul succesului Este mult mai uşor să ajungi într-un loc necunoscut, dacă ai informaţii precise şi o hartă bună. La fel stau lucrurile şi în cazul înfiinţării unei firme. Ştiţi deja că doriţi să fiţi propriul dvs. şef. Poate că ştiţi şi ce fel de firmă doriţi să deschideţi. Dar puteţi atinge acest ţel? Itinerarul pe care îl urmează întreprinzătorii se numeşte „plan de afaceri”. Planul de afaceri este alcătuit din răspunsuri sistematice la o serie de întrebări bine cumpătate, vitale pentru iniţierea unei afaceri viabile. Cînd vorbesc despre un plan de afaceri, oamenii se referă, de obicei, la un document scris. Dar planul de afaceri nu este numai un document. El este procesul de definire şi evaluare a viitoarei companii. Alcătuirea acestui plan este prima ocazie de a vă organiza firma. În ciuda importanţei sale, perspectiva cercetărilor necesare elaborării unui plan de afaceri îi agasează pe mulţi viitori proprietari de mici firme. Aceştia vor să deschidă firma acum, nu să stea să răspundă la întrebări referitoare la o idee despre care sunt siguri că le va aduce bani. Ei nu văd rostul analizării unei firme care nici măcar nu există încă. Rostul este următorul: un plan de afaceri este esenţial, pentru că va scoate în evidenţă eventualele probleme, încă înainte ca acestea să se ivească, şi va sugera soluţii, făcîndu-vă să economisiţi timp, bani şi dureri de cap. B) Business Communications When one applies for a position with an American company, the letter of application cannot and should not contain all the information a prospective employer wants to know about you. The resume will accompany your letter of application, and this is where most of the details about you will appear. The letter of application should serve as a suplement to the resume. You may begin your letter of application by stating exactly what work you are seeking. Be very specific about this. If you know of a job opening within the company, refer specifically to that position. Also, if some person from that company told you of the job opening, you may want to begin your first paragraph by mentioning this person by name. At any rate, you should begin your letter by mentioning the job you are seeking and perhaps by mentioning your source of information about the job. The second paragraph is important becuse this is where you tell more about yourself than the resume can tell. In this paragraph you should try to distinguish your application from all the others. Here you may elaborate on some job experience or training which does not stand out on the resume but which may particularly qualify you for the job. Be careful not to make this paragraph too long. Like all good business communications, the letter of application must be concise and to the point. To help you write the second paragraph, find out all you can about the company and the job opening before writing the letter. If you can make specific references to the company’s needs and how you can fulfill them, your chances of getting a job interview will be much better.
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ENGLISH FOR ECONOMIC PURPOSES Close the letter with a request for an interview. Be careful to clearly state your desire for an interview and your willingness to accomodate their schedule in arranging the interview. The overall tone of the letter should be pleasant and honest. You do not want to attempt to over-impress the employer with your talent or knowledge. Review the sample letter of application given below. After studying its sections and tone, write your own. In writing this letter, assume you are writing to some specific company for a specific position. You may want to write to one of the utility companies explaining how you may be of service to them (some of the utilities needed managers while others needed investment bankers).
January 23, 192987 E. Peach St. Dallas, TX 74639 Ms. Joan B. Willis Personnel Department Diamond Oil Company New York, NY 10003 Dear Ms. Willis: I have spoken to your Dallas representative, Mr. James Schultz, and he informed me that your company is in need of someone having an FCC Communication Technician license. As my resume indicates, while working for the Magnolia Oil Company, I have used my FCC technical skills for eight years. In fact, I was among the first technicians to receive this training. Not only did I use my training in performing my work duties, I also served as an in-house trainer for those technicians planning to apply for FCC licensing. In the course of these eight years with Magnolia Oil, I have gained experience with most of the electronic testing and maintenance equipment used in the oil industry. Please refer to the enclosed data sheet for details on both my education and work experience. There you will also find the names of persons willing and able to comment on my ability and character. Because of the extreme distance between Dallas and New York, I will be glad to interview with your dallas representative or with you by telephone. I can arrange either at your company’s convenience. Respectfully, Mark T. Riley Enclosure: Resume VI. Match explanations. the characteristics of „great managers” with their
How to be a great manager
Great managers accept blame Weak managers feel threatened by other people’s strength. Great managers see strength as things to be built on, and weakness as something to be accomodated, worked around, if possible, eliminated. Not as drastic as it sounds! What great managers do is learn new skills and acquire useful information from the outside world, and then immediately pass them on, to ensure that if they were to be run down by a bus, the team would still have the benefit of new information. No one in an organisation should be doing that work that could be accomplished equally effectively by someone less paid than themselves. This is probably the most under-used management tool. Great managers are forever trying to catch their people doing
Great managers give praise
Great managers make blue sky
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A. Talp ă , O. Calina
something right, and congratulating them on it. Managers who regularly give praise are in a much stronger position to criticise or reprimand poor performance. If you simply comment when you are dissatisfied with performance, it is all too common for your words to be taken as a straightforward expression of personal dislike. The old-fashioned approach to management was rather like the old-fashioned approach to child rearing: „Go and see what the children are doing and tell them to stop it!” Great managers have confidence that their people will be working in their intersts and do everything they can to create an environment in which people feel free to express themselves. When the big wheel from head office visits and expresses displeasure, the great manager immediately accepts full responsibility. In everyday working life, the best managers are constantly aware that they selected and should have developed their people. Errors made by team members are in a very real sense their responsibility. A great more difficult than it sounds. It’s virtually impossible to divorce your feelings about someone – whether you like or dislike them – from your view your actions. But suspicion of discrimination and favouritism are fatal to the smooth running of any team, so the great manager accept this as an aspect of the game that really needs to be worked on. Very few people are comfortable with the idea that they will be doing exactly what they are doing today in 10 years’time. Great managers anticipate people’s dissatisfaction. Most managers now accept the need to find out not merely what their team is thinking, but what the rest of the world, including their customers is saying. So MBWA (management by walking about) is an excellent thing, though it has to be distinguished from MBWAWP (management by walking about – without purpose), where senior management wander aimlessly, annoying customers, worrying staff and generally making a nuisance of themselves.
Great managers put themselves about
Great managers judge on merit
Great managers exploit strengths, not weaknesses, in themselves and in their people
Great managers happen
Great managers themselves redundant
7.3 Levels and Areas of Management
Learning objectives: 1. Distinguish among the various kinds of managers, in terms of both level and area of management 2. Identify common titles for top managers, middle managers and lower-level managers Study and Learn the Words:
English overall (adj) fortunes (n. pl.) to reach the rank of chief executive officer (n) chief operating officer (n) chief administrative English Equivalents general money, or possessions, riches, wealth to attain the rank of president of the company chief responsible for production principal administrator Romanian general bogăţii, averi a ajunge la rang de preşedinte al companiei, director executiv director operativ, director principal operaţional al corporaţiei administrator, şef Russian общий богатства достичь положения президент компании главный операционный директор компании главный
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officer chief financial officer hand down (ph.v) plant (n) former (adj) foreman (n) convert into advertising (n) appraise (v) passage of time guidance (n) in many respects chief responsible for the financial situation of the company to transmit enterprise, factory, works ex a person in charge of a department or a group of persons, supervisor, transform into publicity evaluate (v) movement of time leadership as regards trezorier a împuternici întreprindere, uzină, fabrică fost şef, supravighetor, conducător de lucrări, şef de brigadă a transforma în publicitate a aprecia, a evalua cu trecerea timpului conducere, dirijare în multe privinţe администратор главный финансовый директор компании приказать завод бывший мастер, бригадир, прораб превращать реклама оценивать течение времени руководство во многих отношениях
Levels of Management: Top Managers A top manager is an upper-level executive who guides and controls the overall fortunes of the organization. Top managers constitute a small group. In terms of planning, they are generally responsible for interpreting the organization’s purpose and developing its mission. They also determine the firm’s strategy and define its major policies. It takes years of hard work and determination, as well as talent and no small share of good luck, to reach the ranks of top management in large companies. Common titles associated with top managers are president, vice president, chief executive officer (CEO), and chief operating officer (COO). Middle Managers A middle manager is a manager who implements the strategy and major policies handed down from the top level of the organization. Middle managers develop tactical plans and standard operating procedures, and they coordinate and supervise the activities of lower-level managers. Titles at the middle-management level include division manager, department head, plant manager, and operations manager. Lower-Level Managers A lower-level manager is a manager who coordinates and supervises the activities of operating employees. Lower-level managers spend most of their time working with and motivating employees, answering questions, and solving day-to-day problems. Most lower-level managers are former operating employees who, owing to their hard work and potential, were promoted into management. Many of today’s middle and top managers began their careers on this lowest management level. Common titles for lower-level managers include office manager, supervisor, and foreman. Areas of Management: The most common areas of management are: finance, operations, marketing, human resources, and administration. Financial Managers A financial manager is a manager whose primary responsibility is the organization’s financial resources. Accounting and investment are specialized areas within financial management. Because financing affects the operation of the entire firm, many of the presidents of this country’s largest companies are people who got their “basic training” as financial managers. Operations Managers An operations manager is a manager who creates and manages the systems that convert resources into goods and services. – 135 –
A. Talp ă , O. Calina Traditionally, operations management has been equated with manufacturing – the production of goods. However, in recent years many of the techniques and procedures of operations management have been applied to the production of services and to a variety of nonbusiness activities. Like financial management, operations management has produced a good percentage of today’s company presidents. Marketing Managers A marketing manager is a manager responsible for facilitating the exchange of products between the organization and its customers or clients. Specific areas within marketing are marketing research, advertising, promotion, sales and distribution. Human Resources Managers A human resources manager is a person charged with managing the organization’s formal human resources programs. He or she engages in human resources planning; designs systems for hiring, training, and appraising the performance of employees; and ensures that the organization follows government regulations concerning employment practices. Because human resources management is a relatively new area of specialization in many organizations, there are not many top managers with this kind of background. However, this situation should change with the passage of time. Administrative managers An administrative manager (also called a general manager) is a manager who is not associated with any specific functional area but who provides overall administrative guidance and leadership. A hospital administrator is a good example of an administrative manager. He or she does not specialize in operations, finance, marketing or personnel management but instead coordinates the activities of specialized managers in all these areas. In many respects, many top managers are really administrative managers.
