Modulo Ingles - Copiar.pdf

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Economic theories ECONOMIST

THEORY

DOCTRINE

IDEAS/THOUGHTS

ECONOMIC SYSTEM

What is the difference between a command economy and a mixed economy? By Mary Hall | Updated February 6, 2018 — 3:00 PM EST A command economy and a mixed economy are two different economic systems. One system is controlled by the government, while the other economic system is only partly run by the government. Command Economy A command economy, or planned economy, is an economic system where the government has control over the production and pricing of goods and services. The government decides which goods and services to produce, the production and distribution method, and the prices of goods and services. This economic system is unlike a free market economy. In a free market economic system, the economy is based on the powers of supply and demand with little or no government intervention. Command economies often make too much of one product and not enough of another to meet demand because it is hard for one entity (i.e. the government) to realize the needs of everyone in the country. As a result, a shadow economy, or black economy, may develop to fulfill those needs. The black economy violates a country's rules and regulations because the economic activities take place illegally and participants avoid taxes. A shadow economy arises when governments make transactions illegal or by making a good or service unaffordable. This economy looks to get around government restrictions. Examples of command economies today include Iran, Libya, Cuba and China. 11 Nivel de Inglés Técnico 2. LE.

Mixed Economy A mixed economic system has features of both a command and a free market system. A mixed economy is partly controlled by the government and partly based on the forces of supply and demand. Generally, a mixed economic system involves a public sector and a private sector. Most of the main economies in the world are now mixed economies. There is limited government regulation in a mixed economy, while there is heavy government regulation and control in a command economy. For example, suppose company ABC, a toy manufacturer, is in a mixed economic system. The prices and production levels are subject to the discretion of company ABC and the law of supply and demand. However, company ABC has been using too many of the natural resources in the state where it is located. The government would intervene in this case because it goes against the good of the public. On the other hand, in a command economy, there is no company producing toys, the government would control the production and pricing of the toys. Read more: What is the difference between a command economy and a mixed economy?| Investopedia https://www.investopedia.com/ask/answers/033015/what-difference-between-command-economy-andmixed-economy.asp#ixzz5SiIkDwF7

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Economics - Major Theories The study of economics is driven by theories of economic behavior and economic performance, which have developed along the lines of the classical ideas, the Marxist idea, or a combination of both. In the process, various models were developed, each trying to explain such economic phenomena as wealth creation, value, prices, and growth from a separate intellectual and cultural setting, each considering certain variables and relationships more important than others. Within the aforementioned historical framework, economics has followed a trajectory that is characterized by a multiplicity of doctrines and schools of thought, usually identifiable with a thinker or thinkers whose ideas and theories form the foundation of the doctrine. Classical economics. Classical economic doctrine descended from Adam Smith and developed in the nineteenth century. It asserts that the power of the market system, if left alone, will ensure full employment of economic resources. Classical economists believed that although occasional deviations from full employment result from economic and political events, automatic adjustments in market prices, wages, and interest rates will restore the economy to full employment. The philosophical foundation of classical economics was provided by John Locke's (1632–1704) conception of the natural order, while the economic foundation was based on Adam Smith's theory of self-interest and Jean-Baptiste Say's (1767–1832) law of the equality of market demand and supply. Classical economic theory is founded on two maxims. First, it presupposes that each individual maximizes his or her preference function under some constraints, where preferences and constraints are considered as given. Second, it presupposes the existence of interdependencies— expressed in the markets—between the actions of all individuals. Under the assumption of perfect and pure competition, these two features will determine resource allocation and income distribution. That is, they will regulate demand and supply, allocation of production, and the optimization of social organization. Led by Adam Smith and David Ricardo with the support of Jean-Baptiste Say and Thomas Robert Malthus (1766–1834), the classical economists believed in Smith's invisible hand, self-interest, and a self-regulating economic system, as well as in the development of monetary institutions, capital accumulation based on surplus production, and free trade. They also believed in division of labor, the law of diminishing returns, and the ability of the economy to self-adjust in a laissezfaire system devoid of government intervention. The circular flow of the classical model indicates that wages may deviate, but will eventually return to their natural rate of subsistence. Marxist economics. Because of the social cost of capitalism as proposed by classical economics and the industrial revolution, socialist thought emerged within the classical liberal thought. To address the problems of classical capitalist economics, especially what he perceived as the neglect of history, Karl Marx (1818–1883), a German economic, social, and political philosopher, in his famous book titled Das Kapital or Capital (1867–1894) advanced his doctrine of dialectical materialism. Marx's dialectics was a dynamic system in which societies would evolve from primitive society to feudalism to capitalism to socialism and to communism. The basis of Marx's dialectical materialism was the application of history derived from Georg Wilhelm Friedrich Hegel (1770–1831), which maintained that history proceeds linearly by the triad of forces or dialectics called thesis, antithesis, and synthesis. This transition, in Marx's view, will result from changes in the ruling and the oppressed classes and their relationship with each other. He then envisaged conflict between forces of production, organization of production, relations of production, and societal thinking and ideology. Marx predicts capitalist cycles that will ultimately lead to the collapse of capitalism. According to him, these cycles will be characterized by a reserve army of the unemployed, falling rate of profits, business crises, increasing concentration of industry into a few hands, and mounting misery and alienation of the proletariat. Whereas Adam Smith and David Ricardo had argued that the rational and calculating capitalists in following their self-interest promote social good, Marx argued that in 13 Nivel de Inglés Técnico 2. LE.

