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UNIT IV

STOCK EXCHANGE
Motto: Bears lose money, bulls make money, pigs get slaughtered.

OBJECTIVES:

 specific vocabulary
 specific documents and activities in a stock exchange
 read a newspaper page of the stock exchange
 modal verbs

I. Answer the questions before reading the text:


1. What is a stock exchange?
2. What is it useful for?
3. Is it possible that a stock exchange work in a command economic system?

READING COMPREHENSION

The establishment and development of the stock exchanges is a natural evolution and in the same time a
proof of the human society progress in the field of trading and market organization. It is stated that while
"the Assyrians established the first banks, the Greeks invented the coins, the Romans imagined the stock
exchange". The working of the stock exchanges was settled by special stipulations within the Roman
Law, the name of "tradable values" first appeared in the Roman Law the negotiations were held in
specially organized dwellings reserved for only this kind of activity. The yielded shares were exchanged
in a very short time in a very "sumptuous basilica built especially for this reason". At the end of the 6th
century, in Agora (market), in a place called "Emporium" the Greek merchants and the tradesmen used to
meet by the "Trapeza" (exchange table - now meaning bank in the Greek language) to make transactions.
This kind of meetings had synonymous names such as: market, box, convention, and platform. In the 11th
century important areas started to develop: the North of Italy, the state-cities of Genoa Venice, Pisa,
Livorno, and also the North of Europe, the cities of Bruges, Amsterdam and Hamburg. In 1408 in the city
of Florence the law contained stipulations admitting that the responsibility of the shareholders is within
the limits of invested capital and not for their entire patrimony.
As regards the name of the institution there are several writings crediting the family Van Der Boerse of
Bruges with the paternity rights because of the three purses of money (bourses) engraved in solid rock on
the frontward of their inn, a place where there were periodically held negotiations of precious metals and

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shares later on.
The year of 1531 is the date of the establishment of the first stock exchange in Anvers. Short time after
this, other stock exchanges are born in Lyon, Toulouse (1549), London (1554), Paris (1563), Bordeaux
(1571) and Amsterdam (1778). It is the moment when the first financial markets start to form and
develop.
The history of stock exchanges is closely related to the evolution of the trade agents, who were recorded
for the first time in 1141, when they used to operate in special places called "Point du Change" and started
to collaborate with bank brokers, thus becoming specialized intermediaries able to facilitate commercial
operations between suppliers and demanders in exchange for a commission.
The development of the stock exchanges is also connected to that of companies and their ways of
financing. to the colonial expansion that led to the settlement of big companies that started to issue shares.
On that time the institution was named for the first time "stock exchange" and there were established its
activities, its daily program and very severe conditions to be fulfilled by those wanting to have the right to
negotiate. This is the way that the stock exchange markets as settled markets were founded.
The first list with quotations appeared in Anvers in 1552. After Anvers, the stock exchange of Amsterdam
will be the most important financial market for more than one century. Starting with 1810 every day
between 12 and 14 o'clock approximately 6000 persons would gather at the stock exchange in Amsterdam
to find out the latest quotations for the shares of the companies within the Company of India. This Stock
Exchange was the one that fulfilled for the first time the three most essential conditions for big financial
market:
 the national currency (golden florin) was very strong, practically undoubted, and had a wide
range of circulation in the Europe of those times;
 the economic prosperity of the country was unequaled, involving a large part of the population;
 the Bank of Amsterdam kept accounts for all Europe.
In the second half of the 19th century, London became the most important financial market, but the
British leadership could not survive to the collapse of the colonial empire and its currency. Although
London could not extend its peak in the financial field, it's a model of banking and stock exchange
organization due to its "City".
Paris had its own moment of glory as a financial market in the end of the 19th century and beginning of
the 2oth century. During this period the French economy was the creditor for the entire world. The
bankruptcy of foreign debtors, the fall of the franc and the effects of the nationalization of several
properties weakened the French economy.
After the First World War, the Stock Exchange from Wall Street started to grow and develop in American
Style, that is with a bad fame, as it became the "great witch" when the 1929 crisis results became well
known all over the world. After the Second War World the American market became more and more
trustworthy due to the prestige of the dollar (which practically eliminated the pound from international,
markets) the superiority of the young American economy and efforts made up by the financial and
professional institutions to inform and protect the shareholders.