I. COMPREHENSION A) Review Questions 1. How are the two perspectives on kinds of managers – that is, level and area – different from each other? 2. Compare the three kinds of managers: top, middle, and lower-level managers. 3. What are the liabilities of other kinds of managers according to the areas of management? II. FOCUS ON GRAMMAR A) Insert the following prepositions into the gaps: 1. …. many respects, many top managers are really administrative managers. 2. A human resources manager is a person charged …… managing the organization’s formal human resources programs. 3. Traditionally, operations management has been equated ….. manufacturing – the production of goods. 5. Common titles associated …….. top managers are president, vice president, chief executive officer (CEO), and chief operating officer (COO). 6. A middle manager is a manager who implements the strategy and major policies handed ……. ……. the top level of the organization. 7. Many of today’s middle and top managers began their careers ….. this lowest management level. B) Write nouns, verbs or adjectives:
NOUN operation financial to administer control organizational VERB to manage ADJECTIVE
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ENGLISH FOR ECONOMIC PURPOSES
promotion to exchange specialized regulations
III. VOCABULARY PRACTICE A) Match the words with their definitions: top manager, middle manager, lower-level manager, financial manager, operations manager, marketing manager, human resources manager, administrative manager 1 a manager who creates and manages the systems that convert resources into goods and services. 2. a manager responsible for facilitating the exchange of products between the organization and its customers or clients. 3. a manager who coordinates and supervises the activities of operating employees. 4. a person charged with managing the organization’s formal human resources programs. 5. an upper-level executive who guides and controls the overall fortunes of the organization. 6. a manager who implements the strategy and major policies handed down from the top level of the organization. 7. a manager whose primary responsibility is the organization’s financial resources. 8. a manager who is not associated with any specific functional area but who provides overall administrative guidance and leadership. B) Find the definitions of the following terms. Put the letter of the term next to the definition. a. Executive vice president b. Division management c. Group vice president d. Senior vice president e. CEO (chief executive officer) f. Corporate planning g. Operations management __________ 1. Person with total responsibility for all decision making in the corporation. __________ 2. High executive officer with a title sometimes felt to have special prestige. __________ 3. Administration of a company branch or section. __________ 4. Aspect of management including systematic consideration of planning, problem solving, forecasting, and decision-making. __________ 5. Vice president in charge of one part of the company. __________ 6. A vice president with general decision-making responsibility directly under the president. __________ 7. The systematic work of forecasting and taking into account corporate responsibilities. IV. DISCUSSION In small groups discuss which of the following qualities are more likely to characterize today’s top manager: – 137 –
A. Talp ă , O. Calina Charismatic/efficient Thrilling/disciplined/business like Visionary/pragmatic Glamorous looks/business looks Intelligent/genius/good organizer
V. Focus on Language Un- is the most common negative prefix followed closely by in (ex: intelligent-unintelligent) Im – usually precedes a word beginning with a “p”(ex: partial – impartial) Ir – usually precedes a word beginning with an “r” (ex: regular-irregular) A) The following adjectives are generally used to describe some of the qualities of managers. Change each adjective into its opposite by adding un, in, im, ir, or dis: Use dictionaries: 1. approachable 13. intelligent 2. articulate 14. loyal 3. assertive 15. patient 4. committed 16. practical 5. communicative 17. rational 6. consistent 18. reliable 7. cooperative 19. responsible 8. competitive 20. sensitive 9. creative 21. sincere 10. decisive 22. skilled 11. discreet 23. supportive 12. honest VI. Business Communications Oral presentations In speaking, unlike writing, the listener cannot go back to what has already been said to hear it a second time. When you speak to a group, you should make your audience understand everything you say. This means your pronunciation must be clear, your speaking must not be too fast, and your information must be well organized. First of all, you must speak as clearly as possible. Since you speak English as a second language, it is your responsibility to make sure that what you say is clearly pronounced. Avoid too much informality and too many contractions. For example, do not say, “gonna” for “going to” when speaking to a group. Also, if your pronunciation is not clear, the listener may confuse your words. Be sure to keep your speech fast enough that your audience remains interested, but do not speak so quickly that your listeners cannot keep up with what you are saying. For example, it is very easy to go too fast if you read directly from your notes. Reading will probably bore your audience, anyway. Always use brief notes when giving an oral presentation. It is often convenient to use three-by-five-inch notecards. Using only notes, and not the full text of your presentation, will help you remember the main things you want to say while at the same time allowing you to look at your audience as you speak. By looking at your audience, you can determine whether or not they are understanding. Remember to use simple language, speak slowly, and use notes to help you remember what to say, and look at your audience. Finally, be certain that your information is well organized. You should give a very clear introduction, which states (1) what your main topic is going to be and
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ENGLISH FOR ECONOMIC PURPOSES (2) what your main points will be in the course of the presentation. Then, discuss each main point in a logical, organized, step-by-step manner. Finally, state your conclusions. Look at the exercise VII.
VII. SCENARIO: Management decision-making Divide the class into teams of three “managers” each. All the teams have the following problem: you manage a shirt factory which has declining output per worker, a rising number of defects per 100 units of production, and, as a result, rising per unit costs. Among the three managers of each team, discuss the problem and make a tentative plan for correcting the problem. Consider the following in making your plans: hiring quality control specialists, tracing the defects to their source, employee retraining, showing an interest in the workers’ work, redesigning the product, and buying newer and better equipment. When each group has finished its plans, they should be presented to the class as a whole. Then the class may consider the best ideas from each group and form one comprehensive plan of action to get production back to efficiency. VIII. DEBATE Form two teams to debate the qualifications needed for executives: Team A: Modern candidates for a corporate presidency should have a corporate degree in business or a related field (preferably an MBA), should have a wide variety of professional experiences with several corporations, and should not be over 50 years of age. Education, mobility (and thus flexibility), diversity of experience, and youthfulness are necessary qualities. These qualities reflect the needs of modern business. Team B: Modern business is no different than business has always been. Sound executive-level judgment still requires that a person have many years of professional experience within his industry and within his corporation. Years of experience are more important than a graduate degree in business. Having mobility and diversity of experience are not, then, as important as having lengthy experience within the industry and corporation. At the presidential level, the lack of experience and understanding of the young are undesirable.
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A. Talp ă , O. Calina
7.4 Key Management Skills
Learning Objectives: 1. Know the key management skills 2. Identify the management roles in which these skills are used Study and Learn the Words:
English lawyer (n) machinist (n) English Equivalents barrister person who makes or repairs machinery to a lesser degree, level to correspond to accommodate with disgraceful, shameful authentic full of pride and selfimportance pushing, presumptuous, impudent, immodest, shameless to stress doctor Romanian avocat mecanic, maşinist, muncitor calificat, inginer, constructor de maşini într-o măsură mai mică a conveni, a se asorta a se acomoda indecent, obraznic nefalsificat arogant arogant, încrezut, fără ruşine a evidenţia, a indica cu precizie medic Russian адвокат машинист, механик, слесарь в меньшей степени подходить мириться с чем-л. позорный подлинный, истинный высокомерный, самонадеянный высокомерный, самонадеянный выделять врач, доктор
to a lesser extent to fit together put up with (ph.v.) shabby (adj) genuine (adj) arrogant (adj) brash (adj)
pinpoint (v) physician (n)
The skills that typify effective managers tend to fall into five general categories: technical, conceptual, interpersonal, diagnostic, and analytic. Technical Skills A technical skill is a specific skill needed to accomplish a specialized activity. For example, the skills that engineers, lawyers, and machinists need to do their jobs are technical skills. Lower – level managers (and, to a lesser extent, middle managers) need the technical skills that are relevant to the activities they manage. Although these managers may not have to perform the technical skills themselves, they must be able to train subordinates, answer questions, and otherwise provide guidance and direction. Conceptual Skills Conceptual skill is the ability to think in abstract terms. Conceptual skill allows the manager to see “the big picture” and to understand how the various parts of an organization or an idea can fit together. In 1951 a man named Charles Wilson decided to take his family on a cross - country vacation. All along the way, the family was forced to put up with high-priced but shabby hotel accommodations. Wilson reasoned that most travelers would welcome a chain of moderately priced, good-quality roadside hotels. You are no doubt familiar with what he conceived: Holiday Inns. Wilson was able to identify a number of isolated factors (existing accommodation patterns, the need for a different kind of hotel, and his own investment interests) to “dream up” the new business opportunity and to carry it through completion. Interpersonal Skills An interpersonal skill is the ability to deal effectively with other people, both inside and outside the organization. Examples of interpersonal skills are the ability to relate to people, understand their needs and motives, and show genuine compassion. When all other things are equal, the manager who is able to exhibit these skills will be more successful than the manager who is arrogant and brash and who doesn’t care about others. They
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ENGLISH FOR ECONOMIC PURPOSES appear, however, to be more crucial for top managers than for middle or lower-level managers. Diagnostic Skills Diagnostic skill is the ability to assess a particular situation and identify its causes. The diagnostic skills of the successful manager parallel those of the physician, who assesses the patient’s symptoms to pinpoint the underlying medical problem. In management as in medicine, correct diagnosis is often critical in determining the appropriate action to take. All managers need to make use of diagnostic skills, but these skills are probably used most by top managers. Analytic Skills Analytic skill is used to identify the relevant issues (or variables) in a situation, to determine how they are related, and to assess their relative importance. All managers, regardless of level or area, need analytic skills. Analytic skills often come into play along with diagnostic skills. For example, a manager assigned to a new position may be confronted with a wide variety of problems that all need attention. Diagnostic skills will be needed to identify the causes of each problem. But first the manager must analyze the problem of “too many problems” to determine which problems need immediate attention and which ones can wait.
