Trading in the bond market

I. READING

THE BOND MARKET

FINANCIAL MARKETS.

1. Stress the first syllable:

customer, borrow, surplus, primary, secondary, purchase, satisfy, debtor, syndicate, lender, government, equity, ownership, issue, uniform, domiciled, subsequently, nickname, issuer, Euro.

1. Stress the second syllable:

financial, maturity, investor, security, available, perspective, appropriate, external, municipal, offshore, denominate, certificate, distinguishing, simultaneously.

1. Stress the third syllable:

supranational, decompose, jurisdiction.

4. Read the text:

People and organizations wanting to borrow money are brought together with those having surplus funds in the financial markets.

There are a great many different financial markets, each one consisting of many institutions, dealing with different instruments in terms of the instrument maturity¹ and the assets backing it, and serving different types of customers.

Generally, financial markets are classified as money or capital markets and primary or secondary markets.

Money markets deal in short-term securities having maturities of one year or less. Capital markets deal in long-term securities having maturities greater than one year. An investor who purchases new securities is participating in a primary financial market/ an investor who resells existing securities is participating in a secondary financial market.

So, when businesses, units of government or individuals cannot satisfy their needs for funds by revenue from sales of goods and services, they can turn to either debt financing (any process by which the firm gets cash or some other assets in return for a promise to pay an agreed upon sum plus interest) or equity financing (any process by which a firm raises funds in return for a share in its ownership and management).

Some sources of funds available to businesses (like issuing stock) are not available to governments. When revenues fall short of expenditures² governments go into debt³ – they borrow short-and-long-term funds by issuing bonds.

A bond is an instrument in which the issuer (debtor/borrower) promises to repay to the lender/investor the amount borrowed plus interest over some specified period of time. It should be stressed that one of the most important characteristics of a bond is the nature of its issuer. Issuers include federal (central) governments and their agencies supranationals (such as the World Bank, the Asian development Bank), municipal governments, and nonfinancial and financial corporations.

By far the largest issuers are central governments.

There is no uniform system for classifying the global bond markets. Quite a number of financiers consider it appropriate to use the following classification. From the perspective of a given country, the global bond market can be classified into two markets: an internal bond market and an external bond market. The internal bond market is also called the national bond market. The internal bond market is also called the national bond market. It can be decomposed into two parts: the domestic bond market and the foreign bond market.

The domestic bond market is where issuers domiciled in the country issue bonds and where those bonds are subsequently traded. The foreign bond market of a country is where bonds of issuers not domiciled in the country are issued and traded.

Bonds traded in the US foreign bond market are nicknamed Yankee bonds. In Japan, foreign bonds issued by non-Japanese entities are nicknamed Samurai bonds. Foreign bonds in the United Kingdom are nicknamed bulldog bonds, in the Netherlands – Rembrandt bonds and in Spain – matador bonds.

The external bond market, also called the international bond market, includes bonds with several distinguishing features:

1) they are underwritten by an international syndicate;

2) at issue they are offered simultaneously to investors in a number of countries;

3) they are issued outside the jurisdiction of any single country;

4) they are in unregistered form.

The external bond market is commonly referred to as the offshore bond market, or more popularity, the Eurobond Market. The Eurobond Market is divided into different submarkets depending on the currency in which the issue is denominated.

Computerization in bond markets has reduced costs of trading bonds and made them more convenient to hold and transfer: they are not issued in certificate form – they are only computer entries.

