UNIT 4

THE FEDERAL RESERVE SYSTEM

SECTION A

1.  The Federal Reserve System = Федеральная резервная система

2.  The Federal Reserve Act = Закон о Федеральной резервной системе

3.  in pursuit of full employment = в стремлении обеспечить полную занятость

4.  soundness = прочность, надежность

5.  to contain risk = ограничивать риск

6.  to operate the payments system = управлять системой платежей

7.  sustainable economic growth = устойчивый экономический рост

8.  open market operations = операции на открытом рынке

9.  to charge = назначать цену, взыскивать

10.  discount rate = процентная ставка; учетная ставка

11.  depository institution = депозитное учреждение

12.  reserve requirements = предписываемые законом резервные требования

13.  deposit liabilities = обязательства банка по депозитам

14.  to extend credit = предоставить кредит

15.  legal entity = юридическое лицо

16.  to have an adverse impact on smth = оказывать неблагоприятное воздействие на что-либо

17.  to be subject to oversight by Congress = подлежать парламентскому надзору

18.  executive (legislative) branch = исполнительная (законодательная) ветвь власти

19.  the Federal Open Market Committee (FOMC) = Комитет по операциям на открытом рынке Федеральной резервной системы

4.A.1. Read the texts:

THE FEDERAL RESERVE SYSTEM

The Federal Reserve System, often referred to as the Federal Reserve or simply “the Fed”, has been the central bank of the United States since it was created in 1913 by the Federal Reserve Act. It was founded by Congress to provide the nation with a safer, more flexible and more stable monetary and financial system. Over the years, its role has evolved and expanded.

Today, the Federal Reserve’s responsibilities fall into four general areas:

·  Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.

·  Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of customers.

·  Maintaining the stability of the financial system and containing systematic risk that may arise in financial markets.

·  Providing certain financial services to the US government, to the public, to financial institutions, and paying a major role in operating the nation’s payments system.

The Federal Reserve shapes, directs and conducts US monetary policy. The term “monetary policy” refers to the actions undertaken by a central bank (such as the Federal Reserve) to influence the availability and cost of money and credit in order to help promote national economic goals. The goals of the Fed’s monetary policy include:

·  maximum employment

·  stable prices

·  moderate long-term interest rates

·  promotion of sustainable economic growth.

There are three main tools of monetary policy that the Federal Reserve used to influence the amount of reserves in private banks:

·  open market operations: the buying and selling of US government securities; open market operations are the primary tool used to regulate the supply of bank reserves;

·  discount rate: the interest rate on loans charged to commercial banks and other depository institutions;

·  reserve requirements: the amount of funds that a depository institution must hold in reserve against specified deposit liabilities.

The Federal Reserve has the authority and financial resources to act as “lender of the last resort” by extending credit to depository institutions or to other legal entities in unusual circumstances involving a national or regional emergency, where failure to obtain credit would have a severe adverse impact on the economy.

STRUCTURE OF THE FEDERAL RESERVE

As the nation’s central bank, the Federal Reserve derives its authority from the US Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of the government. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as “independent within the government”.

The Federal Reserve System has a structure designed by Congress, composed basically of a central, governmental agency – the Board of Governors – in Washington, D. C., and twelve regional Federal Reserve Banks, located in major cities throughout the nation. The chairman of the Federal Reserve leads a seven-member Board of Governors, all of whom are appointed by the US President.

A major component of the System is the Federal Open Market Committee (FOMC), which is made up of the members of the Board of Governors, the president of the Federal Reserve Bank of New York, and presidents of four other Federal Reserve Banks, who serve on a rotating basis. The FOMC oversees open market operations, which is the main tool used by the Federal Reserve to influence money market conditions and growth of money and credit.

