Oral conversational topics on business English language

МІНІСТЕРСТВО ОСВІТИ ТА НАУКИУКРАЇНИ
Київський національнийекономічний університет
Криворізький економічнийінститут
МЕТОДИЧНІ ВКАЗІВКИ
до вивчення усних розмовнихтем
з ділової англійської мови
для студентів IV курсу фаху “Міжнародна економіка”
Кривий Ріг 2003

Методичнівказівки до вивчення усних розмовних тем з англійської мови для студентів курсуфаху МЕ. – Кривий Ріг, КЕІ КНЕУ. – 2003р.,- 55 с.
Авторськийколектив:  ст. вик. Братанич О.Г.
викл. ДмитрієвД.Ю.
викл. Бреддік Дж.
Студенти 4 курсу:
Артем’єва С.
Сербіна Я.
Старикова Г.
та інші
За заг.редакцією: завідувача кафедри, д.п.н., проф. Скидана С.О.
Рецензент: к.п.н.,доцент Соловйова Н.Д.
Відповідальний завипуск: проф. Скидан С.О.

RECOMMENDATIONS:
In using the textual material one should at the outset carefully read andtry to understand, using the dictionary where necessary. One should not try totranslate every sentence into Russian rather one should try to understand thesituation in which various expressions are used as well as to pay attention tothe context. However, instances which the author considers hard to understandare pointed out. Having understood the meaning of an expression related to thetopic the student learns it completely by heart with the articles,prepositions, verb – forms and so on.
In order to use a word, its form must first be learned; and making thenew word part of one’s vocabulary may require a great deal of practice to gainfluency in speech and rapid understanding. The emphasis therefore, should be onlearning to use words rather than merely on grasping their meaning. One bit ofgeneral advice: fluency in language depends to a very large degree on theexpression model that one may be able to think of in a specific situation.Sentence or utterances that one has learnt in connection with a specificsituation are likely to suggest themselves again as models if you are insimilar situation.
Sentences and utterances learned without being associated with anythingare not likely to occur to you again. It is thus quite helpful and important tolearn to associate utterances with situation.
One should, of course, get into the habit of thinking of possible foreignlanguage utterances in situations in which one may find oneself.
O.G. Bratanich

marketing – a). the theory orpractice of presenting, advertising and selling things; b). the division of acompany that does this. provide – to make smth available for smb to useby giving or lending it. utility — the quality of being useful possession– the state of having, owning or controlling smth. need – circumstancesin which smth is lacking on necessary, or which require smth to be done; anecessity. anticipate – to what is going to happen or what will need tobe done and take action to prepare for it in advance. function – aspecial activity or purpose of a person or thing. purchase – the actionor process of buying smth. flow – the flowing movement of smth; acontinuous stream of smth. accomplish – to succeed in doing smth; tocomplete smth. successfully; to achieve smth.
 
WHAT ISMARKETING?
оralconversational topic еnglish text
When asked todefine marketing, most people will say «to advertise a product» or«to sell a good». It’s true that selling and advertising are parts ofmarketing, but there is much more. Marketing provides utility or thevalue that comes from satisfying human needs. Consumers use utility in manydifferent circumstances in their everyday lives. For instance, we have theright to possess a product or service in exchange for money, which is called possessionutility. Also, consumers use utility when they can buy a product or servicewhen they want it, and also at a location where they would like to buy it. Theformer is called time utility and the latter is referred to as placeutility. Production helps us to differentiate between what consumers want byproviding form utility or a product produced, and task utility or aservice given. Simply put, marketing provides time, place, and possessionutility, and guides decisions about what goods and services should be producedto provide form utility and task utility. There are basically two differentvariants to defining marketing. Micro-marketing focuses on activitiesperformed by an individual organization, and macro-marketing focuses onthe economic welfare of a whole society. Both are important when trying tounderstand what is marketing. The first, micro-marketing, is the performance ofactivities that seek to accomplish an organization’s objectives by anticipatingcustomer or client needs and directing a flow of need-satisfying goods andservices from producer to customer or client. Let’s take a look at thisdefinition. To begin with, marketing applies to both profit and non-profit organizations.All organizations have some kind or «audience» or «market»that they are trying to satisfy. The point is that all organizations need topractice good marketing techniques to accomplish their objectives and reachtheir goals. Furthermore, a very important goal of marketing is to identifycustomers’ needs, and meet those needs the best way that organization knowshow. If the marketing function has done this, than the product or service willassuredly sell itself In addition, marketing should focus on those needs thatwere identified, not with production. Marketing should anticipate those needs,and then determine the products or services to be developed. While this soundslike the marketing function leads business activity, this is false. Marketingshould direct, not lead other business functions such as accounting,production, and financial activities toward the overall goals of the firm.Finally and most importantly, marketing builds a relationship with customers. Apurchase does not mean the end of marketing related activities, on thecontrary, it is only the beginning to a long, lasting relationship withcustomer, and should always look for ways to keep a customer coming back. Asall marketers know and understand, it is easier and less costly to keep acustomer once they have them, than it is to find them in the first place. Thisis why relationship marketing is so important. The second, macro-marketing, isa social process that directs an economy’s flow of goods and services fromproducers to consumers in a way that effectively matches supply and demand andaccomplishes the objectives of society. Here the emphasis is on the wholesystem, not the individual organization. Different producers in a society havedifferent objectives, resources, and skills. Likewise, not all consumers sharethe same needs, preferences, and wealth. So, macro-marketing effectively helpsto match supply differences with demand differences, while trying to accomplisha society’s objectives. Thus, we can say marketing has two differentdefinitions, dealing with two different levels of the economy.

QUESTIONS
 
1.  What kind of utility doyou know?
2.  What is the differencebetween micro- and macro- marketing?
3.  What is included indefinition “marketing”?
4.  What goal of marketing canyou call as a very important one?
5.  How does marketing build arelationship with customers?
6.  How do both micro- andmacro- marketing connect with two levels of economy?
7.  What other businessfunctions should marketing direct?
8.  How could the producersforesee the consumers’ needs?
9.  What is the main goal ofmarketing as a whole?
marketingconcept –an idea for a product, especially a new one  marketing orientation – when a businessconcentrates on designing and selling products that satisfy customer needs inorder to be profitable  production-oriented business – when a business bases its abilityto make profits on the high quality of its product, rather than on customer’sneeds customer satisfaction – a feeling of happiness orpleasure with what customer has got or what customer achieved bottom-line – the figure showing acompany’s total profit or loss trade-off – a balance between two situations in order to get anacceptable result
MARKETING CONCEPT
What does themarketing concept mean? Simply put, it means that an organizationaims all its efforts at satisfying its customers to achieve profit. Withoutsatisfied customers, a company is without money, and is bankrupt. While thisconcept seems rather simple, it has not always been applied. This impliesaproduction-oriented business or making whatever products are easy toproduce and then trying to sell them. Firms interested in this method think ofcustomers existing to buy the firm’s output rather than of firms existing to servecustomers and the needs of society. On the other hand, well-managed firms havereplaced this production orientation with amarketing orientation.This means trying to carry out the marketing concept. Instead of justtrying to get customers to buy what the firm has produced, a marketing-orientedfirm tries to offer customers what they need. Three basic ideas are included inthe definition of the marking concept: customer satisfaction, a total companyeffort, and profit, not just sales, as an objective. To begin with, customersatisfaction guides the whole system. Every business function is influenced bythe customer the company is trying to satisfy. For instance, the financedepartment looks to purchase production equipment that will increase thequality of a product, and increase the overall position of the companies profitat the same time. Without customer satisfaction’s influence each businessfunction would be working separately toward different goals, thus operatingindividually and against total unity. Furthermore, teamwork among all managersof a firm is an essential element, because the output from one department maybe the input to another. Sometimes departments tend to build walls aroundthemselves in order to protect their own interests. This narrow way of thinkingonly leads to the customer not receiving enough attention, resulting in abreakdown of the marketing concept. By adopting the marketing concept alldepartments are provided with a guiding force. It acts as a philosophy for thewhole organization, not just an idea that applies to the marketing department.Finally, profit is the bottom-line measure of the firm’s success and ability tosurvive. It is the balancing point that helps the firm determine what needs itwill try to satisfy with its total, however costly, effort. Sometimes it maycost more to satisfy some needs than any customers are willing to pay, or itmay be much more costly to try to attract new customers than it is to build astrong relationship with-and repeat purchases from-existing customers. This iswhy firms use profit as the means for survival and success of the marketingconcept. In addition, the marketing concept is related to social responsibilityand marketing ethics. The marketing concept is so logical that it’s hard toargue with it. Yet, when a firm focuses its efforts on satisfying someconsumers, to achieve its objectives, there may be negative effects on society.This means that marketing managers should be concerned with socialresponsibility- a firm’s obligation to improve its positive effects on societyand reduce its negative effects. Being socially responsible sometimes requiresdifficult trade-offs. For example, if a firm produces a product that emitsharmful chemicals that result in poor environmental standards, should the firmbe responsible for the clean up? Also, should all consumers needs be satisfied?For instance, everyone knows that cigarettes cause serious health problems, soshould a firm knowingly keeping producing them just because there is a demandfor them? These questions and others help us look into how the marketingconcept is applied to society.
 
