covering financial markets

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Covering Financial Markets Online Tutorial Donald W. Reynolds National Center for Business Journalism at Arizona State University Prepared by Chris Roush, director of the Carolina Business News Initiative, University of North Carolina at Chapel Hill [email protected]

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Page 1: Covering Financial Markets

Covering Financial MarketsOnline Tutorial

 Donald W. Reynolds National Center

for Business Journalism at Arizona State University

 Prepared by Chris Roush, director of the Carolina Business News

Initiative, University of North Carolina at Chapel Hill

[email protected]

Page 2: Covering Financial Markets

What we’re going to learn

• In this online tutorial, we’ll cover:1. How to cover stocks and what to look for as news.2. The importance of bond coverage to business coverage.3. Why commodities and futures coverage is increasing.

• In addition, there will be a test at the end to review all of the material to gauge how well you learned market information.

Page 3: Covering Financial Markets

Quick overview

• Covering the markets requires more than an understanding of buying and selling stocks.

• Bonds, or debt, are also traded.• Commodities and futures contracts are also

important markets for many publications, especially recently with the energy crisis.

Page 4: Covering Financial Markets

Quick overview

• The overall point to remember in covering markets is to write stories with the reader in mind.

• The Bloomberg Way, a handbook for Bloomberg News reporters, suggests four questions should be answered early in market stories:

1. What happened to investments today?2. Why did it happen?3. How does today’s move compare with the past?4. Who said what about all of this?

Page 5: Covering Financial Markets

Quick overview• When looking at how the market moved during the time period

you’re writing about, consider the following comparisons: 1. Biggest advance/decline since when?2. How many days in a row up/down?3. How much have prices/yields changed in that time?4. Highest/lowest level since when?5. Narrowest/widest range since when?

Page 6: Covering Financial Markets

Quick overview• Answering these

questions gives the reader important perspectives on the day’s trading, and can be used for any type of financial market story.

Page 7: Covering Financial Markets

The stock market• The stock market operates with four main

functions. Those are:1. To provide companies with capital to grow.2. To provide investment opportunities for investors.3. To provide signals about where the most productive

opportunities are.4. To provide a mechanism where people who want to buy stock

can buy it from those who want to sell it.

Page 8: Covering Financial Markets

The stock market• There are three primary stock markets in the

United States. They are: • New York Stock Exchange (http://www.nyse.com) – The biggest market in terms of market

capitalization. It lists more than 2,800 companies whose stocks trade on a daily basis. The fact book under “Overview” has nice historical data on stock trading. Check out “Daily Statistics” in the pressroom as well.

• NASDAQ (http://www.nasdaq.com) – The NASDAQ market has a lot of technology and smaller companies. Its Web site is a good way to find investors of public companies you cover and track their buying and selling of those stocks.

• American Stock Exchange (http://www.amex.com) – The smallest market. Its Web site provides access to market and historical data, charts and tools.

Page 9: Covering Financial Markets

The stock market

• Many stock market stories focus on how a particular index performed during the day or week.

• But are they accurate barometers for your story?• The Dow Jones Industrial Average is just 30 stocks, while the

NASDAQ composite index is more than 4,100 stocks.• The S&P 500 is actually considered a better barometer for the

overall stock market.• There are industry indexes too. Might make better sense to

use one of those in a story about a specific company.

Page 10: Covering Financial Markets

The stock market

• How do investors decide what stocks to buy?• The same tools that investors use can be useful for

business reporters in writing about stocks as well.• Use these tools in your stories, and you will catch the

attention of your readers and be recognized as someone who writes with authority.

Page 11: Covering Financial Markets

The stock market• One of these tools is total return. Total return, or

total loss, tells the reader how well the stock has performed for an investor.

• It can be calculated by dividing the change in the price by the investment cost.

• If a stock purchased at $10 rises to $15 a share, then the total return is 50 percent. $5 is the change in the price, divided by the $10 investment cost.

