BUSINESS ENGLISH 2

RESOURCE BANK
Version B
2021/22

Compiled by:
The Department of Business Foreign Languages

1
 COURSE CONTENTS

TOPIC TEXT SOURCE

INTRODUCTION Course Contents RB*
RB Contents
Business English II: Information for
Students
BUSINESS Business presentations RB
PRESENTATIONS
REPORT WRITING Report writing RB
DESCRIBING GRAPHS Describing graphs RB
AND CHARTS
TRADE Retail trade: Distribution channels RB
New trends in retail
E- commerce: Clicks and Bricks
International trade RB + MK 27
Visible and invisible trade
Protectionism and barriers to trade

THE EUROPEAN The European Union: Current RB

UNION challenges and future prospects
A brief history of the EU enlargement RB
BANKING Banking MK UNIT 14
The role of banks RB
The banking crisis: Northern Rock RB
The Business Cycle MK UNIT 23
Central banking functions RB
Monetary and Fiscal Policy RB
Exchange rates MK UNIT 26
INSURANCE Insurance RB

FINANCE Accounting and financial statements MK UNIT 19 + RB

The financing of corporate activity RB
Stocks and shares MK UNIT 17 + RB
Bonds MK UNIT 16 + RB
Derivatives MK UNIT 18
Takeovers MK UNIT 21
THE CREDIT CRISIS The credit crisis RB
Final Revision: Capitalist Fools RB

RB - Resource Bank compiled by the Department of Business Foreign Languages

MK - Coursebook English for Business Studies (MacKenzie, I. (2010) Third Edition, CUP),
with the number indicating the unit related to the specific topic

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 RESOURCE BANK CONTENTS

TOPIC TEXT PAGE

1 INTRODUCTION Course Contents 2

RB Contents 3
Introduction - Business English II: 4-5
Information for Students
2 PRESENTATIONS Introduction 6-7
Structure of presentations 8
Signposting and useful language 9-14
Talking slides
15-16
3 REPORT WRITING Introduction 17-18
Structure 19-20
The language of reports 21-24
Report writing tasks
25-27
4 DESCRIBING Types of graphs and charts 28-29
GRAPHS AND Verbs 30-32
CHARTS Nouns 32-33
Adverbs and adjectives 33-34
Prepositions 34-35
Saying numbers and the language of 35-36
approximation
Describing graphs in a paragraph 37-38
Practice 39-40
5 TRADE Retail trade: Distribution channels 41-43
New trends in retail 44-48
E- commerce: Clicks and Bricks 49-50
International trade 51-52
Visible and invisible trade 53
Protectionism and barriers to trade 54-56
6 THE EU The European Union: Current Challenges 57-61
and Future Prospects
A brief history of the EU enlargement 62-63
REVISION 1 Revision 1 64-65
7 BANKING The role of banks 66-69
Practice 70-71
The banking crisis: Northern Rock 72-73
Central banking functions 74
Monetary policy 75-77
Fiscal policy 77
Monetary policy: Case studies 78-79
REVISION 2 Revision 2 80-81
8 INSURANCE Insurance 82-85

9 FINANCE Introduction to business finance 86

Accounting and financial statements 87-97
The financing of corporate activity 98-99
Bonds and shares compared 100
Practice 101-103
Derivatives 104-105
10 THE CREDIT The credit crisis 106-108
CRISIS
REVISION 3 Revision 3 109-110
The final revision: Capitalist fools 111-114

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 1 INTRODUCTION

Business English 2
Information for Students

COURSE AIMS

This course aims to:

☐ develop students’ business communication skills (written and oral)
☐ help students acquire specialist vocabulary (on selected business topics)
☐ strengthen students’ academic skills
☐ help students understand the difference between written/spoken language and formal/informal
language
☐ develop students’ critical thinking skills (analysis, synthesis, foreseeing, deducing, selecting…)
☐ help students learn how to use dictionaries and other reference material

COURSE REQUIREMENTS
1 Regular attendance and class participation
2 Passing one oral progress test (a presentation)
3 Passing two written progress tests or one comprehensive written test at the end of the term
4 Passing the final oral exam

A The written tests will examine:

☐ reading skills: understanding texts concerned with contemporary business issues and academic
content
☐ writing skills: ability to write reports using the appropriate style (register, layout, coherence,
clarity, concision, visual appeal)

B The presentation should demonstrate:

□ Successful team work

□ Thorough research
□ A clear structure
□ The effective use of the language of presentations

C At the final oral exam you are expected to:

☐ demonstrate your ability to clearly and coherently present business topics covered by the course
☐ express a viewpoint on a topical issue (advantages, disadvantages, agreeing, disagreeing…)
and ask relevant questions.

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REQUIRED LITERATURE

1 MacKenzie, I. (2010) English for Business Studies, Third Edition, CUP

2 Business English Resource Bank 2, 2020/21

RECOMMENDED LITERATURE

1 Longman Business English Dictionary (most recent edition)

2 Špiljak, V. ed. (2000) Englesko-hrvatski poslovni rječnik, Masmedia
3 Englesko-hrvatski poslovni rječnik, Školska knjiga, 2006

SUGGESTED ADDITIONAL SOURCES

☐ Business Week, The Financial Times, The Economist…

☐ CNBC, Bloomberg, business programmes on BBC and CNN
☐ web sites: bized.com, investopedia.com, quickmba.com, startup.wsj.com, dictionary.com,
harvardbusinessonline.hbsp.harvard.edu, encarta.msn.com, acronymfinder.com, uefap.com,
cusd.com/calonline/econ

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 2 PRESENTATIONS
1 Introduction
2 The structure of presentations
3 Signposting and useful language
4 Talking slides
5 Types of visuals and graphics

1 INTRODUCTION

I Discuss the following questions.

1 What is a presentation?
2 For what purposes are presentations made in business?
3 What makes a presentation effective?
4 What is the worst presentation you have ever experienced?
5 Even experienced presenters can make mistakes during a presentation. Can you give
any examples from firsthand knowledge?

II Read the text below and finish the notes that follow:
Presentations are also referred to as "talks" in English. You can give talks on different subjects in all
kinds of circumstances or situations. The most obvious type is the sales presentation, but you can also give
presentations/ talks at conferences, lectures, board meetings, forums, etc.

THE ART OF GIVING PRESENTATIONS

Good presenters know how to attract their audience's attention. They show enthusiasm and make
what they say as if it really matters. They are well-prepared about what they want to say and know how
to best present their subject. They are in control of their body language, the aids (visual aids, audio
aids), time and voice. The art of giving presentations is an important and complex business skill that can
be mastered by gradually building up your competence and confidence through lots of practice.
Everyone needs to be an effective presenter, and everyone can become an effective presenter. The
way to do that is to observe the rules of good presentations.

PREPARING YOUR PRESENTATION

The preparation of a presentation is the most important step towards success. It includes external and
internal factors. One of the external factors is audience. You need to know as much as you can who
your audience is, how many people you can expect in your audience, what their level of knowledge on the
subject is, what mood they are in, and how much time they have at their disposal. The other external
factor is the location (venue) and its opportunities or limitations. These refer to the size, the design, and
the technical equipment.

The most important internal factor in preparing your presentation is to decide on the purpose which can
be to inform, to persuade, to train, or to amuse your audience. Once you have done that you can set your
objectives and the type of content you will gather. However, not all information you have gathered will
be appropriate for your effective presentation. It is very important to select only the relevant points
and eliminate the unnecessary information. The next step is to organize the points you want to talk about
into a structure and decide on suitable visual aids to support your talk. The structure should always have
the beginning, the body and the end.

DELIVERING THE PRESENTATION

During the presentation keep eye contact with your audience. Do not read. You may use notes and
prompts to help you follow the prepared structure. This way you will use the natural spoken language and
thus make it easier for your audience to listen. Fluency is important and can be achieved by practicing
before delivery. Use simple and transparent language and don't hesitate to repeat, rephrase or give
examples as long as you give the right signals. Your audience has to know at any point where you've
come from, where you are, where you are going.
Source: Špiljak, Liszt, Krnajski Hršak, Gjukic. English for Business 1, Zagreb, Mikrorad d.o.o., 2000.

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 NOTES ON THE TEXT

PARAGRAPH 1:

A good presenter should:

o attract the audience’s ......................

o show ......................

o be convincing.

o be ......................

o know how to ......................

o be in control of ...................... and ......................

o build ......................and ...................... through ......................

PARAGRAPHS 2 AND 3:

In preparing your presentation consider the following:

The audience: The venue:

o ...................... ○ ......................
o ...................... ○ ......................
o ...................... ○ ......................
o ......................
o ......................
The purpose: to ...................... Information: ○ ......................

to ...................... ○ ......................

to ......................

to ......................

The structure: ○ beginning

○ ......................

○ ...................... and ...................... to support your talk.

PARAGRAPH 4:

While delivering your presentation:

1. keep eye contact 6.
2. 7.
3. 8.
4. 9.
5. 10.

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 2 THE STRUCTURE OF PRESENTATIONS

I Study the three main parts of presentations.

1 INTRODUCTION

2 BODY
Questions
3 CONCLUSION

Questions

First you say what you’re going to say.

Then you say it.

Finally, tell them what you’ve said.

II Study how the main parts of presentations are organised.

A well-organised presentation with a clear structure is easier for the audience to follow.
It is therefore more effective. You should organise the points you wish to make in a
logical order. Most presentations are organised in three parts, followed by questions:

BEGINNING Short introduction • welcome/greet your audience

• introduce yourself and your subject

• explain the structure of your presentation
(outline the presentation)
• explain rules for questions

MIDDLE Body of presentation • present the subject itself

END Short conclusion • summarise your presentation

• thank your audience

• invite questions

Questions and Answers

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 4 SIGNPOSTING AND USEFUL LANGUAGE

I Study the text below and find out what signposting is.

If you want your audience to understand your message, your language must be simple and
clear. Use short words and short sentences. Do not use jargon, unless you are certain that
your audience understands it. In general, talk about concrete facts rather than abstract ideas.
Use active verbs instead of passive verbs. Active verbs are much easier to understand. They
are much more powerful.

When you drive on the roads, you know where you are on those roads. Each road has a
name or number. Each town has a name. And each house has a number. You can look at
your atlas for the structure of the roads in detail. In other words, it is easy to navigate the
roads. But when you give a presentation, how can your audience know where they are? How
can they know the structure of your presentation? How can they know what is coming next?
They know because you tell them, because you put up signposts for them, at the beginning
and all along the route. This technique is called ‘signposting' (or 'signalling').

During your introduction, you should tell your audience what the structure of your
presentation will be. You might say something like this:

“I'll start by describing the current position in Europe. Then I'll move on to some of the
achievements we've made in Asia. After that I'll consider the opportunities we see for further
expansion in Africa. Lastly, I'll quickly recap before concluding with some... ”

A member of the audience can now visualize your presentation like this:

Introduction • Welcome
• Explanation of structure
Body • Europe
• Asia

• Africa
Conclusion • Summing up
• Recommendations

He will keep this image in his head during the presentation. He may even write it down. And
throughout your presentation, you will put up signposts telling him which point you have
reached and where you are going now. When you finish Europe and want to start Asia, you
might say:
"That's all I have to say about Europe. Let's turn now to Asia."

When you have finished Africa and want to sum up, you might say:

"Well, we've looked at the three continents Europe, Asia and Africa. I’d like to…”

And when you finish summing up and want to give your recommendations, you might say:

"What does all this mean for us? Well, firstly I recommend..."

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II Study the phrases used for performing different language functions in
different parts of presentations.

1) INTRODUCTION

The introduction is a very important - perhaps the most important part of your presentation.
This is the first impression that your audience has of you so you should concentrate on
getting your introduction right. The following table shows language phrases which are useful in
the introduction.
FUNCTION POSSIBLE LANGUAGE

1 Welcoming Ok, let’s get started…

your audience Good morning, ladies and gentlemen…
Good afternoon, everybody…
Thanks for coming …
My name’s …
For those who don’t know me…

2 Introducing PURPOSE
your subject
What I want to do today is…
I am going to talk about…
The purpose of my presentation is to introduce our new range of
products…
In my talk, I’d like to discuss/highlight/show…
My purpose today is to talk about/report/ present…
TOPIC
The topic of my presentation is …
The subject of my talk is…
I’m going to talk about…
I’m going to be reporting on…
3 Outlining I’d like to give you a brief overview of my presentation.
your My presentation is divided in three parts…
structure
First, I’ll talk about /deal with…
Then/Next/Secondly, I’ll consider…
Thirdly/Finally, I’ll...

EXAMPLE: To start with I'll describe the progress made this year. Then I'll mention some
of the problems we've encountered and how we overcame them. After that I'll consider
the possibilities for further growth next year. Finally, I'll summarize my presentation
before concluding with some recommendations.

4 Giving Do feel free to interrupt me if you have any questions.

instructions
I'll try to answer all of your questions after the presentation.
about
questions I plan to keep some time for questions after the presentation.

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2) BODY
The body is the 'real' presentation. If the introduction was well prepared and delivered, you will
now be 'in control'. You will be relaxed and confident. The body should be well structured, divided
up logically, with plenty of carefully spaced visuals. Remember these key points while delivering
the body of your presentation:
• do not hurry
• be enthusiastic
• give time on visuals
• maintain eye contact
• modulate your voice
• look friendly
• keep to your structure
• use your notes
• signpost throughout
• remain polite when dealing with difficult questions

FUNCTION POSSIBLE LANGUAGE

1 Signal the start of Let me begin with…
each part Now, if we turn to…
Let’s deal next with…
This brings me to…
I would like to go on to…
…to move on to…
Moving on to my next point…
Let me expand/elaborate on that a little before we go on.
2 Summarize at the end To summarise/conclude.. In
of each part conclusion,…
I’d like to conclude by reporting…
I’d like to recap…

3) CONCLUSION
In the last part of the presentation, you sum up the main points and give your main
conclusion. Sometimes, it is possible to make a recommendation as well.

FUNCTION POSSIBLE LANGUAGE

1 Repeat your main To summarise, I’d like to repeat…
points To conclude,…
2 Give your main In conclusion,…
conclusion Let me recap…
3 Signal an end Well, that’s all I have to say…
Thank you for your attention…
4 Handle questions GOOD QUESTIONS
I’m glad you asked about…
Good point,…
DIFFICULT QUESTIONS
I’m afraid I don’t have that information with me… I
don’t know that off the top of my hat.
UNNECESSARY QUESTIONS
I think I answered that earlier…
Well, as I mentioned earlier…
I’m afraid I don’t see the connection.
IRRELEVANT QUESTIONS
To be honest, I think that raises a different issue.

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 EXERCISES

I Underline the words/expressions /sentences in the presentation below that can

generally be used in most presentations.

“Good morning everyone, thanks for coming to my presentation. I know you're all very busy, so I'll
be as brief as possible. OK then, I’m going to talk about the new chocolate bar we’re putting on
the market, the St Tropez premium bar. I'll tell you about the test launch we carried out in the south
west of England a few weeks ago.

My presentation is divided into three parts. First I’ll give you some background about the launch.
After that, I’ll tell you how we got on and assess the effectiveness. Finally, I’ll outline the future plans
for the product. If you have any questions, don’t hesitate to ask.

Right, let’s start with the background to the launch. As you know, St Tropez is a mint and nut bar
with a distinctive taste. It’s been thoroughly tested in focus groups and special attention was paid
to packaging. It’s wrapped in a metallic foil. The colours are rich, strong, to give high quality visual
impact. OK everyone? Yes, John, you have a question…

So, that’s the background. Right, let’s now move on to the test launch. How successful was it?
Well, in two words, very successful. If you look at the graph, you’ll see the bar’s actual sales
compared to forecast sales. Quite a difference, isn’t there? The sales were over 20% higher than
we predicted. In other words, a really good result. Well above our expectations. The sales show
that the pricing of the product was correct. And they show that as a premium line, the St Tropez bar
should be successful nationwide. To sum up, a very promising test launch. I believe the bar has
the great potential in the market.

Right, where do we go from here? Obviously, we’ll move on to stage two and have a national
advertising and marketing campaign. In a few months, you’ll be visiting our sales outlets and taking
orders, I hope for the new product. Thanks very much. Any questions?”

Source: D. Cotton, D. Farley, S. Kent: Market Leader, Longman, 2000.

II Practise reading aloud the presentation above as if speaking to an audience. Try

making eye contact with them as much as possible.

12
III Complete the following presentation excerpts with suitable words from the
boxes.

1-14
15-28
after that finally outline indicated talked interrupt
to start with
you will notice pointed out

specifically concluding draw your attention expand

bring you up to date recommend move on options

illustrate purpose then priority referring
thank sum up in conclusion on balance
tell you describe

Good afternoon, everybody. I’d like to 1) _______________ you all for being here.
My 2) _______________ today is to 3) _______________ about our corporate strategy for the
next decade, and, more 4) _______________, to 5) _______________ with our plans for Europe.
6) _______________ I’d like to 7) _______________ briefly our current marketing policy in the
UK. 8) _______________ I’ll 9) _______________ some of the problems we’re having over
market share. 10) ______________ I’ll 11) ______________ the opportunities we see for
further progress in the 21st century. 12) _______________, I’ll quickly 13) _______________
before 14) _______________ with some recommendations.
Please feel free to 15) _______________ me if you have any questions at any time.

Now I’d like to 16) _______________ to Chart B showing our sales revenue and pre-tax profits
over the last ten years. 17) _______________ that although turnover has risen, our profits have
not increased at the same rate. I’ve 18) _______________ about our current position in the
UK and I’ve 19) _______________ some of the problems we are facing.
Well, what 20) _______________ are open to us now? Where do we go from here?
As I have already 21) _______________, I think our first 22) _______________ must be to build
on the excellent results we have achieved in certain European markets. I’m 23) _____________,
of course, to Italy and Spain. Let me quickly 2 4 ) _______________ on those successes
before we 25) _______________.

We should not forget the French market. Admittedly our results there have been poor so far, but
there are signs the market is changing and we can learn a lot from our mistakes.
26) _______________, though, I think we stand to gain most from concentrating on southern
Europe and I strongly 27) _______________ we put all our efforts into further expansion in Italy,
Spain and possibly Greece.
28) _______________, may I thank you all for being such an attentive and responsive
audience. Thank you also for your pertinent questions. Are there any final questions?
Source: D. Cotton, S. Robbins: Business Class, 1993

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IV Think of a topic you are familiar with (e.g. tourism in Croatia, traffic problems in
your home town etc.). Use this framework to practice structuring an ad-hoc
presentation to deliver to your group in class.

o Good morning everyone, thank you for coming to my presentation.

o My name is ____________________ and I'd like to talk about _____________________.

o I hope this will not last too long, maybe ____________________ minutes.

o If you have any questions please ask me at the end of my presentation.

o I have divided my talk into three parts. First, I'll talk about _____________________, then

I'll say something about ____________________ and finally, I’ll ____________________

_.

o Ok, let’s start with my first point: _

_.

o Let me now move on to my second point:

_.

o My last point is: _

_.

o To conclude, I’d like to repeat that

_.

o Well, that’s all I have to say about _____________________, so if you have any questions,

I’ll try to answer them now.

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TALKING SLIDES

I Compare the speaker's introduction on the left and the slide which
accompanies the talk on the right.
WHAT YOU SAY: WHAT YOU SHOW:

Good afternoon everybody. My name is

Adrian Brown and I’d like to thank you all first
of all for giving up your time to come here
today and listen to me. I hope that by the end
of the day you’ll think that your time has been
well spent.

I’m going to talk today about a new product,

a new range of mobile phones, and I’m not
only going to tell you about the product but
how, by selling it, we can make profit by doing UPDATE FOR SALES STAFF
just that. And that I suppose is the most
important effect of this talk – how we can
make profit in the coming year.
• Novelia xyz 007
So, roughly I’ve divided my presentation into • Sales techniques
three parts: firstly, I’ll present the new • Profit projections for 2011
product, then I’ll outline some sales
techniques and finally I’ll present the profit
projections for this line of mobile phones.

Well, now, let me turn to my first point…

II Try to organize the first slide for the presentation on page 86:

III Study these additional hints on how to avoid death by PPT.

1 Use no more than 3 slides per minute.
2 Minimize the reading-out-loud of each slide.
3 Ban all font lower than 24.
4 Avoid turning your back to the audience.
5 Keep the lights on.
6 Use a powerful projector.
7 Use the right graph type.
8 Tell your audience what’s coming, what is and what has been said.
9 You – not your slides – are the centre of your presentation!

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TYPES OF VISUALS AND GRAPHICS

I Match the type of chart with its name.

______ a flow chart ______ a line chart ______ a diagram

______ a bar chart ______ a pie chart ______ a drawing or illustration

______ a pie chart ______ a plan

1 2 3
4

7 8

II Practice referring to visuals using these phrases.

• Have/take a look at this chart/diagram/graph here.

• As you can see in this …
• The vertical/horizontal axis shows…
• The solid line (_____) shows...The broken line (_ _) shows …The dotted line (…) shows …
• I’d like you to take a look at one or two interesting details…
• I’d like to draw your attention to…
• I’m sure the message here is…
• I’d like you to think about the significance of this figure here.
• If you look at this graph more closely, you’ll notice…
• Whatever the reason for this, the underlying trend is obvious…
• Whichever way you look at it, these are some of our best results.
• I’m sure the lesson to be learned from this is clear to us all.
• I’m sure the implications of this are…

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 3 REPORT WRITING
1 Introduction
2 Structure
3 Useful phrases
4 Report writing tasks

1 INTRODUCTION

WHAT IS A REPORT?
☐ A report is a piece of factual writing, usually based on some kind of research or real-life
experience.
☐ It usually focuses on factual information about the past, but may also include recommendations.

PURPOSE
☐ You may be asked to give information, evaluate something or make suggestions or
recommendations.

TARGET READER
☐ Usually the person who is asking for the report.
☐ This may be an official group of people in authority, your employer or a group of colleagues you
study or work with.

A FEW QUESTIONS TO THINK ABOUT BEFORE WRITING A REPORT

☐ What have I been asked to do?
☐ Who is this report for? What kind of information do you think the target reader will be interested in?
What will they expect to achieve by reading the report?
☐ What specific areas do I need to cover?
☐ What factual information do I need to present?
☐ What will I discover?
☐ What are my general opinions on the result?
☐ What particular recommendations do I wish to make? (Am I in the position to make any?)

CONTENT- WHAT INFORMATION SHOULD I INCLUDE?

☐ Ensure that you fully understand the purpose of the report.
☐ Make a number of points in answer to the question.
☐ Use section headings for clarity.
☐ Include facts or results of a survey or research.
☐ Give description and explanation in support of each argument.
☐ Summarise your conclusions in the final part and conclude with a personal recommendation.

17
REGISTER
☐ It depends on the target reader, but the report will almost always be FORMAL
☐ Do not use colloquial phrases (e.g. ‘masses of’). Replace them with formal ones (e.g. ‘ a large
amount of’)
☐ Do not use contractions (e.g. ‘don't’, ‘haven't’, 'cos, etc.). Replace them with their full forms instead
(e.g. ‘do not’, ‘have not’, ‘because’, etc.)
☐ Avoid phrasal verbs (e.g. pick up, set up, etc.). Replace them with one-word verbs (e.g. 'take a
look at' with 'investigate')
☐ Replace general verbs with the specific ones (e.g. 'got' with 'received')
☐ Replace extreme adjectives with less extreme ones (e.g. 'huge' with 'large')

Adapted from: http://elc.polyu.edu.hk/cill/eiw/reportformality.aspx

CONTENT
☐ Include true facts, precise wording, supporting data and reference to sources.

