Unit 3 stock

Lead-in

Fill in the spidergram with the words associated with Stock Market (use your active vocabulary from Unit 2)

Discuss the following questions:

1. What do you know about stock market?

2. What are the most famous stock markets?

3. Do you have any stock or bond, or security?

4. What can you say about the situation at the world’s stock markets nowadays?

5. What are the most profitable stocks?

Terms and Vocabulary

primary	первичный
secondary	вторичный
previous	предварительный
to negotiate	вести переговоры
underwriter	поручитель
intermediary	посредник
membership	членство
“Big Board”	“Большое табло”
approximately	приблизительно
to list	здесь: регистрировать на бирже
pretax	до обложения налогом
tangible	реальный (осязаемый)
to qualify	квалифицировать(ся), законно претендовать
over-the-counter market	рынок без посредников
to be located	находиться, располагаться
screen	экран
up to date	в курсе
option	опцион

Exercise 1. Read and remember the pronunciation.

[i:] intermediary, predetermined

[a:] grant

[o:] floor

[əu] negotiate, located

[ə] approximately, predetermined

[ju:] execute

[ai] primary

[æ] pretax, tangible

[ai] underwriter

Exercise 2. Pay attention to the stress in the following words.

′primary under′writer pre′tax prede′termined

negoti′ate ′tangible a′ccommodate ′implement

3. Read the text, do the exercises securities markets

Securities are bought and sold at two types of securities mar­kets: primary markets, which issue new securities, and second­ary markets, where previously issued securities are bought and sold. If a company wants to sell a new issue of stock or bonds it usually negotiates with an investment bank, or underwriter, who sells the securities for it. The underwriter buys the securities from the corporation and resells then to individual investors through the secondary market.

Organized security exchanges have developed to make the buying and selling of securities easier. The securities exchanges consist of the individual investors, brokers, and intermediaries who deal in the purchase and sale of securities. Security exchanges do not buy or sell securities; they simply provide the location and services for the brokers who buy and sell.

Stock transactions are handled by a stockbroker. A stockbro­ker buys and sells securities for clients. Stockbrokers act on the clients' orders. Stockbrokers receive a fee and are associated with a brokerage house. To trade on the exchange, a "seat" must be purchased. A seat is a membership. The members represent stockbrokers. When a stockbroker calls in an order to sell, the member representing that broker looks for a buyer at the price requested. When a broker calls in an order to buy, the exchange member looks for a buyer at the price offered.

The largest and best known exchange in the USA is the New York Stock Exchange (NYSE) also called the "Big Board". There are 1,300 seats on the NYSE and approximately 2,000 stocks and 3,400 bonds are traded daily. In order to be listed on the NYSE, a firm has to meet the following requirements:

1. Pretax earnings of at least $2.5 million in the previous year.

2. Tangible assets of at least $16 million

3. At least 1 million shares of stock publicly held, and others.

The second largest stock exchange in the USA is the Ameri­can Stock Exchange (AMEX). It is located in Manhattan and has about 500 full members and 400 associate members. AMEX oper­ates in much the same way as NYSE, but smaller companies may qualify for listing. There are also regional stock exchanges that serve regional markets.

The over the counter market (OTC) sells and buys unlisted securities outside of the organized securities exchanges. About 5,000 brokers of OTC are scattered all over the country. They trade unlisted stocks and bonds by phone and keep in contact with each other.

The prices of the securities are established by supply and demand. Electronic screens in the offices of the brokerage firms display OTC transactions, so brokers continually keep cus­tomers up to date on the latest prices.

Options are traded on the major stock exchanges, but also on a special market for options, the Chicago Bond Options Ex­change (СВОЕ).

America's Financial Markets / The Economist, 2000. November 24.

Exercise 4. Answer the following questions

1. Where are securities bought and sold?

2. What is the difference between primary markets and secondary markets?

3. Who does a company negotiate with if it wants to issue stock?

4. What does an underwriter usually do?

5. What is the main purpose of security exchanges?

6. Who are the participants of security exchanges?

7. Do the exchanges buy or sell securities?

8. Who are stock transactions handled by?

9. What do stockbrokers receive from clients?

10. What is the first thing you do to become a broker?

11. What does the member do when a stockbroker calls in an order to sell?

12. What is the largest stock exchange in the USA?

13. How many seats are there on the "Big Board"?

14. What requirements does a firm have to meet in order to be on the NYSE?

15. What are the major differences between the NYSE and AMEX?

16. What is OTC and how many brokers participate in it?

17. Where are options bought and sold in the USA?

Exercise 5. Substitute the words in the statement with the given synonyms

Statement: Exchanges are simply auctions where investors get together to bid for stocks and bonds.

