ÉCOLE SUPÉRIEURE DE GESTION

ET D’ADMINISTRATION DES ENTREPRISES

Agrément définitif par Arrêté n°4677/MES/CAB du 05 Juillet 2017
Accréditée par le Conseil Africain et Malgache pour l’Enseignement Supérieur (CAMES)
BP : 2339 – Brazzaville – CONGO
E-mail : esgae@esgae.org Site web : www.esgae.org

Département Master

ANGLAIS DE LA FINANCE

Parcours
Master Professionnel 2 – Management des
Finances

Enseignant
Equipe pédagogique
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Agrément définitif par Arrêté n°4677 / MES / CAB du 05 Juillet 2017

MP2MF

ESGAE BRAZZAVILLE
Master Degree
Major: Banking & Finance
Code: EC 23 – M2 MF - Credits: 3
Theoretical sessions: 10 Hrs: Workshop sessions: 20 Hrs
Academic Year: 2018-2019
Teacher in tenure: Will BIYEKELE
Email: willbiye@gmail.com
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Course general objective: overview on money basics, finance, banks and banking options

Course specific objectives: By the end of this course, the student should be able to:

 Recognize bank’s operations, its various options and services;

 Recognize economic, financial and commercial functions of a bank;
 Recognize the key role of accounting in business management;
 Master the role of financial markets and products in the life of a company;
 Master the link between business valuation and investment;
 Master basic principles of economics, trade and taxation.

Course outline

CHAPTER ONE: THE BUSINESS CYCLE

Section 1: Financial accounting and management accounting

Section 2: Business valuation and interpretation of accounts

Section 3: Banking and financial services

CHAPTER TWO: CAPITAL MARKETS AND PRODUCTS

Section 1: Financial markets

Section 2: Stock exchange

Section 3: Financial products (shares, bonds, etc.)

CHAPTER THREE: ECONOMICS AND TRADE

Section 1: Balance of payment and protectionism

Section 2: Exchange rates

Section 3: Financing international trade

Section 4: Taxation

Section 5: Emergence of Asian economies

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GENERAL INTRODUCTION

1. What is a bank?

A bank is an organization that receives deposits, honors checks drawn on those deposits, and
pays interest on them. Banks also make loans and invest in securities.
A bank account helps you protect and manage your money. Banks offer three main types of
accounts: checking, savings and combination accounts.

2. How do banks operate, and how is your money protected?

Banks profit from the difference in the interest rates paid on deposits and charged on loans. In
other words, the bank uses the money you deposit to loan out. It charges a higher interest rate
on loans it pays out to you in interest on your account. You'll learn more about interest rates
later in this lesson.
Banks also make money by charging service fees and earn income from securities and
investments.
Banks provide a safe place to put your money. Even in the case of a robbery, it's the bank's loss
- not yours. This is because banks carry private banking insurance to protect deposits in the
case of burglary, robbery, or vandalism.

3. What are banking options and services?

Take time to think about where you want to put your money and the options offered by different
financial institutions. The core question is: How do I compare banks?

There are several features to consider when choosing and deciding on a bank, please consider
the following:

 the bank location and accessibility (What options do you have for accessing your
account? Look into the bank’s online options, whether there are branches near you, what
hours help is available and whether you’ll be able to easily transfer money between your
checking and savings accounts) ;
 insurance;
 legal status of the bank;
 your banking needs (the services you want, or expect from your bank);
 your current and future financial goals;
 the products and services a bank offers;
 the bank’s fees for the transactions you’re likely to conduct regularly;
 the Internet banking and mobile app platform (online banking);
 branch and ATM locations or convenience;
 customer support options;
 how long it has been in business;
 its reputation among friends, family and other consumers.
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4. What is a credit union?

A credit union is an alternative to a bank. It is a cooperative financial institution that is owned

and controlled by the people who use its services.

5. What is a checking account?

Having a checking account at a bank or financial institution allows you to write checks to pay
for goods and services or to get cash. A check is a written order instructing your bank to pay
money to an individual or entity.

To use checks, you must first open a checking account and make regular deposits into that
account. Banks offer several types of checking accounts.

Example 1: A sample of a check / cheque

1) Write the date in the top right corner, next to a box or line that says “Date”. Always
write the same date that you signed the check on.

2) Write the recipient on the line next to “Pay to the order of.” If it’s a person, write their
first and last name. If it’s a company, make sure you have their company name correct
for payments, only using acronyms if asked to. You can also write cash here, and that
means anyone can take the check to the bank and get the cash from your account.

3) Write the amount. Next to the dollar sign ($) write, in numerals, the amount of money
you want taken out of your account. Including the amount of pennies, even if that amount
is zero.
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4) Write the amount (again). Spell out the dollar amount with letters on the line under the
recipient, including the cents as a fraction. It’s a good idea to draw a line afterward so
no one can add to your check.

5) Sign the check. In the bottom right corner, there is a space for your signature. If you
don’t sign there, the check won’t be valid.

6) Fill out the memo section (optional). You can write what the check is for, like utilities
or rent. This isn’t required, but it can help you keep track of your finances.

7) Tear off the check. If you’re using a checkbook, tear off the top check. The top copy is
what you give your recipient. The second, lighter copy is called a carbon copy — it’s for
you to keep.

Sample 2: How to write a check with cents

Example 3: How to write a $100 check

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Example 4: How to write a $1,000 check

Remarks: (1) How to void a check

If you wrote a check that you don’t want anyone to cash — for example if you wrote the
wrong amount — you can make sure no one is able to cash it by writing VOID across the
check. Make sure to write clearly and large, covering the entire check.

(2) Writing a check to yourself

If you want to move money from one account to another, you can write a check to yourself by
putting your own name in the “Pay to the order of” field. You’ll also need to sign the back of
the check before you can deposit it.
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6. What is a mortgage?

A mortgage is a loan designed to help you buy or refinance your primary home, a vacation
house or any other type of investment property. When you take out a mortgage, you agree to
repay the amount you borrow from a lender along with interest, which is rolled into your
monthly payments.

In exchange for low interest rates, the lender secures your loan using your property as collateral.
That means if you find yourself unable to repay your mortgage on time, the lender can repossess
your property and sell it to recoup the loss.

7. How does a mortgage work?

A mortgage is similar to other types of loans secured with collateral. A key difference lies in
the way your monthly payment is allocated.

When you apply for a loan, lenders assess their risk in taking you on as a borrower. Then often
consider your credit score, down payment, assets, debt and income. Your risk ultimately
determines approval and your mortgage’s interest rate.

The base loan amount you owe is the principal. In exchange for lending you the principal, your
lender charges interest that’s applied to your principal each month. Your monthly payment is
applied to both the principal and your interest based on an amortization schedule.

8. What is amortization ?

When you take out a mortgage, you agree to pay principal and interest over the life of the loan.
Because your interest rate is applied to the balance, as you pay down your balance, the amount
you pay in interest changes.

At the beginning of your loan, a hefty percentage of your payment is applied to interest. With
each subsequent payment, you pay more toward your balance.

Let’s say you’re repaying a 30-year mortgage for $400,000 at 4.5% interest. According to your
mortgage’s amortization schedule, your first payment is $2,027. But amortization means that
payment allocates $1,500 to interest and only $527 to the principal. By the time you make your
last payment, you’re paying only $8 in interest and $2,019 toward the balance.
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C H A P T E R I: F I N A N C E

This chapter lays an emphasis on:

 Banking, insurance and banking services;
 Financial accounting;
 Business valuation;
 Interpreting financial statements (Balance Sheet; Income Statement; Cash-Flow
Statement)

Definition: Broadly speaking, finance can be defined as a branch of economics concerned with:
 resource allocation ;
 resource management;
 acquisition ; and
 investment.
Finance can also be defined as the science of money management.

