Text 15. Stocks and Shares

The act of issuing shares (GB) or stocks (US) - i.e. offering them for sale to the public - for the first time, is known as floating a company or making a flotation. Companies generally use a bank to underwrite the issue. In return for a fee, the bank guarantees to purchase the security issue at an agreed price on a certain day, although it hopes to sell it to the public. Newer and smaller companies trade on "over-the-counter" markets, such as the Unlisted Securities Market in London. Successful companies can apply to have their shares traded on the major stock exchanges, but in order to be quoted (GB) or listed (US) there, they have to fulfill a large number of requirements. One of these is to send their shareholders independently-audited annual reports, including the year's trading results and a statement of the company's financial position.

Buying a share gives its holder part of the ownership of a company. Shares generally entitle their owners to vote at companies' General Meetings, to elect company directors, and to receive a proportion of distributed profits in the form of a dividend (or to receive part of the company's residual value if it goes into bankruptcy). Shareholders can sell their shares at any time on the secondary market, but the market price of a share - the price quoted at any given time on the stock exchange, which reflects how well or badly the company is doing — may differ radically from its nominal, face, or par value.

At the London Stock Exchange, share transactions do not have to be settled until the account day or settlement day at the end of a two-week accounting period. This allows speculators to buy shares hoping to resell them at a higher price before they actually pay for them, or to sell shares, hoping to buy them back at a lower price.

If a company wishes to raise more money for expansion it can issue new shares. These are frequently offered to existing shareholders at less than their market price: this is known as a rights issue. Companies may also turn part of their profit into capital by issuing new shares to shareholders instead of paying dividends. This is known as a bonus issue or scrip issue or capitalisation issue in Britain, and as a stock dividend or stock split in the US. American corporations are also permitted to reduce the amount of their capital by buying back their own shares, which are then known as treasury stock; in Britain this is generally not allowed, in order to protect companies' creditors. If a company sells shares at above their par value, this amount is recorded in financial statements as share premium (GB) or paid-in surplus (US).

The Financial Times-Stock Exchange (FT-SE) 100 Share Index (known as the "Footsie") records the average value of the 100 leading British shares, and is updated every minute during trading. The most important US index is the Dow Jones Industrial Average.

 

Exercise 110. Translate into Ukrainian the words in bold from text 15. Make up your own sentences with them.

 

Exercise 111. Read the statements. Are they true or false? Correct the false ones.

1. A company can only be floated once. 2. Banks underwrite share issues when they want to buy the shares. 3. It is easier for a company to be quoted on an unlisted securities market than on a major stock exchange. 4. Unlisted companies do not publish annual reports. 5. The market price of a share is never the same as its nominal value. 6. On the London Stock Exchange it is possible to make a profit without ever paying anyone any money. 7. If a company issues new shares, it has to offer them to existing shareholders at a reduced price. 8. A scrip issue can be an alternative to paying a dividend. 9. American corporations with large amounts of cash can spend it by buying their own shares. 10. Companies do not have to sell their shares at their nominal value.

 

Exercise 112. Complete the sentences with the words from     text 15.

1. Offering shares to the public for the first time is called … a company. 2. A company offering shares usually uses a merchant bank to … the issue. 3. The major British companies are … on the London Stock Exchange. 4. In London, share transactions have to be … every two weeks. 5. The value written on a share is its … . 6. The value listed in the newspapers is its… .

 

Exercise 1 13 . Learn the following words and word combinations.

commodity futures	– товарні ф’ючерси, строкові угоди з товарами
futures contract	– ф’ючерсний контракт
forward contract	– форвардний контракт
copper	– мідь
lead	– свинець
commodities	– товари
hedge	– страхувати від можливих втрат
standardized contract	– стандартний контракт
non-standardized contract	– нестандартний контракт
over-the-counter	– такий, що продається поза біржею
backwardation	– депорт, знижка з обумовленого курсу
financial futures	– фінансові ф’ючерси
fluctuate	– коливатися
currency futures	– валютні ф’ючерсні угоди
interest rate futures	– відсоткові ф’ючерси
stock futures	– строкові угоди з акціями
stock index futures	– ф’ючерси з біржовими індексами
zero-sum game	– гра з нульовою сумою (коли сума всіх виграшів та програшів дорівнює нулю)

 

Exercise 1 14. Read, translate and give the gist of text 16.

