Professional Documents
Culture Documents
The word BUSINESS has several meanings. Depending on the meaning this
word can be countable or uncountable.
-
B) Find in the text the English equivalents for the following words and
phrases:
1 Economie de pia/
2 Economie mixt/
3 Economie planificat/
4 A vinde la un pre/
5 Furnizor/
6 Creditor/
7 A nu avea success, a merge prost (despre afaceri)/ ,
( )
8 A satisface necesitile clienilor si/
English equivalents
to choose
Romanian
Russian
a izvor din
a urmri
to prove
to try, to make efforts
to use ones capital
to promote an end
capital goods
to achieve a goal
mijloace
producie
conflicting
interpretations
to intent on ones
interest
orderly
economic
system
to cast dollar votes
going price
to
ease
off
production
interest (n)
on
de
arbitru
interpretare
contradictorie
offer
as a result
dobnd,
procent
ofert;
aprovizionare
cerere
invers
economy to its citizens. The French term laissez faire implies that there shall be no
interference in the economy; loosely translated, it means "let them do" (as they see
fit).
The features of laissez-faire capitalism are:
Private Ownership of Property Smith argued that the creation of wealth
(including products) is properly the concern of private individuals, not of
government. Hence the resources that are used to create wealth must be owned by
private individuals. Economists recognize three categories of resources: land, labor,
and capital, also known as the factors of production. Land includes the land and
the natural resources on and in the land. Labour is the work performed by people.
Capital includes financial resources, buildings, machinery, tools, and equipment
that are used in an organization's operations. We have referred to these resources
as material, human, and financial resources, and we shall continue to do so. Today,
business people use the term capital to mean both capital goods and the money
needed to purchase them. The private ownership and use of both kinds of capital
give us the names capitalism and private enterprise for our economic system.
Smith argued further that the owners of the factors of production should be
free to determine how these resources are used. They should also be free to enjoy
the income and other benefits that they might derive from the ownership of these
resources.
Economic Freedom Smith's economic freedom extends to all those involved
in the economy. For the owners of land and capital, this freedom includes the right
to rent, sell, or invest their resources and the right to use their resources to produce
any product and offer it for sale at the price they choose. For workers, this
economic freedom means the right to accept or reject any job they are offered. For
all individuals, economic freedom includes the right to purchase any good or service
that is offered for sale by producers. These rights, however, do not include a
guarantee of economic success. Nor do they include the right to harm others during
the pursuit of one's own self-interest.
Competitive Markets
A crucial part of Smith's theory is the competitive
market composed of large numbers of buyers and sellers. Economic freedom
ensures the existence of competitive markets, because sellers and buyers can enter
markets as they choose. Sellers enter a market to earn profit, rent, or wages;
buyers enter a market to purchase resources and want-satisfying products. Then, in
a free market, sellers compete for sales and buyers compete for available goods,
services, and resources.
This freedom to enter or leave a market at will has given rise to the name freemarket economy for the capitalism that Smith described.
Limited Role of Government In Smith's view, the role, of government should
be limited to providing defense against foreign enemies, ensuring internal order,
and furnishing public works and education. With regard to the economy,
government should act only as rule maker and umpire. As rule maker, government
should provide laws that ensure economic freedom and promote competition. As
umpire, it should act to settle disputes arising from conflicting interpretations of its
laws. Government, according to Adam Smith, should have no major economic
responsibilities beyond these.
What, How and for Whom in the Free-Market Economy
Smith's laissez-faire capitalism sounds as though it should lead to chaos, not to
answers to the three basic economic questions. How can millions of individuals and
firms, all intent only on their own self-interest, produce an orderly economic
4
system? One response might be simply, They can and they do." Most of the
industrialized nations of the world exhibit some form of modified capitalist
economy, and these economies do work. A better response, however, is that these
millions of individuals and firms actually provide very concrete and detailed
answers to the three basic questions.
What to Produce? This question is answered continually by consumers as
they spend their dollars in the various markets for goods and services. When
consumers buy specific products, they are casting "dollar votes" for these products.
These actions tell resource owners to produce more of this product and more of the
capital goods with which the product is manufactured. Conversely, when consumers
refuse to buy a product at its going price, they are voting against the product,
telling producers to either reduce the price or ease off on production. In each case,
consumers are giving a very specific answer concerning a very specific product.
How to Produce? The two parts of this question are answered by producers as
they enter various markets and compete for sales and profits. Those who produce
for a particular market answer the question "Who will produce?" simply by being in
that market. Their answer, of course, is "We will.
Competition within various markets determines which resources will be used.
To compete as effectively as possible in the product markets, producers try to use
the most efficient (least-cost) combination of resources. When a particular resource
can be used to produce two or more different products, then producers must also
compete with each other in the market for that resource. And, if the price of one
needed resource becomes too high, producers will look for substitute resources
say, plastics in place of metals. The resources that will be used to produce are those
that best perform their function at the least cost.
For Whom to Produce? In a market economy, goods are distributed to those
who have the money to purchase them. This money is earned by individuals as
wages, rents, profit, and interestthat is, as payment for the use of economic
resources. Money is therefore a medium of exchange, an artificial device that aids
in the exchange of resources for goods and services. The distribution of goods and
services ("who gets what") therefore depends on the current prices of economic
resources and of the various goods and services. And prices, in their turn, are
determined by the balance of supply and demand.
I. VOCABULARY PRACTICE
Find antonyms (1-7), synonyms (8-14) in the text to the following
words and phrases:
1 public (adj)
8. to try
2 to prohibit
9. profit
3 rarely
10. at wish
4 to accept a job
11. to secure
5 to do good
12. to resolve conflicts
6 to spend money
13. to replace
7 exactly translated
14.
to help
II. COMPREHENSION
A) Give words to the following definitions:
1 The system through which a society answers the 3 economic questions.
2 The study of how wealth is created and distributed.
3 An economic system characterized by private ownership of property, free
entry into markets, and absence of government interference.
4 Capital goods and the money needed to purchase them.
5 The right to buy any good or service that is offered for sale by producers.
6 A place in which buyers and sellers of a good or service meet.
5
Team B
Smith did not feel self-interest
and selfishness were the
same, and people are wrong
to believe that they are.
Smith meant that it is only
natural that every person
tries to better his own
condition. Also, one persons
gain
is
not
necessarily
obtained
at
the
other
persons expense.
English equivalents
Romanian
cel puin
n oarecare msur
utilities (n)
servicii publice
real property
proprietate
imobiliar
projected needs
professed aims
waste (n)
to advocate
to set prices
to fare
to outweigh
static (adj)
planned needs
aims that have been
publicly made known
to resort to
staff (n)
unemployment (n)
debt (n)
on behalf of sb
devastare
a o duce
a depi
a atinge, a ajunge
la
subvenie, subsidiu
a recurge la
omaj
datorie
din partea cuiva
-.
to propagate, to sustain
to establish prices
not
changing
developing
or
to attain
subsidy (n)
to wind up (wound,
wound)
Russian
to
stop
running
company and close
completely
a
it
personnel
wages. Among the professed aims of socialist countries are the equitable
distribution of income, the elimination of poverty and the distribution of social
services such as medical care to all who need them, smooth economic growth, and
elimination of the waste that supposedly accompanies capitalist competition.
Britain, France, Sweden, and India are democratic countries whose mixed
economies include a very visible degree of socialism. Other, more authoritarian
countries may actually have socialist economies; however, we tend to think of them
as communist because of their almost total lack of freedom.
Communism If Adam Smith was the father of capitalism, Karl Marx was the
father of communism. In his writings (during the mid-nineteenth century), Marx
advocated a classless society whose citizens together owned all economic
resources. He believed that such a society would come about as the result of a class
struggle between the owners of capital and the workers they had exploited. All
workers would then contribute to this communist society according to their ability
and would receive benefits according to their need.
The People's Republic of China, Cuba, and North Vietnam are generally
considered to have communist economies. Almost all economic resources are
owned by the government in these countries. The basic economic questions are
answered through centralized state planning, which sets prices and wages as well.
In this planning, the needs of the state generally outweigh the needs of its citizens.
Emphasis is placed on the production of capital goods (such as heavy machinery)
rather than on the products that consumers might want, so there are frequent
shortages of consumer goods. Workers have little choice of jobs, but special skills or
talents seem to be rewarded with special privileges. Various groups of professionals
(bureaucrats, university professors, and athletes, for example) fare much better
than, say, factory workers.
The so-called communist economies thus seem to be far from Marx's vision of
communism, but rather to practice a strictly controlled kind of socialism. There is
also a bit of free enterprise here and there. For example, in the former Soviet Union,
the farmers' markets (rinki in Russian) not only were allowed but were also essential
to the nation's food supply. However, like all real economies, these economies are
neither pure nor static. Every operating economy is a constantly changing mixture
of various idealized economic systems. Some evolve slowly; others change more
quickly, through either evolution or revolution. And, over many years, a nation, such
as Great Britain, may move first in one directionsay, toward capitalismand then
in the opposite direction. It is impossible to say whether any real economy will ever
closely resemble Marx's communism.
I. VOCABULARY PRACTICE
A) Explain the meaning of the following phrases:
1 to contrast sharply
2 the key industries
3 public utilities
4 banks are nationalized
5 smooth economic growth
6 to change through either evolution or revolution
B) Find English equivalents:
1 n dependen de ar/
2 Avere imobiliar/
3 ntr-o msur oarecare/
4 Ramurile industriei care aparin statului/ ,
9
9 Practic lipsa total a libertii/
10 Deficitul frecvent al mrfurilor de larg consum/
.
II. COMPREHENSION
A) Answer the following questions:
1. Why are socialism and communism sometimes called planned economies?
2. Who owns the key industries in a socialist economy?
3. Does private ownership of property exist in a socialist economy?
4. Where can people work in socialist countries?
5. Who controls the distribution of goods and services in a socialist society?
6. What economies do Britain, France, Sweden and India have?
7. Who was the father of communism and what did he advocate?
8. What countries are considered to have communist economies?
9. Who answers the 3 economic questions in a communist society?
10.
Do the so-called communist economies correspond to Marxs vision of
communism?
11.
What does every operating economy represent in reality?
B) Read the text more carefully and mark the statements with TRUE or
FALSE:
1 Planned economy is an ecomomy in which the answers to the 3 basic
economic questions are given by private individuals.
2 The key industries of any country are transportation, utilities,
communications, and banking.
3 What to produce and how to produce it in a socialist economy depends on
the availability of resources.
4 One of the professed aims of socialist countries is the distribution of social
services to all who have money to pay for them.
5 India is a social democratic country.
6.
In a communist society there is a slogan Everybody will contribute
according to their ability and will receive according to their need.
7. In a communist society prices and wages are set by the state.
8. Workers in a communist economy can choose any job they like.
9. Land and raw materials may belong to the state in a socialist economy.
10. There is no free enterprise in planned economies.
11. In a communist economy capital goods are produced in larger quantities
than consumer goods.
12. In the real world no economy attains theoretical perfection.
III. Match the words in column A with their definitions in column B:
A
B
1. subsidy
a) The state of a company which is unable to pay its debts
and has to be wound up.
2. overstaffing
b) Inability to find a job
3.
c) A component of the market forces which when it prevails
unemployment
makes prices of goods rise.
10
4. supply
5. demand
6. ownership
7. bankruptcy
IV. Fill in the gaps with the words from the list at the end of the text:
A market economy is based on private ...(1) in contrast to planned economy
where ...(2) ownership prevails. In a free market economy efficiency is the key word,
while on the other hand planned economy most likely leads to ...(3). In a free
market economy inefficient businesses go ...(4), whereas in a planned economy
businesses are ... (5), thus allowing them to survive in spite of their non-satisfactory
economic performance. This enables the latter type of economy to resort to ...(6),
that is employing more personnel than actually required. Market economy leads to
high ... (7) of goods and services, while on the other hand planned economy will not
focus on offering high quality goods and services to ... (8). This is due to the fact
that in the latter type of economy there is actually no ... (9), as there are ...(10)
monopolies and therefore the options of customers are severely restricted. On the
other hand in a market economy companies freely ...(11) for a larger ...(12) share,
and are thus forced to be efficient and ...(13) staff according to real necessities
and ... (14) their resources with utmost care.
Bankrupt; compete; competition; customers; inefficiency; manage; state;
overstaffing; ownership; quality; market; employ; government; subsidized.
V. On the basis of the above text complete the table giving the
characteristic features of 2 types of economic systems, the first one has
already been done for you:
Market economy
- private ownership
-
Planned economy
- state ownership
-
English equivalents
to influence
a unit for measuring grain,
fruit
change
a general rise in the prices
of goods and services
not using the name of the
company that made it
the name given to a product
by
the
company
that
produces it
the name of a famous
pharmaceutical company
guarantee
Romanian
Russian
recesiune, criz
scrutiny (n)
precauiune,
pruden
cercetare,
verificare
meticuloas
loan (n)
mprumut, credit
;
,
to follow suit
wariness (n)
to follow an example
WORD STUDY
to rise, to raise, to arise
12
of
The verb to rise (rose, risen) is used without object. It means to move from a
lower to a higher position:
E.g. She rose from the chair.
Gas rose in price.
Unemployment is rising.
The verb to raise must have an object and it means to lift sth to a higher
position or to increase it:
E.g. She raised her eyes from her work.
Government has raised taxes.
to raise money = to collect money
The verb to arise (arose, arisen) means to happen, to occur, to start to
exist.
E.g. A new crisis has arisen.
Now complete the following sentences with the 3 studied verbs. Use
them in the appropriate tenses.
1. Our supplier ___________ the price of electric equipment.
2. If any misunderstandings ___________ Ill let you know.
3. The prices of raw materials ________________ recently.
4. The management of the company decided _______________ the salaries.
5. It will be necessary ____________ money if we want to extend the business.
6. We keep them informed of any changes as they ______________ .
7. This book _____________ many important questions.
8. Several new industries _____________ in the town.
9. Those who agree are asked ___________ a hand.
10.
Profits _____________ last year by 25%.
The supply of a particular product is the quantity of the product that producers
are willing to sell at each of various prices. Supply is thus a relationship between
prices and the quantities offered by producers, who are usually rational people, so
we would expect them to offer more of a product for sale at higher prices and to
offer less of the product at lower prices.
The demand for a particular product is the quantity that buyers are willing to
purchase at each of various prices. Demand is thus a relationship between prices
and the quantities purchased by buyers, who are rational people too, so we would
expect them to buy more of a product when its price is low and to buy less of the
product when its price is high. This is exactly what happens when the price of fresh
strawberries rises dramatically. People buy other fruit or do without and reduce their
purchases of strawberries. They begin to buy more strawberries only when prices
drop.
Forms of Competition
A free-market system implies competition among sellers of products and
resources. Economists recognize four different degrees of competition, ranging from
ideal competition to no competition at all. These are pure competition, monopolistic
competition, oligopoly, and monopoly.
Pure (or perfect) competition is the complete form of competition. It is the
market situation in which there are many buyers and sellers of a product, and no
single buyer or seller is powerful enough to affect the price of that product. The
above definition includes several important ideas:
13
recession
packaging
warranty
to retain
supplier
8. leeway
9. scrutiny
10 delivery
a) the act of taking goods to the people who have ordered them
b) the amount of freedom you have in order to do sth in the way
you want to
c) to continue to have sth
d) to vary from one thing to another
e) a person or company that provides goods or services
f) having a helpful or useful effect
g) a written agreement in which a company selling sth promises to
repair or replace it if there is a problem with it within a particular
period of time
h) a difficult time for the economy of a country when there is less
trade and more people are unemployed.
i) materials used to wrap goods that are sold in shops
j) careful and thorough examination
4
5
6
7
8
is over $1billion a year. By first chasing and then surpassing jelly giants Kraft, Inc.
and Welchs, Smuckers now has a 37 percent share of the total jam and jelly
market and is the leading manufacturer in the industry.
The J.M.Smucker Company, based in Orrville, Ohio, is a family-run operation. In
1897 Jerome Monroe Smucker decided to bring in extra income by making apple
cider and apple butter from old family recipes. On the same property where todays
modern factory now stands, Jerome carefully monitored the quality of his products,
personally signing the paper tied over each container of apple butter. Now, at all of
Smuckers ten plants around the country, a devotion to quality remains a key
element of Smuckers business.
Soon after Jerome began his business, other members of the Smucker family
became involved. They took most of their earnings and poured them back into the
company. In 1969 the Smucker family decided to take their company public. They
retained 30% of the stock, selling 25% to institutions and pension funds and the
rest to individual investors.
Paul Smucker (the chief executive and grandson of the founder) and his sons
are not taking their number-one position in the jam and jelly market for granted.
They know they must fend off foreign jam companies, as well as variety of domestic
competitors. Smuckers must also respond to the new waves of health awareness
and calorie consciousness in the USA, as well as changes in consumers tastes.
Part of the Smuckers strategy for keeping on top is the introduction of new
products. Recently, Smuckers has had a number of successful new entries into the
market. Simply Fruit, a fruit with no preservatives or artificial flavours and no
extra sugar added, has been well received. Smuckers is also happy with the sales
of its Fresh Pack Strawberry Preserves, available for only a few weeks each year.
The Smuckers pride themselves on innovations of all kinds. Smuckers, sensing
the coming of a trend, was the first company in the jam amd jelly industry to print
nutritional information on individual product label. It was the first company to use
re-sealable lids on its jars. Smucker even has a special invention group that gets
together to discuss ideas. All ideas, no matter how outrageous, are encouraged. All
negative comments in these meetings are prohibited.
Quality, integrity, and customer relations make up the foundation of Smuckers
company philosophy. Quality comes first, earnings and sales growth come after.
Paul Smucker personally writes thank-you notes to all new shareholders. He also
suggests that they tell a friend to try Smuckers products.
Smuckers refuses to purchase advertising time during any television show that
contains violence or sex scenes. It wants to mantain its wholesome, old-fashioned
image. Smuckers also pays for full-time federal government inspectors to monitor
the entire jam and jelly manufacturing process. Because of this, Smuckers is the
only company to carry the Agricultural Departments top U.S. Grade A designation
on all its products.
COMMENTARY:
Preserve (n) = a type of jam made by boilig fruit with a large amount of
sugar
To chase = to catch up with sb
To surpass = to become better than sb else
Apple cider = a drink made from the juice of apples that does not contain
alcohol
Plant = factory
Earnings = the profit the company makes
To pour sth into sth = to provide a large amount of money for sth
To take the company public = to start selling shares of the company on
the stock exchange
17
18
Learning objectives:
1. Define the three most common forms of business ownership:
sole proprietorship, partnership, and corporation
2.
Be aware of the advantages and disadvantages of sole
proprietorships
3.
Grasp the unlimited liability concept
4.
Analyze how the sole proprietorships function both in the USA
and in the Republic of Moldova
Study and Learn the Words:
English
English equivalents
sole proprietorship
partnership (n)
corporation (n)
instance (n)
catering services
magazin de
electrocasnice
impozit pe venit
income tax
to get ones hands
on sth
a constitui, a
reprezenta, a se
cifra la
a small shop that sells food
and other things, esp. the one
situated near peoples houses
the work of providing food and
drinks for meetings or social
events
appliance store
to seek sth
Russian
to account for
(ph.v)
corner grocery
Romanian
ntreprindere
individual
parteneriat,
asociere
societate pe
aciuni
unlimited liability
rspundere
nelimitat
assets (n)
active, avere
to seize
continuity (n)
mortgage loan
to be incapacitated
on occasion
janitor (n)
expertise (n)
to quit
19
continuitate,
succesiune
credit ipotecar
cunotine,
ndemnare
The three most commmon forms of business ownership in the United States are
the sole proprietorship, partnership, and corporation. In terms of ownership,
corporations are generally the most complex, and sole proprietorships are the
simplest. In terms of organization, however, all three usually start small and simple.
Some, like IBM, grow and grow.
to take advantage of a lower price, whereas such a switch could take weeks in a
more complex business.
Possible Tax Advantages The sole proprietorship's profits are taxed as
personal income of the owner. Thus a sole proprietorship does not pay the special
state and federal income taxes that corporations pay. (As you will see later, the
result of these special taxes is that a corporation's profits are taxed twice. A sole
proprietorship's profits are taxed only once.) Also, recent changes in federal tax
laws have resulted in higher tax rates for corporations than for individuals at certain
income levels.
Secrecy Sole proprietors are not required by federal or state governments to
publicly reveal their business plans, profits, or other vital facts. Therefore, competitors
cannot get their hands on this information. Of course, sole proprietorships must report
certain financial information on their personal tax forms, but that information is kept
secret by taxing authorities.
Disadvantages of Sole Proprietorships
Unlimited Liability Unlimited liability is a legal concept that holds a sole
proprietor personally responsible for all the debts of his or her business. This means
there is no legal difference between the debts of the business and the debts of the
proprietor. If the business fails, the owner's personal propertyincluding house,
savings, and other assetscan be seized (and sold if necessary) to pay creditors.
Unlimited liability is thus the other side of the owner-keeps-the-profits coin. It is
perhaps the major factor that tends to discourage would-be entrepreneurs from
using this form of business organization.
Lack of Continuity Legally, the sole proprietor is the business. If the owner
dies or is declared legally incompetent, the business essentially ceases to exist. In
many cases, however, the owner's heirs take over the business and continue to
operate it, especially if it is a profitable enterprise.
Limited Ability to Borrow Banks and other lenders are usually unwilling to
lend large sums to sole proprietorships. Only one personthe sole proprietorcan
be held responsible for repaying such loans, and the assets of most sole proprietors
are fairly limited. Moreover, these assets may already have been used as the basis
for personal borrowing (a mortgage loan or car loan) or for short-term credit from
suppliers. Lenders also worry about the lack of continuity of sole proprietorships:
Who will repay a loan if the sole proprietor is incapacitated?
The limited ability to borrow can keep a sole proprietorship from growing. It is
the main reason why many business owners change from the sole proprietorship to
some other ownership form when they need relatively large amounts of capital.
Limited Business Skills and Knowledge Managers perform a variety of
functions (including planning, organizing, and controlling) in such areas as finance,
marketing, human resources management, and operations. Often the sole
proprietor is also the sole managerin addition to being a salesperson, buyer,
accountant, and, on occasion, janitor.