QUESTIONS
 
1.  What does the marketing concept mean?
2.  What is the difference betweenproduction and marketing orientation?
3.  Which orientation is more profitablefor the firm? Why?
4.  What basic ideas are included in thedefinition of the marketing concept? What is the most important of them? Why?
5.  How can the work of the wholeorganization be influenced by adopting marketing concept?
6.  How can we determine whether the firmis successful or not? What is the index of the firm’s success?
7.  In what way is the marketing conceptrelated to social responsibility?
8.  Should marketing managers beresponsible for the negative effects caused by the marketing concept on thesociety?
9.  In what way should the marketingmanagers solve the problem of satisfying consumer’s needs and reducing thenegative effects of the marketing concept at the same time?

strategy – the process of planningsmth or carrying out a plan in a skilful way. target – an object that aperson tries to hit in shooting practice or in certain sports. price – an amount of money forwhich smth may be bought or sold. place – a particular area or position; a natural or properposition for smth. promotion – advertising or someother activity intended to increase the sale of a product or service. image – a general impressionthat a person, an organization, a product, etc. gives to the public; areputation. distribution – the way smth is sharedout or spread over an area. brand name – the name given to a particular product by the company thatproduces it for sale. public relations – the work of presenting a goal image of anorganization to the public, esp. by providing information.
 
MARKETINGSTRATEGY
 
Marketingstrategy planning means finding attractive opportunities and developingprofitable marketing strategies. The marketing concept is the guiding forceused when a firm develops the best strategy. There are two defining parts to amarketing strategy, the target market and the marketing mix. Both play a keyrole in the outcome of a firm’s success in a marketing. Atarget marketis defined as a fairly similar group of customers to whom a company wishes toappeal. When determining a target market, a firm must be very specific aboutwhom they will target. Based on certain characteristics such as income, age,job, living habits, physical characteristics, etc. will a firm find the bestgroup of customers and be the most successful in their efforts. Market-orientedfirms use the target marketing approach while production-oriented firms use amass marketing approach.Target marketing says that a marketingmix is tailored to fit some specific target customers. In contrast, mass marketingvaguely aims at everyone with the same marketing mix.Mass marketingassumes that everyone is the same, and considers everyone a potential customer,thus spending great amounts of wasted time and money to try and sell a productor service. Amarketing mix is the controllable variables thecompany puts together to satisfy this target group. Using a marketing mix, afirm answers what, where, how, and how much. These are made up of the four Psor product, price, place, and promotion
 
PRODUCT =the goods or the service that you are marketing
A ‘product’ isnot just a collection of components. A ‘total product’ includes the imageof the product, its design, quality and reliability — as well as its featuresand benefits. In marketing terms, political candidates and non-profit-makingpublic services are also ‘products’ that people must be persuaded to ‘buy’ andwhich have to be ‘presented and packaged’ attractively. Products have alife-cycle, and companies are continually developing new products to replaceproducts whose sales are declining and coming to the end of their lives.
PRICE = making it easy for thecustomer to buy the product
Pricing takesaccount of the value of a product and its quality, the ability of the customerto pay. the volume of sales required, and the prices charged by thecompetition. Too low a price can reduce the number of sales just assignificantly as too high a price. A low price may increase sales but not asprofitably as fixing a high, yet still popular, price.
As fixed costsstay fixed whatever the volume of sales, there is usually no such thing as a’profit margin’ on any single product.
PLACE = getting the product tothe customer
Decisions haveto be made about the channels of distribution and delivery arrangements.Retail products may go through various channels of distribution:
1 Producer—> end-users (the product is sold directly to the end-user by the company’ssales force, direct response advertising or direct mail (mail order))
2 Producer—> retailers —> end-users
3 Producer—> wholesalers/agents —> retailers —> end-users
4 Producer—> wholesalers —> directly to end-users
5 Producer—> multiple store groups / department stores / mail order houses —>end-users
6 Producer—> market —> wholesalers —> retailers —> end-users
Each stagemust add value to the product to justify the costs: the person in the middle isnot normally someone who just takes their ‘cut’ but someone whose own salesforce and delivery system can make the product available to the largest numberof customers more easily and cost-effectively. One principle behind this is’breaking down the bulk’: the producer may sell in minimum quantities of, say,10,000 to the wholesaler, who sells in minimum quantities of 100 to theretailer, who sells in minimum quantities of 1 to the end-user. A confectionerymanufacturer doesn’t deliver individual bars of chocolate to consumers:distribution is done through wholesalers and then retailers who each ‘addvalue’ to the product by providing a good service to their customers andstocking a wide range of similar products.
PROMOTION = presenting the productto the customer
Promotioninvolves the packaging and presentation of the product, its image, theproduct’s brand name, advertising and slogans, brochures, literature, pricelists, after-sales service and training, trade exhibitions or fairs, publicrelations, publicity and personal selling. Every product must possess a’unique selling proposition’ (USP) -the features and benefits that make itunlike any other product in its market”
These fourcrucial variables are the foundation of the marketing strategy of any forprofit or not for profit organization that uses the marketing concept anddrives for success. The customer is not included in the marketing mix, but thecustomer is the target of all marketing efforts with the four Ps surroundingit. All four Ps are needed in a marketing mix. In fact, they should all be tiedtogether. All four characteristics contribute to one whole. When a marketingmix is being developed, all decisions about the Ps should be made at the sametime. That’s why the four Ps are arranged around the customer, to show thatthey are all equally important. A marketing strategy sets a target market and amarketing mix. It is the overall scheme of a firms efforts in a market, howevera marketing plan goes further. A marketing plan is a written statement of amarketing strategy and the time-related for carrying out the strategy. First,it details what marketing mix will be offered, to whom the strategy is directedtoward, and for how long. Second, it forecasts what company resources, shown incosts, will be needed at what rate. Third, it determines what results areexpected shown in sales and profits perhaps monthly or quarterly, customersatisfaction levels, and the like. The plan should also have some controlfeatures for whoever is carrying out the plan to see if things are going wellor not. Having a plan greatly increases that the marketing strategy willsucceed, and the customer will be satisfied.QUESTIONS
1.  What does marketingstrategy planning mean?
2.  There are two definingparts of a marketing strategy: the target market and the marketing mix. Howwould you characterize them?
3.  Why do they play a keyrole in the outcome of a firm’s success?
4.  What components doesmarketing mix include and how can they influence the product’s position on themarket?
5.  What is the differencebetween definitions “marketing concept” and “marketing strategy”?
6.  What channel ofdistribution do you think is more effective? Why?
foreignexchange– money in a foreign currency currency – the system of money used in a country rate – a fixed charge, paymentor value risk – the possibility ofmeeting danger or of suffering harm or loss to distinguish – to recognise the differencebetween people or things bond – a certificate issued by a government or a companyacknowledging that money has been lent to it and will be paid back withinterest. portfolio – a set of investmentsowned by a person, bank, etc. to convert – to change from one form or use to another equity – the value of the sharesissued by a company; the ordinary stocks and shares that carry no fixedinterest adverse – not favourable,contrary, opposing, harmful

THE FOREIGN EXCHANGE AND CAPITAL MARKETS
Theforeignexchange market is a market for converting the currency of one country intothat of another country. Anexchange rate is simply the rate at whichone currency is converted into another. Without the foreign exchange marketinternational trade and international investment on the scale that we see todaywould be impossible; companies would have to resort to barter. The foreignexchange market is the lubricant that enables companies based in countries thatuse different currencies to trade with each other.
Therate at which one currency is converted into another typically changes overtime. Currency fluctuations can make seemingly profitable trade and investmentdeals unprofitable, and vice versa.
In addition toaltering the value of trade deals and foreign investments, currency movementscan also open or shut export opportunities and alter the attractiveness ofimports. While the existence of foreign exchange markets is a necessaryprecondition for large-scale international trade and investment, the movementof exchange rates over time introduces many risks into international trade andinvestment. Some of these risks can be insured against by using instrumentsoffered by the foreign exchange market, such as the forward exchange contracts
Thus, theforeign exchange market serves two main functions. The first is to convert thecurrency of one country into the currency of another. The second is to providesome insurance against foreign exchange risk, by which we mean the adverseconsequences of unpredictable changes in exchange rates. To explain how themarket performs this function, we must first distinguish among spot exchangerates, forward exchange rates, and currency swaps.
 

