Part II. Granting the Loan on an Open Note

Builder: 1 received your notice that my note is due. 1 can pay it off now, but there is a piece of land right next to my property that I'd like to buy.

Banker: 1 don't remember your situation exactly. Are your present holdings free of encumbrance?

Bu.: My real estate is clear. But there's a chattel mort­gage on my construction equipment.

37

it a

Ba. Ви.

Has this land you want to buy been appraised?

Ва.. Ви.. Ва..

Yes. It belongs to an estate and was appraised by|
order of the court. They estimated its value all
$20,000. *1

Can it be bought for that figure!

I think so. I'd like to make them that offer.

Would you consider giving us a trust deed lo se­cure your present note plus the additional funds

you'll need?

Ви.: Ва.: Ви.: Ва.:

I might. But I'd thought that my net worth is high
enough that I could borrow the amount on my open
note. j

Well, in that case, would your wife agree to bej
a co-signer? \

I'm sure she would, because title to the properly! will be in both our names.

Well, it seems lo me that you have enough equity in your property for us lo make Ihe loan on an орел nole.

Questions on the dialogue: i

Parti. \

\

1. What is the customer applying for?

2.Has Ihe banker decided whelher lo granl the credit yet
or not?

 

3. What sorl of information is the banker interested in?

4. How does the banker wanl lo secure the bank's credil?

5. How is Ihe company going lo use ils currcnl assels?
Part II.

6. Why is the builder asking for Ihe exlension of his note?

7. Whal is his presenl financial standing?

8. Has Ihe land he wan Is lo buy been appraised?

9. Whal sorl of guarantee does Ihe banker insist on
secure the funds the builder will need?

10. What made Ihe builder Ihink lhal he could borrow the
amoun on an open note?

 

11. Who will hold the lille lo Ihe properly purchased?

12. Why has Ihe banker agreed lo granl the loan on an
open note?

Text

Banks make their profits by lending Ihe money which cus-loiners deposil wilh them to olhers who need il for personal or business reasons. Mosl people need more money lhan Ihey have currently available al some time in their lives.

To be a borrower you must be a customer of the bank be­cause Ihe money will be lent lo you Ihrough a bank account. There are Iwo ways in which you may borrow. The first, and easy, is to spend more money than you have in your current accounl — lo overdraw. The second, and the normal way of borrowing larger amoun Is or for a long period of lime is Ihe loan.

If a manager permils an overdraft on currenl accounl he is likely lo sel a limit lo Ihe size of Ihe overdraft and may stipu­late a dale by which Ihe accounl is back in credil. Businesses whose payments and rcceipls are often irregular will fre-quenlly need lo use overdraft facilities and Ihey are often granted lo private customers as well particularly when Ihe manager knows lhal regular payments are made directly into the account.

If a loan is granted il will be a fixed sum immediately avail­able for a fixed period of time. The principal and Ihe inleresl on it may all become due for paymenl at the end of lhal pe­riod bul for personal loans il is common lo arrange lhat the loan and interest are repaid in equal regular instalment over the period of the loan. A separate account is opened lo record Ihe repayments as Ihey are made.

Whether you are seeking money for business or personal reasons there are a number of Ihings lhal Ihe manager will

 

I

39

want to know before he is prepared to grant your request. The obvious facts will be the amount that you seek and the arrangements for re-payment that you are able to suggest. You need to tell him something about the purpose of the loan, a business loan is likely to help you make profits out of which the loan can be repaid with interest and he will wish to judge for himself whether or not this is likely. Personal loans usu­ally have to be repaid out of an income which will not get any bigger and the manager will be particularly anxious to ensure that you are not being loo optimistic. In deciding this he will be considerably assisted by his knowledge of you and his esti­mate of your character.

Sometimes people do nol ask for enough money because they are anxious about the burden of Ihc repayments. The manager will be wise enough to try and ensure thai you will have sufficient amount of money to do what you want to do. Finally he will consider whether or not you really will be able to repay and what kind of security you can offer against the possibility that you do not repay. In the ease of a business Ihe manager may well want to sec well prepared, relevant docu­ments such as profit and loss accounts and balance sheets for the most recent years. He would also ask about the expected return from the use of the money and want to see soine fig­ures upon which you have based your calculations. Fora busi­ness good security might be one or more of the assets of the business whilst personal loans are often secured by such things as life insurance policies on which the bank is making regular payment for you or the deeds of your house.

