How Firms Raise Funds – stock market

Exercise 2: Intro to stock markets. Watch the film and fill in the blanks with appropriate words.

Let's continue our discussion of financial (1) intermediaries by looking at stock markets.
Stocks are shares of (2) ownership in a corporation, and they're traded in organized markets
called stock exchanges. Let's go back to the example we've used before, Starbucks. A member
of the public could firstwhor buy shares of Starbucks in 1992, after it completed its (3) initial
public offering, or IPO, otherwise known as going public. If you own Starbucks shares, you're
a part owner of the Starbucks corporation, and you're (4) entitled to a share of the firm's
profits. Sometimes you receive this profit directly through a (5) divident payment. Profits can
also be reinvested in the business to grow it, hopefully increasing the value of your shares if
you ever decide to sell.
It's important to note that when we think about turning savings into investment through buying
stocks, it's not the typical buying and selling of existing shares of stock that we're thinking of.
That just transfers ownership from one (6) shareholder to another. It doesn't mean that
Starbucks actually has additional money to invest. It's when new shares of stock are issued and
sold that savings are turned into investment. That happens at the IPO, the Initial Public
Offering, or when firms decide to issue new shares of stock, often as part of a plan to raise
money to invest in significant new business (7) venches. The existence of stock markets is a
key institution for encouraging (8) enterpreunership. Selling shares directly raises money to
fund big ideas -- that's clear. But less obviously, IPOs provide a big payoff for founders and
venture capitalists who invested their time and money when the firm was just a risky startup.
Once a company goes public, founders and initial investors can sell some of their ownership in
order to diversify their own holdings.
Here's an important difference between banks and stock markets. When you purchase a stock,
you're essentially making a (9) back on the success of that company. So, when it comes to the
stock market, some savers will wind up happy and others will wind up a little bit sad. So, the
stock market can be a riskier method of investment than investing through banks. Bank savers
typically do not have to deal with risky (10) ups and downs in the value of their deposits. Next
up, we're going to look at another type of financial intermediary -- the bond market.
Exercise 3:
1. Which investment is typically the riskiest? stocks
2. Which one usually lets you “withdraw” part of your investment at any time, for any reason?
Bank account
3. Which form of investment usually spreads your money over the largest number of
investment projects. Bank account

