UNIT 5: THE WORLD OF FINANCE

SPEAKING
What is the safest/most profitable way to raise capital?
1A. Draw students attention to the pictures, which suggest two possible sources of finance personal
savings or business angels. Explain the term business angels (An angel investor or angel (also
known as a business angel or informal investor is an affluent individual who provides capital for a
business start!up, usuall" in exchange for convertible debt or ownership e#uit". A small but increasing
number of angel investors organi$e themselves into angel groups or angel networks to share
research and pool their investment capital.
Sources of finance:
a %or a small business& bank loan, personal savings, loan from friends'relatives, loan shark, business
angels, grants, other sources of finance (donations, inheritance, a.s.o.
b %or a large corporation& share issue, investors, capital obtained as a result of mergers'takeovers,
bonds, institutional investors (insurance companies, investment funds, pension funds.
Safe sources for a small business& bank loan (unless there are ma(or changes in the value of a
currenc", e.g. the recent appreciation of the )wiss franc, which put those with credits in this currenc"
at a great disadvantage, personal savings, loan from friends'relatives (though personal relationships
might suffer, if something happens to the business, business angels, grants, donations, inheritance.
Risky sources for a small business& loan sharks
Safe sources for a large corporation: share issue, investors, mergers (but not takeovers* a merger
will lead to changes in the management, but not to losing control of the business, as in the case of a
takeover, bonds, institutional investors
Risky sources for a large corporation: capital obtained as a result of a takeover
Profitable sources for a small business& personal savings, loan from friends, business angels,
grants, donations, inheritance. +rants are ver" cheap forms of finance, as the" do not have to be
repa"ed* the investment in this case is reduced to the fee for a consultanc" firm, if one is used.
nprofitable sources for a small business (in the sense that the price "ou pa" for repa"ing the loan
will be ver" high, and might affect the future profitabilit" of the business itself& bank loan (the interest
on the loan is usuall" #uite high, and there is also the risk of losing the collateral used for the loan& a
house, piece of land, etc., loan shark.
Profitable sources for large corporations: all the sources, with the mention that the capital
obtained as a result of a share issue depends on the performance of the business the value of the
shares depends on how well the business does.
,t is difficult to find a source of finance which is both safe and profitable. -he best choices, for a small
business, are& personal savings, loan from friends'relatives, business angels, grants, other sources of
finance (donations, inheritance, a.s.o. %or a large corporation& share issue, investors, capital obtained
as a result of mergers, bonds, institutional investors (insurance companies, investment funds, pension
funds.
1!" 1b# $e# % &# 'c# ()# *g# +f# ,i# -h# 1.a
-he following collocations are also possible& run a business, acquire a chain of hotels
9
PRACTICAL ENGLISH FOR FINANCE AND ACCOUNTING
-ell students that go bankrupt and go into administration are s"non"mous. Elicit other s"non"ms (go
bust, go to the wall: %irst one branch and then another did poorl", and the store finall" went to the
wall, go belly up.
Explain the word pawnbroker in the cartoon (A pawnbroker is an individual or business (pawnshop
or pawn shop that offers secured loans to people, with items of personal propert" used as collateral.
-he word pawn is derived from the .atin pignus, for pledge, and the items having been pawned to the
broker are themselves called pledges or pawns, or simpl" the collateral.
1/" 1"set up# $" borrow# %" run# '" gone# (" un&erwrites# *" ac0uire# +" borrow# repay# ," &raw up#
-" going into# 1." run
11" Stu&ents might nee& help with some of the answers:
/uestion 0 the article below presents some cases of bankruptc" in America in 1232.
!usiness !ankruptcies: $.11 Will 2ikely 3ollow $.1. 2ower
4ovie Rentals
4hile Americans haven5t "et ditched the D6D as a primar" home!entertainment media vehicle, man" have
ditched the D6D5s two largest store chains. 4eighed down b" debt from its 1220 spin!off from former parent
6iacom (6,A, 7lockbuster was further hampered b" customer dissatisfaction with its late fees and b" the
explosive growth of competitors 8etflix (8%.9 and, more recentil", movie!kiosk leader :edbox (;)-:. )maller
rival <ovie +aller" was also debt!ridden from its 122= ac#uisition of >oll"wood 6ideo and shut its doors this
"ear.
