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WORD STUDY

The word BUSINESS has several meanings. Depending on the meaning this
word can be countable or uncountable.
-

It is uncountable when it refers to:


the activity of making, buying, selling or supplying goods or services for money.
Syn.: trade, commerce.
E.g. big business, small business, to do business, to go into business
the work that is part of your job.
E.g. to be away on business.
something that concerns a particular person or organization, their responsibility.
E.g. It is my business to organize the exhibition.
a matter, an event, a situation
E.g. the business of the day.
It is countable when it refers to:
a commercial organization such as a company, shop or factory.
E.g. to have several businesses.
I. VOCABULARY PRACTICE
A) Find the words in the text
1 to buy =
2 to persuade=
7.
3 to employ=
4 to go bankrupt=
5 to produce=

that are the synonyms of:


6.
intermediary=
fundamental goal=
8.
businessman=
9.
to provide sb with sth=
10. merchandise=

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/

9 A-i asuma un risc/


10 A fi disponibil pentru cineva/ -
11 A fi interesat n cumprare/
12 Venit din vnzri/ .
II. COMPREHENSION
Give answers to the following questions:
1. What economic system is characteristic of the Republic of Moldova?
2. What is the most important characteristic of American business?
3. What is the important by-product of free enterprise?
4. What is business and who organized the modern American business?
5. What resources must be combined in order to start a business? What do
you think, what kind of resources is of greatest importance nowadays?
Give your reasons.
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6. What types of businesses do you know? To your mind, what type is


widespread in our Republic and why?
7. What is the ultimate objective of every firm? Do you agree with it?
8. What is profit and what is a loss? In your opinion, if the firms expenses are
equal to its sales revenue, can such firm still function or not?
9. What risks are assumed by businessmen?
10.
Do you agree or disagree with the statement: Life in general is a risky
business?
III. What is the usual antonym in the following pairs?
1) to sell
7) to fire
2)
producer
8)
intangible goods
3)
to wholesale
9)
to prosper
4)
profit
10) to gain
1 borrower
11) to add(e.g. 2+5)
2 employer
12) failure
IV. DISCUSSION
1. Is it easy or difficult to start and operate a business in our Republic?
2. What does one need in order to start his/her own business and to be a
successful entrepreneur?
Choose out of these 3 most important things and give your reasons:
- business knowledge
- courage
- leadership
- financial support
- tremendous drive (= a very strong desire to do sth)
- impertinence
- true entrepreneurial spirit
- brilliant ideas
- communication skills
- patience
3. If you had a chance to start a business, in what sphere would you like to
work?

The Economics of Business


Learning objectives:
1. Grasp the economics and economy concepts
2. Analyze Adam Smiths view about self-interest pursued by private
individuals
3. Recognize the four main features of laissez-faire capitalism
4. Comprehend how the 3 basic economic questions are answered in
the free-market economy
Study and Learn the Words:
English
to decide on sth
to stem from
to argue
to pursue
to endeavor
to
employ
ones
capital

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

to derive sth from


crucial (adj)
umpire (n)

to get sth from sth


important
arbitrator

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

to give all your attention to sth


that interests you
organized economic system
to make ones choice by paying
dollars
present, current price
to reduce production

supply of sth (n)

offer

demand for sth (n)


conversely (adv)
hence

as a result

dobnd,
procent
ofert;
aprovizionare
cerere
invers

Economics is the study of how wealth is created and distributed. By wealth we


mean anything of value, including the products produced and sold by business.
"How wealth is distributed" simply means "who gets what."
According to economic theory, every society must decide on the answers to
three questions:
1.
What goods and servicesand how much of eachwill be produced?
2. How will these goods and services be produced? (That is, who will
produce them and which resources will be used to do so?)
3. For whom will these goods and services be produced? (This is the
question "Who gets what?")
The way in which a society answers these questions determines the kind of
economic system, or economy, that society has chosen. In the United States, their
particular answers have provided them with a mixed economy, which is based on
laissez-faire capitalism, or private enterprise. Their free enterprise business system
is the practical application of this economic system.
Laissez-Faire Capitalism
Laissez-faire capitalism stems from the theories of Adam Smith, a Scot. In
1776, in his book The Wealth of Nations, Smith argued that a society's interests are
best served when the individuals within that society are allowed to pursue their own
self-interest.
Every individual endeavors to employ his capital so that its produce may be of
greatest value And he is in this led by an INVISIBLE HAND to promote an end
which was no part of his intention. By pursuing his own interest he frequently
promotes that of Society more effectually than when he really intends to promote it.
In other words, Smith believed that each person should be allowed to work
toward his or her own economic gain, without interference from government. In
doing so, each person would unintentionally be working for the good of society as a
whole. And society would benefit most when there was the least interference with
this pursuit of economic self-interest. Government should therefore leave the
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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
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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.
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7 Land, labour and capital.


8 An economic system in which individuals and firms are free to enter and
leave markets at will.
9 A person who settles disputes arising from conflicting interpretations of
some official acts.
10 An artificial device that aids in the exchange of resources for goods and
services.
B) Answer the following questions:
1. What economic system is there in the USA?
2. Speak about the history of Laissez-faire capitalism. What are its features?
3. What does the right of private property entitle the owner to do?
4. What is land, labour and capital?
5. What is economic freedom? What does it mean for the owners of land and
capital, for workers and for all individuals?
6. What are competitive markets?
7. What is the role of government in this economic system?
8. What are the 3 economic questions that every society must answer in
order to set up an economic system?
9. What economy do most of the industrialized nations of the world exhibit?
10. Who answers the questions What to produce? How to produce?, and
For whom to produce??
C) Finish the sentences:
1 The 3 basic economic questions are
2 By pursuing his own interest every individual.
3 For workers economic freedom means
4 The question What to produce? is answered by
5 If the price of one needed resource becomes too high, the producer.
6 Prices are determined by
III. DEBATE
Which of the 2 points of view concerning Adam Smiths famous statements
about self-interest do you adhere to? Form two teams. Each team should set forth
as many arguments as possible to defend their statements.
Team A
Adam Smiths statements
regarding self-interest are
actually statements about
greed.
The
capitalist
economic system is effective
only because of the greedy
behaviour of individuals who
are concerned with their own
self-interest.

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.

IV. FOCUS ON GRAMMAR


Fill in prepositions where necessary:
1. According ____ economic theory, every society must decide ____ the
answers ____ 3 questions.
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2. The American particular answers have provided them _____ a mixed


economy based ____ private enterprise.
3. Government should leave the economy ____ its citizens.
4. Entrepreneurs can produce any product and offer it ____ sale ____ the price
they choose.
5. Buyers and sellers can enter ____ a market and leave it ____ will.
6. When consumers refuse to buy a product ____ its going price, they are
voting _____ the product.
7. The distribution of goods and services depends ____ the current prices of
economic resources.
8. If a product is sold ___ high price, the demand ____ this product decreases.

1.2.1. Planned Economies


Learning objectives:
1. Comprehend how the 3 basic economic questions are answered
in planned economies
2. Differentiate between market economy and planned economies
3. Understand what every operating economy represents in reality
Study and Learn the Words:
English
at least
to some degree

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

As we have briefly discussed the workings of supply and demand in a market


economy, let us look quickly at two other economic systems that contrast sharply
with the capitalism of Adam Smith. These systems are sometimes called planned
economies, because the answers to the three basic economic questions are
determined, at least to some degree, through centralized government planning.
Socialism In a socialist economy, the key industries are owned and controlled
by the government. Such industries usually include transportation, public utilities,
communications, and those producing important materials such as steel. (In France,
the major banks are nationalized, or transferred to government control. Banking,
too, is considered extremely important to a nation's economy.) Land and raw
materials may also be the property of the state in a socialist economy. Depending
on the country, private ownership of real property (such as land and buildings) and
smaller or less vital businesses is permitted to varying degrees. People usually, may
choose their own occupations, but many work in state-owned industries.
What to produce and how to produce it are determined in accordance with
national goals, which are based on projected needs, and the availability of
resourcesat least for government-owned industries. The distribution of goods and
services is also controlled by the state to the extent that it controls rents and
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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

5 n concordan cu scopurile statului/

6 Printre scopurile proclamate/


7 Distribuirea echitabil a venitului/
8 Lichidarea
devastrii,
care
ipotetic
nsoete
concurena
capitalist/
,


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.
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4. supply
5. demand
6. ownership
7. bankruptcy

d) A payment by a government to producers of certain goods


to enable them to survive in a difficult economic situation.
e) Rights over property
f) Employment of personnel in excess of the real necessities
g) A component of the market forces which when it prevails
makes prices of goods fall

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
-

VI. Match the following 3 defintions with the words: Capitalism,


Socialism, Communism.
1. An economic system in which everyone has an equal right to a share of a
countrys wealth and the government owns and controls the main
industries. __________________
2. An economic system in which the state controls the means of producing
everything on behalf of people. __________________
3. An economic system in which a countrys businesses and industry are
controlled and run for a profit by private owners rather than by
government. _____________________
VII. DISCUSSION
Give extensive answers to the following questions:
1 What are the professed aims of a socialist economy?
2 Do you know the countries in which poverty does not exist?
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3 Is it ever possible to eliminate poverty completely or it is something


unreal?
VIII. DEBATE
Work in groups. Do you agree or disagree with the following
statements? Give your reasons:
1. The rich cannot exist without the poor.
2. The state has an obligation to take care of homeless and poor people.
3. The only thing that can remove poverty is sharing.
4. Poverty is not just being without food. It is the absence of affection.

1.3. Supply, Demand, Price and Competition


Learning objectives:
1. Comprehend how supply and demand determine the price
2. Characterize the four forms of competition
3. Analyze the possible advantages and disadvantages
competition both for the customers and for the sellers
Study and Learn the Words:
English
to affect
bushel
shift (n)
inflation (n)
generic product
brand name
Bayer
warranty (n)
recession (n)

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
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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:
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- there is a demand for a single product;


- all sellers offer the same product for sale;
- all buyers and sellers know everything there is to know about the market;
- the market is not affected by the actions of any one buyer or seller.
In pure competition the sellers and buyers must accept the going price. But
who or what determines the price? Actually, everyone does. The price of each
product is determined by the actions of all buyers and all sellers together, through
the forces of supply and demand. It is this interaction of buyers and sellers, working
for their best interest that Adam Smith referred to as the invisible hand of
competition.
Neither sellers nor buyers exist in a vacuum. What they do is interact within a
market. And there is always one certain price at which the quantity of a product
that is demanded is exactly equal to the quantity of that product that is produced.
Suppose producers are willing to supply 2 million bushels of wheat at a price of $5
per bushel and that buyers are willing to purchase 2 million bushels at a price of $5
per bushel. In other words, supply and demand are in balance, or in equilibrium, at
the price of $5. This is the "going price" at which producers should sell their 2
million bushels of wheat. Economists call this price the equilibrium price or market
price. Under pure competition, the market price of any product is the price at
which the quantity demanded is exactly equal to the quantity supplied.
In theory and in the real world, market prices are affected by anything that
affects supply and demand. The demand for wheat, for example, might change if
researchers suddenly discovered that it had very beneficial effects on users' health.
Then more wheat would be demanded at every price. The supply of wheat might
change if new technology permitted the production of greater quantities of wheat
from the same amount of acreage. In that case, producers would be willing to
supply more wheat at each price. Either of these changes would result in a new
market price. Other changes that can affect competitive prices are shifts in buyer
tastes, the development of new products that satisfy old needs, and fluctuations in
income due to inflation or recession. For example, generic or "no-name" products
are now available in supermarkets. Consumers can satisfy their needs for products
ranging from food to drugs to paper products at a lower cost, with quality
comparable to brand name items. Bayer was recently forced to lower the price of its
very popular aspirin because of competition from generic products.
Pure competition is only a theoretical concept. Some specific markets may
come close, but no real market totally exhibits perfect competition. Many real
markets, however, are examples of monopolistic competition. Monopolistic
competition is a market situation in which there are many buyers along with
relatively many sellers who differentiate their products from the products of
competitors and it is very easy to enter into this market. The various
products available in a monopolistically competitive market are very similar in
nature, and they are all intended to satisfy the same need. However, each seller
attempts to make its product somewhat different from the others by providing
unique product features an attention-getting brand name, unique packaging, or
services such as free delivery or a "lifetime" warranty.
Product differentiation is a fact of life for the producers of many consumer
goods, from soaps to clothing to personal computers. Actually, monopolistic
competition is characterized by fewer sellers than pure competition, but there are
enough sellers to ensure a highly competitive market. By differentiating its product
from all similar products, the producer obtains some limited control over the market
price of its product.
An oligopoly is a market situation (or industry) in which there are few sellers
(2-8). Generally these sellers are quite large, and sizable investments are required
to enter into their market. For this reason, oligopolistic industries tend to remain
14

oligopolistic. Examples of oligopolies are the American automobile, industrial


chemicals, and oil refining industries.
Because there are few sellers in an oligopoly, each seller has considerable
control over price. At the same time, the market actions of each seller can have a
strong effect on competitors' sales. If one firm reduces its price, the other firms in
the industry usually do the same to retain their market shares. If one firm raises its
price, the others may wait and watch the market for a while, to see whether their
lower price tag gives them a competitive advantage, and then eventually follow
suit. All this wariness usually results in similar prices for similar products. In the
absence of much price competition, product differentiation becomes the major
competitive weapon.
A monopoly is a market (or industry) with only one seller. Because only one
firm is the supplier of a product, it has complete control over price. However, no
firm can set its price at some astronomical figure just because there is no
competition; the firm would soon find that it had no sales revenue, either. Instead,
the firm in a monopoly position must consider the demand for its product and set
the price at the most profitable level.
The few monopolies in American business don't have even that much leeway in
setting prices because they are all carefully regulated by government.
Most monopolies in America are public utilities, such as we find in electric
power distribution. They are permitted to exist because the public interest is best
served by their existence, but they operate under the scrutiny and control of
various state and federal agencies.
I. VOCABULARY PRACTICE
A) Match the words with their definitions:
1. to range from A to B
2. beneficial
3.
4.
5.
6.
7.

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

B) Find in the text the antonyms to the following words:


1 supply
2 generic product
3 customer
4 to be reluctant to do sth
5 deflation
6 to reduce the price
7 to ban
II. COMPREHENSION
A) Mark the statements with TRUE or FALSE:
1 Monopoly is a form of competition.
2 There is no product differentiation in pure competition.
3 All sellers offer the same product for sale in monopolistic competition.
15

4
5
6
7
8

American automobile industry is an example of pure competition.


Product differentiation is a fact of life for the consumers of many goods.
A monopolist can set any price he/she wants.
In oligopoly there can be 6 sellers.
There are more sellers in monopolistic competition than in pure
competition.
9 Because of competition from generic products many famous companies
are forced to lower the prices of their brand-name products.
10 Oligopolists usually offer similar prices for similar products.
B) Choose the best variant (sometimes 2 variants are possible):
1 Competition offers consumers choices in
a) price
c) style
b) quality
d) all of the above
2 In order for competition to exist there must be
a) many products
b) 2 or more companies in the same business
c) 2 or more companies in different businesses
d) profits
3 An oligopoly exists when the control of the goods and services is in the
hands of
a) 1 large company
c) 2 big companies in the same business
b) several small companies
d) 10 sizable companies
4 Many real markets are examples of
a) monopoly
c) monopolistic competition
b) oligopoly
d) pure competition
5 By differentiating his product the producer obtains
a) many consumers
c) profit
b) control over price
d) monopoly
6 Product differentiation is characteristic of
a) monopoly
c) monopolistic competition
b) oligopoly
d) pure competition
7 Barriers to enter the market are characteristic of
a) monopoly
c) monopolistic competition
b) oligopoly
d)
pure competition
III. DISCUSSION
1. Comment on the statement: Business competition encourages efficiency
of production and leads to improved product quality.
2. List the possible advantages and disadvantages of competition.
3. What kind of competition is there in the market of mobile communication
in our country?
4. Give examples of monopolies in our country. Why are monopolies
prohibited in some countries?
IV. CASE STUDY
Read the following text and answer the questions:
Business Philosophy at the J.M. Smucker Company
With a name like Smuckers, it has to be good. Based on Smuckers recent
success and growth in the jam, jelly, preserves and marmalade industry, it would be
hard for anyone to doubt that statement. The total jam and jelly sales for Smuckers
16

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

To fend off = to defend or protect yourself from competitors who are


attacking you
Preservative (n) = a substance used to prevent food from decaying
Outragious (adj) = very unusual and slightly shocking
Integrity = the quality of being honest
Wholesome (adj) = good for your health
Grade A designation = having the status of offering the best quality
Questions:
1. What is the business that the J.M. Smucker Company is in? Can such
business be profitable in our country?
2. How many plants of this company function and where are they situated?
3. How much percent of shares did this company sell to individual investors?
4. Economists recognize 4 different degrees of competition. In which type of
competitive situation does Smuckers participate?
5. What is the Smuckers strategy for mantainig the leading position in the
industry?
6. What are the major components of Smuckers business philosophy that
have helped this organization survive for over 90 years?
7. Why has Smuckers been able to compete against jelly giants such as
Kraft and Welchs?

18

2. THE FORMS OF BUSINESS OWNERSHIP


That business does not prosper which you
transact with the eyes of others
Sir Roger LEstrange

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

to ask sb for sth

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

particular example, case

to account for
(ph.v)
corner grocery

Romanian
ntreprindere
individual
parteneriat,
asociere
societate pe
aciuni

to find or get sth

unlimited liability

rspundere
nelimitat

assets (n)

active, avere

to seize

to take sth using force

continuity (n)
mortgage loan
to be incapacitated
on occasion
janitor (n)

a credit for which only real


estate is pledged
to be unable to live or work
normally
sometimes
caretaker

expertise (n)
to quit

to leave ones job

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.