I. COMPREHENSION A) Answer the following questions; 1. Name the skills that managers need to possess and characterize each of them. 2. In what way are management skills related to the status managers have? Provide a specific example to support your answer. II. FOCUS ON GRAMMAR A) Study the text and insert the following prepositions into the gaps: 1. All managers need to make use ….. diagnostic skills, but these skills are probably used most by top managers. 2. All along the way, the family was forced to put up …. high-priced but shabby hotel accommodations. 3. An interpersonal skill is the ability to deal effectively ….. other people, both inside and outside the organization. 4. Lower – level managers (and, ….. a lesser extent, middle managers) need the technical skills that are relevant ….. the activities they manage. 5. You are no doubt familiar …… what he conceived: Holiday Inns. 6. For example, a manager assigned …. a new position may be confronted ….. a wide variety of problems that all need attention. 7. Analytic skills often come …… play along with diagnostic skills. B) Verbs plus prepositions Certain verbs are customarily followed by certain prepositions. It is often impossible to guess which preposition is mostly common used. The following is a list of examples of such verbs. When you learn a verb you should make an attempt to learn the prepositions that ordinarily follow it, if any. To collaborate with someone on something To consult with someone on something To haggle with someone over something To negotiate with someone for something To deprive someone of something To dispose of something To protect someone/something from something/someone To profit from someone/something To enroll someone in something To invest something in something/someone – 141 –
To entitle To rely
A. Talp ă , O. Calina someone to something on someone/something for
C) Complete the sentences with the proper preposition or prepositions: 1. In any case, protect yourself _______ precipitous action. 2. Is it really safe to rely entirely _______ hunches ________ correct decisions? 3. In fact, too much reliance on hunches may deprive you _______ much helpful input. 4. It is a good idea not to be too hasty; consult _________ your peers about the problem. 5. Collaborate _______ them in determining the primary objectives to be achieved. 6. Give yourself time to consider; haggle ______ the prices or spend time negotiating ____ a prospective buyer or seller before playing hunch. 7. Whereas you must not dispose ________ a problem without the greatest possible deliberation, playing a hunch may save you considerable time for other problems. 8. You will profit _______ a delicate balance between data gathering and hunches, and your careful work will entitle you _______ well-deserved recognition. III. DISCUSSION Work in pairs and discuss the following issues: Rate yourself on each of the five key management skills and on your proven ability to perform each of the four management functions. (Use the scale of 1 to 5, with 5 being the highest.) Based on your ratings, explain why you would or wouldn’t hire yourself for a lower-level management position.
Technical skills Conceptual Skills Interpersonal Skills Diagnostic Skills Analytic Skills
IV. VOCABULARY PRACTICE A) Match the words with their definitions: analytic skill, conceptual skill, technical skill, interpersonal skill, diagnostic skill 1. the ability to deal effectively with other people, both inside and outside the organization. 2. the ability to assess a particular situation and identify its causes. 3. the ability to think in abstract terms. 4. a specific skill needed to accomplish a specialized activity. 5. the ability to identify the relevant issues (or variables) in a situation, to determine how they are related, and to assess their relative importance. B) Fill in the blanks with an appropriate form of one of the following words: foreman indebtedness academicians mutual fund ingenious intuitive fair employment practices associates safeguards computer software Scientists and ___________ are helping business understand its __________ to hunches and __________ knowledge. Howard Stein, chairman of Dreyfus Corp.,
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ENGLISH FOR ECONOMIC PURPOSES successfully launched a special ______________ made up of computers which complied with environmental __________ and _____________. Also, Edgar Mitchell and his __________ use intuitive information along with ________. They interview managers, ________, and workers in the process of creating _____________ “fault trees”.
CASE STUDY Management Practices at CBS In the past, Laurence Tisch, CEO at Columbia Broadcasting System (CBS), proved himself to be a first-rate accountant and financial wizard. So it is no surprise that this confident and articulate man has been hurt because many observers have openly questioned his ability to run CBS. CBS’s current board of directors, network affiliates, and investors have harshly criticized Tishch’s strategy at CBS or, more precisely, his lack of a concrete company strategy. However, others claim that Tisch’ decisions at CBS have been excellent and have brought financial stability to the firm. Before Tisch came along, CBS was a diverse entertainment giant. CBS/Records group was the world’s largest company. Tisch sold CBS records to Sony Corp. (for $2 billion), just when the compact-disc revolution began to breathe a strong rush of air into the music industry. Tisch sold CBS,s publishing holdings to Harcourt Brace Jovanovich, Inc., and its magazine division to Diamandis Communications, Inc. And, while ABC is expanding its commitment to cable programming – by investing in such networks as ESPN, Lifetime, and Arts & Entertainment Network-and NBC (which has been trying to increase its involvement in cable for years) is now leasing the Tempo Television Network, Tisch sold off CBS’s interests in Rainbow Services (a cable programming venture) and several regional SportsChannelnetworks. Tisch argues that he wants to concentrate on broadcasting, even though the evening viewing audience for CBS programs has diminished by two million households since Tisch took command. Tisch says that CBS will regain its lead in the broadcast industry with improved programming, aggressive promotion to attract new viewers, and marketing innovations that appeal to advertisers. Some television analysts expect Tisch’s plans to fail; they think that CBS must diversify to grow at a time when network television is shrinking so dramatically. Tisch’s management style irritates many people. He hates memos, meetings, and traditional channels of communication. Though decisions at CBS are now made more rapidly, the bureaucratic culture of the company has been upset. Over a twoyear period after Tisch became CEO, CBS reduced its work force from 16,000 to 6,800 employees. Its revenues also shrank, from about $5, billion to $2.8 billion a year, and it slipped to last place in the crucial A.C. Nielsen Co. television ratings. In contrast, when Capital Cities took over ABC and made cuts as deep as CBS’s in the work force, ABC ratings improved. One of CBS’s directors said in a recent Business Week interview: “We are not happy. Tisch has dismantled the company in a piecemeal fashion, and it’s too late to stop him. We’ve asked for a plan or a strategy. But it’s not in his nature to lay out a strategy”. Tisch’s credit, CBS did land the 1992 Winter Olympic Games, and the company has more than $3 billion in the bank. Stock analysts, however, are still predicting a dull future for CBS. But, since Tisch controls nearly 25 percent of CBS’s stock, Tisch’s critics and dissatisfied colleagues will probably have to accept this way of doing business for a long time. Questions – 143 –
A. Talp ă , O. Calina 1. Does the fact that Tisch does not like memos, meetings and traditional channels of communication indicate that he is not an effective manager? 2. Given that several groups, such as the board of directors, network affiliates, and investors, have been critical of Tisch’s actions, should he take corrective measures? Explain.
VI. DEBATE Form two teams to debate the value of hunches (definite feelings that something may be true). Team A: Hunches, or intuitive feelings, should not be given serious consideration in managerial decision-making. Note that precisely how the mind puts the things together has never been adequately charted; therefore, we cannot define the hunch nor can we assess its reliability. Team B: Hunches should be given serious consideration when making managerial decisions. Note that some Gestalt psychologists say that sudden ideas come from the information processed unconsciously and that in many cases such ideas are very reliable and more creative than those reached in the normal way. Allow each team five to seven minutes of group preparation followed by a three-minute presentation (timed by a watch). Allow time for a rebuttal of three minutes by each team. VII. Managing yourself When a customer comes into your shop with a complaint, you can deal with it in a number of different ways. You can: - give cash refund - give a voucher for the value of the returned goods - exchange the goods for something of the same value - give a straight exchange - persuade the customer to wait while you contact the supplier When a customer complains, it can be difficult not to take the complaint personally. This can make you behave aggressively, which can then make the customer feel angry. If this happens, a good strategy is to count to ten. This allows you to get your anger under control before you speak. There are three different approaches to dealing with possible conflict with customers: 1. You want to get your customer to accept your point of view 2. You want the customer to be happy 3. You want to find a solution, which satisfies both you and the customer. The third approach is obviously the most adult and professional, but it doesn’t always come naturally. For most people, it requires practice! ROLE-PLAY Role – play the following situation using the third approach in the text. Student A You bought a pair of jeans last week. But when you washed them, they lost colour and shrank. They were good quality jeans and you didn’t expect to have problems with them. However, you bought them in a sale at a reduced price. Student B You are the manager of the shop. The jeans were reduced in your end of season sale. They were regular stock and were not bought in especially for the sale. Your shop has a policy of exchanging faulty goods but not those bought in the sales.
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Useful language I’m afraid it’s not our policy to ……… But I’m telling you …………………… I bought these in your shop two weeks ago……….. I washed them once and …………… I’m sorry. We usually ……. Would you like to exchange it for ……..
