1. Central banking. Gabriel Mongano is an economics research student ,
specializing in monetary policy. You will hear him outlining the functions of a central
bank ,and discussing whether it should be independent from the government, and run by bankers ,or under the control of the government.
1a Discussion
Do you know whether the central bank in your country is independent?
What about these banks? Do you know if they are independent?
1. the Bank of England
2. the Federal Reserve Board(USA)
3. the Bundesbank (Germany)
4. the Japanese central bank
5. the Chinese central bank
1c Vocabulary
Read the six sentences below, which also summarize central banking functions, but slightly
Differently, and match them with the six expressions you have written in 1b.
A controlling the amount of banknotes in circulation
B establishing maximum and minimum lending rates, thereby controlling the credit system
C ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their
deposits when they want
D intervening on foreign exchange markets, buying or selling large amounts of the national
currency, to prevent major fluctuations
E lending money to a commercial bank in danger of going bankrupt
F selling government bonds to commercial banks or buying them back, in order to alter the
amount of credit the banks can offer (and thereby alter the money supply)
1e Discussion
Does (or would) the government in your country exploit the ‘political business cycle’ by
increasing the money supply or government spending, or lowering taxes, in order to increase economic activity in the months before an election, despite the long-term inflationary consequences?
Do you agree that central banks should be controlled by (unelected) bankers rather than by elected governments – which will often do everything possible to get reelected?
Do you agree that price stability (i.e. keeping inflation low ) is more important than other economic aims, such as attempting to reduce unemployment?
2 Taxation
2a Discussion
Benjamin Franklin, who wrote that ‘In this world nothing cam be said to be certain except death and taxes!’
The last sum of money you received had probably already been taxed, or will be liable to taxation, depending on which country you are in. Similarly, the last sum of money you spent probably included a percentage of tax.
Make a list of all the different types of taxes you can think of. If you do not know the actual names, try to describe the different taxes, e.g. ‘Tax you pay if you import something from another continent,’ and so on.
2b Vocabulary
Which terms do the following sentences define?
1. The tax people pay on their wages and salaries is called
A capital transfer tax B income tax C wealth tax
2. A tax on the wages and salaries or on company profits is a
A direct tax B indirect tax C value-added tax
3. A tax levied at a higher rate on higher incomes is called a
A progressive tax B regressive tax C wealth tax
4. A tax paid on property, sales transactions, imports, and so on is a / an
A direct tax B indirect tax C value-added tax
5. A tax collected at each stage of production, excluding the already-taxed costs from prvious
stages, is called a / an
A added-value tax B sales tax C value-added tax
6. Profits made by selling assets are generally liable to a
A capital gains tax B capital transfer tax C wealth tax
7. Gifts and inheritances over a certain value are often liable to a
A capital gains tax B capital transfer tax C wealth tax
8. The annual tax imposed on people’s fortunes (in some countries) is a / an
A added-value tax B capital gains tax C wealth tax
9. Making false declarations to the tax authorities is called
A fiscal policy B tax avoidance C tax evasion
10. Reducing the amount of tax you pay to a legal minimum is called
A creative accounting B tax avoidance C tax evasion
Taxation (and how to avoid it!)
A The primary function of taxation is, of course,to raise revenue to finance government expenditure, but taxes can also have other purpoces.Indirect excise duties, for example, can be designed to dissuade people from smoking , drinking alcohol,and so on.Governnment can also encourage capital investment by permitting various methods of accelerated depreciation accounting that allow compnies to deduct more of the cost of investments from their profits, and consequently reduce their tax bills.
B There is always a lot of debate as to the fairness of tax systems.Business profits ,for example,argenerally taxed twice:companies paytax on their profits, and share holders pay income tax on dividends.Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.The problem with progressive taxes is that the marginal rate –the tax people pay on any additional income –is always high, which isgenerally a a disincentive to both working and investing.On the other hand, most sales taxes are slightly regressive, because poorer people need to spend a larger proportion of their income on consumtion that the rich.
C The higher the tax rates the more people are tempted to cheat , but there is a substantial ‘’black’’ or ’’underground’’ economy nearly everywhere.In Italy , for example, self –employed people –account for more than half of nation income.Lots of people also have undeclared , part-time evening jobs,with small and medium-sized family firms, on which no one pays any tax or national insurance.At the end 1986, the director of Italian Nation Institude of Statistic calculated the sized of the underground economy. And added 16.7% to Italy’s gross national product(GNP),figure, and then claimed that Italy had other taken Britain to become the world’s fifth largest economy.
D To reduce income tax liability, some employers give highly-pays employees lots of ‘’perks’’ instead of taxable money, such as company cars, free health insurance ,and subsidies lunches.
Traducerea
A Impozitare (şi cum să-l evite!) O Funcţia primară de impozitare este, desigur, de a creste veniturile pentru finanţarea cheltuielilor guvernamentale, dar taxele pot avea, de asemenea, alte accize purpoces.Indirect, de exemplu, pot fi proiectate pentru a descuraja oamenii din fumatul, consumul de alcool, şi aşa mai departe.Governnment pot încuraja, de asemenea, investiţii de capital prin permiterea diverse metode de amortizare accelerată contabile care permit compnies de a deduce mai mult de costurile investiţiilor din profiturile lor, şi, prin urmare, reduce facturile fiscale.
B Există întotdeauna o mulţime de dezbatere cu privire la corectitudinea systems.Business taxa de profit, de exemplu, argenerally taxat de două ori pe paytax lor, profitul şi cota de titularii de companiile plătesc impozitul pe venit pe impozitele dividends.Income cel mai mult în ţări sunt progresive, şi sunt unul dintre modurile în care guvernele pot redistribui problemă wealth.The cu impozite progresive este aceea că oamenii marginal rata de-plata impozitului pe orice venituri suplimentare, este întotdeauna de mare, care in general descurajează atât lucrul şi de investiţiile.
Pe de altă parte, cele mai multe taxe de vânzare sunt uşor regresiv, pentru că oamenii mai săraci au nevoie să-şi petreacă o proporţie mai mare din venitul lor pe consumtion că cei bogaţi.
C mai mari rate de impozitare mai mulţi oameni sunt tentaţi să trişeze, dar există o substanţială ‘’black’’ sau ’’underground’’ economie de aproape oriunde .In Italia, de exemplu, persoane care desfăşoară activităţi independente-cont pentru mai mult de jumătate din income.Majoritatea firmelorde fimiliilor, de asemenea, au nedeclarate, part-time de locuri de muncă seara, cu mici şi întreprinderilor mici şi mijlocii de familie, pe care nimeni nu plăteşte nici un impozit sau asigurare.At naţionale la sfârşitul 1986, directorul de italian Nation Institude de Statistică a calculat mijlocul a economiei subterane .Si a adăugat 16,7% în Italia, produsul naţional brut (PNB ), figura, iar apoiItalia a susţinut că a avut alte luate Marea Britanie pentru a deveni economia cea mai mare a cincea.
D Pentru a reduce impozitului pe venit, unele empoyers da o mulţime foarte Pais angajaţi de avantaje "perks" în loc de bani impozabile, cum ar fi maşini de serviciu, de asigurări de sănătate gratuit, şi şi prânzuri de subvenţii.
2d Comprehension
Acording to the text there are the following statements TREU or FALS ?
1 Taxes can be designed both to discourage and to encourage spending.
2 The same amount of money can be taxed more then once.
3 Progressive taxes may discourage people spend more then the rich.
4 Sales taxes are unfair becouse poop people spend more then the riich.
5 The Italian government knows that about one seventh of national income ecape taxation.
6 'Loopholes' are common form of tax evasion.
7 If you pay a lot of your income into a pension fund or a life insurance policy you never have to pay tax on it.
8 A company that makes an unusually large profit during a tax year might quickly deide to spend it , for example , on a new factor or equipment.
2e Vocabulary
Find words in the text that mean the following.
1 reducing in value of a fixed asset , by charging it against profits.
2 Something that discourages the action
3 An adjective describing a tax that is proportionalli higher for people with less money
4 Spending money to buy things , rather then saving it
5 Working for yourself , being your own boss
6 A tax on incomes that pays for sickness benefit , unemployment benefit , and old-age pensions
7 Non-financial benefit or advantages of a job
8 A way to delay the payment of a tax to a later time
9 An adjective describing expenditures that can be taken away from taxable income or profits
10 A country offering very low rates to foreign businesses.
Calancea Adrian,Balan Aurel,Boestean Dorina
Thursday, December 9, 2010
Wednesday, December 8, 2010
Taxation (and how to avoid it!)
A The primary function of taxation is, of course,to raise revenue to finance government expenditure, but taxes can also have other purpoces.Indirect excise duties, for example, can be designed to dissuade people from smoking , drinking alcohol,and so on.Governnment can also encourage capital investment by permitting various methods of accelerated depreciation accounting that allow compnies to deduct more of the cost of investments from their profits, and consequently reduce their tax bills.
B There is always a lot of debate as to the fairness of tax systems.Business profits ,for example,argenerally taxed twice:companies paytax on their profits, and share holders pay income tax on dividends.Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.The problem with progressive taxes is that the marginal rate –the tax people pay on any additional income –is always high, which isgenerally a a disincentive to both working and investing.On the other hand, most sales taxes are slightly regressive, because poorer people need to spend a larger proportion of their income on consumtion that the rich.
C The higher the tax rates the more people are tempted to cheat , but there is a substantial ‘’black’’ or ’’underground’’ economy nearly everywhere.In Italy , for example, self –employed people –account for more than half of nation income.Lots of people also have undeclared , part-time evening jobs,with small and medium-sized family firms, on which no one pays any tax or national insurance.At the end 1986, the director of Italian Nation Institude of Statistic calculated the sized of the underground economy. And added 16.7% to Italy’s gross national product(GNP),figure, and then claimed that Italy had other taken Britain to become the world’s fifth largest economy.
D To reduce income tax liability, some employers give highly-pays employees lots of ‘’perks’’ instead of taxable money, such as company cars, free health insurance ,and subsidies lunches.
Traducerea
A Impozitare (şi cum să-l evite!) O Funcţia primară de impozitare este, desigur, de a creste veniturile pentru finanţarea cheltuielilor guvernamentale, dar taxele pot avea, de asemenea, alte accize purpoces.Indirect, de exemplu, pot fi proiectate pentru a descuraja oamenii din fumatul, consumul de alcool, şi aşa mai departe.Governnment pot încuraja, de asemenea, investiţii de capital prin permiterea diverse metode de amortizare accelerată contabile care permit compnies de a deduce mai mult de costurile investiţiilor din profiturile lor, şi, prin urmare, reduce facturile fiscale.
B Există întotdeauna o mulţime de dezbatere cu privire la corectitudinea systems.Business taxa de profit, de exemplu, argenerally taxat de două ori pe paytax lor, profitul şi cota de titularii de companiile plătesc impozitul pe venit pe impozitele dividends.Income cel mai mult în ţări sunt progresive, şi sunt unul dintre modurile în care guvernele pot redistribui problemă wealth.The cu impozite progresive este aceea că oamenii marginal rata de-plata impozitului pe orice venituri suplimentare, este întotdeauna de mare, care in general descurajează atât lucrul şi de investiţiile.
Pe de altă parte, cele mai multe taxe de vânzare sunt uşor regresiv, pentru că oamenii mai săraci au nevoie să-şi petreacă o proporţie mai mare din venitul lor pe consumtion că cei bogaţi.
C mai mari rate de impozitare mai mulţi oameni sunt tentaţi să trişeze, dar există o substanţială ‘’black’’ sau ’’underground’’ economie de aproape oriunde .In Italia, de exemplu, persoane care desfăşoară activităţi independente-cont pentru mai mult de jumătate din income.Majoritatea firmelorde fimiliilor, de asemenea, au nedeclarate, part-time de locuri de muncă seara, cu mici şi întreprinderilor mici şi mijlocii de familie, pe care nimeni nu plăteşte nici un impozit sau asigurare.At naţionale la sfârşitul 1986, directorul de italian Nation Institude de Statistică a calculat mijlocul a economiei subterane .Si a adăugat 16,7% în Italia, produsul naţional brut (PNB ), figura, iar apoiItalia a susţinut că a avut alte luate Marea Britanie pentru a deveni economia cea mai mare a cincea.
D Pentru a reduce impozitului pe venit, unele empoyers da o mulţime foarte Pais angajaţi de avantaje "perks" în loc de bani impozabile, cum ar fi maşini de serviciu, de asigurări de sănătate gratuit, şi şi prânzuri de subvenţii.
Calancea Adrian,Balan Aurel,Boistean Dorina
B There is always a lot of debate as to the fairness of tax systems.Business profits ,for example,argenerally taxed twice:companies paytax on their profits, and share holders pay income tax on dividends.Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.The problem with progressive taxes is that the marginal rate –the tax people pay on any additional income –is always high, which isgenerally a a disincentive to both working and investing.On the other hand, most sales taxes are slightly regressive, because poorer people need to spend a larger proportion of their income on consumtion that the rich.
C The higher the tax rates the more people are tempted to cheat , but there is a substantial ‘’black’’ or ’’underground’’ economy nearly everywhere.In Italy , for example, self –employed people –account for more than half of nation income.Lots of people also have undeclared , part-time evening jobs,with small and medium-sized family firms, on which no one pays any tax or national insurance.At the end 1986, the director of Italian Nation Institude of Statistic calculated the sized of the underground economy. And added 16.7% to Italy’s gross national product(GNP),figure, and then claimed that Italy had other taken Britain to become the world’s fifth largest economy.
D To reduce income tax liability, some employers give highly-pays employees lots of ‘’perks’’ instead of taxable money, such as company cars, free health insurance ,and subsidies lunches.
Traducerea
A Impozitare (şi cum să-l evite!) O Funcţia primară de impozitare este, desigur, de a creste veniturile pentru finanţarea cheltuielilor guvernamentale, dar taxele pot avea, de asemenea, alte accize purpoces.Indirect, de exemplu, pot fi proiectate pentru a descuraja oamenii din fumatul, consumul de alcool, şi aşa mai departe.Governnment pot încuraja, de asemenea, investiţii de capital prin permiterea diverse metode de amortizare accelerată contabile care permit compnies de a deduce mai mult de costurile investiţiilor din profiturile lor, şi, prin urmare, reduce facturile fiscale.
B Există întotdeauna o mulţime de dezbatere cu privire la corectitudinea systems.Business taxa de profit, de exemplu, argenerally taxat de două ori pe paytax lor, profitul şi cota de titularii de companiile plătesc impozitul pe venit pe impozitele dividends.Income cel mai mult în ţări sunt progresive, şi sunt unul dintre modurile în care guvernele pot redistribui problemă wealth.The cu impozite progresive este aceea că oamenii marginal rata de-plata impozitului pe orice venituri suplimentare, este întotdeauna de mare, care in general descurajează atât lucrul şi de investiţiile.