Page 12: Covering Financial Markets

The stock market• Book value is another tool. It is an important barometer for

value investors who are looking for cheap stocks. • It’s calculated by dividing net worth or shareholder equity by

the number of outstanding shares a company has. • A company with $250 million in shareholder equity may have

10 million shares outstanding. $250 million/10 million=$25/share book value.

• Compare book value to current stock price. If stock trades for below book value, it may be considered a cheap stock.

Page 13: Covering Financial Markets

The stock market• Price-to-earnings is another ratio used by investors. Also known as a P/E

multiple, it tells an investor how much they are paying for each dollar of company earnings.

• It is calculated by dividing the stock price by the current or projected earnings per share.

• A $30 stock with a 2006 earnings per share estimate by analysts of $1.50/share has a P/E multiple of 20.

• Compare that multiple to how other companies in the same industry are valued by investors. That will tell you whether investors like this stock or think other stocks are more attractive.

Page 14: Covering Financial Markets

The stock market• Net profit margin shows how profitable a company

is. • It’s calculated by dividing net income by total sales.• So, a company with net income of $25 million on

$500 million in sales has a net profit margin of 5 percent.

• Again, compare this number to similar companies in the same industry.

Page 15: Covering Financial Markets

The stock market

• An initial public offering is when a private company offers its stock to be purchased by the public and begins trading shares on a stock market for the first time.

• Companies must register to sell shares with the Securities and Exchange Commission before an IPO is approved. This document is a Form S-1.

• The initial document will not have the stock price at which the shares will be sold, but it will have more information than the company has ever had to disclose in the past.

Page 16: Covering Financial Markets

The stock market

• When writing about an IPO from the Form S-1, look for these pieces of information and include them in your story:

1. Price or price range of the stock2. Amount/proceeds to the company3. What the company will do with the money4. Who the underwriters are5. The company’s financial performance before the IPO6. Risk factors7. Corporate strategy8. Price range compared to the book value

Page 17: Covering Financial Markets

The stock market• There are two different stock prices to pay attention

to during an IPO.• The offering price is the price at which the shares

will be sold to IPO investors. The lead underwriter sets this price.

• The opening price is the price at which the IPO starts trading on the open market. This could be different than the offering price.

Page 18: Covering Financial Markets

The stock market• A sell-side analyst works for an investment bank and is not

typically independent. They make money by convincing investors to trade in the stocks they follow.

• This is in contrast to a buy-side analyst, who works for institutional investors or portfolio managers at mutual funds.

• In other words, a sell-side analyst is trying to convince the buy-side to trade in the stock. A buy-side analyst may not be an independent source either if they own the stock. They have a vested interest in its performance.

Page 19: Covering Financial Markets

The stock market• But are analysts good sources for journalists? • Many in the past had conflicts due to investment banking and

other relationships with the companies they covered.• Sell-side analysts are now disclosing those conflicts in reports

they write. • As long as the business reporter discloses those conflicts in a

story, then an analyst can be quoted.

Page 20: Covering Financial Markets

The stock market• The buy-side analysts work for mutual funds or other money

managers. • Mutual funds are investments where the risk is theoretically

lowered because the investor is buying a group of stocks instead of one. There are more than 8,300 mutual funds.

• Mutual fund managers are among the largest investors in the stock market. They had more than $9 trillion in investments in 2008.

• Investors in mutual funds have voting rights just like shareholders of company stocks

Page 21: Covering Financial Markets

The stock market• In return for managing an investor’s money, mutual funds

take a fee, or an expense ratio, to cover their expenses.• Mutual funds operate with different investment strategies.

There are market index funds, sector/industry funds, growth funds, value funds, geographical funds, return funds and hybrid funds.

• Also, there are money market funds and bond funds.

Page 22: Covering Financial Markets

The stock market

• A growing trend in the stock market is hedge funds. • Hedge funds are not regulated by the SEC, whereas

mutual funds are. The SEC is considering regulating hedge fund managers as investment advisers.