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“Marketing is the creation and delivery of a standard of living”
8.1 Utility: The Value Added by Marketing
Learning objectives: 1. Define Marketing 2. Explain how it creates utility for purchasers of product 3. Trace the evolution of marketing Study and Learn the Words:
English utility (n) form utility inn (n) place utility English equivalents usefulness usefulness appeared after processing the product hotel or motel utility which appears after bringing the product at the place of demand utility caused by offering the goods in time utility which appears after purchasing the product or service right to ownership of a product bill issued by the seller, receipt together with general notion, concept futherance of the popularity, sales,by publicizing and advertising Romanian avantaj, folos utilitate apărută în urma prelucrării produsului utilitate apărută în urma aducerii produsului în locul cererii utilitate cauzată de oferta mărfii la timp utilitate apărută în urma achiziţiei produsului sau a serviciului drept de proprietate asupra produsului cec de casă eliberat de vînzator concomitent cu concepţie, idee, noţiune publicitate, reclamă pentru un produs Russian полезность полезность, которая появляется после обработки продукта полезность, которая появляется после приношения продукта на место спроса полезность, вызванная предложением товара вовремя полезность, которая появляется после приобретения продукта или услуги право на продукт кассовый чек, выписываемый продавцом совместно с идея, понятие, концепция реклама, рекламный материал
title of a product sales slip along with conception (n) promotion (n)
The history of marketing may be nearly as long as the history of man on earth. In its earliest form, the market may have consisted of only two people. Each knew that the other had something he wanted at that time: some grain, an animal, or a tool. The two people simply exchanged their goods. In order to have a fair exchange, they both had to agree on the value or utility of what they were offering for trade. But barter had its problems. If one man exchanged a cow for 200 fish, he might not be able to use all 200 fish, and so he would lose both his cow and the value of the fish he could not use. People then began to accept certain objects in exchange for any product. They had to agree on the value of these objects, which became the first money. Some people began to specialize in the production of goods for other people, and others began to offer services. An increasingly complex marketing system was born.
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ENGLISH FOR ECONOMIC PURPOSES As a society’s total economy becomes more complex, so does the function of marketing. Production becomes more highly specialized. Producers and consumers become more widely separated, and so do the centers of production and consumption. A huge distribution network is necessary to move goods to consumers. Marketing which has been defined as “the performance of business activities that direct the flow of goods and services from producer to consumer or user,” thus is crucial to all phases of business. Today, the buyer or consumer’s desires must be satisfied. The entire concept of marketing has changed in recent years. The following chart contrasts the old and the new concepts
The old concept of marketing emphasized technological research creating a market the product a narrow line of products product performance selling as the major activity sales profits goods as products The new concept of marketing emphasizes market research identifying a market the consumer a broad range of products customer needs and desires seeing all marketing activities as parts of one system customer satisfaction goods, services, and ideas as products
Marketing is today everywhere. The producer, or the consumer, may be a person, a group, a firm, an institution, an organization, a government. The product can be a consumer good: a head of lettuce, a pencil, a washing machine – anything bought by the ultimate consumer for his own use. It may be an industrial good, bought by a government or institution; to be resold; or to be used in the production of other goods. The product could be a service, such as cutting hair, performing a marriage, providing insurance or a hotel room. It may be an idea: “Don’t drive after drinking”, “Protect wildlife”. The marketing environment is the same for all. For all, it is necessary to gather market information, choose target markets, study consumer behavior, and develop strategies for production, channeling, promotion, and pricing. The American Marketing Association defines marketing as “the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives. ” Utility is the power of a good or service to satisfy a human need. For a housewife, a can opener has utility. A lunch at a Pizza Hut, an overnight stay at a Holiday Inn, and a Mercedes 420 SEL all satisfy human needs. Each possesses utility. Form utility is utility that is created by converting production inputs. Marketing efforts may indirectly influence form utility because the data gathered as part of marketing research are frequently used to determine the size, shape and features of a product. The three kinds of utility that are directly created by marketing are place, time, and possession utility. Place utility is utility that is created by making a product available at a location where customers wish to purchase it. A pair of shoes is given place utility when it is shipped from a factory to a department store. Time utility is utility that is created by making a product available when customers wish to purchase it. For example, tennis shoes might be manufactured in December but not displayed until April, when customers in a northern city start thinking about summer sports. By storing the shoes until they are wanted, the manufacturer or retailer provides time utility. – 147 –
A. Talp ă , O. Calina Possession utility is utility that is created by transferring title (or ownership) of a product to the buyer. For a product as simple as a pair of shoes, ownership is simply transferred by means of a sales slip or receipt. For such products as automobiles and homes, the transfer of title is a more complex process. Along with the title to its product, the seller transfers the right to use that product to satisfy a need. Time, place, and possession utility have real value in terms of both money and convenience. This value is created and added to goods and services through a wide variety of marketing activities-from research indicating what customers want to product warranties ensuring that customers get what they pay for. Overall, these marketing activities account for about half of every dollar spent by consumers. When they are part of an integrated marketing program that delivers maximum utility to the customer, most of us would agree that they are worth the cost. Place, time, and possession utility are only the most fundamental applications of marketing activities. In recent years, marketing activities have resulted from a broad business philosophy known as the marketing concept.
I. COMPREHENSION A) Comment on: 1. Who can be the producer or the consumer? What can be a product? 2. Define the terms “marketing” and “utility”. 3. Identify the differences between the four kinds of utility and give examples of it. 4. How is value created and added to the goods? B) Read the following definitions of marketing and use them as a basis to formulate your own definition of marketing: 1. “Marketing is too important to be left to the marketing department” (David Packard). 2. “In a truly great marketing organization, you can’t tell who’s in the marketing department. Everyone in the organization has to make decisions based on the impact on the consumer”. (Stephen Burnett). 3. “Most people mistakenly think of marketing only as selling and promotion ….. This does not mean that selling and promotion are unimportant, but rather that they are part of a larger marketing mix, a set of marketing tools but work together to affect the marketplace.” (Philip Kotler) 4. “The aim of marketing is to make selling superfluous. The aim is to know and understand the customers so well that the product or service fits him and sells itself.” (Peter Drucker) 5. “Marketing is the performance of business activities that direct the flow of goods and services from producer to consumer.” 6. “Marketing is getting the right goods and services to the right place, at the right time, at the right price with the right communication and promotion.” II. FOCUS ON GRAMMAR A) Insert prepositions: 1. …….. a product as simple as a pair of shoes, ownership is simply transferred by means ….. a sales slip or receipt. 2. For such products as automobiles and homes, the transfer ….. title is a more complex process. 3. Time, place, and possession utility have real value ….. terms of both money and convenience. 4. Overall, these marketing activities account …… about half of every dollar spent by
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ENGLISH FOR ECONOMIC PURPOSES consumers. 5. A lunch ….. a Pizza Hut, an overnight stay ….. a Holiday Inn, and a Mercedes 420 SEL all satisfy human needs.
B) Language Note (Sentence linkers) Look at these ways of linking the different parts of sentences. Gert decided to run Columbia herself because she needed money to repay her husband’s loan; but she didn’t have any management experience, and the company accountant resigned, so she had a lot of problems at first. 1. We use because and so when we want to give the reason for an action or decision. These words can appear in a different position in the sentence. She decided to run the company because she needed money. Because she needed money, she decided to run the company. She needed money, so she decided to run the company. 2. We use but for contrast, when an action or decision is different from what we would normally expect. She decided to run the company, but she didn’t have any management experience. 3. Normally, we don’t begin a sentence with so, but, or and. C) Fill in the spaces in the sentences with because , so, or but . The first one is done for you. 1. The company is recruiting 100 new employees this year so it is moving to larger offices. 2. We’re sending her to the Madrid office ….. she speaks good Spanish. 3. The flight was delayed ….. he was late for the meeting. 4. The rooms in the hotel were very comfortable ….. the food in the hotel restaurant wasn’t good. 5. He can’t be our new Financial Director ….. he isn’t a qualified accountant. 6. Last year, sales increased by eight per cent ….. profits fell by two per cent. III. VOCABULARY PRACTICE A) Insert the words into the gaps. A synonym is given in parentheses before each blank. value characteristics firm system primitive brief network appropriate principles crucial concept behavior broad 1. A company should offer a (wide) _________ range of products. 2. The (company’s) _________’s (way of acting) __________ was contrary to (guiding ideas) ___________ of good management. 3. It’s (absolutely vital) ____________ for a marketer to have a (whole idea) _________ of the (worth, importance) ____________ of developing marketing strategy. 4. Goods follow a (complex path) ___________ or _________ from producer to consumer. 5. (Qualities) ___________ of a (beginning, undeveloped) ___________ economy include the use of barter. 6. The manager’s (short) ______________ statement to his salesmen was (apt, suitable) _____________; it helped them correct their mistakes. – 149 –
A. Talp ă , O. Calina
B) Using a dictionary, fill in missing word family members.
verb produce consumer industrial promotion lose technological govern economy satisfactory decide emphasis different noun competition adjective
C) List the opposites: excluding __________________ primary ___________________ slower ____________________ bought ____________________ failure ____________________ within _____________________ worst ______________________ decline _____________________
more expensive _____________ up to date __________________ organized __________________ youth ______________________ the same ____________________ single product ________________ domestic trade _________________ weak _______________________
IV. DISCUSSION A) Work in pairs You and your partner are managers in the same company. You have a number of problems. 1. One solution is suggested for each problem. Think of some more.
Problem A new competitor, BRP, took 5% of your market share last year. Your main supplier, TED West, often delivers late (but their prices are the lowest in the town). The best candidate for the post of Personnel Manager is a woman, but she is expecting a baby in four month’s time. Not enough staff are using the company canteen; many of them are buying sandwiches in Pret a Manger. Suggested solution Reduce your prices. Find a new supplier. Other solutions
Close the canteen.
B) Now discuss each problem, following these guidelines: Managing Director Financial Director What do you think we should do? I think we should ….. because ….. I don’t think we should ….. because ….. I agree…../I don’t agree ….. because ….. Why don’t we …../ How about …..?
