金融英语考试笔记

Part one. Overview of the financial industry in China1. Although banks share many common features with other profit-seeking businesses, they play a unique role in economy through mobilizing savings, allocating capital funds to finance productive investment, transmitting monetary policy, providing a payment system and transforming risks.First, banks serve as a principal depository of liquid funds for the public. The safety and availability of such funds for transactions and other purposes are essential to the stability and efficiency of the financial system. Second, by channeling savings to productive investments, banks play a key role in facilitating efficient allocation of scarce financial resources. Third, banks serve to transmit the impulses of monetary policy to the whole financial system and ultimately to the real economy. Fourth, the banking sector provides the indispensable national payment mechanism for the development of modern financial and business systems. Fifth, the banking system as a whole reduces risks through aggregation and enables them to be carried by those more willing to bear them.2 1994: unification of the RMB exchange rates and foreign exchange markets in January 19941995: the passage of central bank and commercial bank laws in 1995 provided a legal basis for the banking system in China.1996: the acceptance of the obligations of ArticleⅧof the Articles of Agreement of the International Monetary Fund in December 1996, namely commitment to RMB current account convertibility, officially removed the remaining restrictions on international payments for trade and service transactions. The establishment of a unified inter-bank money market in 1996 facilitated better liquidity adjustment for financial institutions. Gradual shift from direct to indirect monetary policy instruments Segregation of banking business from securities and insurance business3. In recent years, there has been a significant improvement in the conduct of monetary policy with greater reliance on indirect policy instruments. The central bank used to rely on credit ceilings for commercial banks as a major tool for monetary policy. This direct instrument has been abolished while such indirect instruments as required reserve ratio, interest rate adjustment and open market operations have emerged as major monetary policy tools.4. The financial restructuring started with the BOC(中国银行) and the CCB(中国建设银行) at the end of 2003, when the government recapitalized them each with USD 25 billion from the foreign exchange reserves. Recapitalization of the ICBC took place in April 2005. The participation of strategic investors is expected to contribute to management, technology, innovation and competitiveness. The transformed banks have significantly improved their capital adequacy, profitability and other financial indicators.5. The Chinese authorities’ comprehensive efforts to improve financial supervision started with the introduction of the stabilization and adjustment program in 1993. The measures to strengthen banking supervision and enhance banks’capacity for prudential management include the following:A comprehensive risk monitoring and warning system, which focuses on the safety, liquidity and profitability of financial institutions has been establishedA risk-based five-category loan classification system has been phased in.The capital of the largest commercial banks (except the ABC) has replenished to raise their capital adequacy ratio to the international standard.The responsibility for supervising the securities sector has been transferred from the PBC to CSRC. Independent insurance and banking regulatory bodies have also been established so that banking, securities and insurance industries are subjected to separate regulatory and supervisory authorities.Part two. Supervision of Banking and Financial Institutions1. Importance and objectives of banking supervision.Importance: It is widely recognized that banks are different from other profit-seeking businesses in that the economic and financial life of a country depends on banks in three important respects.Banks occupy a central place in the payments mechanism for households, government and business.Banks accept deposits, which are expected to be repaid in full, either on demand or at their due term; and which constitute part of society’s financial assets.Banks in market economies play a major role in the allocation of financial resources, intermediating between depositors of surplus funds and would be borrowers, on the basis of active judgments as to the latter’s ability to repay.Given such role of banks, they are generally subjective to higher degree of financial supervision and regulation than other types of business. Strong and effective banking supervision is considered an essential component of strong economic environment, which provides a public good that may not be readily available in the marketplace. On the other hand, banks are also provided with important elements of official protection. For example, the central bank usually acts as a lender of last resort to protect commercial banks against a temporary liquidity drain. Another major aspect of the safety net