MONEY, BANKING AND FINANCE TABLE DES MATIERES a. MONEY 2.1 Whatis money? They say money makes the world go round. But today itis no longer money that does that, iced. When the corporatons ofthe word buy, they buy on credit, Indeed, if everyone were to demand immediate payment in cash, of if everyone in the world wanted to get hold of the money they have at the bank, the world would literally go bust?.A A ZTREM PLIN ANGLAIS = ANDREW MILNE Stil regardless of where youare or what you do, you need money and this prebably won't change anytime soon. Eventhough there isan unlimited supply of money in the world even though the world economy grows larger every year, even though there are mere, millionaires per capita? today then ever before in te history of mankind. Whenever people pay for goods or services’, they use some form of money. Money could be almost anything, 35 long as everyone agrees on its value. One of the earliest forms of monetary value came in the form of precious metals such 'as gold or silver. In North America, Native Americans used beads* ‘made of shelf, called wampum, asa form of money. Ina modern economy, money servesa number of functions ts most important is that i acts as a means of exchange In pre-industrial societies, goods and services were exchanged directly, without money, ina process called barter”. This process of exchange was very simple. It resembled the way some people trade® baseball cards or comic books today whereby you trade objects of which both parties agree have equal value, Without money, we would have to rely? on barter, Money also serves other functions. For instance, it acts as a store of value; we can put money aside and use it later to buy the things that we want. Thisis one reason why inflation is undesirable as it destroys this function. Gold and Silver ‘were the basis of monetary value for many years, but they gradually became replaced by currency in the form of notes'® and coins, it used to be that 2 country could only produce as much money as it had gold, but this is no longer the case today. The Bank of England, for example, prints an amount of money relative tothe needs of the economy on 2 constant basis. Butin fact, in a modern economy, most money does not come in the form of coins ornotes. Toexplain this, letsimagine a worker's wages*, Before wages are paid intoa bankaccount, their employer takes out tax and national insurance charges. The money is then transferred into the Gmployee's bank account. To pay for a mortgage* or various other outgoings® such as insurance, ‘the money will be taken out by direct debit or ‘standingorder*4. In addition, when purchases are made, they will often be paid using a cheque or credit card. In all these transactions, not a note or spin as changed hands. The money that has been used does not depend on its physical properties, buton the fact that itis accepted. Thatis why the European Union was able to introduce the Euro ih 19989. lke other currencies", the Eurohasno intrinsic vale; itis valuable only becauseitis accepted, 2.2 The money supply and monetary policies Only central banks are allowed to produce notes and coins. The total amount of money in Circulation in 2 country is called "the money or monetary supply. By reducing or inereasing the money supply, central banks are able to control the economy of a country. The broad definition of ‘money supply also includes credit. That is because goods and services can be bought on credit os wellas with cash and wil therefore affect spending power®. The Bank of England and the European Central Bank are in charge of controling infation at a steady rate. Countries always want some inflation asitillustrates growth. However, too much or too litle oft has consequences, The Bank of England aims to have an inflation rate of between 2% and 386. The method they use to do this is through controlling the monetary supply. Incase of inflaton, less money will be made avoilable so eople stop buying. In case of recession, more money will be made available through lower interest rates or lower taxes, so people spend more.ee 2.1 The banking system of the UK and the US London was once the undisputed capital of the banking world. Today itis still one of the world’s most important financial centers. Thousands of its citizens rely directly or indirectly on banks and international finance companies for employment. With the U.S banking system, one of the most striking features is mostly due to the fear of concentration and size. The national Bank Act in 1863 prohibited interstate branching, hence the multiplication of banks. The years ofthe Great Depression came as a terrible blow to the U.S banking industry: Roughly 40% of US banks collapsed and bank panics were a common phenomenon at the time. In the face ofall those bank filures the Glass Steagall Act was established, which setupa strict Separation between commercial banking and investment banking. 2.2 _ Roles of banks Banks are financial institutions where individuals or organisations keep their money and which offer services such as loans and transfers. They accept deposits, make loans, and derive a profit from the interest margins between the rate they charge for loans and the rate they pay to depositors ‘on their savings. From the deposits the banks make loans to individvals, businesses, government agencies, and other banks. Banks also profit from fees™ charged for services such as current accounts (UK), checking accounts (US), credit cards, and mortgages, although modern banks do many other things as well. The other important function of banksis to operate the payments system. 2.3. Types of banks ‘The principal types of banks in the modern industrial world are commercial banks and central banks. 