Практический курс английского языка = Practical Course of English for Students of Economics. Учебное пособие для студентов экономических специальносте

Stock dividends are dividends paid out in the form of additional stock shares in the corporation, or shares of a subsidiary corporation. They are usually issued in proportion to shares owned. For example, for every 100 shares of stock owned, a 4 percent stock dividend will yield four extra shares. When the company distributes these new shares to investors, the price of each share decreases to account for the new shares. This is a recalculation of cost basis. It means that the stock dividends will not be taxed when distributed. Stock dividends benefit the company by conserving its cash and they benefit the shareholder by increasing his/her number of shares of the company.

Property dividends are paid with assets owned by the issuing company. Property dividends are usually paid in the form of products or services that the corporation produces. Often the corporation, when paying property dividends, will use securities of other companies owned by the issuer.

Preferred stock further divides into four types: cumulative, non-cu- mulative, participating and convertible. Cumulative preferred stock accords its owner a continuous claim to his or her dividends. Any unpaid dividends accumulate until the corporation resumes paying them. Since the cumulative preferred owner is entitled to all past and present dividends, he or she is paid before common shareholders once payment is resumed. If the board of directors suspends dividends, the shareholder still has a claim on them. Non-cumulative (straight) preferred is the opposite of cumulative preferred: it doesn’t confer a steady claim on dividends in the event of a dividend suspension. Shareholders of this type may not be paid any missed dividends prior to payments being made to the common shareholders.

Participating preferred shareholders receive extra dividends over their nominal ones when the company makes an extra profit and the board of directors declares dividends. Convertible preferred stock may be converted to a certain number of shares of common stock. Preferred investors who want the opportunity to share in the appreciation of the company’s common stock may find this option attractive. Preferred stock may carry a call provision. This means that the issuing company can repurchase the stock from the shareholders. Though preferred stock is usually called at par value, some call provisions actually tack on a premium. Because of the steady dividends accorded to preferred shareholders, call provisions are not usually advantageous to them, despite any premiums. However, a corporation may use calls as a way to eliminate dividends, thus increasing earnings for common shareholders.

When a firm declares a stock split, it increases the number of shares outstanding. Because each share is now entitled to a smaller percentage of the firm’s cash flow, the stock price should fall. For example, if

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the managers of a firm whose stock is selling at $90 declare a 3:1 stock split, the price of a share of stock should fall to about $30. A stock split strongly resembles a stock dividend except it is usually much larger.

The decision whether or not to pay a dividend rests in the hands of the board of directors of the corporation. A dividend is distributed to shareholders on a specific date. When a dividend has been declared, it becomes a liability of the firm and cannot be easily rescinded by the corporation. The amount of the dividend is expressed as dollars per share (dividend per share), as a percentage of the market price (dividend yield), or as a percentage of earnings per share (dividend payout).

Text 4

Read the text. Draw the tree-diagram of the text. Be ready to retell the text according to the diagram.

The Financial Markets

In most economies around the world, markets are used to carry out this complex task of allocating resources and producing goods and services. What is a market? It is an institution set up by society to allocate resources that are scarce relative to the demand for them. Markets are the channel through which buyers and sellers meet to exchange goods, services, and resources.

There are essentially three types of markets at work within the economic system: (1) factor markets, (2) product markets, and (3) financial markets. The factor markets allocate factors of production—land, labor, and capital— and distribute incomes in the form of wages and other payments to the owners of productive resources. People use most of their income from the factor markets to purchase goods and services in product markets. Food, shelter, automobiles, books, theater tickets, gasoline, and swimming pools are among the many goods and services sold in product markets.

The financial markets channel savings. They are composed of the money markets and the capital markets. Money markets are the markets for debt securities that pay off in the short term (usually less than one year). Capital markets are the markets for long-term debt and for equity shares.

The term money market applies to a group of loosely connected markets. They are dealer markets. Dealers are firms that make continuous quotations of prices for which they stand ready to buy and sell moneymarket instruments for their own inventory and at their own risk. Thus, the dealer is a principal in most transactions. This is different from a

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stockbroker acting as an agent for a customer in buying or selling common stock on most stock exchanges; an agent does not actually acquire the securities.