Section 1. What is Financial Accounting?

Prior to properly dealing with financial accounting, it is important to explore the terms
“finance”, “accounting” and “audit”
1.1. Finance: Also viewed as science of money management, finance can be defined as a
branch of economics concerned with
(i) resource allocation ,
(ii) resource management,
(iii) acquisition and
(iv) investment.
The term “finance” describes two related activities: the study of how money is
managed and the actual process of acquiring needed funds. It encompasses the
oversight, creation and study of money, banking, credit, investments, assets and
liabilities that make up financial systems. Many of the basic concepts in finance come
from micro and macroeconomic theories. One of the most fundamental theories is the
time value of money, which essentially states that a dollar today is worth more than a
dollar in the future.

1.2. Accounting: Accounting is the process of recording, summarizing, analyzing, and

reporting financial transactions of a business to oversight agencies, regulators, and the
IRS. The purpose of accounting is to provide the information that is needed for sound
economic decision making.

1.3. Audit and auditor : An audit is an unbiased examination and evaluation of the
financial statements of an organization. An audit is carried out by an auditor, that is, a
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person authorized to review and verify the accuracy of business records and ensure
compliance with tax laws.

1.4. Financial accounting: also called financial accountancy is a specific branch or field
of accounting involving a process of recording, analyzing, summarizing, and
reporting the myriad of transactions resulting from business operations over a
period of time. These transactions are summarized in the preparation of financial
statements, including the balance sheet, income statement and cash flow statement, that
record the company's operating performance over a specified period. This involves
the preparation of financial statements or reports, available for public consumption by
external parties such as investors, creditors, and tax authorities.

Work opportunities for a financial accountant can be found in both the public and private
sectors. A financial accountant's duties may differ from those of a general accountant, who
works for himself or herself rather than directly for a company or organization.

APPLICATION ONE: MONEY AND INCOME

A. CURRENCY: The money used in a country – euros, dollars, yen, etc. – is its currency.
Money in notes (banknotes) and coins is called cash. Most money, however, consists of
bank deposits: money that people and organizations have in bank accounts. Most of this
is on paper – existing in theory only – and only about ten per cent of it exists in the form
of cash in the bank.

B. PERSONAL FINANCE: All the money a person receives or earns as payment is his or
her income. This can include:
 A salary: money paid monthly by an employer, or wages, money paid by the day
or the hour, usually received weekly;
 Overtime: money received for working extra hours;
 Commission: money paid to salespeople and agents – a certain percentage of the
income the employee generates;
 A bonus: extra money given for meeting a target or for good financial results;
 Fees: money paid to professional people such as lawyers and architects
 Social security: money paid by the government to unemployed and sick people;
 A pension: money paid by a company or the government to a retired person.

C. SALARIES AND WAGES are often paid after deductions such as social security
charges and pension contributions. Amounts of money that people have to spend
regularly are outgoings. These often include:

 Living expenses: money spent every day needs such as food, clothes and public
transport;
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 Bills: requests for the payment of money owed per services such as electricity,
gas and telephone connections;
 Rent: the money paid for the use of a house or flat;
 Mortgage: repayments of money borrowed to buy a house or flat;
 Health insurance: financial protection against medical expenses for sickness
or accidental injuries;
 Tax: money paid to finance government spending.

D. CAPITAL

When people want to set up or start a company, they need money, called capital. Companies
can borrow this money, called a loan, from banks. The loan must be paid back with interest:
the amount paid to borrow money. Capital can also come from issuing shares or equities –
certificates representing units of ownership of a company.

The people who invest money in shares are called shareholders and they own part of the
company. The money they provide is known as share capital. Individuals and financial
institutions, called investors, can also lend money to companies by buying bonds – loans
that pay interest and are repaid at a fixed future date.

Money that is owed – that will have to be paid – to other people or businesses is a debt. In
accounting, companies’ debts are usually called liabilities. Long-term liabilities include
bonds; short-term liabilities include debts to suppliers who provide goods or services on
credit – that will be paid for later.

The money that a business uses for everyday expenses or has available for spending is called
working capital or funds.

Br.E: shares Am.E: Stocks

Br.E: shareholder Am.E: stockholder

Exercise1: Complete the sentences with words from the box. Look at A and B
opposite to help you.

COMMISSION_BONUS_CURRENCY_INSURANCE_EARN_MORTGAGE_ALLOTMENT_TAX_
OVERTIME_PENSION_RENT_SALARY_SOCIAL SECURITY.

1. After I lost my job, I was living on _______________ for 3 months. This was
difficult, because the amount was much lower that ______________ I had before.
2. I used to work as a salesperson, but I wasn’t very successful, so I didn’t _________
much __________.
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3. If the company makes 10% more than last year, we’ll all get a __________ at the end
of the year.
4. It’ll take me at least 25 years to repay the ___________ on my house.
5. Many European countries now have the same ________, the euro.
6. My wages aren’t very good, so I do a lot of ____________.
7. Nearly 40% of everything I earn goes to the government as _____________.
8. The owner has just increased the _____________ on our flat by 15%.
9. When I retire, my _____________ will at least be 60% of my final salary.

Exercise 2: Are the following statements true or false? Find reasons for your answers in
A and B

1. Bank deposits are not classified as money.

2. People earning wages get paid more often than people earning a salary.
3. People working on commission always get paid the same amount.
4. When you stop working at the end of your career, you receive a pension.
5. Most people pay a rent and a mortgage.

Exercise 3; COMPOSITION/ OVER TO YOU

Do you know what the average income is in your country, and in your job, or the one you are
studying for?

How important is salary in your choice of career?

APPLICATION TWO: AN INTERVIEW

Interviewer: Before you got your job, did you study business or finance at college?

You: No, actually. I didn’t. In fact, when I applied for my first job, I really had no

experience in finance. I just looked on the Internet to see which finance jobs

paid the best. I saw that as a bond trader you could earn £ 100,000 after only

two years in the job. So I decided that was the job for me!

Interviewer: What skills and qualities were they looking for?

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You: I hope I impressed them. You definitely need good personal skills in this job

because everything depends on contacts. You have to be good on the telephone

so people want to call you with a deal. But it’s not only in the office. If you want

to make a lot of money, you also have to socialize and network with clients at

night. That means lots of eating in restaurants. That’s where you hear the best

news. You’re always competing with other banks for the same businesses; so

you have to keep the client very happy. It’s fun, but hard work.

Interviewer: It’s a very demanding job. Do you work a long day?

You: Yes I do. We start work every day at 7 a.m. We have to go to the morning

briefing when the analysts tell us about information in the news that is

important for prices. Then the head of the division explains the strategy for the

day. We begin to call people at 7.40 and the markets open at 8.00 when we

make the first deals. The phone never stops and we have to keep a lot of

information in our heads.

Interviewer: How much money are you dealing in?

You: We are trading in tens of millions and that means you can’t make any mistakes.

The profit on a deal is so small that we have to trade in very large quantities to

make money. So the ability to think fast and decide things quickly is essential

Interviewer: I think I know what you will say to this question... Is your job interesting?

You: Yes, of course; it’s absolutely fascinating!

