УДК 4(42)(07) ББК 81.2 Англ А-64
Мырикова М.В.,
Турбина В.В.
Благодетелева Н.К.,
Соловьева М.В.,
Английский язык: Методические указзания к лингафонному курсу курсу "Inter "Internat natio ional nal bankin banking" g" для студен студенто тов в III III курса. курса. Для студ студен енто тов, в, обуч обучаю ающи щихс хсяя по спец специа иаль льно ност сти и 06 0604 0400 00 – "Финансы и кредит", 060500 – "Бухгалтерский учет, анализ и аудит", аудит", 351000 351000 – "Антикриз "Антикризисно исноее управление управление", ", 351 351200 200 – "Налоги "Налоги и налогообл налогообложени ожение", е", 061 061800 800 – "Математи "Математически ческиее мето методы ды в экон эконом омик ике" е",, 06 0610 1000 00 – "Гос "Госуд удар арст стве венн нное ое и муниципальное управление" / Под ред. Л.Г. Ковтун — М.: Финансовая академия при Правительстве Правительстве РФ, кафедра "Иностранные языки", 2005.— с. Рецензенты Рецензенты:: А.В. Альянова, Альянова, ст. ст. преп. преп. Россий Российског ского о государ государствен ственного ного гуманитарного гуманитарного университета Н.И. Ефимова, ст. преп. Методические указания к лингафонному курсу "International banking" для студ студен енто тов в III III курс курсаа пр пред една назн знач ачен ены ы для для факу факуль льте тето тов в и инст инстит итут утов ов,, гото готовя вящи щих х спец специа иали лист стов ов в обла област сти и фина финанс нсов ов и банк банков овск ског ого о дела дела и призваны совершенствовать навыки аудирования и говорения. Материал мето етодич дически еских х указан азаний ий к аудио удиок кур урсу су “Int “Inter ern natio ation nal bank anking”, предложенный к изучению, представлен в виде четырех уроков, каждый из кото которы рых х сост состои оитт из четы четыре рех х разд раздел елов ов.. Перв Первые ые три три разд раздел елаа в ур урок окее (section (sectionss A,B,C) A,B,C) основаны основаны на материале материале аудировани аудирования, я, четверты четвертый й раздел раздел (section D) в основном содержит текстовой материал информационного характера, соответствующий тематике данного урока. Основной задачей курса курса является научить научить студентов студентов понимать понимать финансовы финансовыее сообщения сообщения на слух, а также также совершенствовать совершенствовать навыки разговорной разговорной речи.
© Финансовая академия при Правительстве РФ, 2005. © Мырикова Мария Валерьевна, Турбина Валерия Валентиновна, Благодетелева Надежда Константиновна, Соловьева Марина Владиславовна, 2005.
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Unit 1 Bank organization Vocabulary notes to be determined to be determined by objectives – определяться целями; 2. to conduct to conduct business – вести бизнес, заниматься заниматься бизнесом; 3. bank development bank – – банк развития; – торговый банк (звено англ. банковской merchant bank – торговый системы; выполняет акцептные и др. операции); 4. profit – давать, приносить приносить прибыль; to yield profit – 5. to assess изменения (спроса); to assess changes in smth. – определить изменения 6. products прив ивод одит итьь в соот соотве ветс тств твие ие to match products to needs – пр продукцию и спрос; 7. to be akin to smth. – быть сродни, похожим, родственным; to be akin to smth – быть 8. operatives larg largee /sma /small ll – scal scalee oper operat ativ ives es - крупно/мелко масштабные услуги; 9. aims to achieve operating aims – достигать оперативных целей решать оперативные задачи; 10. operations to establish extensive international operations – проводить расширенные, интенсивные интенсивные операции; 11. banks to acquire banks – приобретать банки; 12. network to extend one’s branch network – расширить сеть филиалов; 13. relationships to stable correspondent relationships – установить корреспондентские отношения; 1.
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Unit 1 Bank organization Vocabulary notes to be determined to be determined by objectives – определяться целями; 2. to conduct to conduct business – вести бизнес, заниматься заниматься бизнесом; 3. bank development bank – – банк развития; – торговый банк (звено англ. банковской merchant bank – торговый системы; выполняет акцептные и др. операции); 4. profit – давать, приносить приносить прибыль; to yield profit – 5. to assess изменения (спроса); to assess changes in smth. – определить изменения 6. products прив ивод одит итьь в соот соотве ветс тств твие ие to match products to needs – пр продукцию и спрос; 7. to be akin to smth. – быть сродни, похожим, родственным; to be akin to smth – быть 8. operatives larg largee /sma /small ll – scal scalee oper operat ativ ives es - крупно/мелко масштабные услуги; 9. aims to achieve operating aims – достигать оперативных целей решать оперативные задачи; 10. operations to establish extensive international operations – проводить расширенные, интенсивные интенсивные операции; 11. banks to acquire banks – приобретать банки; 12. network to extend one’s branch network – расширить сеть филиалов; 13. relationships to stable correspondent relationships – установить корреспондентские отношения; 1.
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14. operations to develop profitable joint operations – разрабатывать совместные, прибыльные операции; 15. organization chart – 1. структура организации; 2. схема организационной структуры; 16. division – отдел, – отдел, раздел, подразделение, филиал, сектор; – линейное подразделение; line division – линейное – банковский отдел; Banking Division – банковский – банковский отдел; Private Banking Division – банковский – 1. казначейский отдел; 2. отдел Treasurer’s Division – 1. управляющего финансами корпорации; – 1. казначейский отдел; 2. отдел operative division – 1. управляющего финансами корпорации; administrative division – административный, – административный, исполнительный, управляющий отдел; Financial and Information Information Systems Division – отдел – отдел финансовых и информационных систем; Corporate planning division – отдел – отдел планирования корпорации; – отдел корпоративного Corporate Finance Division – отдел финансирования; – отдел управления Investment Management Division Division – отдел капиталовложениями, портфелем ценных бумаг; – отдел лизинга долгосрочной аренды; Leasing Division – отдел – отдел коммерческих сделок; Dealing Division – отдел 17. management Investment portfolio management management – управление портфелем ценных бумаг, инвестиций; 18. bonds government I municipal bonds bonds – правительственные и муниципальные облигации; 19. bullion – 1. слиток золота, золота, серебра; 2. золотые золотые и серебряные монеты, продаваемые на вес; 20. finance (s) public finance (s) – государственные финансы; 21. personnel – кадры, штат, персонал, личный состав; состав; 22. premises – недвижимость; – недвижимость; здание с прилегающими постройками;
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23. analysis economic analysis – экономический анализ; 24. department Controller’s Department – контрольно-ревизионный и бухгалтерский отдел; Corporate Tax Department – отдел налогов с доходов корпорации; Systems I Data Processing Department – отдел классификации системной обработки данных; 25. planning strategic planning – стратегическое, долгосрочное планирование; 26. administration credit policy administration – кредитная политика и управление; 27. background to give the background – рассказать о происхождении; 28. to operate to operate independently – действовать самостоятельно; 29. subsidiary a wholly-owned subsidiary – находиться в полной собственности (о дочерней компании); 30. activities to sell off one’s non-banking related activities – продать свои не банковские, вспомогательные организации, учреждения; 31. services to cover a full range of international banking services – обеспечить весь ассортимент международных банковских услуг; cost centre services – услуги по подсчету нормативных затрат учетно-калькуляционного подразделения; 32. structure in terms of management structure – с точки зрения (в переводе на) управленческие структуры; 33. matters to look after administrative matters – заниматься вопросами управления;
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34. control group financial control – финансовый контроль группы компаний; 35. loan syndicate loan – синдицированный кредит, предоставляемый группой банков; 36. overdraft overdraft – превышение кредита, кредит по текущему счету; 37. credits documentary credits – документарный аккредитив; 38. options currency options – валютные опционы; 39. notes floating rate notes – краткосрочное обязательство с плавающей ставкой; 40. deposit certificates of Deposit – депозитные сертификаты; 41. futures financial futures – 1. финансовые фьючерсы; 2. срочные биржевые контракты; 3. финансовые сделки на срок; 42. to provide to provide advice to … – обеспечивать консультирование; 43. merger – слияние, поглощение; 44. take over – объединение путем присоединения, поглощение; 45. acquisition – отчуждение, приобретение; 46. divestment – отторжение части собственности; 47. fund pension fund – пенсионный фонд; offshore funds – оффшорный фонд (инвестиционный фонд, зарегистрированный в стране, где есть налоговые льготы); 48. trust investment trust – инвестиционный траст (компания); 49. leasing leasing packages for lessors and lessees – комплексная сделка на основе взаимных уступок арендодателя и арендатора; 50. market unlisted securities market – рынок некотируемых ценных бумаг при Лондонской фондовой бирже.
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Briefing The way in which a bank is organized and operates is determined by its objectives and by the type of economy in which it conducts its business. A bank may not necessarily be in business to make a profit. Central banks, for example, provide a country with a number of services, while development banks exist to increase the economic growth of a country and raise the living standard of its population. On the other hand, the aim of commercial banks is to earn profits. They therefore provide and develop services that can be sold at a price that will yield a profit. A commercial bank which provides the same range of services year after year is less likely to be successful than one which assesses changes in the demand for its products and which tries to match products to its customers' needs. New services are constantly being introduced and developed by commercial banks, and the full-service philosophy of many banks means that they are akin to financial supermarkets, offering a wide variety of services. However, not every bank may want to offer every kind of financial service. Many banks offer a combination of wholesale and retail banking. The former provides large-scale services to companies, government agencies and other banks. The latter mainly provides smaller-scale services to the general public. Both types of banking, however, have three essential functions, which are: • deposits • payments • credits These three functions are the basis of the services offered by banks. They make it possible for banks to generate profits and to achieve their operating aims. Several factors have combined to make banking an international business. These include the growth of multinational companies and of international capital markets, the increased competition between the banks themselves, and important improvements in communications and transportation. The major banks of the world have established extensive international operations by acquiring banks in other countries, by extending their own branch network abroad and by establishing correspondent relationships with foreign banks so as to develop profitable joint operations. The
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operations of these major commercial banks are dynamic and rapidly changing, and their organization is of a global nature. • •
Read the briefing. Check your comprehension and answer the following questions: 1. How do functions of various types of banks differ? (Compare the services of central, development and commercial banks.) 2. Which commercial bank is supposed to be more successful, why? 3. What essential functions of both types of banking form the basis of services offered by banks? 4. The combination of which factors made baking an international business? 5. How many operative and servicing divisions is the bank of Ed Walker split into? Evaluate their functions. 6. Which geographic groups offer a full range of international services? 7. What are the cost centre services? What division performs these services? 8. What does Banking Division deal with? 9. Whom does Corporate Finance Division provide advice to? 10. What is the function of Leasing Division? 11. What is package?
•
Say of the statements are true or false. 1. Bernard Rogers describes the structure of his bank to David Lacey. 2. The Administrative Division covers administrative services as well as personnel, premises and economic analysis. 3. The Corporate Planning Division includes Tax Department and Data Processing Department. 4. The Investment Management Division provides services to lessors and lessees. 5. Kai Larsen describes the organization of a Scandinavian savings bank.
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Section A
A1 •
Look through the following short report concerning the reorganization of a bank. Name the division for which each person (Bernard Rogers, Lucy John and David Lacey) will be responsible. Add all the details which are given about the responsibilities of the divisions.
The Allied Bank is reorganizing its operations into three business sectors: corporate banking and international banking operations will be headed by Bernard Rogers, who is currently Director of International Banking Operations and Deputy General Manager; the finance operations sector, including foreign exchange operations, short-term money market operations and accounting, will be headed by Lucy John, while David Lacey has been named Deputy General Manager with responsibility for the branch network and retail banking sector. •
Look at the words in the left-hand column and match them with the words from the right-hand column. 1. 2. 3. 4. 5. 6.
operations sectors headed currently including named
A. B. C. D. E. F. G. H. I.
reports at present activities sales covering appointed led offices areas
A2 You are going to hear Ed Walker, an Assistant Vice-President of a large American bank, talking about the structure of his bank to Francoise Caie, a French banker. Before you listen to the conversation, look at these questions which you will answer after you
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have listened for the first time. 1. Is Ed: a) explaining the bank’s organizational structure? b) discussing the bank’s organizational structure? 2. Does Ed: a) give a basic outline of the bank’s organizational structure? b) give a detailed analysis of the bank’s organizational structure?