CLARITY
☐ Organise the text clearly by using sections, subsections, headings, subheadings, paragraphing,
numbering and bulleting.

CONCISION
☐ Avoid any unnecessary detail and sentences that are too long.
☐ Avoid repetitions.
☐ Give essential information, your evaluation and recommendation.

OBJECTIVITY
☐ Include all the relevant information, do not be biased.
☐ Use an impersonal tone (avoid the overuse of the pronoun 'I', use passive and reporting structures
instead, e.g. It was decided...; Most employees agreed that...; A lot of people expressed their
dissatisfaction with... It was generally felt that...).

ACCURACY
☐ Use precise and correct language (grammar, spelling and punctuation).

LAYOUT
☐ Start with a TITLE.
☐ Use CLEAR HEADINGS to organize your thoughts and to help the reader see how the report is
organised. Make sure there is a line space between headings.
☐ Give each SECTION in the report its own PARAGRAPH. Where appropriate divide sections into
paragraphs.
☐ Use NUMBERS (1) or BULLETS (•) to make important items stand out, especially if you want to
single them out.
☐ Companies often have their own format of standard reports and do not completely follow the
structure presented below.

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 2 STRUCTURE

TITLE

(e.g. REPORT ON THE COMPANY IMAGE)

TERMS OF REFERENCE (or INTRODUCTION or BACKGROUND)

It states the purpose and the subject of the report and outlines the essential information – Who
asked for it? What is to be investigated? What kind of information is required? When should it be
submitted?

PROCEDURE (or METHOD)

It outlines the steps taken to make an investigation. It explains how the data were collected,
listing sources consulted.

FINDINGS

It sets out the information itself, with appropriate headings and subheadings, if the report covers
more than one topic.

CONCLUSION(S)

This section summarizes the main findings and assessments, and draws conclusions.

RECOMMENDATION(S) (if required)

The writer may suggest the solution to the problem investigated, so that the recipient will be able
to make a decision if necessary.

I Decide if the statements about REPORTS below are TRUE (T) or FALSE (F).
1 Reports should include the same opening and closing as formal letters. □
2 They are informal in register. □
3 Reports are based on facts and personal opinions. □
4 Impersonal tone is achieved by using passive and reporting structures. □
5 It is advisable to use detailed descriptions and long sentences. □
6 They are divided into sections with clear headings. □
7 They may contain numbers and bullet points. □
8 It is not necessary to use a line space between different sections. □
9 The sources used in your research are mentioned in the introduction. □
10 The findings of the research are presented in the conclusion. □

19
II Copy the following headings above the corresponding paragraphs below. Then,
put the sections in the right order to get the STRUCTURE OF THE REPORT.

☐ RECOMMENDATION(S) (if required)

☐ TITLE
☐ CONCLUSION(S)
☐ PROCEDURE (or METHOD)
☐ FINDINGS
☐ TERMS OF REFERENCE (or INTRODUCTION or BACKGROUND)

☐ ______________________
The information for this report was gathered from different sources:
• Extensive research conducted among consumers of our products
• Detailed analysis of our competitive position on the market
• The company's annual reports
• Materials available on the company’s website

☐ ______________________
The following points summarize our key findings:
• Our products are perceived as old-fashioned and expensive.
• We have enough funds to start with modifying the established range of products and
introducing the new ones which are trendier and more affordable.
• Competition is fierce in Croatia, but there are expansion prospects on some untapped
markets.

☐ ______________________

Report on the possibilities of launching a new range of products

☐ ______________________
It is clear that our company needs to focus on launching a new range of products which would
meet the market expectations more adequately, thus being more competitive. Design and style
should be given equal consideration as production costs.

☐ ______________________
We strongly recommend, therefore, that:
• We should hire an internationally acclaimed designer to design our new range of
products and revamp our company's image.
• The company should consider outsourcing production abroad to reduce the production
costs.

☐ ______________________
The aim of this report is to consider the possibilities of launching a new range of products. The
report was requested by Hillary Swift, the CEO and it was to be submitted by 26 May 2013.

Mathew Sloane
Brand Manager
20 May 2019

20
 3 THE LANGUAGE OF REPORTS: USEFUL PHRASES

I Read the useful phrases and fill in the missing letters.

Terms of reference: Stating purpose

1 This report AI__S to…/sets out to…
2 The aim/P__RP__S__ of this report is to…
3 The aim of this report is to recommend/ __N__LYS__/give feedback on...
4 The purpose of this report is to analyse the results of...
5 This report will consider/__X__M__N__/ compare/comment on/explain...
6 The report is intended to assess/evaluate/ outline ...
7 This report is based upon…
Terms of reference: Introducing information
1 The report was commissioned/ R__Q__ __ST__D by XY.
2 The report was to be S__BM__TT__D by 9 January 2014.
Procedures: Describing procedure
1 The data were C__LL__CT__D/gathered from the following sources:
2 The findings are B__S__D on a questionnaire that was sent to...
Findings: Presenting findings
1 It was found that…
2 The following points S__MM__R__Z__ our key findings:
3 The key findings are __ __TL__N__D below:
Findings / Conclusion: Introducing other people's opinion
1 It was felt/assumed that...
2 Some participants CL__ __M__D/argued/ believed...
3 It was unanimously agreed that...
4 They were universally criticized as...
5 There was general __GR__ __M__NT that...
6 Most employees were in favour of...
7 Most employees expressed their dissatisfaction with...
Findings / Conclusion: Signalling
1 The following areas of concern have been highlighted.
2 There are a number of R__ __S__NS for…
3 There are several factors which affect…
4 This R__ __S__S a number of issues.
5 As might have been expected,…
6 Contrary to expectations,…
Conclusion: Summarizing and concluding
1 It was decided/agreed that…
2 It is CL__ __R that…
3 No conclusions were R__ __CH__D regarding…
4 In general/In short/In conclusion,...
5 To S__M up/All in all...
6 Taking everything into account/All things considered,...
Recommendation(s): Making suggestions and recommendations
1 It is S__GG__ST__D/proposed/recommended that…
2 We (strongly) recommend that…
3 It is __SS__NT__ __L to…
4 It would be advisable to...
5 In view of this, I (would) R__C__MM__ND/ suggest (that)...
6 It could be recommended for the F__LL__W__NG reasons...
7 Both... and... would be most valuable/of utmost importance for...
8 Neither of the previously mentioned S__L__T__ __NS are recommendable
/advisable.

21
III Complete the missing parts of the Report on Improving Project Team Communication with
the phrases from the box below.
• results in situations outlined in Point 1 • should
• The aim of this report is • key issues
• Although • submitted
• found • The key findings are outlined below:
• on • recommend
• it is essential • interviews
• by • Furthermore
• 40% of the respondents said • It was also found that
• questionnaire • It is recommended
• It is clear • suggested

REPORT (1) __________________ IMPROVING PROJECT TEAM COMMUNICATION

Introduction
(2) _______________________ to identify communication problems within the new project team
and (3) _______________________ ways of improving this communication. The report was to be
(4) _______________________ to Ian Woods, Human Resources Manager
(5) _______________________ 15 April 2012.

Procedure
Individual (6) _______________________were held with all eight team members. Each team
member also completed a (7) _______________________, which was designed to highlight the
effectiveness of communication within the team. Several (8) _______________________ arose
from this feedback.

Findings
(9) _______________________

1 (10) _______________________ individual team members meet fairly frequently to discuss the
project, the outcome of these discussions is not shared amongst other team members.
(11) _______________________, these individual meetings are creating mini-teams within the
team. This damages team spirit.
2 (12) _______________________ eight team members are located in different parts of the
Building. This does not encourage contact and (13) _______________________.
3 (14) _______________________ that team members do not make enough effort to share
information by email. Messages are sent to one person only and not copied to colleagues.

Conclusion
No evidence of personnel problems was (15) _______________________ amongst team
members. (16) _______________________ that the lack of communication is due to difficulty with
procedures and location, both of which should be easy to solve.

Recommendations
(17) _______________________ that the whole team meet on a weekly basis to share information
and time together. Team members (18) _______________________ remember to copy colleagues
in on emails relating to the project. This may require some training with the email software,
therefore (19) _______________________ that the firm provides this training to those who need it.
It is (20) _______________________ that the team attend a team-building seminar or adventure
weekend.

22
THE LANGUAGE OF REPORTS: FORMAL LANGUAGE

I Edit the text below by replacing the INFORMAL WORDS and phrases with FORMAL
ONES. Here are some formal words you could use. You might need to change the tenses,
parts of speech or turn an active sentence into passive.

reliable, very disappointing, decline, design, little

conduct, currently, investigate, no, distribute,
discuss large-scale

To take a look at the problem of declining numbers of visitors to Hong Kong, we decided to do

a really big survey. We made a questionnaire and handed it out to 2,000 people. We did this

because right now we don't have any hard data on why tourist numbers are declining. There's

not much information available either on what might bring them back to Hong Kong. The return

rate for the questionnaire was really bad at only 13% but this figure should provide a firm

enough basis for talking about why tourist numbers are going down.

Source:http://elc.polyu.edu.hk/cill/eiw/reportformality.aspx

II Make these sentences more formal by rewriting them in the PASSIVE FORM.

1) We enclose payment together with our order.

Payment ______________________________________________________________________.
2) The customer should receive the delivery by Friday.
The delivery ___________________________________________________________________.
3) According to a recent report the group is making similar investments in other parts of the world.
Similar investments ______________________________________________________________.
4) We will produce the components at our Sao Paolo factory.
The components ________________________________________________________________.
5) We would reduce costs if we used less paper.
_____________________________________________________________________________.
6) They should enlarge the premises to fit more offices.
______________________________________________________________________________.

23
III Complete the second sentence to make recommendations in a more formal way.

1. We should organize a team-building event.

Perhaps we could consider ________________________________________.

2. We should hold a meeting on this.

I would recommend ________________________________________.

3. We should prepare questions for the interview.

It would be advisable ________________________________________.

4. We should hire an HR professional to hold the interview.

Perhaps we could consider ________________________________________.

THE LANGUAGE OF REPORTS: DESCRIBING AMOUNTS

Conclusion: The language of approximation

When you are writing your Conclusions most often you don't have to use accurate numbers. Your text
will be easier to read if you use approximations instead.

I Match the numbers to the words.

A) 19.98% 1 almost one in four
B) 101,997 2 just under a hundred
C) 26% 3 about 1.7 million
D) 10% 4 just over a quarter of
E) 33.3333% 5 about a fifth of
F) 248,112 6 several
G) 1,695,193 7 one in ten
H) 48.873% 8 nearly three-quarters
I) 97 9 about 100,000
J) 7 10 a quarter of a million
K) 74.25% 11 a small fraction
L) 23.5% 12 a third of
M) 3% 13 almost a half of

II Fill in the gaps with the help of the information in the table. Use approximations.

How do people travel to work in Cambridge?

car 34%
bicycle 30%
train 9%
bus 19%
taxi 2%
on foot 6%

1. Approximately a ____________________ of people drive themselves to work.

2. Nearly a ____________________ of the population decide to take the bus when they commute.
3. Only a small ____________________ of people use a taxi to get to work.
4. Slightly ____________________ 5% of people walk to work in Cambridge.
5. Around a ____________________ of commuters travel by train.
6. Exactly ____________________ in ten people cycle to work.

24
 4 REPORT WRITING TASKS

TASK 1: Complete this report on the choice of the most popular types of holiday
accommodation in the UK.

60
Self-catering
50

40 Caravan

30

Camping
20

10
Hotel
0
England Scotland Wales Northern Ireland

A Report on ______________________________

Terms of Reference:
The aim of this report is to ____________________________________________________
The report was requested by _________________________________ and it was to be submitted by
__________________________.

Procedure:
The data __________________________________________________
• ____________________________
• ____________________________

Findings:
In all four countries approximately half the people chose to stay in __________. This figure was
highest in England at around 55%, almost twice the number of people who ___________ (27% of the
sample) and far greater than the number who stayed in __________ (12%) and ___________ (6%).

A similar pattern was repeated for _________ and ___________. In each case …

The country that shows a different pattern is __________________. Here …

Conclusion:
1. Hotels were the ___________ common form of accommodation at around half of the population
preferring it to other forms of accommodation.
2. England, Scotland and Wales follow a broadly ___________ pattern:
a) Self-catering was the ___________ most popular, with around one in three people choosing
it.
b) Caravan and camping holidays were typically the ___________ popular in Britain. Only
around the tenth of those asked stated that they would stay in a caravan while on holiday.
3. Northern Ireland follows a different pattern: there the popularity of ___________ comes second
only to staying at ___________, while ___________ and ___________ are each chosen only by
about one in ten holidaymaker.

25
 TASK 2: Read the following text and use it to write a report. Do not forget about giving it a
title.

Last month we sent a team of three members of staff to assess the town of Camford as
a potential location for a new English language college for speakers of other languages.
There are a number of basic geographical reasons why Camford would appear to be an
attractive location for a language college. Firstly, it is situated at a distance of only fifty miles from
London and there are good rail and bus connections with the capital. Secondly, although
Camford is mainly known for its ancient university, it also has a number of other further education
colleges so that there are substantial groups of young people in the city in term-times. Moreover,
links between local industry, much of which is based on modern technology, and the educational
institutions are growing so that the economy of the area is relatively healthy. Due to the strong
economy of the town and the young population, there are a lot of entertainment facilities in town.
These include a sports complex with, among other things, a skating rink and a swimming pool.
There are also five cinemas and a large concert hall in town.
Despite its many fine points, Camford has, nevertheless, a couple of significant
disadvantages. First of all, there is a lack of appropriate rented accommodation available. In
addition, public transport within the city is extremely poor.
The best solution for us would be to find a location in Camford within walking distance of
the town centre. We could also think about the possibility of providing residential accommodation
for our students.

TASK 3
Your Managing Director has asked you to write a report on the proposed merger with
Unibank, together with your recommendations. This was requested in his memo of 15
January, and you were asked to submit the report by 28 February. You have collected
information from different sources, including Unibank’s publicity materials, financial
publications, annual reports, and materials on its official website. Organise and expand
the following notes to write a report.

• Unibank - well-established and highly respected bank, over forty branches

• important corporate clients, profitable investment department and modern communication
system + covers areas where we are not represented
• cutting costs by closing down unprofitable branches and thus reducing staffing costs
• possibility of recession → the prospects for growth not good
• different management styles: Unibank is cautious and conservative
• the Chairman of Unibank might not be willing to play a secondary role
• unions strongly oppose staff cuts
• suggestions: an in-depth study of Unibank’s financial situation + a meeting between the
chairmen of both banks to discuss the advantages of the merger
• mergers with other banks should also be considered

Adapted from: Cotton D., Kent S. (2002): Practice File, Market Leader, Longman

26
TASK 4
Fowlers is a company making electrical appliances. One of their best-selling products
used to be their coffee maker. However, in recent years sales have fallen dramatically.
Due to losses the firm has made, the old management team has resigned and the new
team asked you, a management consultant, to carry out a study to establish the
reasons behind this problem.
a) Decide what information you would put into each section. What kind of research
would you carry out?
b) Read the following sentences and decide which section of the report they belong
to.
c) Write a report. Incorporate the sentences from Task 3b) and invent any necessary
details.

1 Fowlers coffee makers are perceived as old-fashioned and expensive by 75% of women
between 25-40.
2 Clearly, immediate action must be taken to guarantee short-term survival.
3 Fowlers has long been a household name for its high-quality coffee-makers, but more recently
the majority of the market perceives it as old-fashioned.
4 Fowlers should immediately hire a world-class designer to produce a new range of products.
5 Following the resignation of the old management team, we were invited to evaluate the
company’s position.
6 Between 1999 and 2005 Fowlers introduced a new product per year. Since 2005, however,
Fowlers has not launched a new product or redesigned its coffee-maker.
7 Once an innovative and pioneering company, Fowlers has relied too heavily on its established
range of products.
8 We conducted research among a wide range of consumers.

Adapted from: Jon Naunton, Head for Business: Upper-Intermediate Students' Book. OUP. p. 81-82

TASK 5
You are the Site Manager of Texan Chicken, a fast-food business. Your General
Manager, Edward Thomas, has asked you to write a report on two possible locations in
your area for a new restaurant. He telephoned you with his instructions on 10 April,
saying: “Let me know the advantages and disadvantages of each site, and give me a
firm confirmation please, with your reasons. Can you let me have the report by 30 April
as I have a board meeting on the following day?”

Site A Site B
Floor space in sq. metres 330 180
Parking Car park Unrestricted street parking. No car park.
(Maximum 20 cars)
Location High street. On corner in the city centre.
Residential area nearby.
Building Ground floor of historic New building in excellent condition.
building. A lot of renovation
needed.
Rent per week £520 £350
Security of area High crime rate. Shops Low crime rate because near the police
broken into and station.
vandalised.
Estimated customer Now: 1,000 Now: 2,000
numbers In 5 years: 5,000 In 5 years: 3,000

Source: Cotton D., Kent S. (2002): Practice File, Market Leader, Longman
27
 4 DESCRIBING GRAPHS
1 Types of graphs and charts
2 Verbs
3 Nouns
4 Adverbs and adjectives
5 Prepositions
6 Saying numbers and the language of approximation
7 Describing graphs in a paragraph
8 Practice

1 TYPES OF GRAPHS AND CHARTS

I Label each chart.

flow chart line graph bar chart diagram table pie chart

_______________________ _______________________

_______________________ _______________________

28
_______________________ _______________________

II Answer these questions about charts and graphs.

1 Which type of chart is useful for describing a process?

2 Which type of chart is useful when we want to show the sizes of components that make up
some whole?
3 What is an explanatory drawing that shows how some parts are arranged?
4 Which type of chart is used when we want to show how the size of something varies through
time?
5 Which chart helps in comparing two or more values?
6 What can be used to present different categories of data organized into rows and columns?

III Label the parts of this line graph with the right word from the box.

vertical axis horizontal axis legend dotted line solid line broken line
values peak trough

100
90
80
70
East
60
50 West
40 North
30
20
10
0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

29
 2 VERBS

I Read the verbs in the box and decide where they belong in the table.

grow decline rise fluctuate slash level out plummet boost jump
rally slump soar bring down fall plunge rocket decrease
increase drop vary raise stagnate

GO UP GO DOWN

STAY THE SAME CHANGE

II Read through the list of verbs again, and choose the ones that mean a sudden
movement.

1 ______________________
2 ______________________
3 ______________________
4 ______________________
5 ______________________
6 ______________________

30
 III Look at the line graph representing the sales figures of a company and write a
sentence to describe each year.
80

60

40

20

0
2002 2003 2004 2005 2006 2007 2008

______________________________________________________ in 2003.
______________________________________________________ in 2004.
______________________________________________________ in 2005.
______________________________________________________ in 2006 and 2007.
______________________________________________________ in 2008.

IV TRANSITIVE AND INTRANSITIVE VERBS

In English some verbs cannot be followed by an object, these are called intransitive
verbs. The verbs that have to be followed by an object are called transitive verbs.
Some verbs can be both. Sort out the verbs from Exercise I.

TRANSITIVE INTRANSITIVE BOTH

______________________ ______________________ ______________________
______________________ ______________________ ______________________
______________________ ______________________
______________________ ______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________
______________________

V Now use these verbs to fill in the gaps in these sentences. Use the grammatically
correct form.
1 The government _____________ the price of fuel by 2%, it now costs $1.02, instead of $1.
2 Prices _____________ all year. It was very difficult to make plans in a situation when we
couldn’t know what to expect.

31
 3 The government's decision to decrease sales taxes _____________ the economy.
4 The new expansionary fiscal policy _____________ unemployment figures in the country.
5 Due to the efficient management of the company, we _____________ sales by 25% this year.
6 Unemployment _____________ from 200,000 to 600,000 in 3 months due to the closure of
several factories in the country.
7 The higher income that resulted from the suddenly increased sales _____________ the
company's deficit by half.
8 The economy _____________ for five years. The GDP growth was around 1% and there was
a high unemployment.

VI Complete the table with the missing forms of these verbs.

INFINITIVE PAST SIMPLE PAST PARTICIPLE

to rise
to raise
to arise

VII Now fill in the gaps in these sentences with the correct form of the verbs from
above.

1 The Sun ____________ every morning.

2 ____________ your hand if you agree.
3 The problem ____________ from the lack of quality control.
4 Last year we ____________$2 m in capital.
5 The cash flow crisis ____________ because the company did not receive payment from its
debtors.
6 Retail prices ____________by 7% last year.
7 The Fed will probably ____________interest rates by 0.5%.
8 The mistakes that have ____________ this week are due to a lack of communication
between the staff and the management.

3 NOUNS

I Turn these verbs into nouns.

VERB NOUN VERB NOUN

grow fall
rise decline
increase slump
boost plunge
jump decrease
improve drop
stagnate fluctuate
peak bottom out

32
II Write a sentence about each year represented on the graph using a verb. Then
rewrite the sentence so that you are using a noun instead of a verb. Use the
prompts provided.

80
70
60
50
40
30
20
10
0
2002 2003 2004 2005 2006

EXAMPLE: Rice production decreased in 2002. → There was a decrease in rice production in
2002.
1 _____________________________________________________________________________.
The chart shows a(n) _____________________________________________________________.
2 _____________________________________________________________________________.
We see a(n) ____________________________________________________________________.
3 _____________________________________________________________________________.
There was a(n) __________________________________________________________________.
4 _____________________________________________________________________________.
2006 brought a(n) _______________________________________________________________.

4 ADVERBS AND ADJECTIVES

Adverbs and adjectives can be used to describe changes in more detail.

I Finish the sentences.

Adverbs go after _________________. Adjectives go before _________________.

II Change these adjectives into adverbs.

SIZE SPEED
ADJECTIVES ADVERBS ADJECTIVES ADVERBS
big quick
significant sharp
substantial dramatic
massive sudden
small slow
slight steady
insignificant moderate

33
III Underline the correct word in each sentence.

1 There was a CONSIDERABLE / CONSIDERABLY fall in oil prices last week.

2 The demand for the older model of the phone decreased SLIGHT / SLIGHTLY when the newer
model was launched.
3 There was a SUBSTANTIAL / SUBSTANTIALLY upturn in exchange rates.
4 The government decreased taxes MODERATE/ MODERATELY.
5 They reported a DRAMATIC / DRAMATICALLY downturn in the price of shares last year when
the CEO was fired.
6 We managed to raise our profits RAPID / RAPIDLY when we increased our advertising budget.

IV Now rewrite your sentences from section 3, exercise II by adding an adverb or an

adjective.

EXAMPLE: Rice production decreased moderately in 2002. → There was a moderate decrease
in rice production in 2002.
1 _______________________________________________________________________________.
_______________________________________________________________________________.
2 _______________________________________________________________________________.
_______________________________________________________________________________.
3 _______________________________________________________________________________.
_______________________________________________________________________________.
4 _______________________________________________________________________________.
_______________________________________________________________________________.

5 PREPOSITIONS

I Study the sentences and circle the prepositions in them. Then, complete the rules
with the missing prepositions.

