Lesson 29 FINANCIAL MARKETS
I. Read and memorize the following words, word- combinations and word-groups:
stock market — ринок капіталу; фондова біржа
bond market — ринок облігацій; ринок довгостроково
го капіталу
e.g. Three major financial markets are the stock market, the
bond market and the futures market, bond — облігація, боргове зобов'язання
e.g. A certificate acknowledging a debt and the amount of
interest to be paid each year until repayment, futures market — ф'ючерсний ринок
e.g. The earliest futures markets were organized to facilitate
trading of farm products like wheat and com. financial intermediary — фінансовий посередник
e.g. Financial intermediary: Institution (e,g, bank, stock
market) that makes savings available to dissavers (e.g. investors), exchange — обмін; біржа; іноземна валюта
e.g. There are 115 exchanges operating in the 26 countries
listed here: Australia, Brazil, Canada, France, India, Japan and many others.
corporation — корпорація, акціонерне товариство e.g. Corporation is a business organization having a
continuous existence independent of its members (owners) and power and liabilities distinct from those of its members, corporate stock — акціонерний капітал
e.g. Corporate stock represents shares of ownership in a
corporation.
shareholder — акціонер
e.g. Shareholders are part owners of the corporation, dividend — дивіденд
e.g. Dividend is an amount of corporate profits paid out
to each share of stock.
capital gain — прибуток від приросту капіталу
e.g. An increase in the market value of an asset is capital
gain.
yield — прибуток з цінних паперів
e.g. Yield is the rate of return on a bond; the annual interest payment divided by the bond's price.
II. Give English equivalents ot the following:
| фінансовий посередник фондова біржа давати позику боргове зобов'язання ф'ючерсні ринки щорічні виплати відсотків | позичати гроші акціонерний капітал бути поширеним ринок акцій контролювати компанію |
III. Fill in the blanks with appropriate words;
| 1. Stock markets are one of the institutions that serve as ... . 2. What people buy and sell on the stock exchanges are ... of corporations. 3. A tends to be the largest type of enterprise. 4. The corporation may choose to retain earnings or pay them out to shareholders as ... . 5. In the bond market people buy and sell ... . 6. A bond is issued when an institution wants money, 7. The advantage of borrowing funds is that we can ... of the company. 8. Stock prices depend upon ... in financial markets. | to borrow promissory notes dividends corporation financial intermediaries demand and supply ownership shares keep control |
IV. Read and translate the text:
To answer the questions of what, how and for whom to produce we look at three major financial markets: the stock market, the bond market and the futures market (where everything from frozen pork bellies to U.S. Treasury bonds
are traded).
Stock markets are one of the institutions that serve as financial intermediaries. Stock markets help channel savings into investment. Although most people immediately think of Wall Street when they hear «stock exchange» the stock market is highly dispersed. There are 17 different stock exchanges in
the United States and over a hundred additional exchanges in other countries.
What people buy and sell on the stock exchanges are ownership shares of corporations. A corporation tends to be the largest type of enterprise, with average asset values measured in millions of dollars.
The ownership of corporation is defined in terms of stock shares. Each share of corporate stock represents partial ownership of the business. People holding shares of corporations hope to realize a financial gain from these assets. As part owners, shareholders are entitled to any profits the corporation makes.
Shareholders do not necessarily receive their share of the company's profit in cash. The corporation may choose to retain earnings or pay them out to shareholders as dividends. There are two motivations for buying and holding stocks — the expectation of dividends and anticipated capital gains.
Stock prices depend upon demand and supply in financial markets. If demand for the stock increases the stock's price will tend to rise. Similarly, an increasing reluctance of owners to sell would push the stock's price higher.
The bond market operates much like the stock market. The major difference is in the kind of paper traded. In the stock market people buy and sell shares of corporate ownership. In the bond market people buy and sell promissory notes («fOUs» — I owe you). A bond is a written promise to repay a loan. The borrower may be a corporation («corporate bonds»), local governments («municipal bonds»), the federal government
(«treasury bonds») and other institutions.
A bond is issued when an institution wants to borrow money. The company had great ideas but not enough resources to start production. Previously, the problem was solved by issuing stock. A second alternative for raising necessary funds — is to borrow money. The advantage of borrowing funds is that we can keep control of the company. Lenders are not owners. On the other hand, if we borrow, we have to pay the lenders back, with interest.
Thus the bond market also functions as a financial intermediary, transferring available savings (wealth) to those who want to acquire more resources (invest). The critical issue here is the «price» of the bond. At low rates of interest no one is willing to lend funds to the company. The increased willingness to lend funds is reflected in an increased demand for bonds. This increased demand will push up the price of the bond. As bond prices rise their implied effective interest rate (yield) falls.
In futures markets people buy and sell things that are to be «delivered» in the future at prices agreed on today. Futures markets make life easier for the farmer and consumer.
To summarize: The central purspose of financial markets is to help channel the savings of consumers and businesses into productive investments.