APPLICATION THREE: Read carefully the passage below and fill out the blanks with the
appropriate words listed

BONDS_SHARES_OWED_PROVIDE_LEND_LOAN_FUNDS_STOCK_SUPPLIERS_BORROW_
EXPENSES_LAND_ASSETS__OWN_LIABILITIES
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When people want to set up or start a company, they need money, called capital. Companies
can borrow this money, called a ____ (1), from banks, to be paid back with interest; that is, the
amount paid to ___ (2) the money. Capital can also come from issuing ___ (3) or equities, the
latter being certificates representing units of ownership of a company. The people who invest
money in shares are called shareholders, as they ___ (4) part of the company. The money they
____ (5) is known as share capital. Individuals and financial institutions, called investors, can
also ___ (6) money to companies by buying ____ (7), which are loans that pay interest and are
repaid at a fixed future date. Money that is ___ (8) to other people or businesses is a debt. In
accounting, companies’ debts are usually called ___ (9). Long-term ones include bonds, and
short-term ones include debts to ____ (10) who provide goods or services on credit that will be
paid for later The money that a business uses for everyday ____ (11) or has available for
spending is called working capital or ___ (12).

APPLICATION FOUR: Read carefully these sentences, and then fill out the blanks with
the appropriate word, based on the course and your own
experience.

1. Small companies often try to get bank loans when they need to ____ money.
Translation:
…………………………………………………………………………………………
…………. .
2. We don’t have sufficient ____ to build a completely new factory.
Translation:
…………………………………………………………………………………………
……….. .
3. When they saw our financial statements, the bank refused to ____ us any more money.
Translation:
…………………………………………………………………………………………
………… .
4. Everyone who buys a stock ____ part of the company.
Translation:
…………………………………………………………………………………………
…………. .

APPLICATION FIVE

SECTION ONE: Substitute appropriate terms for the italicized words or phrases in the
sentences below.

ACQUIRE_SERIES_PRIMARY_ARRANGEMENT_LAST_EXTERNAL_CONSIDERATION_REPAID
_EXPECT_CAPITAL_BOSS_ELEMENTS_KEPT ON_KEYS_PAY AGAIN
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1. Although Mrs. Evans Itoua and her partners had already defined their new product
line, they were still searching for the money needed to purchase equipment and
materials.
2. In general, a business that is able to manage its finances successfully will continue to
exist.
3. One of the chief elements in financial planning is achieving the correct balance
between long-term and short-term capital.
4. A company needs sufficient funds to obtain necessary assets, such as property,
buildings, and inventories.
5. When a company wants to expand, one factor that always affects this decision is cost.
6. In making investments, a financial manager uses a wide variety of information
provided by departments of the company.
7. When an individual or a company borrows money from a bank, this money must be
paid back by a specific date.
8. Owners anticipate that the company will use fixed assets for many years.

SECTION TWO: Turn into English the following sentences

1. L’expert-comptable a retiré une somme très importante dans son compte épargne.
2. Le salarié de cette petite et moyenne entreprise n’aime pas faire la queue en banque.
3. Pardon monsieur, où se trouve le guichet automatique de notre banque ?
4. La Banque Congolaise de l’Habitat peut-elle m’accorder un prêt immobilier ?
5. Je trouve qu’il y a plus d’avantages à court terme dans les obligations que les actions.
6. L’émission des chéquiers et la facturation font partie des obligations des banques
commerciales.

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

SERIAL EXERCISES RELATED TO MONEY, FINANCE, BANKING and

INSURANCE

EXERCISE ONE: Match up element in LIST A with those in LIST B

LIST A

1. Salary is 4. Commission is
2. Creditworthy is 5. A bonus is
3. Overtime is 6. Social security
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7. A pension 14. Health insurance

8. An overdraft is 15. Tax
9. Outgoings are 16. A budget is
10. Living expenses 17. Fees
11. Bills are 18. A hedge fund is
12. A rent is 19. Wage freeze
13. A mortgage is 20. Wages represent

LIST B

a. Money spent on everyday needs such as food, clothes and public transport.
b. When you have enough money or property for banks and other organizations to be
willing to lend money.
c. Money paid monthly by an employer of public service.
d. An amount of money that a customer with a bank account is temporarily allowed to
owe to the bank.
e. Money paid by the day or the hour, usually received weekly.
f. A period when there is no salary increase owing to lower profitability.
g. The money paid for the use of a house or flat.
h. Money paid to professional people such as lawyers, notaries and architects.
i. Amounts of money that people have to spend regularly.
j. Money paid to finance government expenditures.
k. A financial plan that shows how much money an individual or entity expects to earn
and spend.
l. Is financial service where money is invested in a way which tries to make very big
profit, but which has a big risk.
m. Money received for working extra hours.
n. Requests for the payment of money owed for services such as electricity, gas,
telephone and internet connections.
o. Financial protection against medical expenses for sickness or accidental injuries.
p. Money paid by a company or the government to a retired person.
q. Money paid to salespeople and agents, a certain percentage of the income the
employee generates.
r. Repayments of money borrowed to buy a property like a flat.
s. Money paid by the government to unemployed and sick people.
t. Extra financial advantage given for meeting a target or for good financial results.
u. Money paid on a monthly basis to an employee.
v. Extra financial money to pay for taxes.
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APPLICATION SIX

THEME1: Lend / Loan /Borrow

A. Lend Used only as a verb and is sometimes synonymous with the word 'loan'.
It means to allow someone to use something temporarily:
Example: Banks lend money.

'Lend' can also be used figuratively:

Example: Lend me your ears = Listen to me.

B. Loan 'Loan' is most commonly used as a noun.

It usually refers to a sum of money that we must pay back with interest:
Example: I'm going to take out a loan at the bank.

We can also use it as a verb (the opposite of 'borrow'):

Example: Yes, I will loan you the laptop.

(Note: 'Loan' is also used as a synonym for 'lend' in North American

English.)

C. Borrow It means using something that belongs to someone with the intention of
returning it:
Example: I need to borrow some money.

(Note: “borrow” means 'to take', while ‘lend’ / ‘loan’ mean 'to give'.

THEME2: BILL / TIP / FARE / FINE / FEE

1. BILL

This man has finished dinner, he wants to pay for it. He is raising his arm to call the
waiter:

Could I have the bill please?

(an electricity / gas / phone bill)

2. TIP
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After paying the bill you can leave a small amount of additional money to the waiter, it's
a tip.

3. FARE

The woman is paying the bus fare to the driver

fare: the price you pay to travel by bus, train, taxi,

plane...

4. FINE

If you don't take a ticket when you park your car you will have to pay a fine.

fine: the money that you have to pay as a punishment when you have
done something illegal or broken a rule.

fine (verb): in a car a little child must be seated in a safety chair, if not,
the driver can expect to be fined.

5. FEE

the money you pay to a professional: doctor, lawyer ...

the money you pay for school

the money you pay to enter a place: cinema, museum...

the money you pay to join something like a tennis club

APPLIED EXERCISES:

Exercise 1. Fill in the gap with the appropriate words listed below:

BORROWS_LENT_BORROWING_LEND_LOANED_BORROW_LOAN_BORROWED_
LOANS_LENDS

1. My friend ________ me 100 dollars and I must pay it back soon.

2. We can ___________ money from a bank to buy this big house.
3. When I need money, I can ____________ some from a friend.
4. It will take you four years to repay your student ______________
5. Has he returned that newspaper you ________________him?
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6. Yes, we will _____________you our car but we want to get it back next week.
7. The book he ____________me was very interesting and made me want to read more.
8. We got a home __________ from our bank to buy this apartment.
9. Someone has __________bicycle without asking. Now I must clean the mud off.
10.Could you __________ me some money until next Monday?

11.Ted often _____________ money to his younger brother.

12. - How much have you __________ from your grandparents? - Not too much.

13. That bank ________ me enough to buy a big house.

14. - How can I get a car ________ from the bank? - First of all, you must find a good job.

