Financial English Unit 10 Foreign exchange market

Financial English Unit 10: Foreign exchange market

Unit 10: • Revision of Unit 9 • Background information of Unit 10 • Text • Exercises • Assignment Unit 10 Foreign exchange market

Revision of Text A Review of Unit 9 • Dictation • Exercises Check-up Dialogue Cloze

Dictation! You are going to hear 5 sentences. Each will be read three times. Write down the sentences according to what you hear. 1. 2. 3. 4. 5. Check-up

Dictation Key to Dictation: 1. Foreign exchange refers to currency and money claims, such as bank balances and bank drafts. 2. The use of foreign exchange arises because different nations have different monetary units. 3. Any factor that changes the expected returns on domestic or foreign deposits will lead to changes in the exchange. . 4. Supply and demand for any given currency are not influenced by any single element, but rather by several. 5. The trade flow between countries illustrates the demand for goods and services.

Check-up II. Dialogue Finish the incomplete dialogue by filling appropriate words into the blanks. Then act it out after listening to the dialogue. Mr. White calls Mr. Kerry to ask for some information on exchange rates. K: Hello. This is Kerry speaking. W: Good morning, I’m Thomas White. Someone told me you are an expert in finance. So I am calling to ask you some questions.

Check-up K: I’m flattered. What can I do for you? W: I have some doubts on who determines the exchange rates (决定汇率) between convertible currencies? The governments? K: In the period of fixed rates （固定汇率）, the governments and some financial organizations decided the rates. But nowadays the exchange rate is mainly decided by the force of supple and demand （供求关系）in the foreign exchange market. W: The governments don’t interfere with （汇率的波动）? the fluctuation of the rates

Check-up K: Not exactly. In fact, financial institutions of the government are important the participants in the exchange markets. When they think the value of domestic currency （本币）is too high, they buy foreign currencies with the domestic currency. When they want to increase the value of the domestic currency, they usually use the foreign currencies they have to buy the domestic currency. In this way, they exert some influence upon the status between supply and demand, and in turn influence the exchange rates.

Check-up W: These days an American dollar is worth about 120 Japanese yen. How could it be that a unit of American currency has the value of over a hundred of units of Japanese currency? It seems unfair. K: That’s the implication of the exchange rate. As I mentioned above, the rate is chiefly decided by the relationship between supply and the purchasing power demand. Moreover, （购买力）of the currencies also contributes significantly to the establishment of the exchange rates.

Check-up W: It sounds interesting. Do you have some books on this subject which might be easy for me to understand? K: Yes, I’ve got some books discussing the fundamentals. W: Fine. When can I visit you, Kerry? K: I’ll be staying at home all day. W: OK. I’ll be right away. See you.

Check-up II. Fill in the blanks with proper words or phrases given below. Fundamental Factors behind Major Currencies Forex market policy currency economy factors reserves value indicators national pairs

Check-up Every currency traded in Forex is influenced by the conditions in its country of origin, and the external relations that affect its value. Economic indicators (GDP growth, import/export trade accounts), social factors (unemployment rate, real estate market conditions) and the country’s central bank policy are the factors that determine the currency value in the Forex market. Each one of the six major currencies has its particularities, and we are going to analyze the fundamentals that drive the currencies individually.

Check-up The U. S. dollar (USD) is the most traded currency in the Forex used . It is also marketas a measure to evaluate other currencies and reserves commodities. The in USD are by far the largest being held by different nations, and they compose 64% of the world reserves. The euro (EUR) is by far the newest currency traded among the major pairs traded on Forex markets. It is used by 16 European Union member countries and it tends to enlarge during the next few years. The fundamental factors that move the Euro are often based on the strongest economies using the new common currency, such as: France, Italy and mainly Germany.

Check-up The pound sterling (GBP) is the currency of the United national Kingdom, and the fundamental factors that move it are as complex and variable as the British economy and its global influence. The London commodity market plays a fundamental role in the GBP trends, being a reference for oil and gold trading. The Japanese yen (JPY) is the strongest and by far the most traded currency in the Asian market. Japan’s economy is mainly orientated to the industrial production exportation.