Even the most experienced business owner is unlikely to have expertise in all
these areas. Consequently, the business can suffer in the areas in which the owner
is less knowledgeable, unless he or she obtains the necessary expertise by hiring
assistants or consultants.
Lack of Opportunity for Employees The sole proprietor may find it hard to
attract and keep competent help. Potential employees may feel that there is no
room for advancement in a firm whose owner assumes all managerial
responsibilities. And when those who are hired are ready to take on added
responsibility, they may find that the only way to do so is to quit the sole
proprietorship and either work for a larger firm or start up their own business.
21
I. VOCABULARY PRACTICE
A) Find in the text the words that are synonyms of:
1 very small
6. to lure
2 lawyer
7. to change from sth to sth
3 proprietor
8. to stop
4 promotion
9. very important, essential
5 stimulus
10. responsibility
B) Match the words on the left with their definitions on the right:
1. contract
2. license
3.
4.
5.
6.
7.
8.
tax on sth
start-up fee
flexibility
business hours
dissolution
heir
9. assistant
10. savings
11. loan
12. earnings
C) Find in the text the English equivalents for the following phrases of
words:
1 atelierul pentru reparaia televizoarelor/
2 a lua decizii/
3 a cere aprobarea managerului/
4 a achita un mprumut/
5 a reaciona la schimbrile n condiiile de pia/
6 viitor antreprenor/
7 un credit pe termen scurt/
8 magazin de electrocasnice/
9 a se folosi de informaia/
10 a-i asuma rspunderea adugtoare /
II. COMPREHENSION
A) What do these numbers in the text refer to?
3; 1; 2/3; 12; 2; 5.
B) Choose the item that best completes each sentence:
1 Most United States businesses are
a corporations
b partnerships
c sole proprietorships
2 Unlimited liability means that the owner
a has unlimited ability to borrow
b must be liable for his/her company debts
c cannot be held responsible for his/her company debts
22
2 Partnerships
Learning objectives:
1 Define the word partnership
2 Know different types of partners within a partnership and
distinguish between a general and a limited partner
3 Comprehend the importance of the articles of partnership
4 Be aware of the advantages and disadvantages of a partnership
Study and Learn the Words:
English
to translate
English equivalents
to change sth into a
different form
receipt (n)
to pool
Romanian
real estate
intrare, venit
a uni, a pune n
comun
avere imobiliar
personal estate
avere mobil
to incur debts
prospective partner
to file
to draw up
Secretary of State
a face datorii
to maintain accounts
to extend credit
concerned (adj)
franchise (n)
deceased partner
would-be partner
a depune, a prezenta
a ntocmi
Secretar de stat
Russian
condiiile
parteneriatului
a face o list
to explain sth in a
clear way
a ine contabilitatea
preocupat, interesat
,
a
to lend money
a formal permission
given by the
government to sb
who wants to operate
a business
dead partner
The Uniform Partnership Act, which has been adopted by many states, defines
a partnership as an association of two or more persons to act as coowners of a business for profit.
There are approximately 2 million partnerships in the United States. They
account for about $370 billion in receipts. However, this form of ownership is much
less common than the sole proprietorship or the corporation. In fact, partnerships
represent only about 10 percent of all American businesses.
Although there is no legal maximum, most partnerships have only two
partners. (However, most of the largest partnerships in accounting, law, and
advertising have many more than two partners.) Often a partnership represents a
pooling of special talents, particularly in such fields as law, accounting, advertising,
real estate, and retailing. Also, a partnership may result from a sole proprietor
taking on a partner for the purpose of obtaining more capital.
Types of Partners
All partners need not be equal. Some may be fully active in running the
business, whereas others may have a much more limited role.
General Partners A general partner is one who assumes full or shared
operational responsibility of a business. Like sole proprietors, general partners are
responsible for operating the business. They also assume unlimited liability for its
debts, including debts that have been incurred by any other general partner without
their knowledge or consent. The Uniform Partnership Act requires that every
partnership have at least one general partner. This is to ensure that the liabilities of
the business are legally assumed by at least one person. General partners are
active in day-to-day business operations, and each partner can enter into contracts
on behalf of all the others. Each partner is taxed on his or her share of the profitin
the same way a sole proprietor is taxed. (The partnership itself pays no income
tax.) If one general partner withdraws from the partnership, he or she must give
notice to creditors, customers, and suppliers to avoid future liability.
Limited Partners A limited partner is a person who contributes capital to a
business but is not active in managing it; his or her liability is limited to the amount
that he or she has invested. In return for their investment, limited partners share in
the profits of the firm.
Not all states allow limited partnerships. In those that do, the prospective
partners must file formal articles of partnership. They must publish a notice
regarding the limitation in at least one newspaper. And they must ensure that at
least one partner is a general partner. The goal of these requirements is to protect
the customers and creditors of the limited partnership. Partners can also be
nominal, ostensible, active, secret, dormant, or silent. What type of partner
individuals choose to be depends a great deal on how much involvement they want
in a particular business or what special abilities they bring to a firm. The six
different types of partners have the following characteristics:
1 Nominal partner: not a party to the partnership agreement or a true
partner in any sense; by adding his or her name to the partnership,
becomes liable as if he or she were a partner if persons have given credit
to the firm because of such representation
2.
Ostensible partner: active and known to the public as a partner
3.
Active partner: active in management but may or may not be known to
the public
4.
Secret partner: active, but not known to the public as a partner
5.
Dormant partner: inactive and not known as a partner
6.
Silent partner: inactive, but may be known to the public as a partner
The Partnership Agreement
25
Some states require that partners draw up articles of partnership and file
them with the secretary of state. Articles of partnership are a written agreement
listing and explaining the terms of the partnership. Even when it is not required, an
oral or written agreement among partners is legal and can be enforced in the
courts. A written agreement is obviously preferred because it is not subject to
lapses of memory.
The articles generally describe each partner's contribution to, share of, and
duties in the business. They may outline each partner's responsibilitywho will
maintain the accounts, who will manage sales, and so forth. They may also spell out
how disputes will be settled and how one partner can buy the interests of another.
Advantages of Partnerships
Ease and Low Cost of Formation
Like sole proprietorships, partnerships
are relatively easy to form. The legal requirements are often limited to registering
the name of the business and purchasing whatever licenses are needed. It may not
even be necessary to consult an attorney, except in states that require written
articles of partnership. However, it is generally a good idea to get the advice and
assistance of an attorney when forming a partnership.
Availability of Capital and Credit
Partners can pool their funds so that
their business has more capital than would be available to a sole proprietorship.
This additional capital, coupled with the general partners' unlimited liability, can
form the basis for a good credit rating. Banks and suppliers may be more willing to
extend credit or grant sizable loans to such a partnership than to an individual
owner.
This does not mean that partnerships can easily borrow all the money they
need. Many partnerships have found it hard to get long-term financing simply
because lenders worry about enterprises that take years to earn a profit. But, in
general, partnerships have greater assets and so stand a better chance of obtaining
the loans they need.
Retention of Profits As in a sole proprietorship, all profits belong to the
owners of the partnership. The partners share directly in the financial rewards. Thus
they are highly motivated to do their best to make the firm succeed.
Personal Interest General partners are very much concerned with the
operation of the firmperhaps even more so than sole proprietors. After all, they
are responsible for the actions of all other general partners, as well as for their own.
Combined Business Skills and Knowledge Partners often have complementary skills. If one partner is weak in, say, finances, another may be stronger in
that area. Moreover, the ability to discuss important decisions with another
concerned individual often takes some of the pressure off everyone and leads to
more effective decision making.
Possible Tax Advantages Like sole proprietors, partners are taxed only on
their individual income from the business. The special taxes such as the state
franchise tax that corporations must pay are not imposed on partnerships. Also, at
certain levels of income, the new federal tax rates are lower for individuals than for
corporations.
Disadvantages of Partnerships
Unlimited Liability As we have noted, each general partner is personally
responsible for all debts of the business, whether or not that particular partner
incurred those debts. General partners thus run the risk of having to use their
26
personal assets to pay creditors. Limited partners, however, risk only their original
investment.
Lack of Continuity Partnerships are terminated in the event of the death,
withdrawal, or legally declared incompetence of any one of the general partners.
However, that partner's ownership share can be purchased by the remaining
partners. In other words, the law does not automatically provide that the business
shall continue, but the articles of partnership may do so. For example, the
partnership agreement may permit surviving partners to continue the business
after buying a deceased partner's interest from his or her estate. However, if the
partnership loses an owner whose specific skills cannot be replaced, it is not likely
to survive.
Effects of Management Disagreements The division of responsibilities
among several partners means the partners must work together as a team. They
must have great trust in each other. If partners begin to disagree about decisions,
policies, or ethics, distrust may cloud the horizon. Such a mood tends to get worse
as time passes often to the point where it is impossible to operate the business
successfully. To reduce disagreements, a number of issues can be settled when
forming the partnership.
Frozen Investment It is easy to invest money in a partnership, but it is
sometimes quite difficult to get it out. This is the case, for example, when remaining
partners are unwilling to buy the share of the business that belongs to the partner who
is leaving. To prevent such difficulties, the procedure for buying out a partner should
be included in the articles of partnership.
In some cases, a partner must find someone outside the firm to buy his or her
share. How easy or difficult it is to find an outsider depends on how successful the
business is.
I. VOCABULARY PRACTICE
A) Explain the meaning of the following phrases of words:
1. to incur debts
2. partnerships find it hard to get long-term financing
3. to stand a better chance of doing sth
4. to be highly motivated to do ones best
5. distrust may cloud the horizon
6. to have a good credit rating
7. to have complimentary skills
8. frozen investment
B) Find in the text synonymous phrases to the following:
1. to conclude a contract
2. to give big loans
3. to be reluctant to purchase sth
4. to inform lenders
5. to leave a partnership
C) In each horizontal group underline the odd word (which does not
belong to the group of synonyms):
1.
partner
sole proprietor owner
master
2.
heir
successor
legatee
legator
3.
profit
income
revenue
receipt
4.
dispute
difference
discharge
disagreement
27
5.
mortgage
6. to found
7.
responsible
8.
termination
9.
10. expertise
capital
investment
fund
to establish
liable
to form up
answerable
to put up
languorous
dissolution
cancellation
extension
ownership
explanation
property
estate
experience
competence
disjunction
II. COMPREHENSION
A) Answer the following questions:
1. What is a partnership?
2. What is the legal maximum of co-owners in a partnership?
3. What are the two main types of partners and what is the difference
between them?
4. How is each partner taxed?
5. What must the general partner do if he wants to withdraw from a
partnership?
6. What are the articles of partnership and what do they describe?
7. What are the similarities and the differences between advantages and
disadvantages of a sole proprietorship and partnership?
8. Why is it sometimes difficult to get your money out of business when you
want to withdraw from a partnership?
B) Mark the statements with TRUE or FALSE:
1. A partnership can consist only of limited partners.
2. Partnerships are the least popular form of business ownership.
3. Partnerships are taxed twice.
4. The status of a general partner is equal to the status of a limited partner.
5. A partnership can comprise no more than 4 partners.
6. The share in the profit of a partner depends on the size of his/her capital
investment.
7. The problem sharing in a partnership leads to more effective decision
making.
8. If a partnership fails, the debts are paid with the personal assets of both
general and limited partner.
C) Underline the correct variant to complete the definition:
1. This partner doesnt exist in reality, his name is added to the partnership
in order to obtain a loan from a bank (dormant, limited, nominal).
2. This partner is active and everybody knows him as a partner (active,
ostensible, general).
3. This partner is not active and risks only the original investment ( silent,
limited, secret).
III. DISCUSSION
1. If you had a chance to start a business, would you like to be a sole
proprietor or to work in a partnership?
2. When forming a partnership what kind of partner would you like to be a
general or a limited one? Give your reasons.
3. What do you think about family business when all the partners are family
members?
28
Would you form a partnership with your spouse or any other close
relative? What conflicts may arise in such a partnership?
4. To your mind, compatibility between partners is it important or not so
much?
IV. FOCUS ON LANGUAGE
The word ACCOUNT
Match the meaning of the words in bold with their definition in the
right:
1. The consulting company has won 2 new accounts in
Singapore
2. On no account should these products be released before
they are checked.
3. Labour accounts for 45% of the manufacturing costs.
4. Mrs Baker is our regular customer and she may buy on
account.
5. By all accounts, we will benefit greatly if we are going to
expand next year.
6. Agents buy and sell on their own account.
7. I cannot account for this unexpected decrease in sales.
8. Our development project has to be adjusted on account of
the shortage of personnel.
9. Our solicitor has received a detailed account of all our new
customers business deals.
10.
A good manager should take the good performance of
his employees into account.
a)
represents
b)
on credit
c) because of
d)
for themselves
e)
big customers
f) explain
g) consider
h) under no
circumstances
i) report
j) people say
V. CASE STUDY
Imagine that you have a partnership with your best friend. A serious conflict
arose between you due to his/her dishonest behaviour towards you. Right now you
dont have the money to buy his/her share of business and you dont want to sell
your share to him/her because your business is rather profitable. What would you
do in this situation?
VI. TRANSLATION
1 Asociatul meu a fcut datorii fr tirea mea i acum eu trebuie s le
achit.
.
2 nainte de a forma parteneriatul eu m-am consultat cu avocatul meu.
,
.
3 Uneori este destul de dificil s te retragi din parteneriat.
.
4 Eu i asociatul meu am hotrt s punem n comun capitaluri pentru a
primi un credit mai mare de la banc.
,
.
VII. ROLEPLAY
Work in pairs. Imagine that you are a sole proprietor and you own a restaurant.
You want to offer 30 percent partnership to your chef. Discuss with him the terms on
which you are going to start a mutually profitable business. Use the following
questions:
29
2.3. CORPORATIONS
Learning objectives:
1 Define such form of business ownership as corporation
2 Comprehend how a corporation is formed, who owns it, and who
is responsible for its operation
3 Be aware of stockholders rights
4 Recognize the basic structure of a corporation
Study and Learn the Words:
English
to derive from sth
to plague
restraint (n)
to hinder
English
equivalents
to come or develop
from sth
to create problems
restricie, limit
a mpiedica
to despose of
property
binding (adj) on sb
to issue stock
return (n)
the nation (n)
lenient (adj)
headquarters (n)
to entitle sb to sth
common stock
Romanian
a dispune de
proprietate
care angajeaz din
punct de vedere
juridic
a emite aciuni
Russian
income
the USA
ndulgent, ngduitor
sediu principal
-,
aciuni obinuite,
ordinare
30
preferred stock
claim on sth
issue (n)
proxy (n)
Board of directors
to set a goal
to develop a plan
to trade
corporate officer
aciuni privilegiate
pretenie, drept
question, matter
a person who is in
a position of
authority in a
corporation
chairman (n)
treasurer (n)
to carry out a
strategy
to report to sb
preedinte
a realiza o strategie
a fi n subordinea
cuiva
agent de schimb
(pentru aciuni)
-,
,
persoan juridic
persoan fizic
de fapt
to collect money
if not
to find new
employees for a
company
in effect
perpetual (adj)
procur
Consiliu de
administraie
a stabili un scop
a elabora un plan
a comercializa
funcionar al
corporaiei
financial manager
stockbroker (n)
to raise capital
legal person
natural person
unless
to recruit
eternal,
interminable
to gain control of a
company by buying
its shares
precedence over those of common-stock owners. Preferred stock often pays a lower
profit return than common stock dividends but that return is fixed and guaranteed.
Perhaps the most important right of owners of both common and preferred
stock is to share in the profit earned by the corporation. Other rights include being
offered additional stock in advance of a public offering (pre-emptive rights);
examining corporate records; voting on the corporate charter; and attending the
corporation's annual stockholders' meeting, where they may exercise their right to
vote.
Because common stockholders usually live all over the nation, very few
actually attend the annual meeting. Instead, they vote by proxy. A proxy is a legal
form that lists issues to be decided and requests that stockholders transfer their
voting rights to some other individual or individuals. The stockholder registers his or
her vote and transfers his or her voting rights simply by signing and returning the
form.
Organizational Meeting As the last step in forming a corporation, the original
stockholders meet to elect their first board of directors. (Later, directors will be
elected or re-elected at the corporation's annual meetings.) The board members are
directly responsible to the stockholders for the way they operate the firm.
Corporate structure
Board of Directors The board of directors is the top governing body of a
corporation, and, as we noted, directors are elected by the shareholders. A
corporation is an artificial person. Thus it can act only through its directors, who
represent the corporations owners. Board members can be chosen from within the
corporation or from outside it.
Directors who are elected from within the corporation are usually its top
managersthe president and executive vice presidents, for example. Those who
are elected from outside the corporation are generally experienced managers with
proven leadership ability and/or specific talents that the organization seems to
need. In smaller corporations, majority stockholders may also serve as board
members.
The major responsibilities of the board of directors are to set company goals
and develop general plans (or strategies) for meeting those goals. They are also
responsible for the overall operation of the firm.
Corporate Officers A corporate officer is appointed by the board of
directors. The chairman of the board, president, executive vice presidents, and
corporate secretary and treasurer are all corporate officers. They help the board
make plans, carry out the strategies established by the board, and manage day-today business activities. Periodically (usually each month), they report to the board
of directors. And once each year, at an annual meeting, the directors report to the
stockholders. In theory, then, the stockholders are able to control the activities of
the entire corporation through its directors.
I. VOCABULARY PRACTICE
A) Find in the text synonyms (1-6) and antonyms (7-12) to the
following:
1. restriction
7. natural
2. to possess
8. to lend
3. aim
9. from within (the company)
33
4. power of attorney
5. to achieve a goal
6. whole (adj)
10. publicly
11. tiny (adj)
12. to forbid
d) board of directors.
To your mind, can a corporation be effectively controlled under such a
system of levels?
10 What are the primary responsibilities of a corporations board of directors?
C) Mark the statements with TRUE or FALSE:
1 The incorporators are the primary shareholders of the corporation.
2 A corporation chartered by a foreign government in the USA is called a
foreign corporation.
3 All stockholders of a corporation have the right to vote at the companys
Annual Meeting.
4 The chairman of the board is a corporate officer.
5 Most large firms in the USA are close corporations.
6 Stockholders may also serve as members of the board of directors.
7 A corporation may comprise no more than 1 million shareholders.
8 Board members are chosen only from within the corporation.
Advantages of Corporations
Learning objectives:
1. Know advantages and disadvantages of a corporation
2. Grasp the limited liability concept
Limited Liability One of the most attractive features of corporate ownership
is limited liability. Each owners financial liability is limited to the amount of money
she or he has paid for the corporations stock. This feature arises from the fact that
the corporation is itself a legal being, separate from its owners. If a corporation
should fail, creditors have a claim only on the assets of the corporation, not on the
personal assets of its owners.
Ease of Transfer of Ownership Let us say that a shareholder of a public
corporation wishes to sell his or her stock. A telephone call to a stockbroker is all
that is required to put the stock up for sale. There are usually willing buyers
available for most stocks, at the market price. Ownership is transferred
automatically when the sale is made, and practically no restrictions apply to the
sale and purchase of stock.
Ease of Raising Capital The corporation is by far the most effective form of
business ownership for raising capital. Like sole proprietorships and partnerships,
corporations can borrow from lending institutions. However, they can also sell stock
to raise additional sums of money. Individuals are more willing to invest in
corporations than in other forms of business because of the limited liability that
investors enjoy and because of the ease with which they can sell their stock.
Perpetual Life Because a corporation is essentially a legal person, it exists
independently of its owners and survives them. Unless its charter specifies
otherwise, a corporation has perpetual life. The withdrawal, death, or incompetence
of a key executive or owner is not cause for the corporation to be terminated.
Sears, Roebuck, incorporated almost a century ago, is one of the nations largest
retailing corporations, even though its original owners, Richard Sears and Alvah
Roebuck, have been dead for decades.
35
II. COMPREHENSION
Match the words with their definitions:
1. limited liability
2. lending institutions
3. stockbroker
4. unlimited liability
5. dividend
6. management
7. chairman
8. board of directors
III. Complete the table with the appropriate words describing the
pluses and minuses of the corporation status. (Figures denote the number
of words):
1.
2.
3.
4.
5.
Advantages
Limited
(1)
Unlimited
(1)
Unlimited ability
(1)
Ability to recruit
(2)
Lack of difficulty in
(2)
1.
2.
3.
4.
Disadvantages
Its profits are
Difficult and
Its activities are controlled by
Impossibility to keep its
(2)
(2)
(1)
(2)
B
of
with
for
about
from
at
to
in
on
Sole
proprietorship
38
Partnership
Corporation
4. Liability
5. Ability to borrow
6. Government control
7.
of
8.
of
IV. DISCUSSION
1. What kind of organization would you like to work for (as an employee) in
the future?
2. What do you think your first position will be?
3. Do you expect to have one immediate boss, to work for more than one
superior, or to be part of a team?
4. Would you like to work for an organization where managers and workers
are treated as equals or in a company in which there are status symbols
such as big offices and company cars for senior staff? Give your reasons.
5. In American corporations employees are offered a considerable
opportunity for promotion. What are the chances to advance in our
Moldavian corporations, say from a simple worker to a member of the
board?
6. If you were to start a business, which ownership form would you use?
What factors might affect your choice of ownership form?
V. CASE STUDY
Imagine finding yourself in the following situation: you are an executive vice
president in a corporation A, which is not very successful. Another big corporationcompetitor B wants to take over the corporation you work in. They propose you to
give away all the secret financial information and for this they promise you the
position of the chairman of the board in the new big corporation. Besides you will be
offered 3% of corporations shares. What would you do in this situation?
VI. READING
Arrange the following paragraphs into a coherent text and entitle it:
(1)
An individual like Henry Ford might want to begin a small enterprise
and personally retain total responsibility, but once it starts to grow, a
partnership or a corporation would need to be formed. The key factor in
owning any company is the guarantee called limited liability: the owners
of a company never have to pay more than they have invested in the
company. Their liabilities are limited. When a company goes bankrupt, the
owners can never be required to pay its unpaid bills.