SPOTEXCHANGE RATES
When twoparties agree to exchange currency and execute the deal immediately, thetransaction is referred to as a spot exchange. Exchange rates governing such«on the spot» trades are referred to as spot exchange rates. The spotexchange rate is the rate at which a foreign exchange dealer converts onecurrency into another currency \// on a particular day.
 
FORWARDEXCHANGE RATES
The fact thatspot exchange rates change daily as determined by the relative demand andsupply for different currencies can be problematic for an internationalbusiness. To avoid this risk, theU.S. importer might wanttoengage in a forward exchange. A forward exchange occurs when two parties agreeto exchange currency and execute the deal at some specific date in the future.Exchange rates governing such future transactions are referred to as forwardexchange rates. For most major currencies, forward exchange rates are quotedfor 30 days, 90 days, and 180 days into the future.
 
CURRENCYSWAP
A currencyswap is the simultaneous purchase and sale of a given amount of foreignexchange for two different value dates. Swaps are transacted betweeninternational businesses and their banks, between banks and between governmentswhen it’s desirable to move out of one currency into another for a limitedperiod without incurring foreign exchange risk. A common kind of swap is spotagainst forward.

THEINTERNATIONAL CAPITAL MARKET
A capitalmarket brings together those who want to invest money and those who want toborrow money. Those who want to invest money are corporations with surpluscash, individuals, and non bank financial institutions (e.g., pension funds,insurance companies). Those who want to borrow money are individuals,companies, and governments. In between these two groups are the market makers.Market makers are the financial service companies that connect investors andborrowers, either directly or indirectly. They include commercial banks andinvestment banks.
Commercialbanks perform an indirect connection function. They take deposit fromcorporations and individuals and pay them a rate of interest in return. Theythen loan that money to borrowers at a higher rate of interest, making a profitfrom the difference in interest rates. Investment banks perform a directconnection function. They bring investors and borrowers together and chargecommissions for doing so.
 
EUROCURRENCYMARKET
A Eurocurrencyis any currency banked outside its country of origin. Eurodollars which,account for about two-thirds of all Eurocurrencies, are dollars banked outsideor the United States. Other important Eurocurrencies include the Euro, theEuro-yen, and the Euro-pound. The term Eurocurrency actually a misnomer, sincea Eurocurrency can be created anywhere in the persistent Euro-prefix reflectsthe European origin of the market. The Eurocurrency market is significantbecause it is an important, relative source of funds for internationalbusinesses. From small beginnings, this is mushroomed.

THEINTERNATIONAL EQUITY MARKET
There is nointernational equity market in the sense that there are international currencyand bond markets. Rather many countries have their own domestic equity marketsin which corporate stock is traded. The largest of these domestic equitymarkets are to be found in the United States, Britain, Japan, and Germany.Although each domestic equity market is still dominated by investors who arecitizens of that country and companies incorporated in that country,developments are internationalising the world equity market. Investors areinvesting heavily in foreign equity markets as a means of diversifying theirportfolios.
 
THEINTERNATIONAL BOND MARKET
Bonds are animportant means of financing for many companies. The most common kind of bondis a fixed-rate bond. The investor who purchases a fixed-rate bond receives afixed set of cash payoffs. Each year until the bond matures, the investor getsan interest payment and then at maturity he gets back the face value of thebond.
Internationalbonds are of two types: foreign bonds and Eurobonds.Foreign bonds aresold outside the borrower’s country and are denominated in the currency of thecountry in which they are issued.
Eurobonds are normally underwrittenby an international syndicate of banks and placed in countries other than theone in whose currency the bond is denominated For example, a bond may be issuedby a German corporation, denominated in U.S dollars, and sold to investorsoutside the United States by an international syndicate of banks. Eurobonds areroutinely issued by multinational corporations, large domestic corporations,sovereign governments, and international institutions, they are usually offeredsimultaneously in several national capital markets, but not in the capitalmarket of the country, nor to residents of the country, in whose currency theyare denominated. Eurobonds account for the lion’s share of international bondissues.
QUESTIONS
1.  How would you explain the currencyfluctuations?
2.  What is the necessary preconditionfor large-scale international trade and investment?
3.  The foreign exchange market servestwo main functions. What is their essence?
4.  What is the difference between spotexchange rate and forward exchange rate?
5.  What are the main participants ofswap operations?
6.  What is the difference betweencommercial and investment banks?
7.  What types are international bondsdivided into?
8.  How would you characterise foreignbonds and Eurobonds?
9.  What is the principle of the internationalcapital market activity?
10. Who iseach domestic equity market dominated by?
budget – an estimate or plan ofthe money available to smb. and how it will be spent over a period of time revenue – income, esp. the totalannual income of a state or an organisation to approximate – to estimate or calculatesmth fairly, accurately management – the control and making of decision in a business or similarorganisation assumption – thing that is thought tobe true or certain to happen, but is not proved forecast – a statement that predicts smth withthe help of information flexible – easily changed to suit new condition objective – a thing aimed at orwished for, a purpose inventory – a detailed list esp. of goods, furniture or jobs to be done to compile – to collect informationand arrange it in a book, list, report, etc.
 

BUDGETINGIN BUSINESS
A budget is afinancial plan. Specifically, a budget sets forth management’s expectationsforrevenues and, based on those financial expectations, allocates the use ofspecific resources throughout the firm. You may live under a carefullyconstructed budget of your own. A business operates in the same way. A budgetbecomes the primary basis and guide for financial operations in the firm.
Budgeting isthe principle activity in the planning function that all managers of successfulfirms must do in order to meet desired results. Just as managers use forecaststo approximate income from sales, they must also forecast the futureavailability of major resources, including people, raw materials, energy, andmoney. Techniques for forecasting resources are the same as those employed toforecast sales: hunches, market surveys, time-series analysis, and econometricmodels. The only difference is that the manger is seeking to know thequantities and prices of goods that can be purchased rather than those to besold. A very close relationship exists between budgeting as a planningtechnique and budgeting as a control technique. During the planning phase ofmanagement, firms forecast future allocations of resources for businessactivities. After the organization bas been engaged in activities for a time,actual results are compared with the budgeted (planned) results and may lead tocorrective action. This is the management function of controlling.
The budgetingprocess is complex in nature, derived from the management’s objectives for theorganization to the final financial budgeted balance sheet formulated. Salesforecasts play a key role in the budgeting process. It consists of a forecastof quantities sold and forecast of dollar income expected. All other budgetsare related to it either directly or indirectly. The production budget, forexample, must specify the materials. labour, and other manufacturing expensesrequired to support the projected sales level. Similarly, the marketing expensebudget details the costs associated with the level of sales activity projectedfor each product in each sales region. Administrative expenses also must berelated to the predicted sales volume. The projected sales and expenses arecombined in the financial budgets, which consist of pro forma financialstatements,inventory budgets, and the capital additions budget.
Most firmscompile yearly budgets from short-term and long-term financial forecasts. Thereare usually several budgets established in a firm:
· Anoperating budget
· Acapital budget
· A cashbudget
· Amaster budget
Forecast dataare based on assumptions about the future. If these assumptions prove wrong,the budgets are inadequate. So the usefulness of financial budgets dependsmainly on the degree to which they are flexible to changes in conditions. Twoprinciple means exist to provide flexibility: variable budgeting and movingbudgeting. Variable budgeting provides for the possibility that actualoutput changes from planned output. It recognizes that variable costs arerelated to output, while fixed costs are unrelated to output. Thus, if actualoutput is 20 percent less than planned output, it does not follow that actualprofit will be 20 percent less than that planned. Rather, the actual profitvaries, depending on the complex relationship between costs and output.Furthermore. moving budgeting is the preparation of a budget for a fixedperiod (say, one year), with periodic updating at fixed intervals (such as onemonth). For example, a budget is prepared in December for the next 12 months,January through December. At the end of January, the budget is revised andprojected for the next 12 months, February through January. In this manner, themost recent information is included in the budgeting process. Premises andassumptions are constantly being revised as management learns from experience.
In addition,budgets can sometimes lead companies to overlook critical variables such asquality and customer service. Often, their decision-making process is basedsolely on numbers and dollars, and wrong moves can turn into lost profit. Tocombat this companies set up guidelines that include the necessity to planfirst, budget later: budget for managers, not accountants: measure output, notinput; and design budgets to protect against dispute between departments.
Budgets are animportant activity crucial to a managers’ success in maintaining the bottomline of a company. Without them, it would be the equivalent to walking througha mine field without sight. Eventually, you’re going to be blown out of the wayby competing firms.
QUESTIONS
1.  What is a budget and what is it basedon?
2.  Why do sales forecasts play a keyrole in the budgeting process?
3.  What are the components of thebudgeting process?
4.  How many kinds of budgets do youknow? What are they?
5.  Describe the two principle meansproviding flexibility: variable budgeting and moving budgeting.
6.  Is there any difference between abudget and a financial plan?
7.  What is the importance of making abudget?
to destock – to cut or use stocks toannualize – to calculate over a period of year to shrink – to becomesmaller in amount, size, or value to slide into recession – to graduallystart to experience decrease in economy and employment economic slowdown– time or period when economic development gets slow
 
