10 Financial markets: Exercises

10 Financial markets: Exercises

10.1 W rite these words in the spaces below: bonds, equities, money market instruments, securities, shares, stocks. Note th a t three words are near synonyms.

The general term 1 Securities refers to

_ Shares___(or_ __stocks________ or

__________)+___bonds_____+

__money market instruments__

10.2 Fill in the missing letters.

1. Instead of investing in the shares o f just one company, you can invest in a “mutual” fund which holds a basket of stocks.

2. Regular income e'caff be provided by the “dividends” of shares that you own.

3. The issuer o f a bond pays back the original am ount (= the pr…….al) to the bondholder over a iixed period of tim e (= the terrn of the loan).

4. The most traded bond in the world is the 30-year US government T-bond. The letter T stands for 'treasuy”

10.3 Make collocations using an item from each box. Then use the collocations to complete the sentences below.

Capital fixed junk risk tracker

Bond fund growth management rate

1. A fund that exactly follows the movement o f an index is called a _ tracker __/____fund__?

2.A fund can provide regular income or___ Capital_________/____ growth _________

3. A bond is a financial instrument where a borrower raises capital and then repays the loan at a____fixed__________/____rate____________ of interest over a fixed term.

4. A high-risk corporate bond can be called a____ _junk_____________/_______bond_________

5. 'Hedging1 is a term associated with ___risk_________ /_management_________ It means having a second position in a market, so th a t if the m arket moves against your first position your losses are minimized

10.4 Divide each set of words in italics into two, according to their meaning.

1. a booming / bear / bool / depressed / falling / rising / strong / weak market

2. to acquire / buy / have / hold / own / purchase shares.

1 gr: booming, bool, rising, strong

2 gr: bear, depressed, falling, weak

1 gr: acquire, purchase, buy

2 gr: hold, own, have

10.5 Match the names o f the different stock indices to their descriptions.

CAC DAX Dow FTSE Nasdaq S&P

1 .index of 500 large US companies____ S&P ____________

2. index of 4,000 US companies, many o f them -n the technology area, and some quite small _ Nasdaq___

3. index of 30 large, well-established US companies, chosen by the editors of the Wall Street Journal

_ Dow _

4. index of 30 large German companies__ DAX _____

5. index of 40 large French companies___ CAC ___________

6. index of 100 large UK companies____ FTSE _____________

10.6 Rank these financial instruments according to their probable risk: from 1 (low risk, low return, low volatility) to 4 (high risk, high potential return, high volatility).

a) an investment-grade corporate bond

b) a UK government bond

c) a fund investing in small biotech companies

d) shares in an individual company listed on the Daw (eg General Electric)
10.7 Choose which o f these investment objectives is most suitable for the investors described below: income, growth, income + growth.

1. a highly-paid young professional, without a family, who wants lo save long-term for a pension_

_ growth ___________

2. a newly retired person who wants to supplement their pension______ income ___________ .

3. someone in their fifties who has just received money from an inheritance - they w ant to save for their pension, but also want help paying for their children's university fees__ income/growth _____________

10.8 Match these financial institutions with their descriptions below: endowment, insurance company, investment bank, mutual fund, pension fund.

1. used by large companies to issue bonds, buy and sell currencies, manage their portfolio of shares in other companies, and advise on any potential merger or acquisition_ investment bank _____

2. used to save money during your working life and then have an income during retirement____ pension fund.____

3. used by private investors to hold a basket of stocks___ mutual fund _________________

4. used to protect yourself against risks (money is paid out if something bad happens) __ insurance company _________________

5. used to generate an income for non-commercial purposes, in particular to run a university or provide to r charity (the 'Bill and Melinda Gates Foundation' has one)__ endowment _______________

10.9 Financial analysts use the terms in the box when trying to value a company and its share price. Match each term to its definition below.

barriers to entry capital requirements, ease of substitution market penetration price elasticity

1. how sensitive a company's sales are to changes in the price of its products __ price elasticity ____________

2. how much money is needed to run this type o f business_ to entry ____________

3. whether other companies could offer a similar product __ market penetration ___________

4. how much market share a company has, and whether it has strong products in different segments of the market_______________

5. difficulties that other companies would face if they tried to compete __________________
10.10 The terms in the box are indicators o f a company's performance and are listed in financial publications. Match each one to its definition below.
earnings growth ple ratio dividend yield market capitalization return on equity

1.share price multiplied by total number of issued shares _ market capitalization ___

2. earnings per share, com pounded over several years ___ earnings growth ______________

3. how much profit is generated in relation to the money shareholders have invested____ return on equity _

4. current share price compared to its earnings per share ____ ple ratio______

5. the annual dividends per share divided by the share price____ dividend yield __________________

10.11 Which terms from the box in exercise 10.10 are probably being referred to in these comments:

1. 'the company is the biggest in its industry'

2.'compared to its competitors, the shares are cheap'

3 .'it's a real growth stock - revenues are up year on year'

4. 'it's not a growth stock, but you'll get a steady income from the shares'

5. 'it's a profitable company'

1.market capitalization

2. ple ratio

3. earnings growth

4. dividend yield

5. return on equity

10.12 Investors and traders make much use of 'technical analysis'. W rite these terms next to their definitions: breadth, leadership, liquidity, momentum, resistance, support, trading channel, volume.

1. a price level which has stopped an advance on previous occasions ___ resistance __________

2. a price level which has stopped a decline on previous occasions__ support ___________

3. the total number of shares traded in a market on a particular day__ volume _________

4. the number of individual stocks participating in the movement of an index __ breadth ___________

5. the strength of a trend, as measured by speed and length of time___ momentum __________

6. two parallel lines drawn on a chart that contain all price movements over a time period trading channel __

7. the kind of companies that are moving the market: technology companies or utility companies? large cap or small cap? ___ leadership ______________

8. whether there is new money available to invest in the market___ liquidity ____________

10.13 Complete this text about the foreign exchange market using the words in the box.

Buyer seller Bank Reserve exports imports rises raises

AII international transactions in goods and services have to be paid for and the 1__ Buyer ___ usually pays in the currency of the 2 __ seller ___ So, there will be a high demand for a country’s currency if.

1. 
   there is a trade surplus (it the country 3_ exports __ more than it 4____ imports ___ ) - because foreigners need the currency to make their payments.
   
2. 
   foreigners are buying a lot of that country’s equities and bonds - they need the currency to make their purchases.
   

Increased demand for the currency for either reason will make it rise in value.

But over the short term the main factor affecting the forex market is interest-rate differentials. As the central bank of a country 5__ raises ____ rates, the demand for its currency 6_____ rises ____ . Why? Simply because currency traders are looking for somewhere to park their cash.

II the US Federal 7_ Reserve __ is paying 4% and the European Central,8 ____ Bank ___ 2% then cash will earn more interest held in the US as dollars.

1 Financial advice is garbage. If anyone knew how to beat the market they'd be sitting on a beach drinking pina coladas - not trying to sell stocks to other people.

Agree Disagree

2 Why invest in the stock m arket7 What goes up must come down. Spend the money today and enjoy it while you can.

Agree Disagree

3. Over the next one year / five years (choose one) the dollar is going to rise / fall (choose one) against the euro / yen / other (choose one) because one year

4. If I could invest in just one individual stock (or one national stock market) it would be rise because euro