2

UNIT

I Business risks

STARTING UP

A) Reword the following sentences omitting the word ‘risk’.

As a noun:
“It’s always a risk starting up a business”
It’s always dangerous...
“The wire is fire risk”
The wire is dangerous, it can cause a fire
“The company is quite a good risk”
it’s acceptable to lend them money or invest in it
“At owner’s risk”
Owners are responsible
“To be at risk”
To be in a dangerous situation
“To run / take a risk”
to be exposed to a danger
As a verb:
“It’s dangerous to cross here, I’ll just have to risk it”
… but I accept the danger of doing it
“We risked losing the job when the company went bankrupt”
There was danger to lose our jobs ...
“Aren’t you risking your neck driving such an old car?”
Don’t you think it’s too dangerous to …
“The policeman risked life and limb to get the cat down from the tree”
He put his life in danger

B) Are you a risk-taker? What risks have you taken?

C) Which item in each of the categories below carries the most risk? Explain why.
Here SS rank the risks from 1 to 9

Travel Lifestyle Investment

car drinking alcohol foreign currency
plane poor diet property
rain smoking stocks and shares

D) How many collocations can you find with the word risk?

With an adjective: big, considerable, grave, great, high, major, serious, significant, substantial, terrible
With a verb: face, run, take (If you don't revise, you run the risk of failing) (I'm not prepared to take risks?) I want the equipment
thoroughly checked. | entail, incur, involve, pose Pollutants in the river pose a real risk to the fish. | increase | minimize, reduce | avoid
| assess, measure The directors will have to assess our credit risk.

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 1

 VOCABULARY

A) Put the verbs in the box under the most appropriate heading.

calculate eliminate encounter estimate face

foresee minimise prioritise reduce spread

Predict Meet Assess Manage

foresee encounter calculate eliminate
face estimate minimize
prioritize reduce
spread

B) Match these halves of sentences from newspaper extracts.

1. Internet businesses... (e) a) risks involved when sending staff to work in dangerous locations.

2. We can reduce risk... (f) b) in order to advise insurance companies.

3. Trying to minimize risk... (g) c) involved in setting up a new business.

4. It is impossible to... (d) d) eliminate all risk when entering a new market.

5. It is difficult to foresee the risks... (c) e) face increasing risks of running out of money.

6. Actuaries calculate risk... (b) f) by spreading our lending to more businesses.

7. It's important to consider the... (a) g) is an important part of business strategy.

C) The following adjectives can be used with the word risk. Which describe a high level of risk? Which
describe a low level?

faint great (h) huge (h) low

negligible remote serious significant (h)
slight substantial (h) terrible tremendous (h)

D) Write a composition about the risks facing one of the following:

 your company / institution
 your city / town
 your country.
SS discuss it in pairs first
(You will have to explain it to the rest of the class)

READING

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 2

Read the article: Globalization generates risks for business

A) Discuss these questions

1. Which areas of the world are considered to be the riskiest to do business in, do you think? Why?
2. Predict whether business people, according to the article, think risk is increasing in:

a) Russia b) The Middle East c) North Africa d) Latin America  (except Brazil)

