ENGLISH FOR BUSINESS COMMUNICATION 2

A Course for 1st Year Distance Learning Students (The Faculty of Finance, Insurance, Banking and Stock Exchange)

The ENGLISH FOR BUSINESS COMMUNICATION course is designed for 1st year students of the Faculty of Finance, Insurance, Banking and Stock Exchange enrolled in the Distance Learning Programme. The aim of the course is to develop integrated communication skills in English, thus enabling the students to develop their comprehension skills, as well as to present ideas clearly on a variety of financial and business topics.

COURSE OBJECTIVES: The main course objectives are: to help students revise vocabulary structures; to familiarize students with financial and business concepts; to develop students comprehension of business and economics texts; to improve students ability to discuss financial matters; to develop students oral and written communication skills; to develop study and self-assessment skills.

COURSE STRUCTURE: The course is structured into 4 units, each of which has a self-assessment test and answer key appended to it.

STUDENT ASSESSMENT: The course provides 2 categories of assessment tools: end-of-unit self-assessment tests; tests administered by the professor.

GRADING:

two professor-administered written tests: 50%; homework file: 50%.

COURSE REQUIREMENTS:

deadlines for homework files and self assessment-tests submission will be rigorously met;

plagiarism and dishonesty will result in a zero (0) for that particular test paper/ homework file.

CONTENTS
Unit 1 Recruitment Objectives Reading Vocabulary Skills Focus Writing Self-Assessment Test Unit 1 Answer Key .............................. .............................. .............................. .............................. .............................. .............................. .............................. 5 5 5 7 8 13 14

Unit 2

The Foreign Exchange Objectives Lead-In Reading Vocabulary Self-Assessment Test Unit 2 Answer Key

.............................. .............................. .............................. .............................. .............................. .............................. ..............................

16 16 16 18 19 21 23

Unit 3

Stocks and Shares Objectives Lead-In Reading Vocabulary Self-Assessment Test Unit 3 Answer Key

.............................. .............................. .............................. .............................. .............................. .............................. ..............................

24 24 24 25 27 29 33

Unit 4

Derivatives Objectives Lead-In Reading Vocabulary Self-Assessment Test Unit 4 Answer Key

.............................. .............................. .............................. .............................. .............................. .............................. ..............................

34 34 34 37 38 40 43

Bibliography

..............................

44

UNIT 1 RECRUITMENT
OBJECTIVES
This unit will help you to: prepare yourselves for obtaining the job you desire; write a Curriculum Vitae according to the commonly accepted European criteria; understand how information is structured in a letter of application; write a letter of application.

READING
1. Think of methods you consider useful in handling the stress of looking for a job. Then read the article below and see if the strategies you thought of are mentioned. 2. Read the text Beating Job Search Burnout and match the headings below to the right paragraph: a) Anticipate rejection; b) Assess your skills; c) Find an office; d) Stay positive; e) Take breaks.

Beating Job Search Burnout As any job seeker can attest, searching for a position can be a full-time task. If you're doing it right, the process will take up most of your time. And to make matters worse, it doesn't have the benefit of a paycheck at the end of the

week to make it all worthwhile. It can be hard not to get discouraged as you wait for the phone to ring, check your email every hour, or run home to find no new messages on your answering machine. When you start to feel like you just can't send one more resume, write another cover letter, or charm your way through your next interview, don't despair. Every job seeker faces burnout at some point during the process. But the more you manage your stress level, the easier it will be for you to stay focused and not feel overwhelmed. Are you curious how can you retain both your sanity and your motivation during this challenging time? Here are some effective tips for how to beat job search burnout: ____________________ The job search process is especially stressful if you are still unclear about what type of job you want. Until you've honestly examined your interests, skills and values, you're not likely to land to the right job. Knowing yourself and the type of job you seek will help you to stay focused. It will also enhance your networking efforts and interview performance. Additionally, it will prevent you from wasting time and energy on positions that aren't the right fit for you. ____________________ While no one likes to get rejected, try not to take it personally. No matter how qualified you are, so are many other candidates. Getting passed over for a job is not really about you, but about the staffing needs of the organization. Keep in mind that the decision is not a reflection of who you are as a person. ____________________ Everyone deserves a day off now and then, even from a job search. Don't feel guilty about taking an hour, a day, or even a week off to do something fun for yourself, getting a break from the grind. Time off will help you recharge your battery. You'll come back to your job search with a fresh perspective and renewed motivation. ____________________ It can be depressing to spend your day at home in your pajamas, especially when everyone else has somewhere to go each morning. For this reason, it's

important for you to "go to work" as well. Find a location such as your local library, career center or coffee shop, where you can spend several hours each day dedicated to your job search. Bring a laptop or make sure they have the computer capabilities that will meet your needs such as Internet access, email and/or a printer. Also, a cell phone will enable you to check your messages, as well as make any necessary calls. ____________________ The job search isn't all bad. It's merely a time of uncertainty, which can be exciting. At any moment, the phone could ring and you might be offered a job that takes you around the world or enables you to do what you love. Get comfortable with ambiguity by remembering that your next big break is right around the corner.

adapted from Beating Job Search Burnout. How to deal with the stress of finding that perfect job by Jennifer Bobrow Burns

VOCABULARY
1. Match the words and expressions in the box with their explanation. There may be more than one explanation for the same term: assess; job seeker; burnout; paycheck; networking; positive; staff; break; land to something. a. an opportunity for improving a situation, especially one which happens unexpectedly; b. extreme tiredness usually caused by working too much; c. the group of people who work for an organization; d. meeting people who might be useful to know, especially in your job; e. get or achieve something good, especially in a way which seems easy or unexpected; f. the amount of money a person earns; g. fully assured, confident;

h. a time away from work or your regular activity; i. to value, to make a valuation of something; j. someone who is looking for a job.

