III.

FINANCIAL MARKETS
Homework 1
III. Put the following paragraphs in the right order. Find arguments for the order you find.
a)
Market makers adjust their prices to attract additional buyers and sellers in order to stay in
business exchanges. They invest in information technology, in systems to monitor trading
activities and in educational and marketing programs, all to make the exchanges more attractive
to their customers.
b)
An exchange decides what securities it wants to trade. As a first step, it organizes a market for
stocks, listing the stock. All exchanges will list only the companies that meet minimum standards
of operations, as set by the individual exchange. An exchange can also “de-list” a stock after the
company has failed to meet its standards for some time. More than one exchange can list the
same stock.
c)
Most stock exchanges assign the market-making duties for each stock to a specialist responsible
for the operation on the market. He maintains a book of orders placed by others, and he executes
the orders as the market price changes. In over the counter markets no market maker is
designated nor do the market makers physically meet in one specific place. But the OTC market
makers exchange bid and ask prices through an association of securities dealers system, through
a computer network.
d)
The members of an exchange – either individuals or firms – are responsible for their organization
and financial integrity. The main benefit of the membership is direct access to the trading and
support systems. Non-members can arrange for a member to trade on their behalf. Most members
are either brokerage houses, trading on behalf of their individual and institutional customers,
professional investors who use the trading-intensive investment strategies or market makers, who
trade from their inventories in response to the flow of trading orders.
e)
An essential feature of any exchange-sponsored market is the provision of “market making”
services. A market maker stands ready to quote a price at which he is willing to buy – a bid price
and a price at which he is willing to sell – an ask price. The difference between the two the bid-
ask spread – is a measure of the cost to the customer of using the market.

1-a
2-b
3-d
4-e
5-c
 VOCABULARY
IV. Use specialized dictionary and match the names of the following financial intermediaries with their
definitions:
Financial intermediaries Definitions
Privately owned financial institution which accepts demand and time
deposits, makes loans to individuals and organizations, and provides
Merchant Bank
services such as documentary collections, international banking,
trade financing.
financial institution that specializes in services such as acceptance of
bills of exchange, hire purchase or installment buying, international
Commercial Bank trade financing, long-term loans, and management of investment
portfolios. It also advises on (and invest own funds in) acquisitions,
mergers, and takeovers.
A business that provides coverage, in the form of compensation
resulting from loss, damages, injury, treatment or hardship in
Insurance Company exchange for premium payments. The company calculates the risk of
occurrence then determines the cost to replace (pay for) the loss to
determine the premium amount.
Pooled-contributions from pension plans set up by employers,
unions, or other organizations to provide for the employees' or
Pension Fund
members' retirement benefits. They are the largest investment blocks
in most countries and dominate the stock markets where they invest.

An investment vehicle managed by finance professionals that raise

capital by selling shares (called units) in a chosen and balanced set of
securities to the public. A mutual fund's capital is invested in a group
Mutual Fund (portfolio) of corporate securities, commodities, options, etc., that
match the fund's objectives detailed in its prospectus. The level of its
income from its portfolio determines the daily market value (called
net asset value) at which its units are redeemable on any business
day, and the dividend paid to its unit holders.

V. Fill the words in the following diagram. Use the phrases you get in sentences. stake;
indicator; tops and bottoms. See the mechanism of word building and meaning.

market
money news

stock behavior

financial participants

public returns

Private movement

investment securities
 stake volatility

SPEAKING

VI. Answer the questions:

Smaller firms tend to raise most of their outside capital from private sources, mainly banks. As
firms become larger, they obtain greater proportions of their outside capital needs from the
public markets. Explain why.
VII. Give appropriate titles to the following markets:
Money Markets
Money is synonym with liquidity. Specialized markets developed to meet the specific
requirements of particular borrowers for short-term investment capital and lenders to regain
liquidity when desired. Financial institutions, governments and dealers produce cash by using
high liquidity investment and short-term maturity borrowing on over-the-counter interbank
market. Due to the extremely liquid nature of securities and their short-term maturities, money
market is considered a safe exchange. Money markets facilitate efficient transfer of short-term
funds between holders and borrowers of cash assets. Treasury bills, commercial papers, bankers
acceptances are bought and sold and provide a good return to their dealers.
Domestic and foreign credit institutions participate regularly in this market in order to manage
their liquidity position. Brokers established the inter-bank deposits market by which surplus
funds owned by banks can be lent to those who have immediate outlets for such funds. These
markets ensure liquidity and make monetary policy objectives reliable.
Long-term debts
Long-term debt or equity-backed securities are bought and sold on a different type of market for
long-term productive investment. Nowadays they are invariably hosted on computer-based
electronic trading systems which are accessed by financial entities and treasury departments of
governments and corporations, and also by the public. They are regulated by the central Banks
and specialized government commissions.
They are divided into primary market and secondary market. In the former one, investors raise
long-term funds by underwriting the newly issued stock or bonds. Governments issue only
bonds, whereas companies often issue either equity or bonds. The main entities purchasing the
bonds or stock are the pension funds, hedge funds, sovereign wealth funds, and investment
banks. Existing securities are sold and bought among investors or traders on the secondary
market, i.e. exchanges and over-the counter markets. Stock markets trade equity securities, also
known as shares, where investors acquire ownership of companies whereas bond markets trade
bond making investors become creditors).

LISTENING COMPREHENSION
VII. Listen to the following http://www.investopedia.com/video/play/broker-or-trader-which-
career-right-you
Broker or Trader: which career is right for you? Fill-in the blanks: financial markets,
portfolio manager, stock prices, investment management firm, sales agent
Both brokers and traders buy and sell securities, but there are some subtle differences between
the two careers. Brokers are also sales agents that work on their own behalf, or for a securities or
brokerage firm. Traders usually buy or sell on behalf of the assets managed by a large
investment management. Brokers have direct contact with clients and are responsible for
maintaining and obtaining a client roster, while traders follow the instructions of a portfolio
manager. Traders and brokers both need to possess high energy and strong communication
skills. They must be able to multi-task, cope well with pressure, and have a big appetite for
learning all things related to the financial markets .Many study economics, finance or business
in college, but some come from liberal arts backgrounds. And some enter these fields with prior
business experience, frequently in sales, which is highly valued. Obtaining a FINRA1 license to
buy and sell securities is required, and that means passing the series 7 exam. Brokers spend a
typical day keeping clients informed on stock prices. They also look for new clients through
tactics such as cold calling or holding seminars. Both brokers and traders review tronic.

1
Financial Industry Regulatory Authority