15. Never __________ your toothbrush to anybody.

Exercise 2. Fill in the gap with the appropriate words listed below (Note that a word can
used more than once, if it matches the context)

FINED_FARE_FEES_TIP_FEE_BILL_FINE

1. I am going to the reception desk to pay the _____________

2. Meanwhile, you should give the porter a big _______, this man
has been very helpful.

3.

a trial
The man has robbed a shop, if found guilty he faces six months in jail and a heavy
__________

4.

the high-speed train Eurostar

Alice: How will I cross the Channel?
 19

Ronald: Try the Eurostar, it's so comfortable! Their standard ________ starts from £49

5. Private schools ________ are expensive.

6. Sorry sir, but the speed limit is 110km per hour. You will be _____ for speeding.

7.

Look at this huge phone _______! I am sure Sonia talks to her for hours when we
are out.

8.
I am going to see lions and giraffes with the children, today the admission ______ to the zoo
is cheap.

9.
Arnaud: 'You look angry, what happened?'
Mike: 'Well, I have just been _______ for parking in a prohibited area.'

10. On some planes, children under 14 travel half _______.

I am going to the reception desk to pay the bill .

2.

Meanwhile, you should give the porter a big _____, this man has been
very helpful.

3.

a trial
The man has robbed a shop, if found guilty he faces six months in jail and a heavy
_____.
4.
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the high-speed train Eurostar

-How will I cross the Channel?

-Try the Eurostar, it's so comfortable!

Their standard ________starts from £49

5.

Private schools _______ are expensive.

6.

Sorry sir, but the speed limit is 110km per hour. You will be _____ for
speeding.

7.

Look at this huge phone _____ ! I am sure Sonia talks to her boyfriend for
hours when we are out.

8.

I am going to see lions and giraffes with the children,

today the admission ________________ to the zoo is cheap.

9.
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'You look angry, what happened?' / 'I have just been ______for parking in a
prohibited area.'

10.

On some planes, children under 14 travel half_________________.

Section 2: What Is a Business Valuation?

2.1. How the Valuation Process Works

A valuation is defined as the process of determining the current worth of an asset or

company.

2.2. Asset Valuation

Asset valuation is the process of determining the fair market value of company assets

2.3. Business valuation

The topic of business valuation is frequently discussed in corporate finance. A business

valuation is a general process of determining the economic value of a whole business or
company unit. In other words, business valuation is a process and a set of procedures used to
estimate the economic value of an owner's interest in a business. Valuation is used by financial
market participants to determine the price they are willing to pay or receive to effect a sale of
a business.

Business valuation can be used to determine the fair value of a business for a variety of reasons,
including

 sale value;
 establishing partner ownership;
 taxation;
 divorce proceedings.
 22

Owners will often turn to professional business evaluators for an objective estimate of the
value of the business. Estimating the fair value of a business is an art and a science; there are
several formal models that can be used, but choosing the right one and then the appropriate
inputs can be somewhat subjective.

Business valuation is typically conducted when a company is looking to sell all or a portion
of its operations or looking to merge with or acquire another company. The valuation of a
business is the process of determining the current worth of a business, using objective
measures, and evaluating all aspects of the business.

A business valuation might include an analysis of the company's management, its capital
structure, its future earnings prospects or the market value of its assets. The tools used for
valuation can vary among evaluators, businesses, and industries. Common approaches to
business valuation include:

 a review of financial statements;

 discounting cash flow models; and
 similar company comparisons.

Valuation is also important for tax reporting. The Internal Revenue Service (IRS) requires that
a business is valued based on its fair market value. Some tax-related events such as sale,
purchase or gifting of shares of a company will be taxed depending on valuation.

2.4. Interpreting the financial statements

A financial statement (or financial report) is a formal record of the financial activities of a
business, person, or other entity.
The importance of learning how to interpret the financial reports that are produced cannot be
denied for analysis and decision-making process. The Statement of Financial Position (SFP)
tracks all your assets, liabilities, retained earnings/ deficit.

Understanding the Balance Sheet, Income Statement and Cash Flow Statement are 3
important approaches to interpret financial statements

Many people find it challenging to use a company's financial statements for a management
tool until they understand how to interpret them. Accounting data is collected over a specific
time and is used to prepare the three key financial elements of the statement.

The elements a Financial Statement include:

1. Cash-flow statement from ongoing operations (situation des flux de

liquidités – détail des mouvements de liquidités d’une entreprise
durant l’année comptable);
 23

2. Balance sheet listing company liabilities and assets (le bilan

comptable);
3. Income statement - also known as the profit & loss statement—
showing financial performance. (income and expenses-recettes et
dépenses)

2.4.1. Interpreting the Balance Sheet

Balance sheet information allows you to calculate several financial ratios that measure
company performance. Additionally, current balance sheets often present data from at least
one previous period, so you can compare how financial performance has changed.

2.4.2. Interpreting the Income Statement

Like a balance sheet, an income statement is a means for measuring a company’s financial
performance. Some of the ratios discussed draw data from both the income statement and the
balance sheet.

ROA

This stands for return on assets and measures how much profit a company is generating for
each dollar of assets. Calculate ROA by dividing the revenue figure from the income
statement by assets from the balance sheet.

2.4.3. Interpreting the Cash Flow Statement

The cash flow statement discloses how a company raised money and how it spent those funds
during a given period. It is also an analytical tool, measuring an enterprise’s ability to cover its
expenses in the near term. Generally speaking, if a company is consistently bringing in more
cash than it spends, that company is considered to be of good value.

A cash flow statement is divided into three parts: operations, investing and financing.
 24

What do Investors want to know about your company’s health?

The three (3) main questions that an investor may ask about your company are:

 What are liabilities in your business?

 Is your company liquid or solvent?
 What do they want to see the company’s financial statements before they invest in?

There are key performance indicators that investors and lenders will want to see in a company's
financial statements before they will invest or loan to the business. Investors will be looking at
these key metrics, so work with your controller services to track and improve them. Business
financial statements are like a financial report card showing how well your business is doing.

2. Net Profit

Financial statements will reveal a company's net profit. The net profit is the money that a
business has left over after paying all expenses. "Are you making money?" is often the first
question asked, but it's only a starting point. Unsustainable profits are bad, and losses can be
good if you're on track to profitability as you scale up. But as many business owners do not
often have a clear understanding of their net profit, this is a good place to start.

3. Sales

You may have an objectively amazing product or service, but the real question is, are people
willing to buy it? If you establish a track record of sales before seeking investment, investors
don't take on the risk of not knowing the answer to that question. Investors also care about sales
growth. Are you showing an upward trend, or did the initial excitement fizzle out?

4. Margins

Sales are meaningless if you aren't making money. Investors also want to see your profit
margins both overall and at the individual product level.

They'll also compare your margins against industry standards and their other available
investment opportunities. Higher margins generally lead to a better return for investors.

If you have low margins, you'll need to demonstrate a plan for improving them. For early-stage
businesses, demonstrating how economies of scale will reduce costs as you grow is usually the
answer.

5. Cash Flow

In business, cash is king. A solid five-year plan does you no good if all your employees will
walk out if you can't make payroll next week.

Investors view of cash in the bank as a sign that you can deal with unexpected problems and
capitalize on new opportunities. Free cash flow, the amount of cash that's left after you meet
your expenses each period, is a sign of sustainable operations. If you have both, investors won't
have to worry that you could go under at any time.
 25

6. Customer Acquisition Cost

Customer acquisition cost tells how much you have to spend to get one new customer. It's
calculated by dividing your marketing spend by your number of new customers. For a fledgling
business, this can sometimes be a very large number. For businesses that are mostly established,
this amount can be blended and reduced by repeat and referred customers, who are likely easier
to acquire.