Comprehension

4.A.2. Answer the questions based on the text:

1.  What was the purpose of establishing the Federal Reserve System in 1913?

2.  What is the status of the Federal Reserve?

3.  What are the present-day responsibilities of the Federal Reserve?

4.  What are the primary goals of the Federal Reserve’s monetary policy?

5.  What basic tools of monetary policy does the Federal Reserve employ?

6.  How is the Federal Reserve structured?

7.  What are the responsibilities of the FOMC?

4.A.3. Agree or disagree with the following statements:

1.  The Federal Reserve has retained its original role over the decades.

2.  The primary goal of the Fed’s monetary policy is to contain systematic risk that may arise in financial markets.

3.  The main tool used by the Federal Reserve to regulate the supply of bank reserves is open market operations.

4.  The Fed has the authority and financial resources to act as “lender of the last resort” by extending credit to the US government in circumstances involving a national emergency.

5.  The US Congress has the authority to review the activities of the Federal Reserve and ratify its decisions.

6.  The number of the Federal Reserve Banks corresponds to the number of the states.

7.  Heads of the Federal Reserve Banks are appointed by the US President.

4.A.4. Match the words on the left with their definitions on the right:

1. lender of the last a. to be officially approved

resort

2. central bank b. intervention by a central bank to control the amount

of money in circulation

3. sustainable growth c. inspection, supervision

4. open market d. central bank that is prepared to supply money to

operations commercial banks thus preventing their bankruptcy

5. discount rate e. continual stable development

6. reserve f. market operated by banks and other financial

requirements institutions to facilitate short-term borrowing

and lending of money

7. to extend credit g. market where prices are determined by the law of supply and demand

8. to be ratified h. to grant a loan of money

9. oversight i. amount charged for loan services, normally expressed

as a percentage of the loan

10. open market j. institution that carries out government economic

policy, influences interest and exchange rates and monitors the activities of commercial banks

11. money market k. the amount of funds that a depository institution

must hold in reserve against specified deposit

liabilities

SECTION B

1. operating arm = (зд.) орудие, инструмент

2. to move currency into (out of) circulation = ввести деньги в обращение

(изъять из обращения)

3. to collect checks = инкассировать чеки

4. to process checks = обрабатывать чеки

5. checking account (Am. E.) = текущий счет

6. Treasury = казначейство, министерство финансов

5. member bank = банк - член Федеральной резервной системы

6. Federal Reserve District = федеральный резервный округ

7. Federal Reserve Branch Bank = филиал федерального резервного банка

8. Board of Governors = совет управляющих

9. Board of Directors = совет директоров

10. to derive an income = извлекать доход

11. in excess of operating expenses = сверх эксплуатационных расходов

12. discount window = дисконтное окно (возможность получения ссуды в

центральном банке)

4.B.1. Read the text:

THE FEDERAL RESERVE BANKS

The Federal Reserve Banks were established by Congress as the operating arms of the nation’s central banking system. Many of the services provided by this network to depository institutions and the government are similar to services provided by banks to business customers and individuals. The Reserve Banks hold the cash reserves of depository institutions and make loans to them. They move currency and coin into and out of circulation, and collect and process millions of checks each day. They provide checking accounts for the Treasury, issue government securities and act in other ways as a fiscal agent for the US government. They supervise and examine member banks for safety and soundness. The Reserve Banks also participate in the activity that is the primary responsibility of the Federal Reserve System, the setting of monetary policy.

For the purpose of carrying out these day-to-day operations of the Federal Reserve System, the nation has been divided into twelve Federal Reserve Districts, with Banks in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Twenty-five Branches of these Banks serve particular areas within each District.

The Federal Reserve Banks operate under the general supervision of the Board of Governors in Washington. Each Bank has a nine-member Board of Directors that oversees its operations.

The Federal Reserve Banks generate their own income, primarily from interest earned on government securities that are acquired in the course of the Federal Reserve monetary policy actions. A secondary source of income is derived from the provision of priced services to depository institutions. The Federal Reserve Banks are not, however, operated for a profit, and each year they return to the U. S. Treasury all earnings in excess of the Federal Reserve operating expenses.

