Unit 4 a Presentation

Vocabulary notes

1. leverage(n) (Am.)  – возможность получения значительной прибыли при небольших затратах;

syn. gearing (Br.)

2. swing (n) – качание, крен; lead to swings between profit and loss – вести к колебаниям между доходом и убытками;

3. seasoned (adj.) – опытный, квалифицированный;

syn. experienced

4. option (n) – опцион, сделка с премией; call option syn. – опцион покупателя, сделка с предваритель­ной премией;

syn. buyer’s option put call  – опцион продавца, сделка с обратной премией;

syn. seller’s option exotic option – экзотический опцион на право покупки (продажи) некоторых видов товаров (металлы, нефть) и даже на право обмена акций одного вида на акции другого вида; currency options market – рынок валютных опционов; exercise the option – исполнить опцион;

5. adverse (adj.)  – неблагоприятный;

an adverse movement in exchange rates – неблагоприятное изменение в валютных курсах;

6. gamble (n) – рискованное предприятие, спекуляция, игра (на бирже);

a calculated gamble on exchange rate – подсчитанная (просчитанная) игра на разнице валютных курсов;

7. familiarize (v) (oneself) with smth. – ознакомлять, ознакомить(ся);

8. contemplate (v) – предполагать, предположить;

9. endeavor – попытка, усилие, дело;

syn. undertaking

10. be in the forefront of smth. – быть на переднем плане, в авангарде;

11. build up a leadership position in smth. – формировать лидирующую позицию в ч-л.;

12. overhaul (v) – обогнать, обгонять;

syn. overtake

13. striking price – объявленная, договорная цена опциона, цена исполнения опциона;

syn. exercise price

14. insurance-like product – продукт, представляющий собой (напоминающий) страховку;

15. downside (upside) – негативное (позитивное) изменение в курсах валют; cover downside; keep upside – покрывать неблагоприятное (негативное) изменение в курсах валют; сохранять, удерживать благоприятное (позитивное) изменение в курсах валют;

16. known worst case – наихудший вариант;

17. contingent (adj.) – случайный, непредвиденный;

cover contingent cash flows – покрывать непредвиденные суммы (потоки) наличности;

18. profit lock – блокирование прибыли;

19. customize (v) – усовершенствовать (подогнать) под клиента;

20. payout (n) – выплата, расходование; payout amounts – суммы выплат;

Briefing

The forex market is one of the most popular markets for speculation due to its enormous size, liquidity and tendency for currencies to move in strong trends.An enticing aspect of trading currencies is the high degree of leverage available. FX allows positions to be leveragred up to 100:1. Without proper risk management this high degree of leverage can lead to enormous swings between profit and loss. Knowing that even seasoned traders suffer losses, speculation in the forex market should only be conducted with risk capital funds that if lost will not significantly affect one's personal financial well being.

Companies trading internationally are exposed considerable foreign exchange risk. If, for example, a French company knows that it will need $2 million in three months' time to pay for imports from the USA, it can buy the dollars forward, i.e. at a rate specified now, thus eliminating the risk of an adverse movement in the exchange rate between the EUR and the US dollar. Unfortunately, buying dollars forward also eliminates the possibility of a favorable movement in exchange rates. Alternatively, the company could wait three months and then buy the dollars at the spot rate, i.e. the rate charged then for funds to be delivered two working days after the transaction. This way the company may get a better exchange rate but it also runs a risk, since the rate could be worse. Essentially, either course of action involves a calculated gamble on exchange rates.

To meet this situation, some banks developed and began to offer currency options in the early 1980s. Transactions in options carry a high degree of risk. Purchasers and sellers of options should familiarize themselves with the type of option (i.e. put or call) which they contemplate trading and the associated risk. Under the currency option, the customer pays a premium which gives them the right to demand purchase or sale of a specified currency at an agreed exchange rate up to an agreed date, but no obligation to do so. After the customer pays the premium, the bank sends out confirmation of the deal. If the exchange rate in three months' time, or whenever the expiration date is, is better than the one the customer has agreed on, they do not use the option, and instead deal at the market rate when they need to. Their cost has only been the premium for the option. Alternatively, if the rate is worse than the one they have agreed upon, they exercise the option, and thus suffer no loss due to the fall in exchange rates. The customer may exercise the option at any time up to and including the expiration date, for value spot. This, then, is the basic idea of the currency option.

Options on currencies can offer a wide and diverse range of potentially attractive trading opportunities. However, option trading is a speculative endeavor and should be treated as such. Even though the purchase of options on currencies involves a limited risk (losses are limited to the costs of purchasing the option), it is possible to lose your entire investment in a short period of time. And for traders who sell rather than buy options, there is no limit at all to the size of potential losses.

