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Демченкова О.А., Якушева И.В.

 

Introduction into Professional English

 

учебник для студентов и аспирантов экономических специальностей

 

Москва 2009

 

Методическая записка.

Вы работаете с учебником по английскому языку, предназначенным для студентов и аспирантов экономических специальностей. Учебник состоит из отдельных блоков, раскрывающих различные аспекты темы «Организация бизнеса». Рассматриваются основные экономические системы, роль предприятия как единицы производства, организация малого и большого бизнеса. Отдельно анализируется корпорация, ее организация, управление, финансовые аспекты деятельности. Блоки содержат списки терминов, которые должны быть усвоены в процессе работы над текстами и упражнениями.

Каждый текст снабжен предтекстовыми заданиями, направленными на формирование навыков просмотрового, ознакомительного и изучающего чтения. Выполняйте эти упражнения в предлагаемой последовательности, не начинайте с перевода! Выполнив предтекстовые задания, переходите к переводу. Перевод может оказаться сложнее, чем извлечение информации из текста, но Вы должны научиться грамотно переводить.

Каждый блок завершается рубрикой «Обсуждение». Задания этой рубрики следует использовать на заключительном этапе работы с текстами. Обратите особое внимание на предлагаемый в рубрике «Обсуждение» список словосочетаний. Постарайтесь запомнить их и научиться использовать в речи. Не забывайте, что грамотность речи определяется не столько количеством используемых слов, сколько их правильной сочетаемостью.

Выполняя задания, направленные на обсуждение материала, смелее используйте текст. «Препарируйте» его, оформляйте свои мысли предложениями, абзацами и даже кусками текста, модифицируя их под Ваше содержание. Лучше, чем написано в тексте, не скажете! Если Вы запомните словосочетания и предложения текстов и будете активно использовать их в речи, они вскоре станут для Вас родными. Никто не вспомнит, из какого учебника и текста эти предложения, а Вы заговорите настоящим английским языком, понятным в международном экономическом сообществе. Вопреки мнению многих преподавателей, мы советуем забыть задание на пересказ «своими словами». Ваша задача - облекать свое содержание нужными Вам предложениями и даже фрагментами текста.

Последовательность заданий и подача материала отражают рекомендуемую нами методику работы с учебником. Если Вам трудно справляться с предлагаемыми заданиями, работайте со специально подготовленным учебным пособием для самостоятельной работы: Демченкова О.А. «Practice Book for Independent Studies to the Course “Introduction into Professional English”», которое является неоценимым помощником при работе над текстами, подготовке к занятиям и итоговому контролю.

Желаем успехов!


Text 2

The basic unit of planning and control over production is the enterprise. All modern economic societies have such control units but there are wide differences in the ways they are organized.Indeed, the organisation of enterprise is one of the characteristics distinguishing different types of economic systems.

An economic system is a framework of arrangements for carrying out the specialization and exchange process. Specialization (or division of labor) is the division of work into component tasks, so that each worker can concentrate on perfoming the particular task instead of many tasks. Exchange is trade, or giving up one thing to get another.

It’s common nowadays to distinguish socialist, capitalist and mixed economic systems.

In a socialist economy like the former USSR, most production was centrally planned, controlled and financed. Thus the Soviet economic system was characterized by centralized enterprise and actually functioned much like a single giant consolidated firm. Although socialist production was subdivided into managerial units that were frequently referred to as "enterprises", these smaller units had minimum responsibility for planning and control, and they functioned more like branches or divisions of an enterprise than like individual business firms.

In contrast, an economic system like that of the United States is characterised by private enterprise, that is control and financing of most production are vested in independent, privately organised enterprises.

Capitalists believe that firms that compete with one another to serve customers best serve society. They argue that capitalism offers people the most rights and economic freedom. It also offers freedom to compete private ownership of property, choice of occupation, profit incentives, consumer power. The role of government is limited.

Since no real world economic system is purely capitalistic, communistic or socialistic, we say that economic systems today are mixed. A mixed economy is a blend of private enterprise, government ownership, and government planning.

This textbook is devoted mainly to the institutional organisation of the private enterprises as business firms. You'll come to know different types of firms, and you’ll see how the modern corporation has emerged to meet the needs of mass-production techniques for which huge amounts of capital must be privately assembled under central control, and how the increasing complexity of corporate organisation has required government regulation.

Without going deeply into the problems of accounting, we will examine the statements that summarize the financial position and operations of a business firm, and we will conclude the review of the businesses with an examination of the giant corporation and discussion on how to start your own business.

 

Assignments to text 3:

1. Read the text and indicate whether you find the headline informative enough.

2. Find the definition of an entrepreneur.

3. Find the sentences which describe personal qualities of an entrepreneur.

4. Specify what kind of a risk the author writes about.

5. Look through the text and headline every paragraph.

5. Translate the text and write down the words to characterise entrepreneurs.

 

Discussion

Discussion

Glossary

stock основной акционерный капитал, акция

common stock обыкновенная акция

preferred stock привилегированная акция

to restrict ограничивать

to entitle давать право

to transact вести дела, заключать сделку

earnings поступления, доход

annual ежегодный

board of directors совет директоров

charter устав

legislature законодательная власть

to vote голосовать

to pool объединять в общий фонд

to raise capital/funds находить источники финансирования, привлекать средства

principal капитал; сумма, на которую начисляются проценты

interest rate=interest процентная ставка

prospectus проспект эмиссии

hire-purchase аренда с последующим выкупом

to lease арендовать

underwrite an issue гарантировать выкуп акций

Ex. 1 Arrange these words into groups according to some principle. As long as you have a good reason, there may be several principles of grouping. Translate the words.

