Progress text (21 April) 08.15: 1st half

1
Progress text (21 April)08.15 1st half LH
2509.00 2nd half LH 25

• Units covered by the 1st progress test
• The Business Cycle (causes, Keynesianism and
  monetarism, graph description - vocabulary)
• Trade
• (retail, wholesale, e-commerce, international
  trade, free trade protectionism, the EU)
• Banking
• (types of banks, banking services, microfinance,
  central banking, monetary policy, crisis of
  credit)
• language of meetings

2
Central banking
3
Central banking functionsListening RB, p 61
4
1a Listening

• The functions of a central bank
• 1) Implementing monetary policy
• 1a) setting interest rate ceilings and floors
• 1b) printing money or destroying it
• 1c) open-market operations
• 2) Exchange rate supervision
• 3) Commercial banking supervision
• 4) Acting as a lender of last resort
• Read the text carefully, underline words/phrases
  that seem important/relevant to the topic.
• Are you sure you understand them?
• Ask a colleague for help...
• Do task II

5
1a Listening

• I The functions of a central bank
• 1) Implementing monetary policy
• 1a) setting interest rate ceilings and floors
• 1b) printing money or destroying it
• 1c) open-market operations
• 2) Exchange rate supervision
• 3) Commercial banking supervision
• 4) Act as a lender of last resort
• Read the text carefully, underline words/phrases
  that seem important/relevant to the topic.
• Are you sure you understand them?
• Ask a colleague for help...
• II A1b B1a C3 D2 E4
  F1c

6
Implementing monetary policyHW check

• RB, p 62
• I 2 Do you understand the words below?
• TIC-TAC-TOE What is...
• C I G (X-M) ?

7
Implementing monetary policyHW check

• RB, p 62
• I 2 Do you understand the words below?
• TIC-TAC-TOE What is...
• C I G (X-M) AD
• C Consumers' e___________ on goods and
  services.
• I Investment spending by companies on c______
  goods.
• G G_________ expenditures on publicly provided
  goods and services.
• X E______ of goods and services.
• M I_______ of goods and services.http//www.inv
  estopedia.com/terms/a/aggregatedemand.aspixzz3XDm
  hLpOl

8
Implementing monetary policyHW check

• RB, p 62
• I 2 Do you understand the words below?
• TIC-TAC-TOE What is...
• C I G (X-M) AD (aggregate demand total
  spending)
• C Consumers' expenditures on goods and
  services.
• I Investment spending by companies on capital
  goods.
• G Government expenditures on publicly provided
  goods and services.
• X Exports of goods and services.
• M Imports of goods and services.http//www.inve
  stopedia.com/terms/a/aggregatedemand.aspixzz3XDmh
  LpOl

9

• What is...?
• ... the total stock of money circulating in an
  economy. The circulating money involves the
  currency, printed notes, money in the deposit
  accounts and in the form of other liquid assets.
• MONEY SUPPLY
• An increase in the supply of money typically
  ________ interest rates, which in turns generates
  _______ investment and puts more money in the
  hands of consumers, thereby stimulating
  c________. Businesses respond by ordering ______
  raw materials and increasing p________. The
  increased business activity r______ the demand
  for labor. The opposite can occur if the money
  supply falls or when its growth rate
  declines.http//www.investopedia.com/terms/m/mone
  ysupply.aspixzz3XDpFmcRF

10

• What is...?
• ... the total stock of money circulating in an
  economy. The circulating money involves the
  currency, printed notes, money in the deposit
  accounts and in the form of other liquid assets?
• MONEY SUPPLY
• An increase in the supply of money typically
  lowers interest rates, which in turns generates
  more investment and puts more money in the hands
  of consumers, thereby stimulating spending.
  Businesses respond by ordering more raw materials
  and increasing production. The increased business
  activity raises the demand for labor. The
  opposite can occur if the money supply falls or
  when its growth rate declines.http//www.investop
  edia.com/terms/m/moneysupply.aspixzz3XDpFmcRF

11

• What is...
• ... the rate charged by the central bank for
  lending to other banks?
• DISCOUNT RATE
• What is...
• ... banks ability to fund loans?
• LENDING CAPACITY
• What is...
• ... the amount of funds that banks must hold in
  reserve against deposits made by their
  customers?http//www.investopedia.com/terms/r/req
  uiredreserves.aspixzz3XDxScvfn
• RESERVE REQUIREMENT

12

• What is...
• ... the opposite of borrow?
• LEND
• What is...
• ... a synonym for loose monetary policy?
• EXPANSIONARY
• What is...
• ... the use of government spending and taxation
  to influence the economy?
• FISCAL POLICY
• What is...
• ... debt that is not supported by any assets of
  the borrower?
• UNSECURED DEBT

13

• II Hand in the table?
• III Present expansionary or restrictive monetary
  policy.
• Suppy the opposite term to complete the text
  about restrictive monetary policy.
• If the economy is in recession / ___________, the
  central bank should stimulate / ______ it. This
  can be done be lowering / ________ the reserve
  requirement, dropping / ________ the discount
  rate, or by buying / ________ bonds on the open
  market.

