Институцийн хөрөнгө оруулагчид

Financial English Course Unit Six
Institutional Investor, Merger and Acquisition, and Arbitrage

Хичээл 6 Институцийн(байгууллагын хөрөнгө оруулагчид) хөрөнгө оруулагчид ба Компанийг худалдан авах ба нэгдэл, арбитраж

Exercise

Match these institutional investor terms with definition below

Endowments                                              bank trust departments Private pension funds                               Foundations Investment companies                              Life insurance companies institutional investors

The market of 1………………….. is made up of investment companies (closed-end and mutual funds), pension funds, insurance companies, foundations, endowments, and other participants. 2…………………… take the proceeds of individual investors and reinvest them in other securities according to their specific objectives. 3……………………. represent well over half of the pension fund market. 4…………………. must earn a minimum rate on return assumed in calculating insurance premiums, and public policy emphasizes safety of assets. The emphasis in 5…………….. is on managing other people’s funds for a fee. 6………………….. represent nonprofit organizations set up to accomplish social, educational or charitable purposes. 7………………., on other hand, represent permanent capital funds that are donated to universities, churches or civic organizations.

Answer to exercise

1.      Institutional investors

2.      Investment companies

3.      Pension fund

4.      Insurance companies

5.      Bank trust departments

6.      Foundations

7.      Endowments

Vocabulary

Institutional investor – институцийн хөрөнгө оруулагчид

Made up of – бүрдэх

Investment companies – хөрөнгө оруулалтын компаниуд

Closed end – хаалттай

Mutual fund – хамтын сан

Pension fund – тэтгэвэрийн сан

Foundations - сан

Endowments – хандивын сан

Proceeds – орлого

Insurance premiums – даатгалын зардал

Safety of assets – хөрөнгийн найдвартай байдал

Donate - хандивлах

Speaking Mergers and acquisitions

Peter Sinclair: Well, the role of the investment banks; yes, they are certainly big, important players in mergers and acquisitions, and yes, they may sometimes try and drum up business, but I think that no well-run firm will want to engage in this kind of activity unless they see merit in doing so. So it isn’t all driven by the banks. What we do note – and that is really interesting – is that when a company goes for a takeover, tries to take over another, the thing that’s most important is its share price, the share price of the company doing the takeover. So if the share prices do well – which they did in the 80s and 90s, most of the time – companies feel richer, their shares are more valuable, so they tend to go out on a buying spree and they will get advice from big investment banks and merchant banks about when to buy and what to buy. And the potential victim of a takeover bid will obviously want to get advice from another national institution about how to defend itself, assuming that’s what it wants to do.

So we’ve seen a lot of acquisitions and mergers, some friendly mergers and some contested takeovers, a lot of them happening in a strong stock market. In the early twenty-first century, so far, we have been seeing share prices slide a bit and so mergers and acquisitions are becoming less frequent and of course less valuable. The value of companies has fallen so the value of the activity for the merchant banks, investment banks, has been slipping too. It is very much a cyclical phenomenon-boom for shares means more takeover, slump for shares means less.

Vocabulary

Acquisition – худалдан авах

Merger – нэгдэл

Drum up – өсөх

Takeover –(худалдан авалт хийж буй компани нь нэгдэн орж буй компанид санал тавих үйл явц юм)  Эзэмших,  

Buying spree – худалдан авах

Merchant bank – арилжааны банк(British english)

Contested – өрсөлдөх

Boom – огцом өсөлт

Slump – буурах

Victim – зорилтот зах зээл

Translating Arbitrage

Arbitrage is the simultaneous purchase or sale of a commodity in different markets to profit from unwarranted differences in prices. That is, it involves the purchase of a commodity, including foreign exchange, in one market at one price while simultaneously selling that same currency in another market at a more advantageous price, in order to obtain a risk-free profit on the price differential. Profit is the price differential minus the cost. If exchange rates are not equal worldwide, there would be profit opportunity for simultaneously buying a currency in one market while selling it in another. This activity would raise the exchange rate in the market where it is too low, because this is the market in which you would buy, and the increased demand for the currency would result in a higher price. The market where the exchange rate is too high is one in which you sell, and this increased selling activity would result in a lower price. Arbitrage would continue until the exchange rates in different markets are so close that it is not worth the costs incurred to do any further buying and selling. When this situation occurs, we say that the rates are “transaction costs close.” Any remaining deviation between exchange rates will not cover the costs of additional arbitrage transactions, so the arbitrage activity ceases.