4e&ia
National Enquirer parent American <edia declared bankruptc" last month, though it5s working on a plan to
emerge. Affiliated <edia, whose newspapers include the Denver Post and San ose !ercury News, entered,
then exited, bankruptc" this "ear. 7oth companies were crushed b" large debt loads, declining advertising and
competition with free content on the ,nternet.
5roceries
+reat Atlantic ? @acific -ea, owner of A?@ supermarkets and other brands, is among a group of old!line
supermarket chains that have been beset b" the combination of growing competition from higher!end groceries
such as 4hole %oods and general retailers like 4almart, which has expanded its food offerings. -he 3=3!"ear!
old compan" declared bankruptc" this month, though it continues to operate.
3inancials
7ond insurer Ambac (A7A declared 12325s largest B.). bankruptc" last month after attempting to restructure for
the past three "ears. >it hard b" the real estate and foreclosure crisis, Ambac is also suing the B.). for
attempting to sei$e CD22 million in tax refunds.
/uestion = according to the %inancial -imes .exicon&
un&erwrite
-o guarantee against financial risk b" assuming that risk, as financial institutions do when the" offer
(underwrite an insurance polic", or when the" bu" a new securities issue from the issuer for re!sale
to the public.
A new securities issue is normall" underwritten b" a group of investment banks (called the
underwriting group or s"ndicate. Ene bank, appointed b" the group as lead manager, signs the
underwriting agreement that specifies all the details of the issuer!underwriter relationship (including
pricing, and handles other arrangements including distribution of the issue through dealers or other
investment banks (the selling group.
-he fee the underwriter earns is the spread (the underwriting spread between the price it pa"s the
issuer for the stock, and the price at which it re!sells the stock to the public (the issue or public
offering price, either directl" or through dealers.
/uestion F examples of successful ac#uisitions& @rocter ? +amble takeover of +illette, .5ErGal5s
takeover of 7od"shop
/uestion H A business plan is a summar" of a business5s prospects and plans for the future,
t"picall" including discussion and anal"sis of market opportunities, business strateg", ke" operational
issues, and finances, including cost and revenue pro(ections. Bsed b" a compan" to attract financing
or investment capital.
/uestion I -his is a difficult #uestion. +ood performance will prevent the compan"s going
bankrupt. -his would include& good management, inspired financial decisions, sound strateg".
>owever, there are factors a compan" will not be able to control& the economic environment (the
10
Unit 5: THE WORLD OF FINANCE
current crisis is a good example, bad decisions of the government, changes in legislation, changes in
consumer tastes, etc.
READING: HOW CORPORATIONS RAISE CAPITAL
$A"1c# $a# %b
$!" A 1" 6ssuing bon&s# ! *" 6ssuing preferre& stock# / $" !orrowing# 1 %" Selling common
stock# 7 '" sing profits
$/" 1c# $c# %a# 'b# (b
1" All the answers are correct# in other conte8ts" 78amples of sentences:
a. @utting up some students in local motels is obviousl" (ust an interim solution to the college5s
housing shortage
b. -he committee plans to publish an interim report b" the end of Jul".
c. -he regulations are scheduled to change next winter, and in the interim KLmeanwhileM, we5ll be
working hard to make all of the appropriate changes.
$" All the answers are correct# in other conte8ts" 78amples of sentences:
a. -he cancellation of the concert was due to the rain.
b. All club members should pa" their dues.
'" Explain the difference between stockholders"shareholders and stakeholders. )hareholders are
owners of the business (actionari. )takeholders ! %inancial -imes definition& An" part" that is
committed, financiall" or otherwise, to a compan" and is therefore affected b" its performance. -his
would normall" include shareholders, emplo"ees, management, customers and suppliers. -heir
interests do not alwa"s coincide.
