Unit 5 Lesson 3

Banks and the stock exchange

The main function of banks is to keep their depositors’ money safe and readily available. A depositor’s
money may be paid into a bank on deposit account or on drawing account also named “current account”.

A “deposit account” is made for a fixed period and is allowed a low rate of interest. A “drawing account”
does not bear any interest but the customer may draw on his money at any time and he is given a cheque
book for his transactions and payments.
All business transacted through the Bank is recorded in the “Pass book” so that the customer may have
a statement of his account whenever he requires it.

The Stock Exchange or Stock Market is a place where dealers in securities meet to transact business.
Transactions are effected through stockbrokers, who help their customers to make investments by buying
securities or to sell their shares, bonds or debentures when they want to transfer them. The prices of the
funds admitted to an official quotation are recorded in the official list issued every afternoon.

-the characteristics of stocks and bonds in the following table.

Point of
Shares Bonds
Comparison

A share entitles its holders, called
shareholders, a fractional “ownership”
Definition of the firm, where the percentage of
ownership is proportional to the
number of outstanding stock shares.
A bond is a security through which an entity
can borrow from investors in the stock
market. A bond issuer can be a firm, in
which case it is a corporate bond, or it can
be a government.

Bondholders are not owners Of the firm and

Shareholders “own” a fraction of the
they cannot intervene in the firm’s
Ownership firm. They also share a portion of the
management. Instead, bondholders are
firm’s risk.
creditors, that is, lenders, to the firm.

Shareholders indirectly participate in Interest payments on bonds are generally

firms’ management (voting rights) and delivered through coupons, which are
Benefits are entitled to portions of the firms’ periodic cash payments to bondholders. In
profits (cash flow rights), which are addition, bondholders get the face value of
known as dividends. the bond at the maturity date.

Activity 01: Comprehension questions.

1. What is the main function of banks?
2. Explain the difference between deposit account and current account?
3. What is meant by the Stock Exchange?

Activity 02: Complete the sentences with the best word.

1. Dividends are paid to…………..each year if adequate profits are made.
a) customers
b) debtors
c) shareholders

2. The value of a company's shares is called………………….

a) equity
b) dividend
c) holding

3. A ................. is an agreement by a government or organization to pay back, with interest, money it has
borrowed.
a) bond
b) portfolio
c) stock

4. He offered his home as security or………………when he borrowed from the bank.

a) warranty
b) collateral
c) deposit

5. We want to find a partner who will take a……………..in our business.

a) risk
b) stake
c) share

6. Money owed by a company to its suppliers forms part of its……………. .

a) losses
b) damages
c) liabilities

7. We have a…………………..of 1 million$ to finance our three-month advertising campaign.

a) budget
b) cost
c) bill

Activity 03: Match each concept to the A/ the amount a lender charges a borrower
correct definition. and is a percentage of the principal—the
1/ Cheque book amount loaned. The interest rate on a loan
is typically noted on an annual basis
known as the annual percentage rate.

2/ bond B/ A loan to a company or government that

pays investors a fixed rate of return over a
specific timeframe.

3/ Rate of interest C/ A small book containing preprinted paper

with the customer's checking account
information