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C) Say what advantages individuals have when they invest in investment companies




B) Write down 3-5 questions about the text.

Ex. 8. a) Supply the articles where necessary.

B) Think of word combinations with these nouns: investor, investment, accounts, securities, yield.

Ex. 7. Work on vocabulary and grammar.

a) Study the key words of the unit in the dictionary at the back of this book:

investor, investment, assets, capital, risk, call options, put options.

c) Think of the verbs most commonly used with:

portfolio, intermediary, risk, loans, purchase, contributions, funds, money.

d) Match the verbs from (a) with the nouns from (b) below:

 

a) to make b) exchange control

to invest in management

to remove investments

to expand securities

to minimize capital flows

to assess risks

to stimulate competition

to share in return

to receive techniques

to apply situation

Investment Companies

 

Investment companies are... type of financial intermediary. They obtain money from investors and use it to purchase financial assets such as stocks and bonds. In return, the investors receive certain rights regarding... financial assets that the investment company has bought and any earnings that it may generate. In... simplest and most common situation, the investment company has only one type of investor – stockholders.

For an individual there are two advantages of investing in such... companies instead of investing directly in the financial asset that these companies own. Specifically, the advantages arise from (1) economies of scale and (2) professional management. In describing these benefits, let's consider... individual with moderate financial resources who wishes to invest in... stock market.

In terms of economies of scale, the individual could buy stocks in odd lots and thus have... diversified portfolio. However, the brokerage commissions on odd lot transactions are relatively high. Alternatively, the individual could purchase round lots, but would only be able to afford... few different securities. Unfortunately, the individual would then be giving up... benefits of owning a well-diversified portfolio. In order to receive the benefits of both diversification and substantially reduced brokerage commission, the individual could invest in the shares of... investment company. This is because economies of scale make it possible for an investment company to provide... diversification at... lower cost per dollar of investment than would be incurred by a small individual investor.

In terms of professional management, the individual investing directly in the stock market would have to go through all... details of investing, including making all buying and selling decisions as well as keeping records of all transactions for tax purposes. In doing so, the individual would have to be continually on the lookout for mispriced securities in... attempt to find undervalued ones for purchase, while selling any that were found to be overvalued. Simultaneously, the individual would have to keep track of... overall risk level of the portfolio that did not deviate from some desired level. However, by purchasing stock of an investment company, the individual can turn over all of these details to... professional money manager.

Investment companies have... problems but potential advantages to be gained from... investing in an investment company still outweigh any disadvantages, particularly for smaller investors.

Words you may need:

generate v (зд.) изыскивать, получать

economies of scale экономия, обусловленная ростом масштаба производства

odd lot неполный лот

round lot полный лот (партия ценных бумаг)

incur v терпеть убытки, принимать на себя расходы

to keep records регистрировать, вести запись

to be on the lookout быть настороже

mispriced securities ценные бумаги по заниженной или завышенной цене

to keep track (of) отслеживать

deviate v отклоняться

money manager менеджер, занимающийся покупкой и продажей ценных бумаг

Ex. 9. a) Supply the prepositions where necessary.




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