A3 •
Listen again to what Ed says about the structure of his bank. As you do so, complete the following organization chart. Firstly, write in the boxes the names of the divisions. Then under the boxes add details of the responsibilities of each of the divisions. Chairman of the Board
President
Executive Committee
Banking Division Group 1 The Americas Group 2 Europe Group 3 Africa, Asia, Middle East
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A4 •
Look at the words in the box, all of which are from this section. Check any words that you do not know with a partner. Then, working together, match the words with the correct definition from the list below.
credit policy annual report premises domestic comptroller’s department investment portfolio management
bullion line divisions personnel reorganized
consumers strategic planning commercial paper municipal bonds
1. A report presented each year, giving details of the company's activities and financial performance during the previous financial year. 2. Formed or structured in a new way. 3. Sections of a company which deal with different products or serviced from each other. 4. People who buy goods or services. 5. In your own country, not abroad. 6. Management of a client's collected investments. 7. Short-term documents usually sold by big US corporations, promising to pay a specified sum of money on a particular date. They may be sold again by the buyer. 8. Documents issued by a local government authority, promising to repay loans at a certain time. 9. Bars of gold or silver. 10. Employees, staff.
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11. Buildings and surrounding land. 12. A department which controls the internal finances of a company. 13. Deciding the main aims of an organization. 14. Plans for the lending of money.
Section B
B1 •
You are going to hear Clive Regis, the Director of a London merchant bank, being interviewed about his bank's organization. As you listen, look at these headings. Which ones does he talk about and in which order? – Structure of the parent company – Brief history of the bank – Range of services provided – Recent changes
B2 •
Listen again to what Clive says about the organization of the bank. As you do so, write in the boxes below the names of the six divisions to which he refers and list their main areas of responsibility.
Administration Division
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B3 •
Look at the terms in the left-hand column. Match each one with its correct definition in the right-hand column. 1.
merchant bank
A The selling-off of interests.
2.
clearing bank
B A very large loan for one borrower, arranged by several banks.
3.
wholly-owned subsidiary
C Money overdrawn on banks accounts to agreed limits.
4.
accounting loan
D Documents promising to pay sums of money at specified times.
5.
syndicated loan
E
Money placed in countries with very low taxes.
6.
overdraft
F
The joining of two or more companies into one.
7.
documentary credit
G A bank which is a member of a central organization through which cheques are presented for payment.
8.
correspondent banking
H Activities where one bank acts as an agent for another bank.
9.
currency option
I.
A contract where the buyer has right to demand purchase or sale of a specified currency, but no obligation to do so.
J
A bank mainly concerned with the financing of international trade.
10. bonds
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11. floating rate note
K An organization which collects and pools money from many small investors and invests it in securities for them.
12. Eurodollar CD
L
13. financial futures
M A limited company formed to invest in securities.
14. merger
N A method of financing international trade where the bank accepts a bill of exchange from the exporter for the invoice amount, in return for receipt of the invoice and certain shipping documents.
15. takeover
O The buying of a majority of the shares of companies.
16. divestment
P
17. USM flotation
Q Note on which interest rates are fixed periodically, and which can be traded on the market.
18. investment trust
R Document given for a deposit repayable on a fixed date, the currency being dollars which are deposited outside the USA.
19. unit trust
S
The keeping of financial records and their periodic examination.
20. offshore funds
T
The starting of a new limited company, where the shares are not
A company entirely owned by another company.
Contracts to buy or sell currencies, bonds and bills, ets. At a stated price at some future time.
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included in the official list on the Stock Exchange.
B4 •
Imagine that you are organizing a dinner party for 12 bank officials, including yourself. The other 11 people each work in different areas of banking, which are as follows:
Financial control
Syndicated loans
Investment management
Correspondent banking
Documentary credits
Foreign exchange
Planning
Corporate finance
Overdrafts
Accounting and audit Project finance
Draw up a seating plan for the guests and yourself, placing everyone at the table. When you have finished, compare your plan with that of a partner. Discuss any similarities and differences, and explain the reasons behind your plan.
Section C
C1 •
So far we have heard about and looked at the structure of a large American bank and a British merchant bank. Now we are going to look at the work of a savings bank. Look at the following list of banking services. Put a tick () next to those that are traditionally associated with savings banks.
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Currency options Personal loans Safe-deposit services Takeovers Deposit accounts Billion Payment of standing orders Cheque paying services Leasing packages
C2 •
Now listen to Larsen describing the organization of the Scandinavian savings bank he works for and fill in the organization chart below. Listen twice if necessary.
BOARD OF DIRECTORS
DEPUTY MANAGING DIRECTOR
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C3 •
Look at the following extracts from Kai's description of the savings bank. Work with a partner and note down what you think the speaker says instead of the words in italics. Then listen to the section again and compare your answers with the words Kai actually uses. 1. ... to understand just what we are and that is a ……………….. . (bank set up to accept deposits from members of the public) 2. … ……………..in 1878 ... (setup, established) 3. In 1980 we ………… with the two largest regional savings banks .... (joined together) 4. ... and effectively this now gives us a ……………………… to serve the private customer ... (system of local offices over the whole country) 5. There's a Board of Directors, which is elected by the Board of …………..… … (people responsible for administering money or property for the benefit of others) 6. ... to gain access to the ………………… … (markets in which there are good profits) 7. ... markets dominated by the ………………………. . (banks which offer a wide range of services to the public, to companies and to other organizations) 8. … ………………… 1970 ... (before) 9. ... couldn't accept deposits …………………. the equivalent of ... (more than) 10 ... granted an international …………………. of 45 million dollars ... (loan of money at a fixed rate of interest, involving a certificate of the debt) 11. ... and which had a …………………. 50 per cent of which ... (an entire collection of loans ) 12. ... and expanding worldwide ……………………. … (arrangements with banks who act for each other) 13. ... major investments in terms of ………………….. … (people who work here) 14. ... necessary for us to be able to ……………………. . (increase
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the range or extent of our operations)
C4 •
You are going to make a short presentation of your bank or company. Look through the list of points below and decide in which order you will use them in your presentation. Then compare your order with that of a partner and discuss any differences. – Range or services – Financial performance – Structure – Specialized products – Geographical representation
Section D •
Answer the following questions: 1. How do the organization and operation of the bank depend on its objectives? 2. For what purposes do development banks exist? 3. Why and when do commercial banks develop new services? 4. What is wholesale (retail) banking? 5. How can banks establish extensive international operations?
• •
Make a short presentation of the structure of your bank or company. Act out the dialogues between: 1. Presenter and Ed. 2. Presenter and Clive. 3. Presenter and Kai.
D1 Quickly read the text below, which is taken from an annual report of one of the world's largest banks. Then choose the best heading from this list.
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The year in brief Financial review Global banking resources Notes to the accounts Foreign locations To service the needs of different client groups effectively, the Bank is organized into three broad groups: the Domestic Banking Group, the Corporate Banking Group and the International Banking Group. The basis of the Bank's strength continues to be its domestic banking operations. The Domestic Banking Group's network of 295 branches provides a full range of banking services nationwide and is the largest network in the country. The Corporate Banking Group is responsible for servicing the complex needs of over 200 of the nation's largest corporations. Of the Bank's total domestic deposits and domestic loans outstanding, the Corporate Banking Group accounts for 25 per cent and 40 per cent respectively. The Bank continues to develop and expand its international operations, and in fiscal 2000 foreign earnings surpassed those of the country's other leading banks for the fourth consecutive year. Since January 1 2003, the Bank has opened six new representative offices and has upgraded the Rome representative office into a full service branch. Our strong international presence is currently maintained through 12 branches, 18 representative offices, two agencies and 10 subsidiaries and affiliates. The International Banking Group includes regional departments which assume responsibility as follows: the Americas; Africa, Middle East and Europe; Asia and Oceania. The Group includes both the Correspondent Banking Department, which is responsible for the Bank's correspondent banking network of some 1,500 institutions, and the Merchant Banking Department. Also within this Group, the International Treasury Department specializes in foreign exchange and funding operations, while the International Planning Department is responsible for strategic planning. The International Business Supervision Department is responsible for the assessment of country risk and corporate credits, as
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well as for systems development and for ensuring compliance with regulations regarding international business. The Bank continues to respond well to market dynamics both at home and abroad. Part of the Bank's strength lies in the wide spread of its representation and in its ability to develop sophisticated new services to meet the changing patterns in banking opportunities. The Bank's aim is to ensure the continued prosperity of the group by means of its dedication to service and by expanding the scope of its activities, both geographically and functionally. We believe that we have the right organization to do this in the period ahead.
D2 •
Using the information in the text you have just read, complete this organization chart.
D3 •
Based on the information in the text, say whether the following statements are true or false. 1. The Corporate Banking Group services the needs of 1,500 of the nation's largest institutions. 2. The Corporate Banking Group plays an important part in terms of the bank's domestic deposits and domestic lending. 3. 1991 was the fourth year in a row in which the bank earned more money abroad than any other bank in the country.
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4. The bank has 30 branches and representative offices abroad. 5. The bank plans to increase its international operations.
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Unit 2 Bank performance Vocabulary notes 1.
2.
3.
4.
asset available assets – свободные активы; незаложенные активы balance sheet assets – балансовая стоимость активов basic production assets – основные производственные фонды deferred assets – оплаченные расходы (напр.страхование); активы будущих лет leased assets – арендованные активы fixed assets – основной капитал; основные фонды; основные средства entry closing entry – определение сальдо; выведение остатка credit entry – запись в кредит счета; кредитовая проводка debit entry – запись в дебит счета; дебетовая проводка double entry – двойная запись draft entry – второй экземпляр записи (актов гражданского состояния) liability current liabilities – краткосрочные обязательства deferred liabilities – отстроченные обязательства deposit liabilities – обязательства по депозиту fixed liabilities – долгосрочные обязательства statement statement of accouns – отчет о состоянии счетов income and expense statement or operations statement or profit and loss account – счет прибылей и убытков bank statement – баланс банка (на дату); перечень счетов consolidated (financial) statement – сводный баланс; сводный финансовый отчет (совместный для материнской и дочерних компаний, в котором элиминированы взаиморасчеты) consolidating financial statement – промежуточный сводный финансовый отчет
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5.
6. 7. 8. 9. 10.
11.
12.
13.
14.
15.
16.
investment return on investments – инвестиционный доход investment securities – ценные бумаги, рекомендуемые для инвестиций legal investment for banks – разрешенные законом объекты для инвестирования банковского капитала equity investment – вложения в акции fee – гонорар; взнос; вознаграждение salary – оклад; жалованье commission – комиссионный сбор service charge – плата за обслуживание benefit – пенсия; пособиe income interest income – доход в виде процентов non-interest income – беспроцентный доход total income – суммарный доход application of income – использование прибылей interest net interest – нетто-процент (за вычетом всех издержек за пользование капиталом) requirements statuary requirements – установленные законом требования accounting requirements–(амер.) правила бухгалтерской отчетности footing footing – итог по столбику cross-footing – итог по строке balance sheet footings – суммарные активы или пассивы outgoings – расходы, издержки; платежи, переводы (за границу) dividend interim dividend – промежуточный дивиденд (уплачивается акционерным обществом авансом ежеквартально до окончательного распределения прибыли в конце финансового года) cash dividend – дивиденд, выплаченный наличными сumulative dividend – кумулятивный дивиденд (накапливаемый в случае невыплаты)
24
17.
18.
19.