rationally and purposefully pursuing their economic advantage, the capitalists will sow the seeds of their own destruction. The economic thinking or school of economic thought that originated from Marx became known as Marxism. As the chief theorist of modern socialism and communism, Marx advocated fundamental revolution in society because of what he saw as the inherent exploitation of labor and economic injustice in the capitalist system. Marxist ideas were adopted as the political and economic systems in the former Soviet Union, China, Cuba, North Korea, and other parts of the world. The neo-Marxist doctrines apply both the Marxist historical dimension and dialectics in their explanation of economic relationships, behavior, and outcome. For instance, the dependency theory articulates the need for the developing regions in Africa, Latin America, and Asia to rid themselves of their endemic dependence on more advanced countries. The dependency school believes that international links between developing (periphery) and industrialized (center) countries constitute a barrier to development through trade and investment. Neoclassical economics. The period that followed Ricardo, especially from 1870 to 1900, was full of criticism of classical economic theory and the capitalist system by humanists and socialists. The period was also characterized by the questioning of the classical assumption that laissez-faire was an ideal government policy and the eventual demise of classical economic theory and the transition to neoclassical economics. This transition was neither spontaneous nor automatic, but it was critical for the professionalization of economics. Neoclassical economics is attributed with integrating the original classical cost of production theory with utility in a bid to explain commodity and factor prices and the allocation of resources using marginal analysis. Although David Ricardo provided the methodological rudiments of neoclassical economics through his move away from contextual analysis to more abstract deductive analysis, Alfred Marshall (1842–1924) was regarded as the father of neoclassicism and was credited with introducing such concepts as supply and demand, price-elasticity of demand, marginal utility, and costs of production. Neoclassical or marginalist economic theories emphasized use value and demand and supply as determinants of exchange value. Likewise neoclassicals, William Stanley Jevons (1835–1882) in England; Karl Menger (1840–1925) in Austria; and Léon Walras (1834–1910) in Switzerland, independently developed and highlighted the role of marginal utility (and individual utility maximization), as opposed to cost of production, as the key to the problem of exchange valuation. Neoclassical models assume that everyone has free access to information they require for decision making. This assumption made it possible to reduce decision making to a mechanical application of mathematical rules for optimization. Hence, in the neoclassical view, people's initial ability to maximize the value of output will, in turn, affect productivity and determine allocation of resources and income distribution. Neoclassical economics is grounded in the rejection of Marxist economics and on the belief that the market system will ensure a fair and just allocation of resources and income distribution. Since its emergence, neoclassical economics has become the dominant economic doctrine in the study and teaching of economics in the West, especially in the United States. A host of economic theories have emerged from neoclassical economics: neoclassical growth theory, neoclassical trade theory, neoclassical theory of production, and so on. In the neoclassical growth theory, the determinants of output growth are technology, labor, and capital. The neoclassical growth theory stresses the importance of savings and capital accumulation together with exogenously determined technical progress as the sources of economic growth. If savings are larger, then capital per worker will grow, leading to rising income per capita and vice versa. The neoclassical thinking can be expressed as the Solow-Swan model of the production function type Y F (N, K) which is expanded to ΔY/Y = ΔA/A + ΔN/N + ΔK/K where Y represents total output, N and K represent the inputs of labor and capital, and A represents the productivity of capital and labor, and ΔY/Y, ΔA/A, ΔN/N, and K / K represent changes in these variables, respectively.

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The Solow-Swan model asserts that because of the diminishing marginal product of inputs, sustained growth is possible only through technological change. The notion of diminishing marginal product is rooted in the belief that as more inputs are used to produce additional output under a fixed technology and fixed resource base, additional output per unit of input will decline (diminishing marginal product). This belief in the stationary state and diminishing marginal product led neoclassical economics to believe in the possibility of worldwide convergence of growth. Known also as the neoliberal theory, neoclassical economics asserts that free movement of goods (free trade), services, and capital unimpeded by government regulation will lead to rapid economic growth. This, in the neoclassical view, will increase global output and international efficiency because the gains from division of labor according to comparative advantage and specialization will improve overall welfare. Even modern trade models (such as the Hecksche-Ohlin) are based on the neoclassical trade theory, which assumes perfect competition and concludes that trade generally improves welfare by improving the allocation of factors of production across sectors of the economy. Rational expectation. Rational expectation is the economic doctrine that emerged in the 1970s that asserts that people collect relevant information about the economy and behave rationally—that is, they weigh costs and benefits of actions and decisions. Rational expectation economics believes that because people act in response to their expectations, public policy will be offset by their action. Also known as the "new classical economics," the rational expectation doctrine believes that markets are highly competitive and prices adjust to changes in aggregate demand. The extent to which people are actually well informed is questionable and prices tend to be sticky or inflexible in a downward direction because once they go up, prices rarely come down. In the rational expectation doctrine, expansionary policies will increase inflation without increasing employment because economic actors—households and businesses—acting in a rational manner will anticipate inflation and act in a manner that will cause prices and wages to rise. Monetarism. Like rational expectations theory, monetarism represents a modern form of classical theory that believes in laissez-faire and in the flexibility of wages and prices. Like the classical theorists before them, they believe that government should stay out of economic stabilization since, in their view, markets are competitive with a high degree of macroeconomic stability. Such policies as expansionary monetary policy will, in their view, only lead to price instability. The U.S. economist Milton Friedman, who received the Nobel Prize in 1976, is widely regarded as the leader of the Chicago school of monetary economics. Institutionalism. Institutional economics focuses mainly on how institutions evolve and change and how these changes affect economic systems, economic performance, or outcomes. Both Frederick Hayek and Ronald Coase, major contributors to the Institutionalist School in the tradition of Karl Marx and Joseph Schumpeter, look at how institutions emerge. Hayek examines the temporal evolution and transformation of economic institutions and concludes that institutions result from human action. Hence, he suggests the existence of a spontaneous order in which workable institutions survive while nonworkable ones disappear. Coase believes that institutions are created according to rational economic logic when transaction costs are too high. Other notable contributors to institutionalism include Thorstein Veblen, Clarence Ayers, Gunnar Myrdal, John R. Commons, Wesley Cair Mitchell, and John Kenneth Galbraith. The New Institutionalism, represented mostly by Douglas North, Gordon Tullock, and Mancur Olson, uses the classical notions of rationality and self-interest to explain the evolution and economic impact of institutions. It considers such issues as property rights, rent-seeking, and distributional coalitions and argues that institutional transformation can be explained in terms of changes in property rights, transaction costs, and information asymmetries. Read more: Economics - Major Theories - Neoclassical, Classical, Theory, and Production - JRank Articles http://science.jrank.org/pages/9055/Economics-Major-Theories.html#ixzz5SiKgQZzm

