There are two other types of banks: commercial banks and investment banks – or merchant banks as they are called in Great Britain. Commercial banks deal mainly with individual customers, for instance, private citizens, small businesses, and such like. They receive and hold deposits, lend money, exchange foreign currencies, advise their customers how to invest their money, and manage the customers’ accounts (for instance, pay or invest money according to the customers’ wishes). Commercial banks make their profit from the difference between the interest that they pay to people who deposit money and the interest they charge to people who borrow money. This difference is called a margin.
Investment banks deal mainly with rich corporate clients (companies or large firms) or rich individual clients. They aim not so much at lending money but at raising funds for industry (their corporate clients) in different financial markets. Therefore, investment banks act mainly as intermediaries for their customers. They do not themselves make loans, but make their profits from fees paid for their services. Merchant banks in Britain do the same, but they have greater authority because they also offer loans themselves. They finance international trade, deal with mergers, and issue government bonds.
In recent times the difference between commercial and investment banks has been slowly disappearing as the so-called “financial supermarkets” replace them. These are a combination of a commercial bank, an investment bank, and an insurance company, offering the full range of financial services.
Whether depositing or borrowing money, a customer is most interested in the bank’s interest rate. The minimum interest rate within a certain country is usually determined by the central bank, and the interest rates offered by other banks sometimes fluctuate slightly from time to time, and are publicly advertised by any bank. They are always either higher than or equal to the minimum interest rate fixed for that country.
2.Comprehension check.
a)Working in pairs, answer the questions.
· What role does the Central Bank play in the economy of a country?
· What functions does the Central Bank perform?
· When does inflation happen?
· In what way can the Central Bank stop inflation?
· What services does a commercial bank provide to its clients?
· Whom do the investment banks deal with?
b)Which of the three summarizes below reflects the content of the text more accurately? What is wrong with the other two summaries? Identify the mistakes in them.
· There are three types of banks: central banks, commercial and investment banks (merchant banks in Great Britain). Commercial banks deal mainly with individual customers: they receive and hold their deposits, lend money, manage their customers’ accounts, etc. Their profits are made from fees charged to their customers for the bank’s services. Investment banks deal with corporate clients and raise funds for their clients’ projects. Their profits are also made from fees paid to them. Now all commercial and investment banks have merged into “financial supermarkets”. Every bank determines its own interest rate that is advertised to the public.
· There are three types of banks: central banks, commercial and investment banks (the latter called merchant banks in Great Britain). Commercial banks deal mainly with individual customers: they receive and hold their deposits, lend money, manage their customers’ accounts, etc. Their profits are mostly determined by the difference in the interest they pay to people who deposited their money with the bank and the interest they charge to those who borrow money. Investment banks principally deal with rich corporate and individual clients and raise funds for their projects. Their profits are from fees paid to them for their services. Now the difference between commercial and investment banks is slowly disappearing because “financial supermarkets” have appeared, combining the services of commercial banks, investment banks, and insurance companies. Every bank fixes its own rate of interest on the basis of the minimum interest rate determined by the bank of the country.
· There are three types of banks: central banks, commercial and investment banks (the latter called merchant banks in Great Britain). Commercial banks deal with both individual and corporate customers: they receive and hold their deposits, lend money, manage customers’ accounts, and raise funds for them. Their profits are determined mostly by interest charged to people who borrow money from them. Investment banks only deal with corporate clients and raise funds for their clients’ projects. Their profits are from fees they charge for their services. The difference between commercial and investment banks is slowly disappearing because “financial supermarkets” have appeared. They combine the full range of services offered by the two types of banks as well as by insurance companies. The minimum rate of interest offered by banks is determined by the central bank of the country, but other banks may fix their own interest rates at levels that may be higher or lower than those determined by the central bank.
c)Find words or word combinations in the text that mean the following:
a) when one company unites with another company and they make a single company;
b) a combination of a commercial bank, an investment bank, and an insurance company offering different financial services;
c) a client of a bank that is a whole company or a large firm;
d) money put in a bank;
e) percentage of money paid by a bank to people who deposited their money with it; percentage of the loan paid to the bank by people who borrows money from the bank;
f) to get money for some project (usually through an intermediary);
g) money charged by a bank for its services;
h) the money that is used in various countries;
i) a document issues by a government indicating that the money was borrowed and the government promises to give it back with interest to the holder of the document.
