Lyubimtseva_S_N__Koreneva_V_N_L_93_Kurs_angli

privatization process.

F.: Yes, the start of auctions of enterprise shares and other measures are likely to increase the role of outside investors and may also have a positive effect on the volume of foreign investment in Russia.

R.: Hopefully, it will speed up the ongoing reforms and the structural adjustment.

F.: World experience has shown on many occasions that foreign investments can become a vital element of a country's economic progress. Through what channels are foreign investments coming to Russia?

R.: Mainly in the form of foreign direct investments and portfolio investments.

F.: Foreign direct investment in Russia is most typically in the form of joint ventures, isn't it?

R.: Yes, besides there are fully foreign-owned enterprises. The most important recipient sectors are: machine-building, metal processing, the fuel and energy sectors, trade and public catering. But we are not satisfied with the investment level, as I've said. The figures for portfolio investments are not encouraging either.

F.: Figures are figures, but some foreign investors believe that Russian stocks are worth buying and the market really offers good investment opportunities.

Words you may need:

capital investment капиталовложения interchangeably adv (зд.) одно вместо другого gross capital investment валовые капиталовложения reproduction n воспроизводство

full recovery полное восстановление intellectual assets интеллектуальные активы clarification n разъяснение

uncertainty n неопределенность clarity n ясность

consistency n последовательность to dampen interest ослаблять интерес interdiction n запрет

Ex. 14. Give extensive answers to these discussion questions:

What is investment?

What do investment activities depend on?

Why have investment activities become a fundamental feature of international economic development? What are the major channels of foreign investments?

How do you assess the investment climate in Russia (activities of Russian and foreign investors)? What can increase the inflow of foreign investment to Russia?

In order to get prepared for participation in the class discussion of the questions, write a short essay on the following:

a) The difference between FDI and portfolio investment.

(Use: to acquire, managerial control, to set up, joint venture, foreign branch, multinational enterprises, new technology, competition, purchase of stock)

b) Activities of institutional investors.

(Use: to invest, to diversify, stock, government bonds, to monitor, portfolio, pension funds, mutual funds,

investment trusts)

c) The essence of the "economies of scale" notion in finance.

(Use: gains, to raise new capital, more easily and cheaply, to pool risks, to increase profits, to diversify activities, to reduce cost of production, large-scale production, to increase production)

Ex. 15. Prepare a short talk on the following:

a)What aspects of economic order is investment activity associated with?

b)Multinational enterprises: how firms from different countries grow into multinational enterprises; where they are welcome (developed or developing countries); relations with the host country.

c)Why are investments made? Why are foreign investments important to all countries?

Ex. 16. Scan local newspapers to find examples of FDI and portfolio investments. Comment on the benefits of the investment projects for the local business and the country on the whole.

READING PRACTICE

Ex. 17. a) Look through the text below to find the explanation why administrators of pension and endowment funds are referred to as investment engineers.

b) Reread the text more carefully and explain how administrators of funds make decisions about choosing the assets to invest.

Investment Skill Is a Rare Commodity

Administrators of pension and endowment funds might be surprised to find themselves referred to as investment engineers. Yet these particular institutional investors (who are often called "plan sponsors") face the complex problem of efficiently allocating their assets among various investment managers so as to best achieve their stated investment objectives. The disciplined process through which this manager "structuring" problem can best be resolved is analogous to an engineer designing a building or a machine.

When plan sponsors choose to invest in a particular asset class, especially a well-defined and liquid one such as the US common stock market, they typically choose a market index to characterize the expected return and risk opportunities of the asset class and to serve as a benchmark against which to evaluate the subsequent performance of their investments. In this context, the selected market index is called an asset class target. For example, a plan sponsor might specify the Standard & Poor's 500 and the Solomon Brothers Broad Bond Index as the asset class targets for its US common stock and fixed-income investments, respectively.

Plan sponsors rarely opt to conduct all of their investment in an asset class on a strictly passive basis. Instead, they typically hire a number of active investment managers. In aggregate, these active managers are expected to exceed the performance of the asset class target on a risk-adjusted basis.

For various reasons most active investment managers pursue distinct investment styles, focusing their efforts in particular niches of the marketplace. For example, some common stock managers concentrate on small capitalization growth stocks, whereas some bond managers invest only in mortgage-backed securities.

Just as an investment manager will diversify within a portfolio to avoid unintended risks, a plan sponsor will diversify across investment managers. This manager diversification reduces the possibility that one manager's mistakes will seriously harm the plan sponsor's total portfolio. Further, it avoids the risk that the total portfolio will be excessively exposed to the results of a specific investment style.