2. Put each of the words or phrases in the box in its correct place in the sentences below: assignment job deadline CVs employee seeker employer goals interviews letters of application

The (1). search is like any other research project or (2). you have to complete for school. You need to clarify your (3). in advance, have a (4)., and put it on your calendar. It is important to take pride in your accomplishments, and reward yourself as you achieve each small goal you've set for yourself. Even if as a job (5). you can't control the number of (6) . you are offered, you can control the number of networking phone calls you make, (7). and (8) . you send out, and hours you spend conducting research. If you get organised, taking down detailed information about an upcoming job interview whenever a potential (9). calls and not missing appointments, you increase your chances of becoming an (10). in a good company.

SKILLS FOCUS WRITING

The European Curriculum Vitae Study the CV below to see how information is presented and structured and complete it by using the following headings:

Additional information Work experience Personal skills and competences

Education and training Personal information Annexes

Desired employment/ Occupational field

Curriculum Vitae
1.
First name/ Surname Address Telephone Fax E-mail Nationality Date of birth Gender 2. Cynthia Westland 72 Harpenden Road, London, N9 8JE 020 7434 8832 020 7434 8832 cynthia_westland@hotmail.com British December 17 1976 Female A Sales Representative position with an international trade organisation based in London.

Mobile: 086 2222222

3.
2002-2004 Occupation or position held Main activities and responsibilities Sales Representative Making contacts with existing and potential international customers Serving and advising customers, ordering and displaying stock Organising product presentations together with the marketing department Chic, Paris, France International Sales womens fashion

Name and address of employer Type of business or sector 1997-2001 Occupation or position held Main activities and responsibilities Name and address of employer Type of business or sector 4. Dates Title of qualification awarded Principal subjects/Occupational skills covered Name and type of organisation providing education and training Dates Principal subjects/Occupational skills covered

Sales Assistant Serving and advising customers, ordering and displaying stock Using the computerised till and taking payments No Name Shop, Fulham Sales womens fashion

1996-2000 BA (Hons) Business Studies and French Subjects included marketing, industrial relations, economics, business law, commercial French, decision making and strategic management. Specialist areas: personnel and marketing. Final year thesis on qualitative labour market research. University of North London

1993-1996 Subjects included French, Economics and History.

Name and type of organisation providing education and training Level in national or international classification Dates Principal subjects/Occupational skills covered Name and type of organisation providing education and training Level in national or international classification 5. .. Mother tongue Other languages Self-assessment European level French German Social skills and competences

St Francis Comprehensive School, Fulham

A levels - French (grade C), Economics (D), History (D)

1993 Subjects included French, English, History and Maths.

St Francis Comprehensive School, Fulham

GCSEs - French(B), English (C), History (C), Maths (D)

English Understanding
Listening
C2 Professional user
(*)

Speaking
Spoken interaction Spoken production
C2 Professional user

Writing
B2 Independent user

Reading

C2 Professional user C2 Professional user A2 Basic user

B1 Independent user A2 Basic user

B1 Independent user A1 Basic user

Common European Framework of Reference (CEF) level

Communication and teamwork skills acquired while fulfilling my previous job responsibilities. In my quality as a Sales Representative for Chic, Paris, I organised product presentations, supervising the members of the staff involved and selecting the materials. Good knowledge of Microsoft Office packages, particularly Word, Excel and Power Point References available upon request You will find a letter of application attached to the Curriculum Vitae

Organisational skills and competences Computer skills and competences

6. 7.

The Letter of Application A letter of application is a standard document and you have to know how to write such a professional document in order to increase your chances of being selected for a job interview. Below you can see what are the elements that have to be included in a letter of application and the order in which they appear, as well as their right place on the page.

Senders name Address (Street number and name/ City and zip code/ Country) Date of writing

Receivers name Title Company name Company address (Street number and name/ City and zip code/ Country )

Dear Mr./ Ms. 1st paragraph: Explain why you are writing; identify the position and your source of information. 2nd paragraph: Outline your strongest qualifications and show how they match the position requirements. As much as possible, provide evidence of your related work, extracurricular, and academic experiences and accomplishments. Refer to your enclosed CV. 3rd paragraph: Convince the employer that you have the personal qualities and motivation to succeed. Relate your interests and qualities to your knowledge of the company. 4th paragraph: Express your availability for an interview and indicate how and when you can be contacted. Thank the reader for his/her consideration. Sincerely, (Handwritten signature) Your name, typed

Now read the letter of application below and try to put the jumbled paragraphs in the right order:

Cynthia Westland 72 Harpenden Road London N9 8JE UK 15th September

Michael Page Sales Manager FashionWorld UK 83 Oak Street London N6 3JE UK Dear Mr. Page () Although I had an excellent relationship with my previous employers, I felt that my career prospects with them were limited and that I could make a better use of my skills and professional experience with a more dynamic company. This is why I would particularly enjoy the chance to be one of the members of your team. () I am writing to apply for the position of Sales Representative which you advertised last week in the International Herald Tribune. () If you consider that my qualifications and previous experience match your requirements, I should be available to attend a job interview at any time. () As you will notice on my enclosed curriculum vitae, my personal and professional interests match the requirements of the job you are offering. I have 7 years experience in sales in the fashion industry, two of which have been in France as a Sales Representative. My responsibilities have included all types of sales-related activities, serving and advising customers, making contacts with clients and organizing product presentations. Yours sincerely, Cynthia Westland Cynthia Westland