To restrict, transaction, annual, fulfilment, to pool, holder, treatment, to pay, liable, annually, restrictive, to fulfil, routine, participation, liability, to charter, a pool, to treat, routinely, to hold, a vote, payment, to proceed, to participate, charter, restriction, to vote, to transact, proceeds.

Ex. 2 Explain the grammatical phenomenon common for the following sentences. Translate them.

1. The ownership of the corporation is divided into a specified number of shares of common stock, each share representing equal participation in the affairs of the firm.

2. Control of the corporation is centralized in a board of directors, elected at the annual stockholders' meeting, each share of stock having one vote.

3. If the corporation cannot fulfil its contracts or pay its debts, it can be sued like a person, its property being taken in payment.

Ex. 3 While reading the texts of this unit write down all the sentences with the words "like", "unlike". Translate them.

Assignments to text 1:

1. Look through the text and formulate the main ideas.

2. Read the text and divide it into some parts. Give reasons for your division.

3. Find definitions of a corporation.

4. Read the text once more and find the sentences which explain why corporation is a “legal person”.

5. Translate the text paying particular attention to grammar.

6. Draw a chart which would reflect the classification of corporations as it is described in this text. What country can one refer this classification to? Find the sentences which indicate reference to a certain country.

Text 1 The Corporation

The corporation is a legal form of enterprise designed to take advantage of large-scale production methods by pooling the wealth of many people into a single enterprise while at the same time maintaining centralized control over, and responsibility for operations. Unlike partnerships, which are established by private agreement among the partners, a corporation can be established only by a charter from the state. Indeed, in the days when most farming, manufacturing, and commercial businesses were small enough to be carried on as proprietorships and partnerships, corporate charters were issued only by а special act of the state legislature. The corporation was looked upon as a very special form of business organization largely restricted to such enterprises as canal and railroad companies, for which huge agglomerations of wealth were essential. With the development of mass production technology and increase in the amount of capital needed for efficient operation, the economic advantages of the corporate form grew rapidly.

When a corporation is established by a small group of owners, the owners merely contribute funds or property to the newly chartered company in exchange for shares of stock. However, it’s a promoter who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish this purpose. A promoter is anyone who participates or has an interest in setting up the company, but not someone involved in a purely professional capacity, such as a lawyer. The promoters are often the company’s first directors. When funds are to be raised from a large number of people, the frequently informal arrangements between promoters may not suffice. The first step for the promoters then is to formally register, or incorporate the firm. Nowadays in the USA corporate charters are issued usually by state bureaus.

Corporation is a legally chartered organization that is a separate and legal entity apart from its owners. Since the corporate charter establishes the corporation as a legal entity distinct and separate from its owners, the corporation is said to be a “legal person”. That is, the firm itself is legally treated like a person and can make contracts in its own name and can sue and be sued like a real person.

Corporations can be classified as domestic, foreign, or alien. A domestic corporation is one that is incorporated in the state that is doing business. In other states where it plans to do business, it must register as a foreign corporation. If it plans to do business in another country, it must be registered as an alien corporation.

Corporations owned by a very small number of shareholders are called close. A close corporation is one that is privately held. That is, its stock is not traded on the stock exchanges and all the stock is held by a relatively small number of people. On the other hand, an open corporation is owned by a large number of shareholders. These corporations are also referred to as publicly held or public corporations. The stock of these corporations is traded publicly on stock exchanges.

The phrase «going public» indicates a situation where private corporations offer shares of stock for sale to the general public in the hope of raising money to finance growth. The opposite of this action is indicated by the phrase «taking a corporation private». This means one or a few shareholders or corporate officers buy the stock owned by other shareholders, and a formerly open corporation becomes a close corporation. Acting like that they make a formally “open” corporation a “close” one.

Assignment to text 2:

1. Read the text and explain the meaning of the word “flotation”.

2. Look through the text once more and find the words or word-combinations which would substitute the word “flotation” and word-combination “raising finance”.

3. What types of securities are described in this text?

4. Divide the text into some logical parts. Mark the key sentence for every paragraph. Make annotation of the text using the following key-patterns:

· The article deals with…

· As the title implies the article describes…

· It is specially noted…

· … is discussed in detail.

· Much attention is given to…

· It should be emphasized that…

· The article gives a detailed analysis of…

· It draws our attention to…

· The text gives valuable information on…

· The text is of great help to…

· The article is of interest to…

Text 2 Flotation. Raising Finance

A company may finance its activities in a number of ways. It could simply obtain an overdraft from its bank. It could buy equipment on hire – purchase terms or lease it.

For borrowing of substantial sums and/or for long-term borrowing, it will often issue bonds (debentures-Br) at a fixed rate of interest; their attraction will depend on their tax advantages and a comparison of levels of income derivable from interest rate and dividends on shares.

