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Unit 2: FinancialInvestment Financial English Unit 2: Revision of Unit 1Revision of Unit 1Revision of Unit 1Revision of Unit 1 Overview of Unit 2Overview.

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Presentation on theme: "Unit 2: FinancialInvestment Financial English Unit 2: Revision of Unit 1Revision of Unit 1Revision of Unit 1Revision of Unit 1 Overview of Unit 2Overview."— Presentation transcript:

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2 Unit 2: FinancialInvestment Financial English

3 Unit 2: Revision of Unit 1Revision of Unit 1Revision of Unit 1Revision of Unit 1 Overview of Unit 2Overview of Unit 2Overview of Unit 2Overview of Unit 2 Background information of Unit 2Background information of Unit 2Background information of Unit 2Background information of Unit 2 TextTextText ExercisesExercisesExercises AssignmentsAssignmentsAssignments

4 Review of Unit 1 Exercises Check-up Exercises Check-up  Question & Answer Question & Answer Question & Answer  Sentence Translation Sentence Translation Sentence Translation Revision of Unit 1

5 Question &Answer 1. What is the financial market? 2. What does financial market facilitate? 3. What are the main types of financial market? 4. What is the purpose of financial market? 5. Who are the main borrowers in financial market? Check-up Answer the following questions according to the text in Unit 1

6 Key to the questions: 1.A financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. 2.The raising of capital ;the transfer of risk and international trade. Question and Answer

7 3.Capital markets, commodity markets, money markets, derivative markets, insurance markets and foreign exchange markets. 4. Financial markets fit in the relationship between lenders and borrowers. 5.Individuals, companies, governments, municipalities and public corporations. Question and Answer

8 Translate the following sentences orally Sentence Translation 1. Financial markets go by many terms, including capital markets, Wall Street, even the markets. Some experts even simply refer to it as the stock market, even though they are referring to stocks, bonds and commodities. 2. Futures also increase the trader’s leverage by allowing him to borrow the money to purchase the commodity. This can have a huge impact on the stock market if the trader guesses wrong. Check-up

9 Sentence Translation 3. Russian experts say that the economic potential of the nation will let the country survive the financial crisis without considerable losses. The Russian economy today is a lot bigger than it used to be ten years ago. 4. Hedge funds, credit default swaps, can be legitimate instruments when trying to insure against whether someone will default or not, but the problem came about when the market became more speculative in nature. Check-up

10 Sentence Translation 5. The extent of the problems has been so severe that some of the world’s largest financial institutions have collapsed. Others have been bought out by their competition at low prices and in other cases, the governments of the wealthiest nations in the world have resorted to extensive bail-out and rescue packages for the remaining large banks and financial institutions. Check-up

11 Sentence Translation—Suggested Answers 金融市场包括很多方面,包括资本市场,华尔街, 甚至是市场本身。一些专家简单的将股票市场成为 金融市场,尽管市场实际上包括股票市场、债券市 场和商品市场。 期货允许投资者借贷资金购买商品从而增加交易者 的投资杠杆。如果交易者预测有误,这将对股票市 场产生巨大影响。

12 Sentence Translation—Suggested Answers 俄罗斯的专家称,国家的经济潜力将使得国家不必 遭受相当大的经济损失就可以渡过经济危机。如今 的俄国经济比十年前要强很多。 在试图确认某人是否会违约的时候,对冲基金和违 约信用交换会是合法的工具,但是在市场自然而然 变得投机性越来越强时问题就会显现出来。

13 Sentence Translation—Suggested Answers 问题已经到了越来越严重的程度,以致于一些世界 最大型的金融机构已经垮台。其他一些则被其竞争 对手以低价收购。在另一些情况下,一些世界上最 富有国家的政府也通过大量以优先股给股东分红或 者出台救市计划来挽救现存的大型银行和金融机构。

14 Overview of Unit 2 本章旨在 本章旨在 通过对金融投资机构、投资组合以及投机者市 场关系的介绍让学生对金融投资有初步概念, 并了解其中一些相关理论。本章重点难点 什么是金融中介机构 什么是投资组合 如何看资产负债表 投机者与市场的关系

15 Overview of Unit 2

16 共有基金 (mutual fund) 共有基金是一个投资公司集结了众多投 资人的资金,然后由财务管理专家依照该共有基金的投资方向 而投资于美国或其它国家的金融和证券市场,其投资的组合可 能包括股票,债券,银行定期存款, 货币市场工具, 贵重金属和 房地产等。股票型共有基金投资于股票市场,债券型共有基金 投资于债券,也有一部分共有基金的投资涵盖了股票,债券, 贵重金属,房地产等。一般而言,共有基金的投资种类和百分 比依基金公司的目标与策略的不同而有差异。投资者参与投资 共有基金时,即拥有该共有基金的部分所有权,你需要付出它 的净资产价( NetAssetValve , NVA) ,加上所需的销售价 ( Salesloads )。当你买入基金后,那些基金管理费也是由你 付出。 Background Information

