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Interest Rate




 

Financial institutions and markets create the mechanism through which funds flow between savers (fund suppliers) and investors (fund demanders). The level of funds flow between suppliers and demanders can significantly affect economic growth. Growth results from the interaction of variety of economic factors, such as the money supply, trade balances, and economic policies, that affect the cost of money – the interest rate or required return. The level of this rate acts as regulating device that controls the flow of funds between suppliers and demanders. In general, the lower the interest rate, the greater the funds flow and therefore the greater the economic growth and vice versa.

The interest rate or required return represents the cost of money. It is the rent or level of compensation a demander of fund must pay a supplier. When funds are lent, the cost of borrowing the funds is the interest rate. When funds are invested to obtain an ownership (or equity) interest, the cost to the demander is commonly called the required return. In both cases the supplier is compensated for providing either debt or equity funds. Ignoring risk factors, the nominal and actual interest (cost of fund) result from the real rate of interest adjusted for inflationary expectations and liquidly preferences – general preferences of investors for shorter-term securities.

In a perfect world in which there is no inflation and in which funds suppliers and demanders are indifferent to the terms of loans or investment because they have no liquidity preference and all outcomes are certain, at a given point in time there would be one cost of money – the real rate of interest. The real rate of interest creates an equilibrium between the supply of savings and the demand for investment funds.

 

Ex.8. Give the Russian equivalents to the following.

 

Tax, taxation, taxable income, taxation brackets, tax avoidance, tax base, tax burden, tax evasion, tax exemption, tax-free, tax haven, tax holiday, taxman, tax relief, tax return, tax shelter, lump-sum tax, excise tax, heavy tax, payroll tax.

 

Ex.9.Match the following expressions with the correct definition.

1. Sums allocated by an organization working capital for for future capital expenditure

2.Ratio of sales of a company b. human capital

to its capital employed

3. Income tax relief c. venture capital

4.The amount provided by ways

of loans d. share capital

5. Factor of production, usually e. risk capital

machinery and plant

6.Total depreciation of the value of f. loan capital

the capital goods in an economy

during a specified period

7.The perceived value of people g.capital budget

and their skills

8. Money to carry on production h. capital turnover

and keep trading

9. Money a company has raised from i. capital allowances

investors who bought shares

10. Money a company borrows to strart j. capital consumption

up a new business

11. Money invested in a project with a high k. physical capital

chance of failure

Ex. 10. What is the English for?

 

Взимать налог; не платить налоги; облагать налогом; освобождать от налога; платить налоги; подлежать налогооблoжению; снижать налоги; удерживать налоги; уклоняться от уплаты налогов; до вычета налогов; после удержания налогов.

 

LET’S READ AND TALK

T E X T 1

WHAT IS FINANCE?

The field of finance is broad and dynamic. It directly affects the lives of every person and every organization, fi­nancial and non-financial, private or public, large or small, profit -seeking or non-profit. Finance can be defined as the art and science of managing money. All individuals and organizations earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets, the instruments involved in the transfer of money among and between individuals, businesses and governments.

Finance can be defined at both the aggregate or macro le­vel and the firm or micro level. Finance at the macro level is the study of financial institutions and financial markets and how they operate within the financial systems. Finance at the micro level is the study of financial planning, asset management, and fund raising for business firms and financial institutions.

Finance has its origin in the fields of economics and accounting. Economists use a supply-and-demand framework to explain how the prices and quantities of goods and services are set in a free-enterprise or market-driven economic system.

Accountants provide the record-keeping mechanism for showing ownership of the financial instruments used to facilitate the flow of financial funds between savers and borrowers. Accountants also record revenues, expenses, and profitability of organizations involved in the production and exchange of goods and services.

Large-scale production and a high degree of specialization of labourcan function only if there exists an effective means of paying for productive resources and final products. Business can obtain the money it needs to buy capital goods such as machinery and equipment only if the institutions and markets have been established for making savings available for such investment. Similarly, the federal government and other governmental units can carry out their wide range of activities only if efficient means exist for raising money, for making payments, and for borrowing.

Financial markets, institutions or intermediaries, and business financial management are basic elements of well-developed financial systems. Financial markets provide the mechanism for carrying out the allocation of financial resources or funds from savers to borrowers. Financial institutions such as banks and insurance companies, along with other financial intermediaries, facilitate the flow of funds from savers to borrowers. Business financial management involves the efficient use of financial capital in the production and exchange of goods and services. The goal of the financial manager in a profit-seeking organisation is to maximize the owners’ wealth through effective financial planning and analysis, asset management, and of financial capital. The same financial management functions must be performed by financial managers in not-for-profit organizations, such as governmental units or hospitals, in order to provide the desired level of service at acceptable costs.

1. What is finance?

2. Where does finance have its origin?

3. What are the basic elements of financial system?

 


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