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Overview of Economics: Three Economists and Their Theories Three Economists and Their Theories Overview of Economics

The three most important economists were Adam Smith, Karl Marx, and John Maynard Keynes (pronounced canes). Each was a highly original thinker who developed economic theories that were put into practice and affected the world's economies for generations. Adam Smith and His Invisible Hand of Capitalism Adam Smith, a Scot and a philosopher who lived from 1723 to 1790, is considered the founder of modern economics. In Smith's time, philosophy was an all-encompassing study of human society in addition to an inquiry into the nature and meaning of existence. Deep examination of the world of business affairs led Smith to the conclusion that collectively the individuals in society, each acting in his or her own self-interest, manage to produce and purchase the goods and services that they as a society require. He called the mechanism by which this self-regulation occurs “the invisible hand,” in his groundbreaking book, The Wealth of Nations, published in 1776, the year of America's Declaration of Independence. While Smith couldn't prove the existence of this “hand” (it was, after all, invisible) he presented many instances of its working in society. Essentially, the butcher, the baker, and the candlestick maker individually go about their business. Each produces the amount of meat, bread, and candlesticks he judges to be correct. Each buys the amount of meat, bread, and candlesticks that his household needs. And all of this happens without their consulting one another or without all the king's men telling them how much to produce. In other words, it's the free market economy in action. In making this discovery, Smith founded what is known as classical economics. The key doctrine of classical economics is that a laissez-faire attitude by government toward the marketplace will allow the “invisible hand” to guide everyone in their economic endeavors, create the greatest good for the greatest number of people, and generate economic growth. Smith also delved into the dynamics of the labor market, wealth accumulation, and productivity growth. His work gave generations of economists plenty to think about and expand upon. Karl Marx: It's Exploitation! Karl Marx, a German economist and political scientist who lived from 1818 to 1883, looked at capitalism from a more pessimistic and revolutionary viewpoint. Where Adam Smith saw harmony and growth, Marx saw instability, struggle, and decline. Marx believed that once the capitalist (the guy with the money and the organizational skills to build a factory) has set up the means of production, all value is created by the labor involved in producing whatever is being produced. In Marx's view, presented in his 1867 tome Das Kapital (Capital), a capitalist's profits come from exploiting labor—that is, from underpaying workers for the value that they are actually creating. For this reason, Marx couldn't abide the notion of a profit-oriented organization. This situation of management exploiting labor underlies the class struggle that Marx saw at the heart of capitalism, and he predicted that that struggle would ultimately destroy capitalism. To Marx, class struggle is not only inherent in the system—because of the tension between capitalists and workers—but also intensifies over time. The struggle intensifies as businesses eventually become larger and larger, due to the inherent efficiency of large outfits and their ability to withstand the cyclical crises that plague the system. Ultimately, in Marx's view, society moves to a two-class system of a few wealthy capitalists and a mass of underpaid, underprivileged workers. Marx predicted the fall of capitalism and movement of society toward communism, in which “the people” (that is, the workers) own the means of production and thus have no need to exploit labor for profit. Clearly, Marx's thinking had a tremendous impact on many societies, particularly on the USSR (Union of Soviet Socialist Republics) in the twentieth century. In practice, however, two events have undermined Marx's theories. First, in socialist, centrally planned economies have proven far less efficient at producing and delivering goods and services—that is, at creating the greatest good for the greatest number of people—than capitalist systems. Second, workers' incomes have actually risen over time, which undercuts the theory that labor is exploited in the name of profit. If workers' 16 Nivel de Inglés Técnico 2. LE.