takes the form of deposit insurance fund.Objectives:The key objective of supervision is to maintain stability and public confidence in the financial system.The second goal of bank supervision is to ensure that banks operate in a safe and sound manner and that they hold capital and reserves sufficient to cover the risks that may arise in their business.Third, a related goal is to protect depositors’ funds and, should any bank fail, to minimize the losses to be absorbed by the deposit insurance fund. In view of the substantial potential for losses to the insurance fund, it is an important supervisory goal to minimize the funds loss by limiting excessive risk taking.The fourth goal of bank supervision is to foster an efficient and competitive banking system that is responsive to the public’s need for high quality financial services at a reasonable cost.The fifth and final goal of bank supervision is to ensure compliance with banking laws and regulations.2. Bank charter (银行执照) is usually granted by the central bank or separate supervisory body of a country.3. In granting a bank charter, supervisors in most countries require the bank’s shareholders to satisfy minimum application standards, paid-up capital, etc. as market-entry ticket. The establishment of a bank in China shall meet the following requirements.having its statute in compliance with lawhaving the minimum registered capital defined by the lawhaving directors and senior managers with expertise and professional experience commensurate with their positions having the required business premise, safety measures and other facilities relevant with the business thereof4. Risks in banking.Credit risk: A major type of risk that banks face is credit risk or the failure of a counterpart to perform according to a contractual arrangement.Market risk: Two specific elements of market risk are foreign market risk and interest rate risk. Banks face a risk of losses in on- and off-balance sheet positions arising from movements in exchange rates. Established accounting principles cause these risks to be typically most visible in a bank’s trading activities. Interest rate risk refers to the exposure of a bank’s financial condition to adverse movements in interest rates. This risk impacts both the earnings of a bank and the economic value of its assets, liabilities and off-balance sheet instruments.Liquidity risk: Liquidity risk arises from the inability of a bank to accommodate decreases in liabilities or to fund increases in assets. In extreme cases, insufficient liquidity can lead to the insolvency of a bank.Operational risk: the most important types of it involve breakdowns in internal controls and corporate governance. Legal risks and Reputation risks5. Prudential requirements cover a broad spectrum of banking activities and play an important part in assuring the effectiveness of the supervisory process. Of which, there are five key areas where the extensive prudential policies have been implemented by bank regulators of most countries; these are capital adequacy, risk concentration, asset quality, liquidity and internal controls.Capital adequacy: the most basic form of capital is equity capital, which is the shareholder’s financial interest or net worth. Equity capital serves several purposes: it provides a permanent source of revenue for the shareholders and fundingfor the bank; it is available to bear risk and absorb losses; it provides a base for further growth; and it gives the shareholders reason to ensure that the bank is managed in a safe and sound manner. Minimum capital adequacy is necessary to reduce the risk of loss to depositors, creditors and other stakeholders of the bank and to help supervisors pursue the overall stability of the banking industry.The Accord assigns risk weights to on- and off-balance sheet exposures according to broad categories of relative riskiness. The framework of weights has been kept as simple as possible with only five weights being used: 0, 10%, 20%, 50% and 100%. The Accord sets minimum capital ratio requirements for internationally active banks of 4% tier on capital and 8% total capital (tier one + tier two) in relation to risk-weighted assets.Risk concentration: large exposures to a single borrower or to a group of related borrowers are a common cause of banking problems in that they present a credit risk concentration. Large concentrations can also arise with the respect to particular industries, economic sectors, or geographical regions or by having sets of loans with other characteristics that make them vulnerable to the same economic factors.Banking supervisors in many countries set prudential limits to bank exposures to single borrowers, groups of related borrowers and other significant risk concentrations. These limits are usually expressed in terms of a percentage of bank capital and, 25% of capital is typically the most that a bank or banking group may extend to a private sector non-bank borrower or a group of closely related borrowers without specific supervisory approval.Asset quality: it is the most important factor in determining a bank’s creditworthiness. Asset quality directly affects the provisioning decisions