Acquisition cost is important because a product that's profitable from a material and labor
standpoint may not actually be profitable if you have trouble getting people to buy it. This
problem can occur with super-niche areas where it's hard to spread the word about your product
or in hyper-competitive areas where advertising competition is fierce.

As with other measures, your ability to find economies of scale or otherwise lower the cost can
be more important than the actual number.

7. Customer Churn Rates

Coupled with the acquisition cost is your churn rate. Once you get customers, can you keep
them? A low churn rate can compensate for a high acquisition cost, and it's often an indicator
of less risk for investors if you have steady repeat business. Of course, high churn rates may be
the norm in sectors with long purchase cycles and/or heavy competition.

8. Debt

Debt scares investors for two reasons. One is simply that if you go out of business, debt holders
get their money back before equity holders have a chance to claim what's left.

The second, and more important, is that debt payments eat up your cash. High debt payments
can hinder your ability to meet payroll and other expenses during slow periods. They may also
mean you have less cash available to help you handle a sudden surge in orders or an emergency
equipment replacement.

One of the most common debt measures is the quick debt ratio—current assets (excluding
inventory) divided by current liabilities. A quick ratio of 1 indicates that you can exactly meet
your obligations, and the higher it is above that, the more flexibility you have.

9. Accounts Receivable Turnover

Accounts receivables turnover shows how long it takes you to collect money from customers.
This tells investors two important things.

First, are you willing to do what's necessary to make sure you get paid? Many new business
owners feel bad asking for money and end up never getting paid. An investor looking for a
return doesn't want to work with someone who isn't good at tracking down customer payments.

Second, how stable are your customers? A slow turnover combined with a large percentage of
write-offs could indicate that many of your customers don't have financially sound operations.
This adds risk to your business model, and investors will want to see an increased return to
compensate.
 26

10. Break-Even Point

Investors accept short-term losses, but they want to see a profit and a return on their investment
sooner rather than later. Your break-even point says what is needed to make this happen.

Often, the break-even point is a specific sales target that will cover your expenses and get you
to profitability. You may also build on other assumptions, such as economies of scale, improved
production efficiency or reduced marketing expenses, as long as you can explain them in a way
that's acceptable to investors.

11. Personal Investment

You deserve sweat equity for the hard work it took to get your business running, but many
investors will want to see that you've made a financial equity investment as well. If you have
money at stake, investors believe that you'll do what it takes to protect it. If you're not at risk of
losing financial capital, investors may fear that you'll view them as a blank checkbook and
burn through cash without enough focus on protecting their investments.

You can discuss the specific ratios that apply in each category of analysis with your controller
services. Even if you're not ready to seek investment, finding ways to improve can help the
overall health of your business.

Section 3: Banking and financial services

As aforementioned, a bank is an organization that provides banking services like bank

accounts, credit cards, loans etc. to the customers, whereas an insurance Company provides
Insurance services.

The main difference between a bank and an insurance company is the fact that it is not a bank.
It provides insurance services to the citizens and it does not provide services like bank accounts,
credit cards etc. to customers.
An insurance company pools risk(s) by gathering premiums from a large number of people
who wish to protect themselves or their beloved ones from particular losses (robbery, theft,
fire, accident, etc.).
 27

CHAPTER II: CAPITAL MARKETS AND PRODUCTS

This chapter lays an emphasis on:

 Financial markets;
 Stock exchange;
 Financial products

Section 1: Financial markets

A financial market is a market in which people and entities can trade financial securities,
commodities, and other fungible items of value at low transaction costs and at prices that reflect
supply and demand.

Securities include stocks and bonds, and commodities include precious metals or
agricultural goods.

Section 2: Stock exchange

A stock exchange is an organized and regulated financial market where securities (bonds,
notes, shares) are bought and sold at prices governed by the forces of demand and supply.
Stock exchanges basically serve as

 primary markets where corporations, governments, municipalities, and other

incorporated bodies can raise capital by channeling savings of the investors into
productive ventures; and
 secondary markets where investors can sell their securities to other investors for cash,
thus reducing the risk of investment and maintaining liquidity in the system.

Section 3: Financial products

Financial and / or services are the economic services provided by the finance industry, which
encompasses a broad range of organizations that manage money, including credit unions, banks,
credit card companies, insurance companies, accountancy companies, consumer finance
companies, stock brokerages, investment funds and some government sponsored enterprises.

Types of financial products

a) Shares: These represent ownership of a company. While shares are initially

issued by corporations to finance their business needs, they are subsequently
bought and sold by individuals in the share market. They are associated with
high risk and high returns. Returns on shares can be in the form of dividend
payouts by the company or profits on the sale of shares in the stock market.
Shares, stocks, equities and securities are words that are generally used
interchangeably.
 28

b) Bonds: A bond is a written and signed promise to pay a certain sum of money
on a certain date, or on fulfillment of a specified condition. All documented
contracts and loan agreements are bonds. They are issued by companies to
finance their business operations and by governments to fund budget expenses
like infrastructure and social programs. Bonds have a fixed interest rate, making
the risk associated with them lower than that with shares. The principal or face
value of bonds is recovered at the time of maturity.

c) Treasury Bills: These are instruments issued by the government for financing
its short-term needs. They are issued at a discount to the face value. The profit
earned by the investor is the difference between the face or maturity value and
the price at which the Treasury Bill was issued.
d) Options: Options are rights to buy and sell shares. An option
holder does not actually purchase shares. Instead, he purchases the rights on the
shares.
e) Mutual Funds: These are professionally managed financial instruments that
involve the diversification of investment into a number of financial products,
such as shares, bonds and government securities. This helps to reduce an
investor’s risk exposure, while increasing the profit potential.
f) Certificate of Deposit: Certificates of deposit (or CDs) are issued by banks,
thrift institutions and credit unions. They usually have a fixed term and fixed
interest rate.
g) Annuities: These are contracts between individual investors and insurance
companies, where investors agree to pay an allocated amount of premium and
at the end of a pre-determined fixed term, the insurer will guarantee a series of
payments to the insured party.

FOCUS ON MAJOR GLOBAL STOCK EXCHANGES AND INDICES

What are the largest stock exchanges in the world?

There are 60 major global stock exchanges that range in size and trading volume – from the
New York Stock Exchange to tiny local exchanges. Here we take a look at the largest stock
exchanges in the world by market capitalization.

What is a stock exchange?

A stock exchange is a marketplace for the buying and selling of shares, bonds and securities.
Stock exchanges can serve as a measure for the health of the national economy, and can also
be a key indicator of world economic strength. This is because the growth of the financial
market equates to higher standards of living and employment rates.
 29

Traditionally, stock exchanges were physical buildings in each country of operation, but with
the shift toward electronic trading, many have closed their trading floors and switched to
online platforms. However, the institutions themselves are still around, and some of them are
bigger than ever, with market capitalizations of trillions of dollars.

Top 10 largest stock exchanges in the world

We’re taking a look at the top 10 stock exchanges in the world based on their market
capitalisation in March 2018, which have all been adjusted to the US dollar.1 These are:

1. New York Stock Exchange (NYSE)

2. NASDAQ
3. Tokyo Stock Exchange
4. Shanghai Stock Exchange
5. Hong Kong Stock Exchange
6. London Stock Exchange
7. Euronext
8. Shenzhen Stock Exchange
9. Toronto Stock Exchange
10. Deutsche Boerse

1. New York Stock Exchange

The New York Stock Exchange (NYSE) is located on Wall Street in New York. It was founded
in 1817, but it didn’t operate under the NYSE name until 1963. The New York Stock Exchange
Group had a turbulent road to its top spot, with infamous events such as the Wall Street Crash
in 1929 and Black Tuesday in 1987. But it has remained the largest stock exchange in the world
by market capitalization ever since the end of World War I, when it overtook the London Stock
Exchange. In 2012, the NYSE was taken over by an American futures exchange group,
Intercontinental Exchange.