PROBLEMS OFEUROPEAN UNION
Almostsingle-handed, French consumers, who in the third quarter of this year spent anannualised 5% more than in the previous three months, kept the euro area’seconomy afloat. Among the three largest economies, which account for 70% ofeuro-area GDP, only France looked healthy, growing by 0.5%. Italy managed just0.2%; Germany’s economy, poorly for a year, actually shrank. As a whole, theeuro area grew by a mere 0.1%.
Donot expect the French to keep it up, though. Consumption fell by 0.4% inOctober, and rising unemployment will probably keep spending in check. Nor isanybody else likely to take up the running. The European Commission reckonsthat, of the ten euro-area economies for which it forecasts quarterly GDP, onlySpain and Finland will grow by more than 0.25% in the fourth quarter. The oddtwo out, Greece and Luxembourg, may well do better, but all four together makeup less than one-seventh of the euro area’s GDP.
The threebiggest economies, and with them the euro area as a whole, are probably nowshrinking, along with America and Japan. Whether the euro area’s contractionwill last for more than one quarter is unclear. Yet even optimists expect onlyslow growth in early 2002.
Thebest hope for revival lies in a reversal of the forces that have aggravated theeuro area’s slowdown. Rising prices, first of oil and then of food, ate intoreal incomes and depressed spending. The prices of oil and other commoditieshave since fallen fast, and the effects of foot-and-mouth disease and BSE aredue to drop out of the inflation figures. Some economists think that inflation,now 2.4%, will fall to 1% or less in 2002. As well as boosting real incomes,falling inflation (or the expectation of it) ought to create more room for theEuropean Central Bank (ECB) to cut interest rates below today’s 3.25%.
In both Franceand Germany, inventories were run down in the third quarter, so there is notmuch more destocking to be done. Germany’s construction industry, in declinefor two years and a huge drag on growth at the start of 2001, almost stoppedshrinking in the third quarter. The euro’s weakness against the dollar and theyen should help exports.
That’s thegood news. Much else is amiss, notably America’s slide into recession. This hashurt exports, but it has not reduced the euro area’s trade surplus, sinceimports have been squeezed just as hard. Indeed, says Dieter Wermuth of TokaiBank in Frankfurt, Germany is seeing a «trade miracle»: exportsactually rose in the third quarter, while imports fell. The trade balance had abig positive effect on Germany’s GDP figure; feeble domestic demand clobberedthe total.
America’srecession is feeding through to GDP in other ways. Weakening exports areknocking domestic demand, through lower orders to suppliers and cuts in investment.Second, European companies have become more exposed to America through foreigndirect investment: the American affiliates of European multinationals doubledtheir sales in the 1990s, which are now equivalent to almost 9% of euro-areaGDP. An American slowdown means less profit, less investment and loweremployment—in Europe as well as in the United States.
Third,America’s troubles are sapping Europe’s confidence. That has been much clearersince September 11th: Germany’s IFO index of business confidence dipped againin October, after plummeting in September. The link between spirits in the twobig economic regions is more than a couple of months old. The EuropeanCommission says that, between 1995 and 2001, the correlation between confidenceindices in the euro area and America has been almost 0.9, with America justeight or nine months ahead. Where American businesses and consumers lead,Europeans seem to follow closely behind.
On top ofthis, there are domestic weaknesses to worry about. Unemployment, which keptfalling in the early stages of the downturn, is now expected to rise. The ECBhas so far been slow to cut interest rates, and may remain slow in future. Thescope for loosening fiscal policy, especially in Germany, is small: next year’sdeficit will probably be close to the limits set by the euro area’s stabilityand growth pact, which Germany’s finance minister is determined not to violate.Salvation in an American recovery, then? Not only. If rising inflation draggedEurope down, falling inflation should help pull it up. With luck, the fourthquarter will be as bad as it gets for the old continent. But don’t bet on it;and expect a slow climb back up.
 