incomes are rising, they are clearly sharing in the growth of the economy. In a very real sense, they are sharing in the profits. While Marx's theories have been discredited, they are fascinating and worth knowing. They even say something about weaknesses in capitalism. For instance, large companies do enjoy certain advantages over small ones and can absorb or undercut them, as shown by examples as old as Standard Oil (now ExxonMobil) and General Motors and as recent as Microsoft and IBM, in high technology, and ConAgra and Dole in agriculture. In addition, as we will see in Wealth and Poverty, income distribution in U.S.-style capitalism, which is a “purer,” less-mixed form of capitalism than that of Europe, can tend to create a twotier class system of “have's” and “have not's.” Keynes: The Government Should Help Out the Economy John Maynard Keynes, a British economist and financial genius who lived from 1883 to 1946, also examined capitalism and came up with some extremely influential views. They were, however, quite different from those of Karl Marx and, for that matter, Adam Smith. In 1936, he published his General Theory of Employment, Interest, and Money. We will examine Keynes's theories later. They mainly involve people's propensity to spend or to save their additional money as their incomes rise, and the effects of increases in spending on the economy as a whole. The larger significance of Keynes's work lies in the view he put forth about the role of government in a capitalist economy. Keynes was writing during the Great Depression. It's worth noting at this point that in the United States unemployment reached about 25 percent and millions of people had lost their life savings as well as their jobs. Moreover, there was no clear path out of the depression, which led people to seriously question whether Smith's invisible hand was still guiding things along. Was this worldwide collapse of economic activity the end of capitalism? Keynes believed that there was only one way out, and that was for the government to start spending in order to put money into private-sector pockets and get demand for goods and services up and running again. As it turns out, President Franklin D. Roosevelt gave this remedy a try when he started a massive public works program to employ a portion of the idle workforce. However, the United States entry into World War II rendered this a less than pure experiment in government spending. The war effort boosted production to extremely high levels (to make guns, ammunition, planes, trucks, and other materiel) while simultaneously taking millions of men out of the civilian workforce and into uniform. The validity and desirability of Keynes's prescription for a sluggish economy—using government spending to prime the pump—are still debated today. Again, we will look at the theory and practice of what came to be known as Keynesian economics later. Many other economists of note advanced theories and otherwise added to the body of knowledge in the science. We will look at their ideas as they arise in our examination of economics. However, Adam Smith, Karl Marx, and John Maynard Keynes (later Lord Keynes) are widely recognized as the most influential— Smith because he founded and formalized the science of economics, Marx because he challenged capitalism and had such a forceful impact on society and politics, and Keynes because he prompted new practices as well as new theories in the world of economic policy. Keynes also played a key role in the founding of the International Monetary Fund and in other political economic measures taken at the end of World War II. Excerpted from The Complete Idiot's Guide to Economics © 2003 by Tom Gorman. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

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Listening 2: Keynesianism (2.16)

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Developing your speaking skills: planned discourse Introduction Watch the introduction of two presentations. 1. Which of the two presentations: - Breaks the ice? - Announces the content of the presentation and its parts? - Provides historical background that is relevant to understand the rest of the presentation? - Explains general points in common between these thinkers? 2. What presentation is intended for what kind of audience? How can you tell? 3. Tick the phrases you hear included in your copy “Presentations- Language”. Body 4. Watch the videos and draw a diagram of how their presentations are organized. 5. Tick any other phrases you hear. 6. Notice their use of tenses. What tenses do they use to discuss the ideas introduced by each thinker? 7. Tick the positive and negative aspects of their speech. If possible, take down notes on examples for each of these. POSITIVE

NEGATIVE

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includes an efficient introduction and conclusion

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voice is monotonous

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overuses gestures, which distracts us

resorts to real life examples to exemplify/prove point

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examples are not clear or relevant

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speech is organized and easy to follow

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speech is disorganized and hard to follow

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uses connectors/linking phrases to keep his speech organized

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does not interact with audience

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uses very long sentences in Power Point Presentation, which are hard to follow and distracting

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uses visual aids to help us understand better

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visual aids include charts, tables, diagrams, etc. which are easy to follow

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introduces each idea efficiently and expands on each of them

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defines new or key concepts

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highlights important concepts in visual aids

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conclusion rounds up everything said

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PRESENTATIONS Explain what your presentation is about at the beginning: I’m going to talk about ... I’d like to talk about ... The main focus of this presentation is ... The subject of my presentation is… The purpose of my presentation today is… Explain how your presentation is organized There are three parts to my presentation. My presentation is divided in three. This presentation is divided into four main parts. First, I will…. Second, I will discuss… Finally, I will… To start with/Firstly, I'd like to look at... Then/Secondly, I'll be talking about... Thirdly... My fourth point will be about... Finally, I'll be looking at... Use these expressions to order your ideas: First of all, ... Firstly, ... Then, ... Secondly, ... Next, … DISCUSSING A THEORY PUT FORWARD BY AN AUTHOR To propose/put forward/develop a theory The major argument in …’s book is that… /In his book …., the author… His work had a widespread impact on…/ His work had significant implications for… He claims/asserts/contends/argues that… He is considered to be the founder of… He believed that…/he maintained that… To Marx,/ In Marx’s view,/Marx believed that… However, his theories have been widely discredited. He played a key role in the development/creation of… He is an opponent of… /He is against…/he argues against… He is in favour of…/he argues for… To introduce the opposite point of view you can use these words and expressions: However, ... On the other hand, ... Visual aids As you can see here... Here we can see... If we look at this slide... This slide shows... If you look at the screen, you'll see... This table/diagram/chart/slide shows... On the right/left you can see... Transitions/Starting a new section This leads/brings me to my next point, which is... I'd now like to move on to/turn to... So far we have looked at... Now I'd like to... The next issue/topic/area I’d like to focus on is…. Use these expressions to conclude/summarize your presentation: To sum up, ... In conclusion, ...

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UNIT 4

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Read “Trends in the Financial Industry” and solve the activities below:

1. Enumerate some reasons why banking has become more complex nowadays. 2. Answer: a. What does the author forecast about banking? b. Why have commercial and investment banking “started to converge”? Provide examples. 3. Look up in the dictionary the following words/phrases used in the text. Define them and provide examples whenever possible. a. Asset-based financing b. Commercial real estate loans c. Foreign exchange d. Asset securitization e. Securities underwriting f. Placements g. Financial advisory work

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Investment Bank Vs. Commercial Bank by David Ingram