(2)
39
(3)
(4)
(5)
40
Learning objectives:
1. Define the money concept
2. Enumerate the demands for money
3. Know the functions and important characteristics of money
Study and Learn the Words:
English
to trade sth for sth
English
equivalents
to exchange sth that
you have for sth that
sb else has
to go on the spree
a petrece, a avea
chef
cu condiia c
articole de prim
necesitate
banii-marf
valuta, moned
surs, putere de
via
cas, adpost
transacie, afacere
pentru zile negre
cont bancar
prevedere, precauie
provided that
necessities (n)
commodity money
currency (n)
lifeblood (n)
shelter (n)
transaction (n)
for a rainy day
bank account
precaution (n)
demand (n)
yardstick (n)
to assign value to
sth
in terms of money
yard
pound (abbr. lb)
to hold on to sth
savings account
to accommodate
purchases
odd amounts
even amounts
denomination (n)
multiples
handled (adj)
necesitate, trebuin
Russian
,
,
standard, criterion
to price sth
exprimai n bani
unit for measuring
length, equal to
0,9144 of a meter
unit for measuring
weight, equal to a
0,454 of a kilogram
to keep sth
iard
livr
cont de economii
sume impare
sume cu so
valoare
multiplu
folosit, uzat
()
to make purchases
to counterfeit
to be uneasy about
sth
genuine (adj)
Romanian
a falsifica, a
contraface
to be unsure about
sth
authentic, real, not a
41
copy
The word money is uncountable and is used with the verb in singular:
E.g. How much money is there in my account?
Idioms with Money: match the meaning of the words in bold with their
definition in the right.
1. For my money, he is one of the best financiers in our company.
2. People in our Republic pay good money to visit Paris.
3. His prediction was right on the money.
4. He will win the competition for the contract, Id put money on it.
5. There is no such thing that he cant afford, because he is made of
money.
a) very rich
b) accurate
c) in my opinion
d) Im sure about it
e) a lot of money
Money has been called "the root of all evil." It has also been described as the
"lifeblood of commerce." But however you may look upon it, money remains in
great demand. Many economists give three main reasons, or demands, for money:
1. The need for money for payment of wages, rents, debts, and the costs of
food, clothing, and shelter. This type of need is called a transaction
demand. The money is needed for transactions of daily life.
The
transaction demand is the strongest among lower income people. They
need almost all their money for the necessities of life. People with higher
incomes can set aside part of their income for investments and savings.
2. The need for money for expenses that may arise in the future. The money
is set aside for a rainy day, usually in a bank account; it is not usually
invested in long-term or risky projects since the money must be at hand
when needed. The demand for this rainy day money is called a
precautionary demand. It is held as a precaution in the event of future
needs.
3. The need for money for investment purposes. People may want to invest
money in business, land, buildings, or antiques. These investments are
risky. But people who invest in them are using their money to earn money.
The demand for this money is called investments demand. There is
always a chance of losing money in such investments. When the demand
for money is for very risky projects, it is called a speculative demand.
The Functions of Money
We have already noted that money aids in the exchange of goods and services
for resources. And it does. But thats a rather general way of stating moneys
function. Let us look at three specific functions of money in any society:
1. Money Serves as a Medium of Exchange A medium of exchange is
anything that is accepted as payment for products and resources. This
definition looks very much like the definition of money. And it is meant to,
because the primary function of money is to serve as a medium of
exchange. The key word here is accepted. As long as the owners of
products and resources accept money in an exchange, it is performing this
function. Of course, these owners accept it because they know it is
acceptable to the owners of other products and resources, which they may
wish to purchase. For example, the family in our earlier example can sell
their vegetables and use the money to purchase cloth from the weavers.
This eliminates the problems associated with the barter system.
2. Money Serves as a Measure of Value A measure of value is a single
standard or yardstick that is used to assign values to, and compare the
values of, products and resources. Money serves as a measure of value
because the prices of all products and resources are stated in terms of
money. It is thus the common denominator that we use to compare
products and decide which we shall buy. Imagine the difficulty you would
have in deciding whether you could afford, say, a pair of shoes if it were
priced in terms of yards of cloth or pounds of vegetablesespecially if
your employer happened to pay you in toothbrushes.
3. Money Represents a Store of Value
Money that is received by an
individual or firm need not be used immediately. It may be held and spent
43
3. necessity=
4. to help=
5. outright (adv)=
8. to forge=
9. difficult=
10. banknote=
3. the necessity to save money for a time when you will really need it
_________
4. anything that is accepted as payment for products and resources
__________
5. the quality of being steady and not changing in any way _________________
6. a means for retaining and accumulating wealth _______________________
III. DISCUSSION
1. What role does money play in your life?
For instance, you have been offered 2 jobs:
I) a part-time, attractive, low-paid job
II) a full-time, dirty (from the ethical point of view), rather well-paid job
What would you choose and why?
2. If you possessed a large amount of money, what would the advantages
and disadvantages of the following be?
visiting a casino
depositing it in a bank
buying gold
46
English
equivalents
Romanian
Russian
money supply
demand deposit
ofert monetar
deposit la vedere
checking account
on demand
to withdraw money
from an account
automated teller
machine (ATM)
time deposit
near-monies
securities (n)
government bonds
cont curent
la cerere
a retrage bani de pe
cont
bancomat
cash dispenser
deposit la termen
aproape bani
hrtii de valoare
obligaiuni de stat
surrender value
measure (M)
interest-bearing (adj)
,
,
which brings
interest
How much money is there in the United States? Before we can answer that
question, we need to redefine a couple of concepts:
A demand deposit is an amount that is on deposit in a checking account. It is
called a demand deposit because it can be claimed immediatelyon demandby
presenting a properly made-out check, withdrawing cash from an automated teller
machine, or by transferring money between accounts.
A time deposit is an amount that is on deposit in an interest-bearing savings
account. Savings institutions generally permit immediate withdrawal of money from
savings accounts. However, they can require written notice prior to withdrawal. The
time between notice and withdrawal is what leads to the name time deposits.
Time deposits are not immediately available to their owners, but they can be
converted to cash easily. For this reason, they are called near-monies. Other near 47
monies include short-term government securities, government bonds, and the cash
surrender values of insurance policies.
Money Supply is the total amount of money that exists in the economy of a
country at a particular time.
The M1 supply of money consists only of currency and demand deposits. (It
is thus based on a narrow definition of money.) By law, currency must be accepted
as payment for products and resources. Checks are accepted as payment because
they are convenient, convertible to cash, and generally safe.
The M2 supply of money consists of M1 (currency and demand deposits) plus
certain specific securities and small-denomination time deposits. Another common
definition of money M3 consists of M1 and M2 plus large time deposits of
$100,000 or more. The definitions of money that include the M 2 and M3 supplies are
based on the assumption that time deposits are easily converted to cash for
spending.
So, there are at least three measures of the supply of money. (Actually, there
are other measures as well, which may be broader or narrower than M1, M2, and
M3.) So the answer to our original question is that the amount of money in the
United States depends very much on how we measure it.
I. COMPREHENSION
A) Mark the statements with TRUE or FALSE:
1. The amount of money that exists in the economy of a country depends on
how the money is measured.
2. A time deposit is an amount that is on deposit in a checking account.
3. Demand deposit is money that you have on your credit card.
4. Time deposits are also called near-monies because they can be easily
converted into cash.
5. There are only 3 measures of the supply of money.
6. The interest on money in a checking account is lower than the interest on
money in a savings account.
B) Complete the following formulae:
M1 =
M2 =
M3 =
II
PERSONAL FINANCE: Employees may receive the money they have earned
as weekly wages in cash (if they are blue-collars), or as monthly salary in a
current account (if they are professionals). In the latter case, the current account
(U.S. checking account) is where they pay in their earnings and from where they
withdraw money to pay their everyday bills. Holders can withdraw their money
with no restrictions, but they receive little interest. The bank sends them a bank
statement telling them how much money is in their account. They can also give an
instruction to the bank to pay fixed sums of money to certain people at stated times
by a standing order. Generally, people avoid having an overdraft because in the
end they will pay a lot of interest.
48
People may also save up money. They open a savings account where they
deposit any extra money that they have and only take it out when they intend to
spend it on something special. When they invest money in a deposit account (U.S.
time or notice account), the customers receive a high rate of interest but
withdrawals require 90 days notice. If they want to buy their own house, which is a
big investment, they may take a bank loan for which they must leave a pledge. If
the bank grants them this loan, they have a mortgage.
When you purchase in a shop, you may pay in cash or by credit card. In
some shops it is possible not to pay outright, but on credit. If you buy in bulk
you may be offered a discount. With such goods as cars, refrigerators or furniture,
you may pay the full amount or you may pay in installments.
PUBLIC FINANCE: People, the disadvantaged ones in particular, may receive
some money from the government as well, as a form of social security. For
instance, the government pays out pensions, unemployment benefits,
disability allowances, child allowance, and grants and scholarships to help
students pay for studying.
In order to be able to redistribute some money, the government has to form
the budget first and cover its expenses according to its fiscal policy. The
government levies the money it needs from citizens through various taxes.
Income tax is the tax collected on individuals wages and salaries. Inheritance
tax is levied on what people inherit from others as a legacy.
III. Which words in the text given in bold are defined below? Give their
translation:
1. money which is in the form of coins and banknotes _________________
2. an amount of money you receive weekly in return for labour
_______________
3. extra percentage paid on a loan _______________________
4. a fixed amount which is paid monthly to workers of higher rank
_____________________
5. the amount of money borrowed from a bank greater than that which is in
your account _________________________
6. loan to purchase property, used as security for this loan
______________________
7. a piece of paper that shows how much you owe sb for goods and services
_____________
8. a guarantee for a loan ____________________________________________
9. an account with a higher rate of interest but requiring notification in
advance for withdrawing the funds ________________________
10.
an account with low interest but with no restrictions for withdrawal
________________
11.
money paid by the state to a person when he/she retires
_____________________
12.
money given for education ______________________
13.
money paid to people that are made redundant ______________________
14.
money paid to people with a handicap ________________________
15.
money
received
from
someone
in
his/her
will
___________________________
49
IV. Find in the text from exercise II the English equivalents for the
following:
1. extras de cont/ ;
2. dispoziie de plat/ ;
3. suma tras din cont fr acoperire/ ;
4. a plti n numerar/ ;
5. a plti n rate/ ;
6. a vinde pe credit/ ;
7. a plti pe loc/ ;
8. a cumpra n vrac/ .
V. Group the following words under the headings:
Salary, bill, mortgage, debt, tax, fare, fine, bonus, fee, dividend, instalment,
legacy, rent, premium, subsidy, deposit, royalties
.
MONEY TO RECEIVE
MONEY TO PAY
VI. Fill in the blanks with some of the words from the left column:
1. All the workers in our firm get a Christmas _____________ of $200.
2. Farmers are waiting for the new _________________ to help them grow
cereals.
3. As her book was a best-seller, she got substancial ______________________.
4. After their uncles death they each received a _______________ of $25000.
5. The _________________ the shareholders received were quite significant
since their company fared well last year.
VII. Fill in the blanks with some words from the right column:
1. He paid a high ______________ for his insurance policy against the loss of
his voice.
2. We made a ______________ of 25% to be sure that the shop will not sell the
furniture we liked so much.
3. How much is the ______________ from the airport to the Hilton Hotel?
4. You have to pay a ______________ for breaking the speed limit.
5. I bought a fridge, which I have to pay back in six monthly ________________
of $100 each.
VIII. WORD STUDY
The word cash is uncountable: How much cash do you have on you?
Choose the correct definition for the following vocabulary items that are formed
with the word cash.
1. cash flow is
a) the conversion rate between currencies;
b) money which is immediately available;
c) movement of money into and out of business.
2. petty cash is
a) small denomination coins;
50
3.
4.
5.
6.
7.
8.
51
3.3.
English
Federal Reserve
System
to render
services
financially sound
(adj)
input (n)
output (n)
to charge
interest
comptroller (n)
to outnumber
Savings and Loan
association (S&L)
to become
effective
to stand for
conservative
investments
English equivalents
Romanian
sistemul bncilor
federale de rezerve
Russian
a cere procente
a depi numeric
to offer services
reliable from the financial
point of view
sth that you put into work
to make it succeed
the result of the
performed work
controller
asociaia de economii
i mprumut
a intra n vigoare
a nsemna
investiii moderate
In the USA, in every locality no matter how small it is, there is a church and a
bank. Americans who are considered to be rather religious persons go to church to
maintain and accumulate their spiritual wealth. And they go to the bank to keep
and accumulate their material wealth.
The modern banking system includes three groups of financial institutions:
the central bank;
commercial banks;
other specialized financial institutions that include both banking and
non-banking organizations.
The central bank, which depending on the country may be called the State
Bank or the National bank (as in our country), bears the name of the Federal
Reserve System in the USA. As a rule, this is a government institution and in a way
it is the bank for all the other banks in a country. It controls the monetary policy of a
state and it is responsible for the national currency stability.
The name commercial appeared in the XVIIth century when banks generally
served the commerce. The first banks were founded in the Italian republics, then in
Amsterdam and London. They appeared as simple merchants that traded money.
Nowadays the banks have a universal character. Very often they are called financial
department stores rendering services to the industrial, agricultural, commercial
and other enterprises.
The Federal Reserve System (or simply "the Fed") is the government agency
responsible for regulating the United States banking industry. It was created by
Congress on December 23, 1913. Its mission is to maintain an economically healthy
and financially sound business environment in which banks can operate. The
52
10.
56
English equivalents
a list of people employed by
a company showing the
amount of money to be paid
to each of them
balance (n)
savings passbook
to shop for a loan
collateral (n)
credit card
debit card
cash card
teller (n)
spread (n)
Romanian
mulime
stat de plat
Russian
sold
carnet de
depuneri
cauiune,
garanie, gaj
cartea de credit
cartea de debit
casier de banc
( )
If it seems to you that banks and other financial institutions are competing for
your business, you're right. That is exactly what is happening. Never before have so
many different financial institutions offered such a tempting array of services to
attract customers. The financial services provided by the banking industry are the
following:
1 Demand deposits
2 Time deposits
3 Loans
4 Electronic transfer of funds
5 Financial advice
6 Trust services
7 Certified checks
8 Safe-deposit boxes
The three most important banking services are accepting deposits, making
loans, and providing electronic funds transfers.
The Deposit Side of Banking Firms and individuals deposit money in
checking accounts (demand deposits) so that they can write checks to pay for
purchases. A check is a written order for a bank or other financial institution to pay
a stated dollar amount to the business or person indicated on the face of the check.
Today, most goods and services are paid for by check. Most financial institutions
charge an activity fee (or service charge) for checking accounts. It is generally
somewhere between $5 and $10 per month for individuals. For businesses, monthly
57
charges are based on the average daily balance in the checking account and on the
number of checks written.
Savings accounts (time deposits) provide a safe place to store money and a
very conservative means of investing. The usual passbook savings account earns
about 5.5 percent in commercial banks and S&Ls, and slightly more in credit unions.
Depositors can usually withdraw money from passbook accounts whenever they
wish to.
A depositor who is willing to leave money with a bank for a set period of time
can earn a higher rate of interest. To do so, the depositor buys a certificate of
deposit (CD). A certificate of deposit is a document stating that the bank will pay
the depositor a guaranteed interest rate for money left on deposit for a specified
period of time. The interest rate paid on CD depends on how much is invested and
for how long. Depositors are penalized for early withdrawal of funds invested in
CDs.
The Lending Side of Banking Commercial banks, savings and loan associations, credit unions, and other financial institutions provide short- and long-term
loans to both individuals and businesses. Short-term loans are those that are to be
repaid within one year. For businesses, short-term loans are generally used to
provide working capital that will be repaid with sales revenues.
Long-term business loans have a longer repayment periodgenerally three to
seven years but sometimes as long as fifteen years. They are most often used to
finance the growth of a firm or its product mix.
Most lenders prefer some type of collateral for both business and personal
long-term loans. Collateral is real or personal property (stocks, bonds, land,
equipment, or any other asset of value) that the firm or individual owns and that is
pledged as security for a loan. For example, when an individual obtains a loan to
pay for a new automobile, the automobile is the collateral for the loan. If the
borrower fails to repay the loan according to the terms specified in the loan
agreement, the lender can repossess the collateral pledged as security for that
loan.
Repayment terms and interest rates for both short- and long-term loans are
arranged between the lender and the borrower. For businesses, repayment terms
may include monthly, quarterly, semiannual, or annual payments. Repayment
terms (and interest rates) for personal loans vary, depending on how the money will
be used and what type of collateral, if any, is pledged. Borrowers should always
"shop" for a loan, comparing the repayment terms and interest rates offered by
competing financial institutions.
Electronic Transfer of Funds
The newest service provided by financial
institutions is electronic banking. An electronic funds transfer (EFT) system is a
means for performing financial transactions through a computer terminal. Present EFT
systems can be used in several ways:
1. Automated teller machines (ATMs): An ATM is an electronic bank tellera
machine that provides almost any service a human teller can provide.
Once the customer is properly identified, the machine can dispense cash
from the customer's checking or savings account or can make a cash
advance charged to a credit card. Most ATMs can also accept deposits and
provide information about current account balances. ATMs are located in
bank parking lots, supermarkets, drugstores, and even filling stations.
Customers have access to them at all times of the day or night.
2. Point-of-sale (POS) terminals: A POS terminal is a computerized cash
register that is located in a retail store and connected to a bank's
computer. Here's how it works. You select your merchandise. At the cash
register, you pull your debit card through a magnetic card reader and
enter your four-to-seven-digit personal identification number (PIN code).
58
II. COMPREHENSION
A) Give answers to the following questions:
1. What are the 3 most important banking services?
2. What is a check? Do we have something like this in our country?
3. What is a cerificate of deposit? What does the interest rate paid on CD
depend on?
4. What kinds of loans are provided by the financial institutions? What is the
difference between these loans?
5. What is a collateral?
6. How are the repayment terms and interest rates for loans arranged?
59
Banking
services
1. trust services
2. safe-deposit boxes
3. financial advice
4. demand deposit
5. loans
6. payroll service
Definitions
a) a company pays salaries to its employees through the bank
that transfers peoples money on their ATM cards.
b) the bank gives you money to use for different purposes, on
which you pay interest.
c) an arrangement by which a bank has legal control of money or
property that has been given to a person until he/she reaches
a particular age.
d) the bank keeps your valuables, securities or important
documents in its vault.
e) the bank keeps your money, pays you a little interest on it,
and you can withdraw this money whenever you need it.
f) bank managers consult you about different issues connected
with investing money, concluding financial transactions and
others.
1. If
I
want
to
save
up
my
money,
I
can ..................................................................
2. The
best
way
to
invest
money ...........................................................................
3. I
can
borrow
money
from.....................................................................................
4. I
cant
afford
to...............................................................................................
5. I
like
to
spend
my
money
on ..............................................................................
VI. Join correctly the words in column A with the words in column B:
A
B
1. commercial
a) firm
2. certificate
b) deposit
3. demand
c) advice
4. cash
d) bank
5. credit
e) card
6. brokerage
f) rate
7. financial
g) of deposit
8. bank
h) register
9. interest
i) union
10.debit
j) loan
VII. INDIVIDUAL WORK
Use the additional sources on banking system in the Republic of
Moldova to answer the following questions:
1. What do you know about the National Bank of Moldova?
2. What commercial banks are there in our country? What services do they
offer to their clients?
3. Is banking a profitable activity in our country? What proves it?
4. Are banks important to the economy of a country or people can do without
them?
VIII. FOCUS ON LANGUAGE
Make and do collocations
Make is used for constructive and creative actions.
Do is used with unspecified actions and to talk about work.
A) Group the following words under the headings do or make:
Business, suggestions, progress, a job, mistakes, the accounts, a duty, the
typing, an appointment, efforts, damage, a service, a complaint, trade, an apology,
a trip, a profit, research, a loss, a decision, favour, shopping, a speech, a choice, a
test, money, a report, friends/enemies, an investment, harm, good, right/wrong,
ones best, exercises, a promise, a good impression, an experiment, a will.
B) Complete the sentences using one of the expressions in Exercise A
in the correct form:
1. He __________________________ by introducing the new rules to see how
employees are going to follow them.
2. She decided to ____________________________ in cherity projects.
3. The customer ___________________________ to the hotel manager about the
bad service.
61
62
Work in pairs. Imagine that your partner is a bank manager and you
are a client who wants to take a personal long-term loan. Make up a
dialogue using the studied vocabulary.
XII. Match the words with their definitions:
1. deposit
2. credit union
3.
4.
5.
6.
S&L
NOW account
certificate of deposit
check
7. interest
8. POS terminal
9. collateral
10. spread
XIII. Fill in the gaps with the words given at the end of the text:
Banks fall mainly into two categories: ... (1) and wholesale banks. Retail
banking refers to banks which offer services to ... (2) customers, while wholesale
banks deal mainly with corporations.
The most obvious type of retail bank is the commercial bank. Commercial
banks receive money on deposit, pay money according to customers ... (3),
negotiate loans, buy and sell foreign exchange. They make a ... (4) from the ... (5),
i.e. the difference between the interest rate paid to account holders and the interest
rate charged to borrowers.
There are different types of accounts opened with comercial banks. ... (6)
accounts have no restrictions as concerns the withdrawal of funds. However, the
rate of interest is rather ... (7). On the other hand ... (8) accounts offer a higher rate
of interest, but withdrawals are restricted by the fact that the ... (9) has to keep the
funds for a specified period in the bank account or must ... (10) his withdrawal
decision some time in advance.
... (11) are offered to customers in need of funds and are conditional upon the
supplying of ... (12) by borrowers. Besides loans banks offer ... (13) to their
customers, which means that people who have an account with the bank are
allowed to draw more money from their account than there actually is in it.
The customers can use certain banking products. Thus banks can pay regular
bills for their clients, according to the instructions of the latter, this instrument
being called ... (14) order. Irregular payments can be made by ... (15) from cheque
books the banks make available to their customers. When a customer needs cash
he can withdraw it from an automatic cash ... (16) by means of a cash ... (17).
In Britain a merchant bank is a wholesale bank. It offers services to ... (18) such
as the raising of ... (19) on various financial markets, the financing of international
trade, the issuing of ... (20), investment advice. In the USA similar services are
made available by investment banks, which, however, do not offer loans.
Companies, standing, low, spread, overdrafts, retail, depositor, securities,
cheque, collateral, individual, funds, time, dispenser, notify, card, checking, profit,
instructions, loans.