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8.2 The Marketing Concept. Its Evolution and Implementation
Learning Objectives: 1. Trace the development of the marketing concept 2. Understand how it is implemented Study and Learn the Words:
English potential (adj) assess (v) bank on (v) output (n) catch up with (ph.v) consistently (adv) approach (n) to fill the needs to meet expectations to pinpoint means of attaining a goal to satisfy the needs to point out English equivalents would-be appreciate rely on production to attain Romanian potenţial, posibil a aprecia, a evalua a se bizui pe producţie a ajunge, a se apropia de un nivel oarecare consecutiv, logic, corespunzător abordare a satisface necesităţile a atinge aşteptările a evidenţia Russian возможный оценивать полагаться на продукция, выпуск догнать логично, совместимо, последовательно подход удовлетворять нужды соответствовать ожиданиям выделять
The process that leads any business to success seems simple. First, the firm must talk to its potential customers to assess their needs for its products or services. Then the firm must develop a product or service to satisfy those needs. Finally, the firm must continue to seek ways to provide customer satisfaction. This process is an application of the marketing concept, or marketing orientation. As simple as it seems, American business took about a hundred years to accept it. From the start of Industrial Revolution until the early twentieth century, business effort was directed mainly toward the production of goods. Consumer demand for manufactured products was so great that manufacturers could almost bank on selling everything they produced. Business had a strong production orientation, in which emphasis was placed on increased output and production efficiency. Marketing was limited to taking orders and distributing finished goods. In the 1920s, production began to catch up with demand. Now producers had to direct their efforts toward selling goods to consumers whose basic wants were already satisfied. This new sales orientation was characterized by increased advertising, enlarged sales forces, and occasionally high-pressure selling techniques. Manufacturers produced the goods they expected consumers to want, and marketing consisted primarily of taking orders and delivering goods, along with personal selling and advertising. During the 1950s, however, business people started to realize that even enormous advertising expenditures and the most thoroughly proven sales techniques were not enough. Something else was needed if products were to sell as well as expected. It was then that business managers recognized that they were not primarily producers or sellers but rather were in the business of satisfying customers’ wants. As Philip E. Benton, Jr., president of Ford Automotive Group, states, “What our customers define as quality is what we must deliver. We have relearned in recent years that the successful automakers consistently provide customers with what they need and want, at a price they feel offers good value, in a product that meets their expectations of safety and quality. Our challenge is to go – 151 –
A. Talp ă , O. Calina beyond that – to exceed customer expectations, and, indeed, to generate customer enthusiasm.” Marketers realized that the best approach was to adopt a customer orientation – in other words, the organization had to first determine what customers need and then develop goods and services to fill those particular needs. (see Figure 1.1) This marketing concept is a business philosophy that involves the entire organization in the process of satisfying customers’ needs while achieving the organization’s goals. All functional areas - from product development through production to finance and, of course, marketing - are viewed as playing a role in providing customer satisfaction.
Figure 1.1 Production orientation - Take orders - Distribute goods
Sales Orientation - Increase advertising - Enlarge sales force - Develop sales techniques
Customer orientation - Determine customer needs - Develop goods and services to fill needs
Some firms, such as Ford Motor Company and Apple Computer, have gone through minor or major reorganizations in the process. Because the marketing concept is essentially a business philosophy, anyone can say, “I believe in it.” But to make it work, management must fully adopt and then implement it. To implement the marketing concept, a firm must first obtain information about its present and potential customers. The firm must first determine not only what customers’ needs are but also how well those needs are being satisfied by products currently on the market-both its own products and those of competitors. It must ascertain how its products might be improved and what opinions customers have of the firm and its marketing efforts. The firm must then use this information to pinpoint the specific needs and potential customers toward which it will direct its marketing activities and resources. (Obviously, no firm can expect to satisfy all needs. And not every individual or firm can be considered a potential customer for every product manufactured or sold by a firm.) Next, the firm must mobilize its marketing resources to (1) provide a product that will satisfy its customers; (2) price the product at a level that is acceptable to buyers and that will yield a profit; (3) promote the product so that potential customers will be aware of its existence and its ability to satisfy their needs; and (4) ensure that the product is distributed so that it is available to customers where and when needed. Finally, the firm must again obtain marketing information – this time regarding the effectiveness of its efforts. Can the product be improved? Is it being promoted properly? Is it being distributed efficiently? Is the price too high? The firm must be ready to modify any or all of its marketing activities on the basis of this feedback. I. COMPREHENSION A) Answer the following questions: 1. Which are the steps that lead any business to success? 2. What was the orientation of business from the beginning of Industrial Revolution? 3. What happened in 1920s? 4. What did business people start to realize in 1950s? 5. Define the term “marketing concept.” 6. Why is the marketing concept essentially a business philosophy? 7. Which are the steps to implement the marketing concept?
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ENGLISH FOR ECONOMIC PURPOSES B) Say if the statements are True or False: 1. From the start of Industrial Revolution until the early twentieth century, business effort was directed mainly toward the selling of goods. 2. In the 1920s, production began to catch up with demand. 3. In 1950s marketers realized that the best approach was to adopt a customer orientation – in other words, the organization had to first determine what customers need and then develop goods and services to fill those particular needs. 4. Management must fully adopt the accounting concept and then implement it. 5. To implement the marketing concept, a firm must first determine not only what customers’ needs are but also how well those needs are being satisfied by products currently on the market-both its own products and those of competitors. 6. Every individual or firm can be considered a potential customer for every product manufactured or sold by a firm.
II. FOCUS ON GRAMMAR A) Insert prepositions: 1. Some firms, such as Ford Motor Company and Apple Computer, have gone …… minor or major reorganizations in the process. 2. All functional areas - …… product development through production to finance and, of course, marketing - are viewed as playing a role ……. providing customer satisfaction. 3. Business had a strong production orientation, in which emphasis was placed …. increased output and production efficiency. 4. It was then that business managers recognized that they were not primarily producers or sellers but rather were ….. the business of satisfying customers’ wants. 5. We have re-learned in recent years that the successful automakers consistently provide customers …… what they need and want, …… a price they feel offers good value, in a product that meets their expectations of safety and quality. B) Some words are commonly followed by certain prepositions. Add appropriate prepositions – for, on, upon, by, in, to, with, of, over, at, toward, from, - to complete the remaining phrases. Use your dictionaries. take responsibility ____ distinguish ____ according ____ purpose ____ appeal ____ means ____ aimed ____ deal ____ compromise ____ respond ____ be faced ____ search ____ put emphasis ____ rely ____ be subject ____ be consistent ____ be applicable ____ arrange ____ the result ____ be dominant ____ give consideration ____ pay ____ be composed ____ look ____ be committed ____ be aware ____ reaction ____ put pressure ____ submit ____ the demand ____ combination ____ C) Insert verbs, adjectives, nouns, and adverbs: VERB ADJECTIVE NOUN to satisfy – 153 – ADVERB
A. Talp ă , O. Calina profitable implementati on
successfully to produce safe finance consistently III. VOCABULARY PRACTICE A) From the list of the words provided, fill in the blanks in the following memorandum. Each word is to be used only one time. Transactions, retailing, operating, product returns, retailer, warehouses, expanding, merchandise mix, market, funds, outlets, assemble, consumers, confident. MEMORANDUM Date: January 23, 19 – To: Deborah Boyles From: Rod Sprague Subject: Telecommunications in retailing Deborah, I want some information on the use of telecommunications in the __________ business. Our job is to sell more merchandise and increase our ___________ share. In the past we have done this by increasing the number of our store ___________ and by ___________ our sales volume. However, in the future, ____________ will be shopping at home with a video display catalog, which will be provided by a participating ______________. Automated __________ will _________________ the goods and banks will transfer _______________ to pay for the merchandise. I am ___________ that these sorts of ___________ will increase. We must prepare an effective promotion for our goods and we must keep a broad ___________. Could you please study any possible problems such as ___________, which might lower our profit margin? Also investigate all _______________ costs. B) List opposites: from Consumer “Decision-Making” disloyalty _________________ careless ___________________ dislike_____________________ input ______________________ to slow _____________________ early ______________________
unaware ________________ illogical _________________ irregularly _______________ general _________________ minority _______________ right (correct) __________
IV. DISCUSSION A) Which of these do most people want or need? Entertainment a regular holiday free time a car a house movies education better food books household appliances mobile phones a tractor a computer protection gloves and glasses more fresh air money travel – 154 –
an estate car the land with expensive clothes
ENGLISH FOR ECONOMIC PURPOSES software seeds clean water
tools to work
B) Depending on the type of customers listed below, decide in pairs what would each of them need or want, and why: - urban, suburban, rural - yuppies (young urban professional people), office-workers, factory workers, unemployed, housewives - well-paid, badly-paid, average-paid - well-educated, average-educated, uneducated C) Match the words in the box with the definitions below: reliability serviceability durability goodwill benchmarking warranty
1. performance over a long period of time 2. comparing what competitors are doing and adopting the best solutions. 3. accurate, regular performance according to specification. 4. a guarantee or promise that goods will meet a certain specified level, will be repaired or replaced free of charge in the specified period of time. 5. ease of maintenance and repair 6. customer's satisfaction with and loyalty to a company (hence the reputation of a company)
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8.3 Markets and Their Classification
Learning objectives: 1. Know what markets are 2. How they are classified Study and Learn the Words
English willingness (n) purchase (n) reseller (n) broadly (adv) wholesaler (n) retailer (n) county (n) highway (n) English equivalents desire acquisition person who buys and sells again largely person who sells in bulk person who sells by piece district of a country main road Romanian voinţă achiziţie recomerciant pe larg angrosist vânzător cu amănuntul regiune drum principal, şosea Russian желание приобретение перекупщик широко оптовый торговец розничный торговец округ шоссе
A market is a group of individuals, organizations, or both who have needs for products in a given category and who have the ability, willingness and authority to purchase such products. The people or organizations must require the product. They must be able to purchase the product with money, goods, or services that can be exchanged for the product. They must be willing to use their buying power. Finally, they must be socially and legally authorized to purchase the product. Markets are classified as consumer, industrial, or reseller markets. These classifications are based on the characteristics of the individuals and organizations within each market. Because marketing efforts vary depending on the intended market, marketers should understand the general characteristics of these three groups. Consumer markets consist of purchasers and/or individual household members who intend to consume or benefit from the purchased products and who do not buy products to make a profit. Industrial markets are grouped broadly into producer, governmental, and institutional categories. These markets purchase specific kinds of products for use either in day-to-day operations or in making other products for profit. Producer markets consist of individuals and business organizations that intend to make a profit by buying certain products to use in the manufacture of other products. Governmental markets comprise federal, state, county, and local governments. They buy goods and services to maintain internal operations and to provide citizens with such products as highways, education, water, energy, and national defense. Their purchases total billions of dollars each year. Institutional markets include churches, private schools and hospitals, civic clubs, fraternities and sororities, charitable organizations, and foundations. Their goals are different from such typical business goals as profit, market share, or return on investment. Reseller markets consist of intermediaries such as wholesalers and retailers who buy finished products and sell them for a profit. After classifying and identifying its market or markets, an organization must develop marketing strategies to reach this audience. I. COMPREHENSION A) Answer the folloing questions: 1. Define the word “market”. 2. Characterize the relationship between people and products.