• Unlike mutual funds, the hedge fund manager has an investment stake in the fund he’s managing.

Page 23: Covering Financial Markets

The stock market• There are other differences between mutual funds and hedge

funds. • Hedge funds can short stocks. Mutual funds can’t.• Hedge funds can not advertise. Mutual funds can.• Investors in hedge funds are more affluent. Most hedge funds

require investors to have $1 million in net worth and $200,000 in net income, though some have lower requirements.

Page 24: Covering Financial Markets

The stock market

• They are called “hedge” funds because they “hedge” against a downturn in the market by betting some investments will go up and some will go down.

• The pure hedge fund will take half its money and go long in investments. It will take the other half and go short.

• The concept is that not all investments will rise all the time. If a hedge fund manager can pick the right stocks going up and going down at the same time, then the portfolio value rises faster.

• Between 1990 and 2002, hedge funds rose an average of 12 percent annually vs. 9.1 percent for the S&P 500.

Page 25: Covering Financial Markets

The stock market• Here’s how it works:• ABC Hedge Fund has $10 million to invest. Of that, $8 million comes from

investors, and $2 million from the fund manager.• The fund goes to the bank and borrows $10 million. It now has $20

million to invest.• Let’s say that $20 million is invested in a stock at $50/share. The fund

buys 400,000 shares.• If the stock goes up to $60, the hedge fund now has $24 million. It pays

back the bank its $10 million plus interest and has ~$14 million to repay investors. It gives investors $10 million, for a 25 percent return. Fund manager keeps $4 million, for a 100 percent return.

Page 26: Covering Financial Markets

The stock market

• But there is a risk to investing, and hedge funds are a risky investment.

• What if the stock goes down to $40? Hedge fund has $16 million. It still has to repay bank $10 million.

• What’s left is $6 million for investors, or only 75 cents for every $1 they invested, and nothing for the fund manager.

Page 27: Covering Financial Markets

The stock market• Short selling is betting that the price of a stock will fall. • An investor who borrows shares of stock from a broker and

sells them on the open market is said to have a short position in the stock.

• If the stock price rises, then the investor will have to buy back the stock at a higher price, losing money.

• If the stock price falls, then the investor buys back the stock at a lower price and pockets the difference as profit.

Page 28: Covering Financial Markets

The stock market• Let’s say an investor shorts 1 million shares of a $10 stock.

Investor sells the shares and puts $10 million in his wallet. • If the stock drops to $8, the shares are now worth $8 million.

Investor takes out $8 million from his wallet and buys back the shares he’s borrowed. His profit is $2 million.

• But if the stock rises to $12, then the investor has to pay $12 million to buy back the shares and has lost $2 million.

Page 29: Covering Financial Markets

The stock market• Some companies will pay investors to buy and hold their stock for

a long time. These payments are called dividends. • Dividends are often offered on stocks of companies that generate

a lot of excess cash.• Dividends are paid quarterly, though many companies offer the

option of having the dividend payment reinvested in additional shares.

• If a company offers 25 cents in a quarterly dividend on each share for 1,000 shares, then the investor receives $250 each quarter.

Page 30: Covering Financial Markets

Stock market review

• Answer the following questions before going on to the next section.

• What is not a primary function of the stock market? • A.) To provide companies with capital.• B.) To provide investment opportunities for investors.• C.) To provide a way for executives to sell stock before it goes down.• D.) To allow people to buy stock from those who want to sell it. • The answer is C. Although executives can sell stock, it’s not why the stock

goes down.

Page 31: Covering Financial Markets

Stock market review• If an investor purchased a stock for $8 per share and later sold it for $10

per share, what could be their total return? • A.) 10 percent. • B.) 20 percent. • C.) 22 percent. • D.) 25 percent.• • The answer is D. The difference is $2, divided by the initial investment

price of $8, which equals 25 percent.