Questions on the text:

1. What two kinds of borrowings are possible?

2. In what circumstances an overdraft on current account

is permissible?

3. How are personal loans usually repaid?

4. Will you pay back more than you lx>rrowed? What will
the difference be?

 

5. What information will the manager require for a per­
sonal loan?

6. What information will he require for a business loan?

7. What other things will he lake into account?

8. What will he need from you to make the loan safer for
him?

9. What does a businessman mean by his expected rate of

return?

10. Why might this be important to the bank manager?

11. What kind of things might you offer as collateral for
a personal loan?

Vocabulary Exercises I

Find proper definitions:
Terms	Definitions
1. Mortgage	a) anything owned that has financial value
2. Collateral	b) an asset, such as real estate, which can-
security	not be readily changed into money
3. Asset	c) assets other than real estate which can
	be readily changed into money
4. Open note	d) to promise as security
5. Current	e) some security in addition to the main se-
asset	curity for money lent
	f) an agreement to give up collateral which
6. To pledge	has been pledged if a debt is nol paid
	g) a note, the payment of which is nol guar-
7. Fixed asset	anteed by collateral security
	h) anything owned, especially real estate
8. Real estate	or land
9. Chattel	i) land including anything constructed on
mortgage	it
	j) a mortgage on any personal or movable
	possesions such as furniture or equipment

 

40

41

10. Deed 11. Equity 12. Property 13. Principal 14. Instalment 15. Loan 16. Repayments 17. Balance sheet 18. Profit and loss account 19. Real properly

k) a document which proves legal own­ership of real estate 1) the value of the piece of property bc-yond any indebtedness held against it in) a statement of the assets and liabili­ties of a business which shows its posi­tion at a particular date n) a payment towards a larger sum usu­ally made at regular intervals o) the amount of the loan itself before any interest is added p) a statement which shows the calcu­lation of the results of doing business for a particular period of lime r) a fixed sum of money borrowed for a fixed period of time s) land or buildings t) amounts of money which are given to a creditor in settlement of a debl or a loan

II

Using the words in brackets, explain the meaning of Ihe following terms and phrases:

1. the morlgage is being amortized (regular payments on, the

principal, the interest, make)

2. obligation (must, indebtedness, repay)

3. to retire present debts (current, pay off)

4. to liquidate the liability (any official obligation, pay off)

5. the land has been appraised (estimate, its value)

6. an estate (a dead person, left by, the holdings and obliga­
tions)

 

7. trust (the legal responsibility, in financial mailers, given
to one party, to act for another)

8. a trust deed (a deed lo, real estate, security for a loan,

held as)

9. lo make a loan on an open note (grant, the repayment, not

guaranteed collateral security)

10. to stipulate (insist upon, state, particular date)

11. lo repay (give back, pay off)

12. expected return (profits, earnings, income)

13. security (ensure repayment, deeds, insurance, policy,
reduce risk)

III

Choose the right answer:

1. "application for loan" means:

a) granting loan,

b) asking lo be granted loan,

c) refusal to grant loan.

2. "balance sheet" denotes:

a) total profit,

b) total revenues,

c) a document which shows the state of a business al

a particular moment

3. "indebtedness" here means:

a) repay men I,

b) owing lhanks,

c) debl, borrowing.

4. "security" in Ihis sense is:

a) tends, share certificates and other titles lo properly,

b) safety,

c) a guarantee of payment.

5. "principal" here means:

a) the most imporlanl information,

b) Ihe amount of the original loan,

 

42

43

г

с) the chief ilem or person. H. "my loan is due for repayment" means: a) my loan has reached maturity, h) my loan has been paid off, e) my loan has been extended.

7. "holdings free of encumbrance" means:

a) holdings heavily in debt,

b) the encumbrance isn't very large,

c) properly or security clear of indebtedness.

8. "my net worth "means:

a) the value of one's holdings after all obligations have
been paid,

b) any [>ersonal or movable possession,

c) net earnings.

9. "a co-signer" denotes:

a) a person who holds a deed to the properly,

b) a person who signs a document with another person
and shares the obligation,

c) a lawyer who prepares a trust deed.

