Why stock markets matter for you

BBC, Stefan Armbruster

The saying goes: ‘Don’t invest what you can’t afford to lose’.

But as stock markets fall, it is not just people who own shares who lose out. When the bears replace the bulls –in other words, when the market falls- it affects almost everyone because stocks and shares have become an integral part of almost all our financial lives.

There are a variety of ways in which stock market movements impact on our lives. The upbeat side of the growth in share ownership is that when the stock market goes up, consumers with shares feel richer, they borrow more and they spend more. But just as the stock market can go up, it can also go down. Usually the first to react to this are the institutional investors who are involved in the financial markets on a daily basis.

The internet boom is an example. Many personal investors felt they were burnt by the popping of the dot.com bubble in 2000. By the time they got around to selling shares in any number of failing internet base companies, the big City investors had already pulled out of the market. The institutional investors did not escape unharmed either. And the hits that they took also have an indirect, but potentially serious effect on many people’s financial health. Any pain suffered by these institutional investors impacts on the returns paid on pensions, savings accounts or the interest charged on mortgages.

For individuals with a more direct interest –say day traders attracted by the tech boom- share holdings can be used as collateral to borrow money. But if the value and income from shares evaporate and the bank calls in the loan, the result can be big losses or personal bankruptcy. Meanwhile pensions linked to the stock market, like the ones being promoted by the UK government, are not immune. Unlike the state pension, which is paid out at a rate set by the government, investing in a private pension indexed to the stock market can increase the value of the contributions dramatically, but they can also be erased.

Your job can also depend on the markets as companies use their valuation and the issue of new shares to raise capital to expand. If they are unable to do this then they have to find ways of increasing the company’s value to attract investors. The key tool they use is to cut jobs.

1 According to the text, are the following statements true or false? Nearly everybody suffers the consequences when share prices go down. Institutional investors are usually slower to sell when the market falls than personal investors. The value of pensions paid by the government can go up and down with the stock market. Companies can acquire new capital for expansion by issuing new shares. Companies sometimes make people redundant in order to increase the company’s value (and its share price). 2 These expressions have different meaning according to the situation they are used in. what meaning do they have in this text? a to lose money                               b not to lose money to be burnt to escape unharmed to suffer pain to take a hit 3 Find phrases in the text that mean the following: to sell all your stocks to demand that a loan is repaid to encourage people or companies to buy shares  to fire people

Answers

1 According to the text, are the following statements true or false?

1. T
2. F
3. F
4. T
5. T

2 what meaning do they have in this text?

1. a
2. b
3. a
4. a

3 Find phrases in the text that mean the following

1. to pull out of the market
2. to call in a loan
3. to attract investors
4. to cut jobs

Glossary

to lose out = to be the loser, fail to benefit from

the bears = shareholders who sell because they expect the price to fall

the bulls = investors who buy shares because they expect their price to rise

stocks and shares = securities representing part-ownership of a company

the upbeat side = the optimistic, cheerful, positive, hopeful side

to borrow = to take as a loan ANTONYM to lend = to give sb a loan

institutional investors  = financial organizations that own a lot of shares

on a daily basis = every day, every weekday

bubble = rapidly rising share prices, followed by a quick collapse (= the popping)

to get around to (selling shares) = to manage, deal successfully with a situation

to pull out (of the market) = to leave, get out, withdraw from

unharmed = intact, undamaged, unbroken

to take hits = to be attacked, to be beaten

day trader = a speculator who buys and re-sells shares in a very short time, often just a few hours

collateral = assets (= activos) a borrower uses to secure or guarantee a loan

to call in a loan = to require payment of a loan

losses = deficit ANTONYM gain, profit

bankruptcy = when you have no money to pay your debts, so you have to sell your assets

to pay out = to pay a large sum of money

rate = ratio, scale, standard, percentage (= tasa)

to erase = to delete, dissolve

to issue = to offer securities for sale, to financial institutions and the public

to raise capital = to get money from investors with which to run a business

The development of the financial industry

Peter Sinclair, the former director of the Centre for Central Banking Studies at the Bank of England, talks about the financial industry.

Before you listen, check your understanding of banking vocabulary by completing each sentence with a word from the box.

• bonds
• capital
• deposit
• merger
• mortgage
• pension
• shares
• stocks
• takeover

1 A __________________ is a loan to buy property.

2 Money you put in the bank is called a __________________ .

3 Money paid to a retired person is called a __________________ .

4 Securities representing part-ownership of a company are called ______________ or __________________ .

5 The money invested in a business is its __________________ .

6 __________________ are interest-paying securities issued by companies that need to borrow money.

7 A ___________________________ is when a company gains control of another one by buying its stocks.

8 A ___________________________ is when two formerly separate companies join together.

Listen to Peter Sinclair talking about the organization of the financial industry 25 years ago, and answer the questions below.

1. Were most financial institutions national, or international?
2. Were most financial institutions specialized, or did they offer lots of services?