Page 32: Covering Financial Markets

Stock market review• True or False: The offering price of an IPO is always the same

as the opening price.• • The answer is False. The offering price is the price of the stock

when sold to the initial investors by the underwriters. The opening price is the price of the stock when it begins trading on the market. They are not always the same.

Page 33: Covering Financial Markets

The bond market• A bond is an IOU between an issuer and an investor. • The issuer sells bonds to raise capital and pays interest over

the life of the bond, as well as the principal investment amount at the end of the bond’s term.

• When the price of a bond goes up in trading, the yield of the bond goes down. When the yield of the bond goes up, the price goes down.

• Unlike stocks, which give the investor a piece of ownership in the company, a bond is not ownership.

Page 34: Covering Financial Markets

The bond market

• There are different bond issuers.• Companies sell bonds to investors to raise money to build

plants, pay off other debt or make an acquisition.• Unlike their single stock price, large companies have multiple

bond issues trading at different values on the market.• Governments sell bonds to pay to build roads, hospitals, new

sewer plants, expand universities, etc.• The federal government’s Treasury bonds are considered the

safest investment in the world.

Page 35: Covering Financial Markets

The bond market• Corporate bonds are issued by businesses. They can be for any time

length, but usually are for 1 year, 5 years, 10 years, 15 years and 30 years. • Municipal bonds are issued by local city, county and state governments.

They’re tax-exempt for investors. There have been few failures, but Orange County, Calif., is the biggest. In that case, its municipal investment pool lost $1.5 billion in 1994, leaving the county bankrupt.

• Treasury bills are issued by the federal government. A T-bill is 6 to 12 months.

• A Treasury note is 1 year to 10 years, and a Treasury bond is 10 years to 30 years.

Page 36: Covering Financial Markets

The bond market

• Here is how bonds work:• A company issues a 10-year bond with a face amount of

$1,000 and an annual yield of 7 percent.• That means that every year for the next 10 years, the

company pays the bondholder $70 in interest.• At the end of the 10 years, the company pays the investor

back the $1,000.

Page 37: Covering Financial Markets

The bond market

• The yield that a company or a government pays on its bonds is typically determined by its rating. The higher the rating, the safer the investment, and the lower the yield.

• Most ratings begin at AAA, then go to AA, A, and so on down to C and D.

• Anything below BBB is considered a junk bond, or a highly speculative investment

Page 38: Covering Financial Markets

The bond market

• Companies, municipalities and state governments want to keep their bond ratings as high – as close to AAA – as possible.

• The higher the bond rating, the lower the yield that the issuer offers to investors.

• In other words, the better the rating, the lower the cost of capital.

Page 39: Covering Financial Markets

The bond market• Downgrades and upgrades of a company’s bond

ratings can be major news stories. • Consider if the state of North Carolina lost its AAA

rating. What would that mean?• It meant that when the state borrowed money again

for construction projects, it had to spend more money paying interest to investors than before.

Page 40: Covering Financial Markets

The bond market

• Some companies will issue what is called a convertible bond. These are bonds that can be converted into stock in the company at a later date.

• These bonds are attractive to some investors because they offer greater potential for appreciation in value than bonds and give higher income than common stock.

• Convertible bonds become valuable if the company’s stock price goes up. If the stock price falls, then they are typically not converted.

Page 41: Covering Financial Markets

The bond market

• Foreign countries also issue bonds. Some of these are called Brady bonds.

• Brady Bonds are some of the most liquid emerging market securities. They are named after former U.S. Treasury Secretary Nicholas Brady, who sponsored the effort to restructure emerging market debt instruments.

• Most issuers are Latin American countries. The price of these bonds often reflects investor sentiment about these economies.

Page 42: Covering Financial Markets

The bond market

• If you’re writing about the stock price of a company in a story, it can be valuable information to tell readers what the bonds are doing as well.