The banking sector is split into two fundamental divisions: investment banking and commercial banking. Institutions that mix the two activities have come under scrutiny lately, accused of being major contributors to the global economic meltdown of 2008. Debate rages as to whether the two distinct banking activities should be carried out under a single roof, or whether they should be forever separate. Knowing the difference between commercial banks and investment banks can shed some light on this issue. Features Commercial banks manage deposit accounts, such as checking and savings accounts, for individuals and businesses. They make loans to the public using the money held on deposit. Investment banks differ strongly; these institutions facilitate the buying and selling of stocks, bonds and other investments, as well as helping companies to go public with initial public offerings (IPO). According to an article in The Enterprise from February 2009, commercial banks are highly regulated by a number of federal authorities, including the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. Commercial banks are federally insured to protect customers' accounts. Investment banks, on the other hand, are only loosely regulated by the Securities and Exchange Commission (SEC), allowing them much more leeway in their strategic decision-making. Risk Tolerance Investment banks have a higher risk tolerance due to their business model and the relative weakness of government regulation in the industry. Commercial banks are much less tolerant of risk. Panic can ensue if families and businesses lose their checking and savings accounts, so commercial banks have an implied fiduciary duty to act in the best interest of their clients, not to mention the tight strings attached to commercial banks' FDIC insurance. History and the Future According to BU.edu, institutions that mixed commercial and investment banking activities contributed in part to the great depression of the early 20th century. The Glass-Steagall Act, part of the Banking Act of 1933, mandated the complete separation of commercial and investment banking activities, which seemed to yield stable results until its repeal in 1999 by the Gramm-Leach-Bliley Act. Since then, large banks have been free to engage in both types of banking under one roof, which is believed to have been a large contributing factor to the bust of the internet bubble in 2000 and 2001 and the beginning of the global recession in 2008. Whether or not Congress will act to separate the two activities, seemingly so volatile when used in tandem, remains to be seen. Benefits of Combination Banks mix commercial and investment activities to realize significant benefits. Acting as an investment bank, an institution can help a company sell an IPO, then use its commercial division to extend a generous line of credit to the new corporation. The generous loan allows the new company to finance rapid growth and boost its stock price. The bank can then reap the benefits of increased trading revenue and snag more commissions from future stock offerings. Considerations The problem with mixing investment and commercial banking is that institutions have historically gone too far to prop up weak and undeserving companies, leading to bubbles and disastrous busts. Mixed-business banks have the ability to create excitement and hype surrounding particular companies while injecting large sums of capital to prop up their stock valuations. Without paying attention to the fundamental strength of sectors and individual companies, however, this behavior is almost guaranteed to end in disaster. https://smallbusiness.chron.com/investment-bank-vs-commercial-bank-3450.html

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Read “What Are Central Banks and How Do Central Banks Work?” a. Answer the following questions: 1. What is the role of Central Banks? 2. What sectors does the money supply affect? 3. How can the Federal Reserve help prevent economic instability? 4. Explain what “reserve requirements” are and how the Federal Reserve regulate them. 5. What are the Open Market Operations and how do they affect the supply of money? 6. What ways of increasing the money supply may be detrimental for an economy? b. Write TRUE or FALSE. Support your answers. 1. According to the author, it is easy for the Federal Reseve to control the money supply. 2. All banks have to keep a part of their deposits in the Central Bank. 3. The rates that the Fed controls affect consumers. 4. It takes time to see the results of lowering discount rates to increase the money supply. 5. The finances of investros and companies are affected when the Fed buys or sells government securities temporarily.

What Are Central Banks and How Do Central Banks Work? Here's a look at how a country's central bank can inject billions into the economy. Jonas Elmerraji Aug 21, 2007 1:47 PM EDT NEW YORK (TheStreet) -- How do central banks inject billions into their economies, and does that money need to be paid back? -- C.P. Central banks look out for the monetary policy of their countries. When a country's economy is in trouble, it is the central bank that can "save" the proverbial day, but how central banks manage that feat is the trillion-dollar question. What Is a Central Bank? Central banks are responsible for controlling the monetary policy of their countries. Essentially, this means that one of their key jobs is to manipulate the money supply in that country to meet its economic goals (such as market growth). Here in the U.S., the central bank is the Federal Reserve (commonly referred to as "the Fed"). Other important central banks around the world include the European Central Bank, the Bank of England and the People's Bank of China. But you might be wondering why everyone's always on "Fed watch." It's because the money supply really is a big deal. Here's why.

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Money Doesn't Grow on Trees Most people will agree that money is a limited resource. While that Lamborghini would definitely make a nice addition to my driveway, I can't really afford the $311,000 price tag. The same is true for the economy -- as a whole, money is scarce. But from an economic standpoint, the scarcity of money doesn't just affect what we're able (or not able) to buy. Factors such as, employment rates and market growth are all affected by the money supply situation. When the economy is hurting, it's often because the money supply is low. One way to counter this is by simply increasing the amount of money, or liquidity, that is present in the economy. Conversely, if the economy is growing too fast (a sign of bad inflation to come) decreasing the money supply is often the Fed's solution. Economists refer to increasing the money supply as "expansionary policy," while decreasing it is known as "contractionary policy." And the Fed has been pretty successful, according to Tim Gindling, a professor of economics at the University of Maryland, Baltimore County. Gindling says, "Since the Great Depression, the Federal Reserve has done a good job using their control over the supply of money to stabilize the economy. The most clear evidence of this is that we have not had a depression since the 1930s." Believe it or not, though, there's more to controlling the money supply than hitting the start button on those machines that print greenbacks. Here's how they go about it. How Central Banks Control the Money Supply Methods used by central banks to control the money supply can vary a bit from country to country, depending on the powers that are vested in the central banks. Here in the U.S., there are three main ways that the Federal Reserve is able to alter the money supply:   

