Basic Business French 10:
Banking

© 2015, Greg Lessard

About this module

One of the central components in a country's financial system is the banking system. Its various elements operate as a source of currency, as a setter of interest rates, as a place for savings and investment, and as a source for borrowing. Essentially all businesses and individuals deal with banks on a regular basis. Given this, it is important to understand the basic concepts used and the terms which correspond to them in French (and English). As in the last module, the goal here is not to turn you into an expert on the financial sector, but to give you the basic tools needed to understand documents produced by and about banks. In particular, we will focus on:

Since this is a Canadian course, we will focus primarily on the Canadian banking system.

An overview of the Canadian banking system

Canada follows a banking model found in many countries around the world. There is a central bank (une banque centrale) which sets interest rates and performs other activities, as well as a collection of commercial banks (des banques commerciales). Commercial banks fall under federal jurisdiction. There also exist other financial entities, credit unions (des caisses populaires) which perform some or all of the activities of banks, but which are owned collectively by their members. Credit unions fall under provincial jurisdiction. Finally, recent years have seen other organizations ranging from insurance companies to retail corporations offer some of the services offered by banks, like credit cards (des cartes de crédit), and the introduction of internet banks (des banques en ligne) which do not have branches (des succursales) like regular banks, but perform essentially all banking activities online.

Banks play a central role in the economic life of a country. In the case of Canada, the following extract from the web page of the Association des banquiers canadiens illustrates this. The passage is in French, but most of the terms should be familiar to you. In some cases, you can hover over a term to see the equivalent in English. Remember also that in French, when writing numbers, a space is like the comma in English, while the comma functions as the decimal point. A translation of the entire passage may be found on the association's website.

Read this passage and then answer the comprehension questions below.

Comprehension questions

  1. How many ATM's are there in Canada?
  2. Answer

    18,775.

  3. In 2014, which was more frequently used, ATM's or online banking?
  4. Answer

    ATM's, with 777 million transactions, against 698,200,000 transactions through online banking. As of 2010, Canada led the world in the proportion of internet users who use online banking (Comscore).

  5. How many people are employed full-time in the banking sector? What percentage of these are women? What percentage of senior executive positions are filled by women?
  6. Answer

    280,145 people were employed in 2014, of which 62% are women. In senior positions, women represent 34.5% of the group.

  7. How many small and medium sized enterprises receive financing from a bank?
  8. Answer

    1.6 million.

  9. Where do Canadian banks rate with respect to stability and strength?
  10. Answer

    Number one, according to the Forum économique mondial.

  11. According to the Wall Street Journal, the United States had just under 7,000 different banks in 2013. Based on the US and Canadian populations (you may have to look this up), which country has the highest number of banks per capita?
  12. Answer

    The US. In 2011 the Canadian population was estimated at 34 million and the US population at 313 million, or about 9 times as many. Canada has 80 banks, the US around 7,000. The US has one bank for every 45,000 people. Canada has one bank for every 425,000 people. So the Canadian banking system has proportionally many fewer banks than the US system.

The role of the Bank of Canada

Central banks like the Bank of Canada are responsible for helping to maintain the broad economic health of the country. Three dimensions involved in this are:

French term English term and explanation
le taux d'inflation The inflation rate: the rate of increase in the cost of goods and services over time. With higher inflation, the same goods and services increase in price at a faster rate.
le taux d'emploi The employment rate: the percentage of the population currently employed. This is often measured in the negative, as the unemployment rate or le taux de chômage. The less well an economy is doing, the more people will be unemployed.
le taux d'intérêt The interest rate: the rate of charged to borrow money. The higher the interest rate, the more it costs to borrow money. With a higher interest rate, individuals and firms tend to save, and with a lower one, they tend to spend. In the case of firms, this involves investing in plant, equipment and hiring. Increased hiring lowers the unemployment rate.

The central bank's goal is to maintain employment and inflation at an optimum level. A rate of inflation of 2% per year is often seen as optimal, and a rate of unemployment between 4% and 6% is often seen as acceptable. (There will always be some unemployment because some people will be between jobs.) Central banks often try to influence inflation and employment by adjusting the prime interest rate (le taux directeur), the rate at which they lend money to commercial banks. This is known as monetary policy (la politique monétaire). The following table illustrates how this works:

Bank action Effects
Interest rate is increased Money costs more to borrow: inflation goes down, so things cost less, but the rate of borrowing goes down and employment goes down.
Interest rate is decreased Money costs less to borrow: the rate of borrowing goes up and employment goes up, but so does inflation, so things cost more.