which largely determine the level of profits.Under the loan classification system, criteria used to assign credit quality ratings are primarily based upon the degree of risk and the likelihood of orderly repayment, and their effect on a bank’s safety and soundness. Loans and advances (credits) are classified into the following categories: pass (没问题), special mention (有可能有问题), substandard (利息基本还不回来), doubtful (本金受损), loss (本金基本都没了).Liquidity: banking regulation requires every bank to maintain a minimum liquidity ratio of “liquefiable assets” to “qualifying liabilities”. Every bank is required it of no less than 25% in each calendar month, calculated on the basis of the sum of its liquefiable assets and the sum of its qualifying liabilities for each working day of the calendar month concerned. Internal controls: consists of five interrelated elements: 1, management oversight and the control culture; 2, risk recognition and assessment; 3, control activities and segregation of duties; 4, information and communication; and 5, monitoring activities and correcting deficiencies.6. CAMELS: C, Capital adequacy; A, Asset quality; M, Management; E, Earnings; L, Liquidity; S, Sensitivity to market risk. Under the CAMELS system, banks rated “1” are sound in every aspect, while those rated “5” are likely to fail in the absence of immediate and substantial corrective action and external support.7. ROCA: R, Risk management; O, Operational controls; C, Compliance; A, Asset quality.8. Weak banks.Definition: A weak bank is one whose liquidity or solvency is or will be impaired unless there is a major improvement in its financial resources, risk profile, strategic business direction, risk management capabilities and/or quality of management.Symptoms and causes of bank problems:The symptoms of weak banks are usually poor asset quality, lack of profitability, losses of capital, reputation problems, and/or liquidity problems.Causes include credit risk, interest rate risk, market risk, operational risk and strategic risks.Part three. The Chinese Foreign Exchange System1. Overview:Before 1979, the foreign exchange was strictly enforced.1994: reform of Chinese foreign exchange system, with the introduction of conditional current account convertibility, unification of exchange market and adoption of a market-based managed floating exchange rate.1996: on Nov 27, 1996, China formally lifted all remaining current account restrictions and became an Article Ⅷmember of the International Monetary Fund.2002: Qualified Foreign Institutional Investors (QFII) were permitted to invest in domestic capital market within specified quota after being approved by the authorities.2004: insurance companies were permitted to use their own foreign exchange to invest in international capital market. Controls on cross-border capital transfers by individuals were loosened.2005: On July 21, 2005, RMB exchange rate regime changed to a managed floating system with a reference to a basket of currencies. Non-financial institutions were permitted to participate in inter-bank spot foreign exchange market. RMB forward and swap were permitted to trade. Foreign banks were permitted to do forward trade.2006: On Jan 4, 2006, OTC trade was introduced in inter-bank spot foreigh exchange market.2. From July 21, 2005 onwards, China started the implementation of a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. The main content of this round of reform include the following three aspects:First, change of the exchange rate adjustment method. A managed floating exchange rate regime was adopted; instead of pegged to US dollar, the exchange rate of RMB floated accordingly to supply and demand of the market with reference to a basket of currencies. Second, change of parity formation and daily floating band. Third, adjustment of initial exchange rate.Reform of the exchange rate system of RMB focuses on the exchange rate formation mechanism instead of the quantitative change of its level.3. Financial institutions, including designated foreign exchange banks, must be approved by the SAFE (State Administration of Foreign Exchange,国家外汇管理局) to engage in foreign exchange transactions. The authorized financial institutions are allowed to open foreign exchange accounts for their clients and conduct relevant foreign exchange operations. They should keep enough foreign exchange working capital in accordance with the relevant regulations on assets and liability ratios concerning their foreign exchange operations and loan loss provisions. Designated foreign exchange banks should use their own RMB funds to carry out business of purchases and sales of foreign exchange.The SAFE take the responsibility of inspecting and supervising the foreign exchange business of financial institutions. Financial institutions undertaking foreign exchange operations should submit to the SAFE their balance sheets, income statements, other financial and accounting statements and information of foreign exchange operations.4. Effective from May 1, 2006, quotas of foreign exchange (外汇限额) in current account retained is the sum of 80% of foreign exchange current income and 50% of foreign exchange current expenditures in