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ENGLISH FOR ECONOMIC PURPOSES 3. What groups are markets classified in? 4. What criteria guide this classification? 5. Identify the differences and similarities between the kinds of markets.
II. VOCABULARY PRACTICE A) Match the words with their definitions: Consumer market, governmental market, institutional market, reseller market, industrial market, producer market 1. A market that consists of intermediaries such as wholesalers and retailers who buy finished products and sell them for a profit. 2. A market that includes churches, private schools and hospitals, civic clubs, fraternities and sororities, charitable organizations, and foundations. 3. A market consisting of purchasers and/or individual household members who intend to consume or benefit from the purchased products and who do not buy products to make a profit. 4. A market comprising federal, state, county, and local governments. 5. A market that purchases specific kinds of products for use either in day-today operations or in making other products for profit. 6. A market that consists of individuals and business organizations that intend to make a profit by buying certain products to use in the manufacture of other products. B) Complete the sentences with appropriate forms of the words in parentheses: 1. (nonprofit, negotiable) Thrift shops are ________________ stores, and sometimes the prices are _________________. 2. (haggle, defect, merchandise) If the shopper finds __________ in the _____________ she can ________________ over the price. 3. (bin, value) If shoppers look carefully through the __________________ in the stores, real ______________ can be found. 4. (unload, bear) Department stores use sometimes resale stores to _____________ excess merchandise which may ______________ high-quality labels. 5. (price tag, retail price) The prices on the _____________ are lower than what the _________ would be. 6. (inventory, go for, deplete) On busy days like Saturdays when shoppers really _________ low prices, a store’s ______________ may become _______________. 7. (secondhand, consignment) Much of the merchandise in the resale shops is someone’s _________ clothing which is sold on _____________ . 8. (alter, shrink) Many of the items sold on consignment may not be the same size as is written on the label because they have _____________ or have been _______________ . 9. (garment, line) Many of the _______________ found in these stores are from designer ____________ . 10. (wardrobe, apparel) Some people fill their ______________ with secondhand _______ . III. FOCUS ON GRAMMAR A) Insert propositions: 1. Because marketing efforts vary depending ….. the intended market, marketers should understand the general characteristics of these three groups. 2. – 157 –
A. Talp ă , O. Calina These classifications are based …. the characteristics of the individuals and organizations ……. each market. 3. They buy goods and services to maintain internal operations and to provide citizens ….. such products as highways, education, water, energy, and national defense. 4. Their goals are different ….. such typical business goals as profit, market share, or return on investment.
B) Complete the missing words in the table: VERB to introduce (a product)
to withdraw (a product from the market) to promote to recover to complain to revise
NOUN a launch (of a product) a recall
an increase an image
IV. ROLEPLAY Interview with a loan officer Form groups of two or three. One person (or two persons forming a partnership) wants to begin a business in clothing resale, but does not have enough capital. Conduct an interview between the loan officer and the person (s) applying for the loan. The officer must become convinced that the resale clothing business is profitable. Consider the following points: Business person (s). Explain that the business is to be a resale shop, not a thrift shop. Know whether or not the store will handle designer clothing or furs in addition to regular clothing. Know what the monthly costs will be, such as rent, merchandise, and salaries. Have an idea how much money can be made monthly. Know how much money you want to borrow. Loan officer. Find out the exact nature of the business. Find out how other resale shops in the nation are prospering. Find out whether the business person will get the merchandise. Find out how quickly the merchandise will sell so that the old merchandise will not remain in the store for several months. Find out how large the market is for used clothing. Find out how prices will be determined. Find out if the business person will handle ordinary clothing, designer clothing, or furs. Find out how quickly the loan can be repaid. V. DISCUSSION A) Discuss in pairs: 1. Do resale stores sound like good businesses to go into? Some of the more expensive garments like designer clothing must be reduced by as much as 75%. Can a profit be made? Also, isn’t old clothing more difficult to sell than new clothing?
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ENGLISH FOR ECONOMIC PURPOSES 2. Resale stores are a new development. Why have they been created? Is the reason related to the general strength or weakness of the economy and the rate of inflation?
B) Product and brand Study the several ways by means of which you could choose a brand name: • Initials (HBO) • Numbers (Boeing 77) • Invented name (Kleenex) • Personal name (Ford) • Mythological characters (Samsonite luggage) • Geographical name (Northwest airlines) • Foreign word (Lux, Nestle) • Combination of words, initials, numbers (Head & Shoulders shampoo) C) Now think of a brand you intend to develop. Discuss in pairs how you would name your brand and think of other examples. VI. BUSINESS IDIOMS Phrasal verbs Match up the phrasal verbs on the left with the verbs that have a similar meaning on the right. 1. give up (production) a. accept 2. go along with (the decision) b. decrease, become fewer 3. kill off (a silly project) c. begin to be successful 4. come up with (a new idea) d. continue 5. do without (a pay rise) e. destroy or abandon 6. make room for (further expansion) f. find space to give 7. take off (after performing less well) g. get rid of, discard (because unwanted) 8. throw away (some good ideas) h. have, create ideas 9. weed out (uneconomic departments) i. make up, constitute a figure 10. carry on (in the same old way) j. perform, undertake or do 11. account for (rise in profits) k. produce, launch 12. carry out (a market survey) l. remove (from something larger) 13. (production levels) drop off m. agree to stop or discontinue 14. look ahead to (future) n. survive or live while lacking 15. look for (a new solution) something o. think about, prepare or plan the 16. bring out (a new product) future p. try to find VII.WRITING Translate into English: – 159 –
3. 4. 5. 6.
A. Talp ă , O. Calina Dezvoltarea unei game largi de produse permite firmei să acopere о suprafaţă mare din piaţă şi să delimiteze mai clar principalele segmente de consumatori cărora se adresează. Procesul de creaţie vizează şi ambalajul noului produs. Acesta trebuie să fie conceput astfel încât să-i asigure protecţia împotriva agentilor din mediul ambiant, păstrarea integrităţii formei şi conţinutului în timpul transportului, manipulării şi depozitării. Produsele firmei 3M formeaza о gamă variată, de la dischete la lentile de contact, flacoane spray pentru aerosoli, echipament medical şi până la bilete adezive pentru birou. Un sondaj efectuat recent arata că 40 % dintre cumpărători preferă produsele din gama Palmolive decît Farmec pentru că ambalajul este mai atractiv şi preţul mai scazut. Achiziţionarea unui computer performant a devenit esentială pentru departamentul nostru acum, când numarul membrilor echipei a scăzut şi volumul de lucrări este în creştere. Ca urmare a faptului că s-au înregistrat comenzi numeroase în ultima vreme, am hotărît să folosim noile coduri ale produselor pe care clienţii să le menţioneze pe formularul de comandă.