Initial finance for most companies is provided by shares. The act of issuing shares (GB) or stocks (US) for the first time is known as floating a company (making a floatation). A company may issue shares by various methods: it could invite tenders or subscriptions directly from the public (usually through the agency of an investment bank (issuing house)). It might sell them to the investment bank, for it to resell them to the public, by issuing a prospectus or inviting subscriptions or it might place them with the investment bank, either for sale and resale to selected clients of the investment bank or for inviting clients to subscribe. The investment bank is rewarded by its profit on resale or by commission especially where it underwrites an issue. Any commission for underwriting an issue must not exceed 10 per cent.

There are 3 basic types of securities: common stock/ shares, preferred stock/shares, and bonds. Common stock is shares of ownership in a corporation. Preferred stock is shares of a corporation that usually do not confer voting rights but do give preference with respect to dividends and assets. Bonds are written promises that the borrower will pay the lender at some stated future date, a sum of money (principal) and the stated rate of interest. Before buying stocks and bonds, you must understand the pricing of stocks and bonds, which are reported, in many daily newspapers.

 

 

Assignment to text 3:

1. Read and translate the headline. What information do you expect to find in the text?

2. Read the text. Have you found anything beyond your expectations?

3. Make up an outline of the text supplementing every item with key words and word combinations.

4. Find the sentences which describe advantages of a corporation.

5. Taking advantage of the text give different definitions of a share.

6. Translate the text.

 

Text 3 Becoming a Shareholder

A person may become a shareholder by subscribing to the memorandum and having one or more shares allotted to him, or by having shares transferred to him by an existing shareholder, or by applying for shares and having them allotted to him.

The ownership of the corporation is divided into a specified number of shares of common stock, each share representing equal participation in the affairs of the firm. The owners of the company called common shareholders or common stockholders receive certificates of common stock or shares in proportion to their participation in the firm. A man who invests 10 percent of the total capital receives 10 percent of the common shares. Each share entitles its holder to participate in the earnings of the firm in common with their shares. For example when there are 100,000 shares, each share is entitled to one hundred- thousandth of any earning. Also, each share entitles the owner to one vote in the annual stockholders meeting. So, a share is an item of property and normally freely transferable. It gives its holder an interest in the company measured by a sum of money and entitles him to the rights contained in the articles. The value of shares is generally their market price.

Basically, there are three values considered in assessing common stock: book value, market value, and par value. Book value is the difference between the assets of a company and what a company owes (its debts and liabilities) divided by the number of shares of common stock. Market value is the price the shares are selling for on the stock market. Par value is the value the corporation originally printed on each stock certificate.

By pooling together the individual contributions of a large number of stockholders - often hundreds of thousands - a corporation can accumulate immense amounts of capital. It is free of the size limitations of the proprietorship and the partnership and can grow as large as the most efficient production technique requires.

 

Assignment to text 4:

1. Look through the text and explain the interconnection between the title and subtitles of the text. Suggest your own headline for the text.

2. Read the text and find the sentences which focus on differences in forms of businesses.

3. Find the sentences which describe functions of a board of directors.

4. Read the paragraph about limited liability of stockholders. Try to reduce the paragraph to 2-3 sentences which would explain the notion of limited liability of stockholders.

 

Text 4 Organization of the Corporation

Directors and Management. In a partnership, any individual partner can transact business for the firm. In small corporations the major shareholders often manage the business but in large corporations with thousands of shareholders such an arrangement would lead to immediate chaos and a breakdown of operations. Instead, control of the corporation is centralized in a board of directors elected at the annual stockholders' meeting, each share of stock having one vote. The board elects its own officers which include a chairperson, vice-chairperson, and a secretary. The board holds periodic meetings, typically once a month. The board of directors acts on behalf of the stockholders to set corporate policy, to make major decisions, and to hire management to carry on the day-to-day operations of the firm.

Profits and dividends. The profits from the operation of the firm accrue to the equity of the stockholders, and are distributed by the board of directors. The board decides how much of the profit is to be paid out to shareholders as dividends. The remainder of the profits constitutes retained earnings and is reinvested in the firm, thereby increasing the stockholders' equity.

Limited liability of stockholders. In a partnership, all agreements entered into or debts contracted by the firm are personally binding on all the partners. Since the shareholder has given up all immediate control over the corporation, he must be protected in some degree from liability for its actions. This is done by defining a limit to the liability of the individual stockholder.

Agreements and debts contracted by the directors and management are binding on the corporation, but not on the shareholders personally. If the corporation cannot fulfil its contracts or pay its debts, it can be sued like a person and like a person its property can be taken in payment. The stockholder can lose all he has invested in the company, but he has no personal liability beyond this. As an individual, he is in no way responsible for the debts of the company. This aspect of corporate organisation is called limited liability.

 

 

Discussion

These are some useful word-combinations in addition to the glossary that you will translate, memorize and use while discussing the problems:

To take advantage of (smth.), to maintain control, to develop mass-production technology, to issue corporate charter, to make contracts in one's name, to give up control, to fulfil contracts, to pay debts, to take in payments, to pool wealth (capital), to establish a corporation, to have an independent legal personality, to sue, to finance activities, to obtain an overdraft, to borrow money, to issue bonds/shares, to invite tenders, to confer voting rights, to give preference, to subscribe to the memorandum, to receive certificates of stock, to accumulate capital, to transact business, to act on behalf of (smb.), separate and legal entity, legal person, initial finance.