the previous year. The initial quota of foreign exchange retained by domestic institutions that need to open a foreign exchange account but had no foreign exchange current income and expenditures in the previous year is the equivalent of USD 500,000. The ceiling of a current account for donation, postal remittance (邮政汇款), international contracting (国际工程承包), international shipping (国际航运) and inthernational bidding (国际招标) can be set at 100% of their foreign exchange proceeds, import and export enterprises and manufacturing enterprises with actual needs included.5. Foreign exchange receipts of domestic institutions for current account transactions will be repatriated (遣返) home and will not be deposited aboard without any special reasons. Foreign exchange receipts for current account transactions will be deposited in the foreign exchange account within the retained quota or be sold to the designated foreign exchange banks upon the presentation of valid documents and commercial bills.After the foreign exchange restrictions on current account transactions were lifted in 1996, the SAFE has taken actions to verify (查证) the authenticity of foreign exchange flows in trading for preventing illegal activities such as flight or fraudulent obtainment of foreign exchange. In recent years, the SAFE has taken a series of measures to reform verification system on importing and exporting in order to adapt to the development for economic and trading situations.6. All foreign exchange receipts (收讫) by domestic establishments from capital account transactions shall be repatriated (遣返), unless otherwise specified by the State Council. All foreign exchange receipts from capital transactions shall be deposited in foreign exchange accounts opened with designated foreign exchange banks in accordance with the relevant state regulations, such revenues can be also sold to a designated foreign exchange bank upon the approval by the SAFE. Overseas investment: the source of foreign exchange for overseas investment by domestic entities must be reviewed by the SAFE before the application for such investment is filed with relevant government agencies.Profits or other foreign exchange income of Chinese investors from their overseas investment could be remitted home or kept abroad whenever an enterprise winds up its overseas business, the investor shall repatriate all of the assets. External borrowing in loans: external borrowing in loans may be undertaken by the government agencies designated by the State Council, as well as financial institutions and other enterprises duly authorized by the SAFE. External borrowing in loans by foreign-funded enterprises shall be filed with the SAFE for records.International commercial loans refer to borrowing by domestic entities from financial institutions, enterprises, individuals or other economic organizations outside China territory. Export credits, international financial leasing, compensation trade repayment of foreign exchange, foreign exchange deposits of institutions and individuals outside the Chinese territory, project financing, trade financing with a maturity of more than 90 days, and foreign exchange loans in other forms are all taken as international commercial loans.External Gurantee: External gurantee may be offered by qualified financial institutions and enterprises satisfying the government requirements and approved by the SAFE.External gurantees refer to those in the form of gurantee letters, stand by letters of credit, promissory notes, checks and drafts, mortgages on real properties, hypothecation on movables, provided by domestic entities to institutions outside China or foreign-funded financial institutions inside China with the pledges that when the debtor fails to perform contract, the guarantors shall perform the obligation of repayment. Such guarantees include: Guarantees for accounts under compensation trade; Guarantees for engineering projects outside China.7. The lifeblood of international trade and investment is foreign exchange. No foreign transaction is possible without foreign exchange.Foreign exchange, or forex, is foreign money. All foreign currency, consisting of funds held with banks abroad, or bills or cheques, again in foreign currency and payable abroad, are termed foreign exchange. All these play a part in the relations between a bank and its customers. In the trading of foreign exchange between banks, which is the job of the foreign exchange dealer, only foreign currency held with banks abroad is concerned.foreign bank notes are not foreign exchange in the narrower sense. They can be converted into foreign exchange, however, provided they can be placed without restriction to the credit of an ordinary commercial account abroad. The exchange regulations of some countries do not allow this conversion of bank notes into foreign exchange, although the operation in reverse is nearly always permitted.8. “Arbitrage” in the original sense thus meant taking quick advantage of price differences prevailing in different markets,a process which of course tended to make such differences disappear. Nowadays, in all major financial centres, rates for a specific currency tend to be the