XIV. TRANSLATION
63
64
4. SECURITIES MARKETS
Emotions are your worst enemy in the stock market
Don Hays
English equivalents
securities exchange
to trade in sth
to be listed
to be quoted=to be
given a market price
subscriber (n)
perception (n)
stringent (adj)
to redeem
CEO (Chief Executive
piaa neoficial a
efectelor de
schimb, piaa
extrabursier
a fi cotat
active materiale
(
)
a subscrie pentru
un numr de
aciuni
abonat
a vinde totul cu
reducere
a rscumpra
the ability to
understand sth
strict and that must
be obeyed
to sell off
to precipitate
societate de
investiii cu capital
variabil
venit brut
comision, remiz
bursa de valori,
piaa a efectelor de
schimb
to handle
over-the-counter
market
to subscribe
Russian
,
to be convinced that
gross proceeds
commission (n)
tangible assets
earnings (n)
Romanian
pachet de aciuni
bon (de tezaur),
obligaiune
agent de burs
piaa primar
piaa secundar
hrtii de valoare
65
Officer)
company
To purchase a sweater, you simply walk into a store that sells sweaters, choose
one, and pay for it. To purchase stocks, bonds, and many other investments, you
have to work through a representative your stockbroker. In turn, your broker must
buy or sell for you in either the primary or secondary market.
The Primary Market
The primary market is a market in which an investor purchases financial
securities (via an investment bank or other representative) from the issuer of those
securities. An investment banking firm is an organization that assists
corporations in raising funds, usually by helping sell new security issues.
For a large corporation, the decision to sell securities is often complicated,
time-consuming, and expensive. There are basically two methods. First, a large
corporation may use an investment banking firm to sell and distribute the new
security issue. This method is used by most large corporations that need a lot of
financing. If this method is used, analysts for the investment bank examine the
corporation's financial condition to determine whether the new issue is financially
sound and how difficult it will be to sell the issue. If the analysts for the investment
banking firm are satisfied that the new security issue is a good risk, the bank will
buy the securities and then resell them to the bank's customerscommercial
banks, insurance companies, pension funds, mutual funds, and the general public.
The investment banking firm generally charges 2 to 12 percent of the gross
proceeds received by the corporation issuing the securities. The size of the
commission depends on the quality and financial health of the corporation issuing
the new securities and the size of the new security issue. The commission allows
the investment bank to make a profit while guaranteeing that the corporation will
receive the needed financing.
The second method used by a corporation trying to obtain financing through
the primary market is to sell directly to current stockholders. Usually, promotional
materials describing the new security issue are mailed to current stockholders.
These stockholders may then purchase securities directly from the corporation. Why
would a corporation try to sell its own securities? The most obvious reason for doing
so is to avoid the investment bank's commission. Of course, a corporation's ability
to sell a new security issue without the aid of an investment banking firm is tied
directly to the public's perception of the corporation's financial health.
The Secondary Market
After securities are originally sold through the primary market, they are traded
through a secondary market. The secondary market is a market for existing
financial securities that are currently traded between investors. Usually, secondarymarket transactions are completed through a securities exchange or the over-thecounter market.
Securities Exchanges A securities exchange is a marketplace where member brokers meet to buy and sell securities. The securities sold at a particular
exchange must first be listed, or accepted for trading, at that exchange. Generally,
securities issued by nationwide corporations are traded at either the New York Stock
Exchange or the American Stock Exchange. The securities of regional corporations
are traded at smaller regional exchanges. These are located in Chicago, San
Francisco, Philadelphia, Boston, and several other cities. The securities of very large
corporations may be traded at more than one of these exchanges. Securities of
66
American firms that do business abroad may also be listed on foreign securities
exchangesin Tokyo, London, or Paris, for example.
The largest and best-known securities exchange in the United States is the New
York Stock Exchange (NYSE). It handles about 70 percent of all stock bought and
sold through organized exchanges in the United States. The NYSE lists
approximately 2,250 securities issued by more than 1,500 corporations, with a total
market value of $3 trillion. The actual trading floor of the NYSE, where listed
securities are bought and sold, is approximately the size of a football field. A glassenclosed visitors' gallery enables people to watch the proceedings below, and on a
busy day the floor of the NYSE can best be described as organized confusion. Yet,
the system does work and enables brokers to trade an average of more than 160
million shares per day.
The origin of the NYSE can be traced to May 17, 1792 when the Buttonwood
Agreement was signed by 24 stockbrokers outside of 68 Wall Street in New York. On
March 8, 1817 the organization drafted a constitution and renamed itself the New
York Stock & Exchange Board. This name was shortened to its current form in
1863.
The Exchange was closed after the beginning of World War I (July 1914), but it
was re-opened on November 28 of that year in order to help the war effort by
trading bonds.
On September 16, 1920 a bomb exploded outside the NYSE building on Wall
Street in a terrorist attack, killing 33 people and injuring more than 400. The
perpetrators were never found. The NYSE building and some buildings nearby still
have marks in the faade caused by the bombing.
The Black Thursday crash of the Exchange on October 24, 1929 and the sell-off
panic which started on Black Tuesday, October 29, precipitated the Great
Depression.
On October 1, 1934 the exchange was registered as a national securities
exchange with the US Securities and Exchange Commission, with a president and a
33 member board.
The frequently seen electronic display boards mounted on the walls of the
exchange were first installed in 1966 along with radio pagers. A highly technical
wireless data system increasing the speed in which trades were executed was
introduced in 1996. This allows for trading to be done with hand-held laptop these
are computers carried by the floor traders.
Today the exchange opens at 9:30 AM and closes at 4:00 PM.
Before a corporation's stock is approved for listing on the New York Stock
Exchange, the firm must meet five criteria:
1) annual earnings before taxes are $2.5 million
2) shares of stock held publicly 1 million
3) market value of publicly held stock - $9 million
4) number of stockholders owning at least 100 shares is 2.000
5) value of tangible assets - $18.000.000
When companies first list on the NYSE, often the companys CEO or other
official is invited to ring the opening bell in the Trading Floor. Ringing the bell, which
signals the start and close of the trading day, is part of the NYSEs rich heritage and
is considered an honour.
The American Stock Exchange handles about 10 percent of U.S. stock
transactions, and regional exchanges account for the remainder. These exchanges
have generally less stringent listing requirements than the NYSE.
The Over-the-Counter Market
The over-the-counter (OTC) market is a
network of stockbrokers who buy and sell the securities of corporations that are not
listed on a securities exchange. Usually each broker specializes, or makes a market,
in the securities of one or more specific firms. The securities of these firms are
67
traded through its specialists, who are generally aware of their prices and of
investors who are willing to buy or sell them. Most OTC trading is conducted by
telephone. Currently, more than 5,300 stocks are traded over the counter. Since
1971, the brokers and dealers operating in the OTC market have used a
computerized quotation system call NASDAQthe letters stand for the National
Association of Securities Dealers Automated Quotation system. NASDAQ displays
current price quotations on terminals in subscribers offices.
I. VOCABULARY PRACTICE
A) Find synonyms (1-6) and antonyms (7-12) in the text to the
following words and phrases:
1. shares
7. simple
2. to help
8. to forbid
3. profit
9. to purchase
4. to collect money
10. time-saving
5. to be connected with sth
11. to delay
6. notebook
12. cheap
B) Find in the text the English equivalents for the following:
1. piaa primar a hrtiilor de valoare/ ;
2. emisiunea a noilor aciuni/ ;
3. a fi sigur din punct de vedere financiar/
;
4. a face un profit/ ;
5. materialele publicitare sunt trimise prin pot acionarilor/
;
6. a urmri desfurarea evenimentelor ce au loc jos/
;
7. a corespunde criteriilor/ ;
8. a fi la curent cu preurile lor/ .
C) Match the words with their definitions:
1.
2.
3.
4.
bonds
securities
analyst
broker
5. mutual fund
6.
7.
8.
9.
commission
investor
subscriber
quotation
10. dealer
a)
b)
c)
d)
II. COMPREHENSION
A) Answer the following questions:
1. Whose services must one use in order to buy securities?
2. What types of securities markets do you know? Give the definition of a
primary market.
3. What is an investment banking firm?
68
4. What are the two methods used by large corporations when they decide to
sell a new security issue? Why do some corporations choose the second
method?
5. What is a secondary market?
6. What is a securities exchange? What is the necessary condition for the
securities to be sold at a particular exchange?
7. What is the largest and best-known securities exchange in the USA?
Describe it. What do you know about its history?
8. What are the criteria that a corporation must meet in order to sell its stock
on the NYSE?
9. Indicate how much percent of U.S. stock transactions do the following
exchanges handle?
the NYSE _______
the American Stock Exchange _______
regional exchanges ________
10. What is an over-the-counter market?
B) Mark the statements with TRUE or FALSE:
1. One can purchase securities without using the services of a stockbroker.
2. A new security issue can be sold only in the primary market.
3. Most large corporations that need a lot of financing sell their securities
directly to current stockholders in order to avoid commission.
4. The customers of the investment banking firm are mutual funds,
commercial banks, insurance companies, pension funds and different
natural persons.
5. The investment banking firm buys the corporations securities only if they
are financially sound.
6. The investment banking firm charges 2 to 20% of the corporations gross
proceeds.
7. The securities of regional corporations are traded at either the NYSE or the
American Stock Exchange.
8. An American company that does business in France can trade its securities
both at the NYSE and at the securities exchange in Paris.
9. Brokers trade an average of more than 160 million shares per day at the
American Stock Exchange.
10.
Today more shares are traded over the counter than at a securities
exchange.
III. DISCUSSION
Discuss the following questions:
1. It is thought that the best way to invest your money is to buy securities.
Do you agree or disagree with it?
2. The job of a financial analyst is to evaluate the financial standing of a
corporation and to forecast whether its shares are a good risk or not. To
your mind, is it easy or difficult to do this job? What qualities must a good
analyst possess?
3. Your corporation has issued new securities. In what market are you going
to sell them? What decision would you take: to sell these securities
through an investment banking firm or directly to your current
shareholders? Substantiate your answer.
4. You are a shareholder and you want to sell your shares. In what market are
you going to sell them?
5. In your opinion, what do the Americans prefer: to buy shares at a
securities exchange or in the over-the-counter market? Give your reasons.
69
English
equivalents
discretionary
order
to relay
Romanian
instruciune
discreionar (de a
cumpra orice titlu de
valoare)
70
Russian
,
booth (n)
a small enclosed
place where you can
do sth privately, for
ex. to vote
ticker (n)
charge (n)
fee (n)
commodity (n)
option (n)
goods
the right to buy
shares in a
company on some
future date at a prearranged price
blue chip
floating (n)
equities (n)
rights issue
bonus issue
par value=face
value, nominal
value
merger (n)
donation (n)
teleimprimator automat
care nregistreaz
cotaiile la burs
cost, pre
onorariu
opiune
aciune cu capitalizare
bursier foarte mare
lansarea pentru prima
dat a aciunilor unei
firme
aciuni obinuite
acordarea ctre
acionari a dreptului de
a cumpra noi aciuni la
un pre avantajos
aciuni distribuite
acionarilor n locul
dividendului cuvenit
fuziune
energie atomic
exchange's trading floor will try to get the best possible price, and the trade will be
completed as soon as possible.
A limit order is a request that a stock be bought or sold at the price that is
equal to or better (lower for buying, higher for selling) than some specified price.
Suppose you place a limit order to sell General Dynamics common stock at $49 per
share. Then the broker's representative sells the stock only if the price is $49 per
share or more. If you place a limit order to buy General Dynamics at $49, the
representative buys it only if the price is $49 per share or less. Limit orders may or
may not be transacted quickly, depending on how close the limit price is to the
current market price. Usually, a limit order is good for one day, one week, one
month, or good until canceled (GTC).
Finally, it is possible for investors to place a discretionary order. A
discretionary order is an order to buy or sell a security that lets the broker decide
when to execute the transaction and at what price. Financial planners advise
against using a discretionary order for two reasons. First, a discretionary order gives
the account executive a great deal of authority. If the account executive makes a
mistake, it is the investor who suffers the loss. Second, financial planners argue that
only investors (with the help of their account executive) should make investment
decisions.
A typical stock transaction includes five steps:
1 Account executive receives customers order to sell stock and relays order
to stock-exchange representative.
2 Firms clerk signals transaction from booth to partner on stock-exchange
floor.
3 Floor partner goes to trading post where stock is traded with a stockexchange member with an order to buy.
4 Floor partner signals transaction back to clerk in booth. Sale is recorded on
card inserted into card reader and transmitted to ticker.
5 Sale appears on ticker, and confirmation is phoned to account executive,
who notifies customer.
The entire process, from receipt of the selling order to confirmation of the
completed transaction, takes about twenty minutes.
Commissions Brokerage firms are free to set their own commission charges.
Like other businesses, however, they must be concerned with the fees charged by
competing firms. Full-service brokersthose that provide information and advice as
well as securities-trading servicesgenerally charge higher fees than discount
brokers, which buy and sell but may offer less advice and information to their
clients.
On the trading floor, stocks are traded in round lots. A round lot is a unit of
100 shares of a particular stock. An odd lot is fewer than 100 shares of a particular
stock. Brokerage firms generally charge higher per-share fees for trading in odd
lots, primarily because several odd lots must be combined into round lots before
they can actually be traded.
Commissions for trading bonds, commodities, and options are usually lower
than those for trading stocks. The charge for buying or selling a $1,000 corporate
bond is typically $10. No matter what kind of security is traded, the investor
generally pays a commission when buying and when selling. Payment for the
securities and for commissions is generally required within five business days of
each transaction.
It is important to remember that a broker has two goals: to help investors
achieve their financial objectives and to promote his or her own interests and those
of the brokerage firm, (These goals do not necessarily conflict with one another, but
the fact that the broker and brokerage house receive a commission on every trade
may sometimes lead to recommendations to trade more frequently than necessary.)
72
With this fact in mind, it is obvious that investors should be involved in planning
their investment programs.
I. VOCABULARY PRACTICE
A) Choose the correct meaning of the following words according to the
context:
1 to cancel means:
a) to stop paying attention to sth:
b) to say that you no longer want to continue with an agreement that has
been legally arranged;
c) to change from one thing to another.
2 to decide on a transaction means:
a) to choose the best possible transaction;
b) to form an opinion about the transaction;
c) to publicly tell people about the transaction.
3 to trade means:
a) to buy and sell things;
b) to rent things;
c) to resell things.
4 primarily means:
a) shortly;
b) particularly;
c) mainly.
5 option means:
a) the freedom to choose what you want to do;
b) the right to buy shares on some future date;
c) the instruction what to do.
B) Fill in the table with nouns, verbs and adjectives from the same
word family:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Noun
receipt
Verb
Adjective
discretionary
cancel
investor
advise
reason
complete
compete
financial
charge
II. COMPREHENSION
Answer the following questions:
1.
Who is a stockbroker and what services does he provide? What is the
difference between an account executive and a stockbroker?
2 Where does an account executive work?
3 Describe the mechanics of a stock transaction. What orders can an
investor give to his account executive?
4 List the advantages and disadvantages of each order both for the investor
and for the broker.
5 How many steps are included in a typical stock transaction? How much
time is needed to effect such a transaction?
6 What is a commission and who charges it?
7 What is the difference between a full-service broker and a discount broker?
73
8 How are stocks traded on the trading floor? Why do brokerage firms
charge higher per-share fees for trading in odd lots?
9 When is the payment for the securities and for commissions due?
10 What goals does the broker have?
III. Fill in the blanks with the words given at the end of the exercise:
In order to (1) capital companies (2) shares or stocks and offer them for
(3) to the public. When it is the first time that a company does it, this is called (4)
a company.
Shares of important companies are (5) on the Stock Exchange. A stock
exchange is a (6) where stocks and shares are (7). It performs an important
economic function in a countrys economy by (8) buyers and sellers together. A
company that cannot meet all the (9) for being admitted on the stock exchange
has to transact its shares on the (10) market.
The value of a share as written on the share certificate is its (11) value. This
could be significantly different from the market (12) at a given moment, which is
influenced by supply and (13) for the shares under consideration.
There are different types of shares. (14) are common shares. Those shares
whose holders are paid a fixed dividend before any other type of shares are called
(15). Shares of very secure companies with a minimal risk are (16). Sometimes
companies want to raise extra capital and issue new shares offering them to their
shareholders at a lower price than their market value. This is known as a (17)
issue. If companies resort to offering new shares to shareholders instead of
payment of dividends this is called (18) issue.
Value, market,
requirements, raise,
floating, demand.
Which of the following activities would cause you to rule out a company as a
possible investment?
IX. Underline the correct word:
1. Being a doctor is very demanding. Furthermore/However, it is a job in
which there is no room for mistakes.
2. Exercising helps us keep feet. Nevertheless/Moreover, it can be lots of fun.
3. Driving to work can be convenient. On the other hand/Similarly, finding a
place to park can be a problem.
4. Living in a foreign country can be very difficult. In contrast/Furthermore
one can often feel lonely and homesick.
5. Going on holiday is a great way to relax. Similarly/Nevertheless, taking
short trips at the weekend can also be enjoyable.
6. Cities are noisy. Also/In contrast, the countryside is quiet.
7. Living on your own teaches you to be independent. Also/However, it helps
you to become more responsible.
5. FINANCIAL MANAGEMENT
Finance is an art that makes money go
from person to person until it disappears
French proverb
English
equivalents
period during which
the maximum of
production is sold
Romanian
perioada de vrf ale
vnzrilor
cash flow
flux de numerar
promotional
campaign
evenly (adv)
over the long run
companie de reclam
fund (v)
exactly, precisely
a period during
which something
flows
moving, advancing,
making progress
to collect money
a combining of two
or more companies,
corporations
no longer in fashion
or accepted, obsolete
to provide money for
facility (n)
building, special
cu precizie
n perioada de
activitate
Russian
a merge nante, a
avansa, a progresa
a aduna bani
contopire, fuziune
nvechit, demodad
a furniza mijloace
bnei pentru
cldire, echipament
76
room, equipment,
supplies (n,pl)
materials, provisions
for supplying a
business
resurse
a drastic step. However, it may be a reasonable last resort when neither equity
capital nor debt capital can be found.
The Need for Financing
Money is needed both to start a business and to keep it going. The original
investment of the owners, along with money they may have borrowed, should be
enough to get operations under way. Then, it would seem that income from sales
could be used to finance the firm's continuing operations and to provide a profit as
well.
This is exactly what happens in a successful firmover the long run. But sales
revenue does not generally flow evenly. Both income and expenses may vary from
season to season or from year to year. Temporary funding may be needed when
expenses are high or income is low. Then, too, special situations, such as the
opportunity to purchase a new facility or expand an existing facility, may require
more money than is available within a firm. In either case, the firm looks to outside
sources of financing.
Short-Term Financing Needs Short-term financing is money that will be
used for a period of one year or less and then repaid. A firm might need short-term
financing to pay for a new promotional campaign that is expected to increase sales
revenue. Or the purchase of a computer-based inventory-control system, which will
"pay for itself" within a year, might be funded with short-term money.
Although there are many short-term financing needs, two deserve special
attention. First, certain necessary business practices may affect a firm's cash flow
and create a need for short-term financing. Cash flow is the movement of money
into and out of an organization. The ideal is having sufficient money coming into the
firm, in any period, to cover the firm's expenses during that period. But the ideal is
not always achieved. For example; a firm that offers credit to its customers may
find an imbalance in its cash flow. Such credit purchases are generally not paid until
thirty or sixty days (or more) after the transaction. Short-term financing is then
needed to pay the firm's bills until customers have paid theirs. An unexpectedly
slow selling season or unanticipated expenses may also cause a cash-flow problem.
A second major need for short-term financing that is related to a firm's cashflow problem is inventory. Inventory requires considerable investment for most
manufacturers, wholesalers, and retailers. Moreover, most goods are manufactured
four to nine months before they are actually sold to the ultimate customer. As a
result, manufacturers that engage in this type of speculative production often need
short-term financing. The borrowed money is used to buy materials and supplies, to
pay wages and rent, and to cover inventory costs until the goods are sold. Then, the
money is repaid out of sales revenue. Wholesalers and retailers may need shortterm financing to build up their inventories before peak selling periods. Again the
money is repaid when the merchandise is sold.
Long-Term Financing Needs Long-term financing is money that will be
used for longer than one year. Long-term financing is obviously needed to start a
new business. It is also needed for executing business expansions and mergers, for
developing and marketing new products, and for replacing equipment that becomes
outmoded or inefficient.
I. COMPREHENSION
A) Enlarge on:
1. What job opportunities does financial management open for the students
who want to advance in this field?
2. What questions do financial managers face daily?
78
79
C) Specify the needs for financing. The first one has been done for
you:
Short-Term Financing
Long-Term Financing
To get operations under way
To start a new business
VERB
ADJECTIVE
speculative
to finance
practice
continuing
to spend
81
promotional
rise
to fund
merger
IV. DISCUSSION
Your company is undergoing hard times. This year expenses have been higher
and income - very low. If you do not take corrective actions it is expected to fail. As
a chief executive officer organize a meeting with the marketing manager, financial
manager, operations manager and discuss the advantages and disadvantages of
obtaining financing. Use the following expressions:
- I think we should .......
- One way to ..........
- My viewpoint is ..........
- We are absolutely convinced that ..........
- The advantage of ........... is .............
English equivalents
pledge
securities such as: drafts,
promissory notes
reluctant (adj)
prospects of
repayment
unwilling
possibility of repayment
82
Romanian
Russian
capital circulant
sau de rulaj
perspectiv de
plat,
posibilitatea
efecturii plii
a susine
to back up
to help, to support
to pledge collateral
draft (n)
invoice (n)
at maturity
drawer (n)
drawee (n)
to discount a draft
a amaneta, a
zlogi
cambie
factur
la scaden
tragator
tras
a sconta o cambie
ranging from 0.25 to 1.0 percent of the unused portion of the revolving credit. The
usual interest is charged for the portion that is borrowed.
Commercial Paper is short-term promissory notes issued by large corporations.
Commercial paper is secured only by the reputation of the issuing firm; no collateral
is involved. It is usually issued in large denominations, ranging from $5,000 to
$100,000. Corporations issuing commercial paper pay interest rates slightly below
those charged by commercial banks. Thus, issuing commercial paper is cheaper
than getting short-term financing from a bank.
