Exercise 8. Read and translate the text «Preferred Stocks. Bonds. Options. Futures»

Preferred Stocks. A preferred stock is a stock which bears some resemblances to a bond. A preferred stockholder is entitled to dividends at a specified rate, and these dividends must be paid before any dividends can be paid on the company's common stock. In most cases the preferred dividend is cumulative, which means that if it isn't paid in a given year, it is owed by the company to the preferred stockholder. If the corporation is sold or liquidates, the preferred stockholders have a claim on a certain portion of the assets ahead of the common stockholders. But while a bond is scheduled to be redeemed by the corporation on a certain "maturity" date, a preferred stock is ordinarily a permanent part of the corporation's capital structure. In exchange for receiving an assured dividend, the preferred stockholder generally does not share in the progress of the company; the preferred stock is only entitled to the fixed dividend and no more (except in a small minority of cases where the preferred stock is "participating" and receives higher dividends on some basis as the company's earnings grow).

Many preferred stocks are listed for trading on the NYSE and other exchanges, but they are usually not priced very attractively for individual buyers. The reason is that for corporations desiring to invest for fixed income, preferred stocks carry a tax advantage over bonds. As a result, such corporations generally bid the prices of preferred stocks up above the price that would have to be paid for a bond providing the same income. For the individual buyer, a bond may often be a better buy.

Bonds-Corporate. Unlike a stock, a bond is evidence not of ownership, but of a loan to a company (or to a government, or to some other organization). It is. a debt obligation. When you buy a corporate bond, you have bought a portion of a large loan, and your rights are those of a lender. You are entitled to interest payments at a specified rate, and to repayment of the full "face amount" of the bond on a specified date. The fixed interest payments are usually made semiannually. The quality of a corporate bond depends on the financial strength of the issuing corporation. Bonds are usually issued in units of $1,000 or $5,000, but bond prices are quoted on the basis of 100 as "par" value. A bond price of 96 means that a bond of $ 1,000 face value is actually selling at $960. And so on. Many corporate bonds are traded on the NYSE, and newspapers carry a separate daily table showing bond trading. The major trading in corporate bonds, however, takes place in large blocks of $100,000 or more traded off the Exchange by brokers and dealers acting for their own account or for institutions.

Bonds-U.S. Government. U.S. Treasury bonds (long-term), notes (intermediate-term) and bills (short-term), as well as obligations of the various U.S. government agencies, are traded away from the exchanges in a vast professional market where the basic unit of trading is often $1 million face value in amount. However, trades are also done in smaller amounts, and you can buy Treasuries in lots of $5,000 or $10,000 through a regular broker. U.S. government bonds are regarded as providing investors with the ultimate in safety.

Bonds-Municipal. Bonds issued by state and local governments and governmental units are generally referred to as "municipals" or "tax-exempts", since the income from these bonds is largely exempt from federal income tax.

Tax-exempt bonds are attractive to individuals in higher tax brackets and to certain institutions. There are many different issues and the newspapers generally list only a small number of actively traded municipals. The trading takes place in a vast, specialized over-the-counter market. As an offset to the tax advantage, interest rates on these bonds are generally lower than on U.S. government or corporate bonds. Quality is usually high, but there are variations according to the financial soundness of the various states and communities.

Convertible Securities. A convertible bond (or convertible debenture) is a corporate bond that can be converted into the company's common stock under certain terms. Convertible preferred stock carries a similar "conversion privilege". These securities are intended to combine the reduced risk of a bond or preferred stock with the advantage of conversion to common stock if the company is successful. The market price of a convertible security generally represents a combination of a pure bond price (or a pure preferred stock price) plus a premium for the conversion privilege. Many convertible issues are listed on the NYSE and other exchanges, and many others are traded over-the-counter.

Options. An option is a piece of paper that gives you the right to buy or sell a given security at a specified price for a specified period of time. A "call" is an option to buy, a "put" is an option to sell. In simplest form, these have become an extremely popular way to speculate on the expectation that the price of a stock will go up or down. In recent years a new type of option has become extremely popular: options related to the various stock market averages, which let you speculate on the direction of the whole market rather than on individual stocks. Many trading techniques used by expert investors are built around options; some of these techniques are intended to reduce risks rather than for speculation.