Орчуулах нь

1.      Arbitrage is the simultaneous purchase or sale of a commodity in different markets to profit from unwarranted differences in prices.

(Arbitrage is the simultaneous purchase or sale of a commodity in different markets)2 (to profit from unwarranted differences in prices)1.

Арбитраж бол үнийн тодорхойгүй зөрүүнээс ашиг олох зорилгоор өөр зах зээлүүдэд бараа түүхий эдийг нэгэн зэрэг худалдах, худалдан авах үйл явц юм. 

2.      That is, it involves the purchase of a commodity, including foreign exchange, in one market at one price while simultaneously selling that same currency in another market at a more advantageous price, in order to obtain a risk-free profit on the price differential.

That is, (it involves the purchase of a commodity, including foreign exchange, in one market at one price)3 (while simultaneously selling that same currency in another market at a more advantageous price, (in order to obtain a risk-free profit on the price differential)1)2.

Үнийн ялгаатай байдлаас эрсдэлгүй ашиг олох зорилгоор ижил валютыг нэг зах зээлээс давуу тал буюу хамгийн бага үнээр нэгэн зэрэг худалдан авахын сацуу өөр зах зээлээс гадаад валют оролцуулан бараа, түүхий эдийг худалдан авах үйл ажиллагаа үүнд бас хамарна.

3.      Profit is the price differential minus the cost.

Ашгийг үнийн ялгавараас зардлыг хасаж тооцдог.

4.       If exchange rates are not equal worldwide, there would be profit opportunity for simultaneously buying a currency in one market while selling it in another.

(If exchange rates are not equal worldwide), (there would be profit opportunity for simultaneously buying a currency in one market)3 (while selling it in another)2.

Ханш нь дэлхийн хэмжээнд ижил биш бол валютыг нэг зах зээлд худалдахын сацуу нөгөө зах зээлээс нэгэн зэрэг худалдан авахад ашигтай байж болно.

5.      This activity would raise the exchange rate in the market where it is too low, because this is the market in which you would buy, and the increased demand for the currency would result in a higher price.

(This activity would raise the exchange rate in the market (where it is too low)3)4, (because this is the market in which you would buy)1, and the increased demand for the currency would result in a higher price))2.

Энэхүү үйл ажиллагаа нь ханш багатай зах зээлийн ханшийг нь нэмэгдүүлдэг учир валютын эрэлтийг нэмэгдүүлсэнээр ханшийг нь өсгөдөг.

6.      The market where the exchange rate is too high is one in which you sell, and this increased selling activity would result in a lower price.

Ханш нь өндөр байгаа зах зээлээс валют худалдан авч үнийг бууруулах нөхцөл бүрдэнэ.

7.      Arbitrage would continue until the exchange rates in different markets are so close that it is not worth the costs incurred to do any further buying and selling.

Цаашид худалдах болон худалдан авахад ямар нэг зардал гаргах боломжгүй байхаар өөр зах зээлүүд дэх ханш нь ижил болох хүртэл арбитраж хийх боломжтой байна.

8.      When this situation occurs, we say that the rates are “transaction costs close.”

Ийм нөхцөл байдал үүсэхэд ажил гүйлгээний зардал нь ижил нөхцөл ханшийн хувьд үүснэ.

9.      Any remaining deviation between exchange rates will not cover the costs of additional arbitrage transactions, so the arbitrage activity ceases.

Ханшийн хоорондын үлдэж буй зөрүү нь арбитраж хийх нэмэлт зардлыг шингээж чадахгүй учираас арбитраж хийх боломжгүй болно.

Problem solution

Killer Shark Inc. makes a surprise cash offer of $22 a share for Goldfish Industries. Before the offer, Goldfish was selling for $18 a share. Goldfish has 1 million shares outstanding. What must Killer Shark believe about the present value of the improvement it can bring to Goldfish operations?

The cost of the merger is $4 million: the $4 per share premium offered to Goldfish shareholders times 1 million shares. If the merger has positive NPV to Killer Shark, the gain must be greater than $4 million. 

Маркетинг, менежмент, нягтлан бодох бүртгэл, санхүү, статистик, экономиксийн англи нэр

томъёог орчуулах хэрэгцээ гарвал дараах толь бичгийг ашиглах боломжтой.