Reserve requirements Interest rates Open market operations

Reserve Requirements As a rule, banks are mandated to keep a certain percentage of all deposits in the bank. This is known as the "reserve requirement." The Fed sets the reserve requirement for U.S. banks. By decreasing the reserve requirements, more money is available for the bank to lend out, and the money supply increases. Interest Rates The control that a central bank has over interest rates can differ quite a bit from country to country. Contrary to what many believe, the Fed doesn't set the interest rates you pay on your mortgage (because it can't). That's not to say that the rates the Fed has control over aren't important -- you can bet that they trickle down to the consumer level. Domestically, the Fed has direct control over the "discount rate," the rate the Fed charges banks that borrow from it. The Fed also has some level of indirect control over the "federal funds rate," the rate that banks charge each other for overnight federal loans. Most recently, the Fed lowered the discount rate to 5.75% from 6.25% (see "Fed Cuts Discount Rate" and "Fed Plots Measured Course" ), a move that was designed to increase the money supply and add liquidity to the economy. How does changing interest rates accomplish that? From an economic perspective, interest rates are the "cost of money." Therefore, decreasing interest rates lowers the cost of money and increases the money supply. But while adjusting reserve requirements and interest rates are effective ways to change the money supply, their results aren't as quickly seen as is often necessary. That's where open market operations come in. Open Market Operations

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Open market operations are a way of affecting the money supply by buying or selling securities -- usually government securities. Essentially, if the Fed wants to increase the supply of money, it turns to the market and purchases Treasury securities (such as T-bills, T-notes and T-bonds). When it buys these securities, it gives the sellers money, and that increases the supply of money in the economy. When the Fed wants to decrease the money supply, it does so by selling Treasury securities and collecting money in exchange. The Fed makes these trades by using its reserve cash. And because the Fed doesn't issue the securities that it trades to change the money supply, making good on the promises of those Treasury securities is the responsibility of the U.S. Treasury, not the Fed. Because the U.S. economy isn't in dire straits on a daily basis, the most common type of open market operation the Fed engages in is an overnight repurchase agreement, or a "repo." A Fed repo basically alters the money supply for a short time, by temporarily buying or selling government securities (see "What's the Fed Really Up To?" on TheStreet.com TV). It's also worth noting that the Federal Reserve's open market operations are not relegated to government securities. While government securities have historically been the instrument of choice for the Fed and other central banks, the Fed has "saved the day" in other ways as well. For example, the Fed recently bought $38 billion in subprime mortgages and other securites (see mortgage-backed security), and that increased the money supply and added liquidity to the battered subprime home loan market at the same time (see "Wall Street Limits Damage"). (To learn more about subprime mortgages, check out " "Booyah Breakdown: Subprime Time" and "Why Mortgages Blew Up"). Consider This While most people probably don't pay much attention to the Fed's nightly "repos," the fact is that those actions have a huge impact on the finances of investors and companies. And there are definitely right and wrong ways to add money to an economy. The wrong way often includes printing massive amounts of money that can lead to hyperinflation. Many countries have fallen victim to bad monetary policy as a consequence of politics or unrealistic borrowing. Such has been the case most recently with Zimbabwe, a country whose annual inflation rate is climbing beyond 3,700% (see England's Times Online). By comparison, U.S. inflation for 2006 was around 2.5% (see CIA data). Zimbabwe's practice of printing money as a means of alleviating debts has proved to be a big contributor to its monster inflation rate. By using tactics such as open market operations and interest rate manipulation, central banks (including the U.S. Federal Reserve) work hard to make sure that the country's economy operates in a healthy, sustainable manner.

https://www.thestreet.com/story/10375486/1/how-do-central-banks-work.html

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The Basics Of Mergers And Acquisitions By Ben McClure Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, Wall Street investment bankers arrange M&A transactions bringing separate companies together to form larger ones. When they’re not creating big companies from smaller ones, corporate finance deals do the reverse and break up companies through spinoffs, carveouts, or tracking stocks. Not surprinsingly, these actions often make a the news. Deals can be worth mkillions, ore ven billions, of dollars. They can dictate the fortunes of the companies involved for years to come. For a CEO, leading an M&A can represent the highlight of a whole career. And it is no wonder we hear about so many of these transactions; they happen all the time. Next time you flip open the newspaper’s business section, odds are good that at lest one headline will announce some kind of M&A transaction. Sure, M&A deals grab headlines, but what does this all mean to investors? To answer the question, this tutorial discusses the forces that drive companies to buy or merge with others, or to split-off or sell parts of their own businesses. Once you know the different ways in which these deals are executed, you’ll have a better idea of whether you should cheer or weep when a company you own buys another company –or is bought by one. You will also be aware of the tax consequences for companies and for investors. The key principle behind M&A is that two companies together are more valu able than two separate companies—at least, that's the reasoning. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company and, theoretically, more shareholder value. Meanwhile, target companies will often agree to be purchased when they know they cannot survive alone.

Distinction between Mergers and Acquisition The terms merger and acquisition mean slightly different things, though they are often used interchangeably. When one company takes over another and clearly establishes itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer absorbs the business and the buyer's stock continues to be traded while the target company’s stock does not. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, Daimler Chrysler, was created. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly—that is, when the target company does not want to be purchased—it is always regarded as an acquisition. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.

Synergy of M & A Synergy is often cited as the force that allows for enhanced cost efficiencies of the new business and a reason to justify the transaction. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following: 

Staff reductions. As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package.

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Economies of scale. Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies. When placing larger orders, companies have a greater ability to negotiate prices with their suppliers.

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Acquiring new technology. To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.

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Improved market reach and visibility. Companies buy other companies to reach new markets and grow revenues and earnings. A merger may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.