Now scan the article quickly to verify your predictions

Globalisation generates risks for business

INTERNATIONAL businesses believe they are not fully prepared to handle a growing number of threats in an
increasingly volatile global marketplace, according to a report published by leading business risk consultancy
Control Risks Group.
According to the company's annual assessment of risks facing international business, globalisation and the
development of communications technologies have precipitated significant concerns among executives
concerning risks, including organised crime, terrorism, internal fraud, corruption and direct action by pressure
groups. Globalisation has also exacerbated many pre-existing, low-probability, high-impact risks, such as
kidnappings.
These concerns were revealed through a business survey, conducted by the Industrial Research Bureau, of
US and European companies about attitudes to risk and risk management among international business
development directors.
'Although executives see globalisation as a driving force behind unprecedented opportunities
internationally, there is real apprehension about a plethora of risks that may stand in their way,' according to
Richard Fenning, Director of Control Risks New York, who released the report at a press conference today in
Washington DC. 'Anything from international sanctions, terrorism and currency devaluation, to extortion and
kidnapping.'
According to the survey, a significant majority (68%) of those US executives polled believe that
globalisation generates more risk for investors. Additionally, the survey indicated that businesses expect to be
increasingly forced to address the challenge of reputational risks. Business development executives are firmly
placing consumer activism, corruption, and human rights on their agendas.
The survey revealed shareholder action as the most critical reputational risk; kidnap as the most significant
security risk; and international sanctions as the foremost political risk. Most respondents of the survey
considered risks to be increasing in Russia and the former Soviet Union, with sophisticated fraud, corruption
and organised crime as the driving factors. Interestingly, 76% of those polled considered the risks to be static or
decreasing in the Middle East; 59% of respondents had the same feeling about North Africa; and 67% held a
similar view about Latin America (excluding Brazil) where -with some clear exceptions -political and
economic issues have replaced security as the prime source of risk over the past decade.
'Although traditional risks, such as political and extremist terrorism, are decreasing in incidence - yet not
impact -problems such as organised and petty crime are likely to present a specific and harder range of risks
than previously,' said Martin Stone, Head of Research for Control Risks.

From PR Newswire

plethora /pler”, but pletoric

B) Match the words from the article with their meanings.

1. volatile (e) a) force someone to give you money by threatening them
2. fraud (g) b) not moving, changing or developing
3. unprecedented (d) c) working hard to achieve changes in the way companies operate
4. sanctions (f) d) never having happened before

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 3

 5. extortion (a) e) changing quickly and suddenly
6. activism (c) f) laws stopping trade with other country as a way of forcing political changes
7. static (b) g) illegally getting money from a person or organization

C) What two factors have contributed significantly to increase risk for international business, according
to the article?
Globalization + development of communication technologies

D) Find all the risks that the article mentions. List them under the appropriate heading in the table below.
a) personal security risk c) political risk
terrorism international sanctions
kidnapping currency devaluation
petty crime

b) reputational risk d) financial risk

direct action by pressure groups organized crime
consumer activism fraud
human rights demand corruption
shareholder action extortion

SS first enumerate the risks, then classify

LANGUAGE REVIEW
Intensifying adverbs

COMPLETE THE RULES

 We can use adverbs to intensify the meaning of adjectives:
International businesses believe they are not fully prepared to handle the growing number of threats in an
increasingly volatile global marketplace.
 Most adverbs are formed by adding …ly…. to the adjective.
 For adjectives ending by –ic, for example dramatic or economic, add ………ally……….

A) Complete the table below with adverbs from the box.

a bit exceptionally extremely fairly highly
increasingly moderately quite rather reasonably
slightly somewhat entirely totally very

Intensifying adverbs
weak moderate strong
a bit fairly
increasingly
entirely
exceptionally
slightly
moderately extremely
quite highly
rather totally
reasonably very
somewhat

B) Complete these dialogues with a suitable adverb.

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 4

1 'What were your results like last year?'
‘.............................. good. We increased profits by over 40%.' (exceptionally, extremely, very)

2 'How was the launch of your new product?'

‘........................... successful. We've been flooded with orders ever since.' (exceptionally, extremely, highly, totally)

3 'Do you really think we should try to enter that new market?'
'It's .............................. risky but on balance I think we should go ahead.' (fairly, moderate, quite, rather, somewhat)

4 'What did you think of the presentation?'

'It was .............................. useless. Most of the audience lost interest after five minutes.' (entirely, totally)

5 'Are you confident about those sales projections?'

‘.............................. confident, although it's going to be tough.' (fairly, moderate, quite, reasonably)

C) Think of situations where you could use the phrases below. Make nine sentences
incredibly well-prepared deeply disappointed absolutely awful
totally unrealistic particularly liked brilliantly executed
severely criticized superbly presented badly misjudged

How was the presentation? Fascinating. The speaker was incredibly well-prepared. All the equipment work first time and the handouts
were very useful. All the material was superbly presented.

