Worksheet I for Applied Financial English:

Reading2: The Stock Market

Fill in the blank:

The stock market can be divided in a ______and a secondary market. The primary market is where newly issued ______are sold and the secondary market is where ______shares are traded. ______are brokerages that help companies sell their newly issued shares. Sometimes we call these ______.

Corporate stock is really an ______claim. When you own stock, you are a part owner of the corporation. Stock has income, which is called ______. If the company makes a ______then it will usually declare a dividend. Long term investors buy stocks for the income, while short term investors buy stocks for the ______.

To do well in the stock market one needs to study both the balance ______and the ______statement. The balance sheet shows a list of the ______and ______of the company. It also gives a summary of the owners' equity or ______. When we study the stock market, we must pay close attention to the daily ______. We also look at the P/E ratio, which is the ______/______ratio.

Reading3: The Bond Market

Translate the following terms into Chinese.

  1. debt ______j. term structure of interest rates ______
  2. face value ______k. default ______
  3. coupon ______l. discount ______
  4. maturity ______m. premium ______
  5. yield ______n. par ______
  6. return ______o. securities ______
  7. capital gain/loss ______p. defer taxes ______
  8. inflation ______q. risk ______
  9. interest rate ______r. arbitrage ______

Rewrite these sentences in good English:

  1. There are three main theories of the term structure of interest rates.
  2. I think there will be inflation next year, so I don't want to buy bonds now.
  3. Interest rates are rising, but I think it is because risk has increased.
  4. If domestic interest rates rise, the foreign exchange rate may fall.
  5. Most people think that stocks and bonds are substitutes in their portfolio.
  6. Most of the pension fund is invested in gilt edged government securities.
  7. If the government tries to borrow too much, then bond prices will fall.
  8. If bond prices fall, then interest rates must rise.
  9. Many people believe that if the economy goes into recession, then you should buy government bonds.
  10. Zero coupon bonds are bonds issued by brokerages.
  11. Convertible bonds can be exchanged for corporate stock.
  12. The rating on a bond tells the investor whether the bond is risky.

Reading #4: The Money Market

Explain briefly each of the following money market instruments and how they are used.

  1. Treasury Bill
  1. Commercial Paper
  1. Bankers Acceptance
  1. Eurodollar Loan
  1. Repurchase Agreement
  1. Fed Funds Loan

An important question for the money market is -- how can short term interest rates affect the economy? Write a short answer to this question.

Reading #5: Futures Market

Choose the correct usage of the word given in parentheses:

  1. (Hedge) ______with futures is often undertaken by business to reduce the risks of exchange rate fluctuations.
  2. (Purchase) A Taiwancompany which must pay DMs in six months can hedge its risks by ______DM futures now.
  3. (Rise) Usually, when the spot price of a commodity ______, we find that the futures price for the same commodity ______.
  4. (Buy) If you are currently selling corn futures, you can offset your position by ______the identical corn contract in the futures market.
  5. (Mark) When the futures price of a commodity changes, then the value of the contract is ______to market.
  6. (Calculate) Daily settlement occurs in the futures market when profits and losses are ______for each participant in the market at the close of the trading day.

Here is a small problem in futures. Fill in the following table.

Trading Day Position Price Value Profit/LossDay 1. Buy corn futures 2.50/bu. $12,500 ------
Day 2 ------______$14,000 ______
Day 3 ------2.90/bu. ______
Day 4 ------______$300
Day 5 (offset) Sell corn futures ______$12,000 ______

Reading #6 The OptionsMarket

(1)Give an example of how you would use a call option.

(2)Give an example of how you would use a put option.

Answer each of the following questions:

  1. Who creates options?
  1. What is the difference between a call option and a put option?
  1. If you buy a call on IBM stock, explain how you can lose money?
  1. Some people use options to hedge against the risks from shorting stock.

Explain what they are doing.

e. Does it ever make sense to buy both a put and a call option on the same stock?