$1"
Stu&ent 1 Stu&ent $
Answers: Answers:
3. ,nvestment banks 3. Nes, holders can sell bonds to someone else
before the" are due.
1. ;ommon shareholders 1. -he interest rates for bonds are generall" lower
than rates for most other t"pes of borrowing.
O. ,nvestors are attracted to stocks in two wa"s.
)ome companies pa" large dividends, offering
investors a stead" income. 7ut others pa" little or
no dividends, hoping instead to attract
shareholders b" improving corporate profitabilit".
O. Nes, interest paid on bonds is considered to be
a tax!deductible business expense.
0. )ome corporations, especiall" electric, gas,
and other utilities, pa" out most of their profits as
dividends to their stockholders.
0. Nes, corporations must make interest
pa"ments even when the" are not showing
profits. ,f investors doubt a compan"5s abilit" to
meet its interest obligations, the" either will refuse
to bu" its bonds or will demand a higher rate of
interest to compensate them for their increased
risk.
=. )maller companies prefer to reinvest most or
all of their net income in research and
expansion, hoping to reward investors b" rapidl"
increasing the value of their shares.
=. ,f profits are limited, preferred!stock owners will
be paid their dividends after bondholders receive
their guaranteed interest pa"ments but before
an" common stock dividends are paid.
LISTENING: WHAT NOT TO DO WHEN SEEKING CAPITAL FUNDING
%A" 1" ina&e0uate# $" noisy# %" e8pectations# '" compelling# (" angels# *" ought# +" barriers#
,"investors# -" broker# brokers
%!" 1a# c# $c# %a# 'a
%/" 1" stan&s out# $" cast a pall# %" throughput# '" was hea& an& shoul&ers above the rest
11
PRACTICAL ENGLISH FOR FINANCE AND ACCOUNTING
READING: TYPES OF SHARES
'!"1" value stocks# $" growth stocks# growth# growth# %" income# '" !lue chips# !lue chip# blue
chip# blue chips# (" &eferre& shares# *" barometer stock# barometer
'/" -he factors which influence the prices of stock exchange are as follows&
1" 1eman& an& Supply
-he forces of demand and suppl" determine the prices of securities. ,f a particular securit" is available in
abundant suppl", it will sell at a lower price than usual. )imilarl", if there are more bu"ers than sellers the price
will have a tendenc" to rise.
$" !ank Rate
7ank rate influences the prices of the shares. 4hen the bank rate is low it encourages public to borrow more
mone" from banks in order to purchase securities. -hen the prices of the shares will tend to rise with increase in
demand. En the other side when the rate is high, less mone" will be borrowed and the prices of shares will tend
to fall.
%" Political Situation
-he stock exchange is influenced b" the political disturbances inside the countr" and outside the countr".
Bncertainl" in political conditions, revolution, or outbreak of war have a #uick effect on share values.
'" 9ra&e activities
)tock exchange is greatl" influenced b" the slumps and booms. 4hen trade activities will be fast in the boom
period, the prices of the securities tend the increase. ,n case of depression, the prices of the shares tend to fall
due to low production volume.
(" 1irectors: &ivi&en& policy
,f the compan" earned large profit during the particular period, the more dividend will be distributed among the
shareholders -hus the prices of the share will go up due to increasing demand. ,f directors decide to distribute
less dividend among the shareholders, the prices of the shares will go down.
*" Public confi&ence
,f there is an" doubt in the mind of people for the pa"ment of interest, the value of the govt. securities ma" ;ome
to fall. 7ut if public confidence increases in regard to the abilit" to pa" interest, the value of the +ovt. )ecurities
ma" rise.
+" Artificial buying
%or the purpose of creating good demand among the public, the under!writers begin to purchase a number of
shares. -hus the prices of the compan" concern will rise due to artificial bu"ing.