The financial markets can be classified further as the primary market and the secondary markets. The primary market is where securities are initially issued: a bank lends a household $100,000 to buy a house; the U.S. Treasury raises money by selling a $10,000 bond; a new corporation issues stock. In each case, a financial record of the transaction is created, showing the existence of debt or equity.

If these records of debt or equity are then sold to others, this subsequent trade is said to occur in the secondary market. There are two kinds of secondary markets: the auction markets and the dealer markets.

The equity securities of most large firms trade in organized auction markets, such as the New York Stock Exchange, the American Stock Exchange. The New York Stock Exchange (NYSE) is the most important auction exchange. It usually accounts for more than 85 percent of all shares traded in auction exchanges. Most debt securities are traded in dealer markets. Many bond dealers communicate with one another by telecommunications equipment. Investors get in touch with dealers when they want to buy or sell, and they can negotiate a deal. Some stocks are traded in the dealer markets. When they do, it is referred to as the over-the-counter (OTC) market.

In February 1971 the National Association of Securities Dealers made available to dealers and brokers in the OTC market an automated quotation system called the National Association of Securities Dealers Automated Quotation (NASDAQ) system.

Look through the text once again and say which statements are true. Correct the false ones.

1.There are two main types of markets: product market and financial market.

2.The factor markets allocate factors of production.

3.The financial markets channel goods and services.

4.Money markets are the markets for long-term debt and for equity shares.

5.Dealers make quotations of prices.

6.Stockbroker is a principal in most transactions.

7.Market can be classified as the auction markets and the dealer market.

8.Most debt securities are traded in dealer markets.

9.Subsequent trade occurs in the primary market.

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Text 5

Read the English and Russian versions of the following texts. Compare their structure and the information given in them. Find out what is common and in what they differ; write down the key terms from each text and compare their definitions.

Types of Forex Market Transactions

The foreign exchange market (forex) is the network that brings buyers and sellers of currencies together and facilitates exchanges of currencies. Each pair of currencies has a market of its own. The rate quotation in the forex market uses a bid-ask format. Major currencies are traded for both spot and forward delivery in the forex market. Futures and option contracts trade in a limited number of currencies on official exchanges and over the counter. The forex market provides for the buying and selling of currencies for both immediate and future delivery. It serves both individuals and businesses.

Spot Transactions. If a market participant enters into a trade for the delivery of a foreign currency within two business days, this is classified as a spot transaction. The exchange rate at which a spot transaction takes place is called the spot rate. When a couple of foreign tourists walk into a bank in Miami to buy U.S. dollars, they are participating in the spot market for dollars. Spot transactions between dealers and their commercial customers are usually settled by immediate delivery. Dealer-to- dealer (interbank) spot transactions may take longer to settle, especially if the parties are located in different parts of the world. The settlement of spot transactions among dealers is usually completed by exchanging bank deposits in the respective currencies. A spot buyer or seller of a currency may be a commercial user, hedger, arbitrager, or speculator.

Forward Transactions. If a market participant enters into an agreement with a bank to take or make delivery of a foreign currency on a future date at a predetermined exchange rate, this is classified as a forward transaction. A bank is always one party in a forward transaction, and the predetermined exchange rate is called a forward rate. Forward rates are quoted in European terms. Most forward contracts are written for periods ranging from 1 to 12 months, and they are confined to about 20 actively traded currencies.

Making a forward contract that requires taking delivery of currency at a future date is called buying currency forward. An agreement to deliver currency at a future date is called selling currency forward. A forward contract is settled by taking or making delivery of the currency in question at the end of the specified period. No money changes hands when the contract is written.

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Currency options. Currency option contracts confer on the buyer a right, but not an obligation, to buy or sell a given quantity of a spot currency or a currency futures contract at a predetermined price (called a strike price) on or before a specified date. A call option contract gives the owner a right to buy: a put option gives a right to sell. The option buyer pays the seller a price (called the option premium) for the contract. The spot currency or futures contract specified in an option is known as the underlying asset. An option is a Europian or an American option, depending on whether it can be exercised only on a specific date or at any time up to a specific date.