2.1. Sole Proprietorships


A sole proprietorship is a business that is owned (and usually operated) by
one person. Sole proprietorship is the oldest and simplest form of business
ownership, and it is the easiest to start. In most instances, the owner (the sole
proprietor) simply decides that he or she is in business and begins operations.
Some of the largest of today's corporations, including Ford Motor Company, H.J.
Heinz Company, and J.C. Penney Company, started out as tiny sole proprietorships.
There are more than twelve million sole proprietorships in the United States.
They account for more than two-thirds of the countrys business firms. Sole
proprietorships are most
common in the retailing, agriculture, and service
industries. Thus the specialty clothing shop, corner grocery, and television repair
shop down the street are likely to be sole proprietorships.
Most of the advantages and disadvantages of sole proprietorships arise from
the two main characteristics of this form of ownership: simplicity and individual
control.
Advantages of Sole Proprietorships
Ease and Low Cost of Formation and Dissolution No contracts,
agreements, or other legal documents are required to start a sole proprietorship.
Most are established without even an attorney. A state or city license may be
required for certain types of businesses, such as restaurants or catering services,
that are regulated in the interest of public safety. But beyond that, a sole proprietor
does not pay any special start-up fees or taxes. Nor are there any minimum capital
requirements.
If the enterprise does not succeed, or the owner decides to enter another line
of business, the firm can be closed as easily as it was opened. Creditors must be
paid, of course. But the owner does not have to go through any legal procedure
before hanging up an "Out of Business" sign.
Retention of All Profits All profits earned by a sole proprietorship become
the personal earnings of its owner. This provides the owner with a strong incentive
to succeedperhaps the strongest incentiveand a great deal of satisfaction when
the business does succeed. It is this direct financial reward that attracts many
entrepreneurs to the sole proprietorship form of business.
Flexibility The sole owner of a business is completely free to make decisions
about the firm's operations. Without asking or waiting for anyone's approval, a sole
proprietor can switch from retailing to wholesaling, move a shop's location, or open
a new store and close an old one. A sole owner can also respond to changes in
market conditions much more quickly than the operators of other forms of business.
Suppose the sole owner of an appliance store finds that many customers now prefer
to shop on Sunday afternoons. He or she can make an immediate change in
business hours to take advantage of that information (provided that state laws
allow such stores to open on Sunday). The manager of one store in a large
corporate chain may have to seek the approval of numerous managers before
making such a change. Furthermore, a sole proprietor can quickly switch suppliers
20

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

a) the ability to change very quickly in order to suit new conditions


b) money that is lent to sb by a bank or another financial
organization
c) a person who helps or supports sb in their work
d) money that you have saved, especially in a bank
e) an official written agreement between two parties
f) money that you pay in order to set up a new business
g) the profit that a company makes
h) an official document that shows that permission has been given
to do, own or use sth
i) the act of officially ending a business
j) the hours in a day that a shop or company is open
k) money that you have to pay to the government
l) a person who has the legal right to receive sbs property and
continue the work after their death

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

3 All the following are advantages of a sole proprietorship EXCEPT


a the owner is only answerable to himself/herself
b there is no requirement to submit profit accounts
c the possibility to have competent employees
4 If a sum of money was lent to a sole proprietorship, the responsibility to
repay the loan is assumed
a by the owner himself/herself
b by the owners family members
c by the owners staff
5 The major factor that discourages from starting up a sole proprietorship is
a limited ability to borrow
b unlimited liability
c limited business knowledge
6 Employees dont want to work for a single owner because
a they are given too many responsibilities
b they are not paid as they deserve
c they dont have the chance to be promoted.
III. Fill in the gaps with the appropriate words whose parts of speech
are given in brackets in order to facilitate your task:
1 There are _________ advantages of sole proprietorships. (Numeral)
2 It is _________ and relatively _________ to start and end such form of
business. (Adjectives)
3 All the ___________ go to the owner of business. (Noun)
4 The sole proprietor is free _____________
______________ about everything
what refers to his/her firm. (Verb + noun)
5 The sole proprietor pays __________ the tax on his personal income.
(Adverb)
6 The single owner is sure that competitors ____________ nothing about
his/her business plans, profits or other vital facts. (Verb)
IV. Now describe the disadvantages of a sole proprietorship using just
one sentence for each of them.
V. DISCUSSION
1 What is a start-up fee for a would-be entrepreneur in our country?
2 Try to analyze the advantages and disadvantages of a sole proprietorship
by putting them on the scales. To your mind, what pan outweighs the
one with advantages or another one with disadvantages? Give your
reasons.
VI. FOCUS ON GRAMMAR
Comparative and Superlative Degrees:
A) Complete the sentences using a comparative form; the first one has
been done for you:
1. Its too noisy here. Can we go somewhere quiter?
2. This coffee is very strong. I like it a bit ____________
3. The hotel was very cheap. I expected it to be ________________
4. I was surprised how easy it was to get a loan. I thought it would be
_______________
5. You are standing too near the camera. Can you move a bit
__________________ away?
23

B) Use the superlative degree and underline the correct variant:


1. (large) company in the world is (IBM, General Motors, Chrysler).
2. (rich) country in the world is (Russia, USA, Luxembourg).
3. (tall) building in Europe is in (Germany, France, Great Britain).
4. (USA, India, China) has (large) population.
5. (high) waterfall in the world is in (South Africa, USA, Venezuela).

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

the terms of the


partnership
to list
to spell out

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 major disadvantages of a sole proprietorship stem from its one-person


controland the limited amount that one person can do in a workday. One way to
reduce the effect of these disadvantages is to have more than one owner. Multiple
ownership translates into more time devoted to managing, more management expertise, and more capital and borrowing ability.
24

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

How will the profits be divided between partners?


Who will approve payments and sign checks?
Will profits be poured back into business or distributed to partners?
Which employees will report to which partners?
How will the responsibilities be divided between partners?
What happens if one partner is dissatisfied with the way another partner
handles a particular responsibility?
How much time will each partner be required to devote to business?
If the business goes rough, how will the partners decide whether to give
up or to try to turn it around?
How will the conflicts be settled? Will they be ended by deferring to the
partner with the most expertise in the matter or by a neutral expert third
party?

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

to give sb the right


to do sth

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

to take sth over

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

The advantages of a partnership over a sole proprietorship derive mainly from


the added capital and expertise of the partners. However, some of the basic
disadvantages of the sole proprietorship also plague the general partnership.
Unlimited liability and restraints on capital resources and borrowing, for example,
can hinder a partnership's growth. A third form of business ownership, the
corporation, succeeds in overcoming some of these disadvantages.
Corporation is an artificial person created by law, with most of the legal rights
of a real person. These include the right to start and operate a business, to own or
dispose of property, to borrow money, to sue or be sued, and to enter into binding
contracts. Unlike a real person, however, a corporation exists only on paper.
There are more than 3.2 million corporations in the United States. They
comprise only about one-fifth of all businesses, but they account for more than
nine-tenths of all sales revenues and more than three-quarters of all business
profits.
Corporate ownership: The shares of ownership of a corporation are called its
stock. The people who own a corporation's stockand thus own part of the
corporation are called its stockholders, or sometimes its shareholders. Once a
corporation has been formed, it may sell its stock to individuals. It may also issue
stock as a reward to key employees in return for certain services, or as a return to
investors (in place of cash payments).
31

A close corporation is a corporation whose stock is owned by relatively few


people and is not traded openly (that is, in stock markets). A person who wishes to
sell the stock of such a corporation generally arranges to sell it privately, to another
stockholder or a close acquaintance.
An open corporation is one whose stock is traded openly in stock markets and
can be purchased by any individual. General Motors, the largest industrial company
in the USA, is an example. Most large firms are open corporations, and their
stockholders may number in the millions. For example, AT&T is owned by more than
3 million shareholders.
Forming a corporation
The process of forming a corporation is called incorporation. The people who
actually start the corporation are its incorporators. They must make several
decisions about the corporation before and during the incorporation process.
Where to Incorporate A business is allowed to incorporate in any state it
chooses. Most small and medium-sized businesses are incorporated in the state
where they do the most business. However, the founders of larger corporations, or
of those that will do business nationwide, may compare the benefits provided to
corporations by various states. Some states are more hospitable than others, and
some offer low taxes and other benefits to attract new firms. Delaware is
acknowledged as offering the most lenient tax structure. A huge number of firms
(more than 75,000) have incorporated in that state, even though their corporate
headquarters may be located in another state.
An incorporated business is called a domestic corporation in the state in
which it is incorporated. In all other states where it does business, it is called a
foreign corporation. Scars, Roebuck, for example, is incorporated in New York,
where it is a domestic corporation. In the remaining forty-nine states, it is a foreign
corporation. A corporation chartered by a foreign government and conducting
business in the United States is an alien corporation. Volkswagen, Sony, and
Toyota are examples of alien corporations.
The Corporate Charter Once a "home state" has been chosen, the incorporators submit articles of incorporation to the secretary of state. If the articles of
incorporation are approved, they become the firm's corporate charter. A corporate
charter is a contract between the corporation and the state, in which the state
recognizes the formation of the artificial person that is the corporation. Usually the
charter (and thus the articles of incorporation) includes the following information:
- Firm's name and address
- The incorporators' names and addresses
- The purpose of the corporation
- The maximum amount of stock and the types of stock to be issued
- The rights and privileges of shareholders
- How long the corporation is to exist (usually without limit)
Each of these key details is the result of decisions that the incorporators must
make as they organize the firmbefore the articles of incorporation are submitted.
Let us look at one area in particular: stockholders rights.
Stockholders' Rights There are two basic kinds of stock. Each type entitles the
owner to a different set of rights and privileges. The owners of common stock may
vote on corporate matters, but their claims on profit and assets are subordinate to
the claims of others. Generally, an owner of common stock has one vote for each
share owned. All common stock owners receive dividends but the amount of these
dividends depends on the profitability of the company. The owners of preferred
stock usually do not have voting rights, but their claims on profit and assets take
32

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

B) Choose the correct meaning of the following words:


1 to hinder means:
a to be very common at a particular time;
b to make it difficult for sth to happen;
c to understand the core of the situation.
2 to sue means:
a to bring an action against sb;
b to bring sth into force;
c to bring the matter forward.
3 lenient means:
a generous and friendly;
b using strong pressure;
c not as strict as expected.
4 to submit means:
a to draw up a document;
b to present a document;
c to sign a document.
5 to attend means:
a to be present at an event;
b to guess sth from an available information;
c to send sb a message.
II. COMPREHESION
A) Give words to the following definitions:
1 A large business company .......................................
2 A person who owns shares of a company ..
3 The process of forming a corporation ..
4 A contract between the state and the corporation which gives to the latter
the legal status .
5 A group of people who have power to make decisions and control a
corporation .
6 A legal document through which a shareholder gives the authority to some
other individual to vote instead of him .
B) Answer the following questions:
1 What is the difference between a close and an open corporation?
2 Who are incorporators?
3 Why have most American companies incorporated in Delaware? What do
you know about this state?
4 What is the difference between domestic, foreign and alien corporations?
5 What information does the corporate charter include?
6 What rights do stockholders have?
7 In your opinion, what type of stock common or preferred do the
stockholders prefer to buy and why?
8 What does it mean to vote by proxy?
9 Arrange the following persons according to the hierarchy of corporate
structure:
a) corporate officers
b) stockholders
c) workers
34

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

Specialized Management Typically, corporations are able to recruit more


skilled and knowledgeable managers than proprietorships and partnerships. This is
because they have more available capital and are large enough to offer
considerable opportunity for advancement. Within the corporate structure,
administration, human resources, finance, sales, and operations are placed in the
charge of experts in these fields. For instance, the Bechtel Group hired Caspar
Weinberger, former Secretary of Defense.
Disadvantages of Corporations
Difficulty and Expense of Formation Forming a corporation can be a relatively complex and costly process. The use of an attorney may be necessary to
complete the legal forms and apply to the state for a charter. Charter fees,
attorneys fees, the costs of stock certificates and required record keeping, and
other organizational costs all add up. These payments can amount to thousands of
dollars for even a medium-sized corporation. The costs of incorporating, in both
time and money, discourage many owners of smaller businesses from forming
corporations.
Government Regulation Most government regulation of business is directed
at corporations. A corporation must meet various government standards before it
can sell its stock to the public. Then it must file many reports on its business
operations and finances with local, state, and federal governments. In addition, the
corporation must make periodic reports to its stockholders about various aspects of
the business. Also, its activities are restricted by law to those spelled out in its
charter.
Double Taxation Unlike sole proprietorships and partnerships, corporations
must pay a tax on their profits. Then stockholders must pay a personal income tax
on profits received as dividends. As a result, corporate profits are taxed twiceonce
as corporate income and again as the personal income of stockholders.
Lack of Secrecy Because open corporations are required to submit detailed
reports to government agencies and to stockholders, they cannot keep their
operations confidential. Competitors can study these required corporate reports and
then use the information to compete more effectively. In effect, every public
corporation has to share some of its secrets with its competitors.
I. VOCABULARY PRACTICE
Find in the text the English equivalents for the following phrases of
words:
1. A revendica proprietatea corporaiei/
;
2. A expune aciunile pentru vnzare/ ;
3. Doar dac n carta corporaiei nu este prevzut altceva/
;
4. A corespunde standartelor de stat/
;
5. Activitile stipulate n carta corporaiei /,
;
6. Fostul Ministru al Aprrii/ .
36

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

a) the effective management committee of a corporation


b) if the company fails, creditors have a claim on the personal
assets of its owners
c) the highest position on a companys board of directors
d) if the company goes bankrupt, the shareholders cannot be
asked to pay more than the nominal value of their shares
e) banks, insurance companies, building societies
f) a person who buys and sells stocks for other people
g) an amount of the profits that a company pays to its
shareholders
h) the people who run and control an organization

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)

IV. FOCUS ON GRAMMAR


Complete the sentences using an adjective from box A and a
preposition from box B:
A
similar
interested
critical
good
responsible
serious
satisfied
binding
different

B
of
with
for
about
from
at
to
in
on

1. Could you tell me who is _____________________________


customer
complaints?
2. My current job is very _________________________________ my previous one.
3. Last month the companys sales dropped dramatically. This is only
___________________ a slump registered 5 years ago.
4. Our shareholders are greatly ________________ the profit and loss account
we publish twice a year.
37

5. The chairman opened the meeting by saying he was ____________________


the progress made.
6. The press were _________________________ the company because staff
training had not improved.
7. My manager is _______________________ firing 2 people.
8. Tom was appointed as president of our corporation because he is very
_______________
leading and motivating people.
9. The contract comes into force on the day of its signature and is
_________________ both parties.
REVISION
Learning objectives:
1. Understand the basic differences among the 3 forms of business
ownership
2. Give arguments for their choice of the most advantageous form of
business ownership
I. Fill in the gaps with the necessary words:
Businesses are organized in different ways. When there is one owner, the
company is called a (1) proprietorship. If two or more people associate to form a
company they make up a (2). In both these organizations the (3) supply the
capital and as a rule they assume the management of the organization. They also
have (4) liability and are entitled to take possession of all the profits the company
makes and all (5) are borne by them.
On the other hand there are limited (6) companies. Such types of companies
are either (7) or public. The former type involves that the public has not (8) to
the company, the shares are sold to a restricted number of people. (9) are the
parts into which the assets of a company are divided. The owners of the company
are (10) and they hold shares in proportion with the (11) they invested in the
company. The management of limited liability company is entrusted to a (12) of
directors elected by the (13) at the Annual Meeting. A shareholder who cannot
attend the meeting may vote by (14).
The shareholders are entitled to the (15) made by the company and therefore
receive (16). When a stockholder is offered additional stock in advance of public it
means that he has a (17) right.
II. What is the usual antonym in the following pairs?
1 general partner and
2 common stock and
3 private corporation and
4 short-term financing and
5 formation and
6 to borrow and
7 employer and
8 profit and
III. Complete the following chart:
Characteristics

Sole
proprietorship

1. The number of owners


2. Organizational documents
3. Taxes paid

38

Partnership

Corporation

4. Liability
5. Ability to borrow
6. Government control
7.
of
8.
of

The most widespread form


doing business
The most profitable form
doing business

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)

Many countries make a clear distinction between public and private


companies, with separate designations such as AG and GmbH in Germany,
or Plc and Ltd in Britain. Public companies are those large enough to have
their shares traded on stock exchanges. The shares of privately owned
companies are not available to the general public. In the USA the
distinction between public and private companies is not so great, that is
why most companies simply bear the title Inc or Incorporated.

39

(3)

The heart of capitalism is private ownership and a Limited Liability


Company allows people to own almost anything from skyscrapers to
television stations without risking their personal assets should the
company go bankrupt.

(4)

The names of companies around the world reflect this guarantee of


limited liability. The abbreviations GmbH in Germany, Inc in the USA,
or Ltd. in most other English-speaking countries, SRL in Moldova and
Romania indicate that the firm is limited liability company and investors
have nothing more to lose than the money invested in their shares. The
S.A. in French and Spanish-speaking countries also refers to limited
liability by defining shareholders as anonymous. Since the identity of
shareholders can be kept secret, the creditors of a bankrupt company
have no right to pursue them for the companys unpaid debts.

(5)

The worst that can happen to investors in a limited liability company is


losing their initial investment if the company fails. By limiting the
downside risk for shareholders, companies are able to attract investors
and raise large amounts of funds through sales of shares rather than by
borrowing money at potentially high interest rates.

VII. FOCUS ON LANGUAGE


Fill in to run or to do in the following sentences:
1 I . freelance work in my spare time.
2 I .. my own company from home.
3 My friend .. an agency for computer programs.
4 What do you for a living?
5 Who the business when you are away?
6 I have been .. business with this French firm for 2 years.
7 The business doesnt. itself, you know!
8 The college language courses for foreign students.
9 Our van on diesel.
10 The car was .. 90 miles an hour.

40

3. MONEY AND BANKING


Money represents the sixth sense that
makes it possible for us to enjoy the other five

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

Here are some sayings about money. Comment on them in pairs:


- Money makes the world go round
- Money is the root of all evil
- Time is money
- The only way to double your money is to fold the banknotes and put them
into your pocket
- Money talks
- Easy come, easy go

3.1. What is Money?


Money is considered to be one of the greatest inventions of humanity along
with the alphabet and wheel. Its role in a societys life is still very important. As
Shakespeare wrote: Gold makes white out of black and a hero out of a coward. So
what is money?
Money is anything used by a society to purchase goods and services or
resources. The members of the society receive money for their products or
resources; then they either hold that money or use it to purchase other products or
resources, when and how they see fit.
Before money was in general use, people traded goods and services for other
goods and services. This system of the exchange of goods and services without the
use of money is called barter system. For example, one family may raise vegetables
and herbs on a plot of land; and another may weave cloth. To obtain food, the
family of weavers trades cloth for vegetables, provided that the farming family is in
need of cloth.
The trouble with barter is that the two parties in an exchange must need each
others product at the same time, and the two products must be roughly equal in
value. It may work well when few products, primarily the necessities of life, are
available. But even very primitive societies soon developed some sort of money to
eliminate the inconvenience of trading by barter.
Over the years, different groups of people have used all sorts of objects as
money whales teeth, stones, beads, seashells, salt, furs, tobacco, copper crosses,
and such metals as gold and silver. Such items are known as commodity money.
The first coins made of gold and silver appeared in China in the IXth century
BC.
Alexander the Great (356-323BC) was the first emperor who engraved his
image on the coin of his empire. Later almost all the other monarchs followed suit.
The use of paper money began in the early XVIIth century. Today, the most
commonly used objects are metal coins and paper bills, which together are called
currency.
42

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

later. Hence money serves as a store of value, or a means for retaining


and accumulating wealth. This function of money comes into play
whenever we hold on to moneyin a pocket, a cookie jar, a savings
account, or whatever. Value that is stored as money is affected by
fluctuations in the economy. One of the major problems caused by
inflation is a loss of stored value: as prices go up in an inflationary period,
money loses value. Suppose you can buy a Sony stereo system for $1,000.
Then we may say that your $1,000 now has a value equal to the value of
that system. But let us suppose that you wait a while and dont buy the
stereo immediately. If the price goes up to $1,100 in the meantime
because of inflation, you can no longer buy the stereo with your $1,000.
Your money has lost value because it is now worth less than the stereo.
Important Characteristics of Money
To be acceptable as a medium of exchange, money must be fairly easy to use,
it must be trusted, and it must be capable of performing its functions. Together,
these requirements give rise to five essential characteristics:
Divisibility The standard unit of money must be divisible into smaller units to
accommodate small purchases as well as large ones. American standard is the
dollar, and it is divided into one-hundredths, one-twentieths, one-tenths, onefourths, and one-halfs through the issuance of coins (pennies, nickels, dimes,
quarters, and half-dollars, respectively). These allow people to make purchases of
less than a dollar and of odd amounts greater than a dollar.
Portability Money must be small enough and light enough to be carried easily.
For this reason, paper currency, is issued in larger denominations multiples of the
standard unit. Five-, ten-, twenty-, fifty-, and hundred-dollar bills make our money
convenient for almost any purchase.
Stability Money should retain its value over time. When it does not (during
periods of high inflation), people tend lo lose faith in their money. They may then
turn to other means of storing value (such as gold and jewels, works of art, and real
estate). In extreme cases, they may use such items as a medium of exchange as
well. They may even resort to barter.
Durability The objects that serve as money should be strong enough to last
through reasonable usage. No one would appreciate (or use) dollar bills that
disintegrated as they were handled or coins that melted in the sun.
Difficulty of Counterfeiting If a nations currency were easy to counterfeit
that is, to imitate or fakeits citizens would be uneasy about accepting it as
payment. Even genuine currency would soon lose its value, because no one would
want it. Thus the countries that issue currency do their best to ensure that it is very
hard to reproduce.
I. VOCABULARY PRACTICE
A) Find in the text the words that are the synonyms of:
1. on condition that=
6. to rise=
2. problem=
7. worn-out (adj)=
44