The goal of efficient style diversification is to be style neutral relative to the asset class target. That is, in aggregate, the investment styles of a plan sponsor's managers should exhibit exposures to factors of risk and

return similar to those of the asset class target. Words you may need:

endowment fund благотворительный фонд analogous adj аналогичный

asset class класс актива market index рыночный индекс

benchmark n база, ориентир, отправная точка asset class target цель по классу актива

opt v выбирать

in aggregate в целом

on a risk-adjusted basis с учетом риска

small capitalization growth stocks акции мелких быстрорастущих компаний exposed to the results (зд.) зависеть от результатов

exposure n (зд.) подверженность

Ex. 18. a) Read the text below quickly to find what investment trusts are referred to.

b) Reread the text more carefully to find parts of the text describing the specific features of the funds. Investment Trusts

Small shareholders who do not have enough money to invest in a wide-range portfolio buy shares in investment trusts.

Investment trust is a public corporate body which invests funds in a wide range of stocks and shares, thus "spreading the risk" more effectively than could be achieved by an individual investor with much smaller funds. The capital of the investment trust is derived mainly from public issues of debentures, preference shares and ordinary shares, which are quoted on the stock exchanges.

Investment trusts can be of two types. Open-end investment fund is an investment fund that is open in the sense that it issues new shares every time that it receives new money from investors – unlike a closed-end investment fund, which issues a limited number of shares that are then traded only in a secondary market. Closed-end investment companies do not stand ready to purchase their own shares whenever one of their owners decides to sell them. Instead their shares are traded either on an organized exchange or in the over- the-counter market.

Most closed-end funds have unlimited lives. Dividends and interest received by a closed-end fund from the securities in its portfolio are paid out to its shareholders.

However, most funds allow the reinvestment of such payments.

Besides, there are so called Real Estate Investment Funds. REIFs have existed for over 30 years. They are essentially (although not legally) closed-end investment companies that invest in real estate instead of financial assets. Similar to true investment companies, as long as 95% of their income is distributed to shareholders, it is free from taxation. Further, at least 75% of their assets and income must be derived from real estate equity or mortgages. REIFs must also have at least 100 shareholders. Their portfolios must be diversified, and no more than 30% of their income may come from selling properties held for less than four years. (This last requirement is designed to prevent REIFs from becoming vehicles for real estate speculation.)

REIFs engage in a common financial intermediation process known as securitization. A REIF manager

converts (securitizes) properties into financial assets by purchasing properties for the REIF. In order to finance the purchases the REIF manager issues freely tradable ownership shares.

Words you may need: derive v получать, извлекать

real estate investment fund учреждение, специализирующееся на инвестициях в недвижимость securitization n «секьюритизация» (процесс повышения роли различных видов ценных бумаг как формы заимствований)

UNIT 11. FOREIGN EXCHANGE MARKET. GLOBAL FINANCIAL MARKETS A. TEXT

TRADING IN THE FOREIGN EXCHANGE MARKET

Any one country's currency is a legal tender only within its national boundaries. To trade beyond these boundaries involves exchange of monies. Exchange of currencies is possible if national currencies are interchangeable. The terms on which one currency will exchange against another are referred to as rate of exchange. The rate of exchange is the value of one unit of the foreign currency expressed in the other currency concerned.

Currencies can be bought or sold in the Foreign Exchange Market. The Foreign Exchange Market is the oldest financial market in existence. It is also the largest international financial market in the world. The Market performs two major functions: it facilitates the foreign exchange needs of exporters and

importers, and it enables individuals, corporations and governments to obtain a desired currency mix of their portfolios.

Trading in the Market occurs 24 hours a day in various centres around the world. Deals are concluded bilaterally over telecommunications networks by different counterparties, some of whom serve as market makers or dealers.

The exchange market is global in character, it does not have one centralized location; trading is heavily concentrated in a handful of centres: London, New York, Tokyo, etc. The great majority of foreign exchange trading takes place in the interbank market between traders or market makers who represent large commercial banks or other financial institutions. Foreign exchange departments of large commercial banks are linked across the world through a sophisticated network of communication systems. The market consists of three major sectors: the spot market, the forward and futures markets and the currency options market. Somewhat more than half of all transactions are spot deals. In other words, they are transactions which call for the delivery of the two currencies exchanged within two business days. The remainder of the deals can be classified as outright forwards, swaps, futures and options.

