Diana Schalko 2013

UNIT 1 COMPANIES I KEY FEATURES

(1) Company
1
general aspects Kapitalgesellschaft allgemeine Aspekte

Companies (corporations in US) are the most prominent form of business organization in
many fields of economy. The majority of large, medium-sized and even small businesses in
the UK and the US are run as companies/corporations.

A company in the private sector is formed with a view to making a profit for its members by
engaging in manufacturing, trading or the provision of services.
Its capital is divided into shares it is raised by each member taking a certain number of
shares, which are paid for in cash or sometimes given in exchange for some other
consideration.

The members are called shareholders (stockholders in the US). They share in the companys
profits in accordance with the size of their holdings. Profits are distributed in the form of a
cash dividend (=percentage of the nominal value of a share).

A company is a legal entity it has a legal existence separate from that of its members. The
company itself is owner of all business assets and liable for all its debts and obligations.
The liability of its shareholders is limited to the issue price of the shares held by them.
A shareholder is personally liable only for any amount remaining unpaid on the shares held
by him.

The shareholders have ultimate control of the company this power is exercised by voting at
meetings, in particular at the annual general meeting (AGM). Nevertheless, shareholders
are not allowed to participate in management as this is the task of the board of directors
(elected by the shareholders) and of paid managers (selected from among the directors or
recruited from the outside).

Most countries have two main types of companies:
Large companies permitted to issue shares to the general public; if they wish
shares are traded on a stock exchange
Called: public limited companies (UK), open corporations (US), Aktiengesellschaften
(D)
Small companies ownership is restricted to one or a few shareholders; no access to
a stock exchange
Called: private limited companies (UK), close corporate (US), GmbH (D)


(2) Company
2
types of companies Kapitalgesellschaft Arten

In the UK companies may be incorporated:
By registration under the Companies Acts (most important/common method)
By royal charter
By statute (=passing a special Act of Parliament)


Kommentar [DS1]: To set up
/found/establish/start/launch a company
eine Firma grnden
Kommentar [DS2]: To run/manage a
company eine Firma leiten
Kommentar [DS3]: To distribute
profits Gewinne ausschtten
Kommentar [DS4]: To be fully liable
for/to have unlimited personal liability
fr etw. persnlich haften
Kommentar [DS5]: To hold shares
einen Anteil halten
Kommentar [DS6]: To issue/float
shares Aktien ausgeben
Kommentar [DS7]: To be traded on
the stock exchange an der Brse
gehandelt werden

If you refer to a specific stock exchange
the shares are traded at the London stock
exchange
Kommentar [DS8]: To incorporate a
company eine Firma als
Kapitalgesellschaft eintragen
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Registered companies on the basis of their members liability may be classified into:
Unlimited companies
- Members have unlimited liability
Companies limited by guarantee
- Members are liable for the companys debts up to a stated limit
- Suitable for NPOs
Companies limited by shares
- Members liability is limited to the issue price of shares held by them
- Adopted by most for-profit businesses
- Account for the majority of registered companies
- There are two types:
a) Public limited companies its authorized and issued capital must not be less
than 50.000 pounds, of which at least 25% must be paid up at the time of
incorporation; it need not necessarily offer its shares to the general public but
may sell them privately; shares which are freely transferable may be sold to
the general public e.g. by a public offering

b) Private limited companies must not offer its shares or corporate bonds to
the general public; there is no minimum capital requirement (in contrast to an
Austrian of German GmbH); majority of private limited companies are small
family businesses run as companies to profit from the benefits of continuity
and limited liability;

In the US, corporation statutes distinguish between:
Open corporations (publicly held)
- Its shares are hold by a large number of people
Close corporations
- Small number of shareholders
- May dispense entirely with the board of directors by including a provision to this
effect in its articles of incorporation


(3) Corporation
1
Krperschaft, juristische Person

A corporation in this sense (law) is a group of people who have formed themselves into an
association having a legal existence separate from that of its individual members.

(4) Corporation
2
Kapitalgesellschaft, brsennotierte AG, Konzern

An American corporation is the equivalent of a British private or public limited company.
In business magazines and newspapers the term is used in a narrower sense and refers to a
publicly held corporation. Since many corporations have subsidiaries it may also denote a
group of companies.


Kommentar [DS9]: Abbreviation = plc
Kommentar [DS10]: Abbreviation=
Ltd
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(5) Corporation
3
wirtschaftl. Unternehmen der ffentl. Hand

In the UK the term is applied to a public corporation. (=a business organisation created by an
Act of Parliament and both owned and controlled by the government)


(6) Going public Gang an die Brse

A British public limited company or an American open corporation is permitted to offer its
shares to the general public and have them listed on a stock exchange but most of them do
not avail themselves of this opportunity.
If such a business needs more capital for expansion, or its shareholders want to convert their
holdings into cash it can go public.
Other expressions for going public are:
- Taking a company public
- Floating a company
- Flotation of a company
- Initial public offering (in international contexts) shares of a company are
traded on a stock exchange for the first time; organized generally by public
offering (=shares are made available to the public for a fixed price, deal is handled
and underwritten by a syndicate of securities firms)
Going public also involves certain disadvantages:
Disclosure requirements are much stricter and more extensive
Pressure by the investing community to make short-term profits will increase
Some listed companies decide to reverse the process which means that they take
their firm private by buying up all the shares in circulation and withdrawing from the
stock exchange


(7) Management
1
Management, Geschftsleitung, Fhrungskrfte

This term refers to the group of people that control business organisation, in particular a
public limited company or a corporation, in which case it includes the executive directors
and the managers ranking below them.
Although they all receive a salary from their company like other staff, managers are not
normal employees they rather represent the interests of the companys owners (=its
shareholders) vis--vis its workers, unless they pursue only their own interests.
Managers are rarely members of trade unions but have their own organisations. Modern
developments have reduced this antagonism between workers (us) and management (them)
but it can still be found in many traditional firms.


Kommentar [DS11]: Shares are
listed/quoted on the stock exchange
Aktien werden an der Brse gehandelt
Kommentar [DS12]: To go public/to
take a company public/to make an IPO
an die Brse gehen
Kommentar [DS13]: To
recruit/hire/appoint/employ a manager
einen Manager einstellen

To fire/dismiss/make redundant
entlassen

To pay a manager (salary, bonus, benefits,
stock options etc.) bezahlen
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A companys management is divided into:
- Senior management (often split into top and senior executives) led by the
chief executive officer (CEO) and his deputy who work closely with the board of
directors (heads of departments)
- Middle management many responsibilities of the highest ranking officers are
delegated to this section;
- Junior management

(8) Management
2
Unternehmensfhrung

Management includes all activities involved in running a business organization. Managers
prepare and make decisions and make sure that they are carried out accordingly.
Essential tasks of management include:
Identifying, formulating and setting objectives
Planning long (strategic) and short-term (tactic) plans
Establishing and maintaining a suitable organization involving structure and
procedures
Implementing getting results through other people which necessitates
delegating, motivating and commanding
Controlling measuring performance, comparing results with predetermined
objectives, taking corrective action if necessary
Communicating with other members of the firm
Establishing and maintaining contacts with the outside world; representing the
company in negotiations with customers, suppliers, trade unions etc.
Managers rely on various techniques to achieve their goals we distinguish between:
a) Qualitative techniques e.g. management by objectives, by results and by exception
b) Quantitative techniques (operations research) e.g. network analysis, simulation, risk
analysis, decision trees
Another important aspect refers to the style of leadership management style used by
executives. It ranges from very authoritarian (e.g. little confidence in subordinates, no
employee participation in goal-setting and decision making, motivation by fear, threats
and punishment) to very co-operative (e.g. motivation by participation and involvement,
complete trust in subordinates).
Firms with a more co-operative style are more likely to have a continuous record of high
productivity.

(9) Executive Fhrungskraft, leitender Angestellter

Strictly speaking executives are top-level managers in a business organisation e.g. the CEO,
executive directors, top-level managers that report directly to executive directors (marketing
manager, purchasing manager etc.).
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It is commonly applied not only to senior managers but also to junior managers
(-executives). Even employees at the bottom end of corporate hierarchy may be called
executives to enhance their self-esteem and motivation without having to raise their
compensation e.g. field executives (salespersons), account executives
Executive is also an adjective e.g. executive suite or jet denotes things belonging to or
reserved for top-level managers.


(10) Incorporation (of a company) Grndung (einer Kapitalgesellschaft)

Before a company is set up in Britain, its promoters (people involved in its formation) must
enter negotiations on the acquisition of land, buildings and other property, obtain the
consent of the proposed directors to act as such and arrange for the companys shares to be
underwritten.
The formalities necessary for the incorporation include:
- Prescribed documents (prepared by a solicitor on the promoters instructions)
include the firms memorandum of association, its articles of association, a list of
names of the first directors and a statement of the amount of capital the
company is permitted to issue;
- After payment of the proper fees a certificate of incorporation is granted
private limited company can start business immediately; public limited company
has to comply with certain other requirements and receive a trading certificate to
start business;
- Every company has to hold a general meeting where the statutory report and any
matters regarding incorporation are discussed
Definitions:
Memorandum of association (articles of incorporation in the US) = defines the
companys powers and regulates its relations with the outside world; must contain
certain information e.g. name and location of the company, its objects (activities the
firm is allowed to engage in), limitation of liability, amount of nominal share capital
and its division into shares;
Articles of association (bylaws in the US) = regulate the companys internal affairs
e.g. rules of procedure at meetings, voting rights of shareholders, powers and duties
of directors etc.

These two documents constitute a binding contract between the company and its members,
and can be altered only by special resolution of its members.
The articles of incorporation in the US also contain some provision dealing with internal
affairs.
Kommentar [DS14]:
Step 1 prescribed documents
Step 2 payment of proper fees
Step 3 the certificate of incorporation is
granted
Diana Schalko 2013
UNIT 2 COMPANIES II CORPORATE GOVERNANCE

(1) Company
3
legal aspects, management and control
Kapitalgesellschaft juristische Aspekte, Geschftsfhrung,
Verfgungsgewalt

The main characteristics of a company are its legal personality as well as the separation of
ownership and management. In contrast to sole traders and partnerships, companies are
legal entities (artificial or legal persons), having a legal existence independent of that of
their individual members.
The company has its own life neither the death of a member nor a transfer of shares
affects the existence of the enterprise. It can enter into contracts, hold property, buy and
sell or sue and be sued in its own name.
However, a company can act only through its properly constituted agents. The companys
members as such cannot be held individually responsible for its actions the directors and
officers may in certain cases be held personally liable if the company fails to comply with the
provisions of the Companies Acts.
As a legal entity the company is owner of its business assets and liable for all its debts and
obligations. The liability of its shareholders is limited to the issue price of the shares held by
them. If the company fails a shareholder is personally liable only for any amount remaining
unpaid on the shares held by him.
Once set up, a company continues in existence until it is brought to an end e.g. by winding
up or liquidation. When a company is wound up or liquidated its assets are disposed of its
creditors are paid and the remaining amount of money (if any) is distributed to its
shareholders. Liquidation may follow a decision at a general meeting of shareholders
(=voluntary liquidation) or it may be ordered by court (=compulsory liquidation).
Ultimate control of a company is in the hands of the members (the shareholders), who
exercise it by voting at meetings (voting power is proportional to the number of shares held).
The principal meeting of shareholders is the annual general meeting (AGM).
The members, however, do not have any power to participate in the management of their
business. Management, supervision and day-to-day control over the company are vested in
its board of directors (elected by and responsible to the shareholders).
Companies are required to make a certain minimum amount of information available to the
public disclosure requirements:
- Every year a company must send a copy of the directors annual report, a copy of its
audited balance sheet and a copy of its profit and loss account to the Registrar of
Companies
- It must keep certain statutory books e.g. register of members, minutes books as well
as proper books of account


Kommentar [DS1]: To wind up/to
liquidate company eine Firma
schlieen/auflsen

Related expressions:
To shut down/close a company
To go bankrupt / to face bankruptcy / to
be threatened by bankcruptcy
Kommentar [DS2]: To hold an AGM /
eine Jahreshauptversammlung abhalten

Related expressions:
To appoint a meeting ein Meeting
festsetzen
To postpone a meeting ein Meeting
verschieben
Kommentar [DS3]: To vest control in
die Kontrolle liegt bei; jemand ist
bevollmchtigt etw. zu tun
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(2) Company
4
advantages and disadvantages
Kapitalgesellschaft Vor-und Nachteile

The major advantages of a company are the following:
Continuous existence, independent of its members or directors
Shares are freely transferable and therefore can easily be sold without affecting its
capital or existence
The shareholders liability is limited; this limitation encourages individual and
institutional investors to put their money into corporate equities companies can
raise huge amounts of capital necessary for large-scale operations

The major disadvantages are:
Disclosure requirements make it difficult to conceal their business affairs; their books
must be available for inspection by their members and the general public
The directors and managers have direct control over the companys affairs without
being effectively accountable to the real owners
Conflicts between the shareholders (want a high dividend), its directors and
managers (want to plough back profits) and its workers (interested in higher wages)
Lack of personal contact with customers and employees
Slow and inflexible decision-making

(3) Company
5
legislation Kapitalgesellschaft Gesellschaftsrecht

Companies are subject to detailed legal regulations designed mainly to protect shareholders,
creditors and the general public from possible abuses of the legal entity concept.
The relevant piece of legislation in the UK is the Companies Act of 1948.
In the US the federal government has drawn up a Model Business Corporation Act and
has recommended the individual states to adopt it.


(4) Shareholder Aktionr, Gesellschafter einer Kapitalgesellschaft

The members of a company are called its shareholders, their membership coinciding
exactly with legal ownership of its shares.
The normal methods of becoming a member are
- by subscribing the memorandum of association subscribers become the first
members
- by applying for an allotment of shares
- by having shares transferred from an existing member
Kommentar [DS4]: = zur Einsicht
bereit liegen
Kommentar [DS5]: To be accountable
(to sb) for sth (jemandem gegenber)
fr etw. verantwortlich sein

Related expression:
To hold sb accountable for sth jemanden
fr etw. verantwortlich machen
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A companys shareholders are often said to be its owners in a strictly legal sense this is
false because they are only owners of the companys shares but do not own the company
itself nor its assets they are owned by the company itself as a legal entity.
While each shareholder enjoys certain individual rights vis--vis the company e.g. right to
receive dividends, voting rights etc., the power to influence and control company police is
vested in all the members collectively exercised at general meetings.
Such meetings are normally not well attended and the few members with large holdings
tend to dominate and control the proceedings.

(5) Shareholder value Gesamtrendite fr Aktionre, Eigentmerwert

If defined in purely quantitative terms, it means basically the same as total return to
shareholders (=dividends + capital gains or capital losses) expressed as a percentage of
the purchase price of the shares concerned.
However, the term is rarely used in this neutral way. Normally, it serves as a reminder to
corporate managers to ensure that the providers of equity capital (=actual or potential
shareholders) get or can expect to get as much as possible of the value generated by their
company.
This implies that its other stakeholders e.g. its employees will receive less. Increasing
shareholder value is, therefore, frequently associated with ruthless cost-cutting, downsizing
and redundancies.
Investors may withhold or withdraw their support form a company that is too nice to its
workers, thus sending down its share price and possibly jeopardizing its very survival.
A low share price may seriously affect a companys ability to raise fresh capital and will make
it vulnerable to takeover bids.