1 A growth of 20% in sales.

N + __________ + (%, number) + __________+ (topic of the graph)

2 Sales grew by 20%.

V + __________+ (%, number)

3 Sales grew from $8m to $15m. (Sales are now $15m.)

V + __________+ (number) + __________ + (number)

4 Sales are currently standing at 15m.

Sales peaked at 25m.
Sales bottomed out at 4m.

Current position on a graph: __________

34
II Fill in the gaps with prepositions from the box below.

from between to in by at of

1 Last year sales fell ______ $3m ______ $1.5m.

2 This year in our town there was a growth ______ 20% ______ marriages.
3 The employment ratio in the country reached a trough ______ 30% last year.
4 The competition’s advertising spending has fluctuated ______ €5m and €5.75m this year.
5 Our market share plummeted ______ 20% when a new company broke into the market.
Currently we control 15% of the market and we are making enormous losses.
6 Our market share plummeted ______ 20% from 45%, which is a 25% drop.

III Write a sentence about each year represented on this chart using the data provided.
80
73
70
66
60
55 55
50
40
30
20
13
10
0
2002 2003 2004 2005 2006

1 __________________________________________________________________________.
2 __________________________________________________________________________.
3 __________________________________________________________________________.
4 __________________________________________________________________________.
5 __________________________________________________________________________.

6 SAYING NUMBERS AND THE LANGUAGE OF APPROXIMATION

I Saying numbers. Choose the best answer.

1 seventeen point three eight percent
a) 70.38% b) 17.38% c) 17,38%
2 six cubed
a) 6³ b) 6/3 c) 6 1/3
3 eight to the power of six
a) 86 b) √8 c) 8/6
4 eighteen forty-five
a) 1,845 b) 1845 c) 18.45

35
5 x cubed minus y squared is z
a) x² - y³=z b) x - y²=z³ c) x³ - y² = z
6 four point 6 billion euros
a) €4.6bn b) 4.6bn€ c) €4,6bn
7 nine hundred and ninety-one thousand, eight hundred
a) 919,800 b) 991,800 c) 991.800
8 three point eighty four pounds
a) $3.84 b) £3.84 c) €3.8
9 two and two thirds
a) 2 ⅔ b) 2.23 c) 2 3/2
10 ten divided by six equals one point six recurring
a) 10 : 6 = 1.666 b) 10 – 6 = 1.666 c) 10 : 6 = 666
11 two and three quarters
a) 2.34 b) 2 4/3 c) 2 ¾
12 nought point one eight five
a) 0.185 b) 0,185 c) 1085
13 The number 3000 is read as:
a) three thousands b) three thousand
14 Which is correct?
a) half of the books in the library b) half of the book in the library
15 The number 2/3 is read as:
a) two-third b) two-thirds
16 The number 2,568 is read as:
a) two thousand five hundred and sixty eight b) two point five six eight
17 The number 3.479 is read as:
a) three thousand four hundred and seventy nine b) three point four seven nine

II The language of approximation. Match the numbers with the words.

A. 65% just under a half of
B. 749,982 approximately 40 degrees Celsius
C. 100,005 most of
D. 40.5°C just about a fifth of
E. £502.02 about two-thirds of
F. 49% around five hundred pounds
G. 58.4 seconds about three-quarters of a million
H. 21% about one hundred thousand
I. 92% slightly less than a minute

36
 7 DESCRIBING GRAPHS IN A PARAGRAPH

I Read the text and fill in the gaps with the words from the box below.

at fluctuated decline peak by moderate doubled substantially

leveled off dramatic

Market share of Mintel and Orefon

Mintel Orefon
100

90

80

70 70
60 60 60
55 55
50 50 50
40 40 40 40 40
33
30

20 20
10 10

0
2002 2003 2004 2005 2006 2007 2008

The graph shows the changes in the market share of two telecommunications companies, Mintel
and Orefon, between 2002 and 2008. As it can be seen, the overall trend shows a decreasing of the
difference between the market shares of the two companies.

Mintel, represented by the solid line, lost a considerable portion of its market share during this period.
Mintel was the market leader in 2002, however, with Orefon’s entry into the market it saw a steady
(1) ___________ in the next five years. By 2006 its market share fell (2) ___________ 37%, reaching
a trough (3) ___________ 33%. This period was followed by a (4) ___________ growth of 7%. At the
end of the examined time period Mintel’s market share (5) ___________ at 40%.

Orefon’s market share grew dramatically during the examined years. It entered the market in 2001 and
by 2002 it owned 10% of the market. In the next two years this company’s market share (6)
___________ each year, reaching 40% in 2004. In 2006 it reached a (7) ___________ at 60%. Between
2006 and 2008 the market share (8) ___________ between 60% and 55%.

To sum up, the years between 2002 and 2008 is the period when Orefon surpassed Mintel. During the
6 years represented on the graph, Mintel saw a (9) ___________ decline while Orefon’s market share
increased (10) ___________. In 2008 the competition between the two companies was much more
even than in 2002.

II Read the text again and decide what function the following sections have.
☐ The first sentence.
☐ The second sentence.
☐ The sentences in italics.
☐ The final paragraph.

37
 WRITING TIPS FOR DESCRIBING GRAPHS
☐ Start with saying what the topic and the time frame of the graph is.
☐ Check what the labels and the numbers represent. (a percentage, a currency, are they in
thousands or millions?)
☐ Describe the overall situation, find the most important trends.
☐ Do not describe every change, do not go into too much detail.
☐ Try not to repeat the same language and sentence structures.
☐ Conclude by summarising what we learn from the chart.

III Describe this graph in no more than 300 words.

Units sold in millions (2013)

100
80
60 airconditioners
40 heaters
20
0
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

38
 8 PRACTICE

I Read this article and rewrite the sentences in bold with the help of the prompts. Do
not use the same words as in the original sentences.

Croatia's economy: Finnish lessons for maintaining tax revenue by reducing

deductibility. (6) The personal income-tax
Croatia rate was reduced from 51% to 39% and the
The Economist corporate tax rate was cut from 33% to 19%.
Jun 17th 2013, 16:27 by L.O. Jelena Lovric, a Croatian political analyst,
summarised the Finish tax cuts in a recent
“AT FIRST glance Croatia and Finland share a great newspaper column: “(7) Finland literally
many common features,” said Esko Aho (pictured), halved its high taxes, increasing budget
a former prime minister of Finland, when visiting revenue from taxes by an incredible 350% [by
Zagreb a few weeks ago. Mr Aho visited Croatia to 2000]” with corporate income tax revenue in
talk about the reforms he introduced during his 2000 seven times higher than in 1994.
years in power to a small crowd hopeful that the
Finish experience might offer some answers to the
Meanwhile in Croatia personal consumption has
problem of Croatia’s protracted recession.
been in free fall over the past four years, bar a
month or two during the tourist season. (8) Last
Besides an (1) approximately corresponding year, value-added tax was raised from 23% to
population size, Finland and Croatia seem to share 25% while income tax is the third highest globally,
other similarities when comparing Finland’s crisis in after Belgium and Greece. The corporate tax
the early 1990s and Croatia’s current recession. (2) burden was reduced by a modest 2% in statutory
Croatia’s exports fell by 25% in 2009 partly healthcare insurance contributions. Ms Lovric
thanks to the general recession in the European argues that (9) Croatia “has increased the tax
Union just as Finland’s exports dropped a burden while state budget tax revenues are
quarter after the dissolution of the Soviet Union. dwindling”.
In both cases the fall in exports would not have hit
them so hard had they been otherwise economically
The Croatian government recently caved in to the
sound.
threat of a national labor union strike and
committed to retracting the 3% public sector wage
A housing bubble played a big role in Finland’s and cut instituted in February as soon as GDP growth
Croatia’s respective pre-crisis growth and returns for three consecutive quarters. An
subsequent decline. A large and costly bureaucracy analysis by Bisnode, a business-intelligence
in both countries, a high tax burden, restrictive company, estimates average Croatian public
monetary policy and faltering consumer confidence sector wages to be 73% higher than average
led to soaring unemployment and a drop in GDP. (3- wages in the private sector.
4) Croatia’s unemployment rose from 7% to just
below 20% while GDP plunged by 6.9% in 2009.
Many Croatian economists have called for currency
Finland’s unemployment rose from 2.1% to
depreciation to support the fledgling export sector,
19.9% while GDP slumped by 13% between 1991
yet both central bank and political leadership
and 1994.
discard this possibility. Exports are key to recovery
of smaller countries: if not helped by currency
Finland emerged from the crisis by 1995, with depreciation, the fiscal system must favour
international trade growing to a third of its GDP exporters.
today. (5) Croatia’s economy continues to shrink
this year. While Finland struggled for recovery with
Finland is also an excellent example of bold bets
a comprehensive tax reform, deep cuts in federal
on new sectors. With substantial investments in
and municipal spending as well as export-focused
the ICT and education sectors, the country fueled
currency devaluations, the Croatian government
its growth over the past two decades. (10) The
shied away from structural reforms.
World Bank recently revised its forecasts for
the Croatian economy, predicting it would
The best example of Croatia’s and Finland’s grow at a weak 1.5% in 2014. However, to
diametrically opposite solutions to almost sustain more robust growth politically costly
identical problems is tax reform. Aiming to moves are necessary—a lesson Mr. Aho learnt
bolster both consumption and private-sector when he lost his re-election. It remains to be seen
development, Finland reduced taxes while if Croatia’s leadership will rise to the task at hand.

39
 (1) The number of inhabitants in both countries is _______________________________.
(2) Both countries’ exports _______________________________.
(3) In both countries the number of people out of work _____________, in Croatia this was
_______________________________, while Finland saw a
_______________________________.
(4) The GDP in both countries _________________, in Finland
_______________________________, in Croatia _______________________________.
(5) Croatia’s GDP ________________ this year.
(6) Personal income tax was _________________ by ___________________, the corporate tax
rate was _________________ by __________________ in Finland.
(7) Finland ________________ its taxes by _____________%.
(8) Last year there was a _________________ in value-added tax in Croatia.
(9) In Croatia taxes _______________, while income from taxes is ________________.
(10) The World Bank forecasted a (Adj + N + preposition) ________________________________
1.5% in 2014.

II Read The Guardian’s stock market report and match the numbered phrases in the
text with those in the box below.
A) plummeted
B) was losing the energy to do something
C) made losses
D) suddenly take away support from the recovery of the stock market
E) to cause something to fail
F) was removed
G) continued the same way as the day before
H) did something to cause trouble among people

World stock markets fall after Ben trading, adding to Wednesday's 206-point decline as
Bernanke hints at easing stimulus the global sell-off turned full circle.

Government sovereign debt also (5) suffered losses,

Graeme Wearden and Nick Fletcher
driving up the yield on Britain's 10-year gilts to 2.29%,
The Guardian, 20 June 2013
a level last seen in March 2012.

FTSE 100 falls nearly 3%, wiping more than £48bn off
Commodity prices also joined in the rout, with the gold
the value of Britain's biggest companies
price falling below the $1,300 an ounce mark for the
first time since September 2010.
More than £48bn (1) was wiped off the value of
Britain's biggest companies as world stock markets fell
Traders blamed the sell-off on Ben Bernanke's
sharply on Thursday and UK government borrowing
prediction on Wednesday night that the Fed will start to
costs hit a 15-month high.
ease its bond-buying programme later this year,
having seen evidence that the US economy is
The blue-chip FTSE 100 index (2) tumbled by 189
recovering.
points, or nearly 3%, in its biggest percentage fall
since September 2011, after the chair of the Federal
"Ben Bernanke has (6) put the cat well and truly
Reserve gave the clearest signal yet that America's
among the pigeons with his statement that asset
huge stimulus package will be slowed this year.
purchases would begin slowing by the end of this
year," said Yusuf Heusen, sales trader at IG. "It does
Fears that China's economy (3) was running out of
feel as if the Fed chairman has (7) pulled the rug
steam were also blamed for heavy losses across all
from underneath the stock market rally, and he
major markets. On Wall Street, shares (4) picked up
certainly seems to have (8) dealt a killer blow to
where they left off on Wednesday night with the Dow
gold."
Jones index falling 200 points in early New York

40
 5 TRADE
RETAIL TRADE: DISTRIBUTION CHANNELS

Types of distribution channels

I Read the text and match these headings to paragraphs.

1 indirect channels
2 definition of a distribution channel
3 direct channels
4 retail outlets

 The distribution channel, or the chain of distribution, is the chain of businesses or intermediaries
through which a good or service passes until it reaches the end consumer. This channel can be very
long, so that many intermediaries stand between the manufacturer and consumer, or it can be very
short. Although many producers and intermediaries try to find different channels to reach their
customers in order to increase sales, sometimes distribution chains become so complex that
distribution management is very difficult. In addition, the longer the distribution channel, the less profit
a product manufacturer might get from the sale.

 Distribution channels are divided into direct and indirect forms. In the direct channel, the consumer can
buy the good directly from the manufacturer. However, very few producers today sell their goods directly
to the consumer or business user. Direct channels are considered shorter than indirect ones.

 In an indirect channel, the consumer buys goods from an intermediary or a middleman, e.g. a
wholesaler, distributor, agent, broker or retailer. Channels with a single intermediary are quite
common, e.g. a sales agent or broker for industrial goods, or a retailer for consumer goods, an
authorized dealer in the automobile industry, or a franchise in car-hire and fast-food businesses. There
are also longer channels where further intermediaries are added, for example in the exports of goods.
Long channels often raise the price of the product because each intermediary wants to make a profit.

 Products and services reach end consumers in different types of retail outlets, such as kiosks,
department stores, chain stores, etc. There have always been types of retail outlets that are more
popular than others. Recent trends in retailing show that a growing number of people today prefer to
buy online or use mail-order firms rather than go to a shop. This has encouraged some brick-and-
mortar businesses, which only exist in the physical form, to turn into click-and-mortar shops, which
combine traditional sales in the shop with online sales.

II Answer these questions.

1 What is the distribution channel?

2 What does it mean if we say the distribution chain is long?
3 How can a long distribution channel affect the price of a product?
4 What are direct channels?
5 What intermediaries are there in an indirect distribution chain?
6 What types of retail outlets are there?
7 What is the difference between brick-and-mortar and click-and-mortar businesses?

41
III Find the terms in the text for these definitions.

distribution channel, brick-and-mortar shop, mail-order firms,

direct channel, click-and mortar shop

1 A distribution channel with no intermediary.

2 A business which exists only in the physical form.
3 A business which combines online sales with traditional
sales in physical shops.
4 Companies which offer their products through catalogues or
websites so consumers can buy them by telephone or order
them by mail or on the internet.
5 The chain of businesses or intermediaries through which a
good or service passes until it reaches the end consumer.

DIFFERENT INTERMEDIARIES IN THE DISTRIBUTION CHAIN

I Match the descriptions of people involved in trade to their names.

1. a consumer  The end user of goods or services, whose needs are satisfied by
producers.

2. a wholesaler
 The general term for agents, brokers, dealers, merchants,
wholesalers and retailers who stand between the producer and
consumer.
3. an intermediary
 A merchant such as a shopkeeper who sells to the final customer.
4. a manufacturer  A person or organization that produces a good.
5. a retailer  An intermediary who stocks goods in big quantities from various
suppliers and delivers them to retailers when ordered.

II Put these intermediaries in order to create three different distribution channels.

consumer wholesaler agent retailer manufacturer direct selling

42
 III Read the following definitions and decide which is retail and which is wholesale. Fill in the
gaps with these words.

retail trade retailer wholesale trade wholesaler

1 In _______________ goods are bought in bulk from various manufacturers. This bulk is then broken
down into smaller quantities which are then passed on to the retailer. A _______________ is an
intermediary distributor.

2 In _______________ goods are bought in small quantities from the wholesaler or another
intermediary. A _______________ is also an intermediary distributor, who sells goods in even smaller
quantities to the final consumer.

IV Read the following statements and decide which refer to wholesalers and which to retailers.
Copy them into the table below.

1 are closer to end 5 buy/store small

consumers. quantities.

6 charge higher
2 sometimes finish
prices.
goods by packing
and branding.

3 provide a cost-saving 7 charge lower

delivery service for prices.
retailers.

4 buy/store large 8 buy in bulk.

quantities.

9 offer a variety of
goods from different
producers.

RETAILERS … WHOLESALERS …

43
 NEW TRENDS IN RETAIL

I Do you know what the following expressions mean?

the American Dream high end downturn

II Read the text and underline the keywords.

Low sales even in healthy economy signal 'complete shift in shopping'

Neither consumers nor brands are getting much of what they want, and the unpredictability has caused
chaos for retailers whose power has slipped away

Monday is Memorial Day, the official start of summer and another celebration traditionally marked
by sales and a shopping bonanza. But the sun isn’t shining for US retailers.
On the face of it, the economic superpower that is the American consumer should be having a party.
Low interest rates and unemployment rates, low oil prices, a high stock market, healthy property prices –
nothing it would seem, to put off doing what comes most naturally to them – shopping.
Yet they’re stubbornly refusing to do it – or at least refusing to do it in predictable ways – leaving
consumer experts to wonder, as fashion bible Women’s Wear Daily recently did, if the consumer psyche,
“bombarded by digital messages, stressed financially and overwrought emotionally”, has “finally exploded”.
Certainly, there’s conflicted evidence to suggest it has. Retail stocks for Macy’s, Nordstrom and Gap
have all fallen sharply this year, with some reporting their worst comparable sales results since the Great
Recession the 2008 financial crisis. Last week jeweler Tiffany’s reported its sharpest drop in quarterly
sales since the global financial crisis pushed the world to the brink in 2008.
It’s an international trend. In the UK, analysts are reporting 10% declines in the number of shopper
visits to high streets and shopping centres around the country over the past year.
In part, the shopping slump can still be blamed on the financial crisis. Consumers’ incomes have not
kept pace with household spending, and they are less confident about long-term economic stability.
According to a recent Pew Charitable Trust survey, American household incomes fell between 2010 and
2013. Adults in the survey questioned “whether the American Dream is within reach, and many doubt that
their children will fare any better than they have”.
Earnings for those at the top of the economic food chain have soared. Analysis by the AFL-CIO
union found that chief executive officers of the top 500 companies took home $12.4m on average – or 355
times what an average worker makes. Yet statistics show that even high earners are less likely to spend on
material things.
…
Beneath the economics, something else has changed. A contract has been broken. Researchers
say neither consumers nor brands are getting much of what they want: consumers don’t want to put their
money with brands that don’t speak to their values, while brands aren’t seeing any loyalty from consumers
they are trying to cultivate. The apparent contradiction between a healthy economy and unpredictable
consumer spending leads some market analysts to the conclusion that consumption as an activity was
fundamentally altered by the 2008 recession.
The abrupt downturn in 2008 shocked consumers but it also gave them power when it came to
making consumer choices. When you couple this with the power that technology has afforded them to
research, learn and compare about their potential purchases, it is little wonder that consumer behavior is
changing, analysts say.
“We’ve had to start looking at the consumer in a completely different way,” says Kit Yarrow, a
consumer psychologist at Golden State University. “We can’t evaluate their confidence and willingness to

44
spend in the ways we used to,” says Yarrow. “Consumers just don’t react the way they did even five years
ago. Technology has taken over and they feel more empowered.”
“The recession was the first step toward the complete shift in shopping,” says Yarrow. “Consumers
are more wary and self-protective about finances, and they’ve never dominated the market the way they do
today. They’re informed and wary, and determined to be in control.”
The unpredictability has caused chaos for retailers, which have seen their power over consumers
begin to slip away. “Technology means they can shop however and whenever they want, or they can shop
all over the world, and that’s why we see retailers collapsing and relying completely on price reductions,”
Yarrow said.
“It’s taking retailers forever to realise that when people go shopping they want to see new things all
the time. This is what technology has done to our brains. We want a lot more excitement and product
turnover in our lives. If we don’t see new product, we won’t go there any more.”
It’s a trend being observed across the consumer market. The same conscientiousness that exists in
the middle market has taken hold at the top end where luxury retailers could once count on careless
spending to pump up the books.
Yarrow’s research suggests that even the richest have adopted middle-class values. They feel guilty
when they spend too much money, and quickly reject efforts to seduce them. “It’s a demographic that’s
always been a little more demanding so patterns we’re seeing in the middle of the market are more
pronounced: if I don’t get it how I want, when I want it, for the price I want it, I won’t have it at all,” she says.
But there are other factors feeding into consumers’ shattered psyches. For many consumers buying
“stuff” just isn’t what it used to be. People are looking toward more “experiential” spending – holidays,
concerts, plays – experiences that they can then share on social media.
Laurent Vernhes, co-founder and CEO of Tablethotels, a consumer website that specialises in high-
end travel, told the Guardian “the more jaded no longer enthusiastic or excited about things you are the
more you will seek experiential travel beyond what you know.” And it’s not just holidaymakers – business
people, too, want experiences.
Instead of heading to the mall on Monday, post-recession consumers are more likely to start
planning their next vacation or trying to bag tickets for Hamilton a musical. The hangover from hard times
and a technological shift in power have reordered consumer priorities.
Consumers’ psyches may be shattered but they don’t want them put back together. “This is a much
more conscious consumer,” Yarrow says. “They don’t want to go back to pre-2008. They want the power,
and they want control.”

Adapted from: Helmore, E. (2016). Low sales even in healthy economy signal 'complete shift in shopping', The Guardian 28 May 2016
Retrieved from: https://www.theguardian.com/business/2016/may/28/memorial-day-sales-online-shopping-summer-us-economy

III Find word partnerships that go together with CONSUMER.

CONSUMER

SP__ND__NG CH__ __C__S B__H__V__OR C__NF__D__NC__ M__RK__T

45
IV Complete these key terms from the text:
1 C__MP__R__BL__ 2 N__MB__R OF 3 H__ __S__H__LD
S__ __ __S R__S__LTS SH__ __ __ __R V__S__STS SP__ND__NG

4 __ __RN__NGS 5 BR__ __ __S 6 brand L__ __ __ __TY

7 F__N__NC__ __L 8 GR__ __T 9 T__CHN__L__GY
CR__S__S R__C__SS__ __N
10 PR__C__ 11 PR__D__CT 12 __XP__R__ __NT__ __L
R__D__CT__ __NS T__RN__V__R SP__ND__NG

13 S__C__ __L M__D__ __ 14 H__ __S__H__LD 15 C__NS__MPT__ __N

__NC__M__

V Find synonyms for these terms in tasks III and IV

consumer choices: ____________________________
consumer expectations:_________________________
the financial crisis of 2008: __________________________
sales: ___________________________
income: ___________________________
spending: ___________________________

VI Find terms in the text for these definitions.

1. The comparison of sales revenue generated in a certain period to

revenue generated in a similar period in the past.
2. Three months of a fiscal year.
3. The primary business street of towns or cities, especially in the UK
4. A specially built area containing a lot of different shops; usually includes
restaurants and a convenient parking area.
5. A period of substantial decline.
6. The amount of final consumption expenditure made by resident
households to meet their everyday needs, such as: food, clothing,
housing (rent), energy, transport, durable goods (notably, cars), health
costs, leisure, and other services.
7. A person who purchases goods and services for personal use.
8. The use of goods and services by households.
9. The measurement for the speed a company sells the products or
inventory it has on hand.

VII Answer these questions. Use the terms from the tasks above (III – VI) in your answers.
1 How do retailers measure success?
2 What financial reason is mentioned for middle class consumers not spending more?
3 Other than the financial crisis, what are the reasons for consumers’ changed behavior?
4 How are retailers trying to survive? Is this a good way?
5 Why are brands suffering?