17 共有基金的投资者可借助两种方式获利:收取所投资本 的股息和利息收入,或籍所持证券的升值使投资升值。 股息、利息及出售证券所得之收盈 ( 资本利得 ) 以收益分配 的形式返还投资者。总体而言,任何投资者有权在任何 时间,以所投资基金之当日收盘价出售 ( 可赎回 ) 所持股份。

18 Background Information 资产负债表 (Balance Sheet) ,亦称财务状况表 ( Statement of financial position ) 资产负债表 (Balance Sheet) ,亦称财务状况表 ( Statement of financial position ) 按照有关统计,美国大约有 93% 的企业将这张报表称 为 “ 资产负债表 ” ( Balance Sheet ),另外,还有极少数的 企业称其为 “ 财务状况表 ” ( Statement of financial position ) 按照有关统计,美国大约有 93% 的企业将这张报表称 为 “ 资产负债表 ” ( Balance Sheet ),另外,还有极少数的 企业称其为 “ 财务状况表 ” ( Statement of financial position )

19 Unit 2: Part I: 2.1 IntroductionPart I: 2.1 Introduction 2.1 Introduction 2.1 Introduction Part II: 2.2 Financial IntermediariesPart II: 2.2 Financial Intermediaries 2.2 Financial Intermediaries 2.2 Financial Intermediaries Part III: 2.3 Portfolio ChoicePart III: 2.3 Portfolio Choice 2.3 Portfolio Choice 2.3 Portfolio Choice Part IV: 2.4 Speculators and MarketsPart IV: 2.4 Speculators and Markets 2.4 Speculators and Markets 2.4 Speculators and Markets

20 Financial Investment 2.1 Introduction In finance, investment is the commitment of funds by buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk-return spectrum. In finance, investment is the commitment of funds by buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk-return spectrum. Text :

21 Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses. Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses. Text :

22 Investments are often made indirectly through intermediaries, such as banks, mutual funds, pension funds, insurance companies, collective investment schemes, and investment clubs. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary. Investments are often made indirectly through intermediaries, such as banks, mutual funds, pension funds, insurance companies, collective investment schemes, and investment clubs. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary. intermediaries

23 Text : 2.2 Financial IntermediariesFinancial Intermediaries Most people do not enter financial markets directly but use intermediaries or middlemen. Commercial banks are the financial intermediary we meet most often in macroeconomics, but mutual funds, pension funds, credit unions, savings and loan associations, and to some extent insurance companies are also important financial intermediaries. Most people do not enter financial markets directly but use intermediaries or middlemen. Commercial banks are the financial intermediary we meet most often in macroeconomics, but mutual funds, pension funds, credit unions, savings and loan associations, and to some extent insurance companies are also important financial intermediaries. macroeconomicsmutual funds macroeconomicsmutual funds

24 Text : When people deposit money in a bank, the bank uses the funds to make loans to home buyers for mortgages, to students so they can pay for their education, to business to finance inventories, and to anyone else who needs to borrow. A person who has extra money could, of course, seek out borrowers himself and bypass the intermediary. By eliminating the middleman, the saver could get a higher return. Why, then, do so many people use financial intermediaries? When people deposit money in a bank, the bank uses the funds to make loans to home buyers for mortgages, to students so they can pay for their education, to business to finance inventories, and to anyone else who needs to borrow. A person who has extra money could, of course, seek out borrowers himself and bypass the intermediary. By eliminating the middleman, the saver could get a higher return. Why, then, do so many people use financial intermediaries?middleman

25 Text : TWO ADVANTAGES PROVIDED TO THE SAVERS TWO Financial intermediaries provide TWO important advantages to savers.

26 Text : First, lending through an intermediary is usually less risky than lending directly. The major reason for reduced risk is that a financial intermediary can diversify. It makes a great many loans, and even though some of those loans will be mistakes, the losses will be largely offset by loans that are sound. In contrast, an average saver could directly make only a few loans, and any bad loans would substantially affect his wealth. Because an intermediary can put its "eggs" in many "baskets," it insures its depositors from substantial losses. First, lending through an intermediary is usually less risky than lending directly. The major reason for reduced risk is that a financial intermediary can diversify. It makes a great many loans, and even though some of those loans will be mistakes, the losses will be largely offset by loans that are sound. In contrast, an average saver could directly make only a few loans, and any bad loans would substantially affect his wealth. Because an intermediary can put its "eggs" in many "baskets," it insures its depositors from substantial losses.diversifyoffsetbad loans diversifyoffsetbad loans

27 Text : Another reason financial intermediaries reduce risk is that by making many loans, they learn how to better predict which of the people who want to borrow money will be able to repay. Someone who does not specialize in this lending may be a poor judge of which loans are worth making and which are not, though even a specialist will make some mistakes.