Such transactions are performed by customers who do not know when they will need foreign currency to overcome the growing exposure to currency risks in the conditions of foreign exchange rate volatility. The cost of transacting in the wholesale market is reflected in the bid-ask (or bid-offer) spread. Prices in the market depend on the volume of transactions, exchange rate volatility, the availability of relevant information and the strength of competition in the Market.

As prices are different in different markets, professional dealers take advantage of it buying, say, US dollars for Yen in Singapore and selling them in London for sterling and then back into Yen in New York – all for a profit. The operation is called currency arbitrage.

The delivery of the individual currencies involved in a foreign exchange transaction typically takes place

through the payment systems of the two countries whose currencies are traded.

The reliance on the domestic currency payment system of individual countries for the clearing and settlement of foreign exchange transactions means that the stability and integrity of the global foreign exchange market depends on both the soundness of the individual counterparties and the robustness of national payment systems.

B. DIALOGUE

CORNERSTONE OF THE GLOBAL FINANCIAL MARKET

Russian: As far as we know, the cornerstone of the global financial market is the Foreign Exchange Market. In this connection, how is it developing? What affects its development?

Foreigner. I would stress, first of all, that the FOREX is really an integral, fundamental sector of the global financial market. It reflects economic relations between parties to currency deals. The most noticeable factors affecting the market are trade and non-trading financial transactions between countries, like transportation, insurance, tourism, credits, foreign investment, etc.

R.: The market has no one centralized location, does it?

F.: No, the market is global in character. It is rather a network of dealing rooms connected by sophisticated communications systems, like telephones, telex machines and electronic dealing systems. Major trading activities are conducted in London, New York, Chicago, Tokyo, Singapore and others.

R.: The cities you've mentioned are located in different time zones. What are the trading hours then? F.: Oh, trading occurs 24 hours a day. Dealing rooms span the globe and the market never really closes. R.: How big is the market? How big is the volume of deals in the market?

F.: By the estimate of the Bank for International Settlements, about $1 trillion is exchanged every day. R.: Who are the major participants in the market?

F.: Commercial and investment banks, central banks, governmental agencies, professional fund managers, corporations, brokers, investors, speculators.

R.: I think banks play the most important role in currency transactions.

F.: You are right. Bank dealers at their workplaces are in constant contact by telephones or computers with dealers in different banks. They sit analysing latest currency quotations they see on display. Banks buy or sell currency either for themselves or on behalf of their clients.

R.: What currencies can be bought and sold?

F.: Only convertible currencies.

R.: I know that currency operations are based on exchange rates. The exchange rate is the value of one unit of the foreign currency expressed in the other currency concerned. Banks involved in currency operations determine full quotations including the buying and selling rates and use them for their currency transactions. How are exchange rates determined?

F.: It's a very difficult question. Determination of the exchange rate at which foreign transactions will take place depends on the exchange rate policy adopted by the central bank of a country. At the present time countries are free to choose the method to determine the value of their currencies. Advanced industrial countries use floating rates depending on supply and demand. Other countries peg their currencies to one currency or a group of currencies.

R.: What factors affect the exchange rate?

F.: They are many. The exchange rate depends first of all on the Purchasing Power Parity, country's

economic development, balance-of-payments position, inflation rate, money in circulation, confidence in the national currency on the world market, interest rates, the central bank policy, currency legislation, etc.

R.: The Central Bank of Russia is taking steps to liberalize currency legislation and to join the global financial community.

VOCABULARY LIST

A. foreign exchange market валютный рынок legal tender законное платежное средство national boundaries государственные границы beyond prep за пределами

monies n pl денежные суммы

interchangeable adj взаимозаменяемый, обмениваемый exchange v обмениваться); n обмен

rate of exchange обменный курс unit of currency денежная единица

enable v позволять, давать возможность currency mix структура денежной массы occur v происходить

interbank market межбанковский рынок foreign exchange department валютный отдел spot market наличный рынок

forward market форвардный рынок futures market фьючерский рынок

currency options market рынок валютных опционов call for v (зд.) требовать, предусматривать remainder n оставшаяся часть, остаток

outright adj (зд.) обычный swap n своп

volatility n изменчивость, непостоянство

bid-ask (bid-offer) spread разница между ценами (курсами) продавца и покупателя currency arbitrage валютный арбитраж

reliance n доверие, уверенность

clearing n (зд.) сравнение деталей финансовой сделки перед расчетом robustness n прочность

B. cornerstone краеугольный камень integral adj неотъемлемый currency deal валютная сделка dealing room дилерская комната time zone часовой пояс

span v охватывать, перекрывать

latest currency quotations последние валютные котировки convertible currency конвертируемая валюта

buying (selling) rate курс покупки (продажи) value of currency стоимость валюты floating rate плавающий курс

peg v «привязывать» (валютный курс)

purchasing power parity паритет покупательной силы валют

EXERCISES

Ex. 1. Answer these questions:

A. 1. Why is exchange of currencies necessary?

2.What makes exchange of currencies possible?