Example: Exchanges are simply places where investors get together to bid for stocks and bonds.

security markets gather

trade securities

just businessmen

Exercise 6. Transform the sentences according to the model

Model: Security exchanges provide the location for the brokers.

The location for the brokers is provided by security exchanges.

1. Securities markets buy and sell securities.

2. The company issues new stock through an underwriter.

3. The exchanges trade listed corporation securities only.

4. Several underwriters form an underwriting syndicate.

5. The underwriter buys securities from the corporations.

6. The individual used to sell stocks over the counter originally.

7. The National Association of Security Dealers developed the computerized communications system NASDAQ (National Association of Securities Dealers Automated Quotations) in the early 1970s.

8. NASDAQ ties the OTC market together in one vast electronic stock market.

9. The individuals trade the majority of stocks in a true bid auction.

Exercise 7. Read the dialogue

John Simpson is talking to his friend, Martin Walker, about his progress in business

J: Well, you know Martin, these new developments in computer systems are fantastic.

M: I bet they are. You seem to be glowing with delight.

J: Sure I am. It took me a lot of time to call the broker whenever I wanted to sell or to buy stock.

M: You have done away with the broker, haven't you?

J: Not really. I've got a computer now and. I can get the latest prices of all stocks in my portfolio from a database.

M: And how about the broker. Did you dismiss him?

J: Why should I? I just hooked my computer up to a telephone and send my instructions to the broker's computer.

M: How do you benefit from all of this?

J: Well, first of all, you save a minute or two on transactions. Moreover my broker has already offered a discount for computer orders.

M: The costs in processing these orders are comparatively low, aren't they?

J: Right! And even at lower costs it is good for the broker too.

M: But how much is it to use the computerized system?

J: Not really much. Just about $10 for the first hour each month and $20 per additional hour.

M: And is the system reliable? As far as I can remember the 1987 crash was caused to a great extent by the flaws in the use of computers.

J: I've read a lot about it. About 4 million shares were involved in transaction on the day of the crash and there was some problem with software which made a mess of most transactions. But I believe computer systems have improved since then.

M: I hope so, and wish you luck with it!

Words and expressions

to glow with delight - светиться от радости

to do away with - избавиться от чего-либо

database - банк данных

to dismiss - увольнять

to hook (v) - зацеплять; соединять

crash (n) - крах, катастрофа

to a great extent - в большой степени

flaw (n) - ошибка, промах; изъян

to make a mess (of something) - все испортить

to bet - биться об заклад

Exercise 8. Make up dialogues of your own

1. You employ a broker to commit business transactions for you.

2. Your firm doesn't meet either NYSE or AMEX requirements so you come into contact with one of the OTC brokers to discuss the possibilities of cooperation.

3. Your computer is out of order. Contact your broker and discuss the situation.

Exercise 9. Transform the following sentences according to the model

Model: - We can do it.

- It can be done.

1. They must introduce telecommunication on the OTC market.

2. We can't trade unlisted securities.

3. We should buy and sell unlisted stocks and bonds by phone.

4. I have to pay special attention to the major security markets of the world.

5. They ought to close trading at the Tokyo exchange.

6. We must replace face to face buying and selling of securities by telecommunication.

7. We must watch the foreign exchange closely.

8. We should keep customers up to date on the latest prices.

9. We have to look through the NASDAQ national market quotations in the daily stock sections of national newspapers.

10. I should have my stock listed on regional and national exchanges.

Exercise 10. Translate into English

1. Ценные бумаги продаются на первичных и вторичных рынках ценных бумаг. 2. Если компания хочет выпустить новые акции, она проводит переговоры с инвестиционным банком или поручителем. 3. Поручитель покупает ценные бумаги компании и перепродает их на вторичном рынке индивидуальным инвес­торам. 4. Фондовые биржи делают процесс продажи и покупки ценных бумаг проще. 5. Фондовая биржа состоит из инвесторов, брокеров и посредников, которые занимаются покупкой и продажей ценных бумаг. 6. Операции с ценными бумагами проводятся биржевыми брокерами. 7. Биржевые брокеры получают вознаграждение. 8. Биржевые брокеры действуют по поручению клиентов. 9. Чтобы вести дела на бирже, брокер должен купить место. 10. Члены биржи представляют биржевых брокеров. 11. Крупнейшая и наиболее известная биржа в США - Нью-йоркская фондовая биржа ("Большое табло"). 12. Чтобы быть зарегистрированной на бирже, компания должна соответствовать ряду требований. 13. Американская фондовая биржа имеет около 500 полных членов и около 400 ассоциированных членов. 14. Рынок без посредников торгует незарегистрированными ценными бумагами. 15. Цены на ценные бумаги устанавливаются спросом и предложением. 16. Опционы продаются на главных фондовых биржах, а также на Бирже опционов в Чикаго.