28 Text : A second advantage financial intermediaries give savers is liquidity. Liquidity is the ability to convert assets into a spendable form—money—quickly. A house is an illiquid asset; selling one can take a great deal of time. If an individual saver has lent money directly to another person, the loan can also be an illiquid asset. If the lender suddenly needs cash, he must either persuade the borrower to repay quickly, which may not be possible, or he must find someone else who will buy the loan from him, which may be very difficult. convertassetsconvertassets

29 Text : Although the intermediary may use its funds to make illiquid loans, its size allows it to hold some funds idle as cash to provide liquidity to individual depositors. Only when a great many depositors want to withdraw deposits at the same time, which happens when there is a "run" on the institution, will the financial intermediary be unable to provide liquidity. Unless it can obtain help from the government or other institutions, it will be forced to suspend payments to depositors. idle

30 Text : A SOURCE OF SHOCKS AND BUMPS TO THE ECONOMY In addition to lending money to individuals and groups, there are other ways in which banks are part of financial markets. Banks borrow and lend funds among themselves in the federal-funds market. They buy and sell foreign exchange. They buy and sell government and commercial debt. And finally, one form of bank debt serves as money in modern economies, and banks create this debt as a result of their financial transactions. federal-funds marketfederal-funds market

31 Text : Economists are concerned that financial intermediaries can be a source of shocks to the economy, bumps that can disrupt the normal flow of economic life. This concern arises for at least two reasons. First, bank debt serves as money, so disruptions to banks can affect the amount of money in circulation. Second, financial intermediaries are tied together through chains of debts and assets. Economists are concerned that financial intermediaries can be a source of shocks to the economy, bumps that can disrupt the normal flow of economic life. This concern arises for at least two reasons. First, bank debt serves as money, so disruptions to banks can affect the amount of money in circulation. Second, financial intermediaries are tied together through chains of debts and assets.

32 Text : Because of these linkages, the failure of one financial intermediary can weaken others, increasing their chances of failure. As a result, there is the possibility that if a key financial intermediary fails, that failure can create a domino effect that could cause other financial institutions to fail, ultimately causing the financial sector to "seize up" and stop functioning. Serious disruption of the financial markets will disrupt the rest of the economy.

33 Text : 2.3 Portfolio Choice CHARACTERISTICS OF FINANCIAL ASSETS Portfolio choice involves decisions about the way we want to hold our assets (or to structure our liabilities). It is a fancy term for something we do all the time. For example, a yard sale is an example of portfolio adjustment. People holding a yard sale are attempting to convert assets in the form clothing and household items into cash. They are not changing the amount of assets they have, but rather the form in which they hold them.

34 Text : From a macroeconomic perspective, most important cases of portfolio adjustment involve financial assets. When we look at financial assets, there are three characteristics that most people want to have in their assets. First, they like assets with low risk. Second, they want assets that are liquid, assets that can easily be converted to money and spent. Third, they like assets that give them a high rate of return. Because no asset combines all three characteristics, people face tradeoffs. From a macroeconomic perspective, most important cases of portfolio adjustment involve financial assets. When we look at financial assets, there are three characteristics that most people want to have in their assets. First, they like assets with low risk. Second, they want assets that are liquid, assets that can easily be converted to money and spent. Third, they like assets that give them a high rate of return. Because no asset combines all three characteristics, people face tradeoffs.tradeoffs

35 Text : If they want a higher return, they usually have to accept more risk or less liquidity. For example, over the past half century the average return on holding common stocks has been higher than the return on holding passbook savings in a bank. However, the high average return on common stocks is the result of some stocks performing very well while others perform poorly. Investment in stocks can be quite risky. If they want a higher return, they usually have to accept more risk or less liquidity. For example, over the past half century the average return on holding common stocks has been higher than the return on holding passbook savings in a bank. However, the high average return on common stocks is the result of some stocks performing very well while others perform poorly. Investment in stocks can be quite risky.

36 Text : BALANCE SHEET BALANCE SHEET Many issues in portfolio choice can be illustrated with a balance sheet. A balance sheet is based on the definition of net worth or wealth: Many issues in portfolio choice can be illustrated with a balance sheet. A balance sheet is based on the definition of net worth or wealth: (1) Net Worth = Assets - Liabilities Liabilities An asset is what one owns and a liability is what one owes. Using very elementary algebra, one can rewrite this equation as: An asset is what one owns and a liability is what one owes. Using very elementary algebra, one can rewrite this equation as: (2) Assets = Net Worth + Liabilities Since this equation is based on a definition, the right-hand and left-hand sides must equal each other or balance, and hence the name balance sheet. Since this equation is based on a definition, the right-hand and left-hand sides must equal each other or balance, and hence the name balance sheet.

