Профессиональный английский язык для экономистов. Учебное пособие

Money market is a portion of the financial market that trades highly liquid and short-term maturities. The intention of the money market is for short-term borrowing and lending of securities with a maturity typically less than one year. This financial market trades certificates of deposit, banker’s acceptances, certain bills, notes and commercial paper.

Derivatives market is a financial market that trades securities that derive its value from its underlying asset. The value of a derivative contract is determined by the market price of the underlying item. This financial market trades derivatives including forward contracts, futures, options, swaps and contracts-for-difference.

Forex market is a financial market where currencies are traded. This financial market is the most liquid market in the world, as cash is the most liquid of assets. The interbank market is the financial system that trades currency between banks.

Text II. Stock Exchange

An exchange is an institution, organization, or association which hosts a market where stocks, bonds, options and futures, and commodities are traded. Buyers and sellers come together to trade during specific hours on business days. Exchanges impose rules and regulations on the firms and brokers that are involved with them.

Securities that are not listed on a stock exchange are sold OTC, which stands for over-the-counter. Companies that have shares traded OTC are usually smaller and riskier because they do not meet the requirements to be listed on a stock exchange.

When a business raises capital by issuing shares, the owners of those new shares are likely going to want to sell their stake someday. Whatever is driving their decision, they aren't likely to tie up their funds unless they know somehow, someway, at some point in the future, they'll be able to find a buyer for their holdings without too much trouble in what is known as “the secondary market”.

81

Primary market is a market for new issues or new financial claims. It’s also called new issue market. The primary market deals with those securities which are issued to the public for the first time.

Secondary market is a market for secondary sale of securities. In other words, securities which have already passed through the new issue market are traded in this market. Generally, such securities are quoted in the stock exchange and it provides a continuous and regular market for buying and selling of securities.

Primary market is the market where the newly started company issued shares to the public for the first time through IPO (initial public offering). Secondary market is the market where the second hand securities are sold.

Without a stock exchange, these owners would have to go around to friends, family members, and community members, hoping to find someone to whom they could sell their shares. The downside is that there is no transparency. Nobody knows what the best price is for a given stock at any given moment in time.

Types of securities

A security is the financial instrument that represents an ownership position in a company, a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option. A security is a negotiable financial instrument that represents some type of financial value. Securities include shares of corporate stock or mutual funds, corporation or government issued bonds, stock options or other options, limited partnership units, and various other formal investment instruments. A security is a tradable financial asset. Securities are divided into two categories debts and equities.

A debt security represents money that is borrowed and must be repaid. These include debentures, bonds, deposits, notes and commercial paper.

82

Equities represent ownership interest held by shareholders in a corporation, such as a stock. Common stock is the most popular type of equity security.

On the whole there are the following types of securities in the financial markets.

A derivative is perhaps obviously, derived from some other asset, index, event, value or condition. Derivative traders enter into agreements to exchange cash or assets over time based on the underlying asset. A simple example is a futures contract, an agreement to exchange the underlying asset at a future date.

Stocks are the best known equity security. Stock prices can fluctuate greatly. Investors try to buy stock when the price is low and sell it when the price is high. Stock has a higher investment risk than most other securities. There is no guarantee that the investor won’t lose money. However, stock usually has the potential for the greatest returns.

A corporate and government bond is a debt instrument issued by a company. It is a loan to the company when you invest in a bond. You are entitled to receive interest each year on the loan until it is paid off.

A stock option is the right to buy or sell a stock at a certain price for a period of time. A call is the right to buy the stock. A put is the right to sell the stock. Stock options can be used to help reduce your investment risk.

A futures contract is an agreement to sell a specific commodity at a future date for an agreed upon price. A futures option is the right to buy or sell a futures contract at a certain price for a specific period of time.

Investment certificates are securities issued by a bank, and designed to offer the investor an agreed yield under pre-defined conditions stipulated in the prospectus.

83

Warrants are options issued by a joint-stock company, which give holders the right to purchase a certain quantity of the respective company’s shares at a predetermined price. After a certain period, the right to purchase shares terminates.

Swap refers to an exchange of one financial instrument for another between the parties concerned. This exchange takes place at a predetermined time, as specified in the contract.

Text III. Raising finance

Why does a company issue shares? The reason is that at some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock.

Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will be worth more.

The first sale of stock, which is issued by the private company itself, is called the initial public offering (IPO), or flotation. Company shares are listed or quoted on the stock market.

It may be emphasized that there are no guarantees when it comes to individual stock. Some companies pay out dividends, but many others do not. Without dividends an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock may go bankrupt, in which case the investment is worth nothing.

But there is also a bright side in investments. Taking on a greater risk demands a greater return on the investment, much higher than bonds and saving accounts.

84

Ordinary and preference shares

There are 2 main types of shares: ordinary shares and preference shares.

The majority of shares are issued in the form of ordinary. Ordinary shares represent ownership in a company and a claim on a portion of profits. Investors get one vote per share to elect board members who make major decision. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders, and preferred shareholders are paid.

Preference shares represent some degree of ownership in a company. Usually a fixed dividend is guaranteed for such shares. Another advantage of preferred shares is that in the event of liquidation preferred shareholders are paid before the common shareholders. The safest shares are considered to be the investments in blue chip companies like Gazprom in Russia.

True or false questions

1.Money market securities generally have high liquidity.

2.Commercial banks are the most dominant depository institutions.

3.Mutual funds are depository financial institutions.

4.Bonds are long-term debt obligations issued by corporations and government agencies to support their operations.

5.Mortgage is a money market security.

6.Both government and businesses issue shares.

7.Capital market securities are used to finance real capital investments.

8.Long-term debt securities and bonds are equivalent terms.

9.Common stocks that pay no dividends are priced lower than dividend-paying stocks.

10.When interest rates go up, the market price of a bond increases.

85

Vocabulary test

Multiple choice questions

1. New issue market is:

a)over-the-counter market;

b)secondary market;

c)primary market;

d)stock exchange.

2. British word for “stocks” is:

a)options;

b)shares;

c)securities;

d)warehouses.

3.Swaps are: a) exchanges; b) liabilities; c) refund;

d) derivatives.

4.Which of the following types of assets is least risky? a) long-term corporate bonds;

b) short-term corporate bonds; c) stocks;

d) options and futures.

5.Which of the following types of assets represents ownership interest in a corporation?

a) options;

87

b) accounts in a bank; c) stocks;

d) bonds.

6. “Liquidity” in financial terms is:

a) a feature of money to be exchanged into other currency; b) the best measure of risk of a financial asset;

c) rate of return for an asset;

d) the ease with which an asset can be sold at the published market price.

7. Most bonds are:

a)interest-bearing obligations of governments and corporations;

b)money market securities;

c)saving accounts;

d)loans.

8.Money in notes and coins is called: a) capital;

b) expenses; c) assets; d) cash.

9.The amount of money a lender receives for a loan or an investment, expressed as a percentage, is known as its return or:

a)installment;

b)yield;

c)taxation;

d)margin.

88

10. To let somebody else have the use of your money for a certain period of time, after which it must be paid back, is to …

a)credit;

b)earn;

c)borrow;

d)lend.

Translating

Наличие капитала – ключевая проблема любого бизнеса. Согласно бухгалтерскому определению капиталом называются все активы фирмы. По экономическому определению капитал разделяется на два вида – реальный, т.е. в материальной и интеллектуальной форме, и финансовый, т.е. в форме денег и ценных бумаг. Все чаще выделяют и третий вид – человеческий капитал, образующийся в результате инвестиций в образование и здоровье трудовых ресурсов. Финансы для бизнеса получают из различных источников, главными из которых являются следующие:

собственные деньги;

заимствованные деньги от банков или других людей, которые выдаются под залог собственности;

финансирование инвестиционными компаниями, заинтересованными в бизнес проекте;

выпущенные акции компании, которыми можно торговать на бирже;

правительство.

89

Люди начинают и развивают бизнес, преследуя следующие цели:

выживание на рынке товаров и услуг;

получение и увеличение прибыли;

расширение своей доли на рынке;

диверсификация – вложение денег в разные инвестиционные продукты.

Defining the terms

Writing

1.There are many ways of investing and a lot of places where your capital could be invested to. Analyze why some people choose different types of investments, explain their reasons for selecting various securities and other financial instruments.

2.Comment on the role of financial education in raising finance, playing on financial markets, and choosing the profession of working with money.

90