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Unit 10 Manual

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84 views

Unit 10 Manual

operations

Uploaded by

Oana Raduta
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Financial markets Securities The tecm ‘securities’ refs to stocks, bonds and money ‘marker instruments "hese aze explained in turn below. Individual investors and financial institutions cam buy stocks (~ equities) of companies listed on a stock exchange The term ‘shares’ inchudes both stocks and privately held stakes in small firms that are not publicly traded. A 'baske¥ of stocks can be picked by a fund manager and put together into a mutual fund (UK: unit trust). Funds may snvest im particular countries, or diferent sectors of the market, or may’'track’ (= exactly follow) a particular index Fach fund will have an investment objective, normally either regular income (from shave dividends), or long-term capital growth {from an increase in the share price}. or 8 balance between the tun Stocks are bought and sold on 2 stock exchange Sometimes this is a physical location, like the New York Stock Exchange on Wall Strer. Other times there i no location: the NASDAQisan electronic exchange. A stall selected group of storks can be brought together to make an index. For example, tho Dow Jones publishing, ‘organization compiles ‘the Dow’ (ar index of 30 large companies), and Standard and Poor's ~a credit ratings agency ~ campites dozens of different indices based on. compeny size or merket sector ours! Why do stocks go up and down in price? When is a stock worth buying? Financial analysts do research on this, using, three main tools ‘© Analysis of individuat companies: their market position and performance, ‘© Analysis of the national and global economy. @ Technet! analysts using charts and internal snarket statistics (eg volume and momentum) 1 identity future trends ancl turning points, ‘The bond market is about fen times bigger than the stock market. Ifa government or large company wants io borrow a large sun of mores: itfses a bond and receives the money a8 a loan fom the institution or individual who buys it (~ the bondhotder). The original amount (= the principal) is then paid back over a fixed period of time ( the maturity /the term of the lean). And of course the fbondholder also receives interest f= the coupon), The bond market is entirely electzonic and does not have any physica! exchanges US government bonds include the 30 year T-bord treasury bond} and the 10 year T-note, while Furopeact 4M Further information wwsinvestopedia.com (> Dictionary and Tutorial) @ hitpsinaneytermscouk © yon inpipe.comlenuity government bonds include the German bund. These are al considered to be low-risk. Corporate bonds have two grades, depending on the risk, ie the evedit rating of the company: Saler corporate bonds are called ‘investment grade’, white high-risk bonds (the company right go bankrupt or detauit ox :ts repayments) are called ‘high yield betiis"or unk bonds! Bonds ainlbe traded on the open market —they don’t have co be held by the original buyer until maturity. fp particular, Hwir price goes up and down over the term of Pie loar according to: Inflation (the interest repaid on a bun is tixedt over its tere, $0 rising inflation will reduce the bond’ final value}. © Currency movements (vonds are issued and then repaid in one particular currency ~ their value changes as that currency fluctuates), A third type of market, used by investors with spare cash available fora short time period only (under a year), is called the money market. Iavestors can buy T-bills trom the US government, ‘certificates of deposit’ from a bank, or “commercial paper’ forma corapany, These are all short- terra loans that pay interest Other markets The foreign exchange (= foes’ currency) market is bigge than all the securities markees combined (around $2 tilion 4 day), Here, dealers buy an sell currency pairs such as EUR/USD (~ euro against the dollar). Players include: {© Commercial banks (representing both themselves and client companies). © Central hanks (epresenting governments yin to maintain stabi oftheir OWN caseney) © Pension funds, et There's a huge emounto! speculation i this market La currency fluctuates in value, there are all sorts of Implications for: buying or selling foreign equities and bonds: international rade; inflation {hesause of paysnents for imported goods), et. fet of dealing is done to proert against (= hedge) such se Finally, there are the commodity markets Here. dealers trade the future prise of such things as © Energy: crude oil, natural gas, ete © Metals: gold, silver, copper, steel, ee © Soft commodities: coffee, sugars grains (ag com, whea soybearts}, Huestock (eg cattle, hogs 10 FINANCIAL MARKETS “Types of investor Private investors Financial institutions: Tavestuent banks, ension funds, mixta! fancy insurance companies, endowments US; Dow Jores Industria! Average Che Bow"? <4P COO, Nasdaq | arog: FISE CURD, DAX , Hang Seng CHong, Kong Funds that hold various, carefully selected stocks Types oF Sands \ country fund, of sector fund, ‘or Fund based on company size eq. 6 apanese Smaller Companies Sand, equity oF bond Geog. a UK corporate bend fans), specialist Funds Cog. bietechaliogy, natural resources, real estate, tracer, etc? Investuent objectives current income, Fictuce capital growth Strategies Investing: bany and hold aaa Trading: buy and sell over the shore teen Growth, profitability, cash flow, level of debt, ete Financia’ inaicators: earnings growth, p7e ratio, market capitalization, ate Technical analysis Internal market factors such (8s volume, Sread?h, monatntins lysis: ion. amare Chart Patterns: resistance And