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The Business of Trade

11.6.2018, , Zdroj: Verlag Dashöfer

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The Business of Trade

Edward Thomas

1. THE BUSINESS OF TRADE

So far we've talked just a bit about finance - now we're going to talk a lot more about the financial markets, also known as stock exchanges.

First we'll expand or refresh our vocabulary a little bit. Find the synonyms for the words below. Remember they may not really be synonyms, but are sometimes used in similar ways.

 

A) Financial markets 1) Securities
B) Traders 2) Speculators
C) Shares 3) Footsie 100
D) Index 4) Equity holder
E) Bonds 5) Stocks
F) Investors 6) (First) sale of shares
G) Yields 7) Stock markets
H) Initial Public Offering 8) Capitalisation
I) Shareholder 9) Dealers
J) Value 10) Dividends

Correct answers are here1

If you have trouble with this, look at next exercise, where you will find sentences with one word missing which will require the use of one of the synonyms above. There are 20 sentences in all, so all the synonyms will be used, and you should be able to pair them more easily.

2. FINANCE PROGRAMME ON TV

The sentences below could come from a finance programme on TV. Can you fill the gaps with words from the business of trade? There are 20 gaps, so all the words are used.

1. Their shares have been giving healthy ………………………. of over € 1.50 each year for five years.

2. Government ………………………. are usually thought to be safe investments.

3. ………………………. are to meet to discuss the actions of their company's board.

4. The ………………………. have been falling rapidly today.

5. Share prices have been pushed higher by enthusiastic ……………………….

6. ………………………. don't have long careers - they usually move to safer jobs by the age of 35.

7. It's our ……………………….. As a partner in the company, I'm hoping to make a lot of money.

8. ………………………. in CET have fallen dramatically in value recently.

9. The ………………………. of our company of course changes when its shares fall.

10. The ………………………. of top 100 companies is still very positive today.

11. ………………………. will be very low this year- the company needs to invest in its business.

12. The Government is making ………………………. available to increase market liquidity.

13. ………………………. are very worried about the profit warning their company has given.

14. In general, ………………………. ………………………. are relaxed about the news and have not fallen.

15. The uncertainty in the market is not positive for ……………………….

16. ………………………. can be paid a lot but only if they have good results.

17. ………………………. ………………………. ………………………. in a poor market can actually lose money for a company.

18. ………………………. in CET improved after news of their good financial year was announced.

19. They believe their ………………………. ………………………. is about $ 4 bn.

20. The ………………………. is very positive today.

_________________________________________________________________________________

bonds, yields, market capitalisation, FTSE 100, first share offer, shares, financial markets, dealers, traders, speculators, investors, stockmarkets, shareholders, equity holders, bonds, securities, dividends, yields, IPO, index.

Correct answers are here2

3. TERRY THE TRADER

Read what Terry has to say about his job. Then use the words which follow to fill the gaps in the text.

„Me? The name's Terry. Terry the Trader. Some people think that working in the world's markets is all about money - well, it is. If it wasn't all about money though it would still be an interesting business.

Look, there are so many types of market out there: if you become an expert in coffee and tea you'll be useful in the 1. ………………………. market. If you know a lot about national economies, maybe the 2. ………………………. market could be for you. This is not for nervous people though- sometimes some currency has what they call a „run” on it and it „falls through the floor!” In the UK they still remember George Soros, who made the pound leave the European Rate Exchange Mechanism (ERM) and forced it to devalue- I mean, to lower its value. They call the day that happened „Black Wednesday”! Soros made a billion, the UK lost a lot more!

If you're looking for something more stable than shares or currencies, there is always 3. ……………………….. These offer fixed term debts which companies or governments have to repay you over time. It's all carefully scheduled.

Similar stuff really, but more short term, happens on the 4. ………………………. ……………………….. There, short-term agreements are signed where the seller will pay the buyer a fixed amount in the near future, for example six months. They're used for getting working capital and they're often very safe investments- the financial system would fail without them.

Not satisfied yet? Well, the Greeks had the idea of 5. ……………………….. These are what they say they are - things for the future - agreements to buy actually – which mean that the buying party guarantees to buy the sellers product at a fixed future price. So, you offer to buy tea at €1.15, in three months. Then, if the price of tea rises, you can make an instant profit by selling it. Nice!

If you're into a more complex style of trading, 6. ………………………. could be for you. You can trade in these, as with other things, OTC (over the counter ie. directly and privately), or on derivatives exchanges. Futures are actually a kind of these, but there are also options and swaps (a swap is where the is no money involved, just an exchange; an option is where you get an opportunity at some time to buy something).

Basically the above types of trading are ways of ”7. ………………………..“ In England we have a saying- you have to „hedge your bets”. This means when you put money into some situation, you put some on one result, and some on another- so you can gain money even if some of your judgements are wrong. In betting for example this mean you put a little money on your horse coming 1st , and a little on him coming in the top 4. That way you can't lose so easily! It's the same with „hedging” in shares, and some of the biggest investors in the market today are groups of people who handle huge amounts of money in this way- they are called 8. ………………………. and they give me a lot of my work!

One last thing to talk about: the 9. ………………………. market. This has grown a lot because people need finance to cover more and more items. If something bad happens, they get paid. Well, such policies have a value (premiums) and can be part of the trading system too.

