Investment Intermediaries

This category of financial intermediaries includes finance companies, mutual funds, and money market mutual funds.

Finance Companies Finance companies raise funds by selling commercial paper (a short-term debt instrument) and by issuing stocks and bonds. They lend these funds to consumers, who make purchases of such items as furniture, automobiles, and home improvements, and to small businesses. Some finance companies are organized by a parent corporation to help sell its product. For example, Ford Motor Credit Company makes loans to consumers who purchase Ford automobiles.

Mutual Funds These financial intermediaries acquire funds by selling shares to many individuals and use the proceeds to purchase diversified portfolios of stocks and bonds. Mutual funds allow shareholders to pool their resources so that they can take advantage of lower transaction costs when buying large blocks of stocks or bonds. In addition, mutual funds allow shareholders to hold more diversified portfolios than they otherwise would. Shareholders can sell (redeem) shares at any time, but the value of these shares will be determined by the value of the mutual fund’s holdings of securities. Because these fluctuate greatly, the value of mutual fund shares will too; therefore, investments in mutual funds can be risky.

Money Market Mutual Funds These relatively new financial institutions have the characteristics of a mutual fund but also function to some extent as a depository institution because they offer deposit-type accounts. Like most mutual funds, they sell shares to acquire funds that are then used to buy money market instruments that are both safe and very liquid. The interest on these assets is then paid out to the shareholders.

A key feature of these funds is that shareholders can write checks against the value of their shareholdings. There are generally restrictions on the use of the check-writing privilege, however; checks frequently cannot be written for amounts less than a set minimum, e.g. such as $500, and a substantial amount of money is required initially to open an account. In effect, shares in a money market mutual fund function like checking account deposits that pay interest, but with some restrictions on the check-writing privilege. Money market mutual funds have experienced extraordinary growth since they first appeared. Their assets have climbed considerably.

Word List

To perform the intermediation function – виконувати посередницьку функцію;

depository institutions – депозитні установи;

contractual savings institutions - ощадні установи контрактного типу;

primary liabilities (sources of funds) and assets (uses of funds) – первинні зобов’язання (джерела фінансування / коштів) та активи (використання коштів;

accept deposits from individuals and institutions – залучати / брати депозити у фізичних та юридичних осіб;

make loans – надавати кредити;

thrift institutions (thrifts) – ощадні установи;

savings and loan associations – ощадно-позичкові асоціації;

mutual savings banks – взаємо-ощадні банки, кооперативний банк, спілка взаємного кредитування;

credit unions – кредитні спілки;

issue checkable deposits – надавати депозити, на які можна виписати чек, чековий рахунок /поточний рахунок;

savings deposits – ощадний депозит /депозитний рахунок;

payable on demand – сплачуваний за вимогою /за пред’явленням;

fixed terms to maturity – фіксований термін погашення;

diversified portfolios (collections) of assets – диверсифікований портфель активів;

constrain – обмежувати, примушувати;

residential housing – житлове будівництво, житлові будівлі;

loosen restrictions - послабляти обмеження;(loose adj. вільний, просторий широкий (про одяг);adv. – вільно;v. – звільняти, ров`язувати; lose (lost;lost) v – повбавлятися, втрачати,програвати, заблукати);

blur – розмивати, стирати відмінності;

cooperative lending institution – кооперативна кредитна установа;

union members – члени, учасники кредитної спілки;

share – частка, доля, пай;

consumer loan – споживчий кредит;

banking legislation – банківське законодавство;

on a contractual basis – на контрактній основі;

in the coming years –в найближчі роки;

financial hazards – фінансові ризики;

annuity – страхування пенсії, рента, щорічний дохід, ануїтет (позика, що виплачується рівними частками);

premium – страхова премія, страхові внески;

to keep in force – залишати в силі;

Fire and Casualty Insurance Companies – компанії по страхуванню від пожеж та нещасних випадків;

Government Retirement Funds – державні пенсійні фонди;

cover by a pension plan – тут: включені до пенсійного плану;

deduct from paycheck – відраховувати з зарплати;

contribute voluntarily – робити внески добровільно;

tax incentives – податкові пільги;

mutual funds – фонди взаємного інвестування;

a parent corporation – головна компанія, компанія засновник;

proceeds – надходження, виручка від реалізації продукції;

to purchase diversified portfolios of stocks and bonds – купувати диверсифікований портфель акцій та облігацій;

to pool resources – об’єднувати, збирати ресурси;

large blocks of stocks or bonds – великі пакети акцій;

to some extent – в деякій мірі;

write checks against the value of shareholdings – виписувати чеки на вартість акцій /пакетів акцій;

a set minimum – встановлений мінімум;

substantial amount of money – значна сума грошей.

Exercise 1. Complete the following scheme.

Exercise 2. Translate from English into Ukrainian.