1. Discuss the main differences between corporations and small businesses. Use the table provided.

2. Is being a director the same as being an entrepreneur?

3. What types of securities have you learnt from this unit? Explain the difference between them.

4. What benefits can you expect being a shareholder?

5. What is a corporation? How does a corporation finance its activities?

 

For your notes:

 

Form of Ownership Advantages Disadvantages
Sole proprietorship -Simple to start -Proprietors own all profit -Personal satisfaction -Sole decision maker -No tax on business as distinct from owner -Easy to dissolve - Unlimited financial liability - Hard to raise funds for expansion -Often have no one to share management burden  
Partnership - Few restrictions on starting - Pooling of funds, talents and borrowing power - More chance to specialize than the sole proprietor -Personal satisfaction -No tax on business as distinct from owners - Unlimited and joint financial liability -Potential for personal disagreements -Relative impermanence - Frozen investment
Corporation -Separate legal entity -Limited financial liability of owners - Easy transfer of ownership - Greater financial capability - Permanence   - Special and double taxation - Complex and costly to form and dissolve -Government regulation and public disclosure requirements

UNIT IV CORPORATE FINANCE

 

Glossary

stock exchange биржа

to transfer перемещать, перечислять суммы

to sustain(losses) потерпеть (убытки)

to tap capital зд. наращивать капитал

return оборот, прибыль, доход

cumulative накопленный, совокупный, кумулятивный

arrears (pl) задолженность, долг.

to recover получать обратно, возмещать, покрывать, взыскивать, инкассировать

to repay возвращать (долг), возмещать (ущерб),

оплачивать

leverage повышение доходности, использование заемных средств для получения дополнительного дохода, «плечо»

income доход

fluctuation колебание, неустойчивость

utilities (pl.) предприятия общественного пользования

power utilities энергетические сооружения (услуги)

public utilities коммунальные сооружения (услуги)

IOY=I owe you долговая расписка

share capital акционерный капитал (сумма номинальных стоимостей всех акций)

issued share capital выпущенный акционерный капитал

collateral залог

indebtedness задолженность, сумма долга

Text 1 Capital

In order to operate and develop a company needs capital. Capital is the money that the company uses to run and develop business. There are two main ways in which a company can raise capital, that is find the money it needs: it can use share capital or loan capital, from investors. These are people or organizations who invest in the company; they put money in hoping to make more money.

Share capital is contributed by shareholders who put up money and hold shares in the company. Each share represents ownership of a small proportion of the company. Shareholders receive periodic payments called dividends, usually based on the company’s profit during the relevant period. Capital in the form of shares is also called equity.

Investors can also lend money, but then they do not own a small part of the company. This is loan capital, and an investor or financial institution lending money in this way is a lender. The company borrowing it is the borrower and may refer to the money as borrowing or debt. The total amount of debt that the company has is its indebtedness. The sum of money borrowed is the principal. The company has to pay interest, a percentage of the principal, to the lender, whether it has a profit in the relevant period or not.

Many companies have both loan and share capital. The amount of loan capital that a company has in relation to its share capital is its leverage. Leverage is also called gearing in BrE. A company with a lot of borrowing in relation to its share capital is highly leveraged or highly geared. A company that has difficulty in making payments on its debt is overleveraged.

 

Assignment to text 2:

1. Look through the text and formulate the main issues of it.

2. Make an outline of the text.

3. What are the main types of corporate finance?

4. Find the sentences which explain the differences between the types of finance.

5. Look through the text once more and enumerate advantages of debt financing. Contrast them to advantages of equity financing.

6. Translate the text.

 

Text 2 Corporate Finance

Firms need short-term, intermediate-term and long-term finance. The two main choices for long-term finance are debt or equity finance. Debt finance can be raised in two main ways: long-term loans from banks and bonds (also known as loan stock or corporate bonds). Bonds are also called debentures in Great Britain.

Equity finance is sale of shares. Which method of long-term finance should a company choose? There is no easy answer to this question. Some businesses will use both debt and equity finance for very large projects.

Debt financing has the following advantages:

- As no shares are sold, the ownership of the company does not change or is not «diluted» by the issue of additional shares.

- Loans will be repaid eventually, so there is no permanent increase in the liabilities of the business.

- Lenders have no voting rights at the annual general meetings.

- Interest charges are an expense of the business and are paid out before corporation tax is deducted, while dividends on shares have to be paid from profits after tax.

- The leverage of the company increases and this gives common shareholders the chance of higher returns in the future.

Equity capital has the following advantages:

- It never has to be repaid; it is permanent capital.

Dividends do not have to be paid every year; in contrast, interest on loans must be paid when demanded by the lender.

 

Assignments to text 3:

1. Read the text and say what types of securities are compared.

2. Find definitions of different securities.

3. Look through the text and find the sentences explaining advantages and disadvantages of being a bondholder/ stockholder.

4. Translate the text.

Text 3 Types of Securities

A company wishing to raise funds will issue or sell not only common stock but also preferred stock and bonds (debentures). There is a certain difference between these 3 types.

Common stock is shares of ownership in a corporation. As owners of the firm, common stockholders stand to make good profits when the firm is successful, but will sustain losses when business is poor.

Common stockholders are often named the residual owners. They are so named because they have the right to residual earnings of the corporation. If a corporation were to go bankrupt, the common stockholders would be the last to receive any proceeds from the sale of the corporation’s property. This is because all other creditors, bondholders, and preferred stockholders must be paid first. What is left is considered residual earnings. Common stockholders are paid out of these residual earnings if dividends are declared by the board of directors.

