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:

national adj involve v refer v perform v

exporter n importer n trading n deal n

transaction v strength n reliance n purchase v

transfer v treasurer n expose v float v

lend v borrow v estimate v convert v

determine v

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:

a) to facilitate b) needs

to perform trade

to fix legislation

to enhance functions

to identify opportunities

to seek negotiations

to join profits

to liberalize financial community

to hold exchange rate

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

claim n требование

primary securities первичные ценные бумаги

Euronote n евронота (1-6 – месячный вексель)

sample v отбирать (образцы)

reference banks банки, чьи процентные ставки используются при расчете ЛИБОР и др. ставок-ориентиров

London interbank bid rate (LIBID) ставка покупателя на лондонском межбанковском рынке депозитов (ЛИБИД)

London interbank offered rate (LIBOR) ставка продавца (предложения) на лондонском межбанковском рынке депозитов (ЛИБОР)

debt security ценная бумага, представляющая собой долговое свидетельство

long-standing adj давнишний, давний

trade financing финансирование торговли

merchandise n товары

foreign-based adj расположенный за рубежом

revolving credit facilities револьверный кредит

term loan срочная ссуда

project financing финансирование проектов

secured credit ломбардный кредит (кредит под обеспечение легко реализуемыми ценными бумагами)

commercial paper «коммерческие бумаги», векселя

Ex. 10. a) Open the brackets putting the verbs in the correct form.

b) Explain what are hedging techniques mentioned in the text.

Managing Exchange Rate Risk. Hedging

In general, hedging is a technique of insurance against loss from future price movements. For instance, in Britain in 1970s, when inflation was rampant, people (to buy) property because they thought that it (to keep) its value even if notes and coins did not. Their property was a hedge against future inflation.

Hedging is widely applied in commodity and financial markets, as well as in international trade. Exchange rates between currencies (to fluctuate) over time and companies engaged in international business (to expose) to exchange rate risk.

International companies can lower exchange rate risk exposure by hedging.

As to companies involved in international trade, i.e. purchasing goods from a foreign supplier, they can use two basic hedging techniques to protect themselves against transaction exposure:

a) Execute a contract in the forward exchange market, or in the foreign exchange futures market.

Currency contracts for future delivery (to trade) on many organized futures exchanges. Futures contracts (to standardize) with respect to the amount of a foreign currency to be delivered to the buyer from the seller and with respect to the time of delivery. In contrast, forward contracts can be set for any specific amount and any future time of delivery, although they normally are set for 30, 60 or 90 days in the future.

b) Borrow funds and invest in interest-bearing securities.

This technic is called a money market hedge. In that case a firm purchasing some goods (to borrow) the funds from its bank, (to exchange) them for the needed currency at the spot rate, and invests it in interest-bearing securities of the Supplier's country. By investing in securities that mature on the same date as the payment is due to the Supplier, the purchaser (to have) the necessary amount of currency available to pay for the goods.

Firms with direct investment in foreign subsidiaries also (tо face) exchange rate risk in the form of translation exposure. Changes in the exchange rate (to affect) the value of the subsidiary's assets and liabilities and, ultimately, the income of the multinational parent company. A company can hedge against translation exposure by financing its foreign assets with debt denominated in the same currency.

A multinational company can also minimize its exchange rate risk by developing a portfolio of foreign investments. The firm should spread its foreign investments among a number of different countries, thus limiting the risk of losses in one country.

Words you may needs:

to manage the risk управлять риском

rampant adj безудержный, быстро расширяющийся

over time со временем

interest-bearing securities процентные ценные бумаги

mature v подлежать оплате, подлежать погашению

hedge (against) v хеджировать

Ex. 11. a) Fill each gap with a suitable word from the box.

b) Sum up the text in 5-7 sentences. Present your sentences to the class.

c) Describe the basic functions of the Eurocurrency markets.

function	conducted	restrictions
fry	need	organized
borrow	offer	perform
deal	leading	client
bank	borrowers	operating