Cloze 外汇市场是指由银行等金融机构、自营交易商、大型跨国企业参与的， 通过中介机构或电讯系统联结的，以各种货币为买卖对象的交易市场。它 可以是有形的---如外汇交易所，也可以是无形的---如通过电讯系统交易的 银行间外汇交易。 外汇市场产生的原因 外汇市场之所以存在，是因为：- 贸易和投资 - 投机 - 对冲

Text : Background Information 本章旨在通过介绍外汇市场的定义，以及 外汇市场的参与者、交易特点以及金融 具使 学生重温外汇市场的知识。本章重点外汇市场， 学生重点掌握外汇市场的概念及外汇的参与者。 教师可根据学生的情况有重点的、有选择地去 学。

Text : Background Information 本章重点难点 通过本章学习，学生应该掌握: Ø 什么是外汇市场 Ø 外汇市场的参与者 Ø 外汇交易特点 Ø 金融 具

Unit 9: Unit 10 Foreign exchange market • Part I: 10. 1 The Foreign exchange market and its purpose • Part II: 10. 2 Market participants • Part III: 10. 3 Trading characteristics • Part IV 10. 4 Financial instruments

Listening Text Foreign exchange market Listen carefully to the first part of the text and then try to translate it.

Text : Foreign exchange market 10. 1 The Foreign exchange market and its purpose The foreign exchange (currency or FX) market operates much like financial markets, but isn’t located in a specific place like a stock exchange. It is where currency trading takes place. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. What is bought and sold in the foreign exchange market is not actually foreign currency but rather bank deposit denominated in foreign currencies. The Foreign Exchange Market that we see today started evolving during the 1970 s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Text : Today FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global forex and related markets is continuously growing. Traditional daily turnover was reported to be over US$ 3. 2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.

Text B: The purpose of FX market is to facilitate international trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc, and the need for trading in such currencies. The foreign exchange market is unique because of its trading volumes, the extreme liquidity of the market, the large number of, and variety of, traders in the market, its geographia dispersion, its long trading hours: 24 hours a day except on weekends, the variety of factors that affect exchange rates, the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)

Text : Language Points Bretton Woods system The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20 th Century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states

Text : Language Points liquid 流动 的；可兑换 成现 金的 The company kept enough liquid funds of commerce in case of crisis. 这 家公司留有足够的商业 流动资 金以备 危机来临 。 liquidity 流动性 The bank has progressively increased its liquidity. 银 行逐渐 地增加其流动资产 。 China’s financial markets are characterised by a high degree of liquidity. 中国金融市场 的特色是资 金流动 性高。

Text : Language Points speculator 投机者 He is known as a speculator who holds up customers in the circle. 他在圈中以向顾 客索取高价的投机商人而闻 名。 The stock market crash finished many speculators. 股票市场 暴跌使许 多投机者破产 speculate vi. 投机 She speculate on the exchange. 她做证 券投机买卖 。

Text : Language Points the Bank for International Settlements (or BIS) The Bank for International Settlements (or BIS) is an international organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks. " It is not accountable to any national government. The BIS carries out its work through subcommittees, the secretariats it hosts, and through its annual General Meeting of all members. It also provides banking services, but only to central banks, or to international organizations like itself. Based in Basel, Switzerland, the BIS was established by the of 1930.

Text : Language Points trading volume 成交量 Trading volumes were low because of widespread investor caution 由于投资 者态 度谨 慎，故成交量低. volume n. 量 Frankly speaking, we stick to ‘small profit, large sale volume ’ principle 坦率地说 ，我们坚 持薄利多销 原则 。 We saw smoke emitting from that bus in great volume. 我们 看见 烟大量从那辆 公共汽车 里冒出。

Text : Reading Skill Distinguish the Following Words Water is both a fluid and a liquid. 水既是流体又是液体 Now, boil the liquid down and see what will happen next. 把液体煮得蒸发 掉一些 , 看看会有什么发 生。

Text : Reading Skill Distinguish the Following Words Volumn At the beginning of each term, our professor would produce supplementary volumes for us to read. 每个学期初， 我们 教授会列出补 充的书 籍 让 我们阅读 。 The book consists of four volumes. 这 本书 共有四卷。 She turned down the volume on the radio. 她关小了收音机的音量。

Listening Text 10. 2 Market participants Listen carefully to the second part of the text and then try to translate it.

Text 10. 2 Market participants Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle.

Text The difference between the bid and ask prices widens. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading).

Text The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forexmetal market makers. Pension funds, insurance companies, mutual funds , and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular. Central banks also participate in the forex market to align currencies to their economic needs.

Text Banks The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

Text Commercial companies An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Text Central banks National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. It is argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

Text The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives.

Text Hedge funds as speculators About 70% to 90% of the forex transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Text Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay foreign securities purchases. Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Text Retail forex brokers There are two types of retail brokers offering the opportunity for speculative trading: retail forex brokers and market makers. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks. Retail forex brokers, while largely controlled and regulated by the CFTC and NFA might be subject to forex scams. At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades.