The primary responsibility of the central bank is to influence the flow of money and credit in the nation’s economy. The Federal Reserve Banks are involved in this function in several ways. First, five of the twelve presidents of the Federal Reserve Banks serve, along with the seven members of the Board of Governors, as members of the FOMC. The president of the Federal Reserve Bank of New York serves on a continuous basis; the other presidents serve one-year terms on a rotating basis. The FOMC meets periodically in Washington, D. C., and determines policy with respect to purchases and sales of government securities in the open market.

Second, the Federal Reserve Banks initiate changes in the discount rate - the rate of interest on loans made by the Reserve Banks to depository institutions at the “discount window”. All depository institutions that are subject to reserve requirements, set by the Federal Reserve, have access to the discount window.

Comprehension

4.B.2. Answer the questions based on the text:

1.  What services are provided by the Federal Reserve Banks to depository institutions and the government?

2.  Are the Reserve Banks subject to oversight and control?

3.  What is the structure of the Federal Reserve network?

4.  What are the sources of the Federal Reserve Banks income?

5.  In what way do the Reserve Banks influence the flow of money and credit in the nation’s economy?

6.  Which depository institutions have access to the “discount window”?

4.B.3. Agree or disagree with the following statements:

1.  The Federal Reserve Banks provide services to the government, commercial banks, business customers and individuals.

2.  The Federal Reserve Banks are funded by the US government.

3.  The Federal Reserve Banks keep all the profit derived from the provision of priced services to depository institutions.

4.  The presidents of the Federal Reserve Banks serve as members of the FOMC on a continuous basis.

5.  The policy regarding trade in government securities in the open market is worked out at the recurrent meetings of the FOMC.

6.  The FOMC initiate changes in the rate of interest on loans made by the Reserve Banks to depository institutions at the “discount window”.

4.B.4. Choose the best word, A, B, C, or D to complete these sentences:

1. The main ________ of a central bank is to regulate the supply of money and

credit to the economy

A value B purpose C currency D achievement

2. The purchase and sale of government securities to regulate money and credit are

referred to as ________ operations.

A open market B money market C capital market D Common Market

3. An important ________ policy tool available to the Federal Reserve System is

the discount rate.

A foreign B domestic C military D monetary

4. The Board of Governors has the authority to determine ________ requirements.

A intellectual B production C reserve D manpower

5. The Federal Reserve’s _________ is derived primarily from the interest on US

government securities acquired through open market operations.

A income B success C reputation D mechanism

6. The Federal Reserve is an ________ entity within the government, having both

public purposes and private aspects.

A incorporated B analytical C irregular D independent

4.B.5. Match a word in A with a word in B, making pairs of synonyms:

A B

1. instrument a. borrowing

2. reserves b. strength

3. loan c. arm

4. supervise d. earnings

5. safety e. get

6. soundness f. working balances

7. primary g. oversee

8. income h. market

9. generate i. basic

10. acquire j. buy

11. sell k. security

12. purchase l. produce

4.B.6. Fill each gap with a suitable word from the box. Sum up the text in 5-7 sentences. Present your summary in class.

institutions apply engage conduct

impact operating branches activities

banks legislation responsibilities powers

US Activities in Foreign Banking Organizations

The International Banking Act of 1978(IBA) provided for federal regulation of the US operations of foreign banks and granted important new responsibilities to the Federal Reserve for the supervision and regulation of such operations. Enactment of this _______ followed rapid growth in the activities of foreign banks in the United States and an increase in their competitive ________ upon domestic markets.

The IBA created a federal regulatory and supervisory structure for the US branches and agencies of foreign _______ , similar to that applicable to US banks. This policy of “national treatment” promotes competitive equality between domestic and foreign banking _______ in the United States by giving foreign banks operating in this country the same _______ and subjecting them to the same restrictions and obligations that _______ to US banks. As part of the implementation of national treatment, the IBA limited expansion of interstate deposit-taking and domestic non-banking ______ of foreign banks, provided the option of federal licensing for agencies an branches of foreign banks, and required FDIC insurance for branches that _______ in retail deposit-taking.