Pe de altă parte, cele mai multe taxe de vânzare sunt uşor regresiv, pentru că oamenii mai săraci au nevoie să-şi petreacă o proporţie mai mare din venitul lor pe consumtion că cei bogaţi.
C mai mari rate de impozitare mai mulţi oameni sunt tentaţi să trişeze, dar există o substanţială ‘’black’’ sau ’’underground’’ economie de aproape oriunde .In Italia, de exemplu, persoane care desfăşoară activităţi independente-cont pentru mai mult de jumătate din income.Majoritatea firmelorde fimiliilor, de asemenea, au nedeclarate, part-time de locuri de muncă seara, cu mici şi întreprinderilor mici şi mijlocii de familie, pe care nimeni nu plăteşte nici un impozit sau asigurare.At naţionale la sfârşitul 1986, directorul de italian Nation Institude de Statistică a calculat mijlocul a economiei subterane .Si a adăugat 16,7% în Italia, produsul naţional brut (PNB ), figura, iar apoiItalia a susţinut că a avut alte luate Marea Britanie pentru a deveni economia cea mai mare a cincea.
D Pentru a reduce impozitului pe venit, unele empoyers da o mulţime foarte Pais angajaţi de avantaje "perks" în loc de bani impozabile, cum ar fi maşini de serviciu, de asigurări de sănătate gratuit, şi şi prânzuri de subvenţii.
Calancea Adrian,Balan Aurel,Boistean Dorina
Futures and derivatives
Posted by Oprea Marina & Crasneanciuc Nina
FUTURES, OPTIONS AND SWAPS
Futures
Every weekday, enormous amounts of commodities, currencies and financial securities are traded for immediate delivery at their current price on spot markets. Yet there are also futures markets on which contracts can be made to buy and sell commodities, currencies an various financial assets, at a future date (e.g. 25 tons of copper to be delivered next June 30) are called futures; individual, non-standard, “over-the-counter” deals between two parties (e.g. 1.7 billion yen to be exchanged for dollars on September 15, at a rate set today) are called forward contracts.
Hedging and speculating
Futures, options and other derivatives exist in order that companies and individuals may attempt to diminish the effects of, or profit from, future changes in commodity and asset prices, exchange rates, interest rates, and so on. For example, the prices of foodstuffs such as wheat, maize, cocoa, coffee, tea and orange juice are frequently affected by droughts, floods and other extreme conditions. Consequently many producers and buyers of raw materials want to hedge, in order to guarantee next season’s prices. When commodity prices are expected to rise, future prices are obviously higher than (at a premium on) spot prices; when they are expected to fall they are at a discount on spot prices.
In recent years, especially since financial deregulation, exchange rates and interest rates have also fluctuated wildly. Many businesses, therefore, want to buy or sell currencies at a guaranteed future price. Speculators, anticipating currency appreciations or depreciations, or interest rate movements, are also active in currency futures markets, such as the London International Financial Futures Exchange (LIFFE, pronounced ‘life’).
Options
As well as currencies and commodities, there is now a huge futures market in stocks and shares. One can buy options giving the right – but not the obligation – to buy and sell securities at a fixed price in a future. A call option gives the right to buy securities ( or a currencies, or a commodity) at a certain price during a certain period of time. A put option gives the right to sell an asset at a certain price during a certain period of time. These options allow organizations to hedge their equity investments.
For example, if you think a share worth 100 will rise, you can buy a call option giving the right to buy at 100, hopping to sell this option, or to buy and resell the share at a profit. Alternatively, you can write a put option giving someone else the right to sell the shares at 100: if the market price remains above 100, no one will exercise the option, so you earn the premium.
On the contrary, if you expect the value of a share that you own to fall below its current price of 100, you can buy a put option at 100 (or higher): if the price falls, you can still sell your shares at this price. Alternatively, you could write a call option giving someone else the right to buy the share at 100: if the market price of the underlying security remains below the option’s exercise price or strike price, no-one will take up the options, and you earn the premium.
Swaps
Options are merely one type of derivative instrument, based on another underlying price. Many companies nowadays also arrange currency swaps and interest rate swaps with other companies or financial institutions. For example, a French company that can borrow francs at a preferential rate, but which also needs yen, can arrange a swap with a Japanese company in the opposite position. Such currency swaps, designed to achieve interest rate savings, are of course open to the risk of exchange rate fluctuations. A company with a lot of fixed interest debt might choose to exchange some of it for another company’s floating rate loans. Whether they save or lose money will depend on the movement of interest rates.
Фьючерсы, опции и свопы.
Фьючерсы.
Каждый будний день огромное количество товаров, валюты и финансовых бумаг продаётся для моментальной доставки по их текущей цене на рынки наличного товара.
Так же существуют рынки фьючерсов, на которых могут заключаться контракты покупки-продажи товаров, валюты и различных финансовых бумаг в будущем (например на три, шесть, девять месяцев вперёд), но по установленной цене во время сделки. Стандартизированные сделки для установленных объёмов и временных периодов (например 25 тонн меди должны быть доставлены 30 Июня) называются фьючерсами; индивидуальные, не стандартизированные, продаваемые в розницу сделки между двумя сторонами (например 1,7 миллиардов йен должны быть обменяны на доллары 15 сентября, по текущему курсу валют) называются форвардами.
Хеджирование и спекулирование.
Фьючерсы, опции и другие производные существуют для того чтобы товары и физические лица могут пытаться уменьшить эффекты, или доход от будущих изменений в ценах товаров и активов, курса обмена, процентной ставки и т.д. Например, на цены на базовые продукты, такие как пшеница, кукуруза, какао, чай и апельсиновый сок, часто влияют засухи, потопы и другие экстремальные погодные условия. Поэтому многие производители и покупатели сырья хотят хеджировать, для гарантирования цен в следующем сезоне.
Опционы
Также как и валюта, и товары существует огромное количество фьючерных рынков в акциях и ценных бумагах. Одни могут покупать опционы, дающие право, но не обязанность, покупать и продавать ценные бумаги по фиксированной цене в будущем. Опцион на покупку дает право покупать ценные бумаги(валюту или товар) по определенной цене в течении определенного периода времени.
Опцион на продажу дает право продавать актив по определенной цене в течении определенного периода времени. Эти опционы позволяют организациям хеджировать их собственные инвестиции.
Например, если вы думаете, что ценность акции увеличится на 100 единиц, вы можете купить опцион на покупку, дающий право купит по цене 100 единиц, надеясь, продать этот опцион или купить и перепродать акцию для дохода. Альтернативно , вы можете выписать опцион на продажу, дающий кому-либо еще право продавать акции за 100 единиц, если цена на рынке остается выше 100, никто не сможет использовать опцион и вы получаете премию.
Наоборот, если вы ожидаете, что ценность акции, которой вы владеете, упадет ниже ее текущей цены в 100 единиц вы можете купить опцион на продажу по цене в 100 единиц( или выше), если цена падает, вы все еще можете продать ваши акции по этой цене. Альтернативно, вы можете выписать опцион на покупку, дающий кому-либо право покупать акции по цене100 единиц: если рыночная цена базового актива остается ниже использованной опционной цены или цены страйк, никто не выкупит опцион, и вы получите премию.
Свопы
Опционы только один вид производного инструмента, основанные на другой базовой цене. Многие фирмы на сегодняшний день договариваются о валютных свопах и свопах процентной ставки с другими фирмами или финансовыми организациями. Например, французская компания, которая может взять в ссуду франки по льготной ставке, но которой так же нужны Йены, может заключить своп с японской компанией по противоположной позиции. Такие валютные свопы, созданные чтобы достигнуть сбережений процентной ставки, конечно же могут подвергаться изменениям обменного риска. Компания с большим количеством фиксированных процентных долгов может выбрать обмен их на ссуды других компаний с плавающими ставками.
Futures, opţiuni şi swap-uri.
Futures.
În fiecare zi o mare cantitate de mărfuri, valută, titluri financiare este vânduta pentru livrare imediata la preţurile lor actuale de pe piaţa spot.
La fel există pieţe futures,pe care se pot încheia contracte de cumpărare şi vânzare de mărfuri, valute şi diverselor active financiare în viitor (de exemplu, pentru trei, şase, nouă luni înainte), dar la un preţ stabilit în timpul unei tranzacţii. Tranzacţiile standardizate care stabilesc perioadele de măsură şi de timp (de exemplu, 25 de tone de cupru trebuie să fie livrat pe 30 iunie) sunt numite futures, tranzacţiile individuale, nestandardizate, în cadrul carora se vinde cu amănuntul între două părţi (cum ar fi 1.7 miliarde de yeni pentru a fi schimbate in dolari SUA pe 15 septembrie la rata de schimb actuala) sunt numite forward.
Acoperire şi speculaţii.
Futures, opţiuni şi alte derivate există pentru a se asigura că bunurile şi persoanele fizice sa poata încerca să reducă efectele, sau veniturile urmate din modificările viitoare ale preţurilor de bunuri şi active, rata de schimb, ratele dobânzilor, etc. De exemplu, preţul alimentelor de bază, precum grâul, porumbul, cacao, ceai şi sucul de portocale, este adesea influenţat de secetă, inundaţii şi alte condiţii meteorologice extreme. Prin urmare, mulţi producători şi cumpărători doresc să speculeze materii prime, pentru a garanta preţurile pentru sezonul următor. Atunci când este de aşteptat ca preţurile materiilor prime vor creşte, preţurile in viitor vor fi mai mari decât în mod obisnuit (la o primă ) decât preţurile bunurilor disponibile în stoc.
În ultimii ani, mai ales că dereglementarea financiară, ratele de schimb şi ratele dobânzilor fluctuiaza, de asemenea salbatic. Astfel multe companii doresc să cumpere sau să vândă valută la un preţ viitor garantat. Speculatorii care aşteaptă să crească sau să scadă valoarea monedei sau modificările ratei dobânzii, la fel sunt activi pe pieţele de futures internaţionale, cum ar fi Schimbul International de Futures financiare din Londra.
Opţiuni
Ca si monedă, şi bunuri, există o cantitate uriaşă de pieţe de futuresuri în stocuri şi titluri de valoare. Se poate cumpăra opţiuni, care dau dreptul dar nu şi obligaţia, de a cumpăra sau vinde valori mobiliare la un preţ fix în viitor. Opţiunea de cumpărare dă dreptul de a cumpăra titluri de valoare (valută sau marfă), la un preţ specificat într-o anumită perioadă de timp. Optiune de vinzare dă dreptul de a vinde un activ la un preţ specificat într-o anumită perioadă de timp. Aceste optiuni permit organizaţiilor să speculeze propriile investitii.
De exemplu, dacă sunteţi de părere că valoarea acţiunilor va creşte cu 100 de unităţi, puteţi cumpăra o opţiune de cumparare care acorda dreptul de a cumpara la un pret de 100 de unităţi, în speranţa de a vinde opţiunea, sau cumpara si revinde pentru o cotă parte din profit. Alternativ, puteţi scrie o opţiune de vânzare care oferă dreptul de a vinde acţiunile pentru 100 de unităţi, în cazul în care preţul de piaţă rămâne peste 100, nimeni nu poate folosi opţiunea şi veţi obţine premiul.
În schimb, dacă vă aşteptaţi ca valoarea acţiunilor care va apartine, va scădea sub preţul actual de 100 de unităţi puteţi cumpăra o opţiune de vânzare la un preţ de 100 de unităţi (sau mai mare) în cazul în care preţul scade, puteţi vinde în continuare actiunile dvs. la acest preţ. Alternativ, puteţi scrie o opţiune de apel, care dă dreptul oricui de a cumpăra acţiuni la pretul de 100 unităţi: în cazul în care preţul de piaţă al activului suport rămâne mai jos de pretul la opţiunile de utilizare sau preţul de exercitare, nimeni nu va cumpăra o opţiune, şi veţi primi premiul.
Swap-uri
Opţiunile sunt doar un singur tip de instrument derivat, bazat pe alte costuri de bază. Multe firme de azi inchee acorduri asupra operaţiunilor de swap valutar şi swap pe rata dobânzii cu alte companii sau institutii financiare. De exemplu, compania franceză care poate să împrumute franci, la o rată redusă, dar care are nevoie, de asemenea si de Yeni japonezi, pot intra într-un swap cu o companie japoneză de poziţie opusă. Astfel de swap valutar, creat pentru a atinge rata dobânzii de economii, desigur, poate sa fie supusa la riscul cursului de schimb. O companie cu o mulţime de datorii la dobândă fixă poate alege să facă schimb de împrumuturile lor către alte companii cu rate variabile.
1a Vocabulary
Match up the following words and definition
1 futures
2 options
3 commodities
4 derivatives
5 hedging
6 speculation
A contracts giving the right, but not the obligation, to buy or sell a security, a currency, or a commodity at a fixed price during a certain period of time
B contracts to buy or sell fixed quantities of a commodity, currency, or financial asset at a future date, at a price fixed at the time of making the contract
C a general name for all financial instruments whose price depends on the movement of another price
D buying securities or other assets in the hope of making a capital gain by selling them at a higher price (or selling them in a hope of buying them back at a lower price)
E making contracts to buy or sell a commodity or financial asset at a pre-arranged price in the future as a protection or ‘insurance’ against price changes
F raw materials or primary products (metals, cereals, coffee, etc.) that are traded on special markets
Key 1B, 2A, 3F, 4C, 5E, 6D
1b Reading
Select ten or eleven of following words that you would expect to find in an introductory text about futures and options.
Assets, beer, bush, call, commodities, contracts, cooper, currencies, discount, discount store, foodstuffs, hedge, liabilities, plastic, phone, raw materials, shout, spot market, supermarket, tea
Key: Assets, call, commodities, contracts, currencies, discount, discount store, hedge, liabilities, raw materials, shout, spot market
1с Summarizing
Complete the following sentences
1. The difference between futures and forward contracts is…
2. Producers and buyers often choose the hedge because…
3. Speculators can make money on currency futures if…
4. If you believe that the share price will rise, possible option strategies include…
5. On the contrary if you think a share price will fall, possible option strategies include…
6. The risk with currency and interest rate swaps is that…
Key:
1. …that futures are standardized deals for fixed quantities and time periods, and forward contracts are individual, non-standart.
2. …in order to guarantee next season’s prices
3. …they anticipate currency appreciations or depreciations, or interest rate movements
4. …buying a call option giving the right to buy at fixed price, hopping to sell this option, or to buy and resell the share at a profit
5. … buying a put option at 1fixed price (or higher): if the price falls, you can still sell your shares at this price
6. …exchange rate fluctuation.