Exercise 11. Read the text

^{TRADING STOCKS}

Trading stock begins with an investor placing an order that is informing the stockbroker as to what stock and how much he wants the broker to buy or sell. An order to buy or sell stock at the best possible price at the present time is called a market order. The broker conveys the order to an exchange member on the trading floor, who attempts to get a better price for the buyer by offering a little less. For example, the broker might offer 47 1/8 ($47.12.5) for the stock with a current price of 47 1/4 and see if someone will sell at this price. If the investor were selling, the broker would attempt to get a slightly higher price by offer say, 47 3/8.

The final sale will then be electronically relayed to the bro­ker who placed the order. The investor might also place a limit order which specifies the highest or lowest price at which the broker may buy or sell. If the investor can't be accommodated immediately, the broker places the order in a sales book and then tries again in order of priority. If an investor wants to keep the order on the books he can issue an open order which instructs the broker to leave the order on the books until it is executed or canceled.

Sometimes the investor might give a discretionary order which allows the broker to exercise judgment in making money. The investor leaves it up to the broker to decide when and at what price to buy or sell.

An odd lot is any number of shares less than 100. One hun­dred shares comprises a round lot. Brokers usually trade shares in lots, odd lots being combined with a series of other small orders to form a round lot. A purchase of 10,000 shares is some­times called a block sale. In addition to the price of the stock, the investor pays the broker a commission for buying or selling the securities.

Sometimes investors pay less than the full amount when they buy stock. This is called margin trading. The FRS determines the minimum margin required. In recent years the stock margin has been approximately 50 percent. Fearing that the investor might sell the stock and abscond with the funds, the broker keeps stock certificates of margin accounts at the brokerage as collat­eral. If the stocks were to plummet, the broker would call the investor and request that he put up more money or have the stock sold.

Active buyers of stock are called bulls. They believe that the prices of stocks are going to rise. During the mid 1980s, the US witnessed a very long bull market. At the 1987 crash even bulls became bears. A bear is an investor who makes a profit when the prices are going to fall. Selling short is a high risk strategy which bears use in order to do that. They sell borrowed stock in the hope of later buying it on the open market at a lower price.

Options are contracts that allow an investor to either buy or sell a security at a predetermined price within a certain time. Depending on the investor's expectations, he may buy a put option or a call option. A put option grants the owner the right to sell a security. Believing that the price of certain shares will drop over some period of time an investor might buy an option and benefit from selling the shares at the option price to the person who sold the options. A call option grants its owner the right to buy a certain amount of stock at a predetermined price within a fixed period of time.

America's Financial Markets / The Economist, 2000. November 24.

Words and expressions

to place	размещать
to convey	передавать (сообщение, информацию)
floor	пол, площадка
to attempt	пытаться
current	текущая, существующая
slightly	немного, слегка
to relay	передавать, сообщать
to accommodate	здесь: оказывать услугу
to execute	выполнять
priority	приоритет, первенство
order of priority	в порядке очереди
to cancel	отозвать; отменить
discretionary	представленный на усмотрение, дискреционный
judgment	суждение, оценка, суд
odd	неполный, нечетный
round	круглый, полный
commission	комиссионный
to fear	опасаться, бояться
to abscond	сбежать с деньгами
to plummet	здесь: резко падать в цене
bull	бык
bear	медведь
short	короткий, кратковременный
to sell short	продать на срок без покрытия
predetermined	заранее установленный
put option	опцион продавца
call option	опцион покупателя
to grant	гарантировать
to drop	падать

Exercise 12. Answer the following questions

1. How does the trading of stocks begin?

2. What is a market order?

3. Who does the broker convey the market order to?

4. What is a limit order?

5. What is an open order?

6. What is a discretionary order?

7. What is an odd lot and how does it differ from a round lot?

8. What is a block sale?

9. What is margin trading and how is the margin trading regulated?

10. What does a broker do to protect his interests in case the stock falls down in price?

11. What is a bull market?

12. What is a bear market?

13. What is the selling short procedure?

14. What is a put option?

15. What is a call option?

Exercise 13. Change the following sentences according to the example

Example: If an investor wants to keep the order on the books, she can issue an open order.

If an investor wanted to keep the order on the books, she could issue an open order.