3. necessity=
4. to help=
5. outright (adv)=

8. to forge=
9. difficult=
10. banknote=

B) Explain the meaning of the following phrases of words:


1. to be roughly equal in value
2. to come into play
3. to be in great demand
4. to be at hand
5. to follow suit
6. to be fairly easy to use sth
7. to last through reasonable usage
C) Give English equivalents:
1. mijloc de schimb/
2. msurare a valorii/
3. numitor comun/
4. lot de pmnt/
5. conservarea valorii/
6. banknotele se emit n valoarea mai mare/

7. a-i pierde ncrederea/
8. proprietatea imobiliar/
9. moneda veritabil/
10.
oamenii cu un venit mai sczut/ .
II. COMPREHENSION
A) Give answers to the following questions:
1. What is money and what do you know about its history?
2. What is barter and what is the trouble with it?
3. What is commodity money and who used this money?
4. Why do people need money?
5. Name the functions of money and characterize them.
6. Enumerate the characteristics of money. Which one seems the most
appealing to you and why?
7. Why should the standard unit of money be divided into smaller units?
Associate the following coins with the Moldavian ones:
a) a penny
d) a quarter b) a nickel
e) a dime c) a half-dollar 8. Why is paper money issued in larger denominations?
9. When do people tend to lose faith in their money? What do they do in this
case?
10. What do people usually do with handled or deteriorated bills or coins?
11. Why do issuers of currency make it very hard to be reproduced?
12.
Money counterfeiting is it a criminal or a civil case? What happens to
counterfeiters according to the appropriate articles of law in our country?
Do you agree with the punishment stipulated in these articles?
B) Find in the text the words to the following definitions:
1. coins and paper money ________________
2. the means of exchanging sth for sth without using money ________________
45

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?

putting it under the mattress

buying a lottery ticket

visiting a casino

depositing it in a bank

buying gold

investing it in your own business

buying a Van Gogh painting

buying shares of a corporation

investing it in real estate

going on a spending spree


Choose out of these 3 items that would characterize your actions concerning
your money. Give your reasons. Use the following structure:
If I possessed a large amount of money I would
3. How much money do you need to consider yourself to be a rich person? Is
it possible to earn this sum of money in an honest way in our Republic?
4. When you see a person for the first time, can you detect whether the
person is rich, with average income, or poor. If yes, than how?
5. Can everything be bought with money?
6. What would be the consequences of a world without money? Would there
be no poverty? Could we use a barter system instead?

46

IV. FOCUS ON GRAMMAR


Fill in prepositions:
1. Our company decided to trade our services ______ the products of our
commercial partners.
2. The trouble ______ wax is that it melts _____ the sun.
3. Money eliminates the problems associated ______ the barter system.
4. I bought his share of business ______ $20000.
5. When people lose faith ____ their money, they may resort _____ barter.

3.2 The Supply of Money: M1, M2, M3


Learning objectives:
1 Grasp the money supply concept
2 Differentiate between a demand deposit and time deposit
3 Study the lexicon of public and personal finance
Study and Learn the Words:
English

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)

suma de bani care se


napoiaz persoanei n
caz dac ea a renunat
la polia de asigurare
agregat monetar

,
,

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

Study the text and be ready to comment on it:

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.

b) money held in a business to cover small expenses;


c) pocket money given to children.
cash dispenser is
a) someone who spends money;
b) machine in or outside a bank from which you can get money with a
card;
c) device used to sort out money.
cash register is
a) machine used in shops to record the money;
b) a special book where you keep the record of money coming in and
getting out;
c) person who records money in a bank.
cash-and-carry is
a) method to pay for the transport of goods;
b) large shop where goods are paid at cheaper prices and removed by
customers;
c) money you receive for delivering the goods.
cash cow is
a) animal bred to be sold;
b) part of business that brings enough profits;
c) someone you can cheat to get undue money.
cash discount is
a) reduction in a price if you pay immediately;
b) reduction of the sum of money you owe;
c) reduction in a price if you buy goods in bulk.
cash desk is
a) a table in which you keep money;
b) a television company office that deals with monetary issues;
c) place in a shop where you pay for goods that you have bought.

51

3.3.

The Banking Industry


Learning objectives:
1. Describe the modern banking system
2. Understand the differences between commercial banks and other
financial institutions in the banking industry
Study and Learn the Words:

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

Federal Reserve System is controlled by the seven members of its Board of


Governors, who meet in Washington, D.C. Each governor is appointed by the
president and confirmed by the Senate for a fourteen-year term. The president also
selects the chairman and vice chairman of the board from among the board
members for four-year terms. These terms may be renewed. .
The Federal Reserve System includes twelve Federal Reserve District Banks,
which are located throughout the United States, as well as twenty-five branchterritory banks. Each Federal Reserve District Bank is actually ownedbut not
controlledby the commercial banks that are members of the Federal Reserve
System. All national banks must be members of the Fed. State banks may join if
they choose to and if they meet membership requirements.
A commercial bank is a profit-making organization that accepts deposits,
makes loans, and provides related services to its customers. Like other businesses,
the bank's primary goalits purposeis to earn a profit. Its inputs are money in the
form of deposits, for which it pays interest. Its primary output is loans, for which it
charges interest. If the bank is successful, its income is greater than the sum of its
expenses, and it will show a profit.
Because banks deal with money belonging to individuals and other firms, they
are carefully regulated. They must also meet certain requirements before they are
chartered, or granted permission to operate, by federal or state banking authorities.
A national bank is a commercial bank that is chartered by the U.S. Comptroller of
the Currency, There are approximately 5,500 national banks, accounting for about
53 percent of all bank deposits. These banks must conform to federal banking
regulations and are subject to unannounced inspections by federal auditors.
A state bank is a commercial bank that is chartered by the banking
authorities in the state in which it operates. State banks outnumber national banks
by about two to one, but they tend to be smaller than national banks. They are
subject to unannounced inspections by both state and federal auditors.

3.3.1 Other Financial Institutions


Savings and Loan Associations A savings and loan association (S&L) is
a financial institution that primarily accepts savings deposits and provides homemortgage loans. Originally, they were permitted to offer their depositors only
savings accounts. But since Congress passed the Depository Institutions
Deregulation and Monetary Control Act, which became effective on January 1, 1981,
they have been able to offer interest-paying checking accounts (NOW accounts) to
attract depositors. A NOW account is an interest-bearing checking account. (NOW
stands for Negotiable Order of Withdrawal.)
Credit Unions A credit union is a financial institution that accepts deposits
from, and lends money to, only those people who are its members. Usually the
membership is composed of employees of a particular firm, people in a particular
profession, or those who live in a community served by a local credit union. Some
credit unions require that members purchase at least one share of ownership, at a
cost of about $5 to $10. Credit unions generally pay higher interest than
commercial banks and S&Ls, and they may provide loans at lower cost. Credit
unions are regulated by the Federal Credit Union Administration.
Mutual Savings Banks A mutual savings bank is a bank that is owned by
its depositors. Located primarily in the northeastern part of the United States,
mutual savings banks accept deposits and lend money for home mortgages. The
approximately 375 mutual savings banks in this country have no stockholders. Their
profits are distributed to depositors. They operate much like S&Ls and are
controlled by state banking authorities.
53

Organizations That Perform Banking Functions There are three types


of financial institutions that are not actually banks but that are nevertheless
involved in various banking activities to a limited extent.
Insurance companies provide long-term financing for office buildings, shopping
centers, and other commercial real estate projects throughout the United States.
They also invest in corporate and government bonds. The funds used for this type
of financing are obtained from policyholders' insurance premiums.
Pension funds are established by employers to guarantee their employees a
regular monthly income upon retirement. Contributions to the fund may come
either from the employer alone or from both the employer and the employee.
Pension funds earn additional income through generally conservative investments
in
certain
corporate
stocks,
corporate bonds, government securities, and real estate developments.
Brokerage firms offer combination savings and checking accounts that pay
higher-than-usual interest rates (so-called money-market rates). Many people
switched to these accounts when their existence became widely recognized to get
the higher rates. In the last few years, however, banks have instituted similar types
of
accounts,
hoping
to
lure their depositors back.
I. VOCABULARY PRACTICE
Find the English equivalents for the following:
1. a corespunde cerinelor apartenenei/
;
2. a da autorizaie/ ;
3. prima de asigurare/ ;
4. la ieire la pensie/ ;
5. hrtii de valoare de stat/ ;
6. credit ipotecar/ ;
7. stabilitatea monedei naionale/ ;
8. a fi supus unei inspectri neanunate/ ;
9. deintor de poli/ ;
10.
comerciani care vindeau i cumprau bani/,
.
II. COMPREHENSION
A) Give answers to the following questions:
1. What is the name for the central bank in the USA? Describe it. What is its
mission?
2. Give the definitions of a commercial, national and state banks. How do
banks earn most of their profit?
3. What is a Savings and Loan Association? What did they offer to their
depositors originally and what do they offer now?
4. What is a NOW account?
5. What is a Credit Union? Who can become its member? What do some
credit unions require?
6. What is a mutual savings bank? What are the similarities and differences
between a mutual savings bank and S&L?
7. What other financial institutions do you know?
8. How do insurance companies obtain their funds? Give examples of
insurance companies in our country. What are their functions?
9. What are pension funds established for? How do they get the money to be
paid out to pensioners?
54

10.

What accounts are offered by brokerage firms?

B) Mark the statements with TRUE or FALSE:


1. In the USA there are more national banks than state banks.
2. State banks must be members of the Fed.
3. Commercial banks own Federal Reserve District Banks, which are not
under their control.
4.
If you want to buy a flat but you dont have money, you can apply to
S&L.
5.
Credit Unions are more advantageous than commercial banks.
6.
There are approximately 375 mutual savings banks in the USA and they
have stockholders.
7.
Insurance companies, pension funds and brokerage firms are nonbanking organizations.
8.
Brokerage firms offer lower-than-usual interest rates.
III. FOCUS ON GRAMMAR
A) Fill in prepositions:
1. I want to open an account ______ your bank.
2. You have only $100 _______ your account.
3. Dont borrow money _______ this bank. They charge very high interest ____
a loan.
4. When you paid the hotel bill, did you pay _____ cash or _____ credit card?
5. Banks also make their profits ______ the fees and commisions they charge
______ their services.
6. Yesterday the Dresdner Bank announced an interest rate increase ______
0,5%.
7. As soon as we receive your cheque _____ 2500$ we will despatch the
goods which will reach you within a few days.
8. Because some customers cant afford to pay ____ cash, businesses sell
goods and services _____ credit.
B) Choose the correct form of the verb:
1. She ... the bank to check her account.
a) has just phoned;
b) just phoned; c) just has phoned;
d) phones just.
2. When the secretary entered Mr.Black ... to foreign businessmen.
a) spoke;
b) was speaking;
c) has spoken;
d)
had spoken.
3. Our director ... the prices now.
a) are discussing;
b) was discussing; c) discussies;
d)
is discussing.
4. This firm ... Model A-5 for 4 years before they started producing Model A-6.
a) produced; b) had been producing; c) has been producing; d) was
producing.
5. He ... $100000 in Swiss bank account last spring.
a) deposited;
b) had deposited;
c) has deposited;
d)
was depositing.
6. I am awfully tired because I ... all day.
a) was working; b) had been working;
c) have been working;
d) have worked.
IV. FOCUS ON LANGUAGE
55

Choose the correct word for each sentence:


1. She works for an advertisement/advertising agency.
2. How will the increase in interest rates affect/effect your sales?
3. My bank manager has agreed to borrow/lend me another $2000.
4. Weve had to cancel/postpone the meeting until next Monday.
5. My plane was delayed/postponed by an hour due to computer failure.
6. Before coming here, I studied economics/economy at university.
7. I am interested/interesting in your buildings projects in the Middle East.
8. She applied for a job/work as a personnel officer.
9. The cost of life/living has gone up again.
10.
Please send precise measurements/measures when ordering.
11.
We expect prices to raise/rise by at least 5%.
12.
We only exchange goods if you produce a receipt/recipe.
13.
I must remember/remind the boss about that meeting this afternoon.
14.
Can you say/tell the difference between these two products?
15.
The company is extremely sensible/sensitive to any criticism.
16.
Theres some more paper in the stationery/stationary cupboard.

56

3.3.2 Services Provided by the Financial Institutions


Learning objectives:
1. Be able to identify the primary services provided by commercial
banks and other financial institutions
2.
Evaluate the importance of banks to the economy of a
community
Study and Learn the words:
English
array (n)
payroll (n)

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)

to compete for a loan


pledge

credit card

a small plastic card that you


can use to buy goods and
services and pay for them
later
a plastic card that can be
used to take money directly
from your bank account
when you pay for sth
ATM card
cashier
the difference between the
rates of interest

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

A central processing center notifies a computer at your bank that you


want to make a purchase. Next, the bank's computer immediately deducts
the amount of the purchase from your checking account. Then, the
amount of the purchase is added to the store's account. Finally, the store
is notified that the transaction is complete, and the cash register prints
out your receipt. Notice the difference between a debit card and a credit
card. With a debit card, money is deducted immediately from your
account. A credit card transaction, on the other hand, involves a shortterm loan made to you by the bank or credit card company. The use of
POS terminals has two advantages. First, you don't have to write a check
to pay for your merchandise. Second, the retailer doesn't have to worry
about nonpayment because the money is withdrawn from your account
immediately.
Our Moldavian banks offer such cards as Maestro and Visa card. The usage of
cards is one of the most modern and convenient non-cash payment means. All our
payment cards are designed to be convenient for us. The Maestro card is a valid
payment card issued to private customers only. One can use it for the non-cash
settlement of services or goods. It is also used for withdrawing cash at bank
counters and at ATMs. The Visa card can be used worldwide for transactions at
electronic devices only.
I. VOCABULARY PRACTICE
A) Find the English equivalents for the following:
1. safeurile bancare/ ;
2. pe suprafaa cecului/ ;
3. proprietate mobil/ ;
4. a lsa n gaj/ ;
5. locul parcrii/ ;
6. staiune de alimentare a mainilor/;
7. registru de cas imprim cecul/ .
8. achitarea serviciilor sau mrfurilor prin virament/
.
B) Match the verbs with their definitions:
1. to repossess
2. to penalize
3. to renew
4. to lure
5. to institute
6. to withdraw
7. to repay
8. to finance
9. to dispense
10. to notify

a) to make sth valid for a further period of time


b) to give out sth to people
c) to provide money for a project
d) to introduce a system
e) to give information about sth
f) to take back property or goods from sb who cannot pay for them.
g) to make sb pay a fine for breaking a rule
h) to make sb be interested in sth
i) to take money out of a bank account
j) to pay back the money you have borrowed from sb

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

7. What is an EFT and how it can be used?


8. Have you ever used an ATM and a POS terminal? Did you have any
problems or not? What do you think about EFT system?
9. What is the difference between a debit card and a credit card?
10.
What are the types of plastic cards that our citizens can use?
B) Mark the statements with TRUE or FALSE:
1. In order to be able to write a check one must deposit his/her money in a
checking account.
2. Banks dont charge fees for their services.
3. Depositors can freely withdraw funds invested in CDs whenever they wish
to.
4. If you want to take a long-term loan you must present a collateral to the
bank.
5. You can use the services of the POS terminal with a credit card.
6. ATMs work round the clock.
III

Match the column A with the column B:

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.

IV. Match each statement of potencial customers to the financial


service needed:
ATM card, insurance policy, personal loan, overdraft facilities, standing order,
mortgage, high-interest deposit accounts, foreign currency, business loan, SWIFT
transfer.
1. I want my bills to be paid monthly ________________________________
2. How can I get money when the bank is closed? _______________________
3. I need some cash when I arrive in Cairo _____________________________
4. Id like to buy a new house ____________________________________
5. I may be in debt next month _________________________________
6. I want to save and get a good return on my money __________________
7. I want to guard my house against damage _________________________
8. I want to send $5000 to my son in Tokyo as quickly as possible _________
9. I want to renovate my house ________________________________
10.
I am going to buy equipment for our new office _________________
V. With a partner think of different ways of completing the following
sentences:
60

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

4. Some women are forced to ____________________________ between family


and career.
5. Could you ___________________________ , please? Could you give me a lift to
the airport?
6. My uncle died without __________________________ and it was very difficult
for our family to sort out his money.
7.
I like to keep fit, so I __________________________ every day.
8. An accountant is a person who ________________________________ .
9. He ____________________________ on economic situation in our country and
presented it at the conference.
10. A research scientist is a person who _____________________________ .
IX. DISCUSSION
Discuss in groups the following questions:
1. Do you often go to the bank? What banking services do you use?
2 If you had a pretty sum of money, would you deposit it in a bank? If yes,
then in what currency (in the national or in the foreign one) and in what
bank (in the savings bank or in a commercial one)? Give your reasons.
3 For instance, you would like to buy a house or anything else which is also
a big investment, but you dont have the money for it, would you apply to
a bank for a loan? Substantiate your answer.
4 Is it easy or difficult to obtain a bank loan in our Republic? Is it possible to
get a bank loan without a collateral?
X. Complete the dialogue:
A bank manager and his client are talking about opening an account with the
bank. Complete the clients part in the following dialogue. The first remark has been
done for you:
Client: Good afternoon!
Bank Manager: Good afternoon! What can I do for you?
C.: ........................................................................................................................
.....................
BM.:What kind of account would you like to open a checking or a savings
one?
C.: ........................................................................................................................
.....................
BM.: Well, you know that time deposits are not immediately available to their
owners. For what period would you like to deposit your money?
C.: ........................................................................................................................
.....................
BM.: For this period the interest rate is lower than for one-year term.
C.: ........................................................................................................................
.....................
BM.: It depends on how much you are going to deposit and in what currency.
C.:. .......................................................................................................................
.......
BM.: For this we give an annual interest rate of 8%. If it suits you, you have to
buy the certificate of deposit.
C.: ........................................................................................................................
........
XI. ROLEPLAY

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

a) a written order for a bank to pay out the money


b) a computerized cash register that is located in a store and
connected to a banks computer
c) an amount paid for the use of money
d) money that is placed in a bank account by a customer
e) a guarantee for a loan
f) a financial institution that mainly handles savings accounts
and makes loans to home buyers
g) difference between interest rate paid by a bank to its
depositors and the rate it charges from its borrowers
h) a document which insures that the depositor will be paid a
guaranteed interest rate for the deposited money
i) a financial institution formed by workers in the same
organization that serves only its members
j) a checking account that earns interest

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

Translate into English:


Certificatul bancar de depozit.
Certificatul bancar de depozit este un document, care atest c D-r ai depus
o anumit sum de bani pe depozit, i pe care o putei schimba pe bani dup
expirarea unei perioade anumite de timp. Putei sa dispunei de certificatul bancar
de depozit la dorina D-r. De exemplu, s-l druii cuiva la ziua lui de natere.
Acesta va fi ntradevr un cadou reuit. Cu siguran, des v aflai n situaia, cnd
trebuie s felicitai pe cineva din rude sau prieteni, dar avei o problem cu
alegerea cadoului. Certificatul bancar de depozit n aceast situaie este
indispensabil.
Pe lng aceasta, certificatul bancar de depozit poate fi vndut i n schimb
putei s primii banii nainte de termen fr pierderea dobnzii.
Deci, certificatul bancar de depozit este o hrtie de valoare emis de ctre
banc i se prezint n calitate de o alternativ a depozitului bancar. Certificatul
bancar de depozit poate fi transferat de la o persoan la alta spre deosebire de
contul bancar obinuit.
.
, ,
,
.
. ,
. .
, ,
- , .
.
,
, .
, ,

.
, .

