demands. People originally deposited $100 of gold with the goldsmith. The

goldsmith lent $10, leaving himself with $90. As a banker he was relying on

the fact that not everyone would want their gold back at the same time. If

they had done, be couldn't have paid out. His reserves of $90 were not

enough.

The goldsmith in the table has a 100% reserve ratio. The reserve ratio

is the ratio of reserves to deposits. Once he has made his loan, he has a

90% deposit ratio. This is a small risk with a small profit. How much dare

he lend out in order to make a profit through his interest charges? What

are the risks involved? Suppose the goldsmith took too much of a risk. He

lent 80% of the gold he had. This panicked people. They doubted he could

pay them all back, he was bound to lose some of the gold he had lent, so

they rushed to get their gold back before it was too late. That was what we

would now call a run on the bank, a financial panic. And the financial

panic leads to exactly what people fear: the bank cannot pay them, goes

bankrupt, and they go bankrupt as well.

VOCABULARY NOTES

rare - редкий

lines - штрафы

to measure their value accurately - точно измерить их стоимость

(ценность)

to divide into a wide range of amounts - разделить на много частей

(маленьких или больших)

precious metals - драгоценные металлы

gold bullion - золотой слиток

to deposit with - хранить, вкладывать

a goldsmith - золотых дел мастер

worked with gold for jewellery - делал золотые украшения

a guarded vault - охраняемый подвал, хранилищ:

to fetch - приносить, доставать

to transfer - переводить, передавать

once these letters or cheques,

became acceptable as a way of paying for goods - как только (когда) эти

письма, или чеки, стали приниматься при оплате

товаров

their money holdings- деньги, которые им принадлежали, которыми они

владели

a bank loan - банковская ссуда, заем

a little interest - небольшой процент

the goldsmith was short of gold - у мастера не было достаточно золота

to reckon - полагать, считать

at any rate - во всяком случае

a transaction - сделка

to owe - быть должным

assets and liabilities - активы и пассивы

the vа1uе of his loan - стоимость ссуды, которую он дал

to equal - равняться, быть равным

the firm didn't really want to саrry that gold around, so it asked the

goldsmith If, instead of actually taking the gold, it could be given a

deposit - фирма не хотела держать золото при себе (носить золото с собой) и

вместо того, чтобы на самом деле его забрать, попросила мастера принять это

золото на хранение в виде вклада

(they) were worth $110 - их стоимость составляла, они оценивались

(имели ценность) в 110 долларов

to write (syn. to draw, to issue, to make out) a cheque - выписать чек

his assets failed - зд. его активы снизились

to fail - (о банках) обанкротиться

initial loan - первоначальная ссуда

reserves - резервы

the amount of gold that is immediately available in the vault - запасы

(количество) золота, которое всегда находится (и может быть немедленно

получено) в хранилище банка

depositors' demands - требования вкладчиков

leaving himself with $90 -оставив себе только 90 долларов

to rely on - рассчитывать, надеяться на что-либо

the reserve ratio • резервная норма

dare - осмеливаться

to make a profit through his interest charges - получить прибыль за

счет платежа процентов

What are the risks involved? - Чем он рискует?

to panic (panicked) -пугать, приводить в панику

to doubt - сомневаться

he was bound to lose some of the gold - он непременно должен был

потерять часть золота

a run on the bank - натиск вкладчиков на банк

the financial panic - финансовая паника

to fear - опасаться, страшиться

to go bankrupt - обанкротиться

MODERN BANKING

(СОВРЕМЕННАЯ БАНКОВСКАЯ СИСТЕМА)

The goldsmith bankers were an early example of a financial

intermediary.

A financial intermediary is an institution that specializes in bringing

lenders and borrowers together.

A commercial bank borrows money from the public, crediting them with a

deposit. The deposit is a liability of the bank. It is money owed to

depositors. In turn the bank lends money to firms, households or

governments wishing to borrow.

Banks are not the only financial intermediaries. Insurance companies,

pension funds, and building societies also take in money in order to relend

it. The crucial feature of banks is that some of their liabilities are used

as a means of payment, and are therefore part of the money stock.

