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The Language of Banking Service

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					                                  NOTE DE CURS




I. Exchange rates
       Every business person involved in overseas trade, whether importing or
exporting, will have to make or to receive payment in foreign currency. The currency
of the invoice can represent a significant part in the sales negotiation and make a
important difference to the final costs or proceeds.
       The exchange rate is simply the price of one currency in relation to another.
The foreign currency must be freely convertible, in which case any one can sell it,
swap it or exchange it for another currency.
       Exchange rates are quoted in the financial press at middle rates
i.e. the difference between the buying rate and selling rate. Banks have their own
foreign exchange departments and provide daily sheets or screens of up-to-date rates.
       The market place for trading foreign currencies is the telephone and computer
links worldwide now days. All currency holdings reside in their country of origin:
sterling in UK, US dollars in United States; only notes and coins, insignificant in
global terms, actually move from one country to another. Central banks, commercial
banks and other financial institutions, large commercial companies and few wealthy
individuals are parties in the foreign exchange market, that undertakes trade in 2
areas:
    a) wholesale market: interbank trading or very large commercial companies
    b) retail market: or commercial customers
       The most available world quotation is the American dollar. Each bank or
broker must be authorized and controlled to deal in foreign exchange by the central
bank. The exchange currency market carries out three kinds of business:
1. spot: for settlement after two working days
2. outright: forward deals for settlement at some future date
3. swap: the purchase/sale of a currency in the spot market combined with a
    simultaneous sale/purchase in the forward market
       Central Banks Intervention
       Some countries have regulations where exchange control measures may be
introduced to regulate or restrict the flow of money to ensure that the country has
sufficient reserves of foreign exchange to pay its international debts. But there are
also countries which are free of control restrictions, as the highly developed ones.
According to the type of underlying transactions, banks offer different rates of
exchange:
¾ commercial rates: that vary according to the size of the transaction; some rates

    incorporate interest costs during the period that the bank is out of funds. The rates
    are paper based commercial transactions and do not evolve the movement of notes
    or coins.
¾ note rates for the purchase and sale of foreign currency and coins

¾ when a bank gives a quotation it will give two rates
    ƒ   a selling rate
    ƒ   a buying rate

        The difference between these rates are called the "spread" will be adjusted to
attract business and represents the bank’s profit.
        Exchange risks can be virtually fully removed by :
     1. forward contracts
     2. currency accounts
     3. currency options
     4. financial futures contracts
1. Customers wanting to establish the amount they will receive or must pay at the
    trade payment date in order to calculate their profit margins, will fix the price of
    the cost of the currency by concluding a forward exchange contract.
2. Currency accounts are any currency owned and traded outside its territorial
    borders. They are mostly called Eurocurrency transactions because Europe was the
    centre where trading of these currencies originated.
3. Currency options represents a service that provides an alternative means of
    covering against exchange risks, as the contract is a commitment from the bank,
    but it is not binding on the customer; it gives the customer the option whether or
    not they utilize the contract. The "option" protects against the rates movement
    adversely. The right to buy or sell a given amount of a foreign currency at a future
    date can be exercised or lapsed or resold with cash settlement.
4. Financial Future Contracts
        For a fee, an exporter can fix forward exchange rates to calculate their price for
tendering for an overseas contract. If the tender contract is won, the forward
exchange contract can be invoked; if the contract is lost, then the only penalty is the
loss of the fee.