," 6nvestment by the insurance company
,nsurance companies are considered the greatest purchasers of the securities in the world. An" investment on
the part of the insurance compan" will tend to increase the prices of securities. ;onversel" when these shares
are disposed of in the stock exchanges, the prices will show a downward trend.
-" 1irector:s influences
4hen an" influential director resigns from the 7oard of Directors, it ma" create the doubts in the mind of public
about the financial stabilit" of the compan". -his situation will adversel" affect the prices of the shares in the
stock exchanges market.
1." ;verpro&uction
,n case of overproduction, the compan" will not be in a position to declare sufficient amount of dividend among
the shareholders. -herefore the prices of the shares in the stock exchange will fall.
11" Sympathetic situation
Ene stock exchange is influenced rapidl" b" another stock exchange. ,f the prices of the particular share in one
stock exchange rise, the other stock exchange will also be affected and the prices of the particular share will go
up and vice versa.
1$" Activities of the speculations
-he polic" of the speculators i.e. 7ulls ? 7ears influence the prices of the shares in the stock exchange market.
-he" some times, purchase the shares in abundance to increase the value of particular securities.
1%" 6nflation an& &eflation
4hen the countr" suffers from inflation, the prices of the securities tend to go up, and in time of deflation, i.e.
prices of securities tend to go down.
1'" 1epression of securities
4hen the prices of the non!govt. securities are depressed, the public begin to
purchase +ilt!edged securities due to their fixed return of investment.
1(" 6nfluence of press
)ome periodicals are issued in which experienced writers give their views about the latest situation in the stock
exchange market. -heir opinion influences the prices of the shares in the share market.
1*" /hange in fashion
4hen an" change in the consumer5s habit or fashion happens, the prices of the shares will fall because the
compan" will not be in a position to declare good dividend among the shareholders due to its limited profit.
1+" Availability of loanable fun&s
,f plent" of loanable mone" is available on simple terms and conditions, the prices of the securities will tend to
increase. 7ut if there is restriction imposed b" the central bank on the expansion of loan, the prices of shares will
tend of fall.
12
Unit 5: THE WORLD OF FINANCE
1," 4iscellaneous factors
-he following factors will directl" affect the prices of the securities in the share market&
(a ,f there is sudden change in the weather conditions.
(b @ersonal health of head of the )tate.
(c :evolution, break out of war, rumours, unforeseen competition, change in the management, strike,
amalgamation, new taxes, unfavourable balance of pa"ment.
'1"19# $3# %3# '3# (9# *9
9he correct statements are in the previous e8ercise:
1. -he" have a negative effect. (see O. @olitical situation
O. ,n the boom period, the prices of securities tend to increase, not decrease. (see 0. -rade activities
0. ,f the prices of the particular share in one stock exchange rise, the other stock exchange will also
be affected and the prices of the particular share will go up and vice versa. (see 33. )"mpathetic
situation
READING: FINANCIAL CRISES
(" A %" August $.11 stock markets fall# 6mage $
! 1" 9he Wall Street /rash of 1-$-# 6mage 1
/ $" 9he /rash of $..,<$..-# 6mage %
BUSINESS TRENDS
*A"
peak recession trough recovery
boom depression slump expansion
contraction
LANGUAGE FOR TRENDS
*!" 1" ,mage 3, a, $" ,mage =, e, %" ,mage O, i, '" ,mage D, b, (" ,mage F, h, *" ,mage 0, c, +" ,mage 1,
d, ," ,mage I, f, -" ,mage H, g
*/"3dove, 1 peak, O soared, 0 double dip recession, = buo"ant, bounce back, F slash, D plateau
DESCRIBING A GRAPH
+A" 1. Conclusion, 2. Main body, 3. Introduction
+!" 1" &roppe&# increase&# &ecrease&# $" gra&ually# steeply# remaine& stable# %" &eclining
FINANCIAL INSTITUTIONS
,A.,f "ou need loans, mortgages, or working capital for a small business, "ou can appeal to
investment banks or commercial banks.