ех-stock dividend – дивиденд по проданной акции (новый владелец еще не получил права на дивиденд) optional dividend – дивиденд, выплачиваемый по желанию акционера деньгами или в форме акций preferential dividend – дивиденд, выплачиваемый в первую очередь preferred dividend – дивиденд по привилегированным акциям equity – маржа ( разница между рыночной стоимостью ценных бумаг и размером полученной под них ссуды); доля акционера в капитале предприятия; обыкновенная акция stockholder equity – акционерный капитал; собственный капитал provision provision for bad debts – резерв на покрытие безнадежных долгов provision for depreciation of securities – резерв на покрытие обесценения ценных бумаг provision for doubtful accounts – резерв на покрытие сомнительной дебиторской задолженности provision for doubtful debts – резерв на покрытие особо сомнительных долгов acceptance – принятие, акцепт, согласие на оплату денежных и товарных документов; акцептование векселя acceptance for payment – принятие векселя к оплате acceptance letter – уведомление подписчика о выделенных ему ценных бумагах и порядке их оплаты
Briefing Banks necessarily use sophisticated accounting systems to record as clearly as possible what the financial situation of the bank is. Normally such a system is based on the principle of the double entry, which means that each transaction is entered twice, as a credit in one account and as a debit in another account. The equation can be expressed as:
25
ASSETS = CAPITAL + LIABILITIES. If we deposit £100 with a bank, for example, the bank enters a debit for the receiver and a credit for the giver. The former represents an asset to the bank, since it is a sum of money at the bank's disposal, as well as a liability, since it will one day have to be repaid. The balance sheet of a bank gives us a view of its financial situation at one point in time, usually 31 December of a particular year. But we do not know what has happened between two balance sheets. This information is provided by the profit and loss account for the period in question. The profit and loss account is also referred to as an operations statement or an income and expense statement. Neither statement is exactly uniform from bank to bank, but both contain certain essential features. The largest asset of a bank is normally its total portfolio of loans. Deposits usually constitute the largest liability. Balance sheets usually include the following items listed as assets: • Cash on hand and due from banks – money in vaults, balances with other banks, cheques in process of collection. • Investments – bonds, shares, etc. • Loans – to companies, the general public, etc. • Fixed assets – buildings, equipment, etc. Items listed in the balance sheet as liabilities are: • Deposits – all money owed to depositors • Taxes payable – national and local • Dividends payable – decided on, but not yet paid The profit and loss account records the income of a bank, and here, typically, the items in order of size are: • interest on loans • return on investments • fees, commissions, service charges The granting of credit provides the largest single source of bank income. Typically, two thirds of an American commercial bank's yearly earnings result from interest on loans. Nine out of every ten dollars they lend come from depositors' funds. The following items normally constitute the main expenses in a bank's profit and loss account, again in typical order of size:
26
• interest paid • salaries and other benefits • taxes A bank's accounting systems, then, are designed to record and present the many transactions that take place every day. Substantial reserves over and above statutory requirements are an indication to customers of the bank's strength, that it has run its business well and has retained profits in the business for future operations. Profitability indicates the effectiveness of a bank's performance and how well it has managed the resources under its control. Published figures thus provide some essential data on the liquidity, safety and income of a bank.
• Read the briefing • Check your comprehension and answer the following questions: 1.
Why is sophisticated accounting system so widely used by banks? Can you define the main principle of this system? 2. What is the name of a summarised statement showing the amount of funds employed in the business and the sources from which these funds are derived? 3. Which important financial information is not provided by the balance sheet? 4. Which indices give us a view of the financial situation of a bank and which items are listed as assets or as liabilities? 5. How are incomes and expenses recorded in the profit and loss account? 6. Can you mark the difference between two basic financial statements? 7. Why does a bank’s portfolio of loans provide the largest source of bank income? 8. What’s accounting period for the balance sheet? Does it correspond with the calendar year? 9. What do published figures of a bank’s performance show? 10. What kind of financial information do a bank’s accounting systems provide its customers with?
27
• Say if the statements are true or false. 1.
An important area of bank performance is accounting systems that provide a permanent record of its financial activities. 2. The principle of the double entry represents an asset to the bank as a debit in one account and a liability as a credit in another account. 3. The balance sheet of a bank shows the amount of fund sources the bank has drawn upon to finance its lending and investing activities and how much has been allocated to loans and other funds at a moment in time, usually the last day of a particular accounting period. 4. Each bank may have its own accounting requirements but basic principles are the same. 5. The profit and loss account shows how much profit was generated by the operations of the bank at one point in time. 6. The income and expense account provides information for the period in question, which means that it shows what has happened between two balance sheets. 7. Banks make their profits by lending the money which customers deposit with them to others who need it for personal or business reasons. 8. Impressive reserves over and above statuary requirements show how the bank has retained its profits in the business for future operations and the many transactions that take place every day. 9. Published figures provide some essential data on the bank’s financial position and operating performance. 10. There is no difference between two basic financial statements as they both are the final product of accounting process and a valuable decision- making instrument.
• In this unit we hear three different bankers presenting facts and figures concerning the recent financial performance of their banks.
Section A
28
A1 • First read the following short newspaper reports
• Then from this list choose an appropriate headline for each report • Check your answers orally • Ask each other questions which may arise Profits forecast Fall in profits Loss reported
1 Harborne Investment Bank has reported a loss equivalent to USD 295,000 for the first six months of 1991, a figure in line with the lower first-half earnings reported by the country's other leading banks. The bank posted a USD 2.86 million profit for fiscal 1990. 3 Northland's FA Bank group increased operating results by 20 per cent to USD 108 million in the first six months of this year. Westsund Bank, in contrast, reported a drop to USD 80.5 million, while Quintorp Bank reported steady earnings of USD 195 million, but a 15 per cent fall in the parent bank figure to USD 178 million.
А2
Mixed profits Growing debts Profits growth
2 Hogg and Lacey's Bank has announced an income of USD 58 million for the first half of the year, an increase of 45 per cent over the corresponding period last year. The bank has increased its interim dividend from USD 1.50 to USD 1.80 a share.
4 ZB Bank expects net profits in the region of CHF 33 million for the current financial year, according to Dr Fritz Ullmann, a rise of some 12 per cent. At the end of June the bank's balance sheet total was CHF 4.42 billion, compared with CHF 4.13 billion at the beginning of the year.
29
• What main information about financial performance would you expect a representative of a bank to present to a company in order to try to sell the bank's services? Make a brief list. Then listen to Ed Walker give an informal presentation of his bank to a prospective client. Tick ( ) any points of yours which he makes. А3
• Listen again to Ed talking about his bank's performance for the previous financial year. As you do so, fill in the spaces in the extract from the annual report below. Highlights
$ In millions, except per share data For the Year Net Income Net Interest Income
1990 ---------------------
1989 ---------1,600
Per Share Net Income
-----------
4.80
At Year-End Assets Deposits Investment Securities Employees Number of Offices
---------------------------------------------------
59,000 34,700 1,900 13,650 1,150
A4
• Look at the following list. Work with a partner and note down what you think Ed says instead of the words in italics. Then listen to his presentation again and compare your answers with the words that Ed actually uses. 1.
I have here a copy of our last report presented each year, giving
30
2. 3.
4. 5.
6. 7.
8.
9. 10.
11. 12. 13.
details of the company's activities and financial performance during the previous financial year. But I can give you right now a very short general description ... ... based on money received from the sale of the parts into which the capital of a company is divided ... ... and sixth largest based on the sums of money left with the bank. ... financial services to a large number of different types of customer... ... which includes company customers ... ... and banks in other countries with whom we have an agency relationship. In 1990 we achieved our highest ever profits after transfers to reserves ... ... our tenth year in a row of profit growth ... The annual income of the group of companies after the payment of costs was 500 ... ... at the end of 1990 the value of all the things we own ... ... in the financial year 1990 ... ... billion dollars worth of placements of money, for example in shares, so as to produce profit.
A5
• Say the following numbers. There may be alternative ways of saying some of them. 1 2 3 4 5 6
1,200 560,000,000 5,000,000,000 37,600,000 1,500,672 1,500,000
Section B
31
B1
• Look at the following expressions. Put a tick ( ) by the ones you might expect to hear in a presentation relating to financial performance and a cross ( х) by those you would not expect to hear. Then compare your answers with those of a partner and discuss any differences. 1. 2.
3. 4. 5. 6. 7. 8. 9.
This diagram gives a very brief summary of some of the key figures. Highlights from the audited financial statements as at 31 December 1990. If we begin with income, then, you will see that the total group income amounted to ... ... but what is especially significant is the increase in noninterest income. We've seen the income; let's now look at the outgoings. The accompanying audited financial statements were prepared in conformity with generally accepted accounting principles. This increase is larger than in previous years, and is partly due to... All this adds up to total group outgoings of ... I think I'll stop there and answer any questions.
B2
• You are going to hear Claire Seal, a merchant banker, giving some information about her bank to a small group of professional visitors from abroad. Before you listen to her presentation, look at these questions. Then listen and answer the questions. 1.In this section is Claire talking about income, costs, or both? 2.Is Claire giving figures with or without comment? 3.Was 1990 a good year or a bad year for the bank?
B3
32
• Look at the diagram below which is a copy of the one which Claire refers to. Ask questions about it.
• • Listen to her presentation again and fill in the missing information under the heading Source of income. (Note: The blanks under Use of income will be filled in Section C)
Source of income
1989
£554m
1990
Interest received
£…..
£465
Interest paid
£…..
£89m
Net interest earnings
£…..
£…..
£135
B4
Use of income
Other income
Total group income
£…..
£…..
1990
1989
42%
£…..
Staff costs
£…..
5%
£…..
Doubtful debt provision
£ 5m
10%
£…..
Depreciation
£ 16m
18%
£…..
Other costs
£…..
£…..
Total costs
£…..
16%
£…..
Tax
£…..
3% 6%
£….. £…..
Dividends ……………
£….. £ 10m
£…..
Total group outgoings
£135m
64%
36%
33
• Listen to the first part of the presentation again, fill in the space sentences below with the words actually used. This diagram gives a very…………………. ………………….of some of the …………………. ………………….relating to our performance in 1990. We'll be …………………. these figures again later in …………………. ………………….; but it may be …………………. at …………………. …………………. to present them and to …………………. a number of …………………. …………………. . If we …………………. …………………. income, …………………. you. …………………. …………………. that the total group income …………………. to a …………………. …………………. of £150 million, an …………………. of …………………. 15 per cent on the …………………. year, a …………………. …………………. increase …………………. above that of recent years.
B5
• Choose the one best answer. 1. A brief summary is: a) a small amount of something; b) several numbers added together to make a total; c) a short report of the main points; d) a full report with details. 2. Key figures are: a) figures that are easy to understand; b) the most important figures; c) figures that give an answer to a problem; d) figures that are well-known. 3. Trends are: a) movements or directions; b) goals that you try to reach; c) events that are likely to happen; d) events that happen often. 4. A record level of income is:
34
a) an amount that will never be reached again; b) an amount that is written down so that it will not be lost or forgotten; c) an amount that stays the same and does not go up or down; d) a higher amount than ever before. 5. Net interest income is: a) the amount by which the total interest received is higher than the total interest paid during the period; b) the amount by which the total interest received is lower than the total interest paid during the period; c) the total interest received by the lender; d) the amount earned on an investment after paying for its capital cost. 6. Something which is especially significant is: a) the only one of its kind; b) the very best of its kind; c) important and worth noting; d) widely-known and accepted. 7. Fee and commission earning activities are: a) the buying and selling of currencies for profit; b) plans to lend money for profit; c) services that are sold by an agent; d) services for which charges can be made. 8. A contribution to total income is: a) a fixed amount of money paid at regular intervals; b) money that is owed or payable; c) an amount of money that is taken away from the total; d) an amount given or supplied. 9. The economic environment is: a) an area of the economy; b) the future of the economy; c) the economic situation; d) financial laws and regulations. 10. The sensitivity of interest rates is: a) the way in which interest rates affect each other; b) the way in which interest rates are easily influenced or affected; c) the changes in interest rates;
35
d) the way in which interest rates are worked out. Section C C1
• You have heard Claire Seal talk about how much her bank earned last year. Now you are going to hear her talk about how much the bank spent. As you listen to the continuation of the presentation, number the items below in the order in which Claire mentions them. • • • • •
Tax Provisions for doubtful debts Other expenses Staff cost Dividends
………….. ………….. ………….. ………….. …………..
C2
• Look again at the chart in B3 on page 14. Listen again to the continuation of the presentation and fill in the blanks under Use of income.
C3
• Look at the following extracts from this part of the presentation. Work with a partner and note down what you think Claire says instead of the words in italics. Then listen to the presentation again and compare your answers with the words that she actually uses. 1.
2.
3.
4.
5.
... let's now look at the ………………………… . (amount of money spent) The largest of these is ………………………… … (money involved in paying employees) ... to handle the expansion of the bank's ………………………… … (services for w hich charges can be made) ………………………… increased to eight million pounds ... (money put aside to cover possible credit losses) ………………………… (the decline in value of property
36
6.