II. Draw out the main ideas from the history of the Stock Exchange.

VOCABULARY

III. Choose the best response for each one:


1. The stock market has been __________________________ for three days straight.
fall/lower/down
2. My stocks are __________________________ 20% this month.
high/up/higher

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3. I'm hoping for a 10% __________________________ over the next year.
increasing/increase/increased
4. Trading stock is not an __________________________ science.
exact/faultless/free from flaws
5. When a stock market __________________________( = goes down considerably), many
investors lose a lot of money.
clashes/smashes/crashes
6. My _______________________ advised me to buy this company's stock.
broker/breaker/brokerage
7. The stock decreased in value because many investors were selling it
__________________________ after the negative financial news came out.
off/out/on
8. The news had no __________________________ on the price of the stock.
interest/impasse/impact
9. These days many investors are __________________________ ( = worried) about the health of
the U.S. economy.
scathed/uneasy/unscathed
10. Online brokers are usually less expensive than their offline _______________________.
counterparts/version/counteract

IV. In the following conversation between two work colleagues, Peter explains to Juan how the stock
market works and the meaning of some different words and terms used when talking about it. From
the context, try to guess which words/phrases are missing.

Public limited companies; stick broker; listed; dividend; shareholder; yield; stock exchange; return;
private limited companies; trade; stock

Juan: 'I'm thinking about investing my money in the stock market and buying some shares. The problem
is that I have no idea about it. For example, what's the difference between …………. and shares?'

Peter: 'Basically, they are the same thing. They mean the ownership of part of a company. In Britain, we
normally say shares, but in North America they use both.'

Juan: 'Can I buy shares for any company in the world on the stock market?'

Peter: 'No, you can only buy stocks and shares on the stock market for ………… ……….. …………..
(called 'public corporations' in America). These are generally big companies which allow anybody to buy
shares in them. In fact, only companies which are public limited companies are on the stock market. The
majority of companies in the world are ………… …………….. …………… (called 'private corporations'
in America), which don't sell their shares on the stock market.'

Juan: 'So, how do I buy stocks or shares in these public limited companies? Can I do it myself by calling
the companies?'

Peter: 'No, you don't have the permission to buy shares yourself, you have to get a ……….. ………… to
buy or sell shares for you. A stockbroker is licensed/registered to ………… stocks and shares (which
means to buy or sell stocks and shares) on stock exchanges. So you have to set up an account with a
stockbroker.'

Juan: 'Ok. So what's the difference between a …………. ………… and the stock market?'

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Peter: 'The stock market means anywhere where stocks and shares are traded, but a stock exchange
means an actual location/organization where they are traded. For example, the actual place/organization
in London where stocks and shares are traded for some companies is called the London Stock Exchange.
In New York, you have the New York Stock Exchange and the Nasdaq Stock Exchange. All three stock
exchanges are part of the stock market.'

Juan: 'So why does New York have two stock exchanges?'

Peter: 'There are actually more in New York. Each stock exchange has different companies ……………
on them. So, if you want to buy shares in Google your stockbroker has to use the Nasdaq Stock
Exchange, because that's where Google is listed and their shares are traded. But if you want to buy shares
in Ford, your stockbroker has to use the New York Stock Exchange, because that's the stock exchange
where Ford is listed.'

Juan: 'More complicated than I thought. I would like get a good ………… from the shares, I want to
make a lot of money. Do you have any recommendations on what company's shares I should buy?'

Peter: 'I don't know. You should get advice from a stockbroker or look at how a company's shares are
performing. Check to see if the share value has increased or decreased. When you own shares in a
company you will become a ……………… which means you are a part owner of the company and can
vote on who manages or directs the company. You will also receive a ………………. on each share you
own, which is an extra payment. If the company is making a profit they normally give some of this profit
to their shareholders as a dividend. So your return with be a combination of the dividend and the increase
or decrease in the share price.'

Juan: 'But can I get a higher return on my money if I put my money in the bank from the interest than
from the dividend in stocks and shares.'

Peter: 'It's safer to put your money in a bank, but you may make more money with stocks and shares. If
you want to see how much money you earn on each dollar or pound you have invested, you have to look
at the …………… For example, if a bank pays you an interest rate of 2%, you earn 2% on every $1 and
this 2% is called the yield. For dividends you have to divide the yearly dividend per share by the amount
you paid for the share. So, if a share cost you $2.50 and the yearly dividend is 15 cents, you divide 15 by
250. So the yield for the share is 6%. So this shows you would make a higher return on your money from
investing in this company's shares than by putting your money in the bank.'

