English_for_Finance_and_Banking
¨ READ AND DISCUSS
1. a) Supply the articles where necessary.
b) Write down 3-5 questions about the text.
c) Explain how the Eurobond Market operates.
The Eurobond Market
The Eurobond Market is … major source of corporate financing in … unregulated international capital market.
This market permits lenders to lend directly to borrowers across … national borders.
The borrowers or issuers of the bonds include MNCs, public sector organizations, sovereign states and commercial banks. The lenders or purchasers of the bond securities are individual and institutional investors, with … latter group dominating. Generally, purchasers buy Eurobonds in currencies other than their own and … major attraction of these bonds for investors s that in most currencies they are anonymous bearer bonds that exempt individuals from capital gains and withholding taxes in their own domestic system.
Banks play a major role in … Eurobond market by bringing together lenders and borrowers, underwriting the bond issue, selling or placing the bonds, supporting the secondary market in bonds, and managing the repayment of interest and capital to … investors. The participating banks will receive … fee for each of these services rendered to the borrower or investor.
The key to the market is … established and high quality credit rating with an internationally recognized rating agency such as Moody’s or Standard and Poor’s.
Eurobonds, of whichever currency denomination, are listed in another country and trade independently of any domestic market. In recent years there has been … contributed rapid expansion of Eurobond issuance that has been one of … most significant developments in bond markets worldwide.
In this context, there was one more fast-growing market that deserves … mention. It is the ECU (European Currency Unit) bond market which proved to be popular a few years ago and paved the way to the single Eurobond market.
Words you may need:
MNC (multinational company) – багатонаціональна компанія (корпорація)
anonymous – анонімний
Moody’s (Investors Service) – провідне агентство по встановленню рейтингів цінних паперів
Standard and Poor’s (Corporation) – провідна фірма по встановленню рейтингів цінних паперів
list – зареєструватись на біржі
ECU (European Currency Unit) – Європейська валютна одиниця (ЕКЮ)
2. a) Supply the prepositions where necessary.
b) Say what you have learnt about the debt market in India.
The door is slowly opening on India’s debt markets. Foreign investors can now invest 100% of their Indian portfolios in corporate debt as against the 30% allowed previously. He market itself is booming. … long-term debt worth Rs55 billion ($1.54 billion) raised by Indian corporates in the past few months and fixed-income returns overtaking those of equities, the market is ripe … reform.
The driving force … India’s debt market reforms is the need to raise capital … infrastructure projects. India needs .. about $300 billion … the next 10 years for infrastructure alone. Only half of this can be raised from the commercial banks, the equity market, the government and multilateral agencies like the World Bank. The other half must come from its domestic debt markets. But the Indian debt market is too small to meet this requirement at the moment.
So the market is moving ... the right direction and bonds – not shares – are the hottest selling investments in India today. In the past, equity markets overshadowed debt markets … both size and returns. While India’s total stock market capitalization is still equal … $138.6 billion, analysts say that investors are increasingly choosing bonds … equity. Of the total Rs16.74 billion was raised in debt floats. Returns … debt are also higher than from equity.
In spite of the government’s efforts, two major obstacles remain. The government bond market is still closed … investment banks. The other problem is liquidity.
Besides, secondary market trading in debt is limited … government securities and is done mainly on the wholesale debt market of the National Stock Exchange. Allowing market-making in government securities is the key … creating an active secondary debt market in India.
Having this mind the Reserve Bank of India – the Indian central bank – set … a system of primary dealers or makers in government securities. But for debt trading to be successful, several structural changes need to be put in place, including setting up a depository and establishing a REPO market.
Words you may need:
corporate debt – облігації, що випущені корпорацією
The market … is booming – На ринку ... спостерігається підвищення ділової активності.
fixed-income return – дохід по паперам з фіксованим прибутком
overtake – випереджати
ripe – готовий до чогось
overshadow – затьмарювати
capitalization – капіталізація
debt float – випуск боргових зобов’язань
primary dealer – первинний дилер
depository – депозитарій
REPO market – ринок РЕПО
3. a) Read the text.
b) Discuss the reasons which led to the creation of the UK debt market and its structural changes in the late 80s.
The UK Government bond market is generally the market of giltedged securities. These securities are considered to be very safe.