37 Text : Balance sheets provide a precise way to analyze banking transactions. The table below shows balance sheets of a hypothetical commercial bank and one of its customers. The deposits of customers are liabilities to the bank because they are amounts that the bank owes to them. On the other hand, these same deposits are assets for the customers. The loans the bank makes to consumers and businesses are assets to the bank but liabilities to the consumers and businesses. Balance sheets provide a precise way to analyze banking transactions. The table below shows balance sheets of a hypothetical commercial bank and one of its customers. The deposits of customers are liabilities to the bank because they are amounts that the bank owes to them. On the other hand, these same deposits are assets for the customers. The loans the bank makes to consumers and businesses are assets to the bank but liabilities to the consumers and businesses.

38 Text : Hypothetical Balance Sheets Commercial Bank. Germaine Assets. Liabilities and Net Worth Assets. Liabilities and Net Worth Vault Cash $1,000,000 loans $9,000,000 Checking Deposits $4,9000,000 Savings Deposits $4,900,000 Net Worth $200,000 Deposits at Bank $400 cash $200 car $3000 personal items $2000 Loan from Bank $2000 Net Worth $3600

39 Text : Suppose that Germaine, the bank customer, decides to deposit into a savings account some of the cash she has in her piggy bank. The effect on the bank will be to increase its vault cash on its asset side and also to increase its savings deposits on its liability side. For Germaine, the transaction will not affect the liability side of her balance sheet at all. She will reduce her cash holdings and increase the amount she has in her savings account. As a result of this portfolio decision that Germaine makes, she will earn a higher return on her assets than she did before, but she will have slightly less liquidity. If Germaine deposits $100, we could show the effect of her actions by putting in only the changes, which is done below. Notice how balance is preserved on both sheets. Suppose that Germaine, the bank customer, decides to deposit into a savings account some of the cash she has in her piggy bank. The effect on the bank will be to increase its vault cash on its asset side and also to increase its savings deposits on its liability side. For Germaine, the transaction will not affect the liability side of her balance sheet at all. She will reduce her cash holdings and increase the amount she has in her savings account. As a result of this portfolio decision that Germaine makes, she will earn a higher return on her assets than she did before, but she will have slightly less liquidity. If Germaine deposits $100, we could show the effect of her actions by putting in only the changes, which is done below. Notice how balance is preserved on both sheets.

40 Text : Hypothetical Balance Sheets--Changes Commercial Bank. Germaine Assets. Liabilities and Net Worth Assets. Liabilities and Net Worth Vault Cash +$100 loans -- Checking Deposits -- Savings Deposits +$100 Net Worth -- Deposits at Bank +$100 cash -$100 car -- personal items -- Loan from Bank -- Net Worth --

41 Text : 2.4 Speculators and MarketsSpeculators “EFFICIENT MARKET” “EFFICIENT MARKET” Suppose that you receive an advertisement in the mail offering you a book that tells you how you can beat the stock market and become rich. If this book is offered to you for a mere $50, should you buy it? A little reflection should suggest that you be very, very suspicious. If there was a way to beat the market, the person who had the way should keep quiet and use it. Once the method becomes publicly known, its use will eliminate any source of profit. Suppose that you receive an advertisement in the mail offering you a book that tells you how you can beat the stock market and become rich. If this book is offered to you for a mere $50, should you buy it? A little reflection should suggest that you be very, very suspicious. If there was a way to beat the market, the person who had the way should keep quiet and use it. Once the method becomes publicly known, its use will eliminate any source of profit.

42 Text : A financial market is an "efficient market" if its prices take into account all knowledge that people have about that market. (Notice that the use of the word "efficiency" in this context is not the same as the use of the word in most of microeconomics.) If there is knowledge that is not being used, unexploited profit opportunities exist, and in financial markets these opportunities should be quickly taken.

43 Text : If one knows that a stock or bond is undervalued and that it will rise in value, one will make a large amount of money by buying until it does rise. Because profit opportunities are quickly exploited once they become known, one cannot "beat" an efficient market unless one has special information that is unavailable to others. If one knows that a stock or bond is undervalued and that it will rise in value, one will make a large amount of money by buying until it does rise. Because profit opportunities are quickly exploited once they become known, one cannot "beat" an efficient market unless one has special information that is unavailable to others.exploited

44 Text : If the stock market is an efficient market, movements of stock prices from day to day will be random. Knowing the past movements of the stock does not help one predict what the future price will be. This idea contradicts the technique of picking stocks used by "chartists" or "technicians" who believe that past movements can reveal patterns. If the stock market is an efficient market, movements of stock prices from day to day will be random. Knowing the past movements of the stock does not help one predict what the future price will be. This idea contradicts the technique of picking stocks used by "chartists" or "technicians" who believe that past movements can reveal patterns.