And that's it: a fascinating and rich world. My life.”

_________________________________________________________________________________

derivative, commodities, insurance, bonds, hedging, money markets, hedgefunds, futures, currency

Correct answers are here3

A MULTI-MARKET WORLD

You thought there was just one type of market? The one for stocks and shares? Think again! There are many. Have a look at the list below based on the text in Terry the Trader and match the market name with its definition.

 

1. Stock A) Where short term debt financing and investment activities happen.
2. Bonds B) Where basic products, such as copper, oil, and coffee, are traded.
3. Futures C) Where dealing in and issuing of company shares happens.
4. Derivatives D) Where different national currencies are traded.
5. Insurance E) Where a wide variety of indirect trading instruments are bought and sold.
6. Commodities F) Where debt securities are traded in which the issuer owes the buyer a certain amount of money to be paid after a certain time.
7. Money G) Where what is traded are agreements to buy in the future for a fixed price.
8. Currency H) Where risk is transferred from one party to another, associated with underwriting.

Correct answers are here4

Now answer true or false to the statements below, remembering what you read in Finance Programme on TV:

True or False (T or F)

1) If you „hedge your bets” you aim to get the most profit possible.

2) If you own a hedge fund you are usually very rich indeed.

3) If you buy futures, a small profit is guaranteed.

4) If you purchase shares OTC (over the counter), it is a public transaction.

5) A „run” on a currency is generally a good thing.

6) An „option” gives you a choice to buy at some time in the future.

7) A „swap” is a basically a trade without money.

8) Derivatives are a form of risk management.

Correct answers are here5

5. LANGUAGE REVIEW

It's time to do a bit of revision of language - a review of different forms of words. A great way to learn words is to learn the different forms of the words that you know. Something to remember as well is the different uses and contexts in which the words can be used. You should remember that sometimes a word may have only a couple of forms.

Here we will look at the words mainly from a financial point of view; you could easily meet with them in another context. „---” indicates that, in this context at least, there is no useful form of the word.

Where there is a gap without „---”, you should guess, or find out, the forms to complete the list.

 

Verb Noun Personal Noun Adjective/ Past participle
sell 1) seller saleable/ sold
capitalise 2) capitalist capitalised
3) value / valuation valuer valuable / valued
deal deal / dealing 4) dealable / dealt
offer offer offerer / offeree 5)
share shares 6) shareable /shared
7) investment 8) investable /invested
9) speculation speculator  ---
yield 10) ---  yielded
11) swap  --- swapped / swapable
opt 12) ---  optioned

Correct answers are here6

Now try these sentences, which occur in the order of the exercise above and require you to choose the right form of the words:

A) It's a ………………………. 's market.

B) We need to ………………………. on our success.

C) The ………………………. or estimated market capitalisation of this company is € 6bn.

D) All kinds of commodities are ………………………..

E) Our final ………………………. is € 5.5bn.

F) ………………………. are to meet to discuss the board's decision.

G) ………………………. are nervous about entering the market at the moment.

H) ………………………. are blamed for the currency crisis.

I) Our shares have ………………………. very well over the last five years.

J) The banks are working on a securities ………………………..

K) After 5 years you can ………………………. to convert your bonds into cash.

Correct answers are here7

Think about the use of the words above - word order and function - as it can help you learn! You might want to make your own list and examples in a similar way.

6. BULLS AND BEARS, SUPPLY AND DEMAND, HARD AND SOFT COMMODITIES

A) bulls and bears, B) supply and demand, C) hard and soft commodities

Look at the definitions below- which ones belong to which of the above pairs of words? Which of the highlighted  sections connect to which word above?

„This is where 1) how much a thing is wanted changes over time, and 2) how much there is of the thing changes to match it - in an ideal world.”

„Where 3) a market is rising fast, all the traders try to make money by selecting the winners - where it is 4) falling for a time, they try to understand the falls and where the shares or securities recover value they can make their money.”

5) Things that are renewable may change because of a wider range of factors than things which are not and whose 6) quanties are more fixed.”

Correct answers are here8

Now read the text below.

„Shares move into bearmarket: what are the prospects?”

As everyone knows, bearmarkets are dangerous markets - share prices are of course falling and money is leaving the system.

There are great opportunities even in a bear market, of course. You can buy shares when they have fallen a long way, and make money when they rebound. One problem: how do you know when they have stopped falling, when the share value has bottomed out?

In a bull market it's perhaps easier- you look for companies with a low price-to-earnings ratio, or basically strong dividends with a relatively low price for their stock, and you buy!

In a bear market first of all you must be realistic - the definition of a bear market is that a market must fall by 20 % from its peak. We're at the point now, so it should be clear that a lot of companies have found that their earnings are under pressure - maybe because of debt, maybe because of low sales - and that their shares are overpriced.

The goal then has to be to find companies where the earnings will probably stay stable. My advice is to look for companies with low liabilities, creditors rather than debtors, with their main business involvement outside property.

So what about commodities? Looking at hard commodities, there are clearly high oil prices and great prices for metals, but there are even high prices for soft commodities like corn or rice.

The problem with these is that prices are partly driven by speculation. Certainly demand is higher than before - the rise of China and India has had a definite

 
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