The market origins go back to 1694 when the Bank of England was founded to help the Government raise money to fight the French . borrowing to fiancé wars has been common and the outstanding amount of debt has soared during all of the major wars since then. The major expansion, however, came in the post-World War II period, especially in the 1970s and early 1980s. historically, the market developed with a strict separation between brokers and jobbers. The brokers did business with the public, but the jobbers did business only with brokers, and with each other.
On 27 October 1986 the market was structurally reorganized. As a result of the “Big Bang” the market switched to a new trading system, modeled on the US bond market. The essential change in this market was that a structure with separate jobbers and brokers was replaced with a structure with gilt-edged makers (GEMMs) who deal directly with large customers.
The gilt-edged markets constitute the major proportion of money passing through the Stock Exchange. Transactions are typically much larger than in the equity market.
UK gilts consists of two distinct markets, the short gilts market (securities with five years or less to maturity) and the market for medium and long gilts.
Some time in the past here were forecast that the gilt market would disappear by the end of the century. The Big Bang reforms succeeded in achieving one of the key objectives – to make the market accessible and attractive to international investors. There has been an increasing trend towards investors moving funds between the major bond markets, taking views on both the bonds themselves and the currencies involved. Now, in its current form it is firmly in the mainstream as one of the world’s most actively bond markets.
As to the UK corporate bond market, it has had a mixed history. Historically, it has been a major source of corporate funds but issuance virtually stopped during the 1970s and early 1980s due to high inflation and large government issuance.
In the last few years, the market has sprung to life again, helped by the fall in long-bond yields due to inflation fall and temporary disappearance of the government’s borrowing requirements.
4. a) Look through the text below to say what types of securities are described in it.
b) Reread the text more carefully and explain how the US government uses debt instruments.
US Government Securities
The US government relies heavily on debt financing. since the 1960s, revenues have seldom covered expenses, and the differences have been financed primarily by issuing debt instruments. Moreover, new debt must be issued in order to get the necessary funds to pay off old debt that comes due.
About two-thirds of the public debt is marketable, meaning that it is represented by securities that can be sold at any time by the original purchaser through government security dealers.
Marketable issuers include Treasury bills, notes, and bonds.
US Treasury Bonds have maturities greater than ten years at the time of issuance, with denominations ranging from $1,000 upward. Treasury bond issues have call provisions under which the Treasury has the right to force the investor to sell the bonds back to the government at par value.
US Savings Bonds are nonmarketable securities, offered only to individuals and selected organizations. There is a limit to the amount that may be purchased by any person in a single year. Two types are available: pure discount bonds and bonds that pay interest semiannually but can be redeemed for par value at any time.
To support credit for home purchase, the government has authorized the issuance of participation certificates. The most important certificates of this type are those issued by the Government National Mortgage Association (GNMA or “Ginnie Mae”), they are known as CNMA Modified Pass-Through Securities. Unlike most bonds, GNMA pas-through securities pay investors on a monthly basis an amount of money that represents both a pro rata return of principal and interest on the underlying mortgages.
US Corporate bonds. Corporate bonds are similar to other kinds of fixed-income securities. An issue of bonds is generally covered by an indenture, in which the issuing corporation promises a specified trustee that it will comply with a number of stated provisions, like the timely payment of required coupons and principal on the issue. The major types are as follows:
Mortgage bonds are debt that is secured by the pledge of specific property. In the event of default, the bondholders are entitled to obtain the property in question.
Collateral trust bonds are debt-backed by other securities that are usually held by the trustee.
Debentures are general obligations of the issuing corporation representing unsecured debt. A bond indenture will often require the issuing corporation to make annual payments into a sinking fund.
Words you may need:
treasury bond – довгострокові казначейські зобов’язання
call provision – умови позики, що передбачає право емітента достроково викупити цінні папери
par value – паритет, номінал
participation certificate – сертифікат участі
Government National Mortgage Association (GNMA) – Урядова національні іпотечна асоціація
pass-through security – цінний папір, що випущений на базі пулу іпотек
pro rata – пропорційний, пропорційно
fixed-income security – цінний папір з фіксованим доходом
indenture – письмова угода про емісію облігацій
trustee – довірена особа, опікун
mortgage bond – облігація, що забезпечена заставною під нерухомість
pledge – застава
collateral trust bond – облігація, що забезпечена іншими цінними паперами, що зберігаються на умовах трасту
unsecured debt – незабезпечений борг
sinking fund – викупний фонд, фонд погашення заборгованості
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