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 5

 II The Birdwell Company case (protecting against exchange risk)

PREREADING EXERCISES
Discuss the following questions before reading the case study.
1. What kinds of risk are involved when a company does business in a foreign country?
2. What is an exchange rate? How are exchange rates determined?
3. How can exchange rates present risks to international corporations?

Introduction

Par 1
Foreign-exchange risk is a major concern to managers of companies involved in international business.
This risk exists whenever the company has to make or accept a payment in a foreign currency. The risk
exists because the number of dollars (for U.S. firms) or pesos (for Mexican firms) or yen (for Japanese
firms) in a contract may vary if the account is payable or receivable in foreign currency and the
exchange rate changes. For example, a contract by Birdwell Company calls for payment of 1 million yen
in 180 days to buy computer chips. Today, the exchange rate is 200 yen per dollar, so the contract would
cost $5000 if paid today. If the dollar devalues to a rate of 167 yen per dollar in 180 days, then the cost
of the contract would be $6000 in 180 days. We cannot know the dollar cost of the contract for sure until
time passes and the new exchange rate is known. The possible devaluation of the dollar creates an
exchange-rate risk that the firm would like to avoid.

“To call for” is a phrasal verb. What does it mean? Use it in 2 more sentences.
To require, to demand (here); to be an appropriate occasion for.
- Your success calls for a celebration.
- The last comment wasn’t called for.
How could the devaluation of the dollar affect Birdwell Co.?
They would have to pay $1,000 more.

Par 2
Exchange risk can be avoided by doing business only in the company's domestic currency. This
possibility often does not exist, because the foreign customer or supplier has other choices of suppliers
or customers who will deal in the foreign currency. U.S. firms doing business in Europe usually have to
work in euros rather than dollars. Similarly, if a U.S. supplier in Brazil will not accept local currency
(cruzeiros, abbreviated Cr$ ) for a sale, then the Brazilian buyer may find a German or Japanese firm
that will. Thus, this strategy of risk avoidance often does not work.

Summarize the first way of avoiding the exchange rate risk.

Doing business in the domestic currency. Not change – no risk.
What’s the problem with this way?
Using the domestic currency is not always possible.

Par 3
Another strategy to cope with foreign-exchange risk is to use a forward contract. A forward contract is
an agreement with a bank to exchange one currency for another at some future date at a price chosen
today. Most multinational banks offer forward contracts to clients using the major trading currencies

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 6

 (such as the U.S. dollar, European euro, Swiss franc, British pound, and Canadian dollar). In the
example above, the Birdwell Company can ask a bank for a forward contract to buy 1 million yen in 180
days. This contract would enable Birdwell to guarantee that it will have the 1 million yen needed to pay
for the computer chips in 180 days at a known price, the forward rate. If the forward rate is 182 yen per
dollar, then Birdwell knows that the cost will be $6495 in 180 days. By using a forward contract with a
bank, Birdwell avoids exchange risk; the number of dollars to be paid for the computer chips is known
from the start.

What’s a forward contract?

It’s an agreement with a bank to exchange one currency for another in the future at a price chosen today.
Do you think that Birdwell Co will be satisfied using a forward contract?
If they accept the exchange rate offered, they should be satisfied, as they know right now how much they will pay
in the future.
Are the words ‘customer’ and ‘client’ completely interchangeable?

Par 4
A third way to avoid exchange risk is to attempt to balance the company's accounts payable and
accounts receivable in each currency used. For example, the company may try to make a sale in the same
currency in which it already has an account payable. That way, when the payment is made, a receipt in
the same currency will be obtained, approximately canceling the risk that existed. Last year, the Birdwell
Company bought fertilizer from a French company. In order to eliminate the exchange risk due to
having an account payable in euros, Birdwell could attempt to find French customers for some product
that it would export from the United States to France. Birdwell would receive euros for this sale, to
balance the euros payable to its fertilizer supplier.

Summarize the third way to avoid exchange-rate risk?