1. If the investor wants to sell or buy at the current price, he can issue a market order.

2. If someone sells at the offered price, the broker will settle the transaction.

3. If the investor specifies the highest price at which the broker may buy, the broker will commit to the deal.

4. If the investor pays the ten percent commission, the broker will work harder.

5. If the investor absconds with the funds, the broker will go bankrupt.

Exercise 14. Translate into English

1. Торговые операции с фондами начинаются с передачи приказа брокеру продавать или покупать ценные бумаги. 2. Брокер передает приказ о покупке (продаже) члену биржи, который пытается найти лучшую цену для покупателя. 3. Сведения об окончательной продаже передаются брокеру, передавшему приказ. 4. Инвестор передает брокеру приказ, ограниченный условиями высшей цены, по которой брокер может купить акции. 5. Иногда инвестор дает брокеру дискреционный приказ, который позволяет брокеру показать свое умение делать деньги на бирже. 6. Федеральная резервная система определяет минимальную маржу. 7. Опасаясь бегства инвестора с деньгами, брокер хранит акционерные сертификаты. 8. Активные покупатели акций называются "быками", активные продавцы - "медведями". 9. Опцион продавца гарантирует право продать ценные бумаги по заранее установленной стоимости в течение определенного срока.

Exercise 15. Listening

Listen to the text and complete the notes:

Other names: (1)………… (2)…………

Main trading centres: (3)………… (4)………… (5)…………

Most traded currencies: (6)………... (7)………… (8)…………

Amount traded daily: (9)…………

Trading hours: (10)…………

Main traders: (11)………… (12)………… (13)………… (14)………...

Exercise 16. Study the fig.1 and make a report about Stock Market and Over-the-Counter Quotations

Fig.1

Number of shares

(in hundreds) traded

this day

Highest and lowest

prices at which the stock

traded this day

Closing price

of the stock

Net change in the price of this

stock over that of the previous

business day’s close

52 weeks				Yld. P-E Sales			Net
High	Low	Stosk	Div.	%	Ratio	100s	High	Low	Close	Chg
57 1/2	48 7/8	TxET pf.	5.35e	10.9	…	6	49 1/2	49	49	+1/8
35	25 5/8	TexInd	.80b	3.1	11	14	26 1/4	26	26	- 1/4
148 1/4	87 1/2	TexInst	2.00	1.8	…	876	111 1/2	109 1/2	109 5/8	- 1/8
33	23 3/4	TxPac	.40	1.5	18	16	27 1/4	27	27 1/4	…
35 1/4	25 7/8	TexUtil	2.68	8.1	8	4683	33 5/8	33 1/8	33 1/4	…
5 5/8	2 5/6	Texfi In			68	26	3 1/2	3 3/8	3 3/8	- 1/4
65 1/3	44 1/8	Textron	1.80	3.5	9	912	52	51 3/4	52	…

Highest and lowest prices

during the past 52 weeks

The stock of TexInst Co. (3) had a high price of 148 1/4 (1) and a low price of 87 1/2 (2) during the previous 52 weeks. It paid a dividend of $2.00 (4) which is a yield of 1.8 percent (5) dividend by the stock price. On this par­ticular day 87,600 were traded (7) at a high rate of $111 1/2

(8) and a low of $109 1/2 (9). The closing price was $109 5/8 (10) which a net change in the stock price at $1/8 (11).

It is much easier to read over the counter stocks.

Name of the company,

Texas Instruments

Reading a

Stock Market

Quotation

Current annual dividend paid per share, in this case, $2.68

Yield, which is the dividend

divided by the selling price

P – E (price - earnings) ratio,

which is the market price

divided by earnings per share

Name of the company

High and low prices during the business day

High and low prices

Over the hast 365 days

365 Days			Sales			Net
High	Low			(hds)	High	Low	Last	Chg
20 3/4	9 1/4	Apollo	Comptr	2047	11	10 3/4	10 1/8	…
33 1/8	11 1/8	Apple	Bank	172	27 3/4	26 7/8	27	+ 1/8
39 1/8	14 1/4	Apple	Comptr	6700	31 1/4	31 1/8	31 3/8	+ 1/8
55	18	Appld	Biosyst	1040	42 1/4	41		3/8
16 5/8	8 1/2	Applied	Matl s	1566	9 1/4	8 1/2	41 5/8	+ 1/4
14 1/4	8	Arabian	Solar	7	12 3/4	12 1/4	9	…
4 3/4	2 1/4	Arbor	Ship	100	2 3/8	2 1/4	12 1/4	+ 1/4

Reading an

Over-the-

Counter

Quotation

Number of shares (in

hundreds) traded this

business day

Closing price

of the stock

Net change over the closing price on the previous

Business day

Exercise 17. Read the text