3.What is Rate of Exchange?

4.Where are currencies traded?

5. What major functions does the Foreign Exchange Market perform?

6.How does the Forex operate?

7.What are the major sectors of the Forex?

8.What deals are transacted in the market?

9.Why does the market depend on payment systems of individual countries? B. 1. Is Russia making moves to enter the international financial markets?

2.How is the international foreign exchange market developing?

3.Who are the major participants?

4.What currencies can be bought and sold in the market?

5.How are exchange rates determined?

6.What factors affect the exchange rate? Ex. 2. Give derivatives of:

Ex. 3. Find English equivalents for the following Russian phrases from the text:

А. валютный рынок; быть законным платежным средством; в рамках национальных границ; обмен валюты; валюты могут быть обменены (одна на другую); выполнять функции; способствовать удовлетворению потребности в иностранной валюте; добиться желаемой структуры денежной массы своего инвестиционного портфеля; сделки заключаются с использованием телекоммуникационных систем; торговля сосредоточена в ...; которые представляют большие коммерческие банки; наличный рынок; форвардный рынок; фьючерский рынок; большинство сделок являются сделками «спот»;

сделка предусматривает поставку валюты в течение двух рабочих дней; отражать разницу между ценой продавца и ценой покупателя; валюты, задействованные в валютной сделке; расчет по финансовой сделке;

В. оказывать воздействие; неотъемлемый сектор рынка; наиболее заметный фактор; сеть дилерских комнат, связанных друг с другом современными коммуникационными системами; объем сделок;

валютные котировки; курс продажи (покупки); плавающий курс; «привязывать» валютный курс;

интеграция в мировой финансовый рынок.

Ex. 4. Say in a few words what the main text is about. Use the opening phrases from Ex. 4 (Unit 1). Ex. 5. Sum up the content of the dialogue. Use the phrases from Ex. 5 (Unit 1).

Ex. 6. Read the dialogue, translate the Russian remarks into English and act it out:

British economist: Your participation in the world financial markets is increasing. How is your foreign exchange market performing?

Polish economist: Экономические реформы в нашей стране привели к возникновению у нас рынка иностранной валюты, связанного с глобальными финансовыми рынками.

Вr. еc.: You've made tremendous progress. Ten years back your currency was not convertible.

P. еc.: Да, наша валюта достаточно быстро стала свободноконвертируемой. И сейчас она является единственным законным платежным средством в нашей стране.

Вr. еc.: It goes to the credit of your government and the central bank, doesn't it?

P. еc.: Да, и сегодня наш центральный банк поддерживает стабильность нашей валюты, ее обменный курс.

Вr. еc.: How is your foreign exchange market organized?

P. еc.: Наш рынок состоит из нескольких валютных бирж, на которых осуществляются различные сделки, включая спотовые, фьючерсные и форвардные операции. Успешной работе рынка способствует недавно модернизированная платежная система.

Вr. еc.: The basic idea of foreign exchange dealing is making profit on selling and buying currencies. P. еc.: Валютный арбитраж безусловно существует. Но главная цель нашего рынка – обеспечить потребности в иностранной валюте наших экспортеров и импортеров.

Ex. 7. Work on vocabulary and grammar.

a)Study the key words of the unit in the dictionary at the back of this book: option, rate, transaction, currency, quotation;

b)Think of the verbs that are most commonly used with:

currency, deals, trading, price, trading activities, restrictions, operations, quotations, financial flows; c) Think of the nouns that are most often used with:

to exchange, to sell, to buy, to express, to obtain, to deliver, to trade, to clear, to settle, to set, to convert, to determine, to express, to hedge, to shift;

d)Make your own sentences with any five word combinations from (b) and (c).

e)Match the verbs from (a) with the nouns from (b) below:

Ex. 8. a) Supply the articles where necessary.

b)Write down 3-5 questions about the text.

c)Say what exchange rate policies are practised by different countries.

In ... late 19th century ... major trading nations fixed their currencies in terms of gold. Exchange rates were therefore fixed and these countries had essentially one common currency.

In July 1944, international negotiations were held at ... Bretton Woods, New Hampshire, USA, to identify ...

basis of the new monetary system. The participants envisaged ... international monetary system that would determine exchange rate parities on the basis of consultations.