Commercial Drafts A commercial draft is a written order requiring a
customer (the drawee) to pay a specified sum of money to a supplier (the
drawer) for goods or services. It is often used when the supplier is unsure about the
customer's credit standing. The draft would be completed as follows:
1. The draft form is filled out by the drawer. The draft contains the purchase
price, interest rate, if any and maturity date.
2. The draft is sent by the drawer to the drawee.
3. If the information contained in the draft is correct and the merchandise
has been received, the drawee marks the draft "Accepted" and signs it.
4. The customer returns the draft to the drawer. Now the drawer may (a)
hold the draft until maturity, (b) discount the draft at its bank (c) use the
draft as collateral for a loan.
In this case, the draft is similar to an ordinary check with one exception: The
draft is filled out by the seller and not the buyer. A sight draft is a commercial draft
that is payable on demandwhenever the drawer wishes to collect. A time draft is
a commercial draft on which a payment date is specified. Like promissory notes,
drafts are negotiable instruments that may be discounted or used as collateral for a
loan. They are legally enforceable.
I. COMPREHENSION
A) Answer the following questions:
1. Short-term financing is easier to obtain. Why?
2. When do most lenders require collateral for short-term financing?
4. Define the word: trade credit. What document states the credit terms?
6. Define the word: promissory note.
7. What are the two advantages of a promissory note?
8. Define the word: unsecured bank loans.
9. Explain what the line of credit is. Give examples.
10. What are the revolving credit agreement, commercial papers and
commercial drafts?
11. What collateral can be used for short-term financing?
B) True or False?
1. The shorter repayment period means there is risk of nonpayment.
2. Unsecured financing is financing that is not backed by collateral.
3. Between 70 and 100% of all transactions between businesses involve
trade credit.
4. Suppliers that are uneasy about extending credit may be more reluctant to
offer credit to customers that sign promissory notes.
5. Commercial paper is a short-term promissory note issued by sole
proprietorships.
6. The customer returns the draft to the drawer. Now the drawer may: (a)
hold the draft until maturity (b) discount the draft at its bank or (c) use the
draft as collateral for a loan.
7. Most promissory notes specify repayment periods of 60 to 180 days.
84
8. The purchased goods are delivered along with a contract that states the
credit terms.
9. The draft is filled out by the buyer and not the seller.
II. FOCUS ON GRAMMAR
Insert prepositions:
Typically, the purchased goods are delivered (1). (2) .. a bill that states
the credit terms. The terms (3) a cash discount are specified (4) . the
invoice. The customer buying (5) .. credit is called the maker. Commercial
banks offer unsecured short-term loans (6) .. their customers (7) interest
rates that vary (8) .. each borrowers credit rating. The draft is filled (9) by
the seller and not by the buyer. They arise primarily (10) trade credit and are
usually due (11) .. less than 60 days. In addition, (12) .. the interest (13) .
the loan, the borrower must also pay (15) .. storage (16) . a warehouse.
III. VOCABULARY PRACTICE
A) Finish the sentences:
1. Commercial paper is secured only by ..
2. A sight draft is ...
3. Even with a line of credit
4. Organizations with good to high ratings may
5. Most lenders do .
B) Supply:
Synonyms
1. supplier
2. questionable
3. interest
4. drawer
5. collateral -
ntonyms
6. short-term loan 7. secured loans 8. borrower 9. favourable 10. partial -
Advantages
1. You do not pay the total sum of money
immediately
Disadvantages
1. Interst is $10 paid dayly
appliance dealer
English
equivalents
the cost of keeping
goods stored
to free from
method of financing
where the title to
merchandise is given
to lenders in return
for
short-term
financing
sellers of devices or
machines performing
specific esp. those
that
are
worked
mechanically or by
Romanian
Russian
plat pentru
depozitare
a elibera
vnztor de aparate,
dispozitive
86
notification plan
electricity
to
notify
the
borrower's
credit
customers to make
their
payments
directly to the lender
to be due
to turn over
factor (n)
face value
shift (v)
salable (adj)
secure (adj)
plan de avizare
a fi achitat
to hand over, to
transfer
a
firm
that
specializes in buying
other firms' accounts
receivable/ agent of
sale
the value printed or
stamped on a bill
manage, move
marketable, that can
be sold
a nmna, a transfera
factor
valoare nominal
ferm, stabil
a menaja
comerciale, care pot
fi vndute
Financially secure firms prefer to save collateral for long-term borrowing needs.
Yet, if a business cannot obtain enough capital via unsecured short-term financing,
it must put up collateral to obtain the additional financing it needs. Almost any
asset can serve as collateral. However, inventories and accounts receivable are the
assets that are most commonly used for short-term financing.
Loans Secured by Inventory Normally, marketing intermediaries and
producers have large amounts of money invested in finished goods or merchandise
inventories. In addition, producers carry raw materials and work in-process
inventories. All three types of inventory may be pledged as collateral for short-term
loans. However, lenders prefer the much more salable finished goods to the other
inventories.
A lender may insist that inventory used as collateral be stored in a public
warehouse. In such a case, the receipt issued by the warehouse is retained by the
lender. Without this receipt, the public warehouse will not release the merchandise.
The lender releases the warehouse receipt and the merchandiseto the borrower
when the borrowed money is repaid. In addition to the interest on the loan, the
borrower must also pay for storage in the public warehouse. As a result, this type of
loan is more expensive than an unsecured loan.
A special type of secured financing called floor planning is used by automobile,
furniture, and appliance dealers. Floor planning is a method of financing where
the title to merchandise is given to lenders in return for short-term financing. The
major difference between floor planning and other types of secured short-term
financing is that the borrower maintains control of the inventory. As merchandise is
sold, the borrower repays the lender a portion of the loan. To ensure that the lender
is repaid a portion of the loan when the merchandise is sold, the lender will
occasionally check to ensure that the collateral is still in the borrower's possession.
Loans Secured by Receivables Accounts receivable are amounts that are
owed to a firm by its customers. They arise primarily from trade credit and are
usually due in less than sixty days. It is possible for a firm to pledge its accounts
receivable as collateral to obtain short-term financing. A lender may advance 70 to
80 percent of the dollar amount of the receivables. First, however, it conducts a
thorough investigation to determine the quality of the receivables. (The quality of
the receivables is the credit standing of the firm's customers.) If a favorable
87
determination is made, the loan is approved. Then whenever the borrowing firm
collects from a customer whose account has been pledged as collateral, the money
must be turned over to the lender as partial repayment of the loan. An alternative
approach is to notify the borrower's credit customers to make their payments
directly to the lender. This approach, often called the notification plan, may raise
questions about the borrowing firm's financial health and cause customers to take
their business elsewhere.
Factoring Accounts Receivable
Accounts receivable may be used in one or another way to help raise shortterm capital: They can be sold to a factoring company (or factor). A factor is a firm
that specializes in buying other firms' accounts receivable. The factor buys the
accounts receivable for less than their face value, but it collects the full dollar
amount when each account is due. The factor's profit is thus the difference between
the face value of the accounts receivable and what the factor has paid for them.
Even though the selling firm gets less than face value for its accounts
receivable, it does receive needed cash immediately. Moreover, it has shifted both
the task of collecting and the risk of nonpayment to the factor, which now owns the
receivables. Generally, customers whose accounts receivable have been factored
are given instructions to make their payments directly to the Factor.
I. COMPREHENSION
A) Enlarge on:
1. Identify the assets that are most commonly used for short-term financing.
2. Specify the advantages and disadvantages of loans secured by inventory.
3. Explain the difference between floor planning and other types of secured
short-term financing.
4. Explain the procedure of using loans secured by receivables.
5. What is the importance of the operation called Factoring Accounts
Receivable?
B) Say if the statements are true or false:
1. The factor's profit is thus the difference between the actual value of the
accounts receivable and what the factor has paid for them.
2. The major difference between floor planning and other types of secured
short-term financing is that the borrower does not maintain control of the
inventory.
3. However, inventories and accounts receivable are the assets that are most
commonly used for short-term financing.
4. All three types of inventory may be pledged as collateral for long-termterm loans.
5. Generally, customers whose accounts receivable have been factored are
given instructions to make their payments directly to the Factor.
6. To ensure that the lender is repaid a portion of the loan when the
merchandise is sold, the borrower will occasionally check to ensure that
the collateral is still in the borrower's possession.
7. Without this receipt, the public warehouse will not release the
merchandise.
II. FOCUS ON GRAMMAR
Insert prepositions:
1. They arise primarily .. trade credit and are usually due less than sixty
days. 2. Then whenever the borrowing firm collects .. a customer whose
88
account has been pledged as collateral, the money must be turned over
.. the lender as partial repayment of the loan. 3. In addition .. the
interest . the loan, the borrower must also pay for storage in the public
warehouse. 4. Yet, if a business cannot obtain enough capital via
unsecured short-term financing, it must put .. collateral to obtain the
additional financing it needs. 5. However, lenders prefer the much more
salable finished goods .. the other inventories. 6. Moreover, it has shifted
both the task .. collecting and the risk of nonpayment the factor,
which now owns the receivables.
III. VOCABULARY PRACTICE
A) Match the words with their definitions:
1. A firm that specializes in buying other firms' accounts receivable.
2. Amounts that are owed to a firm by its customers.
3. An alternative approach to notify the borrower's credit customers to make
their payments directly to the lender.
4. A method of financing where the title to merchandise is given to lenders in
return for short-term financing.
Accounts receivable, floor planning, factor, and notification plan
B) Find English Equivalents in the text:
cel mai des ntrebuinate/
firmele asigurate financiar/ -
a ridica o ntrebare/
ntr-un mod sau altul/ -
creane/
datorii/
comerciant de dispozitive/
valoare nominal/
drept de retenie asupra mrfii/
termenul de valabilitate a contului expir/
English
equivalents
net worth
capital propriu
standpoint
drawback
laim (n)
opinion
disadvantage
request
punct de vedere
dezavantaj
cerere, pretenie
oncession
a special right or
privilege that is given
to someone
to repay
gathering of
a law made by a local
authority and which
applies only in their
area.
a change of law
keeps increasing
steadily in quantity or
degree
face value
concesiune
to redeem
pool of
bylaw
amendment
cumulative
par value
retained earnings
working capital
installments (n)
Romanian
Russian
a rscumpra
aduntura
lege local
,
,
,
amendament
cumulativ
valoare la paritate,
pre nominal
profituri nerepartizate
capital de rulment
Sources of long-term financing vary with the size and type of business. If
the business is a sole proprietorship or partnership, equity capital is acquired by the
business when the owner or owners invest money in the business. For corporations,
equity-financing options include the sale of stock and the use of profits not
distributed to owners. The available debt-financing options are the sale of corporate
bonds and long-term loans.
Equity Financing
Some equity capital is used to start every businesssole proprietorship,
partnership, or corporation. In the case of corporations, equity capital is provided
by stockholders who buy shares in the company. There are at least two reasons
why equity financing is attractive to large corporations. First, the corporation
need not repay money obtained from the sale of stock, and it need not
repurchase the shares of stock at a later date. Thus equity financing does not
have to be repaid. Occasionally a corporation buys its own stock, but only
because such an investment is in its own best interest. In 1989 Mapco, Inc.a
90
large oil, gas, and energy companypurchased thousands of shares of its own
stock with uninvested profits. The firm's top management believed the purchase
was the best investment available at that particular time.
A second advantage of equity financing is that a corporation is under no legal
obligation to pay dividends to stockholders. A dividend is a distribution of earnings
to the stockholders of a corporation. Investors purchase the shares of stock of many
corporations primarily for the dividends they pay, However, for any reason (if a
company has a bad year, for example), the board of directors can vote to omit
dividend payments. Earnings are then retained for use in funding business operations. Thus a corporation need not even pay for the use of equity capital. Of course,
the corporate management may hear from unhappy stockholders if expected
dividends are omitted too frequently.
There are two types of stock: common and preferred.
Common Stock A share of common stock represents the most basic form of
corporate ownership. Owners may vote on corporate matters, but their claims on
profits and assets are subordinate to those of preferred-stock owners. In return for
the financing provided by selling "common stock, management must make certain
concessions to stockholders that may restrict or change corporate policies. By law,
every corporation must hold an annual meeting, at which the holders of common
stock may vote for directors and approve (or disapprove) major corporate actions.
Among such actions are (1) amendments to the corporate charter or bylaws, the
sale of certain assets, (3) mergers, (4) the issuing of preferred stock or bonds, and
(5) changes in the amount of common stock issued.
Many states require that a provision for pre-emptive rights be included in the
charter of every corporation. Pre-emptive rights are the rights of current
stockholders to purchase any new stock that the corporation issues before it is sold
to the general public. By exercising their pre-emptive rights, stockholders are able
to maintain their current proportion of ownership of the corporation. This may be
important when the corporation is a small one and management control is a matter
of concern to stockholders.
Money that is acquired through the sale of common stock is thus essentially
cost-free, but few investors will buy common stock if they cannot foresee some
return on their investment.
Preferred Stock The owners of preferred stock usually do not have voting
rights, but their claims on profit and assets precede those of common-stock owners.
Thus holders of preferred stock must receive their dividends before holders of
common stock are paid, provided dividends are distributed at all. Moreover, they
have first claim (after creditors) on corporate assets if the firm is dissolved or
declares bankruptcy. Even so, like common stock, preferred stock does not
represent a debt that must be legally repaid.
The dividend to be paid on a share of preferred stock is known before the stock
is purchased. It is stated, on the stock certificate, either as a percentage of the par
value of the stock or as an amount of money. The par value of a stock is an
assigned (and often arbitrary) dollar value that is printed on the stock certificate.
When the corporation exercises a call provision, the investor usually receives a
call premium. A call premium is a dollar amount over value that the corporation
has to pay an investor for redeeming cither preferred stock or a corporate bond.
When considering the two options, management will naturally obtain the preferred
stock in the less costly way.
Added Features for Preferred-Stock Issues To make their preferred stock
particularly attractive to investors, some corporations include cumulative,
participating and convertible features in various issues.
91
When the loan repayment period is longer than one year, the borrower must
sign a term-loan agreement. A term-loan agreement is a promissory note that
requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual
installments.
Long-term business loans are normally repaid in three to seven years. Although
they may occasionally be unsecured, in most cases the lender requires some type
of collateral. Acceptable collateral includes real estate, machinery, and equipment.
Lenders may also require that borrowers maintain a minimum amount of working
capital. The interest rate and other specific terms are often based on such factors
as the reasons for borrowing, the borrowing firm's credit rating, and the collateral.
I. COMPREHENSION
Answer the following questions:
1. What do the sources of long-term financing depend on? In what way is
equity capital acquired by a business?
2. Who provides equity capital in the case of corporations?
3. Why is equity financing attractive to large corporations?
4. Define the word dividend. What happens if a company has a bad year?
5. What kinds of stock do you know?
6. Describe the advantages and disadvantages of common stocks and
preferred stocks.
7. What do some corporations include to make their preferred stock
attractive to investors?
8. Compare the cumulative preferred stock and the participating preferred.
What do they have in common?
9. What is returned earnings? Give examples.
10.
Explain the terms: corporate bonds, coupon bonds and bond indenture.
II. FOCUS ON GRAMMAR
A) Insert prepositions:
Long-term business loans are normally repaid (1) .. there (2) seven years. To
make its bonds more appealing (3) . Investors, however, a corporation may issue
mortgage bonds. Serial bonds are bonds (4) a single issue that mature (6)
different dates. Maturity dates (7) bonds generally range (8) fifteen (9) fifty
years after the date (10) issue. The amount (11) the premium is specified (12)
(13) . Other provisions in the bond indenture. (14) . the eyes (15) the
International Revenue Service, interest is a tax-deductible business expense.
Sources of long-term financing vary (16) the size and type of business. (17) .
Law, every corporation must hold an annual meeting, (18) . Which the holders of
common stock may vote (19) directors.
B) COMPLEX VERBS
Choose one suitable verb to fill in the gaps so as to form complex
verbs with the adverbial particle out.
to carry; come; get; give; go; set; take; turn; wear; wipe; work;
1. This years loses have out last years profits. 2. Fixed assets gradually .
out. 3. The factory . out 5, 000 pairs of shoes a week. 4. He is not at home, he has
. out. 5. One of the planes engines out. 6. Ill out some money from my
94
current account. 7. It has out that you were right. 8. She out first in the
competition. 9. We will . the new textbook out by October Ist. 10. he will out
early in the morning. 11. Our customers order has been out . 12. I have out
your share at the expenses of our company at $50.
III. VOCABULARY PRACTICE
A) Finish the sentences:
1. The owners of preferred stock usually
2. The remainder, the portion of a corporation profits ..
3. Large corporations .
4. Maturity dates for bonds generally
5. Many businesses finance their long-range activities with ..
B) Supply:
Synonyms
1. standpoint 2. to default 3. trustee 4. earnings 5. to occur -
Antonyms
6. short-range activities 7. extended credit
8. common stock
9. loss
10. subordinate (adj) -
15.
The rights of current stockholders to purchase any new stock that the
corporation issues before it is sold to the general public.
16.
Preferred stock whose owners share in the cars earnings, along with
the owners of common stock.
17.
A sum of money to which deposits are made each year for the purpose
of redeeming a bond issue.
18.
Stock whose owners usually do not have voting rights but whose claims
on profits and assets have precedence over those of common stock
owners.
19.
An independent firm or individual that acts as the bond owners
representative.
20.
A bond backed only by the reputation of the issuing corporation.
21.
A corporation bond that is secured by various assets of the issuing firm.
IV. DISCUSSION
1. Drexel Burnham Lambert helped finance many of the corporate takeovers
during the 1980s. By 1986 it was the most profitable firm on Wall Street.
Then in 1990 the firm filed for bankruptcy. What factors led to the decline
of Drexel Burnham Lambert?
2. What does a financial manager do? How can he monitor a firms financial
success?
3. Why would a supplier offer both trade credit and cash discounts to its
customers?
4. You want to borrow funds to finance next years college expenses. Set up a
budget showing your expected income and expenses, and determine how
much money you will need to borrow. Then outline a plan for repaying the
borrowing funds. Provide enough detail to convince your financing source
to advance you the money.
96
6. ACCOUNTING
6.1 Accounting and Accountants
Accounting is the language of business
Learning objectives:
1. Know what accounting is and what accountants do
2. Make the difference between accounting and bookkeeping
3. Be able to understand the categories of accountants
4. Identify the users of accounting information
Study and Learn the Words:
English
to trace back
to be concerned with
accurate (adj)
up-to-date
to chalk up
rigorous (adj)
English
Equivalents
to describe how it
developed
to give attention to
precise
latest, the newest
to gain
strict
Romanian
a-i lua originea, a se
dezvolta
a se ocupa de
cu precizie
modern, original
riguros
accounts receivable
creane
to commit to
a se angaja
payroll (n)
pertaining (adj)
auditing
scholar (n)
double-entry
accounting
clay tablets
treatise
handicraft
overheads
a formal and
systematic exposion
in writing of the
principles of a subject
handmade things
indirect costs
Russian
stat de plat
legat de
audit
crturar
contabilitatea dublei
nregistrri
lucru manual
cheltuieli indirecte
97
98
Accountants are people who are trained and experienced in the methods and
systems of accounting. They are generally classified as private accountants or
public accountants.
A private (or nonpublic) accountant is an accountant who is employed by a
specific organization. A medium-sized or large firm may employ one or several
private accountants to design its accounting system, manage its accounting
department, and prepare the variety of reports required by management or by law,
and provide managers with advice and assistance. Private accountants provide
their services only to their employers.
Smaller and medium-sized firms that don't require full-time accountants can
hire the services of public accountants. A public accountant is an accountant whose
services may be hired on a fee basis by individuals or firms. Public accountants may
be self-employed, or they may work for accounting firms. Accounting firms range in
size from one-person operations to huge international firms with hundreds of
accounting partners and thousands of employees.
Most accounting firms include on their staffs at least one certified public
accountant (CPA), an individual who has met state requirements for accounting
education and experience and has passed a rigorous three day accounting
examination. The examination is prepared by the American Institute of Certified
Public Accountants and covers accounting practice accounting theory, auditing, and
business law. State requirements usually include a college accounting degree and
from one to three years of on the-job experience. Details regarding specific
requirements for practice as a CPA in a particular state can be obtained by
contacting the respective State Board of Accountancy. Certification as a CPA brings
both status and responsibility. Only an independent CPA can officially verify the
financial contents of a corporation's annual report and express an opinion regarding
the acceptability of the corporation's accounting practices.
Users of Accounting Information
The primary users of accounting information are managers. The firm's
accounting system provides a range of information dealing with revenues, costs,
accounts receivable, amounts borrowed and owed, profits, return on investment,
and the like. This information can be compiled for the entire firm; for each product;
for each sales territory store, or individual salesperson; for each division or
department; and. generally in any way that will help those who manage the
organization.
Much of this accounting information is proprietary; it is not divulged to anyone
outside the firm. However, certain financial information is demanded by individuals
and organizations that the firm must deal with.
Lenders require at least the information that is contained in the firms financial
statements before they will commit themselves to short- or long-term
loans.
Suppliers generally ask for this information before they will extend trade credit to
a firm.
Stockholders must, by law, be provided with a summary of the firms financial
position in each annual report. In addition, potential investors must be provided
with financial statements in the prospectus for each securities issue.
Government agencies require a variety of information pertaining to the firm's
tax liabilities, payroll deductions for employees, and new issues of stocks and
bonds.
The firm's accounting system must be able to provide all this information in the
required form. An important function of accountants is to ensure that such
information is accurate and thorough enough to satisfy outside groups. Accounting
99
can be viewed as a system for transforming raw financial data into useful financial
information.
I. COMPREHENSION
A) Answer the following questions:
1. Define the word accounting.
2. What do you know about the history of accounting? When did the first
book of accounting principles appear? Who wrote it?
3. What do you know about modern accounting in the USA?
4. What is the difference between accounting and bookkeeping?
5. Who are accountants? How are they classified?
6. Who is a private accountant? What are his liabilities?
7. Who is a public accountant?
8. Who is a CPA? What examination should he pass? What does it cover?
9. Who are the primary users of accounting information? What does this
information include?