SELF-ASSESSMENT TEST

Complete the sentences below by adding the right preposition where one is needed: a. Searching . a job can be a tiresome and overwhelming process, so it is important that people learn how to manage their stress level while looking . the right position. b. Every job seeker faces ., so you shouldnt think that you are the only person feeling discouraged from time to time during the job seeking process. c. If done well, the task of finding a job can take . most of peoples time. d. While waiting . the phone to ring job seekers should not despair, any phone call can be the one they were hoping .. e. You shouldnt start seeking . a job before you carefully assess yourself, making a list of your strengths and weaknesses. f. If you do not perform a proper research of the company where you want to work, this will prevent you . being able to impress your would-be employer with your analytical knowledge. g. Before applying for a job, you should consider carefully whether that job really meets . your personal and professional needs. h. The sooner you understand that getting passed . for a job shouldnt be taken as a personal offence, the faster you will be able to try again. i. Coming back . your job search efforts after a rejection can be difficult, but it is the only way in which you can succeed in finding the perfect position. j. Job seekers who know how to manage . their stress level have better chances in succeeding to impress their potential employers during job interviews.

UNIT 1 ANSWER KEY

Reading Ex. 2. The headings should be placed in the text in the following order: Assess your skills; Anticipate rejection; Take breaks; Find an office; Stay positive.

Vocabulary Ex. 1. 1.i; 2.j; 3.b; 4.f; 5.d; 6.g; 7.c; 8.a,h; 9.e. Ex. 2. 1.job; 2.assignment; 3.goals; 4.deadline; 5.seeker; 6.interviews; 7.CVs; 8.letters of application; 9.employer; 10.employee.

Skills focus writing

European Curriculum Vitae The headings should appear in the CV in the following order: 1. Personal information; 2. Desired employment/ Occupational field; 3. Work experience; 4. Education and training; 5. Personal skills and competences; 6. Additional information; 7. Annexes.

Letter of application The correct order of the paragraphs is presented in the letter of application below:

Cynthia Westland 72 Harpenden Road London N9 8JE UK 15th September

Michael Page Sales Manager FashionWorld UK 83 Oak Street London N6 3JE UK Dear Mr. Page I am writing to apply for the position of Sales Representative which you advertised last week in the International Herald Tribune. As you will notice on my enclosed curriculum vitae, my personal and professional interests match the requirements of the job you are offering. I have 7 years experience in sales in the fashion industry, two of which have been in France as a Sales Representative. My responsibilities have included all types of sales-related activities, serving and advising customers, making contacts with clients and organizing product presentations. Although I had an excellent relationship with my previous employers, I felt that my career prospects with them were limited and that I could make a better use of my skills and professional experience with a more dynamic company. This is why I would particularly enjoy the chance to be one of the members of your team. If you consider that my qualifications and previous experience match your requirements, I should be available to attend a job interview at any time.

Yours sincerely, Cynthia Westland Cynthia Westland

Self-assessment test a. for, for; b. ; c. up; d. for, for; e. ; f. from; g. ; h. over; i. to; j. .

UNIT 2 THE FOREIGN EXCHANGE

OBJECTIVES
This unit will help you to: recognize the basic functions and activities performed by the FOREX Market; have a go at acquiring highly specialized market terminology used by foreign exchange dealers.

LEAD-IN

1. Read the words below. If you are not familiar with their meaning, you are advised to use a dictionary: banknotes barter coinage fiduciary issue forgery gold reserves issue mint monetary policy promissory notes sound money watermark

2. Use the words to complete the text The history of the foreign exchange market:

The History of the Foreign Exchange In the days before money was created, traders exchanged one type of goods for another. This was called (1) .. trade. Later, countries produced units made of gold. This was called (2) .. and was produced in a (3) .. . Originally, the total value of metal coins produced by a country was backed by its (4) .. and was called (5) ... However, in some countries the amount of gold held by a country does not correspond to the value of coins in circulation, but may instead represent securities. This system is called the (6) .. .

The main disadvantage of using money made of metal was that it was difficult to transport. So, traders began using documents which promised to pay a sum of money in exchange for goods. These documents were called (7) .. .

Banks also began to (8) .. papers to clients to confirm that they had deposited money in the bank. These papers were issued in standardized amounts and were called (9) .. .

To prevent (10) .. or the copying of banknotes, banks adopted a number of security devices such as a design on the sheets of paper used to make money. This design is called a (11) .. . Nowadays, each country has its own system of safeguarding the currency. This system is called (12) .. .

(from Pratten, J., Banking English, Unit 5, Foreign Exchange and Money Matters, p. 57)

READING
Read the text below:

Foreign Exchange Foreign exchange dealing is, as the 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 Germany, for example, will probably use sterling to buy Euros from its bank in order to pay an invoice from the German company. The bank buys the Euros 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 FOREX market either for immediate delivery, that is at the spot rate, or for delivery later, at a forward rate. The forward market is useful for companies, since if a company knows that it will need a particular foreign company 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 buyers account

with a bank in the main centre, or one of the main centres, for the currency in question. In the case of sterling, for example, this is London. 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 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 banks claims in dollars, for example, is larger than the total debts in dollars, than 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.

(from Corbett, J., English for International Banking and Finance, Unit 3 Foreign Exchange, pp. 18-19 )

VOCABULARY
1. Match the words in bold face type in the text above with their Romanian counterpart. Remember, though, that most professionals worldwide use these words in English.

1.to have a balanced position 2. settlement 3. forward rate

a) scaden b) rata unei tranzacii la vedere c) creane

4. spot rate 5. to be short in dollars 6. value date 7. dealing slip 8. claims 9. maturity 10. to have a long position

d) stingerea datoriei, plata e) a avea excedent valutar f) a avea acoperire g) data valutei h) a avea deficit valutar (pe dolari) i) rata unei tranzacii la termen j) foaia de tranzacie

2. Complete the text below with the following words: big figure, spot, value date, base currency, deal slip, cable, spread, cross rates.