A third way to avoid exchange risk is to attempt to balance the company's accounts payable and accounts
receivable in each currency used
Why are fertilizers mentioned in the paragraph?
Fertilizers were bought last year by Birdwell from a French supplier.

Par 5
Several other methods are available to cope with exchange risk. Again, in the event that the firm has an
account payable in foreign exchange, it may look for some other asset such as a bank deposit or another
investment that is payable at the same date and in the same currency as the account payable for the same
amount of money. Or, if the firm has an account receivable in some currency, it can take out a loan for
the same time period and amount of money in that currency. In every case, the goal is to find some asset
(to cancel a liability) or some liability (to cancel an asset) denominated in the same currency with the
same maturity date. In this way, exchange risk can be avoided. The process of protecting against
exchange-rate risk is called hedging or covering.

Summarize the fourth way of avoiding exchange-rate risk.

If the company has an account payable it may look for a bank deposit or other investment that is payable at the
same date and the same currency. If the currency increases its value the company will receive more from the
investment, so having enough money to pay the bill.
Look up the verb to hedge in your dictionary and write some sentences containing different
meanings.
She hedged around the one question she wanted to ask
Inflation hedges such as real estate and gold

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 7

 “Stop hedging and tell me what you really think”

The Case
(The case illustrates the problems that many Latin American countries suffered in the 80s in relation
with their high rates of inflation

Par 6
The financial manager of Birdwell in Miami has been bothered by a relatively low return (in dollars) on
his recent export sales to Brazil since 1978. Birdwell's sales office in Sao Paulo has experienced a
healthy growth of revenues at about 15 percent per year, though local currency (cruzeiro) profits have
only grown by 12 percent per year. (Cruzeiro profits were Cr$500 million in 1983.) Also, the cruzeiro
has devalued substantially relative to the dollar. At the end of 1978 the exchange rate was Cr$21 =
US$1, but in 1984 the rate was Cr$l 100 = US$1, and the trend seemed likely to continue.

How is it possible that the company had a healthy growth in sales in Brazil and at the same time
obtained poor returns from these sales?
Inflation ate it the profit up.

Par 7
Having some familiarity with foreign-exchange markets, the financial manager has decided to cover his
next contract (that is, protect it against exchange-rate risk), which is a sale of Cr$30 million of tractor
parts, payable in 180 days, to a firm in Sao Paulo. Despite calls to several banks in Miami and Brazil, he
could not obtain a forward contract for cruzeiros. He did, however, discover that a local-currency loan
was available to cover the full receivable at a cost of 105 percent per year. At this time, he was not
certain whether any other cruzeiro liability was available to create the hedge.

What transaction did the financial manager decide to cover?

A sale of tractor parts to a Brazilian company.
What was the purpose of getting a forward contract and why do you think such contract was not
available?
With a forward contract the company knows right now the future price of the money. Probably the banks contacted were not
willing to offer a forward contract given the high rate of inflation. Banks never burn their fingers.

Par 8
In a separate transaction, a purchase of old DM 250,000 worth of agricultural chemicals will be imported
from the German company Bayer Chemical in 120 days. The financial manager wants to plan now to
have sufficient funds available to pay this bill on time. He knows that the spot exchange rate is DM1 =
$0.416, and that the forward rate for a 120-day contract is DM1 = $0.421 in Miami. Considering
"riskless" securities in which to hold the funds until needed, the manager finds that 120-day U.S.
Treasury bills offer 8.5 percent per year, while German Central Bank bills offer 7.1 percent per year.
The manager was satisfied with this information as a basis for making his decision to hedge the risk in
German marks.

What’s the second transaction the GM wants to protect?

A purchase of agricultural chemicals from Bayer
Why did he decide to invest in securities?
He was using the fourth way we mention to protect himself against the risk of devaluation. He will make a deposit to be sure
that he will have the necessary funds at the end of the period.
Translate into Spanish the following sentences containing the word ‘bill’:
Bill of Exchange:

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 8

 Bill of Lading:
A ten-dollar bill:
The circus posted bills all over the town:
They didn’t pay the gas bill:
I need a partner but I don’t think you fit (fill) the bill:
A debate in the Parliament over the civil rights bill:
We billed them € 2,000 for the service:

Par 9
As he reflects on the foreign-exchange problem in each of the transactions above, Birdwell’s financial
manager sees a serious inefficiency in his piecemeal approach to risk avoidance. At present, however, he
sees no easy solution.