Achieving synergy is easier said than done. Achieving synergy takes: 

Planning. How will the combined entity actually go about achieving the synergies touted during the process?

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Preparation and analysis. Ideally planning is done during the M&A due diligence process to ensure that these synergies are real and what it will take to achieve them after the culmination of the transaction.

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Execution. Once the transaction is finalized, critical decisions have to be made. Which operations will be kept or closed? How will you entice key employees to stay? Who will be accountable to see that these synergies are actually realized?

Varieties of Mergers From the perspective of business structures, there is a whole host of different types of mergers. Here are a few types, distinguished by the relationship between the two companies that are merging: 

Horizontal merger - Two companies that are in direct competition and share the same product lines and markets.

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Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.

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Market-extension merger - Two companies that sell the same products in different markets.

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Product-extension merger - Two companies selling different but related products in the same market.

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Conglomeration - Two companies that have no common business areas.

There are also two types of mergers that are distinguished by how the merger is financed. Each has certain implications for the companies involved and for investors: 

Purchase Mergers - As the name suggests, this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable. Acquiring companies often prefer this type of merger because it can provide them with a tax benefit. Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the acquiring company. We will discuss this further in part four of this tutorial.

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Consolidation Mergers - With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.

Acquisitions An acquisition may be only slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike mergers, all acquisitions involve one firm purchasing another — there is no exchange of stock or consolidation as a new company.

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Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times, acquisitions are more hostile. In an acquisition, a company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business. Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares. Regardless of their category or structure, all mergers and acquisitions have one common goal: they are all meant to create synergy that makes the value of the combined companies greater than the sum of the two parts. The success of a merger or acquisition depends on whether this synergy is achieved.

Break Ups As mergers capture the imagination of many investors and companies, the idea of getting smaller might seem counterintuitive. But corporate break-ups, or de-mergers, can be very attractive options for companies and their shareholders both in terms of the ongoing business and adding shareholder value.

Why Mergers Fail It's no secret that plenty of mergers don't work. Those who advocate mergers will argue that the merger will cut costs or boost revenues by more than enough to justify the price premium. It can sound so simple: just combine computer systems, merge a few departments, use sheer size to force down the price of supplies and the merged giant should be more profitable than its parts. In theory, 1+1 = 3 sounds great, but in practice, things can go awry. Different systems and processes, dilution of a company's brand, overestimation of synergies and lack of understanding of the target firm's business can all occur, destroying shareholder value and decreasing the company's stock price after the transaction. Historical trends show that roughly two-thirds of big mergers will disappoint on their own terms, which means the combined new company, or the acquiring company, will lose value on the stock market. Here are a few examples of deals that ended up being disasters.

Flawed Intentions A booming stock market encourages mergers, which can spell trouble. Deals done with highly rated stock as currency are easy and cheap, but the strategic thinking behind them may be easy and cheap too. Companies whose stock has reached high levels may want to use it as currency to expand, but the planning needed to make a successful business combination happened might not be their priority. A merger may often have more to do with glory-seeking than business strategy. The executive ego, which is boosted by buying the competition, is a major force in M&A, especially when combined with the influences from the bankers, lawyers and other assorted advisers who can earn big fees from clients engaged in mergers. Most CEOs get to where they are because they want to be the biggest and the best, and many top executives get a big bonus for merger deals, no matter what happens to the share price later. On the other side of the coin, mergers can be driven by generalized fear. Globalization, the arrival of new technological developments or a fast-changing economic landscape that makes the outlook uncertain are all factors that can create a strong incentive for defensive mergers. Sometimes the management team feels they have no choice and must acquire a rival before being acquired. The motivation may be that they need to be bigger to survive, or they may view a merger or acquisition as the best way to acquire the knowledge and expertise needed to compete.

The Obstacles to Making it Work The chances for success are further hampered if the corporate cultures of the companies are very different. When a company is acquired, the decision is typically based on product or market synergies, but cultural differences are often ignored. It's a mistake to assume that personnel issues

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are easily overcome. For example, employees at a target company might be accustomed to easy access to top management, flexible work schedules or even a relaxed dress code. These aspects of a working environment may not seem significant, but if new management removes them, the result can be resentment and shrinking productivity. More insight into the failure of mergers is found in a highly acclaimed study from McKinsey, a global consultancy. The study concludes that companies often focus too intently on cutting costs following mergers, while revenues, and ultimately, profits, suffer. Merging companies can focus on integration and cost-cutting so much that they neglect day-to-day business, thereby prompting nervous customers to flee. This loss of revenue momentum is one reason so many mergers fail to create value for shareholders.

Conclusion Many companies find that the best way to get ahead is to expand through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies. M&A comes in many shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals. Let's recap what we learned in this tutorial: 

A merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another.

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The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones. Synergy is the logic behind mergers and acquisitions.

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Acquiring companies use various methods to value their targets. Some of these methods are based on comparative ratios —such as the P/E and P/S ratios— or replacement cost or discounted cash flow analysis.

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An M&A deal can be executed by means of a cash transaction, stock-for-stock transaction or a combination of both. A transaction struck with stock is not taxable.

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Break up or de-merger strategies can provide companies with opportunities to raise additional equity funds, unlock hidden shareholder value and sharpen management focus. De-mergers can occur by means of divestitures, carve-outs spin offs or tracking stocks.

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Mergers can fail for many reasons, including a lack of management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of day-today operations.