• Many times, bond prices don’t react the same way stock prices do. Why is that?

• In bankruptcy court proceedings, bondholders are repaid before stock investors, so bonds have more value at this point.

Page 43: Covering Financial Markets

The bond market

• Also, make sure you understand the difference between secured bonds and unsecured bonds.

• A secured bond is secured by the issuer's pledge of a specific asset, which is a form of collateral on the loan. In the event of a default, the bond issuer passes title of the asset, or the money that has been set aside, onto the bondholders. Secured bonds can also be secured with a revenue stream that comes from the project that the bond issue was used to finance.

• These are often issued when a municipality builds a stadium or arena for a sports team.

Page 44: Covering Financial Markets

Bond market review

• Answer the following questions about the bond market to test your knowledge.

• True or False: A bond with a BBB rating offers a higher yield to investors than a bond with a C rating.

• The answer is False. The C-rated bond offers a higher yield because it’s a lower rating and there’s a bigger risk that the issuer might default on the bonds.

Page 45: Covering Financial Markets

Bond market review

• Which of these is not a type of bond typically issued? • A.) Corporate bond. • B.) Building bond. • C.) Municipal bond. • D.) Treasury bill. • The answer is B. Although companies and governments may

issue bonds to build something, there is no such thing as a “building bond.”

Page 46: Covering Financial Markets

Bond market review• What is the main difference between stocks and bonds? • A.) Only stocks are traded. • B.) Only bonds can go down in price. • C.) Only bonds are bought by mutual funds. • D.) Only stocks convey ownership. • The answer is D. When you own a bond, you do not own a

piece of the issuer. However, stock does convey ownership.

Page 47: Covering Financial Markets

Commodities market

• A commodity is any bulk good traded on an exchange or in the cash market.

• Some examples are grain, gold, oil, beef, silver and natural gas.

• Like stocks and bonds, they are regulated. The Commodity Futures Trading Commission (http://www.cftc.gov) was created in 1974 to guard investors from manipulation and abusive trading.

Page 48: Covering Financial Markets

Commodities market

• Some commodities are called soft commodities. These include coffee, cocoa, sugar and fruit. This term generally refers to commodities that are grown, rather than mined.

• Soft commodities play a major part in the futures market. They are used by both farmers wishing to lock in the future prices of their crops, and by speculative investors seeking a profit.

Page 49: Covering Financial Markets

Commodities market

• In addition to trading commodities, many of the commodities markets also trade another type of financial instrument called a future.

• A future is a financial contract for the sale of a financial instrument of physical commodity for future delivery.

• Futures contracts try to bet what the value of a stock index or commodity will be at some date in the future.

• Futures are often used by mutual funds and large institutions to hedge their positions when the market is rocky.

Page 50: Covering Financial Markets

Commodities market• Depending on your local economy, there may be a

commodity traded every day that is vitally important to one of your largest employers or to a local farmer.

• As a reporter in 1989-90 at the Sarasota Herald-Tribune, for example, I had to pay attention to frozen concentrated orange juice prices on the New York Cotton Exchange, particularly after freezes.

• Tropicana was based in nearby Bradenton, and in addition, many orange farmers in the state sold their crops to them or Minute Maid.

Page 51: Covering Financial Markets

Commodities market• Like stocks, commodities are traded at different markets. They include:• • The Chicago Board of Trade (http://www.cbot.com ) – Commodity exchange for both

agricultural and financial contracts. Also the home to trading for U.S. Treasury bond futures contracts and other U.S. Treasury instruments spanning the yield curve.

• The Chicago Mercantile Exchange (http://www.cme.com ) – Focuses primarily on financial futures. A publicly traded company, this exchange offers futures, and options on futures, in four basic product areas: interest rates, stock indexes, foreign exchange and commodities (which include beef, dairy, forest and hog).