45 Text : A variety of studies that have compared randomly picked portfolios of stocks with stocks chosen by various technical rules supports the idea that information about past movements of stock prices does not help predict the future. The idea of efficient markets suggests that one should not place a great deal of faith in any forecasts about interest rates or stock prices, because if the person making the forecast really does know what will happen, he could keep quiet and get rich. A variety of studies that have compared randomly picked portfolios of stocks with stocks chosen by various technical rules supports the idea that information about past movements of stock prices does not help predict the future. The idea of efficient markets suggests that one should not place a great deal of faith in any forecasts about interest rates or stock prices, because if the person making the forecast really does know what will happen, he could keep quiet and get rich.

46 Text : SPECULATORS Speculators play a useful role in an efficient market where prices adjust very quickly to new information. They are coolly rational individuals looking at the fundamental values of items, buying when prices are too low and helping lift these prices, and selling when prices are too high and helping to lower these prices. As a result, prices correctly transmit information about values that people can then use to make decisions. An efficient market will not be the source of economic disturbances. It can, however, transmit disturbances, and this alone would be enough to interest economists. Speculators play a useful role in an efficient market where prices adjust very quickly to new information. They are coolly rational individuals looking at the fundamental values of items, buying when prices are too low and helping lift these prices, and selling when prices are too high and helping to lower these prices. As a result, prices correctly transmit information about values that people can then use to make decisions. An efficient market will not be the source of economic disturbances. It can, however, transmit disturbances, and this alone would be enough to interest economists.

47 Text : “GREATER-FOOL” THEORY However, there are some who argue that financial markets are not efficient and do not always adjust to economic conditions. They argue that those trading in financial markets are not always calmly rational in the way that those who believe in efficient markets picture them. Rather traders can go on speculative binges, ignoring reality. However, there are some who argue that financial markets are not efficient and do not always adjust to economic conditions. They argue that those trading in financial markets are not always calmly rational in the way that those who believe in efficient markets picture them. Rather traders can go on speculative binges, ignoring reality.binges

48 Text : An important reason people buy items in financial markets is in the hope of selling them at a profit. Thus trading in these markets involves not only an analysis of the fundamental value of an asset, but also an analysis of how other people will react. If people are confident that others will buy the item for more than they paid for it, then they will buy it even if it has little value to them. An important reason people buy items in financial markets is in the hope of selling them at a profit. Thus trading in these markets involves not only an analysis of the fundamental value of an asset, but also an analysis of how other people will react. If people are confident that others will buy the item for more than they paid for it, then they will buy it even if it has little value to them.

49 Text : The idea described above has been called the "greater-fool" theory. It implies that although one may be a fool for buying an asset that is overpriced, one can profit if there are still greater fools who will pay even more for it. The idea is an example of the model of contingent behavior. In contingent behavior, people's actions are based on the way they expect others to act. To the extent that people act in this way and that "greater-fool" speculating influences prices in financial markets, financial markets can serve as a source of economic disturbances rather than as mere transmitters. The idea described above has been called the "greater-fool" theory. It implies that although one may be a fool for buying an asset that is overpriced, one can profit if there are still greater fools who will pay even more for it. The idea is an example of the model of contingent behavior. In contingent behavior, people's actions are based on the way they expect others to act. To the extent that people act in this way and that "greater-fool" speculating influences prices in financial markets, financial markets can serve as a source of economic disturbances rather than as mere transmitters.contingent

50 Text : EXAMPLE OF SPECULATIVE BINGES There are many cases in which markets clearly were on speculative binges. One of the earliest and most famous was the Dutch tulip market of the 1630s. The tulip was introduced into Holland in the middle of the 16th century from Constantinople. It immediately became a status symbol among the very rich, and then as it became a bit less rare, among the middle classes. There are many cases in which markets clearly were on speculative binges. One of the earliest and most famous was the Dutch tulip market of the 1630s. The tulip was introduced into Holland in the middle of the 16th century from Constantinople. It immediately became a status symbol among the very rich, and then as it became a bit less rare, among the middle classes.

51 Text : After 1630 the price of tulips reflected not only their stylishness, but also speculation. People began to gamble on price changes. As people began to join the speculation, trying to get in at low prices, prices took off and the market developed a life of its own. People bought tulips at ridiculous prices only because they thought other people would be willing to pay equally ridiculous prices. For example, a single bulb was exchanged for twelve acres of land. Another was sold for a carriage, two horses, and a substantial sum of cash. After 1630 the price of tulips reflected not only their stylishness, but also speculation. People began to gamble on price changes. As people began to join the speculation, trying to get in at low prices, prices took off and the market developed a life of its own. People bought tulips at ridiculous prices only because they thought other people would be willing to pay equally ridiculous prices. For example, a single bulb was exchanged for twelve acres of land. Another was sold for a carriage, two horses, and a substantial sum of cash.