V. Split into 3 groups and read the fragments separately. Find a spokesman for each group and
exchange the information revealed by the fragments in such a way that each group obtain the entire
information.

A.
Few investors would be happy about sinking resources in a company if there was no way of recovering
them, short winding-up the entire concern and selling its assets - a process which in any case could hardly
be brought about by an individual investor.
The Stock Exchange exists in order that existing securities may be disposed of by a sale to someone else.
Suppose Mr. X invests 1000 pounds in Company A and subsequently wishes to get his 1000 pounds back.
He can withdraw his funds from the bonds, or shares, by selling the securities in the Stock Exchange to
Mr. Y; X recovers his money and Y becomes, in effect, the person who has invested 1000 pounds in
Company A. The ability to recover funds in this way, of course, makes the planning of capital in industry

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a much less risky affair than it would be otherwise, and accordingly the flow of funds to industry is
immensely stimulated.

B.
The brokers are the people who transact business with the general public, taking orders and delivering
securities or the proceeds of them. The jobbers are the people who actually deal in securities on the floor
of the Exchange. They deal only with brokers, having no direct contact with public.
When a broker receives an order for the purchase or sale of securities, he goes into the Stock Exchange
and seeks out a jobber specializing in the kind of securities involved in the order. The broker will ask the
jobber to quote a price for the security concerned, without disclosing whether he is proposing to buy or to
sell securities, the jobber, in return, will quote two prices: a lower price at which he is willing to buy. If
and when the broker obtains what he considers to be a satisfactory quotation, the deal will be closed.
The possibility of changes in the price of securities gives raise to speculation - that is, the purchase of
securities in hope of reselling at a profit rather than as a permanent investment. If such speculation is
based on considerations of the kind just discussed - genuine assessments of the changing economic values
of different types of assets, it is roughly useful and advantageous, since it anticipates future scarcities or
surpluses of different types of capital goods and thus guides current capital formation.
Sometimes however, speculation is more akin to gambling; dealers may buy or sell securities in
anticipation of price movements whether or not they believe such movements to be well founded or
justified. Security prices are driven up or down by the spread of what can only be called mob emotion, in
which the optimism or pessimism of one person generates similar sentiments in other people in a
cumulative fashion.
Under such circumstances the prices quoted for securities on the market can lose touch completely with
the real value of assets underlying them, and the resulting wild savings of prices can only damage for the
economy, as a whole even though more expert (or luckier) speculators succeed in achieving substantial
capital gains.

C.
Like most human institutions, then, the Stock Exchange can perform services of considerable value to
society, but can also be abused by a minority acting in their own interest.
In the United States the experience of the great Wall Street crash of 1929 stimulated the monetary
authority to acquire powers of control over the extension of bank loans for the purpose of dealing in the
Stock Exchange. In Britain the authorities have not attempted to acquire statutory powers of similar kind.
Perhaps this is because the banks are satisfied that within the existing framework they could prevent
excessive speculation financed with bank credit; perhaps it is because the authorities have confidence in
the stability and caution of the modern generation of dealers on the London Stock Exchange.
("The Money and Capital Market" Edward Nevin)

VI. Match the following definitions with the specific words:


1. public flotation; 2. merchant bank; 3. offer for sale; 4. fixed price for share; 5. tender; 6. placing;
7. secondary exchange/unlisted securities market); 8. brokers; 9. jobbers; 10. rights issue.

a) members of the Stock Exchange that execute the orders for the clients, private or individual
institutions for which they charge a commission;
b) when a company raises funds for the first time via Stock Exchange;
c) an invitation for the investors to apply for the shares; the issue is normally underwritten by a
merchant bank through its order, that the remaining shares unsold to be purchased by a financial
institution;
d) a bank that manages the flotation of a company working with a stockbroker;
e) a price that the investors decide whether and how many shares they wish to purchase for;
f) an arrangement of the merchant banks/broker by which shares are sold in block at agreed prices;