• The New York Mercantile Exchange (http://www.nymex.com) – The largest physical commodity exchange in the world. It is the pre-eminent energy and precious metals market. Agricultural products no longer trade here. Under “Resources,” the site has a listing of industry conferences and conventions.

Page 52: Covering Financial Markets

• Commodity contracts are bought and sold. It’s not exactly like stocks, where stock represents ownership.

• A corn producer could purchase corn futures on a commodity exchange to lock in the price for a specified amount of corn at a future date. At the same time, a speculator could buy and sell corn futures with the hope of profiting from future changes in corn prices.

Page 53: Covering Financial Markets

Commodities market• Commodity prices fluctuate based on a number of

different economic-related conditions. They include: • Consumer demand;• Weather conditions;• Inflation;• Perceived scarcity.• The risk of changing prices is actually the reason that

exchange trading of agricultural products began.

Page 54: Covering Financial Markets

Commodities market• Some commodity traders are involved in what is called a commodity

swap. This is where exchanged cash flows are dependent on the price of an underlying commodity. This is usually used to hedge against the price of a commodity.

• In this swap, the user of a commodity would secure a maximum price and agree to pay a financial institution this fixed price. Then in return, the user would get payments based on the market price for that commodity.

• On the other side, a producer wishes to fix his income. So he agrees to pay the market price to a financial institution, in return for receiving fixed payments for the commodity.

• The vast majority of commodity swaps involve oil.

Page 55: Covering Financial Markets

Commodities market

• There are also mutual fund-type investments used in commodity trading. These are called commodity pools.

• A pool collects money from investors to use in futures and commodity trading.

• The investor’s risk is limited to the amount of money he has contributed to the pool.

Page 56: Covering Financial Markets

Commodities market

• Like stocks, there are also indexes for commodities. • A commodity index tracks a basket of commodities

to measure their performance. These indexes will often be traded on exchanges, allowing investors to gain easier access to commodities without having to enter the futures market.

• The value of these indexes fluctuates based on the underlying commodities. This value can be traded on the exchange much in the same way as stock-index futures.

Page 57: Covering Financial Markets

Commodities market

• The price of agricultural commodities is affected by monthly crop reports from the U.S. Department of Agriculture (Check http://www.nass.usda.gov).

• These crop reports actually played a big role in the Dan Aykroyd and Eddie Murphy film, “Trading Places.”

• Crop reports analyze acreage, crop yield, weather and exports. These reports can make commodity prices go up or down.

Page 58: Covering Financial Markets

Commodities market

• Commodity prices are a leading indicator of price pressure. • As demand starts to exceed supply, suppliers or

manufacturers of commodities are able to raise prices. • There is a correlation between commodity prices and the

Consumer Price Index, but it has faded somewhat as commodities have become less important to the economy’s cost structure.

• Still, they are watched closely by the stock market and the Federal Reserve.

Page 59: Covering Financial Markets

Commodities market

• Rarely does a commodities trader accept delivery of, say, 40,000 pounds of pork bellies that are the underlying commodity of a contract.

• When the product is about to be produced and shipped, the trader will likely sell the contract to a company that needs the raw product to manufacture a food product

Page 60: Covering Financial Markets

Commodities market

• Futures contracts operate in much the same way as commodities contracts.

• However, futures contracts have evolved to include financial instruments that don’t include agricultural or natural resource products.

• Futures can now be traded on items such as the S&P 500, natural disasters and other financial-related items such as Treasury bills.

Page 61: Covering Financial Markets

Commodities market

• Futures prices of financial instruments such as T-bills, Treasury bonds or the Euro can be affected by monetary policy.

• The same thing happens with the stock market. Higher interest rates usually hurt the stock market, sending the price of stock futures down.

Page 62: Covering Financial Markets

Test

• Answer the following 10 questions about covering the financial markets.

• When you have answered a question, click “Continue,” and you will see whether your answer is correct.