64

4. SECURITIES MARKETS
Emotions are your worst enemy in the stock market
Don Hays

4.1. How Securities Are Bought and Sold


Learning objectives:
1 Understand how securities are bought and sold in the primary and
secondary markets
2 Distinguish between a securities exchange and an over-thecounter market
3 Be aware of how the New York Stock Exchange functions
Study and Learn the Words:
English
stock (n)
bond (n)
stockbroker (n)
primary market
secondary market
securities (n)
to be satisfied that
mutual fund

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

the profit that a


company makes
to apply to buy shares
in a company


(
)

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

to make sth, esp. sth


bad, happen sooner
that it should
top manager of a

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)

a person or an organization that applies to buy shares in a company


a person whose business is buying and selling a particular product
a statement of the current value of stocks
a company that offers a service to people by investing their money in
various different businesses
e) a type of security issued either by a company or by government
bearing a fixed interest every year, which is redeemed after a stated
period
f) a person who can advise investors and buy and sell shares for them
g) the general term for all stocks, shares and bonds
h) an amount of money that is charged for providing a particular service
i) a person whose job involves examining facts in order to give an
opinion of them and to forecast the possible result
j) a person who buys shares in a company in the hope of making a profit

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

IV. FOCUS ON LANGUAGE


Business idioms
Fill in the gaps with a suitable prepositional phrase from the list
below:
On closer inspection, on order, on holiday, on approval, on condition, on paper,
on schedule, on behalf of, on display, on the phone, on the spot, on business, on
loan, on request.
1. You will find our new product ________________ at our showroom.
2. We have a sales engineer __________________ who can fix the fault this
week.
3. The goods arrived ____________________.
4. We have had the goods ________________ for 3 months, but they havent
arrived yet.
5. We
accepted
delivery
of
the
goods
as
undamaged,
but
_____________________ we found that 5 of the components are unusable.
6. I spoke to him ______________ last week about this.
7. We can have the goods for 4 weeks ____________________. We can return
them or pay for them.
8. He traveled to England _______________ but managed to do a little
sightseeing while he was there.
9. Im afraid Mr Smith is _________________ till the end of the month can I
help you?
10.
We can offer you the job ________________ that you start work on the
first of the next month.
11.
The candidate doesnt look very good _____________________ but she is
very impressive in person.
12.
You cant keep it permanently, but you may have it __________________
till the end of the month.
13.
She signed the letter _____________________ her boss.
14.
Let us not waste time and act __________________.

4.2 The Role of the Stockbroker


Learning objectives:
1 Analyze the role of the stockbroker and how they fulfill their goals
2 Comprehend the mechanics of a stock transaction
3 Differentiate between a full-service broker and a discount broker
4 Understand how commission is charged for trading stocks
5 Recognize different types of shares
Study and Learn the Words:
English

English
equivalents

discretionary
order
to relay

Romanian
instruciune
discreionar (de a
cumpra orice titlu de
valoare)

to receive and send


on

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)

to rule sth out


nuclear energy

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

the value that a


share in a company
had originally
sth that is given to a
person or an
organization as a
charity, in order to
help them
to exclude, to say
that sth is not
suitable

An account executive (or stockbroker) is an individual who buys or sells


securities for clients. (Actually, account executive is the more descriptive title
because account executives handle all securitiesnot only stocks. Most also
provide securities information and advise their clients regarding investments.)
Account executives are employed by stock brokerage firms, such as Merrill Lynch,
Dean Witter Reynolds, and Prudential-Bache Securities. To trade at a particular
exchange, a brokerage firm must be a member of that exchange. For example, the
NYSE has a limited membership of 1,366 members, or "seats," as they are often
called. Membership on the NYSE is called a seat because until 1871 members sat
in assigned chairs during the calls of stocks. In the early 1800s, a seat cost $25.
Today the price of membership is more than $2 million. Seats are sold or leased by
their current owners rather than being bought directly from the NYSE.
The Mechanics of a Transaction Once an investor and his or her account
executive have decided on a particular transaction, the investor gives the account
executive an order for that transaction. A market order is a request that a stock
be purchased or sold at the current market price. The broker's representative on the
71

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.

bringing, blue chips, rights, sale, traded, equities,


listed, preferred, bonus, issue, par, over-the-counter,

IV. FOCUS ON GRAMMAR


Fill in prepositions where necessary:
1. To purchase securities one must act . a stockbroker.
2. An investment banking firm assists . corporations . raising funds.
3. The size .. the commission depends the financial health the
corporation.
4. The most obvious reason . selling its own securities is to avoid the
investment banks commission.
5. The securities sold . a particular exchange must first be accepted .
trading . that exchange.
6. Brokers advise .. their clients regarding investments.
7. Once the investor has decided .. a particular transaction he gives .
the broker an order that transaction.
8. Brokerage firms must be concerned the fees charged .competing
firms.
9. Usually the stockbroker acts entirely .. his own interest.
V. DISCUSSION
Discuss the following questions:
1. If you were an account executive would you take discretionary orders from
your clients? Give your reasons.
2. In your opinion, what order do most investors prefer to give to their
brokers?
3. If you were an investor would you give a discretionary order to your
account executive? Substantiate your answer.
74

4. To your mind, a stockbroker is it a well-paid job or not?


VI. INDIVIDUAL WORK
Make a report on the securities exchange in our Republic and identify
the role of the stockbroker.
VII. FOCUS ON LANGUAGE
Rather than endlessly repeating the words rose and fell, financial journalists
use a large number of verbs and phrases to describe the movements of security
prices.
Classify the following sentences, according to whether you think the underlined
verb or expression means:
A
B
C
D
E

to rise after previously falling


to rise a little
to rise a lot
to fall a little
to fall a lot

1. Boeing stocks rocketed after rumours of a forthcoming merger with


another leading aircraft manufacturer.
2. The Dow-Jones index crashed after continuing rumours about the
Presidents health.
3. Exxon stocks shot up after a new deal to pump Siberian natural gas was
announced.
4. The Footsie rallied in London in the afternoon, gaining 30 points in late
trading.
5. In Paris, the CAC-40 plummeted, after the unions called for a three-day
general strike next week.
6. Leading shares were slightly weaker in Tokyo, the Nikkei losing 6 points.
7. Most shares were a little stronger in Milan this morning, when the
exchange reopened after yesterdays public holiday.
8. Procter&Gamble stocks plunged after it was revealed that the company
had lost over $100 million as a result of a derivative deal.
VIII. CASE STUDY
Imagine that you have $100.000 and you want to invest it in a company in a
most profitable way. You have to choose one of the companies that perform the
following activities: (only you have to bear in mind that your money will help the
company to extend its operations)
emitting a large quantity of carbonic acid (CO2) into atmosphere
making donations to political parties
manufacturing weapons
producing nuclear energy
selling alcohol
selling tobacco
testing cosmetic products on animals
relocating production to countries with lower labour costs
Are you going to listen to your brokers advice or you can take the decision
yourself?
75

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

5.1 What is Financial Management?


Learning objectives:
1. Define financial management
2. Appreciate the need for financing
3. Compare short-term financing needs and long-term financing
needs
4.
Speak on the evolution of financial management
Study and Learn the Words:
English
peak period

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

to get smth under


way
to raise money
merger (n)
outmoded (adj)

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

The field of financial management is an exciting and challenging one.


Students who choose to major in finance will find a wide range of rewarding job
opportunities in the fields of corporate financial management, investment analysis
and management, banking, real estate, insurance and the public sector. Any
business whether large or small, profit seeking or not for profit is a financial
concern and its success or failure depends in a large part on the quality of its
financial decisions. Managers daily face questions like the following:
- Will a particular investment be profitable?
- Where will the funds come from to finance the investment?
- Does the firm have adequate cash or access to cash through bank
borrowing agreements, for example to meet its daily operating needs?
- What kind of credit should be granted the firms customers, and which
customers should be given credit privileges?
- How much inventory should be held?
- How should profits be used or distributed?
The Need for Financial Management
Without financing there would be very little business. Financing gets a business
started in the first place then it supports the firms production and marketing
activities. Many firms have failed because their managers did not pay enough
attention to finances. Proper financial management can ensure that:
- Financial priorities are established in accordance with organizational
objectives
- Spending is planned and controlled
- Sufficient financing is available when is needed, both now and in the
future
- Excess cash is invested in certificates of deposit (CDs), government
securities, or conservative marketable securities
A financial plan is a plan for obtaining and using the money that is needed to
implement an organizations goals. Financial planning begins with the
establishment of a set of valid objectives. An objective as you know is a specific
statement detailing what the organization intends to accomplish within a certain
period of time. Next, planners must assign costs to these objectives. That is, they
must determine how much money is needed to accomplish each one and what
revenues they will get. A budget is a statement that projects income and/or
expenditures over a specified period of time. Usually, the budgeting process begins
with the construction of individual budgets for sales and for each of the various
types of expenses: production, human resources, administration and so on. Finally,
financial planners must identify available sources of financing and decide which to
use. The four primary sources of funds are: sales revenue, equity capital, debt
capital, and proceeds from the sale of assets. Sales generally provide the greatest
part of a firms financing. Equity capital is money received from the sale of shares
of ownership in the business. It is used almost exclusively for long-term financing.
Debt capital is money obtained through loans of various types. Selling assets is
77

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

3. What is the role of financial management? Define: financial plan,


objective, budget, equity capital.
4. Define the word financial management and describe the liabilities of the
financial manager within a business organization.
5. Outline the uses of money in an entity.
6. When does a firm look to outside sources of financing?
7. Define the word short-term financing.
8. Name five short-term financing needs and explain their reason.
9. Define the word long-term financing needs and explain what they are.
B) Read about the evolution of financial management and be ready to
speak on it:
Prior to 1930s the field of financial management was confined to descriptive
discussions of various financial markets and the securities traded in those markets.
Thus, finance as a field of study traditionally focused on the liabilities and
stockholders equity side of the balance sheet and on fund raising.
The field underwent a number of significant changes during the Great
depression, when it became more involved with legal matters of bankruptcy,
reorganization, and government regulation.
Through the 1940s and into the 1950s the teaching of financial management
continued to be basically qualitative and descriptive. During the 1950s financial
management was expanded to include the asset side of the balance sheet, or the
uses of a firms funds, in addition, the application of discounted cash flow
techniques to the problems of capital expenditure analysis was being refined and
perfected. Also, financial researchers were making significant breakthroughs in
developing techniques for measuring the cost of capital and valuing financial
assets. Progress in both the capital budgeting and the cost of capital areas has
continued to the present days.
During the 1960s mathematical models using statistical and optimization
techniques were applied to the allocation of current assets such as cash, accounts
receivable and inventories, and fixed assets. During the decade of the 1980s there
will be an increasing emphasis on applying computer technology to assist in
financial decision-making. Financial management consists of all those activities that
are concerned with obtaining money and using it effectively. Within a business
organization, the financial manager must not only determine the best way (or ways)
to raise money. She or he must also ensure that projected uses are in keeping with
the organizations goals. Effective financial management thus involves careful
planning. It begins with determination of the firms financing needs.

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

II. FOCUS ON GRAMMAR


A) Insert prepositions:
1.Wholesalers and retailers may need short-term financing to build . their
inventories before peak selling periods. 2.Then, the money is repaid .. of sales
revenue. 3. As a result, manufacturers that engage .. this type of speculative
production often need short-term financing. 4. Or the purchase of a computer-based
inventory-control system, which will "pay for itself" within a year, might be funded
short-term money. 5. Financial management consists . all those activities that
are concerned .. obtaining money and using it effectively. 6.Cash flow is the
movement of money .. and out of an organization.
B) Business Vocabulary
In English, nouns and verbs frequently share the same base (root). Many verbs
may add the ending ion (or often tion, or ation) to form a noun. Ex: createcreation
Notice that the final e of the verb disappears in the noun form. In every case,
the ending ion means process, act, or state of being. Creation is the act of
creating, or it is what has been created.
a) Make nouns from the following verbs. Use your dictionaries:
a to protect =
b to intend =
c to promote =
d to violate =
e to deprive =
f to commend =
g to tempt =
h to perceive =
b) Write the verb form of the word beside its meaning in the list
below:
1 ____________ to gain understanding, to realize
2 ____________ to keep something from someone
3 ____________ to guard, to keep from danger
4 ____________ to raise to a more important job or rank
5 ____________ to have a purpose in mind
6 ____________ to praise, to approve of
7 ____________ to break a rule or law
8 ____________ to create a desire
c) Now write the noun form next to its meaning:
9 ____________ the act of approving, praising
10 ____________ the act of breaking a law or rule
11 ____________ the result or process of gaining understanding
12 ____________ the fact of having a purpose in mind
13 ____________ the act of keeping something from someone
14 ____________ an advancement in job or rank
80

15 ____________ the act of keeping from danger


16 ____________ the creation of a desire
d) From among the sixteen forms you have written, choose the one
which is appropriate for each blank in the following memo.
MEMORANDUM
Date: November 23, 2006
To: Robert Ellison
From: Deborah Weaver
Subject: Age Bias
I have just read a recent magazine article in Business Week which discusses
age bias in business. The article comments on the fact that many businesses
____________ the rights of many older managers in business by not giving them a
____________ as they approach sixty-five years of age and by cutting their pensions.
Companies are frequently ____________ to fire older executives or to force them to
retire early.
However, many of the affected businessmen are seeking the ____________ of the
1998 Age Discrimination in Employment Act (ADEA). Under this law, any business
which has ____________ a person of his/her job and pension benefits may be in
____________ of the law and can be sued by the person affected. The Equal
Employment Opportunity Commission ____________ to reinforce the law whenever
possible.
Robert, please check the personnel files on all our departments older
employees. Find out if any have been given a written ____________for good work
within the last three years or if any have been given ____________ to a higher
position within the last two years. It is not the ____________ of this department to
____________ older managers of any legal rights.
Please report your findings within the week. Thanks.
III. VOCABULARY PRACTICE
A) Match the words with their definitions:
Long-term financing, budget, debt capital, short-term financing, equity capital,
cash flow, financial management
1. All those activities that are concerned with obtaining money and using it
effectively.
2. The movement of money into and out of an organization.
3. Money that will be used for longer than one year.
4. Money that will be used for a period of one year or less and then repaid.
5. A statement that projects income and/or expenditures over a specified
period of time.
6. Money received from the sale of shares of ownership in the business.
7. Money obtained through loans of various types.
B) Insert nouns, verbs, adjectives:
NOUN
expansion

VERB

ADJECTIVE
speculative

to finance
practice
continuing
to spend

81

promotional
rise
to fund
merger

C) Find English Equivalents in the text:


finanare pe termen scurt/
_____________________
finanare pe termen lung/
______________________
n cadrul unei organizaii/ ______________________
surs de finanare din exterior/
__________
a folosi banii efectiv/ ________________
a continua o afacere/ _______________________________
cheltuieli neanticipate/ _________________
banii sunt achitai din/ _____________________
client final/ _____________________________
D) Find the synonyms (a-e) and
a. final customer =
b. tempting profession =
c. last step =
d. risky step =
e. unsuccess of a business =

antonyms (f-j) in the text:


f. to be in vogue =
g. efficient =
h. balance =
i. expectedly =
j. profit seeking =

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 .............

5.2 Sources of Unsecured Short-Term Financing


Learning objectives:
1 Define unsecured financing
2 Characterize each device of short-term capital
Study and Learn the Words:
English
collateral (n)
commercial paper

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

to leave smth as security


for the loan
bill of exchange
a document listing the
goods and services and the
price for them
when the time falls due
the person who makes out
the draft
a person who is requested
to pay the draft
to calculate the real value
of the draft according to
the formula: Actual value
= Face value - Discount

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

Unsecured financing is financing that is not backed by collateral. A company


seeking unsecured short-term capital has several options; they include trade credit,
promissory notes, bank loans, commercial papers and commercial drafts.
Trade Credit We know that wholesalers might provide financial aid to retailers
by allowing them thirty to sixty days (or more in which to pay for merchandise. This
delayed payment, which may also be granted by manufacturers, is a form of credit
known as trade credit. More specifically, trade credit is a payment delay that a
supplier grants to its customers. Between 80 and 90 percent of all transactions
between businesses involve some trade credit. Typically, the purchased goods are
delivered along with a bill (or invoice) that states the credit terms.
Promissory Notes Issued to Suppliers A promissory note is a written pledge by
a borrower to pay a certain sum of money to a creditor at specified future date.
Suppliers that are uneasy about extending trade credit may be less reluctant to
offer credit to customers that sign promissory notes. Unlike trade credit, however,
promissory notes usually provide that the borrower pay interest.
Unsecured Bank Loans Commercial banks offer unsecured short-term loans to
their customers at interest rates that vary with each borrowers credit rating. The
prime interest rate (sometimes called the reference rate) is the lowest rate charged
by a bank for a short-term loan. This lowest rate is generally reserved for large
corporations with excellent credit ratings.
Banks generally offer loans through promissory notes, a line of credit, or a
revolving credit agreement. Most promissory notes specify repayment periods of 60
to 180 days.
The line of credit in essence, is a prearranged short-term loan. A bank that
offers a line of credit may require that a compensating balance be kept on deposit
at the bank. This balance may be as much as 20% of the line-of-credit amount. The
bank may also require that every commercial borrower clean up (pay off
completely) its line of credit at least once each year and not use it again for a
period of 30 to 60 days. This second requirement ensures that the line of credit is
used only to meet short-term needs and that it doesnt gradually become a source
of long-term financing.
Even with a line of credit, a firm may not be able to borrow on short notice if
the bank does not have sufficient funds available. For this reason, some firms prefer
a revolving credit agreement, which is a guaranteed line of credit. Under this type
of agreement, the bank guarantees that the money will be available when the
borrower needs it. In return for the guarantee, the bank charges a commitment fee
83

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 -

C) Match the words with their definitions:


Unsecured financing, trade credit, promissory note, prime interest rate,
revolving credit agreement, commercial paper, commercial draft.
1. A guaranteed line of credit.
2. A written order requiring the customer to pay a specified sum of money to
the supplier.
3. Short-term promissory notes issued by large corporations.
4. The lowest rate charged by a bank for a short-term loan.
5. Financing that is not backed by collateral.
6. A written pledge by a borrower to pay a certain sum of money to a creditor
at a specified future date.
7. A payment delay that a supplier grants to its customers.
IV. DISCUSSION
1. Have you ever bought goods on credit? When do people decide to buy
goods in this way? What shops offer such services? What is the usual
interest rate charged by them?
2. List the advantages and disadvantages of buying a computer on credit?
The first one has been done for you:
85

Advantages
1. You do not pay the total sum of money
immediately

Disadvantages
1. Interst is $10 paid dayly

3. Are commercial drafts largely used in our country? Make an investigation


and be ready to speak on it.