Commercial banks are financial intermediaries with a government licence

to make loans and issue deposits, including deposits against, which cheques

can be written.

Let's start by looking at the present-day UK banking system. Although

the details vary from country to country, the general principle is much the

same everywhere.

In the UK, the commercial banking system comprises about 600 registered

banks, the National Girobank operating through post offices, and a dozen

trustee saving banks. Much the most important single group is the London

clearing banks. The clearing banks are so named because they have a central

clearing house for handling payments by cheque.

A clearing system is a set of arrangements in which debts between banks

are settled by adding up all the transactions in a given period and paying

only the net amounts needed to balance inter-bank accounts.

Suppose you bank with Barclays but visit a supermarket that banks with

Lloyds. To pay for your shopping you write a cheque against your deposit at

Barclays. The supermarket pays this cheque into its account at Lloyds. In

turn, Lloyds presents the cheque to Barclays, which will credit Lloyds'

account at Barclays and debit your account at Barclays by an equivalent

amount. Because you purchased goods from a supermarket using a different

bank, a transfer of funds between the two banks is required. Crediting or

debiting one bank's account at another bank is the simplest way to achieve

this.

However on the same day someone else is probably writing a cheque on a

Lloyds' deposit account to pay for some stereo equipment from a shop

banking with Barclays. The stereo shop pays the cheque into its Barclays'

account, increasing its deposit. Barclays then pays the cheque into its

account at Lloyds where this person's account is simultaneously debited.

Now the transfer flows from Lloyds to Barclays.

Although in both cases the cheque writer's account is debited and the

cheque recipient's account is credited, it does not make sense for the two

banks to make two separate inter-bank transactions between themselves. The

clearing system calculates the net flows between the member clearing banks

and these are the settlements that they make between themselves. Thus the

system of clearing cheques represents another way society reduces the costs

of making transactions.

The Balance Sheet of the London Clearing Banks.

Балансовый отчет лондонских клиринговых банков

Таbl. 7 shows the balance sheet of the London clearing banks. Although

more complex, it is not fundamentally different from the balance sheet of

the goldsmith-banker shown in Таbl 6. We'll begin by discussing the asset

side of the balance sheet.

The Balance Sheet of the London Clearing Banks.

|Assets |Јb |Liabilities |Јb |

|Sterling: Cash Bills and |2,9 |Sterling: Sight deposits |54,1 |

|market loans |34,7 |Time deposits | |

|Advances |83,0 |CDs |59,9 |

|Securities |9,4 | | |

|Lending in other |54,6 |Deposits in other |8,1 |

|currencies Miscellaneous |15,5 |currencies Miscellaneous | |

|assets |200,1 |liabilities |46,2 |

|TOTAL ASSETS | |TOTAL LIABILITIES |31,8 |

| | | |200,1|

Cash assets are notes and coin in the banks' vaults. However, modem

banks' cash assets also include their cash reserves deposited with the Bank

of England. The Bank of England (usually known as the Bank) is the central

bank or banker to the commercial banks.

Apart from cash, the other entries on the asset side of the balance

sheet show money that has been lent out or used to purchase interest-

earning assets. The second item, bills and market loans, shows short-term

lending in liquid assets.

Liquidity refers to the speed and the certainty with which an asset can

be converted back into money, whenever the asset-holders desire. Money

itself is thus the most liquid asset of all.

The third item, advances, shows lending to households and firms. A firm

that has borrowed to see it through a sticky period may not be able to

repay whenever the bank demands. Thus, although advances represent the

major share of clearing bank lending, they are not very liquid forms of

bank lending. The fourth item, securities, shows bank purchases of interest-

bearing hug-term financial assets. These can be government bonds or

industrial shares. Although these assets are traded daily on the stock

exchange, so in principle these securities can be cashed in any time the

bank wishes, their price fluctuates from day to day. Banks cannot be

certain how much they will get when they sell out. Hence financial

investment in securities is also illiquid.

The final two items on the asset side of the balance sheet show lending

in foreign currencies and miscellaneous bank assets. Total assets of the

London clearing banks were Ј200,1 billion. We now shall examine how the

equivalent liabilities were made up.