Investing in stocks
The word 'stocks' is used in the US, both 'stocks' and 'shares' in the UK, and 'equities' inside the
industry. The people who own them are known as stockholders/ shareholders. A company's
shares first appear on a stock exchange at the IPO (initial public offering). From this point, they
begin to be actively traded on the exchange.
People buy stocks for two reasons:
1. Stocks pay a dividend. You can see from the income statement in unit 26 that some of the
profit that a company makes is returned to the shareholders every year as a dividend payment.
2. The price of the stock on the market can go up. If you buy low and sell high, you make a
profit (capital gain). Obviously you can also make a loss.
Notice that dividends and capital gains are quite independent. There might be a well-
established company in the healthcare or food retailing area that pays a high, consistent
dividend every year, but whose stock price changes very little. Equally, there might be a smaller
company in the technology sector whose stock price is going up rapidly, but they pay no
dividends at all, because all their profits are reinvested to help expand the business.
Exchanges and indices
Nearly every country has a stock exchange, and on the exchange certain shares can be grouped
together to make an index. In the US there is the Dow Jones, the S&P and the NASDAO; in
Europe the FTSE, the DAX and the CAC; in Asia the Nikkei, the Hang Seng and the Sensex.
An index can be used as a benchmark for individual stocks: is the stock outperforming or
underperforming the index? Every stock is quoted with two prices: a bid price (= the buying
price) and an offer price (= the selling price). The difference between these two (= the bid/offer
spread') is the profit that goes to the exchange and other people who handle the transaction.
Funds
Instead of buying stocks in an individual company, you can buy stocks in a fund. Funds hold a
range of shares and a diversified portfolio helps to spread risk. The fund manager picks stocks
with the help of analysts who have expertise in particular areas, for example Chinese banks, or
small biotech companies, or dividend-paying companies. Investors choose funds on the basis of
their holdings, their past performance, their manager, their risk profile and their marketing.
Evaluating a stock
Professional investors look at a whole range of factors when deciding which stocks to buy:
SWOT of the company
 Existing products and pipeline
 Growth prospects
 Existing competitors and barriers to entry
 Strategy of senior management
 Quality of senior management
Financial situation of the company
 Revenue and net profit
 Cash flow
 Level of debt
 Dividends paid in recent years
 Financial ratios with figures taken directly from the income statement and balance
sheet.
Examples: EPS (earnings per share), P/E ratio (price/ earnings ratio), ROE (return on equity),
etc
Market conditions
  Prospects for that particular industry
 General economic situation: growth in the economy, consumer spending etc
Technical analysis
 Studying chart patterns: support and resistance, trading channels, breakouts etc
 Studying investor sentiment (eg prices are lowest when sentiment is at its most bearish)
 Cycle analysis; seasonality (eg stocks do better from Oct-May) and 'the Presidential
cycle' (ie stocks do better in the second half of a US President's term in office)
32.1 Find a word in the text opposite that matches each definition below. The words appear
in order.
1. (two words) accounting a profit that is made from the sale of an investment capital gain.
2. a number that shows the value or level of something, so that you can measure changes
index.
3. an amount or standard that you can use for judging how good or bad other things are
bench mark.
4. doing better than outperfoming.
5. (two words) a range of different types of stocks diversified portfolio.
6. chooses picks cools tax.
7. a method used to study an organization by analyzing its strengths and weaknesses, the
opportunities it has and the threats it faces SWOT.
8. products being planned or developed that will be available in the future pipeline.
9. possibilities (especially good things that might happen) prospects.
10. (three words) things that make it difficult for a new company to enter a market, for
example the need for a lot of capital or specialized know-how barriers to entry.
11. a price level on a stock chart that has stopped previous declines support.
12. (two words) two parallel lines drawn on a stock chart that contain the price movements
over a period of time trading channels.
13. how players in the market feel about an individual stock or the economy sertiment.
14. a series of events that happen again and again in the same order or at the same times
seasonality.
Ex 32.3.
Investors need a way to analyze a company objectively, and senior managers inside the
company also need 1) metrics (= performance indicators) to monitor its financial health.
This is where financial ratios have a role: they use figures taken directly from the company
accounts to give information about 2) earnings (= profits), growth and value in the market.
These ratios also appear in news reports, and if you want to 3) bluff your way in finance,
you should at least recognize the words passively!
Here are some important ones:
1. EPS Earnings per share. This is the net profit after tax divided by the number of shares
that have been issued. It is a basic measure of 4) profitability (= the ability to make money).
2. P/E Price-to-earnings ratio. This is the company's share price divided by the EPS. For an
investor, it's probably the single most important indicator. It shows what the market is
willing to pay for the company's earniiys. It is used to compare companies in the same
market: a high P/E means that the market has high hopes for the company's future, but it
may also indicate that the stock is 5) overpriced.
