09 eng104-bai 5-v1.0

FINANCIAL MARKETS

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Unit 5: Financial markets

UNIT OBJECTIVES - MỤC TIÊU

DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT)

• Provide students with the language and knowledge related to the main types of financial markets.

Cung cấp cho sinh viên vốn ngôn ngữ và kiến thức liên quan đến các loại hình thị trường tàichính cơ bản.

• Provide students with the language and method to write an argumentative essay.

Cung cấp cho học viên ngôn ngữ và phương pháp viết một bài bình luận.

• At the end of this unit, students will be able to talk and write about the main types of financialmarkets, the main characters of each type and factors that affect the prices on financial markets.

Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các loại hình thị trường tài chínhcơ bản, những đặc điểm của từng loại là gì và những nhân tố nào ảnh hưởng đến giá cả trênnhững thị trường tài chính.

In this unit, we will learn language and knowledge related tothe main types of financial markets, the main characters ofeach type and the factors that affect the prices on financialmarkets.

Trong bài này, chúng ta sẽ học ngôn ngữ và kiến thức liênquan đến các loại thị trường tài chính cơ bản, các đặc điểmchính của từng loại và các nhân tố có ảnh hưởng tới giá trênthị trường tài chính.

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Match each explanation in column A with its term in column B. The suggestedtime for completing the exercise is 10 minutes

Column A Column B

1 Having a responsibility or an obligation to do something, e.g.

to pay a debt

A Assets

2 A person or an organization to whom money is owed (for

goods or services rendered, or as repayment of loan)

B Bankrupt

3 To be insolvent: unable to pay debts C Creditor

4 Everything of value owned by a business that can be used to

produce goods, pay liabilities, and so on to sell at the posses-

sions of a bankrupt business

D Dividend

5 To sell at the possessions of a bankrupt business E Founders

6 Money that a company will have to pay to someone else (bills,

taxes, debts, interest and mortgage payments, etc.)

F Liabilities

7 To provide money for a company or other project G Liability

8 Money invested in a possibly risky new business H Premises

9 The people who begin a new company I To liquidate

10 The place in which a company does business: an office, shop,

workshop, factory, warehouse, and so on to guarantee to buy

an entire new share issue, if no one else wants it

J To put up capital

11 To guarantee to buy an entire new share issue, if no one else

wants it

K Underwrite

12 A proportion of the annual profits of a limited company, paid

to shareholders.

L Venture capital

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Read the text and do the exercises below. The suggested time for reading thetext and completing the exercises is 30 minutes.

HOW INVESTMENT TAKES PLACE

How investment takes place

A financial market is a place where firmsand individuals enter into contracts to

sell or buy a specific product such as a stock,bond, or futures contract. Buyers seek to buy at the lowest available price and sellers seekto sell at the highest available price. Thereare a number of different kinds of financialmarkets, depending on what you want to buy or sell, but all financial markets employprofessional people and are regulated.

Stock markets

S tock markets grew out of small meetingsof people who wanted to buy and sell

their stocks. These men realized it was mucheasier to make trades if they were all in thesame place at the same time. Today peoplefrom all over the world use stock markets tobuy and sell shares in thousands of differentcompanies.

The act of issuing shares or stocks on thestock market for the first time is known asfloating a company (making a flotation). InAmerica, new issues of stock must be regis-tered with the U.S. Securities and ExchangeCommission and in some cases with the Stateof New York. A prospectus, giving detailsabout a company's operation and the stock to be issued is printed and distributed to interested parties. Companies generally usean investment bank to underwrite the issue,i.e. to guarantee to purchase all the securitiesat an agreed price on a certain day, if theycannot be sold to the public.

Companies wishing to raise more money forexpansion can sometimes issue new shares,

which are normally offered first to existingshareholders at less than their market price.This is known as a rights issue. Companiessometimes also choose to capitalize part oftheir profit, i.e. turn it into capital, by issuingnew shares to shareholders instead of payingdividends. This is known as a bonus issue.

Buying a share gives its holder part of theownership of a company. Shares generallyentitle their owners to vote at a company’sAnnual General Meeting (GB) or AnnualMeeting of Stockholders (US) , and to receivea proportion of distributed profits in the formof a dividend – or to receive part of the

company’s residual value if it goes into liquidation. Shareholders can sell their shareson the secondary market at any time, but themarket price of a share – the price quoted atany given time on the stock exchange, whichreflects (more or less) how well or badly thecompany is doing – may differ radically fromits nominal value.