1d Vocabulary
Find words in the text that are in an obvious sense the opposite of the terms below
Appreciate, call, discount, drought, floating, hedging, spot market, strike price
Key:
Devaluate, option, growth, flood, fixed, confront, futures market, price above
The Danger of Derivatives
In the mid-1990s, various companies, local governments and financial institutions made spectacular losses with derivatives. The most famous was Barings Bank, which was bankrupted when a single trader in Singapore lost over $1 billion by speculating disastrously on futures and options on the Nikkei 225 stock index, which is traded in Osaka and Singapore. You will hear an extract from a talk by a financial journalist about what companies and banks can do to prevent such losses.
Lillian Chew originally from Malaysia, was formely editor of “Risk” magazine in London, and is the author of “Managing Derivative Risk”
2a Listening
Listen to Part One of the talk by Lillian Chew, and then decide whether the following statement are TRUE or FALSE, according to what she says.
1. The fault lies with the banks who sell derivatives rather than the buyers.
2. Companies have lost money with derivatives because they took on risks they didn’t understand.
3. Companies have used derivatives for purposes other than those they were designed for.
4. Companies ought to use the same derivative for both hedging and speculating.
2b Vocabulary
Read the following extract from the talk while listening to Part Two, and then match up the expressions in italics with the definitions or synonyms below.
If it’s the hedge your manager it passively, you don’t worry too much if rates move against you or in your favour. If it’s not a hedge, if it’s to take on, if a derivate is used to (1) take on risk, to increase returns, then it requires a more (2) bands-on management approach. You need (3) stop-loss limits , you need to conduct (4) scenario analyses to see how that transaction behaves under various conditions, you need to conduct (5) sensitivity analyses to see … what market conditions they’re most sensitive to. And then you have to judge whether the P&L impact of what transaction can be (6) withstood in the firm. Or as in P&G’s case whether cost savings generated are worth the (7) open-ended exposure. I think there is also a need for management to give the front line personnel relevant guidelines for all activities.
I think the industry realizes that it has to police itself. I think that they realize if they don’t police themselves the regulators will come on, on them. I think that’s why we’ve seen the framework for (8) voluntary oversight from the SEC-registered companies as well as ISDA’s code of conduct, as well as the Bankers’ Trust-Federal Reserve sales agreement. I think all these codes of conduct embody the principle that the major risk of a transaction have to be explained to customers, and that sensitivity and scenario analyses are offered (9) unsolicited to customers, and that these analyses should be done as objectively as possible.
A a study of all the potential consequences of a derivative contract
B a study of the particular market changes which could affect the outcome of a derivative contract
C active, interventionary
D even if nobody asks for it
E restrictions on the amount you can lose if the underlying price changes
F self-regulation by the financial industry
G speculate
H supported
I unlimited risk
Key: 1G 2I 3E 4A 5B 6H 7F 8C 9D
2c Comprehension
Listen to Part Three of the talk and answer these questions.
1. Lillian Chew says that the image of the derivatives industry has been tarnished or damaged, but this is a good thing. Why?
2. Which of the following does Lillian Chew say?
A. Front line financial managers and derivatives traders must explain derivative use to senior management.
B. Senior management must explain derivative use to front line financial managers.
C. Senior management alone must determine derivative policy.
D. Senior management and front line managers together must determine derivative policy
2d Discussion
1. What particular skills do you think financial managers, investment advisers, securities traders, and professional speculators need?
2. Do you think you possess them? Would you be successful in any of these careers?
3. Do you like taking risks or working under stress?
4. Would you be prepared to try to sell financial instruments which contained potential risks that customers may misunderstand or underestimate?
2e Reading
Read following extract from Liar’s Poker, Michael Lewis’s book about his time as a bond salesman in large American investment bank, which explains the attraction of options and futures to speculators.
What is Lewis’s view of European investors?
Several dozen phone lights flashed continually on our telephone boards. European investors (I shall refer to the them as ‘investors ‘ or ‘customers’ even though most of them were pure speculators and the rest no-so-pure speculators) wanted to place their bets on the American bond market from eight in the morning until eight at night.
There was good reason for their eagerness. The American bond market was shooting through the roof. Imagine how crowds would overwhelm a casino in which everyone who plays win big, and you’ll have some idea of what our unit was like in those days. The attraction of option and futures, our speciality item, was that they offered both liquidity and fantastic leverage. They were a mechanism for gambling in the bond markets, like superchips in a casino that represent a thousand dollars but cost only three. In fact, there are no superchips in casinos: option and futures have no equivalent in the world of professional gambling because real casinos would consider the leverage they offer imprudent. For a tiny down-payment, a buyer of a futures contract takes the same risk as in owning a large number of bonds; in a heartbeat he can double or lose his money.
When it came to speculation, European investors didn’t require a great deal of encouragement or instruction. They’d been doing crazy things with money for centuries. The French and English, in particular, shared a weakness for get-rich-quick schemes.
(Michael Lewis: liar’s Poker)
2f Comprehension
1. What do you think Lewis means when he says of his customers that most of them were pure speculators and the rest not-so-pure speculators?
2. In transactions such as these, what is leverage?
3. Why is there no equivalent of futures or options in the gambling industry?
Key:
1. I think that under the word “pure speculators” Lewis understood the most risky investors, people who can parlay everything they own, and “not-so-pure” are more sane people.
2. Leverage is an attractive profit which can be obtained after some financial operations.
3. Because futures and options can quarantee the winner future profit from this securities.
I Watch the video and answer following questions:
1. For whom were created derivatives?
a) Banks, investors, corporations
b) Markets
c) Labour unions
2. What was the goal of creating derivatives?
a) To fix interest rate
b) To increase investment’s level
c) To manage risk
3. Derivatives are – financial … between 2 groups:
a) Agreement
b) Solution
c) Arrangement
4. On what are based payments to one of these parties?
5. What items can include?
6. Make-up sentences from the following expressions:
agree, that, We, favor, will, you, meet, next, we, time, the, return, the
7. Finish-up sentence
We sign…….
8. On what price you will give me a cup of coffee if we make a future deal at the moment?
9. What means derivatives relatively to prices of commodities in the future?
10. What are types of derivatives?
II. Explain the following expressions, relatively to video:
1) Option contracts
2) Forward contracts
3) Future/swap
4) Currency risks
5) Unforeseen risks
6) Leverage
7) Derivative
8) Options
9) Financial arrangements
10) A set price
III. True/false questions:
a) Derivatives were created to help banks, investors and corporations, to manage risk.
b) Derivatives are the financial arrangements between 100 groups.
c) Items can include: commodities, corporate bonds, currency, government debt, interest rates, mortgages, stocks.
d) Payments to one of these parties are made based of the performance of an current price of on item.
e) Derivatives are just a bet that something will be worth the same at some point in he future.
f) For the most part derivatives are managed by computers because of their complexity.
g) Complexity is not the option of derivatives.
h) A forward contract (future/swap) forces the buyer and seller to make a trade on a specific date in the future, and at a set price.
i) An option gives the buyer obligation to buy or sell something at a predefined price, until a specific date.
j) There exist 10 types of derivatives.
FUTURES, OPTIONS AND SWAPS
Futures
Every weekday, enormous amounts of commodities, currencies and financial securities are traded for immediate delivery at their current price on spot markets. Yet there are also futures markets on which contracts can be made to buy and sell commodities, currencies an various financial assets, at a future date (e.g. 25 tons of copper to be delivered next June 30) are called futures; individual, non-standard, “over-the-counter” deals between two parties (e.g. 1.7 billion yen to be exchanged for dollars on September 15, at a rate set today) are called forward contracts.
Hedging and speculating
Futures, options and other derivatives exist in order that companies and individuals may attempt to diminish the effects of, or profit from, future changes in commodity and asset prices, exchange rates, interest rates, and so on. For example, the prices of foodstuffs such as wheat, maize, cocoa, coffee, tea and orange juice are frequently affected by droughts, floods and other extreme conditions. Consequently many producers and buyers of raw materials want to hedge, in order to guarantee next season’s prices. When commodity prices are expected to rise, future prices are obviously higher than (at a premium on) spot prices; when they are expected to fall they are at a discount on spot prices.
In recent years, especially since financial deregulation, exchange rates and interest rates have also fluctuated wildly. Many businesses, therefore, want to buy or sell currencies at a guaranteed future price. Speculators, anticipating currency appreciations or depreciations, or interest rate movements, are also active in currency futures markets, such as the London International Financial Futures Exchange (LIFFE, pronounced ‘life’).
Options
As well as currencies and commodities, there is now a huge futures market in stocks and shares. One can buy options giving the right – but not the obligation – to buy and sell securities at a fixed price in a future. A call option gives the right to buy securities ( or a currencies, or a commodity) at a certain price during a certain period of time. A put option gives the right to sell an asset at a certain price during a certain period of time. These options allow organizations to hedge their equity investments.
For example, if you think a share worth 100 will rise, you can buy a call option giving the right to buy at 100, hopping to sell this option, or to buy and resell the share at a profit. Alternatively, you can write a put option giving someone else the right to sell the shares at 100: if the market price remains above 100, no one will exercise the option, so you earn the premium.
On the contrary, if you expect the value of a share that you own to fall below its current price of 100, you can buy a put option at 100 (or higher): if the price falls, you can still sell your shares at this price. Alternatively, you could write a call option giving someone else the right to buy the share at 100: if the market price of the underlying security remains below the option’s exercise price or strike price, no-one will take up the options, and you earn the premium.
Swaps
Options are merely one type of derivative instrument, based on another underlying price. Many companies nowadays also arrange currency swaps and interest rate swaps with other companies or financial institutions. For example, a French company that can borrow francs at a preferential rate, but which also needs yen, can arrange a swap with a Japanese company in the opposite position. Such currency swaps, designed to achieve interest rate savings, are of course open to the risk of exchange rate fluctuations. A company with a lot of fixed interest debt might choose to exchange some of it for another company’s floating rate loans. Whether they save or lose money will depend on the movement of interest rates.
Фьючерсы, опции и свопы.
Фьючерсы.
Каждый будний день огромное количество товаров, валюты и финансовых бумаг продаётся для моментальной доставки по их текущей цене на рынки наличного товара.
Так же существуют рынки фьючерсов, на которых могут заключаться контракты покупки-продажи товаров, валюты и различных финансовых бумаг в будущем (например на три, шесть, девять месяцев вперёд), но по установленной цене во время сделки. Стандартизированные сделки для установленных объёмов и временных периодов (например 25 тонн меди должны быть доставлены 30 Июня) называются фьючерсами; индивидуальные, не стандартизированные, продаваемые в розницу сделки между двумя сторонами (например 1,7 миллиардов йен должны быть обменяны на доллары 15 сентября, по текущему курсу валют) называются форвардами.
Хеджирование и спекулирование.
Фьючерсы, опции и другие производные существуют для того чтобы товары и физические лица могут пытаться уменьшить эффекты, или доход от будущих изменений в ценах товаров и активов, курса обмена, процентной ставки и т.д. Например, на цены на базовые продукты, такие как пшеница, кукуруза, какао, чай и апельсиновый сок, часто влияют засухи, потопы и другие экстремальные погодные условия. Поэтому многие производители и покупатели сырья хотят хеджировать, для гарантирования цен в следующем сезоне.
Опционы
Также как и валюта, и товары существует огромное количество фьючерных рынков в акциях и ценных бумагах. Одни могут покупать опционы, дающие право, но не обязанность, покупать и продавать ценные бумаги по фиксированной цене в будущем. Опцион на покупку дает право покупать ценные бумаги(валюту или товар) по определенной цене в течении определенного периода времени.
Опцион на продажу дает право продавать актив по определенной цене в течении определенного периода времени. Эти опционы позволяют организациям хеджировать их собственные инвестиции.
Например, если вы думаете, что ценность акции увеличится на 100 единиц, вы можете купить опцион на покупку, дающий право купит по цене 100 единиц, надеясь, продать этот опцион или купить и перепродать акцию для дохода. Альтернативно , вы можете выписать опцион на продажу, дающий кому-либо еще право продавать акции за 100 единиц, если цена на рынке остается выше 100, никто не сможет использовать опцион и вы получаете премию.
Наоборот, если вы ожидаете, что ценность акции, которой вы владеете, упадет ниже ее текущей цены в 100 единиц вы можете купить опцион на продажу по цене в 100 единиц( или выше), если цена падает, вы все еще можете продать ваши акции по этой цене. Альтернативно, вы можете выписать опцион на покупку, дающий кому-либо право покупать акции по цене100 единиц: если рыночная цена базового актива остается ниже использованной опционной цены или цены страйк, никто не выкупит опцион, и вы получите премию.
Свопы
Опционы только один вид производного инструмента, основанные на другой базовой цене. Многие фирмы на сегодняшний день договариваются о валютных свопах и свопах процентной ставки с другими фирмами или финансовыми организациями. Например, французская компания, которая может взять в ссуду франки по льготной ставке, но которой так же нужны Йены, может заключить своп с японской компанией по противоположной позиции. Такие валютные свопы, созданные чтобы достигнуть сбережений процентной ставки, конечно же могут подвергаться изменениям обменного риска. Компания с большим количеством фиксированных процентных долгов может выбрать обмен их на ссуды других компаний с плавающими ставками.
Futures, opţiuni şi swap-uri.
Futures.
În fiecare zi o mare cantitate de mărfuri, valută, titluri financiare este vânduta pentru livrare imediata la preţurile lor actuale de pe piaţa spot.
La fel există pieţe futures,pe care se pot încheia contracte de cumpărare şi vânzare de mărfuri, valute şi diverselor active financiare în viitor (de exemplu, pentru trei, şase, nouă luni înainte), dar la un preţ stabilit în timpul unei tranzacţii. Tranzacţiile standardizate care stabilesc perioadele de măsură şi de timp (de exemplu, 25 de tone de cupru trebuie să fie livrat pe 30 iunie) sunt numite futures, tranzacţiile individuale, nestandardizate, în cadrul carora se vinde cu amănuntul între două părţi (cum ar fi 1.7 miliarde de yeni pentru a fi schimbate in dolari SUA pe 15 septembrie la rata de schimb actuala) sunt numite forward.
Acoperire şi speculaţii.
Futures, opţiuni şi alte derivate există pentru a se asigura că bunurile şi persoanele fizice sa poata încerca să reducă efectele, sau veniturile urmate din modificările viitoare ale preţurilor de bunuri şi active, rata de schimb, ratele dobânzilor, etc. De exemplu, preţul alimentelor de bază, precum grâul, porumbul, cacao, ceai şi sucul de portocale, este adesea influenţat de secetă, inundaţii şi alte condiţii meteorologice extreme. Prin urmare, mulţi producători şi cumpărători doresc să speculeze materii prime, pentru a garanta preţurile pentru sezonul următor. Atunci când este de aşteptat ca preţurile materiilor prime vor creşte, preţurile in viitor vor fi mai mari decât în mod obisnuit (la o primă ) decât preţurile bunurilor disponibile în stoc.