5.3 Sources of Secured Short-Term Financing


Learning objectives:
1 Define the modes of secured-short- term financing
2 Describe the relative advantages and disadvantages of different
modes of secured short-term financing.
Study and Learn the Words:
English
storage (n)
release (v)
floor planning

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

firm, strong, stable

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/

C) Supply synonyms (a-e) and antonyms (f-j):


a) agents =
f) full amount of =
b) sound (financially) (adj) =
g) unfinished goods =
c) through smth.=
h) accounts payable =
d) marketable (adj) =
i) payment =
e) to transfer =
j) from time to time =

5.4 Sources of Long-Term Financing


Learning objectives:
1. Define equity financing and debt financing
89

2. Evaluate the advantages and disadvantages of equity financing


and debt financing from the corporations standpoint
Study and Learn the Words:
English
equity capital

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)

earnings which are


not distributed
the part of a
companys capital
readily convertible
into cash and
available for paying
bills, wages
any of the parts of a
debt or other sum of
money to be paid at
regular times over a
specified period

Romanian

Russian

a rscumpra
aduntura
lege local

,
,
,

amendament
cumulativ

valoare la paritate,
pre nominal
profituri nerepartizate
capital de rulment

plat parial, n rate

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

Cumulative preferred stock is preferred stock on which any unpaid


dividends accumulate and must be paid before any cash dividend is paid to the
holders of common stock.
Participating preferred stock is preferred stock whose owners share in the
corporation's earnings, along with the owners of common stock. Here's how it
works: First, the required dividend is paid to holders of the preferred stock. Then a
stated dividend, usually equal to the dividend amount paid to preferred
stockholders, is paid to the common stockholders. Finally, any remaining earnings
that are available for distribution are shared by both preferred and common
stockholders.
Convertible preferred stock is preferred stock that can be exchanged at the
stockholder's option for a specified number of shares of common stock. This
conversion feature provides the investor with the safety of preferred stock and the
hope of greater speculative gain through conversion to common stock.
Retained Earnings Most large corporations distribute only a portion of their
after-tax earnings to shareholders. The remainder, the portion of a corporation's
profits that is not distributed to stockholders, is called retained earnings. Retained
earnings are reinvested in the business. Because they are undistributed profits,
they
are
considered
a
form
of
equity financing.
Retained earnings represent a large pool of potential equity financing that does
not have to be repaid. The amount of a firm's earnings that is to be retained in any
year is determined by corporate management and approved by the board of
directors. For a large corporation, retained earnings can amount to a hefty bit of
financing.
Most small and growing corporations pay no cash dividendor a very small
dividendto their shareholders. All or most earnings are reinvested in the business.
Stockholders don't actually lose because of this. Reinvestment tends to increase the
value of their stock while it provides essentially cost-free financing. More mature
corporations may distribute 40 to 60 percent of their after-tax profits as dividends.
Utility companies and other corporations with very stable earnings often pay out as
much as 80 to 90 percent of what they earn.
Debt Financing
For a small business, long-term debt financing is generally limited to loans.
Large corporations have the additional option of issuing corporate bonds.
Corporate Bonds A corporate bond is a corporations written pledge that it will
repay a specific amount of money, with interest. It includes the interest rate and the
maturity date. The maturity date is the date on which the corporation is to repay
the borrowed money. It also has spaces for the amount of the bond and the bond
owners name.
Large corporations issue bonds in denominations of from $1,000 to $50,000.
The total face value of all the bonds in an issue usually runs into the millions of
dollars. An individual or firm buys a bond generally through a securities broker.
Between the time of purchase and the maturity date, the corporation pays interest
to the bond ownerusually every six monthsat the stated rate. The method
used to pay bondholders their interest depends on whether they own registered or
coupon bonds. A registered bond is a bond that is registered in the owner's name
by the issuing company. Interest checks for registered bonds are mailed directly to
the bondholder of record. When a registered bond is sold, it must be endorsed by
the seller before ownership can be transferred on the company books. A coupon
bond, sometimes called a bearer bond, is a bond whose ownership is not
registered by the issuing company. To collect interest on a coupon bond,
92

bondholders must clip a coupon and then redeem it by following procedures


outlined by the issuer. At the maturity date, the bond owner returns the bond to
the corporation and receives cash equaling its face value. Coupon bonds are less
secure than registered bonds. If coupon bonds are lost or stolen, interest may be
collected and the bond may be redeemed by anyone who finds it. For this reason,
most corporate bonds are registered.
Maturity dates for bonds generally range from fifteen to forty years after the
date of issue. In the event that the interest is not paid or the firm becomes
insolvent, bond owners claims on the assets of the corporation take precedence
over stockholders'. Some bonds are callable before the maturity date. For these
bonds, the corporation usually pays the bond owner a call premium. The amount of
the premium is specified, along with other provisions, in the bond indenture. The
bond indenture is a legal document that details all the conditions relating to a
bond issue.
From the corporation's standpoint, financing through a bond issue differs
considerably from equity financing. Interest must be paid periodically and in the
eyes of the Internal Revenue Service; interest is a tax-deductible business expense.
Furthermore, bonds must be redeemed for their face value at maturity. If the
corporation defaults on (does not pay) either of these payments, owners of bonds
could force it into bankruptcy.
A corporation may use one of three methods to ensure that it has sufficient
funds available to redeem a bond issue. First, it can issue the bonds as serial
bonds, which arc bonds of a single issue that mature on different dates. For
example, Seaside Productions used a twenty-five-year $50-million bond issue to
finance its expansion. None of the bonds matures during the first fifteen years.
Thereafter, 10 percent of the bonds mature each year, until all the bonds are
retired at the end of the twenty-fifth year. Second, the corporation can establish
a sinking fund. A sinking fund is a sum of money to which deposits are made
each year for the purpose of redeeming a bond issue. Third, a corporation can
pay off an old bond issue by selling new bonds. Although this may appear to
perpetuate the corporation's long-term debt, a number of utility companies and
railroads have used this repayment method.
A corporation that issues bonds must also appoint a trustee, which is an
independent firm or individual that acts as the bond owners' representative. A
trustee's duties are most often handled by a commercial bank or other large
financial institution. The corporation must report to the trustee periodically
regarding its ability to make interest payments and eventually redeem the bonds. In
turn, the trustee transmits this information to the bond owners, along with its own
evaluation of the corporation's ability to pay.
Most corporate bonds arc debenture bonds. A debenture bond is a bond that
is backed only by the reputation of the issuing corporation. To make its bonds more
appealing to investors, however, a corporation may issue mortgage bonds. A
mortgage bond is a corporate bond that is secured by various assets of the
issuing firm. Or the corporation can issue convertible bonds. A convertible bond
can be exchanged, at the owner's option, for a specified number of shares of the
corporation's common stock. The corporation can gain in two ways by issuing
convertible bonds. They usually carry a lower interest rate than nonconvertible
bonds. And once a bond owner converts a bond to common stock, the corporation
no longer has to redeem it.
Long-Term Loans Many businesses finance their long-range activities with
loans from commercial banks, insurance companies, pension funds, and other
financial institutions. Manufacturers and suppliers of heavy equipment and
machinery may also provide long-term financing by granting extended credit terms
to their customers.
93

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) -

C) Match the words with their definitions:


Dividend, common stock, pre-emptive rights, preferred stock, par value, call
premium, cumulative preferred stock, participating preferred stock, convertible
preferred stock, retained earnings, corporate bond, maturity date, registered bond,
coupon bond, bond indenture, serial bonds, sinking fund, sinking fund, trustee,
debenture bond, mortgage bond, convertible bond, term-loan agreement.
1.
2.
3.
4.

Bonds of a single issue that mature on different dates.


A bond whose ownership is not registered by the issuing company.
The portion of a business profits that is not distributed to stockholders.
Preferred stock that may be exchanged at the stockholders option for a
specified number of shares of common stock.
5. An assigned dollar value printed on the face of a stock certificate.
6. Stock whose owners may vote on corporate matters but whose claims on
profit and assets are subordinate to the claims of others.
7. The dollar amount over par value that the corporation has to pay an
investor for redeeming either preferred stock or a corporate bond.
8. A distribution of earnings to the stockholders of a corporation.
9. A bond that is registered in the owners name by the issuing company.
10.
A corporate bond that is secured by various assets of the issuing firm.
11.
A legal document that details all the conditions relating to a bond issue.
12.
A bond that can be exchanged for a specified number of shares of the
corporations common stock.
13.
A corporations written pledge that it will repay a specified amount of
money with interest.
14.
Preferred stock on which any unpaid dividends accumulate and must
be paid before any cash dividend is paid to the holders of common stock.
95

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

debts owed to our


organization

creane

to commit to

you decide definitely


that you will do it
a list of people
employed by a
company showing the
amount of money to
be paid to each of
them
connected to
verification of
authenticity of
financial statements
by an independent
professional
accountant
a learned or erudite
person esp. one who
has profound
knowledge of a
particular subject
simultaneous
production of a debit
and a credit from
processing a
transaction

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

tablie din lut


tratat tiinific

lucru manual
cheltuieli indirecte

97

Accounting is the process of systematically collecting, analyzing, and


reporting financial information.
The Evolution of Accounting
To understand accounting today and
predict it tomorrow, one must know the
history of accounting
Fra Luca Paciolli

The history of accounting is as old as civilization, key to important phases of


history, among the most important professions in economics and business.
Accountants participated in the development of cities, trade and the concept of
wealth and numbers. They invented writing and took part in the development of
money and banking, invented double-entry bookkeeping, helped develop capital
markets and are central to the information revolution that is transforming the global
economy. It can be argued that as a profession accounting is very young; however,
as a service activity it dates back several thousand years. Among the earliest
records are those of Egyptians and Babylonians (from approx. 3000 B.C.), who
recorded on clay tablets such transactions as the payment of wages and taxes. As
early as 1494, a famous Italian Franciscan monk, Fra Luca Paciolli, mathematician,
scholar and philosopher published a treatise containing the essential elements of
double-entry accounting system that is still in use today. His important work was
entitled Summa de Aritmetica, Geometrica, Proportioni et Proportionalita, which
contained a detailed description of accounting as practiced at that age. This book
became the most widely read book on mathematics in Italy and firmly established
Paciolli the Father of Accounting.
During the Industrial revolution technological advances not only provided new
machinery but required new types of expenditures as well. Cost accounting systems
had to be developed to analyse and control the financial operations of those
manufacturing processes.
Modern accounting in the United States can be traced back to the
establishment of the American Institute of Certified Public Accountants (AICPA) in
1887. By the early 1900s, accounting instruction was offered (but was optional) at
many colleges and universities. Today, accounting courses are required for virtually
every type of business degree.
Accounting or Bookkeeping
Many people confuse accounting with bookkeeping, but there are important
differences between the two. Accounting deals with the entire system for providing
accurate and up-to-date financial informationfrom design of the system through
its operation to interpretation of information that is obtained. To become an
accountant, an individual must undergo years of training and chalk up a great deal
of practical experience.
Bookkeeping, on the other hand, is the routine, day-to-day record keeping that
is a necessary part of accounting. Bookkeepers are responsible for obtaining the
financial data that the accounting system processes. Accounting system cannot
operate without good, accurate bookkeeping but a bookkeeper can generally be
trained within a year or so.
Classification of Accountants

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.

D) Here is a list of accountants characteristics. Put a tick next to the


one which corresponds to the category of accountants.
Characteristics

Private accountants

They have passed a rigorous


three-day
accounting
examination

100

Public
accountants

CPAs

Their services may be hired on


a fee basis by individuals or
firms
They are employed by specific
organizations
They may be self-employed or
may work for accounting firms
The examination they pass
covers: accounting practice,
theory, auditing and business
law
They
design
accounting
systems, manage accounting
departments,
prepare
the
variety of reports
They must have a college
accounting degree and from 1
to 3 years of on-the-job
experience

II. VOCABULARY PRACTICE


A) Find the synonyms in the
a practically =
b friar =
c exact =
d to gain experience =
e very big =
f to gather information =

text:
g.
money to be received =
h.
explanation =
i. information=
j. to offer credit =
k. detailed =
l. linked to =

B) Match the words with their definitions:


1. American
Institute
of
Certified
Public
Accountants
2. Auditing
3. Capital market
4. Double-entry-accounting
5. Copyright

a) Gives the owner the executive right to publish, use and


sell a literary, musical, or artistic piece of work for a
period not to exceed 50 years after the authors death
b) Simultaneous production of a debit and a credit from
processing a transaction
c) A place where securities with a maturity greater than
one year are traded
d) Governing body of accounting practices, which limits its
membership to only those individuals who pass the CPA
examination
e) Verification of authenticity of financial statements by an
independent professional accountant

C) Match the words with their synonyms:


1.
2.
3.
4.
5.
6.
7.
8.
9.

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

D) Match the words with the definitions:


Overheads, to post, book of prime entry, double-entry bookkeeping, tax return,
voucher.
101

a. a record in which certain types of transaction are recorded before


becoming part of a double-entry bookkeeping system;
b. a form to be filled in every year by every citizen stating incomes and
personal circumstances that will be used to assess the amount of tax
payable;
c. a method of book keeping in which each transaction is recorded twice in
two different accounts that are balanced: the debit and the credit sides of
an account;
d. to make a bookkeeping entry in an account book from a book of prime
entry;
e. any document that supports an entry in a book of account;
f. indirect costs.
E) Fill in the gaps with suitable words from the list given at the end of
the exercise:
Accounting is a (1) of economics whose purpose is to (2) information in
financial terms on the ..(3) of an organization, on how past ..(4) decisions have
influenced these resources and consequently it can be a useful instrument for
decision-making concerning the .(5) of resources for the future. As we see
accounting looks both into the past and into the future of the resources of a
company. The historical aspects are the concern of .(6) accounting, whereas the
..(7) useful for future decision-making are the province of (8) accounting. The
former type of approach is useful for the creditors and .(9) of a company, the
latter is required by the managers.
Accountancy is the name of the profession and used only in U.K.
Accountants are the professionals in the field of .(10). They usually belong to
specialized bodies. Thus .(11) accountants are members of the Association of
Certified Accountants (U.K.). They are recognized by the Department of Trade as
qualified to .(12) the accounts of limited companies. . (13) accountants are
members of one of the Institutes of Chartered Accountants (in England and Wales,
Scotland, Ireland). In the U.S.A. the correspondent is the certified (14) accountant,
a member of the American Institute of Certified Public Accountants. Accountants
produce (15) statements, draw up cash flow forecasts, audit accounts of
organizations, prepare (16) returns, and calculate production costs as well as
(17).
To be able to produce such financial documents they must rely on the recording
of transactions in account .(18). Bookkeeping is a branch of accounting whose
task is to record transactions. There are books of prime entry in which transactions
are recorded in the order in which they are made. They are (19)-books, daybooks,
and journals. Later the transactions are (20) to the ledger. This is a book in which
all the accounts of a business using .(21)-entry bookkeeping are contained. It is
the ultimate record book, showing all transactions of the business and their result.
Nowadays many companies use computer-(22) information instead of the
classical ledger.
Double-entry bookkeeping means that in this system each transaction is
entered (23). An asset that is bought is recorded with its value. On the other
102

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.

- When does a guy decide to become an accountant?


When he realizes he doesnt have the charisma to succeed as an
undertaker.

4.

- What do you call an accountant who is seen talking to someone?


- Popular.

5. - Whats an extroverted accountant?


- One who looks at your shoes while hes talking to you instead of his own.
104

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.

6.2 The Accounting Equation, the Balance Sheet,


and the Income Statement
A person should not go to sleep at night
until the debits equal credits
(Fra Luca Paciolli)

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)

given date: so called because the


sum of the assets equals the total of
the liabilities plus the net worth
an itemized list or catalogue of
goods, property
every possession an organization
has
the debts of a person or business

inventar

active

pasive

capital propriu

not processed, edited, interpreted


information
a system of bookkeeping in which
every transaction is entered as both
a debit and a credit in conformity
with the underlying accounting
equation which states that assets
equal liabilities plus net worth
securities that can be sold easily

date
neprelucrate
contabilitatea
dublei
nregistrri

accounts suitable for acceptance

conturi de
ncasat, creane

the amount payable or paid, in one


sum or periodically, for an insurance
policy
a decrease in value of property
through wear, deterioration, or
obsolescence

prim de
asigurare

to divide and distribute costs

assets that have no real existence


a document granting the exclusive
right to produce, sell, or get profit
from an invention, process, for a
specific number of years
the exclusive right to the
publication, production, or sale of
the right to the literary, dramatic, or
artistic work
a symbol, design, word, letter used
by a manufacturer or dealer to
distinguish a product or products
from those of competitors
a written promise to pay a certain
sum of money to a certain person
or bearer on demand or on a

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

Owners' Equity For a sole proprietorship or partnership, the owners equity is


shown as the difference between assets and liabilities. In. partnership, each
partner's share of the ownership is reported separately by each owner's name. For
a corporation, the owners' equity (sometimes referred to as shareholders' equity) is
shown as the total value of its stock plus retained earnings that have accumulated
to date.
The Income Statement
An income statement is a summary of a firm's revenues and expenses during
a specified accounting period. The income statement is sometimes called the
earnings statement or the statement of income and expenses. It may be prepared
monthly, quarterly, semiannually, or annually. The main elements of an income
statement are: revenues cost of goods sold, operating expenses, and net income.
I. VOCABULARY PRACTICE
A) Match the words with their definitions:
Assets, liabilities, owners equity, balance sheet, liquidity, current assets,
marketable securities, notes receivable, prepaid expenses, fixed assets,
depreciation, intangible assets, accounts payable, promissory notes.
1.
2.
3.
4.

The ease with which an asset can be converted into cash.