QUESTIONS
 
1. Whatis the annual growth rate of the euro-area?
2. Whichare the three biggest economies of the euro-area?
3. Whatdynamics of inflation is expected in the current year?
4. AreEuropean companies becoming more exposed to America? In what way?
5. Whatare domestic weaknesses of the major European economies?
BRITAIN AND THE EURO
JUSTas public opinion is apparently warming to the idea of joining the euro,relations between Gordon Brown and the European Commission have soured. Thecause of the dispute is a ticking-off from Brussels about the chancellor’sfiscal plans. This is no ordinary disagreement. It goes to the heart of whetherBritain can both join the euro and maintain the drive to improve publicservices.
At firstsight, the row between Mr Brown and the commission looks more theatrical thanreal. The commission says that Britain is failing to meet the rules of thestability pact by planning to run a budget deficit. This runs counter to thepact’s stipulation that member states—both in and out of the euro area—shouldkeep their budgets «close to balance or surplus over the mediumterm». For the moment, that does not much matter, since fines can belevied only on euro members.
But if Britainwere to join the euro, say in 2004, the stability pact would become
highlyrelevant. Up till now the main focus of debate on whether Britain could make asuccess of euro membership has been about monetary policy. The principalquestion that the chancellor’s five tests seek to answer is whether Britaincould live with interest rates set by the European Central Bank. Underlyingthis is the worry that the British economy differs so much from the rest of theEuropean Union (EU)-for example, through a housing market especially responsiveto changes in interest rates that a one-size-fits-all monetary policy willprove harmful.
The latestrow, however, highlights a different question—whether a one-size-fits-allfiscal policy set in Brussels will prove damaging. One criticism of the pact isthat it makes little sense for countries to limit their fiscal freedom now thatthey have surrendered control over interest rates and exchange rates within theeuro area. That applies to any euro member state. But there are two particularreasons why Europe’s stability pact could prove especially problematic forBritain.
The first isthat Britain’s public infrastructure is exceptionally run-down compared withthe rest of Europe. Government investment is much lower as a proportion of GDPthan in most European countries. After a long period of neglect, culminating inLabour’s first term of office, there is an urgent need to remedy matters. Thatis why Mr Brown plans to double net public investment’s share of GDP to 1.7% by2003-04 and then to sustain this level of spending. He wants to finance most ofthe investment by borrowing, arguing that this is fairer than funding throughtaxation since it spreads the cost of works that will benefit people for manyyears to come. With debt now very low in relation to GDP, he maintains thatborrowing to invest is also fiscally responsible.
But theEuropean Commission is anxious to ensure that the EU as a whole reduces debt inrelation to GDP by running balanced budgets or surpluses. A particular reasonfor this is concern about the future impact of Europe’s ageing populations.This will lead to big increases in spending on pensions and health, resultingin likely deficits and higher debt. This could in turn undermine monetary unionas the more heavily indebted countries lobby for inflationary policies to erodetheir debts. Hence the need to use the next ten or so years, before populationageing gathers momentum, to lower the public debt burden.
That policymay be legitimate for the EU as a whole, but not for Britain. This is thesecond way in which a one-size-fits-all fiscal policy creates a particularproblem because of British exceptionalism. For one thing, Britain’s debt is thethird lowest in the EU as a share of GDP. More important, Britain does not facethe same pressures to raise public pensions as other European countries, partlybecause population ageing will be less intense but also because big privateschemes bear much more of the strain of pension provision, and they, unlikestate pensions, are funded. Worries about the adequacy of pensions have led theBritish government to boost poorer pensioners’ income, but this will not changethe broad picture.
Over the nextfew years, then, there is a mismatch between Britain’s need for higherinvestment and the euro area’s need for lower debt. One way round this would beto interpret the stability pact more flexibly to meet the interests ofindividual member states. Treasury sources say that the commission has nomonopoly of wisdom in interpreting the pact and criticise the commission for anarrow, legalistic approach. The chancellor will press Britain’s case at thenext meeting of finance ministers on February 12th, arguing that his budgetaryprojections are consistent with a prudent interpretation of the stability pact.The commission does not want a confrontation but fears that allowing oneexception will open the door to special pleading by other countries.
If thestability pact were to become binding—as early membership of the euro wouldentail—then this will create real problems for Mr Brown as he tries to find themoney to pay for improvements in the public services. He has already beenpreparing the ground for tax increases in this year’s budget. But these wouldhave to be a lot bigger—possibly as much as £10 billion—for Britain to complywith the pact.
TonyBlair wants Britain to join the euro. He also wants to rebuild the publicservices without upsetting taxpayers. Those two aims may be incompatible.
to asses – work out the (tax) tobe paid by (someone) ledger – a book in which the accounts of a businessare kept accrued – increased by being added to to wade through –read (something long or boring) to forge – make a copy of somethingwritten in order to deceive compliance – when someone obeys a law orrule, keeps an agreement
ACCOUNTING
Some peoplemistakenly think of accounting as a highly technical field which can beunderstood only by professional accountants. Actually, nearly everyonepractices accounting in one form or another on an almost daily basis.Accounting is the art of interpreting, measuring, and describing economicactivity. Whether you are preparing a household budget, balancing yourcheckbook, preparing your income tax return, or running General Motors, you areworking with accounting concepts and accounting information.
Accounting hasoften been referred to as «the language of business.» This languagefinds expression in profit and loss statements, balance sheets, budgets,investment analysis, and tax analysis. Accounting information is the means bywhich firms communicate their financial position to the providers ofcapital—investors, creditors, and government. It enables the providers ofcapital to assess the value of their investments, or the security of theirloans, and to make decisions about future resource allocations. Accountinginformation is also the means by which firms report their income to thegovernment, so the government can assess how much tax the firm owes. It is alsothe means by which the firm can evaluate its performance, control its internal expenditures,and plan for future expenditures and income. Thus it is no exaggeration to saythat a good accounting function is critical to the smooth running of the firm.
Developing andcommunicating accounting information is the role of the business organization’saccounting system.
Accounting —is the process of recording, classifying, reporting and analyzing financialdata. And while the accounting requirements of every business vary, allorganizations need a way to keep track of their money. Unfortunately, there’svery little that’s intuitive about accounting. Many small businesses hireaccountants to set up and keep their books. Other companies use accountingsoftware like QuickBooks, CheckMark Multi-Ledger and M.Y.O.B. Accounting andkeep their accounting functions in house. Using a system of debits and credits,called double-entry accounting, accountants use a general ledger to track moneyas it flows in and out of a business. They record each financial transaction ona balance sheet, which provides a snapshot of a business’s financial condition.Accountants record every financial transaction in a way that keeps thefollowing equation balanced: Assets = Liabilities + Owner’s Equity (Capital).Accounting is based on the periodic reporting of financial data. The basicaccounting cycle includes: 1) Recording business transactions. Businesses keepa daily record of transactions in sales journals, cash-receipt journals orcash-disbursement journals. 2) Posting debits and credits to a general ledger.A general ledger is a summary of all business journals. An up-to-date generalledger shows current information about accounts payable, accounts receivable,owners’ equity and other accounts. 3) Making adjustments to the general ledger.General-ledger adjustments let businesses account for items that don’t getrecorded in daily journals, such as bad debts, and accrued interest or taxes.By adjusting entries, businesses can match revenues with expenses within eachaccounting period. 4) Closing the books. After all revenues and expenses areaccounted for, any net profit gets posted in the owners’ equity account.Revenue and expense accounts are always brought to a zero balance before a newaccounting cycle begins. 5) Preparing financial statements. At the end of aperiod, businesses prepare financial reports — income statements, statements ofcapital, balance sheets, cash-flow statements and other reports — thatsummarize all of the financial activity for that period.
International businesses are confrontedwith a number of accounting problems. One of these problems—the lack ofconsistency in the accounting standards of different countries.
Let’s examinethe problems arising when an international business with operations in morethan one country must produce consolidated financial statements. These firmsface special problems because, for example, the accounts for their operationsin France will be in francs, in Italy they will be in lira, and in Japan theywill be in yen. If the firm is based in the United States, it will have todecide what basis to use for translating all these accounts into U.S. dollars.
Accounting isshaped by the environment in which it operates. Just as different countrieshave different political systems, economic systems, and cultures, so they also havedifferent accounting systems. In each country the accounting system has evolvedin response to the demands for accounting information in that country.
Despiteattempts to harmonize accounting standards by developing internationallyacceptable accounting conventions a myriad of differences between nationalaccounting systems still remain. These differences make it very difficult tocompare the financial performance of firms based in different nations.
Dueto the combined impact of the variables, very few countries have identicalaccounting systems. Notable similarities between nations do exist however, andthree groups of countries with similar standards can be identified. One groupmight be called the British-American-Dutch group. Great Britain, the UnitedStates, and the Netherlands are the trend-setters in this group. All thesecountries have large, well-developed stock and bond markets where firms raisecapital from investors. Thus these countries’ accounting systems are tailoredto providing information to individual investors. A second group might becalled the Europe-Japan group. Firms in these countries have very close ties tobanks, which supply a large proportion of their capital needs. So theiraccounting practices are geared to the needs of banks. A third group might bethe South American group. The countries in this group have all experiencedpersistent and rapid inflation. Consequently they have adopted inflationaccounting principles.
Thediverse accounting practices have been enshrined in national accounting andauditing standards. Accounting standards are rules for preparing financialstatements; they define what is useful accounting information. Auditingstandards specify the rules for performing an audit—the technical process bywhich an independent person (the auditor) gathers evidence for determining if aset of financial accounts conforms to required accounting standards and if itis also reliable.
Substantial efforts have been made inrecent years to harmonise accounting standards across countries. Perhaps themost significant body pushing for this is the International AccountingStandards Committee (IASC)
Otherareas of interest to the accounting profession world-wide—including auditing,ethical, educational, and public-sector standards—are handled by theInternational Federation of Accountants (IFA).
By themid-1990s the IASC had issued over 30 international accounting standards.
The main hindrance to the developmentof international accounting standards is that compliance with the IASCstandards is voluntary; the IASC has no power to enforce its standards. Despitethis support for the IASC and recognition of its standards is growing aroundthe world.
Five GreatTips for Keeping Your Bookkeeping Accurate
Sign AllYour Own Checks in a small business, people — especially full-charge bookkeepers — canbamboo/.le you too darn easily. By signing all the checks yourself, you keepyour fingers on the pulse of your cash outflow. This practice can be a hassle —and you can’t easily spend three months in Hawaii — you have to wade throughpaperwork every time you sign a stack of checks. Finally, if you’re in apartnership, you should have at least a couple of the partners co-sign checks.
Don’t Signa Check the Wrong Way If you sign many checks, you may be tempted to use a JohnHancock-like signature. Although scrawling your name illegibly makes greatsense when you’re autographing baseballs, don’t do it when you’re signingchecks. A clear signature, especially one with a sense of personal style, is distinctive.A wavy line with a cross and a couple of dots is really easy to forge.
ReviewCancelled Checks Before Your Bookkeeper Does Be sure that you review yourcancelled checks before anybody else sees the monthly bank statement. Abusiness owner can determine whether someone is forging signatures on checksonly by being the first to open the bank statement and by reviewing each of thecancelled check signatures. If you don’t examine the checks, unscrupulousemployees — especially bookkeepers who can update the bank account records —can forge your signature with impunity. And they won’t get caught if they neveroverdraw the account. Another point: If you don’t follow these procedures, youwill probably eat the losses, not the bank.
Choose aBookkeeper Who Is Familiar with Computers and Knows How to Do Payroll Don’t worry. You don’tneed to request an FBI background check. Just find people who know how to keepa checkbook and work with a computer. A bookkeeper who knows double-entrybookkeeping is super-helpful. But, to be fair, such knowledge probably isn’tessential. I will say this, however: When you hire someone, find someone whoknows how to do payroll — not just the federal payroll tax stuff but also thestate payroll tax monkey business.
Choose an AppropriateAccounting System Cash-basis accounting is fine when a business’s cash inflowmirrors its sales and its cash outflow mirrors its expenses. This situationisn’t the case, however, in many businesses. A contractor of single-familyhomes, for example, may have cash coming in (by borrowing from banks) but maynot make any money. A pawnshop owner who loans money at 22 percent may makescads of money even if cash pours out of the business daily. As a general rule,when you’re buying and selling inventory, accrual-basis accounting works betterthan cash-basis accounting.
 
