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FINANCIAL MARKETS

Financial markets provide a forum in which suppliers of funds and demanders of loans and investments can transact business directly. Whereas the loans and investments of institutions are made without the direct knowledge of the suppliers of funds (savers), suppliers in the financial markets know where their funds are being lent or invested. The two key financial markets are the money marketand the capital market. Transactions in short-term debt instruments, or marketable securities, take place in the money market. Long-term securities(bonds and stocks) are traded in the capital market.


The money market is created by a financial relationship between suppliers and demanders of short-term funds, which have maturities of one year or less. The money market exists because certain individuals, businesses, governments and financial institutions have temporarily idle funds that they wish to put in some type of liquid assets or short-term, interest-earning instruments. At the same time, other individuals, businesses, governments and financial institutions find themselves in need of seasonal or temporary financing. The money market thus brings together these suppliers and demanders of short-term liquid funds.

The capital market is a financial relationship created by a number of institutions and arrangements that allows the suppliers and demanders of long-term funds – funds with maturities of more than one year – to make transactions. The backbone of the capital market is formed by the various securities exchanges that provide a forum for debt and equity transactions. Major securities traded in the capital market include bonds and both common and preferred stock.

All securities, whether in the money or capital markets, are initially issued in the primary market.This is the only market in which the corporate or government issuer is directly involved in the transaction and receives direct benefit from the issue – that is, the company actually receives the proceeds from the sale of securities. Once the security begins to trade among individuals, businesses, government or financial institutions, savers and investors, they become part of the secondary market.The primary market is the one in which “new” securities are sold; the secondary market can be viewed as an “issued” or “preowned” securities market.



During the last two decades the Euromarket– which provides for borrowing and lending currencies outside their country of origin – has grown quite rapidly. The Euromarket provides multinational companies with an “external” opportunity to borrow or lend funds with the additional feature of less government regulation.

Answer the questions:

a) What is a financial market?

b) What are the two key financial markets?

c) In what do they differ?

d) Differentiate between primary and secondary markets.


IV. Intensive Reading Tasks

*1. Join the halves. Translate the sentences into Russian.

1. Financial markets provide the mechanism for

2. Investment analysis focuses on

3. When a company obtains capital from external sources

4. Equity financing and debt financing provide

5. Working capital refers to

6. Financial management is concerned with

7. Transactions is short-term debt instruments that

8. Major securities traded in the capital market

9. When prices rise

 

10. Finance involves

11. More experienced individuals would be eligible for

 

a) the funds used to keep business working or operating.

b) carrying out the allocation of financial resources.

c) take place in the money market.

d) include bonds and both common and preferred stock.

e) the financing can be either on a short-term or a long-term arrangement.

f) how individuals or portfolio managers select appropriate financial and real assets.



g) important means by which a corporation may obtain its capital. h) how firms acquire and allocate funds. i) loan officer, branch manager, or senior analyst. j) the securing of funds for all phases of business operations. k) The same goods cost more in terms of dollars, and the dollar's value in term of those goods falls.

Study the meaning of the following words and expressions from their definitions.

Finance

– management of money

– capital involved in a project

loan of money for a particular purpose

– money resources of a state, company or person


Finance house (company)

– organization providing finance for hire-purchase agreements.

Financial accountant

– accountant whose primary responsibility is the management of the finances of an organization and the preparation of its annual accounts.

Financial adviser

– a person who offers financial advice to someone else, especially one who advises on investment.

– organization, usually a merchant bank, which advises the board of a company during a take-over.

Financial capital

– the liquid as opposed to physical assets of a company.

Financial futures

– futures contract in currencies or interest rates.

Financial institution

– an organization that collects funds from individuals, other organizations or government agencies and invest these funds or lends them on to borrowers.

Financial instrument

– formal financial document.

Financial intermediary

– bank, building, society, finance house, insurance, company, investment trust etc. that holds funds borrowed from lenders in order to make loans to borrowers. – person or organization that sells insurance but is not directly employed by an insurance company.

Financial year

– any year connected with finance, e.g. a company's accounting period or a year

for which budgets are made up.

– specific period relating to corporation tax.

Financial ratio

– ratios between particular groups of the assets or liabilities of an enterprise and corresponding totals of assets or liabilities; or between assets and liabilities and flows like turnover or revenue.

Financier

– person who uses his one money to finance a business deal or venture or who makes arrangements for such a deal.


V. Speaking Practice

1. Dramatize the dialogues and make your own by analogy.
A

Mary It’s so nice to see you, Frank. Sorry, I couldn't come to your

office today.
Frank Never mind. Have a seat. Let’s start by having some coffee.

Mary So Frank. I guess it might be right time for me to invest in that

computer company. As my stockbroker, what can you

suggest?
Frank I am sure they are doing extremely well and they would



welcome your investment.
Mary But why do they need my investment if they are doing so

well?
Frank O.K. I think I should explain you a little about a corporate

finance.

B

Frank Mary, in fact, I studied the Annual Report of the company and

I can tell that they have good management. Their business is

doing very well, the value of their stock has been rising. It can

be an excellent long-term investment, I am sure.
Mary But if I want to sell my shares very soon?

Frank No problem. Undoubtedly you can make a profit on the sale.

But it seems to me you'll want to keep this company in your

portfolio.
Mary Thank you for your advice. You are as wise as usual.

Frank Well, my advice now is to study the company's Annual

Report. You need several days for that. Then we'll meet and

talk again.

Career opportunities in finance is great”. Outline as many points as you can to support this statement.

Describe the main types and characteristics of financial markets.

Get ready to speak in details about your future profession.


VI. Written Task

Translate into Russian using a dictionary.

WHY FINANCE?

One of the primary considerations when going into business is money. Without sufficient funds a company cannot begin operations. The money needed to start and continue operating a business is known as capital A new business needs capital not only for ongoing expenses but also for purchasing necessary assets. These assets – inventories, equipment, buildings, and property – represent an investment of capital in the new business.

How this new company obtains and uses money will, in large measures, determine its success. The process of managing this acquired capital is known as financial managing/management. In general finance is securing and utilizing capital to start up, operate, and expand a company.

To start up or begin a business, a company needs funds to purchase essential assets, support research and development, and buy materials for production. Capital is also needed for salaries, credit extension to customers, advertising, insurance, and many other day-to-day operations. In addition, financing is essential for growth and expansion of a company, because of competition in the market, capital needs to be invested in developing new product lines and productions techniques and in acquiring assets for future expansion.

In financing business operations and expansion, a business uses both short-term and long-term capital. A company, much like an individual, utilizes short-term capital to pay for items that last relatively short period of time. An individual uses credit cards for buying such things as clothing or food, while a company seeks short-term financing for salaries and office expenses. On the other hand, an individual uses long-term capital such as bank loan to pay for a home or car – goods that will last a long time. Similarly, a company seeks a long-term financing to pay for new assets that are expected to last many years.

When a company obtains capital from external sources the financing can be either on a short-term or a long-term arrangement. Generally, short-term financing must be repaid in less than one year, while long-term can be repaid over a longer period of time.

Finance involves the securing of funds for all phases of business operations. In obtaining and using this capital, the decisions made by managers affect the overall financial success of a company.


*2. Choose any question (problem, topic) relating to Finance and make a 10 – 15 minute report in class. Refer to different additional sources to make your report interesting, instructive and informative.


MY FUTURE PROFESSION (вариант IV)


ECONOMIST

 








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