10. "title to properly" is:

a) the record or proof of ownership of property,

b) the name of the person who owns the properly,

c) a word indicating a high financial rank.
I I. "my expected return" means:

a) when 1 expecl to come back, h) the amount of money 1 expecl to have to repay, c) the income 1 expecl to receive from doing business. 12. "deeds" are: a) actions,

h) documents showing how well my business is doing, c) documents which prove that I own a parlicular piece of J real properly.

IV

Say whal is true and what is false. Correct the false, sen­tences:

1. When a bank's manager considers an application for a
loan, he usually requires some information aboul the items
shown on the applicant's balance sheet.

2. The manager is not concerned whethel- any of the
applicant's assets have already been pledged as security.

3. The bank often asks the applicant to pledge part of his
assets as collateral security to the bank's loan.

4. One cannot apply to a bank for an extension of a loan.

5. To grant a loan the bank must be sure that the applicant
can repay it.

6. The bank will never wish to offer a larger loan than the
applicant asks for.

optimistic security character sufficient

Find synonyms for: liability collateral repay debts

VI

1. Find the nouns which are qualified by these adjectives
and ivrile one noun to each adjective:

additional open

collateral personal

current present

expected private

financial real

most recent semi-annual

2. Combine the words listed below into meaningful two or
lliree word expressions:

asset equipment

current fixЈd

 

44

45

I

committee instalment

deed loan

discount net

documents worth

VII

Explain the following:

1. to promise as security

2. to pay off debts

3. to grant a permission to borrow money

4. to make regular payments on the borrowed money

5. to judge the value of something

6. to guarantee the payment of the loan

7. to give a mortgage on one's furniture and other movablfj

possessions

8. to give a deed to the properly as security for the loan

9. to sign with someone a document and share the obligalioi]

 

10. valuable items handed over to reduce the risk of a loan

11. to fix a dale by which something must he done

12. lo lake more money out of your account than you have in
it

VIII

Fill in the blanks:

Last week Mr Auger went lo his bank lo apply for a. as

he wishes to purchase a piece of land righl lo his own. He

applied for a......... and 'Ihe bank asked him for a stalemcnl

of his business affairs including a....... account and a......

The bank manager was happy lo granl Ihe loan but wanted

some form of... from Mr Auger and asked him if he would

offer one or more of his fixed. as........ The bank was pre­
pared to make the loan for ten years and expected Mr Auger

to pay off the annual... and some of..... each year in two

equal.... every six months.

IX

Demonstrate the meaning of the following expressions in

sentences of your own:

1. lo amortize the mortgage on

2. to pledge assets as

3. to extend credit lo

4. to settle a liability _>

5. the instalment is due on

6. to appraise the property

7. lo hold the deed to property

 

8. to estimate net worth of the property

9. lo give somebody collateral

10. to draw up a profit and loss account

Role Play

1. You are a bank manager and you were asked for a loan.

2. Consider the things you will worry about the loan and the
questions you will want to be answered; you should give
particular consideration to:

 

—whether you will have sufficient funds to make this loan,

—whether you Ihink the customer will be able to repay

loan and interest,

— whether you would offer all or part of whal is being asked,

—whether you need any further evidence of the crcdit-
V worthiness of your customer and how you would get it,

—whal sort of security would you accept,

—whal kind of term would you offer.

3. Conduct the interview:

a) if you refuse the loan, write to the client selling oul the
reasons why you have done so;

b) il you grant the loan, write to the client selling oul the
precise lerms of the loan.

 

46

47

portfolio rale of return

Unit Five Bank Investments Active Vocabulary advance —

reconciliation

revenue revenue bonds share slock (US) speculalive lax-exempl working capital yield

AI, first class,

AA-rating(US)

bond

bonds issue blue chips capital market

cash

cash-in-banks diversify (v)

fluctuation general obligation bond

issue bonds (v) money market

municipal bond offering

 

1) аванс, авансирование

2) ссуда,заем

 

— первоклассный

— 1) облигация

 

2) закладная

3) долговое обязательство

 

— выпуск облигаций,.чаем

— первоклассная ценная бумага

— рынок долгосрочного ссудного
капитала

— наличные деньги, кассовая
наличность

— банковская наличность

—.вкладывать капитал в различ-

ные предприятия

— колебания, изменения курса

— облигация под общее обяза­
тельство; муниципальная обли­
гация

— выпускать облигации

— 1) денежный рынок

2) рынок краткосрочного ссудного капитала

— облигация муниципалитета

— ценные бумаги, предлагаемые
к продаже

 