46
VIII You work for Marks and Spencer, a struggling retailer. They have hired you to help them
improve their business. Create a presentation about the new trends in the retail business.

Background: the economic

situation The retail industry’s situation

The reason why the retail The reasons behind changing

industry is not doing well consumer behavior

The reasons behind changing

consumer behavior

47
IX What do these graphs show? Could you use them in your presentation? Where?

X Now give some advice to M&S on what they should do to improve sales.
Use some of the following phrases:
I (don't) think you should
You should ..., no doubt about it.
You ought (not) to…
You had better...
I suggest (+ that you (should) )
The sooner you ... the better.
Your only option is to ...
You have no choice but to ...
... is worth a try.
I can't recommend ... strongly enough.

48
 E-COMMERCE

I What are some of the advantages of online shopping over buying in bricks-and-mortar
shops?
II Take a look at the list of large retailers mentioned in the text as examples. Find them
in the text and explain why they are mentioned.

1 United Retail Group 5 Apple

2 Walmart 6 Disney
3 Target 7 Macy's
4 Amazon 8 Borders

Retailers and the internet and is only now building its own e-business. Both
Walmart and Target still have a puny online
Clicks and bricks: Many retailers are presence relative to their size.
being too slow in reinventing themselves
for the age of online shopping Are you being served?

“WE TEND to overestimate the effect of a technology Retailers also need to be ruthless in chucking out
in the short run and underestimate the effect in the products that do not gain from being sold in a physical
long run,” observed Roy Amara, an American store: not just things like CDs and DVDs, which can be
futurologist. This is certainly proving true of retailers replaced by digital goods, but bulky stuff like nappies
and their attitude to the internet. After a panic at the (Amazon has become a big seller of Pampers). Their
turn of the millennium about the impact on their shops must focus on those things, such as expensive
industry of online shopping, bricks-and-mortar stores clothes and gadgets that customers will want to try
settled into making only modest alterations to their before they buy, and for which they will pay extra, such
business model or, ostrich-like, trying to ignore it. as advice from competent sales assistants.
Few have so far made the radical changes needed to
meet the threats from, and tap the enormous Stores have to become more fun to visit, so shoppers
potential of, e-commerce. feel it is worth the trip to the mall or high street. Apple's
shops thrive not only because they contain cool
Such inaction threatens retailers' survival. Online products; they are beautifully designed, with helpful
sales are now approaching $200 billion a year in staff. Disney stores may be an ordeal for parents but
America. Their share of total retail sales is creeping they often succeed in giving their pint-sized clients “the
up relentlessly, from 5% five years ago to 9% now. best 30 minutes of a child's day”. But too many retailers
People in their 20s and 30s do about a quarter of their think only of getting a quick sale, neglecting to build
shopping online. True, few ladies who lunch will buy relationships with customers. They are the most at risk
their Christian Dior dresses online; and bargain- from “showrooming”: shoppers trying products in
hunters will still enjoy rummaging in discount stores physical stores before sneaking off to buy them more
like Dollar General. But to attract everyone in cheaply online.
between, retailers will have to build a strong online
offering while making their shops nicer, more To survive in the new world of retail shopkeepers will
conveniently located and, in the case of many big- need large amounts of imagination—and money.
box retailers, smaller. Otherwise they are likely to go Macy's is investing $400m in the renovation of its
under, as United Retail Group, an American clothing flagship store in New York. The losers will include those
chain, did this month. (like Borders, an extinct chain of bookshops) that keep
selling things people are happy to buy online. The
To build a profitable online business retailers biggest winners will be consumers. They can look
must integrate it seamlessly with their bricks-and- forward not only to ever-greater convenience thanks to
mortar operations. Many keep them separate, the internet. They will also find a growing number of
increasing the risk that they fail to communicate physical stores that compete to make shopping
or work together properly. Walmart's online a pleasure.
operations are in Silicon Valley, far from its
Arkansas headquarters. Target, another Source: The Economist, 25 February 2012
supermarket giant, until recently outsourced its e-
commerce to Amazon, the biggest online retailer,

49
IV Answer these questions.

1 What kind of future changes in retailing is predicted in the first 2 paragraphs?

2 What did most retailers do so far to benefit from the growth of e-commerce?
3 How has e-commerce grown in the past few years?
4 Who will be the winners of the changes in the retail landscape? Why?

V What does the article suggest retailers should do to get the custom of people who
shop online? Use the prompts to write suggestions.

1 Retailers' physical stores should be ___________________________________________________.

2 Oversized stores ought to be ________________________________________________________.
3 The online and offline branches of a retailer should be ____________________________________.
4 Only goods that are ________________________________________________ should be sold in
bricks-and-mortar stores.
5 The experience of shopping in a bricks-and-mortar store ought to be ________________, where
there is a _________________ between retailers and customers.
6 ____________________________________________________ have to be invested into
traditional stores.

VI Summarize the sections of this article in a sentence.

Paragraph 1: ________________________________________________________________________.

Paragraph 2: ________________________________________________________________________.

Paragraphs 2-6: _____________________________________________________________________.

Paragraph 6: ________________________________________________________________________.

VII What do these expressions mean? Choose the correct explanation.

1 Ladies who lunch

a. Women in managerial positions who eat lunch at work.
b. Well-off, well-dressed non-working women who meet each other for lunch during the working week.

2 Bargain-hunter
a. Someone who tries to find goods at discounted prices.
b. Someone who tries to negotiate the price of a product.

3 Big-box retailer
a. A retailer set up in a big box-like building with a large amount of floor-space, selling a wide range of
products at low prices.
b. A retailer selling large, high-value items at discounted prices in suburban areas.

4 To go under
a. To go bankrupt.
b. To downsize.

50
 INTERNATIONAL TRADE

Is free trade good or bad?

Free trade is something of a sacred cow in the economics profession. Moving towards it, rather slowly, has also been
one of the dominant features of the post-World War Two global economy. Now there are new challenges to that
development. The UK is leaving the European Union and the single market - though in her speech this week, British
Prime Minister Theresa May promised to push for the "freest possible trade" with European countries and to sign new
deals with others around the world. Most recently Donald Trump has raised the possibility of quitting various trade
agreements, notably Nafta, the North American Free Trade Agreement with Mexico and Canada. Even the World Trade
Organization (WTO) has proposed new barriers to imports. In Europe, trade negotiations with the United States and
Canada have run into difficulty, reflecting public concerns about the impact on jobs, the environment and consumer
protection. The WTO's Doha Round of global trade liberalisation talks has run aground.
Comparative advantage
The case for trade without government imposed barriers has a long history in economics. Adam Smith, the 18th Century
Scottish economist who many see as the founding father of the subject, was in favour of it. But it was a later British
writer, David Ricardo in the 19th Century, who set out the idea known as comparative advantage that underpins much
of the argument for freer trade.
It is not about countries being able to produce more cheaply or efficiently than others (i.e., absolute advantage). You
can have a comparative advantage in making something even if you are less efficient than your trade partner. When a
country allocates resources to produce more of one good there is what economists call an "opportunity cost" in terms
of how much less of something else you can make. You have a comparative advantage in making a product if the
opportunity cost is less than it is in another country. If two countries trade on this basis, concentrating on goods where
they have a comparative advantage they can both end up better off.
Avoiding protectionism
Another reason that economists tend to disapprove of trade restrictions comes from an analysis of the impact if
governments put up barriers on imports - in particular tariffs or taxes. There are gains of course. The firms and workers
who are protected can sell more of their goods in the home market. But consumers lose out by paying a higher price -
and consumers in this case can mean businesses, if they buy the protected goods as components or raw materials.
The textbook analysis says that the losses resulting from protectionism add up to more than the total gains. So you get
the textbook conclusion that it's best to avoid protection. And this conclusion is regardless of what other countries do.
The 19th Century French economist Frederic Bastiat set it out like this: "It makes no more sense to be protectionist
because other countries have tariffs than it would to block up our harbours because other countries have rocky coasts."
The implication is that unilateral trade liberalisation makes perfect sense.
A more recent theory of what drives international trade looks at economies of scale - where the more a firm produces
of some good, the lower cost of each unit. The resulting specialisation can make it beneficial for economies that are
otherwise very similar to trade with one another. This area is known as new trade theory and the Nobel Prize winner Paul
Krugman was an important figure in developing it.
Post-war trade
Decades of international co-operation on trade policy since World War Two was based on the basic idea that it's good
to have freer trade. The period since 1945 has been characterised by a gradual lowering of trade barriers. It happened
in the General Agreement on Tariffs and Trade (GATT), which began life in 1948 as a forum for governments to negotiate
lower tariffs. Its membership was initially small, but by the time it was replaced by the World Trade Organization (WTO)
in 1995, most countries had signed up. The motivation was to end or reduce the protectionism or barriers to trade that
went up in the 1930s. The process of post-war trade liberalisation was driven largely by a desire for reciprocal
concessions - better access to others' markets in return for opening your own.
What is the case against free (or at least freer) trade?
First and foremost is the argument that it creates losers as well as winners. What Ricardo's theory suggested was that
all countries engaging in trade could be better off. But his idea could not address the question of whether trade could
create losers as well as winners within countries. Work by two Swedish Nobel Prize winners, Eli Hecksher and Bertil
Ohlin, subsequently built on by the American Paul Samuelson developed the basic idea of comparative advantage in a
way that showed that trade could lead to some groups losing out.
Putting it very briefly, if a country has a relatively abundant supply of, for example, low-skilled labour, those workers will
gain while low-skilled workers in countries where it is less abundant will lose. There has been a debate about whether
this approach fits the facts, but some do see it as a useful explanation of how American industrial workers (for example)
have been negatively affected by the rise of competition from countries such as China.
Compensating losers
51
Still if you accept that overall countries gain, then the winners could in principle fully compensate the losers and the
country would still be better off. Such programmes do exist. Countries that have unemployment benefits provide
assistance to people who have lost their jobs. Some of those people will have been affected by competition from abroad.
The United States has a programme that is specially targeted for people who lose their jobs as a result of imports, called
Trade Adjustment Assistance. But is it enough? Lawrence Mishel of the Economic Policy Institute, a think-tank in
Washington writes: "The winners have never tried to fully compensate the losers, so let's stop claiming that trade benefits
us all."
In any case, it is not clear that compensation would do the trick. As Mark Carney, the Bank of England governor noted,
they may lose their jobs and also "the dignity of work". He is keen on maintaining open markets for trade, but recognises
the need to do something about what you might call the side effects.
To return to recent political developments - Donald Trump clearly did get support from many of those people in areas of
the US where industry has declined. We don't yet know how he will address those issues when he takes his place in
the White House. Perhaps his threats to introduce new tariffs are just that - threats. But the post-war trend towards more
liberalised international trade looks more uncertain than it has for many years.

Adapted from: Walker, A. “Is free trade good or bad?” BBC News, 18 January 2017. Retrieved from: http://www.bbc.com/news/business-38209407

I. Complete the notes on the text

Free trade
1) Current ch_____________ : e.g.,
• UK l_____________ the EU
• USA may q_____________ various trade a_____________ (e.g., NAFTA)
• WTO: proposed new trade b_____________ to imports
2) Economic t_____________ supporting free trade
• c_____________ advantage: production of a good at lower o_____________ cost than another country
all countries could b_____________
• n__________ trade theory: economies of s_____________ → lower c_____________ of production →
s_____________ → trade is b_____________
3) The impact of p_____________
• g_____________: domestic p_____________ sell more on the h_____________ market
• l_____________: c_____________, b_____________ pay more for goods
Losses resulting from p_____________ add up to more than the total gains
4) Trade p_____________ after WW2
gradual l_____________ of trade barriers = liberalization of trade r_____________
1948 – 1995: _____________;
1995 – present: _____________
5) The case a_____________ free trade: losers w_____________ countries
→ c_____________: e.g., u_____________ benefit for those who lost jobs
→ insufficient
→ people losing the d_____________ of work
Conclusion: The future of further trade l_____________ looks uncertain.

II. Use your notes to retell the article to your partner.

III. Match the terms with the same meaning.

plentiful, a market without trade barriers, trade restrictions, home market, relaxing of rules

domestic market – open market–

abundant – trade barriers –
liberalisation of rules –

52
VISIBLE AND INVISIBLE TRADE

I Study the chart below and explain the difference between:

☐ Primary / secondary products

☐ Visible / invisible trade
☐ Balance of trade / balance of payments

Foods and Produce

Manufactured Goods Imports
Specialist Goods + VISIBLE TRADE → BALANCE
OF
Raw Materials Exports TRADE
Electrical Appliances
Machine Tools

BALANCE OF
PAYMENTS
Government Payments
Shipping Imports
Specialist Aviation + INVISIBLE TRADE
Travel Exports
Banking
Other Services

II Look at the chart again and answer the following questions:

1 Can you add to the list of invisible exports and imports?

2 If you go abroad and buy music, clothes, books, or eat in a restaurant, is it recorded as imports or
exports for Croatia?
3 When foreign tourists come to Croatia and spend money in night clubs, shops, restaurants, buy
food, or pay for hotel rooms, is it imports or exports for Croatia?
4 If our transport companies ship foreign goods through Croatia, is it recorded as our exports or
imports in the balance of payments?

53
III Match these words and expressions from the box with the definitions below.

autarky import substitution balance of payments balance of trade subsidy

barter or counter-trade trade sanction deficit dumping
invisible imports and exports protectionism quotas surplus tariffs
visible trade (GB) or merchandise trade (US)

1. Trade in goods
2. Trade in services (banking, insurance, tourism, and so on)
3. Direct exchange of goods, without the use of money
4. The difference between what a country receives and pays for its exports and
imports of goods
5. The difference between a country's total earnings from exports and its total
expenditure on imports
6. The (impossible) situation in which a country is completely self-sufficient and
has no foreign trade
7. A positive balance of trade or payments
8. A negative balance of trade or payments
9. Selling goods abroad at (or below) cost price
10. Imposing trade barriers in order to restrict imports
11. Taxes charged on imports. They raise the price to customers and make them
less attractive.
12. Quantitative limits on the import of particular products or commodities
13. Benefit given by the government to producers usually as cash payments or tax
reduction to help them sell at a lower price.
14. A trade penalty imposed by one nation on one or more other nations usually
for political reasons.
15. When a country produces and protects goods that cost more than those made
abroad.

PROTECTIONISM AND BARRIERS TO TRADE

I Find 5 trade barriers (a government’s policies to restrict international trade) in the task above.

____________________________________________________________________________________

II Fill in the missing vowels to complete the notes on the reasons for protectionism.

Why do countries practice protectionism?

1 To protect __NF__NT industries

• so they can grow, develop __C__N__M__ __ S of scale and become globally C__MP__T__T__V__.
2 To protect D__CL__N__NG industries
• so their decline is slower to protect J__BS in those sectors.
3 To protect STR__T__G__C industries
• because they are __SS__NT__ __L to the country, e.g., __GR__C__LT__R__ – food security.
4 To protect non-renewable R__S__ __RC__S
• e.g., Middle Eastern countries limit __ __ L output.
5 To deter __NF__ __R competition
• e.g., to stop other countries using D__MP__NG prices in the home market.
6 To help the __NV__R__M__NT by not letting harmful products enter the country.
7 For P__L__T__C__L reasons.

54
III Discuss the following questions.

1 What are subsidies?

2 How do sugar producers profit from receiving subsidies?
3 What do you know about the European Union's Common Agricultural Policy (CAP)?

Oh, sweet reason

A report counts the cost of Europe's sugar subsidies on poor countries

AS THE Doha round of trade negotiations slowly such as Algeria, Ghana, Congo and
revives at the World Trade Organisation (WTO) in Indonesia, displacing sugar produced
Geneva, agricultural subsidies and tariffs have been in countries such as South Africa and
taking centre stage. A new report from Oxfam, a India.
campaigning group for poor countries, highlights the
absurdities of agricultural subsidies, by focusing on Brazil and Thailand are the hardest hit, Oxfam
those for sugar, a product that developing countries reckons. On its analysis, Brazil loses around
are especially good at producing. In particular, the $500m a year, and Thailand about $151m, even
report explains exactly how the European Union's though these two countries are the most efficient
common agricultural policy (CAP) enriches a few sugar producers in the world. Even less efficient,
European farmers and sugar refiners at the and poorer, African countries lose out.
expense of the world's poorest. Mozambique will lose $38m in 2004—as much as
it spends on agriculture and rural development.
Oddly, the EU is the world's second-biggest sugar The costs to Ethiopia equal the sums it spends on
exporter. Though it does not have the right climate HIV/AIDS programmes.
for growing cane sugar, since Napoleon's time
Europeans have grown sugar beet instead. They do The biggest winners, says Oxfam, are large
not, however, do this efficiently: the cost of European sugar refiners. France's Beghin Say, it
producing a pound of sugar in the EU is more than claims, benefits by €236m a year, Germany's
six-times higher than in Brazil, says Oxfam (see Sudzucker by €201m, and Britain's Tate & Lyle by
chart). It argues that the EU subsidy is much bigger €158m. Further progress at the WTO may depend
than the €1.3 billion ($1.5 billion) it owns up to in part on whether such firms will accept the loss of
publicly. Oxfam says there are €833m of “hidden such subsidies. That fact should leave a very sour
subsidies”, too. taste in the mouth.

Subsidising sugar producers is not just

economically stupid, it is morally indefensible, too.
For Europe's subsidies are not merely a quaint way
to keep a few farmers in business. They cause so
much sugar to be produced that the stuff is
exported to poor countries, hurting farmers who
might otherwise earn a living by growing it
themselves—and perhaps even exporting it to
Europe.

At most, only 1.5m tonnes of sugar a

year is bought in Europe from Source: The Economist, 15 April 2004
preferred trading relationships with
African, Caribbean and Pacific
countries. Worse, the sugar provisions
of the CAP set poor countries against
each other. European subsidies mean
that its excess sugar ends up in places

55
II Read the article Oh, Sweet Reason and decide if the following statements are
True (T) or False (F).
1 Developing countries are better at producing sugar than European countries. □
2 The EU is the world's second-biggest sugar exporter because it has the best climatic
conditions for growing cane sugar. □
3 The European Union's agricultural subsidies help poor farmers to reduce the cost of
producing sugar and thus becoming more competitive exporters of sugar. □
4 Subsidizing European sugar producers is absurd because the cost of producing sugar in the
EU is more than six-times higher than in Brazil, for example. □
5 African countries are the most efficient sugar producers in the world. □
6 Hundreds of millions of dollars are lost globally due to the European Union's Common
Agricultural Policy (CAP). □
7 Ethiopia is particularly affected because the sums of money lost equal the sums it spends on
HIV/AIDS programmes. □
8 France, Spain and Italy are among the most influential European sugar refiners. □
III Answer the following questions.

1 What does the EU do when it subsidizes sugar?

2 What are the main arguments against subsidies?
3 How are sugar subsidies a barrier to trade?
4 What do you think the WTO should do in the situation outlined in the article?
5 Which products does Croatia subsidize?

IV Use the following notes and write a SUMMARY of the article Oh, Sweet Reason.

1 ABSURDITIES OF AGRICULTURAL SUBSIDIES

● The EU’s Common Agricultural Policy enriches a few farmers and refiners at the expense of
the world’s poorest
● The world’s 2nd exporter with the wrong climate
● cost of production: EU = 6 X Brazil!

2 GLOBAL IMPACTS
● subsidies – too much sugar – exports

hurting other exporters hurting foreign farmers

3 LOSERS WINNERS
Brazil $ 500m → the most efficient producers France $ 236m (Berghin Say)
Thailand $151m → in the world Germany $201m (Sudzucker)
Mozambique $38m Britain $158m (Tate & Lyle)
Ethiopia $ = AIDS programmes!

● Doha negotiations depend also on large EU companies

56
 6 THE EUROPEAN UNION
I How much do you know about the EU?
1 How many members does it have?
2 When did it begin?
3 Why?
4 How was it built?
5 How is it governed?
6 What characterizes trade inside it?
7 What is the currency called?
8 Where is it used?
9 How can one travel in the Schengen area?

II Read the text and underline the keywords.

Introduction to the European Union

The European Union (EU) is a unique economic and political union of 27 sovereign European countries.

The predecessor of the EU was created in the aftermath of the Second World War. The first steps were to
foster economic cooperation: the idea being that countries that trade with one another become economically
interdependent and so more likely to avoid conflict. In 1951, the European Coal and Steel Community (ECSC)
was created to establish a common market for coal and steel under a single independent authority. The
original members of the ECSC were France, West Germany, Italy, Belgium, the Netherlands, and
Luxembourg. In 1958, the European Economic Community (EEC) was formed by the same six countries
with the initial aim of increasing economic cooperation among them. The original members and others joining
them later formed a huge single market (also known as the ‘internal’ market).

What began as a purely economic union has evolved into an organisation spanning many different policy
areas, from climate, environment and health to external relations and security, justice and migration. A name
change from the European Economic Community to the European Union in 1993 reflected this evolution.

First the EEC and then the EU grew through consecutive waves of enlargement: 22 more countries joined
the organisation. Croatia became a member on 1st of July 2013. The EU’s evolution is not complete, there
are still candidate countries waiting to join, while in 2020 the United Kingdom left the organisation in the
process called Brexit.

The EU’s powers are founded on treaties, which are voluntarily and democratically agreed by its member
countries. Over the years, Member States have sought to harmonize laws and adopt common policies on
an increasing number of issues. Candidate states have to accept the acquis communautaire (the whole
body of EU rights and obligations) before they can join the EU and make EU law part of their own national
legislation.

The EU is governed by the principle of representative democracy, with citizens directly represented at EU
level in the European Parliament and Member States represented in the European Council and the Council
of the EU. The EU is governed by a system that has characteristics of both a supranational entity (in
specified areas, EU institutions hold authority above governments of the Member States) and an
intergovernmental organization (in other areas, cooperation is achieved by consensus of governments).

57
III Complete the notes on the text

Introduction to the EU
What is it?
e______________ and p____________ union of 27 s_____________ countries.

How did it develop?

Date Organisation’s name Purpose

1951

1958

1993

Enlargement and withdrawal:

___________ countries joined the original 6. Croatia joined in ________________

_______________ withdrew from the EU in _______

How is it governed?
The EU’s powers are based on t______________. Member states h____________ their laws and adopt
c______________ policies. New members accept the a__________ c_______________ when joining.
It is a _____________________ democracy.
• citizens are directly represented by ___________________________
•Member States are represented by ___________________________ and
___________________________
System of government:
• s____________________ entity
• i____________________ organization

IV Read the text and underline the achievements of the EU

The achievements of the EU
The EU has delivered more than half a century of peace, stability and prosperity, and helped raise living
standards. It has become much easier to live and work in another country in Europe. All EU citizens have
the right and freedom to choose in which EU country they want to study, work or retire. Every EU country
must treat EU citizens in exactly the same way as its own citizens when it comes to matters of employment,
social security and tax. Thanks to the abolition of border controls between EU countries in the Schengen
area, people can travel freely throughout most of the continent.
The EU’s main economic engine is the single market and customs union. It enables most goods, services,
money and people to move freely. The EU aims to develop this huge resource to other areas like energy,
knowledge and capital markets to ensure that Europeans can draw the maximum benefit from it.
The euro, in circulation since 2002 and used by more than 340 million people in 19 Member States, is the
world’s second most important currency after the US dollar. The single currency is practical for citizens and
good for business, and represents a major achievement of European integration. Countries which are part
of the Eurozone are also part of a monetary union which unites and integrates these economies through
coordinated economic and fiscal policies and a common monetary policy.
On the international stage, the EU represents an important political and economic bloc comparable to other
major powers such as the US or China. Individual states benefit from their membership in such an
influential bloc instead of entering international negotiations on their own.
58
 V List the achievements of the EU. Explain how Member States benefit from these
achievements.