The postwar system was designed to be one of ... fixed but adjustable exchange rates. Member nations of ...

IMF were expected to "peg" their currencies within ... narrow band of internationally agreed parities. The US pegged ... dollar in terms of gold and all other nations pegged their currencies in terms of the US dollar. The breakdown of ... Bretton Woods system began when convertibility of the US dollar into gold ended in ...

August 1971. In December 1971, the Smithsonian Agreement resulted in ... major devaluation of the US dollar, and multilateral adjustments in the major exchange rate parities. The US dollar crises of 1973 finally finished off Bretton Woods, when the major countries abandoned ... adjustable peg and floated their currencies against the US dollar.

Since then many countries have adopted ... wide range of exchange rate practices, including independent floats, group floating, pegging against a major currency, and pegging against ... "basket" of currencies such as the SDR (Special Drawing Rights).

Many countries, particularly less developed countries (LDCs) have chosen to peg their currencies to either ...

single currency, to specially weighted "baskets" of currencies, or to the basket of currencies used by the IMF to calculate ... value of its SDRs. One benefit of the latter approach is that the IMF provides national exchange authorities with daily information on the value of... SDR basket.

Words you may need:

band n (зд.) полоса, диапазон breakdown n (зд.) падение, развал

multilateral adjustments многосторонние корректировки abandon v отказываться (от чего-л.)

Ex. 9. a) Supply the prepositions where necessary.

b)Write down 3-5 questions about the text.

c)Describe the components of the global financial markets. Global Financial Markets

The global market for finance encompasses a complex web of financial instruments and institutions. Its structure and functioning are affected in fundamental ways ... the macroeconomic environment (in particular, patterns of interest rates and exchange rates), the regulatory and technological environment, and fundamentals driving the real sector of the international economy.

The cash and derivative instruments that comprise global financial markets rest ... four cornerstones: 1) foreign exchange market, 2) the Eurocurrency market, 3) the market of intermediated credit facilities and debt instruments and 4) the equities market.

Foreign exchange (Forex) market stands ... the core of the global financial market. It encompasses spot as well as forward interbank and customer transactions, as well as Forex futures and options, traded ... various

organized exchanges around the world.

Motivations for Forex transactions range ... short-term positioning (speculation) to hedging ... commercial or investment transactions via outright forwards, forex swaps, futures or options.

Forex Market is a structure upon which most other segments ... the global financial markets are built.

A second cornerstone is the Eurocurrency Market. Eurocurrency financial items are claims that are created in one country but denominated ... the currency of another. The Eurocurrency system comprises the markets within which these claims are created and traded. This activity originated ... Europe but now takes place ...

the world. Three broad classes of financial items are involved:

1)bank deposits and credits, for example, dollar deposits held ... European banks;

2)primary securities in the form of Eurobonds and Euronotes; and

3)derivative securities such as foreign currency options or futures on Eurodollar instruments. Initially, Eurocurrency financial items were denominated primarily ... dollars. Today, there are many

currencies of denomination, with the Deutchemark and Yen playing an increasingly important role. As in the foreign exchange market, the core of this market consists ... major dealing banks that consistently quote bid and offered prices in active interbank trading. The Bank of England samples these interest rates daily for a group of reference banks and publishes an average of the two sides of the market as the London interbank bid (LIBID) and offered (LIBOR) rates. LIBOR has become the most important floating-rate pricing benchmark for loans and debt instruments ... the global financial markets.

International lending and issuance of debt securities represents the third major segment of the global financial market.

Perhaps the most long-standing form of international lending involves trade financing, whereby a foreign buyer agrees to pay ... imported merchandise after a period of time.

A corporation or government requiring general international bank financing can borrow ... foreign-based financial intermediaries under a variety of structures ranging from revolving credit facilities, term loans and project financing, to various kinds of secured credits.

An alternative ... bank financing available ... many corporate and governmental borrowers is to issue debt securities (like commercial paper or government bills).

The fourth cornerstone of the global financial market involves equities, that is, common and preferred shares. Corporations seeking to raise equity capital may issue shares in the domestic market through the underwriting channels and simultaneously distribute them ... foreign investors.

Words you may need: web n паутина

regulatory environment правовое поле fundamentals n pl основы

drive v приводить в движение

derivative instruments производные инструменты

Eurocurrency market евровалютный рынок credit facilities кредиты, источники кредитования core n сердцевина, ядро

positioning n установление позиции hedging n хеджирование