10. What other users of accounting information do you know? Characterize
them.
B) True or False?
1. The firms accounting system must be able to provide information about
bank activities in the required form.
2. Much of the accounting information is revealed publicly.
3. Most accounting firms include on their staffs at least one CPA.
4. The primary users of accounting information are lenders.
5. A bookkeeper can generally be trained within a year or so.
6. Accounting and Bookkeeping deal with the same systems.
7. Private accountants provide their services only to their employees.
8. It can be argued that as a profession accounting dates for about several
years ago.
9. Cost accounting systems had to be developed to analyse and control the
financial operations of the manufacturing processes during the Industrial
Revolution.
10. Suppliers generally ask for this information before they will commit
themselves to short- or long-term loans.
C) List the differences between accounting and bookkeeping
ACCOUNTING
1.
2.
3.
4.
5.
BOOKKEEPING
1.
2.
3.
4.
5.
Private accountants
100
Public
accountants
CPAs
text:
g.
money to be received =
h.
explanation =
i. information=
j. to offer credit =
k. detailed =
l. linked to =
Scholar (n)
To argue
Liabilities (n.pl.)
Handicraft (n)
Monk (n)
Ongoing (adj)
Assets (n.pl.)
Conservatism (n)
Would-be (adj)
a) Made by hands
b) Friar
c) Potential, future
d) Erudite person
e) To prove
f) Debts
g) Lasting
h)Wealth
i) Prudence
hand the money paid for it is recorded in a separate account. The .(24) side of
an account should balance the debit side of it.
Each entry is based on (25). These can be invoices and .(26). The latter is
confirmation of a payment made. The former is a document stating the amount due
for some goods or services supplied. It gives a description of the goods, states
delivery and shipment details, alongside of unit price and .(27) price.
Accounting; allocation; audit; books; branch; cash; certified;
chartered; credit; double; financial (2 times); forecasts; management;
managerial; overheads; posted; public; receipts; resources; shareholders;
stored; supply; tax; total; twice; vouchers.
III. FOCUS ON GRAMMAR
A) Insert prepositions:
Lenders require (1) . least the information that is contained in the firms
financial statements before they will commit themselves (2) either short or
long-term loans. Stockholders must (3) . law, be provided (4) . a summary (5)
. the firms financial position (6) . each annual report. The information can be
compiled (7) . the entire firm. Public accountants may be self-employed, or they
may work (8) accounting firms. Because (9) its great value business owners
have been concerned (10) financial information (11) . hundreds of years.
B) WORD FORMATION
a)
Make compound words (adjectives) by using the pattern Credit+
Worthy=Creditworthy. Use the following nouns to combine with worthy:
praise; blame; note; sea; air; road; trust. Which of these correspond to the
Romanian words listed below:
1 care are bonitate/
2 demn de laud/
3 remarcabil, demn de luat in consideraie/
4 n stare bun de navigabilitate/
5 demn de ncredere/
6 apt pentru a circula pe drumurile publice/
7 condamnabil/
8 apt de zbor/
b)
From these compounds, nouns can be formed on the pattern:
creditworthy+ness=creditworthiness.
Mind the replacement of y by i.
Now combine the adjectives you obtained in exercise to create nouns. Which of
them means?
1 credibilitate (bonitate)/
2 stare de navigabilitate/
3 caracter reprobabil/
4 caracter laudabil/
5 caracter demn de remarcat/
103
IV. COLLOCATIONS
Fill in the table and put + in the square where the combination of
the two elements is possible:
a
decisio
n
sense
data
goods
transactions
a
requireme
nt
Make
Meet
Record
Provide
Supply
V. DISCUSSION POINT
A) Comment on the following statements:
4 There is no accounting for tastes.
5 Accounting has been surprisingly interconnected with technology.
6 History does not repeat itself. But it rhymes. (M.Twain)
7 A successful merchant needs three things: sufficient cash or credit, an
accounting system that can tell him how hes doing and a good
bookkeeper to operate it.
B) Accounting jokes
Read them and find out what characteristics accountants have:
1. An accountant is having a hard time sleeping and goes to see his doctor:
Doctor, I just cant get to sleep at night.
Have you tried counting sheep?
Thats the problem I make a mistake and then spend three hours trying
to find it.
2. An accountant visited the National History Museum. While standing near
the dinosaur he said to his neighbour:
This dinosaur is two billion years and ten months old.
Where did you get this exact information?
I was there ten months ago and the guy told me that the dinosaur is two
billion years old.
3.
4.
VI.WRITING
Translate into English:
Dezvoltarea contabilitii i a funciei acesteia
Contabilitatea a aprut n stadiul timpuriu al dezvoltrii umane n scopul
reflectrii cantitative a mijloacelor unor productori. Obiectul, scopul i funciile
contabilitii caracterizeaz particularitile acelui nivel al dezvoltrii sociale,
procesele cruia aceasta le reflect.
Rolul contabilitii a crescut, mai ales, n legtur cu crearea centrelor
comerciale mari.
Treptat contabilitatea a nceput s se transforme n tiin, avnd obiectul i
metoda de cunoatere proprii. Contabilitatea s-a dezvoltat mai pe larg n Roma
Antic. Primii care au expus regulile dublei nregistrri au fost Benedict Cotrulli i
Luca Paciolo (sec.XV). Autorul operei Cu privire la comer i comerciantul onest, n
care, n special, sunt expuse regulile nregistrrilor n registrele contabile este
Benedict Cotrulli.
Fondatorul contabilitii se consider Luca Paciolo (1445 1515) care este
cunoscut ca autorul primei cri de contabilitate. El a fost profesor de matematic,
ns numele lui a intrat n istorie datorit tratatului consacrat utilizrii conturilor i
nregistrrilor contabile.
Dezvoltarea contabilitii a dus la apariia profesiei de contabil sau socotitor.
Cuvntul contabil (omul care ine registrele) a aprut de asemenea n sec. XV. n
anul 1448 mpratul Imperiului Roman Maximilian I l-a numit n calitate de primul
contabil pe Christofer Stechter. ncepnd de la acest moment contabilitatea se
consider profesie. ns abia n sec. XIX contabilitatea a devenit o tiin veritabil.
n mijlocul sec. XX n Italia, Frana, Elveia i Germania au aprut multe opere
despre obiectul, scopul i metoda contabilitii.
Learning objectives:
1. Understand the accounting equation
2. Know how to read and interpret a balance sheet
3. Explain what an income statement is
Study and Learn the Words:
English
balance sheet
(n)
English equivalents
financial statement summarizing
the assets, liabilities and net worth
of an individual or a business at a
105
Romanian
bilan contabil
Russian
inventory (n)
assets (n,pl.)
liabilities
(n,pl.)
ownersequity
(n)
raw data
double-entry
bookkeeping
marketable
securities
receivables or
accounts
receivable,
debtors
insurance
premium
depreciation
(n)
notes
receivable
to apportion
the cost
intangible
assets
patent (n)
copyright (n)
trademark (n)
promissory
note (n)
inventar
active
pasive
capital propriu
date
neprelucrate
contabilitatea
dublei
nregistrri
conturi de
ncasat, creane
prim de
asigurare
106
capital de rulaj
sau circulant
depreciere,
devalorizare,
amortizare
cambii spre
recepionare
a distribui, a
mpri
costurile
active
nemateriale
patent
drept de autor
marc
comercial
ordin de plat
accounts
payable,
creditors
to incur
expenses
allowance for
doubtful
accounts
specified date
debts that must be paid to an
organization
datorii spre
plat, conturi
de creditor
a avea
cheltuieli
corecii la
creane
dubioase
The accounting equation is a simple statement that forms the basis for the
accounting process. It shows the relationship among the firms assets, liabilities,
and owners' equity.
Assets are the things of value that a firm owns. They include cash, inventories,
land, equipment, buildings, patents, and the like.
Liabilities are the firm's debts and obligationswhat it owes to others.
Owners' equity is the difference between a firm's asset and its liabilities
what would be left over for the firm's owners if its assets were used to pay off its
liabilities.
The relationship among these three terms is almost self-evident: Owners
equity = assets - liabilities. By moving terms algebrically, we obtain the
standard form of the accounting equation:
Assets = liabilities + owners' equity
Implementation of this equation begins with the recording of raw data that is,
the firm's day-to-day financial transactions. It is accomplished: through the doubleentry system of bookkeeping.
The concept of Balance Sheet is very old. No one knows exactly when and who
invented this accounting device. Like accounting the balance sheet is an
anonymous opera and generations of authors, theoreticians have contrinuted to its
development since the civilization appeared. It is prepared and presented on a
specified date: 31st March, 30th June, 30th September, and 31st December. Also it can
be prepared quarterly, annually, and semiannually.
The word balance sheet corresponds to the notion of weighing machine
with two scales that must always be in balance and it derives from the word bi
two and lanx scale of the balance.
The specifics of the balance sheet in the Republic of Moldova is that it is
composed of two parts: the left side is called assets and the right side is called
liabilities.
In the USA the BS has only one section and the assets, liabilities and
ownersequity follow this order.
The Balance Sheet
A balance sheet (or statement of financial position) is a summary of a
firm's assets, liabilities, and owners' equity accounts at a particular time, showing
the various dollar amounts that enter into the accounting equation. The balance
sheet must demonstrate that the accounting equation does indeed balance. That is,
it must show that the firm's assets are equal to its liabilities plus its owners' equity.
As previously noted, the balance sheet is prepared at the end of the accounting
period, which usually covers one year. Most firms also have balance sheets
prepared semiannually, quarterly, or monthly.
Assets
107
In the USA on a balance sheet, assets are listed in order, from the most liquid
to the least liquid. The liquidity of an asset is the ease with which it can be
converted into cash.
Current Assets Current assets are cash and other assets that can be quickly
converted into cash or that will be used within one year. Because cash is the most
liquid asset, it is listed first. Following that are marketable securitiesstocks, bonds,
and so onthat can be converted into cash in a matter of days.
Next are the firm's receivables. Its accounts receivable, which result from
the issuance of trade credit to customers, are generally due within sixty days.
However, the firm expects that some of these debts will not be collected. Thus it
has reduced its accounts receivable by a 5 percent allowance for doubtful
accounts. The firm's notes receivable are receivables for which customers have
signed promissory notes. They are generally repaid over a longer period of time.
Merchandise inventory represents the value of goods that are on hand for sale
to customers. These goods are listed as current assets because they will be sold
within the year. For a manufacturing firm, merchandise inventory can also represent
raw materials that will become part of a finished product or work in process that
has been partially completed but requires further processing.
Prepaid expenses are assets that have been paid for in advance but not yet
used. An example is insurance premiums. They are usually paid at the beginning of
the policy year for the whole year. The unused portion (say, for the last four months
of the policy year) is a prepaid expensea current asset.
Fixed Assets Fixed assets are assets that will be held or used for a period
longer than one year. They generally include land, buildings, and equipment.
The values of fixed assets are decreased by their accumulated depreciation.
Depreciation is the process of apportioning the cost of a fixed asset over the
period during which it will be used. The amount that is allotted to each year is an
expense for that year, and the value of the asset must be reduced by that expense.
Intangible Assets Intangible assets are assets that do not exist physically but
have a value based on legal rights or advantages that they confer on a firm. They
include patents, copyrights, trademarks, and goodwill. By their nature, intangible
assets are long-term assets. They are of value to the firm for a number of years.
Goodwill is the value of a firm's reputation, location, earning capacity, and
other intangibles that make the business a profitable concern. Goodwill is not
normally listed on a balance sheet unless the firm has been purchased from
previous owners.
Liabilities and Owners Equity
The firms' liabilities are separated into two groupscurrent and long-termon
the balance sheet. These liability accounts and the owners equity accounts
complete the balance sheet.
Current Liabilities A firms current liabilities are debts that will be repaid
within one year. Accounts payable are short-term obligations that arise as a result
of making credit purchases.
Notes payable are obligations that have been secured with promissory notes.
They are usually short-term obligations, but they may extend beyond one year.
Only those that must be paid within the year are under current liabilities. Many
companies also list salaries payable and taxes payable as current liabilities. These
are both expenses that have been incurred during the current accounting period but
will be paid in the next accounting period. Such expenses must be shown as debts
for the accounting period in which they were incurred.
Long-Term Liabilities Long-term liabilities are debts that need not be repaid
for at least one year.
108
list will contain all the things the company 5) _______ . These are its 6) _______ . The
other list consists of the things the company 7) _______ and these are its 8) _______ .
Every item has to be valued. One item will be the amount of 9) _______ the
company has on its premises and another will be the amount standing on the bank
account. This is called 10) _______ . Some items can be valued exactly, but others
can only be given an approximate 11) _______ . Machinery or equipment, for
instance, suffers from wear-and-tear and gradually loses its value. This process of
losing value is assumed over a period of time and it is called 12) _______ . Other
assets include 13) _______ . This item is the total amount owed by customers.
Among liabilities there are 14) _______ , that is the total amount owed to suppliers.
When the 15) _______ is drawn, the company will be able to see how things are
going.
C) Match the words with their translations:
1. venit pe aciune/
2. dobnd/
3. profit nedistribuit/
4. aciune ordinar/
5. costuri sociale/
6. salarii/
7. acionari/
8. obligaiune/
9. cont de profituri i pierderi/
10.
costuri de exploatare/
11.
profit naintea impozitrii/
12.
dividend preferenial/
13.
cifr de afaceri/
14.
pensie/
14.
impozit pe firm/
a. Shareholders
i. earnings per share
b. corporation tax
j. ordinary share
c. operating costs
k. wages and salaries
d. debenture
l. interest
e. turnover
m.
retained profit
f. pension
n. social security costs
g. profit before tax
o. profit and loss account
h. preference dividend
D) Match the words or phrases with their definitions:
1. consolidated statement
7. fixed assets
2. assets
8. treasury bill
3. liabilities
9. liquid assets
4. entity
10.
current assets
5. equity
11.
intangible assets
6. current liabilities
12.
inventory
a. an organization for which separate accounts are kept;
b. what a company owes to people/ corporations from outside the
entity;
c. debts to be paid within a year from the issuing of the financial
statement;
d. what a company owns;
e. the claims of creditors and owners against the assets of an entity;
f. combination of accounting statements of different entities having
the same shareholders, as if they formed a single entity;
g. anything owned by a company that can be readily turned into cash;
110
Merchandise inventory represents the value of goods that are . hand for
sale to customers. 2. It must show that the firm's assets are equal . its liabilities
plus its owners' equity. 3. The firms' liabilities are separated . two groups
current and long-termon the balance sheet. 4. Long-term liabilities are debts that
need not be repaid for .. least one year. 5. These are both expenses that have
been incurred during the current accounting period but will be paid .. the next
accounting period. 6. The amount that is allotted . each year is an expense for
that year, and the value of the asset must be reduced . that expense. 7. Following
that are marketable securitiesstocks, bonds, and so onthat can be converted
. cash a matter of days. 8. The balance sheet is prepared the end of
the accounting period, which usually covers one year.
B) COMPLEX VERBS
Put the suitable verb in each gap to form a complex verb with the
adverbial particle off :
to cut; give; go; keep; pay; run; see; switch; take; turn; write.
1. As the debtor has gone under, the creditor will have to off the debt. 2. The
plane . off at 10 and two hours later it landed. 3. The bombs off. 4. The fire has
. off a tremendous heat. 5. While speaking on the phone with an important client I
. off. 6. Her father her off without a penny. 7. off the grass! 8. Could you
me off three copies of the document? 9. off the radio, please, I cant concentrate
on my work if it is on. 10. Dont off the light yet. 11. My friends came to the
airport to . me off. 12. The ships crew has been off.
IV
property (US estate), patents, stocks and shares, Treasury bills, goodwill,
creditors, equipment, taxation payable, copyright, bills receivable, mortgages,
debtors, trade marks, buildings, certificates of deposit, franchise, production plants,
vehicles, debts due to trade, loan capital
ASSETS
debtors
LIABILITIES
creditors
IV. Consider your own capital, or personal wealth. Make a list of all
your main capital possessions, add up the values to get your net capital
asset worth.
-
.....................
......................
......................
V. DISCUSSION POINT
Discuss in groups of three:
1 Bankers usually insist that prospective borrowers submit audited financial
statements along with a loan application. Why should financial statements
be audited by a CPA?
2 What can be said about a firm whose owners equity is a negative
amount? How could such a situation come about?
3 Why is it so important to compare a firms financial statements with those
of previous years, those of competitors, and the average of all firms in the
industry in which the firm operates.
4 Do the balance sheet and the income statement contain all the
information you might want as a potential lender or stockholder? What
other information would you like to have?
VI. CASE STUDY
The case method of the study of business is commonly used in graduate and
under-graduate business training. It requires study of one specific example of a
business problem which typifies a wider business problem of concern to the
students. After considering the case (problem) presented, the student should be
able to apply knowledge gained to his own business needs.
The aim of the case study is to propose the best possible solution and to
defend that solution as strongly as possible. Typically, the solution is written in a
special report form, which includes consideration of the following:
1. Background a short summary of the most important information found in
the case. This acts as an introduction to the next section.
113
Questions
1 Can strict accounting requirements stop fraudulent business practices?
What group or groups should develop such requirements? Who should
implement them?
2 How might an employee at Equity Funding have discovered the fraud?
What would you have done if you were that employee?
7. MANAGEMENT
Good management is better than good income
Portuguese proverb
Learning objectives:
1. Become aware of what management is
2. Understand the four basic management resources
English
equivalents
that can be touched,
Romanian
material, real,
115
Russian
,
palpabil
fiber-glass (n)
assembly line (wc)
sticl organic
linie de producie
house (v)
to provide or serve as
a house for, to store
in a house
a medical institution
that can provide
services for
protecting the health
stimulus
a gzdui, a adposti,
a depozita
centru de ingrijire a
sntii
stimulent
facilitate, nlesnire
angrosist
cas de achitare
plat pntru
nvtmnt
investiie, dotare
bonuri de plat
pentru serviciile
comunale
avion de pasageri
day-care center
incentive (n)
perk (n)
wholesaler (n)
check-out counter (n)
tuition (n)
endowment (n)
utility bills
prop-fan (short for
propeller) airliner
rapidly that an organization that does not adapt will probably not survive. And, to
adapt to change, the organization must know what is changing and how it is
changing. Companies are finding it increasingly important to gather information
about their competitors in todays business environment. Companies such as Ford
Motor Company and General Electric are known to collect information about their
competitors. McDonnell Douglas used competitive intelligence to beat Boeing in the
development of a new prop-fan airliner.
I. COMPREHENSION
1. Define the term management and name the kinds of resources it uses.
2. Identify the resources the Academy of Economic Studies of Moldova uses,
the National Bank of Moldova and the Central Hospital.
3. How do these institutions strive to attract employees and keep them
happy?
II. FOCUS ON GRAMMAR
A) Insert prepositions, where necessary:
1. fact, some firms live by the philosophy that their employees are their
most important assets. 2. And, to adapt change, the organization must know
what is changing and how it is changing. 3. A college obtains money . the form
of tuition, income its endowment, and state and federal grants. 4. Most
organizations make use .. four kinds of resources: material, human, financial, and
informational. 5. A Safeway store obtains money customers .. the check-out
counters and uses a portion of that money to pay the wholesalers from which it
buys food.
B) Write verbs, nouns and adjectives:
NOUN
ADJECTIVE
achievable
VERB
information
to produce
educational
diagnosis
to change
various
to philosophize
to recreate
IV.READING
A brief history of management
The end justifies the means N. Machiavelli
Ancient records in China and Greece already indicate the importance of
organization and administration. Outstanding scholars have referred to management
activities in the running of cities, states and empires. The Roman also effectively used
many basic management ideas, e.g. the scalar principle and the delegation of
authority. In the period 1400 to 1450, merchants in Venice, Italy, operated various
types of business organizations, such as partnerships, trusts and holding companies.
Concepts of the ideal state were considered by many 16 th century writers and
philosophers. In Thomas Mores Utopia, for example, his comments upon the reform
of the management of Britain were radical. In his best known work The Prince, Niccolo
Machiavelli of Florence puts forth ideas which are still relevant today. The management
of change states today that if you want your plans to be carried out you need to rely
on the consent of the majority of people exactly what Machiavelli was teaching his
student a few centuries before. The object of writing the Prince was to assist a young
prince in acquiring techniques of leadership. Machiavelli suggested that the leader
should inspire people to greater achievements, offer rewards and incentives, and take
advantage of all opportunities. He considered that survival was the main objectives of
any organization and no matter what measures were taken to achieve this end, they
should be taken. Scientific management was developed in 19th century. Frederic
W.Taylor (1856-1917), an American engineer, was one of the main people to be
associated with this movement. In 1911 he published his book Principles of
Scientific Management in which he argued that work should be studied and
analyzed in a systematic and throughout way. The foundations of the administrative
management were laid by a French engineer Henry Fayol (1841-1925) in his book
Administration industrielle et generale. Max Weber (1864-1920) was a German
academic with a university training in law and some years of experience as a civil
servant. He became a professor of economics and one of the founders of German
sociology. In his own design for an organization, Weber describes the bureaucracy. The
word was originally a joke and nowadays it has a distinctly negative connotation, but
to Weber it represented the ideal type for any large organization. In his conception the
real authority is in the rules and the power of the officials. We are looking at a model of
the organization as a well-oiled machine, which runs according to the rules.
Present a short overview of how basic management ideas appeared in
various moments of history.
V. DISCUSSION
1. Is management an art or a science? An instinct or a set of skills and
techniques that can be taught?
2. What do you think makes a good manager? Which four of the following
qualities taken from job advertisements for managerial positions do you
think are the most important?
119
innovation,
supervise,
1. Managers have to decide how best to allocate the human, physical and
capital _________ available to them.
2. Managers, logically, have to make sure that the jobs and tasks given to
their subordinates are _______.
3. There is no point in _______ objectives if you do not _________ them to your
staff.
4. Managers have to _________ their subordinates, and to measure, and try to
improve their _______.
5. Managers have to check whether objectives and targets are being _______.
6. A top manager whose performance is unsatisfactory can be dismissed by
the companys _______.
7. Top managers are responsible for the _______ that will allow a company to
adapt to a changing world.
