Oral conversational topics on business English language
Oral conversational topics on business English language
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äî âèâ÷åííÿ óñíèõ ðîçìîâíèõ
ç ä³ëîâî¿ àíãë³éñüêî¿ ìîâè
äëÿ ñòóäåíò³â IV êóðñó ôàõó “Ì³æíàðîäíà åêîíîì³êà”
Êðèâèé Ð³ã 2003
äî âèâ÷åííÿ óñíèõ ðîçìîâíèõ òåì ç àíãë³éñüêî¿ ìîâè äëÿ ñòóäåíò³â êóðñó ôàõó ÌÅ.
– Êðèâèé Ð³ã, ÊÅ² ÊÍÅÓ. – 2003ð.,- 55 ñ.
êîëåêòèâ: ñò. âèê. Áðàòàíè÷ Î.Ã.
âèêë. Áðåää³ê Äæ.
Ñòóäåíòè 4 êóðñó:
ðåäàêö³ºþ: çàâ³äóâà÷à êàôåäðè, ä.ï.í., ïðîô. Ñêèäàíà Ñ.Î.
äîöåíò Ñîëîâéîâà Í.Ä.
âèïóñê: ïðîô. Ñêèäàí Ñ.Î.
In using the textual material one should at the outset carefully read and
try to understand, using the dictionary where necessary. One should not try to
translate every sentence into Russian rather one should try to understand the
situation in which various expressions are used as well as to pay attention to
the context. However, instances which the author considers hard to understand
are pointed out. Having understood the meaning of an expression related to the
topic the student learns it completely by heart with the articles,
prepositions, verb – forms and so on.
In order to use a word, its form must first be learned; and making the
new word part of one's vocabulary may require a great deal of practice to gain
fluency in speech and rapid understanding. The emphasis therefore, should be on
learning to use words rather than merely on grasping their meaning. One bit of
general advice: fluency in language depends to a very large degree on the
expression model that one may be able to think of in a specific situation.
Sentence or utterances that one has learnt in connection with a specific
situation are likely to suggest themselves again as models if you are in
Sentences and utterances learned without being associated with anything
are not likely to occur to you again. It is thus quite helpful and important to
learn to associate utterances with situation.
One should, of course, get into the habit of thinking of possible foreign
language utterances in situations in which one may find oneself.
marketing – a). the theory or
practice of presenting, advertising and selling things; b). the division of a
company that does this. provide – to make smth available for smb to use
by giving or lending it. utility - the quality of being useful possession
– the state of having, owning or controlling smth. need – circumstances
in which smth is lacking on necessary, or which require smth to be done; a
necessity. anticipate – to what is going to happen or what will need to
be done and take action to prepare for it in advance. function – a
special activity or purpose of a person or thing. purchase – the action
or process of buying smth. flow – the flowing movement of smth; a
continuous stream of smth. accomplish – to succeed in doing smth; to
complete smth. successfully; to achieve smth.
conversational topic ånglish text
When asked to
define marketing, most people will say "to advertise a product" or
"to sell a good". It's true that selling and advertising are parts of
marketing, but there is much more. Marketing provides utility or the
value that comes from satisfying human needs. Consumers use utility in many
different circumstances in their everyday lives. For instance, we have the
right to possess a product or service in exchange for money, which is called possession
utility. Also, consumers use utility when they can buy a product or service
when they want it, and also at a location where they would like to buy it. The
former is called time utility and the latter is referred to as place
utility. Production helps us to differentiate between what consumers want by
providing form utility or a product produced, and task utility or a
service given. Simply put, marketing provides time, place, and possession
utility, and guides decisions about what goods and services should be produced
to provide form utility and task utility. There are basically two different
variants to defining marketing. Micro-marketing focuses on activities
performed by an individual organization, and macro-marketing focuses on
the economic welfare of a whole society. Both are important when trying to
understand what is marketing. The first, micro-marketing, is the performance of
activities that seek to accomplish an organization's objectives by anticipating
customer or client needs and directing a flow of need-satisfying goods and
services from producer to customer or client. Let's take a look at this
definition. To begin with, marketing applies to both profit and non-profit organizations.
All organizations have some kind or "audience" or "market"
that they are trying to satisfy. The point is that all organizations need to
practice good marketing techniques to accomplish their objectives and reach
their goals. Furthermore, a very important goal of marketing is to identify
customers' needs, and meet those needs the best way that organization knows
how. If the marketing function has done this, than the product or service will
assuredly sell itself In addition, marketing should focus on those needs that
were identified, not with production. Marketing should anticipate those needs,
and then determine the products or services to be developed. While this sounds
like the marketing function leads business activity, this is false. Marketing
should direct, not lead other business functions such as accounting,
production, and financial activities toward the overall goals of the firm.
Finally and most importantly, marketing builds a relationship with customers. A
purchase does not mean the end of marketing related activities, on the
contrary, it is only the beginning to a long, lasting relationship with
customer, and should always look for ways to keep a customer coming back. As
all marketers know and understand, it is easier and less costly to keep a
customer once they have them, than it is to find them in the first place. This
is why relationship marketing is so important. The second, macro-marketing, is
a social process that directs an economy's flow of goods and services from
producers to consumers in a way that effectively matches supply and demand and
accomplishes the objectives of society. Here the emphasis is on the whole
system, not the individual organization. Different producers in a society have
different objectives, resources, and skills. Likewise, not all consumers share
the same needs, preferences, and wealth. So, macro-marketing effectively helps
to match supply differences with demand differences, while trying to accomplish
a society's objectives. Thus, we can say marketing has two different
definitions, dealing with two different levels of the economy.
kind of utility do you know?
is the difference between micro- and macro- marketing?
is included in definition “marketing”?
goal of marketing can you call as a very important one?
does marketing build a relationship with customers?
both micro- and macro- marketing connect with two levels of economy?
other business functions should marketing direct?
could the producers foresee the consumers’ needs?
is the main goal of marketing as a whole?
an idea for a product, especially a new one marketing orientation – when a business
concentrates on designing and selling products that satisfy customer needs in
order to be profitable production-oriented business – when a business bases its ability
to make profits on the high quality of its product, rather than on customer’s
needs customer satisfaction – a feeling of happiness or
pleasure with what customer has got or what customer achieved bottom-line – the figure showing a
company’s total profit or loss trade-off – a balance between two situations in order to get an
What does the
marketing concept mean? Simply put, it means that an organization
aims all its efforts at satisfying its customers to achieve profit. Without
satisfied customers, a company is without money, and is bankrupt. While this
concept seems rather simple, it has not always been applied. This implies a
production-oriented business or making whatever products are easy to
produce and then trying to sell them. Firms interested in this method think of
customers existing to buy the firm's output rather than of firms existing to serve
customers and the needs of society. On the other hand, well-managed firms have
replaced this production orientation with a marketing orientation.
This means trying to carry out the marketing concept. Instead of just
trying to get customers to buy what the firm has produced, a marketing-oriented
firm tries to offer customers what they need. Three basic ideas are included in
the definition of the marking concept: customer satisfaction, a total company
effort, and profit, not just sales, as an objective. To begin with, customer
satisfaction guides the whole system. Every business function is influenced by
the customer the company is trying to satisfy. For instance, the finance
department looks to purchase production equipment that will increase the
quality of a product, and increase the overall position of the companies profit
at the same time. Without customer satisfaction's influence each business
function would be working separately toward different goals, thus operating
individually and against total unity. Furthermore, teamwork among all managers
of a firm is an essential element, because the output from one department may
be the input to another. Sometimes departments tend to build walls around
themselves in order to protect their own interests. This narrow way of thinking
only leads to the customer not receiving enough attention, resulting in a
breakdown of the marketing concept. By adopting the marketing concept all
departments are provided with a guiding force. It acts as a philosophy for the
whole organization, not just an idea that applies to the marketing department.
Finally, profit is the bottom-line measure of the firm's success and ability to
survive. It is the balancing point that helps the firm determine what needs it
will try to satisfy with its total, however costly, effort. Sometimes it may
cost more to satisfy some needs than any customers are willing to pay, or it
may be much more costly to try to attract new customers than it is to build a
strong relationship with-and repeat purchases from-existing customers. This is
why firms use profit as the means for survival and success of the marketing
concept. In addition, the marketing concept is related to social responsibility
and marketing ethics. The marketing concept is so logical that it's hard to
argue with it. Yet, when a firm focuses its efforts on satisfying some
consumers, to achieve its objectives, there may be negative effects on society.