7. 8.
9.
10. 11.
12.
13.
which is hired) and on ………………………… and equipment ... (buildings and the land on which they stand) Other ………………………… increased by ... (money spent on the running of the bank) … the smallest ………………………… increase ... (yearly) ………………………… remained unchanged ... (the part of the company's profits which is paid to shareholders) ... as the major part of the year's profit was ………………………… … (kept by the company and not paid to shareholders) Our balance sheet ………………………… … (totals) After ………………………… of the dividends ... (setting aside money for) ... there remained a net ………………………… … (amount of money kept by the company and not paid to shareholders) ... nine million pounds, which was ………………………… (moved over to funds put aside to cover unexpected events)
C4
•
What factors are important for the financial success of a bank operating internationally? Look through the list of factors below and when you have decided on their relative order of importance, write the number of your choice in column A. Number 1 should show the factor which you consider most important and number 10 the least. In order to fill in colum B:
• Split into pairs • Discuss the order of priority which you have in column A • Agree on a common order of importance for column B • Calculate the difference between the numerical value that you have in column A and the numerical value that you have in column B, item by item Add up the differences
• • You will be told who has discussed and reasoned the most successfully according to your results
37
A
B
Use of advanced technology Strong national economy Skilled and efficient staff Wide range of high quality products Broad network of correspondent banks Good management Wide geographical spread of local representation Good market reputation Established and diverse customer base Other (specify)
C5
• Mark the odd one in each of these groups of business words: 1 a) consolidated b) relating to c) joined together d) unified whole 2 a) interim
b) temporary c) preliminary
d) permanent
3 a) evolve
b) procreate
c) produce
d) generate
4 a) staff
b) personnel
c) shareholders
d) officers
5 a) equilibrium
b) balance
c) equipoise
d) condition
6 a) reserve
b) draw up
c) keep back
d) save up
7 a) numeration
b) digit
c) numeral
d) number
8 a) income
b) profit
c) wage
d) debt
9 a) value
b) appreciate c) forecast
d) estimate
10 a) correct
b) agree
c) correspond
d) suit
11 a) active
b) lively
c) vigorous
d) perfect
Section D D1
38
• Read the following financial statement from an annual report and then answer the questions which follow.
W allers Bank plc
Consolidated Profit and Loss Account 31st December 1990
Profit before tax, after provisions for doubtful debts Tax on group profits Profit after tax Dividends paid Retained earnings Earnings per share
1. 2. 3. 4. 5.
6.
1990 £000 24 541 14 395 10 146 3 250 6 896 13p
1989 £000 23 863 13 389 10 474 3 250 7 224 15p
What term tells you that this is a statement of income? Do the figures relate only to one bank or to one bank and its subsidiaries? What was the increase in taxable profits from 1989 to 1990? How much more tax did the bank pay in 1990 than in 1989? What is the difference between the 1990 and 1989 figures in terms of the profits which the bank has kept? Are these figures before or after money put aside for possible credit losses?
D2
• Look at these questions and answer them when you have read the accounts on the opposite page. 1. Which two specific items on the balance sheet showed the main growth? 2. What was the percentage increase in total assets from 1989 to 1990?
39
W allers Bank pic
Consolidated Balance Sheet 31st December 1990 1990
1989
£000
£000
254 095
235 809
1 159 082
998 129
598 820
572 21 8
4 795
3 856
15 867
15 024
530 723
409 820
95 415
89 845
2 658 797
2 324 701
1 869 952
1 667153
Deferred taxation
18052
15088
Proposed dividends
1 983
1 071
530 723
409 820
Assets
Cash and due from banks Loans to banks and public bodies Investment securities Advances to subsidiaries Leased assets Acceptances for customers Premises and equipment Liabilities
Current, deposit and other accounts
Acceptances for customers Capital Resources
Share capital Reserves Minority interests Loan capital
D3
40 000
40 000
135 658
128 489
6 687
4 709
55 742
58 371
2 658
2 324 701
40
• Look at the balance sheet again and answer these questions. 1.
"What term tells you that these figures show the total financial position position of the the bank at the end of 1990?
2.
What What is is the the valu valuee of all all thi thing ngss owne owned d by the the ban bank k whic which h coul could d be used, if necessary, to pay debts?
3.
Whic Which h sum sum incl includ udes es the the £5 mill millio ion n whic which h the the bank bank has has len lentt to to the the City of Birmingham Local Authority?
4.
What What is is the the tota totall valu valuee of the the thi thing ngss such such as as shar shares es and and tre treas asur ury y bills bills which the bank has bought bought with the intentio intention n of making making a profit? profit?
5.
What What was was the the inc incre reas asee fro from m 198 1989 9 to to 199 1990 0 in in the the amou amount nt of of mon money ey which the bank lent to companies which it owns?
6.
What What is is the the valu valuee of all all the the prop proper erty ty suc such h as bu buil ildi ding ngs, s, lan land, d, mot motor or cars, computers and so on which the bank owns?
7.
What is the value of the property which the bank ank lends to its customers for payment?
8.
What What is the the tot total al valu valuee of of the the debt debtss owe owed d by by the the bank bank??
9.
Whic Which h is is gre great ater er,, and and by ho how w muc much, h, the the tax taxes es whic which h the the bank bank paid paid in 1990, or the money put aside in 1990 which the bank calculates will soon be needed to pay taxes? If all of the the issue issued d share sharess are paid paid up and and there there are are 20 milli million on shares at £1 each, how much each did the remaining five million
10.. 10
41
shares cost? 11.. 11
How How much much mor moree money money was was put asi aside de in 1990 1990 than than in 1989 1989 to cover unexpected events?
12.
Which term relates to those shares which Wallers do not themselves hold in their own subsidiaries?
D4
• Read through the following information. Three banks. A, B and C, all issued their financial statements for the 1990 199 0 finan financia ciall year year at the same same time time,, in each each case, case, the the sum of the retained retained earnings and dividends adds up to the profit after taxation. Bank B reported a profit after taxation of £16 minion. Half of this sum was paid as dividends. The bank with total assets of £1.5 billion paid dividends amounting to £5 million. One of the banks paid dividends which were £1 million higher than those of Bank B. The same bank had total assets which were twice as large as those of Bank A. Half of Bank A's profit after taxation was kept as retained earnings. Bank C posted a profit after taxation which was double that reported by Bank Bank A.
• Given this information, work out the following: Which bank had total assets of £2 billion? Which bank showed retained earnings of £11 million?
D5
• Match the terms (a-t) below with their definitions (1-20)
42
1. Com Company pany in which anot anoth her com compan pany owns more than half the shares 2. Periodic Periodic examinat examination ion of financial financial records records 3. Bui Buildin dings and and the the land land on whi which they stand 4. Report Report detailing detailing the company’ company’ss activities activities in the past financial year 5. Payment Payment as an agree agreed d percentag percentagee of price price 6. Mov Moveme ement nt or or devel developm opment ent 7. Profits Profits after after transfe transfers rs to reserve reservess 8. Mon Money ey overd overdrawn rawn on a bank 9. Hiri Hiring ng so som methi ething ng to a us user er,, inst instea ead d of selling it 10. The total obta btained ined from add ddiing up a column of figures 11.. Some 11 Someth thin ing g whic which h yo you u own, own, which which you use to pay a debt 12.. A metho 12 ethod d of fina financ ncin ing g inte intern rnat atio iona nall trade 13.. Short 13 Short-te -term rm docume documents nts norma normall lly y sold sold by big US corporations 14.. The buyi 14 buying ng of a majo majorit rity y of shares shares in in a company 15. Mon Money ey spent spent on runni running ng a company company 16.. Charg 16 Chargee made made for for servi service ce 17. Money put aside in case anything unexpected happens 18.. Docu 18 Docum ment ent prom promis isin ing g to pay a su sum m of money at a specified period 19. Differences between income and outgoings 20.. A sum 20 sum of mo mone ney y lent lent
a) earnings b) overdraft c) footing d) asset e) subsidiary f) documentar y credit g) profit h) take over i) commission j) trend k) expenses l) leasing m) audit n) fee o) bond p) loan q) annual report r) commercial paper s) premises t) reserves
D6
• Match the form of revenue (1-11) with the right recipient (a-k).
43
1 grant
a)
author
2 salary
b)
senior manager
3 wage
c)
laid off employee
4 commission
d)
government
5 fees
e)
blue-collar worker
6 dividend
f)
retired employee
7 royalty
g)
sales representative
8 stock option
h)
student
9 pension
i)
consultant
10 tax
j)
shareholder
11 redundancy pay
k)
white-collar worker
44
Unit 3 Foreign Exchange Vocabulary notes 1. dealing spot dealing – наличная сделка, сделка с немедленным расчетом; forward dealing – срочная сделка, сделка с оплатой в будущем; foreign exchange dealing – валютные операции, сделки; dealing for the account – сделка на срок; dealing within the account – сделка в течение одного ликвидационного периода; dealing slip – бланк регистрации сделки; authorized currency dealer – официальный валютный дилер; 2. rate spot rate – наличный курс валюты; forward rate – валютный курс при сделке на срок; swap rate – премия или скидка с наличного курса при сделках на срок; forced rate of exchange – принудительный курс валюты; flexible rate of exchange – гибкий курс; fair rate of exchange – благоприятный курс; rates for currency allocations – нормативы валютных отчислений; current rate of exchange – текущая ставка, текущий курс; equilibrium exchange rate – валютный курс равновесия; floating rate – плавающий курс; 3. invoice to pass an invoice – предъявлять счет к оплате; to issue an invoice – выставлять счет; past due invoice – просроченный счет; provisional invoice – предварительный счет; 4. discrepancy apparent discrepancy – видимое расхождение, несоответствие; considerable discrepancy – значительное различие ; to investigate discrepancies – исследовать разногласия; to resolve discrepancies – разрешать разногласия; 5. gain to make gains on buying and selling currencies – получать прибыль от торговых сделок с валютой;
45
6.
7.
8.
9.
to show a gain – иметь прибыль; paper gain – оценочная прибыль; marginal gain – предельный доход; market share gains – увеличение доли на рынке; quotation currency quotation – валютная котировка; quotation of the day – курс дня; quotation for futures – котировка при сделках на срок; syn. quotation for forward delivery spot quotation – курс по сделкам с немедленной поставкой; to update a quotation – корректировать котировку; asked quotation – курс продавца; bid quotation – курс покупателя; closing quote – последняя котировка цены в конце рабочего дня биржи; syn. final (closing) quotation delivery for immediate delivery – на условии немедленной поставки; for delivery later – для поставки по контракту на срок; contractual deliveries – поставки по контракту; syn. deliveries under a contract delivery on call – поставка по требованию; to sell for spot delivery – продавать с немедленной поставкой; to sell for future delivery – продавать с поставкой в будущем; to collect on delivery – оплата при доставке; settlement currency settlements – валютные расчеты; same day settlement – расчет в день сделки; settlement for transactions – расчеты по банковским сделкам; consent settlement – компромисс, мировая сделка; skip day settlement – (амер.) расчет на один день позже положенного срока; to buy for the settlement – покупать на срок; spot value spot – сделка «спот» с расчетом на 2-ой рабочий день после ее заключения; over spot – надбавка на курс при сделках на срок, репорт; under sport – скидка с курса при сделках на срок, депорт;
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spot transaction- наличная сделка, сделка с немедленным расчетом; spot market – рынок наличного товара; on the spot – сразу, немедленно; soft spot – ценные бумаги с понижательной тенденцией цен; 10. square to square the account – расплачиваться по счету; square deal – честная сделка; 11. exposure cross currency exposure – отсутствие у фирмы необходимой валюты для обслуживания долга; interest rate exposure – открытая процентная позиция; to be exposed to currency risks – подвергаться валютным рискам; 12. adjust to adjust position in currency – закрыть открытую позицию в валюте; adjusted price – скорректированная цена; adjustable currency – эластичное денежное обращение; exchange rate adjustment – регулирование валютного курса; downward adjustment – поправка в сторону уменьшения; 13. swap currency swap – валютный своп; swap – покупка или продажа валюты на условиях «спот» с одновременным заключением обратной форвардной сделки; forward swap – своп, который вступает в действие через некоторое время после заключения; long-dated currency swap – долгосрочный валютный своп; reverse swap – обратный своп; 14. position trading position – торговая позиция; to unwind position – развернуть позицию; to average position – усреднить позицию; to open (close) longs (shorts) – открыть (закрыть) длинную (короткую) позицию; to cover longs on rallies – закрыть длинные позиции при подъеме.