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g) members of the Stock Exchange that sale and buy securities on their own account, that is they are
principals;
h) the place where shares that are not eligible for a quotation on the main market, are traded, as they
are considered to be riskier; it also called OTC market (over the counter market);
i) document by which shares are allocated in a descending order of the bid price after the investors
have specified the price and the number of shares they are willing to pay for;
j) the first issue of shares that are offered to the shareholders at a price that represents a discount to
the market price.
VII. Fill in the blanks the missing words: lower business profits, long-term trends,
investments, business profits, stock prices, professional investors, weak, supply of shares,
risks, stock market

Bull Markets and Bear Markets


No one really knows the exact origin of the terms "bull" and "bear" to describe the ……..
………., but their meaning is clear. The most important thing to know about these terms is that
they describe ………. ……. ………. , not short-term changes. Bull and bear markets are usually
measured in years. A bull market is a rising market. In a bull market, investors are positive. The
economy tends to be strong. Consumers are spending money, which increases ……….. ……… .
When businesses profit, investors demand to share a piece of the pie - they buy stocks and hang
on tight to watch the money roll in. The ………. … …………, then, is low - no one wants to
give up their piece of the widget pie. The competition to acquire those much-coveted (desired
strongly) shares becomes fierce, which drives the prices up even higher. Investors take risks
because they feel good about their chances of making the big bucks. A bear market is a declining
market. It tends to begin with a sharp drop in ……….. ……… across the board. There is usually
an eye in the storm, during which stock prices increase. But the storm returns, of course, and the
bear market falls and falls… History has shown that a bear market tends to level out at 40
percent lower than when it began. Particularly bloodthirsty bears, like the one that ravaged the
U.S. during the Great Depression, might level out at about 90 percent lower. In a bear market,
the economy tends to be ………. Unemployment increases. Consumers spend less, which results
in ………. ………. ………. . As we've seen, this devalues a given company's stock. Investors
tend to sell their stocks before the value decreases too much. Investors don't want to take
……….. because they don't feel good about their chances. History has shown that the stock
market always rises over the long term. Bear markets and crashes happen, but the market always
makes a comeback and eventually rises higher than it ever was before. Many ……… …….. say
that determining your …………… solely on the basis of whether the market is bullish or bearish
is unwise. It is better to base investments on research into strong, competent businesses with
plenty of growth potential. Over time, educated and informed investments tend to profit more
than investments based on rumor, fear, guesswork and superstition.

SPEAKING
I. What do traders' hand signals mean on the trading floor? Select the trade hand signals
described in the text. Practice the signs described.
Traders on the floor of a stock exchange have hand signals to help them communicate with those not of
the floor. There are nine common signals that are proprietary for the organization for which the trader

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works. The nine common trading signals cover "buy," "sell," "stop an order," "cancel an order," the
number of orders, "put" (invest) and "call." The gestures are referred to as the open outcry system.

Although the use of electronic devices and the Internet has made buying and selling sock on the stock
floor seem like a formality, the practice does still take place in other parts of the world and on smaller
exchanges. No matter the size of the trading floor, the process of trading stock can be noisy, making
communicating difficult. With this in mind, a series of trading signals were developed to help traders
communicate with those not in the "pit" where the trades take place, and so trading floor runners can
know what is being asked of them without having to read lips.

Holding two hands up with the palms facing inward means buy. If you want to own something, you want
it to pull it toward you, thus the palms face you. To indicate you want to sell, your palms should be facing
outward, or away from you, as if you were pushing something from you.

There are several trading signals to cover the quantity of orders that need to be placed. For multiples
between one and nine, place your index finger on your chin. For multiples of 10, place your index finger
on your forehead. For multiples of 100, make a fist and place it on your forehead. The number of times
you tap, indicates the number of orders you want.

If you want to stop an order, place your palm against your fist. This means to stop placing orders until
told to do otherwise. This will keep the runner from going to order locations throughout the pit. If you
want to completely cancel an order, rest your hand palm facing down against your chin and rest it against
your throat.

Options also have trading signals. A put, which means that the owner can sell a stock at a specific price
for a specific amount of time is symbolized by the "OK" gesture of making an "o" with the thumb and
index finger. A call means the owner can buy a stock at a specific price for a specific price. This hand
signal is made by making a "c" with your hand. Knowing the trading signals of the open-outcry system is
a must for trading floor runners as well as those who give out the trade orders. It allows for smooth trades
and cuts down on miscommunication.

