This page gives a simple explanation of common money words (financial terminology) and banking. After reading it, there’s a link to a quiz to check your understanding.
© Ever| Dreamstime Stock Photos
To compensate is to give something-- usually money-- in return for something else-- (most often work.) Common words for compensation paid for work done (labor) include salary (an agreed payment by the month or year-- not based on the number of hours worked), wages (usually paid by the hour), earnings, and pay.
They all mean basically the same thing, except that manual laborers (including factory workers, fast food workers, etc.) are paid wages, not a salary.
Types of money: Currency is the money currently in use in a country, including paper money (bills) and (metal) coins. Cash is money in one’s hand-- bills and coins, as compared to checks, money orders, or credit cards, which can be converted into money at a bank or often at an ATM (automatic teller machine.)
Fees are charges for services. For example, a bank may charge fees for checking accounts, loan processing, or to cover “bounced” checks (when the check writer had insufficient funds in his account to cover the check he wrote.)
Sometimes banks will reduce or drop certain fees as an incentive (encouragement) for customers to open a high-value savings account.
When a company (or a person) does not have sufficient (enough) savings to meet their needs or goals (for example, a planned expansion of the business or the acquisition of another company that they can use to increase future profits), they may borrow the necessary money. A bank will lend (loan) money on credit.
The company will need to pay it back later with interest, which is an extra payment (usually a percentage of the amount they borrowed) in return for the opportunity to use the bank’s money for a certain period of time.
The money that is borrowed is called a loan. (However, money borrowed in order to buy a house is a mortgage. Mortgage rules and payments can be very complicated!) The lender (usually a bank or other financial institution) is also called the creditor. A person who borrows money from someone else is a debtor, since they owe them that money (the debt.)
Sometimes English learners aren’t sure how to use certain money words relating to lending and borrowing. Remember that to lend or to loan is to give money (or something else, like a tool or book) for a certain period of time and to borrow is to receive (get) it. Here are a few more hints:
You can ask someone “Can I borrow $5.00?” or “Could you please lend (or loan) me $5.00?” In English we don’t say “Please borrow me $5.00.” That leaves it unclear who would be the lender and who would be the borrower.
The person with the money may answer, “Sure! I’ll be glad to lend you $5.00,” or “No way! You didn’t repay me the last time you borrowed some money!”
To allocate is to decide where (note ‘locate’) to use or invest resources (money, time, etc.). The best allocation will depend on a company’s current circumstances-- how much money and staff is available, what the best opportunities are, etc. To avoid unintended consequences (unexpected results), managers will make such decisions in conformity with the best business practices. (To conform is to fit into or follow what others do.)
A company’s Board of Directors will establish policies they expect the CEO and department managers to implement (put into practice.) Smart policies with excellent implementation will result in generating (making or producing) maximum profits.
Are you ready for a quiz on finance and business vocabulary? Go to the Business English Vocabulary Quiz. (You could also check out the words on the Business Terminology Crossword and its Answers or practice activities in Business Vocabulary first.)