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Briefing Foreign exchange dealing is, as its name implies, the exchange of the currency of one country for the currency of another. The rate of exchange is the value of one unit of the foreign currency expressed in the other currency concerned. With the growth of global trade, many companies need foreign currencies to pay producers in other countries. A British company with a supplier in the USA, for example, will probably use sterling to buy US dollars from its bank in order to pay an invoice from the US company. The bank buys the US dollars from another bank at a particular rate and provides them to its customer at a higher rate, thus making a profit. Similarly, a bank may make gains on buying and selling currencies on the inter-bank market. Making a profit on the transaction is the basic idea of foreign exchange dealing. Currencies can be bought or sold in the foreign exchange market either for immediate delivery, that is at the spot rate, or for delivery later (e.g. two weeks, three months, etc.) at a forward rate. The forward market is useful for companies, since if a company knows that it will need a particular foreign currency to pay a bill in four weeks' time, for example, a forward deal enables it to protect itself against future adverse, movements in the exchange rate which would have otherwise had the effect of making the foreign goods more expensive. When dealing in foreign exchange, normally by telephone, the bank quotes both the selling and buying rate of a currency at which it is prepared to transact business. Settlement for a spot transaction is two working days later. Thus if a contract is made on Monday, the seller delivers the amount sold and receives payment on Wednesday. Similarly if the contract is made on Tuesday, value is Thursday. Currency traded in this way is delivered to the buyer's account with a bank in the main centre, or one of the main centers, for the currency in question. In the case of sterling, for example, this is London, for US dollars it is New York and for Yen it is Tokyo. The buyer decides the bank where his or her account is to be credited. The foreign exchange dealer fills in a dealing slip containing basic information such as the date and time of the deal, the contracting party, the amount and rate agreed on, the date of settlement, and the
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place of delivery, of the currency dealt in. As soon as a foreign exchange transaction has been carried out, both banks send a written confirmation containing the basic information mentioned above. Any discrepancies may thus be detected quickly. A bank holding debts or claims in a foreign currency is itself exposed to an exchange risk, unless the debts and claims neutralize each other by being of equal size and by having roughly the same maturity dates. Dealers therefore aim for a balanced total position. If the amount of a bank's claims in dollars, for example, is larger than the total debts in dollars, then the bank has a long position, but if the debts are larger than the claims, the bank is short in dollars. As long as the total position balances, there is no risk for the bank. • •
Read the briefing Check your comprehension and answer the following questions: 1. What does foreign exchange imply? 2. What is the basic idea of foreign exchange dealing? 3. In what way are currencies bought and sold in the foreign exchange market? 4. What is the procedure of settlement for a spot transaction? 5. What paper work accompanies the currency transaction? 6. Why is it necessary for dealers to maintain a balanced total position?
•
Say if the statements are true or false. 1. Forward contract is an agreement to deliver a specified amount of currency at a set price within two working days. 2. Currency risk exposure means that a currency dealer may suffer losses due to adverse changes in exchange rates. 3. The objective of the forward market is to reduce the risk associated with the future currency transaction by setting prices in advance. 4. The major dealers in the foreign exchange market are issuing banks. 5. If payment is to be made in future there is uncertainty as to what spot rate will be on a given future date.
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6. If the amount of claims in specified currency is larger than the debts the bank has a short position. 7. A forward contract is useful to hedge against currency risk. 8. The objective of foreign exchange dealing is to forecast possible changes in exchange rates. 9. Exchange dealers are directly involved with day-to-day dealing in foreign exchange. 10. To conduct international payments banks should maintain long position in dollars. •
Arrange the following words and word combinations into: a) pairs of synonyms
value, spread, to fluctuate, forecast, deficit, to issue, differential, to devalue, cost, dealing, gap, proceeds, to make out, to float, to submit, to make gains, yield, currency, transaction, to yield a profit, to depreciate, foreign exchange, prediction, to present. b) pairs of antonyms
adverse, forward, loss, exposure, revenue, payable, cutting, favourable, bankrupt, adjusted, spot, solvent, security, profit, expense, unbalanced, increase, receivable.
Section А •
Listen to the tape, practice the pronunciation of the following words and word combinations and quote the sentences in which they are used in the unit.
to be accounted in sterling dollar Deutschmark market to firm up (about the rate) to widen the interest differential to lend out\to borrow dollars to square the account to deal forward
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a tom\next dollar mark value date to adjust the price outright the tom\next swap to cover the foreign exchange exposure
A1 •
Listen to the conversation and answer the questions.
1.
What are the basic principles of foreign exchange dealing as explained by Alan King? 2. Is there anything that is really moving the market? 3. Did Alan King dwell upon the basic idea of spot dealing? 4. The spot market is dealing two working days forward, isn't it? Give an example of it. 5. What definitions are given by Alan King to the main forms in forward dealing such as a tom\next, a spot\next and spot dollar mark outright tomorrow? 6. What is the difference between swap and outright? A2 •
Look through the following list of currency codes. Then write the appropriate currency code next to the country to which it relates.
CYP
SEK
CHF
GBP
CAD
CNY
NOK
DKK
INR
JPY
USD
ARP
AUD
BRC
RUR
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Currency Country code
Currency Country code
Argentina
Norway
Brazil Great Britain
Sweden India
Australia
Switzerland
China
Canada
United States of America
Cyprus Russia
Japan
A3 •
Listen to Alan King explain some of the basic principles of foreign exchange dealing and tick ( ) those items which he talks about
• Currency codes. • Some terms used in foreign exchange dealing. • Some basic principles of foreign exchange dealing. • A big deal he did last week. • FOREX market transactions. A4 •
Listen to the conversation again. As you do so, note down whether the following statements are true or false. 1. Most of Alan's dealings are based on sterling. 2. The previous day, dollar rates had risen by between /-§th to /-· th of a per cent. 3. A tom/next means from tomorrow to next week. 4. When someone asks ‘What is your spot dollar mark
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outright tomorrow?’ Alan quotes them a spot rate. 5. A swap involves borrowing one currency and lending another. 6. An outright is connected to a corresponding spot transaction. 7. This conversation took place in the month of October. A5 •
Listen to Alan again and write down the words that he actually uses in place of the words printed in italics. 1. 2.
3.
4.
5.
6.
7. 8.
9.
10.
11.
12.
13.
14.
We’re accounted in British pounds ... So, for instance, your prices for funds which will be exchanged two working days later are dollar Deutschmark ... I mean, for instance, yesterday the dollar rates increased slightly. So people buy dollars because the difference in interest rates between dollars and Deutschmarks is increasing . You're short of Deutschmarks that day and you have to buy, borrow those for one day ... That is the basis of making a result where the income is higher than the costs. Well, to make totals equal, to balance the account for that day. ... and find that on the 17th that I am in a position where I have sold more Deutschmarks than I have bought, and bought more dollars than I have sold . Then you have spot a week, a period of two weeks beginning two working days from now. We also have deals where someone buys one currency and sells another on any particular day. It's just that you're stating the price that you will charge for a spot rate … ... depending what the price is for the torn/next exchange of one currency for another, for a certain period of time. ... so that the relationship between the two currencies fixes, decides the forward pricing. ... so they cover their foreign exchange risk or possibility of
53
loss by buying Deutschmarks ...
54
A6 •
It is sometimes difficult to hear words which are unstressed in spoken English. Look through the text below, which is taken from the first part of the conversation, and say what you think the missing unstressed words are. Then listen again to this part of the conversation. As you do so, write in the missing words.
We…………… accounted ………………. sterling, but generally all dealings ………………. based …………… the dollar. So, ………………. instance, ……………….. spot prices ……………… dollar Deutschmark, OK? ............... the big market really, dollar Deutschmark. And ………….. the movement in ……………. dollar which is really moving ……………… market. I mean, ……………. instance, yesterday, the dollar rates firmed up …………. little. They went up about ……………. sixteenth to ……………….. eighth of ……………… per cent. So people buy dollars ………………….. the interest differential between dollars ………………. Deutschmarks is widening. So………………. mean, if you buy dollars, OK, you, you ……………. lend them out………………..next day ……………… say eleven and ……………… half percent ………………. short …………… Deutschmarks that day, and you have ………………. purchase, borrow those …………… one day, and that's about five …………………. half per cent. So ……………. talking about six per cent difference. The basic idea ………………. spot dealing is to buy dollars low ………………. sell high. That's the basis ………………….. making …………… profit. A7 •
Act as an interpreter
Интервьюер: Почему Вам могут понадобиться немецкие марки на какую-то определенную дату? Вы сказали, что у Вас будет короткая позиция в марках и следовательно придется их занимать
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Alan: Well to square the account for that day. We're dealing ahead all the time. The spot market is dealing two working days forward. So, for instance, if I bought dollars against Deutschmarks, I would come in tomorrow and find that on the seventeenth I’m short in Deutschmarks and long in dollars. So then I would go into the market and say 'What's your torn/next dollar mark?' Интервьюер: Что это означает? Alan: Tom/next dollar mark. They're dealing terms, OK? Интервьюер: Да, понимаю. Alan: We have spot which is normal buying and selling of currencies. Then we have a tom/next. Now a tom/next simply means tomorrow to the next day. Then we have spot/next which is your two days' forward dealing value date to the next day. Интервьюер: Спасибо за разъяснение Alan: We also have outright. So someone can ask 'What is your spot dollar mark outright tomorrow?' It's just that you're quoting a spot rate but it’s from tomorrow, and you adjust the price, depending what the price is for the torn/next swap. It's always relative to the two day
Section В •
Listen to the tape, practice the pronunciation of the following words and word combinations and quote the sentences in which they are used in the unit.
to quote smth. for smb. the spot inter-bank price to calculate with a dollar/mark rate of 2.3665 to need to add some tips to credit one's DM account with a bank to cover the account
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to provide a foreign exchange service for smb regular corporate clients
В1 •
Look at the expressions and put a tick ( ) by the ones you might expect to hear in a telephone conversation concerning a foreign exchange deal and a cross ( ) by those that you would not expect to hear. In order to confirm the arrangements we made by telephone today, here are the terms and dates on which we agreed. 2. I'm fine thanks. How are you? 3. OK. Just let me get the two week price for you. 4. Hold on for a moment. 5. I can give you two dollars outright. 6. Please advise if 11.00 a.m. on the above date is convenient. 7. Why the dollar will rise again. 8. Nice to hear from you. 9. Just a second. 10. I sold you two million dollars against D marks. 11. Further to our recent telephone conversation, I am enclosing a copy of our tariffs, as requested. 12. Thanks a lot for the deal. 1.
B2 •
Alan King is calling Tove Strutz, the Cash Manager of a large Scandinavian insurance company. Listen to their conversation and answer these questions. 1. What time of the year does the conversation take place? 2. In this deal does Alan buy Deutschmarks from Tove or sell them to her? 3. What's the reason for Tove Strutz’s telephone call to Alan King? 4. What price did Tove S. agree to buy Deutschmarks at?
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5. Did Alan King add ten tips to the price for two million Deutschmarks? 6. What bank did Tove S. ask to credit his DM account with? B3 •
Listen to the telephone conversation again. As you do so, fill in the form below to show Tove's records of the transaction.
CURRENCY PURCHASE/SALE Bank and dealer Currency & amount Rate of exchange Value date SEK amount Date Notes
В4 •
Look at the following expressions. Then listen to the telephone conversation again and write down the words or expressions that are used to mean the following: 1. 2. 3. 4. 5. 6.
Actually. Meet each other. Telephone me. State our prices. The price for a currency two working days from now. The price for a currency two working days from now which one bank charges another bank. 7. An exchange rate of Swedish kronor against dollars.
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8. The front surface of a computer or terminal on which information is shown. 9. Thousandths of a percentage point. 10. Wait a moment. 11. Available in your account on (date). 12. I agree that we have made a deal. 13. Pay the funds into. 14. Pay the corresponding funds into. B5 •
You are going to hear eight sentences which you might hear in a telephone conversation. Respond to them with one of the sentences shown below. A. OK. Thanks for calling. Bye now. В. Yes, that would be nice. С. Fine thanks. And you? D. Yes, OK. In a couple of weeks, then. E. Let me think. As a matter of fact there is, yes. F. Very well, thanks. G. Yes, that's fine. H. For how much?