• Read the briefing

• Check your comprehension and answer the following guestions:

1. Why is the aspect of trading currencies through the operations of foreign exchange market so enticing?

2. Why does foreign exchange risk management play an enormous role in forex market operations?

3. What are certain disadvantages of forward transactions in the Interbank market?

4. What should option holders bear in mind dealing with currency options trading?

5. What dangers do foreign currency options operations entail being actually a speculative business?

• Say if the statements are true or false.

1. The forex market hardly provides foreign exchange for the purpose of speculation.

2. This market of exchange has had more daily volume than any other in the world and carries no risk.

3. Actually purchasing dollars forward expels the possibility of a favourable movement in exchange rates.

4. Only experienced forex traders are sure to avoid losses involved in the foreign exchange operations.

5. Buying dollars at the spot rate in three months' time may let the company get a better exchange rate since the rate can not be worse.

6. Currency options business has been developed to offer a wider range of currency trading opportunities.

7. An option gives the buyer the right to buy or sell a particular currency at a stated price at any time prior a specified date and certain commitments to do so.

8. The option is not exercised by the option holder at any time up to and including the expiration date, for value spot.

9. Options trading losses are limited to the costs of buying the option.

10. Both option buyers and option sellers are not secure from potential financial losses.

Section A

• In this unit we will hear three parts of a presentation about currency options by John Morley. He is Executive Director of the foreign exchange division of a London merchant bank and is making his presentation to a group of cash managers and treasurers from different corporate clients.

A1

• Here are the steps which John uses in planning his presentation strategy. Choose the five steps which you think are the most important for the making of a successful presentation in their order of importance and then discuss your choices with a partner.

1. Set the objective of the presentation.

2. Research the topic.

3. Analyze the needs of the audience.

4. Formulate a clear introduction.

5. Select information which the audience needs on the topic and which makes the advantages clear.

6. Review the advantages and finish with a clear closing statement.

7. Provide time for audience questions.

8. Include language techniques to help direct the attention of the audience.

9. Prepare visual aids.

10. Practise the entire presentation.

A2

• Listen to the beginning of John Morley’s presentation. As you do so, make brief notes on what John says. Some headings are given here to help you.

Currency options market:

Forward contracts:

Treasury services:

Leadership position:

Medium-size to large companies:

А3

• Listen to this part of the presentation again and write down in the spaces provided the words that John Morley says.

We have therefore built up quite a .....(1)..... leadership position in .....(2)...... options, and we believe that we ......(3)...... the bank in the world that .....(4)...... the most currency option business. We may ......(5)..... find that as time goes by perhaps .....(6)...... banks, with a larger customer base than .....(7)......., the retail banks for instance, start ......(8)..... these products and get them .....(9)......, that they may eventually ......(10)..... us in volume. But for the .....(11)...... to large company we believe that we will have a ....(12)...... element, a special ......(13)..... element, which will be important, and which we .....(14)...... to be able to keep in the .....(15)...... position in this and one or two other new markets.

А4

• Listen to this part of the presentation again and say if these statements are true or false.

1. John begins by introducing himself and by thanking his listeners for coming.

2. A number of services in the currency field and in cash management field can be used singly only and no combination is possible.

3. John says that currency options are quite complicated.

4. The currency options market has been developed for many years and is considered a traditional one.

5. There will be opportunities later for discussion with subject experts.

6. John expects currency options to become as important as forward contracts.

7. John's bank was one of the first to introduce all kinds of new services in the currency option field.

8. John believes that his bank does as much currency options business as any other bank in the world.

9. John expects the retail banks eventually to do larger volumes in currency options business than his own bank.

10. John does not expect larger banks to have the same tailor-made element in currency options services as his own bank will have.

A5

• Arrange to following words into:

1. pairs of synonyms:

remove, deal, gearing, overhaul, bonus, exercise, commitment, effect, endeavor, leverage, acknowledgment, eliminate, overtake, contemplate, undertaking, premium, transaction, obligation, consider, confirmation;

2. pairs of antonyms:

adverse, downside, include, complicated, distract, advantage, contingent, profit, eliminate, unskilled, behind, favourable, upside, straightforward, attract, foreseen, loss, seasoned, forefront, disadvantage.

Section B

B1

• John Morley continues his presentation. Which of these items does he talk about?

• The history of currency options.

• What a currency option is.

• Currencies available.

• Advantages of currency options.

• Options and treasury services.

B2

• Here are the incomplete notes John used in this part of the presentation. Listen again and then complete the notes so that they are similar to the slide he used.

Option buyer has the right to

But no obligation to do so.

Option writer has the right to at the price demanded.

В3

• Complete the currency flow diagrams below by writing the events in the appropriate boxes. Listen again to this part of the presentation if necessary.