Page 63: Covering Financial Markets

Test Question No. 1• What are the three major stock exchanges in the United

States?• A.) New York Stock Exchange, Philadelphia Stock Exchange,

San Francisco Stock Exchange.• B.) Chicago Board of Trade, New York Stock Exchange, New

York Mercantile Exchange.• C.) New York Stock Exchange, NASDAQ, American Stock

Exchange.• D.) Dow Jones Industrial Average, Standard & Poor’s 500,

NASDAQ Composite.

Page 64: Covering Financial Markets

Test Question No. 2

• How do you determine the book value of a company?• A.) Divide its stock price by the number of shares outstanding.• B.) Divide its shareholder equity by the number of shares

outstanding.• C.) Divide its earnings per share by the stock price.• D.) Divide its net income by the number of shares

outstanding.

Page 65: Covering Financial Markets

Test Question No. 3

• After calculating a company’s P/E ratio, what should a business reporter do with the number?

• A.) Compare it to the P/E of similar companies.• B.) Compare it to the P/E of companies located nearby.• C.) Compare it to the P/E of companies in the Dow Jones

Industrial Average.• D.) Compare it to the P/E multiple of all industrial companies.

Page 66: Covering Financial Markets

Test Question No. 4

• What index is the best barometer of the overall market?

• A.) The Dow Jones Industrial Average.• B.) The NASDAQ composite.• C.) The Standard & Poor’s 500 Index.• D.) The Russell 1000 Growth Index.

Page 67: Covering Financial Markets

Test Question No. 5

• When writing about a company’s initial public offering, what should be included in the story?

• A.) The stock price or stock price range.• B.) The underwriters.• C.) The amount of money raised.• D.) The risk factors.• E.) All of the above.

Page 68: Covering Financial Markets

Test Question No. 6

• What statement is true about buy-side and sell-side analysts?• A.) A buy-side analyst only examines bonds.• B.) A sell-side analyst works for institutional investors such as

mutual funds.• C.) A buy-side analyst has a vested interest in the stocks his

firm owns.• D.) A sell-side analyst never has a conflict of interest.

Page 69: Covering Financial Markets

Test Question No. 7

• What is NOT a difference between hedge funds and mutual funds?

• A.) Hedge funds buy bonds, while mutual funds buy stocks.• B.) Hedge fund managers put their own money into the fund,

while mutual fund managers do not.• C.) Hedge fund managers can not advertise, while mutual

funds can.• D.) Hedge funds can short stocks, while mutual funds can not.

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Test Question No. 8

• True of False: Investors who purchase municipal bonds do not have to pay taxes on their profits.

• A.) True• B.) False

Page 71: Covering Financial Markets

Test Question No. 9

• When a company’s bond rating is lowered, what does that mean?

• A.) The company will pay investors a lower yield on its bonds.• B.) The company will pay investors a higher yield on its bonds.• C.) The company will issue bonds in smaller denominations.• D.) The company will issue bonds for shorter time periods.

Page 72: Covering Financial Markets

Test Question No. 10

• What is a futures contract?• A.) A contract that will pay an investor a higher amount of

money in the future.• B.) A contract that bets on the future value of a commodity or

stock index.• C.) A contract that is only used to bet on future stock prices.• D.) A contract that is only used to bet on future commodity

prices.

Page 73: Covering Financial Markets

Your instructor

• Please contact me with any questions about financial markets or business journalism at [email protected].

• Chris Roush is director of the Carolina Business News Initiative and the author of Show Me the Money: Writing Business and Economics Stories for Mass Communication, a business reporting textbook published by Lawrence Erlbaum Associates, and Profits and Losses: How Business Journalism Shaped Society, a book published by Marion Street Press. Roush worked as a business reporter for The Sarasota Herald-Tribune, The Tampa Tribune and The Atlanta Journal-Constitution. He has also worked for BusinessWeek in its Connecticut bureau and for Bloomberg News in its Atlanta bureau

Page 74: Covering Financial Markets

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