Note that not all of these responses actually occur in the section. Some are alternatives which could have been used instead of what was said. B6 •
The speakers in this unit all use numbers fluently in their everyday work. But it can sometimes be difficult to know how to say things which we often see written. How would you say the following? 1. 2.
3 + 8 32 3 % 16 53 % 4
1
3. 4. 600, 541
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5. 6. 7. 8. 9.
2,000,000 dollars 7.3980 2.6028 ÷ 0.0037=2.5991 500,000 × 10.64=5,320,000 240÷2 1 2 =96
10. 12 1 4 + 21 2 3 = 331112
Section C • •
Dealer’s Lingo Look through some terms used when dealing foreign exchange. Yard
– one billion ( used for yen ).
– миллиард
Yours
– to sell may be expressed in this way, qualified by the amount.
– миллиард
Mine
– to buy may be expressed in this way, qualified by the amount.
– покупаю
Given
– mainly heard through a broker’s box when the latter’s bid has been hit.
– продан (взят)
Taken
– mainly heard through a broker’s box – снят when the latter’s offer has been lifted.
Choice
– indicating a choice price, where the – нулевой dealer quotes one price for both bid спред and ask, i. e. quoting with zero spread.
Done
– to verbally confirm the deal.
– сделка совершена
Off
– the price quoted has changed.
– цена изменилась
Your Risk
– the quoted price is subject to change.
– цена может изменяться
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С1 •
What, in your opinion, are the essentials for a successful telephone call?
•
What sometimes goes wrong in telephone calls?
C2 •
Now listen to Alan King receiving a call from Jan Ackerman, a dealer in the Foreign Exchange department of a Dutch bank, and answer these questions. 1. Does it stand to reason that Alan and Jan know each other very well? Why do you think so? 2. What currency does Jan want to deal in? 3. Is it a big deal or a small deal? 4. Is it going to be a spot or a swap rate? 5. What's the swap for a small amount, and what’s the actual spot? 6. What was the amount of dollars sold against D marks?
C3 •
In quoting rates, note that Alan often specifies only the pips, that is the third and fourth decimal places of the exchange rate. Also, because he does not know whether Jan wants to buy or to sell dollars, he quotes a spread of rates, that is both the rates at which his bank will buy and sell dollars. Now listen carefully to the telephone conversation again and write in below each of the four rates which are quoted. Spot rate:
Buy $ ……………DEM
Sell $ ……………..DEM
Two weeks’ swap
Bid rate (the bank’s lending rate)
Offer rate (the bank’s borrowing rate)
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rate:
……………DEM
……………..DEM
C4 •
Listen to the telephone conversation again. As you do so, fill in Jan's settlement form. VAN ZEAHALM BANK 1007 AK Amsterdam DATE: November 21
TO:
Key Commercial
FOR PAYMENT TO OUR RECEIVING AGENTS:
FOR PAYMENT TO YOUR RECEIVING AGENTS: EXCHANGE RATE:
VALUE DATE:
C5 •
Look at the following extracts. Listen to the telephone conversation again and write down in the spaces provided the words that Alan and Jan actually use, instead of the words in italics.
1.
2.
3.
Good, what's……………….. , please? ( the exchange rate for dollars against Deutschmarks) I have probably a small interest in two weeks, ………………… (lending one currency and borrowing another for a fixed period of time) OK, ………………. (wait a moment ). For two weeks
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4.
5.
6.
7.
8.
9.
………………….. ? (beginning two working days from now) Less than a………………….. ? (million dollars) Can you give me……………………? (the exchange rate that will actually he used for funds exchanged two working days from now) OK, I can………………….. ( sell you half a million dollars in exchange for Deutschmarks) So two fifty-nine ninety-one is the outright. ………………………………….. will be the ... ( the date on which our money is available in your account and yоur money is available in our account ) Just a second, I've lost my…………………… (chart or table showing days, months and dates) ………………………… . Thank you very much, Jan. ( We have agreed on the sale and purchase of half a million dollars.)
C6 •
A dealer at Bank В telephones the Cash Manager at Company С to check on the company's currency needs. Work in pairs, one person being the dealer and the other the Cash Manager. See if you can reach a deal.
Section D
D1 •
Read the following report about currency rates and then look at the graphs below which show the movement of the four currencies during the week in question. Which graph shows which currency?
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In a quiet week, the US dollar continued its upward course, again trading at nearly three Deutschmarks. The dollar was supported by commercial demand, as normal inter-bank trading declined and the market's major operators began squaring their positions for the yearend. The forecast of lower US interest rates and of a cut in the Federal Reserve discount rate did not lead to any downturn in the US currency and the dollar closed at DM 2.9925. The Deutschmark was hardly changed, moving in a narrow range in lack-lustre trading in Frankfurt. There was no central bank intervention to weaken the dollar against the mark. Trading volumes were low as the markets decline towards the end of the year. Sterling has been volatile lately, due to its status as a petrocurrency, and at the beginning of the week it fell against the dollar and other major currencies, as North Sea oil prices eased on the European spot market. Friday saw a slight recovery, however, due to the covering of short positions, and at close of trading the pound stood at USD 1.3016. Falls in oil prices have opposite effects on the pound and the yen, as Japan needs to import nearly all its considerable energy requirements. This has meant that the yen has continued its steady climb, levelling slightly towards the end of the week. Against the dollar it has remained little changed since mid-January, but the yen has outperformed European currencies for most of the year. Sterling started the year at around JPY 325, touching a peak of JPY 344 on May 14. It closed on Friday at JPY 337. D2
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•
Now read the report again and then complete the information below to show the latest currency rates mentioned.
USD 1=…………. GBP 1=…………. GBP 1=………….
•
On this basis, work out the following cross rates: USD 1= JPY ..................... GBP 1= DM……………..
D3 •
On the basis of the information in the report above, say whether the following statements are true or false.
1. The report was written in mid-January. 2. The dollar firmed up against the Deutschmark during the week. 3. Big banks were more interested in balancing their currency positions than in normal trading. 4. Possible changes in the US interest rates and the discount rate did not affect the dollar rates. 5. The Deutschmark was traded in large amounts in Frankfurt. 6. The exchange rates of the British pound have changed quickly recently. 7. Banks were dealing in sterling on Friday in order to square their currency positions. 8. Falls in oil prices mean that the yen rates go up. 9. The yen rate against the dollar has been roughly the same for eleven months. 10. It is possible to buy more yen with Swiss francs now than it was earlier in the year. D4
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•
Look at the figures which show the US dollar currency position of bank at the close of business on April 14th. On the basis of this information, say whether the bank's total position in US dollars is long or short and if so by how much, or whether the bank has squared its total position.
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Accounts in US dollars A: Position at close of business, April 14th. Nostro accounts (money placed with foreign banks) USD 50 million Loans to customers USD 5 million USD 55 million
Vostro accounts (deposits received from foreign banks) USD 40 million Deposits from customers USD 10 million USD 50 million
B: Forward position in USD. Forward purchases
Forward sales
Value 21st April
Value 21st April
USD 30 million Value 29th April
USD 40 million Value 29th April
USD 35 million
USD 35 million
USD 65 million
USD 75 million
C: Total position.
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D5 •
Read the text about foreign exchange rates and forex forecasting
Foreign exchange rates are never stable. They move, and sometimes with dramatic rapidity. A nominal exchange rate move is the total observed movement in the exchange rates. A real exchange rate move is the nominal rate movement adjusted for the differential in inflation. To conduct international payments banks maintain sufficient working balances in all major currencies. Dealers are the people who are directly involved with day-to-day dealing in foreign exchange, the buying and selling of one currency for another at in agreed rate for delivery on specific dates into specific accounts in specified centers. They close out short and long positions through purchases and sales and deal with profits and risks of foreign currency trading. Forecasting of foreign exchange rates movements is not a science but an art. But there are some approaches that yield good results. The dealer must always be in the picture of bond, commodity and equity market developments. Changes in interest rates and pending deals bring about forex movements. Market sentiment may change the situation very quickly. Economic and financial indicators must be constantly watched to take timely decisions. In the former days domestic considerations were of paramount importance now markets are driven by both domestic and international events. Market rumours usually precede upcoming political and economic events. If a rumour is credible the market acts accordingly and the event itself may not produce any changes in the market situation. This process is reflected in the saying “Buy the rumour, sell the fact”. Economic growth is facilitated by stable prices. The latter is the concern of central banks, which posses considerable financial resources and can reduce volatility if markets get carried away. Limited central bank intervention at the right time may turn the market.
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The customer takes up positions in foreign exchange by his expectations as to future rate trends. These expectations are influenced by the extremely large number of factors. The latter can be divided up systematically into fundamental and technical factors.
•
Consider the following points. Be prepared to share your ideas with a partner. Look at the dialogue (given as an example) and be ready to act out your own dialogues. Dialogue Client : What is the meaning of real exchange rate? Broker : Inflation changes nominal exchange rate. If British inflation has been 10 percent over the past year, while American inflation has been 0 percent, the pound sterling devalues against the dollar by 10 percent. Client : But the nominal rate does not reflect this change. Does it? Broker : No it doesn’t. We do not sell it. But it takes 10 percent more pounds to by a dollar, 10 percent more pounds to by a car in England because of 10 percent inflation there.
Points for discussion. a.
The difference between a nominal and real exchange rate.
b. The forecasting of forex rates moves is not a science but an art. c.
What approaches in forex forecasting yield good results?
d. What events drive financial markets nowadays? e.
How can central banks influence financial markets?
f.
What is the customer guided by in taking forex decisions?
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Unit 4 A Presentation Vocabulary notes 1.
2.
3.
4.
5.
6.
7.
8. 9.
leverage(n) (Am.) – возможность получения значительной прибыли при небольших затратах; syn. gearing (Br.) swing (n) – качание, крен; lead to swings between profit and loss – вести к колебаниям между доходом и убытками; seasoned (adj.) – опытный, квалифицированный; syn. experienced option (n) – опцион, сделка с премией; call option syn. – опцион покупателя, сделка с предварительной премией; syn. buyer’s option put call – опцион продавца, сделка с обратной премией; syn. seller’s option exotic option – экзотический опцион на право покупки (продажи) некоторых видов товаров (металлы, нефть) и даже на право обмена акций одного вида на акции другого вида; currency options market – рынок валютных опционов; exercise the option – исполнить опцион; adverse (adj.) – неблагоприятный; an adverse movement in exchange rates – неблагоприятное изменение в валютных курсах; gamble (n) – рискованное предприятие, спекуляция, игра (на бирже); a calculated gamble on exchange rate – подсчитанная (просчитанная) игра на разнице валютных курсов; familiarize (v) (oneself) with smth. – ознакомлять, ознакомить(ся); contemplate (v) – предполагать, предположить; endeavor – попытка, усилие, дело; syn. undertaking
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10.
11.
12.
13.
14.
15.
16. 17.