Deposits are chiefly of two kinds: sight deposits and time deposits.

Whereas sight deposits can be withdrawn on sight whenever the depositor

wishes, a minimum period of notification must be given before time deposits

can be withdrawn. Sight deposits are the bank accounts against, which we

write cheques, thereby running down our deposits without giving the bank

any prior warning. Whereas most banks do not pay interest on sight deposits

or cheque (checking) accounts, they can afford to pay interest on time

deposits. Since they have notification of any withdrawals, they have plenty

of time to sell off some of their high- interest investments or call in

some of their high-interest loans in order to have the money to pay out

deposits.

Certificates of deposit (CDs) are an extreme form of time deposit where

the bank borrows from the public for a specified period of time and knows

exactly when the loan must be repaid. The final liability items in Таbl. 7

show deposits in foreign currencies, miscellaneous liabilities, such as

cheques, in the process of clearing.

VOCABULARY NOTES

a financial intermediary - финансовый посредник

to bring together - соединять, сводить вместе

insurance companies - страховые компании

pension lands - пенсионные фонды

the money stock - денежная масса, деньги в обращении

to issue deposits - открывать вклады

the National Girobank - англ. Национальный жиробанк

trustee saving banks - доверительные сберегательные банки

London clearing banks - лондонские клиринговые банки (банки - члены

расчетной палаты)

a central clearing house - центральная расчетная палата

inter-bank accounts - межбанковские счета

Barclays - Барклайз банк (Великобритания)

Lloyds - Ллойдз банк (Великобритания)

to credit - кредитовать

to debit - дебетовать

cheque recipient - получатель чека

cash assets - денежные активы

the Bank of England - Банк Англии, Английский банк

interest-earning (syn. interest-bearing) assets - активы, приносящие

процентный доход

bills and market loans - векселя и рыночные займы

short-term lending - краткосрочное кредитование

liquid (ant. illiquid) assets - ликвидные активы

liquidity - ликвидность

advances - ссуда в вида аванса

a sticky period - трудный период

securities - ценные бумаги

interest-bearing long-term financial assets - долгосрочные финансовые

активы, приносящие процентный доход

government bonds - государственные облигации

industrial shares - промышленные акции

the stock exchange - фондовая биржа

niscellaneous bank assets - прочее имущество банка

sight deposit - депозит до востребования; бессрочный вклад

time deposit - срочный вклад

to withdraw - отзывать (вклад)

to run down a deposit - уменьшать вклад

cheque (checking) accounts - текущий (чековый) счет

to sell off - распродавать

cad in high-interest loans - требовать возврата займов (требовать

уплаты процентов)

certificates of deposit - депозитные сертификаты

miscellaneous liabilities ' прочие (другие) пассивы

1. GENERAL DEFINITION OF ACCOUNTING

Today, it is impossible to manage a business operation without

accurate and timely accounting information. Managers and employees,

lenders, suppliers, stockholders, and government agencies all rely on the

information contained in two financial statements. These two reports — the

balance sheet and the income statement — are summaries of a firm's

activities during a specific time period. They represent the results of

perhaps tens of thousands of transactions that have occurred during the

accounting period.

Accounting is the process of systematically collecting, analyzing, and

reporting financial information. The basic product that an accounting firm

sells is information needed for the clients.

Many people confuse accounting with bookkeeping. Bookkeeping is a

necessary part of accounting. Bookkeepers are responsible for recording (or

keeping) the financial data that the accounting system processes.

The primary users of accounting information are managers. The firm's

accounting system provides the information dealing with revenues, costs,

accounts receivables, amounts borrowed and owed, profits, return on

investment, and the like. This information can be compiled for the entire

firm; for each product; for . each sales territory, store, or individual

salesperson; for each division or department; and generally in any way that

will help those who manage the organization. Accounting information helps

managers plan and set goals, organize, motivate, and control. Lenders and

suppliers need this accounting information to evaluate credit risks.

Stockholders and potential investors need the information to evaluate

soundness of investments, and government agencies need it to confirm tax

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