Faculty of Foreign Languages – Department of Business English BF - Term 5

Full Name: ....Nguyen Thi Ly................................. Class: .................................. Student

Code: .............................
TOPIC 1: OVERVIEW OF FINANCIAL SYSTEMS

TEST 1

SECTION1: Match the terms with suitable explanations

Terms
1. Interest rate
2. Risk sharing F
3. Stock
4. Lender-savers
5. Bond
6. Financial intermediation
7. Primary market
8. Banks
9. Secondary market
10. Money markets
11. Borrower-spenders
12. Foreign exchange market
13. Capital market
14. Financial markets
15. Financial instrument
16. Over-the-counter market
17. Credit unions
Explanations
h a. Financial institutions that accept deposits and make loans
k b. A financial market in which longer-term debt and equity
instruments are traded
n c. A debt security that promises to make payments periodically for
a specified period of time.
q d. The market in which exchange rates are determined.
c e. Institutions (such as banks, insurance companies, mutual funds,
pension funds, and finance companies) that borrow funds from
people who have saved and then make loans to others.
f f. The process of indirect finance whereby financial intermediaries
link lender-savers and borrower-spenders.
i g. Markets in which funds are transferred from people who have a
surplus of available funds to people who have a shortage of
available funds.
a h. The cost of borrowing or the price paid for the rental of funds
l i. A financial market in which new issues of a security are sold to
initial buyers.
o j. A secondary market in which dealers at different locations who
have an inventory of securities stand ready to buy and sell
securities to anyone who comes to them and is willing to accept
their prices.
g k. The process by which financial intermediaries create and sell
assets with risk characteristics that people are comfortable with
and then use the funds they acquire by selling these assets to
purchase other assets that may have far more risk.
d l. A financial market in which securities that have previously been
issued can be resold.
b m.A claim on the borrower’s future income that is sold by the
borrower to the lender.
g n. A security that is a claim on the earnings and assets of a
corporation
m o. Financial markets where only short-term debt instruments are
traded.
j p. Non-profit institutions mutually organized and owned by their
members (depositors). Their primary objective is to satisfy the
depository and lending needs of their members, who have to
belong to a particular group
p q. The units who have saved can lend funds.

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 Faculty of Foreign Languages – Department of Business English BF - Term 5

18. Wholesale market
19. Risk
20. Financial intermediaries
s r. The units with a shortage of funds must borrow funds to finance
their spending
t s. Market where extremely large transactions occur, as for money
market funds or foreign currency
e t. The degree of uncertainty associated with the return on an asset

SECTION 2: Fill in the gaps using the words below

funds payment structural secondary adjust

insurance functions mechanisms entities debt
organized exchanges primary equity theft or fire capital
depository over-the-counter transfer money parameters
contractual savings investment

2.1. The main (1) ____ functions __________ of financial systems are to:
• provide the (2) ____ mechanisms __________ by which funds can be transferred from units in surplus to
units with a shortage of (3) ___ funds ___________ in order to directly or indirectly facilitate lending and
borrowing
• enable wealth holders to (4) ___ adjust ___________ the composition of their portfolios
• provide (5) ___ payment ___________ mechanisms, e.g. cheques, debit cards and credit cards
• provide mechanisms for risk (6) ____ transfer __________, e.g. insurance contracts allow a party such
as a firm or household to transfer the risk of loss of wealth due to (7) ______ theft or fire ________ to
another party such as an (8) _____ insurance _________ company.

2.2. From a (9) _____ structural _________ point of view a financial system can be seen in terms of the
(10) ____ entities __________ that compose the system. A financial system comprises financial markets,
securities and financial intermediaries.
- Financial markets can be classified on the basis of several (11) ___ parameters ___________: the
nature of the financial securities traded ((12) ___ organized exchanges ___________ versus (13)
__ over-the-counter ____________ markets), forms of organization ((14) ___ primary
___________ versus (15) _____ secondary _________ markets), maturity of the financial
instruments traded ((16) ____ money __________ markets versus (17) _____ capital _________
markets).
- Financial securities traded in financial markets are (18) ____ debt __________ instruments (bonds,
notes and bills), and (19) __ equity ____________ instruments (common and preferred stocks).
- Financial intermediaries comprise (20) __ depository ____________ institutions (commercial
banks, savings and loan associations and credit unions), (21) _____ contractual savings
_________ institutions (insurance companies and pension funds), and (22) _____ investment
_________ intermediaries (mutual funds, finance companies, investment banks and securities
firms).