Text Other Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as Foreign Exchange Brokers but are distinct from Forex Brokers as they do not offer speculative trading but currency exchange with payments. i. e. there is usually a physical delivery of currency to a bank account.

Text This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD (No Dealing Desk) and STP (Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented.

Text : Language Points margin n. 保证 金 Margins are required of both buyers and sellers of futures contracts. 期货 合约 的买 主和卖 主都要缴纳 保险 金。 There are no margin requirements if you want to purchase an option. 购买 期权不需要保险 金。 Margins are deternined on the basis of market risk. 保险 金按市场风险 而定。

Text : Language Points hedge risk 风险 保值 To hedge against the risk of changing prices , you’d better buy a futures. 为 了防范价格变 化所带 来的风险 ，你最好买 一份期货 合约 。 You can hedge to protect the market value of stocks from a possible decline in value with stock index futures. 你可以用股指期货 来防范股票市值 的下跌。 One of the hedging means is to buy or sell futures contracts to offset the risk of changing prices in the cash market. 一种保值 方式是买进 或卖 出期货 合约 以冲销现货 的价格波动 所带 来 的 风险 。

Text : Language Points hedge funds 对 冲基金 The first known hedge fund was created by Alfred Winslow Jones in 1949. During the early years of the hedge fund industry (1950 s — 1 970 s), the term ‘hedge fund” was used to describe the hedging strategy used by managers. At the time, “Hedging” refers to the hedge fund manager making additional trades in an attempt to counterbalance any risk involved with the existing positions in the portfolio. Hedging can be accomplished in many different ways but the most basic technique is to purchase a long position and a secondary short position in a similar security. This is used to offset price fluctuations and is an effective way of neutralizing the effects of market conditions.

Text : Language Points reserve n. 储备金 Commercial banks must keep reserves on deposit at the Federal Reserve Bank. 商业银 行必须 将准备 金放在当地的联 邦储备银 行。 Cleared checks reduce or increase a bank’s reserve account each day. 每天清算的支票会减少或增加银 行的准备 金帐户 余额 。 All banks adjust their reserve accounts to bring them within limits set by the Fed. 所有银 行调 整一次它们 的准备 金帐 户 ，使之保持在联 储 规 定的限 额 之内。

Text : Language Points delivery n. 交割 You can hedge by selling ￡ 10 million forward against dollars, delivery to be made in twenty-three days. 你可以做套期， 即把1000万 英镑换 成美元。 23天后交割。 He sells FF 5 million forward for delivery on June 30, 2009. 他远 期卖 出 500万法郎，交割日为 2009年 6月30日。

Text : Language Points CFTC and NFA CFTC （Commodity Futures Trading Commission，简 称 CFTC） 　　美国商品期货交易委员会 NFA（ NATIONAL FUTURES ASSOCIATION） NFA意思是美国国家期货协会，是全球著名的金融监管 机构，它负责对在美国注册金融公司的监管。

Text : Language Points NDD and STD NDD (No Dealing Desk) 无处理台的缩写。一个无处理台交易商使用一个配对引擎来为这些 交易商的流动性提供者和他们的客户之间的交易单进行匹配。货币 流动性提供者会发送一个竞价（买价和卖价）给平台，然后客户会 以在这些流动性提供者中的价格最接近的那个价格进行交易。一个 NDD交易商也许不会向客户收取佣金，而是会通过增加点差来获得 收益。 STP (Straight Through Processing) 早在几年以前，直接处理（Straight Through Processing，即STP）就 已成为金融行业的一个术语，然而时至今日，大家还在为确定一个 可以普遍接受的定义争论不休。

Text : Reading Skill Distinguishing the Following Words The interbank market enables the risks of lending to be spread amongst many different institutions. 银 行同业 拆放市场 能够把货 款风险 分散到许 多不同的机构。

Text : Reading Skill Distinguishing the Following Words The margin levied by the lending bank is in effect a premium paid by the borrowing bank. 由货 款银 行征收的保证 金实际 上是借款银 行支付的保险费 。 They have always had to make do with relatively small profit margins. 他们 不得不经 常设 法应 付较 少的利润额 。 He is on the margin of death. 他已濒临 死亡。

Text Explanation • Listening • Language Points

Listening Text 10. 3 Trading characteristics Listen carefully to the third part of the text and then try to translate it.