It is clear that this is a balancing act.

An explanation of the Bank of Canada's role

The following video will give you the opportunity to listen to the Bank of Canada's role being presented by one of its economists. The concepts presented are essentially the ones we have just seen, but this is not a simple topic, so you will likely have to listen to the video several times. Pay attention as well to what is drawn and written on the whiteboard. Unfortunately, the subtitles are generated by Google and are not accurate (In fact, they're terrible!) so don't use them. Instead, consult the written version of the video below. Mousing over each sentence will show the English translation. When you have finished listening, there will be some comprehension questions to anwer below.

A note in passing: not everyone will have the experience and oral skills necessary to follow the video. You should not worry if this is the case, since the written text and translation provide the same information, except what is written on the whiteboard.

Source: La Banque du Canada

Written version

The numbers at the beginning of each sentence give the time when it starts in the video.

0:12; Bonjour, je m'appelle Louis Morel et je suis économiste ici à la Banque du Canada.

0:16; Aujourd'hui j'aimerais vous expliquer ce qu'est que la transmission de la politique monétaire, c'est-à-dire comment les décisions prises par la banque au sujet du taux d'intérêt influencent l'économie et l'inflation.

0:27; La Banque du Canada mène la politique monétaire de façon à favoriser le bien-être économique et financier des Canadiens.

0:34; L'expérience montre que la meilleure façon de parvenir à cet objectif est en maintenant l'inflation à un niveau bas, stable et prévisible.

0:41; Plus précisément, la Banque vise un taux d'inflation de 2%, lequel est mesuré par l'indice des prix à la consommation globale.

0:50; Le taux directeur est le principal outil dont dispose la Banque pour garder l'inflation au niveau ciblé.

0:55; L'objectif de l'exposé d'aujourd'hui est donc de vous aider à comprendre comment les variations de ce taux se transmettent à l'intérieur de l'économie et contribuent à maintenir l'inflation près de la cible.

1:06; Commençons par le taux directeur. Huit fois par année, la Banque détermine si elle doit modifier ce taux important.

1:13; Elle a trois choix: soit elle l'augmente, elle l'abaisse ou le laisse inchangé.

1:18; Cette décision demande beaucoup de recherches. Ici à la Banque, nous analysons la conjoncture économique puis nous effectuons de projections avec des modèles prévisionnels.

1:18; Tout ce travail nous aide à déterminer le taux directeur qui est le plus adéquat afin que l'inflation reste près de la cible à moyen terme.

1:35; Nos projections sont importantes car les variations du taux directeur n'influencent l'inflation qu'après un certain temps. C'est pourquoi il est primordial de regarder le niveau futur de l'inflation lorsque nous délibérons, afin de déterminer à quel niveau le taux directeur devrait se situer aujourd'hui.

1:52; Pour garder l'inflation près de la cible, la Banque essaie de maintenir la demande globale dans l'économie en équilibre avec l'offre globale.

1:59; Regardons un exemple. Imaginons qu'au terme de notre analyse, nous concluons que l'inflation augmentera et demeurera au-dessus de la cible de 2%.

2:11; Ceci est généralement le cas lorsque la demande globale dans l'économie dépasse l'offre globale.

2:22; Dans cette situation, la Banque augmente son taux directeur d'un quart de point de pourcentage ou selon ce qu'elle juge approprié. Elle pourrait répéter cette action si des signes l'incitent à penser que des pressions inflationnistes continuent à se former dans l'économie.

2:48; Ces hausses de taux directeurs feraient monter les taux d'intérêt imposés par les banques commerciales sur les prêts aux ménages et aux entreprises.

2:57; Avec des taux d'intérêt plus élevés, il devient plus cher d'emprunter, si bien que les dépenses et les investissements ralentissent.

3:03; Parellèlement, les intérêts versés sur les dépôts bancaires montent aussi, ce qui a tendance à favoriser l'épargne.