What do you think the financial manager will eventually do?

Use the word ‘piecemeal’ in a different context.

“The village is slowly being killed off by piecemeal development”

True of false?
Read the following statements and mark them TRUE or FALSE. Correct the false statements

1. A Japanese company can avoid exchange risk by dealing only in yen. True

2. Managers of companies that are engaged in international business must cope with foreign-exchange risk. True

3. Foreign-exchange risk exists when a contract is payable or receivable in a foreign currency and the exchange
rate for that currency is variable. True

4. Company managers usually know how much the rate of exchange for a foreign currency will vary over a
period of time. False

5. A forward contract is an agreement with a bank to exchange one currency for another at some time in the
future at the spot rate of exchange. False

Read for Understanding of Key Concepts

Answer the following questions on the basis of your reading description. Scan the text to find the information
that you need.

1. Explain how a company can use a forward contract to avoid exchange-rate risk.
A company can avoid foreign-exchange risk by getting ‘forward contract’. They agree with a bank to exchange currencies at some date in
the future, say two months, at a rate of exchange fixed today. That way, the company knows right now the amount of money it will have
to pay when this time arrives.

2. What is hedging? Why do companies do it?

Hedging is the process of protecting a transaction against foreign-exchange risk.

3. Give examples of how a company can avoid exchange risk by balancing accounts payable with accounts
receivable.

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 9

That’s the third way mentioned in the case. The company tries to make a sale in the same currency in which it already has an account
payable. Doing so, a payment is made and a receipt is obtained at the same time. Any account payable should be hedged with an account
receivable or other asset of the same maturity and vice versa.

4. Is the sale of tractor parts to a firm in Sao Paulo an account receivable or an account payable for the Birdwell
Company?
An account receivable.

5. Is the purchase of agricultural chemicals from the Bayer Company in Germany an account payable or an
account receivable for Birdwell?
An account payable.

6. What’s the ‘forward rate’?

In a forward contract, the forward rate is the price at which the currency will be interchange in the future.

VOCABULARY DEVELOPMENT
Sentence Completion

Demonstrate your understanding of the underlined business phrases by completing the sentences below with
your own words. Work with a partner and take turns doing the exercise. Refer to the case description for
clarification of any terms that are unfamiliar.

1. An import-export company can avoid foreign-exchange risk by…

using a forward contract or any other form of what is known as hedging.
2. One of the reasons that a company buys riskless securities is…
to protect themselves against foreign exchange risks.
3. A forward contract guarantees that…
the company will have the money needed to pay a transaction at a given time in the future.
4. Hedging against foreign-exchange risk means…
to protect against the fluctuations in the currencies.
5. The accounts payable of a company often include ...
outstanding bills an invoices as well as liabilities such as obligations, debts, taxes due, etc.
6. In a forward contract, the forward rate is…
the price at which the currency will be paid in the future.
7. The forward rate is typically higher than the spot exchange rate because…
banks will not want to burn their fingers in case there is a sudden fluctuation in the currency.

Matching
The business terms below are used in the case description. Match the terms with their correct meanings. Refer to
the case description when you are in doubt about the meanings of any words. Compare your answers with those
of another student and discuss any discrepancies.

foreign exchange (e) a. income from an investment

maturity date (d) b. account receivable
revenue (a) c. covering
liability (g) d. when payment is due
asset (b) e. trade in currencies
hedging (c) f. possibility of losing money
risk (f) g. account payable
riskless security (h) h. U.S. Treasury bill

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 10

Business Terminology: Assets and Liabilities
Decide whether the following financial terms refer to an ASSET or a LIABILITY. Remember that an asset is a
balance-sheet item such as cash, accounts receivable, inventories, and plant and equipment. A liability
represents the obligations of a firm, such as accounts payable, notes payable, long-term debt, and taxes due.