În ultimii ani, mai ales că dereglementarea financiară, ratele de schimb şi ratele dobânzilor fluctuiaza, de asemenea salbatic. Astfel multe companii doresc să cumpere sau să vândă valută la un preţ viitor garantat. Speculatorii care aşteaptă să crească sau să scadă valoarea monedei sau modificările ratei dobânzii, la fel sunt activi pe pieţele de futures internaţionale, cum ar fi Schimbul International de Futures financiare din Londra.
Opţiuni
Ca si monedă, şi bunuri, există o cantitate uriaşă de pieţe de futuresuri în stocuri şi titluri de valoare. Se poate cumpăra opţiuni, care dau dreptul dar nu şi obligaţia, de a cumpăra sau vinde valori mobiliare la un preţ fix în viitor. Opţiunea de cumpărare dă dreptul de a cumpăra titluri de valoare (valută sau marfă), la un preţ specificat într-o anumită perioadă de timp. Optiune de vinzare dă dreptul de a vinde un activ la un preţ specificat într-o anumită perioadă de timp. Aceste optiuni permit organizaţiilor să speculeze propriile investitii.
De exemplu, dacă sunteţi de părere că valoarea acţiunilor va creşte cu 100 de unităţi, puteţi cumpăra o opţiune de cumparare care acorda dreptul de a cumpara la un pret de 100 de unităţi, în speranţa de a vinde opţiunea, sau cumpara si revinde pentru o cotă parte din profit. Alternativ, puteţi scrie o opţiune de vânzare care oferă dreptul de a vinde acţiunile pentru 100 de unităţi, în cazul în care preţul de piaţă rămâne peste 100, nimeni nu poate folosi opţiunea şi veţi obţine premiul.
În schimb, dacă vă aşteptaţi ca valoarea acţiunilor care va apartine, va scădea sub preţul actual de 100 de unităţi puteţi cumpăra o opţiune de vânzare la un preţ de 100 de unităţi (sau mai mare) în cazul în care preţul scade, puteţi vinde în continuare actiunile dvs. la acest preţ. Alternativ, puteţi scrie o opţiune de apel, care dă dreptul oricui de a cumpăra acţiuni la pretul de 100 unităţi: în cazul în care preţul de piaţă al activului suport rămâne mai jos de pretul la opţiunile de utilizare sau preţul de exercitare, nimeni nu va cumpăra o opţiune, şi veţi primi premiul.
Swap-uri
Opţiunile sunt doar un singur tip de instrument derivat, bazat pe alte costuri de bază. Multe firme de azi inchee acorduri asupra operaţiunilor de swap valutar şi swap pe rata dobânzii cu alte companii sau institutii financiare. De exemplu, compania franceză care poate să împrumute franci, la o rată redusă, dar care are nevoie, de asemenea si de Yeni japonezi, pot intra într-un swap cu o companie japoneză de poziţie opusă. Astfel de swap valutar, creat pentru a atinge rata dobânzii de economii, desigur, poate sa fie supusa la riscul cursului de schimb. O companie cu o mulţime de datorii la dobândă fixă poate alege să facă schimb de împrumuturile lor către alte companii cu rate variabile.
1a Vocabulary
Match up the following words and definition
1 futures
2 options
3 commodities
4 derivatives
5 hedging
6 speculation
A contracts giving the right, but not the obligation, to buy or sell a security, a currency, or a commodity at a fixed price during a certain period of time
B contracts to buy or sell fixed quantities of a commodity, currency, or financial asset at a future date, at a price fixed at the time of making the contract
C a general name for all financial instruments whose price depends on the movement of another price
D buying securities or other assets in the hope of making a capital gain by selling them at a higher price (or selling them in a hope of buying them back at a lower price)
E making contracts to buy or sell a commodity or financial asset at a pre-arranged price in the future as a protection or ‘insurance’ against price changes
F raw materials or primary products (metals, cereals, coffee, etc.) that are traded on special markets
Key 1B, 2A, 3F, 4C, 5E, 6D
1b Reading
Select ten or eleven of following words that you would expect to find in an introductory text about futures and options.
Assets, beer, bush, call, commodities, contracts, cooper, currencies, discount, discount store, foodstuffs, hedge, liabilities, plastic, phone, raw materials, shout, spot market, supermarket, tea
Key: Assets, call, commodities, contracts, currencies, discount, discount store, hedge, liabilities, raw materials, shout, spot market
1с Summarizing
Complete the following sentences
1. The difference between futures and forward contracts is…
2. Producers and buyers often choose the hedge because…
3. Speculators can make money on currency futures if…
4. If you believe that the share price will rise, possible option strategies include…
5. On the contrary if you think a share price will fall, possible option strategies include…
6. The risk with currency and interest rate swaps is that…
Key:
1. …that futures are standardized deals for fixed quantities and time periods, and forward contracts are individual, non-standart.
2. …in order to guarantee next season’s prices
3. …they anticipate currency appreciations or depreciations, or interest rate movements
4. …buying a call option giving the right to buy at fixed price, hopping to sell this option, or to buy and resell the share at a profit
5. … buying a put option at 1fixed price (or higher): if the price falls, you can still sell your shares at this price
6. …exchange rate fluctuation.
1d Vocabulary
Find words in the text that are in an obvious sense the opposite of the terms below
Appreciate, call, discount, drought, floating, hedging, spot market, strike price
Key:
Devaluate, option, growth, flood, fixed, confront, futures market, price above
The Danger of Derivatives
In the mid-1990s, various companies, local governments and financial institutions made spectacular losses with derivatives. The most famous was Barings Bank, which was bankrupted when a single trader in Singapore lost over $1 billion by speculating disastrously on futures and options on the Nikkei 225 stock index, which is traded in Osaka and Singapore. You will hear an extract from a talk by a financial journalist about what companies and banks can do to prevent such losses.
Lillian Chew originally from Malaysia, was formely editor of “Risk” magazine in London, and is the author of “Managing Derivative Risk”
2a Listening
Listen to Part One of the talk by Lillian Chew, and then decide whether the following statement are TRUE or FALSE, according to what she says.
1. The fault lies with the banks who sell derivatives rather than the buyers.
2. Companies have lost money with derivatives because they took on risks they didn’t understand.
3. Companies have used derivatives for purposes other than those they were designed for.
4. Companies ought to use the same derivative for both hedging and speculating.
2b Vocabulary
Read the following extract from the talk while listening to Part Two, and then match up the expressions in italics with the definitions or synonyms below.
If it’s the hedge your manager it passively, you don’t worry too much if rates move against you or in your favour. If it’s not a hedge, if it’s to take on, if a derivate is used to (1) take on risk, to increase returns, then it requires a more (2) bands-on management approach. You need (3) stop-loss limits , you need to conduct (4) scenario analyses to see how that transaction behaves under various conditions, you need to conduct (5) sensitivity analyses to see … what market conditions they’re most sensitive to. And then you have to judge whether the P&L impact of what transaction can be (6) withstood in the firm. Or as in P&G’s case whether cost savings generated are worth the (7) open-ended exposure. I think there is also a need for management to give the front line personnel relevant guidelines for all activities.
I think the industry realizes that it has to police itself. I think that they realize if they don’t police themselves the regulators will come on, on them. I think that’s why we’ve seen the framework for (8) voluntary oversight from the SEC-registered companies as well as ISDA’s code of conduct, as well as the Bankers’ Trust-Federal Reserve sales agreement. I think all these codes of conduct embody the principle that the major risk of a transaction have to be explained to customers, and that sensitivity and scenario analyses are offered (9) unsolicited to customers, and that these analyses should be done as objectively as possible.
A a study of all the potential consequences of a derivative contract
B a study of the particular market changes which could affect the outcome of a derivative contract
C active, interventionary
D even if nobody asks for it
E restrictions on the amount you can lose if the underlying price changes
F self-regulation by the financial industry
G speculate
H supported
I unlimited risk
Key: 1G 2I 3E 4A 5B 6H 7F 8C 9D
2c Comprehension
Listen to Part Three of the talk and answer these questions.
1. Lillian Chew says that the image of the derivatives industry has been tarnished or damaged, but this is a good thing. Why?
2. Which of the following does Lillian Chew say?
A. Front line financial managers and derivatives traders must explain derivative use to senior management.
B. Senior management must explain derivative use to front line financial managers.
C. Senior management alone must determine derivative policy.
D. Senior management and front line managers together must determine derivative policy
2d Discussion
1. What particular skills do you think financial managers, investment advisers, securities traders, and professional speculators need?
2. Do you think you possess them? Would you be successful in any of these careers?
3. Do you like taking risks or working under stress?
4. Would you be prepared to try to sell financial instruments which contained potential risks that customers may misunderstand or underestimate?
2e Reading
Read following extract from Liar’s Poker, Michael Lewis’s book about his time as a bond salesman in large American investment bank, which explains the attraction of options and futures to speculators.
What is Lewis’s view of European investors?
Several dozen phone lights flashed continually on our telephone boards. European investors (I shall refer to the them as ‘investors ‘ or ‘customers’ even though most of them were pure speculators and the rest no-so-pure speculators) wanted to place their bets on the American bond market from eight in the morning until eight at night.
There was good reason for their eagerness. The American bond market was shooting through the roof. Imagine how crowds would overwhelm a casino in which everyone who plays win big, and you’ll have some idea of what our unit was like in those days. The attraction of option and futures, our speciality item, was that they offered both liquidity and fantastic leverage. They were a mechanism for gambling in the bond markets, like superchips in a casino that represent a thousand dollars but cost only three. In fact, there are no superchips in casinos: option and futures have no equivalent in the world of professional gambling because real casinos would consider the leverage they offer imprudent. For a tiny down-payment, a buyer of a futures contract takes the same risk as in owning a large number of bonds; in a heartbeat he can double or lose his money.
When it came to speculation, European investors didn’t require a great deal of encouragement or instruction. They’d been doing crazy things with money for centuries. The French and English, in particular, shared a weakness for get-rich-quick schemes.
(Michael Lewis: liar’s Poker)
2f Comprehension
1. What do you think Lewis means when he says of his customers that most of them were pure speculators and the rest not-so-pure speculators?
2. In transactions such as these, what is leverage?
3. Why is there no equivalent of futures or options in the gambling industry?
Key:
1. I think that under the word “pure speculators” Lewis understood the most risky investors, people who can parlay everything they own, and “not-so-pure” are more sane people.
2. Leverage is an attractive profit which can be obtained after some financial operations.
3. Because futures and options can quarantee the winner future profit from this securities.
I Watch the video and answer following questions:
1. For whom were created derivatives?
a) Banks, investors, corporations
b) Markets
c) Labour unions
2. What was the goal of creating derivatives?
a) To fix interest rate
b) To increase investment’s level
c) To manage risk
3. Derivatives are – financial … between 2 groups:
a) Agreement
b) Solution
c) Arrangement
4. On what are based payments to one of these parties?
5. What items can include?
6. Make-up sentences from the following expressions:
agree, that, We, favor, will, you, meet, next, we, time, the, return, the
7. Finish-up sentence
We sign…….
8. On what price you will give me a cup of coffee if we make a future deal at the moment?
9. What means derivatives relatively to prices of commodities in the future?
10. What are types of derivatives?
II. Explain the following expressions, relatively to video:
1) Option contracts
2) Forward contracts
3) Future/swap
4) Currency risks
5) Unforeseen risks
6) Leverage
7) Derivative
8) Options
9) Financial arrangements
10) A set price
III. True/false questions:
a) Derivatives were created to help banks, investors and corporations, to manage risk.
b) Derivatives are the financial arrangements between 100 groups.
c) Items can include: commodities, corporate bonds, currency, government debt, interest rates, mortgages, stocks.
d) Payments to one of these parties are made based of the performance of an current price of on item.
e) Derivatives are just a bet that something will be worth the same at some point in he future.
f) For the most part derivatives are managed by computers because of their complexity.
g) Complexity is not the option of derivatives.
h) A forward contract (future/swap) forces the buyer and seller to make a trade on a specific date in the future, and at a set price.
i) An option gives the buyer obligation to buy or sell something at a predefined price, until a specific date.
j) There exist 10 types of derivatives.
Tuesday, December 7, 2010
Central banking,money and taxation
1. Central banking. Gabriel Mongano is an economics research student ,
specializing in monetary policy. You will hear him outlining the functions of a central
bank ,and discussing whether it should be independent from the government, and run by bankers ,or under the control of the government.
1a Discussion
Do you know whether the central bank in your country is independent?
What about these banks? Do you know if they are independent?
1. the Bank of England
2. the Federal Reserve Board(USA)
3. the Bundesbank (Germany)
4. the Japanese central bank
5. the Chinese central bank
1c Vocabulary
Read the six sentences below, which also summarize central banking functions, but slightly
Differently, and match them with the six expressions you have written in 1b.
A controlling the amount of banknotes in circulation
B establishing maximum and minimum lending rates, thereby controlling the credit system
C ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their
deposits when they want
D intervening on foreign exchange markets, buying or selling large amounts of the national
currency, to prevent major fluctuations
E lending money to a commercial bank in danger of going bankrupt
F selling government bonds to commercial banks or buying them back, in order to alter the
amount of credit the banks can offer (and thereby alter the money supply)
1e Discussion
Does (or would) the government in your country exploit the ‘political business cycle’ by
increasing the money supply or government spending, or lowering taxes, in order to increase economic activity in the months before an election, despite the long-term inflationary consequences?
Do you agree that central banks should be controlled by (unelected) bankers rather than by elected governments – which will often do everything possible to get reelected?
Do you agree that price stability (i.e. keeping inflation low ) is more important than other economic aims, such as attempting to reduce unemployment?
2 Taxation
2a Discussion
Benjamin Franklin, who wrote that ‘In this world nothing cam be said to be certain except death and taxes!’
The last sum of money you received had probably already been taxed, or will be liable to taxation, depending on which country you are in. Similarly, the last sum of money you spent probably included a percentage of tax.
Make a list of all the different types of taxes you can think of. If you do not know the actual names, try to describe the different taxes, e.g. ‘Tax you pay if you import something from another continent,’ and so on.
2b Vocabulary
Which terms do the following sentences define?