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Futures markets

F utures markets provide a way for business to manage price risks. Buyers can obtainprotection against rising prices and sellers can obtain protection against declining prices

through futures contracts.

For example, in spring, farmer Jones planted 100 acres ofsoybeans and he anticipates that in September he will harvest5,000 bushels. He is concerned about what the prices of soy-beans will be in September, if the price falls he will losemoney. To avoid this risk, farmer Jones has his futures brokersell a contract for 5,000 bushels of soybeans for September atthe current price. In this way the farmer locks in his Septem-ber selling price. If the price is higher in September, thefarmer will not make as much profit, but if the price hasfallen, he will come out ahead. This process of obtaining priceprotection is called hedging.

To realize a profit, it is necessary to be right about both the direction and the timing of a pricechange. Even experienced investors rarely invest more than a small portion of a total invest-ment portfolio in futures contracts. In fact, in the last few years a number of large and so-phisticated investors have made the front pages of newspapers for losing all of their moneyon one kind of risky futures investment called a "derivative".

OTC-traded stocks

I n the U.S., over-the-counter (OTC) trading in stocks is carried out by market makers thatmake markets in OTC Bulletin Board. OTC stocks are not listed or traded on any stock

exchange. They are traditionally those of smaller companies that do not meet the listing requirements of the New York Stock Exchange or the American Stock Exchange.

The OTC market presents investment opportunitiesfor informed investors, but also has a high degree ofrisk. Many OTC issuers are small companies withlimited operating histories or are economically distressed. Investments in legitimate OTC companiescan often lead to the complete loss of the investment. Investors should avoid the OTC marketunless they can afford a complete loss of their investment.

In recent years, however, many companies that qualify for listing have chosen to remain withover-the-counter trading, because they feel that the system of multiple trading by many dealers is preferable to the centralized trading approach of the New York Stock Exchange, where all trading in a stock has to go through the exchange specialist in that stock. The rules of over-the-counter stock trading are written and enforced largely by the National Association of Securities Dealers (NASD) , a self-regulatory group. Prices of over-the-counterstocks are published in daily newspapers, with the National Market System stocks listedseparately from the rest of the over-the-counter market. Other over-the-counter markets include those for government and municipal bonds.

Source: From How Financial Markets Work, Resource Center, Investor Protection Bureau, US,http://www.oag.state.ny.us/

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According to text A, which information below is true (T), false (F) or NG (not given)?

Use the words provided (in the box) below to fill in the blanks

a. commodities b. financial securities c. market economy

d. specialized e. liquidity f. dividends

g. general h. intermediaries i. issues a receipt

j. raising of capital

In economics, a financial market is a mechanism that allows people to easily buy and sell________(1)______ (such as stocks and bonds), _____(2)____ (such as precious metals oragricultural goods), and other fungible items.

Financial markets have evolved significantly over several hundred years and are undergoingconstant innovation to improve _____(3)_____.

Both ____(4)___ markets (where many commodities are traded) and _____(5)______ mar-kets (where only one commodity is traded) exist. Markets work by placing many interestedbuyers and sellers in one "place", thus making it easier for them to find each other. An econ-omy which relies primarily on interactions between buyers and sellers to allocate resourcesis known as a ____(6)_____ in contrast either to a command economy or to a non-marketeconomy such as a gift economy.

Questions T/F/NG

1. Financial markets are classified according to the kinds of items/things soldand bought on each of them.

2. Many people use the stock markets to make profits of their stocks/ shares.

3. Before issuing stocks/ shares, companies often hire professional people towrite the prospectus.

4. A reliable investment bank is often asked to underwrite the issue of stocks/shares of a company.

5. In order to raise capital, companies use all of their profits to pay dividends.

6. Owning stocks/ shares of a company gives the owner only the dividend.

7. Futures markets are to protect buyers and sellers against dramatic changesin prices.

8. To make profit on futures markets, an investor should have good sense ofprediction.

9. Companies listed on OTC market are always well-performed ones.

10. Investors prefer the OTC market as they are less formal and more profitable.

2.1

2.2

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In finance, financial markets facilitate the ______(7)_______ (in the capital markets); thetransfer of risk (in the derivatives markets); or International trade (in the currency markets)and are used to match those who want capital to those who have it.

Typically a borrower ______(8)_______ to the lender promising to pay back the capital.These receipts are securities which may be freely bought or sold. In return for lending moneyto the borrower, the lender will expect some compensation in the form of interest or_____(9)______.