This means that marketing managers should be concerned with social
responsibility- a firm's obligation to improve its positive effects on society
and reduce its negative effects. Being socially responsible sometimes requires
difficult trade-offs. For example, if a firm produces a product that emits
harmful chemicals that result in poor environmental standards, should the firm
be responsible for the clean up? Also, should all consumers needs be satisfied?
For instance, everyone knows that cigarettes cause serious health problems, so
should a firm knowingly keeping producing them just because there is a demand
for them? These questions and others help us look into how the marketing
concept is applied to society.
1. What does the marketing
2. What is the difference
between production and marketing orientation?
3. Which orientation is more
profitable for the firm? Why?
4. What basic ideas are
included in the definition of the marketing concept? What is the most important
of them? Why?
5. How can the work of the
whole organization be influenced by adopting marketing concept?
6. How can we determine
whether the firm is successful or not? What is the index of the firm’s success?
7. In what way is the
marketing concept related to social responsibility?
8. Should marketing managers
be responsible for the negative effects caused by the marketing concept on the
9. In what way should the
marketing managers solve the problem of satisfying consumer’s needs and
reducing the negative effects of the marketing concept at the same time?
strategy – the process of planning
smth or carrying out a plan in a skilful way. target – an object that a
person tries to hit in shooting practice or in certain sports. price – an amount of money for
which smth may be bought or sold. place – a particular area or position; a natural or proper position
for smth. promotion – advertising or some
other activity intended to increase the sale of a product or service. image – a general impression
that a person, an organization, a product, etc. gives to the public; a
reputation. distribution – the way smth is shared
out or spread over an area. brand name – the name given to a particular product by the company that
produces it for sale. public relations – the work of presenting a goal image of an
organization to the public, esp. by providing information.
strategy planning means finding attractive opportunities and developing
profitable marketing strategies. The marketing concept is the guiding force
used when a firm develops the best strategy. There are two defining parts to a
marketing strategy, the target market and the marketing mix. Both play a key
role in the outcome of a firm's success in a marketing. A target market
is defined as a fairly similar group of customers to whom a company wishes to
appeal. When determining a target market, a firm must be very specific about
whom they will target. Based on certain characteristics such as income, age,
job, living habits, physical characteristics, etc. will a firm find the best
group of customers and be the most successful in their efforts. Market-oriented
firms use the target marketing approach while production-oriented firms use a
mass marketing approach. Target marketing says that a marketing
mix is tailored to fit some specific target customers. In contrast, mass marketing
vaguely aims at everyone with the same marketing mix. Mass marketing
assumes that everyone is the same, and considers everyone a potential customer,
thus spending great amounts of wasted time and money to try and sell a product
or service. A marketing mix is the controllable variables the
company puts together to satisfy this target group. Using a marketing mix, a
firm answers what, where, how, and how much. These are made up of the four Ps
or product, price, place, and promotion
the goods or the service that you are marketing
A 'product' is
not just a collection of components. A 'total product' includes the image
of the product, its design, quality and reliability - as well as its features
and benefits. In marketing terms, political candidates and non-profit-making
public services are also 'products' that people must be persuaded to 'buy' and
which have to be 'presented and packaged' attractively. Products have a
life-cycle, and companies are continually developing new products to replace
products whose sales are declining and coming to the end of their lives.
PRICE = making it easy for the
customer to buy the product
account of the value of a product and its quality, the ability of the customer
to pay. the volume of sales required, and the prices charged by the
competition. Too low a price can reduce the number of sales just as
significantly as too high a price. A low price may increase sales but not as
profitably as fixing a high, yet still popular, price.
As fixed costs
stay fixed whatever the volume of sales, there is usually no such thing as a
'profit margin' on any single product.
PLACE = getting the product to
to be made about the channels of distribution and delivery arrangements.
Retail products may go through various channels of distribution:
—> end-users (the product is sold directly to the end-user by the company's
sales force, direct response advertising or direct mail (mail order))
—> retailers —> end-users
—> wholesalers/agents —> retailers —> end-users
—> wholesalers —> directly to end-users
—> multiple store groups / department stores / mail order houses —>
—> market —> wholesalers —> retailers —> end-users
must add value to the product to justify the costs: the person in the middle is
not normally someone who just takes their 'cut' but someone whose own sales
force and delivery system can make the product available to the largest number
of customers more easily and cost-effectively. One principle behind this is
'breaking down the bulk': the producer may sell in minimum quantities of, say,
10,000 to the wholesaler, who sells in minimum quantities of 100 to the
retailer, who sells in minimum quantities of 1 to the end-user. A confectionery
manufacturer doesn't deliver individual bars of chocolate to consumers:
distribution is done through wholesalers and then retailers who each 'add
value' to the product by providing a good service to their customers and
stocking a wide range of similar products.
PROMOTION = presenting the product
to the customer
involves the packaging and presentation of the product, its image, the
product's brand name, advertising and slogans, brochures, literature, price
lists, after-sales service and training, trade exhibitions or fairs, public
relations, publicity and personal selling. Every product must possess a
'unique selling proposition' (USP) -the features and benefits that make it
unlike any other product in its market"
crucial variables are the foundation of the marketing strategy of any for
profit or not for profit organization that uses the marketing concept and
drives for success. The customer is not included in the marketing mix, but the
customer is the target of all marketing efforts with the four Ps surrounding
it. All four Ps are needed in a marketing mix. In fact, they should all be tied
together. All four characteristics contribute to one whole. When a marketing
mix is being developed, all decisions about the Ps should be made at the same
time. That's why the four Ps are arranged around the customer, to show that
they are all equally important. A marketing strategy sets a target market and a
marketing mix. It is the overall scheme of a firms efforts in a market, however
a marketing plan goes further. A marketing plan is a written statement of a
marketing strategy and the time-related for carrying out the strategy. First,
it details what marketing mix will be offered, to whom the strategy is directed
toward, and for how long. Second, it forecasts what company resources, shown in
costs, will be needed at what rate. Third, it determines what results are
expected shown in sales and profits perhaps monthly or quarterly, customer
satisfaction levels, and the like. The plan should also have some control
features for whoever is carrying out the plan to see if things are going well
or not. Having a plan greatly increases that the marketing strategy will
succeed, and the customer will be satisfied.
does marketing strategy planning mean?
are two defining parts of a marketing strategy: the target market and the
marketing mix. How would you characterize them?
they play a key role in the outcome of a firm’s success?
components does marketing mix include and how can they influence the product’s
position on the market?
is the difference between definitions “marketing concept” and “marketing
channel of distribution do you think is more effective? Why?
– money in a foreign currency currency – the system of money used in a country rate – a fixed charge, payment
or value risk – the possibility of
meeting danger or of suffering harm or loss to distinguish – to recognise the difference
between people or things bond – a certificate issued by a government or a company
acknowledging that money has been lent to it and will be paid back with
interest. portfolio – a set of investments
owned by a person, bank, etc. to convert – to change from one form or use to another equity – the value of the shares
issued by a company; the ordinary stocks and shares that carry no fixed
interest adverse – not favourable,
contrary, opposing, harmful
THE FOREIGN EXCHANGE AND CAPITAL MARKETS
exchange market is a market for converting the currency of one country into
that of another country. An exchange rate is simply the rate at which
one currency is converted into another. Without the foreign exchange market
international trade and international investment on the scale that we see today
would be impossible; companies would have to resort to barter. The foreign
exchange market is the lubricant that enables companies based in countries that
use different currencies to trade with each other.
rate at which one currency is converted into another typically changes over
time. Currency fluctuations can make seemingly profitable trade and investment
deals unprofitable, and vice versa.
In addition to
altering the value of trade deals and foreign investments, currency movements
can also open or shut export opportunities and alter the attractiveness of
imports. While the existence of foreign exchange markets is a necessary
precondition for large-scale international trade and investment, the movement
of exchange rates over time introduces many risks into international trade and
investment. Some of these risks can be insured against by using instruments
offered by the foreign exchange market, such as the forward exchange contracts
foreign exchange market serves two main functions. The first is to convert the
currency of one country into the currency of another. The second is to provide
some insurance against foreign exchange risk, by which we mean the adverse
consequences of unpredictable changes in exchange rates. To explain how the
market performs this function, we must first distinguish among spot exchange
rates, forward exchange rates, and currency swaps.
parties agree to exchange currency and execute the deal immediately, the
transaction is referred to as a spot exchange. Exchange rates governing such
"on the spot" trades are referred to as spot exchange rates. The spot
exchange rate is the rate at which a foreign exchange dealer converts one
currency into another currency \// on a particular day.