QUESTIONS
1.  What is the expression of accountingas ‘the language of business’?
2.  How can the government control taxdiscipline?
3.  What is the essence of accounting?
4.  What main operations does the basicaccounting cycle include?
5.  Why do accounting problems exist ininternational business? What problems do you know?
6.  Name three groups of countries withsimilar accounting standards?
7.  Give the definition of auditing andauditing standards?
8.  What organizations are involved inharmonizing accounting standards?
9.   Does Ukraine use national orinternational accounting and auditing standards?
10. Whatin your opinion is more important accounting or auditing? Give your reasons.
tripartite – having three parts ofgroups to mint – make coins overdraft – a situation in which youdraw more money from a bank account than you have in it merger – joiningof two commercial companies

ENGLISH ANDAMERICAN BANKS
Today the English banking is a complicated tripartitesystem like a three-layer cake. The system is headed by the Bank of England.
This bank was established under a royal charter in 1694.The head of the Bank is Governor of the Bank appointed by me Queen on therecommendation of the Prime Minister. The Queen also appoints Deputy Governorand the Court of Directors, which consists of 16 directors.
The Bank of England is a central bank of a national bank.It controls the British banking system, issues banknotes and mints coins. Itlends and borrows money for the government, manages the national debts and isin the control of the nation’s gold reserve. The others two layers are:
· the commercial or joint stock clearing banks;
· specialized banking institutions such as the discounthouses and merchant banks.
The commercial or joint-stock banks deal with the generalpublic. The four large English commercial banks are known as the Big Four. Theyare Barclays, Lloyds, the Midland, and the National Westminster. Together theyhave upwards of 10,000 branches. Commercial banks render various services tocompanies and individuals. Some of the services are:
· to receive or accept from their customers the deposit ormoney;
· to collect and transfer money both at home and abroadagainst deposit and current accounts;
· to provide overdrafts to both personal and businesscustomers;
· to lend loans to their customers;
· to exchange money;
· to supply economic information and to prepare economicreviews to be published;
· to make foreign exchange transactions, including spottransactions, forward transactions and swap transactions;
· to issue various banker’s cards.
Merchant banks and discount houses deal only with specialcustomers providing funds for special purposes. They accept commercial bills ofexchange and offer quite a lot of commercial services. They provide advisoryservices about new issues of securities, mergers, take-overs andreorganizations. They also arrange financing for their customers and providefund-management services.
Besides there is a big group of banks in the United Kingdommade up of foreign banks. All the major foreign banks are represented in theU.K. by subsidiary, branch, representative offices or consortium. They providefinance both in sterling and in other currencies and offer a wide range offinancial services.
Lombard Street is the symbol of English banking. This is aplace where the first bankers coming from Italy settled.
The English commercial banks have branches in all the majortowns and a similar structure and mode of working is common to them all. Theowners are the shareholders. At the outset they provide the necessary capital.They are all organised on the joint stock principle and are registered publiccompanies.
The Chairman and Board of Directors are elected by theordinary shareholders at the Annual General Meeting and are responsible for theefficient management of the bank. The Board is concerned with the over-allpolicy of the bank and the major decisions which put that policy into effect.
The Board will appoint a Managing Director who is directlyresponsible to them and a member of the Board. They will also appoint the mostsenior executives who in turn appoint the rest of the clerical staff who willbe responsible in different capacities for the day to day running of the bank.
At the end of each business year the Directors recommendand the Annual General Meeting decides how much of the profit should bedistributed to the shareholders as dividend, and how much should be retained inthe business. In preparation for the Annual General Meeting, a bank publishesits Report and Accounts. These must be sent to every shareholder and are alsoavailable for anyone with an interest in the affairs of the bank. From thepublished accounts shareholders can easily determine the total profit the bankhas earned and how much is available for distribution.
Federal Reserve System is the central banking system of theUnited States of America, set up by the Federal Government in 1913. On accountof the vast area of the country, and the greater difficulties of travelling atthat time, the country was divided into twelve Federal Reserve Districts, eachwith its own Federal Reserve Bank.
There are also twenty five branches of the Federal ReserveBanks to serve particular areas within each district. The activities of theFederal Reserve Banks are coordinated through the Federal Reserve Board ofgovernors in Washington. The Board exercises general supervision over theFederal Reserve Banks.
The Federal Reserve Banks hold the reserves of the memberbanks, i.e. the commercial banks which are members of the Federal ReserveSystem. The FR Banks supply the member banks with currency if necessary and actto them as lenders by rediscounting bills. The Board determines the reserverequirements of the commercial banks. The Board too really determinesdiscount-rates. The Board discount rate corresponds in nature to the EnglishBank rate, though the Federal Reserve Banks do not always have the samediscount rate.
The Federal Reserve System, in collaboration with theGovernment of the U.S.A., determines monetary policy and, aided by the FederalReserve Banks, carries it out.
All national banks must be members of the Federal ReserveSystem. Incorporated state banks including commercial banks, mutual savingsbanks, trust companies, and industrial banks, may also join the System.
Incorporated state banks are those which have a charterfrom the state to act as an individual.
Mutual savings banks are savings banks owned by theirdepositors. Industrial banks make loans for the purchase or manufacture ofindustrial products.

QUESTIONS
1.  When was the bank of Englandestablished?
2.  What are the layers of Englishbanking system?
3.  Name the services commercial banksrender in England?
4.  What can you say about foreign banksin England?
5.  Who is elected and who is appointedin the English banks?
6.  How can shareholders get the dividends?
7.  What are specific features of theFederal Reserve System of the USA?
8.  What are its functions as the centralbanking system of the USA?
9.  In what way is the English bankconnected with the FRS?
10. Describetypes of American incorporated banks.
contraction — getting smaller orshorter tremendous growth – huge growth afloat – having enoughmoney to operate and stay out of debt fee – a payment made for specialservice street vendors – persons who sell something in the street refuge– protection from troubles to impoverish – make poor to lodge –to place on the assets lucrative – bringing a good profit to evade– avoid (doing something) by cunning
 
THE COMMERCIAL BANKS
In the conditions of contracting output that dominated the first fiveyears of Ukrainian independence any significant accumulation of capital intoprivate hands could only be achieved by redistributing the already existingcapital, be it productive assets or circulating money capital.
If the state’s way of holding back the pace of economic dislocation andcontraction was to subsidize the costs of heavy industry production and toprint money in an effort to recoup these costs from the disposed income ofconsumers, the resulting inflationary spiral was also conducive to thediversion and private accumulation of social wealth by commercial banks.
Ukraine’s biggest banks grew out of the reorganization of republicbranches of the Soviet central banks in 1988-90. They lay the foundation forthe National Bank of Ukraine (NBU) and several large banks serving key stateindustries. Small commercial banks also made an appearance in this period toserve the new private sector. In March 1991 the Verkhovna Rada adopted the Lawon Banks and Banking, which called for their consolidation into a two tiersystem with the NBU as the central bank responsible for national currencyissuance and clearing, foreign exchange and domestic interest rate policies,and a second tier of independent banks regulated by the NBU.
Three of the five big banks of the second tier — Prominvestbank,Ukrsotsbank and APB Ukraina were registered as shareholding companies in 1990,making them the property of specific state economic enterprises and governmentorganizations.
But in 1993, when the Cabinet of Ministers resolved to put all the sharesof state organizations under the control of the Ministry of Finance, thesebanks’ boards of directors handed ownership rights over to new privatecompanies and to named individuals working in the banks, the state enterprisesand government organizations — i.e. to themselves as physical and juridicalpersons. By the end of 1994 two thirds of all the capital of Prominvestbank and95% of that held by APB Ukraina and Ukrsotsbank were in private hands.
Between 1991 and 1993 the five largest independent banks — Ukreximbankand Oshchadbank in addition to the three cited above — took control of 90percent of all banking services and 95 percent of all foreign currencyoperations in Ukraine. However, over the next three years to 1998 their shareof banking services and operations decreased to 60 percent as a result of thetremendous growth of private commercial banks.
The banks accumulated money capital in several unorthodox ways. Thedirectors of loss-making state enterprises lobbied the Verkhovna Rada and theCabinet repeatedly and successfully for subsidies to keep them afloat. Part ofthe subsidies was channelled through their banks to finance domestic andforeign trade by their own and other private companies. The big banks’ directors,representing substantial sectors of the economy, had privileged access to stateofficials that granted export and import licenses. The banks also got theircredit from the National Bank of Ukraine at rates of interest that were farlower than the rate of inflation. Merely by exchanging the coupon credits intohard currency and waiting a few months before buying back enough coupons torepay the loan could the holder earn quite a few dollars. The big banks sold onsome of their credits to the smaller, less well connected commercial banks fortheir use in money and commodity trade, and made an immediate profit from theinflated transaction fees and insurance premiums on the loans. From their ownpremises and through a network of thousands of franchised street vendors thebanks additionally traded in foreign currencies with the population at large,who regularly sought refuge from inflation for their domestic currency earningsin the dollar and were then forced to sell them back as the cost of living spiralledupwards. Thus the wave of inflation which was impoverishing large numbers ofpeople in these years provided a profitable environment for those who receivedstate subsidies, credits and licenses to trade in their capacity as stateenterprise managers and who then used them for private and corporate gain intheir capacity as directors and shareholders of independent banks.
The government set out to stop the run on state funds from the NationalBank and the state budget through to the commercial banks. State officials andenterprise managers with access to various funds (especially agriculturalcredit and conversion funds) from which they could make speculative earningswere investigated. Under the chairmanship of Viktor Yushchenko, the NBU changedthe way it extended credit to the commercial banks from an «administrativedivision of resources» to credit auctions, and finally by offering statebonds.
In August 1998 the government banned the use of foreign currency aspayment in the domestic retail and service sectors. The commercial banks wereno longer permitted to hold foreign currencies on deposit, and were required tolodge them with the NBU instead.
The commercial banks developed into new areas when subsidies to stateenterprises became more difficult to get and the sharp fall in the inflationrate eliminated the lucrative field for arbitrage. Around thirty banks went tothe wall, mainly because they knew no other trade. But the remaining banks — indeed a continually growing number over the period to 1999 — were involved inserving the private sector, lending money to the government, and for the fewbiggest banks providing services to state sector institutions and programs.Services to the private sector included currency transactions, deposits and trusteeoperations, but perhaps even more importantly in the order of theircommitments, the banks served the shadow economy by providing means to concealcapital, such as channels for capital flight abroad, off-record loans andforeign currency transactions. It was estimated in 1995 that around 40 percentof the total domestic monetary mass was circulating within the shadow economy,unaccounted and untaxed.
The commercial banks had lent the government 760m hryvnia by the firstquarter 1999 through debt bonds. The government itself, however, had 540mhryvnia invested in the banks. Therefore the banks were lending the governmentits own money, and at high rates of interest. This field of activity waslimited, and so the biggest five banks turned to the government to ask forpreferential treatment in handling such financial operations as servicing thestate enterprise budgets, targeted state investment programs, the Pension Fundand other social welfare schemes. In April 1998 the government effectively gavethe monopoly on handling state finances to the NBU and to four commercial banks- Ukreximbank, APB Ukraina, Ukrsotsbank and Prominvestbank.
The Ukrainian banks worked mainly to extract a profit from money andcommodity trade. Legislation impeded their capacity to mobilize investment. Thepublic preferred to save its earnings if it could save — by buying dollars,consumer durable and building homes, rather than putting hryvniain bankaccounts .Where possible, business owners and managers did not use the bankingsystem in order to evade taxation, preferring instead to facilitate theiractivities with cash, debt and barter. Banks had very little capital resourcesof their own: a statutory fund of only $3-5 million, and in some cases lessthan was officially required. In the critical economic circumstances ofcontracting production, with the money supply very tight after 1994 as easycredits and subsidies dried up and interest rates matched inflation rates,businesses in Ukraine — both state owned and private — were in no positioneither to bank earnings or to borrow.
QUESTIONS
1.  When did Ukrainian banking systembegin to form?
2.  Describe a two tier banking system?
3.  What are the functions of the NBU?
4.  Were the first Ukrainian banksstate-owned or private? Why?
5.  Explain the reasons of inflationduring 1991-1993?
6.  How do you understand the definition‘go to the wall’? Did Ukrainian banks go to the wall? Why?
7.  What do you know about shadow economyand its volume in Ukraine?
8.  Is the NBU the only bank handlingstate finances?
9.  What problems existed in Ukrainianbanking system in 1998-2000? Have they been solved?
10. Comparethe development of Ukrainian banks in 1989-1991 and 1998 and say if thesituation has changed greatly since that time.
transaction – payment or the process of making oneevaluation– careful consideration of smth to see how useful or valuable it iscash receipt– a written document showing that an amount in cash was paidcash payments journal – a book containing details/records of transactions in cashcredit sale– a sale in which payment will be made in one payment sometime in the future orin smaller regular payments over a period of timebalance sheet– a document showing a company’s financial position and wealth at a particulartimenet sales – money from a company’s sales in a particularperiod of time after taking off goods returned by customers, discounts, etc.operating expense (alsooverhead expense) – money that isspent on the general running of a business or organization, rather than moneyspent on producing goods or selling servicesliability – an amount ofmoney owed by business to a supplier, lendercurrent ratio – therelationship between the total amount that a business has in cash, in its bankaccounts, and owed by customers, and the total amount that owes to suppliersquick ratio – a calculation of weather a business could pay its debts ifsales stopped or slowed downworking capital (alsooperating capital)– money used by a business to carry on production and keep trading.
 