Currency dealing When dealers talk about a (1) .. deal, they mean a purchase or sale of one currency for another, with the delivery date two working days after the dealing day. The delivery date is often called the (2) .. , the day funds are delivered to your account.

When referring to currency prices, a dealer may ask for a (3) .. , the sterling/dollar quote, or he may want to know the (4) .. ,the first three digits of a quote. When giving quotes between two currencies, dealers may refer to the (5) .. , that is the currency quoted first. If more than two currencies are involved, dealers talk about (6) .. , the rate between currency A and currency B, calculated from the market rates between A and B and C.

Before making a purchase or sale, dealers will calculate the (7) .. , their margin on the deal. On completion of a deal the dealer will complete the (8) .. , a piece of paper which records vital details about the deal, i.e. amount, currency, and counterparty.

SELF-ASSESSMENT TEST
Match each of the terms below with the right explanation: a) netting b) best order c) hot money d) Bretton Woods system e) premium f) fluctuate g) issue h) fiduciary issue i) firm j) promissory note k) pip l) The Royal Mint m) legal tender n) intra-day limit o) coinage p) forward r) spread s) devaluation t) sound money u) intervention v) future w) swap x) option y) intaglio

1. A contract obliging one party to buy, and the other to sell, a specific currency for a fixed price at a future date. 2. The minimum price change in floating foreign exchange rates. 3. The production of money backed by securities, not gold.

4. A set of monetary units made stamped metal. 5. The practice of dealing only for the net amounts in a currency where a counterparty has a two-way cash-flow. 6. A contract which gives the holder the right to purchase property or assets during a specific period at an agreed price. 7. A method of fixing the major currencies against the dollar, used until 1973. 8. A method of producing banknotes which creates a complex design and is difficult to counterfeit. 9. Lowering the value of a nations currency. 10. To move up and down. 11. The participation of a government or bank to cause change. 12. To put into circulation. 13. A written promise to pay an amount of money to another party. 14. A forward contract traded on an exchange. 15. A purchase order placed with a dealer to be executed when a currency or commodity becomes available. 16. A currency which is appreciating on the market. 17. The number of points between a banks bid rate and its offered rate in currency dealing. 18. The limit set by bank management on the size of each dealer or counterpartys position. 19. The acceptable form of currency in a country. 20. Money with dependable value, backed by gold reserves. 21. British agent producing coins by stamping metal. 22. An agreement by two parties to exchange a series of cash-flows in the future. 23. Speculative money moving in and out of a particular market, changing in value. 24. The front end fee paid for an option.

UNIT 2 ANSWER KEY

Lead-in Ex. 2 1. barter; 2. coinage; 3. mint; 4. gold reserves; 5. sound money; 6. fiduciary issue; 7. promissory notes; 8. issue; 9. banknotes; 10. forgery; 11. watermark; 12. monetary policy.

Vocabulary Ex. 1. 1 f ; 2 d ; 3 i ; 4 b ; 5 h ; 6 g ; 7 j ; 8 c ; 9 a ; 10 e. Ex. 2. 1. spot; 2. value date; 3. cable; 4. big figure; 5. base currency; 6. cross rates; 7. spread; 8. deal slip.

Self-assessment test 1 p; 2 k; 3 h; 4 o; 5 a ; 6 x; 7 d; 8 y; 9 s; 10 f; 11 n; 12 g; 13 j; 14 v; 15 b; 16 i; 17 r; 18 n; 19 m; 20 t; 21 l; 22 w; 23 c; 24 e.

UNIT 3 STOCKS AND SHARES

OBJECTIVES
This unit will help you to: understand the role of the major financial instruments traded on the Stock exchanges; be able to identify the risks involved in stock exchange activities; connect the current economic/financial environment with the toxic assets market.

LEAD-IN:

Fill in the gaps in the text below with the words that follow: a) stock prices; b) investment banking; c) basic ownership; d) going public; e) underwriting; f) common stock; g) initial offer; h) underwriters; i) market value; j) initial public offering (IPO); k) preferred stock; l) tombstone.

Issuing New Stock The first time a companys stock is issued, the company is said to be (1) .. . This means that the owners of the company are selling part of it to the general public. The formal name for this process is (2) .. . Usually, a company offering stock for sale places a special kind of advertisement in the financial press, called a (3) .. . This provides potential investors with specific information about the company. It includes price per share, which is the (4) .. of the stock. The price of shares when offered for the first time is the (5) .. .

The offering of shares is dealt with by the (6) .. , who actually buy up all the shares for sale and sell them on the market. This is referred to as (7) .. and is handled by the (8) .. division of a securities firm.

Companies can issue two kinds of stock-the first offers owners a share in the direct success or failure of the business and represents the (9) .. of a corporation . This type of stock is called (10) .. . Common stock owners benefit directly through increases in (11) .. . The other type of stock offers holders dividends which are distributed to them before common stock holders and is called (12) .. .

(from Pratten, J., Banking English, OUP, 2001, p. 68)

READING

The paragraphs in the text below have been scrambled. Reconstruct the logical sequence, using as prompts the items in italics.

Bonds (A) Companies finance most of their activities by way of internally generated cash flows. If they need more money they can either sell shares or borrow, usually by issuing bonds. More and more companies now issue their own bonds rather than borrow from banks, because this is often cheaper: the market may be a better judge of the firms credit worthiness than a bank, i.e. it may lend money at a lower interest rate. This is evidently not a good thing for the banks, which now have to lend large amounts of money to borrowers that are much less secure than blue chip companies.

