Vocabulary:

stock market – ринок капіталу, фондова біржа

bond market – ринок облігацій, ринок довго-строкового капіталу

bond – облігація, боргове зобов’язання

futures market – ф’ючерсний ринок

financial intermediary – фінансовий посередник

exchange – обмін; біржа; іноземна валюта

corporation –корпорація, акціонерне товариство

corporate stock – акціонерний капітал

shareholder – акціонер

dividend – дивіденд

capital gain – прибуток від приросту капіталу

yield – прибуток з цінних паперів

Questions:

1. What is the purpose of financial markets?

2. What is a financial intermediary?

3. What does each share of corporate stock represent?

4. What do people buy and sell on the stock exchanges?

5. What is the largest type of enterprise?

6. What does the stock price depend on?

7. When is a bond issued?

8. What is the futures market?

Methods of payment in foreign trade

The flow of money across national borders is complex and requires the use of special documents. Foreign trade usually is financed on credit. Exporters rarely get paid right away because of collection and foreign exchange problems.

The basic methods of payment for exports are:

• Cash in advance

• Letter of credit

• Documentary collection or draft

• Open account

• Other payment mechanisms, such as consignment sales or counter trade.

Payment is to be made by a documentary collection or draft, also known as a commercial bill of exchange; the drawer (exporter) instructs the drawee (importer) to transfer the face amount on the bill of exchange at a given time. The transfer is made to a designated payee, possible to the exporter's bank at which the drawer has an account, or directly to the exporter. If the exporter requests payment be made immediately, the exchange instrument is called a sight draft. If payment is to be made later, for example, 30, 60, or 90 days after delivery, the instrument is called a time draft. These drafts generally contain a significant amount of information about the shipment. With a bill of exchange it is always possible the importer will not be able to make payment to the exporter at the agreed upon time.

A letter of credit however, obligates the buyer's bank in the importing country to accept a draft (a bill of exchange) presented to it, provided the draft is accompanied by the prescribed documents. A documentary letter of credit stipulates that payment will be made by the bank on the basis of the documents, not on the terms of the sale. A letter of credit denominated in the exporter's currency means the exporter incurs no risk of loss as a result of possible exchange rate fluctuations.

A letter of credit can be revocable or irrevocable. A revocable letter of credit is one that can be changed by any of the parties involved. However, both exporter and importer may prefer an irrevocable letter of credit which is a letter that cannot be cancelled or changed in any way without the consent of all parties to the transaction. With this type of letter, the importer's bank is obligated to pay and is willing to accept any drafts (bills of exchange) at sight, meaning these drafts will be paid as soon as the correct documents are presented to the bank.

A letter of credit transaction may involve a confirming bank in addition to the parties mentioned above. With a confirmed letter of credit, the exporter has the guarantee of a bank in the exporting country as well as the guarantee of the importer's bank.

An exporter may sell on an open account. This means the necessary shipping documents are mailed to the importer before any payment from or definite obligation on the part of the buyer. Releasing goods in this manner is somewhat unusual because the exporter risks default by the buyer. An exporter ordinarily sells under such conditions only if it successfully conducted business with the importer for an extended time.