Эрсдэлийн удирдлага

Financial english Unit Five Risk Management

                        Хичээл 5 Эрсдэлийн удирдлага, ашигтай опшин ба хүүгийн түвшний опшин

 Risk management

Exercise

Match these risk management terms with definition below

option premium                                                           hedged position                                                                       excess returns                                                                        option premium                                                                     covered options                                                                       expiration date naked options                                                             basis option premium                                                           insider trading  cash settlement market

Option writers can write 1…………….., meaning they own the underlying common stock, or they can write 2……………, meaning they do not own the underlying stock. Writing covered call options is often considered a 3……………..because if the stock price declines, the writer loss on the stock is partially offset by the 4……………... 5 …………….. are affected by many variables such as time, market expectations, stock price volatility, dividend yields, and in - the – money/out-of-the-money relationships. The total premium consists of an intrinsic value plus a speculative premium that declines to zero by the 6…………... The stock index futures market, on the other hand, is purely a 7………………... The term 8………….. represents the difference between the stock index futures price and the value of the actual underlying index. Another advantage of stock index futures is that there is less manipulative action and than 9……………… with individual securities. 10…………………represent returns over and above what could be earned on a riskless asset.

Answers to exercise

1.      Covered options

2.      Naked options

3.      Hedged position

4.      Option premium

5.      Option premium

6.      Expiration date

7.      Cash settlement market

8.      Basis

9.      Insider trading

10.  Excess returns

Vocabulary

Option writers – опшиний нийлүүлэгч

Write – опшин нийлүүлэх

covered options – хамгаалалттай, даатгалтай опшин     

naked options -    даатгалгүй опшин

Hedged position – хамгаалалттай позиц

Expiration date – хэрэгжих сүүлийн өдөр

in - the – money – мөнгөн дээрх

out-of-the-money – алдагдалтай

intrinsic value – жам ёсны үнэлэмж

speculative premium – аз туршин дамласан нэмэлт төлбөр

basis -  суурь

insider trading – дотоод сүлжээг ашиглан хувьцааг хууль бусаар худалдан авах

manipulative action – зах зээлийн үнэнд нөлөөлөх алхам

Excess returns – илүүдэл өгөөж

Listening In-the-money option

In-the-money refers to option that will produce a profit if it is exercised. Bob buy call option Als ice cream with strike price $5.00. The underlying asset stock is currently trading for value $5.20 so the options is set to be in the money because Bob can now exercise is option in else by the share for $0.20 cheaper in the market price. The opposite is true for put options. If Bob buys put options with strike price $5.00. Put option will be in the money when it will underlying assets trade value $4.80 below $5.00. because Bob will buy shares in else for less than his agreed to sell them. Bob’s call option can fluctuate regularly. In the morning shares in ice cream are trading $5.50 so the option is $0.50 in the money. In afternoon drop in company stock prices to $4.75 results in the option losing it’s in-the money status making it out-of- money. How profitable an option is at any given moment depends on how much the value of the underlying asset exceeds the exercise price of a call or how much the value falls below the exercise price in the case of a put. An option that would lead to a large profit if it were exercised is referred to as being deep in the money.

Translating Interest rate swap

The basic premise of interest – rate swaps is that one party is able to trade one type of risk exposure to another party, and both parties are able rebalance their portfolios with less risk. For example, Bank A may be obligated to pay a fixed rate on a $100,000 certificate of deposit for the next five years. The bank is fearful that rates may go down and that it will be paying more on the CD than it will be receiving on loans. Under these circumstances, bank A may try to find a “counterparty” who has the opposite type of problem. Perhaps Company B is borrowing money from a finance company at a variable rate and is fearful that rates will go up. Assume it has a $100,000 loan that is also due over the next five years.

            Under these circumstances, bank A will agree to pay company B a variable rate on a hypothetical $100,000 of principal (national principal). In return, company B will agree to pay bank A a fixed rate on the same hypothetical principal. Both parties have used this swap agreement to eliminate their risk. Let’s see how.

            Because bank A is paying a variable rate and receiving a fixed rate, if rates go down, it will come out ahead on the swap agreement. Lets say rates start out at 8 percent (fixed and variable), but variable rates go down to 5 percent. Bank A will receive a net payment of $3,000 from company B on the hypothetical principal:

$100,000 hypothetical principal
Bank A pays variable(5%)	$5,000
Company B pays fixed(8%)	8,000
Net payment of B to A	$3,000

The swap agreement has effectively protected bank A against lower interest rate exposure that it  has with the customer who owns the $100,000 CD. It has achieved this through an entirely unrelated interest rate swap agreement with company B.   