Assets that have been paid for in advance but not yet used.
Receivables for which customers have signed promissory notes.
Stocks, bonds, and so onthat can be converted into cash in a matter of
days.
5. The things of value that a firm owns. They include cash, inventories, land,
equipment, buildings, patents, and the like.
6. Cash and other assets that can be quickly converted into cash or that will
be used within one year.
7. A summary of a firms assets, liabilities, and owners equity accounts at a
particular time, showing the various dollar amounts that enter into the
accounting equation
8. The difference between a firms asset and its liabilitieswhat would be left
over for the firms owners if its assets were used to pay off its liabilities.
9. The firms debts and obligationswhat it owes to others.
10.
Assets that will be held or used for a period longer than one year.
11.
Sort-term obligations that may extend beyond one year.
12.
Short-term obligations that arise as a result of making credit purchases.
13.
Assets that do not exist physically but have a value based on legal
rights or advantages that they confer on a firm.
14.
Process of apportioning the cost of a fixed asset over the period during
which it will be used.
B) Complete the text about balance sheets with the following words.
The first one has been done for you:
assets, balance sheet (2 times), cash, cash held at bank, creditors, debtors,
depreciation, draw up, liabilities, lists, owes, owns, statement, valuation
Every year a company will 1) draw up a 2) ________ to see how it stands
financially. This document consists of two 3) _______ and is called a 4) _______ . One
109

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

h. a short term bond sold by government to cover cash requirements,


usually redeemable in three months;
i. amount of goods stored ready for sale (U.S.A.);
j. items belonging to a business that cannot be sold or turned into
cash, being necessary for the operation of the company;
k. something a company ownes which cannot easily be computed and
turned into cash;
l. something a company owns and will be turned into cash in the
regular course of business (usually within one year).
E) Fill in the gaps with suitable words selected from the list given at
the end of the text:
In accounting a set of accounts is kept for each company, corporation or store,
each of them representing a separate ...(1), distinct for accounting purposes from
its owners. An entity is therefore what may be called any organization for which
separate accounts are kept.
If a group of companies is treated as a single entity because the shareholders
are the same, the accounting statements issued are called ...(2) statement.
Assets are the economic ...(3) of an entity or we may say that assets are what
the company ....(4). The claims of different parties against the assets of a
company/entity are called ...(5). They are subdivided into liabilities and
ownersequity. ...(6) are the claims of the creditors of a company, people from
outside the organization.
In a double- ...(7) bookkeeping system of accounting, the basic accounting ....
(8) is Assets = Equity, as the two parts of an account must be balanced. An
extended formulation of the equation will be Assets = Liabilities + ownersEquity.
Assets are subdivided into two broad categories: ...(9) assets and fixed assets.
Current assets are those that are part of the operating cycle of a business and
are likely to be turned into ...(10) within one year. Here we include what is
sometimes called ...(11) assets, that is funds readily available such as cash
deposited in ...(12) accounts in banks, Treasury ...(13), that can be redeemed in
three months, certificates of deposit, marketable securities, debtors (U.K.), or
accounts ...(14) (U.S.A.) should also be included here. Insurance policies expiring
within one year can be added to the category of current assets.
...(15) assets include tangible assets such as plants, buildings, factories, land,
that is those assets that cannot be ...(16) into cash as they are required for the
operation of the entity. Some ...(17) assets, that cannot be readily computed and
turned into cash, can be added to the category of fixed assets. Examples in this
respect are patents, trademarks, copyrights.
Liabilities are what the company ...(18) to people/corporations outside the
entity. Here we include obligations of the company to supply money, goods or
services to other parties.
Current liabilities are those ....(19) due for payment within one year. They refer
to creditors (U.K.) or accounts ...(20) (U.S.A.), taxation payable, and other debts due
for payment in the near future.
Long-term liabilities are to be ...(21) at some distant time. Examples are longterm borrowings or mortgages.
Bills; consolidated; cash; current (2 times); entity; entry; equation;
equities; fixed; falling; intangible; liabilities; liquid; owes; owns; paid;
payble; receivable; resources; turned.
II. FOCUS ON GRAMMAR
A) Insert prepositions:
111

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

Group the following under the appropriate headings:

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.
-

house/flat (= market value value of mortgage)


......................
car/vehicle (= current value value of any loans on it)
.....................
market price (current saleable value) of:
.....................
electrical equipment (TV, hi-fi, etc.)
......................
musical instruments
......................
computer
......................
books
......................
112

- cash at bank (minus any debts)


- investments (any shares you own)
- other possessions (jewellery, clothes, etc.)
Total value:

.....................
......................
......................

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.
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2. Statement of the Problem a concise statement of the major problem.


3. Discussion of the Problem a lengthy discussion of all information related
to the main problem; discuss here, also, the point of view from which you
are going to be studying the problem (i.e., are you taking the position of a
manager, consultant, employee).
4. Alternative Solutions a list of all possible solutions to the problem.
5. Analysis of the Alternatives an analysis of each of the alternative
solutions stated above. Note the advantages and disadvantages of each.
6. Selection of the Best Alternative an explanation of which alternative you
have selected and why it was chosen.
7. Implementation an explanation of how the solution is to be put into
effect.
Study the situation below and think about the questions given at the end, as a
group, write a formal solution to the case.
A Classic Case of Accounting Fraud
In 1967, Equity Funding Life Insurance Company reported sales of $54 million
and insurance in force totaling $109 million. By 1972, sales had grown to $1.32 and
insurance in force had jumped to $6.5 billion. In the same five-year period,
corporate profits increased nearly eightfold. For at least the first nine months of
1972, Equity Funding was ranked among the top ten American life insurance
companies. It was the fastest-growing life insurance company in the USA.
In early March 1973, acting on a tip from a former employee, investigators
began to look into the companys activities. By March 27, trading in Equitys stock
was suspended by the New York Stock Exchange. The price of the stock had
dropped almost ten points in a week, to less than $15 a share. Shortly, after that,
the stock was declared to be of no value. Equitys 7,000 stockholders had lost at
least $114 million.
The investigators found that, of the 97,000 policies listed on the books of an
Equity Funding subsidiary, approximately 58 percent were nonexistent. Moreover,
other insurance companies that had bought these policies as reinsurers had paid
millions of dollars for nothing.
Reinsurance or the practice of a companys issuing an insurance policy to a
customer and then selling the policy to another insurance company to acquire cash,
is not unusual in the insurance business. What was unusual in the Equity case was
that there were no policyholders behind most of the policies. Nearly two-thirds of
what the company claimed as its insurance business was based on bogus policies!
The chairman and the president of Equity Funding received an annual salary of
$100,000. In addition, in 1972 he was given a stock bonus then worth more than
$150,000. He was a respected Los Angeles business leader, who until January 1972
had served as chairman of the business conduct committee of the Los Angeles
branch of the National Association of Securities Dealers. He had a home with a
gymnasium and tennis courts, a Rolls Royce, and a 35-foot yacht. On November 1,
1973, he and eighteen other executives of Equity Funding were indicted on 105
criminal counts. They were charged with committing felonies that included
securities fraud, mail fraud, bank fraud, electronic eavesdropping, and filing false
documents with the Securities and Exchange Commission.
At the time, Equity Funding had a highly computerized accounting system that
facilitated the mixing of phony policies with genuine policies. However, the hoax
could easily have been discovered if the policies on the books had been verified
with their supposed owners. Unfortunately, not one auditor for an outside
accounting firm ever confirmed a policy directly with a policyholder until after the
rumors of fraud began to circulate.
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It is not surprising that traditional auditing techniques failed to detect the


phony policies. The companys policies looked valid, and auditors generally tend to
believe the computer. In the wake of the Equity Funding scandal, the American
Institute of Certified Public Accountants formed a committee to study the
techniques used in auditing insurance companies and to determine how they should
be changed. One change was to require that auditors obtain policy information
directly from policyholders.

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

7.1 Management Resources


Study and Learn the Words:
English
tangible (adj)

English
equivalents
that can be touched,

Romanian
material, real,

115

Russian
,

having real existence,

palpabil

fiber-glass (n)
assembly line (wc)

glass made of plastic


production line

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

thing used to recover


ones spirit, benefit
person who sells in
bulk
cash desk

facilitate, nlesnire

angrosist

cas de achitare

money paid for


education
money given to a
college or another
institution to provide
it with an income
bills used to pay for
gas, water, electricity

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

Management is the process of coordinating the resources of an


organization to achieve the primary goals of the organization. Most
organizations make use of four kinds of resources: material, human,
financial, and informational.
Material resources are the tangible, physical resources that an organization uses.
For example, General Motoros uses steel, glass, and fiber-glass to produce cars and
trucks on complex machine-driven assembly lines. Both the assembly lines and the
buildings that house them are material resources, as are the actual materials from
which vehicles are built. A college or university uses books, classroom buildings, desks
and computers to educate students. And the Mayo Clinic uses beds, operating room
equipment, and diagnostic machines to provide health care.
Perhaps the most important resources of any organization are its human
resources people. In fact, some firms live by the philosophy that their employees
are their most important assets. To keep people happy, a variety of incentives or
perks are used, including higher- than-average pay, flexible working hours,
recreational facilities, day-care centers, lengthy paid vacations, cafeterias offering
inexpensive meals, and generous benefit programs.
Financial resources are the funds that the organization uses to meat its
obligations to various creditors. A Safeway store obtains money from customers at the
check-out counters and uses a portion of that money to pay the wholesalers from
which it buys food. Citicorp, a large New York bank, borrows and lends money. A
college obtains money in the form of tuition, income from its endowment, and state
and federal grants. It uses the money to pay utility bills, insurance premiums, and
professors salaries. Each of these transactions involves financial resources.
Finally, many organizations are increasingly finding that they cannot afford to
ignore information. External environmental conditions including the economy,
consumer markets, technology, politics, and cultural forces are all changing so
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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

C) Complete the following passages about leadership styles. Fill in the


blanks with a, an, the or 0:
___(1) role of ___(2) leadership in ___(3)management is largely determined by
___(4), organizational culture of ___(5) company. It has been argued that ___(6)
managers beliefs, assumptions and values are of ___(7) critical importance to ___(8)
overall style of ___(9) leadership they adopt.
There are several different leadership styles that can be identified within each
of ___(10) following management techniques:
___(11) Autocrat ___(12) LAISSEZFAIRE Manager ___(13) Democrat
___(14) autocratic leader dominates ___(15)
team-members, using ___(16) unilateralism to achieve ___(17) singular objective.
Generally, ___(18) authoritarian approach is not ___(19) good way to get ___(20)
best performance from ___(21) team.
___(22) Laisser-Faire manager exercises
____(23) little control over his group. ___(24) Laissez-faire technique is usually only
appropriate when leading ___(25) team of motivated and skilled people, who have
produced ___(26) excellent work in ___(27) past. ___(28) democratic leader makes
___(29) decisions by consulting ___(30) team, whilst still maintaining ___(31) control
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of ___(32) group. ___(33) good democratic leader encourages ___(34) participation


and delegates wisely, but never loses ___(35) sight of ___(36) fact that he bears
_____(37) crucial responsibility of ___(38) leadership.
D) Discuss in groups of four what style you would adopt in your future
business or relationship with your collegues, husband/wife, children etc.
III. CASE STUDY
Trust the technology
Determined to regain his position at the top of the computer industry, Steven
Jobs is betting his tarnished reputation and a substantial amount of cash on his new
brainchild the NeXT computer. Jobs is trying to prove that he really can build and
manage a successful computer company, although some business analysts
maintain that his triumphs as cofounder of Apple Computer, Inc. were mostly a
fluke. After losing a power struggle at Apple to his one-time friend John Sculley, Jobs
started a company called NeXT, Inc., and, with five formal Apple employees,
attempted to build a revolutionary computer. Because of Jobs abilities and
personality, and some impressive engineers feats, he achieved his objectives.
During the three years it took to develop the NeXT computer, Jobs followed a
simple managerial strategy: He demanded devotion, sacrifice, and, most
importantly, perfection from his employees. Leaving Apple with a damaged ego and
a reputation for throwing tantrums, Jobs used his charm and infectious enthusiasm
to recruit the best personnel he could. Despite being extremely demanding at
times, Jobs is able to keep morale high at NeXT by providing a work atmosphere
teeming with competency and style. One of the first people Jobs hired after he set
up headquarters in California was an interior designer. NeXT corporate
headquarters and high-tech, automated computer-manufacturing plant are as slick
as the NeXT computer itself. From the headquarters polished wood floors, white
furniture, and exotic juice-stocked refrigerator to the stylish gray and black robots,
NeXT employees are surrounded by testimonials to their elite (at least in the eyes of
Jobs) standing.
Jobs, a college dropout at 19 and a multimillionaire by 26, claims he is a better
manager now then when he was at Apple. Today, in his thirties, he is proud of his
new management style. I think to myself as a pretty good operations person,
says Jobs. I am concerned about how things are going to work at NeXT and how to
avoid too many layers of management. I dont sit around in a dark room with a
crystal ball. A lot of macro insights come after youve spent time on microscopic
detail.
Jobs designed the NeXT computer especially for the academic community.
Before product development began, he surveyed faculty members of thirty
universities to determine what professors and students wanted in a personal
computer. Some computer experts have expressed surprise and skepticism about
Jobs pursuit of the academic market. The competition from other firms to supply
colleges and universities with computers is fierce, and college students might have
a difficult time paying the $ 6,500 price (a NeXT laser printer costs an additional $
2,200). Nevertheless, Jobs is as confident as he ever was. He firmly believes in a
slogan he often quotes to his employees: Trust the technology.
Questions
1. How would you characterize Steven Jobs leadership style?
2. Would you like to work for Jobs? Why or why not?
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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

a. being a good communicator and team-builder


b. being a committed, innovative self-starter
c. having excellent organizational, planning and analytical skills
d. demonstrating problem solving skills
e. being able to direct and delegate work
f. being a strategic thinker with the ability to follow through
g. being able to prioritize effectively
h. being result-oriented
i. having leadership skills: being able to motivate, inspire and lead people
j. being decisive: able to make quick decisions
k. being friendly and sociable
l. being authoritative: able to give orders
m. being persuasive: able to convince people to do things
n. having good ideas
VI. VOCABULARY PRACTICE
A) Complete the following sentences with these words:
Achieved, board of directors, communicate,
manageable, performance, resources, setting

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
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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

7.2 Basic Management Functions


Learning objectives:
1. Define the key words: goal, purpose, mission, objective, plan,
optimization, strategy
2. Understand the four basic management functions: goal setting
and planning, organizing, leading and motivating, and controlling
Study and Learn the Words:
English
end state
means (n)
go about (ph.v)
morale (n)
retailer (n)
to span time
be consistent with
frills (n.pl.)
insight (n)
versus (prep)
to be sought-after
outline (n)
threaten (v)
promote (v)
occur (v)
bookkeeper (n)
to assist with

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)

that is going on,


actually in process,
continuing
set plan

care continu

plan stabilit
linie de conduit,
politic

standing plan
policy

A number of management functions must be performed if any organization is to


succeed. Some seem to be most important when a new enterprise is first formed or
when something is obviously wrong. Others seem to be essentially day-to-day
activities. In truth, however, all are part of the ongoing process of management.
I. Goal Setting and Planning
A goal is an end state that the organization is expected to achieve. Goal
setting, then, is the process of developing a set of goals. Every organization has
goals of several types.
The most fundamental type of goal is the organizations purpose, which is the
reason for the organizations existence. Texaco Inc.s purpose is to earn a profit for
its owners. Houston Community College Systems purpose is to provide an
education for local citizens. The purpose of the Secret Service is to protect the life
of the president. The organizations mission is the means by which it is to fulfill its
purpose. Apple Computer attempts to fulfill its purpose by manufacturing
computers, whereas Ford Motor Company fulfills the same purpose (making a profit)
by manufacturing cars. Finally, an objective is a specific statement detailing what
the organization intends to accomplish as its goes about its mission. For
McDonalds, one objective might be that all customers will be served within two
minutes of their arrival.
Goals can deal with a variety of factors, such as sales, company growth, costs,
customer satisfaction, and employee morale. They can also span various periods of
time. The goals developed for these different levels must be consistent with one
another. However, it is likely that some conflict will arise. A production department,
for example, may have a goal of minimizing costs. One way to do this is to produce
only one type of product and offer no frills. Marketing, on the other hand, may
have a goal of maximizing sales. And one way to implement this goal is to offer
prospective customers a wide range of products with many options available. As
part of his or her own goal setting, the manager who is ultimately responsible for
both departments must achieve some sort of balance between such competing or
conflicting goals. This balancing process is called optimization. The optimization of
conflicting goals requires insight and ability.
Once goals have been set for the organization, managers must develop plans
for achieving them. A plan is an outline of the actions by which the organization
intends to accomplish its goals. The processes involved in developing plans are
referred as planning. Just as it has several goals, the organization should develop
several types of plans.
An organizations strategy is its broadest set of plans and is developed as a
guide for major policy setting and decision making. A firms strategy defines what
business the company is in or wants to be in and the kind of company it is or wants
to be. When the Surgeon General issued a report linking smoking and cancer in the
1950s, top management at Philip Morris Companies recognized that the companys
very survival was threatened. Action was needed to broaden the companys
operations. Major elements in the overall Philip Morris strategy were first to
purchase several non-tobacco-related companies and then to aggressively promote
122

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
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Work in pairs and discuss the following issues:


You are the owner and only employee of a firm that you started this morning.
Your firm is to produce and sell hand-sewn canvas pants to clothing stores. (You, of
course are an expert tailor).
a) Write out your firms purpose, its mission, and at least two of its
objectives.
b) Write out your firms sales strategy and a tactical plan that follows from
the sales strategy. Make sure the strategy is in keeping with your goals.
c) Write out one sales policy to be followed by your firm, and one SOP that
implements the policy.
IV. VOCABULARY PRACTICE
A) Match the words with their definitions:
Goal, goal setting, purpose, mission, objective, plan, planning, strategy, tactical
plan, policy, standard operating procedure, organizing, leading, motivating,
directing, controlling.
1. the processes involved in developing plans
2. a general guide for action in a situation that occurs repeatedly
3. the process of evaluating and regulating ongoing activities to ensure that
goals are achieved
4. the means by which an organization is to fulfill its purpose
5. a specific statement detailing what the organization intends to accomplish
as its goes about its mission
6. the combined processes of leading and motivating
7. an end state that the organization is expected to achieve
8. the broadest set of plans and is developed as a guide for major policy
setting and decision-making
9. the process of influencing people to work toward a common goal
10.
the process of developing a set of goals
11.
a plan that outlines the steps to be taken in a situation that arises
again and again
12.
the grouping of resources and activities to accomplish some end result
in an efficient and effective manner
13.
a smaller-scale plan developed to implement a strategy
14.
the process of providing reasons for people to work in the best interests
of the organization
15.
an outline of the actions by which the organization intends to
accomplish its goals
16.
the reason for the organizations existence
V. WRITING
A) Translate into English:
Planul de afaceri itinerarul succesului
Este mult mai uor s ajungi ntr-un loc necunoscut, dac ai informaii precise i
o hart bun. La fel stau lucrurile i n cazul nfiinrii unei firme. tii deja c dorii
s fii propriul dvs. ef. Poate c tii i ce fel de firm dorii s deschidei. Dar putei
atinge acest el?
Itinerarul pe care l urmeaz ntreprinztorii se numete plan de afaceri.
Planul de afaceri este alctuit din rspunsuri sistematice la o serie de ntrebri bine
cumptate, vitale pentru iniierea unei afaceri viabile.
125