Read more: Mergers and Acquisitions: Definition https://www.investopedia.com/university/mergers/mergers1.asp#ixzz5Sop4H3QP

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REPORTS REPORT STRUCTURE Introduction As requested at the Board meeting of 17 April, here is my report. This report, written by… Head of Internet Banking, to be submitted to… The report is based on… The purpose of this report is to compare/ describe/ evaluate/ analyze… This report will investigate…

Findings A survey of… showed/revealed After studying… it was found that… The vast majority of managers/ customers/ employees mentioned/ requested / expressed… I have investigated…

Recommendations I strongly suggest that we consult... I suggest that we choose… In my view, we should provide… It is essential that…

Linking words Sequencing: Firstly,… Secondly,… Finally… Contrasting: However,… / Nevertheless, … / On the other hand, … / On the contrary… Adding another point: In addition, Moreover, Furthermore Giving examples: For example, for instance, such as Mentioning the most important point: Above all, In particular Rephrasing: In other words, That is to say,… Showing results: As a result,… Therefore,… For this/that reason,… Thus… Showing reasons and causes: Because, since, as (followed by a clause with subject + verb) Showing probability: Our profits will definetely increase – Small Banks are bound to… It is unlikely to… / I may well decide to…/ We expect to… Perhaps, we… / We might increase… E-banking is unlikely to… There could be a takeover… It can’t possibly stay so low… We certainly won’t reduce…

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WRITING REPORTS A report is a description of a situation or something that has happened or something a student has done. In academic terms it might describe: a) an experiment you have conducted. b) a survey you have carried out. c) a comparison of alternative proposals to deal with a situation. The format of a report can be the following: Introduction Main body Conclusion/Recommendations Most reports should include the following features: Introduction - background to the subject - reasons for carrying out the work - review of other research in the area Methods - how you didi your research - description of tools/materials used Results/Findings - what you discovered - comments on likely accuracy of results Discussion (this could be included in the previous section) - of your main findings - comments on the effectiveness of your research Conclusion/Recommendations - summary of your work - suggestions for further research

More characteristics of reports: a) they have a clear and logical format. b) they use objective and accurate academic style c) they include citations and references d) they make use of visual information in the form of graphs and tables e) they include appendices where necessary.

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ACTIVITY Study the report of a survey carried out on a university campus. Complete the report by inserting suitable words into the gaps (more words than gaps). sample questioned

conducted mentioned

method questionnaire

respond unusual

majority generally

STUDY EXPERIENCE OF PART-TIME WORK Introduction With the introduction of course fees and the related increase in student debt, more students are finding it necessary to work part-time. The survey was (a)_____________ to find out how this work affects student life and study. Method The research was done by asking students selected at (b) ________________ on the campus to complete a (c)______________ (see Appendix 1). 50 students were (d) ______________ on Saturday 23 April, with approximately equal numbers of male and female students. Findings Of the (e)___________, 30 per cent currently had part-time jobs, 20 per cent had had part-time jobs, but half had never done any work during university semesters (see Table 1). (f)__________ who were working or who had worked were next asked about their reasons for taking the jobs. The most common reason was lack of money (56 per cent), but many students found the work useful experience (32 per cent) and others (g) _____________ social benefits (12 per cent). The 25 students with work experience were next asked about the effects of their work on their studies. A significant (h) _____________ (64 per cent) claimed that there were no negative effects at all. However, 24 per cent said that their academic work suffered (i) ______________ while a small (j) _____________ (12 per cent) reported serious adverse results, such as tiredness in lectures and falling marks. Further (k)______________ examined the nature of the work that students did. The variety of jobs was surprising, from van driver to busker, but the most (l)______________ areas were catering and bar work (44 per cent) and secretarial work (32 per cent). Most students worked between 10 and 15 hours per week, though two (8 per cent) worked over 25 hours. Rates of pay were (m) ______________ near the national minimum wage, and averaged $6.20 per hour. The final question invited students to comment on their experience of part-time work. Many (44 per cent) made the point that students should be given larger grants so that they could concentrate on their studies full-time, but others felt that they gained something from the experience, such as meeting new people and getting insights into various work environments. One student said that she had met her current boyfriend while working in a city centre restaurant. Conclusions It is clear that part-time work is now a common aspect of student life. Many students find jobs at some point in their studies, but an overwhelming majority (88 per cent) of those deny that it has a damaging effect on their studies. Most students work for only 2-3 hours per day on average, and a significant number claim some positive results from their employment. Obviously, our survey was limited to a relatively small (n) ____________ by time constraints, and a fuller study might modify our findings in various ways.

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SAMPLE REPORT

Analysis of the West Coast College Campus Recycling Program West Coast’s recycling programme was created to fulfil the College’s social responsibility as an educational institution as well as to meet the demand of legislation requiring individuals and organizations to recycle. The purposes of this report are to:  

determine the amount of awareness of the campus recycling programme recommend ways to increase participation in the programme

We conducted a questionnaire survey to learn about the campus community’s recycling habits and to assess participation in the current recycling programme. A total of 220 individuals responded to the survey. Since West Coast College’s recycling programme includes only aluminium, glass, paper and plastic, these were the only materials considered in this study. Most survey respondents recongnised the importance of recycling and stated that they recycle aluminium, glass, paper, and plastic on a regular basis either at home or work. However, most respondents displayed a low level of awareness of the on-campus programme. Many of the respondents were unfamiliar with the location of the bins arounf the campus and, therefore, had not participated in the recycling programme. Other respondents indicated that the bins were not conveniently located. The results of this study show that more effort is needed to increase participation in the campus recycling programme. Recommendations for increasing participation in the recycling programme include:    

relocating the recycling bins for greater visibility developing incentive programmes to gain the participation of individuals and oncampus student groups training student volunteers to give on-campus presentations explaining the need for recycling and the benefits of using the recycling programme increasing advertising about the programme

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