What is international trade?
When Honduras exports bananas to Switzerland, they can use the money they earn to import Swiss chocolate – or to pay for Kuwaiti oil or a vacation in Hawaii. The basic idea of international trade and investment is simple: each country produces goods or services that can be either consumed at home or exported to other countries.
The main difference between domestic trade and international trade is the use of foreign currencies to pay for the goods and services crossing international borders. Although global trade is often added up in US dollars, the trading itself involves various currencies.
Whenever a country imports or exports goods and services, there is a resulting flow of funds: money returns to the exporting nation, and money flows out of the importing nation. Trade and investment is a two-way street, and with a minimum of trade barriers, international trade and investment usually makes everyone better off.
In an interlinked global economy, consumers are given the opportunity to buy the best products at the best prices. By opening up markets, a government allows its citizens to produce and export those things they are best at and to import the rest, choosing from whatever the world has to offer.
Some trade barriers will always exist as long as any two countries have different sets of laws. However, when a country decides to protect its economy by erecting artificial trade barriers, the result is often damaging to everyone, including those people whose barriers were meant to protect.
The Great Depression of the 1930s, for example, spread around the world when the United States decided to erect trade barriers to protect local producers. As other countries retaliated, trade plumered, jobs were lost, and the world entered into a long period of economic decline.
2.Прочитайте текст снова и письменно ответьте на вопросы:
1. What’s the basic idea of international trade?
2. What’s the main difference between domestic and international trade?
3. Do trade barriers exist?
4. What opportunity are consumers given in an interlinked global economy?
5. What does government allow its citizens by opening up markets?
ВАРИАНТ 3
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INVESTORS
Investors may be organizations or individuals. Organizations as institutional investors buy securities with their funds or funds held in trust for others. Major institutional investors are insurance companies, pension funds and universities. Insurance companies make their investments generate profits and funds for paying future insurance claims. A pension fund wants to make money on its investments so that it can pay off pensioners. The other types of investors are individuals who trade securities for their own accounts. The majority of personal investors have rather small stock portfolios usually valued at less than $50 000. They often use these funds for major purchases such as a home, retirement income, or as a source of cash in case of emergency. The objectives of investors can be identified in terms of speculation, growth, and income. Some investors set an objective of achieving big payoffs. They engage in speculation, or assuming large risks in the hope of large returns. One of the ways to speculate is to buy “penny stock”. It is highly speculative stock that sells at less than $5. A $1 stock that is in high demand may rapidly run up to $3 thus tripling the initial investment. “Penny stock” is typically a share in new ventures. More investors are interested in long term growth in the value of their investment. They tend to prefer the so called blue chip stocks of large, high quality companies such as IBM, General Motors, American Express. The dividend for blue chip stocks is rather low because these firms reinvest much of their profits in research in order to remain competitive. Some investors seek income. They are interested in a stock’s yield which is the percentage return from stock dividends. The highest regular yields are provided by utility stocks because they have minimal risk. The investors take risk only within certain limits. Common stock is less safe than preferred stock because preferred stock-holders receive dividends before they are paid to the common stockholders. In the case of common stock, utilities are safer than high tech stock. The safest type of securities is government bonds because they are backed by the government.
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1. What kinds of investors do you know?
2. What are major investors?
3. What are the objectives of investors?
4. What do the majority of personal investors use their funds for?
5. What is the safest type of securities?
ВАРИАНТ 4
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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 the case, business will need long-term source 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 obtain the lender’s permission before taking on any additional long-term debt. If a 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 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.
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1. What’s a long-term loan?
2. When does a firm issue bonds?
3. What’s the value of most bonds?
4. What can a company offer if a company wants to sell bonds?
5. What does the conversion privilege allow bondholders?
ВАРИАНТ 5
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SHORT-TERM FINANCING
The seasonal financial needs of a company may be covered by short-term sources of funds. The company must pay them off within one year. Businesses spend these funds on salaries and for emergencies. The most popular outside sources of short-term funds are trade credit, loans, factors, sales finance companies, and governmental sources.
About 85 per cent of all US business transactions involve some form of trade credit. When a business orders goods and services, it doesn’t normally pay for them. The supplier provides them with an invoice requesting payment within a settled time period, say thirty days. During this time the buyer uses goods and services without paying for them.
A company can use the trade credit as a source of savings. A typical trade arrangement is 2/10, net 30. If a buyer pays within 10 days instead of 30, he gets a 2 per cent discount. The savings a buyer obtains can be used as a source of short-term funds.
Commercial banks lend money to their customers by direct loans or by setting up lines of credit. A line of credit is the amount a customer can borrow without making a new request, simply by notifying the bank. If the business doesn’t pledge collateral when it borrows, the loan is an unsecured loan. Only customers with an excellent credit rating can get an unsecured loan. They usually repay it within a year’s time. When a company wants to borrow a large sum of money it pledges collateral to back up the loan. Such a loan is secured one.
A company might sell its accounts receivable to a special financial broker: a factoring company, a factor. The factor immediately pays the firm cash, usually 50 to 80 per cent of the value of the accounts receivable. When customers make the payments on their accounts, the money goes directly to the factor.
Some big firms obtain funds by selling commercial paper. Because commercial paper has no collateral behind it, only firms with good financial reputation can sell it. In special cases, a business may obtain short-term funds from federal government.
2. Прочитайте текст снова и письменно ответьте на вопросы:
1. What are most popular short-term funds?
2. How do commercial banks lend money to their customer?
3. What do firms do to obtain funds?
4. What is a typical trade arrangement?
5. How does business spend short-term sources of funds?
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ВАРИАНТ 1
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