8.4 Developing Marketing Strategies
Learning objectives: 1. Identify the four elements of the marketing mix 2. Become aware of their importance in developing a marketing strategy 3. Comprehend how the marketing environment affects strategic market planning Study and Learn the Words:
English aimed at market segmentation approach target market marketing mix English Equivalents directed towards theory of treating market segmentation market that is the object of selling and buying the four elements of marketing (product, price, promotion, distribution keeping advertising to correspond to theory of treating the total market theory explaining that in the market customers have the same needs an Eskimo canoe made of skins Romanian dirijat spre teoria abordării segmentării pieţii piaţa ţintă complex de marketing, mix de marketing menţinere promovare, publicitate a corespunde teoria abordării pieţii totale teorie nondiferenţiată Russian направленный к теория сегментации рынка
maintenance (n) promotion (n) be consistent with total market approach undifferentiated approach kayak (n)
поддержание реклама соответствовать теория общего рынка недифференцированн ый подход
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ENGLISH FOR ECONOMIC PURPOSES
completely covering a wooden frame except for an opening in the middle for the paddler a narrow light boat with its sides meeting in a sharp edge at each end a group of individuals or organizations, within a market, that share one or more common characteristics the process of dividing a market into segments is called market segmentation clothing, garments mark name packing discount to increase, to higher, to advertise objects, words, actions, ideas that society does not permit
segment al pieţii
segmentare a pieţii
apparel (n) brand name package (n) rebate (n) boost (v) taboos (n, pl)
îmbrăcăminte, haine, confecţii denumirea mărcii ambalaj reducere a ridica, a face reclamă
одежда название фабричной марки упаковка скидка повышать
To market a product successfully, a marketer must develop a strategy. A marketing strategy is a plan that will enable an organization to make the best use of its resources and advantages to meet its objectives. A marketing strategy consists of (1) the selection and analysis of a target market and (2) the creation and maintenance of an appropriate marketing mix, a combination of product, price, distribution, and promotion developed to satisfy a particular target market. Target Market Selection and Segmentation A target market is a group of persons for whom a firm develops and maintains a marketing mix suitable for the specific needs and preferences of that group. In selecting a target market, marketing managers examine potential markets for their possible effects on the firm's sales, costs, and profits. The managers attempt to determine whether the organization has the resources to produce a marketing mix that meets the needs of a particular target market and whether satisfying those needs is consistent with the firm's overall objectives. They also analyze the strength and number of competitors already selling in a potential target market. Marketing managers generally take either the total market approach or the market segmentation approach in choosing a target market. Total Market Approach When a company designs a single marketing mix and directs it at the entire market for a particular product, it is using a total market approach. This approach, also known as an undifferentiated approach, assumes that individual customers in the target market for a specific kind of product have similar needs and, therefore, that the organization can satisfy most customers with a single marketing mix. This single marketing mix consists of one type of product with little or no variation, one price, one promotional program aimed at everyone, – 161 –
A. Talp ă , O. Calina and one distribution system to reach all customers in the total market. Products that can be marketed successfully with the total market approach include staple food items such as sugar and salt, and certain kinds of farm produce. A total market approach is useful only in a limited number of situations because for most product categories, buyers have different needs. When customers' needs vary, the market segmentation approach should be used Market Segmentation Approach The early man who had a cow that he didn’t need would have had to keep the cow through her old age and death if he had been unable to find someone else who wanted the cow. He had to identify his market target. That is, from among all the people he knew, he had to find out first which of them wanted a cow. But it is not the same to want something and to be able to exchange for it or buy it. He also had to select his market target, to choose his most likely customers. Then he had to plan and follow his marketing strategy according to the nature of his best potential market. The process now is called market segmentation. It recognizes that not everyone needs a certain product, and that a product cannot be expected to appeal to everyone. The marketing strategy is more efficient if it is aimed at those people the company can reasonably expect to serve. A firm that is marketing 40-foot yachts would not direct its marketing effort toward every person in the total boat market. Some might want a kayak or a canoe. Others might want a speedboat or an outboard-powered fishing boat. Still others might be looking for something resembling a small ocean liner. Any marketing effort directed toward such people would be wasted. Instead the firm would direct its attention toward a particular portion, or segment, of the total market for boats. A market segment is a group of individuals or organizations, within a market, that share one or more common characteristics. The process of dividing a market into segments is called market segmentation. Marketers make use of a wide variety of segmentation bases. Planning a segmentation strategy involves four steps. The first is to determine the market segments. Second is to select the appropriate segment as a target market for the prduct. Third is to develop procedures to serve the selected the segment; and fourth, the program is carried out, consistently evaluated, and revised if necessary. One method of determining market segments is to use demographic data. These are physical attributes of a population. Different groups within a population have different characteristics. 1. Population. How many people are there all together? 2. Population growth. What is the rate of population growth? How many people will there be in ten, twenty, or thirty years? 3. Population density. In what areas is the population concentrated. How densely? 4. Mobility. Is the population shifting to or from cities, suburbs, and country? 5. Per capita income. What is the average personal income? 6. Spending patterns. Which group has most often bought which products? 7. Employment. What proportions of the population are working in what occupations? 8. Education. What proportion has had how much schooling? 9. Home ownership. How many people own their own homes? How many rent? How many live in rooms and apartments? 10. Age. What proportion of the population falls within each group? What are the buying patterns of each group? (See the table below) 11. Ethnic origin. Family Life Cycle – 162 –
ENGLISH FOR ECONOMIC PURPOSES This concept identifies potential customers by age, marital status and number and ages of children. 1. Bachelor stage: young, single individuals 2. Full nest: young married couples with children a. youngest child under six b. youngest child six or over c. older married couples with dependent children 3. Empty nest: older married couples with no children at home 4. Solitary survivors: older single or widowed people
From studying demographic data, the marketing manager might decide to aim his strategy toward a very specific target, or segment of the population: young mothers of children under six who live in or near the urban centers of the northeastern part of the country and whose families have annual income in the lowmiddle range. This is a strategy of concentration. market segmentation based upon demographic information is an effective compromise with that impossible ideal. Creating a Marketing Mix A business firm controls four important elements of marketing—elements that it must combine in such a way as to reach its target market. These are the product itself, the price of the product, the means chosen for its distribution, and the promotion of the product. When they are combined, these four elements form a marketing mix. The firm can vary its marketing mix by changing any one or more of these ingredients. Thus a firm may use one marketing mix to reach one target market and a second, somewhat different marketing mix to reach another target market. For example, the Neiman Marcus Group's specialty retailing businesses—Neiman Marcus, Bergdorf Goodman, and Contempo Casuals—use one marketing mix for its most affluent and discriminating customers and another mix for younger, 17- to 24year-old women who are interested in the most fashion-forward apparel available at moderate prices. Neiman Marcus and Bergdorf Goodman offer the highest possible levels of customer service to their most affluent customers, while moderate prices are emphasized at Contempo Casuals. Different products and prices immediately result in different marketing mixes. The product ingredient of the marketing mix includes decisions about the design of the product, brand name, packaging, warranties, and the like. Thus, when McDonald's Corp. decides on brand names, package designs, sizes of orders, flavors of sauces, and recipes, these are all part of the product ingredient. The pricing ingredient is concerned with both base prices and discounts of various kinds. Pricing decisions are intended to achieve particular goals, such as to maximize profit or even to make room for new models-The rebates offered by automobile manufacturers are a pricing strategy developed to boost low auto sales. The distribution ingredient involves not only transportation and storage but also the selection of intermediaries. How many levels of intermediaries should be used in the distribution of a particular product. Should the product be distributed as widely as possible? Or should distribution be restricted to a few specialized outlets in each area. The promotion ingredient focuses on providing information to target markets. The major forms of promotion include advertising, personal selling, sales promotion, and publicity. The "ingredients" of the marketing mix are controllable elements. The firm can vary each of them to suit its organizational goals, marketing goals, and target markets. As we extend our discussion to the firm's overall marketing plan, we will – 163 –
A. Talp ă , O. Calina see that the marketing environment also includes a number of uncontrollable elements.
Marketing Environment The marketer makes decisions within the framework of that plan that explains how to market a product. His decisions depend upon many variables, of factors that are constantly changing. Some variables are internal. The marketer has some control over the variables that affect the product: its nature, promotion of it, and the path it will follow from producer to consumer, and its price. But when something is produced, it enters an existing external environment of law, economy and society or culture. Suppose a company has developed a new kind of light bulb, one that works better and lasts longer than any other. Laws might exist that regulate its packaging, labeling, distribution. There could be legal restrictions on safety, advertising, and price. Laws must discourage or encourage a competitive economy. Even if there are no legal limits, there may be too much competition from other producers of light bulbs. A company competes not only with other companies that make similar products, but with all other companies. The marketing mix consists of elements that the firm controls and uses to reach its target market. In addition, the firm has control over such organizational resources as finances and information. These resources, too, may be used to accomplish marketing goals. However, the firm's marketing activities are also affected by a number of external—and generally uncontrollable—forces. Economic forces—the effects of economic conditions on customers' ability and willingness to buy Legal forces—the laws enacted either to protect consumers or to preserve a competitive atmosphere in the marketplace Societal forces—consumers' social and cultural values, the consumer movement, and environmental concerns Competitive forces—the actions of competitors, who are in the process of implementing their own marketing plans Political forces—government regulations and policies that affect marketing, whether or not they are directed specifically at marketing Technological forces—in particular, technological changes that can cause a product (or an industry) to become obsolete almost overnight These forces influence decisions about marketing-mix ingredients. Changes in the environment can have a major impact on existing marketing strategies. In addition, changes in environmental forces may lead to abrupt shifts in targetmarket needs. There are some questions to be answered before trying to enter a foreign market. Questions about the legal environment 1. To what extent are foreign imports controlled by government regulation? What duties, tariffs, quotas, and other nontariff barriers are there? 2. Is there a state trading corporation? What is its role? What is its effect on competition? Questions about the economic environment 1. What is the standard of living? The cost of living? The size of the population relative to the amount of usable land? 2. What is the extent of economic development? 3. Is there an effective middle class? What is its purchasing power? Questions about the sociocultural environment 1. Is there a need for the product? Is the attitude toward it the same as it is in this country?
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ENGLISH FOR ECONOMIC PURPOSES 2. Will people reject the product because of taboos against its name, color, packaging, unit size, shape? 3. Is the society concerned with the quality of life? 4. How do people dress and act when doing business? Is it appropriate to be casual, aggressive, punctual, and direct? Is it acceptable to give money to government officials for their support?
I. VOCABULARY PRACTICE A) Match the words with their definitions: Market segment, marketing strategy, marketing mix, target market, total market approach, market segmentation 1. A combination of product, price, distribution, and promotion developed to satisfy a particular target market. 2. The process of dividing a market into segments. 3. A plan that will enable an organization to make the best use of its resources and advantages to meet its objectives. 4. A group of individuals or organizations, within a market, that share one or more common characteristics. 5. A group of persons for whom a firm develops and maintains a marketing mix suitable for the specific needs and preferences of that group. 6. When a company designs a single marketing mix and directs it at the entire market for a particular product. B) Find the definitions of the following words. Put the letter of the word next to the definition. a. entrepreneur e. conférence i. proposal b. investment f. policy j. paperwork c. delegate g. employer k. objective d. procurement h. agenda l. loan _____ 1. _____ 2. _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ list: Segmentation, shown, expenditure, drive agencies, mix, trends, slogans, campaign, costs, produce, run, leaders. The total marketing (1) _____ includes service or product range, pricing policy, promotional methods and distribution channels, but for “world brands” who aim to – 165 – a person who starts a business and takes a risk for the profit. a general principle laid down for the guidance of executives in handling their jobs. 3. a person or business that hires persons for wages or salary. 4. a list of things to be done. 5. money spent (capital) in order to gain a profit or interest. 6. a meeting for consultation or discussion. 7. work involving reports, letters, forms, etc. 8. money lent for a period of time. 9. something purchased. 10. a plan which is suggested. 11. one who is authorized to act for or represent others. 12. a goal or aim.