Without financial markets, borrowers would have difficulty finding lenders themselves.______(10)_____ such as banks help in this process. Banks take deposits from those whohave money to save. They can then lend money from this pool of deposited money to thosewho seek to borrow. Banks popularly lend money in the form of loans and mortgages.

Read the text and do the exercises below. The suggested time for reading thetext and completing the exercises is 30 minutes.

FACTORS WHICH AFFECT MARKETS

Factors which affect markets

Up or down? Financial markets can be affected by a numberof factors which includes both subjective and objective ones.

Actions of investors: Individual, institutional and mutual fundinvestors all affect the prices of stocks, bonds, and futures,by their actions. For example, if a large number of peoplewant to buy a certain stock its price will go up, just as if manypeople were bidding on an item at an auction.

Business conditions: Both the condition of an individual business and the strength of the industry it is in will effect the price of its stock. Profits earned,volume of sales, and even the time of year will all affect how much an investor wants to own a stock.

Government actions: The government makes all kinds of decisions that affect both how muchan individual stock may be worth (new regulations on a business) and what sort of instrumentspeople want to be investing in. The government interest rates, tax rates, trade policy andbudget deficits all have an impact on prices.

Economic Indicators: General trends that signal changes in the economy are watched closelyby investors to predict what is going to happen next. Indicators include the Gross NationalProduct, the inflation rate (how quickly prices are rising), the budget deficit (how much thegovernment is spending) and the unemployment rate. These indicators point to changes in theway ordinary people spend their money and how the economy is likely to perform.

International events: Events around the world, such as changes in currency values, trade barriers, wars, natural disasters, and changes in governments, all change how people thinkabout the value of different investments and about how they should invest in the future.

Today, investments can be purchased around the clock. When the market opens in New York,the Tokyo market has just closed and the London market is half way through its trading day.When prices on one market change all other markets are affected.

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The bull and the bear

Abull market and a bear market are terms used to describe thegeneral market trends. A bull market is a period

during which stock prices are generally rising. A bear market is a period when stock prices are generally falling. Eachof these markets is fueled by investors' perceptions of where theeconomy and the market are going. If investors feel that they are ina bull market, they will feel confident investing, adding to thegrowth of the market. However, if investors think that the market is falling they will sell stockat lower prices, continuing the bear market. These trends may quickly change.

Source: From How Financial Markets Work, Resource Center, Investor Protection Bureau, US,http://www.oag.state.ny.us/

Read the text and answer the following questions

1. What will happen if the number of buyers for a certain stock suddenly increases?

2. If the EPS (earning per share) of a company is positively increasing, what will investors do?

3. What are affected by government’s decisions?

4. Which indicators of the economy do investors closely watch?

5. What do the economic indicators show?

6. What is the effect of changes in international events?

7. When do investments take place?

8. How are stock prices like in a bull market?

9. What happens if investors are in a bull market?

10. Does the period of a bull market or bear market last long?

Listen to a radio broadcast about the stock market TWICE and answer the questions below

1. How does an English dictionary explain the phrase “to sell a bear”?

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2. What are investors always concerned about?

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3. What will happen when a company goes belly up?

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4. What do investors want from a company whose stocks they own?

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5. What does “windfall” mean?

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2.3

3.1

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Listen to the radio broadcast ONCE again and fill in the blanks below

Stock Market: The Business of Investing

Bells sound. Lighted messages appear. Men and women work atcomputers. They talk on the telephone. At times they shout andrun around.

This noisy place is a ______(1)______. Here expert salespeoplecalled ____(2)_____ buy and sell shares of companies. The shares are known as stocks. People who own stock in a com-pany, own ______(3)_______.

People pay brokers to buy and sell stocks for them. If a companyearns money, its stock __(4)___ in value. If the company does notearn money, the stock __(5)__ in value.

Brokers and investors carefully watch for any changes on the ____(6)______. That is thename given to a list of stocks sold on the New York Stock Exchange.

Investors and brokers watch the Big Board to see if the stock market is a ____(7)______ ora ____(8)______. In a bear market, prices go down. In a bull market, prices go up.

Investors in a bear market promise to sell a stock in the future ____(9)____. But the investor does not own the stock yet. He or she waits to buy it when the ___(10)____.