VI Look at the boxes below. Which achievements of the EU are the causes of these benefits?

Source: “The EU in brief”

https://europa.eu/european-union/about-eu/eu-in-brief_en

Price transparency is a situation

where both the seller and the Trade agreements serve to make trade
buyer know the price of a good or between countries quicker and
service without any intermediary. cheaper. The EU has around 40 trade
Someone in Madrid looking to buy deals with more than 70 countries
a guitar can easily compare prices globally (as of 2019). Each EU member
in 18 other countries and find the benefits from these deals. It is unlikely
cheapest one available. that Member States alone would be
Businesses can do the same with able to negotiate so many deals on
supplies or raw materials. their own.

A business can hire the most suitable You can travel to 22 EU countries and
employees from all over the EU without 4 additional European countries without
additional bureaucratic difficulties and having to go through passport checks
paperwork. on borders.

VII Read the text and underline the key points.

Challenges facing the EU
Despite the advances brought about by the EU, there are several challenges it needs to face. Some people
feel that Member States have lost too much of their sovereignty in the integration process, this causes a
rise in popularity of nationalist, populist and anti-establishment parties.
The euro and the monetary union carry their own risk. To be part of the monetary union, all countries have
to adjust their monetary and fiscal policies to each other. As a result, member countries – especially
smaller economies – can lose some of their economic independence,.
Migration from poorer countries of the EU to richer ones allows consumers to be able to buy cheaper
goods or access services at a lower cost, but newcomers are also seen as putting a pressure on job
markets by increasing unemployment figures and lowering wage rates, as well as on public services such

59
as schools, healthcare services, etc. Immigration from other areas of the world seems to make this problem
even worse.
The issue of the “democratic deficit” has long worried EU citizens. Decision-making in an organization
where the interests and priorities of 27 Member States need to be taken into account is a slow and
complex process. Therefore, ordinary citizens might feel that they have too little say in the decision-making
processes in Brussels and that these processes are non-transparent.
Brexit will also pose a challenge to the EU. This is the first time in the EU’s history that it shrinks in size.
While the EU still remains a formidable power on the global stage, Britain is an important political and
military power and the EU will certainly feel its loss in its foreign and security position in the world.
Economically, the EU will also be affected by Britain’s exit: Great Britain was a net contributor to the EU
budget (i.e., it put more into the EU budget than it took out of it) and now other countries will have to
contribute more to make up for the loss.
The EU’s population is aging. This means that the proportion of working age population is shrinking, people
live longer and there is a growing number of people receiving pensions, while fewer babies are born. These
demographic changes will put a strain on the labour market, health care systems, etc.
Climate change is an issue that the EU needs to tackle to avoid the dramatic consequences of higher
average temperatures, which could make certain areas of the globe uninhabitable and hinder food
production, access to water, as well as cause other problems. Among other goals, the European Green
Deal aims to make Europe the world’s first climate-neutral continent by 2050, cut pollution and support
clean industries. These changes are unavoidable, but will also be costly: 25% of the EU’s total budget is
planned for spending on climate action and the environment across multiple programmes.
Texts in this section are adapted from:
Directorate-General for Communication (European Commission) (2020) The European Union: What it is and what it does European Union
Retrieved from: https://op.europa.eu/webpub/com/eu-what-it-is/en/
Additional sources:
Archick, K. (2016) “The European Union: Current Challenges and Future Prospects.” Congressional Research Service Report. Retrieved from:
https://fas.org/sgp/crs/row/R44249.pdf
“European Coal and Steel Community” Encyclopaedia Britannica. Retrieved from: https://www.britannica.com/topic/European-Coal-and-Steel-
Community
Hempson, D. A. (2013) "European Disunion: The Rise and Fall of a Post-War Dream?"
Origins: Current Events in Historical Perspective 6(12), Ohio State University and Miami University. Retrieved from:
http://origins.osu.edu/article/european-disunion-rise-and-fall-post-war-dream
n.a., (2020) “The European Green Deal Investment Plan and Just Transition Mechanism explained” Retrieved from:
https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_24
Valášek, T. (2019) “What Are Europe’s Top Three Challenges? Not Brexit, Not Migration, Not Populism” Carnegie: Europe. Retrieved from:
https://carnegieeurope.eu/2019/05/07/what-are-europe-s-top-three-challenges-not-brexit-not-migration-not-populism-pub-79070.

VIII Make a list of all the challenges that the EU has to face. Explain each in a sentence.

IX Find terms you need to talk about the EU.

1 an independent country: s______________ state
2 the power of a country to control its own government: s_______________
3 the joining together of several countries: i_______________
4 a formal agreement between states: t_________________
5 the basic principles by which a government or company is guided: p_______________
6 a group of countries where trade barriers are eliminated (also called common market):
s_______________ m______________
7 a currency used by more than one country, single currency: c_______________ currency
8 the growth of the EU when new members join: e_______________

60
 9 cooperation between governments to make laws more uniform and coherent: h_____________
laws
10 arrangements among countries in which the parties : (1) agree to allow free trade on products
within the area, and (2) agree to a common external tariff on imports from the rest of the world:
c______________ u______________
11 a person who is opposed to closer links with the European Union: e______________
12 the body of common rights and obligations that is binding on all the EU member states: a_______
c____________

X Complete the sentences with the terms above.

1 A common market and a _____________ currency have made of Europe a world-competitive economic
zone.
2 He is a Eurosceptic and is strongly critical of European _____________ because he doesn’t believe
that countries should give up some of their independence to be part of a union.
3 International _____________are usually negotiated by diplomats and then signed by national
politicians.
4 Some views occasionally seen as _____________ include perceptions of the EU being undemocratic
or too bureaucratic.
5 The European Economic Community eliminates trade barriers and creates a European _____________
market.
6 The European Union _____________ is gradually opening labour markets and offering extended
opportunities to recruit from abroad.
7 The European Union is a _____________ _____________ and therefore sets a common external
tariff.
8 When talking about international relations, the word “nation” can refer to a country or _____________
state.

XI What are the advantages and disadvantages of the EU?

Advantages Disadvantages
People support the EU because … People are against the EU because …

XII Case study - Work in groups.

Oscania is a small island country off the coast of Europe. Its government is considering the idea of
joining the EU, but before they begin accession negotiations, they would like to know if their country
would benefit from becoming a member. What would your answer be? Give reasons.
• Relatively strong economy: GDP per capita: $33000 (In 2016, the EU’s was $37800, Croatia’s
$ 22400.)
• Industry: growing banking sector, new but quickly growing automotive industry
• Population: 110,000
• Unemployment: 5% (In 2016, the EU’s was 8,3%, Croatia’s 11,4%.)
• Only 20% of the country’s population (age 25 -65) has obtained a tertiary degree. There is only
one university in the country.

Summarize your answer in a short paragraph.

Start with a statement: “We think that Oscania should / should not join the EU.”
Then give a reason (1) and an explanation (2) of that reason. For example:
“(1) Oscania could reap economic gains from being part of the EU. (2) Its growing banking sector
would benefit from being part of the European common market.”
Make at least 3 points (reason + explanation)
61
A BRIEF SUMMARY OF THE HISTORY OF EUROPEAN UNION ENLARGEMENT (2010)

I a) Read the gapped text and think about what words and expressions might be
missing. Then, fill in the gaps as you watch the video:
http://www.youtube.com/watch?v=RE6QgoykLZU.

The story of the European Union begins in 1951, with the (1) ______________ of the
European Coal and Steel Community. France, Italy, West Germany and the three Benelux countries
agreed to (2) ______________ their coal and steel markets. The idea being that economic
(3) ______________ would make a return to war […] materially impossible. The GDP of the six
members (4) ______________ steadily as the effects of the community rules on industrial production
and trade began to kick in.

Six years later, in 1957, the six countries (5) ______________ the Treaty of Rome creating
the European Economic Community. In 1961, the UK along with Ireland and Denmark
(6) ______________ to join, but France's President, Charles de Gaulle vetoed Britain's application. It
wasn't until 1973 that the EEC enlarged to take in the three countries.

[…]
The single European currency, the Euro, was (7) ______________ in 1999 with notes and
coins entering (8) ______________ in 2002.

[…]
In the twelve countries that joined in 2004 and 2007, the (9) ______________ process has
brought real benefits. According to the European Commission, between 2000 and 2008 the process
contributed an average 1.75 percentage points to annual GDP (10) ______________ in these
countries. The Commission also says that (11) _______________ has brought economic benefit to
existing EU members as new (12) ________________ markets opened up.

Today's EU (13) _______________ 27 member states, ranging in size from Germany down to
Malta. Under current rules, in the European (14) ________________, where heads of government
meet to take decisions, voting (15) _______________ are awarded roughly in proportion to a
country's (16) ________________, although smaller countries tend to do better, proportionately, than
larger ones.

The future of the EU enlargement is uncertain. Three countries: Croatia, Macedonia and
Turkey have had their (17) ________________ to join the Union officially accepted. Yet, many argue
that the EU needs more time to digest its recent eastward extensions before it embarks on further
serious enlargements. Of the three official (18) _______________, only Croatia looks likely to join in
the near future … (19) _______________ with Macedonia are being blocked by Greece, which has
(20) ______________ about the former Yugoslav republic’s name. Turkey’s movement towards
(21) _______________ has stalled owing to concerns among senior European leaders over whether
it belongs in the EU at all.

62
b) Make a list of the other countries that would like to join the EU in the future.

☐ _____________
☐ Countries of the Western Balkans:
• ______________
• ______________ ● applied for membership
• ______________
• ______________ ● some way off yet
• ______________
☐ _____________: a large, poor country wrecked by instability and _____________.
☐ _____________: aspires to EU membership but there is no real prospect of this in the short- or even
medium term.

II Answer the questions.

1 What was the non-economic reason for establishing the European Coal and Steel Community?
2 Did the enlargement have a positive outcome for the countries that joined in 2004 and 2007?
3 How about the countries that were already members?
4 What is the purpose of the European Council?
5 Explain this sentence: “In the European Council … voting rights are awarded roughly in proportion
to a country's population, although smaller countries tend to do better, proportionately, than large ones.”
6 What is the official term for countries that want to join the EU?

III Match the phrases with the same meaning.

1 unify their coal and steel markets a) to make larger

2 war would be materially impossible b) the yearly increase in a country’s income
3 applied to join c) economically unviable
4 vetoed Britain's application d) create a single market
5 annual GDP growth e) expressed a wish to enter the EU
6 to enlarge f) banned Britain from joining

IV Match the word partnerships.

launch benefit
economic process
accession rights
voting a currency

Based on: http://www.youtube.com/watch?v=RE6QgoykLZU

63
 REVISION 1
UNITS
Retail trade: Distribution channels, New trends in retail, E-commerce, International
trade, Visible and invisible trade, Protectionism and barriers to trade, The European
Union

I Read through this list of terms and decide which terms belongs to which unit. Some
might fit in more than one place.

distribution channel, treaty, declining industries, the dignity of work, trade restrictions, protectionism,
e-commerce, household spending, new trade theory, enlargement, trade liberalization, non-renewable
resources, end consumer, harmonize laws, economies of scale, opportunity cost, middleman,
wholesaler, product turnover, economies of scale, trade barriers, retailer, eurosceptic, consumer
expectations, customs union, distributor, authorized dealer, franchise, absolute advantage,
department store, single market, tariff, free movement, consumer behaviour, free trade, integration,
unemployment benefits, trade negotiations, sovereign state, import substitution, WTO, acquis
communautaire
Retail trade: Distribution
channels

New trends in retail, E-

commerce

International trade: Free trade

v. Protectionism

Protectionism and barriers to

trade

Visible and invisible trade

The European Union

II Look at the words in task I again and …

a) explain their meaning in your own words.
b) use each in a sentence.

64
III Explain the difference between the following concepts:

1 direct distribution channel / indirect distribution channel

2 wholesaler / retailer

3 department store / shopping mall

4 click-and-mortar shop / brick-and-mortar shop

5 physical shop / e-tailer

6 free trade / protectionism

7 absolute advantage / comparative advantage

8 tariff / quota

9 trade liberalization / imposing trade barriers

10 GATT / WTO

11 visible trade / invisible trade

12 balance of trade / balance of payments

13 imports / exports

14 surplus / deficit

15 government subsidy / tariff

16 infant industries / strategic industries

17 supranational entity / intergovernmental organization

18 single market / national market

19 common currency / single currency / national currency

20 the EU / the Eurozone

21 the EU / the Schengen Area

22 accession process (to the EU) / enlargement of the EU

65
 7 BANKING
I Match the bank type with the definition:
A. A type of bank that combines investment banking with
commercial banking, thus allowing these banks to offer a
much wider variety of financial options to their customers. This
Commercial bank
type of banking is common in some European countries. In the
United States, however, banks are required to separate their
commercial and investment banking services.
B. A financial institution that grants loans, accepts deposits and
Investment bank offers basic financial products like savings accounts and
checking accounts to individuals and businesses. It makes
money by providing different types of loans to customers and
charging a specific interest rate on loans.
C. A financial institution that provides a variety of services for
Universal bank clients. Among its services are underwriting, facilitating
transactions, assisting in mergers and acquisitions, and
brokering. In general, such a bank's clients are institutional
investors, but rich individuals also use them.

II Read up on the other types of banks and financial institutions on p. 73 in MK.

Read the following text and say which type of bank it is about? Why do you think so?

The role of banks

Everyone needs banks, but not everyone understands how banks work, or the role they play in the world’s
economy. Here are three questions and answers to help explain.
III Match the correct question to the answer:
How does a bank make money?
What do banks do?
Why and how does using a bank minimise risk for customers?
1. _____________________
Banks play an important role as an intermediary, or go-between, in the financial system. They have three
main functions: Firstly, banks are where people can safely deposit their savings, which banks then pay
interest on. If there were no banks, people would have to store and protect their savings themselves, which
would involve major risks. Secondly, banks are largely responsible for the payments system. Electronic
payments are becoming more important as people use less cash. This means that banks are processing
more card payments, transfers, direct debits, etc. every day. Thirdly, banks issue loans to both people and
companies. Without banks, it would be very hard for people to buy a home or start a business, or for
companies to make investments, for example.
Banks also do a variety of other things, such as helping corporations with their, often more complex, financial
needs. This can range from the various ways to gain access to capital for growth and investments, to assisting
in mergers and acquisitions, to converting currencies.

2. ____________________
Managing and monitoring risks are at the heart of banking, and most banks have strict policies in place at
various levels to handle both financial and non-financial risk, including social and environmental risk.
But more generally speaking, banks make transactions possible that otherwise wouldn’t have been possible,
or that only would’ve been possible with huge risks. One reason why banks can handle such transactions,
and private individuals and companies can’t, is scale.
Even though savers can generally withdraw their savings at any time, the total amount of money held by a
bank doesn’t fluctuate much because they have many customers. This scale helps banks cover risks.

66
Other risks, such as a borrower not being able to repay, are reduced through diversification, meaning that
banks can spread risks over various countries and industries.
This doesn’t mean that risks are non-existent, but they’re spread over the bank's portfolio and initially
absorbed by the bank’s profit margins, with “equity capital” there to cushion unexpectedly high losses.
3. _____________________
A bank can make money in a variety of ways. Most of a bank's revenue comes from the interest they receive
on the money they lend. Interest is, however, also a major cost for a bank, as savers receive interest on their
savings. Very basically, banks earn money by charging more interest on loans than that they pay on savings.
Interest income is used to cover the costs involved in keeping interest-rate risk under control, to cover losses
on loans that are not repaid or not repaid in full, and to pay the bank's overhead, such as wages.
Besides interest income, banks also make money from other transactions and services, such as providing
financial advice and products to large corporations.
Adapted from: The role of banks http://internationalnetherlandsgroups.com/About-us/Profile-Fast-facts/The-role-of-banks.htm 1 Feb 2018

IV Answer these questions:

What do banks do?
Why can banks manage risks better than individuals?
How do banks make money?
V Find 5 types of payment methods in the text:
________________________________________________________________________
________________________________________________________________________

VOCABULARY
I Complete the word partnerships from the text.
1 F__ __ __ N __ __ __L system 2 PAY__ __ __T system
3 DE__ __ __ __T savings 4 W__ __ __ __ __ __W savings
5 pay IN__ __ __ __ __T 6 ELE__ __ __ __ __ __C payments
7 DI__ __ __T debit 8 issue a L__ __N
9 mergers and __CQ__ __S__T__ __NS 10 C__NV__RT currencies
11 M__ __ __ a transaction 12 C__V__R losses
13 R__C__ __V__ interest 14 CH__RG__ interest on a loan
15 pay interest on S__ __ __ __ __S

II Complete the word partnerships with RISK

V + a risk Adj + risk
m____________ a risk f_____________ risk
c_____________ a risk s_____________ risk
m_____________ a risk non-f_____________ risk
s_____________ a risk e_____________ risk

67
III Here is the definition of direct debit. Provide the missing letters.
Type of P__YM__NT when an __CC__ __NT holder gives instruction to a bank to pay a F__X__D amount
(such as mortgage payment or rent) or V__R__ __BL__ amounts (such as utility bills or invoices) directly
to a landlord, supplier, utility company, etc. at R__G__L__R (usually monthly) intervals.

IV Explain the meaning of these words. Can you find any that are connected?
cash credit card currency borrow
debit card deposit electronic payments account
environmental risk interest withdraw lend

V Fill in the missing letters to complete the text.

C__ MM __RC__ __ L B__ __ __ ING

Clients of banks put D__P__S__TS into their bank A__ __OU__ __S to keep their C__ __H safe. There
are two main types of bank accounts: C__RR__NT accounts, which allow regular access to our money;
and S__V__NGS accounts which pay a larger I__ __ __ __ __ __T, but from which money cannot be
W__THDR__WN as easily as from the other type of account. Before Internet banking became popular,
banks used to send bank ST__ __ __ __ __ NTS in letters to their clients. These days, electronic
statements are more common. People can also check their B__L__NC__ electronically to see how much
money they have on their account. Through the use of C__ __ __ __T and D__ __ __T cards people
can access their bank accounts conveniently, making it less necessary to carry cash with themselves.

Banks offer many different types of L__ __ __S to people who need more money than what they have in
their bank accounts. __V__RDR__FT is usually a short T__ __ __ loan that allows a person to
W__ __ __ __ __ __W more money than what his/her account holds by going below Z__ __ __ on the
balance. A M__RTG__G__ is an example for a long term loan. This type of loan is usually taken out if
someone is planning to buy real __ST__T__. The loan is secured by a C__LL__T__R__L, usually the real
estate being bought. This means that if the B__ __ __ __ __ER D__F__ __LTS on the loan (i.e.,
doesn't pay the loan back), the bank will become the owner of the real estate and can sell it to recover the
C__ __ __TAL lent.

68
VI Banking – crosswords puzzle

Across
3. Another word for “cash machine” or “cash point”
4. Money put into a bank account OR putting money into a bank account
7. Assets promised by a borrower to a lender if the borrower cannot repay the loan
8. A fee paid for the use of another party's money.
9. … on investment: The amount of profit on an investment.
11. A card issued by a financial company giving the holder an option to borrow funds, usually at point of
sale. These cards charge interest.

Down
1. Borrowing money by spending more than you have in your bank account.
2. The amount of funds in a bank account at a given time.
4. Being unable to repay a loan.
5. An electronic card issued by a bank which allows bank clients access to their account to withdraw
cash or pay for goods and services.
6. Someone who takes a loan
10. Take money out of an account

69
 PRACTICE

Banking - The bare essentials

I Use the words below to fill in the gaps.

goes bust deposits depositors interest rates bank account

loans interest in cash borrow shortages central bank

What banks are for

In developed economies, nearly everyone has a (1) __________________, because keeping

(2) __________________ under a mattress is neither safe nor convenient. Banks are an essential
feature of national life, like buses, post offices and hospitals. Any money that is not floating around as
cash, in the form of notes or coins, is either sitting (3) __________________ a bank account, or is in
transit in a payment system between banks.

Banks operate by taking (4) __________________ from private people, on which they pay low
(5) __________________ or none at all, and using the money to make longer-term
(6) __________________ to other customers, charging them higher (7) __________________. Banking
is based on trust, but banks sometimes misuse depositors' money or make losses on their loans, and
(8) __________________ do not usually have the time, the inclination or the capacity to monitor their
banks. They are happy to leave that task to the governments.

Governments also help banks cope with temporary cash (9) __________________ by providing access
to the "discount window" so they can (10) __________________ money from the
(11) __________________. The bank deposits are often insured in a pool of arrangement or by the
government itself, in case the bank (12) __________________.

cartels payments debit securities financial services regulators

credit payment system transaction foreign currency
investments

Banks are also needed to make (13) __________________, sending money from one bank account to
another, whether in the same bank or in any other one the world over. Even a payment by
(14) __________________ or (15) __________________ card or a mobile-phone billing account, ends
up as part of a (16) __________________ with a bank.

These days most banks do a lot more besides, offering a wide range of (17) __________________. For
example, they give financial advice, exchange (18) __________________, deal in
(19) __________________ and derivatives, and manage (20) __________________ on behalf of
clients. Regulators have an interest in making sure that these businesses are run properly; but their chief
concern remains that banks are sound, that those deposits are safe and that the
(21) __________________ runs smoothly.

Regulating banking systems is an uncertain business. Banks have to be discouraged from forming
protectionist (22) __________________ and encouraged to compete with each other, but not so fiercely
that they cut each other's throats. It is a delicate balance for (23) __________________ to strike.

Source: The Economist, May 19th 2005

70
II Follow the text and find verbs that collocate with the words below.

1 t__________________ deposit 2 p__________________ interest

3 m__________________ loans 4 c__________________ interest
5 m__________________ depositors' money 6 m__________________ losses
7 b__________________ money 8 g__________________ bust
9 m__________________ payments 10 o__________________ financial services
11 g__________________ financial advice 12 e__________________ foreign currency
13 d__________________ in securities and 14 m__________________ investments
derivatives

III Use the words from the box below to translate the words in brackets into English.

debited bank statement accountant balance black

ATM credits red standing order current account

Vesna Bakić is an __________________ (računovođa). When she started working she opened a
__________________ (tekući račun) with her bank. Her company __________________ (uplaćuje
sredstva na) her account every month. She can withdraw money from her account in the bank during
office hours or from an __________________ (bankomat) any time she wants. She has arranged with
her bank to pay electricity and other bills by __________________ (trajni nalog). Every month on a
certain day the bank sends her a __________________ (bankovni izvod) which tells her the
__________________ (stanje), the exact amount on her account, i.e. whether she is in the
__________________ (minus) or in the __________________ (plus). Vesna is happy to have a credit
card for paying goods and services, but she is not happy when her account is __________________
(terećen) too much.