same everywhere. Arbitrage in the old sense is thus hardly possible anymore. Arbitrage now simply means professional business as against customer related business.The electronic rate abroad in the foreign exchange department of a larage Swiss bank will thus display the rates for the dollar against the other major currencies rather than rates for foreign currencies expressed in Swiss francs. The same is true in an analogous way for banks in other financial centres.Part four. Accounting1. Accounting is the system that measures business activities, processes such information into reports, and communicates these findings to decision makers. Finnacial statements are the documents that report on an individual’s or an organization’s business in monetary amounts. Bookkeeping is a procedural element of accounting as arithematic is a procedural element of mathematics. Increasingly, people are using computers to do much of the detailed bookkeeping work at all levels in households, businesses, and organizaations of all types.2. Accounting is the accounting’s most significant service to the public; Tax accounting has two aims: complying with the tax laws ang minimizing the taxes to be paid; Management consultingis the catchall term that describes the wide scope of advice CPAs provide to help managers run a business.3. Cost accounting (成本会计) analyzes a business’ costs to help managers control expenses. Budgeting(编制预算) sets sales and profit goals and develops detailed plans for achieving those goals. Information systems design identifies the organization’s information needs, both internal and external. Internal auditing(内部审计) is performed by a business’s own accountants. Financial accounting (财务会计) provides information to people outside the firm, for example, creditors, stockholders, government agencies, such as the SEC, and the general public. Management accounting(管理会计) generates confidential information for internal decision makers, such as stop executives, department heads, college deans, and hospital administrators.4.GAAP, generally accepted accounting principles, 一般公认会计准则5. the concept of present value and present value table & net present value.Present value is the value today of an amount to be received or paid in the future; the future amount must be discounted at a specified rate of interest.When we evaluate an investment project, we can use the net present value method to compare all expected cash inflows associated with an investmeng with the current and future outflows. All cash flows are discounted to their present values giving recognition to the time value of money.6.Accounting basis refers to methods for recognizing revenues, expenses, assets and liabilities in accounting statements. Major bases of accounting include the accrual, cash and modified cash bases.In accrual accounting, revenues and gains are recognized in the period when they are earned. Expenses and losses are recognized in periods when they are incurred. Accrual basis accounting is concerned with the economic consquences of events and transactions rather than with only cash receipts and cash payments. Under accrual accounting generally provides the most accurate measure of earning, earning power, managerial performance, future cash flows etc.7. Liquid assets: this item is used to describe those assets, which are continually undergoing conversion into cash or are close to cash and may be easily converted if the need arises. The key factor in determining whether an asset is liquid asset is whether it can be converted into cash as required without a significant additional loss being incurred. Liquid assets are sometimes referred to as floating assets.Part five. Intermediary Services1. Banks have a variety of functions. Commercial banks perform many functions, some central to their main role in the economy and others more peripheral (次要的). Although lending and deposit-taking have been the epicenter (震中) of commercial banking, the last few years have witnessed a general surge (汹涌) in both the types and the volume of bank services. This surge has been induced in part by government deregulation, but most importantly by competitive pressures. The three main functions of commercial banks are interrelated: the creation of money, accomplished through lending and investing activities; the holding of deposits; and the provision of a mechanism for payments and transfer of funds. They all relate to the bank’s critical role in the overall management of the flow of money and credit through the economy.Other services are offered primarily to draw customers by providing complete money management and ancillary services through a single institution. Some of these services, such as trust management and leasing, may themselves be profitable; others may be offered solely to attract depositors to the institution.2.debtor (the bank) /creditor (customers) : this is the basic bank-customer relationship. It arises out of the fact that the bank holds money that belongs to the customer. Opposite to the normal debtor-creditor situation, it’s not the debtor’s job to seek to repay the debt, but the creditor has the responsibility to ask for the money back.principal/agent: the