Text 16. Futures

Forward and futures contracts are agreements to sell an asset at a fixed price on a fixed date in the future. Futures are traded on a wide range of agricultural products (including wheat, maize, soybeans, pork, beef, sugar, tea, coffee, cocoa and orange juice), industrial metals (aluminium, copper, lead, nickel and zinc), precious metals (gold, silver, platinum and palladium) and oil. These products are known as commodities. Futures were invented to enable regular buyers and sellers of commodities to protect themselves against losses or to hedge against future changes in the price. If they both agree to hedge, the seller (e.g. an orange grower) is protected from a fall in price and the buyer (e.g. an orange juice manufacturer) is protected from a rise in price.

Futures are standardized contracts - contracts which are for fixed quantities (such as one ton of copper or 100 ounces of gold) and fixed time periods (normally three, six or nine months) - that are traded on a special exchange. Forwards are individual, non-­standardized contracts between two parties, traded over-the-counter - directly, between two companies or financial institutions, rather than through an exchange. The futures price for a commodity is normally higher than its spot price - the price that would be paid for immediate delivery. Sometimes, however, short-term demand pushes the spot price above the future price. This is called backwardation.

Futures and forwards are also used by speculators - people who hope to profit from price changes.

More recently, financial futures have been developed. These are standardized contracts, traded on exchanges, to buy and sell financial assets. Financial assets such as currencies, interest rates, stocks and stock market indexes fluctuate - continuously vary - so financial futures are used to fix a value for a specified future date (e.g. sell euros for dollars at a rate of ? 1 for $1.20 on June 30).

- Currency futures and forwards are contracts that specify the price at which a certain currency will be bought or sold on a specified date.

- Interest rate futures are agreements between banks and investors and companies to issue fixed income securities (bonds, certificates of deposit, money market deposits, etc.) at a future date.

- Stock futures fix a price for a stock and stock index futures fix a value for an index (e.g. the Dow Jones or the FTSE) on a certain date. They are alternatives to buying the stocks or shares themselves.

Like futures for physical commodities, financial futures can be used both to hedge and to speculate. Obviously the buyer and seller of a financial future have different opinions about what will happen to exchange rates, interest rates and stock prices. They are both taking an unlimited risk, because there could be huge changes in rates and prices during the period of the contract. Futures trading is a zero-sum game, because the amount of money gained by one party will be the same as the sum lost by the other.

 

Exercise 11 5 . Translate into English.

Ф’ючерсний контракт, товари, страхувати від втрат, зниження ціни, зростання ціни, укладати угоди без участі біржі, депорт, гра з нульовою сумою, фіксована ціна, негайна доставка., коливатися, ф’ючерси з біржовими індексами.

 

Exercise 11 6 . Match the terms with the definitions.

Terms	Definitions
1. backwardation	a) the price for the immediate purchase and delivery of a commodity
2. to hedge	b) the situation when the current price is higher than the future price
3. commodities	c) adjective describing a contract made between two businesses, not using an exchange
4. over-the-counter	d) contracts for non-standardized quantities or time periods
5. forwards	e) physical substances, such as food, fuel and metals, that can be bought or sold with futures contracts
6. spot price	f) to protect yourself against loss
7. futures	g) contracts to buy or sell standardized quantities

Exercise 11 7 . Answer the questions.

1. What kind of agreement are futures and forward contracts? 2. What is the difference between futures and forwards? 3. Why were futures invented? 4. What is spot price? 5. What kinds of futures do you know? 6. Why is futures trading a zero-sum game?

Exercise 11 8 .Read the statements. Are they true or false? Correct the false ones.

1. Financial futures were created because exchange rates, interest rates and stock prices all regularly change.

2. Interest rate futures are related to stocks and shares.

3. Financial futures contracts allow companies to protect themselves against short-term changes in exchange rates.

4. You can only hedge if someone who expects a price to move in the opposite direction is willing to buy or sell a contract.

5. Both parties can make money out of the same futures contract.

 

Exercise 11 9 .Look at some commodity prices, and decide if you think they will rise or fall over the next three month. Check in the three months’ time to see if you would have made or lost money by buying or selling futures.

 

Exercise 1 20 . Learn the following words and word combinations.

exchange rate	– обмінний курс
spot transaction	– угода на умовах спот; угода на наявний товар; угоди з негайною поставкою
forward transaction	– форвардна угода
spot exchange rate	– курс за поточними операціями; поточний валютний курс; спотовий обмінний курс
forward exchange rate	– строковий валютний курс; форвардний валютний курс
appreciation	– підвищення валютного курсу
depreciation	– знецінювання
winetaster	– дегустатор вин
wine cellar	– винний льох (погріб)

Exercise 12 1 . Read, translate and give the gist of text 17.

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