1. The tax people pay on their wages and salaries is called
A capital transfer tax B income tax C wealth tax
2. A tax on the wages and salaries or on company profits is a
A direct tax B indirect tax C value-added tax
3. A tax levied at a higher rate on higher incomes is called a
A progressive tax B regressive tax C wealth tax
4. A tax paid on property, sales transactions, imports, and so on is a / an
A direct tax B indirect tax C value-added tax
5. A tax collected at each stage of production, excluding the already-taxed costs from prvious
stages, is called a / an
A added-value tax B sales tax C value-added tax
6. Profits made by selling assets are generally liable to a
A capital gains tax B capital transfer tax C wealth tax
7. Gifts and inheritances over a certain value are often liable to a
A capital gains tax B capital transfer tax C wealth tax
8. The annual tax imposed on people’s fortunes (in some countries) is a / an
A added-value tax B capital gains tax C wealth tax
9. Making false declarations to the tax authorities is called
A fiscal policy B tax avoidance C tax evasion
10. Reducing the amount of tax you pay to a legal minimum is called
A creative accounting B tax avoidance C tax evasion
Taxation (and how to avoid it!)
A The primary function of taxation is, of course,to raise revenue to finance government expenditure, but taxes can also have other purpoces.Indirect excise duties, for example, can be designed to dissuade people from smoking , drinking alcohol,and so on.Governnment can also encourage capital investment by permitting various methods of accelerated depreciation accounting that allow compnies to deduct more of the cost of investments from their profits, and consequently reduce their tax bills.
B There is always a lot of debate as to the fairness of tax systems.Business profits ,for example,argenerally taxed twice:companies paytax on their profits, and share holders pay income tax on dividends.Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.The problem with progressive taxes is that the marginal rate –the tax people pay on any additional income –is always high, which isgenerally a a disincentive to both working and investing.On the other hand, most sales taxes are slightly regressive, because poorer people need to spend a larger proportion of their income on consumtion that the rich.
C The higher the tax rates the more people are tempted to cheat , but there is a substantial ‘’black’’ or ’’underground’’ economy nearly everywhere.In Italy , for example, self –employed people –account for more than half of nation income.Lots of people also have undeclared , part-time evening jobs,with small and medium-sized family firms, on which no one pays any tax or national insurance.At the end 1986, the director of Italian Nation Institude of Statistic calculated the sized of the underground economy. And added 16.7% to Italy’s gross national product(GNP),figure, and then claimed that Italy had other taken Britain to become the world’s fifth largest economy.
D To reduce income tax liability, some employers give highly-pays employees lots of ‘’perks’’ instead of taxable money, such as company cars, free health insurance ,and subsidies lunches.
Traducerea
A Impozitare (şi cum să-l evite!) O Funcţia primară de impozitare este, desigur, de a creste veniturile pentru finanţarea cheltuielilor guvernamentale, dar taxele pot avea, de asemenea, alte accize purpoces.Indirect, de exemplu, pot fi proiectate pentru a descuraja oamenii din fumatul, consumul de alcool, şi aşa mai departe.Governnment pot încuraja, de asemenea, investiţii de capital prin permiterea diverse metode de amortizare accelerată contabile care permit compnies de a deduce mai mult de costurile investiţiilor din profiturile lor, şi, prin urmare, reduce facturile fiscale.
B Există întotdeauna o mulţime de dezbatere cu privire la corectitudinea systems.Business taxa de profit, de exemplu, argenerally taxat de două ori pe paytax lor, profitul şi cota de titularii de companiile plătesc impozitul pe venit pe impozitele dividends.Income cel mai mult în ţări sunt progresive, şi sunt unul dintre modurile în care guvernele pot redistribui problemă wealth.The cu impozite progresive este aceea că oamenii marginal rata de-plata impozitului pe orice venituri suplimentare, este întotdeauna de mare, care in general descurajează atât lucrul şi de investiţiile.
Pe de altă parte, cele mai multe taxe de vânzare sunt uşor regresiv, pentru că oamenii mai săraci au nevoie să-şi petreacă o proporţie mai mare din venitul lor pe consumtion că cei bogaţi.
C mai mari rate de impozitare mai mulţi oameni sunt tentaţi să trişeze, dar există o substanţială ‘’black’’ sau ’’underground’’ economie de aproape oriunde .In Italia, de exemplu, persoane care desfăşoară activităţi independente-cont pentru mai mult de jumătate din income.Majoritatea firmelorde fimiliilor, de asemenea, au nedeclarate, part-time de locuri de muncă seara, cu mici şi întreprinderilor mici şi mijlocii de familie, pe care nimeni nu plăteşte nici un impozit sau asigurare.At naţionale la sfârşitul 1986, directorul de italian Nation Institude de Statistică a calculat mijlocul a economiei subterane .Si a adăugat 16,7% în Italia, produsul naţional brut (PNB ), figura, iar apoiItalia a susţinut că a avut alte luate Marea Britanie pentru a deveni economia cea mai mare a cincea.
D Pentru a reduce impozitului pe venit, unele empoyers da o mulţime foarte Pais angajaţi de avantaje "perks" în loc de bani impozabile, cum ar fi maşini de serviciu, de asigurări de sănătate gratuit, şi şi prânzuri de subvenţii.
specializing in monetary policy. You will hear him outlining the functions of a central
bank ,and discussing whether it should be independent from the government, and run by bankers ,or under the control of the government.
1a Discussion
Do you know whether the central bank in your country is independent?
What about these banks? Do you know if they are independent?
1. the Bank of England
2. the Federal Reserve Board(USA)
3. the Bundesbank (Germany)
4. the Japanese central bank
5. the Chinese central bank
1c Vocabulary
Read the six sentences below, which also summarize central banking functions, but slightly
Differently, and match them with the six expressions you have written in 1b.
A controlling the amount of banknotes in circulation
B establishing maximum and minimum lending rates, thereby controlling the credit system
C ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their
deposits when they want
D intervening on foreign exchange markets, buying or selling large amounts of the national
currency, to prevent major fluctuations
E lending money to a commercial bank in danger of going bankrupt
F selling government bonds to commercial banks or buying them back, in order to alter the
amount of credit the banks can offer (and thereby alter the money supply)
1e Discussion
Does (or would) the government in your country exploit the ‘political business cycle’ by
increasing the money supply or government spending, or lowering taxes, in order to increase economic activity in the months before an election, despite the long-term inflationary consequences?
Do you agree that central banks should be controlled by (unelected) bankers rather than by elected governments – which will often do everything possible to get reelected?
Do you agree that price stability (i.e. keeping inflation low ) is more important than other economic aims, such as attempting to reduce unemployment?
2 Taxation
2a Discussion
Benjamin Franklin, who wrote that ‘In this world nothing cam be said to be certain except death and taxes!’
The last sum of money you received had probably already been taxed, or will be liable to taxation, depending on which country you are in. Similarly, the last sum of money you spent probably included a percentage of tax.
Make a list of all the different types of taxes you can think of. If you do not know the actual names, try to describe the different taxes, e.g. ‘Tax you pay if you import something from another continent,’ and so on.
2b Vocabulary
Which terms do the following sentences define?
1. The tax people pay on their wages and salaries is called
A capital transfer tax B income tax C wealth tax
2. A tax on the wages and salaries or on company profits is a
A direct tax B indirect tax C value-added tax
3. A tax levied at a higher rate on higher incomes is called a
A progressive tax B regressive tax C wealth tax
4. A tax paid on property, sales transactions, imports, and so on is a / an
A direct tax B indirect tax C value-added tax
5. A tax collected at each stage of production, excluding the already-taxed costs from prvious
stages, is called a / an
A added-value tax B sales tax C value-added tax
6. Profits made by selling assets are generally liable to a
A capital gains tax B capital transfer tax C wealth tax
7. Gifts and inheritances over a certain value are often liable to a
A capital gains tax B capital transfer tax C wealth tax
8. The annual tax imposed on people’s fortunes (in some countries) is a / an
A added-value tax B capital gains tax C wealth tax
9. Making false declarations to the tax authorities is called
A fiscal policy B tax avoidance C tax evasion
10. Reducing the amount of tax you pay to a legal minimum is called
A creative accounting B tax avoidance C tax evasion
Taxation (and how to avoid it!)
A The primary function of taxation is, of course,to raise revenue to finance government expenditure, but taxes can also have other purpoces.Indirect excise duties, for example, can be designed to dissuade people from smoking , drinking alcohol,and so on.Governnment can also encourage capital investment by permitting various methods of accelerated depreciation accounting that allow compnies to deduct more of the cost of investments from their profits, and consequently reduce their tax bills.
B There is always a lot of debate as to the fairness of tax systems.Business profits ,for example,argenerally taxed twice:companies paytax on their profits, and share holders pay income tax on dividends.Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.The problem with progressive taxes is that the marginal rate –the tax people pay on any additional income –is always high, which isgenerally a a disincentive to both working and investing.On the other hand, most sales taxes are slightly regressive, because poorer people need to spend a larger proportion of their income on consumtion that the rich.
C The higher the tax rates the more people are tempted to cheat , but there is a substantial ‘’black’’ or ’’underground’’ economy nearly everywhere.In Italy , for example, self –employed people –account for more than half of nation income.Lots of people also have undeclared , part-time evening jobs,with small and medium-sized family firms, on which no one pays any tax or national insurance.At the end 1986, the director of Italian Nation Institude of Statistic calculated the sized of the underground economy. And added 16.7% to Italy’s gross national product(GNP),figure, and then claimed that Italy had other taken Britain to become the world’s fifth largest economy.
D To reduce income tax liability, some employers give highly-pays employees lots of ‘’perks’’ instead of taxable money, such as company cars, free health insurance ,and subsidies lunches.
Traducerea
A Impozitare (şi cum să-l evite!) O Funcţia primară de impozitare este, desigur, de a creste veniturile pentru finanţarea cheltuielilor guvernamentale, dar taxele pot avea, de asemenea, alte accize purpoces.Indirect, de exemplu, pot fi proiectate pentru a descuraja oamenii din fumatul, consumul de alcool, şi aşa mai departe.Governnment pot încuraja, de asemenea, investiţii de capital prin permiterea diverse metode de amortizare accelerată contabile care permit compnies de a deduce mai mult de costurile investiţiilor din profiturile lor, şi, prin urmare, reduce facturile fiscale.
B Există întotdeauna o mulţime de dezbatere cu privire la corectitudinea systems.Business taxa de profit, de exemplu, argenerally taxat de două ori pe paytax lor, profitul şi cota de titularii de companiile plătesc impozitul pe venit pe impozitele dividends.Income cel mai mult în ţări sunt progresive, şi sunt unul dintre modurile în care guvernele pot redistribui problemă wealth.The cu impozite progresive este aceea că oamenii marginal rata de-plata impozitului pe orice venituri suplimentare, este întotdeauna de mare, care in general descurajează atât lucrul şi de investiţiile.
Pe de altă parte, cele mai multe taxe de vânzare sunt uşor regresiv, pentru că oamenii mai săraci au nevoie să-şi petreacă o proporţie mai mare din venitul lor pe consumtion că cei bogaţi.
C mai mari rate de impozitare mai mulţi oameni sunt tentaţi să trişeze, dar există o substanţială ‘’black’’ sau ’’underground’’ economie de aproape oriunde .In Italia, de exemplu, persoane care desfăşoară activităţi independente-cont pentru mai mult de jumătate din income.Majoritatea firmelorde fimiliilor, de asemenea, au nedeclarate, part-time de locuri de muncă seara, cu mici şi întreprinderilor mici şi mijlocii de familie, pe care nimeni nu plăteşte nici un impozit sau asigurare.At naţionale la sfârşitul 1986, directorul de italian Nation Institude de Statistică a calculat mijlocul a economiei subterane .Si a adăugat 16,7% în Italia, produsul naţional brut (PNB ), figura, iar apoiItalia a susţinut că a avut alte luate Marea Britanie pentru a deveni economia cea mai mare a cincea.
D Pentru a reduce impozitului pe venit, unele empoyers da o mulţime foarte Pais angajaţi de avantaje "perks" în loc de bani impozabile, cum ar fi maşini de serviciu, de asigurări de sănătate gratuit, şi şi prânzuri de subvenţii.
Taxation (and how to avoid it!)
A The primary function of taxation is, of course,to raise revenue to finance government expenditure, but taxes can also have other purpoces.Indirect excise duties, for example, can be designed to dissuade people from smoking , drinking alcohol,and so on.Governnment can also encourage capital investment by permitting various methods of accelerated depreciation accounting that allow compnies to deduct more of the cost of investments from their profits, and consequently reduce their tax bills.
B There is always a lot of debate as to the fairness of tax systems.Business profits ,for example,argenerally taxed twice:companies paytax on their profits, and share holders pay income tax on dividends.Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.The problem with progressive taxes is that the marginal rate –the tax people pay on any additional income –is always high, which isgenerally a a disincentive to both working and investing.On the other hand, most sales taxes are slightly regressive, because poorer people need to spend a larger proportion of their income on consumtion that the rich.
C The higher the tax rates the more people are tempted to cheat , but there is a substantial ‘’black’’ or ’’underground’’ economy nearly everywhere.In Italy , for example, self –employed people –account for more than half of nation income.Lots of people also have undeclared , part-time evening jobs,with small and medium-sized family firms, on which no one pays any tax or national insurance.At the end 1986, the director of Italian Nation Institude of Statistic calculated the sized of the underground economy. And added 16.7% to Italy’s gross national product(GNP),figure, and then claimed that Italy had other taken Britain to become the world’s fifth largest economy.
D To reduce income tax liability, some employers give highly-pays employees lots of ‘’perks’’ instead of taxable money, such as company cars, free health insurance ,and subsidies lunches.
Traducerea
A Impozitare (şi cum să-l evite!) O Funcţia primară de impozitare este, desigur, de a creste veniturile pentru finanţarea cheltuielilor guvernamentale, dar taxele pot avea, de asemenea, alte accize purpoces.Indirect, de exemplu, pot fi proiectate pentru a descuraja oamenii din fumatul, consumul de alcool, şi aşa mai departe.Governnment pot încuraja, de asemenea, investiţii de capital prin permiterea diverse metode de amortizare accelerată contabile care permit compnies de a deduce mai mult de costurile investiţiilor din profiturile lor, şi, prin urmare, reduce facturile fiscale.
B Există întotdeauna o mulţime de dezbatere cu privire la corectitudinea systems.Business taxa de profit, de exemplu, argenerally taxat de două ori pe paytax lor, profitul şi cota de titularii de companiile plătesc impozitul pe venit pe impozitele dividends.Income cel mai mult în ţări sunt progresive, şi sunt unul dintre modurile în care guvernele pot redistribui problemă wealth.The cu impozite progresive este aceea că oamenii marginal rata de-plata impozitului pe orice venituri suplimentare, este întotdeauna de mare, care in general descurajează atât lucrul şi de investiţiile.
Pe de altă parte, cele mai multe taxe de vânzare sunt uşor regresiv, pentru că oamenii mai săraci au nevoie să-şi petreacă o proporţie mai mare din venitul lor pe consumtion că cei bogaţi.