(B) Governments, of course, unlike companies, do not have the option of issuing equities. Consequently, they issue bonds when public spending exceeds receipts from income tax, VAT, and so on. Long-term government bonds are known as giltedged securities, or simply gilts, in Britain, and Treasury Bonds in the US. The British and American central banks also sell and buy short-term (three month)

Treasury Bills as a way of regulating the money supply. To reduce the money supply, they sell these bills to commercial banks, and withdraw the cash received from circulation; to increase the money supply they buy them back, paying with newly created money which is put into circulation in this way.

(C) Most bonds are bearer certificates, so after being issued (on the primary market), they can be traded on the secondary bond market until they mature. Bonds are therefore liquid, although of course their price on the secondary market fluctuates according to changes in interest rates. Consequently, the majority of bonds on the secondary market are traded either above or below par. A bonds yield at any particular time is thus its coupon (the amount of interest it pays) expressed as a percentage of its price on the secondary market.

(D) For companies, the advantage of debt financing over equity financing is that bond interest is tax deductible. In other words, a company deducts its interest payments from its profits before paying tax, whereas dividends are paid out of already-taxed profits. Apart from this tax-shield, it is generally considered to be a sign of good health and anticipated higher future profits if a company borrows. On the other hand, increasing debt increases financial risk: bond interest has to be paid, even in a year without any profits from which to deduct it, and the principal has to be repaid when the debt matures, whereas companies are not obliged to pay dividends or repay share capital. Thus companies have a debt-equity ratio that is determined by balancing tax savings against the risk of being declared bankrupt by creditors.

(E) Bond-issuing companies are rated by private ratings companies such as Moodys or Standard & Poors, and given an investment grade according to their financial situation and performance, Aaa being the best, and C being the worst, i.e. nearly bankrupt. Obviously, the higher the rating, the lower the interest rate at which a company can borrow.

(from McKenzie, I., English for Business Studies, pp. 81-82)

VOCABULARY

1. Match the expressions on the left with the definitions on the right: 1. equity financing 2. debt financing 3. bearer certificate 4. liquid 5. par 6. coupon 7. yield E. issuing bonds F. issuing shares G. nominal or face value (100%) A. a security whose owner is not registered with the issuer B. easily sold (turned into cash) C. the rate of interest paid by a fixed interest security D. the rate of income an investor receives, taking into account a securitys current price

2. Replace the words in bolded italics in the text that follows with the items listed below: a) bring about b) bilateral c) amount d) receiver e) demand f) entities g) backer h) promises i) vital j) related to k) safeguard l) regard

Bonds A bond is issued by a guarantor (1) usually a bank or an insurance company, on behalf of an exporter. It is a guarantee to the buyer that the exporter will fulfill his contractual (2) obligations. If these obligations are not fulfilled, the guarantor undertakes (3) to pay a sum of money to the buyer in compensation. Bonds are usually required in connection with (4) overseas contracts, or with the supply of capital goods and services. When there is a buyers market, the provision of a bond can be made an essential (5) condition for the granting of the contract.

Bonds have, for some time, been required by Middle Eastern countries, but nowadays many other countries require them. For instance, most international aid agencies, such as the World Bank or the European Development Fund, and most government purchasing organizations (6) in the developing world, plus major purchases of goods and services in the oil sector now require bonds from sellers.

Banks are usually prepared to assist their customers by giving or becoming a party to bonds, guarantees and indemnities. Once issued a bank will incur (7) a liability to honor (8) that guarantee and must consider its customer undoubted for the sum (9) involved. However, banks will always take a counter-indemnity from their customers in order to protect (10) themselves against a possible claim from the beneficiary.

In some cases, guarantees can be issued direct to the beneficiary (11) in which case the issuing bank will specify that its own laws apply. In other cases, the beneficiary may insist, or a local law may stipulate (12), that the guarantee be issued by a local bank against the issuing banks counter-indemnity.

( from Pratten, J., Banking English, pp. 24-25)

SELF-ASSESSMENT TEST
Read the newspaper article below, and try to identify the correct meaning of the following items that appear in the article. 1. regulator (2) A. a provision B. an entity which has the right to control C. something you can draw a straight line with 2. prospectus (2) A. perspective B. someone who prospects C. an advertisement in the financial press announcing a future sale of stock 3. reflotation (3) A. re-launching a boat in the water B. rebuking C. re-launching shares 4. administrator (5) A. caretaker of the building B. a foreclosure official C. a person who is in charge of re-organizing a failing business 5. audited numbers (6) A. correct figures B. official results of an audit C. numbers everyone has heard about 6. the groups legal claims A. the legal provisions that allow Parmalat to fight back B. the sum of money that Parmalats stakeholders claim as compensation C. the problems encountered by the Group of 20 after the Group of 8 have resigned 7. junior team (12) A. a brand new team B. a team that is made up of undergraduates on an internship programme

C. a team comprised of inexperienced professionals 8. first-half accounts (20) A. financial statements for the first semester B. Mr Bondis better half C. the footings on the bottom-line 9. Parmalats suppliers (24) A. the internet providers for the group B. the cattle C. the dairies that supply Parmalat with raw material in this trade 10. signs of fading impetus (26) A. signs of newly gained momentum B. signs of a weak impact C. the impression that the initial quick pace of the inquiry has slackened 11. dilatory pace ( 27) A. lively step B. slowing down motion C. peace and quiet 12. claims for damages (29) A. Parmalats request for receiving compensation for the losses incurred during the inquiry B. the regulators claims for justice C. the money you are entitled to receive from your insurer in case your car is damaged 13. 300-odd page (2) A. page 300, which seems a strange one B. only the odd-numbered pages from the 300 pp. document C. approximately 300 pages 14. last-gasp questions (9) A. latest queries B. the last thing Mr Bondi asked before passing away C. puzzling poser 15. By flexing its muscles (16) A. by asking pointless questions with the purpose of showing off B. by putting difficult questions

C. by doing bodybuilding at the gym 16. he is likely to try (18) A. he enjoys trying B. he will definitely try C. he will probably try 17. This it is endeavouring to do (20) A. this is what Consob tries to do B. this is what Parmalat strive to do because they have to do it C. this is a great enterprise for Consob 18. Why would Consob hold up Mr Bondi ? (10) A. Why would Consob try to delay the proceedings ? B. Why would Consobs thugs break into Parmalats premises? C. Why would the armed attack influence the inquiry?