Some investors prefer to give up the chance of a higher return in exchange for greater security in the event of low earnings or losses. One way to tap capital held by such people is to offer them preferred stock (or preferential -British English).

Preferred stock is, like common stock, a share in the ownership of the company but instead of equal participation in the profits, preferred shares carry fixed annual dividends that must be paid before dividends can be declared on a common stock. There are many different types of preferred stock but most are cumulative. That is, if the fixed preferred dividends are not paid in a given year, they accumulate, and all arrears must be paid before any dividends can be declared on common stock.

In exchange for this preferred dividend position, preferred stockholders give up the chance of participating in management. Nevertheless, they are still owners. They have no claim on the firm, in the event of liquidation they must wait, like other owners, until all creditors are paid off. If any ownership equity remains after the creditors are paid, the preferred stockholders are entitled to recover their equity before the common stockholders.

Bonds/Debentures. Lending to companies is often in the forms of bonds or debentures, loans with special conditions. One condition is that the borrower must have collateral or security: that is, if the borrower can not repay the loan, the lender can take equipment or property, and sell it in order to get the money back. This may be an asset which was bought with the loan. Some corporations borrow money for long periods by issuing bonds. Bonds are corporate IOYs that promise to pay a specified annual rate of interest and to repay the borrowed principal (a sum of money) on a specified date.

Bond interest and principal are contractual claims against the firm and must be paid whether the firm makes profit or not. If payments are not made on time, the bondholders can sue the firm to collect.

The use of bonds makes it possible for a firm to borrow large amounts of money from a number of small creditors on a long-term basis. Instead of a series of bonds for a number of separate debts, a company may create one fund of bonds and issue certificates for particular divisions of the fund. In simpler words, it breaks up the debt into small units, just as issuing stock breaks up the ownership equity. Certain kinds of firms, most notably public utilities, raise more of their capital by bonds than by stocks.

In many ways, a bondholder is as much an investor as a shareholder. But a shareholder is a member of the company whereas a bondholder is a creditor, whatever the similarities or dissimilarities between the rights and obligations of the two.

Whereas the articles of association can be varied, the rights of bondholders are fixed by the contract of loan and any attempted variation of them by the company (other than under a compromise or arrangement) will be a breach of contract.

The law governing the transfer of the securities held by shareholders and bondholders is basically similar, apart from the fact that bonds must be transferred as a whole (therefore there is no need to certify transfers of them) and are generally transferable without limitation. In other respects, the law differs.

 

Assignment to text 4:

1. Read the text and write down all the key terms.

2. Answer the following questions:

· What is a dividend?

· What is retained earnings?

· What can the shareholders benefit from?

Text 4 Share capital. Transferability

Share capital may be nominal capital, i.e. the amount of money which a company’s memorandum entitles the company to raise. This may comprise issued share capital (the shares actually issued) and unissued share capital. Paid up capital represents the money actually received from share issued and uncalled capital the amount still owed. Reserve capital is uncalled capital which the company has resolved only to call up on liquidation. Most shares today are fully paid up and often worth more than their nominal value.

The profits from the operations of the firm accrue to the equity of the stockholders, and are distributed by the board of directors. The board decides how much of the profit is to be paid out to shareholders as dividends. A cash dividend is a cash payment to shareholders. A stock dividend is a payment to shareholders of additional shares of stock rather than cash. The remainder of the profits constitutes retained earnings and is reinvested in the firm, thereby increasing the stockholders equity.

The shareholders benefit from becoming a member of a limited liability company. A share is normally transferable, and individual shareholders can transfer their shares of corporate ownership merely by selling their stock to somebody else. Organized stock exchanges permit the transfer of the stocks of many corporations in a matter of hours. This easy transferability permits many investors to participate in corporate ownership. The stockholders benefit from being able to trade with their liability limited to the value of their shares and they may be able to obtain tax advantages from investing in this form of business. For persons who merely wish to invest in, rather than to participate in the running of, a business enterprise, it is convenient to put their money into a company, the day-to-day activities of which can be carried on by an appointed board of directors.

 

Assignment to text 5:

1. Read and translate the title.

2. Read the text and find the sentences which would help to give a definition of “leverage”.

3. Look through the text paying attention to all figures. What is their function?

4. Translate the text.

 

Text 5 Leverage

When part of a firm's capital is raised through preferred stocks and bonds, fluctuations in total earnings have a magnified effect on the income of common stockholders. This phenomenon called leverage arises because preferred stocks and bonds are fixed income securities. Leverage is best illustrated by example. Suppose a corporation's ownership equity of $10 million consists entirely of 100,000 shares of common stock. Since they are not fixed income securities, earnings per common share vary exactly in proportion to total earnings. Total earnings of $500,000 would be $5 per share. If total earnings doubled to $1 million, earnings per common share would likewise double to $10. If earnings shrank 80 percent from $500,000 to 100,000, earnings per common share would likewise decline 80 percent from $5 to $1.