To perform the intermediation function; contractual savings institutions; primary liabilities and assets; mutual savings banks; to issue checkable deposits; fixed terms to maturity; loosen restrictions; cooperative lending institution; union members; on a contractual basis; annuity; Fire and Casualty Insurance Companies; to cover by a pension plan; to deduct from paycheck; a parent corporation; to purchase diversified portfolios of stocks and bonds; to some extent; large blocks of stocks or bonds, substantial amount of money.

Exercise 3. Translate from Ukrainian into English.

Депозитні установи; брати депозити у фізичних та юридичних осіб; надавати кредити; ощадно-позичкові асоціації; кредитні спілки, депозитний рахунок сплачуваний за вимогою; житлові будівлі; стирати відмінності; частка; споживчий кредит; банківське законодавство; фінансові ризики; страхова премія; державні пенсійні фонди; робити внески добровільно; податкові пільги; виручка від реалізації продукції; збирати ресурси; виписувати чеки на вартість акцій.

Exercise 4. Rewrite from the text sentences containing the following phrases and translate them into Ukrainian.

1. primary liabilities -________________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. residential housing -_______________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

3. tax incentive -____________________________________________________ __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

4. to pool their resources -____________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

5. a set minimum -__________________________________________________ ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Exercise 5. Match the financial sectors to their main functions.

Commercial Banks	acquire funds from deposits called shares; make consumer loans, issue checkable deposits and can make mortgage loans.
Savings and Loan Associations (S&Ls) and Mutual Savings Banks	receive funds through premiums for their policies; buy more liquid assets such as municipal bonds; they also hold corporate bonds and stocks and government securities.
Credit Unions	issue checkable, savings and time deposits; make commercial, consumer, and mortgage loans and buy government securities and municipal bonds.
Life Insurance Companies	acquire funds by contributions from employers or from employees, who either have a contribution automatically deducted from their paychecks or contribute voluntarily; hold corporate bonds and stocks.
Fire and Casualty Insurance Companies	obtain funds primarily through savings, time and checkable deposits; mostly make mortgage loans for residential housing.
6. Pension Funds and Government Retirement Funds	F) acquire funds from the premiums that people pay to keep their policies in force; buy corporate bonds and mortgages.
Finance Companies	acquire funds by selling shares to many individuals; use the proceeds to purchase diversified portfolios of stocks and bonds.
Mutual Funds	sell shares to acquire funds that are used to buy money market instruments that are both safe and very liquid.
Money Market Mutual Funds	raise funds by selling commercial paper (a short-term debt instrument) and by issuing stocks and bonds; lend these funds to consumers and to small businesses.

Listening 1: The Development of the Financial Industry.

Exercise 6. a) You are going to listen to Peter Sinclair, the former director of the Centre for Central Banking Studies at the Bank of England, talking about the financial industry. Before you listen, check your understanding of banking vocabulary by completing each sentence with a word from the box.

Bonds deposit mortgage shares takeover Capital merger pension stocks

Note: takeover is a noun; (to) take over is a verb.

1. A _______ is a loan to buy property.

2. Money you put in the bank is called a _______ .

3. Money paid to a retired person is called a _______ .

4. Securities representing part-ownership of a company are called _______ or _______ .

5. The money invested in a business is its _______ .

6. _______ are interest-paying securities issued by companies that need to borrow money.

7. A _______ is when a company gains control of another one by buying its stocks.

8. A _______ is when two formerly separate companies join together.

b ) Listen to Peter Sinclair talking about the organization of the financial industry 25 years ago, and answer the questions below.

1. Were most financial institutions national or international?

2. Were most financial institutions specialized or did they offer lots of services?

3. What kinds of financial institutions traditionally did the following types of business? Complete the table.

Making loans	Issuing shares or bonds
Arranging mergers	Arranging mortgages
Providing pensions	Arranging or fighting takeover bids
Giving financial advice to companies	Offering life insurance
Receiving deposits

Retail banks
Building societies
Insurance companies
Investment banks

Listening 2: Going International.

Exercise 7. a ) Before listening to Peter Sinclair talking about recent changes in the financial industry read and try to predicts the answers to the questions below.

1. What has recently happened to banks in Britain and many other countries?

2. In what way does Peter Sinclair compare the City of London to the Wimbledon tennis tournament?

3. Which two words does Peter Sinclair use to summarize the two big recent trends in banking?

b ) Listen to Peter Sinclair talking about recent changes in the financial industry, and answer the questions above.

Exercise 8. These are a student notes from a lecture about banking.