(6) Corporate governance
Corporate Governance (Gestaltung und Umsetzung der
Unternehmensverfassung)

Corporate governance is to some extent defined and determined by the legal system of a
country although many things are left to the stakeholdersdiscretion.
The concept of corporate governance has served to focus public attention on the various
roles the stakeholders play in a company and on how power is or should be distributed
among them.
Typical corporate governance issues are:
Shareholders involvement to what extent and how should shareholders get
involved in managing their company?
Shareholder value how much of the value added by a company should go to its
shareholders?
CEO duality Should the CEO of a company double as its chairman, or should there
be an outside chairman?


Kommentar [DS6]: To attend a
meeting ein Meeting besuchen;
anwesend sein;
Kommentar [DS7]: To generate
shareholder value Gesamtrendite fr
Aktionre schaffen
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(7) Board of directors
Fhrungsgremium einer britischen/amerikanischen Kapitalgesellschaft
(erweiteter) Aufsichtsrat
Verwaltungsrat

The board of directors is a group of people elected by the shareholders at the annual
general meeting. Any person may act as a director, which means that he is not required to
be a member of the company.
In the UK the board of a public limited company must consist of at least two directors in
private limited companies there may be just one.
In the US there must be at least three directors
The powers of a companys board are laid down in its articles of association (US = bylaws)
and are vested in the directors collectively, meaning that they can act only properly
convened as a board.
In most companies, the directors elect a permanent chairman, who takes the chair at board
meetings and also presides over meetings of the shareholders. He is the firms leading
representative in its dealings with the outside world.
A companys board of directors is responsible for both management and supervision. It sets
general company policy and supervises day-to-day management, which it delegates to paid
managers.
American and British company law permits board members to be appointed as managers
(=executive directors). In contrast, Austrian and German law require a two-tier board
system, under which no member of the supervisory board (Aufsichtsrat) may at the same
time be a member of the management board (Vorstand).
British and US boards comprise executive and non-executive directors. An executive director
(full-time or inside director) is a member of the board who in addition to his board
duties, carries out management functions.
A non-executive director (part-time or outside director) is a board member who helps to
plan, decide and supervise the companys policy but has no management responsibilities
himself.
A companys chairman either an executive or a non-executive director is the head of its
board. The most senior executive director is referred to as the CEO. The position of CEO can
be filled by the chairman in this case he would have to be an executive chairman. Under
this arrangement the second in command is the managing director (UK) or the president
(US) called Chief operating officer (COO) he reports to the CEO and deputises for him.
In a company that has a non-executive chairman the managing director/president is the
CEO. A large company would additionally appoint an executive director as its COO.
Another option is for a company to combine the roles of managing director/president and
chairman in a single person, making that person the CEO.
Under German and Austrian company law the roles of non-executive chairman
(Aufsichtsratsvorsitzender) and managing director/president (Vorstandsvorsitzender) are
clearly defined and always kept apart.
Kommentar [DS8]: It is laid down that
es steht geschrieben dass
Kommentar [DS9]: To preside over
sth etw. leiten; den Vorsitz habe
Kommentar [DS10]: To be
responsible for fr etw. verantwortlich
sein

Related expression:
To be in charge of sth
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While the CEO and the COO are general managers with overall responsibilities for the
companys operations, the other executive directors are in charge of specific areas e.g.
finance, marketing, purchasing etc.
The term director usually indicates that they are members of the board.

(8) Annual general meeting Jahreshauptversammlung

Every company must hold an annual general meeting in every calendar year to provide its
members with the opportunity to express their collective will.
The agenda of an AGM usually comprises:
- Declaration of a dividend
- Consideration of the companys accounts and directors report
- (re-)election of directors
- Appointment and remuneration of auditors
Any general meeting which is not an AGM is called an extraordinary general meeting.
Such a meeting may be convened at any time by the directors, but a qualified minority of
shareholders may also request one in which case the directors must call it.
The articles of association usually stipulate that company meetings are to be under the
control of the chairperson of the board of directors. Failing such a provision, the members
present appoint their own chair.
No business may be conducted unless a specified minimum number of members (=quorum;
min. 2 members) are present.
Each member has the right to attend a general meeting in person or by a proxy, who need
not be a member of the company himself. Normally, resolutions are passed by a simple
majority of votes. Minutes must be kept of all general meetings and signed by the
chairperson.







Kommentar [DS11]: To call a meeting
eine Versammlung einberufen

Related expression:
To convene a meeting
Kommentar [DS12]: To pass a
resolution eine Resolution
verabschieden
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UNIT 3 BUSINESS COMBINATIONS

(1) Merger Fusion

In British English, the term merger covers three distinct methods of combining business
enterprises:
a) A large business swallows up or absorbs a smaller one it acquires the latter
and winds it up, thus extinguishing its identity (German expression: Fusion durch
Aufnahme)
b) Two or more companies merge into a new one, which is specifically established for
that purpose. All the original companies lose their identities.
c) One company acquires a majority interest in another, effectively making it a
subsidiary. The firm taken over retains its legal existence, although it will be
controlled economically by the parent company. ( German expression: unechte
Fusion)
The urge to merge is driven by a desire to obtain economic benefits that would be
unattainable for each company separately. One of the benefits could be the achievement of
economies of scale (=cost savings due to an increase in the size of operations). Another
potential positive effect derives from economies of scope or synergies (e.g. merger between
a bank and an insurance company enables them to cross-sell their financial products).
Mergers will only be successful if the businesses involved fit together well. There must be
some compelling commercial or industrial logic behind a merger, otherwise it is likely to run
into trouble.
The greatest danger to mergers is the inevitable clash of corporate cultures people may
not get along with each other.

(2) Takeover bid (ffentliches) bernahmeangebot

Companies often try to take over others, either in order to add them to their portfolio of
subsidiaries or to strip them off their assets (=break them up and sell off the valuable bits).

Friendly/agreed takeover bid = a company agrees its bid with the victims board of
directors;
Unfriendly/contested/hostile takeover bid = a company goes over the boards heads
and appeals to the targets shareholders directly; the victims management are likely
to fight back for instance:
- making optimistic profit forecasts and generally trying to convince their
shareholders that they would be better off with the present management in
charge
- White Knight = a third, more acceptable, company may be called in to fend off
the unwelcome suitor
- poison pills = target company takes on huge debts or grants existing
shareholders favorable stock options to dilute the bidders position
Kommentar [DS1]: =auslschen
Kommentar [DS2]: =Konflikt,
Kollision, Aufeinanderprallen
Kommentar [DS3]: To appeal to
shareholders die Aktionre ansprechen;
an diese appellieren
Kommentar [DS4]: To fend off a bid
ein bernahmeangebot abwehren

Related expression:
To reject a bid
To refuse a bid
To turn down a bid
Kommentar [DS5]: To take on debt
Schulden auf sich nehmen
Kommentar [DS6]: =abschwchen
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In a takeover, payment for the shares acquired can be in cash (cash bid), in the form of
securities of the bidding company (paper bid) or some combination of the two.
A takeover financed mainly by bank loans and/or junk bonds is referred to as a leveraged
takeover/buyout.

(3) Buyout Unternehmensaufkauf; bernahme eines Unternehmens

Taking over a company is sometimes referred to as a buyout especially if it is acquired by
its own management (management buyout) or its employees (employee buyout).
Since neither a companys management nor its employees normally have enough funds of
their own for a buyout, most of the purchase price is raised from banks or through junk
bonds (leveraged buyout).
A company so acquired with possibly more than 80% of the necessary finance in the form
of debt may find that interest charges absorb most of its profits. Such deals are very risky.
Occasionally, a company is taken over by an outside management team (management buy-
in).
When a publicly held corporation (=one with a large number of shareholders) is taken over
by a small number of people in a buyout, it is effectively taken private (=converted into a
privately held corporation).

(4) Group of companies Konzern

enterprises controlled by its
subsidiaries
may be set up by the parent
company or
parent company acquires
>50% of the equity of an
existing firm
wholly-owned = parent
holds 100% of equity
associated company =
parent holds 20-50% of
equity
controls one/more
subsidiares (holding >50% of
subsidiarie's equity capital)
- non-operating = restricts
its activities to managing the
group's subsidiaries
-operating = additionally
engages in the production
and distribution of
goods/services
holding/parent
company
Subsidiary
Sub-
Subsidiary
Sub-
Subsidiary
Subsidiary
Sub-
Subsidiary
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Although a group operates for all practical purposes as a single enterprise, the separate legal
personality of each group member is strictly maintained e.g. a creditor of a subsidiary can
make no claim against the holding company.
Subsidiaries must be clearly distinguished from mere branches, sales offices etc. which are
just separate establishments without a legal personality of their own.
In one important respect groups are recognized as single enterprises not only must each
group member publish accounts relating to its own activities but the holding company
must also make public consolidated accounts (=assets, liabilities, revenues and expenses of
all group members have been summarized + all intra-group receivables and payables have
been netted out), relating to the activities of the group as a whole.
Groups may be formed in two ways:
Vertical integration = combining firms from different stages in the chain of
production and distribution (Example: a retailer and a wholesaler)
Horizontal integration = businesses from the same stage are combined (Example:
two retailers/wholesalers)
Other types of groups are:
Conglomerate (Mischkonzern) = subsidiaries operate in completely unrelated
industries (e.g. beverages, textile, food, technical equipment)
Multinational group = has subsidiaries in at least two countries other than that in
which it is based
Groups combine the advantages of size e.g. economies of scale with the flexibility of
decentralized management. The overall policy of the group is laid down by its headquarters
(= top management at the parent company), while the individual subsidiaries are given
considerable latitude in managing their affairs (longer or shorter leash).


(5) Holding company Muttergesellschaft

In a strictly legal sense, a holding company is any company that controls at least one
subsidiary (=by owning more than 50% of its equity capital).
In journalistic and business usage, however, the term usually refers to a so called non-
operating/pure holding company (=restricts its activities to the management of the
subsidiaries; carries out financial and corporate planning for the subsidiaries and performs
general management services for them)


(6) Monopoly Monopol

Monopoly is commonly applied to a market with more than one supplier if it is dominated
by a single large company having for instance on 80% share, with the remaining amount
being divided between a number of smaller firms.
Kommentar [DS7]: To net sth out
etw. saldieren
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Being the only or dominant supplier in a market incurs certain advantages e.g. it is easier to
increase prices without a substantial decline in the quantity demanded especially if there are
no close substitutes for the product in question (elasticity of substitution is low).
To achieve the goal of being a monopolist a company operating in a market with many
sellers may try to buy up its competitors in order to exert control or it may join forces with
them to form a cartel.
To weaken the impression that monopolies always result from the machinations of profit-
greedy businesses and are bad for the general public, it is important to mention that there
are also so called natural monopolies state-owned/controlled railway enterprises, post,
telecommunications, water, gas electricity etc.; competition would lead to duplication and a
waste of resources;
Another type of state-created monopoly is intellectual property by granting artists,
inventors and firms the exclusive rights to use their works of art, inventions and brands,
governments create artificial monopolies;


(7) Cartel Kartell

This term denotes a voluntary association of business enterprises on a contractual basis
providing for the adoption of some uniform business policy by its members especially
regarding production, sales and prices.
Cartels
- fix prices
- restrict output (by assigning production quotas to their members)
- divide/carve up markets
- may even have their own selling organisations
In short, they are combinations in restraint of trade intended to restrict competition.


(8) Trust
2

wettbewerbshemmender Unternehmenszusammenschluss (Kartell,
Monopol)

A trust is a combination of firms formed with the intention or effect of restricting
competition. They may be created in a number of ways:
- By establishing a trust in the legal sense of the word (see:trust
1
)
- By setting up a holding company
- By entering into an explicit or implicit contract to restrain competition




Kommentar [DS8]: To join forces with
sb sich mit jemanden
zusammenschlieen
Kommentar [DS9]: To assign sth to sb.
jem. etw. zuweisen
Kommentar [DS10]: Divide/carve up
markets Mrkte aufteilen
Diana Schalko 2013
KEYWORDS UNIT 4 FINANCIAL MANAGEMENT

(1) Financial management Kapitalwirtschaft
betriebliche Finanzwirtschaft

It is concerned with planning, implementing and controlling all inflows and outflows of
funds. It deals with raising (sourcing) and allocating (using) the funds required by the
enterprise in order to achieve its objectives.
A great variety of sources can be tapped to raise funds. Funds may be raised internally
(internal finance). The ultimate source of internal finance is the revenue generated by
selling goods, services, capital assets etc. Sales revenue is partly used up in the current
period as cash expenditure on materials, labour services etc. while what is left over (cash
flow) can be allocated for investment purposes or to repay debts.
On the other hand, funds may be obtained from outside sources (external finance) e.g. from
partners or shareholders, or from creditors (creditors funds).
The financial resources provided by shareholders, partners including retained earnings
are called owners funds or equity capital.
A modern financial manager is also concerned with the outflow of funds, including current
expenditures on materials, labour etc. as well as such items as tax and interest payments or
profit distributions. Since short-term inflows and outflows cannot be perfectly co-ordinated,
a business organization will need a pool of cash and maybe short-term credit facilities to
even out discrepancies.
This raises the issue of liquidity (=whether a firm will be able to meet its short-term
financial obligations as and when they fall due).
Outflows of funds also comprise investments (=expenditures whose benefits will not accrue
until some time in the future).
The planning process in the field of financial management is often referred to as
budgeting.


(2) Funds
1
Barmittel, finanzielle Mittel

This term often refers to cash (i.e. banknotes, coins, current account balances at banks) and
other financial resources that can be readily converted into cash.

(3) Funds
2
Kapital

The expression funds may also be used to describe the capital of a company, as for instance
in shareholders funds.

(4) Funding
1
Finanzierung, Mittelbereitstellung

Funding denotes the provision of pecuniary resources for a particular purpose, and is
therefore synonymous with financing.
Kommentar [DS1]: To raise funds
Mittel beschaffen

Related expressions:
To obtain funds
Kommentar [DS2]: To allocate funds
Mittel verwenden

Related expression:
To spend (funds) on
Kommentar [DS3]: Current
expenditure = either already in use or in
the near future e.g. maintenance costs,
salaries etc.
Kommentar [DS4]: To even out sth
etw. ausgleichen
Kommentar [DS5]: =zuflieen, sich
ansammeln
Kommentar [DS6]: =finanziell
Diana Schalko 2013
(5) Capital structure [P1] Kapitalstruktur

The capital structure of a firm is the composition of its capital, mainly with regard to the
relative shares of creditors funds (debt) and owners funds (equity).
The relationships between these two elements can be expressed in the form of ratios,
referred to as capital (structure) ratios.