At the federal level, the IBA appointed primary supervisory responsibility for US ________ and agencies of foreign banks among the three federal banking agencies, according to the type of license and whether the banking office has deposit insurance. In addition, the Federal Reserve was given broad authority for the supervision of all federal and state-licensed branches and agencies of foreign banks ________ in the United States. In fulfilling this responsibility, the Federal Reserve must assess the impact and condition of foreign banks operating across state lines. To carry out its _______, the Federal Reserve has statutory authority to examine the assets and liabilities of all branches and agencies, but it generally relies upon examination that state and other federal banking authorities ________. Under the Bank Holding Company Act and the International Banking Act, the Federal Reserve also has responsibility to approve, review, and monitor the US non-banking activities of foreign banking organizations.

4.B.7. Read the dialogue, translate the Russian remarks into English and act it out.

A.  Western bankers unanimously admit that your banking system has changed rapidly since Russia embarked on economic reforms.

B.  Да, это так. Я рад слышать такую оценку. Наша банковская система изменилась, и сейчас она является двухуровневой системой. Первый уровень представлен центральным банком, а второй – коммерческими банками.

A.  Undoubtedly, your Central Bank has contributed to the process and supported the reforms.

B.  Я лично считаю, что усилия ЦБ по осуществлению кредитно-денежной политики в новых условиях, в частности по контролю за денежно массой и борьбе с инфляцией, трудно переоценить.

A.  Your Central Bank has become very active in developing the banking sphere and the services it provides.

B.  Да, например, он ввел в банковскую практику операции РЕПО, а также проводит операции ценными бумагами на вторичном рынке.

A.  Central banks in market economies are “lenders of last resort” for banks. Does your Central Bank help banks with liquidity problems?

B.  Отвечая на ваш вопрос, хочу прежде всего подчеркнуть, что ЦБР, контролируя работу коммерческих банков, стремится обеспечить надежность и стабильность банковской системы. Он выдает и отзывает банковские лицензии, вводит резервные требования, обязывающие коммерческие банки депонировать часть своих активов в ЦБ под нулевые проценты. Что касается помощи банкам, имеющим проблемы с ликвидностью, то в случае необходимости ЦБ оказывает такую помощь.

A.  Recent years saw a rapid growth in the activities of foreign banks in the US. What about Russia?

B.  Наши банки пока еще в определенной степени защищены от конкуренции иностранных банков, хотя иностранные банки имеют свои филиалы и представительства в России.

4.B.8. Read and discuss the text. Give your answer to the question in the title.

Words you may need:

interventionist policy интервенционалистская политика

abandon отказываться от чего-то

distort искажать

exhibit проявлять, показывать

demand-driven определяемый спросом

interest-bearing приносящий процентный доход

currency-driven inflation инфляция, являющаяся следствием объема валютных

средств

convert конвертировать

versus против, в сравнении с

“steering” управление, руководство

civil servant государственный служащий

credit market рынок кредитов

to clear the market регулировать рынок

Is Monetary Policy Needed?

Many people believe that central banks should conduct an active, interventionist monetary policy even though most countries are abandoning other forms of state intervention in their economies, such as price controls, income policies, and industrial planning. These and other forms of intervention, such as agricultural policies and state ownership of business enterprises, waste economic resources and distort markets.

Monetary policy, which represents government intervention in the marketplace for credit, exhibits the same negative effects. The time has come to challenge the need for monetary policy as practiced by central bankers (often with finance ministry guidance). The financial markets, operating under appropriate tax and structural policies, will produce far greater price stability and smoother economic growth than central bankers can.

Some people still believe that controlled growth of the money supply will minimize inflation. In fact, the quantity of money in the industrialized nations today is essentially demand-driven. Currency, a key component of the money supply, is demand-driven when people can easily exchange unneeded currency for interest-bearing financial assets, such as bank deposits and bonds. Currency-driven inflations occur only when governments finance their deficits by paying their obligations in currency that cannot be converted easily into other assets.