,f "ou are looking for low costs, low fees, mutual fun&s and cre&it unions would be a good idea.
>owever, "ou will not usuall" obtain high returns on deposits.
,f safet" for "our deposits is important, "ou should choose reliable banks, and if possible use several
banks, so as to have in one bank no more than the amount guaranteed b" the state to be returned to
depositors in case the bank goes bankrupt.
,f "ou re#uire government insurance, see the point discussed above.
,f "ou re#uire a high return on "our mone" brokerage firms might help. A high return can be obtained
b" speculating on the stock exchange. >owever, this is risk", as share prices fluctuate and "ou can
also lose high amounts.
,!" 1&# $a# %b# ')# (c# *e# +f# ,h# -g
Some of the e8amples are in the following e8ercise"
+oldman )achs and <organ )tanle" are the last remaining ma(or 4all )treet firms that operate as
independent investment banks.
7uilding societ" 7arnsle" and ;helsea building societies, ;oventr" 7uilding )ociet" (onl" in the BA
;entral 7ank -he 8ational 7ank of :omania
<utual fund At the end of 122I, the first four in the top 32 mutual fund complexes in the Bnited
)tates were& 3. %idelit" ,nvestments, 1. 6anguard +roup, O. American %unds, 0. J@ <organ ;hase ?
;o.
7rokerage firm ! )mith 7arne" and 4ells %argo are examples of full service brokerage firms.
13
PRACTICAL ENGLISH FOR FINANCE AND ACCOUNTING
,/" !/R# 4errill 2ynch = commercial banks> !R1# 2ehman !rothers = investment banks#
2ehman !rothers went bust in the 122H financial crisis* 643 = cre&it union> Allian? = insurance
company
,1" 3 and 1. Savings and loan associations ma" offer slightl" higher rates than commercial banks on
deposits and somewhat lower rates than commercial banks on loans.
#redit unions can sometimes offer higher rates on savings accounts and lower rates on loans
because the" are not driven to provide a profit to shareholders.
$nternet banks can generall" pa" higher interest rates on deposits and charge less for loans than
traditional banks do.
GRAMMAR: THE PASSIVE VOICE
-A" 3. offer active voice, 1. are offered passive voice
-!" 1a# $b# %a# 'b# (a
-/" 3. 4ho are credit unions owned b"P
1. 4ho were these account features once reserved forP
O. 4hich account features were once reserved for traditional banksP
-1" 3. -he highest interest rates on deposits or the lowest interest rates on loans are not generall"
offered b" commercial banks.
1. )lightl" higher rates on deposits ma" be offered b" savings and loan associations than b"
commercial banks.
O. 4ith man" mutual fund companies, checks can now be written against "our mutual fund account.
0. -hese and man" other account features that were once reserved for traditional banks are offered
b" brokerage firms.
-7" 3. was viewed, was linked, is influenced, 1. have been separated, was put, was blamed, 0. is not
considered
LISTENING: HOW DOES THE FINANCIAL SYSTEM WORK?
1.A" 3. >ow do "ou think things are going at the momentP
1. 4hat is the problem at the momentP
O. 4ho do "ou borrow mone" fromP
0. 4h" do "ou charge me feesP
=. And how much interest do "ou pa" meP
F. 4ho do "ou lend that toP
D. 7ut shouldnt people (ust bu" what the" can affordP
H. Do people need to be bu"ing these thingsP
I. 4hos advertising things that people dont needP
32. )o what are "ou gonna doP
33. 4h"P
31. And "ou havent got itP
3O. 4h" notP
1.!" 1e# $c# %b# '&# (a
CASE STUDY: TAVOLA CALDA:KEEPING THE RESTAURANT IN THE BLACK
LANGUAGE FOR EXPRESSING OPINIONS
11A" 1 Stalling for time# $ 5iving the opposite opinion# % Asking for a particular kin& of opinion#
' /larifying your opinion# ( 5iving your opinion neutrally# * Asking someone:s opinion
neutrally# + 5iving a strong opinion
14