The fact that
spot exchange rates change daily as determined by the relative demand and
supply for different currencies can be problematic for an international
business. To avoid this risk, the U.S. importer might want to
engage in a forward exchange. A forward exchange occurs when two parties agree
to exchange currency and execute the deal at some specific date in the future.
Exchange rates governing such future transactions are referred to as forward
exchange rates. For most major currencies, forward exchange rates are quoted
for 30 days, 90 days, and 180 days into the future.
swap is the simultaneous purchase and sale of a given amount of foreign
exchange for two different value dates. Swaps are transacted between
international businesses and their banks, between banks and between governments
when it's desirable to move out of one currency into another for a limited
period without incurring foreign exchange risk. A common kind of swap is spot
INTERNATIONAL CAPITAL MARKET
market brings together those who want to invest money and those who want to
borrow money. Those who want to invest money are corporations with surplus
cash, individuals, and non bank financial institutions (e.g., pension funds,
insurance companies). Those who want to borrow money are individuals,
companies, and governments. In between these two groups are the market makers.
Market makers are the financial service companies that connect investors and
borrowers, either directly or indirectly. They include commercial banks and
banks perform an indirect connection function. They take deposit from
corporations and individuals and pay them a rate of interest in return. They
then loan that money to borrowers at a higher rate of interest, making a profit
from the difference in interest rates. Investment banks perform a direct
connection function. They bring investors and borrowers together and charge
commissions for doing so.
is any currency banked outside its country of origin. Eurodollars which ,
account for about two-thirds of all Eurocurrencies, are dollars banked outside
or the United States. Other important Eurocurrencies include the Euro, the
Euro-yen, and the Euro-pound. The term Eurocurrency actually a misnomer, since
a Eurocurrency can be created anywhere in the persistent Euro-prefix reflects
the European origin of the market. The Eurocurrency market is significant
because it is an important, relative source of funds for international
businesses. From small beginnings, this is mushroomed.
INTERNATIONAL EQUITY MARKET
There is no
international equity market in the sense that there are international currency
and bond markets. Rather many countries have their own domestic equity markets
in which corporate stock is traded. The largest of these domestic equity
markets are to be found in the United States, Britain, Japan, and Germany.
Although each domestic equity market is still dominated by investors who are
citizens of that country and companies incorporated in that country,
developments are internationalising the world equity market. Investors are
investing heavily in foreign equity markets as a means of diversifying their
INTERNATIONAL BOND MARKET
Bonds are an
important means of financing for many companies. The most common kind of bond
is a fixed-rate bond. The investor who purchases a fixed-rate bond receives a
fixed set of cash payoffs. Each year until the bond matures, the investor gets
an interest payment and then at maturity he gets back the face value of the
bonds are of two types: foreign bonds and Eurobonds. Foreign bonds are
sold outside the borrower's country and are denominated in the currency of the
country in which they are issued.
Eurobonds are normally underwritten
by an international syndicate of banks and placed in countries other than the
one in whose currency the bond is denominated For example, a bond may be issued
by a German corporation, denominated in U.S dollars, and sold to investors outside
the United States by an international syndicate of banks. Eurobonds are
routinely issued by multinational corporations, large domestic corporations,
sovereign governments, and international institutions, they are usually offered
simultaneously in several national capital markets, but not in the capital
market of the country, nor to residents of the country, in whose currency they
are denominated. Eurobonds account for the lion's share of international bond
1. How would you explain the
2. What is the necessary
precondition for large-scale international trade and investment?
3. The foreign exchange
market serves two main functions. What is their essence?
4. What is the difference
between spot exchange rate and forward exchange rate?
5. What are the main
participants of swap operations?
6. What is the difference
between commercial and investment banks?
7. What types are
international bonds divided into?
8. How would you characterise
foreign bonds and Eurobonds?
9. What is the principle of
the international capital market activity?
each domestic equity market dominated by?
budget – an estimate or plan of
the money available to smb. and how it will be spent over a period of time revenue – income, esp. the total
annual income of a state or an organisation to approximate – to estimate or calculate
smth fairly, accurately management – the control and making of decision in a business or similar
organisation assumption – thing that is thought to
be true or certain to happen, but is not proved forecast – a statement that predicts smth with
the help of information flexible – easily changed to suit new condition objective – a thing aimed at or
wished for, a purpose inventory – a detailed list esp. of goods, furniture or jobs to be done to compile – to collect information
and arrange it in a book, list, report, etc.
A budget is a
financial plan. Specifically, a budget sets forth management's expectations for
revenues and, based on those financial expectations, allocates the use of
specific resources throughout the firm. You may live under a carefully
constructed budget of your own. A business operates in the same way. A budget
becomes the primary basis and guide for financial operations in the firm.
the principle activity in the planning function that all managers of successful
firms must do in order to meet desired results. Just as managers use forecasts
to approximate income from sales, they must also forecast the future
availability of major resources, including people, raw materials, energy, and
money. Techniques for forecasting resources are the same as those employed to
forecast sales: hunches, market surveys, time-series analysis, and econometric
models. The only difference is that the manger is seeking to know the
quantities and prices of goods that can be purchased rather than those to be
sold. A very close relationship exists between budgeting as a planning
technique and budgeting as a control technique. During the planning phase of
management, firms forecast future allocations of resources for business
activities. After the organization bas been engaged in activities for a time,
actual results are compared with the budgeted (planned) results and may lead to
corrective action. This is the management function of controlling.
process is complex in nature, derived from the management's objectives for the
organization to the final financial budgeted balance sheet formulated. Sales
forecasts play a key role in the budgeting process. It consists of a forecast
of quantities sold and forecast of dollar income expected. All other budgets
are related to it either directly or indirectly. The production budget, for
example, must specify the materials. labour, and other manufacturing expenses
required to support the projected sales level. Similarly, the marketing expense
budget details the costs associated with the level of sales activity projected
for each product in each sales region. Administrative expenses also must be
related to the predicted sales volume. The projected sales and expenses are
combined in the financial budgets, which consist of pro forma financial
statements, inventory budgets, and the capital additions budget.
compile yearly budgets from short-term and long-term financial forecasts. There
are usually several budgets established in a firm:
are based on assumptions about the future. If these assumptions prove wrong,
the budgets are inadequate. So the usefulness of financial budgets depends
mainly on the degree to which they are flexible to changes in conditions. Two
principle means exist to provide flexibility: variable budgeting and moving
budgeting. Variable budgeting provides for the possibility that actual
output changes from planned output. It recognizes that variable costs are
related to output, while fixed costs are unrelated to output. Thus, if actual
output is 20 percent less than planned output, it does not follow that actual
profit will be 20 percent less than that planned. Rather, the actual profit
varies, depending on the complex relationship between costs and output.
Furthermore. moving budgeting is the preparation of a budget for a fixed
period (say, one year), with periodic updating at fixed intervals (such as one
month). For example, a budget is prepared in December for the next 12 months,
January through December. At the end of January, the budget is revised and
projected for the next 12 months, February through January. In this manner, the
most recent information is included in the budgeting process. Premises and
assumptions are constantly being revised as management learns from experience.
budgets can sometimes lead companies to overlook critical variables such as
quality and customer service. Often, their decision-making process is based
solely on numbers and dollars, and wrong moves can turn into lost profit. To
combat this companies set up guidelines that include the necessity to plan
first, budget later: budget for managers, not accountants: measure output, not
input; and design budgets to protect against dispute between departments.
Budgets are an
important activity crucial to a managers’ success in maintaining the bottom
line of a company. Without them, it would be the equivalent to walking through
a mine field without sight. Eventually, you're going to be blown out of the way
by competing firms.
1. What is a budget and what
is it based on?
2. Why do sales forecasts
play a key role in the budgeting process?
3. What are the components of
the budgeting process?
4. How many kinds of budgets
do you know? What are they?
5. Describe the two principle
means providing flexibility: variable budgeting and moving budgeting.
6. Is there any difference
between a budget and a financial plan?