3. P/S Price-to-sales ratio. This is similar to the previous ratio, but here the 6) share price -
is divided by the annual sales per share. It is useful when evaluating young companies with
lots of sales but little or no profits.
4. ROE Return on equity. This is the net profit after tax divided by the shareholders' equity.
It is a measure of how efficiently a company uses its 7) assets to produce earnings.
5. Dividend Yield This is the annual dividend per share divided by the share price. It shows
you the return in dividends that you get when you buy a stock. You need to know this if
you're looking for regular dividends from an established company rather than the chance of
a 8) capital gain from a high-risk growth stock
32.2.
1. make a divident – payment
2. quote a bid – offer spread
3. have a diversified – portfolio
4. past – perfomance
5. risk – profile
6. growth – prospects
7. chart – patterns
8. investor – sentiment
Temat 5: Hoe forms raise funs – bond market
Intro to the bond market
1. Bondmarket
2. Expansion
3. Coupon
4. Loanable
5. Crowding out
6. Bondholders
7. Shareholders
8. Junk bonds
9. Collateral
10. Mortgage
1. Which is a corporate IOU? Bonds
2. Which one gives you an ownership, or “share,” in a company? stocks
3. Which one is offered by the U.S. government as well as by private corporations? bonds
4. Government bonds and corporate stocks are. a. Substitutes
5. Which bond will usually pay a higher interest rate? b. Bond rated BBB
6. Which bond will usually pay a higher interest rate? b. General Motors bond
7. Which bond will usually pay a higher interest rate?
a. Citibank bond that gets repaid in 30 years
8. Suppose you’d like to invest in a company and you’ve narrowed your choice down to
three firms: d Company A is offering a zero-coupon bond with a face value of $1000 to be
repaid in 1 year for $963. Company B has the same face value and maturity date but sells for
$871. And company C also has the same face value and maturity but sells for $985. In which
would you rather invest?
d. Can't be determined with the given information
10.Financial markets.
Securities
The term „ securities" refers to stocks, bonds and money market instruments These are
explaired in tum below. Individual inyestors and financial institutions can buy stocks (=
equitics) of companies listed on a stock exchange. The term “shares” inciudes both stocks
and privately held stakes in smalt firms that arc not publicly traded. A “basket” of stocks cart
be picked by a fund manager and put together into a rnutual fund (UK: urit trust). Funcls
may invest in particular countries, or different sectors o(the market, or may track" (=exactiy
follow) a particular index. Each fund will haye an łnyestment oediye, normally either regular
income (from share diydends), or tong-term capital growth (from an irtcrease in the share
pdce), or a balance between the two.
Stocks arc bought and sold on a stock exchange (= bourse). Sometimes this ks a phy sical
locatioa, like the New York Stock Exchange on Watt Street. Other times there is no location
the NASDAQ is art electroruc exchange. A small selected group of stocks cari be brought
together to ruake art index. For exampte, the Dew Jones publishing organization cornpites
„ Ihe Dow" (art index of 30 targe comparues), and Standard and Poor"s - a credit xatings
aency - compilcs dozens of djfferent indices based on company size or market sector. Why
do stocks go up and down in price? When is a stock worth buyirtg? Finartcial artalysts do
research on this, using three main tools:
10.1.
The general term securities refers to the equities or shares or stocks + bonds + money
market instruments.
10.2.
1. Instead of investing in the shares of just one company, you can invest in a mutual fund
which holds a basket of stocks.
2. Regular income can be provided by the dividends of shares thet you own.
3. The issue of a bond pays back the original amount (PRINCIPAL) to the bondholder over
a fixed period of time (the term of the loan)
4. The most traded bond in the world is the 30-years US government T-bond. The letter “T”
stands for treasury.
10.3
1. tracker fund
2. capital growth
3. fixed rate
4. junk bonds
5. risk management
10.4.
1. Depressed, falling, bear, weak market, a booming, bull rising, strong.
2.Acquire, buy, purchase, buy, hold, own.
10.8.
1. investment bank
2. pension fund
3. mutual fund
4. insurance company
5. endowment
10.9.
1. Price elasticity
2. Capital requirements
3. ease of substitution
4. market penetration
5. barriers to entry.
10.11.
1. market capitalization
2. p/e ratio
3. earnings growth
4. dividend yield
5. return on equity
10.12.
1. resistance
2. supports
3. volume
4. breadth
5. momentum
6. trading channel
7. leadership
8. liquidity
Temat 8. Types of banks
What do banks do.
Ex.1
1. Invest
2. Depositors
3. Loans
4. Charge
5. Bankrupt
6. Earn
7. Vault
8. Withdraw
Types of banks
CENTRAL BANKS
f) These are institutions responsible for supervising the monetary system of a nation or a
group of nations.
k) Their usual duties are to issue currency, regulate the money supply and control interest
rates.
d) Their decisions affect the financial markets in general and the currency markets in
particular.
i) Sometimes, they also supervise the commercial banking system in the country.
p) Some of the most important central banks are: Federal Reserve Bank (US), European
Central Bank, Bank of Japan, Bank of England, Bank of Canada, Reserve Bank of Australia,
Reserve Bank of New Zealand, Notional Bank of Poland.
Investment banks
m) Other tasks include providing investment advice to and broking on behalf of institutional
investors, and acting as an intermediary where a client is engaged in mergers and
acquisitions. Many banks of this type have their own trading floor, where their staff traders
can buy and sell securities on behalf of their clients. They also manage pension funds and
other large investments.