C mai mari rate de impozitare mai mulţi oameni sunt tentaţi să trişeze, dar există o substanţială ‘’black’’ sau ’’underground’’ economie de aproape oriunde .In Italia, de exemplu, persoane care desfăşoară activităţi independente-cont pentru mai mult de jumătate din income.Majoritatea firmelorde fimiliilor, de asemenea, au nedeclarate, part-time de locuri de muncă seara, cu mici şi întreprinderilor mici şi mijlocii de familie, pe care nimeni nu plăteşte nici un impozit sau asigurare.At naţionale la sfârşitul 1986, directorul de italian Nation Institude de Statistică a calculat mijlocul a economiei subterane .Si a adăugat 16,7% în Italia, produsul naţional brut (PNB ), figura, iar apoiItalia a susţinut că a avut alte luate Marea Britanie pentru a deveni economia cea mai mare a cincea.
D Pentru a reduce impozitului pe venit, unele empoyers da o mulţime foarte Pais angajaţi de avantaje "perks" în loc de bani impozabile, cum ar fi maşini de serviciu, de asigurări de sănătate gratuit, şi şi prânzuri de subvenţii.
Calancea Adrian,Balan Aurel,Boestean Dorina
B There is always a lot of debate as to the fairness of tax systems.Business profits ,for example,argenerally taxed twice:companies paytax on their profits, and share holders pay income tax on dividends.Income taxes in most countries are progressive, and are one of the ways in which governments can redistribute wealth.The problem with progressive taxes is that the marginal rate –the tax people pay on any additional income –is always high, which isgenerally a a disincentive to both working and investing.On the other hand, most sales taxes are slightly regressive, because poorer people need to spend a larger proportion of their income on consumtion that the rich.
C The higher the tax rates the more people are tempted to cheat , but there is a substantial ‘’black’’ or ’’underground’’ economy nearly everywhere.In Italy , for example, self –employed people –account for more than half of nation income.Lots of people also have undeclared , part-time evening jobs,with small and medium-sized family firms, on which no one pays any tax or national insurance.At the end 1986, the director of Italian Nation Institude of Statistic calculated the sized of the underground economy. And added 16.7% to Italy’s gross national product(GNP),figure, and then claimed that Italy had other taken Britain to become the world’s fifth largest economy.
D To reduce income tax liability, some employers give highly-pays employees lots of ‘’perks’’ instead of taxable money, such as company cars, free health insurance ,and subsidies lunches.
Traducerea
A Impozitare (şi cum să-l evite!) O Funcţia primară de impozitare este, desigur, de a creste veniturile pentru finanţarea cheltuielilor guvernamentale, dar taxele pot avea, de asemenea, alte accize purpoces.Indirect, de exemplu, pot fi proiectate pentru a descuraja oamenii din fumatul, consumul de alcool, şi aşa mai departe.Governnment pot încuraja, de asemenea, investiţii de capital prin permiterea diverse metode de amortizare accelerată contabile care permit compnies de a deduce mai mult de costurile investiţiilor din profiturile lor, şi, prin urmare, reduce facturile fiscale.
B Există întotdeauna o mulţime de dezbatere cu privire la corectitudinea systems.Business taxa de profit, de exemplu, argenerally taxat de două ori pe paytax lor, profitul şi cota de titularii de companiile plătesc impozitul pe venit pe impozitele dividends.Income cel mai mult în ţări sunt progresive, şi sunt unul dintre modurile în care guvernele pot redistribui problemă wealth.The cu impozite progresive este aceea că oamenii marginal rata de-plata impozitului pe orice venituri suplimentare, este întotdeauna de mare, care in general descurajează atât lucrul şi de investiţiile.
Pe de altă parte, cele mai multe taxe de vânzare sunt uşor regresiv, pentru că oamenii mai săraci au nevoie să-şi petreacă o proporţie mai mare din venitul lor pe consumtion că cei bogaţi.
C mai mari rate de impozitare mai mulţi oameni sunt tentaţi să trişeze, dar există o substanţială ‘’black’’ sau ’’underground’’ economie de aproape oriunde .In Italia, de exemplu, persoane care desfăşoară activităţi independente-cont pentru mai mult de jumătate din income.Majoritatea firmelorde fimiliilor, de asemenea, au nedeclarate, part-time de locuri de muncă seara, cu mici şi întreprinderilor mici şi mijlocii de familie, pe care nimeni nu plăteşte nici un impozit sau asigurare.At naţionale la sfârşitul 1986, directorul de italian Nation Institude de Statistică a calculat mijlocul a economiei subterane .Si a adăugat 16,7% în Italia, produsul naţional brut (PNB ), figura, iar apoiItalia a susţinut că a avut alte luate Marea Britanie pentru a deveni economia cea mai mare a cincea.
D Pentru a reduce impozitului pe venit, unele empoyers da o mulţime foarte Pais angajaţi de avantaje "perks" în loc de bani impozabile, cum ar fi maşini de serviciu, de asigurări de sănătate gratuit, şi şi prânzuri de subvenţii.
Calancea Adrian,Balan Aurel,Boestean Dorina
Central banking,money and taxation
1. Central banking. Gabriel Mongano is an economics research student ,
specializing in monetary policy. You will hear him outlining the functions of a central
bank ,and discussing whether it should be independent from the government, and run by bankers ,or under the control of the government.
1a Discussion
Do you know whether the central bank in your country is independent?
What about these banks? Do you know if they are independent?
1. the Bank of England
2. the Federal Reserve Board(USA)
3. the Bundesbank (Germany)
4. the Japanese central bank
5. the Chinese central bank
1c Vocabulary
Read the six sentences below, which also summarize central banking functions, but slightly
Differently, and match them with the six expressions you have written in 1b.
A controlling the amount of banknotes in circulation
B establishing maximum and minimum lending rates, thereby controlling the credit system
C ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their
deposits when they want
D intervening on foreign exchange markets, buying or selling large amounts of the national
currency, to prevent major fluctuations
E lending money to a commercial bank in danger of going bankrupt
F selling government bonds to commercial banks or buying them back, in order to alter the
amount of credit the banks can offer (and thereby alter the money supply)
1e Discussion
Does (or would) the government in your country exploit the ‘political business cycle’ by
increasing the money supply or government spending, or lowering taxes, in order to increase economic activity in the months before an election, despite the long-term inflationary consequences?
Do you agree that central banks should be controlled by (unelected) bankers rather than by elected governments – which will often do everything possible to get reelected?
Do you agree that price stability (i.e. keeping inflation low ) is more important than other economic aims, such as attempting to reduce unemployment?
2 Taxation
2a Discussion
Benjamin Franklin, who wrote that ‘In this world nothing cam be said to be certain except death and taxes!’
The last sum of money you received had probably already been taxed, or will be liable to taxation, depending on which country you are in. Similarly, the last sum of money you spent probably included a percentage of tax.
Make a list of all the different types of taxes you can think of. If you do not know the actual names, try to describe the different taxes, e.g. ‘Tax you pay if you import something from another continent,’ and so on.
2b Vocabulary
Which terms do the following sentences define?
1. The tax people pay on their wages and salaries is called
A capital transfer tax B income tax C wealth tax
2. A tax on the wages and salaries or on company profits is a
A direct tax B indirect tax C value-added tax
3. A tax levied at a higher rate on higher incomes is called a
A progressive tax B regressive tax C wealth tax
4. A tax paid on property, sales transactions, imports, and so on is a / an
A direct tax B indirect tax C value-added tax
5. A tax collected at each stage of production, excluding the already-taxed costs from prvious
stages, is called a / an
A added-value tax B sales tax C value-added tax
6. Profits made by selling assets are generally liable to a
A capital gains tax B capital transfer tax C wealth tax
7. Gifts and inheritances over a certain value are often liable to a
A capital gains tax B capital transfer tax C wealth tax
8. The annual tax imposed on people’s fortunes (in some countries) is a / an
A added-value tax B capital gains tax C wealth tax
9. Making false declarations to the tax authorities is called
A fiscal policy B tax avoidance C tax evasion
10. Reducing the amount of tax you pay to a legal minimum is called
A creative accounting B tax avoidance C tax evasion
specializing in monetary policy. You will hear him outlining the functions of a central
bank ,and discussing whether it should be independent from the government, and run by bankers ,or under the control of the government.
1a Discussion
Do you know whether the central bank in your country is independent?
What about these banks? Do you know if they are independent?
1. the Bank of England
2. the Federal Reserve Board(USA)
3. the Bundesbank (Germany)
4. the Japanese central bank
5. the Chinese central bank
1c Vocabulary
Read the six sentences below, which also summarize central banking functions, but slightly
Differently, and match them with the six expressions you have written in 1b.
A controlling the amount of banknotes in circulation
B establishing maximum and minimum lending rates, thereby controlling the credit system
C ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their
deposits when they want
D intervening on foreign exchange markets, buying or selling large amounts of the national
currency, to prevent major fluctuations
E lending money to a commercial bank in danger of going bankrupt
F selling government bonds to commercial banks or buying them back, in order to alter the
amount of credit the banks can offer (and thereby alter the money supply)
1e Discussion
Does (or would) the government in your country exploit the ‘political business cycle’ by
increasing the money supply or government spending, or lowering taxes, in order to increase economic activity in the months before an election, despite the long-term inflationary consequences?
Do you agree that central banks should be controlled by (unelected) bankers rather than by elected governments – which will often do everything possible to get reelected?
Do you agree that price stability (i.e. keeping inflation low ) is more important than other economic aims, such as attempting to reduce unemployment?
2 Taxation
2a Discussion
Benjamin Franklin, who wrote that ‘In this world nothing cam be said to be certain except death and taxes!’
The last sum of money you received had probably already been taxed, or will be liable to taxation, depending on which country you are in. Similarly, the last sum of money you spent probably included a percentage of tax.
Make a list of all the different types of taxes you can think of. If you do not know the actual names, try to describe the different taxes, e.g. ‘Tax you pay if you import something from another continent,’ and so on.
2b Vocabulary
Which terms do the following sentences define?
1. The tax people pay on their wages and salaries is called
A capital transfer tax B income tax C wealth tax
2. A tax on the wages and salaries or on company profits is a
A direct tax B indirect tax C value-added tax
3. A tax levied at a higher rate on higher incomes is called a
A progressive tax B regressive tax C wealth tax
4. A tax paid on property, sales transactions, imports, and so on is a / an
A direct tax B indirect tax C value-added tax
5. A tax collected at each stage of production, excluding the already-taxed costs from prvious
stages, is called a / an
A added-value tax B sales tax C value-added tax
6. Profits made by selling assets are generally liable to a
A capital gains tax B capital transfer tax C wealth tax
7. Gifts and inheritances over a certain value are often liable to a
A capital gains tax B capital transfer tax C wealth tax
8. The annual tax imposed on people’s fortunes (in some countries) is a / an
A added-value tax B capital gains tax C wealth tax
9. Making false declarations to the tax authorities is called
A fiscal policy B tax avoidance C tax evasion
10. Reducing the amount of tax you pay to a legal minimum is called
A creative accounting B tax avoidance C tax evasion
Monday, December 6, 2010
Sunday, December 5, 2010
Takeovers, mergers and buyouts
Mergers and acquisitions
1a Vocabulary
Match up these words with the definitions below.
backward integration to diversify (diversification) forward integration horizontal integration to innovate (innovation) to merge (a merger) a synergy a takeover bid vertical integration
1 designing new products and bringing them to the market
2 to expand into new fields
3 to unite, combine, amalgamate, integrate or join together
4 buying another company's shares on the stock exchange, hoping to persuade enough other shareholders to sell to take control of the company
5 a public offer to a company's shareholders to buy their shares, at a particular during a particular period, so as to acquire a company
6 to merge with or take over other firms producing the same rype of goods or
7 joining with firms in other stages of the production or sale of a product
8 a merger with or die acquisition of one's suppliers
9 a merger with or the acquisition of one's marketing outlets
10 combined production that is greater than the sum of the separate parts
1b Discussion
Which of the following industries tend to be vertically integrated, either forward backward, or both?
bicycle manufacturers, car (automobile) makers, electricity and water companies, food producers, furniture manufacturers, newspapers, oil (petrol) companies, radio and television manufacturers
1c Discussion
Read the 15 sentences below, and classify them under the following three headings. (One sentence probably falls under two categories.)
A Arguments in favour ol mergers or takeovers
B Arguments against mergers or takeovers
C The advantages of a raid as compared to a takeover bid
1 After a hostile takeover, the former top executives will leave or be replaced, so all that remains is the capital equipment.
2 A larger company will have a stronger position on the market.
3 Conglomerates may become unmanageable and fail to achieve synergy.
4 Contrary to a common belief, a company's optimum market share is rarely very large.
5 Diversification dilutes a company's shared values (such as quality, service, innovation, and so on).
6 Entering new markets with new brands is generally slow, risky and expensive.
7 In many countries, if all the shareholders agree to sell, the bidder is obliged to buy 100% of the shares, and cannot stop at 50% plus one.
8 Individual companies might be more efficient if they didn't have to deal with a conglomerate's central management.
9 Innovation is expensive and risky, and sometimes more expensive than acquiring or metging with other successful innovative firms.
10 In this case, it is not necessary to pay mote than the existing market price.
11 It may permit the rationalization and optimization of the use of production facilities and invested capital, and enable economies of scale.
12 One can attempt to buy a large quantity of shares through several brokers as soon as the market opens, before speculators notice the rising price and join in.
13 Success comes from having a long-term competitive advantage, i.e. producing a cheaper or better product than those of competitots, or focusing on a narrow market segment.
14 This is a way for a company to reduce competition.
15 Traditionally, the best companies have always beaten their competitors rathet than buying them.
2a Reading
Read the following text and underline the arguments for and against leveraged buyouts.
LEVERAGED BUYOUTS
One indication that the people who warn against takeovers might be right is the existence of leveraged buyouts.
In the 1960s, a big wave of takeovers in the US created conglomerates - collections of unrelated businesses combined into a single corporate structure. It later became clear that many of these conglomerates consisted of too many companies and not enough synergy. After the recession of the early 1980s, there were many large companies on the US stock market with good earnings but low stock prices. Their assets were worth more than the companies' market value.
Such conglomerates were clearly not maximizing stockholder value. The individual companies might have been more efficient if liberated from central management. Consequently, raiders were able to borrow money, buy badly-managed, inefficient and underpriced corporations, and then restructure them, split them up, and resell them at a profit.
Conventional financial theory argues that stock markets are efficient, meaning that all relevant information about companies is built into their share prices. Raiders in the 1980s discovered that this was quite simply untrue. Although the market could understand data concerning companies' earnings, it was highly inefficient in valuing assets, including land, buildings and pension funds. Asset-stripping - selling off the assets of poorly performing or under-valued companies - proved to be highly lucrative. Theoretically, there was little risk of making a loss with a buyout, as the debts incurred were guaranteed by the companies' assets. The ideal targets for such buyouts were companies with huge cash reserves that enabled the buyer to pay the interest on the debt, or companies with successful subsidiaries that could be sold to repay the principal, or companies in fields that are not sensitive to a recession, such as food and tobacco.