(6) Equity capital [P1] Eigenkapital

This term refers to the owners funds in a business organisation i.e. the funds provided by
the proprietor(s) together with those internally generated.
These do not all exist in liquid form they may have long been invested in various assets
but simply represent the proprietary interest(s) in the organization.

(7) Share [P1; P2 S1; P3; P7] Aktie

The term is defined as any of the equal parts into which a companys capital is divided,
entitling its owner to a proportion of the profits and giving him certain other rights e.g. to
vote at general meetings of the company and to share in the proceeds of a voluntary
winding up.
A company may issue many different types of shares, and the rights of their holders depend,
to some extent, on the type of share involved.
A share normally has a nominal value (face or par value), which means that a certain
sum of money is shown on the face of the certificate.
This does not necessarily imply that shares have to be issued at par many companies issue
them above par (at a premium) or below par (at a discount) to allow for last-minute changes
in market conditions.
Issues below par are prohibited under Austrian law. In the US and Canada, companies are
permitted to issue no-par-value shares (=have no face value) they simply represent a
given fraction (e.g.1/10.000) of the capital of the company involved, which means that
dividends have to be expressed as a fixed amount of money per share.
In the US, shares are often collectively referred to as stock (e.g. common stock for
ordinary shares; preferred stock for preference shares etc.)

(8) Dividend [P1;P2] Dividende

A companys dividend is that portion of its profits which is distributed to the holders of
shares ranking for dividend. It may be paid out annually or twice a year.
It is expressed either as a percentage of the face value of the shares on which it is paid, or as
a fixed sum per share.
Dividends are usually paid out in cash (cash dividend) but profits may also be distributed
by way of shares (stock dividends).
The dividend policy of a company is the responsibility of its directors - its shareholders
having at best- only an indirect say. Of course, there are constraints, the main one being
the amount of profits, or earnings generated. If there is no or little profit in a year, the
Kommentar [DS7]: To be entitled to a
proportion of the profits einen Anspruch
auf einen Anteil am Gewinn haben
Kommentar [DS8]: To pay out a
dividend eine Dividende ausschtten
Diana Schalko 2013
company may pass its dividend i.e. not declare one in that year, although it is possible to fall
back upon reserves, if any.
If profits are sufficient, it will be up to the directors to decide which portion should go to
the shareholders and what portion should be retained in the business.

(9) Ploughback Selbstfinanzierung, Gewinnthesaurierung

Ploughback or self-financing refers to a firms practice of not distributing all its profits to
its owners or shareholders, but retaining a portion to be used either for investment in
current and fixed assets or to retire debt.
Although there are no explicit costs involved in employing the companys internally
generated funds, ploughback does not come free.
By reinvesting its own profits, the enterprise obviously foregoes other investment
opportunities opportunity costs in the form of imputed interest.
There is a danger that internal funds will be used less wisely, because management might be
tempted to apply less stringent criteria than in the case of funds raised externally.

(10) Creditors funds Fremdkapital

The expression creditors funds is increasingly replaced with debt and denotes all funds
supplied by a firms creditors, while the terms loan capital and borrowed capital are
used to describe only the medium-to-long-term variety.
Creditors funds may come in the form of supplier credits, overdrafts, and medium-or long-
term bank loans.
In contrast to owners funds, creditors funds have to be repaid at maturity (=the date
agreed for repayment). Large loans are frequently repayable in instalments, which means
that there are multiple repayment dates (repayment schedule).
The cost of debt is the interest payable to the creditor(s) involved in advance (discount
method), during its term, or at maturity (collect method).
In addition, there may be other cost elements such as bank charges or compensatory
balances.

(11) Supplier credit Lieferantenkredit

A supplier credit (UK trade credit) is a form of short-term financing (up to one year).
A buyer is usually not required to pay for goods/services on delivery, but is allowed a
specified period of time before payment is due.
During that period, the supplier extends credit to his customer deferred payment terms.
Credit can be granted on an open account basis, through the use of a time draft, or by means
of promissory note issued by the buyer in favour of the seller.





Kommentar [DS9]: To pass a dividend
eine Dividende einbehalten
Kommentar [DS10]: To retain profits
Gewinne einbehalten
Kommentar [DS11]: To
reinvest/plough back retained profits
einbehaltene Gewinne wiederverwenden
Kommentar [DS12]: To take out a
loan einen Kredit aufnehmen
Kommentar [DS13]: To apply
for/request/ask for a supplier Kredit um
einen Lieferantenkredit ansuchen

Related expression:
To grant a supplier credit einen
Lieferantenkredit gewhren
Diana Schalko 2013
(12) Bond [P1; P2] Anleihe, Schuldverschreibung

A bond is a debt security, which means that it represents a loan made by the holder to the
issuer. It has to be redeemed the principal has to be repaid by the issuer at maturity,
although there are certain exceptions (irredeemable bonds).
The amount to be repaid (redemption price) need not be the same as the issue price and
both may vary from the nominal value of the security.
The reason for this is that the difference between the issue and the redemption price is an
element of the return to be obtained from the bond, and can be used to modify or even
replace other elements e.g. the interest rate.
Most bonds are interest-bearing securities the interest rate can be fixed or variable.
A zero-coupon or deep-discount bond is non-interest-bearing and the return to investors is
merely the difference between the higher redemption and the lower issue price.
Bonds may be issued by central governments, in which case they are known as government
bonds, Treasury bonds (US), government stocks (UK) etc.
If issued by local governments they are called local authority stocks, corporation stocks
(UK) or municipal bonds (US).
It is also possible for debt securities to be issued by companies used to be called
debentures (UK) but now corporate bonds which is the standard expression in the US as
well as in the UK.
In business jargon, high risk corporate bonds are termed junk bonds.

(13) Bank lending [P1] Kreditgeschft der Banken

Lending by banks, can be classified in a number of ways: according to maturity (=the time
allowed for repayment; short-, medium-, long-term), according to the purpose for which the
funds lent are used, or according to the security provided by the borrower(s) involved.

(14) Credit
2
Kredit, Darlehen

In banking, the term denotes an amount of money placed at a persons or an organisations
disposal and is therefore synonymous with loan. In this sense it is used more frequently in
the US. In Britain the expression normally refers to lending in general rather than to a
specific amount lent.

(15) Security (for a loan) (Kredit-) Sicherheit

Since a lender has to bear the risk of the borrowers default, he may wish to provide himself
with a second line of defence on which to fall back should the borrower fail to meet his
obligations.
For this reason, the lender may insist on some kind of security for the (re)payment of
principal and interest, in addition to the borrowers personal liability.
Securities for loans include guarantees (= a third party undertakes to be secondarily liable
for the debt in question), and pledges (=shares, bonds or even goods are delivered into the
custody of the lender for the term of the loan granted).
Kommentar [DS14]: To redeem sth
etw. zurckzahlen, auslsen
Kommentar [DS15]: To default on
ones debts seine Schulden nicht
bezahlen
Kommentar [DS16]: To provide
security for a loan Sicherheiten fr einen
Kredit bereitstellen
Kommentar [DS17]: =Verwahrung
Diana Schalko 2013
Moreover there are arrangements under which the lender retains an interest or lien in real
or personal property.
The most important variety is the real estate mortgage.

(16) Principal
1
Kreditsumme, Darlehenssumme

The term principal may be used to describe an amount lent/borrowed exclusive of any
interest payable on it. It is frequently employed in conjunction with interest e.g. repayment
of the principal and payment of interest.

(17) Interest
1
[P1] Zinsen

Interest is the price charged by a lender for the temporary use of funds. It is normally
expressed as a percentage per annum of the principal (=the amount lent).
This percentage is termed the interest rate. The rate set for a particular borrower is
determined by his creditworthiness and such macroeconomic factors as credit supply and
demand, rate of inflation and monetary controls.

(18) Overdraft Kontoberziehung, Kontokorrentkredit

The term overdraft has two slightly different meanings. On the one hand, it refers to the
extent to which a current account at a bank is overdrawn on the other hand, it denotes a
type of short-term loan.
In the latter case, a bank simply permits the holder of a current account to overdraw it up to
a specified amount, the credit line.
The account holder can draw on his credit line at any time during an agreed period. If part or
all of the overdraft is repaid before this period has expired, he is allowed to borrow again,
provided that the credit line is not exceeded.
Interest is charged on the balance outstanding from time to time (=the amount overdrawn
at the end of each day). Moreover, the bank may levy an additional charge typically called a
monthly charge or commitment fee (=Bereitstellungsprovision).
This can be either a fixed amount, or a small percentage of the total credit line or of the
unused portion thereof.
The reason for this is that, although the borrower may not make use of the overdraft facility
at any given time, the bank must nevertheless have sufficient funds ready against a possible
call on its resources. Additionally, it may also insist that the account holder deposit easily
saleable shares or other property as security.
Overdrafts help to solve the problem of co-ordinating cash outflows (e.g. wages) and inflows
(e.g. sales revenues).

(19) Factoring [P1, S1-2; P3] Factoring

Factoring is a commercial service designed to assist firms selling goods and/or services on
credit. Under a typical factoring agreement, a specialized financial institution (factor):
(1) purchases all or a specific group of a sellers accounts receivable with or without
recourse to him for credit losses
Kommentar [DS18]: =Pfandrecht
Kommentar [DS19]: To overdraw
ones account sein Konto berziehen
Kommentar [DS20]: To draw on sth
aus etw. schpfen
Kommentar [DS21]: To levy a charge
eine Gebhr einheben
Kommentar [DS22]: To use an
overdraft facility von einer
Kontoberziehung Gebrauch machen

Related expressions:
To grant an overdraft facility
To apply for/request
Kommentar [DS23]: To call on
resources Mittel in Anspruch nehmen
Kommentar [DS24]: To use/engage
the services of a factor die Dienste eines
Factors in Anspruch nehmen
Kommentar [DS25]: =Regress
Diana Schalko 2013
(2) advances an agreed percentage of the value of the receivables to its client, thus
refinancing the supplier credits concerned
(3) collects the amounts outstanding when they fall due
(4) frequently performs additional services e.g. perform all necessary accounting
operations
Factoring does not come free: a factor will make a separate charge for each service
rendered e.g. collection and accounting, assuming the del credere risk etc.
Consequently, factoring is quite expensive but may be well worthwhile for companies whose
expansion might otherwise be help up by a lack of liquid working capital.
Factors are more likely than banks to grant credit to young, undercapitalized firms because
the creditworthiness of the seller is less important than that of its customers.

(20) Accounts receivable
1
[P1] Forderungen aufgrund von
Warenlieferungen und Leistungen

The expression refers to a firms short-term claims, usually on open account, against trade
debtors. In other words, the term denotes amounts due from customers which are
collectible within one year, are not evidenced by bills of exchange or promissory notes, and
arise from goods/services sold on credit in the ordinary course of the business.

(21) Leasing [P1, S1-3; P7, S1-3] Leasing

Under a lease contract a firm or private individual (=lessee) instead of buying a specific
asset(s) acquires from another party (=lessor) the right to use the object(s) involved for an
agreed period of time.
The lessor retains ownership of the asset(s) and is rewarded for his services with rentals,
usually paid to him by the lessee at regular intervals.
Leasing represents an alternative to buying assets. The decision whether to lease or buy is
not as easy as it seems. A finance lease is usually more advantageous than a cash purchase
or a purchase on deferred terms the situation is less clear if a comparison is made with a
purchase financed by a long-term bank loan repayable in instalments.














Kommentar [DS26]: To enter into a
leasing agreement einen Leasingvertrag
eingehen
Diana Schalko 2013
KEYWORDS UNIT 5 SECURITIES MARKETS

(1) Investment
2
Finanzinvestition, -anlage

The term investment is used to describe the acquisition of financial assets such as bank
deposits, shares, bonds or Treasury bills. This form of investment is undertaken to generate
current investment income (e.g. dividends, interest) and/or capital gains.
The investment industry acts as an intermediary between the ultimate providers and users
of capital comprises organisations like stock exchanges, investment companies and banks.


(2) Investor Kapitalanleger, Investor

Investors the ulimate purchasers of securities may be classified in various ways. An
important distinction is the one between private and institutional investors:
Private = rich individuals who put their money into shares, bonds, property
Institutional = organisations such as insurance companies, banks, pension funds,
investment funds etc.; they have more funds at their disposal than their private
counterparts enables them to pursue a more diversified investment policy; spread
the risk over a wider range of investment media e.g. shares, bonds, property


(3) Yield [P1-2] Rendite, Effektivverzinsung

Yield is defined as the income derived from a financial investment, expressed as a
percentage of the value of that investment.
If a share trading at e.g. 150 pence pays a dividend of 12 pence the yield is 12p/150p *
100 = 8%;
In the case of shares, we have to distinguish between the dividend yield (=the last dividend
expressed as a percentage of the current share price) and the earnings yield (=earnings per
share).


(4) Portfolio
1
Portfolio, Portefeuille

This term denotes the entire collection of financial investments (shares, bonds) held by a
private or an institutional investor.
The main task involved in managing an investment portfolio is to achieve the optimal mix in
terms of return and risk.


(5) Investment fund [P1] Investmentfonds

Investment funds are financial institutions typically set up for the purpose of pooling the
moneys of small investors, putting them into a wide range of securities and/or other
investment media for the benefit of their clients.
Kommentar [DS1]: To acquire
financial assets (Mittelherkunft)
Kommentar [DS2]: To undertake an
investment eine Investition vornehmen
Kommentar [DS3]: To have funds at
ones disposal Mittel zur eigenen
Verfgung haben
Kommentar [DS4]: To purse a policy
eine Politik verfolgen
Kommentar [DS5]: To distinguish
between something zwischen etw.
unterscheiden
Kommentar [DS6]: To hold
investments (shares, bonds)
Kommentar [DS7]: For the purpose of
doing something (ing-form) zu dem
Zweck etw. zu tun
Diana Schalko 2013
They are professionally managed, and should theoretically be able to achieve a better return
than a private investor or a portfolio. They have usually more funds at their disposal than
private investors and can therefore buy a greater variety of investment media to spread the
risk.


(6) Securities Wertpapiere

Securities are transferable certificates of ownership or indebtedness. From a legal point of
view, it should be noted that securities are not mere acknowledgements of the rights to
which they relate, but rather embodiments of them.
Such rights (e.g. the claim to payment of a certain sum of money) can only be exercised in
connection with the instrument involved.
There are two basic types of securities:
Equity securities = embody ownership rights e.g. shares
Debt securities = represent creditorship rights e.g. bonds



(7) Securities markets Wertpapiermrkte

These markets provide a framework for buying and selling securities. They are basically
concerned with long-term or permanent financial instruments like shares or bonds and
therefore part of the capital market.
The main securities markets are:
- Stock exchanges = are tightly organized, with trading floors, strict adherence to
business hours, limitations on membership etc.
Before a companys shares can be traded on any of the larger stock exchanges, it has
to meet a number of stringent tests e.g. with regard to amount to capital, disclosure
requirements and likelihood of an active market;
- Over-the counter markets = operate more flexibly, relying exclusively on telephone
and computer links;


(8) Share [P1] Aktie

The term is defined as any of the equal parts into which a companys capital is divided,
entitling its owner to a proportion of the profits and giving him certain other rights e.g. to
vote at general meetings.