52 Text : The "bulls“—those who expected rising prices—ruled the bulb market until The boom faded when enough Dutchmen began to wonder if tulip bulbs were really worth what they were being traded for, and decided to get out of the market while they were ahead. As this sentiment spread, the market peaked and began to fall. Speculative markets can crash almost instantly because once prices begin to fall, people realize that there is no fundamental reason for them to be so high. The prices of tulip bulbs fell until they reached a realistic value, which meant that a single bulb was almost worthless. Looking back at tulipmania, we have a tendency to think, "That is a funny episode, but of no importance. People are smarter today." The "bulls“—those who expected rising prices—ruled the bulb market until The boom faded when enough Dutchmen began to wonder if tulip bulbs were really worth what they were being traded for, and decided to get out of the market while they were ahead. As this sentiment spread, the market peaked and began to fall. Speculative markets can crash almost instantly because once prices begin to fall, people realize that there is no fundamental reason for them to be so high. The prices of tulip bulbs fell until they reached a realistic value, which meant that a single bulb was almost worthless. Looking back at tulipmania, we have a tendency to think, "That is a funny episode, but of no importance. People are smarter today."

53 Text : Markets based on "greater-fool" psychology always collapse. Eventually the greatest fool is found, and once he is found, the process cannot continue. In many ways a speculative binge is like a chain letter. Everyone involved in a chain letter believes that he or she will get rich. But since all that is involved is a reshuffling of money, if someone does get rich, others must get poorer. Like speculative binges, chain letters die when the greatest fools have found and joined the chain. Markets based on "greater-fool" psychology always collapse. Eventually the greatest fool is found, and once he is found, the process cannot continue. In many ways a speculative binge is like a chain letter. Everyone involved in a chain letter believes that he or she will get rich. But since all that is involved is a reshuffling of money, if someone does get rich, others must get poorer. Like speculative binges, chain letters die when the greatest fools have found and joined the chain.

54 Text : Speculative binges can affect the production of an economy if they cause enough financial disruption. They will cause bankruptcies, reduce people's trust in others, and cause unemployment for the people who became speculators. However, few periods of inflation or recession can be linked to speculative binges, and, as a result, most economists do not believe that they, or the financial markets, are an important source of macroeconomic disturbance. Speculative binges can affect the production of an economy if they cause enough financial disruption. They will cause bankruptcies, reduce people's trust in others, and cause unemployment for the people who became speculators. However, few periods of inflation or recession can be linked to speculative binges, and, as a result, most economists do not believe that they, or the financial markets, are an important source of macroeconomic disturbance.

55 Text : Some people argue that the Great Depression was a result of a speculative binge in the stock market in 1928 and Most economists dismiss this theory because prices in the stock market did not reach levels that were clearly outlandish. Some market watchers have even argued that stock prices were not overvalued at all in 1929 if the 1930s would have been a normal decade. Some people argue that the Great Depression was a result of a speculative binge in the stock market in 1928 and Most economists dismiss this theory because prices in the stock market did not reach levels that were clearly outlandish. Some market watchers have even argued that stock prices were not overvalued at all in 1929 if the 1930s would have been a normal decade.

56 Text : Even if one believes that stocks were overvalued in 1929, and that the stock market had gone on a speculative binge, it is hard, and perhaps impossible, to explain why the results of this particular binge were so much more severe than the aftereffects of other, equally large binges in the stock market. In particular, the very large drop in stock market prices on Monday, October 19, 1987 left few traces on production or consumption during the following year. Yet on that one day the value of common stocks, as measured by the Dow Jones Industrial Index, dropped by more than 22%. Clearly a speculative crash in financial markets is not enough, by itself, to trigger a recession. Even if one believes that stocks were overvalued in 1929, and that the stock market had gone on a speculative binge, it is hard, and perhaps impossible, to explain why the results of this particular binge were so much more severe than the aftereffects of other, equally large binges in the stock market. In particular, the very large drop in stock market prices on Monday, October 19, 1987 left few traces on production or consumption during the following year. Yet on that one day the value of common stocks, as measured by the Dow Jones Industrial Index, dropped by more than 22%. Clearly a speculative crash in financial markets is not enough, by itself, to trigger a recession.

