Task 18 Prepare a presentation on one of the topics below.
· A budget deficit (causes and consequences).
· Cutting taxes and increasing spending in the months before an election.
· How to invest for the future?
· Budget surplus – does it always stimulate the economy?
UNIT 2
INVESTMENT AND SECURITIES MARKETS
LEAD-IN
Task 1 Have you ever been involved in investment activities? Do you know anything about securities and ways to secure your future? Complete the test to find out how financially literate you are.
1. Why do businesses make investments?
A. to monitor markets
B. to pay dividends
C. to increase wealth
2. Which of the following types of brokers usually charges the highest commissions:
A. stock
B. discount
C. full-service
3. What type of deposit-taking institution do its members or customers own?
A. discount brokers’ fund
B. investment bank
C. credit union
4. When shopping for an investment broker, which of the following things should you always do:
A. read the broker's advertisements.
B. disclose how much money you have to invest.
C. run a background check.
5. Which of the following is a question that investors should ask prospective financial planners:
A. What is your income?
B. How many references do I need to provide?
C. How are your fees structured?
6. If you are investing for a goal that you hope to reach within three years, you are investing for a(n)
A. short-term time horizon.
B. long-term time horizon.
C. risk-tolerant time horizon.
7. Why do financial advisors conduct a fundamental analysis of a business before recommending it as an investment to clients?
A. to determine intrinsic value
B. to negotiate a fair price
C. to calculate a commission rate
8. Investing in growth stocks is a strategy that builds wealth through
A. a regular fixed income.
B. paid dividends.
C. buying low and selling high.
9. Which of the following strategies would enable investors to take advantage of fluctuations in stock prices:
A. value stock investments
B. diversification
C. growth stock investments
10. Which of the following is an example of a lending investment:
A. homes
B. bonds
C. stocks
11. Which of the following is a factor that determines how much investment risk a person can handle:
A. social status
B. income
C. banking institution
12. The most important factor to consider when choosing investments is
A. the short-term profitability of the investment.
B. whether or not the investment supports one's financial goals.
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C. whether or not the security pays an annual dividend.
13. Which of the following is the most common investment for an individual who wants to provide his children for the future:
A. business investments
B. securities such as stocks and bonds
C. real estate purchases
14. Which of the following is important to consider when calculating the value of money that has been invested:
A. exchange rate
B. cash flow
C. credit report
15. Putting $100 in a savings account today and earning 4% interest over the next year illustrates the concept of
A. the time value of money.
B. opportunity cost.
C. inflationary impact.
16. At a stock exchange, specialists have responsibility for
A. all of the trades made on a particular stock.
B. keeping a stock’s price as high as possible.
C. keeping a stock’s price as low as possible.
READING
Task 2 Read the text below and say if you are to be a specialist to invest your money successfully and what knowledge you are to gain in order to gain returns from your investments.
TYPES OF SECURITIES
We usually distinguish two types of securities: equities and debts.
An equity security represents ownership, thus shareholders in a company, partnership or trust receive profits from shares that may be either common or preferred stock. The holders of equity securities are not paid regularly, though such shares often do pay out dividends. What is vital for such investors is that they are able to profit from capital gains when they sell the securities and they are entitled to control the company on a pro rata basis. If a company goes bust, they share only in residual interest after all obligations have been paid out to creditors.
A debt security is borrowed money that must be paid out on certain conditions, which include the size of the loan, interest rate and maturity. Debt securities include government and corporate bonds, certificates of deposit (CDs) and collateralized securities (such as CDOs and CMOs). Those who acquire debt securities hope to get entitled to the regular payment of interest and repayment of principal regardless of the issuer's performance. Unfortunately, such owners do not have any voting rights to influence a company’s performance. Debt securities are issued for a fixed term, at the end of which they can be redeemed by the issuer. Debt securities can be secured or unsecured.
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There are also hybrid securities that combine some properties of both debt and equity securities. Examples include equity warrants, convertible bonds and preference shares.
The entity that creates the securities for sale is known as the issuer, and those who buy them are investors. Securities are of paramount importance for business as they represent a means by which municipalities, companies and other commercial enterprises can raise new capital.
When companies “go public” (initiate a “public offering), they generate money. An IPO represents a company's first major sale of equity securities to the public. Following an IPO, any newly issued stock is called a secondary offering. Publicly traded securities are listed on stock exchanges. The thing is that through IPOs issuers can attract investors by ensuring they trade in a liquid and regulated market. Alternatively, securities may be offered through a private placement – an important distinction in terms of both company law and securities regulation. Informal electronic trading systems have become more wide-spread in recent years, and securities are now often traded "over-the-counter." In the aftermarket, securities are simply transferred as assets from one investor to another: Shareholders can sell their securities to other investors for cash and/or capital gain. The secondary market thus supplements the primary. The secondary market is less liquid for privately placed securities, since they are not publicly tradable and can only be transferred among qualified investors. Sometimes companies sell stock in a combination of public and private placement.
Buying on a margin is a popular investment technique. It is when a company delivers property rights (cash or securities) either at inception or in default to pay out its debt. These collateral arrangements have become common lately among institutional investors.
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City, state or county governments can also raise funds for a particular project by floating a municipal bond issue. On the one hand, much depends on an institution's market demand or pricing structure. On the other hand, raising capital through securities can be a preferred alternative to financing through a bank loan.
In the United States, the U.S. Securities and Exchange Commission (SEC) regulates the public offer and sale of securities. Public offerings, sales and trades of U.S. securities must be registered and filed with the SEC's state securities departments.
Before investing in securities, it is necessary to have a clear insight about the following factors:
· Issuer of the security
· Currency of the traded denominations
· Rights of ownership
· Term to maturity and the whole tenure
· Mode of income payments
· Degree of liquidity
· Tax and associated issues
Comprehension
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