2.3.1 Commercial banks or retail banks ‘Commercial banks, (also known as High Street Banks in the UK have branches* inmost towns. They develop full banking services teilored* to the general public. They allow deposits and withdrawls by individuals and offer other services such as the use of a cheque book or the provision of credit. They grant loans™ and overdrafts*. They buy or sell foreign currencies", ‘they provide safes” and they buy and sellshares*® for their customers. Examples of High Street Banks in the UK are Barclays, Lloyds, HSBC, Royal Bank of Scotland (which has acquired the National Westminster Sank). Theyzare privately owned, profitseeking®® institutions. They accept funds from customers and have ari extensive network® of branches. They are major participants of a country’s economy as they inject large sums of money into it. They are businesses that trade in money. They receive and hold deposits, pay money according to customers’ instructions, lend money, offer investments advice, exchange foreign currencies, and so on. They act as financial advisers. Banks exchange and settle cheques drawn on each other through a clearing system’ (settling of debts between banks). They make a profitfrom the difference (known as@ spread) between the interest rates™ they reward savers (or depositors) with, and the interest rates they charge borrowers? with.eee ae through cheques, standing orders, direct debits, transfers, cash points and credit cards. They Provide loans, investment services insurance, cash management, foreign curreney exchanges and ebanking”. Although they playa powerful role in business, they can aso run into huge®* difficulties - mostly due to an excess of debt ~ which can even lead to bankruptcy29 as has been the case of some very ‘well-known banks ‘throughout 2007 and 2008 [examples include, the Northern Rock (U.K) and Lehman Brothers (U.S)]. Apart from offering t money. ‘ustomers.a means of payment'®, commercial banks alsolend them 2.3.2 Central banks Central Banks are the keystones‘ of the financial and banking system: the US Federal Reserve and the Bank of England, for instance, manage their national money markets bysetting official interest rates. They also have a monopoly over the issue of bank notes and act as bankers to the government and to the other banks, The Bank of England founded in 2694 for the purpose of advancing £12 millon to the British government to fund its war ageinst France eventually became ‘the world’s most powerful and influential financial institution, tt was the first public bank te aesomna most of the characteristics of modern central banks, Central Banks are the banks of govemments, they are the only banks allowed to print notes and coins, or to set interest rates (known as ,base rates"). Ths allows ‘them to focus on the control ofthe money supply. Thé easiest method to control inflation isto control the money supply. Central banks are also the banks ofall other banks. The main ones are: The Bank of England, The Banque de France, the Bundersbank (Germany), the European Central Bank, and of course, ‘The Federal Reserve (USA). 2.33 Building societies (UK) or Savings and Loans (US) Building Societies gather the savings of millions of short term savers and then lend them to home buyers. In the U.k’s Building Societies now offer the same type of services as Commercial Banks. They used to be considered as savings banks in the sense that they accepted deposits from individuals and used them to make mortgage loans for people who. wanted to. buy property (real patate’. The UK's Building Societies used to be concerned only with savings and loans regarding house purchases. They now have a similar status to the high street banks. 2.3.4 Investment Banks or Merchant Banks Merchant banks lend only to companies and deal in international finance. Private individuals cannot go and open an account with a Merchant Bank. They arrange short term finance and advise Sompanies on money management, they offer consultancy services to businesses and they also arrange acquisitions and mergers, __ Eee2.4 Banking services 2.4.2 Means of payment Plastic money (i.e. all types of plastic cards: bankers cards, debit cards or payment cards, or even credit cards) can be used instead of cash or cheques. A typical bank card (or cash card) with PIN (Personal Identification Number) code is used to withdraw*® money from Automatic Teller Machines (ATMs), (also known as cash dispensers, cash points or cash machines) and to pay for goods or services. Payments orwithdrawalst® are either debited immediately ora the end of the month. They are also known ve smart cards (thanks to themicrachip'), Some plastic cards are also credit cards. They give customers credit when they purchase goods or services when there is not enough money available on their current account. These credit cords are issued by companies such as Access, Visa, American Express, Diners. Repayments are mace by ‘monthly instalments®, Online applications such as Apple Pay are on the way of changing the face of payment forever, enticing more and more people to go cashless, that sto live and Pay without any cash money. in china forinstance, over five years’ time, the app WeChat Pay has rapidly become a keystone payment method for businesses that reached Chinese shoppers, both home and abroad. Originally a messaging app (like WhatsApp) WeChat has evolved into an ‘ecosystem that allows Chinese shoppers to chat, browse, and make payments, all in ‘one place - making shopping as easy as chatting to your friends. For more you may read the following article and video: feChat The Future of Banking (article) Are WeChat-type super a f bank FinTech? (video) 2.4.2 Setting personal bills and transferring money You can use your bank to pay bill automatically. This can be done by standing order (or banker's order) which is an instruction to your bank to pay a certain sum every month vo net oe take ane 3, [0 rent payments). Direct debit isthe authorization you give to an organization to take the appropriate payments). 