Валютные Сделки

Спекулятивные сделки могут совершаться без наличия валюты. Валютный спекулянт продает валюту на срок в надежде на получение разницы в курсах. Иногда валютные сделки с целью спекуляции осуществляются на условиях «спот»: банк, получив кредит в валюте, которой угрожает девальвация, немедленно продает ее в расчете на то, что при наступлении срока платежа по кредиту он будет расплачиваться с кредитором по более выгодному для него курсу.

Использование срочных сделок для покрытия валютного риска при совершении коммерческих операций приобрело широкое распространение с конца 60-х – начала 70-х годов. Для страхования поступлений и платежей от валютного риска клиенты заключают срочные валютные сделки с банками: 1) «аутрайт» – с условием фиксации курса, суммы и даты поставки валюты. Эти сделки получили наибольшее распространение в развитых странах; 2) на условиях опциона – с нефиксированной датой поставки валюты.

Опцион (от лат. optio, optionis – выбор) с валютой – соглашение, которое при условии уплаты установленной комиссии (премии) предоставляет одной из сторон в сделке купли-продажи право выбора (но не обязанность) либо купить (сделка «колл» – callопцион покупателя), либо продать (сделка «пут» – put-опцион продавца) определенное количество определенной валюты по курсу, установленному при заключении сделки до истечения оговоренного срока (в любой день – американский опцион; на определенную дату раз в месяц – европейский опцион). Опционные сделки выгодны при курсовых колебаниях, превышающих размер комиссии.

С 70-х годов с переходом к плавающим валютным курсам получили развитие валютные фьючерсы. Это соглашение, которое означает обязательство (а не право выбора в отличие от опциона)

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на продажу или покупку стандартного количества определенной валюты на определенную дату (в будущем) по курсу, заранее установленному при заключении сделки. В стандартных контрактах регламентируются все условия: сумма, срок, гарантийный депозит, метод расчета. Предшественниками валютных фьючерсов явились фьючерсные товарные контракты, начиная с периода меркантилизма, с целью защиты от колебаний цен. В XVII в. они практиковались на рынке луковиц тюльпанов, с середины XIX в. – на рынках пшеницы. В конце XIX – начале XX в. для этих целей были созданы биржи в Лондоне, Чикаго. В 1865 г. Чикагская товарная биржа ввела торговлю фьючерсными контрактами по торговле зерном. После второй мировой войны стандартные типовые соглашения были введены на другие товары (медь, алюминий, свинец и т. д.), ценные бумаги, валюты.

Разновидностью валютной сделки, сочетающей наличную и срочную операции, являются сделки «своп». Подобные сделки известны со времен средневековья, когда итальянские банкиры проводили операции с векселями; позднее они получили развитие в форме репортных и депортных операций. Репорт – сочетание двух взаимно связанных сделок: наличной продажи иностранной валюты и покупки ее на срок. Депорт – это сочетание тех же сделок, но в обратном порядке: покупка иностранной валюты на условиях «спот» и продажа на срок этой же валюты.

«Своп» (англ. swap – мена, обмен) – это валютная операция, сочетающая куплю-продажу двух валют на условиях немедленной поставки с одновременной контрсделкой на определенный срок с теми же валютами.

Text 6

Read the text. Put down the key question to each paragraph. Be ready to explain the meaning of the words given in bold.

Insurance

All business persons have to take some risks, but they try to avoid any which are unnecessary. One way of reducing risks is to take out insurance to cover any losses.

Insurance is an agreement in which an insurance company protects the insured against losses associated with specified risks in return for a fee called the premium payment. Insurance policies are written, legal contracts that specify all of the terms of the agreement, including the types of risks covered, the types of actions by the insured that will void the

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policy, the maximum amount the insured can collect for losses, and how the premiums are to be paid. In the event of a loss, the insurer will pay for the loss up to the amount specified in the insurance policy.