1. 30,000 tractors:________________ asset

2. a loan of $400,000:________________ liability
3. a bank deposit of DM6,000,000:________________ asset
4. $1,000 U.S. Treasury bill :________________ asset
5. a forward contract to pay 10,000 yen in 120 days:________________ liability
6. a contract to buy DM20,000 worth of chemicals :________________ liability

Countries
Name the capital, the language(s) and the local currency of the following countries.

Country Capital Language(s) Currency

United Kingdom London English Pound

Nigeria Lagos English + dialects Naira

Norway Oslo Norwegian + Sami Norwegian Krone

Brazil Brasilia Portuguese Real

India New Delhi Hindi + English Indian Rupee

Thailand Bangkok Thai Baht

Kenya Nairobi Swahili + English Kenyan Shilling

Algeria Algiers Arabic + French Algerian Dinar

Morocco Rabat Arabic + French Dirham

Japan Tokyo Japanese Yen

Mexico Mexico City Spanish Mexican Peso

Saudi Arabia Riyadh Arabic Saudi Riyal

Switzerland Berne German+French+Italian Swiss Franc

Zimbabwe Harare Shona + English Zimbabwe dollar

CRITICAL THINKING

Analysis of Issues
Think carefully about the following questions concerning issues discussed in the case descriptions. Share your
ideas with a partner or a small group. Be prepared to explain your answers to the class.

1. According to the case, the Birdwell Company has received a fairly low return in dollars on export sales to
Brazil over the past few years. However, the sales office of Birdwell in Sao Paulo has increased its revenues by

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 11

about 15 percent per year. Explain how Birdwell’s profits in dollars can be considered low under these
circumstances. Begin by explaining the difference between profit and revenue.
Revenue is the money received during a period of time. If you refer to public finance, the money the government receives from taxation.
Profit is the difference between the business revenue and the expenses incurred during the period.
Here, the company received a lot of money from sales but the profit in dollars was low because of the inflation.

2. What is the value in dollars of the tractor parts?

30 million cruzeiros. A dollar cost 1,100 cruzeiros so the cost of the tractors in dollars was 27,272.

3. What is the interest rate of the local-currency loan that is available to the Birdwell Company in Brazil? What
percentage interest would be charged during the 180-day period of the loan?
105%

4. Why isn't a forward contract available in cruzeiros?

With such a high rate of inflation banks were not willing to offer a forward contract. They didn’t want to burn the fingers.

5. In order to avoid exchange-rate risk, should the Birdwell Company buy a U.S. Treasury bill or a German
Central Bank bill? Explain the reason for your answer.
In both cases a compensation of assets and liabilities is necessary to avoid the exchange rate risk. Birdwell should choose US treasury
bills because they offer a higher interest (8.5% versus 7.1% in the case of the German Central Bank)

6. Are the two transactions described in the case linked in any way? Explain your answer.
In both cases a hedging strategy is necessary to cope with the exchange rate risk. One is an account payable and the other is an account
receivable.

RESEARCH QUESTIONS
Find the answers to the following questions by doing research outside the classroom. You may find it helpful to
work with several classmates as you conduct the research necessary to carry out the assignments. The sources of
the information you seek include an international bank, an import-export company, and an English language
magazine or newspaper article.
1. Search in the Internet for a bank that offers forward contracts. Find out in which currencies the contracts are
available, for what periods of time they are issued, and at what rates. Report to the class.
2. Look for a recent article on changes in foreign-exchange rates and the impact on business. You may find a
suitable article in Business Week, The Economist, Forbes, The Wall Street Journal or in the Internet.

CASE ANALYSIS
You are part of a team whose assignment is to develop a plan to manage the foreign-exchange risk of the
Birdwell Company. Your group will evaluate the proposals listed below in order to decide which are the best
ways to avoid exchange risk. After you have weighed each alternative' you will make recommendations to the
general manager of Birdwell Company concerning which course of action to follow. Be prepared to defend your
decision.