relationship between a bank and its client as intermediary services.The principal (委托人) has the obligation to compensate the agent according to the agreement, reimburse the agent for reasonable expenses, indemnify the agent against loss or liability for duties performed on behalf of the principal, and inform the agent of risks. The agent’s obligations require that the agent act in the best interest of the principal and with complete loyalty, carry out the instruction of the principal with reasonable care and skills, account to the principal, indemnify the principal for damages wrongfully caused to the principal, provide information to the principal, and not to compete or act adversely to theprincipal. In services like fund transfer, clearing, trust and factoring, banks act as agents for their principals (clients).bailor/bailee: A bailor (委托人) is the depositor of the property. This deposit is made on the understanding that it will be returned by the bailee, or dealt with in accordance with the bailor’s instructioins. A bailee (受托人) receives the property and must look after it in a careful and professional manner. Generally speaking, when banks provide services like safekeeping, they will enter into a bailor-bailee relationship.3. Negotiable instruments: from a functional perspective, negotiable instruments are documents used in commerce to secure the payment of money. In all cases, negotiable instruments represent a right to payment. So, negotiable instruments are classified as choses in action. The three main types of them are Bill of Exchange, Cheques, and Promissory Notes.Bill of Exchange: a bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to the bearer.two advantages: avoid the need to transfer large sums of cash, particularly from one country to another; the conflicting demands of buyers and sellers can be reconciled. Bills both provide credit and settle debts.Cheques: A cheque is an unconditional order in writing, addressed by a person to a bank, signed by the person making it, requiring the bank to pay on demand a sum certain in money to or to the order of, a specified person or to the bearer. Bank drafts: are negotiable instruments drawn payable to order by a bank as drawer on the same bank as drawee. Legally, they are not cheques because the drawer and drawee are the same person.Promissory note: an unconditional promise in writing made by one person (the maker) to another (the payee or the holder) signed by the maker engaging to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or to bearer.4. international settlement: the payments and funds transfer mechanism can all be utilized in an international scale, especially for individuals. However, because of the complexity of international payments, some settlement mechanism different from the above mentioned ones is innovated to meet the commercial demands, like collections, documentary credits, and etc.Providing for a payment mechanism is a costly activity. Indeed, managing the payments mechanism can absorb up to a third of total bank costs. Cost items include wages for tellers and bookkeepers, computers and maintenance, advertising and substantial amounts of other equipments and supplies. A large potion of employee time is spent performing the payments mechanism function. Service charges do not cover all of these expenses.The expansion of computerized payment systems promises to reduce the employee time and paperwork involved in transferring funds. The introduction of automatic teller machines (ATMs) has heralded the inauguration of computerized systems that permit 24 hours banking services, such as electronic withdrawl of cash from one’s deposit accounts. Highly advance ATMs offer customers such additonal services as access to their mutual fund accounts, purchase or sale of stocks, payment of utility and store bills, and printouts of bank statements.Another related electronic development has been the trend toward international banking based on the IT (Information Technology). Internet banking enables a customer to communicated with the bank via an internet terminal linked to the bank’s computer. This represents another dimension of electronic funds transfer (EFT) systems, and consequently of paperless banking. Internet banking allows any cusomer to transact business from anywhere, at any time. It is generally viewed as the dominant delivery system of banking services in the foreseeable future. Wider use of these services will take people out of the bank, reduce the paperwork load, and drive down cost.5. Trust Services. For a great variety of reasons, individuals or corporations may desire a reliable, outside entity to administer their assets. To meet this need, and to attract large depositors, banks offer trust services. As wealth in China has increased, the need for trust services has grown. Management of trusts involves both investing the funds for growth and carrying out specific instructions regarding them.To better understand the trust services banks offer, we should first understand what trust is. Legally speaking, trust is a fiduciary (委托关系) relationship in which one person is trusted by the holder of the legal title to property, subject to an。