7. What is the importance of
making a budget?
to destock – to cut or use stocks to
annualize – to calculate over a period of year to shrink – to become
smaller in amount, size, or value to slide into recession – to gradually
start to experience decrease in economy and employment economic slowdown
– time or period when economic development gets slow
single-handed, French consumers, who in the third quarter of this year spent an
annualised 5% more than in the previous three months, kept the euro area's
economy afloat. Among the three largest economies, which account for 70% of
euro-area GDP, only France looked healthy, growing by 0.5%. Italy managed just
0.2%; Germany's economy, poorly for a year, actually shrank. As a whole, the euro
area grew by a mere 0.1%.
not expect the French to keep it up, though. Consumption fell by 0.4% in
October, and rising unemployment will probably keep spending in check. Nor is
anybody else likely to take up the running. The European Commission reckons
that, of the ten euro-area economies for which it forecasts quarterly GDP, only
Spain and Finland will grow by more than 0.25% in the fourth quarter. The odd
two out, Greece and Luxembourg, may well do better, but all four together make
up less than one-seventh of the euro area's GDP.
biggest economies, and with them the euro area as a whole, are probably now
shrinking, along with America and Japan. Whether the euro area's contraction
will last for more than one quarter is unclear. Yet even optimists expect only
slow growth in early 2002.
best hope for revival lies in a reversal of the forces that have aggravated the
euro area's slowdown. Rising prices, first of oil and then of food, ate into
real incomes and depressed spending. The prices of oil and other commodities
have since fallen fast, and the effects of foot-and-mouth disease and BSE are
due to drop out of the inflation figures. Some economists think that inflation,
now 2.4%, will fall to 1% or less in 2002. As well as boosting real incomes,
falling inflation (or the expectation of it) ought to create more room for the
European Central Bank (ECB) to cut interest rates below today's 3.25%.
In both France
and Germany, inventories were run down in the third quarter, so there is not
much more destocking to be done. Germany's construction industry, in decline
for two years and a huge drag on growth at the start of 2001, almost stopped
shrinking in the third quarter. The euro's weakness against the dollar and the
yen should help exports.
good news. Much else is amiss, notably America's slide into recession. This has
hurt exports, but it has not reduced the euro area's trade surplus, since
imports have been squeezed just as hard. Indeed, says Dieter Wermuth of Tokai
Bank in Frankfurt, Germany is seeing a "trade miracle": exports
actually rose in the third quarter, while imports fell. The trade balance had a
big positive effect on Germany's GDP figure; feeble domestic demand clobbered
recession is feeding through to GDP in other ways. Weakening exports are
knocking domestic demand, through lower orders to suppliers and cuts in
investment. Second, European companies have become more exposed to America
through foreign direct investment: the American affiliates of European
multinationals doubled their sales in the 1990s, which are now equivalent to
almost 9% of euro-area GDP. An American slowdown means less profit, less
investment and lower employment—in Europe as well as in the United States.
America's troubles are sapping Europe's confidence. That has been much clearer
since September 11th: Germany's IFO index of business confidence dipped again
in October, after plummeting in September. The link between spirits in the two
big economic regions is more than a couple of months old. The European
Commission says that, between 1995 and 2001, the correlation between confidence
indices in the euro area and America has been almost 0.9, with America just
eight or nine months ahead. Where American businesses and consumers lead,
Europeans seem to follow closely behind.
On top of
this, there are domestic weaknesses to worry about. Unemployment, which kept
falling in the early stages of the downturn, is now expected to rise. The ECB
has so far been slow to cut interest rates, and may remain slow in future. The
scope for loosening fiscal policy, especially in Germany, is small: next year's
deficit will probably be close to the limits set by the euro area's stability
and growth pact, which Germany's finance minister is determined not to violate.
Salvation in an American recovery, then? Not only. If rising inflation dragged
Europe down, falling inflation should help pull it up. With luck, the fourth
quarter will be as bad as it gets for the old continent. But don't bet on it;
and expect a slow climb back up.
is the annual growth rate of the euro-area?
are the three biggest economies of the euro-area?
dynamics of inflation is expected in the current year?
European companies becoming more exposed to America? In what way?
are domestic weaknesses of the major European economies?
BRITAIN AND THE EURO
as public opinion is apparently warming to the idea of joining the euro,
relations between Gordon Brown and the European Commission have soured. The
cause of the dispute is a ticking-off from Brussels about the chancellor's
fiscal plans. This is no ordinary disagreement. It goes to the heart of whether
Britain can both join the euro and maintain the drive to improve public
sight, the row between Mr Brown and the commission looks more theatrical than
real. The commission says that Britain is failing to meet the rules of the
stability pact by planning to run a budget deficit. This runs counter to the
pact's stipulation that member states—both in and out of the euro area—should
keep their budgets "close to balance or surplus over the medium
term". For the moment, that does not much matter, since fines can be
levied only on euro members.
But if Britain
were to join the euro, say in 2004, the stability pact would become
relevant. Up till now the main focus of debate on whether Britain could make a
success of euro membership has been about monetary policy. The principal
question that the chancellor's five tests seek to answer is whether Britain
could live with interest rates set by the European Central Bank. Underlying
this is the worry that the British economy differs so much from the rest of the
European Union (EU)-for example, through a housing market especially responsive
to changes in interest rates that a one-size-fits-all monetary policy will
row, however, highlights a different question—whether a one-size-fits-all
fiscal policy set in Brussels will prove damaging. One criticism of the pact is
that it makes little sense for countries to limit their fiscal freedom now that
they have surrendered control over interest rates and exchange rates within the
euro area. That applies to any euro member state. But there are two particular
reasons why Europe's stability pact could prove especially problematic for Britain.
The first is
that Britain's public infrastructure is exceptionally run-down compared with
the rest of Europe. Government investment is much lower as a proportion of GDP
than in most European countries. After a long period of neglect, culminating in
Labour's first term of office, there is an urgent need to remedy matters. That
is why Mr Brown plans to double net public investment's share of GDP to 1.7% by
2003-04 and then to sustain this level of spending. He wants to finance most of
the investment by borrowing, arguing that this is fairer than funding through
taxation since it spreads the cost of works that will benefit people for many
years to come. With debt now very low in relation to GDP, he maintains that
borrowing to invest is also fiscally responsible.
European Commission is anxious to ensure that the EU as a whole reduces debt in
relation to GDP by running balanced budgets or surpluses. A particular reason
for this is concern about the future impact of Europe's ageing populations.
This will lead to big increases in spending on pensions and health, resulting
in likely deficits and higher debt. This could in turn undermine monetary union
as the more heavily indebted countries lobby for inflationary policies to erode
their debts. Hence the need to use the next ten or so years, before population
ageing gathers momentum, to lower the public debt burden.
may be legitimate for the EU as a whole, but not for Britain. This is the
second way in which a one-size-fits-all fiscal policy creates a particular
problem because of British exceptionalism. For one thing, Britain's debt is the
third lowest in the EU as a share of GDP. More important, Britain does not face
the same pressures to raise public pensions as other European countries, partly
because population ageing will be less intense but also because big private
schemes bear much more of the strain of pension provision, and they, unlike
state pensions, are funded. Worries about the adequacy of pensions have led the
British government to boost poorer pensioners' income, but this will not change
the broad picture.
Over the next
few years, then, there is a mismatch between Britain's need for higher
investment and the euro area's need for lower debt. One way round this would be
to interpret the stability pact more flexibly to meet the interests of
individual member states. Treasury sources say that the commission has no
monopoly of wisdom in interpreting the pact and criticise the commission for a
narrow, legalistic approach. The chancellor will press Britain's case at the
next meeting of finance ministers on February 12th, arguing that his budgetary
projections are consistent with a prudent interpretation of the stability pact.
The commission does not want a confrontation but fears that allowing one
exception will open the door to special pleading by other countries.
stability pact were to become binding—as early membership of the euro would
entail—then this will create real problems for Mr Brown as he tries to find the
money to pay for improvements in the public services. He has already been
preparing the ground for tax increases in this year's budget. But these would
have to be a lot bigger—possibly as much as £10 billion—for Britain to
comply with the pact.
Blair wants Britain to join the euro. He also wants to rebuild the public
services without upsetting taxpayers. Those two aims may be incompatible.
to asses – work out the (tax) to
be paid by (someone) ledger – a book in which the accounts of a business
are kept accrued – increased by being added to to wade through –
read (something long or boring) to forge – make a copy of something
written in order to deceive compliance – when someone obeys a law or
rule, keeps an agreement
mistakenly think of accounting as a highly technical field which can be
understood only by professional accountants. Actually, nearly everyone
practices accounting in one form or another on an almost daily basis.
