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Text 12. Investment Banking

Unlike commercial banks, investment banks don't lend money. Instead they act as intermediaries between companies and investors. They help companies and governments raise capital by issuing securities such as stocks and bonds – that is, they offer them for sale. Investment banks often underwrite securities issues: in other words, they guarantee to buy the securities themselves if they can't find other purchasers.

As well as initial public offerings (IPOs), when companies offer stock for sale for the first time, there are other occasions when they raise funds. For example, they might want to expand their operations, or to acquire another company, or to reduce their amount of debt, or to finance a specific project. They don't only raise capital from the public: they can sell stocks or shares to institutional investors like insurance companies, investment funds – companies that invest the money of lots of small investors, and pension funds - companies that invest money that will later be paid to retired workers.

Investment banks also have a stockbroking and dealing department. This executes orders – buys and sells stocks for clients - which is broking, and trades with bank’s own money, which is dealing. The stockbroking department also offers advice to investors.

Investment banks often represent firms in mergers and acquisitions, and divestitures. A divestiture is when a company sells a subsidiary - another company that it owns. Most of the fee – the money the company pays the bank for the service – will depend on the bank completing the deal successfully. This gives the bank a good reason to make sure that the transaction succeeds.

Large corporations have their own finance and corporate development departments. But they often use an investment bank because, like a consulting firm, it can offer independent advice, and it has a lot of experience in financial transactions. It also has a large network of contacts, and relationships with investors and companies that could be interested in a merger or acquisition.

If a bank has worked on a transaction with a company, it knows a lot about its business. This means it can give advice about strategic planning - deciding what to do in the future ­or financial restructuring - changing the way the business is financed. Large investment banks also have extensive research departments with analysts and forecasters who specialize in the valuation of different markets, industries, companies, securities and currencies. Analysts try to work out how much things are worth now, and forecasters study the prospects for the future.

Exercise 91. Translate the words into English and make your own sentences with them.

Позичати гроші, посередник, випускати цінні папери, злиття і поглинання, інвестиційна компанія, пенсійний фонд, страхова компанія, виконувати замовлення, дочірня компанія, консалтингова фірма, стратегічне планування, оцінка ринків, аналітики та прогнозисти.

Exercise 92. Give Ukrainian equivalents.

Raise capital by issuing securities, underwrite securities issues, acquire a company, offer stock for sale, reduce the amount of debt, sell shares to institutional investors, execute orders, pension fund, represent firms in mergers and acquisitions, complete a deal successfully, strategic planning, extensive research department, the prospects for the future.

Exercise 93 .Complete the table.

Verb

Noun(s)

Noun for people

Adjective(s)

acquire

advise

analytical

institute

invest

value

Exercise 94. Complete the sentences according to text 12.

1. Investment banks act as … between companies and investors. 2. Investment banks often underwrite … 3. Initial public offering is when companies offer … 4. Pension funds are companies that invest money that … 5. A stockbroking and dealing department executes orders - buys and sells stocks for clients - which is … , and trades with bank’s own money, which is … 6. Investment banks often represent firms in … 7. A divestiture is when a company sells … 8. Large investment banks also have extensive research departments with …

Exercise 95. Match the terms with the definitions.

Term

Definition

  1. financial restructuring

a) a company of experts providing professional advice to businesses for a fee

  1. consulting firm

b) a financial institution that invests money to provide retirement income for employees

  1. forecasters

c) deciding what the company is going to do in the future

  1. institutional investor

d) people who try to predict what will happen in the future

  1. subsidiary

e) a company that is partly or wholly owned by another one

  1. strategic planning

f) a financial institution that purchases securities

  1. pension fund

g) making changes to how a company is financed

  1. valuation

h) establishing how much something is worth

Exercise 96. Answer the questions.

Can you name the largest investment banks in your country? Are they local or international? Describe the services they offer.

Exercise 97. Read, translate and give the gist of text 13.

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