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WRITING
I. Re-write the following interview and make it an article. Make the necessary indirect-
speech changes.
Long-term bull mkt intact; 2016 may be a difficult yr: IIFL More than the Fed action, one should be
worried about what China will do to revive its economy, says Amar Ambani, head of research at IIFL.
"China devaluing its currency further is a risk," he says
Read more at http://www.moneycontrol.com/news/market-outlook/long-term-bull-mkt-intact2016-may-
be-difficult-yriifl_4457801.html?utm_source=ref_article

Sonia: I was going through your latest reports where you do mention that now the market is currently
laying the foundation for a big bull rally, which we will see in the years to come. Do you think that the
market should be unphased by all of the global volatility and the headwinds that we are facing?
A: What happens is most people focus on the title. So while the title does say that it lay the foundation,
clearly in the near-term to medium-term there are going to be a lot of headwinds. So we cannot rule out
what is happening around the globe and obviously the US Fed rate hike will have an impact. As far as I
am concerned, I believe that it is also an indication of US beginning to do well and therefore I think once
this event is behind us, the markets will breathe a lot easy. I think the more worrying thing is what China
does to try and prop up its economy and if they do devalue their currency once again, while they have
said that they have no intention of doing it but there is all possibility of they seeing their growth slowing
down significantly. So in that case, I think these global factors could lead to a lot of sell off in global
equities including emerging markets and once you had emerging market funds withdrawing then all the
emerging markets are painted through the same brush. Then you find every excuse that the government is
not working and obviously what we have seen that the corporate earnings have not pick up so far so these
are all the headwinds in the near-term to medium-term but like you said, I do believe that the best is ahead
of us and we will see that unfold in the years to come. 2016 might be a difficult year as such because
there are many things plus a few other states where Bharatiya Janata Party (BJP) isn’t too strong getting
into elections but overall I think if you look at and if you use these dips, if at all you have a large
correction that comes in suddenly to buy good quality stocks then I am sure you will do well and which is
why in our conference today, we have called all midcap companies because irrespective of the level of the
index there is a lot of interest in companies beyond the index and we have some of the very good ones
coming in and joining us today

TRANSLATION
I. Translate into English:
A
Crize puternice de natură economică au izbucnit din cele mai vechi timpuri, având trăsături specifice
determinate de condițiile perioadei istorice în care aveau loc.
Fără îndoială că seismul din intervalul 1925-33 reprezintă cea mai mare catastrofă economică care s-a
extins la nivel mondial, și pe care a cunoscut-o până în prezent omenirea. Prosperitatea, salutată
pretutindenea, era preponderent de natură speculativă, în special în SUA. Domnea frenezia unui joc
bursier extrem de profitabil, dar și foarte riscant, încurajat de afaceriști, bănci și autorități.
La transmiterea unui ordin de bursă, pentru dobândirea pachetelor de acțiuni, se depunea doar un avans și
firmele specializate în intermedieri lucrau pe baza de credit pentru diferența valorică. Se jucau astfel sume
pe care debitorii de titluri nu le aveau, întreținându-se o cerere artificială, reflectată în cotația necontenit
ascendentă.

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Si crahul s-a produs. "Joia neagră", respectiv 24 octombrie 1929 a însemnat instalarea panicii la bursa din
New York. Se ofereau atâtea acțiuni, la cursuri de la un minut la altul mai scăzute, încât aparatele de
înregistrat nu mai puteau prelua totalitatea ofertelor. Creditele trebuiau rambursate. Din ce?
B.
Europiețele, cel mai important fenomen financiar al ultimilor 40 de ani, uriașe rezervoare de fonduri
lichide, dețin, în continuare, o importanță deosebită. Există piețe en gros, care se ocupă de operațiuni cu
sume foarte mari, piețe paralele sau duty-free, mai puțin controlate . Procesul mondial de liberalizare
financiară a condus la crearea de zone offshore cu regim de paradis fiscal (haven) unde impozitele sunt
mai scăzute sau mai puțin transparente. Cele mai reprezentative rămân centrele financiare offshore
aparținând Marii Britanii: Man, Gurnesey, Jersey, Alderney, Shark unde sunt prezente bănci private din
toată lumea. Gibraltarul este sediul băncilor spaniole offshore care sunt folosite îndeosebi de către
vorbitorii de limba spaniolă.
In afara de depozite, băncile offshore mai oferă cărți bancare de prestigiu (banking cards), precum și o
bună gestionare a portofoliilor (titles portfolio) de titluri și servicii.

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