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Unit 9 Money • Language associated with finance Part I Review & Exercises Currency code • CNY • USD • AUD • HKD • CAD • JPY • KRW • GBP • EUR – ISO 4217 • • • • • • • • • Currency name & symbol Chinese Yuan Renminbi (RMB¥) United States Dollar ($) Australian Dollar ($A) Hong Kong Dollar (HK$) Canadian Dollar (C$) Japanese Yen (J¥) Republic of Korean Won (₩) Great Britain Pound, Sterling (£) Euro (€) Trends • p.72 “Language review” Trends Degree of change • sharply, dramatically, considerably, significantly, moderately, slightly… Speed of change • rapidly, quickly, suddenly, gradually, steadily, slowly… Exercise: describe the graph Sales of ABC Company in different markets 80 70 60 50 Asia USA Britain Europe 40 30 20 10 0 2005 2006 2007 2008 2009 Exercise: describe the graph Vocabulary: fill in the blanks with proper terms • As an individual, you can put your money on deposit ____ in a bank, and as long as the bank doesn’t fail and the interest Your economy keeps functioning, you will get ____. money is lent out to people, businesses and financetheir own projects, governments who need it to ____ and the bank will make its money on the difference between what it pays out in interest on deposits and loans it gets in interest from its ____. • If you want to live more dangerously you can buy bonds and as long as the organization or some ____, country you’ve invested in by lending it money doesn’t default, you will get your interest payments, and later your bonds ____ will eventually be repaid. Vocabulary: fill in the blanks with proper terms shares • To live even more dangerously, buy some ____ and share in the profitability of your chosen company. In good times, thedividends ____ will be more than what you would get from bonds, and the shares ____ themselves will capital____ gain if you sell increase in value, giving you a ____ them. But if the company runs into trouble and goes bankrupt, you will be among the last to be paid back, and you may get only part of what you put in, or you may lose all your money. risk • This illustrates the trade-off between ____ and ____. return Vocabulary: fill in the blanks with proper terms • From the point of view ofinvestors ____, the world’s financial markets exist in order to channel money to profitable investment activities and projects. From the point of view ofborrowers ____ such as companies and governments, financial centres exist so that they can find capital on the best terms. mutual funds/unit trust • Most investors are notinsurance private individuals but pension funds institutions likebanks ____, companies ____, ____ and ____ who may, of course, be investing money of private individuals money indirectly. The market they invest in include the ____ stock markets for shares,commodities andcurrency ____ markets, ____ ____ markets for anything from gold to pork bellies, and property ____ (building and land). Vocabulary: fill in the blanks with proper terms futures • There are also markets for ____ in currencies, equities, future is a fixed-price bonds and commodities: a ____ contract to buy a certain amount of something for delivery at a fixed future date. • There are markets foroptions ____ in currencies, equities, and bonds. Here, an investor buys the right to buy or sell a certain amount of these things at a certain price and particular date in the future. This is a form of betting on how prices will move. • Central ____ banks ____ like the Bank of England and the European Central Bank are crucial for financial centres because interest____ rates (the “price of money”) and they set basic ____ money ____ supply (the amount of money circulating in control ____ an economy). Key terms • • • • • M1: money M2: near money/cash, quasi-money capital gain return on investment (ROI) securities: stock or bond that represents an obligation of the issue to provide the purchaser an expected or stated return on investment ~ company/market/exchange • stock, share, equities • treasury / government bond 国库券/政府债券 • corporate bond 企业债券 Key terms • primary market: market where firms sell new issues of securities publicly for the first time • secondary market: market where subsequent owners trade previously issued shares of stock and bonds • common/ordinary stock/share: security providing owner voting rights but only a residual claim to company assets • preferred/preference stock/share: security providing owner preferential dividend payments and first claim to company assets after it pays all debts; it seldom confers voting rights Key terms • convertible preferred stock: giving a stockholder the option of converting preferred stock into common shares at some stated price 可兑换优先股 • NASDAQ (National Association of Securities