— портфель цепных бумаг

— 1) норма прибыли

2) коэффициент окупаемости кап италовложений

— приведение клиентом учета
своих операций в соответствии
с. учетом банка; согласование,

выверка

— 1) доходы

2) государственные доходы

— облигации, обеспеченные дохо­
дами от определенного объекта

— акция

— акция

— 1)спекулятивный
2) рискованный

 

— не облагаемый налогом

— оборотный капитал

— 1) доход по цепным бумагам
2) доход в виде процентов на
вложенный капитал

— приносить процентный доход

yield inlercsl (v)

Dialogue

/Read the dialogue in parts.

Board Member: 1 notice lhal our cash and cash-in-banks has

been building up above Ihe amount required

by law.
President: I've had the same thoughts. And right now

there is a new offering of municipal bonds

lhal can be bought at a price lhal will yield

3.5%.
B. M.: Are Ihcy general obligation bonds?

 

48

49

P.: B.M.. P.:

Yes, they are. 1 prefer those to revenue bonds, don't you?

1 do. Does this issue have an AA rating? Yes. And they can be had in five to ten-year

maturities.

В. M.. P.: В. M.

They're lax-exempt, you know. Do you think we might also buy some stocks to keep our portfolio well diversified? Well, we might. But stocks arc much more

speculative.

Unless we slick to blue chip issue. They show

less price fluctuation.

Questions on the dialogue:

1. What problem is being considered by the President and the

Board Member?

2. How can the bank invest ils funds profitably at present?

3. Why does the President prefer to invesl in general obliga-

lion bonds?

4. What does the Presidenl know aboul a new offering of
municipal bonds?

5. Where else can Ihey invesl the bank's funds?

6. Whal sort of stocks are they going lo invesl in and why?

Text

The investment policy of a bank is based upon the recon­ciliation of two conflicting aims. On Ihe one hand the bank wants to make as much profit as it can and for this reason it must lake the risks of lending money. On Ihe other hand its funds belong to its depositors and must be available when­ever they wish to make withdrawals.

There are Iwo Ihings that Ihe bank must therefore do. First, il must keep a proportion of its asscls in the form of

50

rash lo meel demands. The amount thai Ihis needs lo be varies very lillle from one bank lo another or from one day lo another and experience suggesls thai il is aboul six percent. As a cushion against unexpected demands a further propor­tion of funds is invested at low rates of return in highly liquid lending mostly to firms in the money and capital markets.

The second thing that Ihe bank must do is trf ensure lhal the inveslmcnls il chooses are sale. This also means lhal Ihcy are relalively low yielding since high yields are associaled wilh risk and wilh lending tor long periods of lime. Much of abank's investment is in short and medium lenn government and lo­cal government bonds. They yield certain incomes and are readily saleable should Ihe occasion demand.

Advances by a bank lo ils customers are the least liquid of Ihcir assels since Ihere are few borrowers who could repay a loan al very shorl notice. However, Ihey are also the most profitable of Ihem yielding Ihe highest rale of return. Advances lo customers arc likely to account for more than two thirds of Ihe banks investment portfolio although Ihis will vary on a day lo day basis since overdrafts arc Ihe most common form of advance and are not immediately controllable by Ihe bank. In general banks do nol lend lo industry for long periods of lime or for inveslmenl projccls. They regard Ihemselves as providing working capital rather than fixed capital.

Questions on the text:

1. What Iwo conflicting aims musl a bank reconcile in ils in-

vestmenl policy?

2. What must the bank do lo be ready lo meel demand for
cash on the part of its customers?

3. Why does Ihe bank prefer ralhcr low yielding inveslmcnls?

4. Which inveslmcnts do visually yield high returns?

5. Which investmenls arc hardly conlrollable by Ihe bank?

Why?