The New York Stock Exchange’s market capitalization was $23.12 trillion in March 2018 –
this is nearly 40% of the total world stock market value. There are over 2400 companies listed
on the New York Stock Exchange, which span sectors such as finance, healthcare, consumer
goods and energy. Some of its more famous companies include :

 Exxon Mobil Corp (XOM),

 Citigroup Inc. (C) and
 Pfizer Inc. (GE)
 30

Let’s note that the Dow Jones is the most used index for tracking the value of the NYSE, but
components can also be listed on the NASDAQ.

2. NASDAQ

The NASDAQ stock exchange is also in New York, located in the famous Times Square. It
stands for National Association of Securities Dealers Automated Quotations and was founded
by a group of local stockbrokers in 1971. The NASDAQ is unusual in that it never operated on
an open outcry system; instead it has always used a computer and telephone-based system of
trading, which made it the first electronic stock exchange.

The NASDAQ market capitalization reached $10.93 trillion in March 2018, which places it as
the second largest stock exchange. However, it has the largest market capitalisation of
technology stocks – some of the NASDAQ’s top listed companies include:

 Apple (APPL),
 Microsoft (MSFT),
 Facebook (FB) & WhatsApp, and
 Tesla (TSLA).

The index used to measure the performance of the exchange is the Nasdaq 100.

3. Tokyo Stock Exchange

The Tokyo Stock Exchange (TSE) was founded in 1878 and is the largest stock exchange in
Japan. The TSE did face problems post World War II – and was even suspended between
August 1945 and April 1949 – due to the country’s involvement in the war. It was rebranded in
1949, and is now commonly known under the name of its owner: Japan Exchange Group. The
group was formed in the merger between the Osaka Securities Stock Exchange and the TSE in
2013. The Tokyo Stock Exchange now partners with other exchanges all over the world,
including the London Stock Exchange.

Today, there are over 3575 companies listed on the Tokyo Stock Exchange, which has taken
the TSE’s market capitalisation to $6.22 trillion as of March 2018. The Tokyo Stock
Exchange’s benchmark index is the Nikkei 225, which includes the top companies listed on the
TSE such as:
 31

 Honda Motor Co,

 Toyota Motor Corp, and
 Sony Corp.

4. Shanghai Stock Exchange

The Shanghai Stock Exchange (SSE) is one of three independent stock exchanges in the
People’s Republic of China – the other two being Shenzhen and Hong Kong, which also feature
on this list. The Shanghai Stock Exchange is the fourth largest stock exchange in the world,
despite the fact it was only founded in 1990. The exchange’s origins do actually date back to
1866, but it was suspended in 1949 due to the Chinese revolution.

Each stock listed on the SSE has ‘A’ shares that are priced in the local yuan currency, and ‘B’
shares that are quoted in US dollars.

 ‘A’ shares are for domestic investment only, with the exception of investors who
qualify for the foreign investment scheme, while
 ‘B’ shares are available to both domestic and foreign investors.

The Shanghai Stock Exchange’s market capitalisation reached $5.01 trillion in March 2018.
Traders can track the performance of stocks listed on the Shanghai Stock Exchange using the
SSE Composite index, also known as the Shanghai Composite. This includes the largest
stocks on the Shanghai Stock Exchange, such as:

 PetroChina,
 the Industrial and Commercial Bank of China, and
 the Agricultural Bank of China.

5. Hong Kong Stock Exchange

The Hong Kong Stock Exchange (SEHK) was founded in 1891 by the Association of
Stockbrokers in Hong Kong – it was renamed the Hong Kong Stock Exchange in 1914. The
SEHK is one of the three stock exchanges in China, but the physical trading floor of the SEHL
was closed in 2017 because of the shift toward electronic trading.

The Stock Exchange of Hong Kong is the third-largest stock exchange in Asia, and the fifth
largest in the world with a market capitalisation of $4.46 trillion in March 2018. The Hong
Kong Stock Exchange trades in Hong Kong Dollars (HKD), as the companies listed are
 32

primarily based in Hong Kong. There are 1955 companies listed on the Hong Kong Stock
Exchange – a large portion of the Hong Kong Stock Exchange’s market capitalisation comes
from its 20 largest stocks, which include:

 AIA,
 Tencent Holdings, and
 HSBC Holdings.

6. London Stock Exchange

The London Stock Exchange (LSE) was founded in 1801, but its origins date back to 1698
when the LSE’s service was nothing more than a twice-weekly paper publication of market
prices. This makes it the one of the oldest stock exchanges in the world. It was actually the
largest stock exchange in the world up until the end of World War I, when it was dethroned by
the NYSE. The LSE is now the sixth largest stock exchange in the world, and the largest stock
exchange in Europe.

The LSE is owned by the London Stock Exchange Group, which was created in 2007 when the
LSE merged with the Borsa Italiana. It is the most international stock exchange, with over 3000
companies across 70 countries.

The market capitalisation of the London Stock Exchange was $4.38 trillion in March 2018.
Traders can track the performance of the LSE, and its market capitalisation, with the Financial
Times Stock Exchange Index 100 Share Index, or FTSE 100. The index contains the top 100
companies listed on the London Stock Exchange – including:

 Barclays,
 BP, and
 GlaxoSmithKline.

There are other indices that can be used to track the London Stock Exchange-listed companies,
including the FTSE 250, the FTSE Small Cap and the FTSE All-Share.
 33

7. Euronext Stock Exchange

The Euronext Stock Exchange is based in Amsterdam, Netherlands, but it is a pan-European

exchange – it spans the Netherlands, Portugal, Belgium, France, Ireland and the UK. It was
founded in 2000 to represent the economy of Europe as a whole, which is why it operates in
euros.

In 2007, Euronext merged with the NYSE Group to form NYSE Euronext, and in 2013,
Intercontinental Exchange took over the exchange completely. Then, in June 2014, Euronext
went public in order to become a standalone company again.

Euronext is the seventh largest stock exchange in the world, with a market capitalisation of
$4.36 trillion. Because the exchange includes several countries, there are 1300 listed companies
and 30 stock indices that can be used to track its performance. However, the dominant stock
index for Euronext-listed companies is the Euronext 100, which is made up of the largest and
most liquid stocks on the Euronext Stock Exchange – including:

 AXA,
 Christian Dior, and
 Renault.

8. Shenzhen Stock Exchange

The Shenzhen Stock Exchange (SZSE) is the third exchange of the People’s Republic of China.
Although it was founded in 1987, it wasn’t formally operational until 1990. The SZSE is a self-
regulated body, but it is supervised by the China Securities Regulatory Commission (CSRC).

The Shenzhen Stock Exchange had a market capitalisation of $3.49 trillion in March 2018,
which made it the eighth largest stock exchange in the world.

The SZSE trades shares in Chinese yuan because the companies listed on the Shenzhen Stock
Exchange are primarily based in China. The Shenzhen Stock Exchange is also home to the SME
Board established in 2004 for businesses in the manufacturing sector, and the ChiNext board,
which was launched in 2009 to replicate the NASDAQ’s focus on technology start-ups.
 34

9. Toronto Stock Exchange

The Toronto Stock Exchange (TSX) was founded in 1852. It is the largest stock exchange in
Canada, with over 1500 companies listed. In 2009, the TSX merged with the Montreal Stock
Exchange and so the parent company was renamed from TSX Group to TMX Group. The TMX
Group was in talks to merge with the London Stock Exchange in 2011, but this fell through
after it failed to get approval from shareholders.