71
 THE BANKING CRISIS

I Before reading about the first run on a British bank for generations match up the words
and definitions below.

the Treasury bank run solvent the Chancellor credit squeeze shakeout

1 the concerted action of depositors who try to withdraw their money from a bank because they think it
will fail
2 an elimination of some competing businesses, products, etc., as a result of intense competition in a
market of declining sales or rising standards of quality.
3 the department of government that has control over the collection, management, and disbursement
of the public revenue.
4 a restraint or limitation of credit; restricted bank lending that is accompanied by rising short-term
interest rates and a decline in economic growth
5 the British cabinet minister responsible for finance
6 having enough money to pay your debts at the time they must be paid

II Read the introductory paragraph and find out what happened and how it happened.
Can you predict what came next?

Northern Rock Banking Crisis

The Times, Friday September 21th, 2007

The shake-out from the global credit squeeze led continued despite assurances that North Rock
to the first run on a British bank for generations. was solvent. It was only halted after the
Northern Rock's customers rushed to withdraw government (eventually) guaranteed all its
their savings after the Bank of England offered deposits.
the mortgage lender emergency funding. The run

III Scan the rest of the text and match the questions to the corresponding paragraphs.

1 Who is to blame for the Northern Rock crisis? Paragraph ______

2 Why did the Bank of England not act earlier? Paragraph ______
3 Why did the Treasury get involved? Paragraph ______
4 Are critics convinced by the Bank's response? Paragraph ______
5 What does the Chancellor's guarantee for Northern Rock cover? Paragraph ______
6 What about investors who lent money to Northern Rock? Paragraph ______
7 How much is the guarantee worth and how long will it last? Paragraph ______

A If the bank goes bust, the Treasury will repay C The Treasury said yesterday that the guarantee
investors who made unsecured loans but will not would last "during current instability in the financial
cover those who bought the bank's covered bonds, markets."
securities issued by Northern Rock's structured
investment vehicle or subordinated debt. D Most people point the finger at management, who
borrowed over their heads in the money markets to
B Questions remain about why the Governor provide mortgages on the cheap. Others blame the
retreated. Some believe he came under pressure Financial Services Authority, the banking regulator, and
from the Chancellor, Alistair Darling, and the the Bank of England for not spotting trouble early
Treasury. Others feel the Bank made the move to enough.
cover up some other, as yet unknown, banking
losses.
72
E The Treasury has promised to protect all retail and F Because the Bank's guarantee to Northern Rock
commercial accounts opened by midnight on was not enough, the only way to stem the panic was
September 19. The guarantee covers interest for the Government to step in and guarantee 100 per
payments, the movement of money between cent of all deposits.
accounts and deposits into existing accounts. The
Treasury will also protect accounts opened at the G The Governor said the Bank was hampered by the
bank by customers who closed their accounts interaction of four pieces of legislation. The first was
between September 13 and September 19. the Market Abuse Directive, which prevented it from
following its preferred course of action – a covert
bailout of Northern Rock. The Directive, introduced in
2005, meant that any such action had to be carried
out in a overt, transparent manner.

IV Match the following words from the text to the corresponding explanations:

1 unsecured debt a. at a low cost

2 bailout b. to prevent, hinder
3 on the cheap c. issued with a guarantee (an asset)
4 to stem d. to notice that something is going wrong
5 to hamper e. to stop
6 covered bonds f. debt that is not supported by any assets of
7 run on a bank a borrower
8 to spot trouble g. providing money to get somebody out of
9 to come under pressure financial trouble
10 subordinated debt h. an organization that makes loans for buying
11 (to borrow) over their heads property with the property as security
12 mortgage lender i. when many depositors try to withdraw their
money because they think a bank will fail
j. more than would be reasonable, intelligent
k. to feel pushed to act
l. debt that will only be repaid after all the
other debts have been paid

V Read the text again and underline:

a) words that appear in Subprime Meltdown (MK, p. 75) or The Crisis of Credit (to be found on
YouTube or Vimeo: http://vimeo.com/3261363)

b) any unknown words

73
CENTRAL BANKING: FUNCTIONS

I What are central banks responsible for? Does Croatia have a central bank? Do you know
the meaning of the following acronyms and abbreviations: ECB (S), the Fed, CNB (HNB)?

II Gabriel Mangano is an economics research student, specializing in monetary policy. You

will hear him outlining the functions of a central bank. Listen to the interview with him, and fill
in the gaps.
The first one is actually to implement monetary policy. There are roughly three* ways to do it. First

(1a) _____________________________________, which means limiting, upwards or downwards,

the fluctuations of the interest rate. The second way to implement monetary policy is simply

(1b) ___________________________ - coins, banknotes. The third one, which is a bit more

modern, is those (1c) ______________________________, which are simply buying and selling

government bonds to and from commercial banks.

So that was the first main task of a central bank. The second one is (2) ___________________,

I would say. (...)

Third main task, yes, (3) _______________________________________, I would say - make sure
that the commercial banks have enough liquidities, for instance, to avoid any bank run. (...)

The fourth main task of the central bank would be to (4) ___________________________, in case,
actually, one of these commercial banks goes bankrupt and the investors, the people putting money
in the bank, have to get back their money.

* Mangano doesn’t mention the fourth way of implementing monetary policy: changing reserve
requirements.

II Read the six sentences below, which also summarize central banking functions, but
slightly differently, and match them up with the six expressions you have written in the
first task.
A controlling the amount of banknotes in circulation
B establishing maximum and minimum lending rates, thereby controlling the credit system
C ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their deposits
when they want
D intervening on foreign exchange markets, buying or selling large amounts of the national
currency, to prevent major fluctuations
E lending money to a commercial bank in danger of going bankrupt
F selling government bonds to commercial banks or buying them back, in order to alter the amount
of credit the banks can offer (and thereby alter the money supply)

Source: Ian MacKenzie, English for Business Studies, 2nd Ed, p. 133

74
 CENTRAL BANKING: HOW CAN MONETARY POLICY HELP THE ECONOMY?

I Do you understand the words below? Which of them did you mention in your economics
classes? Are they related to monetary policy issues?

full employment money supply output aggregate demand bonds

reserve requirement discount rate loan availability loan approval borrow
lending capacity market participants scarce goods inflation
income redistribution investment consumption open market

II Which of the terms above are defined here?

1 The total level of demand for desired goods and services that makes
up the GDP.
2 A situation in which all available labor resources are being used in the
most economically efficient way. It is the highest amount of skilled and
unskilled labor that could be employed within an economy at any given
time.
3 An amount produced or manufactured during a certain time

4 An economic system with no barriers to free market activity.

5 Minimum amount of cash or cash-equivalents (a percentage of

deposits) that banks and other depository institutions are required by
law to keep on hand, and which may not be used for lending or
investing.
6 The interest rate charged to commercial banks and other depository
institutions for loans received from a central bank’s discount window.
7 A bank’s ability to fund loans

8 Securities representing the debt of the company or government issuing

it.

9 The amount of liquid assets (usually cash) circulating in the economy.

III How can monetary policy help the economy? Read the extract from Schiller, B.R. (1996).
Essentials of Economics. McGraw-Hill and explain.

The ultimate goal of all macro policy is to stabilize the economy at its full-employment potential.
Monetary policy contributes to the goal by increasing or decreasing the money supply as economic
conditions require.

Expansionary policy

When the economy is in recession, it produces less than its full-employment potential. Monetary policy
may then be used to stimulate the economy to increase the rate of output and aggregate demand. If
the Fed lowers reserve requirements, drops the discount rate, prints more money or buys more bonds,
it will increase bank lending capacity. The banks in turn will try to use that expanded capacity and
make more loans. By offering lower interest rates or easier approvals, the banks can encourage people
to borrow and spend more money.

75
Restrictive policy

Monetary policy may also be used to cool an overheating economy. Excessive aggregate demand may
put too much pressure on the economy's production capacities. As market participants bid against
each other for increasingly scarce goods, prices will start rising. The resulting inflation will redistribute
real incomes (perhaps unfairly) and may disrupt investment and consumption plans.

The goal of monetary policy in this situation is to reduce aggregate demand. To do this, the Fed can
reduce the money supply by (1) raising reserve requirements, (2) increasing the discount rate, or (3)
selling bonds in the open market. All of these actions will reduce bank lending capacity. The
competition for this reduced pool of funds will drive up interest rates. The combination of higher interest
rates and lessened loan availability will curtail investment consumption and even government
spending. This was the intent of the Fed's money restraint in 1994. The Fed was worried that the US
economy was growing so fast that it would overshoot the full-employment goal. To avert those
inflationary pressures, it reduced money-supply growth and raised interest rates.

Source: Schiller, B.R. (1996). Essentials of Economics. McGraw-Hill Schiller

IV What does monetary policy control?

__________________________________________________________________________

V List the 4 tools of monetary policy.

___________________________________________________________________________

___________________________________________________________________________

VI Read the text again and fill in the table.

PROBLEM GOAL MEASURES

MONETARY POLICY What has gone What should be How should it be
wrong? done? done?
EXPANSIONARY
(LOOSE)

RESTRICTIVE
(TIGHT)

76
VII Work in pairs. Present one type of monetary policy (expansionary or restrictive) to your
colleague using the framework below.

If the economy ............................................, the central bank should...................................................

This can be done by ........................................................ the reserve requirement,
....................................... the discount rate, or by....................................................... bonds on the
open market.

THE GOVERNMENT’S POLICY: FISCAL POLICY

I Fill in the gaps with the correct form of the words in the box.

wish spending reduce greater inflation make

demand unemployment hire expansionary restrictive

Fiscal policy

Reducing taxes and increasing government ______________ have the same effect –
______________ spending in the economy. The difference is that when you ______________ taxes,
the extra spending is done by individuals. Governments will do this if they want to reduce
______________ – the extra spending will increase ______________ for products which firms will
meet by ______________ more workers. This is called a(n) ______________ fiscal policy. A
problem is that ______________ might increase as a result.
If the government ______________ to reduce inflation it might increase taxes or reduce spending –
a(n) ______________ fiscal policy. There will be less spending, and firms will ______________ less
profit.

PROJECT - ECONOMY AROUND US

Find business headlines, international or local, talking about the impact of central
banking on the economy (e.g. the Fed and the Great Recession of 2008, Croatian
news dealing with the CNB etc.). Prepare a talk in English on each piece of news (no
more than 3-4 short sentences).

77
 MONETARY POLICY – CASE STUDIES

Case 1:
Blueland is a small island nation in the Pacific Ocean. Until recently, Blueland's economy didn't
experience many changes: its GDP stayed steady and its 6000 inhabitants lived mainly off subsistence
farming, fishing and exporting handmade coconut carpets. In 2010, however, a large rhodium reserve
was discovered on the island. Rhodium is a rare and expensive metal that is used in engineering,
medicine and jewellery. Mining began in 2011. Look at the graphs and say what kinds of changes
happened from 2011 on.
GDP (in thousands $)
population (in thousands)

300
25
250

200 20

150 15

100
10
50
5
0

0
2009 2010 2011 2012 2013 2014 2015 2016

CPI (2009=100%)

180 CPI or Consumer price index reflects

160 changes in the cost to the average
140 consumer of buying goods and services
120 that are representative of what a typical
100
consumer purchases in a month.
80
60
40
Why do you think prices rose in
20 Blueland?
0
2009 2010 2011 2012 2013 2014 2015 2016

1) Identify the problem. Think about what happened to the following economic indicators:
GDP, population, aggregate demand, prices.

2) Give reasons for the problem. Use expressions, such as: due to (the fact), as a result of (the fact)

3) How could the problem be solved using monetary policy?

List the tools of monetary policy or find them in your notes.
Describe the steps the central bank needs to take.

4) Imagine that you are the governor of Blueland’s central bank. Prepare a short talk where you
explain the actions you are going to take to solve the country’s problem.
Follow the pattern below:
The government's main aim should be to …
First we need to … because … Then …

Use signposts: First(ly), second(ly), third(ly), then, next, etc.

Use linking words: because, due to (the fact that), so that, so as to

78
Case 2:

Redland is a small island nation in the Pacific Ocean. It is a relatively undeveloped country. The climate
is warm and there are some spectacular sandy beaches on the island. The country’s infrastructure is
mostly undeveloped: there is one hotel and a small airport. The economy is largely based on
agriculture. The country's main product was coconut but, because of changing weather conditions
caused by global warming, the country has not been able to produce the crop successfully for the past
3 years. . Look at the graphs and say what kinds of changes happened from 2013 on.

GDP (in thousands $) employment %

100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Identify the problem. Use expression, such as: GDP, unemployment, strategic industry.

Give reasons for the problem. Use expressions, such as: due to (the fact), as a result of (the fact)

Solve the problem using monetary policy tools.

Describe the steps:
Use expressions, such as reserve requirements, discount rate, bonds, open market, lending capacity,
loans, interest rates, investment
Use signposts: First(ly), second(ly), third(ly), then, next, etc.
Use linking words: because, due to (the fact that), so that, so as to
Say:
The government's main aim should be to …
First we need to … because … Then …

79
 REVISION 2
UNITS:
Banking, The role of banks, The business cycle, Central banking functions, Monetary
and Fiscal Policy, Exchange rates

I Read through this list of terms and decide which terms belongs to which unit. Some
might fit in more than one place.

commercial bank, IMF, monetary policy, investment bank, aggregate demand, foreign currency
reserves, universal bank, open market, minimise risk, money supply, supply, financial system, interest,
deposit, payment system, issue loans, converting currencies, speculation, spread risks, diversification,
direct debit, bank statement, demand, overdraft, collateral, reserve requirements, ATM, hedge funds,
discount rate, slump, private banks, purchasing power parity (PPP), stimulate the economy, Islamic
banks, non-bank financial intermediaries, downturn, lending capacity, microfinance, fiscal policy, gold
convertibility, GDP, foreign exchange markets, currency fluctuation

Banking

The role of
banks

The
business
cycle

Central
banking
functions

Monetary
and fiscal
policy

Exchange
rates

II Look at the words in task I again and …

a) explain their meaning in your own words.
b) use each in a sentence.

80
III Explain the difference between the following concepts:

1 deposit savings / withdraw money

2 borrow / lend
3 debit card / credit card
4 current account / savings account
5 overdraft / mortgage
6 default on a loan / pay back a loan
7 downturn / upturn
8 recession / depression
9 internal (endogenous) theory of the business cycle / external (exogenous) theories of the business
cycle
10 fiscal policy / monetary policy
11 expansionary (monetary/fiscal) policy / restrictive (monetary/fiscal) policy
12 Classical economic theory / Keynesianism / Monetarism
13 revalue / devalue
14 appreciate / depreciate
15 fixed exchange rate / floating exchange rate
16 managed floating exchange rate / freely floating exchange rate

81
 8 INSURANCE
I Do you know the answers to the following questions:

1 What is insurance?
2 Why do people and businesses purchase insurance cover?
3 What does a person or a business have to do if they want to purchase insurance?
4 Do you know how the insurance business works?
5 What happens if you suffer a loss?

II Read the text and find the answers to those questions.

How Insurance Works
People and businesses attempt to avoid the financial consequences of replacing personal loss or
damaged property resulting from their exposure to risks of fire, theft, earthquake, or other accidents
by purchasing insurance cover. Insurance is actually a type of risk management where the risk is
shifted to the insurance company in exchange for payments or premiums.
If a person or a business wants to purchase insurance, he/she contacts an insurance broker who
advises on the best type of insurance policy for him/her. This is a legally binding contract that
describes all the rights, responsibilities and obligations of both interested parties – the insured and
the insurance company. If the insured suffers losses covered in the policy, he/she files a claim
describing what is lost or damaged and its value, and asking to be reimbursed up to the amount of
the policy – the insured sum. If the policy is for $5,000 that is the maximum amount the insured
person can get.
When individuals or businesses take out insurance policies, all the premiums are combined into the
insurance pool. Insurance companies assess their exposure to risk trying to predict the amounts of
claims for losses or damages they will have to compensate. Based on this statistics they will
determine the amount of the premium for each particular case. This is called underwriting. As the
vast majority of insured do not suffer the losses or damages their insurance policies cover, the
insurance companies make huge profits. However, in order to be able to pay out the occasional
huge compensations insurance companies increase their pool of premiums by acting as institutional
investors, i.e. by trading in securities together with pension funds, hedge funds and the likes. In
order to protect themselves most insurance companies minimise their underwritten risks by
reinsuring risk with larger insurers.
Adapted from: http://www.ehow.com/how-does_4675265_insurance-work.html

III Find the words in the text which match the following explanations.
1 an application for payment under an insurance policy ______________________
2 a payment for an insurance policy (usually monthly, yearly etc.) ______________________
3 an act of lowering risk exposure ______________________
4 a contract on insurance cover between the insurer and the insured (who is also called the
policy holder) ______________________
5 the person or business taking out the insurance ______________________
6 to evaluate the risks of insuring a particular person or asset ______________________
7 a chance or possibility of injury, loss etc. ______________________
8 the amount of money a policy holder claims upon suffering a loss ___________________
9 to insure the risk of one insurance company by another ______________________
10 an independent agent who advises on best insurance deals ______________________

82
 IV Read the text again and complete the diagram.

How do insurance companies make money?

PEOPLE IN THE INSURANCE BUSINESS

I Match the definitions with the jobs in the box.

An insurance agent An insurance broker An insurance underwriter
An insured A claims adjuster

1 ________________ investigates insurance claims and inspects damage to determine the company's
liability. In the UK, s/he is known as the loss adjuster.
2 ____________________ evaluates the risks of insuring a person or asset and uses that information
to set the price for insurance policies. Higher-risk individuals will have to pay more in premiums to
receive the same level of protection as a lower-risk person or asset.
3 ____________________ is the person or business who is covered by an insurance policy.
4 ___________________ is an insurance company's representative. S/he works for the insurance
company and sells its insurance.
5 ____________________ is not employed in the insurance company. S/he works independently and
offers insurance policies by different insurers.

II Put the following steps in the chronological order.

How to take out insurance

☐ The insurer quotes a premium.
☐ You find an insurance company and contact an agent or a broker.
☐ The underwriting process (risk assessment) takes place.
☐ You decide to protect your property against an accident, loss or damage.
☐ The insured pays the first premium.
☐ The insurer issues the policy (the contract).
☐ The insurer is willing to provide cover.
☐ You apply for insurance.
83
III Fill in the missing words with the help of the exercises above.

_______________ for _______________ something against

an insurance theft
_______________ a policy _______________ a loss
_______________ cover _______________ a claim
_______________ a premium insure _______________ something
_______________ a premium _______________ the risk

IV Read the gapped text and think about what kind of words and expressions might be
missing. Then, fill in the gaps as you watch the video:
http://www.youtube.com/watch?v=ID9aevs-els

You pay a (1) _________________ to a company that provides you with insurance and in the
event of a loss they will provide you some sort of benefit (...)
This could be a homeowner’s insurance where you pay a premium and the insurance company
will help you (2) _________________that loss of a home or a damaged property (...)
Insurance companies are in the business to make money. […] They take your money and they
are taking a (3) _________________ (...)
They are taking in a ton of risk and they are kind of (4) _________________ it around.
Maybe they’ll take on 20, 30, 40 people and only one or two of them have any type of auto
(5) _________________, so they are able to make money by spreading that risk around (...)
Oftentimes insurance companies will even do something called (6) _________________ where
there’ll be another insurance company that will (7) _________________ that risk from the
insurance company that you go through (...) The [other] insurance company can help
(8) _________________ their level of risk that they are undertaking by offering reinsurance.

V What kinds of insurance are mentioned in the talk?

_______________________, _____________________, ______________________.

VI Match the verbs with the appropriate nouns to make collocations.

*to take out... to claim… to file... to settle...

to refund... to cover... to assess... to insure against...
to pay... to bear... to cancel... to draw up...
to issue... to make… to purchase…
to take out .

an insurance compensation a policy risks a claim

cover

84
 PRACTICE

I Which nouns are missing? The first letter will help you.

1 Damage or injury can occur as a result of a____________, theft, fire or something else.
2 That is why people and businesses contract insurance: to compensate for the r____________ they
might incur.
3 Insurance companies provide many types of insurance c____________ .
4 H_____________ insurance policies cover the costs of medical treatment in case of an illness.
5 The insured signs the insurance p_____________and pays a p____________.
6 If the insured suffers damage, he or she can file a c____________ and demand compensation.

II Replace the Croatian verbs with English ones.

1 People and businesses (ugovaraju) _____________ insurance.

2 Insurance companies (pružaju) ____________ many types of insurance to (pokriju) ____________
a specific risk.
3 People and businesses can (podliježu) ____________ risk.
4 Car insurance policies (nude) ___________ financial compensation in case of a car.
5 The insurer and the insured (potpisuju) _____________ the insurance policy.
6 Insurers (naplaćuju) ____________ a specified amount of money called premium to insured parties.
7 The insurer will (nadoknaditi štetu) _____________ the insured in the case of a loss, as agreed in
the policy.
8 If the insured suffers damage, he or she can (podnijeti) __________ a claim.

III Which of the people in insurance do policy holders see first? And after that? Fill in this text
with the missing words.

When you want to contract insurance you can either talk to an __________________ employed by an
insurance agency or a __________________ . If you agree with the terms of the policy, you pay the
premium and become the ______________.

If you want to contract a life insurance policy, an ___________________will evaluate the risks in your
life and calculate the premium. If you suffer a loss or an accident you will probably want the
_______________to pay compensation for
your loss. Before this can happen, the ________________ will decide if the insurance company is
actually liable to indemnify you.

85
 9 FINANCE
INTRODUCTION TO BUSINESS FINANCE

I Read the text and find out about the different ways of raising and using capital. In addition,
find out about the difference between assets and liabilities.

RAISING CAPITAL
When people want to set up a company, they need money, called capital. There are many different
ways how people can raise capital.
For instance, they can borrow money from friends or use their personal assets. Or, they they can
borrow from banks by taking out a loan. The loan must be paid back with interest, the amount
paid to borrow the money. Capital can also come from issuing shares or equities – certificates
representing units of ownership of a company. The people who invest money in shares are called
shareholders and they own part of the company. The money they provide is known as share
capital. Individuals and financial institutions called investors, can also lend money to companies
by buying bonds – loans that pay interest and are repaid at a fixed future date.
Money that is owed (that will have to be paid) to other people or businesses is debt. In accounting,
companies' debts are usually called liabilities. Long-term liabilities include bonds; short-term
liabilities include debts to suppliers who provide goods or services on credit (that will be paid for
later). In contrast, all the things that a company owns are called assets.
The money that a business uses for everyday expenses or has available for spending is called
working capital or funds.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.
II Find the words and expressions in the text that match the following definitions.

1 The amount of money owed to other people.

2 The amount of money borrowed from a bank which has to be repaid with
interest.
3 An accounting term for companies' debts.
4 The money that a business uses for everyday expenses or has available
for spending.
5 The people who invest money in shares.
6 Everything a company owns.
7 Certificates representing units of ownership of a company.
8 A type of liabilities which have to be repaid within a year and include debts
to suppliers who provide goods or services on credit.

III Fill in the gaps with the verbs from the box below.

repay pay back issue own owe raise

borrow set up pay
1 If you want to _______________a company, you first have to ____________capital.
2 If you _____________from a bank, you will have to ____________the loan with interest.
3 If you __________shares, you will have to ___________ dividends to shareholders.
4 If you __________ a lot of assets, you can try to sell them to __________your debts.
5 Borrowers ___________ money to the bank.

86
ACCOUNTING AND FINANCIAL STATEMENTS

I Read the text and fill in the notes below.