Now suppose, however, the same corporate ownership consists of 5 million of 5 percent preferred stock and $5,000,000 divided into 50,000 shares of common stock. Regardless of total earnings, the preferred stock is entitled to dividends of $0,05 × 5 million or $ 250,000. This fixed income gives leverage to the common stock. Thus, when total earnings are $500,000, preferred stockholders receive $250,000, leaving $250,000, or $5 per share of common stock, just as before. But when total earnings double to $1,000,000, the leverage provided by the fixed income securities triples the earnings per common stock share. Preferred stockholders still get only their $250,000, leaving earnings of $750,000, or $15 per share, to the common stock. Unfortunately, leverage also works when earnings decline. Should total earnings fall to $100,000, preferred stockholders would still be entitled to their fixed $250,000. This would leave common stockholders a loss of $ 150,000, or $3 per share, despite the positive total earnings made by the company.

 

Discussion

Glossary

сash наличные деньги

suffice быть достаточным, хватать

to retail продавать в розницу

at retail в розницу

at wholesale оптом

to issue выпускать

holding вклад, пакет (ценных бумаг)

lack of smth. недостаток, нехватка

to lack smth. испытывать недостаток

to encourage поощрять, поддерживать

pending рассматриваемый,

находящийся на обсуждении

to disclose освещать, раскрывать

claim иск, претензия

to underwrite гарантировать выкуп ценных бумаг

outstanding нереализованный,

выпущенный в обращение

remuneration вознаграждение

transaction сделка

 

 

Ex.1 Building your business vocabulary is very important. Some new business terms introduced in this unit are printed below, along with definitions. Please match each with its proper definition after reading the texts of this unit.

a) securities exchange

b) bear market

c) cash dividend

d) securities market

e) bull market

f) brokerage house

g) speculative trading

h) prospectus

1. The millions of people and organization that buy stocks and bonds and the securities intermediaries who bring buyers and sellers together.

2. A cash payment to shareholders.

3. A firm that buys and sells securities on behalf of its investor-clients.

4. An institution set up by brokers at a permanent location for buying and selling securities.

5. A summary of the securities registration statement that is filed with the SEC; it contains information about the firm’s operation and management, the purpose of the proposed issue, and anything else that would be helpful to potential buyers of securities

6. The buying and selling of securities in the hope of profiting from near term changes in their prices.

7. A stock market in which prices are falling, and there is pessimism among speculators.

8. A stock market in which prices are rising and there is much optimism.

Assignments to text 1:

1. Read the text and write down into your notebook the English equivalents for the Russian “потенциальный акционер/покупатель”.

2. Read the first paragraph and try to formulate the main idea, give the subtitle to it.

3. Read the second paragraph, and explain how the main idea of the first paragraph is developed.

4. Look through the 3rd paragraph and explain in what connection non-financial terms “retail” and “wholesale” are used.

5. Translate the text.

Text 1 Investment Banks

When a corporation is established by a small group of investors, the owners merely contribute cash or property to the newly chartered company in exchange for shares of stock. When funds are to be raised from a large number of people, however, this informal arrangement will no longer suffice. The people founding or promoting the corporation do not know who the would-be shareholders are. Nor can the prospective buyer of only a few shares of stock afford to spend time and money hunting for a company in which to invest. Bringing would-be investors and investment opportunity together is the job of the specialized financial institution called an investment bank.

Investment banks are what might be called "retailers" of corporate securities. They take blocks of stocks or bonds from the corporation "at wholesale" and break them into smaller holdings to sell "at retail" to the final owner. The investment bank collects a commission for performing this service. The same procedure is followed when an existing corporation issues new shares to increase its capital by expanding its ownership. Advertisements by investment banks announcing the availability of new issues of securities are often seen in the financial pages of newspapers.

Investment banks help small companies “go public”. That is, they help businesses that want to sell shares of stock to the public. The investment bank must decide whether it will underwrite the new public offering of stock. Underwriting means that the investment bank guarantees to purchase the stock. The investment bank then contacts various brokerage houses. Brokerage houses are firms that buy and sell securities on behalf of their investor-clients. They explain the offering to them. So, investment banks deal with both individuals and brokerage houses.

Thus, an investment bank is a financial institution that does not accept deposits from the general public but instead helps firms sell new issues of stocks and bonds. They also help firms to acquire other firms or to be acquired.

Assignments to text 2:

1. Look through the 1st paragraph and explain what the word combination “blue sky laws” means.

2. Read the second paragraph. Find the word "these" in it; indicate the nouns it stands for.

3. Read the text and prove by the facts that information has a high price.

4. Find and translate the paragraph in which the functions of SEC are described.

5. Read the text once more and say if the securities market is safe in the USA.

 

Text 2 Securities Regulation

State and federal laws in the USA regulate both the insurance and the trading of securities. At the state level there exist blue-sky laws. Blue-sky laws are state laws that force corporations to give potential investors certain facts about the securities. Their purpose is to prevent corporations from issuing worthless securities to unsuspecting investors (selling them “the blue sky”). At the federal level the Securities Act of 1933 protects the public from interstate sales of fraudulent securities.

The Securities and Exchange Commission. The buyer of a security invests his wealth to become one of the owners of the firm. Yet he is often remote from the actual operation of the company, and may lack the information necessary to make a sound judgement concerning the investment. Frequently all he knows about the company and its prospects is what the management or the investment banker tells him. Since these have special interest in encouraging him to buy the stock, he needs some assurance that he is being told everything he needs to know.