The TSX is the third-largest stock exchange in North America by market capitalisation, and the
ninth largest in the world – in March 2018, the market capitalisation of the Toronto Stock
Exchange was $2.29 trillion. Some of the most significant companies listed on the Toronto
Stock Exchange include the Royal Bank of Canada and Suncor Energy Inc. The top 100
companies on the TSX can be tracked using the S&P/TSX Composite Index, which accounts
for roughly 70% of the Toronto Stock Exchange market capitalization.

10. Frankfurt Stock Exchange

The Frankfurt Stock Exchange (FWB) was founded in 1585 to fix currency rates, but in the
following centuries it became considered as one of the first stock exchange’s in the world –
alongside the London Stock Exchange and Paris Stock Exchange. It was only after World War
II that the Frankfurt Stock Exchange was officially established as Germany’s leading stock
exchange.

In 1993, ownership of the Frankfurt Stock Exchange was transferred to the company Deutsche
Bӧrse AG, which was also in talks to take over the London Stock Exchange. These talks fell
through in 2005.

The market capitalisation of the Frankfurt Stock Exchange was $2.22 trillion in March 2018,
which places it as the tenth largest stock exchange in the world. The companies listed on the
Frankfurt Stock Exchange are primarily based in Germany and other countries that trade using
the euro. The primary index used to track the performance of the Frankfurt Stock Exchange is
the DAX – a blue-chip stock market index for the top 30 companies on the FWB, which includes
companies such as:

 Adidas,
 BMW and
 35

 E.ON.

II. GLOBAL INDICES & COUNTRIES

Let’s note that companies listed on stock exchanges operate in various sectors such as:

 Industry;
 Finance;
 Telecommunication;
 Cyclical consumption &Renewable
energies;
 Energy;
 Services delivery;
 Material & Equipment;
 ICT
 36

1. Asia / Pacific

a. ASX All Ordinaries Index (Australia);

b. Hang Seng Index (Hong Kong);
c. S&P BSE Sensex Index (India);
d. JSX Composite Index (Indonesia);
e. Nifty 50 Index (India);
f. NIKKEI 225 Index (Japan);
g. FTSE Bursa Malaysia KLCI (Malaysia) ;
h. PSEi Index (Philippines) ;
i. KOSPI Composite Index (South Korea).
2. Europe

a. CAC 40 Index (France);

b. SMI Index (Switzerland);
c. DAX (Germany);
d. Amsterdam AEX Index (the Netherlands);
e. PSI 20 (Lisbonne and Porto, Portugal) ;
f. Oslo Exchange Benchmark Index_GI (Norway);
g. Dow Jones Portugal Index EUR (Portugal) ;
h. BIST 100 Index (Turkey) ;
i. FTSE 100 Index (UK) ;
j. IBEX 35 (Madrid, Spain).

3. Middle East: Tel Aviv 125 Index (Israel)

4. USA
a. S&P 500 Index (Real Estate);
b. NASDAQ (ICT values);
c. Dow Jones (Industry)
5. Africa
a. FTSE/JSE Afrique Top 40 (Johannesburg, RSA);
b. Botswana Gaborone Index (Botswana);
c. EGX 30 (Egypt);
d. GSE Composite Index (Ghana);
e. NSE All share (Kenya);
 37

f. Moroccan All Shares Index (Morocco);

g. SEMDEX (Mauritius) ;
h. FTSE Namibia Overall (Namibia) ;
i. Nigeria Stock Exchange All Share (Nigeria);
j. Tanzanian All Share (Tanzania) ;
k. Tunindex (Tunisia) ;
l. Indice Zimbabwe Industrial (Zimbabwe).

Illustration: CAC 40 INDEX AS OF JANUARY 1, 2020

1. Accor 21. Michelin

2. Air Liquide 22. Orange
3. Airbus 23. Pernod Ricard
4. Arcelormittal SA 24. Peugeot
5. Atos 25. Publicis Groupe SA
6. Axa 26. Renault
7. BNP PARIBAS ACT. A 27. Safran
8. Bouygues 28. Saint Gobain
9. Capgemini 29. Sanofi
10. Carrefour 30. Schneider Electric
11. Crédit Agricole 31. Société Générale
12. Danone 32. Sodexo
13. Dassault Systèmes 33. STMICROELECTRONICS
14. Engie 34. Technipfmc
15. Essilorluxottica 35. Thales
16. Hermes INTL 36. Total
17. Kering 37. Unibail-Rodamco-WE
18. L’Oréal 38. Veolia Environ.
19. Legrand 39. Vinci
20. LVMH 40. Vivendi
 38

Companies Fields of operation Listed on SE

Accor Hotels Hôtellerie, Tourisme 31 décembre 1987

Air liquide Gaz industriel 31 décembre 1987

Airbus Aéronautique, Défense 5 février 1990Note 33

21 novembre 2003
ArcelorMittal Acier, Matériau de construction Note 34

Atos Technologies, Services informatiques 20 mars 2017

31 décembre 1987N
Axa Assurance, Services financiers ote 35

31 décembre 1987N
BNP Paribas Banque, Services financiers, Assurance ote 36

31 décembre 1987N
Bouygues BTP, Immobilier, Médias, Télécommunications ote 37

Capgemini Services informatiques 3 août 1988Note 38

Carrefour Distribution 31 décembre 1987

7 septembre 1999N
Crédit agricole Banque, Services financiers, Assurance ote 39

31 décembre 1987N
Danone Agroalimentaire ote 40
 39

31 décembre 1987N
Engie Énergie, Gaz industriel, Industrie pétrolière ote 41

31 décembre 1987N
Essilor Optique ote 42

Hermès
Luxe 18 juin 2018
International

Kering Luxe 9 février 1995Note 43

31 décembre 1987N
Legrand Matériel électrique ote 44

L'Oréal Cosmétique 31 décembre 1987

LVMH Luxe 31 décembre 1987

Pneumatique, Tourisme, Gastronomie, Équipem

Michelin 31 décembre 1987
entier automobile

12 novembre 1997
Orange Télécommunication, Banque Note 45

31 décembre 1987N
Pernod Ricard Spiritueux ote 46

31 décembre 1987N
Groupe PSA Automobile, Équipementier automobile ote 47

1er octobre 2004Note

Publicis Groupe Publicité, Médias 48

Renault Automobile 9 février 2005

 40

Safran Aéronautique défense 19 septembre 2011

Saint-Gobain Matériaux de construction, Verre 31 décembre 1987

Sanofi Pharmacie 31 décembre 1987

Schneider 31 décembre 1987N

Matériel électrique ote 49
Electric

Société générale Banque, Services financiers, Assurance 31 décembre 1987

Restauration collective, Société de

Sodexo 10 mars 2016
services, Gastronomie

Dassault
Services informatiques, Technologies 24 septembre 2018
Systèmes

STMicroelectroni
Technologies 18 septembre 2017
cs

TechnipFMC Industrie pétrolière, Gaz industriel 21 septembre 2009

Thales Équipementier aéronautique 24 juin 2019

31 décembre 1987N
Total Industrie pétrolière, Gaz industriel ote 50

Unibail-
Immobilier 18 JUIN 2007
Rodamco

31 DECEMBRE
Veolia Services collectifs, Énergie
1987
 41

Vinci BTP, Télécommunications 3 AVRIL 2002

31 DECEMBRE
Vivendi Médias, Publicité, Télécommunications
1987
 42

CHAPTER III: ECONOMICS AND TRADE

This chapter lays an emphasis on:

 Balance of payment;
 Protectionism;
 Exchange rate;
 Financing international trade;
 Taxation;
 Emergence of Asian economies.