57 Text : Language Points intermediaryn. acting as a mediator or an agent between persons or things. 中间人 ; 媒介 ( 物 ) eg. Conducts of intermediary institutions are being standardized to better serve foreign invested enterprises. eg. Conducts of intermediary institutions are being standardized to better serve foreign invested enterprises. 规范中介机构的行为,引导中介机构更好地为外商投资企 业服务。 规范中介机构的行为,引导中介机构更好地为外商投资企 业服务。 financial intermediary 金融中介机构

58 Text : Language Points middlemann. a trader who buys from producers and sells to retailers or consumers. 经纪人;掮客 eg. The investment bank is the middleman between company and investor. eg. The investment bank is the middleman between company and investor. 投资银行是 公司和投资者的中间商。 投资银行是 公司和投资者的中间商。

59 Text : Language Points macroeconomic macroeconomic n. 宏观经济 eg. The microeconomic and macroeconomic fluctuations might effect the loan. 微观和宏观经济的波动也许会影响贷款的归还。 微观和宏观经济的波动也许会影响贷款的归还。

60 Text : Language Points mutual fundan investment company that continually offers new shares and buys existing shares back on demand and uses its capital to invest in diversified securities of other companies 共有基金 ( 一种 投资公司形式 ) eg. The study conducted by Oppenheimer, a mutual fund company, reveals that many young women are suffering from the Carrie Bradshaw syndrome. eg. The study conducted by Oppenheimer, a mutual fund company, reveals that many young women are suffering from the Carrie Bradshaw syndrome. 这项由一家叫做 Oppenheimer 的共同基金公司所做的调查 发现,不少青年妇女患上了 Carrie Bradshaw 综合症。 这项由一家叫做 Oppenheimer 的共同基金公司所做的调查 发现,不少青年妇女患上了 Carrie Bradshaw 综合症。

61 Text : Language Points diversity. a point or respect in which things differ. 差异, 多样性 diversity n. a point or respect in which things differ. 差异, 多样性 eg. A diversity leads to prosperity. eg. A diversity leads to prosperity. 穷则变,变则通 。 穷则变,变则通 。 offsetn. an agent, an element, or a thing that balances, counteracts, or compensates for something else. 抵消 ; 补偿 eg. The gains offset the losses. eg. The gains offset the losses. 损益相抵。 损益相抵。 This will offset the loss. This will offset the loss. 这将弥补损失。 这将弥补损失。

62 Text : Language Points bad loan 呆帐, 过期未还的贷款 convert v. to exchange (a security, for example) by substituting an equivalent of another form. 更换:将(如一种证券)兑换成另 一形式的等价物 eg. The company converted its assets into cash. eg. The company converted its assets into cash. 公司将资产转化成现金。 公司将资产转化成现金。

63 Text : Language Points assetsn. 资产,财产 eg. financial assets management companies eg. financial assets management companies 金融资产管理公司 金融资产管理公司 fixed assets investment administration fixed assets investment administration 固定资产投资管理 固定资产投资管理 idle a. not in use or operation 闲置的 eg. The tongue of idle persons is never idle. eg. The tongue of idle persons is never idle. [ 谚 ] 人懒嘴不懒。 [ 谚 ] 人懒嘴不懒。 federal-funds market 联邦基金市场 federal-funds market 联邦基金市场

64 Text : Language Points tradeoffn. an exchange of one thing in return for another, especially relinquishment of one benefit or advantage for another regarded as more desirable 交易,交换:以一物换取另一物,尤 指放弃一种利益或优势以换取另一种被认为更有价值的物品 tradeoff n. an exchange of one thing in return for another, especially relinquishment of one benefit or advantage for another regarded as more desirable 交易,交换:以一物换取另一物,尤 指放弃一种利益或优势以换取另一种被认为更有价值的物品 eg. This is a simple cost/benefit tradeoff. eg. This is a simple cost/benefit tradeoff. 这是一个简单的成本/收益权衡 。 这是一个简单的成本/收益权衡 。

65 Text : Language Points balance sheet (BS)a statement of a business or an institution that lists the assets, debts, and owners ’ investment as of a specified date. 资产负债表:一个公司或机构在指定日期的资产、负债和所有 者投资的列表说明

66 Text : Language Points liability liability n. anything that is a hindrance or puts an individual at a disadvantage. 负债,债务:某一企业的资产收支表上的财 政债务 eg. A partnership may have unlimited liability as well as limited liability. 合营可以是无限责任也可以是有限责任。

67 Text : Language Points speculatorn. one that speculates 投机者 speculator n. one that speculates 投机者 eg. He is a speculator who hold up customers. 他是个向顾客索取高价的投机商人。 eg. He is a speculator who hold up customers. 他是个向顾客索取高价的投机商人。 exploit v. to employ to the greatest possible advantage 开发 eg. We shall exploit our rich resource to expand the economy. 我们应该利用我们丰富的资源发展经济 。 eg. We shall exploit our rich resource to expand the economy. 我们应该利用我们丰富的资源发展经济 。

68 Text : Language Points binge bingen. a period of excessive or uncontrolled indulgence 无节 制期 eg. Binge drinking, ready meals and a lack of exercise all take their toll. 酗酒、吃方便食品、缺乏锻炼均对年轻人的健康造成了 不良影响。