Making sure that perspective stockholders are fully informed is one of the duties of the Securities and Exchange Commission (SEC), a federal agency established by the Securities Exchange Act of 1934. Before a corporation can offer a new issue of securities for sale to the public, it must file a registration statement and a prospectus with the Commission. The registration statement must disclose such matters as “the names of the persons who participate in the management or control of the business; the security holdings and remuneration of such persons; the general character of the business, its capital structure, past history and earnings; underwriters' commissions; payment to promoters made within 2 years or intended to be made; the interests of directors, officers and principal stockholders in material transactions; pending or threatening legal proceedings; the purpose to which the proceeds of the offering are to be applied; and financial statements certified by independent accountants." The prospectus is part of the registration statement and embodies the more important of the required disclosures.

The SEC staff examines the registration statement and prospectus for accuracy and completeness. Unless it is found to be misleading, inaccurate, or incomplete, the registration becomes effective, and the security can be offered for sale.

 

Assignments to text 3:

1. Read the text.

2. Find the key sentences in every paragraph.

3. Find answers to the following questions.

· What is the function of a stock market?

· What are the main players in a stock market?

· What stock markets are described?

· What is the difference between the two types of the stock market?

4. Identify all the definitions in the text.

5. Find the sentences which explain regulations for stock exchanges.

Text 3 The Stock Market

A stock market consists of brokers, dealers, and organized exchanges whose function is to facilitate the transfer of securities from one private owner to another. The corporation itself is not a party to transactions in its securities on the stock market, nor are stock markets places where corporations raise capital. The function of the stock market is, rather, to provide the easy transferability of ownership that characterizes the corporate form of business organization.

There are two distinct types of stock market. (1) Securities that are less frequently traded are generally bought and sold through the facilities of the over-the-counter market. (2) The organized stock exchange is set up for the purchase and sale of a selected list of securities that are usually traded in large daily volume.

The Over-the-counter Market

Once a stock or bond has been issued, its owner is entitled to sell it to anybody else, at any time, at any price that can be agreed on. The transaction can be completed privately, but most people enlist the services of a specialized middleman. An over-the-counter dealer plays essentially the same role in the securities market that a used car dealer does in the used car market. He buys securities from individual owners for resale to others at slightly higher prices, getting his commission from the difference between the buying and the selling prices. Since over-the-counter dealers are organized into a National Association of Security Dealers, there is a nationwide competitive market. Most securities are unlisted. Quotations of security prices being paid (bid) and charged (asked) by dealers are published in the daily financial pages.

Organized Stock Exchanges

As in any other part of the economic system, greater specialization in securities trading is possible in more extensive markets. Securities that are bought and sold in large volume every day are traded through highly organized special markets called organized stock exchanges.

A stock exchange (or a securities exchange) is an institution set up by brokers at a permanent location for buying and selling securities. The securities bought and sold at these exchanges are called listed securities.

An organized stock exchange is an institution with a limited membership, whose members are permitted to trade securities with each other. Since only members are permitted to conduct business on the exchange, others who want to buy or sell in this way must employ members to act on their behalf.

Trading among members of each exchange is restricted to a special list of securities and the stocks and bonds of corporations not listed on the exchange cannot be bought or sold there. Each exchange has established rules governing which securities can be listed for trading. Among other requirements, securities are listed only if they are traded in sufficient volume to make it worthwhile. In addition, before a security can be listed, it must have been outstanding long enough to have «seasoned». Securities of young companies, for example, are not listed. Moreover, the listed corporation must agree to file certain reports with the SEC (Securities and Exchange Commission).

There is an organized stock exchange in almost every major U.S. city, but most of these are small and limit their lists largely to the securities of local firms. The securities of most large, nationally known corporations are traded on the two large New York exchanges: the New York Stock Exchange and the American Stock Exchange.

The New York Stock Exchange (NYSE) is the most important U.S. Securities exchange and one of the three largest exchanges in the world. The American Stock Exchange (AMEX) is also a national exchange, but it is smaller than NYSE.

 

 

Text 4 Learn How to Read a Stock Price Quotation

Stock and Bond prices – the prices of stocks and bonds on the securities exchange and the over-the-counter market are reported in many daily newspapers.

Stock Prices - several important kinds of information are presented in a stock quotation.

1. The stock quotation usually starts with the stock’s 52 week high and low.

2. The stock’s name is then presented in abbreviated form.

3. Next is shown the annual dividend and then the yield (interest rate) the stock is paying.

4. Next is the price earnings ratio and then the total number of shares traded.

5. The next two columns typically show the high and low price on the date shown and the closing price.

Bond Prices are expressed in terms of 100, although most bonds have a par value of $1000.

Stock and Bond prices Averages—lists show the average price of a group of stocks or bonds.

 

Assignment to text 5:

1. Read the text given in a jumbled order and put the paragraphs in the correct order.

2. How many logical parts can you distinguish?

3. Match the following headings with the parts:

· Don’t make a costly mistake!

· Why are the pyramid schemes dangerous?

· What is a pyramid scheme?

· How does the pyramid work?

 

Text 5 The Pyramid Scheme.

Don`t make a costly mistake!

- Thousands of Americans have lost millions of dollars participating in pyramid schemes. Many of the victims knew they were gambling (although they didn’t know the odds were rigged against them). Many others, however, thought they were playing for help in starting a small business of their own. These people were fooled by pyramid schemes disguised to look like legitimate businesses.