Accounting is the art of interpreting, measuring, and describing economic activity.
Whether you are preparing a household budget, balancing your checkbook,
preparing your income tax return, or running General Motors, you are working
with accounting concepts and accounting information.
often been referred to as "the language of business." This language
finds expression in profit and loss statements, balance sheets, budgets,
investment analysis, and tax analysis. Accounting information is the means by
which firms communicate their financial position to the providers of
capital—investors, creditors, and government. It enables the providers of
capital to assess the value of their investments, or the security of their
loans, and to make decisions about future resource allocations. Accounting
information is also the means by which firms report their income to the
government, so the government can assess how much tax the firm owes. It is also
the means by which the firm can evaluate its performance, control its internal
expenditures, and plan for future expenditures and income. Thus it is no
exaggeration to say that a good accounting function is critical to the smooth
running of the firm.
communicating accounting information is the role of the business organization's
is the process of recording, classifying, reporting and analyzing financial
data. And while the accounting requirements of every business vary, all
organizations need a way to keep track of their money. Unfortunately, there's
very little that's intuitive about accounting. Many small businesses hire
accountants to set up and keep their books. Other companies use accounting
software like QuickBooks, CheckMark Multi-Ledger and M.Y.O.B. Accounting and
keep their accounting functions in house. Using a system of debits and credits,
called double-entry accounting, accountants use a general ledger to track money
as it flows in and out of a business. They record each financial transaction on
a balance sheet, which provides a snapshot of a business's financial condition.
Accountants record every financial transaction in a way that keeps the
following equation balanced: Assets = Liabilities + Owner's Equity (Capital).
Accounting is based on the periodic reporting of financial data. The basic
accounting cycle includes: 1) Recording business transactions. Businesses keep
a daily record of transactions in sales journals, cash-receipt journals or
cash-disbursement journals. 2) Posting debits and credits to a general ledger.
A general ledger is a summary of all business journals. An up-to-date general
ledger shows current information about accounts payable, accounts receivable,
owners' equity and other accounts. 3) Making adjustments to the general ledger.
General-ledger adjustments let businesses account for items that don't get
recorded in daily journals, such as bad debts, and accrued interest or taxes.
By adjusting entries, businesses can match revenues with expenses within each
accounting period. 4) Closing the books. After all revenues and expenses are
accounted for, any net profit gets posted in the owners' equity account.
Revenue and expense accounts are always brought to a zero balance before a new
accounting cycle begins. 5) Preparing financial statements. At the end of a
period, businesses prepare financial reports — income statements, statements of
capital, balance sheets, cash-flow statements and other reports — that
summarize all of the financial activity for that period.
International businesses are confronted
with a number of accounting problems. One of these problems—the lack of
consistency in the accounting standards of different countries.
the problems arising when an international business with operations in more
than one country must produce consolidated financial statements. These firms
face special problems because, for example, the accounts for their operations
in France will be in francs, in Italy they will be in lira, and in Japan they
will be in yen. If the firm is based in the United States, it will have to
decide what basis to use for translating all these accounts into U.S. dollars.
shaped by the environment in which it operates. Just as different countries
have different political systems, economic systems, and cultures, so they also have
different accounting systems. In each country the accounting system has evolved
in response to the demands for accounting information in that country.
attempts to harmonize accounting standards by developing internationally
acceptable accounting conventions a myriad of differences between national
accounting systems still remain. These differences make it very difficult to
compare the financial performance of firms based in different nations.
to the combined impact of the variables, very few countries have identical
accounting systems. Notable similarities between nations do exist however, and
three groups of countries with similar standards can be identified. One group
might be called the British-American-Dutch group. Great Britain, the United
States, and the Netherlands are the trend-setters in this group. All these
countries have large, well-developed stock and bond markets where firms raise
capital from investors. Thus these countries' accounting systems are tailored
to providing information to individual investors. A second group might be
called the Europe-Japan group. Firms in these countries have very close ties to
banks, which supply a large proportion of their capital needs. So their
accounting practices are geared to the needs of banks. A third group might be
the South American group. The countries in this group have all experienced
persistent and rapid inflation. Consequently they have adopted inflation
diverse accounting practices have been enshrined in national accounting and
auditing standards. Accounting standards are rules for preparing financial
statements; they define what is useful accounting information. Auditing
standards specify the rules for performing an audit—the technical process by
which an independent person (the auditor) gathers evidence for determining if a
set of financial accounts conforms to required accounting standards and if it
is also reliable.
Substantial efforts have been made in
recent years to harmonise accounting standards across countries. Perhaps the
most significant body pushing for this is the International Accounting
Standards Committee (IASC)
areas of interest to the accounting profession world-wide—including auditing,
ethical, educational, and public-sector standards—are handled by the
International Federation of Accountants (IFA).
mid-1990s the IASC had issued over 30 international accounting standards.
The main hindrance to the development
of international accounting standards is that compliance with the IASC
standards is voluntary; the IASC has no power to enforce its standards. Despite
this support for the IASC and recognition of its standards is growing around
Tips for Keeping Your Bookkeeping Accurate
Your Own Checks in a small business, people — especially full-charge bookkeepers — can
bamboo/.le you too darn easily. By signing all the checks yourself, you keep
your fingers on the pulse of your cash outflow. This practice can be a hassle —
and you can't easily spend three months in Hawaii — you have to wade through
paperwork every time you sign a stack of checks. Finally, if you're in a
partnership, you should have at least a couple of the partners co-sign checks.
a Check the Wrong Way If you sign many checks, you may be tempted to use a John
Hancock-like signature. Although scrawling your name illegibly makes great
sense when you're autographing baseballs, don't do it when you're signing
checks. A clear signature, especially one with a sense of personal style, is distinctive.
A wavy line with a cross and a couple of dots is really easy to forge.
Cancelled Checks Before Your Bookkeeper Does Be sure that you review your
cancelled checks before anybody else sees the monthly bank statement. A
business owner can determine whether someone is forging signatures on checks
only by being the first to open the bank statement and by reviewing each of the
cancelled check signatures. If you don't examine the checks, unscrupulous
employees — especially bookkeepers who can update the bank account records —
can forge your signature with impunity. And they won't get caught if they never
overdraw the account. Another point: If you don't follow these procedures, you
will probably eat the losses, not the bank.
Bookkeeper Who Is Familiar with Computers and Knows How to Do Payroll Don't worry. You don't
need to request an FBI background check. Just find people who know how to keep
a checkbook and work with a computer. A bookkeeper who knows double-entry
bookkeeping is super-helpful. But, to be fair, such knowledge probably isn't
essential. I will say this, however: When you hire someone, find someone who
knows how to do payroll - not just the federal payroll tax stuff but also the
state payroll tax monkey business.
Choose an Appropriate
Accounting System Cash-basis accounting is fine when a business's cash inflow
mirrors its sales and its cash outflow mirrors its expenses. This situation
isn't the case, however, in many businesses. A contractor of single-family
homes, for example, may have cash coming in (by borrowing from banks) but may
not make any money. A pawnshop owner who loans money at 22 percent may make
scads of money even if cash pours out of the business daily. As a general rule,
when you're buying and selling inventory, accrual-basis accounting works better
than cash-basis accounting.
1. What is the expression of
accounting as ‘the language of business’?
2. How can the government
control tax discipline?
3. What is the essence of
4. What main operations does
the basic accounting cycle include?
5. Why do accounting problems
exist in international business? What problems do you know?
6. Name three groups of
countries with similar accounting standards?
7. Give the definition of
auditing and auditing standards?
8. What organizations are
involved in harmonizing accounting standards?
9. Does Ukraine use national
or international accounting and auditing standards?
in your opinion is more important accounting or auditing? Give your reasons.
tripartite – having three parts of
groups to mint – make coins overdraft – a situation in which you
draw more money from a bank account than you have in it merger – joining
of two commercial companies
Today the English banking is a complicated tripartite
system like a three-layer cake. The system is headed by the Bank of England.
This bank was established under a royal charter in 1694.
The head of the Bank is Governor of the Bank appointed by me Queen on the
recommendation of the Prime Minister. The Queen also appoints Deputy Governor
and the Court of Directors, which consists of 16 directors.