Bank deposits, the main component of the money supply in the industrialized countries, are demand-driven as well. This demand reflects the willingness of individuals and businesses to provide credit to the economy in which they operate, versus investing in real assets or moving funds to other countries.

Reserve requirements on bank deposits, still a favoured monetary policy tool of some central bankers, do not restrict bank lending.

As a practical matter, monetary policy in the industrialized world today essentially takes the form of announced official rates for lending to banks and central bank “steering” of short-term rates.

In effect, civil servants, called central bankers, tell participants in the highly competitive and increasingly internationalized financial marketplace what they, the civil servants, believe short-term interest rates should be.

The credit markets do not differ from other markets. Interest, like any other price, should clear the market at a rate that balances supply with demand.

4.B.9. Give extensive answers to these discussion questions:

1.  What role does the central bank play in any country?

2.  What is monetary policy? Why is monetary policy necessary?

3.  What banking system exists in Russia?

4.  How does the CBR ensure the banking system stability?

5.  What monetary policy does the CBR pursue?

6.  What are the shortcomings of the financial system in Russia?

7.  How can money supply be regulated?

8.  Why do many countries experience banking problems?

4.B.10. Prepare a short talk on the following:

1.  The structure of the CBR (Bank of England, the Federal Reserve System), how it provides services to banks, stabilizes the banking system and shares in economic policy-making.

2.  The monetary policy pursued in Russia at the present time.

3.  The present-day situation in the economy of EU countries.

Section С

Infinitive

4.Сplete the sentences with verbs from the box, using the infinitive in the active voice.

to have, to travel, to pass, to support, to attract, to pick up, to meet, to discuss, to watch, to marry

1.  There is no necessity … the papers, I’ll bring them.

2.  Jane’s teacher is worried because she seems … difficulty coping with her studies.

3.  They are reported …. it during the conference.

4.  She must be lucky … such a wonderful person and … him.

5.  He seemed … her as he hoped … her attention at some moment.

6.  She happened … by the chemist’s when she saw her husband.

7.  Margaret is so weak that not … her would be just a crime.

8.  Peter is believed … for the last three weeks and he hasn’t come back yet.

4.С.2. Use the infinitive in the active or passive voice.

1.  My younger sister hates … but she likes … to. (to read).

2.  I’ve got something … him and he has the right … what happened to his son. (to tell)

3.  People usually prefer … but my mother likes … anybody who comes to see us to something delicious. (to treat)

4.  I won’t have … the money he gave me though money is supposed … .

(to spend)

5.  Teachers like … and students hate … . (to ask)

6.  There are so many trifles … but … everything is impossible. (to forget)

7.  I don’t want … my furniture but I’ve got lots of things … as I don’t need them. (to sell)

8.  He thinks that … your enemy is better than … . (to attack)

9.  Doctor Barbara Whiles is going … on him and he wants … on by her. (to operate)

10.  The project is … but there is nobody … it. (to improve)

4.С.3. Put the beginnings and ends together.

4.С.4. Put together the questions and answers.

4.С.5. Respond to the following avoiding repetition. Use a to-substitute.

4.С.6. Rewrite the sentences using perfect infinitives.

1.  I’m glad I’ve met you.

2.  I was sorry I had disturbed him.

3.  I expect I’ll have passed all my exams by June.

4.  I’m happy to have a chance to talk to you.

5.  I was disappointed that I had missed the party.

6.  She was pleased that she had found the house.

4.С.7. Insert the particle “to” where required.

1.  I refused … allow anything of the sort … be attempted.

2.  She glanced at him … assure herself that he must… be joking.

3.  She watched Nancy’s hands … move as if they were about … reach out and … touch something.

4.  He did not think the cheeses ought … be kept much longer.

5.  She was relieved … feel she needn’t … investigate, and probably would never … hear the reason for this quarrel.

6.  Mrs. Rochester was really frightened now and even her husband was beginning … look as if he would rather … be somewhere else.