V. Answer the following questions:
1. What is the purpose of financial markets?
2. What is the function of financial intermediaries?
3. What is a financial intermediary?
4. What does each share of corporate stock represent?
5. What do people buy and sell on the stock exchanges?
6. What is the largest type of enterprise?
7. What are the motivations for buying and holding stocks?
8. What does the stock price depend upon?
9. What is the difference between the stock market and the bond market?
10. When is a bond issued?
11. What is the futures market?
VI. Define the terms:
capital yield
financial intermediary «start-ир» funds saving dividend
corporate stock corporation bond futures market
VII. Translate into English:
1. У 1988 році компанія «Уолт Дисней» почала перетворювати 5000 акрів землі поблизу Парижа, що була під цукровим буряком, на величезний парк відпочинку (park and resort). 2. Для того щоб оплатити будівництво нового парку, компанія могла б використати власні фонди, позику або випустити новий пакет акцій. 3. Компанія використала всі три механізми фінансування. 4. Заснування фондової біржі в Нью-Йорку відбулося в середині XVIII століття, коли мак
лери, продавці та покупці почали збиратися в кав'ярнях на Уолл-стрит. 5. Торгували переважно зерном і рабами. Наприкінці XVIII століття торгівлю було зведено до операцій з урядовими облігаціями. 6. Алекс Гамільтон збагатів на придбанні тоді ще дешевих облігацій і став найбагатшою людиною. 7. У березні 1792 року 24 маклери з семи фірм обрали правління і змінили назву біржі. Кав'ярня Джона- тана стала фондовою біржею. Маклери встановили правила торгівлі, розмір комісійних, У березні 1830 року за один день було продано 31 акцію. Для порівняння: сьогодні на фондовій біржі щодня продається більше ніж 200 мільйонів акцій.
VIII. Read and dramatize the following dialogue:
A.: Hello, old chap! Haven't seen you for ages. How are you getting on? You look tired.
B.: I've got a problem to solve. I invented a laser scanner that could detect all mechanical, structural or electrical defects in airplanes,
A.: Clearly, this idea has great potential to save lives and reduce the anxieties of travellers.
B.: Yes, and it also might make me a millionaire.
A.: But, to produce Air Scanners you need a manufacturing plant, workers and materials. You will also have to obtain a patent to protect your invention from would-be competitors.
B.: Besides, I shall need a research and development lab for continuous testing and improvement as well as a marketing
department to demonstrate and sell the scanners.
A.: I see, from a broader economic perspective, what you have here is a resource allocation problem. At present, all of society's land, labor and capital are devoted to the production of other goods and services. Your immediate problem is defined in far simpler terms — hard cash. To
acquire real resources — the land, labor and capital that can produce air scanners, you must have some means of payment.
B.: That is the problem of raising start-up funds. I could ask my relatives and friends for a loan, or even go door-to- door in the neighborhood,
A.: This method of raising funds is not likely to achieve your goals. Fortunately for you and other budding entrepreneurs most households save some fraction of their income. This flow of saving creates an enormous pool of loanable funds. Your problem is how to tap that pool to get enough funds to start building Air Scanners.
B.: I know that financial intermediaries make the job of acquiring start-up funds.
A.: A true «start-up» company like Air Scanners has nothing more than a good idea, a couple of dedicated employees and Big Plans.
B.: I cannot but mention that to fund these plans, the company can sell shares of itself. The individuals who buy the newly issued stock are putting their savings directly into the corporation's accounts. When our corporation is formed, I shall inform you. You may buy corporation's shares and become an owner.
A.: And I shall stand to profit from the corporation's business or take my lumps if the company fails.
B.: I must say because the company is incorporated, you are at a risk only for however much money you pay for your shares.
A.: You've got a point there. I have to go. And let's hope for the best.
IX. Make up your own dialogue using the following expressions:
financial intermediary corporate stock to acquire start-up funds shareholder to realize financial gains stock market
to keep control over company to hold shares to pay the lenders back to channel savings
X. Change the following complex sentences info simple ones using the Objective Participle Complex:
M o d e l : I saw them as they were working at the stock market.
I saw them working at the stock market.
1. I noticed them as they were trying to sell their bonds.
2. We heard them as they were discussing the advantages of the futures markets. 3. He observed as they were making plans for acquiring start-up funds. 4. She watched him, as he was meeting financial intermediaries. 5. I noticed him as he was greeting shareholders. 6. We watched the people as they were exchanging currency.
XI. Paraphrase the following using the Objective Participle Complex:
M o d e l : The reporter took a photo of him. He had his photo taken.
1. A financial intermediary makes savings available to dis- savers. 2. The corporation pays out the dividends to the shareholders once a month. 3. Those who borrow money will pay the lenders back. 4. The Bank offerred a company start-up funds, 5. The individuals have bought the corporation's issued stock.
XII. Translate into English:
1. Ми спостерігали, як студенти спухали лекцію про фінансові ринки. 2. Студенти слухали, як лектор пояснював функції фінансового посередника. 3. Акціонери спухали, як керівники підприємства обговорювали можливості випуску нових акцій. 4. Мені виплатили дивіденди. 5. Вам надали стартовий капітал? 6. Робітникам продали акції підприємства.
XIII.Communicative situations:
1. Discuss the formation of any corporation.
2. Imagine the situation when there are no financial intermediaries. Discuss it.
3. You are the chief of the corporation «... and company».What will you produce?
What first steps must be taken to become a millionaire?
Speak about it.