       Types of DepositAcconts
       There are many different ways of categorizing the deposit accounts:
    ƒ   individual
    ƒ   accounts of the companies
    ƒ   local currency accounts
    ƒ   foreign currency accounts
    ƒ   according to the time constraints
1. Current accounts/checking accounts: it is the deposit account where
  (a ) the bank undertakes:
    ƒ   to pay cheques issued by the depositor against this account
    ƒ   to keep the net balance at the disposal of the customer at any time
    ƒ   to credit to the account the interest agreed and to subs tract any related fees
        and expenses
  (b) the client undertakes:
    ƒ   to avoid carrying out any operations which would make the balance of
        account insufficient
    ƒ   to use the account according to the agreed terms
       Current account usually have a low interest rate or no interest at all and
represent a source of low-cost fund for the bank. The reason of paying low or no
interest is the satisfaction that the client gets through the offering of services by the
bank, such as collecting receipts, paying invoices, etc.
2. Saving accounts -are sight accounts, just as current accounts, but they offer high
    rate of return and are settled in a different way.
Saving accounts have a different economic meaning for the banks because they
represent medium or long-term deposits (contrary to current account which are
usually considered to have a short term nature).The basic requirements and
expectations of depositors are:
     ƒ  safety being insured usually by the government laws and restrictions
     ƒ  liquidity - the usage of the passbook on demand
     ƒ  convenience ( any ATM can be used)
     ƒ  return
       Lately, banks started offering many services to the owners of saving accounts
such as:
     ƒ  statement of accounts on a monthly basis by having an analytical presentation
        of the movements of the account
     ƒ  ability to pay certain obligations of the depositor (charges to credit cards,
        utility expenses, loan installments, etc.)
     ƒ  telephone service (phone banking) etc.
3. Fixed Terms accounts; they are not payable until a certain period elapses; they
    yield a higher interest rate as compared to saving accounts, so the depositors have
    the advantage of high return, being a source of long term financing source for the
    bank
4. Certificates of deposits require a minimum amount of money deposited and a
    minimum term period, which is usually longer than the one required by the fixed
    term deposits. They are highly liquid, (can be transferred into cash any time), by
    losing part of the interest, as penalty. Their ownership can also be transferred, the
    new owner being entitled to get full amount at the end of the period that originally
    had been agreed between the bank and the initial depositor.
5. Youth deposits represent a certain type of account where higher interest rate is
    offered as an incentive to promote saving amongst young people.
6. Swap account is a recent innovation being introduced by the deposit-taking
    institutions by which their balances above ascertain level are transferred into a
    money-market fund. This type of accounts run usually together with mutual
    funds.
7. Cash management account combines a brokerage and bank account and offers to
    the customers daily interest on account balances and offer instant loans at
    brokerage account interest rates.
                                            Vocabulary



¾  currency: any kind of money that is in circulation in an economy. Anything that function as
              medium of exchange, including coins, banknotes, cheques, bills of exchange,
              promissory notes. The money in use in a particular country.
¾ quotation: the representation of a security on a recognized "stock exchange". A quotation of

              shares allow them to be traded on a stock exchange and enables a company to raise
              new capital; an indication of the price at which a seller offers the goods for sale.
¾ wholesale trading with large amount of goods

¾ retail trade or operations made on each item of goods or small amounts of money (in banking)

¾ swap; the means by which a borrower can exchange the type of funds he can most easily raise

              for the type of funds he wants, usually through intermediary of a bank.
¾ spot currency market: a market in which currencies are traded for delivery within two days, as

              opposed to the forward dealing exchange market
¾ forward-exchange contract- an agreement to purchase foreign exchange at a specified date in the

              future at an agreed exchange rate. In international trade, with floating rates of
              exchange, the forward-exchange market provides an important way of eliminating risk
              on future transactions that will require foreign exchange. The buyer on the forward
              market gains the certainty such a contract can bring; the seller, by buying and selling
              exchanges for the future delivery makes a market and earns his living partly from the
              profit he makes by selling at a higher price than at which he buys and partly by
              speculation.
option - the right to buy or to sell a fixed quantity of a commodity, currency or security at a
particular date at a particular price. Unlike futures, the purchaser is not obliged to buy or to sell at
the exercise price, and will only do so if it is profitable; he may al I. Exchange rates
       Every business person involved in overseas trade, whether importing or
exporting, will have to make or to receive payment in foreign currency. The currency
of the invoice can represent a significant part in the sales negotiation and make a
important difference to the final costs or proceeds.
       The exchange rate is simply the price of one currency in relation to another.
The foreign currency must be freely convertible, in which case any one can sell it,
swap it or exchange it for another currency.
       Exchange rates are quoted in the financial press at middle rates
i.e. the difference between the buying rate and selling rate. Banks have their own
foreign exchange departments and provide daily sheets or screens of up-to-date rates.
       The market place for trading foreign currencies is the telephone and computer
links worldwide now days. All currency holdings reside in their country of origin:
sterling in UK, US dollars in United States; only notes and coins, insignificant in
global terms, actually move from one country to another. Central banks, commercial
banks and other financial institutions, large commercial companies and few wealthy
individuals are parties in the foreign exchange market, that undertakes trade in 2
areas:
    c) wholesale market: interbank trading or very large commercial companies
    d) retail market: or commercial customers
      The most available world quotation is the American dollar. Each bank or
broker must be authorized and controlled to deal in foreign exchange by the central
bank. The exchange currency market carries out three kinds of business:
5. spot: for settlement after two working days
6. outright: forward deals for settlement at some future date
7. swap: the purchase/sale of a currency in the spot market combined with a
   simultaneous sale/purchase in the forward market