Oрчуулах нь

1.      The basic premise of interest – rate swaps is that one party is able to trade one type of risk exposure to another party, and both parties are able rebalance their portfolios with less risk.

(The basic premise of interest rate swaps is)3 that (one party is able to trade one type of risk exposure to another party)1, and(both parties are able rebalance their portfolios with less risk)2.

that – бол

exposure – эрсдэлийн зэрэг

rebalance – дахин тэнцвэржүүлэх

Хүүгийн түвшиний солилцооны үндсэн нөхцөл нь нэг талаас нөгөө талд учирч буй эрсдэлийн зэргийг арилжих боломжтой бөгөөд хоёр талаас эрсдэлгүй багцаа дахин тэнцвэржүүлэх боломжтой байдаг.

2.      For example, Bank A may be obligated to pay a fixed rate on a $100,000 certificate of deposit for the next five years.

Obligate – үүрэг хүлээх

Тухайлбал, А банкнаас дараагын 5 жилд тогтмол хүүтэй 100,000 ам долларын хадгаламжийн сертификатыг төлөх үүрэгтэй гэж үзье.

3.      The bank is fearful that rates may go down and that it will be paying more on the CD than it will be receiving on loans.

(The bank is fearful)4 that (rates may go down)1 and (that it will be paying more on the CD)3 than (it will be receiving on loans)2.

Хүүгийн хэмжээ өссөн нөхцөлд зээлээ эргүүлэн авахаас илүүтэй хадгаламжийн сертификатдаа илүү хэмжээний төлбөр төлнө гэсэн болгоомжлол банкинд бий болно.

4.      Under these circumstances, bank A may try to find a “counterparty” who has the opposite type of problem.

Under these circumstances, (bank A may try to find a “counterparty”)2 (who has the opposite type of problem)1.

Counterparty – арилжаанд оролцож буй нөгөө тал

Ийм нөхцөлд, А банкнаас өөр бэрхшээлтэй буй нөгөө талыг олох эрмэлзлэлтэй болно.

5.      Perhaps Company B is borrowing money from a finance company at a variable rate and is fearful that rates will go up.

(Perhaps Company B is borrowing money from a finance company at a variable rate)1 and (is fearful)3 that (rates will go up)2.

Магадгүй, В компаниас хувьсах хүүтэйгээр санхүүгийн компаниас зээл авсан нөхцөлд хүү өсвөл болгоомжлол төрнө. 

6.      Assume it has a $100,000 loan that is also due over the next five years.

Ирэх 5 жилд хугацаа нь болох 100,000 ам доллартай гэж үзье.

7.      Under these circumstances, bank A will agree to pay company B a variable rate on a hypothetical $100,000 of principal (national principal).

Principal – үндсэн төлбөр

Under these circumstances, bank A will agree to pay company B a variable rate on a hypothetical $100,000 of principal (national principal).

Hypothetical – таамагласан

Ийм нөхцөлд, А банкнаас В компанинд хувьсах хүүгээр үндсэн төлбөрийг төлөх тохиролцоо хийнэ.

8.      In return, company B will agree to pay bank A a fixed rate on the same hypothetical principal.

Хариуд нь, В компани нь А банкинд тогтмол хүүтэйгээр үндсэн төлбөрийг төлөх үүрэг хүлээнэ.

9.                   Both parties have used this swap agreement to eliminate their risk. Let’s see how.

(Both parties have used this swap agreement)2 (to eliminate their risk)1.

Eliminate – бууруулах

Хоёр талаас эрсдэлээ харилцан бууруулах зорилгоор энэхүү солилцооны гэрээг байгуулна.

10.  Because bank A is paying a variable rate and receiving a fixed rate, if rates go down, it will come out ahead on the swap agreement.

come out ahead -

(Because bank A is paying a variable rate) and (receiving a fixed rate), (if rates go down), (it will come out ahead on the swap agreement).

Учир нь А банкнаас хувьсах хүү төлж тогтмол хүү авах учираас хүү буурсан нөхцөлд солилцооны гэрээг хэрэгжүүлнэ.

11.  Lets say rates start out at 8 percent (fixed and variable), but variable rates go down to 5 percent.

Эхлээд 8% дараа нь хувьсах хүү нь 5% хүртэл гэж төсөөлье.  