B) Choose the best alternative to complete each sentence:
1. You must keep staff _______, especially when things get difficult.
a. generated b. motivated
c. frustrated
d. electrified
2. Weigh up the _______ of each alternative before deciding.
a. checks and balances b. assets
c. pros and cons
d. profits
3. A good manager must be able to handle _______ situations.
a. sensible
b. impressive
c. touching
d. touchy
4. He decided to let things _______, so he dropped the subject until later.
a. freeze
b. ice over
c. cool down d. flare up
5. Its always difficult when a team is working _______ a deadline.
a. in
b. at
c. to
d. opposite
6. Try to ensure that each employees _______ is not too great.
a. workload
b. working place
c. work-to-rule d. working part
7. Those who cant manage their time efficiently always have high stress
_______.
a. grades
b. standards
c. performances
d. levels
8. I hope the project continues to run as _______ as it has so far.
a. calmly
b. confidently
c. smoothly
d. wisely
120
9. After _______ many unforeseen obstacles they just managed to meet their
deadline.
a. overtaking b. overcoming
c. overwhelming
d. overriding
10. What can we do to improve _______ in this department?
a. morale
b. morality
c. moral
d. temperament
English
equivqlents
result
methods, way
come about
the amount of
enthuasism that a
person has
person who sells by
pieces
to take time
in accord, compatible
superfluous thing
added for smth
a clear understanding
of the inner nature
in contrast with
to be in great
demand
a general plan
without details
to be a menacing
indication of (danger,
harm, distress)
to advertise
to happen
person who keeps a
systematic record of
business transactions
to give help to
Romanian
Russian
mijloc, cale
a reiei
stare moral
vnztor cu
amnuntul
a lua timp
a corespunde cu
adugri
nelegere,
perspicacitate
contra
a se bucura de
success
schi
a amenina
a surveni
socotitor
a ajuta
121
to be spurred on
to be motivated
a fi motivat
ongoing (adj)
care continu
plan stabilit
linie de conduit,
politic
standing plan
policy
the companys products. As a result of its strategy, Philip Morris seems to have
attained the goal of being less dependent on tobacco sales.
Most organizations also employ several narrower kinds of plans. A tactical
plan is a smaller-scale (of smaller size) plan developed to implement a strategy. If a
strategic plan will take five years to complete, the firm may develop five tactical
plans, one covering each year. Tactical plans may need to be updated periodically
as conditions and experience dictate. Their narrower scope permits them to be
changed more easily than strategies.
Another category of plans is referred to as standing plans. These result from
and implement decisions that have previously been made by management. A
policy is a general guide for action in a situation that occurs repeatedly. A
standard operating procedure (SOP) is a plan that outlines the steps to be
taken in a situation that arises again and again. A SOP is thus more specific than a
policy. For example, a Sears, Roebuck department store may have a policy of
accepting deliveries only between 9 a.m. and 4 p.m. Standard operating procedure
might then require that each accepted delivery be checked, sorted, and stored
before closing time on the day of the delivery.
II. Organizing the Enterprise
After goal setting and planning, the second major function of the manager is
organization. Organizing is the grouping of resources and activities to accomplish
some end result in an efficient and effective manner. Consider the case of an
inventor who creates a new product and goes into business to sell it. At first, he
will probably do everything himself purchase raw materials, make the product,
advertise it, sell it, and keep his business records up to date. Eventually, as his
business grows, he will find that he needs help. To begin with, he might hire a
professional sales representative and a part-time bookkeeper. Later he might need
to hire full-time sales personnel, other people to assist with production, and an
accountant. As he hires each new person, he must decide what that person will
do, to whom that person will report, and generally how that person can best take
part in the organizations activities.
III. Leading and Motivating
The leading and motivating functions are concerned with the human resources
within the organization. Leading is the process of influencing people to work
toward a common goal. Motivating is the process of providing reasons for people
to work in the best interests of the organization. Together, leading and motivating
are often referred to as directing.
We have already noted the importance of an organizations human resources.
Because of this importance, leading and motivating are critical activities. Obviously,
different people do things for different reasons that is, they have different
motivations. Some are primarily interested in earning as much money as they can.
Others may be spurred on by opportunities to get ahead in an organization. Part of
the managers job, then, is to determine what things motivate subordinates and to
try to provide those things in a way that encourages effective performance.
IV. Controlling Ongoing Activities
Controlling is the process of evaluating and regulating ongoing activities to
ensure that goals are achieved. Managerial control involves both close monitoring
of the progress of the organization as it works towards its goals, and the regulating
and adjusting required to keep it on course.
The control function includes three steps. The first is setting standards, or
specific goals to which performance can be compared. The second step is
measuring actual performance and comparing it with the standard. And the
123
third step is taking corrective action as necessary. The results of this third step
may affect the setting of standards.
I. COMPREHENSION
A) Answer the following questions:
1. What are the purpose and the mission of a neighborhood restaurant? Of
the Academy of Economic Studies of Moldova? What might be reasonable
objectives for these organizations?
2. How do a strategy, a tactical plan, and a policy differ? What do they all
have in common?
3. What exactly does a manager organize, and for what reason?
4. Why are leadership and motivation necessary in a business where people
are paid for their work?
5. What is controlling and what does it involve?
B) Say if the statements are True or False:
1. Together, leading and motivating are often referred to as planning.
2. Controlling is the process of evaluating and regulating ongoing activities to
ensure that goals are achieved.
3. If a strategic plan will take five years to complete, the firm may develop
five tactical plans, one covering each year.
4. The most fundamental type of goal is the organizations mission, which is
the reason for the organizations existence.
5. The objective of the Secret Service is to protect the life of the president.
6. An organizations strategy is its broadest set of plans and is developed as
a guide for major policy setting and decision-making.
7. Obviously, different people do things for the same reasons that is, they
have the same motivations.
8. Part of the managers job, then, is to determine what things motivate
subordinates and to try to provide those things in a way that encourages
effective performance.
9. The leading and motivating functions are concerned with the material
resources within the organization.
10.
Optimization is a difficult process.
II. FOCUS ON GRAMMAR
A) Insert the following prepositions into the gaps:
1. The leading and motivating functions are concerned . the human resources
within the organization. 2. However, if profit has increased by only 1 percent after
three months, some corrective action would be needed to get the firm track. 3.
Some are primarily interested .. earning as much money as they can. 4. Later he
might need to hire full-time sales personnel, other people to assist . production,
and an accountant. 5. Finally, an objective is a specific statement detailing what
the organization intends to accomplish as its goes . its mission. 6. When faced
the marketing-versus-production conflict we have just described, most
managers would probably not adopt either viewpoint completely. 7. The goals
developed for these different levels must be consistent one another. 8. A firms
strategy defines what business the company is . or wants to be in and the kind of
company it is or wants to be. 9. Others may be spurred .. by opportunities to get
ahead in an organization. 10. The particular action that is required depends the
reason for the low increase in profit.
III. DISCUSSION
124
the
characteristics
of
great
managers
with
their
Weak managers
feel threatened by other peoples
strength. Great managers see strength as things to be built
on, and weakness as something to be accomodated,
worked around, if possible, eliminated.
Not as drastic as it sounds! What great managers do is
learn new skills and acquire useful information from the
outside world, and then immediately pass them on, to
ensure that if they were to be run down by a bus, the team
would still have the benefit of new information. No one in
an organisation should be doing that work that could be
accomplished equally effectively by someone less paid
than themselves.
This is probably the most under-used management tool.
Great managers are forever trying to catch their people
doing something right, and congratulating them on it.
Managers who regularly give praise are in a much stronger
position to criticise or reprimand poor performance. If you
simply comment when you are dissatisfied with
performance, it is all too common for your words to be
taken as a straightforward expression of personal dislike.
The old-fashioned approach to management was rather like
the old-fashioned approach to child rearing: Go and see
what the children are doing and tell them to stop it! Great
managers have confidence that their people will be
working in their intersts and do everything they can to
create an environment in which people feel free to express
themselves.
When the big wheel from head office visits and expresses
displeasure, the great manager immediately accepts full
responsibility. In everyday working life, the best managers
are constantly aware that they selected and should have
127
Great
managers
exploit
strengths, not weaknesses, in
themselves and in their people
make
English
Equivalents
general
money, or
possessions, riches,
wealth
to attain the rank of
president of the
company
chief administrative
officer
chief financial officer
principal
administrator
chief responsible for
the financial situation
of the company
to transmit
enterprise, factory,
works
ex
a person in charge of
a department or a
group of persons,
supervisor,
overall (adj)
fortunes (n. pl.)
Romanian
Russian
general
bogii, averi
a ajunge la rang de
preedinte al
companiei, director
executiv
director operativ,
director principal
operaional al
corporaiei
administrator, ef
trezorier
a mputernici
ntreprindere, uzin,
fabric
fost
ef, supravighetor,
conductor de lucrri,
ef de brigad
128
, ,
convert into
advertising (n)
appraise (v)
passage of time
guidance (n)
in many respects
transform into
publicity
evaluate (v)
movement of time
leadership
as regards
a transforma n
publicitate
a aprecia, a evalua
cu trecerea timpului
conducere, dirijare
n multe privine
Levels of Management:
Top Managers A top manager is an upper-level executive who guides and
controls the overall fortunes of the organization. Top managers constitute a small
group. In terms of planning, they are generally responsible for interpreting the
organizations purpose and developing its mission. They also determine the firms
strategy and define its major policies. It takes years of hard work and
determination, as well as talent and no small share of good luck, to reach the ranks
of top management in large companies. Common titles associated with top
managers are president, vice president, chief executive officer (CEO), and chief
operating officer (COO).
Middle Managers A middle manager is a manager who implements the
strategy and major policies handed down from the top level of the organization.
Middle managers develop tactical plans and standard operating procedures, and
they coordinate and supervise the activities of lower-level managers. Titles at the
middle-management level include division manager, department head, plant
manager, and operations manager.
Lower-Level Managers A lower-level manager is a manager who coordinates
and supervises the activities of operating employees. Lower-level managers spend
most of their time working with and motivating employees, answering questions,
and solving day-to-day problems. Most lower-level managers are former operating
employees who, owing to their hard work and potential, were promoted into
management. Many of todays middle and top managers began their careers on this
lowest management level. Common titles for lower-level managers include office
manager, supervisor, and foreman.
Areas of Management:
The most common areas of management are: finance, operations, marketing,
human resources, and administration.
Financial Managers A financial manager is a manager whose primary
responsibility is the organizations financial resources. Accounting and investment
are specialized areas within financial management. Because financing affects the
operation of the entire firm, many of the presidents of this countrys largest
companies are people who got their basic training as financial managers.
Operations Managers An operations manager is a manager who creates
and manages the systems that convert resources into goods and services.
Traditionally, operations management has been equated with manufacturing the
production of goods. However, in recent years many of the techniques and
procedures of operations management have been applied to the production of
services and to a variety of nonbusiness activities. Like financial management,
operations management has produced a good percentage of todays company
presidents.
Marketing Managers A marketing manager is a manager responsible for
facilitating the exchange of products between the organization and its customers or
clients. Specific areas within marketing are marketing research, advertising,
promotion, sales and distribution.
129
VERB
to manage
ADJECTIVE
operation
financial
to administer
control
organizational
promotion
to exchange
specialized
regulations
130
Divide the class into teams of three managers each. All the teams have the
following problem: you manage a shirt factory which has declining output per
worker, a rising number of defects per 100 units of production, and, as a result,
rising per unit costs.
Among the three managers of each team, discuss the problem and make a
tentative plan for correcting the problem. Consider the following in making your
plans: hiring quality control specialists, tracing the defects to their source,
employee retraining, showing an interest in the workers work, redesigning the
product, and buying newer and better equipment. When each group has finished its
plans, they should be presented to the class as a whole. Then the class may
consider the best ideas from each group and form one comprehensive plan of
action to get production back to efficiency.
VIII. DEBATE
Form two teams to debate the qualifications needed for executives:
Team A:
Modern candidates for a corporate presidency should have a
corporate degree in business or a related field (preferably an MBA), should have a
wide variety of professional experiences with several corporations, and should not
be over 50 years of age. Education, mobility (and thus flexibility), diversity of
experience, and youthfulness are necessary qualities. These qualities reflect the
needs of modern business.
Team B:
Modern business is no different than business has always been.
Sound executive-level judgment still requires that a person have many years of
professional experience within his industry and within his corporation. Years of
experience are more important than a graduate degree in business. Having
mobility and diversity of experience are not, then, as important as having
lengthy experience within the industry and corporation. At the presidential level,
the lack of experience and understanding of the young are undesirable.
133
English Equivalents
barrister
person who makes or
repairs machinery
to a lesser extent
to a lesser degree,
level
to correspond to
accommodate with
disgraceful, shameful
authentic
to fit together
put up with (ph.v.)
shabby (adj)
genuine (adj)
arrogant (adj)
pinpoint (v)
physician (n)
doctor
brash (adj)
Romanian
avocat
mecanic, mainist,
muncitor calificat,
inginer, constructor
de maini
ntr-o msur mai
mic
a conveni, a se asorta
a se acomoda
indecent, obraznic
nefalsificat
arogant
arogant, ncrezut,
fr ruine
a evidenia, a indica
cu precizie
medic
Russian
, ,
-.
The skills that typify effective managers tend to fall into five general
categories: technical, conceptual, interpersonal, diagnostic, and analytic.
Technical Skills A technical skill is a specific skill needed to accomplish a
specialized activity. For example, the skills that engineers, lawyers, and machinists
need to do their jobs are technical skills. Lower level managers (and, to a lesser
extent, middle managers) need the technical skills that are relevant to the activities
they manage. Although these managers may not have to perform the technical
skills themselves, they must be able to train subordinates, answer questions, and
otherwise provide guidance and direction.
Conceptual Skills Conceptual skill is the ability to think in abstract terms.
Conceptual skill allows the manager to see the big picture and to understand how
the various parts of an organization or an idea can fit together. In 1951 a man
named Charles Wilson decided to take his family on a cross - country vacation. All
along the way, the family was forced to put up with high-priced but shabby hotel
accommodations. Wilson reasoned that most travelers would welcome a chain of
moderately priced, good-quality roadside hotels. You are no doubt familiar with
what he conceived: Holiday Inns. Wilson was able to identify a number of isolated
factors (existing accommodation patterns, the need for a different kind of hotel, and
his own investment interests) to dream up the new business opportunity and to
carry it through completion.
Interpersonal Skills An interpersonal skill is the ability to deal effectively
with other people, both inside and outside the organization. Examples of
interpersonal skills are the ability to relate to people, understand their needs and
motives, and show genuine compassion. When all other things are equal, the
manager who is able to exhibit these skills will be more successful than the
manager who is arrogant and brash and who doesnt care about others. They
134
appear, however, to be more crucial for top managers than for middle or lower-level
managers.
Diagnostic Skills Diagnostic skill is the ability to assess a particular
situation and identify its causes. The diagnostic skills of the successful manager
parallel those of the physician, who assesses the patients symptoms to pinpoint
the underlying medical problem. In management as in medicine, correct diagnosis
is often critical in determining the appropriate action to take. All managers need to
make use of diagnostic skills, but these skills are probably used most by top
managers.
Analytic Skills Analytic skill is used to identify the relevant issues (or
variables) in a situation, to determine how they are related, and to assess their
relative importance. All managers, regardless of level or area, need analytic skills.
Analytic skills often come into play along with diagnostic skills. For example, a
manager assigned to a new position may be confronted with a wide variety of
problems that all need attention. Diagnostic skills will be needed to identify the
causes of each problem. But first the manager must analyze the problem of too
many problems to determine which problems need immediate attention and which
ones can wait.
I. COMPREHENSION
A) Answer the following questions;
1. Name the skills that managers need to possess and characterize each of
them.
2. In what way are management skills related to the status managers have?
Provide a specific example to support your answer.
II. FOCUS ON GRAMMAR
A) Study the text and insert the following prepositions into the gaps:
1. All managers need to make use .. diagnostic skills, but these skills are
probably used most by top managers. 2. All along the way, the family was forced
to put up . high-priced but shabby hotel accommodations. 3. An interpersonal
skill is the ability to deal effectively .. other people, both inside and outside the
organization. 4. Lower level managers (and, .. a lesser extent, middle
managers) need the technical skills that are relevant .. the activities they
manage. 5. You are no doubt familiar what he conceived: Holiday Inns. 6. For
example, a manager assigned . a new position may be confronted .. a wide
variety of problems that all need attention. 7. Analytic skills often come play
along with diagnostic skills.
B) Verbs plus prepositions
Certain verbs are customarily followed by certain prepositions. It is often
impossible to guess which preposition is mostly common used. The following is a
list of examples of such verbs. When you learn a verb you should make an attempt
to learn the prepositions that ordinarily follow it, if any.
To collaborate
with
someone
on
something
To consult
with
someone
on
something
To haggle
with
someone
over
something
To negotiate
with
someone
for
something
To deprive
someone
of
something
To dispose
of
something
To protect
someone/something
from
something/someone
To profit
from someone/something
To enroll
someone in something
135
To invest
To entitle
To rely
something in something/someone
someone to something
on someone/something for
Conceptual
Skills
Interpersonal
Skills
Diagnostic
Skills
Analytic
Skills
CASE STUDY
Management Practices at CBS
1. Does the fact that Tisch does not like memos, meetings and traditional
channels of communication indicate that he is not an effective manager?
2. Given that several groups, such as the board of directors, network
affiliates, and investors, have been critical of Tischs actions, should he
take corrective measures? Explain.
VI. DEBATE
Form two teams to debate the value of hunches (definite feelings that
something may be true).
Team A:
Hunches, or intuitive feelings, should not be given serious
consideration in managerial decision-making. Note that precisely how the mind puts
the things together has never been adequately charted; therefore, we cannot
define the hunch nor can we assess its reliability.
Team B:
Hunches should be given serious consideration when making
managerial decisions. Note that some Gestalt psychologists say that sudden ideas
come from the information processed unconsciously and that in many cases such
ideas are very reliable and more creative than those reached in the normal way.
Allow each team five to seven minutes of group preparation followed by a
three-minute presentation (timed by a watch). Allow time for a rebuttal of three
minutes by each team.
VII. Managing yourself
When a customer comes into your shop with a complaint, you can deal with it
in a number of different ways. You can:
- give cash refund
- give a voucher for the value of the returned goods
- exchange the goods for something of the same value
- give a straight exchange
- persuade the customer to wait while you contact the supplier
When a customer complains, it can be difficult not to take the complaint
personally. This can make you behave aggressively, which can then make the
customer feel angry. If this happens, a good strategy is to count to ten. This allows
you to get your anger under control before you speak.
There are three different approaches to dealing with possible conflict with
customers:
1. You want to get your customer to accept your point of view
2. You want the customer to be happy
3. You want to find a solution, which satisfies both you and the customer.
The third approach is obviously the most adult and professional, but it doesnt
always come naturally. For most people, it requires practice!
VI
ROLE-PLAY
Role play the following situation using the third approach in the text.
Student A
You bought a pair of jeans last week. But when you washed them, they lost
colour and shrank. They were good quality jeans and you didnt expect to have
problems with them. However, you bought them in a sale at a reduced price.
Student B
You are the manager of the shop. The jeans were reduced in your end of season
sale. They were regular stock and were not bought in especially for the sale. Your
shop has a policy of exchanging faulty goods but not those bought in the sales.
Useful language
138
139
8. MARKETING
Marketing is the creation and delivery of a standard of living
English
equivalents
usefulness
usefulness appeared
after processing the
product
hotel or motel
utility which appears
after bringing the
product at the place
of demand
Romanian
avantaj, folos
utilitate aprut n
urma prelucrrii
produsului
utilitate aprut n
urma aducerii
produsului n locul
cererii
time utility
utility caused by
offering the goods in
time
utilitate cauzat de
oferta mrfii la timp
possession utility
title of a product
right to ownership of
a product
bill issued by the
seller, receipt
utilitate aprut n
urma achiziiei
produsului sau a
serviciului
drept de proprietate
asupra produsului
cec de cas eliberat
de vnzator
sales slip
along with
conception (n)
promotion (n)
together with
general notion,
concept
futherance of the
popularity, sales,by
publicizing and
advertising
Russian
concomitent cu
concepie, idee,
noiune
publicitate, reclam
pentru un produs
, ,
The history of marketing may be nearly as long as the history of man on earth. In
its earliest form, the market may have consisted of only two people. Each knew that
the other had something he wanted at that time: some grain, an animal, or a tool.
The two people simply exchanged their goods. In order to have a fair exchange, they
both had to agree on the value or utility of what they were offering for trade. But
barter had its problems. If one man exchanged a cow for 200 fish, he might not be
able to use all 200 fish, and so he would lose both his cow and the value of the fish
he could not use. People then began to accept certain objects in exchange for any
product. They had to agree on the value of these objects, which became the first
money. Some people began to specialize in the production of goods for other people,
and others began to offer services. An increasingly complex marketing system was
born.
140
marketing
The
new
concept
of
marketing
emphasizes
market research
identifying a market
the consumer
a broad range of products
customer needs and desires
seeing all marketing activities as parts of one
system
customer satisfaction
goods, services, and ideas as products
noun
competition
143
adjective
produce
consumer
industrial
promotion
lose
technological
govern
economy
satisfactory
decide
emphasis
different
IV. DISCUSSION
A) Work in pairs
You and your partner are managers in the same company. You have a number
of problems.
1. One solution is suggested for each problem. Think of some more.
Problem
A new competitor, BRP, took
5% of your market share last
year.
Your main supplier, TED West,
often delivers late (but their
prices are the lowest in the
town).
The best candidate for the
post of Personnel Manager is
a
woman,
but
she
is
expecting a baby in four
months time.
Not enough staff are using
the company canteen; many
of
them
are
buying
sandwiches in Pret a Manger.
Suggested solution
Reduce your prices.
Other solutions
Employ her.
Learning Objectives:
1. Trace the development of the marketing concept
2. Understand how it is implemented
Study and Learn the Words:
English
potential (adj)
assess (v)
bank on (v)
output (n)
catch up with (ph.v)
English
equivalents
would-be
appreciate
rely on
production
to attain
Romanian
potenial, posibil
a aprecia, a evalua
a se bizui pe
producie
a ajunge, a se
apropia de un nivel
oarecare
consecutiv, logic,
corespunztor
consistently (adv)
approach (n)
to fill the needs
means of attaining a
goal
to satisfy the needs
abordare
to point out
a evidenia
to meet expectations
to pinpoint
a satisface
necesitile
a atinge ateptrile
Russian
,
,
The process that leads any business to success seems simple. First, the firm
must talk to its potential customers to assess their needs for its products or
services. Then the firm must develop a product or service to satisfy those needs.