(9) Blue chips erstklassige Aktien, Spitzenwerte

Blue chips are top-quality, large-cap stocks (= shares of big companies with an excellent
reputation). They enjoy premium status as investments.

Kommentar [DS8]: To manage an
investment (fund)
Kommentar [DS9]: To achieve return
Rckflsse (Ertrge) erwirtschaften
Kommentar [DS10]: To embody rights
Rechte beeinhalten
Kommentar [DS11]: To be concerned
with financial instruments
Kommentar [DS12]: To trade shares
on the stock exchange -
Kommentar [DS13]: To be divided
into (shares)
Diana Schalko 2013
(10) Bond
1
Anleihe, Schuldverschreibung, Obligation

A bond is a debt security, which means that it represents a loan made by the holder to the
issuer. Therefore, it has to be redeemed the principal has to be repaid by the issuer at
maturity. The amount to be repaid (=redemption price) need not be the same as the issue
price and both may vary from the nominal value of the security.
The difference between the issue and the redemption price is an element of the return to be
obtained from the bond and can be used to modify or even replace other elements e.g. the
interest rate.
The interest rate can be fixed (fixed-interest or fixed-interest-bearing bonds) or variable
(variable-interest bonds or floaters).
A zero-coupon, or deep-discount bond is non-interest-bearing and the return to investors is
merely the difference between the higher redemption and the lower issue price.
Another important feature of a bond is its maturity (=the time before it is redeemed).
Bonds may be issued by:
- Central governments government bonds, Treasury bonds (US), government stocks
(UK), gilt-edged securities (UK)
- Local governments local authority stocks (UK), corporation stocks (US), municipal
bonds (US)
- Companies corporate bonds (UK, US); with high risk = junk bonds; may carry an
option for their holders to convert them into ordinary shares at a predetermined
price and within a specified period of time (convertible bonds);

Bonds may be traded on a stock exchange if the issuer meets certain requirements. The
segment of a stock exchange devoted to bond trading is the bond market.
The features most closely watched by bond investors are the current bond yield (=its annual
interest payments expressed as a percentage of its current market price) and the bond price.
Bonds are bought for two main reasons: first, for the interest income they generate, and
second, for possible capital gains (=profits derived from buying low and selling high).


(11) Gilt-edged securities britische Staatsanleihen

Gilt-edged securities or simply gilts are used by the British government to raise long-
term funds.


(12) Primary market Primrmarkt, Emissionsmarkt

The term is usually applied to the market for new issues of securities (=the market whose
main function is the raising of fresh capital).
They are normally not housed in dedicated buildings but consist of loose associations of
specialized banks and investors, both private and institutional.

Kommentar [DS14]: To repay
something (loan, principal)
Kommentar [DS15]: To obtain return
from something
Kommentar [DS16]: To bear interest
Zinsen bringen, verzinst sein
Kommentar [DS17]: To raise funds
(Mittelherkunft)
Diana Schalko 2013

(13) Rights issue Emission von jungen Aktien (auf Bezugsrechtsbasis)

A rights issue is an issue of new shares to existing shareholders, usually on favourable terms.
A company wishing to increase its capital may be forced by law to use this method.
Alternatively, it may decide to do so because it is often cheaper and less complicated.
A shareholder that does not subscribe for an additional issue of shares would not be able to
maintain his proportionate interest in the issuing company. Since a rights issue does not
change the earnings of the company involved, the increase in the number of shares will
reduce the earnings per share and possibly the dividend per share (dilution).
To protect existing shareholders from the effects of dilution, new shares are offered to them
on a pro rata basis e.g. one new share for every three shares held.
Shareholders not interested in the new issue may sell their rights. Rights issues are
sometimes referred to as cash calls shareholders have to fork out large sums to protect
their interests in the issuing company.


(14) Underwriting UK: Emissionsgarantie; US: Fremdemission

The term refers to specialised services offered by financial institutions to companies that
wish to raise capital by issuing securities.
In Britain, underwriting denotes the provision of a guarantee by an issuing house or broker
to take up any part of a new issue that is not taken up by the public.
In the US, this is referred to as pure underwriting and represents only one variant of
underwriting in general American corporations prefer firm commitment underwriting =
an investment bank buys the whole issue outright, and sells it at a slightly higher price for its
own account (bought deals).
All types of underwriting are offered by securities firms (e.g. issuing houses (UK); investment
banks (US)). They form an underwriting syndicate (underwriting group) to pool the risk
involved and to ensure a successful distribution of the securities to be issued.
The syndicate is headed by the lead or managing underwriter who is normally the original
sponsor of the issue.


(15) Underwriter
2
Emissionsgarant

An underwriter is an issuing house, broker or investment bank that engages in underwriting.


(16) Stock exchange [P1-4] (Wertpapier-) Brse

A stock exchange is a market for securities such as shares and corporate bonds as well as
government bonds.
It is tightly organized only members are allowed to transact business there. If private
individuals or institutions want to buy or sell certain securities, they have to instruct a
broker, who will carry out the transaction on their behalf.
Kommentar [DS18]: To issue shares
Kommentar [DS19]: To fork out
something (for something) Geld
lockermachen
Kommentar [DS20]: To distribute
securities (e.g. shares)
Diana Schalko 2013
Stock exchanges are mainly secondary markets they are concerned less with issuing new
securities than with buying and selling those that have already been issued.
Although stock exchanges play only a subordinate role in the raising of fresh capital, they
have strong indirect influence on primary markets many new issues would be much more
difficult if investors did not know that they could sell their acquired securities in a well-
organised market.
The two best-know stock exchanges in the English-speaking world are the:
- New York Stock Exchange
- International Exchange in London
Other important exchanges are the American Stock Exchange and the Alternative
Investment Market in London specialise in the shares of new and smaller companies,
which would be unable to meet the stringent listing requirements of the two main
exchanges.


(17) Capital gain Veruerungs-, Spekulationsgewinn;
realisierter Kursgewinn, Wertzuwachs

Capital gains are profits arising from the disposal (e.g. sale) of capital assets such as
property, shares and bonds. They occur when such an asset is sold at a price exceeding its
cost price e.g. its purchase price. If the selling price is lower than there is a capital loss.


(18) Speculation Spekulation

Speculation is an activity by means of which an operator tries to exploit short-term price
fluctuations, basically by buying low and selling high. Anything of value and subject to price
changes may become an object of speculation e.g. commodities, securities, currencies etc.
A speculator is not interested in the current income (dividend, interest) to be derived from
long-term investments, but concentrates on quick capital gains.
In doing so he obviously has to assume risks if his forecast of price movements turns out
to be wrong, he will make a capital loss.


(19) Stock exchange indices [P1] Brsenindizes

On stock exchanges people are interested not only in individual price movements but also in
general trends. Since these can best be measured by index figures, there are a number of
stock exchange indices to meet this information need.
Such indices may be:
- Narrow-based e.g. Financial Times Stock Exchange 100 index, Dow Jones
Industrial Average (comprises the common stocks of 30 leading US corporations)
- Broad-based e.g. Standard & Poors index (includes 500 widely held common
stocks)
- Sectoral indices e.g. FT Gold index
Kommentar [DS21]: To arise from
sich aus etw. ergeben
Kommentar [DS22]: To be subject to
etw. ausgesetzt sein
Kommentar [DS23]: To assume risk
ein Risiko bernehmen
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KEYWORDS UNIT 6 - BANKING

(1) Commercial bank Geschftsbank, Kommerzbank

Commercial bank is the name given to those non-governmental banking institutions whose
original purpose were essentially to finance production and distribution of goods by lending
short-term funds, to accept current account deposits and to offer cheque-drawing facilities.
As a consequence of the diversification of commercial banks into many other operations e.g.
consumer and personal lending, credit cards, mortgage banking etc., the term full-service
bank has been promoted as being more descriptive of the functions performed by
commercial banks.


(2) Retail banking Mengen-und Kleinkundengeschft der Banken

The term refers to standardised banking services, including personal loans, small-scale
savings and checking accounts as well as funds transfers.
These are offered mainly to private individuals, but also to small business enterprises,
through the branch networks of commercial banks.
By contrast, wholesale banking involves interbank transactions as well as financial
transactions between banks and governments and between banks and large companies.


(3) Bank lending Kredit- bzw. Aktivgeschft der Banken

Lending by banks, can be classified in a number of ways:
According to maturity (=the time allowed for repayment) short-term, medium-
term, long-term
According to the purpose for which the funds lent are used
According to the security provided by the borrower(s) involved
Short-term finance has a duration of up to one year. It includes overdrafts, discount loans,
acceptance credits and ordinary short-term loans.
Medium-term finance usually comes in the form of ordinary loans, which have a duration of
between one and five years. It is also possible to extend revolving credits beyond the usual
one-year period.
Loans and other forms of bank lending may be either unsecured or secured. Security can
take the form of some property or a charge upon it (e.g. mortgage) or it may be provided by
means of a guarantee.






Kommentar [DS1]: To provide
security (for a loan) Sicherheiten fr
einen Kredit bereitstellen
Kommentar [DS2]: To extend credit
einen Kredit (-rahmen) erweitern
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(4) Current account
2
Girokonto, Kontokorrentkonto

A current account or cheque account is a bank demand deposit account from which
withdrawals can be made in cash over the counter or through an automated teller machine
(ATM).
The holder of a current account is provided with a personalized cheque book (=a booklet of
blank cheque forms bearing his name and account number and is usually issued with a
cheque card).
Moreover, the account holder is entitled to a number of banking services e.g. credit
transfers, standing orders, overdraft facilities etc.
As current account deposits earn little or no interest, many customers arrange for amounts
in excess of their current needs to be transferred to deposit accounts on which interest is
paid.


(5) Cheque [P1] Scheck

A cheque is a written order to a bank, given and signed by a person who has a current
account with that bank, to pay a certain sum of money to, or to the order of, a second,
specified person (means also organization), or to bearer.


(6) Standing order Dauerauftrag

In a banking context, a standing order is a written instruction given by a customer to his bank
to pay a stated sum of money from his current account to a named party (payee) at certain
specified points in time usually regular intervals until further notice or until the date
indicated.
It is a convenient arrangement for the payment of regularly recurring fixed amounts e.g.
instalments, rents, insurance premiums, subscriptions etc.
The customer has to specify the payees name, the amount to be paid at agreed intervals
and the duration of the order.


(7) Direct debiting Lastschrift-Einzugsverkehr, Abbuchungsverfahren

It is an ideal method for paying varying amounts at irregular intervals. It is more flexible than
a standing order and the payee not the payer gives instructions to the bank for payment.
Direct debiting works as follows:
By previous arrangement between the parties involved the debtor signs a general
authority entitling his creditor to claim the amounts due from the debtors bank
Example: a supplier or goods/services sends the buyer an invoice in the ordinary way
and after a few days, submits through his own bank a direct debit form for the
invoice amount to the buyers bank; the latter then debits the buyers account with
Kommentar [DS3]: To open/close an
account
Kommentar [DS4]: To withdraw
money (from an account) Geld abheben
Kommentar [DS5]: To have money in
an account
Kommentar [DS6]: To be entitled to
something zu etw. berechtigt sein
Kommentar [DS7]: Bis auf Weiteres
Kommentar [DS8]: To sign a direct
debit mandate / to set up or arrange a
direct debit eine Einzugsermchtigung
erteilen
Kommentar [DS9]: To debit an
account ein Konto belasten
To debit an amount to/from an account
einen Betrag von einem Konto abbuchen
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the amount in question, transferring it to the suppliers bank for the credit of his
account.


(8) Bank statement Kontoauszug

A bank statement is a summary of all transactions involving a customers account within a
certain period of time. The details of payments made and received are shown e.g. date of
payment, amount paid or received, method of payment etc.
Statements are supplied to customers regularly or, for instance, whenever a payment has
been made to the account in question.


(9) Bank charges
Bankgebhren, Kontofhrungs-und Manipulationsgebhren

In the UK and the US, bank customers usually have to pay an account charge for the conduct
of a current account and for related banking transactions, unless they keep a certain
minimum balance in their accounts throughout the full charging period.
Such a periodical account charge is usually collected at the end of each charging period
charges for specific services e.g. stopping a cheque may have to be paid either when they
arise or at the end of each charging period.

(10) Bank deposits (Bank-) Einlagen

In everday commercial usage, the term bank deposit refers to an amount credited to a
deposit account held by a customer with a particular bank. Such credits may be the result of
cash, cheque, drafts or similar instruments lodged with the bank, or of transfers to the
customers account.
On the basis of withdrawal, deposits may be classified into demand and time deposits:
- Demand deposit (current account or sight deposits) = may be withdrawn by the
customer or transferred by him to someone elses account at any time, without prior
notice to the bank; usually bear little or no interest
- Time deposit = based on a contract stipulating that the depositor may not make any
withdrawal prior to maturity (fixed deposit) or prior to the expiry of the agreed
period of notice (notice deposit); cannot be withdrawn by cheque, nor can they be
transferred to other accounts;

(11) Savings account Sparkonto

Funds held in savings accounts constitute interest-bearing time deposits. Savings accounts
simply form part of the wide range of investment products offered by commercial banks and
thrift institutions.
Kommentar [DS10]: To credit an
account einem Konto etwas
gutschreiben
Kommentar [DS11]: To charge sth.
the bank charges a fee
Kommentar [DS12]: To lodge sth with
sb etw. bei (einer Bank) hinterlegen,
deponieren
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Generally speaking, savings accounts with a high degree of flexibility e.g. with instant access
to the account balance, earn interest at a lower rate than those which are subject to more
stringent conditions e.g. notice period, limitations on the number of withdrawals per quarter
etc.
Traditionally, savings account deposits could be withdrawn only upon presentation of a
passbook, in which all transactions relating to the account were recorded. Nowadays,
passbooks are often dispensed with instead, savers are issued with special cards enabling
them to make withdrawals, and sometimes even deposits at ATMs.
Savings accounts are a very safe form of investment because in many countries they are
covered by government insurance schemes.
Their holders are typically risk-averse, low-to-medium-income earners, who use their
savings accounts to gradually accumulate funds.


(12) Merchant bank Merchant Bank

A typical UK merchant bank offers some or all of the following highly specialised banking
services:
Acceptance of bills of exchange, especially in connection with foreign trade
Export and project finance where long-term credit is required
Foreign exchange dealing and advisory services
Investment management on behalf of private and institutional clients
Domestic/international securities underwriting and trading
Advice on mergers, acquisitions, and venture capital investment
Issuing houses, moreover, may take equity positions in commercial and industrial
companies.

(13) Investment bank Investmentbank, Effektenbank

Investment banks act as intermediaries between, on the one hand, companies and
government institutions wishing to raise capital and, on the other, between individual and
institutional investors.
They are mainly engaged in marketing bond and other securities issues (underwriting),
syndicating international loans, selling and buying securities on the open market, and
providing investment advice. Furthermore they also assist with mergers and acquisitions.