Dealers Automated Quotations) system: nationwide, OTC (over-the-counter) securities trading network • the NASDAQ Composite index: a stock market index of all of the common stock and similar securities listed on the NASDAQ stock market, meaning it has over 3,000 components. It is highly followed in the US as an indicator of the performance of stock of technology companies and growth companies. Key terms: for reference • • • • • • • • • • • • the par value of shares 股票面值 the net value of shares 股票净值 the market value of shares 股票市值 opening price 开盘价 closing price 收盘价 suspension of business in case of skyrocketing of stock prices 涨停板 suspension of business in case of slump of stock prices 跌停板 account day 交割日 board 股票行市牌 quoted price 牌价 share index 股票指数 share-list 股票行情 Part II Financial crisis • pp.74-75 Reading “Financial disasters” Part II Financial crisis: key terms Current Financial Crisis • recession: a period when trade and industry are not successful and there is a lot of unemployment; temporary decline in economic activity or prosperity • depression: a long period of time when there is a lot of unemployment and poverty because there is very little economic activity • subprime mortgage • credit crunch • bailout Part III Seminar Group Work • Task 1: Every group member chooses one article from the handout and read it in 15 minutes, then reports the main idea of what you have read to the whole group in turn. • Task 2: Based on the information reported, group members discuss the following questions: 1. What happened? Why did it happen? 2. What solutions to the US banking system are advanced by the experts? In your opinion, will those proposals be feasible and effective? 3. What possible solutions may you put forward? A summary of financial crisis in 2008 • The fallout within the financial industry in 2008 has caused “credit crunch” in the U.S… A series of bank and insurance company failures triggered a financial crisis that effectively halted global credit markets and required unprecedented government intervention. Fannie Mae (FNM) (房利美) and Freddie Mac (FRE) (房地美) were both taken over by the government. Lehman Brothers declared bankruptcy on September 14th after failing to find a buyer. Bank of America agreed to purchase Merrill Lynch (MER) (美林证 券), and American International Group (AIG) was saved by an $85 million capital injection by the Federal Reserve and the federal government. Followed shortly, on Sept. 25, 2008, JP Morgan Chase (摩根大通) acquired WaMu‘s banking (华盛顿互惠银行) operations from the Federal Deposit Insurance Corp. WaMu had 2,200 branches and nearly 5,000 ATMs. In fact, by September 17, 2008, more public corporations had filed for bankruptcy in the U.S. than in all of 2007. These failures caused a crisis of confidence that made banks reluctant to lend money amongst themselves, or for that matter, to anyone. A summary of financial crisis in 2008 • The crisis rooted in real estate and subprime lending. Commercial and residential properties saw their values increase precipitously in a real estate boom that began in the 1990s and increased uninterrupted for nearly a decade. Increases in housing prices coincided with a period of government deregulation that not only allowed unqualified buyers to take out mortgages but also helped blend the lines between traditional investment banks and mortgage lenders. Real estate loans were spread throughout the financial system in the form of CDOs and other complex derivatives in order to disperse risk; however, when home values failed to rise and home owners failed to keep up with their payments, banks were forced to acknowledge huge write downs and write offs on these products. These write downs made several institutions approach insolvency. These financial institutions were forced to raise capital or go bankrupt. A summary of financial crisis in 2008 • The U.S. Federal Government chartered the two leading mortgage institutions at the center of the crisis, Fannie Mae in 1938 and Freddie Mac in 1970. Fannie and Freddie were able to take on super-high risks at their discretion, because US Government implicitly promised these institutions that it would make good on their debts. In the 1990s, although beginning in 1977, Congress pushed mortgage lenders, including Fannie and Freddie, to expand subprime lending, and with the implicit promise of federal backing which they obliged. With the creation of mortgage-backed securities, which decreases risk by spreading the risk, and the moral hazard created by government, subprime lending soared. Mortgage lenders began to take on super-high risks and then passed them on as mortgage-backed securities, which were packaged in almost any kind of investment funds and purchased by institutional and individual investors.