18. 19. 20.
be in the forefront of smth. – быть на переднем плане, в авангарде; build up a leadership position in smth. – формировать лидирующую позицию в ч-л.; overhaul (v) – обогнать, обгонять; syn. overtake striking price – объявленная, договорная цена опциона, цена исполнения опциона; syn. exercise price insurance-like product – продукт, представляющий собой (напоминающий) страховку; downside (upside) – негативное (позитивное) изменение в курсах валют; cover downside; keep upside – покрывать неблагоприятное (негативное) изменение в курсах валют; сохранять, удерживать благоприятное (позитивное) изменение в курсах валют; known worst case – наихудший вариант; contingent (adj.) – случайный, непредвиденный; cover contingent cash flows – покрывать непредвиденные суммы (потоки) наличности; profit lock – блокирование прибыли; customize (v) – усовершенствовать (подогнать) под клиента; payout (n) – выплата, расходование; payout amounts – суммы выплат;
Briefing The forex market is one of the most popular markets for speculation due to its enormous size, liquidity and tendency for currencies to move in strong trends.An enticing aspect of trading currencies is the high degree of leverage available. FX allows positions to be leveragred up to 100:1. Without proper risk management this high degree of leverage can lead to enormous swings between profit and loss. Knowing that even seasoned traders suffer losses, speculation in the forex market should only be conducted with risk capital funds that
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if lost will not significantly affect one's personal financial well being. Companies trading internationally are exposed considerable foreign exchange risk. If, for example, a French company knows that it will need $2 million in three months' time to pay for imports from the USA, it can buy the dollars forward, i.e. at a rate specified now, thus eliminating the risk of an adverse movement in the exchange rate between the EUR and the US dollar. Unfortunately, buying dollars forward also eliminates the possibility of a favorable movement in exchange rates. Alternatively, the company could wait three months and then buy the dollars at the spot rate, i.e. the rate charged then for funds to be delivered two working days after the transaction. This way the company may get a better exchange rate but it also runs a risk, since the rate could be worse. Essentially, either course of action involves a calculated gamble on exchange rates. To meet this situation, some banks developed and began to offer currency options in the early 1980s. Transactions in options carry a high degree of risk. Purchasers and sellers of options should familiarize themselves with the type of option (i.e. put or call) which they contemplate trading and the associated risk. Under the currency option, the customer pays a premium which gives them the right to demand purchase or sale of a specified currency at an agreed exchange rate up to an agreed date, but no obligation to do so. After the customer pays the premium, the bank sends out confirmation of the deal. If the exchange rate in three months' time, or whenever the expiration date is, is better than the one the customer has agreed on, they do not use the option, and instead deal at the market rate when they need to. Their cost has only been the premium for the option. Alternatively, if the rate is worse than the one they have agreed upon, they exercise the option, and thus suffer no loss due to the fall in exchange rates. The customer may exercise the option at any time up to and including the expiration date, for value spot. This, then, is the basic idea of the currency option. Options on currencies can offer a wide and diverse range of potentially attractive trading opportunities. However, option trading is a speculative endeavor and should be treated as such. Even though the purchase of options on currencies involves a limited risk (losses are limited to the costs of purchasing the option), it is possible to lose your entire investment in a short period of time. And for traders who
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sell rather than buy options, there is no limit at all to the size of potential losses.
• •
Read the briefing Check your comprehension and answer the following guestions:
Why is the aspect of trading currencies through the operations of foreign exchange market so enticing? 2. Why does foreign exchange risk management play an enormous role in forex market operations? 3. What are certain disadvantages of forward transactions in the Interbank market? 4. What should option holders bear in mind dealing with currency options trading? 5. What dangers do foreign currency options operations entail being actually a speculative business? 1.
•
Say if the statements are true or false.
1. The forex market hardly provides foreign exchange for the purpose of speculation. 2. This market of exchange has had more daily volume than any other in the world and carries no risk. 3. Actually purchasing dollars forward expels the possibility of a favourable movement in exchange rates. 4. Only experienced forex traders are sure to avoid losses involved in the foreign exchange operations. 5. Buying dollars at the spot rate in three months' time may let the company get a better exchange rate since the rate can not be worse. 6. Currency options business has been developed to offer a wider range of currency trading opportunities.
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7. An option gives the buyer the right to buy or sell a particular currency at a stated price at any time prior a specified date and certain commitments to do so. 8. The option is not exercised by the option holder at any time up to and including the expiration date, for value spot. 9. Options trading losses are limited to the costs of buying the option. 10. Both option buyers and option sellers are not secure from potential financial losses.
Section A •
In this unit we will hear three parts of a presentation about currency options by John Morley. He is Executive Director of the foreign exchange division of a London merchant bank and is making his presentation to a group of cash managers and treasurers from different corporate clients.
A1 •
Here are the steps which John uses in planning his presentation strategy. Choose the five steps which you think are the most important for the making of a successful presentation in their order of importance and then discuss your choices with a partner.
1. Set the objective of the presentation. 2. Research the topic. 3. Analyze the needs of the audience. 4. Formulate a clear introduction. 5. Select information which the audience needs on the topic and which makes the advantages clear. 6. Review the advantages and finish with a clear closing statement. 7. Provide time for audience questions. 8. Include language techniques to help direct the attention of the audience.
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9. Prepare visual aids. 10.Practise the entire presentation. A2 •
Listen to the beginning of John Morley’s presentation. As you do so, make brief notes on what John says. Some headings are given here to help you.
Currency options market: Forward contracts: Treasury services: Leadership position : Medium-size to large companies:
А3 •
Listen to this part of the presentation again and write down in the spaces provided the words that John Morley says.
We have therefore built up quite a ..... (1)..... leadership position in ..... (2)...... options, and we believe that we ...... (3)...... the bank in the world that .....(4)...... the most currency option business. We may ...... (5)..... find that as time goes by perhaps ..... (6)...... banks, with a larger customer base than ..... (7)......., the retail banks for instance, start ...... (8)..... these products and get them ..... (9)......, that they may eventually ......(10)..... us in volume. But for the ..... (11)...... to large company we believe that we will have a .... (12)...... element, a special ......(13)..... element, which will be important, and which we ..... (14)...... to be able to keep in the ..... (15)...... position in this and one or two other new markets.
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А4 •
Listen to this part of the presentation again and say if these statements are true or false. 1.
John begins by introducing himself and by thanking his listeners for coming.
A number of services in the currency field and in cash management field can be used singly only and no combination is possible. 3. John says that currency options are quite complicated. 4. The currency options market has been developed for many years and is considered a traditional one. 5. There will be opportunities later for discussion with subject experts. 6. John expects currency options to become as important as forward contracts. 7. John's bank was one of the first to introduce all kinds of new services in the currency option field. 8. John believes that his bank does as much currency options business as any other bank in the world. 9. John expects the retail banks eventually to do larger volumes in currency options business than his own bank. 10. John does not expect larger banks to have the same tailormade element in currency options services as his own bank will have. 2.
A5 •
Arrange to following words into: a) pairs of synonyms: remove, deal, gearing, overhaul, bonus, exercise, commitment, effect, endeavor, leverage, acknowledgment, eliminate, overtake, contemplate, undertaking, premium, transaction, obligation, consider, confirmation;
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b) pairs of antonyms: adverse, downside, include, complicated, distract, advantage, contingent, profit, eliminate, unskilled, behind, favourable, upside, straightforward, attract, foreseen, loss, seasoned, forefront, disadvantage.
Section B B1 •
• • • • •
John Morley continues his presentation. Which of these items does he talk about? The history of currency options. What a currency option is. Currencies available. Advantages of currency options. Options and treasury services.
B2 •
Here are the incomplete notes John used in this part of the presentation. Listen again and then complete the notes so that they are similar to the slide he used. Option buyer has the right to But no obligation to do so. Option writer has the right to price demanded.
В3
at the
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•
Complete the currency flow diagrams below by writing the events in the appropriate boxes. Listen again to this part of the presentation if necessary.
1. Foreign Currency Call Option Events Receives base currency. Delivers specified currency. Receives specified currency. Delivers base currency. Option buyer
Option writer
2. Foreign Currency Put Option
Events
Receives specified currency. Receives base currency. Delivers base currency. Delivers specified currency. Option buyer
B4
Option writer
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•
Below is a slide which John uses to describe the advantages that are offered by currency options. The list here, however, is out of order. Specify the two advantages to which John refers in this section in order. Listen again to this part of the presentation if necessary.
Advantages •
Known worst case
•
Range of strike prices
•
Cover downside; keep upside
•
Profit lock
•
Contingent cash flows
B5 •
Choose the best answer.
1.
If you purchase something: a) you hire it; b) you deliver it; c) you buy it; d) you state how much it costs.
2.
An obligation is: a) something you must do because there is a legal or moral requirement to do it; b) a particular thing that you want to do; c) a document promising to pay a sum of money; d) a sum of money owed by one person to another.
3.
Value spot is:
a) a period of two weeks beginning two working days from now; b) the price for funds which will be exchanged two working days from now; c) the price for a currency in terms of the currency of another country; d) the date two days ahead on which funds are available in the bank.
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4.
Something that is straightforward: a) happens immediately without delay; b) happens too quickly; c) is simple and uncomplicated; d) is very serious and important.
5.
Anything that is unique about the option is: a) to be found only in the option; b) to be found mainly in the option; c) difficult to understand; d) new and not very well known.
6.
A deal is: a) a business agreement; b) a business relationship; c) a way of saving money; d) a person who buys and sells things.
7.
A principal advantage is: a) an advantage that you believe in; b) a general advantage; c) an advantage in theory but not in practice; d) a main advantage.
8.
Downside risk is;
a) the possibility of a fall in value; b) the possibility of a rise in value; c) the possibility of a fall in quality; d) the possibility of fewer advantages. 9.
If something happens simultaneously, it: a) happens without being planned; b) happens before something else; c) happens after something else; d) happens at the same time as something else.
10.
A premium (here) is: а) a large sum of money; b) a sum of money set aside for a particular purpose; c) a charge for the use of an option; d) a demand for payment.
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B6 •
Each of these phrases from the presentation fulfils a particular purpose. Match the items with the definitions. 1.
First of all, what is a currency option anyway? What are we talking about?
2. Can everyone see that?
3.
Like an ordinary foreign exchange deal.
4. So that's the essence of it.
A.
Stating a feature of something which makes it better than anything else.
B.
Saying that you are going to talk about something later.
C.
Saying that something is simple.
D. Moving on to the next point.
5.
It's a perfectly straightforward initial idea.
E.
Making a comparison.
6.
We now have to look at why the option has ...
F.
Emphasizing that an option fulfils a function already referred to.
7.
What is it that's unique about the option that gives it certain advantages that make it the best deal?
G.
Introducing a definition or explanation.
H.
Introducing the main feature of something which makes it better than anything else.
I.
Checking that everyone can see an illustration.
J.
Saying that you have spoken about the main features of something.
8. ... and we'll come and discuss some of them in more detail. 9.
A principal advantage is that ...
10. An option does that.
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Section C C1 •
Look again at the slide shown in B4.
•
Listen to the third part of John Morley's presentation
•
Number the remaining advantages to show the order in which he mentions them in his presentation.
C2 •
Listen to this part of the presentation again.
•
Make brief notes. The headings you have numbered 3, 4 and 5 on the slide will help you.
•
Compare your notes with those of a partner and discuss any differences.
C3 •
Listen to this part of the presentation again
•
Write down in the spaces provided the words that John actually uses instead of the words in italics.
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1.
An option is .................. useful for covering contingent cash flows ...... ( especially)
2.
...... , for instance, where you might get the order ... (written offers to supply goods or carry out work at a stated price)
3.
Range of....... (exchange rates agreed for a currency option)
4.
You can't ..... to deal at some other rate. (choose)
5.
Most companies reckon they can live with a few cents ....... of an exchange rate. (movement )
6.
So you can ...... , depending on ... (change the charges that you pay for the use of an option)
7.
... by which I mean that if you are ...... , for instance, and the dollar has been going up and up ...... ( in a position where you have bought more dollars than you have sold )
8.
You can take out an option to sell the dollars at......... . (today's price)
9.
... if it goes up, effectively you have locked in that amount
of ........ . (financial gain or advantage) 10.
And ............. might find this profit lock effect a useful one. (people responsible for a company’s money)
11.
... an option and obtain ......... which you cannot get any other way. (an advantage )
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C4 •
Match the following options trading terms with their definitions. 1. Call 2. Put 3. Strike price
4. Option buyer
5. Option seller
6. Premium
7. Expiration
8. Quotations
9. Exercise 10. Offset
A. is the party that conveys the option rights to the option buyer. B. the last day on which an option can be either exercised or offset. C. an option that conveys to the option buyer the right to purchase a particular currency at a stated price at any time during the life of the option. D. most currencies are reported daily in the business pages of most major newspapers, as well as by a number of Internet. E. this is the stated price at which the buyer of a call has the right to purchase a specific currency or at which the buyer of a put has the right to sell a specific currency. F. an option that conveys to the option buyer the right to sell a particular currency at a stated price at any time during the life of the option. G. an option that has been previously purchased or previously written can generally be liquidated at any time prior to expiration by making an offsetting sale or purchase. H. a person who acquires the rights conveyed by the option: the right to purchase the underlying currency if the option is a call or the right to sell it if the option is a put. I. I the “price” an option buyer pays and an option writer receives. J. an option can be exercised only by the
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buyer of the option at any time up to the expiration date.