Complete the passage below, using words from the box. The suggested time forcompleting the exercise is 10 minutes

If you (1)…………. a business, the time often comes when you wish to expand it. To-do so,you will need extra (2) ………… one way to get this is to (3) ……….... money from a bank.The banks make a (4)……………to you, but you pay (5)…………… one the money it lands.Another way is to ask the bank for an overdraft. If it agrees to give you one, you can the drawout money up to a certain limit.

You may, however, not want to owe money to the bank. Youprefer not to be in (6)…………… In that case, you could(7)…………. money by asking people to invest in your business. In return for their investment, you would offer them(8)………....…. in your business. Finally, if you need a lot of money to (9) ……......……. Expansion, you may decideto go public. When you do this, you usually lose some(10)………… over your company.

4.1

3.2

borrow capital loan finance control shares own debt raise interest

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4.2Choose the most suitable words to fill in the blanks of the following sentences.The suggested time for completing this exercise is 5 minutes

1. Offering shares to the public for the first time is called ______ a company.

A. loading B. uploading C. floating

2. A company offering shares usually uses a merchant bank to _____ the issue.

A. guarantee B. underwrite C. sponsor

3. The major British companies are ______ on the London Stock Exchange.

A. quoted B. posted C. uploaded

4. The price of a futures contract is determined ______ the contract is made.

A. before B. at the moment C. after

5. The value written on a share is its ______ value.

A. nominal B. normal C. norm

6. American corporations with large amounts of cash can spend it by _____ their own shares.

A. selling B. issuing C. buying

7. The majority of bonds has a ______ rate of interest.

A. fixed B. flexible C. floating

8. People who buy securities expect their price to rise so they can resell them before the nextsettlement days are known as ______

A. bulls B. bears C. dark

Individual work

Based on the information in the two texts above, answer the following questionsin your own words

1. What is a financial market?

2. How is a company floated?

3. What is the advantage of futures markets?

4. What is the characteristic of OTC markets?

5. What factors affect financial markets?

Pair work or group work

Work with your partner(s) and discuss the following question.

If you possess a large amount of money, what are the advantages and disadvantages of the following?

5.1

5.2

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Buying bond

Buying shares

taking all your money to Las Vegas

buying

gold

pulting it in a bank

investing in property or real estate

buying a lottery ticket

Buying a Van Gogh painting Put it under the mattress

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Writing an argumentative essay

A. Steps in writing an argumentative essay

- Identify your position: clearly state that you agree or disagree or maybe both agree withthis point and disagree with another point.- Brainstorm ideas to support your opinion.- Arrange your ideas into a logical order and put them in an outline.- Write the first draft based on the structure of your outline.-Read your first draft again, check for the unity and coherence of your writing. You canchange the order of ideas if necessary, or put in some more examples if it needs, or crossout irrelevant sentences.- Write the second draft.

- Edit your second draft: check all the spelling and grammatical mistakes…- Now you can have your final draft.

B. Language for writing

Expressing your opinion- I agree/ disagree/ go along/ do not go along with the idea that…

- I support the idea that…

- I am in favor of the idea of V-ing/ the idea that …

- In my opinion/ view, …

- I firmly believe that…

- It is evident that…/ No one can deny that…

- Personally, I think that…

- There is no doubt that…

Expressing summary- To sum up/ In summary, …

- In short/ In brief,…

- I have come to the conclusion that…

Writing practice

Experts say investors should put all their money in only one kind of stock andshouldn’t spread it over an investment portfolio (several kinds of stock). Do youagree or disagree with this statement? Use specific reasons and examples towrite an essay to answer this question. The suggested time for completing theexercise is 45 minutes.

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English terms Vietnamese equivalents

A- A bear market (n)

- A bonus issue (n)

- A bull market (n)

- A prospectus (n)

B

- Budget deficit (n)

D

- Dividend (n)

F

- Futures contract (n)

G

- Gross National Product (n) (GNP)

I

- Issuing shares/ floating a company (v)

N

- Nominal value (n)

- Thị trường giá giảm (do đầu cơ…)

- Sự phân phát cổ phần vô phí

- Thị trường giá tăng (trong đó giá các chứng khoánhoặc hàng hóa có khuynh hướng tăng cao vì mua vàonhiều, bán ra ít)

- Cáo bạch, tờ thuyết minh gọi cổ phần

- Thâm hụt ngân sách

- Cổ tức

- Hợp đồng (hàng hóa) kỳ hạn

- Tổng sản phẩm quốc dân

- Phát hành cổ phiếu

- Giá trị danh nghĩa

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09 eng104-bai 5-v1.0

Education