(14) Building society Bausparkasse

British building societies were originally owned by their savers and borrowers, and served
the same purpose as Austrian Bausparkassen and American savings and loan
associations finance the purchase or building of owner-occupied dwellings (=Wohnung)
by their members.
Kommentar [DS13]: To dispense with
sth auf etw. verzichten
Kommentar [DS14]: To be issued with
(von jmd). etw. erhalten
Kommentar [DS15]: To accumulate
sth (funds) etwas (Kapital) ansammeln,
anhufen
Kommentar [DS16]: On behalf of sb
im Auftrag von jmd.
Kommentar [DS17]: To be engaged in
sich mit etw. befassen
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Finance was provided mainly in the form of long-term home loans, secured by mortgages on
the properties involved.
The main differences between Austrian Bausparkassen and British building societies are:
- Bausparkassen have not been, and are not being converted into universal banks
- In Austria a member must have saved a specified amount with his society before he
can get a loan
- Intererst paid on Bausparkassen deposits is supplemented with a government
bonus

(15) Electronic banking elektronische Zahlungsverkehrs- und
Informationsleistungen

Electronic banking or e-banking involves the use of computers and telecommunications
technology in performing banking services, with a view to eliminating paper-based records
and offering costumers direct access to bank payment and information systems.
E-Banking is often referred to as self-service banking. E-Banking customers receive plastic
cards and/or personal codes, which permit them to access the system involved.


(16) Electronic funds transfer elektronischer Zahlungsverkehr

This term covers any transmission of funds initiated through a customer-or teller-operated
terminal e.g. an ATM or a POS terminal, a telephone or similar instrument, or a computer.
Messages originated by these devices instruct a financial institution to debit or credit an
account, or cause such entries to be made automatically.
EFT is a fast, paperless type of payment service, which has to be distinguished from transfers
based on cheques, bank drafts, credit transfer forms, or similar paper instruments.
The main advantages of EFT are increased speed and reduction in paperwork.


(17) Central bank [P1, first 3 bullet points] Zentralbank, Notenbank

A central bank is typically charged with all, or at least most, of the following functions:
It is responsible for an adequate supply of legal tender (= banknotes and coins that
have to be accepted in settlement of debts); usually the central bank is the sole note-
issuing bank in a particular country;
It is the bankers bank performs certain tasks for commercial and specialized
banks, just as these perform services for their own customers;
Commercial banks keep accounts with the central bank used to settle the net
positions resulting from the clearing of cheques and credit transfers;
Commercial banks borrow directly or indirectly from the central bank central bank
acts as a lender of last resort;
Kommentar [DS18]: Save (an
amount) with a building society
Bausparen
Kommentar [DS19]: To be
supplemented with durch etw. ergnzt
werden
Kommentar [DS20]: with a view to
doing something mit der Absicht etw. zu
tun
Kommentar [DS21]: to transmit funds
Kapital bermitteln, bertragen
Kommentar [DS22]: to distinguish
sth. from sth etw. von etw.
unterscheiden
Kommentar [DS23]: legal tender =
gesetzliches Zahlungsmittel
Kommentar [DS24]: lender of last
resort = Refinanzierungsinstitut letzter
Instanz
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Additionally, the central bank is frequently charged with supervising and regulating
the banking system of the country in which it operates.
It also acts as a banker to its government, typically managing the national debt,
handling or superintending the issue of government stocks and Treasury bills, making
short-term advances to the government etc.
Kommentar [DS25]: to be charged
with mit etw. beauftragt, betraut sein
Kommentar [DS26]: to superintend
sth etw. berwachen, beaufsichtigen
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KEYWORDS UNIT 7 PAYMENT

(1) Credit card Kreditkarte

Credit cards are typically issued by specialist credit card companies e.g. VISA card,
MasterCard, Diners Club, American Express.
Such cards are a convenient alternative to cash, especially when goods or services are
purchased form a remote location, for instance on the internet.
A credit card serves as evidence that the card-issuing company has granted a line of credit to
the cardholder, who must maintain a special account with it. This line of credit (credit limit)
is the maximum amount that he may have outstanding at any one time.
Every card bears the signature of its holder and is embossed by the issuing institution with
his name, the card number and the expiry date. If the cardholder wishes to pay by credit
card the only thing he has to do is present his card. The retailer checks whether the card is
still valid, swipes it through a special machine to obtain online authorization for the
transaction from the card issuer, and then prints out a sales slip, which the cardholder is
asked to sign.
The retailer sends the sales slip to the card-issuing institutions, which credits his account
with the amount claimed less a discount, and debits the amount involved to the cardholders
account.
At the end of each month, the card issuer sends a fully itemized (=aufgegliedert) statement
to the cardholder. If the cardholder pays the whole amount outstanding within a stipulated
period after the date of statement, he is not charged any interest on the sum due, and
therefore no extra charges are incurred on the purchase(s) made.


(2) Debit card Kreditkarte mit sofortiger Belastung des Kundenkontos

Like a credit card, a debit card is used by its holder to pay for goods or services. However,
any amount spent is immediately deducted from the cardholders account with the issuer
bank, which means that free credit a hallmark of the credit card system is eliminated.


(3) Cheque Scheck

A cheque is a written order to a bank, given and signed by a person who has a current
account with that bank, to pay a certain sum of money to, or to the order of, a second,
specified person (means also organization), or to bearer.
There are three parties to a cheque:
Drawer = person who makes out the cheque and signs it
He can write cheques for any sum up to his current account balance or overdraft
limit.
Payee/bearer = the person to whom the cheque is made payable
Drawee (bank) = bank on which the cheque is drawn
Kommentar [DS1]: To emboss sth
etw. prgen
Kommentar [DS2]: To credit an
account with einem Konto (einen
Betrag) gutschreiben
Kommentar [DS3]: Debit an amount
to an account ein Konto mit einem
Betrag belasten
Kommentar [DS4]: To deduct (an
amount) from an account einen Betrag
von einem Konto abziehen
Kommentar [DS5]: To make out a
cheque einen Scheck ausstellen
Kommentar [DS6]: To make a cheque
payable to sb einen Scheck auf jdn.
ausstellen
Kommentar [DS7]: To draw a cheque
on sb/sth einen Scheck auf jdn./etw.
ausstellen
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The major characteristic of a cheque is that it must be paid on demand when it is
presented for payment.
Cheques may be classified into order and bearer cheques:
a) Order cheque is payable to a specified person or his order, and can be transferred
by indorsement and delivery
b) Bearer cheque is payable to the bearer, and can therefore be transferred by one
person to another by mere delivery, without any formality
Cheques may be classified into open and crossed cheques:
a) Open cheque is payable in cash but only at the bank or branch of the bank on
which it is drawn; it may also be presented for payment at a bank other than the
drawee bank, provided its holder (payee) has an account with that bank the bank
does not pay the cheque in cash but pays it into the holders account;
b) Crossed cheque cannot be cashed over the bank counter but must be paid into an
account; its purpose is to protect its owner against theft or loss;
If there are insufficient or no funds in the drawers account, the drawee bank usually
refuses to pay any cheques made out by him it dishonours the cheque (such cheques
are said to bounce)

(4) Bearer cheque Inhaberscheck

A bearer chequpe is a cheque made payable to the bearer. It needs no indorsement and is
paid to anyone who presents it at the drawee bank.
The person presenting such a cheque may have found or stolen it and though he has of
course no legal right to it, he may be able to get it honoured.
As a safeguard against this, the bearer cheque may be crossed it can be paid only into
an account, thus making it possible for a lost or stolen cheque to be traced back to the finder
or thief.
If the drawer of a bearer cheque wishes to withdraw money from his account, the only thing
the has to do is cash it at the drawee bank drawer and bearer are the same person in this
case;


(5) Crossed cheque [P1,P2] gekreuzter Scheck, Verrechnungsscheck

A crossed cheque is one which cannot be cashed over the bank counter but must be paid
into an account. The bank to which such a cheque is presented for payment will collect the
amount from the bank on which it is drawn (drawee bank) and credit this sum to its
customers account.
The purpose is to protect its owner against theft or loss, since the thief or finder may not
have an account and if he has one and uses it, he can easily be traced.
A crossing may be either general or special:
- General = consists of two transverse parallel lines across the face of the cheque, with
or without the words and company or any abbreviation of them; the cheque may
Kommentar [DS8]: To pay sth. Into an
account etw. auf ein Konto einzahlen
Kommentar [DS9]: To cash a cheque
einen Scheck einlsen
Kommentar [DS10]: Zahlung eines
Schecks wird verweigert
Diana Schalko 2013
be paid into an account at any bank, and the drawee bank will pay it to any bank
presenting it for payment
- Special = consists of the name of a bank written across the face of the cheque, with
or without transverse parallel lines; the cheque must be paid into an account at the
bank stated in the crossing and the drawee bank will pay it only to that bank;


(6) Cheque card Scheckkarte

A cheque card guarantees that any cheque made out by the cardholder up to a specified
amount will be honoured by the bank issuing the card, regardless of whether there are
sufficient funds in his account or not.
Thus, cheque cards act as a safeguard for traders and others accepting cheques, because the
risk involved is shifted to the bank issuing the card (drawee bank).
To ensure that the bank does not refuse payment, the person accepting a cheque has to
make certain that the drawers signature, his account number and the cheque card number
conform to the corresponding items on his cheque card and that the card is still valid.
A cheque card may also be used, with or without a cheque, to draw cash at any branch of
the drawee bank.


(7) Clearing bank britische Geschftsbank, Clearing-Bank

The term clearing bank reflects the fact that these institutions are members and co-
owners of the London Bankers Clearing House an organisation through which cheques and
credit transfers involving different members are cleared.
Clearing denotes a process by which claims and counter-claims arising from payment
transactions carried out by clearing banks are totaled and set off against each other by a
central institution.
For each pair of banks involved (A and B) only the net position (=difference between the
total amount owed by A to B and that owed by B to A) is paid.


(8) Indorsement Indossament

The term indorsement (or endorsement) is mainly used in connection with the transfer of
order instruments e.g. order cheques transferred by delivery and indorsement.
Transfer means that the rights embodied in the instrument involved pass from one person
(transferor) to another (transferee).
An indorsement must be written on the reverse side of the instrument to be transferred.
The person who writes it is called the indorser and the person to whom the instrument is
indorsed is refered to as the indorsee.


Kommentar [DS11]: To owe sb sth
jemandem etw. schulden
Kommentar [DS12]: To
indorse/endorse a cheque einen Scheck
auf der Rckseite unterschreiben
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Indorsements may be either blank or special:
Blank = consists only of the indorsers signature, which means that the instrument in
question becomes a bearer document and can be further transferred by mere
delivery
Special = consists of the indorsers signature and the name of the indorsee,
sometimes followed by the date e.g. pay to John Brown. July 18, 2006 signed:
Henry Smith;
Any further transfer by the indorsee is possible only by means of another
indorsement.
An indorsement may also be in such a form as to prohibit further transfer of the instrument
(=restrictive indorsement) e.g. pay to John Brown only;


(9) Order cheque Namensscheck, Orderscheck

An order cheque is a cheque payable to a particular person or order. It is transferable by
indorsement and delivery.
A bank requires indorsement in the following two cases:
Where the payee (indorsee) requests payment in cash over the counter only
possible if the cheque is open
Where the payee (indorsee) transfers the cheque to another person (who then
becomes the indorsee)
If the drawer of an order cheque wants to draw cash from his account, he makes it payable
to himself by writing Self or Cash in the appropriate space of the cheque form. He may
also cash a cheque drawn to Self at a bank other than the drawee bank by showing his
cheque card.


(10) Bank draft Bankenscheck, Institutsscheck

A bank draft is a negotiable instrument drawn by a bank either on itself (including a branch
or the head office) or on another bank at home or abroad.
They represent a very safe method of payment, and may be used in cases where ordinary
cheques would not be acceptable e.g. remittances to parties residing abroad.
For instance, if a bank customer wishes to make a payment to his foreign supplier, he may
purchase for a small fee a bank draft drawn by his bank on one in the suppliers country.
The bank customer, or the bank itself, will then forward it to the payee, and at the same
time the bank will send to its foreign counterpart a special letter of advice containing all
details of the instrument this letter serves as protection against fraud, since the draft is not
paid until this communication has been received by the bank involved.

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KEYWORDS UNIT 8 FOREIGN EXCHANGE

(1) Currency
1
Whrung

The term currency is applied to the money of a particular country or currency zone e.g.
dollar, euro, pound, yen etc.
Currencies may be either convertible or non-convertible:
- Convertible = currencies can be freely bought and sold in foreign exchange markets,
at the rates of exchange in effect at the time of purchase or sale; the governments
allow unregulated purchases and sales, and the amounts exchanged on foreign
currency markets are large;
Examples: US dollar, euro, British pound etc.
- Non-convertible = circulation is restricted by the local monetary authorities; they are
artificially pegged and usually more expensive on the official market than on the
black one; Examples: Algerian dinar; Vietnamese dong
The worlds major currency is the US dollar, followed by the euro, the yen and the pound.


(2) Foreign exchange [P1] Fremdwhrungen(en), Devisen

The term foreign exchange (abbreviation: forex or FX) is normally used as a synonym for
foreign currency/currencies.
German terminology has is more differentiated the term Valuten is applied to foreign
banknotes and coins; the expression Devisen refers to sight deposits denominated in a
particular foreign currency and held by residents with non-resident banks (e.g. Swiss francs
deposited by Austrian business firms with banks in Switzerland);
Foreign currency deposits held by domestic non-banks e.g. manufacturing companies with
domestic banks count as Fremdwhrung.


(3) Foreign exchange market [P1] Devisenmarkt

The foreign exchange market is one in which convertible currencies can be freely bought and
sold. It is not a physical location where suppliers and demanders interact, but a vast,
worldwide network of currency buyers and sellers linked by computer, telephone etc.
Exchange of information is rapid and to the point quotation of exchange rates on request,
and dealing at those rates. Actual currency is rarely seen it is usually transferred
electronically from one account to another.


(4) Exchange rate [P1-3; P6] Wechselkurs (Devisen-, Valutenkurs)

An exchange rate is the price, or value, of one currency expressed in terms of another e.g. 1
pound = 1.45.
Kommentar [DS1]: To convert sth
(e.g. dollars) into sth (e.g. euro) etw. in
etw. umtauschen (hier:Dollar in Euro
umtauschen)
Kommentar [DS2]: To exchange sth.
(e.g. dollar) for sth. (e.g. euro) etw. in
etw. umtauschen (hier: Dollar in Euro
umtauschen)
Kommentar [DS3]: To trade sth. on
the FOREX market etw. am Devisenmark
handeln
Kommentar [DS4]: To
strengthen/weaken against eine
Whrung steigt/fllt im Wert gegenber
einer anderen Whrung
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It can be fixed by the monetary authority (central bank) of the country concerned (fixed,
pegged, official exchange rate), or it may be determined by the free interplay of supply
and demand in the foreign exchange market, without any central bank intervention
(floating, flexible, fluctuating exchange rate).
In banking practice, there are different rates for different types of foreign exchange e.g.
foreign coins, banknotes, cheques, telex transfers etc.
Whereas exchange rate is an inclusive term for all these rates, German terminology is
more differentiated. Wechselkurs is a collective term for both Valutenkurs and
Devisenkurs.
Foreign exchange quotations may be either direct or indirect:
Direct basis indicates the number of units of the home currency per unit or 100
units of a particular foreign currency e.g. in Austria US$ 1 = 0.8353
Indirect basis price of one unit of home currency in terms of a foreign currency
e.g. in Austria - 1 = US$ 1.2355


(5) Exchange rate systems [P1] Wechselkurssysteme

An exchange rate system (or regime) is a set of rules governing the external values of
currencies. They are usually classified on the basis of the flexibility that the monetary
authorities concerned show towards fluctuations in their countries exchange rates.


