Text №1. Long Term FINANCING

When a business needs funds to construct a new assembly line or to do extensive research and development which may not begin to bring in revenues for several years, short term financing wouldn't work. In this case, business will need long term sources of funds.

Firms may meet long term needs by increasing the company's debt either by getting loans or by selling bonds.

A long term loan is a loan that has a maturity of from one to ten years. Within this period of time the firm pays interest on the debt. Sometimes the lender protects its financial position by requiring that the company obtains the lender's permission before taking on any additional long term debt. If the loan is particularly risky, the lender may even require the firm to limit or eliminate dividends to stockholders.

If the firm wants to be free of lender's restrictions, it may issue bonds. These are long term debts with a maturity date of 20 to 30 years in the future. Governments issue government bonds. Corporations issue corporate bonds which may be secured or unsecured.

If a company wants to sell bonds, it can offer some collateral. It is difficult, if not impossible, to find investors who are willing to buy

bonds which are not backed up by collateral. Only huge corporations such as AT&T can successfully issue unsecured bonds, which are called debentures.

Most bonds carry a face value of $1000 and pay a predetermined interest rate (the coupon rate). The company pays this interest regularly according to the Indenture agreement which specifies the terms of a bond issue.

The company may retire bonds before they mature if the indenture agreement contains a call provision. In this case the firm pays the bondholders a redemption premium.

Another flexible feature in some agreements is the conversion privilege. It allows bondholders to convert their investment into a stated number of shares of common stock. If the price of the company's common stock is going up, the investors can profit from conversion. Convertibility makes the bond issue more attractive to potential investors.

Text №2. SECURITIES MARKETS

Securities are bought and sold at two types of securities markets: primary markets, which issue new securities, and secondary markets, where previously issued securities are bought and sold. If a company wants to sell a new issue of stock or bonds, it usually negotiates with an investment bank, or underwriter who sells the securities for it. The underwriter buys the securities from the corporation and resells then to individual investors through the secondary market.

Organized security exchanges have developed to make the buying and selling of securities easier. The securities exchanges consist of the individual investors, brokers, and intermediaries who deal in the purchase and sale of securities. Security exchanges do not buy or sell securities, they simply provide the location and services for the brokers who buy and sell.

Stock transactions are handled by a stockbroker. A stockbroker buys and sells securities for clients. Stockbrokers act on the clients' orders. Stockbrokers receive a fee and are associated with a brokerage house. To trade on the exchange a "seat" must be purchased. A seat is a membership. The members represent stockbrokers. When a stockbroker calls in an order to sell, one member representing that broker looks for a buyer at the price requested. When a broker calls in an order to buy, the exchange member looks for a buyer at the price offered.

The largest and best known exchange in the USA is the New York Stock Exchange (NYSE),also called the "Big Board- 'there are 1,300 seats on the NYSE and approximately 2,000 stocks and 3,400 bonds are traded daily. In order to be Dated on the NYSE, a firm has to meet the following requirements: 1. Pretax earnings of at least $2.5 million in the previous year. 2. Tangible assets of at least $16 million. 3. At least 1 million shares of stock publicly held, and others.

The second largest stock exchange in the USA is the American Stock Exchange came. It is located in Manhattan and has about 500 full members and 400 associate members. AMEX operates in much the same way as NYSE, but smaller companies may qualify for listing.

There are also regional stock exchanges that serve regional markets.

About 5,000 brokers sell & buy unlisted securities outside of the organized securities exchanges which are scattered all over the country. They trade unlisted stocks and bonds by phone and keep in contact with each other.

The prices of the securities are established by supply and demand. Electronic screens in the offices of the brokerage firms display OTC transactions, so brokers continually keep customers up to date on the latest prices.

Options are traded on the major stock exchanges, but also on a special market bond options, the Chicago Bond Options Exchange (СВОЕ).

Text №3. COMPETITIVE MARKET

Competition refers to the nature of the conditions under which individuals may trade property rights. It assumes a definition of property rights that individuals may trade among themselves as well as a description of the trading process. These aspects of competition are especially important in connection with the development of new technology and new products and with the use of low-cost, large-scale methods of production and distribution.

The simplest situation in an analysis of competition is a market, where individuals have initial endowments of commodities that they own and that they may trade among themselves. All trades occur at the same time and place. The essential characteristics remain valid when trades do not all occur at the same time and place. However, individuals would have incomplete knowledge relevant for their decisions. This complication changes the nature of the outcome of competition. Incomplete knowledge is inevitable partly, because the future is unknown. Even so, it is often less costly to take current actions that willhave future consequences without knowing that these willbe then to respond only to momentary events of the present. The advantages of planning are the resulting exposure to hazards that may occur alter the effects of competition.

These basic considerations help explain the nature of production and why the quantities of goods offered will change over time in response: to the expectations and information firms have. They also explain why some common notions about competition are inadequate. Among the inadequate notions about competition is the belief that a necessary condition for competition is a lack of power by any firm to affect the prices of its products.