C) Complete the paragraphs below using the words from the following
A. Talp ă , O. Calina be market (2) _____, a large part of marketing (3) _____ goes on (4) _____, a concerted effort is made to promote and sell more of their products and this will often involve an expensive advertising (5) _____ . Marketers generally tend to divide markets up into separate groups according to geographical area, income bracket and so on. This is known as market (6) _____ . But a global marketing policy will obviously take much less account of local market (7) _____ and concentrate instead on what different markets have in common. As global commercials are (8) _____ on TV in many different countries, the advertising (9) _____ tend to be high and obviously the biggest advertising (10) _____ can (11) _____ commercials on such a global scale. Fortunately, global commercials like those for Malboro cigarettes and British Airways can be (12) _____ for many years without looking out of date, and advertising (13) _____ such as “the world’s favourite airline” and “Always Coca Cola”, will always be universally recognized.
II. COMPREHENSION Enlarge on: 1. Identify the four elements of marketing that a business firm controls. Give their definitions and examples. 2. What external and uncontrollable forces affect the firm's marketing activities? 3. In what way can changes in the environment have an impact on existing marketing strategies? III. FOCUS ON GRAMMAR A) Insert propositions: 1. Different products and prices immediately result …. different marketing mixes. 2. The promotion ingredient focuses …. providing information …. target markets. 3. A marketing strategy is a plan that will enable an organization to make the best use ….. its resources and advantages to meet its objectives. 4. Any marketing effort directed …… such people would be wasted. 5. Changes ….. the environment can have a major impact ….. existing marketing strategies. 6.Political forces—government regulations and policies that affect marketing, whether or not they are directed specifically …… marketing. VI. DISCUSSION A) Discuss in groups: 1. Describe how a producer of computer hardware could apply the marketing concept. 2. Is marketing information as important to small firms as it is to larger firms? Explain. 3. How does the marketing environment affect a firm’s marketing strategy? B) Work in small groups. Your company produces breakfast cereal and you want to include small gifts in the box to attract young consumers. You need to think of ideas for gifts that your company can use for market research. 1. First think about your target market. What ages are the children? What interests do they have? 2. Now brainstorm ideas for as many different gifts and toys as you can. 3. Choose the best idea and work out some details. What size is it?
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ENGLISH FOR ECONOMIC PURPOSES What colour(s) is it? What’s it made of? Are you going to pack it? (If so, how?) 4. Draw a picture or diagram of the gift. When you’ve finished, present your idea to the class. See if they can suggest improvements.
C) Pair-work Which of the following claims do you agree with? 1. Advertising is essential for business, especially for launching new consumer products. 2. A large reduction of advertising would decrease sales. 3. Advertising often persuades people to buy things they don’t want. 4. Advertising lowers the public’s taste. 5. Advertising raises prices. 6. Advertising often persuades people to buy things they don’t need. 7. Advertising does not present a true picture of products. 8. Advertising has a bad influence on children. D) In a well-known survey, the Harvard Business Review asked 2,700 top or senior business managers whether they agreed with these statements. The survey produced some unexpected results. Which of the following percentages do you think go with which of the statements above? 41% 90% 49% 51% 60% 72% 85% 57%
F) After matching up these figures and statements, look at the true figures on the next page. After reading the opinions expressed in the Harvard Business Review survey, do you want to revise the opinions expressed above? VII. Match the ideas with the examples of real advertisements, then try to find ten adds (in newspapers, magazines or TV commercials) that illustrate the ideas below: 1. Ask a question Think IBM 2. Use a two-fold delivery with a twist Never forgets Elephant Memory Systems 3. Show your unique commitment Common sense. Uncommon results David Ingram and Associates 4. Describe your product in a novel way Liquid jewelry Lorr Laboratories (nail polish) 5. Link company name to product benefit Does she or doesn’t she? Clairol 6. Use an imperative call to action Understanding comes with Time Time magazine 7. Use a one-word call to action We take the world’s greatest pictures Nikon 8. Link a well-known phrase with A diamond is forever DeBeers your product benefit 9. Brag about yourself We try harder Avis 10.Link a product feature with an abstract need Just do it Nike
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A. Talp ă , O. Calina Using the family life cycle, in which stage would people, be most likely to need these products?
product fast food a big car a set of encyclopedias expensive wine laundry detergent toys television laxative shoes a small car sheets and blankets a smaller house or apartment a diaper service a divorce counselor sports equipment
stage (1, 2a, 2b, 2c, 3, or 4) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
IX. Written Task Research proves that the effect of the creativity factor in a campaign is more important than the money spent. “Only after gaining attention can a commercial help to increase the brand’s sales”, writes Philip Kotler in his famous book Marketing Management. Use your creativity and write an advert following one of the tips above. Referenece to the previous page Discussion: The numbers of respondents who agreed with the statements were as follows: 1). 90%, 2). 72%, 3). 85%, 4). 51%, 5). 41%, 6). 49%, 7). 60%. 8). 57% X. These are some of the things the marketer must know about a foreign market. Add to the lists. legal environment economic environment sociocultural environment tariffs standard of living need for the product restrictions on imports cost of living attitude toward the product ___________ ___________ ___________ ___________ ___________ VI. CASE STUDY Targeting New Markets No one has been able to develop a list of superbly managed companies that withstands the test of time. Levi Strauss, one of the models of excellence in the
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___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
ENGLISH FOR ECONOMIC PURPOSES early 1970s, faced hard times in the late 1970s and early 1980s. The company struggled in its attempts to appeal to both the youth and adult markets. The company’s efforts to appeal to both markets through a single advertising strategy proved unsuccessful. New product lines of jeans came and went. The company became determined to shine up its tarnished image. Image, sales, and profits are being improved through product diversification, acceptance of the fact that the preferences of students of the 1960s and 1970s have evolved, and by the targeting of ethnic groups throughout the United States. Today, Levis are again a staple for baby boomers. Different sizes, silhouettes, and fabrics have helped retain Levi’s appeal. And for the younger market, Levi continues to stress hip, fit, and image. The company also uses varied commercials to appeal to specific groups and is planning to target different age and racial groups as demographics continue to change. Demographics, especially in California, are changing rapidly, and the company is responding with new lines of casual pants. Economic and population trends in California reveal that Hispanics, blacks, and Asians will exert increasing economic influence as their numbers continue to expand. Research by the Center for the Continuing Study of the California economy predicts that California’s population will expand by 500,000 people a year through 1995; due to immigration trends, around two-thirds of this increase will be Hispanics and Asians. California will represent one-fifth of the entire U.S. economic expansion during the same time period. Levi Strauss is successfully using this demographic information to develop clothing to appeal to new target markets. However, Levi’s Strauss’s Office of Strategic Research director John Wyek, who has helped the company utilize demographic information, realizes that change will be a constant factor: “From now until the year 2,000, there is going to be a steady decline in the total number of 18-to-24-yearolds…… Hispanic 18-to-24-year-olds will increase by 40 percent. It changes the wheel of our audience.” By creating new products with a well-known trademark, new designs and fabrics, and by improving its advertising and image, Levi Strauss intends to capture emerging markets as well as better respond to its traditional clientele.
Questions: 1. How is Levi Strauss shining up its tarnished image? 2. In what ways is Levi Strauss implementing the marketing concept? Explain. 3. How have demographic factors influenced Levi Strauss’s marketing strategies?
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A. Talp ă , O. Calina
1. Bantaş A., Năstăsescu V. Dicţionar economic Englez-Român. - Editura Niculescu SRL, Bucureşti, 1999. 2. Black, John. Dictionary of Economics. - Oxford University Press, 2002. 3. Brooks, Michael, Horner, David. Business English. - Bucureşti. Teora, 1997. 4. Butler, Brian. A Dictionary of Finance. – Oxford University Press, 1996. 5. Cooley, Philip. Business. Financial Management. – NY, The Dryden Press, 1988. 6. Dayan A. Engleza pentru Marketing şi Publicitate. – Buc., Teora, 1996. 7. Economics, tenth edition. – Oxford University Press, 2004 8. Grant, David, McLarty, Robert. Business Basics. - Oxford University Press, 1996. 9. Hollett, Vicki. Quick Work. - Oxford University Press, 2004. 10. Hollett, Vicky, Carter, Roger, Lyon, Liz, Tanner, Emma. In at the Deep End. Oxford University Press, 1996. 11. Hollinger, Alexander. The Language of Accounting. - Editura Milena Press. Bucureşti, 2000. 12. Ionescu, Lucian. English for Banking. – Editura Economică, 1999. 13. Irvine, Mark, Cadman, Marion. Commercially Speaking. - Oxford University Press, 1999. 14. Mackenzie Jan. English for Business Studies. – Cambridge University Press 15. Marchetea M. Business & Economics. – Buc., Teora, 2004. 16. Năstăsescu Violeta. Dicţionar Englez-Romîn, Romîn-Englez economic . – Buc., Editura Niculescu, 2004. 17. Nicolae, Marian. Commercial Correspondence. – Buc., Editura Universitară, 2005. 18. Pride, M. William. Business. - Houghton Mifflin Company, Boston, 1991. 19. Rein P. David. Marketing. English Teaching Division. - Washington, D.C., 1991. 20. Rusu, Liliana. Commercial English. – Buc., Editura Universitară, 2004. 21. Speegle, Roger, Giesecke, William. Business World. - Oxford University Press, 1983. 22. Ştefan, Rodica, Pricope, Mihaela, Beldea, Elena. Go Ahead. - Editura Fundaţiei România de mâine, 2001. 23. Англо-русский и русско-английский бизнес-словарь. – Москва, Издательство ЮНВЕС, 2001. 24. Самуэльян Н. English for Banking. – Москва, МЕНЕДЖМЕНТ, 1999.
Sub redacţia autorilor Procesare computerizată – Vitalie Spînachi
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ENGLISH FOR ECONOMIC PURPOSES Semnat pentru tipar 08.02.07 Coli de tipar 18,87. Coli de autor 10,98. Tiraj ____ ex. Comanda ____. Tipografia Departamentului Editorial-Poligrafic al ASEM Str. Bănulescu-Bodoni 59 Tel. 402-986
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