Text 10. 3 Trading characteristics There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-thecounter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price.

Text The main trading center is London, but New York, Tokyo, Hong Kong and Singapore all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends. Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation (purchasing power parity theory), interest rates (Interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions.

Text Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Text Currencies are traded against one another. Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodityproducing countries, such as AUD, NZD, CAD, have also increased.

Text : Language Points Over-the-counter(OTC) (不需通过 交易直接卖 给 客户 的market ) (柜台 市场 ”、“场 外市场 ”, 店头 市场 ） Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futures exchanges or stock exchanges. An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. An over-the-counter market is a financial market where products are traded over-the-counter.

Text : Language Points M&A Mergers and Acquisitions 的简 称，合并与收购 Mergers & Acquisitions 并购(M&A) One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. 1+1=3，这 对 并购 来说 是个神奇的不等式。基本原理是并购 后的 企业 价值 要大于两个独立的公司价值 的简 单 相加。并购 后的企业 价 值 增 大 ——至 少 这 是 M&A(Mergers & Acquisitions)的 理 由 。

Text Explanation • Listening • Language Points • Comprehension Check • Special terms • Listening Practice

Listening Text 10. 4 Financial instruments Listen carefully to the third part of the text and then try to translate it.

Text 10. 4 Financial instruments There is an almost bewildering variety of foreign exchange markets abound in a number of currencies. In addition, there are diverse prices for these currencies.

Text Spot For major currencies, up to four different prices typically will be quoted. One is the “Spot” price. A spot transaction is a two-day delivery transaction (except in the case of the Canadian dollar, which settles the next day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market.

Text Forward One way to deal with the Forex risk is to engage in a forward transaction. The forward prices for each currency are what you will have to pay if you sign a contract today to buy that currency on a specific future date. In this market, you pay for the currency when the contract matures. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years.

Text Future Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts. The function of future markets is price discovery, price risk hedging and market efficiency improving. Future markets provide a current consensus of knowledgeable opinions about the future price of commodities or financial instruments.

Text Swap The most common type of forward transaction is the currency swap. A swap is an agreement between two parties to exchange payments based on identical notional priciple. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.

Text Option A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

Text : Language Points spot adj 即期的，现 场 的 （指已准备 好的，可以立刻提供的或现 在 可以立刻交割的或现 在可以立刻付款。) The spot market foreign exchange is centered in the world’s banking system. 外汇 即期市场 集中于全球的银 行体系中。 The spot foreign market is a truly worldwide market. 即期外汇 市场 是真正的全球市场 。 spot payment 现 付 spot commodity 现货 商品 spot delivery 当场 交割

Text : Language Points futures contracts 期货 合约 I cannot make a futures expert out of you simply on the phone. 我不可能在电话 上就让 你成为 一个期货专 家。 Foreign exchange futures is just one of basic types of financial futures. 外汇 期货 是金融期货 的基本种类之一。 The futures markets were originally set up to allow grain producers to hedge their positions in a given crop. 期货 市场 是为 保证 粮食生产 者的某一作物的价值 而产 生的。

Text : Language Points forward n. 期货 Some forward transactions don’t require margins. 有些远 期交易并没有保证 金要求。 The economic function of the forward market is to permit foreign traders and investors to hedge. 远 期市场 的经济 作用在于允许 国际 交易商河投资 者套期保值 。 forward cover 远 期抛补 forward option 远 期择 期

Text : Language Points currency swap 货币套换 swap n. 掉期 Swap deals used forward cover have tow basic types. 远期抛补的掉期交易有两种基本形式。 A swap involves simultaneous buying and selling of a currency for different maturities. 掉期包括同时买入和卖出期限不同的一种货币。 The swap can be called away if the remaining notional principal drops to about 5% of the original amount. 当名义的本金数降到原始数据的5%以下时，就可以结束本金交易。

Text : Language Points foreign exchange option 外币期权 option n. 期权 Both futures and options involve standardized contracts. 期货和期权使用的都是标准化合约。 There are many ways to catetorize options. 划分期权种类的方法有很多种。 put option (简称put, 复数puts, put options) 看跌权

Text : Comprehension Check I. True or False 1. It was Bretton Woods System that made the erstwhile exchange rate remain 2. fixed. ( ) 2. The purpose of FX market is to meet the need for trading in international currencies. ( ) 3. Since the early 2, 000, Hedge funds have played an increasing important role 4. in financial markets in general. ( ) 4. National central banks not only use substantial foreign exchange reserves 5. to stabilize the market, but also can make a profit trading. ( ) Check-up