3:09; La demande globale de biens et services finira par diminuer, ce qui permettra de la ramener au même niveau que l'offre globale et ultimement de ramener l'inflation vers la cible.

3:25; Affecter les taux d'intérêt des banques commerciales est donc l'un des canaux par lesquels le taux directeur influence le taux futur de l'inflation. Il s'agit d'ailleurs du canal le plus important de transmission de la politique monétaire.

3:38; Mais il en existe un autre canal à travers lequel la variation du taux directeur peut avoir une incidence sur l'inflation.

3:44; Ce canal, c'est le taux de change du dollar canadien.

3:49; En général, une hausse des taux d'intérêt au Canada par rapport aux taux dans d'autres pays a tendance à accroître la valeur du dollar canadien relativement à celle d'autres monnaies.

3:59; Avec le temps, l'accroissement de la devise rend les produits importés moins chers pour les Canadiens et les produits exportés plus chers sur les marchés extérieurs.

4:08; Il en résulte donc une baisse de la demande pour les produits canadiens, ce qui exerce une pression modératrice sur l'inflation.

4:15; Toutefois, l'inverse est également vrai. Une baisse des taux d'intérêt au Canada, et de la valeur du dollar canadien, stimule la demande au sein de l'économie.

4:24; Nous avons jusqu'ici regardé un exemple de la transmission de la politique monétaire dans un climat de tensions inflationnistes grandissantes. Voyons maintenant un exemple où les pressions inflationnistes diminuent.

4:35; Lorsqu'il semble probable que l'inflation va reculer et demeurer sous la cible de 2%, ce qui généralement survient lorsque la demande est inférieure à l'offre globale dans l'économie. Eh bien, la Banque réduira son taux directeur.

5:01; Au fil du temps, ce recul poussera vers le bas les taux sur les prêts et le taux de change, ce qui stimulera la demande globale dans l'économie...

5:15; ...et éventuellement ramènera l'inflation vers la cible.

5:20; Il est important de ne pas oublier qu'il faut un certain temps avant que les changement au taux directeur se répercutent sur l'économie et se fassent pleinement sentir sur l'inflation.

5:28; Il faut compter habituellement entre un an et demi et deux ans.

5:34; Lorsqu'un choc majeur comme la crise financière mondiale et la récession de 2008-2009 qui ont frappé l'économie canadienne, la Banque a la flexibilité de ramener le niveau de l'inflation à la cible sur une plus longue période ou une période plus courte.

5:48; Enfin, voyons la performance du Canada en matière d'inflation depuis l'adoption de la cible de 2% en 1995.

6:00; Comme vous pouvez le voir, au fil du temps, le taux d'inflation a augmenté et descendu, ce qui est normal, mais il s'est situé le plus souvent à l'intérieur de la fourchette de maîtrise de l'inflation, c'est-à-dire en dessous de 3% et au-dessus de 1%.

6:17; En fait, depuis 1995, le taux d'inflation moyen est très proche de la cible de 2%.

6:23; Et ce taux d'inflation bas et stable aide les Canadiens à investir et à épargner avec confiance.

6:29; Alors voilà, c'est le mécanisme de transmission de la politique monétaire. Si vous désirez en savoir plus, je vous invite à explorer les autres pages du site web de la Banque où se trouverait une mine d'information.

Comprehension questions

  1. What is the principal tool available to the Bank of Canada for keeping inflation in check?
  2. Answer

    The prime interest rate (le taux directeur).

  3. How many times a year does the Bank check to see whether the prime rate should be adjusted?
  4. Answer

    Eight times a year (huit fois par année).

  5. If the prime rate is increased, how does this effect the rate of borrowing in the economy?
  6. Answer

    If the prime rate goes up, it becomes more expensive to borrow money (il devient plus cher d'emprunter).

  7. If interest rates are higher, how does this effect aggregate demand for goods and services?
  8. Answer

    It will go down (La demande globale de biens et services finira par diminuer).

  9. How long does it take for changes in the prime rate to influence inflation?
  10. Answer

    Typically from a year and a half to two years (Il faut compter habituellement entre un an et demi et deux ans.).

  11. Since 1995, what has been the average rate of inflation in Canada?
  12. Answer

    Around 2%. (En fait, depuis 1995, le taux d'inflation moyen est très proche de la cible de 2%.).

