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VOCABULARY

financial market финансовый рынок
bond market рынок облигаций
maturity срок долгового обязательства
back гарантировать, давать поручительство
to serve customers обслуживать заказчиков
money market денежный рынок, рынок краткосрочного капитала
capital market рынок долгосрочного ссудного капитала
primary market первичный рынок
secondary market вторичный рынок
deal (in) торговать
short-term securities краткосрочные ценные бумаги
turn (to) обращаться (к кому-л.)
debt financing финансирование путем получения займов
in return for в обмен на
equity financing мобилизация капитала с помощью выпуска акций
share (зд.) доля
ownership (зд.) владение собственностью
to issue stock (bonds) выпускать акции (облигации)
long-term funds долгосрочные средства
issuer эмитент ценных бумаг
debtor должник, дебитор
lender кредитор
supranational наднациональная организация
municipal government муниципалитет
by far (зд.) в значительной степени
uniform единый
from the perspective of с точки зрения
internal bond market внутренний рынок облигаций
external bond market внешний рынок облигаций
decompose разлагать на составные части
domiciled постоянно проживающий
subsequently впоследствии, затем, позже
trade (зд.) осуществлять сделки на рынке ценных бумаг
nickname давать прозвище
distinguishing feature отличительная черта
underwrite гарантировать размещение ценных бумаг
jurisdiction юрисдикция
in unregistered form незарегистрированный
offshore bond market офшорный рынок облигаций
Eurobond Market рынок еврооблигаций
submarket субрынок
denominate выражать в валюте различного достоинства
readily быстро, легко, без труда
in certificate form в форме сертификата
computer entry запись в компьютере

a. Bonds. Match the responses with the questions:

1. So what exactly are bonds?

2. And how do they work?

3. So you have to keep them for a long time?

4. Why should that happen?

5. Oh, I see. Is that what they mean by below par?

6. But the bond's interest rate doesn't change?

7. How's that?

8. And people talk about AAA and AAB bonds, and things like that.

9. And what about gilts?

10. Not Treasury Bills?

11. And James Bond?

a. Because of changes in interest rates. For example, no-one will pay the full price for a 6% bond if new bonds are paying 10%.

b. Exactly. And the opposite, a bond whose market value is higher than its face value, is above par.

c. I knew you'd finish by saying that!

d. No, not at all. Bonds are very liquid. They can be sold on the secondary market until they mature. But of course, the price might have changed.

e. No, not unless it's a floating rate bond. The coupon, the amount of interest a bond pays, remains the same. But the yield will change.

f. No, those are short-term (three-month) instruments which the government sells to and buys from the commercial banks, to regulate the money supply.

g. That's the name they use in Britain for long-term government bonds - gilts or gilt-edged securities. In the States they call them Treasury Bonds.

h. They're securities issued by companies, governments and financial institutions when they need to borrow money.

i. Well, a bond's yield is its coupon payment expressed as a percentage of its price on the secondary market, so the yield changes if you buy or sell above or below par.

j. Well, they usually pay a fixed rate of interest and are repaid after a fixed period, known as their maturity, for example five, seven, or ten years.

k. Yes. Bond-issuing companies are given an investment grade by private ratings companies such as Standard & Poors, according to their financial situation and performance.

                                           

b. Complete the following:

1. Companies generally use investment banks to....their bonds.

2. Thereafter, they can be traded on the..........market.

3. The amount of interest a bond pays is often called its……..

4. The majority of bonds have a …… rate of interest.

5. A bond's.......... depends on the price it was bought at.

6. A bond priced at 104% is described as being...........

7. Bonds are repaid at 100% at...........

8. AAA is the highest...........

c. Financial Instruments. Use the following terms to complete the sentences below:

Certificates of deposit, commercial paper, currency swap, detachable warrants, forward contract, futures contract, interest-rate swap, junk bonds, off-balance-sheet, transactions, participation certificates, securitization, zero coupon bonds

1...................... is short-term, discounted and unsecured corporate debt of large American banks and companies issued, usually for one to three months only, as a way of borrowing money.

2...................... pay no interest, but are sold at a large discount and ultimately redeemed at face value. They consequently yield capital gains, often taxed at a lower rate than interest, which is considered as income.

3...................... are sometimes issued with bonds, and give the buyer the right to buy the same firm's equities within a certain period. Unlike convertible bonds, the bond itself is not converted into shares.

4...................... is the process of selling packages of bank debts to third party investors as bonds. It shifts the risk of default from the bank to the new owners, and releases capital with which the bank can make new loans.

5...................... are high-yielding bonds issued by less secure companies and by companies seeking to finance leveraged buy-outs.

6. A borrower with a lot of floating loans can spread the risk via an..................... with a borrower of fixed rate loans.

7. An importer who will need foreign exchange in three or six months time can buy it in advance by way of a......................

8. Banks can convert large deposits that cannot be withdrawn on demand into................: short-term, interest-bearing securities that can be traded like a share or bond.