Sale of Tractor Parts to Brazil

Options for avoiding exchange-rate risk

1. Take a loan now that will be worth Cr$30 million in four months.
2. Borrow $30 million from a U.S. bank.
3. Buy Cr$30 million worth of coffee to import to the United States, payable in six months.
4. Sell the account receivable for the tractor parts at a discount that Birdwell Company can collect m six months.
5. Deposit Cr$30 million in a Brazilian bank account.

Purchase of Agricultural Chemicals from Bayer Company

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 12

Options for avoiding exchange-rate risk
1. Buy a U.S. Treasury bill worth DM250,000 in four months.
2. Purchase a West German Central Bank bill worth DM250,000 in 120 days.
3. Export DM250,000 worth of computers from the United States to West Germany, receivable in 120 days.
4. Take a loan of DM250,000, payable in 120 days.
5. Take a forward contract that is worth DM250,000 180 days from now.

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 13

III Multimedia practice (investment banks)

A) Watch the video of Jes Farr, the Communications Manager at Deutche Morgan Grenfall, a major City
investment bank.

1. What kind of companies use investment banks?

International companies that wish to borrow large amounts of money.

2. He says that they help companies ‘to go public’. What does it mean?
‘Going public’ means that the company is listing its shares on the stock Exchange and can be bought by the public.

3. Why do companies deal with ‘futures’ and ‘options’?

Because they are a good way of reducing your risk when you are buying foreign currencies. An ‘option’ is the right to buy currency at
a specified exchange rate. A ‘Future’ is an agreement to buy at that exchange rate. With a future you must buy the foreign currency,
with an option you can.

4. Who are ‘speculators’?

People who play the foreign currency market and don’t have a traditional need for the currency.

5. Explain the difference between...

a) A country ‘balance of payment’ and a country ‘balance of trade’?
The BOP is the difference between what a country pays for its imports and what it receives for its exports (including invisibles such
as banking and insurance). The BOT is the difference between the visible imports and visible exports of a country.

b) A ‘billion’ in English and a ‘billón’ in Spanish.

The former is a 1 and 9 noughts; the latter is a 1 and 12 noughts.

c) Insurance and Assurance?

‘Insurance’ goes with ‘health’, ‘car’, ‘travel’, etc. Assurance is used only with ‘life’. Remember what we said about in a previous
chapter.

6. What do these acronyms stand for?

AGM: cc: misc: miscellaneous PA:
VAT: BSc CV: NATO:
PIN: personal VIP: asap: EU:
identification
number
PTO: please turn over OPEC: Organization of BA: Bachelor of Arts. GMT:
the Petroleum Ldo. en letras
Exporting
Countries
ono: or nearest offer RSVP: Répondez S'il WHO: World Health MBA:
Vous Plaît Organization

B) Allan Smith is an expert in risk management. He is talking about the types of risks faced by businesses. Listen
to the first part of the interview and note down the risks he mentions (ML- upper unit 6)
1. Doing nothing.
2. Credit or guarantee risk.
3. Political risk
4. Risk of catastrophe or disruption (=the risk of not being able to continue business as usual because of some unforeseen event).

C) Listen to the second part of the interview. What does Allan say about the following points.
1. The information that companies have about risk
Companies should have good quality, up-to-date and reliable information available
2. The management of risk

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 14

They should have a good management team in place to identify and deal with risks
3. Communication lines
There should be good lines of communication between the people who will play an important role in dealing with any risk

C) Listen to the final part of the interview. What mistakes were made? What were the results?
1. A printing press was using an out-of-date technology. It has a skilled workforce, but hadn’t kept up with the market and it had to close
down. Lesson: companies must keep up with evolving technology and market demands or go out of business
2 Companies sold goods on credit and were never paid. Lesson: Check the credit status of the companies you trade with, or demand
payment up front

Inglés para el Ámbito Comercial III (Unit 2 – Business Risks) 15