The Bank of England is a central bank of a national bank.
It controls the British banking system, issues banknotes and mints coins. It
lends and borrows money for the government, manages the national debts and is
in the control of the nation's gold reserve. The others two layers are:
the commercial or joint stock clearing banks;
specialized banking institutions such as the discount
houses and merchant banks.
The commercial or joint-stock banks deal with the general
public. The four large English commercial banks are known as the Big Four. They
are Barclays, Lloyds, the Midland, and the National Westminster. Together they
have upwards of 10,000 branches. Commercial banks render various services to
companies and individuals. Some of the services are:
to receive or accept from their customers the deposit or
to collect and transfer money both at home and abroad
against deposit and current accounts;
to provide overdrafts to both personal and business
to lend loans to their customers;
to exchange money;
to supply economic information and to prepare economic
reviews to be published;
to make foreign exchange transactions, including spot
transactions, forward transactions and swap transactions;
to issue various banker's cards.
Merchant banks and discount houses deal only with special
customers providing funds for special purposes. They accept commercial bills of
exchange and offer quite a lot of commercial services. They provide advisory
services about new issues of securities, mergers, take-overs and
reorganizations. They also arrange financing for their customers and provide
Besides there is a big group of banks in the United Kingdom
made up of foreign banks. All the major foreign banks are represented in the
U.K. by subsidiary, branch, representative offices or consortium. They provide
finance both in sterling and in other currencies and offer a wide range of
Lombard Street is the symbol of English banking. This is a
place where the first bankers coming from Italy settled.
The English commercial banks have branches in all the major
towns and a similar structure and mode of working is common to them all. The
owners are the shareholders. At the outset they provide the necessary capital.
They are all organised on the joint stock principle and are registered public
The Chairman and Board of Directors are elected by the
ordinary shareholders at the Annual General Meeting and are responsible for the
efficient management of the bank. The Board is concerned with the over-all
policy of the bank and the major decisions which put that policy into effect.
The Board will appoint a Managing Director who is directly
responsible to them and a member of the Board. They will also appoint the most
senior executives who in turn appoint the rest of the clerical staff who will
be responsible in different capacities for the day to day running of the bank.
At the end of each business year the Directors recommend
and the Annual General Meeting decides how much of the profit should be
distributed to the shareholders as dividend, and how much should be retained in
the business. In preparation for the Annual General Meeting, a bank publishes
its Report and Accounts. These must be sent to every shareholder and are also
available for anyone with an interest in the affairs of the bank. From the
published accounts shareholders can easily determine the total profit the bank
has earned and how much is available for distribution.
Federal Reserve System is the central banking system of the
United States of America, set up by the Federal Government in 1913. On account
of the vast area of the country, and the greater difficulties of travelling at
that time, the country was divided into twelve Federal Reserve Districts, each
with its own Federal Reserve Bank.
There are also twenty five branches of the Federal Reserve
Banks to serve particular areas within each district. The activities of the
Federal Reserve Banks are coordinated through the Federal Reserve Board of
governors in Washington. The Board exercises general supervision over the
Federal Reserve Banks.
The Federal Reserve Banks hold the reserves of the member
banks, i.e. the commercial banks which are members of the Federal Reserve
System. The FR Banks supply the member banks with currency if necessary and act
to them as lenders by rediscounting bills. The Board determines the reserve
requirements of the commercial banks. The Board too really determines
discount-rates. The Board discount rate corresponds in nature to the English
Bank rate, though the Federal Reserve Banks do not always have the same
The Federal Reserve System, in collaboration with the
Government of the U.S.A., determines monetary policy and, aided by the Federal
Reserve Banks, carries it out.
All national banks must be members of the Federal Reserve
System. Incorporated state banks including commercial banks, mutual savings
banks, trust companies, and industrial banks, may also join the System.
Incorporated state banks are those which have a charter
from the state to act as an individual.
Mutual savings banks are savings banks owned by their
depositors. Industrial banks make loans for the purchase or manufacture of
1. When was the bank of
2. What are the layers of
English banking system?
3. Name the services
commercial banks render in England?
4. What can you say about
foreign banks in England?
5. Who is elected and who is
appointed in the English banks?
6. How can shareholders get
7. What are specific features
of the Federal Reserve System of the USA?
8. What are its functions as
the central banking system of the USA?
9. In what way is the English
bank connected with the FRS?
types of American incorporated banks.
contraction - getting smaller or
shorter tremendous growth – huge growth afloat – having enough
money to operate and stay out of debt fee – a payment made for special
service street vendors – persons who sell something in the street refuge
– protection from troubles to impoverish – make poor to lodge –
to place on the assets lucrative – bringing a good profit to evade
– avoid (doing something) by cunning
THE COMMERCIAL BANKS
In the conditions of contracting output that dominated the first five
years of Ukrainian independence any significant accumulation of capital into
private hands could only be achieved by redistributing the already existing
capital, be it productive assets or circulating money capital.
If the state's way of holding back the pace of economic dislocation and
contraction was to subsidize the costs of heavy industry production and to
print money in an effort to recoup these costs from the disposed income of consumers,
the resulting inflationary spiral was also conducive to the diversion and
private accumulation of social wealth by commercial banks.
Ukraine's biggest banks grew out of the reorganization of republic
branches of the Soviet central banks in 1988-90. They lay the foundation for
the National Bank of Ukraine (NBU) and several large banks serving key state
industries. Small commercial banks also made an appearance in this period to
serve the new private sector. In March 1991 the Verkhovna Rada adopted the Law
on Banks and Banking, which called for their consolidation into a two tier
system with the NBU as the central bank responsible for national currency
issuance and clearing, foreign exchange and domestic interest rate policies,
and a second tier of independent banks regulated by the NBU.
Three of the five big banks of the second tier - Prominvestbank,
Ukrsotsbank and APB Ukraina were registered as shareholding companies in 1990,
making them the property of specific state economic enterprises and government
But in 1993, when the Cabinet of Ministers resolved to put all the shares
of state organizations under the control of the Ministry of Finance, these
banks' boards of directors handed ownership rights over to new private
companies and to named individuals working in the banks, the state enterprises
and government organizations - i.e. to themselves as physical and juridical
persons. By the end of 1994 two thirds of all the capital of Prominvestbank and
95% of that held by APB Ukraina and Ukrsotsbank were in private hands.
Between 1991 and 1993 the five largest independent banks - Ukreximbank
and Oshchadbank in addition to the three cited above - took control of 90
percent of all banking services and 95 percent of all foreign currency operations
in Ukraine. However, over the next three years to 1998 their share of banking
services and operations decreased to 60 percent as a result of the tremendous
growth of private commercial banks.
The banks accumulated money capital in several unorthodox ways. The
directors of loss-making state enterprises lobbied the Verkhovna Rada and the
Cabinet repeatedly and successfully for subsidies to keep them afloat. Part of
the subsidies was channelled through their banks to finance domestic and
foreign trade by their own and other private companies. The big banks'
directors, representing substantial sectors of the economy, had privileged
access to state officials that granted export and import licenses. The banks
also got their credit from the National Bank of Ukraine at rates of interest
that were far lower than the rate of inflation. Merely by exchanging the coupon
credits into hard currency and waiting a few months before buying back enough
coupons to repay the loan could the holder earn quite a few dollars. The big
banks sold on some of their credits to the smaller, less well connected
commercial banks for their use in money and commodity trade, and made an
immediate profit from the inflated transaction fees and insurance premiums on
the loans. From their own premises and through a network of thousands of
franchised street vendors the banks additionally traded in foreign currencies
with the population at large, who regularly sought refuge from inflation for
their domestic currency earnings in the dollar and were then forced to sell
them back as the cost of living spiralled upwards. Thus the wave of inflation
which was impoverishing large numbers of people in these years provided a
profitable environment for those who received state subsidies, credits and
licenses to trade in their capacity as state enterprise managers and who then
used them for private and corporate gain in their capacity as directors and
shareholders of independent banks.
The government set out to stop the run on state funds from the National
Bank and the state budget through to the commercial banks. State officials and
enterprise managers with access to various funds (especially agricultural
credit and conversion funds) from which they could make speculative earnings
were investigated. Under the chairmanship of Viktor Yushchenko, the NBU changed
the way it extended credit to the commercial banks from an "administrative
division of resources" to credit auctions, and finally by offering state
In August 1998 the government banned the use of foreign currency as
payment in the domestic retail and service sectors. The commercial banks were
no longer permitted to hold foreign currencies on deposit, and were required to
lodge them with the NBU instead.