C5 •
Choose those statements whose information deals with market of currency options and proves that options are a great tool for traders. There are currently various facilities available for engaging in foreign exchange transactions. 2. These financial tools offer a low cost method for speculation or hedging with minimal risk and high returns. 3. The Interbank market involves the buying and selling of foreign currencies amongst commercial banks. 4. Spot transactions account for more than 50% of all trades in the Interbank market. 5. Your full downside risk is always known in advance. 6. You can also fully customize your options including payout amounts, barrier prices and expiration dates. These customizable features put you in full control of your risk. 7. Once a party agrees to buy or sell a particular currency at a fixed rate of exchange, that party is obligated to do so. 8. They allow you to profit from a larger range of speculative movements than spot transactions. Depending on the option that you select, as long as the criteria behind your barrier prices are met, you will receive your payoff amount. If not, all that you can lose is your predetermined low option premium. 1.
Section D D1 Read the letter from John Morley to one of the guests who was at his presentation. The letter contains nine paragraphs. 1. Read it quickly and match the ideas below with the appropriate paragraph number.
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A Stating the price of a service. B Specifying terms and conditions. C Offering a facility. D Offering to state the price of a specific service. E Generally inviting business and offering service. F Saying who should use a service and when. G General introduction of a service. H Explaining how a service works. I Stating the purpose of writing. W allers Bank plc
14 Churchgate, London ECZA ZYU Telephone: 071 586 2314 Facsimile 071 586 2333 Telex: 338539
Wilhelm Haussmann Corporate Finance Director GVZ AG Quai de Vendome 8007 Zurich Switzerland 18 March 2005
para.
Dear Wilhelm, 1
2
It was a pleasure to see you at the bank on March 7 and 8. During our Thursday afternoon meeting, we briefly discussed several points and, as promised, we are now writing to you concerning the three major issues raised. Firstly, we noted your interest in learning more about our interest arbitrage operation, a service by means of which we are able to provide very attractive interest rates in all
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major currencies. The way in which these loans are arranged is by the use of sterling bills of exchange, socalled ‘eligible bills’, which can be discounted in the London discount market. This market reflects the shortterm (one to six months) domestic interest rate level in the United Kingdom and often provides cheaper funding than LIBOR-related instruments. 3
4
Companies to whom this form of lending will appeal are, in particular, those that have a borrowing requirement in a currency in which they have receivables available for repayment at the end of the loan period. According to the regulations of the Bank of England, the bills must support a commercial transaction such as export, import or domestic trade. We arrive at our interest rate through discounting sterling bills on behalf of our customer and converting the ned proceeds into the required currency at the spot rate. Wallers then enters into a forward contract with the customer for the purchase of the currency to be repaid at maturity of the loan and all the rates used for these transactions combine to produce the interest rate quoted to the customer.
5
Secondly, you expressed interest in opening a Sterling Current Account and I am now pleased to be able to offer you this facility on the following terms and conditions.
6
For your requirements in Sterling we would operate a current account in your name, transacting all standard banking items and paying interest on any cleared credit balances as follows:
– Up to £25,000
– Nil
– £25,000 to 100,000
– Wallers Call Rate less 1% p.a.
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– Over £100,000
– Wallers Call Rate (currently 9% p.a.)
I enclose a copy of our standard charges for standard items, but would operate the account free of charge for say six months, except for: - Clearing bank telex charge for same day value payment to one of their branches - Special сlearance costs - Daily telex statement charge After six months, we would review the arrangement in the light of account activity, balances held and prevailing interest rates. 7
8
9
We can provide a daily Telex Statement of Account which would be available to you each morning, itemizing all the transactions of the previous day and including the opening and closing balances. Our fee for this service is 600.00 for each account. Finally, you mentioned your forthcoming negotiations for the takeover of a United States company. The exchange risk that arises for you as a contingent liability during the negotiations is clearly a considerable one and one that is best covered, for reasons already discussed, by the use of a currency option. We would be particularly pleased to take this matter further, by advising you as to an appropriate strike price and by quoting a very competitive premium. We thank you for giving us the opportunity to assist you with your banking requirements and look forward to setting up an active and growing relationship with your group of companies. Meanwhile, if you have any queries,
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please do not hesitate to contact me. With best wishes, Yours sincerely, John Morley Executive Director Foreign Exchange Division What are the three main topics of the letter?
2. What are the three main topics of the letter? D2 •
Look at these steps describing the bank’s interest arbitrage system and number them in the order you think they happen.
•
Bills are discounted in the London discount market.
•
Bank enters in a forward exchange contract with the customer.
•
Bank accepts sterling bills from customer.
•
An overall interest rate is calculated on the basis of all the other rates.
•
The loan matures and the customer repays the agreed currency amount.
•
Net proceeds are exchanged for the currency required at the spot rate.
Now compare your sequence with that in the letter.
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D3 •
Give the group some time to look through the information dealing with market of currency options. Render it in English and do the task after the text.
В последнее десятилетие заметно усилилось внимание к так называемым производным финансовым инструментам (derivative securities). Термин “производный” связан с тем, что стоимость такого инструмента как бы привязывается к стоимости того или иного базового финансового инструмента (underlying securities) и становится по отношению к нему производной (не в математическом смысле) величиной. Среди производных инструментов наибольший интерес, вероятно, вызывают опционы. В России опционы пока не получили заметного распространения. Под опционом понимается право, но не обязательство, купить/продать некоторые финансовые инструменты, акции или валюту по оговоренной цене при наступлении срока или до него. За получение этого права покупатель опциона (buyer, holder) при заключении контракта уплачивает продавцу (seller, writer) некоторую премию (premium). Последняя представляет собой рыночную цену опциона. Таким образом, само право в этой операции становится товаром. Существуют два основных вида опционов: опционы колл и пут. Владелец опциона колл имеет право купить определенный товар (чаще всего, акции) по фиксированной цене (цена исполнения), причем эта возможность сохраняется до определенного дня. Напротив, владелец опциона пут имеет право продать определенный товар по установленной цене (цена исполнения), причем это возможно до фиксированного дня. Различают еще два вида опционов по срокам их исполнения: европейские и американские. Для европейских опционов фиксирована дата их исполнения. Напротив, американские опционы могут быть исполнены в любой момент до фиксированной даты исполнения. Следует заметить, что приведенные названия не определяют места сделки. Например, американский опцион может быть куплен и в Европе.
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Оговоренная в контракте цена объекта опциона называется объявленной, договорной ценой, или ценой исполнения (striking price, exercise price). Опционы распространяются на акации, динамику их цен (stock index option), различные долговые обязательства, В том числе облигации, казначейские векселя, долговые сертификаты и другие подобного рода бумаги (option on debt instrument) , курсы валют (option on currencies exchange rate), процентные ставки (jnterest rates option) и другие объекты. Существует особый класс так называемых экзотических опционов – на право покупки/продажи некоторых видов товаров (металлы, нефть) и даже на право обмена акций одного вида на акции другого вида. Каждый из перечисленных объектов опциона имеет свои особенности, которые должны учитываться в технике выполнения и методе анализа операции.
•
Check your comprehension and answer the following questions: 1. Has currency options business been popular among traders for many years? 2. What is option? 3. Comment on two major kinds of options. 4. Is there any difference in exercising European or American options? 5. Can option trading offer a wide and diverse range of potentially attractive opportunities? Prove your answer.
D4 I. Read the 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.
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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.
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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". II. Decide whether the following statements are TRUE or FALSE:
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1.
The price of a futures contract is determined at the moment the contract is made.
TRUE/FALSE
2.
Hedging is another name for speculating.
TRUE/FALSE
3.
Futures prices are always higher than spot prices, because they contain interest charges.
TRUE/FALSE
4.
In options, 'call' means 'buy' and 'put' means 'sell'.
TRUE/FALSE
5.
The amount of money one can make or lose on an options contract is determined at the moment the contract is made.
TRUE/FALSE
6.
You can sell an option to sell an asset you do not actually possess.
TRUE/FALSE
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.
TRUE/FALSE
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.
TRUE/FALSE
9.
A put option has intrinsic value if its exercise price is above the current market price of the underlying share.
TRUE/FALSE
10. A call option with an exercise price below the underlying share's current market price is "outof-the-money".
TRUE/FALSE
III. Match up the following words (using them more than once if necessary) to make up at least ten two-word nouns:
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call instrument primary
contract market product
financial materials raw
forward option spot
future price strike
IV. Match up the following words or expressions to make eight pairs of opposites:
call option flood market price put option
discount futures market obligation right
drought hedging out-of-the-money speculation
exercise price in-the- money premium spot market
V. Match the responses on the right with the questions on the left:
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1.
So what exactly bonds?
a. Becaus Becausee of change changess in in inte interes restt rate rates. s. For example, no-one will pay the full price for a 6% bond if new bonds are paying 10%.
2.
And how do they work?
3.
So you have to keep them for a long time?
c. I knew knew you you'd 'd finis finish h by saying saying that! that!
4.
Why should that happen?
d. No, not at all. Bonds are very liqui iquid. d. Th They ey can can be so sold ld on the secondary market until they mature. But of course, the price might have changed.
5.
Oh, I see. Is that what they mean by below par?
e. No, No, no nott unles nlesss it’ it’s a float oating rat rate bond. The соupon) the amount of inte intere rest st a bo bond nd pays, pays, rema remain inss the the same. But the yield will change.
6.
But the bond's interest rate doesn’t change?
f. No, those are short, term (threemonth) instr struments which the government sells to and buys from the commer commercia ciall banks, banks, to regula regulate te the money supply.
7.
How's that?
g. That’s the name they use in Britain for long, long, term term gov govern ernme ment' nt' bon bonds ds — gilts or gilt-edged securities. In the States they call them Treasury Bonds.
8.
And people ta talk ab about AAA and AAB bonds, and things like that.
h. They’re securities issued by companies, governments and fina financ ncia iall inst instit itut utio ions ns when when they they need to borrow money.
9.
And what about gilts?
i. Well, a bonds’ yi y ield is is it i ts co c oupon payment expressed as a percentage or its price on the secondary
b. Exactly. And the opposite, a bond whose market value is higher than its face value, is above par.
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market, so the yield changes if you buy or sell above above or below par. par. 10. Not Treasury Bills?
j. Well, th they us usually pa pay a fi fixed ra rate of inte intere rest st and and are are repa repaid id afte afterr a fixed period, known as their maturity, for example five, seven, or ten years.
11. And James Bond?
k. Yes. Bond-issuing companies are given an investment grade by private ratings companies such as Stan Standa dard rd & Poor Poors, s, acco accord rdin ing g to their financial situation and performance.
VI. Complete the following:
1. Companies generally use investment banks to __________ their bonds. 2. Thereafter, they can be traded on the ______________market. ______________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 _________________ .
VII. Complete the following using the phrases in the box: barometer stocks
blue chips
defensive stock
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deferred shares equities mutual fund ordinary shares preference shares or preferred stock
growth stock participation certificates
1. Another name for stocks and shares is _____, because all the stocks or shares of a company – or all those of a particular category – have an equal nominal value. 2. _____ (US: common stock) are often the only kind of shares with voting rights. 3. Some companies issue _____ which, like shares, grant their holders part of the ownership of a company, but usually without voting rights. 4. _____, as their name suggests, usually receive a fixed dividend, which must be paid in full before any dividend is paid on other shar sh ares es.. But But beca becaus usee inte intere rest st paym paymen ents ts are are tax tax dedu deduct ctib ible le,, and and dividends are not, many companies now issue bonds instead. 5. _____ (or stock), again as the name suggests, do not receive a dividend until other categories of shares have had a dividend paid on them, but might earn a higher dividend if the company does well. 6. Securities in companies that are considered to be without risk are known as _____. 7. Widely-held stocks (e.g. blue chips or 20-year Treasury Bonds) that can can be cons consid ider ered ed as indi indica cato tors rs of pres presen entt and and futu future re marke arkett performance, are known as _____ _____ (GB) or bellwether bellwether stocks (US). (US). 8. A ______ or share is one that is expected to appreciate in capital value; it usually has a high purchasing price and a low current rate of return. 9. A _____ or income stock or share is one that offers a good yield but only a limited chance of a rise or decline in price (in an industry that is not much affected by cyclical trends). 10. A way of spreading risks is to invest in a unit trust (in Britain) or a _____ (in the US), organizations that invest small investors' money in a wide portfolio of securities.
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