The Global Money Market

Foreign exchange trading in Britain is centered wholly in London. The London foreign exchange market is a telephonic market consisting of 3 groups: authorized banks, 11 foreign exchange brokers and the Bank of England. British opera-lions arc lo some degree over-seen and controlled by the

Bank of England, which limits outstanding positions and calls
regular returns. Sterling is thereby protected against unde­
sirable speculations. This control has never prevented the
involvement in world money operations necessary to
strengthen the commercial base, and in fact it has provided
protection against the vicious losses reported by some banks
overseas during the past few/years. "

Continuous eontacl between dealers in banks in many cit­ies around the world is, in essence, the international mar­ket. They fix the inlernational conversion value of one cur­rency against another and conflicting opinions are swiftly ironed out by the movement of funds. At any one moment of lime, the value of sterling against the American dollar is the same, whelher yon deal in London, Germany, Tokyo or San Francisco.

The major conlrolling factors that affect exchange rates are speculation, interest rates and the balance of payments. In the past, speculalion against the dollar in favour of other currencies has led to the sale of dbllars and the consequent purchase of other currencies. Interest rates dictate the flow of money from one foreign centre to another as money seeks higher yields and Ihe conditions in local money markets plus window dressing operations at Ihe ends of mqnlhs, quarters and the year, react on money flows. So the impact.of a bal­ance of payments surplus or deficit is quite apparent. 11 fol­lows lhal Ihe currency of a country with a constant surplus will always be in demand. But other things quite apart from financial factors affect the foreign exchange market. Political events can move the market quite significantly.

At one point exchange rates were controlled and moni-lored by the central banks under the Brellon Woods Agree-menl. This affected member countries of Ihe International Monetary Fund, which meant simply that all such countries would have a parity for their currency against the American dollar, itself lied to gold, and Iheir currency would be pro-

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tected against the dollar to a maximum spread of 3/4 per cent either side of this parity. All comme'rcial companies work­ing on a wider commercial profit margin could rely on the rate movement staying within agreed boundaries.

I

Using the words in brackets as a guide, explain the mean- \ ing of the following terms and phrases:

1. speculation (profiting from, buying, selling, fluctuating]
prices, in the hope of)

2. balance of payments (all economic transactions, a system-1
atic record of, completed, resident)

3. exchange rate (in different countries, the relation, used,|
between the money, in value)

4. balance of payments surplus (merchandise, services, for-|
eign sales of, the total receipts from, higher than)

5. balance of payments deficit (purchased abroad, merchan­
dise and services, the total payments for, higher than)

6. parity (equality of, between two convertible currencies,
at a legally fixed ratio, purchasing power, at par)

7. revaluation (a new value to, to give, currency)

8. devaluation (in a crisis, a currency, the legal value of, to
lower)

9. floating currency (not fixed, the rate of exchange)

10. spread (to differ, put and call price, in which, an option)

II

Choose the word or phrase in brackets that would best sub­stitute for the word or phrase in bold print in the following sentences:

1. The Bank of England limits outstanding positions at the London Foreign Exchange, (unpaid, easily noticed, well-known)

2. This control has never prevented the involvement in world

money operations.

(support, participation, spontaneity)

3. They fix the international conversion value of one cur­
rency against another.

(put in order, justify, settle)

4. The factors that affect exchange rates mostly are specula-

tion, interest rates and the balance of payments, (cause a change of, increase, decrease)

5. The Bank of England will promote a protection to hold
the pound within the agreed rate spread.

(keep a promise, announce, give support to)

6. British export proceeds were invariably received in ster­
ling.

(debts, earnings, credits) (usually, rarely, frequently)

7. The devaluation of sterling accentuated the switch away

from the pound. V (selling, buying, a move-from)

8. After sterling had been devalued, rates of exchange were
relatively stable.

(changeable, unchangeable, flexible)

9. During that period the pound rose against the dollar.

(its value increased, stayed at the same level, fell)

10. The EEC is bent on removing fluctuations between their
own currencies.

(opposed to, indifferent to, determined to)

III

Say what is true and what is false. Correct the false sen­tences:

1. British operations at foreign exchange markets are free of any control.

HI

2. The global money market means continuous contact be­
tween dealers in banks all over the world.

3. The value of sterling against the American dollar is higher

if you deal in London.

4. The balance of payments surplus or deficit has no affect
upon exchange rates.

5. Interest rates dictate the flow of money from one foreign
centre to another.

6. The currency of a country with a constant deficit is rarely
in demand.

7. Political events have little significance for foreign exchange

markets.

IV

Vocabulary. Opposite». Find pairs ofopposites in the fol­lowing lists:

1. export proceeds

2. fixed rate

3. international money market

4. maximum spread

5. revaluation

6. surplus

7. supply

8. true value

9. upper limit

Collocation. Find the nouns which are qualified in the
textЪy these adjectives and write one noun to each adjec­
tives

continuous regular

constant telephonic

central true

financial undesirable

floating maximum

VI

Combine the words listed below into meaningful two or
three word expressions: _t

interest

intervention

international

local

London

margin

market

member

money

movement

VII

Using information from the text, write a short summary.

i

VIII /

Demonstrate the meaning of each of the following expres­sions in sentences of your own:

1. to protect against undesirable speculations

2. to fix the international conversion value

3. the value of a currency against the American dollar

4. to affect exchange rates

5. to t>e in demand

6. to fix a parity for a currency against the dollar

7. to hold a currency within a rate spread of

8. the devaluation of a currency

9. stable rales of exchange

10. the pound rose against the dollar from..... up lo.....

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IX

In the sentences of this test every seventh word has been left out. Write in the word that Jits best:

The International Monetary Fund was set by the

Bretton Woods Agreement of... The Fund was established

to encourage.... cooperation in the monetary field and.'....

removal of foreign exchange restrictions, to.... exchange

rates and to facilitate a. payments system between mem­
ber countries. Under.... IMF's articles of agreement, mem­
ber countries..... required to observe an exchange rate.....

in which should be confined to... per cent of its par value

.... member was required to consult with..... IMF before

devaluing or revaluing its........ Members in deficit were

obliged by..... terms of the agreement to consult...... the

IMF on the procedures being..... to improve their balance

of payments.... was agreed that it was essential....... hold

discussions to consider the reform...... the international

monetary system over.... long term.

Active Vocabulary:

be entitled to (v) capital goods commitment contractual cover (v)

enter into a contract (v)

entrepreneur

exchange control

firm

forward exchange cover

liquidate (v) option penalty playground rule (v)

rule out (v) ruling thin market undervalue (v) whereby

— иметь право

— средства производства

— обязательства
— контрактный

— покрывать, обеспечивать,
страховать

— заключать контракт

— предприниматель

— валютный контроль

— фирма

— форвардное покрытие
валютного риска

— ликвидировать, погашать

— опцион

— штраф

— площадка

— поставлять, устанавливать,
управлять

— исключать

— господствующий, правящий

— вялый, "узкий" рынок

— недооценивать

— посредством чего-либо

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