8. T 3 Listen to Richard Mahoney again, defining three different types of bonds. After listening to the definitions, try to work out:

1. When would companies be interested in issuing floating rate notes?

2. When would investors be interested in buying floating rate notes?

3. When would investors be interested in buying convertible bonds?

4. Why might companies be interested in issuing convertible bonds?

5. What kind of investor would be interested in buying junk bonds?

9. Speak on bonds. Unit 5. Futures and derivatives

1. Match the words with the definitions.

1 futures	A contracts giving the right, but not the obligation, to buy or sell a security, a currency, or a commodity at a fixed price during a certain period of time
2 options	В contracts to buy or sell fixed quantities of a commodity currency, or financial asset at a future date, at a price fixed at the time of making the contract
3 commodities	С a general name for all financial instruments whose price depends on the movement of another price
4 derivatives	D buying securities or other assets in the hope of making a capital gain by selling them at a higher price (or selling them in die hope of buying them back at a lower price)
5 hedging	E making contracts to buy or sell a commodity or financial asset at a pre-arranged price in the future as a protection or 'insurance' against price changes
6 speculation	F raw materials or primary products (metals, cereals, coffee, etc.) that are traded on special markets

2. Select ten or eleven of the following words that you would expect to find in a text about futures and options.

assets beer bush call commodities contracts copper currencies discount discount store foodstuffs hedge liabilities plastic phone raw materials shout spot market supermarket tea

3. Read the text, and see if you find the words you selected. Futures, options and swaps

Futures

Every weekday, enormous amounts of commodities, currencies and financial securities are traded for immediate delivery at their current price on spot markets. Yet there are also futures markets on which contracts can be made to buy and sell commodities, currencies, and various financial assets, at a future date (e.g. three, six or nine months ahead), but with the price fixed at the time of the deal. Standardized deals for fixed quantities and time periods (e.g. 25 tons of copper to be delivered next June 30) are called futures; individual, non-standard, 'over-the-counter' deals between two parties (e.g. 1.7 billion yen to be exchanged for dollars on September 15, at a rate set today) are called forward contracts.

Hedging and speculating

Futures, options and other derivatives exist in order that companies and individuals may attempt to diminish the effects of, or profit from, future changes in commodity and asset prices, exchange rates, interest rates, and soon. For example, the prices of foodstuffs such as wheat, maize, cocoa, coffee, tea and orange juice are frequently affected by droughts, floods and other extreme weather conditions. Consequently many producers and buyers of raw materials want to hedge, in order to guarantee next season's prices. When commodity prices are expected to rise, future prices are obviously higher than (at a premium on) spot prices; when they are expected to fall they are at a discount on spot prices.

In recent years, especially since financial deregulation, exchange rates and interest rates have also fluctuated wildly. Many businesses, therefore, want to buy or sell currencies at a guaranteed future price. Speculators, anticipating currency appreciations or depreciations, or interest rate movements, are also active in currency futures markets, such as the London International Financial Futures Exchange (LIFFE, pronounced 'life').

Options

As well as currencies and commodities, there is now a huge futures market in stocks and shares. One can buy options giving the right - but not the obligation - to buy and sell securities at a fixed price in the future. A call option gives the right to buy securities (or a currency, or a commodity) at a certain price during a certain period of time. A put option gives the right to sell an asset at a certain price during a certain period of time. These options allow organizations to hedge their equity investments.

For example, if you think a share worth 100 will rise, you can buy a call option giving the right to buy at 100, hoping to sell this option, or to buy and resell the share at a profit. Alternatively, you can write a put option giving someone else the right to sell the shares at 100: if the market price remains above 100, no one will exercise the option, so you earn the premium.

On the contrary, if you expect the value of a share that you own to fall below its current price of 100, you can buy a put option at 100 (or higher): if the price falls, you can still sell your shares at this price. Alternatively, you could write a call option giving someone else the right to buy the share at 100: if the market price of the underlying security remains below the option's exercise price or strike price, no one will take up the option and you earn the premium.

Swaps

Options are merely one type of derivative instrument, based on another underlying price. Many companies nowadays also arrange currency swaps and interest rate swaps with other companies or financial institutions. For example, a French company that can borrow francs at a preferential rate, but which also needs yen, can arrange a swap with a Japanese company in the opposite position. Such currency swaps, designed to achieve interest rate savings, are of course open to the risk of exchange rate fluctuations. A company with a lot of fixed interest debt might choose to exchange some of it for another company's floating rate loans. Whether they save or lose money will depend on the movement of interest rates.