        Central Banks Intervention
        Some countries have regulations where exchange control measures may be
introduced to regulate or restrict the flow of money to ensure that the country has
sufficient reserves of foreign exchange to pay its international debts. But there are
also countries which are free of control restrictions, as the highly developed ones.
According to the type of underlying transactions, banks offer different rates of
exchange:
¾ commercial rates: that vary according to the size of the transaction; some rates

    incorporate interest costs during the period that the bank is out of funds. The rates
    are paper based commercial transactions and do not evolve the movement of notes
    or coins.
¾ note rates for the purchase and sale of foreign currency and coins

¾ when a bank gives a quotation it will give two rates

     ƒ   a selling rate
     ƒ   a buying rate
        The difference between these rates are called the "spread" will be adjusted to
attract business and represents the bank’s profit.
        Exchange risks can be virtually fully removed by :
     8. forward contracts
     9. currency accounts
     10. currency options
     11. financial futures contracts
8. Customers wanting to establish the amount they will receive or must pay at the
    trade payment date in order to calculate their profit margins, will fix the price of
    the cost of the currency by concluding a forward exchange contract.
9. Currency accounts are any currency owned and traded outside its territorial
    borders. They are mostly called Eurocurrency transactions because Europe was the
    centre where trading of these currencies originated.
10. Currency options represents a service that provides an alternative means of
    covering against exchange risks, as the contract is a commitment from the bank,
    but it is not binding on the customer; it gives the customer the option whether or
    not they utilize the contract. The "option" protects against the rates movement
    adversely. The right to buy or sell a given amount of a foreign currency at a future
    date can be exercised or lapsed or resold with cash settlement.
11. Financial Future Contracts
        For a fee, an exporter can fix forward exchange rates to calculate their price for
tendering for an overseas contract. If the tender contract is won, the forward
exchange contract can be invoked; if the contract is lost, then the only penalty is the
loss of the fee.


        Types of DepositAcconts
        There are many different ways of categorizing the deposit accounts:
     ƒ   individual
     ƒ   accounts of the companies
     ƒ   local currency accounts
     ƒ   foreign currency accounts
     ƒ   according to the time constraints
12. Current accounts/checking accounts: it is the deposit account where
   (a ) the bank undertakes:
     ƒ   to pay cheques issued by the depositor against this account
     ƒ   to keep the net balance at the disposal of the customer at any time
     ƒ   to credit to the account the interest agreed and to subs tract any related fees
         and expenses
   (b) the client undertakes:
     ƒ   to avoid carrying out any operations which would make the balance of
         account insufficient
     ƒ   to use the account according to the agreed terms
        Current account usually have a low interest rate or no interest at all and
represent a source of low-cost fund for the bank. The reason of paying low or no
interest is the satisfaction that the client gets through the offering of services by the
bank, such as collecting receipts, paying invoices, etc.
13. Saving accounts -are sight accounts, just as current accounts, but they offer high
    rate of return and are settled in a different way.
Saving accounts have a different economic meaning for the banks because they
represent medium or long-term deposits (contrary to current account which are
usually considered to have a short term nature).The basic requirements and
expectations of depositors are:
     ƒ   safety being insured usually by the government laws and restrictions
     ƒ   liquidity - the usage of the passbook on demand
     ƒ   convenience ( any ATM can be used)
     ƒ   return
        Lately, banks started offering many services to the owners of saving accounts
such as:
     ƒ   statement of accounts on a monthly basis by having an analytical presentation
         of the movements of the account
     ƒ   ability to pay certain obligations of the depositor (charges to credit cards,
         utility expenses, loan installments, etc)
     ƒ   telephone service (phone banking)etc
14. Fixed Terms accounts; they are not payable until a certain period elapses; they
    yield a higher interest rate as compared to saving accounts, so the depositors have
      the advantage of high return, being a source of long term financing source for the
      bank
15.   Certificates of deposits require a minimum amount of money deposited and a
      minimum term period, which is usually longer than the one required by the fixed
      term deposits. They are highly liquid, (can be transferred into cash any time), by
      losing part of the interest, as penalty. Their ownership can also be transferred, the
      new owner being entitled to get full amount at the end of the period that originally
      had been agreed between the bank and the initial depositor.
16.   Youth deposits represent a certain type of account where higher interest rate is
      offered as an incentive to promote saving amongst young people.
17.   Swap account is a recent innovation being introduced by the deposit-taking
      institutions by which their balances above ascertain level are transferred into a
      money-market fund. This type of accounts run usually together with mutual
      funds.
18.   Cash management account combines a brokerage and bank account and offers to
      the customers daily interest on account balances and offer instant loans at
      brokerage account interest rates.

				
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