(6) Fixed exchange rates [P1-3] fester/fixer Wechselkurs

A fixed (pegged, official) exchange rate may be generally described as one which, is not
determined by the free interplay of supply and demand in the foreign exchange market. In
fact, it is officially set by the monetary authority (=central bank) of the country concerned
in agreement with the IMF. The value so established is called the parity or par value.
Fixed rates are primarily determined by intervention in the foreign exchange market (=open-
market operations). Governments/central banks intervene in order to maintain the pegged
rates in the face of unpredictable cross-border trade and capital flows.
They do so by entering the market to buy or sell the currencies in question, thus preventing
any fluctuations in the rates concerned. In addition countries may impose controls on
specific types of transactions, typically on capital exports.
The major advantage of fixed rates is that they promote growth in international trade
exporter and importers are not exposed to exchange risk and can calculate fairly accurately
the sums they will receive or will have to pay in their own currencies.
On the other hand, a regime of fixed rates requires the countries to hold reserves of gold
and foreign currencies in order to be able to intervene in the market.


(7) Floating rate of exchange [P1; P4] flexibler Wechselkurs

A floating (flexibe, fluctuating) rate is determined by the free interplay of supply and
demand in the foreign exchange market. The main factors, which influence these two
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variables are exports/imports of goods/services, unilateral transfers and exports/imports of
capital (all long- and short-term capital flows).
If a countrys exchange rates are left to be determined by competitive market forces without
any central bank intervention, this is referred to as clean floating.
Within the current worldwide monetary systems most exchange rates are no longer fixed,
and not allowed to float freely either dirty or managed floating (compromise between
fixed rates and clean floating);
This means that most governments/central banks intervene in the foreign exchange market
they influence supply and demand by selling and buying the currencies concerned (open-
market operations) to keep their exchange rates at a target level or to smooth fluctuations,
without being tied to any official rate.
Some major currencies whose values are determined by dirty floating are the US dollar, the
euro and the yen.


(8) Devaluation (of a currency) Abwertung (einer Whrung)

The term devaluation is used when a country with fixed exchange rates officially reduces
the value of its home currency in terms of other currencies. By contrast, under a system of
floating rates, a decline in the value of one currency in relation to another is referred to
asdepreciation.
Devaluations are typical of countries with soft (weak) currencies, which result from serious
balance-of-payment difficulties. Devaluation means that a smaller amount of a particular
foreign currency is needed to buy the home currency that a larger amount of the home
currency is needed to purchase the same amount of foreign currency.
The major effects of devaluation are that, on the one hand, it makes exports of goods and
services cheaper for foreign buyers and encourages the inflow of foreign investment capital,
while on the other it makes visible and invisible imports dearer for domestic buyers and
discourages the outflow of capital.
Devaluing the domestic currency is a method of reducing a countrys balance of payments
deficit, provided other nations do not follow suit (competitive devaluation).
However, due to the increase in import prices, devaluation tends to produce strong
inflationary pressure (imported inflation). A further complication is that a devaluation may
be counter-productive leading to a higher deficit, in cases where demand for exports
and/or imports is relatively inelastic.
Moreover, devaluation may give rise to fears of further devaluations and lead to a loss of
confidence. Any plans to devalue are therefore usually kept secret and denied publicly to
prevent speculative pressure against the currency in question.


(9) Revaluation (of a currency) Aufwertung (einer Whrung)

The term revaluation (or upvaluation) is used where a country with fixed rates officially
increases the value of its home currency in terms of another. Under a system of floating
rates this process is called appreciation.
Kommentar [DS5]: To devaluate a
currency eine Whrung abwerten
Kommentar [DS6]: To revaluate a
currency eine Whrung aufwerten
Diana Schalko 2013
Revaluations are typical of countries with hard (strong) currencies, which are the result of
balance-of-payment surpluses.
It means that
- A larger amount of a foreign currency is needed to buy the home currency
- A smaller amount of the home currency is needed to buy the same amount of foreign
currency
The major effects are that, on the one hand, it makes exports of goods/services more
expensive for foreign buyers and discourages the inflow of foreign investment capital, while
on the other it makes visible/invisible imports cheaper for domestic buyers and encourages
the outflow of capital.
Revaluing the domestic currency is a method of reducing a countrys balance-of-payments
surplus.
Because a revaluate may give rise to speculative activity as well (bulls try to make a profit by
first buying it and then selling it after the expected revaluation at a more favourable
exchange rate), governments/central banks keep secret any plans of revaluation.


(10) Exchange controls Devisenverkehrsbeschrnkungen

Exchange controls also called foreign exchange controls or currency controls are
direct government restrictions on the free interplay of supply and demand in FOREX
markets, and thus on the convertibility of currencies.
The main purpose of such measures is to protect the external value of the home currency
involved e.g. if a country has a weak currency and suffers from a chronic shortage of foreign
exchange, its central bank may interfere in the currency market to prevent the outflow of
foreign currencies, and therefore a further depreciation of the local currency.
Currency controls have become a standard feature in many developing and newly
industrializing countries, while industrialized nations have either abolished or relaxed them.
The most important measures in the field of exchange controls include:
Compulsory surrender of all foreign currency earnings to the central bank
Allocation of scarce foreign exchange reserves to organisations or individuals on the
basis of exchange control permits (rationing)
Multiple exchange rates to discourage certain types of transactions e.g. taxes on
the outflow of capital etc.
Using exchange controls is one of the major ways of influencing the external value of a
countrys currency others being open-market operations (=buying and selling of
currencies by the central bank involved).






Kommentar [DS7]: To
abolish/remove/lift foreign exchange
controls
Devisenverkehrsbeschrnkungen
abschaffen
Kommentar [DS8]: To
implement/introduce/impose foreign
exchange controls
Devisenverkehrsbeschrnkungen
einfhren
Kommentar [DS9]: To relax/loosen
foreign exchange controls
Devisenverkehrsbeschrnkungen lockern
Diana Schalko 2013
(11) Exchange risk
1
general [P1-5] Wechselkursrisiko allgemein

The term exchange risk may be defined as the possibility of loss or gain arising from a change
in a foreign currency rate. Such gains/losses are termed (foreign) exchange gains/losses or
(foreign) currency gains/losses.
The two main types of exchange risk are transaction risk and translation risk.
Transaction risk exists whenever individuals or organisations are due to receive, or to make,
payment in a foreign currency at some future time. It relates to the possibility of exchange
gains/losses that may result from the settlement of transactions denominated in a foreign
currency.
Example exporter Austrian exporter sells goods to a US importer, the contract price of
$10,000 being payable in three months; Exchange rate on the date of contract US$ 1 = 1; If
the dollar, for instance, declines to $1 = 0.90 by the date of settlement, the exporter is
faced with an exchange loss (he only gets 9000 when exchanging the invoice price)
opposite happens if the euro rises in value
Example importer if the value of the foreign currency in terms of the importers home
currency drops/rises between the contract and the settlement date, he will make an
exchange gain/loss, because he will need a smaller/larger amount of his own currency to
buy the foreign currency amount needed to pay the invoice price.

Kommentar [DS10]: To be exposed to
the exchange risk dem
Wechselkursrisiko ausgesetzt sein
Kommentar [DS11]: To make/realise
exchange rate gains Kursgewinne
erzielen
Diana Schalko 2013
KEYWORDS UNIT 9 THE BALANCE OF PAYMENTS

(1) Foreign exchange [P2] Fremdwhrung(en), Devisen

Foreign exchange is a countrys principal means of settling its transactions with other
nations.
A countrys demand for foreign exchange depends on its imports of goods/services, its
unilateral transfers to foreign countries, and is capital exports.
A countrys supply of foreign exchange is determined by its exports of goods/services, all
unilateral transfers received from abroad, and is capital imports.
If foreign exchange expenditures exceed foreign exchange receipts, the country in question
is said to have a balance-of-payments deficit, which it may finance from its foreign exchange
reserves accumulated in the past.


(2) Floating rate of exchange [P2-3] flexibler Wechselkurs

If, in a free market, demand for a particular commodity exceeds supply at a given price level,
the price will be bid up until these two market forces are in equilibrium.
The opposite is true in the case of an excess of supply over demand.
The same applies to a completely free foreign exchange market since the price of a
currency is allowed to adjust continuously so as to equate demand and supply, an overall
balance-of-payments deficit/surplus cannot occur.
Thus, the principal advantage of floating exchange rates is that they act as automatic
regulators of a countrys balance of payments, restoring equilibrium whenever it is disturbed
as a consequence there is no need for central banks to keep foreign currency reserves to
finance balance-of-payments deficits.
The main disadvantage is that freely floating exchange rates create uncertainty and may,
therefore, discourage trade and investment.


(3) Balance of payments Zahlungsbilanz

The balance of payments of a particular country is a systematic record of all economic
transactions between its residents (both natural persons and legal entities) and the rest of
the world, within a given period, usually one year.
The balance of payments has traditionally been divided into three accounts:
a) Current account includes the balance of trade (exports + imports of goods); the
invisible account (exports + imports of services, investment income) and unilateral
transfers
b) Capital account includes exports + imports of capital, mainly in the form of direct
and portfolio investments
c) Account dealing with official transactions in gold, foreign exchange and related items
Diana Schalko 2013
If a countrys foreign exchange receipts (visible and invisible exports, unilateral transfers
received from abroad, capital exports) fall short of its payments (visible and invisible
imports, unilateral transfers made to non-residents, capital exports) then it is said to have a
balance of payments deficit;
To solve this deficit the country may run down its official gold and foreign currency reserves,
and/or increase its foreign borrowing, and/or drawn on credit facilities made available by
international financial institutions e.g. IMF.

Under the new system, the balance of payments is divided into four main accounts:
a) Current account
b) Capital account (Bilanz der Vermgensbertragungen) difference: it no longer
includes a countrys in- and outflows of direct and portfolio investments; covers now
certain capital transfers e.g. related to migrants, inheritances, EU programmes, debt
forgiveness
c) Financial account (Kapitalbilanz) covers in-and outflows of direct and portfolio
investments instead
d) International investment position records the level (not the flow) of external
assets and liabilities
A country should try to keep its balance of payments in equilibrium to ensure that it
should:
- In the long run keep its exports of goods/services equal to its imports in value
- In the short run keep necessary foreign currencies to finance any balance-of-
payments deficit
The only long-term solution to do so is to ensure that more money flows in than out. A
country, which runs a persistent deficit on its balance-of-payments must make every effort
to raise its exports and curb its imports by:
Government-supported export promotion e.g. export credit guarantees
Imposing import controls e.g. quotas
Devaluing the home currency (exports get cheaper, imports get more expensive)
Cutting outward and increasing inward investment e.g. controls on capital
outflows
One should bear in mind that a government faced with a deficit would be ill-advised to
tackle it by singling out one particular item of the balance of payments. Instead, government
policy should aim at eliminating a deficit through appropriate general economic measures,
and not by controlling individual balance-of-payments items.


(4) Current account
1
Leistungsbilanz

The current account of a country is a record of all its exports and imports of goods/services,
together with unilateral transfers. (balance of trade + invisible account + unilateral
transfers)
Diana Schalko 2013
If a countrys imports of goods/services, together with its unilateral transfers to non-
residents, exceed its visible and invisible exports plus all unilateral transfers received, the
country has a current account deficit (opposite being a surplus).
If a countrys balance of trade is in the red, this does not necessarily imply a current account
deficit it may be more than offset by an invisibles surplus;
Under the new balance-of-payments format (IMF) the new current account consists of four
separate sub-accounts:
- Goods account (trade in goods)
- Services account ( trade in services)
- Income account (income) both investment income and compensation of staff
temporarily employed abroad
- Current transfers account (current transfers) central government transfers (e.g.
payments to and receipts from the EU) and other transfers (e.g. gifts made to private
individuals abroad)

(5) Balance of trade Handelsbilanz

It records a countrys exports and imports of goods during a certain period of time, usually
one year. Other terms for balance of trade are e.g. visible account; trade account;
merchandise account; goods account (new system).
Exports and imports of goods (include tangible items such as primary commodities and
capital goods, but also electricity) are frequently termed visible exports/imports.
If a countrys imports of goods exceed its exports, it is said to have a (visible) trade deficit
the balance of trade is unfavourable/adverse/in deficit/shows a deficit/in the red.
The opposite of a (visible) trade deficit is a (visible) trade surplus the balance of trade is
favourable/in surplus/shows a surplus/in the black.
If exports equal imports the trade account would be in balance/in equilibrium.


(6) Invisible account Dienstleistungsbilanz

The invisible account (or services account) of a country is used to record the reporting
countrys exports and imports of services during a certain period of time (one year).
Invisible trade comprises such services as air, rail and road transport, shipping, banking,
insurance, licensing, tourism etc. which lead to payments in the form of charges, fees,
insurance premiums, licence royalties
In addition, the invisible account includes investment income (interest, dividends, profits).
This income is regarded as compensation for services rendered by capital invested abroad.
Another item which is not a service in the traditional sense but is nevertheless recorded in
the invisible account, is the cross-border flow of compensation to staff temporarily
employed abroad e.g. salaries paid by companies based in the reporting country to their
expatriate managers.
Diana Schalko 2013
Under the new system (IMF) the investment income and the cross-border flow of
compensation are recorded in a separate section of the new current account called income
account.
As with the trade account a surplus/deficit may also occur concerning the invisible account
invisible trade surplus/deficit; invisibles surplus/deficit; surplus/deficit in (on)
services on invisibles;


(7) Capital account Bilanz der Vermgensbertragungen

It is used to record a countrys exports and imports of capital (=all long- and short-term
capital flows between its residents and all non-residents) during a certain period of time,
usually one year.
Capital exports are known as outward investments, while capital imports are known as
inward investments.
Long-term capital transactions comprise direct investments and portfolio investments.
Short-term capital transactions include changes in bank deposits, purchases/sales of short-
term securities and similar transactions.
It must be remembered, that income on foreign investments e.g. interest, dividends,
repatriated profits is recorded in the invisible account (old scheme) or in the income account
(new scheme).
Capital outflows have negative impact on the overall balance of payments, whereas the
opposite is true of capital inflows.
Under the new scheme the new capital account does not include inflows and outflows of
direct and portfolio investments now recorded in the new financial account but does
cover some special capital transfers, such as those related to migrants, inheritances, EU
programmes and debt forgiveness.