Section 1: Balance of Payment and Protectionism

1.1. Balance of payments

Maintaining a balance of payments with the rest of the world is a macro-economic objective.
In simple terms, if the balance of payments balances, then the combined receipts from selling
goods and services abroad, and from the return on investments abroad, equals the combined
expenditure on imports of goods and services, and investment income going abroad.

As an official record, the balance of payments is broken down into two basic accounts - the
current account, and the capital and financial account.

1. The current account

The current account is made up of the following payments:

a) Trade in goods

These items include the import and export of finished goods, such as cars, and computers; semi-
finished goods, such as parts and components for assembly, and commodities, such as oil, tea
and coffee.

b) Trade in services

Trade services include financial services, tourism, and consultancy.

Income from investment and employment

Investment income refers to any income made from investing abroad, and includes profits, such
as those from business activities of subsidiaries located abroad; interest received from financial
investments and loans abroad, and dividends from owning shares in overseas firms.

Payments to individuals who are residents of a country, and are employed in another, are also
included in the current account. Investment and employment income are also known as 'primary
income'.
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Transfers

The final section of the current account includes transfer payments (transfers) arising from gifts
between residents of different countries, donations to charities abroad, and overseas aid.
Transfers are also known as 'secondary' income.

2. The Capital and Financial Account

The Capital and Financial Account records the flows of capital and finance between the UK
and the rest of the world. Types of flow include:

a) Real foreign direct investment (FDI), such as a UK firm establishing a manufacturing

facility in China. Direct investment refers to investment in an enterprise where the
owners or shareholders have some element of control of the business.
b) Portfolio investment, such as a UK investor buying shares in an existing business
abroad. With portfolio investment, the investor has no control over the enterprise.
c) Financial derivatives are any financial instrument whose underlying value is based on
another asset, such as a foreign currency, interest rates, commodities or indices.
d) Reserve assets are foreign financial assets that are controlled by monetary authorities -
namely the Bank of England. These assets are used to finance deficits and deal with
imbalances. Reserve assets include gold, Special Drawing Rights, and foreign exchange
held by the Bank of England.

1.2. Protectionism

Trade protectionism refers to measures used by countries to limit unfair competition from
foreign industries. It's a defensive measure that's politically motivated. It works in the short run.
But it is very destructive in the long run. It makes the country and its industries less competitive
in international trade.

1.2.1. Methods and Examples of protectionism

Countries use a variety of ways to protect their trade. One way is to enact tariffs, which tax
imports.

This immediately raises the price of the imported goods, making them less competitive when
compared to locally produced goods. This works especially well for a country like the United
States, which imports a lot of consumer products and oil.

A second way of protecting trade is when the government subsidizes local industries with tax
credits or even direct payments. This again lowers the price of locally produced goods and
services.

It works even better than tariffs because now the goods are cheaper even when shipped
overseas. This works well for the United States, but even better for countries that rely mainly
on exports.
 44

A third method is by imposing quotas on imported goods. This can be one of the most effective
methods for protecting trade, since the foreign country cannot ship more goods no matter how
low it sets the price through subsidies.

There is a fourth type of trade protectionism that is not usually mentioned in text books,
because it is subtle. That is a deliberated attempt by a country to lower its currency value,
thereby making its exports cheaper and more competitive. However, this can ultimately result
in retaliation, and start up a currency war. Countries can lower their currency's value through
either a fixed exchange rate, like China's yuan, or by creating so much national debt that it
has the same effect, like the U.S. dollar decline.

1.2.2. Advantages of protectionism

If a country is trying to grow strong in a new industry, tariffs will protect it from foreign
competitors. This allows companies in the new industry time to learn how to produce the good
efficiently, and develop their own competitive advantages.

Protectionism also temporarily creates jobs for domestic workers. As domestic companies
are protected by tariffs, quotas or subsidies, they will hire locally. This will occur until other
countries retaliate by erecting their own protectionism within that industry.

1.2.3. Disadvantages of protectionism

In the long term, trade protectionism weakens the industry. Without competition, companies
within the industry won't innovate and improve their products or services. There's no need to.
Eventually, consumers will pay more for a lower quality product than they would get from
foreign competitors.

Job outsourcing is a result of declining competitiveness of some countries, itself a result of

decades of the U.S. not investing in education. This is particularly true for high tech,
engineering, and science. Increased trade opens new markets for businesses to sell their
products. The Peterson Institute for International Economics estimates that ending all trade
barriers would increase U.S. income by $500 billion.

Increasing U.S. protectionism will further slow economic growth and cause more layoffs, not
less. If the United States closes its borders, other countries will do the same. This could cause
layoffs among the 12 million U.S. workers who owe their jobs to exports.

1.2.3.4. Free Trade Agreements

Free trade agreements (FTAs) reduce or eliminate tariffs and quotas between trading partners.
The largest agreement is NAFTA, or the North American Free Trade Agreement, which is
between the United States, Canada and Mexico. Yet, recently the former US President Donald
Trump considered it as “the worst agreement America has ever signed”

Other free trade agreements are CAFTA, which is between the United States and Central
America. There are bilateral agreements with Chile, Colombia, Panama, Peru and Uruguay,
most countries in Southeast Asia, and the Middle Eastern countries of Israel, Jordan, Morocco,
Bahrain, and Oman.
 45

However, FTAs don't eliminate protectionist measures such as subsidies or currency wars. One
of the disadvantages of NAFTA was that Mexican farmers were put out of business by
subsidized U.S. farm products.

Section 2: Exchange rate

'Exchange Rate' is the price of a nation’s currency in terms of another currency. An exchange
rate thus has two components, the domestic currency and a foreign currency, and can be quoted
either directly or indirectly. In a direct quotation, the price of a unit of foreign currency is
expressed in terms of the domestic currency. In an indirect quotation, the price of a unit of
domestic currency is expressed in terms of the foreign currency.

Most exchange rates use the US dollar as the base currency and other currencies as the counter
currency. However, there are a few exceptions to this rule, such as the euro and Commonwealth
currencies like the British pound, Australian dollar and New Zealand dollar.

Section 3: Financing international trade

Trade finance signifies financing for trade, and it concerns both domestic and international trade
transactions. A trade transaction requires a seller of goods and services as well as a buyer.
Various intermediaries such as banks and financial institutions can facilitate these transactions
by financing the trade.

Section 4: Taxation

Taxation is principal method by which a government gains revenue into its budget. That
revenue goes into a vast number of items, from paying debt, deafening the potential for
implementing certain policies to paying for public services and welfare benefits and the
military, etc.

Section 5: Emergence of Asian Economies

Tiger Economy is a nickname given to the economies of Southeast Asia. A tiger economy is
the economy of a country which undergoes rapid economic growth, usually accompanied
by an increase in the standard of living. The term was originally used for the Four Asian Tigers
(South Korea, Taiwan, Hong Kong, and Singapore) as tigers are important in Asian symbolism,
which also inspired the Tiger Cub Economies (Indonesia, Malaysia, Thailand, and the
Philippines). The Asian Tigers also inspired other economies later on; the Anatolian Tigers
(certain Turkish cities) in the 1980s, the Gulf Tiger (Dubai) in the 1990s, the Celtic Tiger
(Republic of Ireland) in 1995-2000, the Baltic tiger (Baltic states) in 2000-2007, and the Tatra
Tiger (Slovakia) in 2002-2007.

For emerging economies in Africa, the term lion economy is used as an analogy. Countries
considered to be "lion economies" are Nigeria, South Africa, Morocco, Algeria, Botswana,
 46

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