14

• II Hand in the table?
• III Present expansionary or restrictive monetary
  policy.
• If the economy is in recession / overheating, the
  central bank should stimulate / cool it. This can
  be done be lowering / raising the reserve
  requirement, dropping / increasing the discount
  rate, or by buying / selling bonds on the open
  market.

15

• IV Monetary and fiscal policy
• Fiscal policy
• spending greater reduce unemployment
• demand hiring expansionary fiscal
  inflation
• wishes restrictive fiscal make
• Monetary policy
• rate borrow bank more
  less
• expansionary monetary policy opposite
  spend
• less restrictive monetary policy

16
V Up or down?
How do the two types of fiscal and monetary
policies change the following?
Expansionary Restrictive
UP Money supply DOWN
DOWN Interest rate UP
UP Public spending DOWN
DOWN Taxes UP
UP Demand DOWN
DOWN Bank savings UP
UP Growth DOWN
DOWN Unemployment UP
UP Inflation DOWN
17
US monetary policy according to CBS students
(2006) The Federal Reserve (Central bank of
Glenn Hubbard Dean of Columbia Business School
Ben Bernanke Chairman of the Federal Reserve
http//www.youtube.com/watch?v3u2qRXb4xCU
18
The functions of a central bank

• Implementing monetary policy
• Exchange rate supervision (after 1st ppt)
• 3) Commercial banking supervision
• 4) Acting as a lender of last resort

19
Pair up!

• Treasury Boris Lalovac
• Bank of England Ministar financija
• Chancellor Ministarstvo financija
• The Governor Hrvatska narodna banka
• George Osborne Guverner HNB
• _________ Boris Vujcic

20
Paired up!

• Treasury Ministarstvo financija
• Bank of England Hrvatska narodna banka
• Chancellor Ministar financija
• The Governor Guverner HNB
• George Osborne Boris Lalovac
• Mark Carney Boris Vujcic

21
Northern Rock Banking Crises, RB, p 59

• Match up the words and definitions below
• 1 bank run 2 shakeout 3 the Treasury
• 4 credit squeeze 5 the Chancellor 6 solvent
• Read the introduction underline unknown words
• Scan the rest of the text and match questions to
  corresponding paragraphs
• 1D 2G 3F 4B 5E 6A 7C
• Read carefully and underline unknown words /
  parts you do not understand
• IV Match the following words from the text to
  corresponding explanations, p 60 (finish for HW)
• HW V Draft notes/draw a flow chart for events
  described

22
Northern Rock, RB, p 59-60follow-up activity

• a to stop
• b to prevent, hinder
• c issued with a guarantee (an asset)
• d at a low cost
• e debt that is not supported by any assets of a
  borrower
• f providing money to get sb. out of financial
  trouble

• 1 unsecured debt
• 2 bailout
• 3 on the cheap
• 4 to stem
• 5 to hamper
• 6 covered bonds

23
Northern Rock, RB, p 59-60follow-up activity

• a to stop
• b to prevent, hinder
• c issued with a guarantee (an asset)
• d at a low cost
• e debt that is not supported by any assets of a
  borrower
• f providing money to get sb. out of financial
  trouble

• 1e unsecured debt
• 2f bailout
• 3d on the cheap
• 4a to stem
• 5b to hamper
• 6c covered bonds

24

• run on a bank
• come under pressure
• (borrow) over their heads
• mortgage lender

• g organization that makes loans for buying
  property with the property as security
• h a sudden demand by many people
• i more than would be reasonable, intelligent
• j to feel pushed to act

25

• 7h run on a bank
• 8j come under pressure
• 9i (borrow) over their heads
• 10g mortgage lender

• g organization that makes loans for buying
  property with the property as security
• h a sudden demand by many people
• i more than would be reasonable, intelligent
• j to feel pushed to act

26
Northern Rock Banking Crises, RB, p 59

• Who is to blame for the Northern Rock crisis?
• Why did the Bank of England not act earlier?
• Why did the Tresury get involved?
• Are critics convinced by the Banks response?
• What does the Chancellors guarantee for Northern
  Rock cover?
• How long will the guarantee last?
• What about investors who lent money to Northern
  Rock? Who will not be repaid? a) or b)
• a) Investors who bought the banks covered bonds.
• b) Investors who made unsecured loans.