Text : Comprehension Check 1. It was Bretton Woods System that made the erstwhile exchange rate remain 2. fixed. (T) 2. The purpose of FX market is to meet the need for trading in international currencies. (T) 3. Since the early 2, 000, Hedge funds have played an increasing important role 4. in financial markets in general. (F) 4. National central banks not only use substantial foreign exchange reserves 5. to stabilize the market, but also can make a profit trading. (F)

Text : Comprehension Check 5. Retail traders are brokers offering the opportunity for speculative trading and participating directly through banks. ( ) 6. The forward transaction is a three-month delivery transaction. ( ) 7. A hedge is different from the future in that it provide a current consensus 8. of knowledgeable opinions about the future price. ( ) Check-up

Text : Comprehension Check 5. Retail traders are brokers offering the opportunity for speculative trading and participating directly through banks. (F) 6. The forward transaction is a three-month delivery transaction. (F) 7. A hedge is different from the future in that it provide a current consensus 8. of knowledgeable opinions about the future price. (F)

Special terms II. Translate the following special terms. 1. floating exchange rate 2. exchange rate regime 3. the Bretton Woods system 4. liquid financial market 5. Bank for International Settlements 6. profit margin 7. inter-bank market Check-up

Special terms II. Translate the following special terms. 1. floating exchange rate 浮动汇率 2. exchange rate regime 汇率制度 3. the Bretton Woods system 布雷顿森林体系 4. liquid financial market 流动金融市场 5. Bank for International Settlements 国际结算银行 6. profit margin 利润率 7. inter-bank market 银行同业市场

Special terms: 8. investment banking 9. the bid and ask price 10. Hedging risk 11. hedge funds 12. retail market 13. pension fund 14. market rate 15. trade flow Check-up

Special terms: 8. investment banking 投资银行业务 9. the bid and ask price 买入和卖出价 10. Hedging risk 套期保值风险 11. hedge funds 对冲基金 12. retail market 零售市场 13. pension fund 养老基金 14. market rate 市价，市场利率，市场汇率 15. trade flow 贸易流量, 贸易往来

Listening Practice Short Passage Listen and Learn You will hear VOA Special English Economics Report. After the report you will be asked 3 questions. Listen carefully and try to understand the main points in the report.

Listening Practice: news report I’m Steve Ember with the VOA Special English Economics Report. Many people know that hedge funds are investments for the wealthy. But what exactly are they? A hedge fund is an investment group often organized as a limited partnership. Hedge funds are governed by agreements between investors and one or more advisers. Hedge funds have existed for more than fifty years. There are different kinds, and thousands of different funds. Still, the industry in the United States is small compared to the value of mutual funds.

Listening Practice: news report Hedge funds, though, do not have to report their activities to the Securities and Exchange Commission. The S. E. C. is the government agency that supervises financial markets. But as of this year, advisers must register so the agency knows who they are. Funds must also have a rules officer and written rules to help protect investors. Complex investment positions mean investors may not know the value of their investments at any given time. Hedge fund investors must be worth at least one million dollars. But a person with at least twenty-five thousand dollars to invest can put the money into funds that invest in hedge funds. Not all of these register with the S. E. C. , however.

Listening Practice: news report To hedge is to balance investment risk. Like mutual funds, hedge funds may buy stocks and bonds. But hedge funds often borrow very large amounts of money to trade in risky investments in hopes of high returns. That does not always happen. Hedge funds can be very profitable to manage. Management costs can take from one to five percent of the total value of the fund. And advisers can receive twenty or even forty percent of the profits. In 1998, a major hedge fund got into financial trouble and almost failed. Long-Term Capital Management controlled investments worth more than one hundred thousand million dollars. The Federal Reserve helped get the parties involved to agree on a plan to save the company. World markets were already weak, so the central bank intervened to avoid a crisis.

Listening Practice: news report Recently, Federal Reserve Chairman Bernanke warned of risks to the financial system from the fast growth of the hedge fund industry. And the European Central Bank called hedge funds a major risk to world markets. Yet Alan Greenspan had praise for hedge funds. The former central bank chairman said they improve markets by finding what he called mispriced securities. This VOA Special English Economics Report was written by Mario Ritter. I'm Steve Ember.

Listening Practice: News report 1. How long has hedge funds existed? 2. Who supervises financial markets? 3. Who helped get the parties involved to agree on a plan to save the company ?

Assignments 1. Review the Text. 2. Keep in mind the special terms learned in this Unit. 3. Do exercises in the book.