NOTES:

¹ in terms of the instrument maturity – з строків погашення фінансового інструменту

² When revenues fall short of expenditures – Коли доходи менші за витрати

³…governments go into debt – уряди здійснюють позики

¤VOCABULARY LIST

financial market – фінансовий ринок

bond market – ринок облігацій

maturity – термін боргового зобов’язання

back – гарантувати, підтримувати

to serve customers – обслуговувати замовників

money market – грошовий ринок, ринок короткострокового капіталу

capital market – ринок довгострокового позичкового капіталу

primary market – первинний ринок

secondary market – вторинний ринок

deal (in) – торгувати

short-term securities – короткострокові цінні папери

turn (to) – звертатися (до кого-небудь)

debt financing – фінансування шляхом отримання позик

in return for – в обмін на

equity financing – мобілізація капіталу за допомогою випуску акцій

raise funds – отримувати кошти, мобілізувати капітал

share – частка

ownership – володіння майном

to issue stock (bonds) – випускати акції (облігації)

long-term funds – довгострокові кошти

issuer – емітент цінних паперів

debtor – боржник, дебітор

lender – кредитор

supranational – наднаціональна організація

municipal government – муніципалітет

by far – в значній мірі

uniform – єдиний

appropriate – відповідний

from the perspective of – з точки зору

internal bond market – внутрішній ринок облігацій

external bond market – зовнішній ринок облігацій

decompose – розкладати на складові частини

domiciled – той, що постійно проживає

subsequently – потім, пізніше, згодом

trade – здійснювати угоди на ринку цінних паперів

nickname –давати прізвисько

distinguishing feature – відмітна риса

underwrite – гарантувати розміщення цінних паперів

jurisdiction – юрисдикція

in unregistered form – незареєстрований

offshore bond market – офшорний ринок облігацій

eurobond Market – ринок єврооблігацій

submarket – субринок

denominate – виражати у валюті різної вартості

readily – швидко, легко

in certificate form – у формі сертифіката

computer entry – комп’ютерні дані

? ІІ. VOCABULARY EXERCISES

Ex.1. Find equivalents:

Ex.2. Enter correct correspondences in English or in Ukrainian:

ENGLISH	UKRAINIAN
ownership
	єдиний
debtor
lender
	цінні папери
long-term funds
	юрисдикція
computer entry
	у формі сертифікату
municipal government
	обслуговувати замовників
to issue stock (bonds)
maturity
	мобілізація капіталу за рахунок випуску акцій

Ex.3. Find English equivalents for the following Ukrainian phrases:

мати справу з різними фінансовими інструментами; обслуговувати клієнтів; зі строком платежу менше (більше) одного року; брати участь в угодах на ринку; первинний та вторинний фінансові ринки; звертатись (до); фінансування шляхом отримання позик; мобілізація капіталу за допомогою випуску акцій; випускати облігації; обумовлений строк; емітент; єдина система класифікації; внутрішній та зовнішній ринки облігацій; емітент, що не проживає постійно в країні; облігації, якими торгують на ринку; випуск облігацій гарантований міжнародним синдикатом; випускати в незареєстрованій формі; офшорний ринок облігацій; скоротити витрати, що пов’язані з купівлею та продажем облігацій; випускати облігації у формі сертифікату; випускати облігації у формі запису у комп’ютері.

Ex.4. Fill in the blanks with prepositions, pronouns or conjunctions if necessary:

1. Financial markets are classified … money … capital markets … primary … secondary markets.
2. Money markets deal … short-term securities having maturities … one year … less.
3. When businesses cannot satisfy their needs … funds … revenue … sales … goods … services they can turn … either debt financing … equity financing.
4. Some sources … funds available … businesses are not available … governments.
5. A bond is an instrument … which the issue promises to repay … the lender the amount borrowed plus interest … some specified period … time.
6. One … the most important characteristics … a bond is nature … its issuer.
7. The foreign bond market … a country is where bonds … issuers not domiciled … the country are issued … traded.
8. Market is divided … different submarkets depending … the currency … which the issue is denominated.
9. The external bond market includes bonds underwritten … an international syndicate and offered … investors … a number … countries.
10. Computerization … bond markets has reduced costs … trading bonds … made them more convenient … hold … transfer.