(8) Financial account Kapitalbilanz

The financial account is a new subdivision of a countrys balance of payments under the new
IMF format. It records in- and outflows of direct and portfolio investments as well as changes
in international reserve assets such as gold and foreign exchange.

Diana Schalko 2013
Balance of payments: comparison of the new and the old system

Old system New system
Leistungsbilanz
Handelsbilanz



DL-Bilanz

Einkommen

Unilaterale
Transaktionen
1
/laufende
Transfers
2

Current account
Balance of trade
Visible account
Merchandise trade

Invisible account



Unilateral transfers
1


Current account
Goods account



Services account

Income account

Current transfers
2


Kapitalverkehrsbilanz
1

/Vermgensbertragungen
2


Capital account
1


Direct investment
Portfolio investment
Capital account
2




Migrant transfers
EU transfers
Debt forgiveness
Non-produced/non-
financial assets e.g.
Copyright
Kapitalbilanz Financial account
Direct investment
Portfolio investment
Other investments
Reserve assets
Account dealing with official
transactions in gold, foreign
exchange and related items






Kommentar [DS1]: Direktinvestition
Kommentar [DS2]: Portfolioinvestition
Kommentar [DS3]: Transferleistungen
von Gastarbeitern
Kommentar [DS4]: EU-
Transferleistungen
Kommentar [DS5]: Schuldenerlass
Kommentar [DS6]: Whrungsreserven
Diana Schalko 2013
KEYWORDS UNIT 10 NATIONAL ECONOMIES I

(1) Economics
1
Volkswirtschaftslehre

Economics tries to understand what makes an economy tick. This task involves indentifying,
describing, quantifying and correlating such economic phenomena as production, saving,
investment, consumption, price level, (un)employment etc. with a view to developing a
coherent picture or model of the economic system concerned.
For this purpose, it is necessary to set up hypotheses and test them against facts.
Macroeconomic theory deals with broad aggregates (e.g. GDP, price level, overall demand),
while microeconomics is geared to small economic units such as firms, households,
individual industries or markets.
Different schools of economic thought emphasize different elements of the economy and
correlate them in different ways, giving different answers to the questions involved.
Economics aims to gain insights into the functioning of economic systems. But, there is also a
more practical side to it: economic theory may be applied to concrete economic problems
and uses as a basis for economic policy-making.


(2) Economics
2
(volks-)wirtschaftliche Aspekte, Rentabilittsfaktoren

The term economics may also be used to describe the more concrete economic aspects of
some activity, or operation.
Examples:
economics of advertising = denote the economic aspects of this promotional
activity
economics of cash discount = all those considerations which govern the granting of
discounts for early payment

Economics in the more concrete sense of the word takes the plural, while economics
denoting a social science takes the singular.


(3) Economy
1
(Volks-)Wirtschaft

As a general concept, the economy is a subsystem of the socio-political system and
comprises economic institutions (firms, banks, railway companies etc.) and economic
activities (production, purchase, sale, lending etc.).
The term economy normally refers to the economic system of a particular country,
although there are also regional economies and also the global economy.
The main task of any economy is to satisfy human wants through the efficient and
equitable allocation of scarce resources. However, not all participants actually pursue this
goal. In fact, the motivation of those engaged in economic activity, most conspicuously that
of businesspeople, is typically dominated by self-interest (=profit motive).
Kommentar [DS1]: what makes sb/sth
tick was jdn/etw. bewegt
Kommentar [DS2]: to be geared to
auf etw. ausgerichtet sein
Kommentar [DS3]: =gerecht
Kommentar [DS4]: =auffallend
Diana Schalko 2013
Private self-interest and public interest may, and do, clash in many areas, and the market
may fail to prevent injustice and a waste of resources.
It is not surprising that economic systems do not always function properly: there are cyclical
(short-term), growth (long-term) and structural problems.


(4) Sectors of the economy Wirtschaftssektoren

One method of sectoring an economy is to divide it into a primary, a secondary, and a
tertiary sector.
a) Primary sector includes all extractive industries e.g. mining, fishing, agriculture,
forestry etc.; it is concerned with obtaining raw materials
b) Secondary sector converts raw materials into finished or manufactured goods,
frequently using semi-manufactured goods in the process;
c) Tertiary sector comprises all services industries, in which production and
consumption coincide; e.g. insurance, banks, hairdressers, fast-food, tour operators
etc.
d) Recently a fourth sector has been added quaternary sector separated out from
the tertiary sector; includes high-level, knowledge-based services such as accounting,
tax or management consulting, designing etc.
The relative importance of the three main sectors varies from country to country
developing nations typically have large primary sectors, while mature economies (US,
Britain) are characterized by a large and growing tertiary sector.
An economy may also be divided into a public and a private sector modern economists
added a third the voluntary sector.
Public sector includes central and local government, state owned-enterprises,
national insurance and pension funds and the central bank;
Private sector composed of all private profit-making concerns e.g. manufacturing
companies, banks, insurance companies etc.
Voluntary sector consists of originations such as Greenpeace;


(5) Industry
1
Fertigungsindustrie
In certain contexts, industry denotes that sector of the economy which is made up of
manufacturing establishments it is therefore coextensive with secondary or
manufacturing industry.
The term refers not only to large but also to small and medium-sized enterprises.


(6) Industry
2
[P1] Wirtschaftszweig, Branche
In its broadest meaning, industry refers to any branch of economic activity agriculture,
production of chemicals or steel, services, private industry etc.
Kommentar [DS5]: =konjunkturell
Kommentar [DS6]: =Abbau,
Frderung, Gewinnung
Kommentar [DS7]: be coextensive
with etw. entsprechen
Diana Schalko 2013
(7) Service industries [P1-2] Dienstleistungssektor
The service industries include all business units and government agencies that supply
services direct to end-users such as private households, governments and businesses.
Services provided by domestic servants, by employees in manufacturing and primary
industries (e.g. accounting services) and by private households themselves are not covered
by this definition.
The products supplied by service industries are not tangible and cannot be stored, as
production and consumption coincide. Furthermore, these industries are labour-intensive
and, thus, less amenable to rationalization.


(8) Gross national product [P1] Bruttonational (-sozial) produkt
GNP is the total value at current or at constant prices of all final goods and services
produced by a nations economy in a year.
Gross means before deduction of depreciation charges.
Final (goods) means that intermediate inputs are excluded no double counting or
duplication.
GNP at current prices is called nominal GNP GNP at constant prices real GNP.
The real GNP may be calculated by applying a GNP deflator to nominal GNP the deflator
corresponds to the rate of inflation for all final goods and services.
Another useful concept is the per capita GNP computed by dividing the number of
inhabitants in a country into its total GNP.


(9) Gross domestic product Bruttoinlandsprodukt
A particular countrys GDP includes all incomes generated by economic agents operating
within its boundaries (=its residents), irrespective of whether these incomes remain in the
country or flow abroad.
Example: dividends paid by an Austrian subsidiary of a British group to its parent company in
Britain would be part of Austrias GDP, but not of its GNP.


(10) Unemployment Arbeitslosigkeit
The general accepted meaning of unemployment is the inability of people who are able
and willing to work to find employment at going wage rates. From this definition, it can
be seen that only involuntary joblessness is regarded as unemployment, while voluntary
forms (housewives, rentiers etc.) are excluded.
Alternatively, the term may also refer to the number of unemployed people.
It is not surprising that there will always be some unemployment, even though the number
of vacancies may actually exceed the number of jobseekers Friction (=imperfections of
the labour market such as time lost between two jobs or lack of information) is responsible
for this type of unemployment. Anything that speeds up the search process will obviously
reduce frictional unemployment e.g. jobcenters, employment agencies.
Kommentar [DS8]: =Hausangestellte
Kommentar [DS9]: to be amenable to
auf etw. anschlagen, anspringen
Kommentar [DS10]: current price =
Tageskurs
Kommentar [DS11]: to apply sth to
sth etw. auf etw. anwenden
Kommentar [DS12]: to divide sth into
sth etw. (in etw.) aufteilen
Kommentar [DS13]: =ohne Rcksicht
darauf, ob
Diana Schalko 2013
Seasonal unemployment is due to the seasonal pattern of work in some industries, most
markedly tourism, agriculture and construction.
(Short-term) cyclical and (long-term) growth-gap unemployment are caused by a deficiency
of demand. In this case of growth-gap unemployment, there is a more fundamental
discrepancy between supply of, and demand for, labour a situation that may require
unorthodox methods e.g. shorter working week, job-sharing, greater flexibility in working
hours etc.
Structural unemployment is not due to a lack of jobs as such, but to a mismatch between
the type and/or location of jobs offered and the qualifications and/or location of jobseekers.
Suggested remedies are: retraining, increasing geographical mobility, short-and medium
term labour market forecasts etc.
Technological unemployment results from the replacement of workers by labour-saving
machines, computers etc it is caused by an increase in the capital-labour ratio.
Economic growth will probably not be sufficient to absorb the redundant workers, and
efforts to improve the qualifications of workers along with a shorter working week may be
the only solution.


(11) Unemployment rate Arbeitslosenrate
The unemployment or jobless rate is calculated by dividing the number of unemployed
by the labour force as a whole (=employed + involuntarily unemployed), and multiplying
the result by one hundred).
It expresses the number of unemployed as a percentage of all labour resources available at
given wage rates. Apart from economic and institutional factors e.g. school-leaving age,
retirement age, corporate and government employment policies etc. the rate is also
influenced by the definitions of employed and unemployed.
Since these definitions vary from country to country, national jobless rates are often not
really comparable. This is why the OECD computes standardized unemployment rates for 16
countries using data from labour force surveys to adjust the national figures.


(12) Labour force Arbeitskrftevolumen (-potential)
A countrys labour force comprises the employed and the involuntarily unemployed (=those
at work and those seeking employment but unable to find some at prevailing wage rates).
The concept excludes children, students as well as old-age pensioners and rentiers.
But, since in all the main EU countries only the registered unemployed are regarded as
involuntarily unemployed, the European definition also excludes those who have not
bothered to register. It does, however, include those on the unemployment register who
would not accept a job even if they were offered one.
The size of the labour force is also affected by how the term employed people is defined
e.g. US armed forces are not includes; Germany self-employed are not included;
Apart from statistic considerations, the size of the labour force is determined, among other
things, by demographic factors (population, age structure, immigration etc.) as well as by the
level of wages.
Kommentar [DS14]: =Mangel, Defizit
Kommentar [DS15]: =fehlende
bereinstimmung, Ungleichgewicht
Kommentar [DS16]: =Lsung,
Heilmittel
Kommentar [DS17]: (not) bother to
do/doing something sich (nicht) die
Mhe machen, etw. zu tun
Diana Schalko 2013
KEYWORDS UNIT 11 NATIONAL ECONOMIES II

(1) Economic indicator Konjunkturindikator

Economic indicators (US: business indicators) are statistical series sensitive to changes in the
level of economic activity. On the basis of their relationship to the timing of cyclical
fluctuations, they may be classified into three types:
a) Leading indicators lead turns in the trade cycle = they change in advance of rises
or falls in economic activity; play an important role in forecasting, and are used to
predict economic ups and downs; e.g. new orders for capital goods
b) Coincident indicators change at the same time as the economy e.g. industrial
production
c) Lagging indicators move up or down after the economy has altered its course e.g.
unemployment

(2) Gross national product Bruttonational(-sozial)produkt

GNP is the total value at current or at constant prices of all final goods and services
produced by a nations economy in a year.
Gross means before deduction of depreciation charges.
Final (goods) means that intermediate inputs are excluded no double counting or
duplication.
GNP at current prices is called nominal GNP GNP at constant prices real GNP.
The real GNP may be calculated by applying a GNP deflator to nominal GNP the deflator
corresponds to the rate of inflation for all final goods and services.
Another useful concept is the per capita GNP computed by dividing the number of
inhabitants in a country into its total GNP.
The most important items included in GNP under what is known as the expenditure or
flow-of-product method are: personal consumption (=(non)durable consumer
goods/services), gross private domestic investment, government expenditure on
goods/services, and net exports of (in)visible items.
The GNP can also be calculated by adding up all types of income e.g. wages, salaries, rents,
profits and depreciation income method or by aggregating the values added by the
various industries which make up the economy as a whole output or origin method;
The usefulness of the GNP as a measure of national welfare and in international comparisons
is increasingly being called into doubt by economists it has been criticized on several
counts:
It fails to include the value added by non-market activities e.g. the work of
housewives and the value of leisure
It includes regrettables = expenditure intended to remedy some evil which might
never have come into existence but for activities leading to higher GNP e.g. anti-
pollution expenditure
Kommentar [DS1]: To be sensitive to
sth empfindlich auf etw. reagieren
Kommentar [DS2]: To add up -
addieren
Diana Schalko 2013
It ignores the unwanted by-products of the economic process (bads or negative
externalities) e.g. pollution
It does not allow for the wealth-creating effect of consumer durables, which are
treated as consumer expenditure and not as investment


(3) Inflation Inflation

Inflation involves a persistent rise in the prices of goods and services (including factors of
production) over an extended period of time. This leads to a decline in the purchasing
power of a given nominal sum of money to a depreciation in the internal value of the
currency concerned.
Inflation or rather the rate of inflation in a particular country is measured either by a
price index covering goods and services purchased by the final consumer, or by the GDP
deflator, which is based on all goods and services included in the countrys GDP.
If the relevant index shows only a slight increase on the previous period, inflation is called
creeping. The expressions runaway inflation or hyperinflation imply much higher
rates.
There is no definite theory of inflation, although many economists regard an excess of
demand over supply (demand-pull inflation), an increase in costs (cost-push inflation), or
structural imbalances (demand-shift inflation) as causes of the inflationary process.
Inflation is generally regarded as having negative impacts on the economy as a whole e.g.
people lose confidence in the currency concerned, which may trigger a flight into tangible
assets (gold, real estate); higher prices leading to higher wage demands and higher wages in
turn may spark another round of price increases (wage-price spiral).
For this reason, governments and central banks seek to keep inflation under control by
pursuing counter-inflationary (deflationary) policies e.g. cutting government expenditure,
increasing taxes, reducing money supply, raising interest rates etc.
Many of these policies entail trade-offs deflationary policies tend to drive up
unemployment (Phillips curve the higher the rate of inflation, the lower the
unemployment rate and vice versa).
Indexation is not directed at inflation as such, but attempts to eliminate or mitigate its
negative consequences by linking all or some economic variables to a price index e.g. if the
consumer price index rises by 200% wage rates will be increased by the same amount,
leaving the purchasing power of wage earners unchanged.


(4) Nominal nominell

This expression indicates that a monetary variable e.g. sales, wages has not been corrected
for price changes. For instance, the statement that sales have risen by 10% in nominal terms
does not reveal how much of this increase is due to price changes and how much to changes
in the underlying physical quantities e.g. tons, pounds number of units sold etc.