FINANCIAL REPORTING AND THE ANNUAL REPORT
Financial reporting deals with financial transactions that involve money. These transactions can
include making payments, or expenditure, and receiving money, or income. Financial transactions
are recorded in the accounting system of a business. Each type of transaction is entered in a record
known as an account.

The accounts are dealt with by bookkeepers, accountants, and auditors. Bookkeepers' job is to
enter data and keep the financial records (ledgers) of companies’ accounts. Accountants check
and examine the accounts prepared by bookkeepers, and auditors (internal and external
specialists) are in charge of the oversight, i.e. checking the accounts. It is important to record
financial transactions in order to see how much a business is earning and how much it has to pay.
Managers want to know who owes them money (debtors) and to whom they owe money (creditors).
Public limited companies, that are listed or quoted on stock exchanges, are required by law to
publish their financial reports as parts of their annual report.

The annual report presents the company's performance in the course of the previous year. It
consists of the following principal parts: the chairman's statement, which gives an overview of the
company's past and present situation, the director's report, which shows the principal activities of
the business, the results and dividends, investments, employment policies, and the auditor's report
granting that the accounts give a “true and fair view“ of the company's financial performance. This
is reflected in the crucial part of the annual report, the three financial statements: the profit and loss
account (UK) or income statement (US), i.e. the records of a company’s income and expenditure,
the balance sheet showing assets, liabilities and owners’ equity, and the cash flow statement that
records cash inflow and cash outflow.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.

PEOPLE INVOLVED IN COMPANIES' ACCOUNTS

_____________________ ______________________ _____________________

PARTS OF THE ANNUAL REPORT

the____________statement, the_____________report the_____________report
three _______________statements: 1 _____________________
2 _____________________
3 _____________________

II Match these terms to their definitions.

□ examining a company's systems of control and the accuracy or

1 ACCOUNTING
exactness of its records, looking for errors or possible fraud where the
company may have deliberately given false information
2 BOOKKEEPING □ day-to-day recording of transactions such as sales, purchases,
debts, expenses
□ recording and summarizing an organization's transactions and
3 AUDITING
business deals, such as purchases and sales, and reporting them in
the form of financial statements

87
III Fill in the missing words.

ACTIVITY PERSON
accounting
bookkeeping
auditing

THE BALANCE SHEET

I Look at this balance sheet and find the key words for talking about it.
What parts is it divided into?
What information does each part contain?

II Read the text and underline the definitions and examples of assets, liabilities and
capital. How should assets, liabilities and capital balance?

THE BALANCE SHEET

The balance sheet is a document which has two sides. The totals of both sides are always the
same, so they balance.
One half shows the business's assets, which are things owned by the company, such as factories
and machines that will bring future economic benefits. The other half shows the company's
liabilities, and its capital or shareholders' equity.
Liabilities are obligations to pay other organizations or people: money that the company owes, or
will owe at a future date. These often include loans, taxes that will soon have to be paid, future
pension payments to employees, and bills from suppliers: companies which provide raw materials
or parts.
Shareholders’ equity or capital consists of all the money belonging to shareholders. Part of this is
share capital, the money raised by selling its shares. Part of it includes retained earnings: profits
from previous years that have not been distributed to shareholders as dividends.
Assets are shown as debits. The total value of assets must correspond with the total sum of credits
(liability + capital) because that is the amount of money spent on purchasing the assets. Therefore,
assets equal liabilities plus capital.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP

88
 III Look at the ASSETS section of the balance sheet below and fill in the gaps in the text
that follows.
MACKENZIE INC.NEW YORK BALANCE SHEET 31 DECEMBER 2012 ($'000)

FIXED ASSETS CURRENT LIABILITIES

Property, plant and equipment 4,500 Short-term debt 1,555
Goodwill 950 Accounts payable 5,049
Long-term investments 6,265 Accrued expenses 8,593
Total fixed assets 11,715 Total current liabilities 15,197
CURRENT ASSETS LONG-TERM LIABILITIES
Cash and equivalents 3,415 Deferred income taxes 950
Accounts receivable 8,568 Long-term debt 3,402
Inventory 5,699 Other non-current liabilities 1,201
Other 5,562 Total non-current liabilities 5,533
Total current assets 23,244 TOTAL LIABILITIES 20,750
TOTAL ASSETS 34,959
SHAREHOLDERS' EQUITY
Common stock 10,309
Retained earnings 3,900
Total 14,209

TOTAL LIABILITIES AND

SHAREHOLDERS' EQUITY 34,959

Fixed assets (or non-current assets) and investments, such as buildings and (1) _______________,
will continue to be used by the business for a long time. Current assets are things that will probably
be used by the business in the near future and can reasonably be expected to be converted into cash
within one year. They include (2) _______________, money available to spend immediately, (3)
_________________ (or debtors) i.e. companies or people who owe money to be paid in the near
future and stock or (4) __________________.
Assets can also be classified as tangible and intangible. Tangible assets are assets with a physical
existence - things you can touch - such as (5) __________________, (6) ________________ and
equipment. Intangible assets include brand names, patents, copyrights and trade marks, loyal
customers, trained staff, skilled management, etc. Because it is difficult to give an accurate value for
any of these things, companies normally only record tangible assets. If a company buys another one
at above its net worth (or net assets) because of its intangible assets, the difference in price is
recorded under assets in the balance sheet as (7) __________________.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.

IV Sort out the following into FIXED, CURRENT or INTANGIBLE ASSETS.

cash debtors (accounts receivable) brand names inventory property
copyright plant equipment land trade marks patents

FIXED ASSETS CURRENT ASSETS INTANGIBLE ASSETS

89
 V Read the text on LIABILITIES. What types of liabilities are there?
Liabilities are amounts of money that a company owes, and are generally divided into two types –
long-term and current.
Long-term liabilities or non-current liabilities have to be paid back in more than 12 months, and
include bonds, loans, mortgage payments, deferred income taxes, etc.
Current liabilities are expected to be paid within a year of the date of the balance sheet. They
include accounts payable (or creditors) – largely suppliers of goods and services to the business
who are not paid at the time of purchase, planned dividends, and deferred taxes – money that will
have to be paid as tax in the future, although the payment does not have to be made now. Accrued
expenses are expenses that have accumulated or built up during the accounting year but will not
be paid until the following year, after the date of the balance sheet. So accrued expenses are
deducted from profits even though the bills have not yet been received or the cash paid.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.

VI Match the English terms to their Croatian equivalents.

ENGLISH CROATIAN
1 long-term liabilities A) kredit, zajam
2 bond B) plaćanje hipoteke
3 loan C) odgođen porez na dobit
D) odgođeno plaćanje troškova, obračunati
4 mortgage payments izdaci
E) dugovanje, obveze po primljenim
5 deferred income tax fakturama
6 current liabilities F) obveznica
7 accounts payable G) dugoročne, fiksne obveze
8 accrued expenses H) kratkoročne , tekuće obveze

VII Sort out the following into ASSETS and LIABILITIES.

accounts payable land and buildings accrued expenses dividends
inventory accounts receivable investments cash and equivalents
deferred taxes long-term debt

ASSETS LIABILITIES

90
VIII Read the text and underline the correct option when there is a choice in the text.

Hundreds of millions of pounds are running through Airbnb's UK business

The UK is a big market for Airbnb, with over 81,000 properties listed on the platform here and 2.2
million tourists using the service / product to stay in Britain in 2015 alone.
Now we've got a little insight into what that looks like for Airbnb in terms of money.
Airbnb UK filed abbreviated claims / accounts with Companies House in January. Although they don't
disclose / show key measurements such as revenue and profit, they do show assets and liabilities. In
this way, they give an idea of the sort of ballpark Airbnb is playing in.
The balance sheet disclosure shows that Airbnb's UK business had just shy of £60 million (£59 m.) in
the bank at the end of 2014, the latest period the accounts cover.
Airbnb UK was also owed £168.6 million and itself owes £227.6 million. When you net those out, Airbnb
had just £91,291 of assets on hand.
But the balance sheet shows that Airbnb, a company valued at over $25 billion (£17 billion), has a huge
amount of money flowing through its UK business. Those figures are also a big jump from what they
were in 2013, suggesting it is growing fast.
Adapted from:
Williams-Grut, O., Shead, S. (2016) “Hundreds of millions of pounds are running through Airbnb's UK business.” Business Insider, Feb. 21,
2016, Retrieved from: http://www.businessinsider.com/airbnb-uk-2015-accounts-60-million-in-the-bank-2016-2Airbnb

VIII Re-read the text and complete Airbnb's balance sheet.

Source: Companies House

91
 THE PROFIT AND LOSS ACCOUNT (INCOME STATEMENT)

I Look at this income statement and find the key words for talking about it.
What parts is it divided into?
What information does each part contain?

Source: http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/common-size-income-statement-5237

THE PROFIT AND LOSS ACCOUNT

This financial statement shows the difference between the revenues and expenses of a period. At
the top of the statement is total sales revenue or turnover: the total amount of money received during
a specific period. Next is the cost of sales, also known as cost of goods sold (COGS): the costs
associated with making the products that have been sold, such as raw materials, labour and factory
expenses. The difference between the sales revenue and the cost of sales is gross profit. There are
many other costs or expenses that have to be deducted from gross profit, such as rent, electricity
and office salaries. These are often grouped together as selling, general and administrative expenses
(SG&A). The statement also usually shows EBITDA (earnings before interest, tax, depreciation and
amortization) and EBIT (earnings before interest and tax). The first figure is more objective because
depreciation and amortization expenses can vary depending on which system a company uses.

After all the expenses and deductions have been calculated, we get the net profit, often called the
bottom line. This profit can be distributed as dividends (unless the company has to cover past losses),
or transferred to reserves.
Source: Professional English in Use: Finance, Ian MacKenzie, CUP

92
 II Read the text on the profit and loss account and find ONE MISTAKE in the sample
profit and loss account below.

Searby PLC
Annual Profit and Loss Account, 1/2013
(£'000)
Sales Revenue 48,782
Cost of Sales 33,496
Gross Profit 15,286
Selling, General and Administrative Expenses 10,029
Earnings Before Interest, Tax, Depreciation and Amortization 5,257
Depreciation and Amortization 1,368
Earnings before Interest and Tax 3,889
Interest expenses 257
Income Tax 1,064
Gross Profit 2,568

III Sort out the following terms into PROFIT AND LOSS ACCOUNT or BALANCE
SHEET.
revenue fixed assets cost of sales current liabilities equity EBIT goodwill
inventory operating expenses accounts payable net profit
PROFIT AND LOSS ACCOUNT BALANCE SHEET

IV Fill in the gaps with the words from the box.

overheads expenditure gross profit net profit losses
retained profit depreciation bad debt

1 In order to calculate ____________ you have to deduct all the expenses such as cost of sales,
overheads and office salaries from the revenue.
2 If you take _____________ into account, our equipment is worth half of its initial price.
3 There was a growing gap between income and _________________ which caused a budget deficit.
4 Pinocchio Ltd went bankrupt, I think we’ll have to write off the money they owed us as a ________.
5 Our _______________ were really high: only our monthly heating bill was so high we had to close the
business.
6 It is simple to calculate _______________. You just have to deduct costs of sales from the sales
revenue.
7 The company has announced _____________ of $ 2 million and is facing bankruptcy.
8 _____________ is used for the future expansion of a company.

93
 THE CASH FLOW STATEMENT

I Look at this cash flow statement and find the key words for talking about it.
What parts is it divided into?
What information does each part contain?

Source: https://www.patriotsoftware.com/accounting/training/blog/what-is-a-cash-flow-statement-example/

II Read the text and answer the questions.

1 What does the cash flow statement consist of?
2 What can a company do with cash surplus?

THE CASH FLOW STATEMENT

This financial statement gives details of cash flows – money coming into the business (cash inflows
or sources of funds) and money leaving the business (cash outflows or applications of funds), relating
to operations (day-to-day activities), investing (buying or selling property, plant and equipment), and
financing (issuing or repaying debt, or issuing shares). The cash flow statement shows how effectively
a company generates and manages cash. If a company is consistently generating more cash than it
is using, the company will be able to increase its dividend, buy back some of its stock, reduce debt,
or acquire another company. All of these are perceived to be good for stockholder value.

Sources: Professional English in Use: Finance, Ian MacKenzie, CUP; http://www.accountingcoach.com/online-

accounting-course/06Xpg01.html#statement-of-cash-flows-intro

94
 III Would the following appear as OPERATING, FINANCING or INVESTING
ACTIVITIES? Check in the sample cash flow statement below.

amortization dividends paid purchase of property

GODWIN- MALONE INC, New York 20__ 20__

CASH FLOW STATEMENT ($'000)
Earnings 1,811 1,274
Amortization 924 683
Other adjustments to Earnings 33 -6
Net Cash provided from operations 2,768 1,951
Proceeds from issuing new stock 234 167
Stock dividends paid -14
Net Cash provided from financing 220 167
Additions to property, plant and equipment -2,351 -1,755
Net cash used for investing -2,351 -1,755
Change in cash and equivalents during year 356 97
Cash and equivalents, beginning of year 2,150 2,014
Cash and equivalents, end of year 2,506 2,111
Source: Professional English in Use: Finance, Ian MacKenzie, CUP.
IV Read the text again and match the halves of the sentences.

1 Inflows are all the money a. how much cash entered the company and how
much you have spent.
2 Outflows are all the money b. that enters the company.
3 Cash surplus is c. that leaves the company by being spent.
4 Cash deficit is d. a situation in which inflows are higher than
outflows.
5 Liquidity means e. a situation in which outflows are higher than
inflows.
6 Cash flow statement shows f. that you have enough cash or assets that can be
easily turned into cash.

V Sort out the words from the box into two groups: inflows and outflows.

bank loan cash received from customers interest paid

buying equipment interest received employees’ salaries
tax paid money you personally invest into the company
selling land or a building buying a company car

INFLOWS OUTFLOWS

95
 ACCOUNTING VOCABULARY

I Match the financial statement to its definition.

profit and loss account (income statement), balance sheet, cash flow statement

1 The ____________________ shows the company's assets, its liabilities and its capital.
2 The ____________________ shows the company's revenues and expenses during a
particular period.
3 The ____________________ shows how effectively a company generates and manages cash.

II Fill in the gaps in the sentences with the words from the box.
cash outflows income (2x) amortization (2x) assets accountants expenditure (2x)
annual report profit and loss account bookkeepers auditors liabilities
shareholders' equity balance sheet depreciation (2x) cash inflows

(1) ________________ enter data and record transactions in journals of companies’ accounts.
(2) ________________ turn data into meaningful financial information and prepare financial
statements.
(3) _________________ are in charge of internal and external oversight of accounts.
The (4) _________________ gives details about the company’s performance throughout the
preceding year.
The (5) __________________ is a financial statement which shows profitability.
The (6) ___________________ is a financial statement which shows the financial position of a
firm at a particular time. It consists of (7) _________________, (8) __________________, and
9) __________________.
The cash flow statement is a financial statement which gives information on liquidity. It shows
(10) ___________________ and (11) ____________________.
The profit and loss account shows (12) _________________ and (13) ________________.
(14) _________________ means making payments to creditors, to the government, to
shareholders and to suppliers. On the other hand, (15) _______________ means receiving
money from debtors, customers or investors.
(16) __________________ is the deduction of capital expenses over a specific period of time
(usually over the asset's life). While it is often used interchangeably with (17)
________________, technically this is an incorrect practice because (18) ___________________
refers to intangible assets and (19) __________________ refers to tangible assets.

96
 III Fill in the missing letters.

1 Assets are things that you OW_ and liabilities are things that you OW_.
2 The term “debtors” is often replaced by “accounts REC_ _ _ ABLE”. Similarly, “creditors” is often
replaced by “accounts PA_ _ BLE”.
3 Expenses that have been incurred but are not yet paid are called “A _ _ R_ _ D” expenses.
4 The total value of raw materials + work in progress + unsold stock is called IN_ _ _T_ _Y.
5 Revenue or TU_ _ O_ _R is also called the T_ P line.
6 Net profit or net IN_ _M_ is also called the B_TT_M line.

Source: Business English Handbook Advanced, Paul Emmerson, MacMilllan

IV Solve the puzzle by entering the English version of the Croatian terms below.

Across Down
1. rashodi / troškovi 2. promet, prihod
3. vjerovnik 4. zadržana dobit
6. dobit prije odbitka kamata i poreza 5. dugotrajna imovina
7. novčani tok 7. kratkoročna, tekuća imovina
8. dioničarski kapital 10. likvidnost
9. fiksni/režijski troškovi
11. kamata
12. desna, potražna strana bilance; pasiva

97
 THE FINANCING OF CORPORATE ACTIVITY

I Read the text and put the proposed headings in their right positions in the text:

a) Stocks vs Bonds b) Corporate Finance c) Bond Risks

The Financing of Corporate Activity (Stocks and Bonds)

1 _____________________________

Generally speaking, corporations finance their activities in three different ways. First, a very large
portion of a corporation's activity is financed internally out of undistributed corporate profits. Second,
like individuals or unincorporated businesses, corporations may borrow from financial institutions.
For example, a small corporation planning to build a new plant may obtain the funds from a
commercial bank, a savings and loan association, or an insurance company. Third, unique to
corporations, they can issue common stocks and bonds.

2 _____________________________

A common stock is an ownership share. The purchaser of a stock certificate has the right to vote for
corporate officers and to share in dividends. If you buy 1000 of the 100,000 shares issued by Specific
Motors, Inc. (hereinafter SM), then you own 1 percent of the company, are entitled to 1 percent of
any dividends declared by the board of directors, and control 1 percent of the votes in the annual
election of corporate officers.
In contrast, a bond is not an ownership share. A bond purchaser is simply lending money to a
corporation. A bond is merely an IOU, in acknowledgment of a loan, whereby the corporation
promises to pay the holder a fixed amount at some specified future date and other fixed amounts
(interest payments) every year up to the bond's maturity date. For example, you might purchase a
ten-year SM bond with a face value of $1000 with a 10 percent stated rate of interest. This means
that in exchange for your $1000 Specific Motors guarantees you a $100 interest payment for each
of the next years and then to repay your $1000 principal at the end of that period.
There are clearly important differences between stocks and bonds. First, as noted, the bondholder
is not an owner of the company, but is only a lender. Second, bonds are considered to be less risky
than stocks for two reasons. On the one hand, bondholders have 'legally prior claim' upon a
corporation's earnings. Dividends cannot be paid to stockholders until all interest payments that are
due to bondholders have been paid. On the other hand, holders of SM Stock do not know how much
their dividends will be or how much they might obtain for their stock if they decide to sell. If Specific
Motors falls on hard times, stockholders may receive no dividends at all and the value of their stock
may plummet. Provided the corporation does not go bankrupt, the holder of an SM bond is
guaranteed a $100 interest payment each year and the return of his or her $1000 at the end of ten
years.

3 _____________________________

But this is not to imply that the purchase of corporate bonds is riskless. The market value of your
SM bond may vary over time in accordance with the financial health of the corporation. If SM
encounters economic misfortunes which raise questions about its financial integrity, the market
value of your bond may fall. Should you sell the bond prior to maturity you may receive only $600 or
$700 for it (rather than $1000) and thereby incur a capital loss.
Changes in interest rates also affect the market prices of bonds. Specifically, increases in interest
rates cause bond prices to fall and vice versa. Assume you purchase a $1000 ten-year SM bond
this year when the interest rate is 10 percent. This obviously means that your bond provides a $100
fixed interest payment each year. But now suppose that by next year the interest rate has jumped
to 15 percent and SM must now guarantee a $150 fixed annual payment on its new $1000 ten-year
bonds to be issued next year. Clearly, no sensible person will pay you $1000 for your bond which
pays only $100 of interest income per year when new bonds can be purchased for $1000 which pay
the holder $150 per year. Hence, if you sell your bond before maturity you will suffer a capital loss.
98
 Bondholders face another element of risk due to inflation. If substantial inflation occurs over the ten-
year period you hold a SM bond, the $1000 principal repaid to you at the end of that period will
represent substantially less purchasing power than the $1000 you loaned to SM ten years earlier.
You will have lent 'dear' dollars, but will be repaid in 'cheap' dollars.

Based on McConnell, R., Brue, S. L. (1996) Economics. McGraw-Hill, Inc.

II Group the words below as to whether they specifically relate to stocks or to bonds.
Find words that are synonymous with each other.
vote interest loan retained earnings IOU
ownership principal dividend legally prior claim maturity date
face value undistributed corporate profits coupon

Words related to stocks:

_______________________________________________________________________________

Words related to bonds:

_______________________________________________________________________________

III Well-organized texts use different features to help readers understand their structure.
These are topic sentences, text headings, paragraphing, linking words (e.g. connectors)
etc. Fill in the table as it is suggested in the instructions below.
a) The structure of the text can be presented as shown in the table below.
Read the text and fill in the left column.
b) Find features of the text indicating its structure and fill in the right column.

NOTES PARTS OF THE ARTICLE

SHOWING TEXT STRUCTURE
Part 1 (paragraph 1)
THREE TYPES OF CORPORATE FINANCE:
1 ____________
2 ____________ (e.g. ___________ )
3 ____________

Part 2 (paragraphs 2-4)

STOCKS vs. BONDS
● ownership ● lending
● risky for investors ● less risky due to : 1 _________

2 _________

Part 3 (paragraphs 5-7)

BOND RISKS

1 ___________

2 ___________

3 ___________

99
SHARES AND BONDS COMPARED

IV Fill in the table with the information from the texts in MK (pp, 81, 87) and the RB (p. 91).
SHARES BONDS
1) What do they represent?

2) What are the owners called?

3) What is the return on the investment called?

4) Where are they traded?

5) What kinds of businesses can issue them?

6) Who helps businesses issue bonds and shares?

7) Why do companies issue them?

8) What are the obligations of companies that issue shares or bonds?

9) What are the advantages of issuing bonds or shares?

10) What are the disadvantages of issuing bonds or shares?

11) What are the advantages of investing in shares or bonds?

12) What are the disadvantages of investing in shares or bonds?

13) What risks do bondholders face?

14) Why do governments issue bonds?

100
 VOCABULARY PRACTICE

I Skim this stock market report and first explain the terms in italics.
STOCK MARKET REPORT

FTSE 100 bounces back from Doha disappointment as Iran urges oil producers to freeze output
Talks between the world's top oil producers fell apart in Doha yesterday

Tara Cunningham, 18 April 2016

The tour operating giant TUI AG‘s shares jumped 24p, or 2.3pc, to £10.65 after Berenberg raised its
rating from “hold” to “buy” as it believes the recent growth in geopolitical risks, which have contributed
to the stock’s underperformance, are “overdone”.

“We still expect the European consumer to go on holiday,” the bank said.

The Anglo-German package holidays business behind Thomson and First Choice has been shaken by
a series of terrorist attacks in Turkey. But analysts expect that strong consumer confidence will lead to
a significant rise in bookings over the coming months.

Despite Berenberg’s optimism, it warned of ongoing struggles the industry faces, such as competing
with the disruptive online travel agencies and low-cost airlines.

Separately, the prospect of cheaper oil was also deemed a reason for the uptick in travel and leisure
stocks. Shares in easyJet rose 10p to £14.57, while British Airways owner IAG advanced 1.5p to
535.5p.

On the broader market, the FTSE 100 climbed back into positive territory as investors digested the
outcome of the Doha meeting on Sunday.