Parmalat A curious delay A deadline came and went on March 31st. That was the date by which Consob, Italys stockmarket regulator, might have approved a 300-odd page prospectus that would have paved the way for the reflotation of Parmalat, a dairy-products group that imploded after a huge fraud was uncovered late in 2003. Instead, at the last minute, Consob faxed a long list of questions to Enrico Bondi, (5)Parmalats special administrator, who has been pushing hard to get the firm back on its feet. The effect has been to derail Parmalats timetable for recovery- audited numbers on which it was relying are now considered out of date. Consobs approval is needed not just for the flotation of new shares, but also for creditors to vote on the next stages of Mr Bondis strategic plan.

Many of Consobs last-gasp questions had been answered long ago, and concerns related to the (10)status of the groups legal claims were simply perplexing to Parmalat. But why would Consob hold up Mr Bondi? Officially it is saying nothing, but two theories, neither flattering, have emerged.

One points to the relatively junior team appointed by Consob to handle the Parmalat case and asks whether it has been able to keep pace with the ambitious timetable set by Mr Bondi and the groups creditors at a meeting in March 2004. The second remembers Mr Bondis criticisms of Consob, (15)among others, when he first announced how the huge fraud was done and expressed his amazement that no one had spotted what was going on. By flexing its muscles, is the regulator trying to teach Mr Bondi a lesson?

Yet Mr Bondi has not given up. He is likely to try to persuade Consob to make a new effort that might allow a flotation in June or early July. This would depend on Parmalat quickly producing (20)audited numbers for all of 2004 instead of just firsthalf accounts. This it is endeavouring to do. But Consob would also have to show itself willing to move much faster towards approving the prospectus. Realistically, approval will have to be given within a month if the flotation is to happen before the summer.

That would certainly please creditors, including Parmalats suppliers, some of whom have lost (25)patience and begun to sell their rights to shares in the refloated group. But it would also send an important signal to foreign observers of the Parmalat mess. Italys initial responses to the fraud were decisive and effective, but lately there have been worrying signs of fading impetus. Consobs dilatory pace is one. Another is the lack of real progress by the investigating magistrates in Parma, one of whom recently announced his departure. Their slowness is holding up claims for damages, which (30)cannot be launched before investigators have finished their work. Consob still has the chance to reinvigorate one important part of Parmalats administration. If it cannot, or will not, do that, Italys business culture may suffer another painful blow. The Economist April 9th 2005, p. 50 Business

UNIT 3 ANSWER KEY

Lead-in 1 d; 2 j; 3 l; 4 i; 5 g; 6 h; 7 e; 8 b; 9 c; 10 f; 11 a; 12 k.

Reading The order in which the paragraphs should be arranged is the following one: A, E, C, D, B.

Vocabulary Ex. 1. 1 F; 2 E; 3 A; 4 B; 5 G; 6 C; 7 D. Ex. 2. 1 g; 2 b; 3 h; 4 j; 5 i; 6 f; 7 a; 8 l; 9 c; 10 k; 11 d; 12 e.

Self-assessment test 1 B; 2 C; 3 C; 4 C; 5 B; 6 A; 7 C; 8 A; 9 C; 10 C; 11 B; 12 A; 13 C; 14 A; 15 A; 16 C; 17 B;18 A.

UNIT 4 DERIVATIVES
OBJECTIVES
This unit will help you to: become familiar with the basic characteristics of derivatives, comparatively recent banking products that have generated the latest banking and financial crisis; define the basics of futures, options and swaps; understand the importance of hedging as a protection strategy against sharp fluctuations in the price; grasp the difficulty of the attempts to regulate the derivatives market.

LEAD-IN

The text below is aimed at introducing the topic of derivatives. Read it to find out basic information related to these banking products:

Futures, Options and Swaps Futures Every weekday, enormous amounts of commodities, currencies and financial securities are traded for immediate delivery at their current price on spot markets. Yet there are also futures markets on which contracts can be made to buy and sell commodities, currencies and various financial assets, at a future date (e.g. three, six or nine months ahead) but with the price fixed at the time of the deal. Standardized deals for fixed quantities and time periods (e.g. 25 tons of copper to be delivered next June 30) are called futures; individual, non-standard, over-the-counter deals

between two parties (e.g. 1.7 billion yen to be exchanged for dollars on September 15, at a rate set today) are called forward contracts. Hedging and speculating Futures, options and other derivatives exist in order that companies and individuals may attempt to diminish the effects of, or profit from, future changes in commodity and asset prices, exchange rates, interest rates, and so on. For example, the prices of foodstuffs such as wheat, maize, cocoa, coffee, tea and orange juice are frequently affected by floods, and other extreme weather conditions. Consequently many producers and buyers of raw materials want to hedge, in order to guarantee next seasons prices. When commodity prices are expected to rise, future prices are obviously higher than (at a premium on) spot prices; when they are expected to fall they are at a discount on spot prices. In recent years, especially since financial deregulation, exchange rates and interest rates have also fluctuated wildly. Many businesses, therefore, want to buy or sell currencies at a guaranteed future price. Speculators, anticipating currency appreciations or depreciations, or interest rate movements, are also active in currency futures markets, such as the London International Financial Futures Exchange (LIFFE, pronounced life). Options As well as currencies and commodities, there is now a huge futures market in stocks and shares. One can buy options giving the right-but not the obligation- to buy and sell securities at a fixed price in the future. A call option gives the right to buy securities (or a currency, or a commodity) at a certain price during a certain period of time. A put option gives the right to sell an asset at a certain price during a certain period of time. These options allow organizations to hedge their equity investments. For example, if you think a share worth 100 will rise, you can buy a call option giving the right to buy at 100, hoping to sell this option, or to buy and resell the share at a profit. Alternatively, you could write a call option giving someone else the right to buy the shares at 100: if the market price remains above 100, no one will exercise the option, so you earn the premium.