69 Text : Language Points contingent contingent a. dependent on conditions or occurrences not yet established; conditional 因事而定的:取决于尚未确定的条件 或事件的;依条件而定的 eg. Such risks are contingent to the trade. 这种风险在经商中是可能发生的。

70 Exercises Paraphrase the following expressions or abbreviations and translate them into Chinese 1. intermediary6. diversity 2. offset7. tradeoff 3. liability8. speculator 4. exploit9. binge 5. postdate10. BS Check-up

71 1.intermediary: acting as a mediator or an agent between persons or things. 中间人 ; 媒介 ( 物 ) 2.offset: an agent, an element, or a thing that balances, counteracts, or compensates for something else. 抵消 ; 补偿 3.liability: liabilities The financial obligations entered in the balance sheet of a business enterprise. 负债,债务:某一企 业的资产收支表上的财政债务 4.exploit: to employ to the greatest possible advantage 开发 5.postdate: to put a date on (a check, for example) that is later than the actual date. 填迟日期, 接在... 后面 Exercises-Keys

72 Exercises-Keys 6. diversity: a point or respect in which things differ 差异, 多样性 7. tradeoff: an exchange of one thing in return for another, especially relinquishment of one benefit or advantage for another regarded as more desirable 交易,交换:以一物换取另一物,尤 指放弃一种利益或优势以换取另一种被认为更有价值的物品 8. speculator: one that speculates 投机者 9. binge: a period of excessive or uncontrolled indulgence 无节制 期 10. BS:= balance sheet, a statement of a business or an institution that lists the assets, debts, and owners' investment as of a specified date. 资产负债表:一个公司或机构在指定日期的资产、负债和 所有者投资的列表说明

73 Exercises Fill in the blanks with the proper words investment classes scales merged capable markets single difference specialization capital

74 Exercises In the not so distant past, there was little ________ between financial and strategic investors. Investors of all colors sought to safeguard their ________ by taking over as many management functions as they could. Additionally, investments were small and shareholders few. A firm resembled a household and the number of people involved – in ownership and in management – was correspondingly limited. People invested in industries they were acquainted with first hand. In the not so distant past, there was little ________ between financial and strategic investors. Investors of all colors sought to safeguard their ________ by taking over as many management functions as they could. Additionally, investments were small and shareholders few. A firm resembled a household and the number of people involved – in ownership and in management – was correspondingly limited. People invested in industries they were acquainted with first hand. Check-up

75 Exercises As ________ grew, the ________ of industrial production (and of service provision) expanded. A ________investor (or a small group of investors) could no longer accommodate the needs even of a single firm. As knowledge increased and ________ ensued – it was no longer feasible or possible to micro-manage a firm one invested in. Check-up

76 Exercises Actually, separate businesses of money making and business management ________. An investor was expected to excel in obtaining high yields on his ________ – not in industrial management or in marketing. A manager was expected to manage, not to be ________ of personally tackling the various and varying tasks of the business that he managed. Check-up

77 Exercises Thus, two ________ of investors emerged. One type supplied firms with capital. The other type supplied them with know-how, technology, management skills, marketing techniques, intellectual property, clientele and a vision, a sense of direction. Check-up

78 Exercises In the not so distant past, there was little difference between financial and strategic investors. Investors of all colors sought to safeguard their investment by taking over as many management functions as they could. Additionally, investments were small and shareholders few. A firm resembled a household and the number of people involved – in ownership and in management – was correspondingly limited. People invested in industries they were acquainted with first hand. In the not so distant past, there was little difference between financial and strategic investors. Investors of all colors sought to safeguard their investment by taking over as many management functions as they could. Additionally, investments were small and shareholders few. A firm resembled a household and the number of people involved – in ownership and in management – was correspondingly limited. People invested in industries they were acquainted with first hand.

79 Exercises As markets grew, the scales of industrial production (and of service provision) expanded. A single investor (or a small group of investors) could no longer accommodate the needs even of a single firm. As knowledge increased and specialization ensued – it was no longer feasible or possible to micro-manage a firm one invested in.

80 Exercises Actually, separate businesses of money making and business management emerged. An investor was expected to excel in obtaining high yields on his capital – not in industrial management or in marketing. A manager was expected to manage, not to be capable of personally tackling the various and varying tasks of the business that he managed.

81 Exercises Thus, two classes of investors emerged. One type supplied firms with capital. The other type supplied them with know- how, technology, management skills, marketing techniques, intellectual property, clientele and a vision, a sense of direction.

82 Exercises Topic for discussion What is the function of financial intermediaries in the financial market?

83 Assignments 1. Review the Text. 2.Keep in mind the special terms learned in this Unit. 3.Do exercises in the book.


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