Finally, the firm must continue to seek ways to provide customer satisfaction. This
process is an application of the marketing concept, or marketing orientation. As
simple as it seems, American business took about a hundred years to accept it.
From the start of Industrial Revolution until the early twentieth century,
business effort was directed mainly toward the production of goods. Consumer
demand for manufactured products was so great that manufacturers could almost
bank on selling everything they produced. Business had a strong production
orientation, in which emphasis was placed on increased output and production
efficiency. Marketing was limited to taking orders and distributing finished goods.
In the 1920s, production began to catch up with demand. Now producers had
to direct their efforts toward selling goods to consumers whose basic wants were
already satisfied. This new sales orientation was characterized by increased
advertising, enlarged sales forces, and occasionally high-pressure selling
techniques. Manufacturers produced the goods they expected consumers to want,
and marketing consisted primarily of taking orders and delivering goods, along with
personal selling and advertising.
During the 1950s, however, business people started to realize that even
enormous advertising expenditures and the most thoroughly proven sales
techniques were not enough. Something else was needed if products were to sell as
well as expected. It was then that business managers recognized that they were not
primarily producers or sellers but rather were in the business of satisfying
customers wants. As Philip E. Benton, Jr., president of Ford Automotive Group,
states, What our customers define as quality is what we must deliver. We have relearned in recent years that the successful automakers consistently provide
customers with what they need and want, at a price they feel offers good value, in
a product that meets their expectations of safety and quality. Our challenge is to go
beyond that to exceed customer expectations, and, indeed, to generate customer
145
enthusiasm. Marketers realized that the best approach was to adopt a customer
orientation in other words, the organization had to first determine what customers
need and then develop goods and services to fill those particular needs. (see Figure
1.1)
This marketing concept is a business philosophy that involves the entire
organization in the process of satisfying customers needs while achieving the
organizations goals. All functional areas - from product development through
production to finance and, of course, marketing - are viewed as playing a role in
providing customer satisfaction.
Figure 1.1
Production orientation
- Take orders
- Distribute goods
Sales Orientation
Customer orientation
- Increase advertising- Determine customer needs
- Enlarge sales force - Develop goods and services to fill needs
- Develop sales techniques
Some firms, such as Ford Motor Company and Apple Computer, have gone
through minor or major reorganizations in the process. Because the marketing
concept is essentially a business philosophy, anyone can say, I believe in it. But
to make it work, management must fully adopt and then implement it.
To implement the marketing concept, a firm must first obtain information about
its present and potential customers. The firm must first determine not only what
customers needs are but also how well those needs are being satisfied by products
currently on the market-both its own products and those of competitors. It must
ascertain how its products might be improved and what opinions customers have of
the firm and its marketing efforts.
The firm must then use this information to pinpoint the specific needs and
potential customers toward which it will direct its marketing activities and
resources. (Obviously, no firm can expect to satisfy all needs. And not every
individual or firm can be considered a potential customer for every product
manufactured or sold by a firm.) Next, the firm must mobilize its marketing
resources to (1) provide a product that will satisfy its customers; (2) price the
product at a level that is acceptable to buyers and that will yield a profit; (3)
promote the product so that potential customers will be aware of its existence and
its ability to satisfy their needs; and (4) ensure that the product is distributed so
that it is available to customers where and when needed.
Finally, the firm must again obtain marketing information this time regarding
the effectiveness of its efforts. Can the product be improved? Is it being promoted
properly? Is it being distributed efficiently? Is the price too high? The firm must be
ready to modify any or all of its marketing activities on the basis of this feedback.
I. COMPREHENSION
A) Answer the following questions:
1. Which are the steps that lead any business to success?
2. What was the orientation of business from the beginning of Industrial
Revolution?
3. What happened in 1920s?
4. What did business people start to realize in 1950s?
5. Define the term marketing concept.
6. Why is the marketing concept essentially a business philosophy?
7. Which are the steps to implement the marketing concept?
B) Say if the statements are True or False:
146
1. From the start of Industrial Revolution until the early twentieth century,
business effort was directed mainly toward the selling of goods.
2. In the 1920s, production began to catch up with demand.
3. In 1950s marketers realized that the best approach was to adopt a
customer orientation in other words, the organization had to first
determine what customers need and then develop goods and services to
fill those particular needs.
4. Management must fully adopt the accounting concept and then implement
it.
5. To implement the marketing concept, a firm must first determine not only
what customers needs are but also how well those needs are being
satisfied by products currently on the market-both its own products and
those of competitors.
6. Every individual or firm can be considered a potential customer for every
product manufactured or sold by a firm.
II. FOCUS ON GRAMMAR
A) Insert prepositions:
1. Some firms, such as Ford Motor Company and Apple Computer, have gone
minor or major reorganizations in the process. 2. All functional areas -
product development through production to finance and, of course, marketing - are
viewed as playing a role . providing customer satisfaction. 3. Business had a
strong production orientation, in which emphasis was placed . increased output
and production efficiency. 4. It was then that business managers recognized that
they were not primarily producers or sellers but rather were .. the business of
satisfying customers wants. 5. We have re-learned in recent years that the
successful automakers consistently provide customers what they need and
want, a price they feel offers good value, in a product that meets their
expectations of safety and quality.
B) Some words are commonly followed by certain prepositions. Add
appropriate prepositions for, on, upon, by, in, to, with, of, over, at,
toward, from, - to complete the remaining phrases. Use your dictionaries.
take responsibility ____
distinguish ____
according ____
purpose ____
appeal ____
means ____
aimed ____
deal ____
compromise ____
respond ____
be faced ____
search ____
put emphasis ____
rely ____
be subject ____
be consistent ____
be applicable ____
arrange ____
the result ____
be dominant ____
give consideration ____
pay ____
be composed ____
look ____
be committed ____
be aware ____
reaction ____
put pressure ____
submit ____
the demand ____
combination ____
C) Insert verbs, adjectives, nouns, and adverbs:
VERB
ADJECTIVE
NOUN
to satisfy
profitable
147
ADVERB
implementati
on
successfully
to produce
safe
finance
consistently
III. VOCABULARY PRACTICE
A) From the list of the words provided, fill in the blanks in the
following memorandum.
Each word is to be used only one time.
Transactions, retailing, operating, product returns, retailer, warehouses,
expanding, merchandise mix, market, funds, outlets, assemble, consumers,
confident.
MEMORANDUM
Date: January 23, 19
To: Deborah Boyles
From: Rod Sprague
Subject: Telecommunications in retailing
Deborah, I want some information on the use of telecommunications in the
__________ business. Our job is to sell more merchandise and increase our
___________ share. In the past we have done this by increasing the number of our
store ___________ and by ___________ our sales volume.
However, in the future, ____________ will be shopping at home with a video
display catalog, which will be provided by a participating ______________. Automated
__________ will _________________ the goods and banks will transfer _______________ to
pay for the merchandise.
I am ___________ that these sorts of ___________ will increase. We must prepare
an effective promotion for our goods and we must keep a broad ___________.
Could you please study any possible problems such as ___________, which might
lower our profit margin? Also investigate all _______________ costs.
B) List opposites:
from Consumer Decision-Making
disloyalty _________________
careless ___________________
dislike_____________________
input ______________________
to slow _____________________
early ______________________
unaware ________________
illogical _________________
irregularly _______________
general _________________
minority _______________
right (correct) __________
IV. DISCUSSION
A) Which of these do most people want or need?
Entertainment
a regular holiday
free time a car
a house
movies
education
better food
books
household appliances
mobile phones
a tractor
a computer
protection gloves and glasses
more fresh air
money
travel
148
an estate car
software
seeds
the land with
expensive clothes
stationery products
clean water
tools to work
durability
goodwill
benchmarking
1
2
3
4
warranty
8.3
Learning objectives:
1. Know what markets are
2. How they are classified
Study and Learn the Words
English
willingness (n)
purchase (n)
reseller (n)
broadly (adv)
wholesaler (n)
retailer (n)
county (n)
highway (n)
English
equivalents
desire
acquisition
person who buys and
sells again
largely
person who sells in
bulk
person who sells by
piece
district of a country
main road
Romanian
Russian
voin
achiziie
recomerciant
pe larg
angrosist
vnztor cu
amnuntul
regiune
drum principal, osea
NOUN
a launch (of a product)
a recall
an increase
an image
IV. ROLEPLAY
Interview with a loan officer
Form groups of two or three. One person (or two persons forming a partnership)
wants to begin a business in clothing resale, but does not have enough capital.
Conduct an interview between the loan officer and the person (s) applying for
the loan. The officer must become convinced that the resale clothing business is
profitable. Consider the following points:
Business person (s). Explain that the business is to be a resale shop, not a
thrift shop.
Know whether or not the store will handle designer clothing or furs in
addition to regular clothing.
Know what the monthly costs will be, such as rent, merchandise, and
salaries.
Have an idea how much money can be made monthly.
Know how much money you want to borrow.
Loan officer. Find out the exact nature of the business.
Find out how other resale shops in the nation are prospering.
Find out whether the business person will get the merchandise.
Find out how quickly the merchandise will sell so that the old merchandise
will not remain in the store for several months.
Find out how large the market is for used clothing.
Find out how prices will be determined.
Find out if the business person will handle ordinary clothing, designer
clothing, or furs.
Find out how quickly the loan can be repaid.
V. DISCUSSION
A) Discuss in pairs:
1. Do resale stores sound like good businesses to go into? Some of the more
expensive garments like designer clothing must be reduced by as much as
75%. Can a profit be made? Also, isnt old clothing more difficult to sell
than new clothing?
152
2. Resale stores are a new development. Why have they been created? Is the
reason related to the general strength or weakness of the economy and
the rate of inflation?
B) Product and brand
Study the several ways by means of which you could choose a brand
name:
Initials (HBO)
Numbers (Boeing 77)
Invented name (Kleenex)
Personal name (Ford)
Mythological characters (Samsonite luggage)
Geographical name (Northwest airlines)
Foreign word (Lux, Nestle)
Combination of words, initials, numbers (Head & Shoulders shampoo)
C) Now think of a brand you intend to develop. Discuss in pairs how
you would name your brand and think of other examples.
VI. BUSINESS IDIOMS
Phrasal verbs
Match up the phrasal verbs on the left with the verbs that have a
similar meaning on the right.
1. give up (production)
a. accept
2. go along with (the decision)
b. decrease, become fewer
3. kill off (a silly project)
c. begin to be successful
4. come up with (a new idea)
d. continue
5. do without (a pay rise)
e. destroy or abandon
6. make room for (further expansion)
f. find space to give
7. take off (after performing less well)
g. get rid of, discard (because
unwanted)
8. throw away (some good ideas) h. have, create ideas
9. weed out (uneconomic departments) i. make up, constitute a figure
10.
carry on (in the same old way)
j.
perform, undertake or do
11.
account for (rise in profits)
k.
produce, launch
12.
carry out (a market survey) l. remove
(from something larger)
13.
(production levels) drop off m. agree
to stop or discontinue
14.
look ahead to (future) n. survive or
live while lacking
15.
look for (a new solution)
something
o. think about, prepare or plan the
16. bring out (a new product)
future
p. try to find
VII.WRITING
Translate into English:
153
maintenance (n)
promotion (n)
be consistent with
total market
approach
undifferentiated
approach
kayak (n)
English
Equivalents
directed towards
theory of treating
market segmentation
market that is the
object of selling and
buying
the four elements of
marketing (product,
price, promotion,
distribution
keeping
advertising
to correspond to
theory of treating the
total market
theory explaining
that in the market
customers have the
same needs
an Eskimo canoe
Romanian
Russian
dirijat spre
teoria abordrii
segmentrii pieii
piaa int
complex de
marketing, mix de
marketing
meninere
promovare,
publicitate
a corespunde
teoria abordrii pieii
totale
teorie
nondifereniat
caiac
154
apparel (n)
made of skins
completely covering
a wooden frame
except for an
opening in the
middle for the
paddler
a narrow light boat
with its sides
meeting in a sharp
edge at each end
a group of individuals
or organizations,
within a market, that
share one or more
common
characteristics
the process of
dividing a market
into segments is
called market
segmentation
clothing, garments
brand name
mark name
package (n)
rebate (n)
boost (v)
packing
discount
to increase, to
higher, to advertise
objects, words,
actions, ideas that
society does not
permit
canoe (n)
market segment
market segmentation
barc
segment al pieii
segmentare a pieii
mbrcminte, haine,
confecii
denumirea mrcii
ambalaj
reducere
a ridica, a face
reclam
similar needs and, therefore, that the organization can satisfy most customers with
a single marketing mix. This single marketing mix consists of one type of product
with little or no variation, one price, one promotional program aimed at everyone,
and one distribution system to reach all customers in the total market. Products
that can be marketed successfully with the total market approach include staple
food items such as sugar and salt, and certain kinds of farm produce. A total market
approach is useful only in a limited number of situations because for most product
categories, buyers have different needs. When customers' needs vary, the market
segmentation approach should be used
Market Segmentation Approach The early man who had a cow that he
didnt need would have had to keep the cow through her old age and death if he
had been unable to find someone else who wanted the cow. He had to identify his
market target. That is, from among all the people he knew, he had to find out first
which of them wanted a cow. But it is not the same to want something and to be
able to exchange for it or buy it. He also had to select his market target, to choose
his most likely customers. Then he had to plan and follow his marketing strategy
according to the nature of his best potential market. The process now is called
market segmentation. It recognizes that not everyone needs a certain product, and
that a product cannot be expected to appeal to everyone. The marketing strategy is
more efficient if it is aimed at those people the company can reasonably expect to
serve. A firm that is marketing 40-foot yachts would not direct its marketing effort
toward every person in the total boat market. Some might want a kayak or a
canoe. Others might want a speedboat or an outboard-powered fishing boat. Still
others might be looking for something resembling a small ocean liner. Any
marketing effort directed toward such people would be wasted.
Instead the firm would direct its attention toward a particular portion, or
segment, of the total market for boats. A market segment is a group of individuals
or organizations, within a market, that share one or more common characteristics.
The process of dividing a market into segments is called market segmentation.
Marketers make use of a wide variety of segmentation bases. Planning a
segmentation strategy involves four steps. The first is to determine the market
segments. Second is to select the appropriate segment as a target market for the
prduct. Third is to develop procedures to serve the selected the segment; and
fourth, the program is carried out, consistently evaluated, and revised if necessary.
One method of determining market segments is to use demographic data. These
are physical attributes of a population. Different groups within a population have
different characteristics.
1. Population. How many people are there all together?
2. Population growth. What is the rate of population growth? How many
people will there be in ten, twenty, or thirty years?
3. Population density. In what areas is the population concentrated. How
densely?
4. Mobility. Is the population shifting to or from cities, suburbs, and country?
5. Per capita income. What is the average personal income?
6. Spending patterns. Which group has most often bought which products?
7. Employment. What proportions of the population are working in what
occupations?
8. Education. What proportion has had how much schooling?
9. Home ownership. How many people own their own homes? How many
rent? How many live in rooms and apartments?
10.
Age. What proportion of the population falls within each group? What
are the buying patterns of each group? (See the table below)
11.
Ethnic origin.
156
From studying demographic data, the marketing manager might decide to aim
his strategy toward a very specific target, or segment of the population: young
mothers of children under six who live in or near the urban centers of the
northeastern part of the country and whose families have annual income in the lowmiddle range. This is a strategy of concentration. market segmentation based upon
demographic information is an effective compromise with that impossible ideal.
Creating a Marketing Mix
A business firm controls four important elements of marketingelements that it
must combine in such a way as to reach its target market. These are the product
itself, the price of the product, the means chosen for its distribution, and the
promotion of the product. When they are combined, these four elements form a
marketing mix.
The firm can vary its marketing mix by changing any one or more of these
ingredients. Thus a firm may use one marketing mix to reach one target market and
a second, somewhat different marketing mix to reach another target market. For
example, the Neiman Marcus Group's specialty retailing businessesNeiman
Marcus, Bergdorf Goodman, and Contempo Casualsuse one marketing mix for its
most affluent and discriminating customers and another mix for younger, 17- to 24year-old women who are interested in the most fashion-forward apparel available at
moderate prices. Neiman Marcus and Bergdorf Goodman offer the highest possible
levels of customer service to their most affluent customers, while moderate prices
are emphasized at Contempo Casuals. Different products and prices immediately
result in different marketing mixes.
The product ingredient of the marketing mix includes decisions about the
design of the product, brand name, packaging, warranties, and the like. Thus, when
McDonald's Corp. decides on brand names, package designs, sizes of orders, flavors
of sauces, and recipes, these are all part of the product ingredient.
The pricing ingredient is concerned with both base prices and discounts of
various kinds. Pricing decisions are intended to achieve particular goals, such as to
maximize profit or even to make room for new models-The rebates offered by
automobile manufacturers are a pricing strategy developed to boost low auto sales.
The distribution ingredient involves not only transportation and storage but
also the selection of intermediaries. How many levels of intermediaries should be
used in the distribution of a particular product. Should the product be distributed as
widely as possible? Or should distribution be restricted to a few specialized outlets
in each area.
The promotion ingredient focuses on providing information to target markets.
The major forms of promotion include advertising, personal selling, sales promotion,
and publicity.
The "ingredients" of the marketing mix are controllable elements. The firm can
vary each of them to suit its organizational goals, marketing goals, and target
markets. As we extend our discussion to the firm's overall marketing plan, we will
157
2. Will people reject the product because of taboos against its name, color,
packaging, unit size, shape?
3. Is the society concerned with the quality of life?
4. How do people dress and act when doing business? Is it appropriate to be
casual, aggressive, punctual, and direct? Is it acceptable to give money to
government officials for their support?
I. VOCABULARY PRACTICE
A) Match the words with their definitions:
Market segment, marketing strategy, marketing mix, target market, total
market approach, market segmentation
1. A combination of product, price, distribution, and promotion developed to
satisfy a particular target market.
2. The process of dividing a market into segments.
3. A plan that will enable an organization to make the best use of its
resources and advantages to meet its objectives.
4. A group of individuals or organizations, within a market, that share one or
more common characteristics.
5. A group of persons for whom a firm develops and maintains a marketing
mix suitable for the specific needs and preferences of that group.
6. When a company designs a single marketing mix and directs it at the
entire market for a particular product.
a.
b.
c.
d.
B) Find the definitions of the following words. Put the letter of the
word next to the definition.
entrepreneur
e. confrence
i. proposal
investment
f. policy
j. paperwork
delegate
g. employer
k. objective
procurement
h. agenda
l. loan
_____ 1.
_____ 2.
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
a person who starts a business and takes a risk for the profit.
a general principle laid down for the guidance of executives in
handling their jobs.
3.
a person or business that hires persons for wages or salary.
4.
a list of things to be done.
5.
money spent (capital) in order to gain a profit or interest.
6.
a meeting for consultation or discussion.
7.
work involving reports, letters, forms, etc.
8.
money lent for a period of time.
9.
something purchased.
10.
a plan which is suggested.
11. one who is authorized to act for or represent others.
12. a goal or aim.
C) Complete the paragraphs below using the words from the following
list:
Segmentation, shown, expenditure, drive agencies, mix, trends, slogans,
campaign, costs, produce, run, leaders.
The total marketing (1) _____ includes service or product range, pricing policy,
promotional methods and distribution channels, but for world brands who aim to
159
be market (2) _____, a large part of marketing (3) _____ goes on (4) _____, a
concerted effort is made to promote and sell more of their products and this will
often involve an expensive advertising (5) _____ .
Marketers generally tend to divide markets up into separate groups according
to geographical area, income bracket and so on. This is known as market (6) _____ .
But a global marketing policy will obviously take much less account of local market
(7) _____ and concentrate instead on what different markets have in common.
As global commercials are (8) _____ on TV in many different countries, the
advertising (9) _____ tend to be high and obviously the biggest advertising (10)
_____ can (11) _____ commercials on such a global scale. Fortunately, global
commercials like those for Malboro cigarettes and British Airways can be (12) _____
for many years without looking out of date, and advertising (13) _____ such as the
worlds favourite airline and Always Coca Cola, will always be universally
recognized.
II. COMPREHENSION
Enlarge on:
1. Identify the four elements of marketing that a business firm controls. Give
their definitions and examples.
2. What external and uncontrollable forces affect the firm's marketing
activities?
3. In what way can changes in the environment have an impact on existing
marketing strategies?
III. FOCUS ON GRAMMAR
A) Insert propositions:
1. Different products and prices immediately result . different marketing
mixes. 2. The promotion ingredient focuses . providing information . target
markets. 3. A marketing strategy is a plan that will enable an organization to
make the best use .. its resources and advantages to meet its objectives. 4. Any
marketing effort directed such people would be wasted. 5. Changes .. the
environment can have a major impact .. existing marketing strategies. 6.Political
forcesgovernment
regulations
and
policies
that
affect
marketing,
whether or not they are directed specifically marketing.
VI. DISCUSSION
A) Discuss in groups:
1 Describe how a producer of computer hardware could apply the marketing
concept.
2 Is marketing information as important to small firms as it is to larger firms?
Explain.
3 How does the marketing environment affect a firms marketing strategy?
B) Work in small groups. Your company produces breakfast cereal and
you want to include small gifts in the box to attract young
consumers. You need to think of ideas for gifts that your company
can use for market research.
1. First think about your target market. What ages are the children? What
interests do they have?
2. Now brainstorm ideas for as many different gifts and toys as you can.
3. Choose the best idea and work out some details.
- What size is it?
- What colour(s) is it?
160
49%
51%
60%
72%
85%
57%
Using the family life cycle, in which stage would people, be most
likely to need these products?
161
product
fast food
a big car
a set of encyclopedias
expensive wine
laundry detergent
toys
television
laxative
shoes
a small car
sheets and blankets
a smaller house or apartment
a diaper service
a divorce counselor
sports equipment
___________
___________
___________
___________
___________
___________
___________
___________
___________
___________
163
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