9. Debt swaps, letters of credit, options, etc. are all forms of financial business that need not be registered as loans on a balance sheet. They are consequently known as...................

10. Futures markets deal in contracts for standardized quantities of commodities, currencies, etc., for specific time periods. Non-standardized deals can be negotiated in an over-the-counter

11. Issuing...................... which grant their holder part of the ownership of the company, but without voting rights - rather than shares, diminishes the risk of take-overs.

12. Two borrowers, each with a better credit rating in their own country, but also needing foreign currency can arrange a......................

d. Futures and Options. Study Exercise 5.1 before reading the following text:

Contracts can be made on futures markets to buy and sell currencies, various financial assets, and commodities (raw materials or primary products such as metals, cereals, tea, rubber, etc.) at a future date, but with the price fixed at the time of the deal. Currencies and commodities are also traded for immediate delivery on spot markets. Making contracts to buy or sell a commodity or financial instrument at a pre-arranged price in the future as a protection against price changes is known as hedging. Of course, this is only possible if two parties, for example, a producer and a buyer, both want to hedge, or if there are speculators who believe that they know better than the market.

Traders or speculators might wish to buy or sell a currency at a future price if it is expected to appreciate or depreciate, or if interest rates are expected to change. Prices of foodstuffs - wheat, maize, coffee, tea, sugar, cocoa, orange juice, pork bellies, etc. — are frequently affected by droughts, floods and other extreme weather conditions, which is why both producers and buyers often prefer to hedge, so as to guarantee next season's prices. When commodity prices are expected to rise, future prices are obviously higher than, or at a premium on, spot prices; when they are expected to fall they are at a discount on spot prices; when they are expected to stay the same, future prices are also higher, as they include interest costs.

As well as commodities and currencies, there is a growing futures market in stocks and shares. One can buy options giving the right to buy and sell securities at a fixed price in the future. A call option gives its holder the right but not the obligation to buy securities or a commodity or currency at a certain price during a certain period of time. A put option gives its holder the right to sell securities, currencies, commodities, etc. at a certain price during a certain period of time.

The buyer of a share option pays a premium per share to the seller, and only risks this amount. The seller of an option (known as the writer) risks losing an unlimited amount of money, depending on the performance of the underlying share, especially if he or she does not actually possess it. If you expect the value of a share that you own to fall below its current price, you can buy a put option at this price (or higher): if the price falls, you can still sell your shares at this price. Alternatively, you could write a call option giving someone else the right to buy the share at the current price: if the market price remains below this price, no-one will take up the option, and you earn the premium.

On the contrary, if you think a share will rise, you can buy a call option giving the right to buy at the current price, hoping to buy and resell the share at a profit, or to sell this option. Or you can write a put option giving someone else the right to sell the shares at the current price: if the market price remains above this, no-one will exercise the option, so you earn the premium.

The price at which the holder of a call/put option may buy/sell the underlying security is known as its exercise or strike price. A call (put) option has intrinsic value if its exercise price is below (above) the current market price of the underlying share. Call options with an exercise price below the underlying share's current market price, and put options with an exercise price above the share s market price, are described as being "in-the-money". On the contrary, call options with an exercise price higher than a share's current market price, and put options with an exercise price lower than the share's market price, are "out-of-the-money".

Decide whether the following statements are TRUE or FALSE:

1. The price of a futures contract is determined at the moment the contract is made.

2. Hedging is another name for speculating.

3. Futures prices are always higher than spot prices, because they contain interest charges.

4. In options, 'call' means 'buy' and 'put' means 'sell'.

5. The amount of money one can make or lose on an options contract is determined at the moment the contract is made.

6. You can sell an option to sell an asset you do not actually possess.

7. If you think a share will rise, you can profit by buying a call option or writing a put option giving someone else the right to sell the shares at the current price.

8. If you think the value of a share you own will fall below its current price, you can profitably buy a call option at this price (or higher) or write a put option.

9. A put option has intrinsic value if its exercise price is above the current market price of the underlying share.

10. A call option with an exercise price below the underlying share's current market price is "out-of-the-money".

e. Match up the following words (using them more than once if necessary) to make up at least ten two-word nouns:

call contract financial forward future
instrument market materials option price
primary product raw spot strike

f. Match up the following words or expressions to make eight pairs of opposites:

call option market speculation
flood obligation right exercise price
market price drought in-the-money
put option hedging premium spot
discount futures out-of-the-money market

g. Review – Bonds and Shares. Ten of the following twenty-one words and expressions have a direct relation to bonds, and ten others are more likely to be used in relation to stocks or shares. One word logically applies to both categories. Make three lists:

Bonds:……… Shares:………… Both Bonds and Shares:………

above par accounting period blue chip
broker bull convertible
coupon crash debt
dividend Dow-Jones equity
floating rate flotation insider
interest investment grade junk


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