Cnd vorbesc despre un plan de afaceri, oamenii se refer, de obicei, la un


document scris.
Dar planul de afaceri nu este numai un document. El este procesul de definire
i evaluare a viitoarei companii. Alctuirea acestui plan este prima ocazie de a v
organiza firma. n ciuda importanei sale, perspectiva cercetrilor necesare
elaborrii unui plan de afaceri i agaseaz pe muli viitori proprietari de mici firme.
Acetia vor s deschid firma acum, nu s stea s rspund la ntrebri referitoare
la o idee despre care sunt siguri c le va aduce bani. Ei nu vd rostul analizrii unei
firme care nici mcar nu exist nc.
Rostul este urmtorul: un plan de afaceri este esenial, pentru c va scoate n
eviden eventualele probleme, nc nainte ca acestea s se iveasc, i va sugera
soluii, fcndu-v s economisii timp, bani i dureri de cap.
B) Business Communications
When one applies for a position with an American company, the letter of
application cannot and should not contain all the information a prospective
employer wants to know about you. The resume will accompany your letter of
application, and this is where most of the details about you will appear. The letter of
application should serve as a suplement to the resume.
You may begin your letter of application by stating exactly what work you are
seeking. Be very specific about this. If you know of a job opening within the
company, refer specifically to that position. Also, if some person from that company
told you of the job opening, you may want to begin your first paragraph by
mentioning this person by name. At any rate, you should begin your letter by
mentioning the job you are seeking and perhaps by mentioning your source of
information about the job.
The second paragraph is important becuse this is where you tell more about
yourself than the resume can tell. In this paragraph you should try to distinguish
your application from all the others. Here you may elaborate on some job
experience or training which does not stand out on the resume but which may
particularly qualify you for the job. Be careful not to make this paragraph too long.
Like all good business communications, the letter of application must be concise
and to the point.
To help you write the second paragraph, find out all you can about the
company and the job opening before writing the letter. If you can make specific
references to the companys needs and how you can fulfill them, your chances of
getting a job interview will be much better.
Close the letter with a request for an interview. Be careful to clearly state your
desire for an interview and your willingness to accomodate their schedule in
arranging the interview.
The overall tone of the letter should be pleasant and honest. You do not want to
attempt to over-impress the employer with your talent or knowledge.
Review the sample letter of application given below. After studying its
sections and tone, write your own. In writing this letter, assume you are writing
to some specific company for a specific position. You may want to write to one of
the utility companies explaining how you may be of service to them (some of the
utilities needed managers while others needed investment bankers).
January 23, 192987 E. Peach St.
Dallas, TX 74639
Ms. Joan B. Willis
Personnel Department
126

Diamond Oil Company


New York, NY 10003
Dear Ms. Willis:
I have spoken to your Dallas representative, Mr. James Schultz, and he informed
me that your company is in need of someone having an FCC Communication
Technician license.
As my resume indicates, while working for the Magnolia Oil Company, I have
used my FCC technical skills for eight years. In fact, I was among the first
technicians to receive this training. Not only did I use my training in performing my
work duties, I also served as an in-house trainer for those technicians planning to
apply for FCC licensing. In the course of these eight years with Magnolia Oil, I have
gained experience with most of the electronic testing and maintenance equipment
used in the oil industry.
Please refer to the enclosed data sheet for details on both my education and
work experience. There you will also find the names of persons willing and able to
comment on my ability and character.
Because of the extreme distance between Dallas and New York, I will be glad to
interview with your dallas representative or with you by telephone. I can arrange
either at your companys convenience.
Respectfully,
Mark T. Riley
Enclosure: Resume
VI. Match
explanations.

the

characteristics

of

great

managers

with

their

How to be a great manager


Great managers accept blame

Great managers give praise

Great managers make blue sky

Great managers put themselves


about

Great managers judge on merit

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

Great managers make things


happen
Great
managers
themselves redundant

make

developed their people. Errors made by team members are


in a very real sense their responsibility.
A great more difficult than it sounds. Its virtually
impossible to divorce your feelings about someone
whether you like or dislike them from your view your
actions. But suspicion of discrimination and favouritism are
fatal to the smooth running of any team, so the great
manager accept this as an aspect of the game that really
needs to be worked on.
Very few people are comfortable with the idea that they will
be doing exactly what they are doing today in 10
yearstime.
Great
managers
anticipate
peoples
dissatisfaction.
Most managers now accept the need to find out not merely
what their team is thinking, but what the rest of the world,
including
their
customers
is
saying.
So
MBWA
(management by walking about) is an excellent thing,
though it has to be distinguished from MBWAWP
(management by walking about without purpose), where
senior
management
wander
aimlessly,
annoying
customers, worrying staff and generally making a nuisance
of themselves.

7.3 Levels and Areas of Management


Learning objectives:
1. Distinguish among the various kinds of managers, in terms of
both level and area of management
2. Identify common titles for top managers, middle managers and
lower-level managers
Study and Learn the Words:
English

to reach the rank of


chief executive officer
(n)

English
Equivalents
general
money, or
possessions, riches,
wealth
to attain the rank of
president of the
company

chief operating officer


(n)

chief responsible for


production

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.)

hand down (ph.v)


plant (n)
former (adj)
foreman (n)

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

Human Resources Managers A human resources manager is a person


charged with managing the organizations formal human resources programs. He or
she engages in human resources planning; designs systems for hiring, training, and
appraising the performance of employees; and ensures that the organization
follows government regulations concerning employment practices. Because human
resources management is a relatively new area of specialization in many
organizations, there are not many top managers with this kind of background.
However, this situation should change with the passage of time.
Administrative managers
An administrative manager (also called a
general manager) is a manager who is not associated with any specific functional
area but who provides overall administrative guidance and leadership. A hospital
administrator is a good example of an administrative manager. He or she does not
specialize in operations, finance, marketing or personnel management but instead
coordinates the activities of specialized managers in all these areas. In many
respects, many top managers are really administrative managers.
I. COMPREHENSION
A) Review Questions
1. How are the two perspectives on kinds of managers that is, level and
area different from each other?
2. Compare the three kinds of managers: top, middle, and lower-level
managers.
3. What are the liabilities of other kinds of managers according to the areas
of management?
II. FOCUS ON GRAMMAR
A) Insert the following prepositions into the gaps:
1. . many respects, many top managers are really administrative managers.
2. A human resources manager is a person charged managing the
organizations formal human resources programs. 3. Traditionally, operations
management has been equated .. manufacturing the production of goods. 5.
Common titles associated .. top managers are president, vice president, chief
executive officer (CEO), and chief operating officer (COO). 6. A middle manager is a
manager who implements the strategy and major policies handed . . the
top level of the organization. 7. Many of todays middle and top managers began
their careers .. this lowest management level.
B) Write nouns, verbs or adjectives:
NOUN

VERB
to manage

ADJECTIVE

operation
financial
to administer
control
organizational
promotion
to exchange
specialized
regulations

III. VOCABULARY PRACTICE


A) Match the words with their definitions:

130

top manager, middle manager, lower-level manager, financial manager,


operations
manager,
marketing
manager,
human
resources
manager,
administrative manager
1 a manager who creates and manages the systems that convert resources
into goods and services.
2. a manager responsible for facilitating the exchange of products between
the organization and its customers or clients.
3. a manager who coordinates and supervises the activities of operating
employees.
4. a person charged with managing the organizations formal human
resources programs.
5. an upper-level executive who guides and controls the overall fortunes of
the organization.
6. a manager who implements the strategy and major policies handed down
from the top level of the organization.
7.
a manager whose primary responsibility is the organizations financial
resources.
8.
a manager who is not associated with any specific functional area but
who provides overall administrative guidance and leadership.
B) Find the definitions of the following terms. Put the letter of the
term next to the definition.
a. Executive vice president
b. Division management
c. Group vice president
d. Senior vice president
e. CEO (chief executive officer)
f. Corporate planning
g. Operations management
__________ 1. Person with total responsibility for all decision making in the
corporation.
__________ 2. High executive officer with a title sometimes felt to have
special prestige.
__________ 3. Administration of a company branch or section.
__________ 4. Aspect of management including systematic consideration of
planning, problem solving, forecasting, and decision-making.
__________ 5. Vice president in charge of one part of the company.
__________ 6. A vice president with general decision-making responsibility
directly under the president.
__________ 7. The systematic work of forecasting and taking into account
corporate responsibilities.
IV. DISCUSSION
In small groups discuss which of the following qualities are more likely
to characterize todays top manager:
- Charismatic/efficient
- Thrilling/disciplined/business like
- Visionary/pragmatic
- Glamorous looks/business looks
- Intelligent/genius/good organizer
V. Focus on Language
131

Un- is the most common negative prefix followed closely by in (ex:


intelligent-unintelligent)
Im usually precedes a word beginning with a p(ex: partial impartial)
Ir usually precedes a word beginning with an r (ex: regular-irregular)
A) The following adjectives are generally used to describe some of the
qualities of managers. Change each adjective into its opposite by adding
un, in, im, ir, or dis: Use dictionaries:
1. approachable
13.
intelligent
2. articulate
14.
loyal
3. assertive
15.
patient
4. committed
16.
practical
5. communicative
17.
rational
6. consistent
18.
reliable
7. cooperative
19.
responsible
8. competitive
20.
sensitive
9. creative
21.
sincere
10.
decisive 22.
skilled
11.
discreet 23.
supportive
12.
honest
VI. Business Communications
Oral presentations
In speaking, unlike writing, the listener cannot go back to what has already
been said to hear it a second time. When you speak to a group, you should make
your audience understand everything you say. This means your pronunciation must
be clear, your speaking must not be too fast, and your information must be well
organized.
First of all, you must speak as clearly as possible. Since you speak English as a
second language, it is your responsibility to make sure that what you say is clearly
pronounced. Avoid too much informality and too many contractions. For example,
do not say, gonna for going to when speaking to a group. Also, if your
pronunciation is not clear, the listener may confuse your words.
Be sure to keep your speech fast enough that your audience remains
interested, but do not speak so quickly that your listeners cannot keep up with
what you are saying. For example, it is very easy to go too fast if you read
directly from your notes. Reading will probably bore your audience, anyway.
Always use brief notes when giving an oral presentation. It is often convenient to
use three-by-five-inch notecards. Using only notes, and not the full text of your
presentation, will help you remember the main things you want to say while at
the same time allowing you to look at your audience as you speak. By looking at
your audience, you can determine whether or not they are understanding.
Remember to use simple language, speak slowly, and use notes to help you
remember what to say, and look at your audience.
Finally, be certain that your information is well organized. You should give a
very clear introduction, which states (1) what your main topic is going to be and
(2) what your main points will be in the course of the presentation. Then, discuss
each main point in a logical, organized, step-by-step manner. Finally, state your
conclusions. Look at the exercise VII.
VII. SCENARIO: Management decision-making
132

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

7.4 Key Management Skills


Learning Objectives:
1. Know the key management skills
2. Identify the management roles in which these skills are used
Study and Learn the Words:
English
lawyer (n)
machinist (n)

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)

full of pride and selfimportance


pushing,
presumptuous,
impudent, immodest,
shameless
to stress

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

C) Complete the sentences with the proper preposition or


prepositions:
1. In any case, protect yourself _______ precipitous action.
2. Is it really safe to rely entirely _______ hunches ________ correct decisions?
3. In fact, too much reliance on hunches may deprive you _______ much
helpful input.
4. It is a good idea not to be too hasty; consult _________ your peers about
the problem.
5. Collaborate _______ them in determining the primary objectives to be
achieved.
6. Give yourself time to consider; haggle ______ the prices or spend time
negotiating ____ a prospective buyer or seller before playing hunch.
7. Whereas you must not dispose ________ a problem without the greatest
possible deliberation, playing a hunch may save you considerable time for
other problems.
8. You will profit _______ a delicate balance between data gathering and
hunches, and your careful work will entitle you _______ well-deserved
recognition.
III. DISCUSSION
Work in pairs and discuss the following issues:
Rate yourself on each of the five key management skills and on your proven
ability to perform each of the four management functions. (Use the scale of 1 to 5,
with 5 being the highest.) Based on your ratings, explain why you would or wouldnt
hire yourself for a lower-level management position.
Technical
skills

Conceptual
Skills

Interpersonal
Skills

Diagnostic
Skills

Analytic
Skills

IV. VOCABULARY PRACTICE


A) Match the words with their definitions:
analytic skill, conceptual skill, technical skill, interpersonal skill, diagnostic skill
1. the ability to deal effectively with other people, both inside and outside
the organization.
2. the ability to assess a particular situation and identify its causes.
3. the ability to think in abstract terms.
4. a specific skill needed to accomplish a specialized activity.
5. the ability to identify the relevant issues (or variables) in a situation, to
determine how they are related, and to assess their relative importance.
B) Fill in the blanks with an appropriate form of one of the following
words:
foreman
indebtedness
academicians
mutual fund
ingenious
intuitive
fair employment practices
associates
safeguards
computer software
Scientists and ___________ are helping business understand its __________ to
hunches and __________ knowledge. Howard Stein, chairman of Dreyfus Corp.,
136

successfully launched a special ______________ made up of computers which


complied with environmental __________ and _____________. Also, Edgar Mitchell and
his __________ use intuitive information along with ________. They interview
managers, ________, and workers in the process of creating _____________ fault
trees.
V

CASE STUDY
Management Practices at CBS

In the past, Laurence Tisch, CEO at Columbia Broadcasting System (CBS),


proved himself to be a first-rate accountant and financial wizard. So it is no surprise
that this confident and articulate man has been hurt because many observers have
openly questioned his ability to run CBS. CBSs current board of directors, network
affiliates, and investors have harshly criticized Tishchs strategy at CBS or, more
precisely, his lack of a concrete company strategy. However, others claim that
Tisch decisions at CBS have been excellent and have brought financial stability to
the firm.
Before Tisch came along, CBS was a diverse entertainment giant. CBS/Records
group was the worlds largest company. Tisch sold CBS records to Sony Corp. (for $2
billion), just when the compact-disc revolution began to breathe a strong rush of air
into the music industry. Tisch sold CBS,s publishing holdings to Harcourt Brace
Jovanovich, Inc., and its magazine division to Diamandis Communications, Inc. And,
while ABC is expanding its commitment to cable programming by investing in
such networks as ESPN, Lifetime, and Arts & Entertainment Network-and NBC
(which has been trying to increase its involvement in cable for years) is now leasing
the Tempo Television Network, Tisch sold off CBSs interests in Rainbow Services (a
cable programming venture) and several regional SportsChannelnetworks.
Tisch argues that he wants to concentrate on broadcasting, even though the
evening viewing audience for CBS programs has diminished by two million
households since Tisch took command. Tisch says that CBS will regain its lead in the
broadcast industry with improved programming, aggressive promotion to attract
new viewers, and marketing innovations that appeal to advertisers. Some television
analysts expect Tischs plans to fail; they think that CBS must diversify to grow at a
time when network television is shrinking so dramatically.
Tischs management style irritates many people. He hates memos, meetings,
and traditional channels of communication. Though decisions at CBS are now made
more rapidly, the bureaucratic culture of the company has been upset. Over a twoyear period after Tisch became CEO, CBS reduced its work force from 16,000 to
6,800 employees. Its revenues also shrank, from about $5, billion to $2.8 billion a
year, and it slipped to last place in the crucial A.C. Nielsen Co. television ratings. In
contrast, when Capital Cities took over ABC and made cuts as deep as CBSs in the
work force, ABC ratings improved.
One of CBSs directors said in a recent Business Week interview: We are not
happy. Tisch has dismantled the company in a piecemeal fashion, and its too late
to stop him. Weve asked for a plan or a strategy. But its not in his nature to lay out
a strategy. Tischs credit, CBS did land the 1992 Winter Olympic Games, and the
company has more than $3 billion in the bank. Stock analysts, however, are still
predicting a dull future for CBS. But, since Tisch controls nearly 25 percent of CBSs
stock, Tischs critics and dissatisfied colleagues will probably have to accept this
way of doing business for a long time.
Questions
137

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

Im afraid its not our policy to


But Im telling you
I bought these in your shop two weeks ago..
I washed them once and
Im sorry. We usually .
Would you like to exchange it for ..

139

8. MARKETING
Marketing is the creation and delivery of a standard of living

8.1 Utility: The Value Added by Marketing


Learning objectives:
1. Define Marketing
2. Explain how it creates utility for purchasers of product
3. Trace the evolution of marketing
Study and Learn the Words:
English
utility (n)
form utility
inn (n)
place utility

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

utility which appears


after purchasing the
product or service

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

As a societys total economy becomes more complex, so does the function of


marketing. Production becomes more highly specialized. Producers and consumers
become more widely separated, and so do the centers of production and
consumption. A huge distribution network is necessary to move goods to
consumers. Marketing which has been defined as the performance of business
activities that direct the flow of goods and services from producer to consumer or
user, thus is crucial to all phases of business.
Today, the buyer or consumers desires must be satisfied. The entire concept of
marketing has changed in recent years. The following chart contrasts the old and
the new concepts
The
old
concept
of
emphasized
technological research
creating a market
the product
a narrow line of products
product performance
selling as the major activity
sales profits
goods as products

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

Marketing is today everywhere. The producer, or the consumer, may be a


person, a group, a firm, an institution, an organization, a government. The product
can be a consumer good: a head of lettuce, a pencil, a washing machine anything
bought by the ultimate consumer for his own use. It may be an industrial good,
bought by a government or institution; to be resold; or to be used in the production
of other goods. The product could be a service, such as cutting hair, performing a
marriage, providing insurance or a hotel room. It may be an idea: Dont drive after
drinking, Protect wildlife.
The marketing environment is the same for all. For all, it is necessary to gather
market information, choose target markets, study consumer behavior, and develop
strategies for production, channeling, promotion, and pricing.
The American Marketing Association defines marketing as the process of
planning and executing the conception, pricing, promotion, and distribution of
ideas, goods and services to create exchanges that satisfy individual and
organizational objectives.
Utility is the power of a good or service to satisfy a human need. For a
housewife, a can opener has utility. A lunch at a Pizza Hut, an overnight stay at a
Holiday Inn, and a Mercedes 420 SEL all satisfy human needs. Each possesses
utility.
Form utility is utility that is created by converting production inputs.
Marketing efforts may indirectly influence form utility because the data gathered as
part of marketing research are frequently used to determine the size, shape and
features of a product.
The three kinds of utility that are directly created by marketing are place, time,
and possession utility. Place utility is utility that is created by making a product
available at a location where customers wish to purchase it. A pair of shoes is given
place utility when it is shipped from a factory to a department store.
Time utility is utility that is created by making a product available when
customers wish to purchase it. For example, tennis shoes might be manufactured in
December but not displayed until April, when customers in a northern city start
thinking about summer sports. By storing the shoes until they are wanted, the
manufacturer or retailer provides time utility.
141