51

6. Why don't banks usually invesl in indvislrial projecls?

Voeabulaiy Exercises

Find proper definitions:

Terms

Definitions

1. Tax 2. Yield 3. Cash 4. Bond 5. Stock/share В. АА rating

 

7. Portfolio 8. Liquidity

 

a) the pattern of investments held by a
bank

b) a government or local government se­
curity

c) the actual return from a particular in­
vest in en I

d) a unit of ownership in a company

e) a stock thought to be of highest quality

f) money collected by a government for its
support

g) the speed with which an investment can
be redeemed for cash

h) coins and bills

II

Using the words in brackets, explain the meaning of Ihe following terms:

1. cash-in-banks (as a reserve, risk, withdrawals)

2. general obligation bonds (secured by, the properly of a
city, other unit of government)

3. municipal bonds (for'sale, a city or other unit of govern­
ment, offered by)

4. revenue bonds (revenues, repaid out of)

5. AA rating (a bond, a slock, the value of, a high estimate of)
b'. tax-exempl (lax obligation, free from)

7. working capital (day lo day, slock, cash, needs)

8. fixed capital (machinery, buildings, long term)

9. high yield (good return, risk, long period of lime)

10. overdraft (current account, withdraw, exceed).

52

Choose the right answers:

1. "our portfolio" in Ihis dialogue means:

a) a wallet,

b) a lisl of slocks and bonds belonging to the bank,

c) a lisl of bank's fixed assets.

2. "a portfolio well diversified" is: ^J

a) one yielding high interest,

b) entirely made up of blue chip stocks,

c) one made up of a variely of stocks and bonds.

3. "price fluctuation" is:

a) a price stabilily,

b) an increase in prices,

c) a changing back and forth in the price.

4. "speculative" means:

a) risky,

b) disequilibrating,

c) negotiable.

5. "yield 3.5%" means:

a) earn 3.5%,

b) treble the price,

c) rise by 3.5%.

H. "advances" here means:

a) approaches from one person lo another,

b) improvements in a bank's position,

c) loans and overdrafts for customers.

IV

Say what is true and what is false. Correct the. false, sen­tences: \. Bonds are highly liquid investments.

2. Slocks are less speculative than bonds.

3. Blue chip issues show a lot of price fluctuation.

53

4.It is desirable to diversify one's portfolio.

5. All municipal bonds are tax-exempt.

6. Bonds yield uncertain incomes and are difficult to resell.

7. Advances are the most liquid of bank's assets.

8. Advances are the most profitable of bank's investments.

Using suffixes -at, -able, -ory, -ive, elc., give adjectives

which are related to the following verbs:

change profits

control sell

desire speculate

negotiate transfer

pay value

VI

For each of the adjectives formed in exercise V, find the noun which could be described by it. Write one noun to each adjective.

VII

Combine the words listed below into meaningful two or three word expressions:

bank fluctuation member

bond general local authority

blue-chip issue obligation

liquid investment price

VIII

For each of the following phrases, find the expression in the text that explains it:

1. a slock of the highest quality

2. a unit of ownership in a company

3. the return actually received from an investment

4. changes in prices

5. a list of slocks and bonds belonging to a company
6". a firm's investment in long term assets

 

7. loans and overdrafts granted lo customers

8. bought and sold in an atlempl lo make profits from price

fluctuation

9. Ihe amount of cash needed by a firm for day lo day aclivily

10. a protective barrier against the unexpected

 

54

55

stock exchange (S.E., Sl.Ex.) scrutiny subscribe (v) subject to The Treasury United States Treasury (Department) (US) to some extent transaction trust trust company

Unit Six Types of Banking Institutions

Active Vocabulary

broker brokerage

firm of (slock) brokers brokerage house (US) commercial bank credit union disbursement

exchange equalization account

fiduciary finance company lend (v) (lent, lent)

lending institution national bank

savings and loan Association (US)

ration (v) security, securities state bank

- брокер, маклер

-1) брокерское вознагражде­ние, комиссиопые брокера 2) брокерское дело, мак­лерство, поеред! i ичество

брокерская фирма

брокерская фирма

- коммерческий банк

- кредитный союз

- выплата в порядке
погашения

- валютный уравнительный
счет

- доверенное лицо, фидуциар
финансовая компания
ссужать, давать взаймы,

одалживать кредитное учреждение национальный банк

ссудно-еберегательная ассо­циация (ам) нормировать ценные бумаги государственный банк

фондовая биржа проверка

- подписываться на ч.-л.,
приобретать по подписке
подлежащий Чему-либо
казначейство, министе|х-гво
финансов

- казначейство, министерство
финансов (ам.)

- в какой-то мере, до какой-
либо степени

- сделка

- траст, кредит

- трастовая компания

Dialogue

Read the dialogue in parts.