Takeovers using borrowed money are called 'leveraged buyouts' or 'LBOs'. Leverage means having a large proportion of debt compared to equity capital. (Where a Company bought by its existing managers, we talk of a management buyout or MBO.) Much of the money for LBOs was provided by the American investment bank
Drexel Burnham Lambert, where Michael Milken was able to convince investors that the high returns on debt issued by risky enterprises more than compensated for their riskiness, as the rate of default was lower than might be expected. He created a huge and liquid market of up to 300 billion dollars for 'junk bonds'. (Milken was later arrested and charged with 98 different felonies, including a lot of insider dealing, and Drexel Burnham Lambert went bankrupt in 1990.)
Raiders and their supporters argue that the permanent threat of takeovers is a challenge to company managers and directors to do their jobs better, and that well-ru businesses that are not undervalued are at little risk. The threat of raids forces companies to put capital to productive use. Fat or lazy companies that fail to do this will be taken over by raiders who will use assets more efficiently, cut costs, and increas shareholder value. On the other hand, the permanent threat of a takeover or a buyout is clearly a disincentive to long-term capital investment, as a company will lose its investment if a raider tries to break it up as soon as its share price falls below expectations.
LBOs, however, seem to be largely an American phenomenon. German and Japanese managers and financiers, for example, seem to consider companies as places where people work, rather than as assets to be bought and sold. Hostile takeovers and buyouts are almost unknown in these two countries, where business tends to concentrate on long-term goals rather than seek instant stock market profits. Workers in these companies are considered to be at least as important as shareholders. The idea of a Japanese manager restructuring a company, laying off a large number of workers, and getting a huge pay rise (as frequently happens in Britain and the US), is unthinkable. Lay-offs in Japan are instead a cause for shame for which managers are expected to apologize.
2b Summarizing
Complete the following sentences, which summarize the text above.
1 The fact that many large conglomerates' assets were worth more than their stock market valuation demonstrated that. ..
2 Raiders bought conglomerates in order to ...
3 Raiders showed that the stock market did not. . .
4 Raiders were particularly interested in ..,
5 Investors were prepared to lend money to finance LBOs because . . .
6 Raiders argue that the possibility of a buyout. . .
7 A negative consequence of the threat of a takeover or buyout. . .
8 Hostile takeovers and buyouts are rare in Germany and Japan because . ..
2c Discussion
You have read arguments both for and against leveraged buyouts. Which do you find the most persuasive? Can you think of any further arguments either for or against?
Procurare de indatorii (Achizitie interna pe datorie)
Un indiciu ca oamenii care sunt împotriva preluărilor ar putea avea dreptate, este procurarea de îndatorii.
În anii 1960, un val mare de preluări din SUA, a creat conglomerate- colecţii de afaceri fără legături combinate într-o singură structură corporativă. Mai târziu s-a dovedit că multe din aceste conglomerate conţineau prea multe companii şi insuficienta de sinergie. După recesiunea de la începutul anilor 1980, pe piaţa de actiuni din SUA au existat multe companii mari cu venituri inalte, dar preţuri scăzute stoc. Activele lor valoreaza de mai mult decât valoarea de piaţă a companiilor.
Astfel de conglomerate în mod evident nu maximizau valoarea acţionarului. Întreprinderile individuale ar fi putut fi mai eficiente dacă ar fi fost eliberate de la conducerea centrală. În consecinţă, participanţii au fost capabili de a împrumuta bani, să cumpere corporaţii incorect gestionate, ineficiente şi societăţi cu preţ mic, şi apoi le restructurează, le despart, şi le revand cu un profit.
Teoria convenţională financiară susţine că pieţele bursiere sunt eficiente, în sensul că toate informaţiile relevante despre companii sunt incluse în preţurile acţiunilor lor. Participanţii la incursiuni, în anii 1980 au descoperit că aceasta situatie a fost pur si simplu imposibila. Deşi piaţa ar putea înţelege datele cu privire la câştigurile companiilor, a fost extrem de ineficient evaluarea activelor, inclusiv terenurile, clădirile şi fondurile de pensii. Dezmembrarea activelor - vânzarea activelor societăţilor slab performante sau sub-evaluate - s-au dovedit a fi foarte profitabile. Teoretic, era mic riscul de a inregistra pierderi, cu o achizitie, asa cum datoriile contractate au fost garantate de activele companiei. Tintele ideale pentru astfel de achizitii,au fost companiile cu rezerve uriaşe de numerar, care au permis cumpărătorului să plătească dobânzile la datorii, sau companiile cu filiale de succes care ar putea fi vândute pentru a rambursa, sau companii în domenii care nu sunt elastice la o recesiune, cum ar fi alimente şi tutun.
Preluările folosind bani împrumutaţi sunt numite "procurarea de îndatorii" sau "LBOs". Îndatoriile înseamnă a avea o mare parte a datoriei faţă de capitalul social. (În cazul în care o companie este cumpărată de către managerii săi existenţi, vorbim de o achizitie de management sau de MBO.) Majoritatea banilor pentru procurarea de indatorii au fost furnizati de catre banca de investitii americana Drexel Burnham Lambert, atunci cand Michael Milken a reuşit să convingă investitorii că rata inalta de rentabilitate a datoriilor emise de întreprinderile riscante mai mult decât compensate de gradul de risc , caci rata de default a fost mai mică decât s-ar fi putut de aşteptat. El a creat o piaţă imensă şi de lichiditate de până la 300 de miliarde de dolari pentru "obligaţiunile junk".(Milken mai târziu a fost arestat si acuzat cu 98 de infracţiuni diferite, inclusiv abuz de informaţii confidenţiale, şi Drexel Burnham Lambert a dat faliment în 1990.)
Participantii la incursiune şi susţinătorii lor susţin că ameninţarea permanentă a preluărilor este o provocare pentru managerii companiei şi directori ca sa-si execute lucrul mai bine, şi faptul că afacerile bine gestionate, care nu sunt subevaluate au un risc mic. Ameninţarea la incursiuni a fortat companiile de a folosi capitalul pentru utilizarea productivă. Companiile profitabile sau cu o rata de profitabilitate mai mica care nu reuşesc să facă acest lucru vor fi preluate de către participantii, care vor utiliza activele mai eficient,vor reduce costurile, şi va creste valoarea actiunilor. Pe de altă parte, ameninţarea permanentă a unei preluări sau achizitii este evident un factor descurajant pentru investiţiile de capital pe termen lung, asa cum o companie îşi va pierde investiţia dacă un participant la incursiune încearcă să-l canceleze in data ce preţul actiunilor este mai jos decat aşteptările.
Procurarea de indatorii, cu toate acestea, pare a fi în mare măsură, un fenomen american. Managerii si furnizorii germani şi japonezi, de exemplu, considera companiile mai degraba ca locuri unde oamenii lucreaza, decât ca active care urmează să fie cumpărate şi vândute. Preluările ostile şi achizitiile sunt aproape necunoscute în aceste două ţări, unde afacerile tind să se concentreze asupra obiectivelor pe termen lung mai degrabă decât profituri instantanee de piaţă de stocuri. Lucrătorii din aceste intreprinderi sunt considerati a fi cel puţin la fel de importanti ca acţionarii. Ideea unui manager japonez de restructurare a unei companii, de stabilire a unui număr mare de muncitori, şi obţinerea unei marire de salariu (la fel de frecvent se întâmplă în Marea Britanie şi SUA), este de neconceput. Concedierea din Japonia, sunt în schimb, un motiv de ruşine pentru care managerii e de aşteptat să-si ceara scuze.
Answers:
1a Vocabulary
1. to innovate(innovation)- designing new products and bringing them to the market
2. to diversify(diversification)- to expand into new fields
3. to merge – to unite, combine, amalgamate, integrate or join togheter
4. a takeover bid- buying another company’s shares on the stock exchange, hoping to persuade enought other shareholders to sell to take control of the company
5. a raid- a public offer to a company’s shareholders to buy their shares, at a particular price during a particular period, so as to acquire a company.
6. horizontal integration – a merge with or takeovers other firms producing the same type of goods or services.
7. vertical integration – joining wuth firns in other stages of the production or sale of a product
8. backward integration – a merger with or the acquisition of one’s suppliers.
9. forward integration – a merger with or the acquisition of one’s marketing outlets
10. synergy- combined production that is greater than the sum of the separate parts.
1b Discussion
Backward vertical integration: bicycle manufacturers;
car (automobile) makers.
Forward vertical integration: electricity and water companies;
newspapers;
radio & television manufacturers;
oil (petrol) companies.
Both: food producers;
furniture manufacturers.
1c Discussion
Read the 15 sentences below, and classify them under the following three headings. (One sentence probably falls under two categories.)
A. Arguments in favour of mergers or takeovers:
2 A larger company will have a stronger position on the market.
6 Entering new markets with new brands is generally slow, risky and expensive.
9 Innovation is expensive and risky, and sometimes more expensive than acquiring or metging with other successful innovative firms.
11 It may permit the rationalization and optimization of the use of production facilities and invested capital, and enable economies of scale.
13 Success comes from having a long-term competitive advantage, i.e. producing a cheaper or better product than those of competitots, or focusing on a narrow market segment.
14 This is a way for a company to reduce competition.
B. Arguments against mergers or takeovers:
1 After a hostile takeover, the former top executives will leave or be replaced, so all that remains is the capital equipment.
3 Conglomerates may become unmanageable and fail to achieve synergy.
4 Contrary to a common belief, a company's optimum market share is rarely very large.
5 Diversification dilutes a company's shared values (such as quality, service, innovation, and so on).
8 Individual companies might be more efficient if they didn't have to deal with a conglomerate's central management.
13 Success comes from having a long-term competitive advantage, i.e. producing a cheaper or better product than those of competitots, or focusing on a narrow market segment.
15 Traditionally, the best companies have always beaten their competitors rathet than buying them.
C. The advantages of a raid as compared to a takeover bid:
7 In many countries, if all the shareholders agree to sell, the bidder is obliged to buy 100% of the shares, and cannot stop at 50% plus one.
10 In this case, it is not necessary to pay mote than the existing market price.
12 One can attempt to buy a large quantity of shares through several brokers as soon as the market opens, before speculators notice the rising price and join in.
2a Reading
The arguments for and against leveraged buyouts:
many of these conglomerates consisted of too many companies and not enough synergy. After the recession of the early 1980s, there were many large companies on the US stock market with good earnings but low stock prices. Their assets were worth more than the companies' market value.
Such conglomerates were clearly not maximizing stockholder value. The individual companies might have been more efficient if liberated from central management. Consequently, raiders were able to borrow money, buy badly-managed, inefficient and underpriced corporations, and then restructure them, split them up, and resell them at a profit.
Although the market could understand data concerning companies' earnings, it was highly inefficient in valuing assets, including land, buildings and pension funds. Asset-stripping - selling off the assets of poorly performing or under-valued companies - proved to be highly lucrative
the high returns on debt issued by risky enterprises more than compensated for their riskiness, as the rate of default was lower than might be expected.
the permanent threat of takeovers is a challenge to company managers and directors to do their jobs better, and that well-ru businesses that are not undervalued are at little risk. The threat of raids forces companies to put capital to productive use. Fat or lazy companies that fail to do this will be taken over by raiders who will use assets more efficiently, cut costs, and increas shareholder value.
2b Complete the following sentences, which summarize the text above.
1. The fact that many large conglomerates’ assets were worth more than their stock market valuation demonstrated that they were clearly not maximizing stockholder value, i.e. giving their stockholders the maximum possible return on their investment.
2. Raiders bought conglomerates in order to strip them of their assets, i.e. to restructure them, split them up, and resell the pieces at a profit.
3. Raiders showed that the stock market did not operate efficient, meaning all relevant information, was not built in share prices, did not evaluate efficiently assets.
4. Raiders were particularly interested in companies with huge cash reserves, companies with successful subsidiaries or companies in fields that are not sensitive to recession.
5. Investors were prepared to lend money to finance LBOs because Michael Milken was able to gain their confidence through high returns on debt issued by risky companies more than compensated for their riskiness.
6. Raiders argue that the possibility of a buyout of making a loss is very small, with a little risk, as the debts acquired were guaranteed by the enterprises assets. The target for such buyouts was companies with a high amount of cash reserves.
7. A negative consequence of the threat of a takeover or buyout is that companies are imposed to establish the capital available for productive use. There is a dispute of administrators and directors in accomplishing their jobs as follows.
8. Hostile takeovers and buyouts are rare in Germany and Japan because business is concentrated on long-term goals instead looking for immediate assets outlet profits, workers should be considered equal important as shareholders.
Posted by Panciuc Daniela and Teişanu Elena.
1a Vocabulary
Match up these words with the definitions below.
backward integration to diversify (diversification) forward integration horizontal integration to innovate (innovation) to merge (a merger) a synergy a takeover bid vertical integration
1 designing new products and bringing them to the market
2 to expand into new fields
3 to unite, combine, amalgamate, integrate or join together
4 buying another company's shares on the stock exchange, hoping to persuade enough other shareholders to sell to take control of the company
5 a public offer to a company's shareholders to buy their shares, at a particular during a particular period, so as to acquire a company
6 to merge with or take over other firms producing the same rype of goods or
7 joining with firms in other stages of the production or sale of a product
8 a merger with or die acquisition of one's suppliers
9 a merger with or the acquisition of one's marketing outlets
10 combined production that is greater than the sum of the separate parts
1b Discussion
Which of the following industries tend to be vertically integrated, either forward backward, or both?
bicycle manufacturers, car (automobile) makers, electricity and water companies, food producers, furniture manufacturers, newspapers, oil (petrol) companies, radio and television manufacturers
1c Discussion
Read the 15 sentences below, and classify them under the following three headings. (One sentence probably falls under two categories.)
A Arguments in favour ol mergers or takeovers
B Arguments against mergers or takeovers
C The advantages of a raid as compared to a takeover bid
1 After a hostile takeover, the former top executives will leave or be replaced, so all that remains is the capital equipment.
2 A larger company will have a stronger position on the market.
3 Conglomerates may become unmanageable and fail to achieve synergy.
4 Contrary to a common belief, a company's optimum market share is rarely very large.
5 Diversification dilutes a company's shared values (such as quality, service, innovation, and so on).
6 Entering new markets with new brands is generally slow, risky and expensive.
7 In many countries, if all the shareholders agree to sell, the bidder is obliged to buy 100% of the shares, and cannot stop at 50% plus one.