n) These banks may sometimes be called wholesale banks.

b) They provide financial services to other financial institutions and corporates, and
occasionally to countries.
e) They are usually regulated by the central bank of the country in which they operate and/or
a specific regulatory authority.
j) A key role is the issuance of securities for a listed company, either through an IPO or a
secondary issue, in order to raise capital for expansion. They also provide loans, often for
millions of dollars, to companies that prefer debt as a means to raise capital. This is also
known as merchant banking.
RETAIL BANKS
o) These banks may also be called commercial banks or "high street" banks.
g) They provide banking services to members of the public.
h) The examples of these banks’ services are accepting salaries and wages into a current
account, acting as intermediary to pay bills through direct debits and standing orders,
providing cheque books, credit and debit cards, providing cash withdrawal facilities and
managing savings.
l) Regulation applies to these banks, too. They are usually overseen by the appropriate
regulatory authority, but the central bank may still set policy for them.
a) They offer a wide range of financial services to their customers, such as insurance,
pension funds, mortgages, overdrafts and broking investments in the stock markets. All
these services, plus business loans, are also available to small and medium-sized
businesses.

Banking products.
1. Current account
2. Cash dispensers
3. Standing order
4. Cheque
5. Credit card
6. Deposit account
7. Mortgage
8. Overdraft
9. Loan
10. Foreeign currency
11. Pension
12. Investment advice
Commercial banking
 1. Deposits
2. Custumers
3. Lend
4. Accounts
5. Wages
6. Salary
7. Transfer
8. Current account
9. Withdraw
10. Cheque
11. Standing orders
12. Bank loan
13. Overdraft
14. Debt
15. Spread
16. Depositors
17. Optimize
18. Liquidity
19. Liabilities
20. Return
Types of bank
1. Central banks
2. Commercial banks
3. Universal banks
4. Finance banks
5. Merchant banks
6. Investment banks
7. Building societies
8. Supranational banks
Taxes – introduction
Taxation – vocabulary 1.
1. Income tax
2. Progressive
3. Indirect
4. Regressive
5. Value added tax
6. Capital gains
7. Capital transfer
8. Tax avoidance
9. Tax evasion
10. Tax loss
11. Tax havens
12. Laundering
Vocabulary 2.
1. Tax accountinf
2. Tax allowance
3. Tax authority
4. Tax avoidance
5. Tax consultant
6. Corporation tax
7. Tax deductible
8. Direct tax
9. Tax evason
10. Tax free
11. Tax haven
12. Income tax
13. Indirect tax
14. Tax inspector
15. Tax loopholes
16. Tax loss
17. Tax-payer
18. Progressive taxation
19. Tax rates
20. Tax rebate
21. Tax return
22. Tax shelter
23. Withholding tax
24. Tax year
Ex 2.
1. Liable
2. Deduct, pay, evade
3. Avoid
4. Lower
5. Raise
6. Levys

Ex.3.

1) to outlaw - f) to ban or make illegal

2) to implement - e) to take action or make changes that you have officially
decided should happen.
3) to institute - h) to introduce or establish
4) equitable - j) treating everyone in an equal way
5) chunk - c) a large part or amount of something
6) to offset - i) have an opposite effect so that the situation remains the same
7) burden - a) something difficult or worrying that you are responsible for
8) across the board - d) applying to all
9) to defy - b) to openly resist or refuse to obey
10) to exempt - g) to free from an obligation to do something
11) to follow sb's lead - l) to do as someone else does, to use someone as an
example
12) to render - k) to provide or give (a service, help, etc.)