Kommentar [DS3]: =Gebrauchsgter
Kommentar [DS4]: To trigger sth.
etw. auslsen
Kommentar [DS5]: To spark sth.
etw. entfachen
Kommentar [DS6]: =mildern,lindern
Kommentar [DS7]: To be linked to
mit etw. zusammenhngen
Diana Schalko 2013
(5) Real real

If used in connection with a monetary variable e.g. sales, income, interest etc. the expression
real indicates that it has been corrected for price changes. The purpose is to provide an
estimate of the underlying physical quantities e.g. tons, pounds etc.
The economic significance of e.g. a 10% rise in sales over a given period depends a lot on the
behavior of prices during that time span increase will be higher/lower than 10% if there
has been a fall/rise in prices; only in the absence of any price change will the real increase be
equal to the nominal one;


(6) Order intake Auftragseingang

The expression order intake or new orders refers to the total amount of orders received
by an enterprise during a specified period of time. The aggregate order intake of an industry
or an economy as a whole is an important leading indicator a high rate of incoming orders
points to an increase in economic activity.


(7) Trade cycle Konjunkturzyklus

The term trade cycle (US: business cycle) refers to periodic fluctuations in the level of
economic activity around what is called the trend line.
It may be divided into two stages or phases expansion and concentration or more usually
into four boom, slowdown, recession and recovery.
Boom = characterized by fast economic growth, full employment, high demand,
rising prices; eventually, every boom will peak out the growth rate of real GDP will
begin to fall
Slowdown
Recession = a prolonged and severe recession is referred to as a depression
Recovery/revival = the economy may bottom out (start rising again) before the stage
of recession is reached; if the upward trend is strong enough this phase will develop
into a boom;
Governments deploy counter-cyclical policies to eliminate or at least mitigate the ups and
downs as far as possible.


(8) Slump starker Rckgang, Konjunktureinbruch, starke Rezession
Wirtschaftskrise

A slump is a sudden severe or prolonged fall. The term may be applied to practically any
economic variable e.g. both share prices and property values may experience a slump.
If used without any indication of the variable involved, it refers to a sharp fall in economic
activity its a synonym for recession.
Kommentar [DS8]: To receive an
order eine Bestellung erhalten
Kommentar [DS9]: To peak out den
Hchststand erreicht haben
Kommentar [DS10]: To bottom out
die Talsohle erreicht haben
Kommentar [DS11]: To deploy sth
etw. einsetzen
Kommentar [DS12]: To experience a
slump einen Einbruch erfahren, erleben
Diana Schalko 2013
KEYWORDS UNIT 12 ECONOMIC POLICY

(1) Economic policy Wirtschaftspolitik

Economic policy comprises all measures planned or taken by a government to regulate the
economic affairs and the economic welfare of a nation or any other administrative unit.
It may take the form of either direct intervention in the economy (e.g. price controls,
subsidies, taxes) or indirect intervention (e.g. changes in the legal or constitutional
framework of economic activity such as antitrust law, company law etc.).
Direct intervention aims at achieving some short-term goals e.g. price stability, while indirect
intervention implies a longer-term perspective e.g. economic growth.
The proper conduct of economic policy requires the following steps:
determining the goals
analyzing the present situation
selecting suitable instruments to attain the goals
arranging for the selected instruments to be applied
checking the results and, if necessary, taking corrective action
The traditional goals of economic policy are for example: price stability, full employment,
economic growth, redistribution of income, equilibrium in the balance of payments etc.
One problem associated with these goals, is that many of them are incompatible with each
other trade-offs e.g. between price stability and full employment; between
environmental protection and economic growth etc.
Economic policy may be classified in various ways:
Fiscal policy = seeks to control aggregate demand, which can be influenced by
changes in the volume and pattern of government revenue and expenditure;
Monetary policy = seeks to control money supply and/or the level of interest rates;
Incomes policy = emphasizes the various forms of income generated by the
economic system
Exchange rate policy = aims to control exchange rates
Industrial policy = aims to control the pattern of industry
Regional policy = aims to control the spatial distribution of economic activity
All of the above is based on the assumption that economies are amenable to outside
intervention, and can be guided in the direction desired by policy-makers.


(2) Fiscal policy Fiskalpolitik, Budgetpolitik

Fiscal policy denotes a government policy concerned with raising revenue through taxation
and other means and deciding on the level and pattern of expenditure with a view to
controlling aggregate demand.
Kommentar [DS1]: To intervene in the
economy (directy/indirectly) in die
Wirtschaft (direkt/indirekt) eingreifen
Kommentar [DS2]: To be amenable to
sth auf etw. anschlagen, anspringen
Kommentar [DS3]: To raise revenues
Staatseinnahmen aufbringen
Diana Schalko 2013
Examples of fiscal measures include: cutting taxes to stimulate economic activity; increasing
taxation to skim off excess purchasing power and slow down inflation; boosting government
expenditure to counter recessionary tendencies;


(3) Budget Budget, Haushaltsplan

In economics, the term budget normally refers to the estimate of government revenue and
expenditure for a fiscal year. Depending on the relationship between these two elements, a
budget may show a surplus or a deficit or it may be balanced.
From the point of view of financial management, surpluses present no problems, but deficits
have to be financed by borrowing money domestically or abroad. Up to a point, this is not
difficult since governments frequently enjoy excellent credit ratings, and banks are only too
willing to lend to them. But a stage may be reached where the (re)payment of principal and
interest pre-empts a large proportion of revenue, severely restricts the governments room
for manoeuvre forces the government to cut back on expenditure (fiscal crisis).
An increase in deficit has, a stimulatory (or reflationary) effect, while a reduction in deficit
will normally put a brake on economic activity and produce a deflationary effect. Changes in
the budget balance may occur as a result of other economic policy goals pursued by the
government e.g. higher social security benefits or fiscal rectitude or they may be
deliberately engineered to control the level of economic activity e.g. deficit spending to
stimulate the economy and reduce unemployment.
Revenue can also be raised by selling state-owned assets (=privatization) or may derive from
dividends paid by state-owned enterprises.
Budgets are not only used by governments business firms and other private and public
organisations have found them useful management instruments in planning and controlling
the allocation of resources; they draw-up budgets e.g. for capital expenditure, sales or cash
at the beginning of the business period, and compare actual and budgeted performance at
the end;


(4) Monetary policy Geld-und Kreditpolitik, Notenbankpolitik

Monetary policy attempts to achieve the broad goals of economic policy (e.g. full
employment) by controlling money supply or interest rates. Other tools include: open-
market operations, reserve requirements (special deposits) and direct controls on the
availability of credit.
Such policy is typically implemented by a countrys central bank.
A central bank pursuing a policy of easy money may lower interest rates and/or increase
the money supply by open-market operations this encourages individuals and firms to
borrow more from banks. Additionally, it may ease reserve requirements (= making it easier
for banks to lend more) and relax direct controls on the availability of credit.
The opposite is true for a policy of tight money.



Kommentar [DS4]: To skim off sth
etwas abschpfen
Kommentar [DS5]: =berschssig
Kommentar [DS6]: To pre-empt sth
etw. zuvorkommen
Kommentar [DS7]: To cut back on
expenditure (Staats-) ausgaben krzen
Kommentar [DS8]: To put a brake on
economic activity wirtschaftliche
Aktivitt bremsen
Kommentar [DS9]: To engineer sth
etw. vorbereiten, arrangieren
Kommentar [DS10]: To draw-up a
budget ein Budget erstellen, aufstellen
Kommentar [DS11]: =lockern,
entspannen
Diana Schalko 2013
(5) Central bank Nationalbank

A central bank is typically charged with all, or at least most, of the following functions:
It is responsible for an adequate supply of legal tender (= banknotes and coins that
have to be accepted in settlement of debts); usually the central bank is the sole note-
issuing bank in a particular country;
It is the bankers bank performs certain tasks for commercial and specialized
banks, just as these perform services for their own customers;
Commercial banks keep accounts with the central bank used to settle the net
positions resulting from the clearing of cheques and credit transfers;
Commercial banks borrow directly or indirectly from the central bank central bank
acts as a lender of last resort;
Additionally, the central bank is frequently charged with supervising and regulating
the banking system of the country in which it operates.
It also acts as a banker to its government, typically managing the national debt,
handling or superintending the issue of government stocks and Treasury bills, making
short-term advances to the government etc.
Most importantly, it is concerned with the implementation of monetary policies; it
regulates the countrys money supply by conducting open-market operations, calling
for special deposits (legal reserves US), influencing interest rates and operating
direct controls on bank lending;
It is also active on the external front intervenes in the FOREX markets to control
exchange rates;


(6) Money supply Geldmenge

This term denotes the amount of money which exists in an economy at any given time. It
covers banknotes and coins in circulation (=excluding those held by the banking system) as
well as private sector non-bank current account deposits deposit money (=excluding
interbank deposits).
In most countries the latter are by far the most important component of money supply,
accounting for around 70-80% of the total.


(7) Interest
1
[P1-2] Zinsen

Interest is the price charged by a lender paid by a borrower for the temporary use of
funds. It is expressed as a percentage per annum of the principal (=amount lent or
borrowed) interest rate;
The rate set for a particular borrower is determined by his creditworthiness and such
macroeconomic factors as credit supply and demand, rate of inflation etc.
The rate demanded by the central bank is referred to as the discount rate (US); as the
base rate (UK); as the official interest rate in the EU etc.
Kommentar [DS12]: legal tender =
gesetzliches Zahlungsmittel
Kommentar [DS13]: lender of last
resort = Refinanzierungsinstitut letzter
Instanz
Kommentar [DS14]: to be charged
with mit etw. beauftragt, betraut sein
Kommentar [DS15]: to superintend
sth etw. berwachen, beaufsichtigen
Kommentar [DS16]: to call for special
deposits Mindesteinlagen einfordern,
einheben
Kommentar [DS17]: = Leitzinsen
Diana Schalko 2013
(8) Open market operation Offenmarkt-Operation

By open-market operations we understand the buying and selling of government
securities e.g. government bonds by a countrys central bank with a view to controlling
money supply and/or interest rates.
If the central bank wants to increase its countrys money supply, it will buy government
securities from the private sector (=public sector sight deposits are used to pay for the
securities bought flow from the public into the private sector increase in money supply).
A decrease can be brought about by selling such securities to the private sector (=private
sector sight deposits are shifted into the public sector reduction in money supply)
Open-market operations are not necessarily restricted to controlling money supply used
to influence supply of, and demand for, any commodity and its price;


(9) Trade policy [P1] (Auen-) Handelspolitik

Trade policy comprises all measures taken by a government to control exports and imports
of goods and services.
Governments tend to promote (in)visible exports because they provide foreign exchange,
and to impose controls on imports.


(10) Industrial policy Industriepolitik

The government of a particular country seeks to influence its industrial structure (industrial
mix), and is concerned with the question of what types of industry are desirable and what
size they should be.
The range of instruments that might be used in this area includes:
- Selective investment incentives e.g. investment grants, first-year allowances,
investment tax credits
- Outright subsidies
- Favourable loans
- Government procurement policies
- Protective tariffs etc.

(11) Regional policy Regionalpolitik

Regional policy aims at altering the spatial distribution, or regional pattern, of economic
activity and performance.
This means improving the economic situation in areas of a country or other political unit
(e.g. EU) that suffer from low growth, low income levels, and chronically high
unemployment.
Kommentar [DS18]: To bring about
by etw. durch etw. verursachen; etw.
kommt durch etw. zustande
Diana Schalko 2013
Typical regional development policies include:
- Direct government grants to improve infrastructure
- Investment incentives to encourage firms to move to areas concerned
- Provision of low-cost loans

(12) Incomes policy Einkommenspolitik

Incomes policy is pursued by countrys government to restrain prices, wages, salaries,
profits, dividends, or other forms of income, either together or selectively, mainly with a
view to slowing down inflation.
Examples of incomes policies:
Wage and price controls/freezes
Voluntary wage and price guidelines
Agreements between government, business and labour on wage and price restraints
Such measures may be voluntary or statutory the government may rely either on
persuasion and exhortation or on mandatory controls.


(13) Counter-cyclical policy antizyklische Konjunkturpolitik

This policy is aimed at eliminating, or at least mitigating, cyclical fluctuations in the level of
economic activity.
In a boom, when an economy is overheated, deflation will be the appropriate counter-
cyclical policy, while in times of recession stimulatory measures (reflation) are called for.
The main problems of such a policy are how to time and calibrate the measures correctly,
thereby avoiding negative side effects.


(14) Reflation expansive Konjunkturpolitik
Konjunkturbelebungsmanahmen

Originally, this term referred to the recovery of prices to a previous (desirable) level, after a
fall caused by a slump or recession.
Nowadays, the main focus is not on price, but rather on aggregate demand and the level of
economic activity. Reflation in this new sense is used to describe either the first phase
in the recovery of an economy from a slump (before the stage of full employment with rising
prices is reached), or the stimulatory measures taken by the governments to achieve such a
recovery.
To reflate the economy, a government may adopt fiscal policies e.g. tax cuts, increase in
government expenditure; and/or monetary policies e.g. lowering interest rates, expanding
money supply etc.
Kommentar [DS19]: To restrain sth
etw. zurckhalten, einschrnken,
hemmen
Kommentar [DS20]: =Ermahnung,
Appell
Kommentar [DS21]: = die Wirtschaft
ankurbeln
Diana Schalko 2013
Once the upswing has started, the economy tends to grow, with extra spending creating
extra employment and income, which in turn leads to even more spending. At first, because
each round of additional spending is matched by a greater supply of goods/services, there is
little or no rise in prices eventually, when all resources are fully utilized, no further
expansion of output will be possible if demand continues to rise, prices will go up;


(15) Deflation restriktive Wirtschaftspolitik, Deflation

The term deflation is typically used to describe an economic policy intended to reduce the
level of overall, or aggregate, demand. The main purpose is to calm down an overheated
economy and slow down the consequent rise in prices.
A government may deflate its countrys economy by adopting monetary or fiscal policy
measures, either individually or in combination e.g. raising interest rates, contracting money
supply, hiking taxes, cutting government expenditure etc.
Deflationary measures frequently have bad side effects increase in the rate of
unemployment and a fall in incomes; to avoid these, economists recommend incomes
policies in order to get inflation under control;


(16) Controls Lenkungsmanahmen, Restriktionen,
Bewirtschaftung

Controls represent the most direct form of government intervention in the economy. The
government is not satisfied with the results produced by the market and selects one or more
strategic variables and determines their value by administrative action, instead of leaving
this to the free interplay of supply and demand.
Variables chosen for regulation include: prices, wages, rents, interest rates, exchange rates
In many cases, controls are only temporary. They are imposed, or adopted, when free
market results begin to diverge too much from policy goals they may be tightened if they
fail to produce the desired results and relaxed/loosened or abolished/lifted when considered
too harsh or unnecessary.



Kommentar [DS22]: =krzen
Kommentar [DS23]: =erhhen
Kommentar [DS24]: To impose/adopt
controls Manahmen einfhren
Kommentar [DS25]: =verstrken
Kommentar [DS26]: To relax/loosen
controls Manahmen migen, lockern
Kommentar [DS27]: To
abolish/lift/remove controls
Manahmen abschaffen, entfernen