All insurance policies share several characteristics that distinguish insurance from other risk management techniques. These characteristics include (1) pooling of losses, (2) the law of large numbers, (3) payment of fortuitous losses, (4) risk transfer, and (5) indemnification.

The pooling of losses is one of the central characteristics of insurance. Pooling is the spreading of losses incurred by a few parties over the many parties who have purchased insurance. Thus, the party suffering the loss is compensated in full from the fund created from premium payments made by all policyholders.

The law of large numbers states that the larger the number of exposures (policyholders), the more predictable the occurrences of perils on which the insurance premiums are based. Such predictions are called probabilities and are calculated using statistical principles. But making such calculations depends on having a large number of insureds, or policyholders. By calculating the expected number and amount of losses, the insurance company can determine the amount of premium payment it must collect from the insureds.

Another characteristic of insurance is the payment of fortuitous losses. A fortuitous loss is a loss that is unforeseen and occurs as a result of chance. This may seem inconsistent with the calculation of expected losses among all policyholders (the law of large numbers), but it is not. Rather, it means only that any individual loss is unforeseen and results from chance events. This very fact of accidental loss is what makes the law of large numbers work. Thus, if a policyholder intentionally starts a fire in his or her warehouse, the insurer will not cover the loss.

Risk Transfer means that the loss associated with pure risk is transferred to the insurer, who is in a better financial position (due to premium collections) to pay the loss than the insured is. Pure risks that can be transferred to an insurer include risks of premature death, loss of property, liability, and poor health.

A final characteristic of insurance is indemnification for losses. This means the insured is restored to his or her approximate financial status prior to the loss. Thus, if a company’s warehouse bums to the ground, the insurer will indemnify the company, or restore it to its previous position. The company will recover sufficient funds from the insurer to rebuild the warehouse.

Many types of insurance are available to protect against a wide variety of perils and risks. The most important types of insurance for business include liability insurance, property insurance, fidelity bonds, surety bonds, criminal insurance, and employee benefit insurance.

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Liability insurance protects against claims caused by injuries to others or damage to their property. Unlike other types of insurance, liability insurance pays nothing to the insured when loss occurs. Rather it pays third parties for injuries caused by actions of the insured. Liability insurance includes four types: premises, operations, contingent liability, and product liability insurance.

Premises Insurance, sometimes called owners’, landlords’, and tenants’ insurance, covers the insured when people trip on the sidewalk and fall into a hole in the lawn, walk into the glass patio door, or fall down the stairs. For example, a grocery store can be sued by a parent whose child fell out of a grocery cart. Premises insurance would cover this peril. Most businesses are required to maintain safe premises. For example, sidewalks must be cleared during a snowstorm, and customers must be alerted to dangerous conditions such as a recently waxed floor.

Operations Insurance. Many everyday business operations create liability exposure for the company. If the business uses forklifts, trucks, or automobiles in its operations, special liabilities exist. Both customers and employees may be exposed to hazard from these operations. Employees will likely be covered by public insurance programs, such as workers’ compensation. However, customers and the general public must be covered by special liability insurance. A common example of this type of liability policy is seen in typical automobile insurance policies. These policies cover third parties who are injured by the insured’s car and protect the owner from financial loss as a result of those injuries.

Product Liability Insurance. As many manufacturers can tell you, their liabilities do not stop when the product leaves the door. Liability for injuries caused by faulty products may continue throughout the products’ useful lives.

Property insurance. Property losses may arise from a variety of perils, such as fire, explosion, lightning, wind, vandalism, and theft. Property losses can be classified into two groups: direct and indirect losses. Direct losses are those incurred on the property itself. For instance, if a warehouse is damaged by a hailstorm, the costs of repair are direct losses. Indirect property losses involve incidental losses associated with a direct loss. For example, it may take several days for repair-people to finish repairs on a damaged warehouse. The warehouse cannot be used during this time, and the company may suffer losses in sales revenue. Losses of revenue are sometimes called business interruption losses. When an office building is damaged, businesses may have to relocate their operations for a period of time. Costs of moving, setting up, and preparing the new premises are indirect losses.