Rights. When a corporation wants to sell new securities to raise additional capital, it often gives its stockholders rights to buy the new securities (most often additional shares of stock) at an attractive price. The right is in the nature of an option to buy, with a very short life. The holder can use ("exercise") the right or can sell it to someone else. When rights are issued, they are usually traded (for the short period until they expire) on the same exchange as the stock or other security to which they apply.

Warrants. A warrant resembles a right in that it is issued by a company and gives the holder the option of buying the stock (or other security) of the company from the company itself for a specified price. But a warrant has a longer life - often several years, sometimes without limit. As with rights, warrants are negotiable (meaning that they can be sold by the owner to someone else), and several warrants are traded on the major exchanges.

Commodities and Financial Futures. The commodity markets, where foodstuffs and industrial commodities are traded in vast quantities, are outside the scope of this text. But because the commodity markets deal in "futures" - that is, contracts for delivery of a certain good at a specified future date - they have also become the center of trading for "financial futures", which, by any logical definition, are not commodities at all.

Financial futures are relatively new, but they have rapidly zoomed in importance and in trading activity. Like options, the futures can be used for protective purposes as well as for speculation. Making the most headlines have been stock index futures, which permit investors to speculate on the future direction of the stock market averages. Two other types of financial futures are alsoо of great importance: interest rate futures, which are based primarily on the prices of U.S. Treasury bonds, notes, and bills, and which fluctuate according to the level of interest rates; and foreign currency futures, which are based on the exchange rates between foreign currencies and the U.S. dollar. Although, futures can be used for protective purposes, they are generally a highly speculative area intended for professionals and other expert investors.

 

Vocabulary:

to entitle (to) – (oft. in passive) to give smb. the right to do smth. or have smth.

to be cumulative – increasing steadily in amount or degree by one addition after another

evidence (of / for) – smth., such as a fact, sign, or object that gives proof or reasons to believe or agree with smth.

to resemble – (not in the progressive forms; no passive) to look like, to be like

to zoom – (inform.) to increase suddenly and quickly

to be exempt (from) – freed from a duty, service, payment, etc.

 

Exercise 9. Suggest the Russian for:

To bears some resemblances to, to schedule to be redeemed, assured dividend, to carry a tax advantage over, the full “face amount” / face value in amount, to make smth. semiannually, to carry a separate daily table, to act for one’s own account, to buy in lots of, to provide investors with the ultimate in safety, an offset to the tax advantage, the financial soundness, conversion privilege, to combine the reduced risk of a bond, to speculate on the expectation that, to be negotiable, to deal in futures, to permit investors to do smth.

Exercise 10. Find the English equivalent for:

Срок погашения облигации (оплаты векселя и т.д.), быть зарегистрированным на бирже, назначать цену на …, долговое обязательство, компания, выпускающая акции, номинальная стоимость, казначейские среднесрочные облигации, казначейские краткосрочные облигации, необлагаемые налогом облигации, быть группе с высоким уровнем налогообложения, конвертируемые облигации, цена облигации без надбавок, индекс курсов акций, заработать дополнительный капитал, валютный курс.

 

Exercise 11. Translate into English:

Одним из вариантов привлечения нового капитала является выпуск не обычных акций, а привилегированных. Привилегированные акции отличаются от обычных прежде всего тем, что выплата дивидендов по ним осуществляется в первую очередь, то есть до выплаты по обычным акциям, а в случае ликвидации компании притязания держателей привилегированных акций также удовлетворяются до выплат по обычным акциям.

Привилегированные акции чаще всего выпускают при расширении компании, когда обычные акции становятся недостаточно привлекательными для инвестирования. Еще один распространенный случай их выпуска - это присоединение другой компании, когда владельцы последней заинтересованы в надежном помещении капитала и не намереваются вмешиваться в дела новой корпорации. Большинство привилегированных акций не дает права голоса, если специально не оговаривается иное.

Part 8. Banking.