2.43 Electronic banking Technological advances, especially in information processing® and communication have resulted in ever more sophisticated cards. Most of them now carry a microchip, which holds information on the account holder, information about previous transactions, all of which ean bs viewed at enquiry terminals, Electronic banking is the use of computers and telecommunications te enable banking transactions to be done by telephone or computer rather than through human ig whereby a person with a personal computer can make aEAS IEONeETY policy, taxation, financial regulation and crime. 24-4 Other banking services New services are constantly being introduced by banks, Insurance is one of them, On the other hand, retailers such as Marksand Spencer now advervsee large range of financial services, including 2.5 Pension funds especially through the ‘ise of eed i 3976 by the Grameen Bank of Bangladesh, microcec StheracOns have provided small loans (microloans) to milione cy Poor people who would not ‘otherwise have had access to capital, 2 |) 2006, the Grameen Bank and its founder, for Peace. 3 PROBLEMS WITH BANKS : For most develoned countries, the late 2oth century was marked by a notable easing of Fegulations and restrictions in the banking industry. in the United States, for example, many reguiations had originated in response to probleme experienced during the Great Depression, Specially in ag3a when the Federal Government of the Linked States forced many banks to close Gown as they were not deemedsolvent. Today, contemporary bank regulations are intended to limit bank failures and to protect bank depositor from losses that would be due to such bank fallures. Numerous other legislations exist such as the Prevention of money launderings®, The effects of the financial crisis and the recession Muhamad Yunus, were awarded the Nobel Prize eee et ee ee eefee MILNE ae fish levels of government debt that have now arisen in many Countries are a serious threat to economic. recovery. s. The governments of modern Societies ‘Stein Virwal panic, Drastic measures have been tae cc stop economic disaster, 3.1. Financial markets he United kingdom, particularly fonuion, has traditionally been @ world financial Centre, Restructuring and deregulation transformed the Sef or Guting the 2980s and gos, with importanyLaaul documents called a jer 38 ANd shows that this Person owns share ofthe company, and is therefore, a shareholderce But one ofthe essential cantltons for this system to Work is that those sharsholders must be able to seltheir spare ofthe company (inthe for’ ‘ofa share certificate) Whenever they wish to 0 50. No one can vesanably be expected to loch 2p ieney ina company foresee and a company anhot give an investor hie many back because it he been spent on buildings, equipment, msterials and so on. So the Shareholder must be able vg ‘ellis shares to someone Se who wants Aobwy them and to take he PISCe 88a shareholder ofthe Company. Ever since Jeintstock companies first began, stock marker have made this persible by providing a piace Where sellers and buyers ian be brought together to Duy OF to sell their shares’ P company when it wishes 4. ‘ise capital, Sues shares that can be freely bought or sold on the Stock Market. To do se the company must i i i ifcertai led, m 2rd then lend it to those Who Wish to Borrow, But where more somplex transactions than, simple bank deposit are Fancemed, it requires markets in which borrowers can meet lenders. Stock Markets, also called Stock Exchanges, are examples, This Sort of money is known 2s financial capital and the People or i hat provide it created investors. The reason they wantto ope the company wil become a success and they will {teh Geta shareinthe prom For example, ifsomeone Were to put 21,000 = ‘ Osc COMPANY whose shores gee worth es each they would eeaee Sais QUK Ecuae 34,000 shares,Fise* and foll with the fortunes Ia bane S*Ut oF World eventreue 25 drastic weather This s because such evente vin the amount of money ‘most share prices fai) “ery Quickly, we callita “rach 2. per capita ar personne 3. B00ds or services des blens ou des services 4. beads Perles 5. shelt coquillage S-means of exchange ‘oyens d'échange 7. barter tro 8. trade* Echanger 9.*0 rely on something compter sur aq chose 10. notes, billets 1h. wages salaires 12. mortgage ‘emprunt immobiler: 13. outgoings : Epenses 14. standing order Prélévement automatique 4S. currencies devises 46. money supply ‘masse monétaire 17. spending power Powoir d’achat 38. to mirror refléter 19. foans emprunts,crédits, préts 20. savings Spargne 21. fees frais~~~ 22. branches 23. to tailor adopter 24, to grant a loan accorder un prét 25. overdraft aécouvert 26. foreign currencies devises étrangéres 27. safes coffres forts 28. shares 29. profit-seeking 30. neswores 31.tolend 32.tosettie 33. clearing aystem systime de compensation 34. interest rates taux d’intéréts: 35. borrowers emprunteurs 36. direct debit vicements automatiques 37. e-banking bengue-en ligne 38. huge nome +39. bankruptcy ‘faillite 40. means of payment ‘moyens de paiement 4. keystones léments clés Qtoset mettre en place 43. realestate iemmobiiter 44, purchases achats 45. mergers fusions 46. to withdraw retirer (47. cash dispensers distributeurs 48. withdrawals retraits 49. microchip Puce électronique 50. instalmenes versements St. bills factures 52. rent loyers ‘53. information processing traitement de information 54. tosoar augmenterfortement 55. retirement retraite56. deemed 57. failures 58, money laundering 59. to default 60. to bai out 64, reluctant 62, wealthy / the weal 63. capital flows 64. worth 65. stake 66. shareholder 67.to fulfil 68. purpose 69. to rise 70. upward trend, 71. downward trend 72. momentous considéré échecs blanchiment ¢’argent faire défaut renflouer,tirer affaire réticent riches, es plus riches flux, mouverients de capitaux valeur intéressement actionnaire remplir but augmenter tendance haussiére tendance baissiére considérable