FINANCIAL STATEMENTS
Good recordkeeping by a business is not only wise, but is required by many laws. Legal andfinancial questions may be raised by various agencies, banks, and employees.These questions can be accurately answered when written records of businessproceedings are kept.
By recordingdailytransactions, the owner can learn from mistakes andavoid errorsin the future. A recordof all the events that occur in a businesspermitsevaluation, improvement, and a good chance for personal andfinancial success.
For a typicalsmall business, it is suggested that the following records be kept:cashreceipts andcash payments journal, record ofcredit sales(sales journal), record of purchases (purchases journal) , record ofwages (payroll),operations statement (profit and loss statement orincome statement),balance sheet. The results of operations and thepresent financial position of the firm are reflected in the income statementand the balance sheet. Management decisions must be weighed in terms of theireffect on these two basic financial statements.
THE INCOMESTATEMENT (the profit and loss statement or the operations statement). Thisstatement is a summary of the income and expenses of the business. The incomestatement summarizes these facts for any period of time. Income statements maybe made for a year, a month, a quarter, or a half-year. Some firms have weeklyor daily income statements. Although many items appear on the income statement,the basic idea is very simple. The formula is:NET SALES minusCOST OF GOODS equals PROFIT. Amount taken minus Amount paid out equals PROFIT.
With a largerbusiness, expenses change the formula somewhat:
NET SALESminus COST OF GOODS SOLD equals GROSS PROFIT.
GROSS PROFITminus EXPENSES (RENT, LIGHT, PHONE) equals NET PROFIT
In businessthere are two kinds of profit: GROSS PROFIT and NET PROFIT.
NET SALESminus COST of GOODS SOLD equals GROSS PROFIT GROSS PROFIT minusOPERATINGEXPENSES equals NET PROFIT.
The operationsstatement is a summary of facts which have been recorded daily in the books ofthe business. No matter how complicated it may look, it is based on thefollowing simple formulas:
GROSS PROFITequals SALES minus COST OF GOODS NET PROFIT equals SALES minus COST OF GOODSAND EXPENSES.
The incomestatement might be compared to a «moving picture». It describes thebusiness in action. It summarizes the results of past activities and giveshints of what the future holds. The final figure, net profit, is of thegreatest importance. One might find, for instance, that even though sales hadincreased since last year, profits were less. The operations statement mightshow that expenses were too high, it might also show that the utilitiesincreased or there was too much loss on bad debts. Once a problem area isidentified, steps can be taken to correct it.
When applyingfor a loan, the bank may want to examine several operations statements. Thebank is interested in how sales compare with expenses, how much inventoryiscarried, and credit which is extended by the business. The owner is provided withinformation about the business from the operating statement. Profits earnedover a period of time, department performance, inventory size, overhead costs,and many other items are shown on the statement.
THE BALACESHEET. In contrast to the operations the balance sheet is a «stillpicture» of the business. ASSETS on one side are balanced againstliabilities on the other. ASSETS include everything that is owned by thebusiness. LIABILITIES are those amounts which the business owes.
The principleis the same regardless of the size of the business. It is expressed in theformula: ASSETS minus LIABILITIES equals NET WORTH or ASSETS equals LIABILITIESplus NET WORTH.
The figuresfor the balance sheet come from the records kept by the business. Each item onthe balance sheet is based on facts that have been recorded daily in differentledger accounts. The records used for the operations statement are also used inpreparing a balance sheet.
CURRENTRATIO.The assets are divided into current assets and fixed assets. The relationshipbetween current assets and current liabilities is a prime measure of liquidityof any firm. Liquidity is the measure of ability to pay debts as they becomedue.
Current assetsare assets that are in the form of cash or will convert into cash within 90days. Current liabilities are those debts that will be due within one year. Therelationship between current assets and current liabilities is called thecurrent ratio. Sound financing demands that this ratio be at least 2 to 1. Thecurrent ratio is found by dividing the current assets by the currentliabilities:
QUICKRATIO.This ratio is also known as the acid test of liquidity. It is the relationshipbetween only the most liquid assets (cash and accounts receivable) and thetotal of the current liabilities. The conservative rule is that this ratioshould be at least 1 to 1. In other words, cash plus receivables should equalor exceed the current liabilities.
WORKINGCAPITAL.Working capital is the difference between current assets and currentliabilities expressed in dollars.
THEPROPRIETORSHIP RATIO of owner’s equity ratio is the relationship between theowner’s investment in the firm and the total assets being used in the business.This ratio can be expressed as a ratio of owner investment to total assets oras a percentage of those assets.
There are manyother ratios utilized in the analysis of business firm operations. Most smallfirms that maintain adequate current ratios, quick ratios, and working capital,proper inventories, and a 50 percent proprietorship ratio maintain soundfinancial structure.
TRADING ONEQUITY. In connection with owner investment, prospective business owners andmanagers should become familiar with the phrase «trading on equity».This phrase refers to the relationship between the creditor capital(liabilities) in the business and the owner capital. Trading on too thin anequity is a term used to describe owners who have too little of their own moneyinvested compared with the creditor capital (liabilities) used to finance thebusiness. A proprietorship ratio of 50 percent indicates that the owner orowners have invested half the value of the total assets used in the business.When this ratio falls below 50 percent, the outside creditors are supplyingmore of the firm’s total capital needs than the owners are. This indicates, inmost cases, that further capital will be more difficult to obtain either fromcurrent loans, sale of securities, or other investors. Such owners are trulytrading on too thin an equity and probably need more investment capital oftheir own.
 