8 Individual companies might be more efficient if they didn't have to deal with a conglomerate's central management.
9 Innovation is expensive and risky, and sometimes more expensive than acquiring or metging with other successful innovative firms.
10 In this case, it is not necessary to pay mote than the existing market price.
11 It may permit the rationalization and optimization of the use of production facilities and invested capital, and enable economies of scale.
12 One can attempt to buy a large quantity of shares through several brokers as soon as the market opens, before speculators notice the rising price and join in.
13 Success comes from having a long-term competitive advantage, i.e. producing a cheaper or better product than those of competitots, or focusing on a narrow market segment.
14 This is a way for a company to reduce competition.
15 Traditionally, the best companies have always beaten their competitors rathet than buying them.
2a Reading
Read the following text and underline the arguments for and against leveraged buyouts.
LEVERAGED BUYOUTS
One indication that the people who warn against takeovers might be right is the existence of leveraged buyouts.
In the 1960s, a big wave of takeovers in the US created conglomerates - collections of unrelated businesses combined into a single corporate structure. It later became clear that many of these conglomerates consisted of too many companies and not enough synergy. After the recession of the early 1980s, there were many large companies on the US stock market with good earnings but low stock prices. Their assets were worth more than the companies' market value.
Such conglomerates were clearly not maximizing stockholder value. The individual companies might have been more efficient if liberated from central management. Consequently, raiders were able to borrow money, buy badly-managed, inefficient and underpriced corporations, and then restructure them, split them up, and resell them at a profit.
Conventional financial theory argues that stock markets are efficient, meaning that all relevant information about companies is built into their share prices. Raiders in the 1980s discovered that this was quite simply untrue. Although the market could understand data concerning companies' earnings, it was highly inefficient in valuing assets, including land, buildings and pension funds. Asset-stripping - selling off the assets of poorly performing or under-valued companies - proved to be highly lucrative. Theoretically, there was little risk of making a loss with a buyout, as the debts incurred were guaranteed by the companies' assets. The ideal targets for such buyouts were companies with huge cash reserves that enabled the buyer to pay the interest on the debt, or companies with successful subsidiaries that could be sold to repay the principal, or companies in fields that are not sensitive to a recession, such as food and tobacco.
Takeovers using borrowed money are called 'leveraged buyouts' or 'LBOs'. Leverage means having a large proportion of debt compared to equity capital. (Where a Company bought by its existing managers, we talk of a management buyout or MBO.) Much of the money for LBOs was provided by the American investment bank
Drexel Burnham Lambert, where Michael Milken was able to convince investors that the high returns on debt issued by risky enterprises more than compensated for their riskiness, as the rate of default was lower than might be expected. He created a huge and liquid market of up to 300 billion dollars for 'junk bonds'. (Milken was later arrested and charged with 98 different felonies, including a lot of insider dealing, and Drexel Burnham Lambert went bankrupt in 1990.)
Raiders and their supporters argue that the permanent threat of takeovers is a challenge to company managers and directors to do their jobs better, and that well-ru businesses that are not undervalued are at little risk. The threat of raids forces companies to put capital to productive use. Fat or lazy companies that fail to do this will be taken over by raiders who will use assets more efficiently, cut costs, and increas shareholder value. On the other hand, the permanent threat of a takeover or a buyout is clearly a disincentive to long-term capital investment, as a company will lose its investment if a raider tries to break it up as soon as its share price falls below expectations.
LBOs, however, seem to be largely an American phenomenon. German and Japanese managers and financiers, for example, seem to consider companies as places where people work, rather than as assets to be bought and sold. Hostile takeovers and buyouts are almost unknown in these two countries, where business tends to concentrate on long-term goals rather than seek instant stock market profits. Workers in these companies are considered to be at least as important as shareholders. The idea of a Japanese manager restructuring a company, laying off a large number of workers, and getting a huge pay rise (as frequently happens in Britain and the US), is unthinkable. Lay-offs in Japan are instead a cause for shame for which managers are expected to apologize.
2b Summarizing
Complete the following sentences, which summarize the text above.
1 The fact that many large conglomerates' assets were worth more than their stock market valuation demonstrated that. ..
2 Raiders bought conglomerates in order to ...
3 Raiders showed that the stock market did not. . .
4 Raiders were particularly interested in ..,
5 Investors were prepared to lend money to finance LBOs because . . .
6 Raiders argue that the possibility of a buyout. . .
7 A negative consequence of the threat of a takeover or buyout. . .
8 Hostile takeovers and buyouts are rare in Germany and Japan because . ..
2c Discussion
You have read arguments both for and against leveraged buyouts. Which do you find the most persuasive? Can you think of any further arguments either for or against?
Procurare de indatorii (Achizitie interna pe datorie)
Un indiciu ca oamenii care sunt împotriva preluărilor ar putea avea dreptate, este procurarea de îndatorii.
În anii 1960, un val mare de preluări din SUA, a creat conglomerate- colecţii de afaceri fără legături combinate într-o singură structură corporativă. Mai târziu s-a dovedit că multe din aceste conglomerate conţineau prea multe companii şi insuficienta de sinergie. După recesiunea de la începutul anilor 1980, pe piaţa de actiuni din SUA au existat multe companii mari cu venituri inalte, dar preţuri scăzute stoc. Activele lor valoreaza de mai mult decât valoarea de piaţă a companiilor.
Astfel de conglomerate în mod evident nu maximizau valoarea acţionarului. Întreprinderile individuale ar fi putut fi mai eficiente dacă ar fi fost eliberate de la conducerea centrală. În consecinţă, participanţii au fost capabili de a împrumuta bani, să cumpere corporaţii incorect gestionate, ineficiente şi societăţi cu preţ mic, şi apoi le restructurează, le despart, şi le revand cu un profit.
Teoria convenţională financiară susţine că pieţele bursiere sunt eficiente, în sensul că toate informaţiile relevante despre companii sunt incluse în preţurile acţiunilor lor. Participanţii la incursiuni, în anii 1980 au descoperit că aceasta situatie a fost pur si simplu imposibila. Deşi piaţa ar putea înţelege datele cu privire la câştigurile companiilor, a fost extrem de ineficient evaluarea activelor, inclusiv terenurile, clădirile şi fondurile de pensii. Dezmembrarea activelor - vânzarea activelor societăţilor slab performante sau sub-evaluate - s-au dovedit a fi foarte profitabile. Teoretic, era mic riscul de a inregistra pierderi, cu o achizitie, asa cum datoriile contractate au fost garantate de activele companiei. Tintele ideale pentru astfel de achizitii,au fost companiile cu rezerve uriaşe de numerar, care au permis cumpărătorului să plătească dobânzile la datorii, sau companiile cu filiale de succes care ar putea fi vândute pentru a rambursa, sau companii în domenii care nu sunt elastice la o recesiune, cum ar fi alimente şi tutun.
Preluările folosind bani împrumutaţi sunt numite "procurarea de îndatorii" sau "LBOs". Îndatoriile înseamnă a avea o mare parte a datoriei faţă de capitalul social. (În cazul în care o companie este cumpărată de către managerii săi existenţi, vorbim de o achizitie de management sau de MBO.) Majoritatea banilor pentru procurarea de indatorii au fost furnizati de catre banca de investitii americana Drexel Burnham Lambert, atunci cand Michael Milken a reuşit să convingă investitorii că rata inalta de rentabilitate a datoriilor emise de întreprinderile riscante mai mult decât compensate de gradul de risc , caci rata de default a fost mai mică decât s-ar fi putut de aşteptat. El a creat o piaţă imensă şi de lichiditate de până la 300 de miliarde de dolari pentru "obligaţiunile junk".(Milken mai târziu a fost arestat si acuzat cu 98 de infracţiuni diferite, inclusiv abuz de informaţii confidenţiale, şi Drexel Burnham Lambert a dat faliment în 1990.)
Participantii la incursiune şi susţinătorii lor susţin că ameninţarea permanentă a preluărilor este o provocare pentru managerii companiei şi directori ca sa-si execute lucrul mai bine, şi faptul că afacerile bine gestionate, care nu sunt subevaluate au un risc mic. Ameninţarea la incursiuni a fortat companiile de a folosi capitalul pentru utilizarea productivă. Companiile profitabile sau cu o rata de profitabilitate mai mica care nu reuşesc să facă acest lucru vor fi preluate de către participantii, care vor utiliza activele mai eficient,vor reduce costurile, şi va creste valoarea actiunilor. Pe de altă parte, ameninţarea permanentă a unei preluări sau achizitii este evident un factor descurajant pentru investiţiile de capital pe termen lung, asa cum o companie îşi va pierde investiţia dacă un participant la incursiune încearcă să-l canceleze in data ce preţul actiunilor este mai jos decat aşteptările.
Procurarea de indatorii, cu toate acestea, pare a fi în mare măsură, un fenomen american. Managerii si furnizorii germani şi japonezi, de exemplu, considera companiile mai degraba ca locuri unde oamenii lucreaza, decât ca active care urmează să fie cumpărate şi vândute. Preluările ostile şi achizitiile sunt aproape necunoscute în aceste două ţări, unde afacerile tind să se concentreze asupra obiectivelor pe termen lung mai degrabă decât profituri instantanee de piaţă de stocuri. Lucrătorii din aceste intreprinderi sunt considerati a fi cel puţin la fel de importanti ca acţionarii. Ideea unui manager japonez de restructurare a unei companii, de stabilire a unui număr mare de muncitori, şi obţinerea unei marire de salariu (la fel de frecvent se întâmplă în Marea Britanie şi SUA), este de neconceput. Concedierea din Japonia, sunt în schimb, un motiv de ruşine pentru care managerii e de aşteptat să-si ceara scuze.
Answers:
1a Vocabulary
1. to innovate(innovation)- designing new products and bringing them to the market
2. to diversify(diversification)- to expand into new fields
3. to merge – to unite, combine, amalgamate, integrate or join togheter
4. a takeover bid- buying another company’s shares on the stock exchange, hoping to persuade enought other shareholders to sell to take control of the company
5. a raid- a public offer to a company’s shareholders to buy their shares, at a particular price during a particular period, so as to acquire a company.
6. horizontal integration – a merge with or takeovers other firms producing the same type of goods or services.
7. vertical integration – joining wuth firns in other stages of the production or sale of a product
8. backward integration – a merger with or the acquisition of one’s suppliers.
9. forward integration – a merger with or the acquisition of one’s marketing outlets
10. synergy- combined production that is greater than the sum of the separate parts.
1b Discussion
Backward vertical integration: bicycle manufacturers;
car (automobile) makers.
Forward vertical integration: electricity and water companies;
newspapers;
radio & television manufacturers;
oil (petrol) companies.
Both: food producers;
furniture manufacturers.
1c Discussion
Read the 15 sentences below, and classify them under the following three headings. (One sentence probably falls under two categories.)
A. Arguments in favour of mergers or takeovers:
2 A larger company will have a stronger position on the market.
6 Entering new markets with new brands is generally slow, risky and expensive.
9 Innovation is expensive and risky, and sometimes more expensive than acquiring or metging with other successful innovative firms.
11 It may permit the rationalization and optimization of the use of production facilities and invested capital, and enable economies of scale.
13 Success comes from having a long-term competitive advantage, i.e. producing a cheaper or better product than those of competitots, or focusing on a narrow market segment.
14 This is a way for a company to reduce competition.
B. Arguments against mergers or takeovers:
1 After a hostile takeover, the former top executives will leave or be replaced, so all that remains is the capital equipment.
3 Conglomerates may become unmanageable and fail to achieve synergy.
4 Contrary to a common belief, a company's optimum market share is rarely very large.
5 Diversification dilutes a company's shared values (such as quality, service, innovation, and so on).
8 Individual companies might be more efficient if they didn't have to deal with a conglomerate's central management.
13 Success comes from having a long-term competitive advantage, i.e. producing a cheaper or better product than those of competitots, or focusing on a narrow market segment.
15 Traditionally, the best companies have always beaten their competitors rathet than buying them.
C. The advantages of a raid as compared to a takeover bid:
7 In many countries, if all the shareholders agree to sell, the bidder is obliged to buy 100% of the shares, and cannot stop at 50% plus one.
10 In this case, it is not necessary to pay mote than the existing market price.
12 One can attempt to buy a large quantity of shares through several brokers as soon as the market opens, before speculators notice the rising price and join in.
2a Reading
The arguments for and against leveraged buyouts:
many of these conglomerates consisted of too many companies and not enough synergy. After the recession of the early 1980s, there were many large companies on the US stock market with good earnings but low stock prices. Their assets were worth more than the companies' market value.
Such conglomerates were clearly not maximizing stockholder value. The individual companies might have been more efficient if liberated from central management. Consequently, raiders were able to borrow money, buy badly-managed, inefficient and underpriced corporations, and then restructure them, split them up, and resell them at a profit.
Although the market could understand data concerning companies' earnings, it was highly inefficient in valuing assets, including land, buildings and pension funds. Asset-stripping - selling off the assets of poorly performing or under-valued companies - proved to be highly lucrative
the high returns on debt issued by risky enterprises more than compensated for their riskiness, as the rate of default was lower than might be expected.
the permanent threat of takeovers is a challenge to company managers and directors to do their jobs better, and that well-ru businesses that are not undervalued are at little risk. The threat of raids forces companies to put capital to productive use. Fat or lazy companies that fail to do this will be taken over by raiders who will use assets more efficiently, cut costs, and increas shareholder value.
2b Complete the following sentences, which summarize the text above.
1. The fact that many large conglomerates’ assets were worth more than their stock market valuation demonstrated that they were clearly not maximizing stockholder value, i.e. giving their stockholders the maximum possible return on their investment.
2. Raiders bought conglomerates in order to strip them of their assets, i.e. to restructure them, split them up, and resell the pieces at a profit.
3. Raiders showed that the stock market did not operate efficient, meaning all relevant information, was not built in share prices, did not evaluate efficiently assets.
4. Raiders were particularly interested in companies with huge cash reserves, companies with successful subsidiaries or companies in fields that are not sensitive to recession.
5. Investors were prepared to lend money to finance LBOs because Michael Milken was able to gain their confidence through high returns on debt issued by risky companies more than compensated for their riskiness.
6. Raiders argue that the possibility of a buyout of making a loss is very small, with a little risk, as the debts acquired were guaranteed by the enterprises assets. The target for such buyouts was companies with a high amount of cash reserves.
7. A negative consequence of the threat of a takeover or buyout is that companies are imposed to establish the capital available for productive use. There is a dispute of administrators and directors in accomplishing their jobs as follows.
8. Hostile takeovers and buyouts are rare in Germany and Japan because business is concentrated on long-term goals instead looking for immediate assets outlet profits, workers should be considered equal important as shareholders.
Posted by Panciuc Daniela and Teişanu Elena.
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