Commercial banks

While the Bank of Canada is responsible for national monetary policy, commercial banks (les banques commerciales) provide banking services for individuals (des particuliers) and businesses (des entreprises). Some services are common to both groups. You are probably familiar with some of them already, like chequing accounts (les comptes courants), savings accounts (les comptes d'épargne), credit cards (les cartes de crédit) and debit cards (les cartes de débit).

In the next few paragraphs, we will provide an overview of some of these services and products. This will be followed by a quiz to help you test your knowledge and a follow-up on Micheline as she seeks to expand her lemonade business.

In the very simplest terms, a bank is an institution which takes in money, invests it (including by lending it out), and seeks by this means to make a profit for its shareholders and those who have invested money in it. All these activities must take account of the notion of risk (les risques). Risks include the possibility that people will default on their payments (le défaut de paiement).

Banks charge for their activities in a variety of ways. For example, the interest rate (le taux d'intérêt) charged on deposits (les dépôts) is lower than the rate charged for loans (les prêts). The bank also charges service charges (des forfaits or des frais d'administration) for everyday banking activities. For example, customers wishing to deposit money (faire un dépôt) or take money out of an account (faire une retraite) will either use a banking machine (un guichet automatique), or will go to a branch (une succursale) and speak to a cashier (un caissier/une caissière) at the counter (le comptoir/le guichet), or may use internet banking (les services bancaires en ligne). In all these circumstances, fees are charged, either for each transaction (une transaction) or monthly (des frais mensuels).

There exist different sorts of accounts in which people may deposit their money (déposer leur argent). Savings accounts (les comptes d'épargne/les comptes de dépôt) offer a higher interest rate (un taux d'intérêt plus élevé) because of the expectation that deposited money will be left with the bank. For everyday banking, people often use a chequing account (un compte courant/un compte chèques) into which money is deposited and from which it is withdrawn regularly.

Before banks or other lenders (des bailleurs de fonds/des prêteurs) lend money, they attempt to determine that the borrower (l'emprunteur) will be capable of repaying their debt (rembourser leur dette). Part of this evaluation includes a determination of a customer's debt capacity (leur capacité d'endettement). They do not want their customer to go bankrupt (faire faillite). As a result, banks sometimes ask for collateral (une garantie) - some source of funds or item of goods or property that the bank can take if payment is not made. A loan covered in this way is called a guaranteed loan (un prêt garanti).

After money has been borrowed, it must be repaid (remboursé). Each of the separate payments is called un versement.

A quiz on banking vocabulary

The following quiz is designed to help you retain the banking terms we have just explored. In each question, you will be shown a French term. You should type the English equivalent of the part in bold. For example, if you see un hypothèque, then you should type mortgage. There are more questions in the quiz bank than are shown in each time the quiz is taken, so it is useful to take it several times.

A commercial banking example

Let us return to the case of Micheline and her lemonade business. After her first period of operation, she had made a little bit of money, but she concluded that if she was to survive in the business, she needed to survive. So she made a business plan (un plan d'affaires). According to an article in Forbes Magazine, a typical business plan will include the following items. Mouse over the words in green to see their equivalent in French.

In Micheline's case, she concluded that her goal was to become a significant player in the local lemonade market, that she would be distinctive because her product was made on the spot from all-organic sources, but that she needed to add other juices and perhaps cookies. Her sense was that she would be competing against fast food outlets selling coffee, but that she needed to be located in an area where there were more people. She would market her lemonade by having a small distinctive location which mimicked an Italian expresso bar, but with fruit juices. She would not have a management team, so she needed to design her hours to have something manageable. She believed that with the right conditions she could have $25,000 in sales after a year, with costs of $15,000. But to make this jump to a new model, she needed to borrow money. So she looked on the web and found this:

bn_affaires.png

So now she was ready to begin to explore her options. But she needed to make some decisions. Look at the image above, then try to answer each of the following comprehension questions:

Comprehension questions

  1. Micheline needs advice to begin. Where should she start?
  2. Answer

    With an online consultation (une équipe de spécialistes vous propose, à distance, des solutions adaptées à votre secteur d'activité).

  3. Micheline needs to avoid paying too much for banking. What should she explore?
  4. Answer

    Business banking fees (des forfaits avantageux qui vous feront économiser temps et argent).