QUESTIONS
 
1.  What records is a typical smallbusiness supposed to keep?
2.  What is the income statement?
3.  What kinds of profit in business doyou know?
4.  Would you name the formula tocalculate gross profit and net profit?
5.  What is the essence of the balancesheet?
6.  What does each side of the balancesheet represent?
7.  What in your opinion is thedifference between current ratio and quick ratio?
8. Whatis proprietorship ratio?
doggedly – refusing to yield towedge – push into a small or tight space soubriquet – cognomen,by-name sophisticated – complicated and refined; elaborate, subtle
ECONOMIC POTENTIAL OF UKRAINE
WesternBound
One of thefour original republics, which formed the USSR in 1922, Ukraine is today edgingcloser to the West in its ambition to restore its economy and capitalise on itsconsiderable assets.
Since thecountry declared unilateral independence 1990 and the collapse of the SovietUnion, it has doggedly ploughed on with the transition from centralised commandeconomy to a free market economy. Since 1991 Ukraine has developed much closerrelations with the West. In 1994 Ukraine renounced the nuclear weapons it hadinherited from the USSR and it has since joined NATO’s Partnership for Peaceprogramme. It has also applied to become an associate member of EU, with theobjective of full membership in the long run. Wedged in the south east cornerof Europe, pressing down on the Black Sea and the Sea of Azov, Ukraine is in astrategic location as a link to western Europe and to the East. It is a largecountry of more than 50 million inhabitants — at 231.990 sq. miles the secondlargest in Europe — and it is rich in mineral resources, including oil, gas andcoal.
EconomicTransition
Ukraine has anextensive high-technology sector which it inherited from the USSR, awell-educated labour force. There are also vast fertile plains, with soil thatis even richer than the prairies of North America, earning the country thesoubriquet breadbasket of the Soviet Union”.
Over the past8 years the country has carried out extensive reforms to fulfil its potential,but it is still struggling with some of the difficulties of its transition to amarket economy. Figures published recently by the Ukrainian National StatisticsCommittee confirm the current situation. They show a drop of 1.7% in GDP in1998, with industrial and agricultural output down by 1.5% and 8.3%respectively, and inflation at 20%, double that of 1997. By contrast the tradebalance was positive in 1998, with exports at $16.4 billion and imports at$16.1 billion, although both were some 13% lower than the year before.
The governmenthas done much to liberalise economy since 1994, when they began the process ofreform. Economy Minister Vasyil Rohovy explains: «We overcamehyperinflation that reached 1000% a year. We succeeded in achievingmacroeconomic and financial stabilisation. We started the privatisation processand managed to speed it up. We established conditions for small and medium — size businesses. We also implemented monetary reform and introduced thenational currency, the hryvnia, two years ago.» Members of the governmentadmit that more reforms are needed if they are attract more foreign investmentand so develop the country’s resources. They accept that there has to be lessstate regulation and a less punitive tax system. But they insist that they havebeen unable to overcome political opposition, particularly in the Ukrainianparliament. ” I believe it is because 7 years is still a very short periodfor a country that for 70 years lived under Soviet control”, says SerhiyTyhypko, deputy prime minister and minister for economic reform. ” I thinkit is just a matter of time before we have created the conditions necessary forinvestors.”
Khlib Ukrainy(Bread of Ukraine), the state joint stock company responsible for grainproducts, is in the process of privatisation. Company chairman HeorhiyOmelchenko said that investors should not be afraid of investing in theconstruction of facilities.
SpacePioneers
Ukraine hasgreat expertise in aircraft manufacture and space technology, developed whenthe country was at the centre of the Soviet space program.
On July 17 aZenit 2 rocked was successfully launched. It carried into orbit an Ocean 0Ukrainian-Russian satellite (6300 kg). It is designated for scientific purposes- to carry out scientific researches and observations of the earth’s surface-in the interests of both Ukraine and other countries. A well-earned triumph ofUkrainian space scientists was achieved on 27 March when a three-stage Zenitrocket, designed and built by KB Uzhnoye of Dnipropetrovsk, was the firstcommercial launch from an ocean-based platform, and a successful demonstrationof the potential of a new technology, orders for 8 more Zenit rockets havesince been received. The successful launch has served to restore the reputationof Ukraine’s Zenit rockets, which was dented when a land-launched Zenit 2crashed in Sept 1998. The failure was later found to have been caused by afaulty, made on-board computer, made in Russia.
Spaceexpertise is just one of the high-technology areas in which Ukraine is takenadvantage of its scientific potential. The country has some 200.000well-trained scientists, with advanced knowledge in a wide range of fields. Inspace matters ,Ukraine extensively co-operates with Russia and westerncountries.
ComputerKnow-how
Another areaof rapid high-technology development is the personal and integrated computerindustry, which has grown by leaps and bounds since the 1980s. The domesticmarket is still small, but Evheniy Utkin, president and chairman of the boardof Kvazar Micro, which assembles and distributes them, expects sales to grow to600.000 in 2003, compared with 200.000 in 2001.
«In myopinion, Ukrainian users are more sophisticated than those in Europe or easternEurope because Ukraine has always been a technologically developed country,particularly in electronics,» he says.
TelecommunicationsBoom
There iscertainly great potential for the development of telecommunications in Ukraine,where the density of telephones is only 18 per 100 inhabitants, well below thatof west European countries. Foreign investment was accepted in 1992, when twojoint ventured were established: Utel and UMC.
Huns Wagenaar,chairman of Utel’s Supervisory Board, says: ” Ukraine needs to attractbillions of dollars to improve and expand its networks. We are sure that themarket will grow. But there is great uncertainty over the pace.”
An important debate is under way in Ukraine over the futureof Ukrtelecom, the state-owned telecommunications operator. The governmentwants to privatise the company, in the belief that in this way it can attractthe investment needed for its development, but there is opposition in theparliament and the proposal was rejected there in December 1998. Thegovernment’s aim is to sell 25 percent plus one share of Ukrtelecom to astrategic investor, while retaining a 51 percent share itself. But it cannot dothis under existing legislation, because Ukrtelecom is on a list of ‘strategic’companies which may not be sold off.
Industrial Strength
There is alsoconsiderable potential in heavy industry. Some of the world’s bestmetallurgists, engineers and scientists are on tap, as well as skilled labourforce. It is estimated there are enough coal reserves to last 300 years and,while old coal-burning power stations which pollute the atmosphere will beslowly phased out, the way ahead points to the construction of modernclean-burn power plants which produce little or no gas emissions.
Thegovernment, via the State Property Fund, is now planning to sell 26 percent ofNikopolskiy ferrous alloys plant, in which the government will retain a 50percent stake until 2001.
One leadingcompany which has successfully restructured and found new markets isDneprospetsstal, which is a joint stock company 68 percent-owned by financialinvestors and 32 percent-owned by government. Having modernised its facilities,the company now exports 100.000 tonnes of rolled steel to Europe. «Althoughthe European quota is 45.000 tonnes annually, we are bypassing the quotabecause it is high quality steel», says Hennadiy Kikyo, Dneprospetsstalchairman. ” That is why European manufacturers are developing methods tofight us. They cannot declare antidumping because we sell it at Europeanprices.”
FromStability to Progress
On 24 AugustUkraine celebrated the anniversary of its independence. Ukraine continues toprogress toward market economy status. However, the time is fast approachingwhen it is no longer sufficient to speak of great potential alone. The comingyear is arguably one of the most important in Ukraine’s new history and recentstability suggests that it is up to the challenge.

QUESTIONS
 
1.  Why does Ukraine try to entrydifferent international organizations?
2.  Can you say that Ukrainian economy isdeveloping?
3.  What are the results of reforms inUkrainian potential development?
4.  Is our country still a “spacepioneer”? What do you know about successes of space industry of Ukraine?
5.  If you were a computer companymanager, what difficulties would you see in this area in Ukraine?
6.  What kind of telephone do you have?What would you advise Ukrainian government to improve the situations withtelecommunications?
7.  Do you see a huge potential ofUkrainian heavy industry? Give examples from our town economy.
8.  How can privatisation influence theUkrainian economic potential?
9.  Give the definition of dampingprices. Do Ukrainian plants use them? In what spheres?
10.  Do you consider the 24-th of August agreat holiday? What about your parents and grandparents?

List of the Topics
1. Whatis marketing?
2. Marketingconcept
3. Marketingstrategy
4. Theforeign exchange and capital markets
5. Budgetingin business
6. Problemsof European union
7. Britainand the euro
8. Accounting
9. Englishand American banks
10. Thecommercial banks
11. Financialstatements
12. Economicpotential of Ukraine