Oil output freeze talks collapsed at the Doha talks after Saudi Arabia voiced its unwillingness to sign up
to any deal without Iran joining in. Brent crude plunged by almost 7pc in the aftermath.

Oil majors were among the biggest victims from the Doha debacle in early trade. Royal Dutch Shell
B shares dropped 0.7pc to £18.05 and BP lost 0.1pc to 355.8p.

Mining stocks also suffered as copper prices followed oil’s fall. Copper on the London Metals Exchange
dipped by 0.6pc to $4,778 a tonne. Antofagasta fell 2.7pc to 458.2p.

Separately, heavy rainfall in Chile over the weekend prompted Anglo American to temporarily
suspend operations at its Los Bronces copper mine. However, after normalising mining activities in the
region, shares surged 2.3pc to 693.6p.

Elsewhere, a report claiming Apple will continue to reduce its iPhone production in the coming months
hurt the technology giant’s suppliers. Shares in chip designer Arm Holdings fell 3.8pc to 952p,
while Imagination Technologies also lost footing, down by 3.5pc to 172p.

Finally, a profit warning from Aim-listed Sprue Aegis prompted shares to plummet by 54.2pc to 122.5p
- its biggest daily fall ever. The safety products supplier had previously forecast operating profit of
£12.1m, but yesterday it revised that figure down to £7.3m. The warning comes after the group recently
identified an issue in certain batteries supplied by a third party supplier that may cause a premature low
battery warning chirp in certain of its smoke alarm models sold in the UK and Europe.

II Find two political events and one environmental that influenced share prices.

101
 III Fill in the table with information from the text.
How has the share
Industry /
price changed? Is this a good investment?
Company type of What affected the share price?
Use the word(s) from Why? Why not?
business
the text.

IV Draw conclusions on which shares are worth investing in and make recommendations. Use
some of these phrases:
Conclusions: Recommendations:
• There are a number of reasons for … • It is suggested/proposed/recommended that…
• Due to (the fact that)… • We (strongly) recommend that…
• It is clear that… • It would be advisable to...
• In general/In short/In conclusion,... • In view of this, I (would) suggest (that)...

102
 Shares and bonds - puzzle

Across
6. A speculator who expects prices to decline and sell a
(borrowed) security or commodity in the hope of buying it
back later at a lower price.

9. The market in which investors or speculators have the

first opportunity to buy a newly issued security.

10. A share of the after-tax profit of a company, distributed

to its shareholders according to the number and class of
shares held by them.

Down 12. A declining market

1. The owner of a bond
2. A rising market.
3. The time (date) when the bond is repaid
4. The interest rate on the money lent through the bond
5. The owner of a share
7. An amount that a taxpayer can subtract from his/her income when calculating taxes to reduce the amount of
income to be taxed.
8. The money that the bondholder lent to the issuing company
11. A market on which an investor or speculators purchases an asset from another investor rather than an issuing
corporation.
12. A speculator who expects prices to rise and purchase a security or commodity in hopes of reselling it later for
a profit.

103
 DERIVATIVES

I Read the text and provide a heading for each paragraph from the list below.
Hedgers
Historical background
Speculators
The actors on the derivatives market
The definition of derivatives
Trading derivatives
Derivatives 101

Investing has become much more complicated over the past decades as various types of derivative
instruments become created. But if you think about it, the use of derivatives has been around for a very
long time, particularly in the farming industry. One party agrees to sell a good and another party agrees
to buy it at a specific price on a specific date. Before this agreement occurred in an organized market,
the bartering of goods and services was accomplished via a handshake.

The type of investment that allows individuals to buy or sell the option on a security is called a
derivative. They are called derivatives, because their value is derived from an underlying asset. With
these types of investments the investor does not own the underlying asset, instead he or she makes a
bet on the direction of the price movement of the underlying asset via an agreement with another party.
The underlying asset can be a wide range of things. The most common ones are monetary assets
(stocks, bonds, interest rates, etc.) and commodities. There are many different types of derivative
instruments, including options, swaps, futures and forward contracts.

Derivatives can be bought or sold in two ways. Some are traded over-the-counter (OTC) while others
are traded on a stock exchange. OTC derivatives are contracts that are made privately between parties
such as swap agreements. This market is the larger of the two markets and is not regulated.
Derivatives that trade on an exchange are standardized contracts. The largest difference between the
two markets is that with OTC contracts, there is counterparty risk since the contracts are made privately
between the parties and are unregulated, while the exchange derivatives are not subject to this risk due
to the clearing house acting as the intermediary.1

The participants in the derivatives market fall into two categories: hedgers and speculators.

Farmers, manufacturers, importers and exporters can all be hedgers. A hedger buys or sells in the
futures market to secure the future price of a commodity intended to be sold at a later date in the cash
market. This helps protect against price risks.

Other market participants, however, do not aim to minimize risk but rather to benefit from the risky
nature of the market. These are the speculators, and they aim to profit from the very price change that
hedgers are protecting themselves against. Hedgers want to minimize their risk no matter what they're
investing in, while speculators want to increase their risk and therefore maximize their profits. When a
speculator buys a derivative, he/she wants to make a profit on the difference between the buying and
the selling price of the derivative. Unlike the hedger, the speculator does not actually want to own the
commodity which the derivative is derived on.2

II Answer the questions based on the text.

1 In which sector of the economy were derivatives first used? Why there?
2 What is the price of a derivative derived from?
3 What is sold when a derivative is traded?
4 Where are derivatives traded?
5 What is the advantage of trading derivatives on a stock exchange?

1
Adapted from: Kristina Zucchi, Derivatives 101 http://www.investopedia.com/articles/optioninvestor/10/derivatives-101.asp
2 Adapted from: Reem Heakal, Futures Fundamentals: The Players http://www.investopedia.com/university/futures/futures3.asp
104
6 Why do you think the OTC market is larger?
7 What kinds of participants are there on the derivatives market?
8 What is the difference between them?

III. Make slides for a presentation on derivatives.

What are derivatives and how do

they work? Main types of derivatives

Trading derivatives Trading derivatives

Where? Who?

IV Check MK, p. 92 for definitions of the following terms: derivatives, a future, an option, a swap
and include them in your presentation.

V Find terms in the text that are defined here.

1 To trade goods or services without the exchange of money.
2 The specific security, financial instrument or commodity on which a derivative
is based.
3 A type of market where financial instruments are traded directly between two
parties
4 The risk to each party of a contract that the other party will not live up to its
contractual obligations. Also known as «default risk».
5 The third party to a future or an option. This party makes sure that both the
seller and the buyer fulfil the contract.
6 Protection against price changes.
7 Buying or selling assets, hoping to make a profit in the future.
8 A basic good used in commerce that is interchangeable with other goods of
the same type.

105
10 THE CREDIT CRISIS
I Watch the video on the credit crisis and tick off each image when you see it.
The Crisis of Credit Visualized (http://www.crisisofcredit.com/)

1 2

3 4

6
5

7 8

106
II Match these sentences to the images.
A Investors, who were looking for safe investments traditionally bought government bonds.
B Due to the fact that credit was cheap (1%), banks started borrowing a lot of money from the Fed.
Then they needed to find a place to invest this capital.
C Mortgages, taken out by the general public, were sold to investors as CDOs (collateralized debt
obligations) by investment banks.
D CDOs were rated according to level of risk. The riskier parts were given a higher interest rate than
the less risky parts.
E Because selling CDOs was such good business, mortgages were given to people who were not
likely to return their loan. The loans were cheap, but in time the interest rate was expected to go up.
These CDOs were still rated AAA and BBB, therefore, the investors were not aware of the risk they
were taking.
F CDOs provided a regular income to the investor who bought them.
G As mortgages were not repaid, investment banks couldn't return the loans they took to finance
mortgages. The whole financial system froze: loans were not repaid and there was not enough
money available to lend out. The government feared that this will cause the economy to collapse.
Some banks and financial institutions went bankrupt, others were given a bailout to save them.
H Many sub-prime borrowers defaulted on their mortgage and their houses were returned to the
lender. Now there were too many houses on the market and house prices began to decline.
I After the dotcom bubble and September 11, the US economy slowed down. To put more money
into the economy, the Fed (the central bank in the US) decreased interest rates to 1%. This was a
very low return on investments.

III Storytelling: Tell the story of the financial crisis. Use this structure:
1 Introduction – Introduce your story, say why this is an important story to tell.
2 Background – Describe the situation prior to the Credit Crisis.
3 Problem – Explain what happened and what went wrong.
4 Resolution – Describe the steps taken to resolve the problem.
5 Conclusion / Comment – Draw a conclusion, say what lesson can be learnt from the story.

Use some of these phrases:

first of all, then… previously later (on)… finally,… because (of)….
as a result (of) although in the end however when eventually

107
IV What may be the chronology of the events below?

a. Poor borrowers go bankrupt, so houses are returned to lenders. ________

b. Central banks help to prevent system collapse. ________
c. Poor borrowers can no longer repay their loans. ________
d. Some lenders go bust as they cannot sell the property, and some lenders sell loan obligations
to investors who also suffer as their assets keep losing value. ________
e. Poor borrowers obtain loans to buy houses. ________
f. Because of low interest rates, it is easy to borrow. ________
g. But after some time, interest rates go up. ________

V Which of the words/expressions in italics can be replaced by the words below?

mortgage lenders subprime borrowers hedge funds
default release liquidity

V Check if you understand how the global crisis developed. Establish the chronology.
a. Central banks came in to release liquidity into the market place which allowed most struggling
lenders and investors to continue their operations. ______
b. As a result, housing prices were going up. Mortgage lenders created non-traditional mortgages
which made it easy even for people with poor credit (financially unstable) to obtain a housing loan.
______
c. However, interest rate climbed back up. Many subprime borrowers (those with poor credit rating)
could not repay their obligations and went bankrupt when their mortgages were reset to much higher
monthly payments. ______
d. Not knowing what to do, many mortgage lenders sold mortgages to investors and hedge funds
who also suffered as they were left with property that was quickly losing value. ______
e. This left mortgage lenders with property that was worth less than the loan value because the
housing prices went down. Defaults increased, the problem snowballed and several lenders went
bankrupt. ______
f. There is now a lot of debate if private financial institutions should be helped with taxpayers'
money. ______
g. Nearly for a decade, the Federal Reserve stimulated the economy by cutting interest rates. It
was easy to borrow money from financial institutions. ______

VI Check the order of the events on Investopedia’s website:

http://www.investopedia.com/terms/s/subprime-meltdown.asp

108
 REVISION 3
UNITS:
Accounting and financial statements, The financing of corporate activity, Bonds,
Shares, Derivatives, Insurance, Takeovers (Mergers and acquisitions), The credit crisis

I Read through this list of terms and decide which terms belongs to which unit. Some
might fit in more than one place.
spread the risk, raise capital, write off a bad debt, raid, IOU, personal assets, clearing house,
insurance, tax deductible, file a claim, credit crisis, options, merger, subprime borrowers,
compensation, equity, take out a loan, issue shares, issue bonds, insurance policy, profitability,
liabilities, swaps, synergy, working capital, institutional investors, underlying asset, funds, maturity date,
annual report, three financial statements, large conglomerates, stock index, the balance sheet,
insurance underwriter, takeover, credit rating, derivatives, the P&L account, futures, the cash flow
statement, credit crunch, counterparty risk, shareholder's equity, the Fed, retained earnings, asset-
stripping, dividends, CDO, goodwill, OTC market, securitization, inventory, revenues, market
capitalization, forward contracts, costs, overheads, stock market, claims adjuster, bad debt, insurance
premium, principal, underwite the stock issue, liquidity, mortgage, government bonds, coupon, creative
accounting, going public, pool of premiums, commodity, suffer a loss, controlling interest, accrued
expenses, default on a loan, LBO

Insurance

Accounting and
financial statements

Bonds

Shares

Derivatives

Takeovers (Mergers
and acquisitions)

The credit crisis

109
II Look at the words in task I again and …
a) explain their meaning in your own words.
b) use each in a sentence.

III Explain the difference between the following concepts:

1 bookkeepers / accountants / auditors
2 cost accounting / tax accounting / managerial accounting
3 debtors / creditors
4 accounts receivable / accounts payable
5 equity financing / bond financing
6 shareholders / bondholders
7 owe / own
8 assets / liabilities
9 fixed assets / current assets
10 tangible assets / intangible assets
11 long-term liabilities / short-term (current) liabilities
12 gross profit / net profit
13 depreciation / amortization
14 sources of funds / applications of funds
15 operating / investing / financing activities (in the cash flow statement)
16 stocks / bonds
17 bid price / offer price (of a bond)
18 corporate bonds / government bonds
19 nominal value / market value
20 nominal value / face value
21 bull market / bear market
22 futures / forward contracts
23 OTC market / stock exchange (for trading in derivatives)
24 hedging / speculating
25 insurer / insured
26 insurance broker / insurance agent
27 go bankrupt / receive a bailout
28 merger / takeover
29 friendly takeover / hostile takeover

110
 THE FINAL REVISION – CAPITALIST FOOLS

I Before reading the text browse through your course book (MacKenzie, 2010) and
the Resource Bank 2, and answer the questions using the words in brackets.

1. What are central banks responsible for? How does monetary policy affect the economy?
(expansionary, restrictive, money supply, supervise, control)
2. Find arguments for and against taxation. (redistributive taxation, theft, income tax, penalize)
3. Describe a typical business cycle of an economy. (upturn, downturn, prices, inflation, bubble)
4. How did the subprime crisis break out in the US in 2008? (housing loans, subprime borrowers,
default, hedge funds, bankruptcy, liquidity, bailout)
5. Briefly describe financial derivatives. What is the purpose of such financial instruments? Who
takes most risk when using them? (underlying, futures, swaps, call/put options).
6. Discuss the banking business in terms of the Glass-Steagall Act (retail/commercial, investment,
repeal, deregulation).
7. Explain the role of credit rating agencies. (bonds, rating)
8. Present the difference between Keynesians and believers in free markets (durable equilibrium,
unemployment, intervention, excess savings, interest rates, neutral, inflation).

II Check if you know the meaning of the words below. Use your knowledge of the
topics covered in Business English classes or internet sources.

The Fed ________________________________________________________

Regulator ________________________________________________________

Credit-default swaps ________________________________________________________

A+++ ________________________________________________________

Market bubble ________________________________________________________

Leverage ________________________________________________________

Tax cuts ________________________________________________________

Enron, WorldCom ________________________________________________________

Sarbanes-Oxley Act ________________________________________________________

Moody’s, Standard & Poor’s ______________________________________________________

Lehman Brothers ________________________________________________________

111
 Greenspan played a double role. No. 2: Tearing Down the Walls
Capitalist Fools The Fed controls the money
Behind the debate over spigot, and in the early years of The deregulation philosophy
remaking U.S. financial policy this decade, he turned it on full would pay unwelcome dividends
will be a debate over who’s to force. But the Fed is also a for years to come. In November
blame. It’s crucial to get the regulator. If you appoint an anti- 1999, Congress repealed the
history right, writes a Nobel- regulator as your enforcer, you Glass-Steagall Act – the
laureate economist, identifying know what kind of enforcement culmination of a $300 million
five key mistakes—under you’ll get. A flood of liquidity lobbying effort by the banking and
Reagan, Clinton, and Bush II— combined with the failed levees of financial-services industries [...].
and one national delusion. regulation proved disastrous. Glass-Steagall had long
Greenspan presided over not one separated commercial banks
but two financial bubbles. After (which lend money) and
the high-tech bubble popped, in investment banks (which organize
There will come a moment when 2000-2001, he helped inflate the
the most urgent threats posed the sale of bonds and equities); it
housing bubble. The first had been enacted in the
by the credit crisis have eased responsibility of a central bank
and the larger task before us will aftermath of the Great
should be to maintain the stability Depression and was meant to
be to chart a direction for the of the financial system. If banks
economic steps ahead. This will curb the excesses of that era,
lend on the basis of artificially including grave conflicts of
be a dangerous moment. high asset prices, the result can
Behind the debates over future interest. For instance, without
be a meltdown – as we are separation, if a company whose
policy is a debate over history— seeing now, and as Greenspan
a debate over the causes of our shares had been issued by an
should have known [...]. investment bank, with its strong
current situation. The battle for
the past will determine the battle endorsement, got into trouble,
for the present. So it’s crucial to Of course, the current problems wouldn’t its commercial arm, if it
get the history straight. with our financial system are not had one, feel pressure to lend
solely the result of bad lending. money, perhaps unwisely? An
The banks have made mega-bets ensuing spiral of bad judgment is
What were the critical decisions with one another through not hard to foresee. [...]
that led to the crisis? Mistakes complicated instruments such as
were made at every fork in the derivatives, credit-default swaps,
road—we had what engineers The most important consequence
and so forth. With these, one of the repeal of Glass-Steagall
call a “system failure,” when not party pays another if certain event
a single decision but a cascade Act was indirect – it lay in the way
happen – for instance, if Bear repeal changed an entire culture.
of decisions produce a tragic Sterns goes bankrupt, or if the
result. Let’s look at five key Commercial banks are not
dollar soars. These instruments supposed to be high-risk
moments. were originally created to help ventures; they are supposed to
manage risks – but they can also manage other people’s money
No. 1: Firing the Chairman be to gamble. [...] Even [under very conservatively. It is with this
Clinton], it was clear that understanding that the
In 1987 the Reagan derivatives posed a danger. [To] government agrees to pick up the
administration decided to put it as memorably as Warren tab should they fail. Investment
remove Paul Volcker as Buffet – who saw derivatives as banks, on the other hand, have
chairman of the Federal ‘financial weapons of mass traditionally managed rich
Reserve Board and appoint destruction’. And yet, for all the people’s money – people who
Alan Greenspan in his place. risk, the deregulators in charge of can take bigger risks in order to
Volcker had done what central the financial systems [...] decided get bigger returns. When repeal
bankers are supposed to do. to do nothing, worried that any of Glass-Steagall brought
On his watch, inflation had action might interfere with investment and commercial
been brought down from more ‘innovation’ in the financial banks together, the investment-
than 11 percent to under 4 system. But innovation, [...] can bank culture came out on top.
percent. In the world of central be bad [...] as well as good. There was a demand for the kind
banking, that should have of high returns that could be
earned him a grade of A+++ obtained only through high
and assured his re- leverage and big risktaking [which
appointment. But Volcker also lead to reckless use of
understood that financial derivatives...].
markets need to be regulated.
Reagan wanted someone who
did not believe any such thing,
and he found him in
[Greenspan].

112
No.3: Applying the Leeches Oxley Act. The scandals had reversal in the ratings brought
involved every major American devastation. But the financial
Then along came the Bush tax accounting firm, most of our overseers paid no attention.
cuts, enacted first on June 7, banks, and some of our premier
2001, with a follow-on companies, and made it clear No.5: Letting it Bleed
installment two years later. The that we had serious problems
president and his advisers with our accounting system. The final turning point came with
seemed to believe that tax cuts, Accounting is a sleep-inducing the passage of a bailout package
especially for upper-income topic for most people, but if you
on October 3, 2008 – that is, with
Americans and corporations, can’t have faith in a company’s
the administration’s response to
were a cure-all for any economic numbers, then you can't have
the crisis itself. [...] As America’s
disease – the modern-day faith in anything about a
banks faced collapse, the
equivalent of leeches. The tax company at all. Unfortunately, in administration veered from one
cuts played a pivotal role in the negotiations over what course of action to another. Some
shaping the background became Sarbanes-Oxley a
institutions (Bear Stearns, A.I.G.,
conditions of the current crisis. decision was made not to deal
Fannie Mae, and Freddie Mac)
Because they did very little to with what many [...] believed to
were bailed out. Lehman Brothers
stimulate the economy, real be a fundamental underlying
was not. Some shareholders got
stimulation was left to the Fed, problem: stock options. Stock
something back. Others did not.
which took up the task with options have been defended as
unprecedented low-interest providing healthy incentives
toward good management, but The original proposal by Treasury
rates and liquidity. The war in
in fact they are ‘incentive pay’ in Secretary Henry Paulson, a
Iraq made matters worse,
name only. If a company does three-page document that would
because it led to soaring oil have provided $700 billion for the
prices. With America so well, the C.E.O. gets great
rewards in the form of stock secretary to spend at his sole
dependent on oil imports, we
options: if a company does discretion, without oversight or
had to spend several hundred
poorly, the compensation is judicial review, was an act of
billion more to purchase oil –
almost as substantial as is extraordinary arrogance. He sold
money that otherwise would the program as unnecessary to
have been spent on American bestowed in other ways. This is
bad enough. But a collateral restore confidence. But it didn’t
goods. Normally, this would
problem with stock options is address the underlying reasons
have led to an economic
that they provide incentives for for the loss of confidence. The
slowdown, as it had in the
bad accounting: top banks had made too many bad
1970s. But the Fed met the
management has every loans. There were big holes in
challenge in the most myopic their balance sheets. No one
way imaginable. The flood of incentive to provide distorted
information in order to pump up knew what was truth and what
liquidity made money readily
share prices. was fiction. [...]
available in mortgage markets,
even to those who would
normally not be able to borrow. The incentive structure of the Was there any single decision
And, yes, this succeeded in rating agencies also proved which, had it been reversed,
forestalling an economic perverse. Agencies such as would have changed the course
downturn; America’s household Moody’s and Standard & Poor’s of history? [...] The truth is most
saving rate plummeted to zero. are paid by the very people they of the individual mistakes boil
But it should have been clear are supposed to grade. As a down to just one: a belief that
that we were living on borrowed result, they’ve had every reason markets are self-adjusting and
money and borrowed time. [...] to give companies high ratings, that the role of the government
in a financial version of what should be minimal. [...] The
college professors know as embrace by America - and much
No.4: Faking the Numbers
grade inflation. [...] We had seen of the rest of the world – of this
this same failure of the rating flawed economic philosophy
Meanwhile, on July 30, 2002, in made it inevitable that we would
the wake of a series of major agencies during the East Asia
crisis of the 1990s: high ratings eventually arrive at the place we
scandals – notably the collapse are today.
facilitated a rush of money into
of WorldCom and Enron –
the region, and then a sudden
Congress passed the Sarbanes-

Source: Joseph E. Stiglitz*, January 2009, Vanity Fair

*The author of the article is Joseph E. Stiglitz, a Nobel Prize winning economist and a professor at Columbia
University.

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III In his comment on the flaws in the US economy J. Stiglitz sends clear messages
on how economies should operate. Read the article Capitalist Fools and decide
which paragraphs (i.e. mistakes numbered 1- 5, e.g. No.1 ) show that this advice
was not followed.

1 Advice: It is essential to have sound accounting practices in the economy. If not, the
system can start acting in a corrupt way. (No. 4)
2 Advice: Central banks should introduce order in financial markets and control the money supply in

order to keep the economy stable. (No. □)

3 Advice: Governments should be much more involved in correcting market imperfections. (No. □)
4 Advice: Financial institutions should not be allowed to take risks with ordinary people’s money.

(No. □)
5 Advice: Careful with tax reductions - this does not necessarily encourage sufficient economic

activity. (No. □)
IV What actually happened in the US economy? Discuss each piece of advice from
exercise III, compare it to the text, and find the flaws of the system (mistakes 1- 5)
as discussed by the author (e.g. According to Stiglitz, … Stiglitz claims/argues
that…, However, …).

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