Ex.5. Fill in the blanks below with the appropriate terms from the list:

nature; sources of funds; syndicate; issuers; securities; offshore; maturities; domestic; offshore; jurisdiction; system.    

1. Money markets deal in short-term securities having __________of one year or less.
2. An investor who purchases new _________ is participating in a primary financial market.
3. Some ___________ available to businesses are not available to governments.
4. A __________ of issuer is one of the most important characteristics of a bond.
5. _________ include federal governments and their agencies, supranationals, municipal governments, financial and nonfinancial corporations.
6. There is no uniform __________ for classifying the global bond markets.
7. The national bond market consists of the _________ and foreign bond markets.
8. The bonds in the international bond market are underwritten by an international _________.
9. In the external bond market the bonds are issued outside the ____________ of any single country.
10. The external bond market is referred to as the _________ bond market.

Ex.6. Complete the following sentences:

1. Financial markets are classified as ….
2. Money markets deal in … but capital markets deal in ….
3. An investor who purchases new securities is … and an investor who resells existing securities is ….
4. A bond is an instrument in which ….
5. Issuers include ….
6. The global bond market can be classified into two markets: ….
7. The national bond market can be decomposed into two parts: ….
8. The domestic bond market is a market ….
9. The foreign bond market is where ….
10. The external bond market includes the bonds underwritten … used ….
11. The international bond market is referred to as ….

Ex.7. Answer the following questions:

1. What role do financial markets play?
2. In what ways do financial markets differ?
3. How are the financial markets classified?
4. What is the difference between a money market and capital one?
5. How do investors participate in the primary and secondary financial markets?
6. In what ways can capital be raised?
7. What ways of raising capital are available for government?
8. What is the difference between money and capital markets?
9. What is bond?
10. What is the domestic/foreign bond market?
11. What distinguishing features do the bonds offered in the external bond market have?
12. How can the global market be subdivided?
13. In what forms can government bonds be issued?

Ex.8. Translate into English:

1. Фінансові ринки можна класифікувати як грошові ринки або ринки довгострокового позичкового капіталу і як первинні або вторинні ринки.
2. Грошові ринки торгують короткостроковими цінними паперами, які мають при цьому cтрок боргового зобов’язання рік і менше.
3. На ринках довгострокового позичкового капіталу строк боргового зобов’язання більше одного року.
4. Інвестор, який купує нові цінні папери, є учасником первинного фінансового ринку.
5. Інвестор, який перепродує цінні папери, є учасником вторинного фінансового ринку.
6. Деякі джерела фінансування є доступними для підприємств, але не доступними для уряду.
7. Облігація – засіб, за допомогою якого емітент обіцяє повернути кредитору суму, яку він позичив, плюс відсоток в обумовлений строк.
8. З точки зору окремої країни світовий фінансовий ринок поділяється на внутрішній (національний) та зовнішній (міжнародний) ринки.
9. На ринку облігацій зовнішньої (іноземної) емісії випускаються і продаються облігації емітентів, які постійно не проживають в країні.
10. Акції міжнародного ринку облігацій мають певні відмінні риси.
11. Комп’ютерізація на ринку облігацій зробила більш зручніші для збереження та переказу.

Ex.9. Match each term in Column A with its definition in Column B:

Ex 10. Write several paragraphs on the following using given words and word combinations:

a) financial markets:

to consist of; institutions; to deal with; instruments; maturity; assets; to serve; customers.

b) the classification of the financial markets:

money market; capital market; primary market; secondary market; to deal in; short-term securities; maturity; capital market; long-term securities; investor; to purchase; to participate; primary financial market; to resell; secondary financial market.

c) a bond as a financial instrument:

to achieve priorities, to allocate, to distribute resources, revenue, expenditure, to exceed, to prepare, to forecast, macroeconomic impact.

d) the classification of the global bond market:

an internal bond market; an external bond market; the national bond market; to be decomposed; the domestic bond market; the foreign bond market.

— III. ORAL PRACTICE

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