On the contrary, if you expect the value of a share that you own to fall below its current price of 100, you can buy a put option at 100 (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 100: if the market price of the underlying security remains below the options exercise price or strike price, no one will take up the option, and you earn the premium. Swaps Options are merely one type of derivative instrument, based on another underlying price. Many companies nowadays also arrange currency swaps and interest rate swaps with other companies or financial institutions. For example, a French company that can borrow francs at a preferential rate, but which also needs yen, can arrange a swap with a Japanese company in the opposite position. Such currency swaps, designed to achieve interest rate savings, are of course open to the risk of exchange rate fluctuations. A company with a lot of fixed interest debt might choose to exchange some of it for another companys floating rate loans. Whether they save or lose money will depend on the movement of interest rates. ( from Mackenzie, I., English for Business Studies, CUP 1997, pp. 85-86)

After reading the text above, decide whether the following statements are true (T) or false (F). 1. Futures and options are traded on the commodities exchanges all over the world. 2. The difference between futures and forward contracts is that the former are standardized deals while the latter are individual over-the-counter agreements between two parties. 3. Derivatives exist so that companies and individuals should ban any further fluctuations in the price of commodities or exchange rates. 4. When commodity prices are expected to plummet, future prices are always lower than spot prices. 5. Speculators can make money on currency futures if there is no change in the exchange or interest rates. 6. Stocks and shares are never quoted on the futures markets.

7. If you anticipate that a stock price will firm up, possible option strategies include buying a call, which you will be able to sell at a profit, and writing(i.e. selling) a put, which will never be exercised, so you earn the premium. 8. On the contrary, if you reckon that a share price will fall, you can buy a put, so you would be able to buy those shares at below the market price, and write a call, which will be exercised to earn the premium. 9. Underlying price means the price of that stock on the black market. 10. The risk with currency and interest rate swaps is that the exchange and interest rates fluctuations may run counter your predictions.

READING
The text below is meant to explain the concept of banking deregulation (a collocation that most students wrongly translate into Romanian as neregulile din bnci instead of providing the correct version bancar). dereglementarea sistemului

What is Banking Deregulation? Banking deregulation is the removal of regulations governing the banking system. It reversed laws that were set up un the 1930s, taking away much of the federal control that was put into place as part of the New Deal.

Banking Regulation In 1993, the Glass-Steagall Act was passed, establishing the Federal Deposit Insurance Corporation (FDIC) and creating banking reforms and regulations that governed financial institutions in the United States, covering issues from interest rates to speculation.

First Act of Deregulation In 1980, the Depository Institutions Deregulation and Monetary Control Act was passed, eliminating the regulation of interest rates in savings accounts, among other things.

Eliminating Separation In 1999, the Financial Services Modernization Act was passed eliminating regulations that created a separation among different branches of finance, like banks, mortgage companies, insurance companies, and commercial banking institutions.

Results of Deregulation Deregulation led to finance companies taking over other companies. Big banks bought up one, two, three and more smaller banks. Financial institutions also became mega institutions which covered private banking, investing, mortgages and insurance.

Controversy Banking Deregulation is a complex issue that many blame for todays suffering economy, demonstrating the fine line between government involvement and government interference.

(from www.ehow.com)

VOCABULARY
Find the appropriate synonyms from the list below for the highlighted words in the text that follows. a) assess d) turnaround g) identified j) pushed m) movements p) reveal b) danger e) extended h) demise k) wipe out n) exposures c) changed f) profits i) allocate l) clear view o) allowances

Trading Risks in International Banks (Back-up information: In the mid-1990-s, various companies, local governments and financial institutions made spectacular losses with derivatives. The most famous was Barings Bank, which was bankrupted when a single trader in Singapore lost over $ 1 billion by speculating disastrously on futures and options on the Nikkei 225 stock index, which is traded in Osaka and Singapore.)

The failure (1) of Barings Bank brought the risks (2) faced by banks trading in international markets into sharp focus (3). Worries about trading risks were already growing as banks diversified (4) their business from lending and deposit taking, to dealing in securities, foreign exchange, bonds and derivatives.

New proposals by the Basle Committee on Banking Supervision will unveil (5) details of important changes to the way banks monitor (6) risk and set aside (7) capital to meet shifts (8) in the market value of their trading positions.

Deregulation of financial markets since the early 1980s and increased competition have squeezed (9) margins (10) on traditional bank business. At the same time, the growth of the derivatives markets has made it cheaper and easier for banks to move into trading, an area which in the past was the preserve of securities houses. This switch (11) in focus has transformed (12) the character of the risks faced by banks. To old problems, such as liquidity risk and credit risk, has been added a third threat (13): market risk, the possibility that sharp downward movements in market prices will destroy (14) a banks capital base.

The Basle Committee, whose members include senior bank regulators from the worlds most powerful countries, recognized (15) the need for action in this area in 1993, when it added new provisions (16) to existing rules governing credit rules.