The commercial banks developed into new areas when subsidies to state
enterprises became more difficult to get and the sharp fall in the inflation
rate eliminated the lucrative field for arbitrage. Around thirty banks went to
the wall, mainly because they knew no other trade. But the remaining banks - indeed
a continually growing number over the period to 1999 - were involved in serving
the private sector, lending money to the government, and for the few biggest
banks providing services to state sector institutions and programs. Services to
the private sector included currency transactions, deposits and trustee
operations, but perhaps even more importantly in the order of their
commitments, the banks served the shadow economy by providing means to conceal
capital, such as channels for capital flight abroad, off-record loans and
foreign currency transactions. It was estimated in 1995 that around 40 percent
of the total domestic monetary mass was circulating within the shadow economy,
unaccounted and untaxed.
The commercial banks had lent the government 760m hryvnia by the first
quarter 1999 through debt bonds. The government itself, however, had 540m
hryvnia invested in the banks. Therefore the banks were lending the government
its own money, and at high rates of interest. This field of activity was
limited, and so the biggest five banks turned to the government to ask for
preferential treatment in handling such financial operations as servicing the
state enterprise budgets, targeted state investment programs, the Pension Fund
and other social welfare schemes. In April 1998 the government effectively gave
the monopoly on handling state finances to the NBU and to four commercial banks
- Ukreximbank, APB Ukraina, Ukrsotsbank and Prominvestbank.
The Ukrainian banks worked mainly to extract a profit from money and commodity
trade. Legislation impeded their capacity to mobilize investment. The public
preferred to save its earnings if it could save - by buying dollars, consumer
durable and building homes, rather than putting hryvnia in bank accounts
.Where possible, business owners and managers did not use the banking system in
order to evade taxation, preferring instead to facilitate their activities with
cash, debt and barter. Banks had very little capital resources of their own: a
statutory fund of only $3-5 million, and in some cases less than was officially
required. In the critical economic circumstances of contracting production,
with the money supply very tight after 1994 as easy credits and subsidies dried
up and interest rates matched inflation rates, businesses in Ukraine - both
state owned and private - were in no position either to bank earnings or to
1. When did Ukrainian banking
system begin to form?
2. Describe a two tier
3. What are the functions of
4. Were the first Ukrainian
banks state-owned or private? Why?
5. Explain the reasons of
inflation during 1991-1993?
6. How do you understand the
definition ‘go to the wall’? Did Ukrainian banks go to the wall? Why?
7. What do you know about
shadow economy and its volume in Ukraine?
8. Is the NBU the only bank
handling state finances?
9. What problems existed in
Ukrainian banking system in 1998-2000? Have they been solved?
the development of Ukrainian banks in 1989-1991 and 1998 and say if the
situation has changed greatly since that time.
transaction – payment or the process of making one evaluation
– careful consideration of smth to see how useful or valuable it is cash receipt
– a written document showing that an amount in cash was paid cash payments journal – a book containing details/records of transactions in cash credit sale
– a sale in which payment will be made in one payment sometime in the future or
in smaller regular payments over a period of time balance sheet
– a document showing a company’s financial position and wealth at a particular
time net sales – money from a company’s sales in a particular
period of time after taking off goods returned by customers, discounts, etc.
operating expense (also overhead expense) – money that is
spent on the general running of a business or organization, rather than money
spent on producing goods or selling services liability – an amount of
money owed by business to a supplier, lender current ratio – the
relationship between the total amount that a business has in cash, in its bank
accounts, and owed by customers, and the total amount that owes to suppliers
quick ratio – a calculation of weather a business could pay its debts if
sales stopped or slowed down working capital (also operating capital)
– money used by a business to carry on production and keep trading.
keeping by a business is not only wise, but is required by many laws. Legal and
financial questions may be raised by various agencies, banks, and employees.
These questions can be accurately answered when written records of business
proceedings are kept.
daily transactions, the owner can learn from mistakes and avoid errors
in the future. A record of all the events that occur in a business
permits evaluation, improvement, and a good chance for personal and
For a typical
small business, it is suggested that the following records be kept: cash
receipts and cash payments journal, record of credit sales
(sales journal), record of purchases (purchases journal) , record of
wages (payroll), operations statement (profit and loss statement or
income statement), balance sheet. The results of operations and the
present financial position of the firm are reflected in the income statement
and the balance sheet. Management decisions must be weighed in terms of their
effect on these two basic financial statements.
STATEMENT (the profit and loss statement or the operations statement). This
statement is a summary of the income and expenses of the business. The income
statement summarizes these facts for any period of time. Income statements may
be made for a year, a month, a quarter, or a half-year. Some firms have weekly
or daily income statements. Although many items appear on the income statement,
the basic idea is very simple. The formula is: NET SALES minus
COST OF GOODS equals PROFIT. Amount taken minus Amount paid out equals PROFIT.
With a larger
business, expenses change the formula somewhat:
minus COST OF GOODS SOLD equals GROSS PROFIT.
minus EXPENSES (RENT, LIGHT, PHONE) equals NET PROFIT
there are two kinds of profit: GROSS PROFIT and NET PROFIT.
minus COST of GOODS SOLD equals GROSS PROFIT GROSS PROFIT minus OPERATING
EXPENSES equals NET PROFIT.
statement is a summary of facts which have been recorded daily in the books of
the business. No matter how complicated it may look, it is based on the
following simple formulas:
equals SALES minus COST OF GOODS NET PROFIT equals SALES minus COST OF GOODS
statement might be compared to a "moving picture". It describes the
business in action. It summarizes the results of past activities and gives
hints of what the future holds. The final figure, net profit, is of the
greatest importance. One might find, for instance, that even though sales had
increased since last year, profits were less. The operations statement might
show that expenses were too high, it might also show that the utilities
increased or there was too much loss on bad debts. Once a problem area is
identified, steps can be taken to correct it.
for a loan, the bank may want to examine several operations statements. The
bank is interested in how sales compare with expenses, how much inventory is
carried, and credit which is extended by the business. The owner is provided
with information about the business from the operating statement. Profits
earned over a period of time, department performance, inventory size, overhead
costs, and many other items are shown on the statement.
SHEET. In contrast to the operations the balance sheet is a "still
picture" of the business. ASSETS on one side are balanced against
liabilities on the other. ASSETS include everything that is owned by the
business. LIABILITIES are those amounts which the business owes.
is the same regardless of the size of the business. It is expressed in the
formula: ASSETS minus LIABILITIES equals NET WORTH or ASSETS equals LIABILITIES
plus NET WORTH.
for the balance sheet come from the records kept by the business. Each item on
the balance sheet is based on facts that have been recorded daily in different
ledger accounts. The records used for the operations statement are also used in
preparing a balance sheet.
The assets are divided into current assets and fixed assets. The relationship
between current assets and current liabilities is a prime measure of liquidity
of any firm. Liquidity is the measure of ability to pay debts as they become
are assets that are in the form of cash or will convert into cash within 90
days. Current liabilities are those debts that will be due within one year. The
relationship between current assets and current liabilities is called the
current ratio. Sound financing demands that this ratio be at least 2 to 1. The
current ratio is found by dividing the current assets by the current
This ratio is also known as the acid test of liquidity. It is the relationship
between only the most liquid assets (cash and accounts receivable) and the
total of the current liabilities. The conservative rule is that this ratio
should be at least 1 to 1. In other words, cash plus receivables should equal
or exceed the current liabilities.
Working capital is the difference between current assets and current
liabilities expressed in dollars.
PROPRIETORSHIP RATIO of owner's equity ratio is the relationship between the
owner's investment in the firm and the total assets being used in the business.
This ratio can be expressed as a ratio of owner investment to total assets or
as a percentage of those assets.
There are many
other ratios utilized in the analysis of business firm operations. Most small
firms that maintain adequate current ratios, quick ratios, and working capital,
proper inventories, and a 50 percent proprietorship ratio maintain sound
EQUITY. In connection with owner investment, prospective business owners and
managers should become familiar with the phrase "trading on equity".