  5. She will need to borrow money. What is the maximum that the bank offers?
  6. Answer

    Jusqu'à 500 000$.

  7. She will want to invest some money for the future, but it can't be locked away for long periods. What should she use to do that?
  8. Answer

    Des placements à court terme (short term investments).

  9. What number should she call to speak to someone?
  10. Answer

    1 844 394-4494

Reading passage

In this module, we have looked at some of the main areas of banking, including the national bank and commercial banks. For most individuals, their contacts will be at the local level. This will require finding information and digesting it. The following passage is aimed at consumers like that, specifically in the area of loans for the purchase of a car. Using what you have learned in this module and in earlier modules, read the passage and then answer the comprehension questions. If anything is unclear, a translation is provided at the end.

Prêt Auto

Financement pour l'achat d'un véhicule

Vous avez déniché la perle rare, un véhicule neuf ou usagé qui a tout ce que vous recherchez, et voulez avoir un versement adapté à votre budget ? Ou vous avez l’intention d’acheter un véhicule d’occasion d’un particulier ?

Dans tous les cas, nous vous invitons fortement à lire ce qui suit. Tout comme pour l’achat d’un véhicule, il faut s’informer avant de choisir la solution de financement qui répond le mieux à vos besoins. Magasinez et, surtout, prenez le temps de vous renseigner.

Quelle que soit la solution de financement que vous choisirez, y ajouter une assurance-prêt, c'est faire le nécessaire pour concrétiser la poursuite de votre rêve, quoi qu'il arrive.

Personnalisez votre prêt auto en choisissant un taux d’intérêt fixe ou variable.

Accédez à des modalités de remboursement flexibles : versements hebdomadaire, aux deux semaines ou mensuel, possibilité de remboursement total ou partiel avant l’échéance, en tout temps et ce, sans pénalité.

Période de remboursement extensible jusqu’à huit (8) ans. Vous pouvez tirer profit de cet avantage et choisir un modèle de véhicule ou des options supplémentaires qui répondent à vos besoins, comme un espace de chargement supplémentaire ou une voiture moins énergivore, en conservant le même versement mensuel.

Source: Banque Nationale

Comprehension questions

  1. What two types of interest rates are available?
  2. Answer

    Fixed and variable rates (un taux d’intérêt fixe ou variable).

  3. What is available to protect a loan?
  4. Answer

    Insurance on the loan, that covers circumstances when someone can't make payments (une assurance-prêt).

  5. At what rhythms can repayments be made?
  6. Answer

    Monthly (mensuel), biweekly (aux deux semaines), or weekly (hebdomadaire).

  7. How long can one take to repay a car loan?
  8. Answer

    Up to eight years (période de remboursement extensible jusqu’à huit (8) ans).

Translation

Car Loans

Financing the purchase of a vehicle

Have you have found that rare pearl, a new or used car that has everything you want, and want to make payments adapted to your budget? Or are you planning to purchase a used car in a private sale?

In all cases, we strongly recommend that you read what follows. Just as when you purchase a vehicle, you should get information before choosing the financing solution which best suits your needs. Shop around, and above all, take the time to get information.

Whatever lending arrangement you choose, add loan insurance to it, so that you can fulfill your dreams, whatever might happen.

Personalize your car loan by choosing a fixed or variable interest rate.

Get flexible payment options: weekly, biweekly, or monthly, with the possibility of repaying all or part of the balance before the term of the loan, without penalties.

A loan repayment period of up to eight (8) years. You can take advantage of this to choose a vehicle or options which meet your needs, like more cargo room or a more energy-efficient vehicle, while keeping the same monthly payments.

Summing up

You should now feel comfortable with the basic terms and concepts of:

  1. the structure of the Canadian banking system
  2. the role of the Bank of Canada
  3. basic banking concepts and terms
  4. banks and their role in business

and you should feel somewhat comfortable reading documents produced in this domain. Remember though that, just as in the case of accounting, this is a very complex domain where we have just scratched the surface. To expand your knowledge and skills, read as much as you can of documents produced by banks, including the Bank of Canada, as well as financial reporting and the websites of various commercial banks and credit unions.

In the next module, we will turn our attention to another facet of business: advertising.