Stock markets and stock exchanges

1. Warming up

Exercise 1. Comment on the following sayings and choose the epigraph to our lesson:

1. The key to making money in stocks is not to get scared out of them. (Peter Lynch)

2. The stock market is filled with individuals who know the price of everything, but the value of nothing. (Philip Fisher)

3. Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. (Warren Buffett)

Exercise 2. What do you know about the topic of our lesson? Suggest your ideas answering the following questions. Later we`ll be able to compare your ideas with the information obtained.

1. What is Wall Street?

2. What is the largest Stock Exchange in the world?

3. When did Stock Exchanges appear?

4. Where does the word “broker” comes from?

5. What companies are called blue chips and why?

6. What is the difference between stock market and stock exchange?

II. Vocabulary

Exercise 3. Read and memorize the following words and word combinations:

stock market (equity market) public entity stocks (shares, shares of stock) derivatives to list stock exchange retail investors mutual fund hedge fund to raise money to afford securities bonds redemption issue unit trusts pooled investment products initial offering shareholder (stockholder) acquisition to borrow (to lend) to loan assets Discount brokers Stockbrokers floorbrokers

фондовий ринок юридична особа публічного права акції деривати (похідні фінансові інструменти) котуватися фондова біржа роздрібний інвестор пайовий інвестиційний фонд хеджувальний фонд (фонд комплексного ризикового інвестування) залучати кошти (тут) надавати цінні папери облігації викуп власних акцій випуск акцій загальний інвестиційний траст-фонд колективна інвестиція первинне розміщення акцій акціонер придбання контрольного пакету акцій брати позику надавати позику активи брокери з низькою комісією фондові брокери брокери, що працюють в біржoвому залі

Exercise 4. Give Ukrainian equivalents:

Securities

issue

stock exchange

afford

redemption

retail investors

initial offering

unit trusts

to list

public entity

Exercise 5. Give English equivalents:

пайовий інвестиційний фонд

брати позику

придбання контрольного пакету акцій

активи

облігації

надавати позику

фондовий ринок

колективна інвестиція

котуватися

акціонер

Ш Reading

Exercise 6. Read and translate:

Text A

A stock market or equity market is a public entity (a loose network of economic transactions, not a physical location) for the trading of company shares (units of ownership in a corporation or fund) and derivatives at an agreed price; these are securities (i.e. tradable assets) listed on a stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion nominal value, 11 times the size of the entire world economy.

Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.

The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange affords the investors gives them the ability to quickly and easily sell securities.

A stock index or stock market index is a method of measuring the value of a section of the stock market. It is computed from the prices of selected stocks. It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. The most important index is the Dow Jones Industrial Average.

A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds

The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only. Only a broker whose brokerage firm is a member of a stock exchange can trade stocks on that exchange. Every firm employs two kinds of brokers. Stockbrokers work out of their offices. They spend a lot of time researching investments, helping clients develop goals and giving advice. Discount brokers act strictly as agents for transactions and do not offer investment advice. Stockbrokers pass their orders to the floorbrokers, who actually buy and sell securities.

Stock exchanges have multiple roles in the economy. This may include the following:

• Raising capital for businesses

• Mobilizing savings for investment. When people draw their savings and invest in shares, it usually leads to rational allocation of resources because funds, which could have been consumed are mobilized and redirected to help companies' management boards finance their organizations. This may promote business activity with benefits for several economic sectors.

• Facilitating company growth. Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, increase its market share, or acquire other necessary business assets.

• Corporate governance. By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders.

• Creating investment opportunities for small investors

• Government capital-raising for development projects. Governments at various levels may decide to borrow money to finance infrastructure projects by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government.

• Barometer of the economy. At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.