Possession utility is utility that is created by transferring title (or ownership)


of a product to the buyer. For a product as simple as a pair of shoes, ownership is
simply transferred by means of a sales slip or receipt. For such products as
automobiles and homes, the transfer of title is a more complex process. Along with
the title to its product, the seller transfers the right to use that product to satisfy a
need.
Time, place, and possession utility have real value in terms of both money and
convenience. This value is created and added to goods and services through a wide
variety of marketing activities-from research indicating what customers want to
product warranties ensuring that customers get what they pay for. Overall, these
marketing activities account for about half of every dollar spent by consumers.
When they are part of an integrated marketing program that delivers maximum
utility to the customer, most of us would agree that they are worth the cost.
Place, time, and possession utility are only the most fundamental applications
of marketing activities. In recent years, marketing activities have resulted from a
broad business philosophy known as the marketing concept.
I. COMPREHENSION
A) Comment on:
1. Who can be the producer or the consumer? What can be a product?
2. Define the terms marketing and utility.
3. Identify the differences between the four kinds of utility and give
examples of it.
4. How is value created and added to the goods?
B) Read the following definitions of marketing and use them as a basis
to formulate your own definition of marketing:
1. Marketing is too important to be left to the marketing department (David
Packard).
2. In a truly great marketing organization, you cant tell whos in the
marketing department. Everyone in the organization has to make
decisions based on the impact on the consumer. (Stephen Burnett).
3. Most people mistakenly think of marketing only as selling and promotion
.. This does not mean that selling and promotion are unimportant, but
rather that they are part of a larger marketing mix, a set of marketing
tools but work together to affect the marketplace. (Philip Kotler)
4. The aim of marketing is to make selling superfluous. The aim is to know
and understand the customers so well that the product or service fits him
and sells itself. (Peter Drucker)
5. Marketing is the performance of business activities that direct the flow of
goods and services from producer to consumer.
6. Marketing is getting the right goods and services to the right place, at the
right time, at the right price with the right communication and promotion.
II. FOCUS ON GRAMMAR
A) Insert prepositions:
1. .. a product as simple as a pair of shoes, ownership is simply transferred
by means .. a sales slip or receipt. 2. For such products as automobiles and
homes, the transfer .. title is a more complex process. 3. Time, place, and
possession utility have real value .. terms of both money and convenience. 4.
Overall, these marketing activities account about half of every dollar spent by
consumers. 5. A lunch .. a Pizza Hut, an overnight stay .. a Holiday Inn, and a
Mercedes 420 SEL all satisfy human needs.
142

B) Language Note (Sentence linkers)


Look at these ways of linking the different parts of sentences.
Gert decided to run Columbia herself because she needed money to repay her
husbands loan; but she didnt have any management experience, and the
company accountant resigned, so she had a lot of problems at first.
1. We use because and so when we want to give the reason for an action or
decision. These words can appear in a different position in the sentence.
She decided to run the company because she needed money.
Because she needed money, she decided to run the company.
She needed money, so she decided to run the company.
2. We use but for contrast, when an action or decision is different from what
we would normally expect.
She decided to run the company, but she didnt have any
management experience.
3. Normally, we dont begin a sentence with so, but, or and.
C) Fill in the spaces in the sentences with because, so, or but. The
first one is done for you.
1. The company is recruiting 100 new employees this year so it is moving to
larger offices.
2. Were sending her to the Madrid office .. she speaks good Spanish.
3. The flight was delayed .. he was late for the meeting.
4. The rooms in the hotel were very comfortable .. the food in the hotel
restaurant wasnt good.
5. He cant be our new Financial Director .. he isnt a qualified accountant.
6. Last year, sales increased by eight per cent .. profits fell by two per cent.
III. VOCABULARY PRACTICE
A) Insert the words into the gaps. A synonym is given in parentheses
before each blank.
value
characteristics
firm
system
primitive
brief
network
appropriate
principles
crucial
concept
behavior
broad
1. A company should offer a (wide) _________ range of products.
2. The (companys) _________s (way of acting) __________ was contrary to
(guiding ideas) ___________ of good management.
3. Its (absolutely vital) ____________ for a marketer to have a (whole idea)
_________ of the (worth, importance) ____________ of developing marketing
strategy.
4. Goods follow a (complex path) ___________ or _________ from producer to
consumer.
5. (Qualities) ___________ of a (beginning, undeveloped) ___________ economy
include the use of barter.
6. The managers (short) ______________ statement to his salesmen was (apt,
suitable) _____________; it helped them correct their mistakes.
B) Using a dictionary, fill in missing word family members.
verb

noun
competition

143

adjective

produce
consumer
industrial
promotion
lose
technological
govern
economy
satisfactory
decide
emphasis
different

C) List the opposites:


excluding __________________
primary ___________________
slower ____________________
bought ____________________
failure ____________________
within _____________________
worst ______________________
decline _____________________

more expensive _____________


up to date __________________
organized __________________
youth ______________________
the same ____________________
single product ________________
domestic trade _________________
weak _______________________

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

Find a new supplier.

Employ her.

Close the canteen.

B) Now discuss each problem, following these guidelines:


Managing Director
Financial Director
What do you think we should do?
I think we should .. because ..
I dont think we should .. because ..
I agree../I dont agree ..
because ..
Why dont we ../ How about ..?

8.2 The Marketing Concept.


Its Evolution and Implementation
144

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

B) Depending on the type of customers listed below, decide in pairs


what would each of them need or want, and why:
- urban, suburban, rural
- yuppies (young urban professional people), office-workers, factory
workers,
unemployed, housewives
- well-paid, badly-paid, average-paid
- well-educated, average-educated, uneducated
C) Match the words in the box with the definitions below:
reliability
serviceability

durability

goodwill

benchmarking

1
2
3
4

warranty

performance over a long period of time


comparing what competitors are doing and adopting the best solutions.
accurate, regular performance according to specification.
a guarantee or promise that goods will meet a certain specified level, will
be repaired or replaced free of charge in the specified period of time.
5 ease of maintenance and repair
6 customer's satisfaction with and loyalty to a company (hence the
reputation of a company)

8.3

Markets and Their Classification


149

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

A market is a group of individuals, organizations, or both who have needs for


products in a given category and who have the ability, willingness and authority to
purchase such products. The people or organizations must require the product.
They must be able to purchase the product with money, goods, or services that can
be exchanged for the product. They must be willing to use their buying power.
Finally, they must be socially and legally authorized to purchase the product.
Markets are classified as consumer, industrial, or reseller markets. These
classifications are based on the characteristics of the individuals and organizations
within each market. Because marketing efforts vary depending on the intended
market, marketers should understand the general characteristics of these three
groups.
Consumer markets consist of purchasers and/or individual household members
who intend to consume or benefit from the purchased products and who do not buy
products to make a profit.
Industrial markets are grouped broadly into producer, governmental, and
institutional categories. These markets purchase specific kinds of products for use
either in day-to-day operations or in making other products for profit. Producer
markets consist of individuals and business organizations that intend to make a
profit by buying certain products to use in the manufacture of other products.
Governmental markets comprise federal, state, county, and local governments.
They buy goods and services to maintain internal operations and to provide citizens
with such products as highways, education, water, energy, and national defense.
Their purchases total billions of dollars each year. Institutional markets include
churches, private schools and hospitals, civic clubs, fraternities and sororities,
charitable organizations, and foundations. Their goals are different from such
typical business goals as profit, market share, or return on investment.
Reseller markets consist of intermediaries such as wholesalers and retailers
who buy finished products and sell them for a profit.
After classifying and identifying its market or markets, an organization must
develop marketing strategies to reach this audience.
I. COMPREHENSION
A) Answer the folloing questions:
1. Define the word market.
2. Characterize the relationship between people and products.
150

3. What groups are markets classified in?


4. What criteria guide this classification?
5. Identify the differences and similarities between the kinds of markets.
II. VOCABULARY PRACTICE
A) Match the words with their definitions:
Consumer market, governmental market, institutional market, reseller market,
industrial market, producer market
1. A market that consists of intermediaries such as wholesalers and retailers
who buy finished products and sell them for a profit.
2. A market that includes churches, private schools and hospitals, civic clubs,
fraternities and sororities, charitable organizations, and foundations.
3. A market consisting of purchasers and/or individual household members
who intend to consume or benefit from the purchased products and who
do not buy products to make a profit. 4. A market comprising federal,
state, county, and local governments.
5. A market that purchases specific kinds of products for use either in day-today operations or in making other products for profit.
6. A market that consists of individuals and business organizations that
intend to make a profit by buying certain products to use in the
manufacture of other products.
B) Complete the sentences with appropriate forms of the words in
parentheses:
1. (nonprofit, negotiable) Thrift shops are ________________ stores, and
sometimes the prices are _________________.
2. (haggle, defect, merchandise) If the shopper finds __________ in the
_____________ she can ________________ over the price.
3. (bin, value) If shoppers look carefully through the __________________ in the
stores, real ______________ can be found.
4. (unload, bear) Department stores use sometimes resale stores to
_____________ excess merchandise which may ______________ high-quality
labels.
5. (price tag, retail price) The prices on the _____________ are lower than what
the _________ would be.
6. (inventory, go for, deplete) On busy days like Saturdays when shoppers
really _________ low prices, a stores ______________ may become
_______________.
7. (secondhand, consignment) Much of the merchandise in the resale shops
is someones _________ clothing which is sold on _____________ .
8. (alter, shrink) Many of the items sold on consignment may not be the
same size as is written on the label because they have _____________ or
have been _______________ .
9. (garment, line) Many of the _______________ found in these stores are from
designer ____________ .
10.
(wardrobe, apparel) Some people fill their ______________ with
secondhand _______ .
III. FOCUS ON GRAMMAR
A) Insert propositions:
1. Because marketing efforts vary depending .. the intended market,
marketers should understand the general characteristics of these three groups. 2.
151

These classifications are based . the characteristics of the individuals and


organizations . each market. 3. They buy goods and services to maintain
internal operations and to provide citizens .. such products as highways,
education, water, energy, and national defense. 4. Their goals are different .. such
typical business goals as profit, market share, or return on investment.
B) Complete the missing words in the table:
VERB
to introduce (a product)
to withdraw (a product from the market)
to promote
to recover
to complain
to revise

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

1. Dezvoltarea unei game largi de produse permite firmei s acopere


suprafa mare din pia i s delimiteze mai clar principalele segmente
de consumatori crora se adreseaz.
2. Procesul de creaie vizeaz i ambalajul noului produs. Acesta trebuie s
fie conceput astfel nct s-i asigure protecia mpotriva agentilor din
mediul ambiant, pstrarea integritii formei i coninutului n timpul
transportului, manipulrii i depozitrii.
3. Produsele firmei 3M formeaza gam variat, de la dischete la lentile de
contact, flacoane spray pentru aerosoli, echipament medical i pn la
bilete adezive pentru birou.
4. Un sondaj efectuat recent arata c 40 % dintre cumprtori prefer
produsele din gama Palmolive dect Farmec pentru c ambalajul este mai
atractiv i preul mai scazut.
5. Achiziionarea unui computer performant a devenit esential pentru
departamentul nostru acum, cnd numarul membrilor echipei a sczut i
volumul de lucrri este n cretere.
6. Ca urmare a faptului c s-au nregistrat comenzi numeroase n ultima
vreme, am hotrt s folosim noile coduri ale produselor pe care clienii s
le menioneze pe formularul de comand.

8.4 Developing Marketing Strategies


Learning objectives:
1. Identify the four elements of the marketing mix
2. Become aware of their importance in developing a marketing
strategy
3. Comprehend how the marketing environment affects strategic
market planning
Study and Learn the Words:
English
aimed at
market segmentation
approach
target market
marketing mix

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

taboos (n, pl)

barc

segment al pieii

segmentare a pieii

mbrcminte, haine,
confecii
denumirea mrcii

ambalaj
reducere
a ridica, a face
reclam

To market a product successfully, a marketer must develop a strategy. A


marketing strategy is a plan that will enable an organization to make the best
use of its resources and advantages to meet its objectives. A marketing strategy
consists of (1) the selection and analysis of a target market and (2) the creation and
maintenance of an appropriate marketing mix, a combination of product, price,
distribution, and promotion developed to satisfy a particular target market.
Target Market Selection and Segmentation
A target market is a group of persons for whom a firm develops and
maintains a marketing mix suitable for the specific needs and preferences of that
group. In selecting a target market, marketing managers examine potential markets
for their possible effects on the firm's sales, costs, and profits. The managers
attempt to determine whether the organization has the resources to produce a
marketing mix that meets the needs of a particular target market and whether
satisfying those needs is consistent with the firm's overall objectives. They also
analyze the strength and number of competitors already selling in a potential target
market. Marketing managers generally take either the total market approach or the
market segmentation approach in choosing a target market.
Total Market Approach When a company designs a single marketing mix and
directs it at the entire market for a particular product, it is using a total market
approach. This approach, also known as an undifferentiated approach, assumes
that individual customers in the target market for a specific kind of product have
155

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

Family Life Cycle


This concept identifies potential customers by age, marital status
and number and ages of children.
1.Bachelor stage: young, single individuals
2.Full nest: young married couples with children
a. youngest child under six
b. youngest child six or over
c. older married couples with dependent children
3.Empty nest: older married couples with no children at home
4.Solitary survivors: older single or widowed people

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

see that the marketing environment also includes a number of uncontrollable


elements.
Marketing Environment
The marketer makes decisions within the framework of that plan that explains
how to market a product. His decisions depend upon many variables, of factors that
are constantly changing. Some variables are internal. The marketer has some
control over the variables that affect the product: its nature, promotion of it, and
the path it will follow from producer to consumer, and its price. But when something
is produced, it enters an existing external environment of law, economy and society
or culture. Suppose a company has developed a new kind of light bulb, one that
works better and lasts longer than any other. Laws might exist that regulate its
packaging, labeling, distribution. There could be legal restrictions on safety,
advertising, and price. Laws must discourage or encourage a competitive economy.
Even if there are no legal limits, there may be too much competition from other
producers of light bulbs. A company competes not only with other companies that
make similar products, but with all other companies. The marketing mix consists of
elements that the firm controls and uses to reach its target market. In addition, the
firm has control over such organizational resources as finances and information.
These resources, too, may be used to accomplish marketing goals. However, the
firm's marketing activities are also affected by a number of externaland generally
uncontrollableforces.
Economic forcesthe effects of economic conditions on customers'
ability and willingness to buy
Legal forcesthe laws enacted either to protect consumers or to
preserve a competitive atmosphere in the marketplace
Societal forcesconsumers' social and cultural values, the consumer
movement, and environmental concerns
Competitive forcesthe actions of competitors, who are in the process
of implementing their own marketing plans
Political forcesgovernment regulations and policies that affect marketing,
whether or not they are directed specifically at marketing
Technological forcesin particular, technological changes that can
cause a product (or an industry) to become obsolete almost overnight
These forces influence decisions about marketing-mix ingredients. Changes in
the environment can have a major impact on existing marketing strategies. In
addition, changes in environmental forces may lead to abrupt shifts in targetmarket needs. There are some questions to be answered before trying to enter a
foreign market.
Questions about the legal environment
1. To what extent are foreign imports controlled by government regulation?
What duties, tariffs, quotas, and other nontariff barriers are there?
2. Is there a state trading corporation? What is its role? What is its effect on
competition?
Questions about the economic environment
1. What is the standard of living? The cost of living? The size of the
population relative to the amount of usable land?
2. What is the extent of economic development?
3. Is there an effective middle class? What is its purchasing power?
Questions about the sociocultural environment
1. Is there a need for the product? Is the attitude toward it the same as it is
in this country?
158

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

- Whats it made of?


- Are you going to pack it? (If so, how?)
4. Draw a picture or diagram of the gift. When youve finished, present your
idea to the class. See if they can suggest improvements.
C) Pair-work
Which of the following claims do you agree with?
1. Advertising is essential for business, especially for launching new
consumer products.
2. A large reduction of advertising would decrease sales.
3. Advertising often persuades people to buy things they dont want.
4. Advertising lowers the publics taste.
5. Advertising raises prices.
6. Advertising often persuades people to buy things they dont need.
7. Advertising does not present a true picture of products.
8. Advertising has a bad influence on children.
D) In a well-known survey, the Harvard Business Review asked 2,700
top or senior business managers whether they agreed with these
statements. The survey produced some unexpected results. Which of the
following percentages do you think go with which of the statements
above?
41%
90%

49%

51%

60%

72%

85%

57%

F) After matching up these figures and statements, look at the true


figures on the next page. After reading the opinions expressed in the
Harvard Business Review survey, do you want to revise the opinions
expressed above?
VII. Match the ideas with the examples of real advertisements, then
try to find ten adds (in newspapers, magazines or TV commercials) that
illustrate the ideas below:
1. Ask a question
Think IBM
2. Use a two-fold delivery with a twist
Never forgets Elephant Memory
Systems
3. Show your unique commitment
Common sense. Uncommon results
David
Ingram and Associates
4. Describe your product in a novel way Liquid jewelry Lorr Laboratories (nail
polish)
5. Link company name to product benefit Does she or doesnt she? Clairol
6. Use an imperative call to action
Understanding comes with Time
Time magazine
7. Use a one-word call to action
We take the worlds greatest pictures
Nikon
8. Link a well-known phrase with
A diamond is forever DeBeers
your product benefit
9. Brag about yourself
We try harder Avis
10.Link a product feature
with an abstract need
Just do it Nike
VII

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

stage (1, 2a, 2b, 2c, 3, or 4)


_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____

IX. Written Task


Research proves that the effect of the creativity factor in a campaign is more
important than the money spent. Only after gaining attention can a commercial
help to increase the brands sales, writes Philip Kotler in his famous book
Marketing Management. Use your creativity and write an advert following one of the
tips above.
Referenece to the previous page
Discussion: The numbers of respondents who agreed with the statements were
as follows:
1). 90%, 2). 72%, 3). 85%, 4). 51%, 5). 41%, 6). 49%, 7). 60%. 8). 57%
X. These are some of the things the marketer must know about a
foreign market. Add to the lists.
legal environment
economic environment
sociocultural
environment
tariffs
standard of living
need for the
product
restrictions on imports cost of living
attitude toward the product
___________
___________
___________
___________
___________

___________
___________
___________
___________
___________

___________
___________
___________
___________
___________

VI. CASE STUDY


Targeting New Markets
No one has been able to develop a list of superbly managed companies that
withstands the test of time. Levi Strauss, one of the models of excellence in the
early 1970s, faced hard times in the late 1970s and early 1980s. The company
struggled in its attempts to appeal to both the youth and adult markets. The
162

companys efforts to appeal to both markets through a single advertising strategy


proved unsuccessful. New product lines of jeans came and went.
The company became determined to shine up its tarnished image. Image,
sales, and profits are being improved through product diversification, acceptance of
the fact that the preferences of students of the 1960s and 1970s have evolved, and
by the targeting of ethnic groups throughout the United States.
Today, Levis are again a staple for baby boomers. Different sizes, silhouettes,
and fabrics have helped retain Levis appeal. And for the younger market, Levi
continues to stress hip, fit, and image. The company also uses varied commercials
to appeal to specific groups and is planning to target different age and racial groups
as demographics continue to change.
Demographics, especially in California, are changing rapidly, and the company
is responding with new lines of casual pants. Economic and population trends in
California reveal that Hispanics, blacks, and Asians will exert increasing economic
influence as their numbers continue to expand. Research by the Center for the
Continuing Study of the California economy predicts that Californias population will
expand by 500,000 people a year through 1995; due to immigration trends, around
two-thirds of this increase will be Hispanics and Asians. California will represent
one-fifth of the entire U.S. economic expansion during the same time period. Levi
Strauss is successfully using this demographic information to develop clothing
to appeal to new target markets. However, Levis Strausss Office of Strategic
Research director John Wyek, who has helped the company utilize demographic
information, realizes that change will be a constant factor: From now until the year
2,000, there is going to be a steady decline in the total number of 18-to-24-yearolds Hispanic 18-to-24-year-olds will increase by 40 percent. It changes the
wheel of our audience.
By creating new products with a well-known trademark, new designs and
fabrics, and by improving its advertising and image, Levi Strauss intends to capture
emerging markets as well as better respond to its traditional clientele.
Questions:
1 How is Levi Strauss shining up its tarnished image?
2 In what ways is Levi Strauss implementing the marketing concept?
Explain.
3 How have demographic factors influenced Levi Strausss marketing
strategies?

163

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164

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