Match the English terms in the left-hand column with the definition in the right-hand column.

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Asset management (G)	A	Bank activities that involve trading financial instruments and the generation of income from fees and loan sales, all of which affect bank profits but are not visible on bank balance sheets.
Reserves (Q)	B	A cost or benefit that motivates a decision or action by consumers, businesses, or other participants in the economy.
Incentive (B)	C	A financial contract that obligates one party to exchange a set of payments it owns for a set of payments owned by another party.
Passbook savings account (I)	D	The acquisition of funds at low cost to increase profits.
Loan sale (K)	E	A situation in which the party issuing a debt instrument is unable to make interest payments or pay off the amount owed when the instrument matures.
Demand deposit (J)	F	A date at which the principal on a bond or similar financial asset needs to be repaid.
Vault cash (M)	G	The acquisition of assets that have a low rate of default and diversification of asset holdings to increase profits.
Bearer instrument (O)	H	A form of a loan in which the borrower simultaneously contracts to sell securities and contracts to repurchase them, either on demand or on a specified date.
Maturity (F)	I	An interest-bearing savings account held at a commercial bank.
Liquidity management (P)	J	A deposit held by a bank that must be paid to the depositor on demand (more commonly called checking accounts).
Default (E)	K	The sale under a contract (also called a secondary loan participation) of all or part of the cash stream from a specific loan, thereby removing the loan from the bank’s balance sheet.
Repurchase agreement(REPO) (H)	L	A bank-issued short-term security that is traded and documents a deposit and specifies the interest rate and the maturity date.
Off-balance-sheet activities (A)	M	Currency that is physically held by banks and stored in vaults overnight.
Overnight cash rate (R)	N	A situation in which the value of a firm’s or bank’s assets have fallen below its liabilities; bankrupt.
Liability management (D)	O	A security payable to the holder or “bearer” when presented. No proof of ownership is required.
Insolvent (N)	P	The decision made by a bank to maintain sufficient liquid assets to meet the bank’s obligations to depositors.
Swap (C)	Q	Banks’ holding of deposits in accounts with the Fed, plus currency that is physically held by banks (vault cash).
Negotiable certificates of deposit (L)	R	The interest rate for very short-term interbank loans.

Complete the following text using suitable words or phrases from the box below.

A	bank (5)	F	long-term (6)
B	depositor (4)	G	low cost (10)
C	credit analysis (9)	H	assets (2)
D	liabilities (1)	I	transforming (8)
E	short-dated (7)	J	mortgage loan (3)

Basic Banking

In general terms, banks make profits by selling ____1____ with one set of characteristics (a particular combination of liquidity, risk, size, and return) and using the proceeds to buy ____2____ with a different set of characteristics. This process is often referred to as asset transformation. For example, a savings deposit held by one person can provide the funds that enable the bank to make a ____3____ to another person. The bank has, in effect, transformed the savings deposit (an asset held by the ____4____ into a mortgage loan (an asset held by the ____5____. Another way this process of asset transformation is described is to say that the bank “borrows short and lends long” because it makes ____6____ loans and funds them by issuing ____7____ deposits.

The process of ____8____ assets and providing a set of services (check clearing, record keeping, ____9____, and so forth) is like any other production process in a firm. If the bank produces desirable services at ____10____ and earns substantial income on its assets, it earns profits; if not, the bank suffers losses.

Complete the text. Replace the Russian words and phrases by English equivalents.

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