I. Read the text.

Date: 2015-10-07; view: 624.

Contracts can be made on futures markets to buy and sell currencies, various financial assets, and commodities (raw materials or primary products such as metals, cereals, tea, rubber, etc.) at a future date, but with the price fixed at the time of the deal. Currencies and commodities are also traded for immediate delivery on spot markets. Making contracts to buy or sell a commodity or financial instrument at a pre-arranged price in the future as a protection against price changes is known as hedging. Of course, this is only possible if two parties, for example, a producer and a buyer, both want to hedge, or if there are speculators who believe that they know better than the market.

Traders or speculators might wish to buy or sell a currency at a future price if it is expected to appreciate or depreciate, or if interest rates are expected to change. Prices of foodstuffs — wheat, maize, coffee, tea, sugar, cocoa, orange juice, pork bellies, etc. - are frequently affected by droughts, floods and other extreme weather conditions, which is why both producers and buyers often prefer to hedge, so as to guarantee next season's prices. When commodity prices are expected to rise, future prices are obviously higher than, or at a premium on, spot prices; when they are expected to fall they are at a discount on spot prices; when they are expected to stay the same, future prices are also higher, as they include interest costs.

As well as commodities and currencies, there is a growing futures market in stocks and shares. One can buy options giving the right to buy and sell securities at a fixed price in the future. A call option gives its holder the right but not the obligation to buy securities or a commodity or currency at a certain price during a certain period of time. A put option gives its holder the right to sell securities, currencies, commodities, etc. at a certain price during a certain period of time.

The buyer of a share option pays a premium per share to the seller, and only risks this amount. The seller of an option (known as the writer) risks losing an unlimited amount of money, depending on the performance of the underlying share, especially if he or she does not actually possess it. If you expect the value of a share that you own to fall below its current price, you can buy a put option at this price (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 the current price: if the market price remains below this price, no-one will take up the option, and you earn the premium.

On the contrary, if you think a share will rise, you can buy a call option giving the right to buy at the current price, hoping to buy and resell the share at a profit, or to sell this option. Or you can write a put option giving someone else the right to sell the shares at the current price: if the market price remains above this, no-one will exercise the option, so you earn the premium.

The price at which the holder of a call/put option may buy/sell the underlying security is known as its exercise or strike price. A call (put) option has intrinsic value if its exercise price is below (above) the current market price of the underlying share. Call options with an exercise price below the underlying share's current market price, and put options with an exercise price above the share's market price, are described as being "in-the-money". On the contrary, call options with an exercise price higher than a share's current market price, and put options with an exercise price lower than the share's market price, are "out-of-the-money".

II. Decide whether the following statements are TRUE or FALSE:

III. Match up the following words (using them more than once if necessary) to make up at least ten two-word nouns:

IV. Match up the following words or expressions to make eight pairs of opposites:

V. Match the responses on the right with the questions on the left:

VI. Complete the following:

1. Companies generally use investment banks to __________ their bonds.

2. Thereafter, they can be traded on the ______________market.

3. The amount of interest a bond pays is often called its _____________ .

4. The majority of bonds have a ______________ rate of interest.

5. A bond's ________________ depends on the price it was bought at.

6. A bond priced at 104% is described as being ______________ .

7. Bonds are repaid at 100% at ___________________ .

8. AAA is the highest _________________ .

VII. Complete the following using the phrases in the box:

1. Another name for stocks and shares is _____, because all the stocks or shares of a company – or all those of a particular category – have an equal nominal value.

2. _____ (US: common stock) are often the only kind of shares with voting rights.

3. Some companies issue _____ which, like shares, grant their holders part of the ownership of a company, but usually without voting rights.

4. _____, as their name suggests, usually receive a fixed dividend, which must be paid in full before any dividend is paid on other shares. But because interest payments are tax deductible, and dividends are not, many companies now issue bonds instead.

5. _____ (or stock), again as the name suggests, do not receive a dividend until other categories of shares have had a dividend paid on them, but might earn a higher dividend if the company does well.

6. Securities in companies that are considered to be without risk are known as _____.

7. Widely-held stocks (e.g. blue chips or 20-year Treasury Bonds) that can be considered as indicators of present and future market performance, are known as _____ (GB) or bellwether stocks (US).

8. A ______ or share is one that is expected to appreciate in capital value; it usually has a high purchasing price and a low current rate of return.

9. A _____ or income stock or share is one that offers a good yield but only a limited chance of a rise or decline in price (in an industry that is not much affected by cyclical trends).

10. A way of spreading risks is to invest in a unit trust (in Britain) or a _____ (in the US), organizations that invest small investors' money in a wide portfolio of securities.