1. 3. Complete the sentences using the text:

1. In economics the term “price” denotes … .

2. Interest rate is … .

3. Exchange rate is … .

4. Prices perform … .

5. The production – motivating function of prices means …

6. Prices may be either free … .

2. 4. Answer the questions, basing your answers on the text:

1. What does the term «price» denote in economics?

2. What way is the price normally restricted in commercial practice?

3. What is interest rate?

4. What is exchange rate?

5. What may the price refer to?

6. What two important functions do prices perform?

7. What can you say about the rationing effect of prices?

8. What do you know about the production - motivating function of prices?

9. May prices be free to respond to changes in supply and demand?

2. 5. Say whether these statements are true or false and if they are false, say why.

1. In economics the term “price” denotes the consideration in cash for the transfer of something valuable.

2. In commercial practice it is normally restricted to the amount of money payable for goods, services and securities.

3. Interest rate is the price paid for borrowing money for a period of time.

4. Exchange rate is the price of one currency in terms of another.

5. Price may refer only to one unit of commodity.

6. Supply and demand determine prices in a market economy.

7. Prices perform many important functions.

8. In a market economy goods and services are allocated or distributed based on their prices.

9. Price decreases drive producers out of the market.

10. Prices are always controlled by the government.

Lesson 14

80. 1. Read and translate the text in written form.

81. a)

Corporations raise money by selling financial assets such as stocks and bonds. This increases the amount of cash held by the company and the amount of stocks and bonds held by the public. Such an issue of securities is known as a primary issue and it is sold in the primary market. But in addition to helping companies to raise cash, financial markets also allow investors to trade stocks or bonds between themselves. For example, Ms. Watanabe might decide to raise some cash by selling her Sony stock at the same time that Mr. Hashimoto invests his savings in Sony. So they make a trade. The result is simply a transfer of ownership from one person to another, which has no effect on the company’s cash, assets, or operations. Such purchases and sales are known as secondary transactions and they take place in the secondary market.

Some financial assets have less active secondary markets than others. For example, when a company borrows money from the bank, the bank acquires a financial asset (the company’s promise to repay the loan with interest). Banks do sometimes sell packages of loans to other banks, but usually they retain the loan until it is repaid by the borrower. Other financial assets are regularly traded and their prices are shown each day in the newspaper. Some, such as shares of stock, are traded on organized exchanges like the New York, London, or Tokyo stock exchanges. In other cases there is no organized exchange and the financial assets are traded by a network of dealers. Markets where there is no organized exchange are known as over-the-counter (OTC) markets.

over-the-counter (OTC) – позабіржовий – внебиржевой

b)

Financial Institutions

We have referred to the fact that a large proportion of the company’s equity and debt is owned by financial institutions.

Financial institutions act as financial intermediaries that gather the savings of many individuals and reinvest them in the financial markets. For example, banks raise money by taking deposits and by selling debt and common stock to investors. They then lend the money to companies and individuals. Of course banks must charge sufficient interest to cover their costs and to compensate depositors and other investors.

Banks and their immediate relatives, such as savings and loan companies, are the most familiar intermediaries. But there are many others, such as insurance companies and mutual funds. In the United States insurance companies are more important than banks for the long-term financing of business. They are massive investors in corporate stocks and bonds, and they often make long-term loans directly to corporations. Most of the money for these loans comes from the sale of insurance policies. Say you buy a fire insurance policy on your home. You pay cash to the insurance company, which it invests in the financial markets. In exchange you get a financial asset (the insurance policy). You receive no interest on this asset, but if a fire does strike, the company is obliged to cover the damages up to the policy limit. This is the return on your investment. Of course, the company will issue not just one policy but thousands.