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Text 7

Read the text. Write down 15 statements (both true and false) and let the class identify them and correct the false ones.

Risks

According to The Oxford Dictionary for the Business World, risk is a chance or possibility of danger, loss, injury, etc. What types of risks do you know? What risks do businesses face?

Risk tolerance is the amount of risk with which you are comfortable when selecting your investment options. It is a key factor in building the investment portfolio that is right for you. Often an investor’s ability to meet their current financial responsibilities regardless of the results of their investment will influence their tolerance for risk. If you have a high net worth (and can therefore afford to lose some of your invested money), you may feel comfortable speculating in potentially risky investments such as currencies, options, futures and forward contracts. Conversely, if you have a low tolerance for risk (or few dollars to spare) it may be wise to stick to more conservative investments.

Yet, to understand risk as it relates to investments, it is important to have a concrete understanding of what investment risk is. Essentially, investment risk is the chance of loss due to the uncertainty of future events. Many factors can affect the value of your investments. For example, there are risks in political systems that can reduce the value of an investment. A company you invest in may undergo unforeseen changes in management. Investor emotions may be unpredictable. Uncertainties in exchanges, rates of currencies, and in interest rates also affect investments. Usually, investors deal with risk in two ways: one is to simply guess at it, and the other is to study as many factors as possible and choose the most promising course of action. This latter option is called calculated risk.

Personal risks. This category of risk deals with the personal level of investing. The investor is likely to have more control over this type of risk compared to others. Timing risk is the risk of buying the right security at the wrong time. It also refers to selling the right security at the wrong time. For example, there is the chance that a few days after you sell a stock it will go up several dollars in value. There is no surefire way to time the market. Tenure risk is the risk of losing money while holding onto a security. During the period of holding, markets may go down, inflation may worsen, or a company may go bankrupt.

Company risks. There are two common risks on the company-wide level. The first, financial risk, is the danger that a corporation will not be able to repay its debts. This has a great effect on its bonds, which finance

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the company’s assets. The more assets are financed by debts (i.e., bonds and money market instruments), the greater the risk. Studying financial risk involves looking at a company’s management, its leadership style, and its credit history. Management risk is the risk that a company’s management may run the company so poorly that it is unable to grow in value or pay dividends to its shareholders. This greatly affects the value of its stock and the attractiveness of all the securities it issues to investors.

Fluctuation in the market as a whole may be caused by the following risks. Market risk is the chance that the entire market will decline, thus affecting the prices and values of securities. Market risk, in turn, is influenced by outside factors such as embargoes and interest rate changes. Liquidity risk is the risk that an investment, when converted to cash, will experience loss in its value. Interest rate risk is the risk that interest rates will rise, resulting in a current investment’s loss of value. A bondholder, for example, may hold a bond earning 6% interest and then see rates on that type of bond climb to 7%. Inflation risk is the danger that the dollars one invests will buy less in the future because prices of consumer goods rise. When the rate of inflation rises, investments have less purchasing power. This is especially true with investments that earn fixed rates of return. As long as they are held at constant rates, they are threatened by inflation. Inflation risk is tied to interest rate risk, because interest rates often rise to compensate for inflation. Exchange rate risk is the chance that a nation’s currency will lose value when exchanged for foreign currencies. Reinvestment risk is the danger that reinvested money will fetch returns lower than those earned before reinvestment

;Language

1.Practise reading the following words correctly. If necessary, use a dictionary.

Finance, financial, asset, equity, issue, mortgage, inventories, scarce, liability, securities, obligations, quotation, incur, merger, indemnification, fortuitous, occurrence, unsurer, authorized, cyclical, resume, peril, hazard, purchase, liquidity.

2.Give the definition to the following terms.

Finance, financial market, quotation, exchange rate, asset, liability, financial transaction, stock, option, financial liability, equity, securities, vote, dividend, shareholder, Stock Exchange, capitalization, calculated risk, purchasing power.

3. Reproduce the context in which the following words are used.

Financial services; scarce loanable funds; financial sector; financial transactions; financial assets and liabilities (text 1); corporation issues

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