A)Types of financial institutions. For most of the 20th century, most banks operated in one country only (in the USA in one state only). Different kinds of banks did specialized kinds of financial business: - retail banks or commercial banks worked with individuals and small companies: received deposits; made loans. - investment banks worked with big companies: gave financial advice; raised capital – increased the amount of money companies had by issuing stocks or shares and bonds; organized mergers and takeover bids; - insurance companies: provided life insurance and pensions; - building societies: specialized in mortgages. Many have now become normal commercial banks.	Comments Merger: when two or more companies join together. Takeover bid: when one company offers to acquire or buy another one. Note: BrE: merchant bank; AmE: investment bank; BrE: retail bank, commercial bank, High Street bank; AmE: retail bank, commercial bank; BrE: building societies; AmE: savings and loans associations
B)Deregulation The financial industry changed radically in 1980s and 90s when it was deregulated. Before deregulation: rules and regulations in the US, Britain and Japan prevented commercial banks doing investment banking business. Some other countries (Germany, Switzerland) already had universal banks doing all kinds of financial business. Today: many large international conglomerates offer a complete range of financial services. Individuals and companies can use a single financial institution for all their financial needs.	Comments Deregulated: there are now fewer restrictions and regulations than before. Conglomerates: companies formed by mergers and takeovers.
C)Other types of banks still have specialized functions: - central banks issue currency and carry out the government’s financial policy: - private banks manage the assets of rich people or high net worth individuals; - clearing banks pass cheques and other payments through the banking system: - non-bank financial intermediaries such as car manufacturers, food retailers and department stores now offer products like personal loans, credit cards and insurance.

Exercise 9. a) Find words in exercise 8 A) and B) opposite with the following meanings.

1. A company offering financial services.

2. The money a company uses, raised by way of shares and bonds.

3. When two formerly separate companies agree to join together.

4. A company formed by the merger or takeover of several other companies.

5. The ending of some rules and restrictions.

6. When a company offers to buy the shares of another company to gain control of it.

2. Before financial deregulation, which types of financial institutions did these types of business? Look at exercise 8 A) to help you.

1. Arranging mergers.

2. Offering life insurance.

3. Issuing shares and bonds.

4. Providing mortgages.

5. Receiving deposits and making loans to individuals and small companies.

6. Giving financial advice to companies.

7. Organizing (or defending against) takeover bids.

8. Providing pensions.

2. The extracts below are from websites. Which types of banks do the websites belong to? Look at exercise 8 A) and C) to help you.

3.How can we help you? We can: build a long-term, one-to-one relationship with your banker; manage your family’s diverse business and personal assets; build a portfolio tailored to your family’s unique needs; play an active role in managing your assets.

5.Why bank with us? Because we offer: a comprehensive range of accounts and services; over 1, 600 branches, many with Saturday opening; free withdrawals from over 31, 000 cash machines; online and telephone banking for round-the-clock access to your accounts.

Exercise 10. Answer the following questions.

1. What are the main categories of financial institutions? What is the basis of such a classification?

2. What financial institutions do depository institutions include?

3. What are the key functions of commercial banks?

4. What is the difference between checkable, savings and time deposits?

5. What group of financial institutions is the largest?

6. What do you know from the history of savings and loan associations and mutual savings banks?

7. What is a credit union? How does it acquire and spend funds?

8. What financial institutions do contractual savings institutions include? What are their key characteristics?

9. What are the differences between life insurance and fire and casualty insurance companies?

10. What do pension funds provide? How do they acquire funds?

11. How do finance companies function?

12. How do mutual funds acquire funds?

13. Why do mutual funds allow their shareholders to pool their resources?

14. Why can investments in mutual funds be risky?

15. What do money market mutual funds have in common with mutual funds and depository institutions?

16. What is the key feature of money market mutual funds? What are the restrictions of the use of the check-writing privilege?

Exercise 9. Translate from Ukrainian into English.

Страхові компанії – це фінансові інститути, які утворюються для відшкодування можливих збитків у результаті стихійного лиха, інших несприятливих умов. Ці організації утворюють спеціальний фонд (страховий) за рахунок страхових внесків громадян та юридичних осіб – страхувальників (ці внески мають вигляд купівлі страхових полісів). Кошти страхового фонду, як правило, не набагато перевищують щорічні виплати страхових відшкодувань, тому страхові компанії володіють досить значними та стійкими грошовими ресурсами, які вони вкладають у довгострокові цінні папери з фіксованими строками (головним чином в облігації промислових компаній).

У розвинутих країнах страхові компанії належать до інституціональних посередників, які акумулюють значні кошти у формі страхових резервів і розміщують їх на фінансових ринках. У Великій Британії страхові інвестиції становлять майже 53 % їх загального обсягу. Після буму у страховій сфері в 1995 р. функціонувало 500 страхових компаній, у 1997 р. – 237, у 2000 р . – 268. Сьогодні в Україні фактично діє близько 400 страхових компаній. Особливістю вітчизняного страхового ринку є те, що в Україні немає транснаціональних страхових компаній і законодавство не забезпечує можливостей щодо їх створення та захисту страхової системи від конкуренції з боку іноземних страхових компаній.

Нині спостерігається чітка тенденція до створення стратегічних альянсів між вітчизняними банками і страховими компаніями. Найвідомішими є альянси Промінвестбанку та Акціонерного страхового товариства "Вексель".

Порівняльний аналіз статистичних показників діяльності банків і найрозвинутіших небанківських установ – страхових компаній – свідчить про те, що останні поступаються банкам за розміром активів майже у 10 разів. Незважаючи на значний прогрес у розвитку страхових компаній, ситуація протягом останніх років майже не змінилася.