(from Pratten, J., Banking English, p. 82)

SELF-ASSESSMENT TEST

Read the following newspaper article that follows and list the highlighted word(s) under one of the headings below: A. WORDS that have to do with INVESTMENT/BUSINESS and have already been in the previous tasks in this unit. B. WORDS that have to do with INVESTMENT/BUSINESS but have not occurred in previous tasks because they only appear in journalese. Which of these words can be grouped under the subheading food/drink-related. Why would one use so many items of this latter subgroup in this article? C. WORDS that initially appeared in journalese but are now widely used in any business-related context. D. WORDS that have to do with INVESTMENT/BUSINESS that are not typical of journalese and did not appear in any of the Tasks 1-4 above either.

World Trends When Markets Lose Their Moorings This time is different.

Thats what people argue every time a bubble inflates (1), and what they think every time they are chastened by its popping (2), But century after century, decade after decade and year after year, human beings let irrational hopes get the better of them.

Not long ago, the housing bubble burst (3), bringing the global economy to a standstill. Now economists are on the lookout for the next market to fizzle (4).They say governments, central banks and international bodies should scrutinize markets (5) that look likely to froth over (6) in the next few years, like capital markets (7) in China, commodities (8) like gold and oil, and government bonds (9) in heavily indebted countries (10) like the United States.

Globally, a lot of money is now seeking higher returns (11) once again, said

Rachel Ziemba, senior analyst at RGE Monitor. The steadying of the economy (12), liquidity injections (13) by governments and big returns reaped (14) early this year by investment banks (15) are encouraging more traders (16) to return to the market.

As long as compensation (17) and bonuses (18) are based on short-term performance (19) in the market, Ms. Ziemba said, thats going to encourage riskseeking behavior.(20)

Bubbles are episodes of collective human madness euphoria over investments whose skyrocketing values (21) are unsustainable (22).

They tend to arise from perceptions of pending shortages (23) (as happened last year, with the oil bubble) (24); from glamorized (25) new technologies or investment frontiers (like the dot-com bubble (26) of the 1990s); or from faddish cultural obsessions (27) (like the Dutch tulip bubble (28) of the 17th century). Often they are based on legitimate expectations of high growth that are extrapolated into the stratosphere, (29) as the economist Daniel Yergin, chairman of HIS-Cambridge Energy Research Associates, put it. Such is the fear over investment in emerging markets (29) like China. Im a long-term bull (30) on Asia, but right now its premature to be celebrating the Asian Century, like some investors seem to be doing, said Stephen Roach, chairman of Morgan Stanley (31) Asia.

The Shanghai Stock Exchange Composite Index, for example, nearly doubled from November to July before pulling back last month. People seem to believe the baton of global economic leadership is being seamlessly passed from the West to the East, Mr. Roach said. Thats going to happen, but not for another 5 to 10 years at least. Similar premature excitement inflated the South Sea bubble (32), an 18th century mania over British trade with emerging Latin American markets. Economists also worry that commodity bubbles may strike (33) again. Oil and gold prices are rising, and though both of those commodities have boomed and busted (34) many times in

the last century, investors may bet on unrealistically high growth once more. Gold prices have risen more than 30 per cent from a year ago.

In each of these markets, the inflation and deflation of prices would be painful to investors but may not have as far-reaching consequences as the recent housing and credit collapses.(35) But a sovereign debt bubble (36) could prove far more dangerous. So many countries, like the United States, are running up such large national debts that they could risk eventual default (37) Even without outright default on their obligations, the value of government bonds sold to finance these deficits could plunge (38) costing investors a lot.

The pain of the housing bust has led political leaders and central bankers reconsider their duties to pre-empt, rather than just respond to, bubbles. China has started to tighten monetary policy (39) to lower high expectations about its stocks. Other measures under discussion around the world include additional regulation (40), guidelines for financial compensation and possibly requirements for more market transparency (41).

But however stringent new rules may be, economists say, they cannot defeat human nature. Ultimately, bubbles are a human phenomenon, said Robert Shiller, a Yale university economics professor who warned of the current crisis. People just get a little crazy.

The New York Times, Friday, September 18, 2009

Unit 4 Answer Key

Lead-in 1 F; 2 T; 3 F; 4 T; 5 F; 6 F; 7 T; 8 F; 9 F; 10 T.

Vocabulary 1 h; 2 n; 3 l; 4 e; 5 p; 6 a; 7 i; 8 m; 9 j; 10 f; 11 d; 12 c; 13 b; 14 k; 15 g; 16 o.

Self-assessment test A: 7, 8, 9, 15, 16, 33, 40. B: 2, 4, 6, 14, 25, 27, 29. Food/drink-related: 2, 4, 6, 14. (They are used because greed is thought to be the underlying reason for the over-investment bubbles.) C: 1, 3, 21, 24, 26, 28, 29, 30, 32, 34, 36, 38. D: 5, 10, 11, 12, 13, 17, 18, 19, 20, 22, 23, 29, 31, 35, 37, 39, 41.

BIBLIOGRAPHY
Corbett, J., English for International Banking and Finance, Cambridge University Press, 1990. Hollingher, A., Test Your Business English Vocabulary, Teora, 2002. MacKenzie, I., English for Business Studies, Cambridge University Press, 1997. Pratten, J., Banking English, O.U.P, 1993. Prelipceanu, C. (coord.), First Steps in Business, Ed. Universitar, 2005. The Readers Digest Oxford Wordfinder, Tulloch.,S.,Ed., Clarendon Press, Oxford, 1993. The New York Times, in Romania Libera, Friday, September 2009. The Economist, April 9th, 2009. The Economist, March 22nd, 2003.