7.  I feel she must … suffer and I don’t want … see a pain, which I can’t … help.

8.  I would … give a great deal to know what is behind that affair.

9.  I was pleased at the idea of no more of that chilly room, where the light hung in the one place where you could neither … see and … read in bed nor … do your face, but soon I began … be worried.

10.  Andy told himself that he should … have foreseen that terrible thing.

4.С.8. Match the two parts of the sentence.

4.Сplete the sentences with an infinitive construction.

1.  Slowing the game down is essential. (It’s essential to slow down the game.)

2.  Getting tickets is sometimes difficult. It’s sometimes difficult…

3.  For girls, playing football is unusual. It’s unusual for girls…

4.  Scoring goals is getting very easy. It’s getting very easy…

5.  Being interested in sport is good for children. It’s good for children…

6.  Tennis is a pleasant game to play. It’s pleasant…

7.  Doing sport professionally is expensive. It’s expensive…

4.С.10. Put the beginnings and ends of the sentences together.

4.С.11. Change the sentences as shown. Use the infinitive with or without “to”.

1.  I couldn’t understand the timetable. (wasn’t able)

2.  It’s important to eat enough. (You should)

3.  I’d like to go sailing this summer. (I might)

4.  She will probably get married in June. (She expects)

5.  I said I would help her. (I agreed)

6.  It’s necessary to make careful plans. (We must)

7.  I want to change my job. (I wish I could)

8.  I may come and see you next week. (I hope)

9.  You don’t need to apologise. (You needn’t)

10.  They will open a new branch in Sao Paolo. (They have decided)

11.  I couldn’t find the ticket office. (I didn’t manage)

The Objective-with-the-Infinitive Construction (Complex Object)

4.С.12. Make up sentences, using the expressions below.

4.С.13. Fill in the blanks with one of the verbs from the list.

to want, to make, to force, to hear, to see, to bring,

to like to observe, to let, to order, to tell, to compel

1.  The question … him feel embarrassed.

2.  They … me to run.

3.  When I … him go downstairs I went down after him.

4.  She could not … herself to tell him about the death of his beloved wife.

5.  Suddenly he … her rise and turn away.

6.  At first he … them to be married.

7.  The colonel … everyone to wear a gas mask.

8.  My feelings as a father … me to ask you yet again whether you will reconsider your decision.

9.  I … him to eat, and after lunch I … him to lie down, but he couldn’t sleep.

10.  I … him take me to a restaurant of his choice.

11.  Her smile was friendly and she … you feel that she was really pleased to see you.

12.  I … us to be married at once but she was quite firm that she wouldn’t.

13.  He dressed well and … his clothes to be properly looked after.

14.  I last … her walking down the road towards the shops.

15.  I … him play Bach’s A Minor concerto on the radio last night.

16.  I … Alex and his son play chess in the garden.

4.С.14. Complete these sentences with the words from the box.

1. They …sportsmen have a blood test in the big competitions.

2. They… spectators sit on the football field.

3. They … you wear special shoes on a tennis court.

4. They … you go hang gliding until you are sixteen.

5. They … show a medical certificate to take diving lessons.

6. They … children go climbing without an adult.

7. They … skiers practice on the track before a race.

8. They … you have a license to own a gun.

9. They… children go on the golf course if they don’t make a noise.

The Nominative-with-the-Infinitive Construction (Complex Subject)

4.С.15. Change the sentences making use of Complex Subject.

1) It is believed that Mr. Kelly will have an operation next week.

2) It is supposed that St. James’s park in one of the nicest parks in London.

3) It is known that this football team has lost all their matches this season.

4) It is thought that the Council is still discussing the problem of unemployment.

5) They reported that the Prime Minister had left for the UN session.

6) I am absolutely sure that they will solve the problems facing the company.

7) It seemed to Violet that her father was inclined to be patient with her.

8) It was felt that she was perfectly capable of taking care of herself.

The For-to-Infinitive construction

·  I waited for him to come.

·  It is for you to decide.

·  It is a shame for people to spend so much money this way.

4.С.16. Match the parts of the sentences.