27
Northern Rock Banking Crises, RB, p 59

• Who is to blame for the Northern Rock crisis?
• Why did the Bank of England not act earlier?
• Why did the Tresury get involved?
• Are critics convinced by the Banks response?
• What does the Chancellors guarantee for Northern
  Rock cover?
• How long will the guarantee last?
• What about investors who lent money to Northern
  Rock? Who will not be repaid?
• a) Investors who bought the banks covered bonds.
  
• Why? What are covered bonds?

28
Intro to crisis of credit

• HANDOUT Helgas bar (a humorous explanation of
  how the crisis of credit started the crisis of
  2008)
• Students who did not attend on Tuesday should
  read Helgas bar and do the exercises.
• You can download the text from my web site for BE
  2.

29
Crisis of credit

• Forget about Helga and DRINKBONDS for a moment.
  
• This is what really happened
• CRISIS OF CREDIT VISUALISED
• http//jonathanjarvis.com/crisis-of-credit

30
Vocabulary focus

• 1 subprime borrowers A failure to repay a loan
• 2 credit rating B investment fund that combines
  safe risky investments
• 3 default C clients who may not be
  able to repay their loans
• 4 hedge fund D assets you promise to
  give if you cannot repay a loan
• 5 security E estimates of peoples ability to
  fulfill their financial
  commitments
• 6 foreclose F to take possession of ones
  property because they failed to
  continue paying a loan

31
Vocabulary focus

• 1 subprime borrowers C clients who may not
  be able to repay their loans
• 2 credit rating E estimates of peoples
  credit standing ability to
  fulfill theircredit worthiness financial
  commitments
• 3 default A failure to repay a loan
• 4 hedge fund B investment fund that
  combines safe risky investments
• 5 security D assets you promise to
  give to the lender if you cannot
  repay a loan
• 6 foreclose F to take possession of
  ones property because they failed to
  continue paying a loan

32
MK, p 75 Reading The subprime crisis and the
credit crunch

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MK, p 75 Reading The subprime crisis and the
credit crunch

• INTRO
• Subprime crisis...?
• ... a financial crisis that arose...
• 1 Where? 2 When? 3 What happened?
• A numerous institutional lenders and hedge funds
  collapsed
• B the mortgage market 
• C after a sharp increase in mortgage foreclosures
  (mainly subprime) - Write your own definition!

34

• Subprime crisis is a financial crisis that arose
  in...
• the mortgage market after a sharp increase in
  ....
• mortgage foreclosures (mainly subprime) collapsed
  ...
• numerous mortgage lenders and hedge funds.

35
The subprime crisis and the credit crunch

• credit crunch credit squeeze credit crisis
  - ________ in the general availability of loans
  (or credit) or a sudden tightening of the
  conditions required to obtain a loan from the
  banks.
• increase reduction
• Causes
• often caused by a sustained period of ________
  and inappropriate lending which results in losses
  for lending institutions and investors in debt
  when the loans turn sour and the full extent of
  bad debts becomes known.
• careless careful

36
The subprime crisis and the credit crunch

• credit crunch credit squeeze credit crisis
  - ________ in the general availability of loans
  (or credit) or a sudden tightening of the
  conditions required to obtain a loan from the
  banks.
• increase reduction
• Causes
• often caused by a sustained period of ________
  and inappropriate lending which results in losses
  for lending institutions and investors in debt
  when the loans turn sour and the full extent of
  bad debts becomes known.
• careless careful
• Investor in debt? Loan turns sour?

37
How did the subprime crisis lead to the credit
crunch/crisis/squeeze?

• Read MK, p 75
• Put the sentences below in the right order
• 1 5 2 4 6
• ? Vocabulary
• 1B 2C 3E 4D 5A

38
Who is to blame?

• The sharp increase in foreclosures and the
  problems in the mortgage market were
  largely blamed on
• low bubble loose lenders
• _______ lending practices
• ______ interest rates
• a housing _________
• excessive risk taking by ________ and investors.

39
Who is to blame?

• The sharp increase in foreclosures and the
  problems in the mortgage market were
  largely blamed on
• loose lending practices
• low interest rates
• a housing bubble
• excessive risk taking by lenders and investors.

40

• HW Watch the Crisis of credit video and answer
  the questions (pause the video when necessary)
• Following the tech bubble and the events of
  September 11, the Federal Reserve stimulated a
  struggling economy HOW?
• ... by ________________________________________
• WHAT WAS THE RESULT ON THE HOUSING MARKET?
• _____________________________________________
  
• WHAT WAS THE CONSEQUENCE FOR BORROWERS?
• ______________________________________________
• This left mortgage lenders with property that was
  worth
• HOW MUCH? _____________________________________
  _
• WHAT HAPPENED TO SEVERAL LENDERS
• ______________________________________________
• In the wake of the meltdown, WHAT DID CENTRAL
  BANKS DO?
• Source SUBPRIME MELTDOWN (www.investopedia.com)