This phrase refers to the relationship between the creditor capital
(liabilities) in the business and the owner capital. Trading on too thin an
equity is a term used to describe owners who have too little of their own money
invested compared with the creditor capital (liabilities) used to finance the
business. A proprietorship ratio of 50 percent indicates that the owner or
owners have invested half the value of the total assets used in the business.
When this ratio falls below 50 percent, the outside creditors are supplying
more of the firm's total capital needs than the owners are. This indicates, in
most cases, that further capital will be more difficult to obtain either from
current loans, sale of securities, or other investors. Such owners are truly
trading on too thin an equity and probably need more investment capital of
1. What records is a typical
small business supposed to keep?
2. What is the income
3. What kinds of profit in
business do you know?
4. Would you name the formula
to calculate gross profit and net profit?
5. What is the essence of the
6. What does each side of the
balance sheet represent?
7. What in your opinion is
the difference between current ratio and quick ratio?
is proprietorship ratio?
doggedly – refusing to yield to
wedge – push into a small or tight space soubriquet – cognomen,
by-name sophisticated – complicated and refined; elaborate, subtle
ECONOMIC POTENTIAL OF UKRAINE
One of the
four original republics, which formed the USSR in 1922, Ukraine is today edging
closer to the West in its ambition to restore its economy and capitalise on its
country declared unilateral independence 1990 and the collapse of the Soviet
Union, it has doggedly ploughed on with the transition from centralised command
economy to a free market economy. Since 1991 Ukraine has developed much closer
relations with the West. In 1994 Ukraine renounced the nuclear weapons it had
inherited from the USSR and it has since joined NATO's Partnership for Peace
programme. It has also applied to become an associate member of EU, with the
objective of full membership in the long run. Wedged in the south east corner
of Europe, pressing down on the Black Sea and the Sea of Azov, Ukraine is in a
strategic location as a link to western Europe and to the East. It is a large
country of more than 50 million inhabitants - at 231.990 sq. miles the second
largest in Europe - and it is rich in mineral resources, including oil, gas and
Ukraine has an
extensive high-technology sector which it inherited from the USSR, a
well-educated labour force. There are also vast fertile plains, with soil that
is even richer than the prairies of North America, earning the country the
soubriquet breadbasket of the Soviet Union".
Over the past
8 years the country has carried out extensive reforms to fulfil its potential,
but it is still struggling with some of the difficulties of its transition to a
market economy. Figures published recently by the Ukrainian National Statistics
Committee confirm the current situation. They show a drop of 1.7% in GDP in
1998, with industrial and agricultural output down by 1.5% and 8.3%
respectively, and inflation at 20%, double that of 1997. By contrast the trade
balance was positive in 1998, with exports at $16.4 billion and imports at
$16.1 billion, although both were some 13% lower than the year before.
has done much to liberalise economy since 1994, when they began the process of
reform. Economy Minister Vasyil Rohovy explains: "We overcame
hyperinflation that reached 1000% a year. We succeeded in achieving
macroeconomic and financial stabilisation. We started the privatisation process
and managed to speed it up. We established conditions for small and medium -
size businesses. We also implemented monetary reform and introduced the
national currency, the hryvnia, two years ago." Members of the government
admit that more reforms are needed if they are attract more foreign investment
and so develop the country's resources. They accept that there has to be less
state regulation and a less punitive tax system. But they insist that they have
been unable to overcome political opposition, particularly in the Ukrainian
parliament. " I believe it is because 7 years is still a very short period
for a country that for 70 years lived under Soviet control", says Serhiy
Tyhypko, deputy prime minister and minister for economic reform. " I think
it is just a matter of time before we have created the conditions necessary for
(Bread of Ukraine), the state joint stock company responsible for grain
products, is in the process of privatisation. Company chairman Heorhiy
Omelchenko said that investors should not be afraid of investing in the
construction of facilities.
great expertise in aircraft manufacture and space technology, developed when
the country was at the centre of the Soviet space program.
On July 17 a
Zenit 2 rocked was successfully launched. It carried into orbit an Ocean 0
Ukrainian-Russian satellite (6300 kg). It is designated for scientific purposes
- to carry out scientific researches and observations of the earth's surface
-in the interests of both Ukraine and other countries. A well-earned triumph of
Ukrainian space scientists was achieved on 27 March when a three-stage Zenit
rocket, designed and built by KB Uzhnoye of Dnipropetrovsk, was the first
commercial launch from an ocean-based platform, and a successful demonstration
of the potential of a new technology, orders for 8 more Zenit rockets have
since been received. The successful launch has served to restore the reputation
of Ukraine's Zenit rockets, which was dented when a land-launched Zenit 2
crashed in Sept 1998. The failure was later found to have been caused by a
faulty, made on-board computer, made in Russia.
expertise is just one of the high-technology areas in which Ukraine is taken
advantage of its scientific potential. The country has some 200.000
well-trained scientists, with advanced knowledge in a wide range of fields. In
space matters ,Ukraine extensively co-operates with Russia and western
of rapid high-technology development is the personal and integrated computer
industry, which has grown by leaps and bounds since the 1980s. The domestic
market is still small, but Evheniy Utkin, president and chairman of the board
of Kvazar Micro, which assembles and distributes them, expects sales to grow to
600.000 in 2003, compared with 200.000 in 2001.
opinion, Ukrainian users are more sophisticated than those in Europe or eastern
Europe because Ukraine has always been a technologically developed country,
particularly in electronics," he says.
certainly great potential for the development of telecommunications in Ukraine,
where the density of telephones is only 18 per 100 inhabitants, well below that
of west European countries. Foreign investment was accepted in 1992, when two
joint ventured were established: Utel and UMC.
chairman of Utel's Supervisory Board, says: " Ukraine needs to attract
billions of dollars to improve and expand its networks. We are sure that the
market will grow. But there is great uncertainty over the pace."
An important debate is under way in Ukraine over the future
of Ukrtelecom, the state-owned telecommunications operator. The government
wants to privatise the company, in the belief that in this way it can attract
the investment needed for its development, but there is opposition in the
parliament and the proposal was rejected there in December 1998. The
government's aim is to sell 25 percent plus one share of Ukrtelecom to a
strategic investor, while retaining a 51 percent share itself. But it cannot do
this under existing legislation, because Ukrtelecom is on a list of 'strategic'
companies which may not be sold off.
There is also
considerable potential in heavy industry. Some of the world's best
metallurgists, engineers and scientists are on tap, as well as skilled labour
force. It is estimated there are enough coal reserves to last 300 years and,
while old coal-burning power stations which pollute the atmosphere will be
slowly phased out, the way ahead points to the construction of modern
clean-burn power plants which produce little or no gas emissions.
government, via the State Property Fund, is now planning to sell 26 percent of
Nikopolskiy ferrous alloys plant, in which the government will retain a 50
percent stake until 2001.
company which has successfully restructured and found new markets is
Dneprospetsstal, which is a joint stock company 68 percent-owned by financial
investors and 32 percent-owned by government. Having modernised its facilities,
the company now exports 100.000 tonnes of rolled steel to Europe.
"Although the European quota is 45.000 tonnes annually, we are bypassing
the quota because it is high quality steel", says Hennadiy Kikyo,
Dneprospetsstal chairman. " That is why European manufacturers are
developing methods to fight us. They cannot declare antidumping because we sell
it at European prices."
Stability to Progress
On 24 August Ukraine
celebrated the anniversary of its independence. Ukraine continues to progress
toward market economy status. However, the time is fast approaching when it is
no longer sufficient to speak of great potential alone. The coming year is
arguably one of the most important in Ukraine's new history and recent
stability suggests that it is up to the challenge.
1. Why does Ukraine try to
entry different international organizations?
2. Can you say that Ukrainian
economy is developing?
3. What are the results of
reforms in Ukrainian potential development?
4. Is our country still a
“space pioneer”? What do you know about successes of space industry of Ukraine?
5. If you were a computer
company manager, what difficulties would you see in this area in Ukraine?
6. What kind of telephone do
you have? What would you advise Ukrainian government to improve the situations
7. Do you see a huge
potential of Ukrainian heavy industry? Give examples from our town economy.
8. How can privatisation
influence the Ukrainian economic potential?
9. Give the definition of
damping prices. Do Ukrainian plants use them? In what spheres?
10. Do you consider the 24-th
of August a great holiday? What about your parents and grandparents?
List of the Topics
foreign exchange and capital markets
of European union
and the euro
and American banks
potential of Ukraine