12.  Bank A will receive a net payment of $3,000 from company B on the hypothetical principal:

А банкнаас нийт цэвэр 3000 ам долларын төлбөрийг В компаниас үндсэн төлбөр байдлаар авна.

$100,000 hypothetical principal
Bank A pays variable(5%)	$5,000
Company B pays fixed(8%)	8,000
Net payment of B to A	$3,000

13.  The swap agreement has effectively protected bank A against lower interest rate exposure that it  has with the customer who owns the $100,000 CD.

(The swap agreement has effectively protected bank A against lower interest rate exposure) (that it  has with the customer) (who owns the $100,000 CD).

Энэхүү солилцооны гэрээ нь 100000 хадгаламжийн сертификат эзэмшиж буй хэрэглэгчтэй А банкийг хүүгийн эрсдэлээс хамгаалж байна. 

14.  It has achieved this through an entirely unrelated interest rate swap agreement with company B.  

It has achieved this through an entirely unrelated interest rate swap agreement with company B.  

В компанитай хүүгийн хамааралгүй солилцооны гэрээ байгуулах замаар хийж байна.

Vocabulary

Premise – агуулга, нөхцөл

risk exposure – эрсдэлд өртөмтгий байдал

Speaking Derivatives

Peter Sinclair: Derivatives are very mysterious phenomenon. They are not entirely new but there has been an enormous growth in them recently, and what they are is funny kinds of financial trick which change the structure of risks and returns. Often they promise higher return on average but at the cost of big increase in risk, that’s their usual property.

Ok, so who buys them and why are they undertaken? Sometimes people undertake financial derivative transactions actually to make themselves safer, to hedge. They’ve got a bill, let’s say, coming up, which has to be paid in US dollars. Well, the sensible thing to do is try and hold some US dollar assets ahead so that if, when the day comes when you have to pay this US dollar bill, the dollar hasn’t in the meantime gone up very sharply, which could spell real trouble for you. So hedging is actually an important source of demand for derivatives; and companies can, in appropriate circumstances, make their financial position much stronger and much safer by undertaking these activities. But these derivatives are complicated; they certainly may not be fully understood even by banks which are rather keen on doing trades in them. 

Steve Harrison: You have to adopt a balanced view of derivatives, because they have had a very bad press. There have been some very well-cited examples of misuse of derivatives, and these have caused problems in the market – potentially they could have caused a lot of dislocation in various markets. But I think we need to recognize that derivatives have been around for a very long time, in various formats, and that used properly they can be a very helpful financial management tool. Derivatives can ensure that some of the unpredictability that occurs in the financial market is hedged, or neutralized, at least to some degree. However, if derivatives are misused, they have the capacity to cause a great deal of damage.

Generally speaking, derivatives are used to protect certain positions, although they can also give you exposure to areas that the bank decides that it wants to have exposure to. With regard to speculation, I think it depends on the degree speculation. Financial institutions are in the risk and reward business – to get the reward, they have to take a risk. So derivatives are another tool you can use to take risks in certain areas where you decide to do that.

Answers 

1. What did Harrison says?

2. What they suggested?

1. Harrison says that they need to take risks.

1.2 Sinclair says they are not entirely new which suggests that they are quite new, while Harrison says they have been around for a very long time, in various formats.

2. He means that they allow you to earn higher returns, but at the cost of big increase in risk.

3. If they have a bill coming up in the future that will have to be paid in US dollars.

4. They are complicated, and banks and companies might not fully understand them.

5. He means that they have a bad reputation and that a lot of bad things have been written about them in newspapers.

6. Give exposure means to be in potentially risky situation, e.g. if a price moves in an unexpected direction.

7. He means that it is the nature of their business to take risks and(if they are successful) to be rewarded for them.    

Problem

Suppose that 2 days after taking out the futures contracts the price of September wheat increases to $3.20 a bushel. What additional payments will be made by or to the farmer and the miller? What will be their remaining obligation at the end of this second day?

Solution to problem

The farmer has a further loss of 15 cents a bushel ($3.20-$3.05) and will be required to pay this amount to the exchange. The miller has a further profit of 15 cents per bushel and will receive this from the exchange. The farmer is now committed to delivering wheat I September for $3.20 per bushel, and the miller is committed to paying $3.20 per bushel.

Маркетинг, менежмент, нягтлан бодох бүртгэл, санхүү, статистик, экономиксийн англи нэр

томъёог орчуулах хэрэгцээ гарвал дараах толь бичгийг ашиглах боломжтой.