- In reality, however, the supply of participants is limited, and each new level of participants has less chance of recruiting others and a greater chance of losing money.

- Things you should know about pyramid schemes:

· There are losers. Pyramiding is based on simple mathematics: many losers pay a few winners.

· They are fraudulent. Participants in a pyramid scheme are, consciously or unconsciously, deceiving those they recruit.

· They are illegal.

- To join, you might have to pay anywhere from a small investment to thousands of dollars. For example, $1000 buys a position in one of the boxes on the bottom level. $500 of your money goes to the person in the box directly above you, and the other $500 goes to the person at the top of the pyramid, the promoter. If all the boxes on the chart fill up with participants, the promoter will collect $16000, and you and the others on the bottom level will each be $1000 poorer. When the promoter has been paid off, his box is removed and the second level becomes the top of payoff level. Only then do the two people on the second level begin to profit. To pay off these two, 32 empty boxes are added at the bottom, and the search for new participants continues.

- Of course, the pyramid may collapse long before you reach the top. In order for everyone in a pyramid scheme to profit, there would have to be a never-ending supply of new participants.

- Each time a level rises to the top, a new level must be added to the bottom, each one twice as large as the one before. If enough new participants join, you and the other 15 players in your level may make it to the top. However, in order for you to collect your payoffs, 512 people would have to be recruited, half of them losing $1000 each.

- The purpose of this discussion is to help you avoid falling victim to pyramid schemes, whether simple or disguised. Simple pyramid schemes are similar to chain letters, while disguised pyramids are like wolves in sheep’s clothing, hiding their true nature in order to fool potential investors and evade law enforces. What is a pyramid scheme?

- Pyramid schemes are illegal scams in which large numbers of people at the bottom of the pyramid pay money to a few people at the top. Each new participant pays for the chance to advance to the top and profit from payments of others who might join later.

 

 

Discussion:

These are some helpful word-combinations in addition to the glossary that you should translate, memorise, and use while discussing the texts:

to contribute cash, to raise funds, to spend time and money, to make a sound judgement, to collect a commission, to follow a procedure, to examine for accuracy, to take at wholesale, to sell at retail, to perform a service, to disclose information, to lack information, to offer for sale, to become effective, to contact brokerage house (broker), to complete a transaction.

1. Discuss the functions and the role of investment banks.

2. Explain what SEC is and its role in business.

3. Draw a line of comparison between the American securities market and the Russian one.

4. What do you think about the system of securities regulation in the USA and in Russia? Compare the systems.

5. Investigate securities scandals in the USA and Russia. Include in your report the background of each, how the business was organized, for how long the pyramid existed.

For your notes:


Glossary

to evaluate оценивать

account счет (банковский)

accounts (pl.) расчеты, отчетность, сводка

accounts receivable (AmE)= счета дебиторов (в балансе),

debtors (BrE) дебиторская задолженность (сумма),

счета к получению

accounts payable (AmE)= счета кредиторов (в балансе),

creditors (BrE) кредиторская задолженность (сумма),

счета к оплате

accountant бухгалтер

accounting бухгалтерский учет

balance sheet балансовый отчет

bill счет (к оплате), вексель

excise акциз, акционерный сбор, лицензия

income statement отчет о доходах

liabilities денежные обязательства

assets and liabilities активы и пассивы

intangible assets нематериальные активы

tax налог

depreciation амортизация, снижение стоимости

permanence неизменность, прочность

постоянство

entry бухгалтерская проводка, запись

expense account cчет подотчетных сумм

petty cash мелкие суммы,

статьи (прихода,расхода)

payroll фонд зарплаты (предприятия)

receipt расписка в получении, квитанция

invoice счет-фактура,(товарная) накладная

Ex. 1 Translate the following word combinations. Mind the model "Noun +Noun+(Noun)”.

business firm, market value, retail trade, wholesale trade, revenue service, business tax, company reputation, cash assets, bank account, cash reduction, profits tax, unit cost; production-line economy, mass-production technique, income tax return, production-line basis, business opportunity, payment terms.

Ex. 2 Read and translate the following definitions. Find Russian equivalents for the underlined words.

An asset is something that has value, or the power to earn money. These include:

1. current assets: money in the bank, investments that can easily be turned into money, money that customers owe, stocks of goods that are going to be sold.

2. fixed assets: equipment, machinery, buildings and land.

3. intangible assets: things which you cannot see. For example, goodwill: a company's good reputation with existing customers, and brands: established brands have the power to earn money.

Liabilities are a company's debts to suppliers, lenders, the tax authorities, etc. Debts that have to be paid within a year are current liabilities, and those payable in more than a year are long-term liabilities, for example bank loans.

A company's balance sheet gives a picture of its assets and liabilities at the end of a particular period, usually the 12-month period of its financial year. This is not necessarily January to December.

 

Ex. 3 Make sure you remember the following words. Pay attention to the sentences with these words to see how to use them correctly.

income – доход, приход (за какой-либо период)

revenue – доход, источник дохода, (множ.) доходные статьи.

receipts – денежные поступления, выручка, доход

earnings – заработок, трудовой доход, доход, прибыль,

поступления

 

Ex. 4 Building your business vocabulary is very important. Some new business terms introduced in this unit are printed below, along with definitions. Please match each with its proper definition after reading the texts of this unit.

a) asset b) liability c)owner's equ


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