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Faculty of Foreign Languages – Department of Business English BF - Term 5

SECTION 3: Reading Comprehension

Why stock markets matter for you
By BBC News Online's Stefan Armbruster
The saying goes: "Don't invest what you can't afford to lose".
But as stock markets fall, it is not just people who own shares who lose out. When the bears replace the
bulls, in other words, when the market falls, it affects almost everyone because stocks and shares have
become an integral part of almost all our financial lives. But just as the stock market can go up, it can
also go down. Usually the first to react to this are the institutional investors who are involved in the
financial markets on a daily basis.
The internet boom is an example. Many personal investors felt they were burnt by the popping of the
dot.com bubble. By the time they got around to selling shares in any number of failing internet based
companies, the big City investors had already pulled out of the market. The institutional investors did not
escape unharmed either. And the hits that they took also have an indirect, but potentially serious effect, on
many people's financial health. Any pain suffered by these institutional investors impact on the returns
paid on pensions, savings accounts or the interest charged on mortgages.
For individuals with a more direct interest - say day traders attracted by the tech boom - share holdings
can be used as collateral to borrow money. But if the value and income from shares evaporate and the
bank calls in the loan, the result can be big losses or personal bankruptcy. Meanwhile pensions linked to
the stock market, like the ones being promoted by the UK government, are not immune. Unlike the state
pension which is paid out at a rates set by the government, investing in a private pension indexed to
the stock market can increase the value of the contributions dramatically, but they can also be
erased.
Your job can also depend on the markets as companies use their valuation and the issue of new shares
to borrow capital to expand. If they are unable to do this then they have to find ways of increasing the
company's value to attract investors. The key tool they use is to cut jobs.

According to the text, are the following statements true or false?

1. Nearly everybody suffers the consequences when share prices go down.
2. Institutional investors are usually slower to sell when the market falls than personal investors.
3. The value of pensions paid by the government can go up and down with the stock market.
4. Companies can acquire new capital for expansion by issuing new shares.
5. Companies sometimes make people redundant in order to increase the company’s value (and its
share price).

1. True - it affects almost everyone because stocks and shares have become an integral part of
almost all our financial lives
2. False - The text suggests that institustional investors are usually the first to react to market
changes, not slower.

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Faculty of Foreign Languages – Department of Business English BF - Term 5

3. True - The text mentions that pensions linked to the stock market can increase in value
dramatically, but they can also be erased.
4. True - The text states that companies use their valuation and the issue of new shares to borrow
capital for expansion.
5. True - The text mentions that if companies are unable to borrow capital through issuing new
shares, they may resort to cutting jobs to increase the company's value and attract investors.

SECTION 4: Write a paragraph to describe the figure below.

Flows of Funds Through the Financial System

The illustration shows the flows of funds through the financial system where the lender-savers group like
households, business firms, government, and foreigners lend funds to theother side of the system which
are the borrower-spenders that can be the same as those statedin the former group. There are two routes
showed in the illustration, the direct finance and theindirect finance. Direct finance involves financial

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Faculty of Foreign Languages – Department of Business English BF - Term 5

markets as the medium for the lender-saversgroup to directly lend funds to the borrower-spenders for
example, by selling them financialinstruments or securities. On the other hand, indirect finance
involves the role of financialintermediaries like banks to channel the funds or in simple terms, it serves
as the middlemanbetween two parties in a transaction. In this indirect finance, the intermediaries move
funds tothose parties needing it. Intermediaries enable savers to pool their funds and make
largerinvestments which benefits the spenders or the entity they are investing in.