Support, trading channels Barciers to entry Chow oiffiuit st i For now players to enter the market) ene ery ‘palishaass or bearishess in the market, Price elasticity Clo what extent « rise th pres causes a fall in sales) “The general economy Bese of substitution Cto what extent customers can find similar products From other supers) ‘econcny Inflation and direction of interest rates Grouth and productivity of . Sapttal raquinteants Consunar contidences milingness of Market penetration Consumers to Spandl © tw niestoquide.comvuniversiy. cy @ wiawcinvestorwexrds com > By Subject) @ vows mornings 1 (> LeamiStocks Curl) 45 Financial markets: Exercises 10.1. Write these words in the spaces below: bonds, ‘equities, money market instruments, securtties, shares, stocks. Note that three words are near synonyms. ‘The general term refers ta (or — —— i + 10.2 Fill in the missing letters. 1 Instead of investing in te shares of just one company, you can invest in. am___fund which held a basket of stocks. 2. Regular income can be provided by tre dh shares that you ds of 3. The issuer of a bond pays back the original atau: (= the Br al) to the bandholder aver a fied penod of time (= the 1__m of the loan) 4 The most traded bond in the world is the 30.sear US government Fbond, The letter T’ stands for tr y 10.3 Make collocations using an item from each box. Then use the collocations to complete the sentences below. capital fired junk sk bond find growth — management rate 1 A fund that exactly follows the movement of an index called a___tracker fund. 2. A fund can provide regular income or 3 Abond is a financial instrument where a borrower raises ‘capital and then repays the loan at a ‘of interest over a fixed teem risk corporate bond can be called 2 ‘Hedging’ is a term associated with = IR means having a second psition in = ‘market, so that if the market moves against your first position your losses are minimized 10.4 Divide each set of words in italics into two, according to their meaning. 1 a booming / bear / bull / depressed # falling é rising / strong I veeak market 2 tw acquire / buy / have / hold / oven / purchase shares .5 Mate the names of the different stock indices to their descriptions. "CAC Dax ow SE iba 1 index of 509 large US companies 2 index of 4.900 US companies, many of them in the technology area, end some quite small index of 30 lange, wel Leabyished US companies, chaser! bby the editowa¥ the all Smet lourval index of 30 lav german companies J 3 5 index of 40 large French corapanvies, 6 index of 700 large LAK companies 10.6 Rank these financial instruments according to their probable risk: from 1 (low risk, low return, low volatility) to 4 (high risk. high potential return, high volatility). a) an investment-grade corporate bon] b) a UK goveroment bond [-] 2 fund investing in sagallBintect companies (_] 4) shares in an individual éompany listed on the Dow (eg General Electric 10.7 Choose which of these investment objectives is most suitable for the investors described below: income, growth, income + growth. 1 a highly-paid young pvofessional, without a family, who ‘wants to save long-term for a pension 2. a newly retwed person who mvonts fo supplement thei pension — a 3 someone m ther fifties who has just received money from an inheritance — they want 10 save for their pension, but also want help paying for their children's unnversty fees 10.8 Match these financial institutions with thei descriptions below: endowment, insurance company, investment bank, mutual fund. pension fund. | used by large companies to ssue bonds, buy and sell currencies, manage thoir portfolio oF shares in other companies, and adyse on any potential energer ot acquisition used to seve money during your working life and then have an incorme during retirement —_ sed by prizate investors to hold a basket of stocks 4. ged to protect yourself agninst risks (money is paid out if something bad "appens 5. used to generate an income for non-commercial purpose, in particular 20 run @ university or provele for charity (the il ang Melinda Gates Foundation’ has one) 10.9 Financial analysts use the terms in the box when ‘trying to value a company and its share price. Match ‘each term to its definition below. | barrie to entty capital requirements ease of substitvion market oenatation pre elasticny 1 how sensitive a company’ sales are ta changes ja the price Of its products 2 how much money is needed te run this type of business 3. whether other companies could offer a siniiar product 4 bow much market share a company fas, and whether it has strong products in different segments of the market 15 difficultizs that other companies would face if they snes to compete 10.10 The terms in the box are indicators of a company’s performance and are listed in financial publications. Match each one to its definition below. ‘earnings growth ple ratio. dividend yact ‘market capitalization return an equity 1 share price multiplied by total number of issued shares learnings par share, compounced over several years 3 how much profit is generated in telation to the money shareholders have invested current share price compared to its earnings per share 5 the annual dividends per share divided by the share price 10.11 Which terms from the box in exercise 10.10 are probably being referred to in these comments: 1 ‘the company is the boggest in its industry” 2 ‘corared to its competitors, the shares are cheap’ 2-5 areal growth stack ~ revenues are up year on year" 4. Its not @ growth stock, but you'l get a steady income ‘rom the shares 5 Sa profitable company 1 Financial advice s garbage. f anyone knew haw to beat the market they'd be sitting on a beacn drinking pina

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