What kinds of financial institutions traditionally did the following types of business?

Complete the table.

• making loans
• arranging mergers
• providing pensions
• giving financial advice to companies
• receiving deposits
• issuing shares or bonds
• arranging mortgages
• arranging or fighting takeover bids
• offering life insurance

Retail banks	Building societies	Insurance companies	Investment banks

Script

Types of banks

Peter Sinclair: Well, twenty-five years ago the financial industry in most countries had two key characteristics. One was that pretty well all the banks and financial institutions in that country were owned in that country, and there were few international links - in many cases none. So they were national banks belonging to that country.

The other key feature was that financial institutions were specialized, so in Britain we had institutions that lent to people who wanted to borrow to buy houses - that means arranging mortgages - so we had specialized things called building societies doing that. We had retail banks where individuals and companies kept bank deposits and which made loans to cover short-term outlays and in some cases longer-term investment. Then we had another range of institutions like insurance companies to provide life insurance or pensions, and we had investment banks - sometimes called merchant banks. These weren't retail banks; they didn't deal with individuals, they dealt with big companies. They gave the companies financial advice, maybe arranging mergers, or fighting off a takeover bid, and helped to raise capital, for example by issuing shares or bonds.

Retail banks	Building societies	Insurance companies	Investment banks
· making loans · receiving deposits	· arranging mortgages	· providing pensions · offering life insurance	· arranging mergers · giving financial advice to companies · issuing shares or bonds · arranging or fighting takeover bids

  

The development of the financial industry: Going international

Peter Sinclair, the former director of the Centre for Central Banking Studies at the Bank of England, talks about the internationalization of the financial institutions. This recording dates back to 2007.

Listen to him and answer the questions below.

1. What happened to banks in Britain and many other countries?
2. In what way does Peter Sinclair compare the City of London to the Wimbledon tennis tournament?
3. Which two words does Peter Sinclair use to summarize the two big recent trends in banking?

Script

Going international

In the old days in Britain, the merchant or investment banks were pretty well all British and there were big boundaries between building societies and insurance companies and all these other types of companies.

Well, now if you look at the picture, many banks have become universal banks, perhaps 'banks' is the wrong word. Lots of institutions do all the things that I have just described - insurance, mortgages, advice, raising capital for companies, and retail banking besides.

And the other great change is that so many of the financial institutions - and it is not just true of Britain true of pretty much everywhere else - are now international. So, for example in Britain, two of the big four retail banks have changed ownership: One was taken over by Hong Kong and Shanghai Bank, that was the Midland Bank previously, and it's now changed its name to Hong Kong and Shanghai Bank  (HSBC) and it really isn't a British bank any more; and another, National Westminster, was taken over by the Royal Bank of Scotland.

But if you and another look at, say, countries like the Czech Republic or Hungary or Poland or New Zealand too, and plenty of other small countries around the world, all their financial institutions pretty well are now owned by foreigners, by German companies, or French companies or Austrian companies - whatever it might be - and the huge international financial institutions are typically, though not all of them, American; and you can now think of the City of London, the world's leading centre for foreign exchange dealings and a great deal of finance, as rather like Wimbledon.

In other words it's a great big international stage, happens to be in London, but most of the players are foreign; they are nearly all foreign companies that do, for the example, the investment banking and so many other things.

So internationalization and, if you like, homogenization of these hitherto specialized financial institutions. Those are the two big recent trends…

Word building

This list is not complete, but contains the most common examples of related words. Words that do not follow the general pattern are in italic type.

Adjective root: verb –en, noun –ness

root	verb	noun
black bright broad dark deaf deep fat flat fresh glad hard high less light long loose mad quiet red ripe sad sharp short soft stiff straight strong sweet thick tight tough weak white wide	blacken brighten broaden darken deafen deepen fatten flatten freshen gladden harden heighten lessen lighten lengthen loosen madden quieten redden ripen sadden sharpen shorten soften stiffen straighten strengthen sweeten thicken tighten toughen weaken whiten widen	blackness brightness breadth darkness deafness depth fatness flatness freshness gladness hardness height lessening lightness length looseness madness quietness redness ripeness sadness sharpness shortness softness stiffness straightness strength sweetness thickness tightness toughness weakness whiteness width

Writing assignment

Based on the questions on Module 6 Finances, write an opinion essay (150 words) where you discuss the issue and express your point of view. 

Try, if possible, to omit the use of the pronoun "I" so as to make your essay more impersonal. 

Questions Module 6 Finances

1. How do Americans spend their income? And Spaniards?
2. Why are your priorities important when managing your finances?
3. How much should people spend on entertainment? Why?
4. What does 'living within one's means' mean?
5. How can you save money?
6. What is a smart shopper like?
7. Do you ever make a shopping list?
8. Do supermarkets offer real bargains?
9. How do you use your credit cards?
10. Have you used a credit card when being in another country?
11. Do you buy lottery tickets?
12. What would you do if you had a windfall?
13. Is money the root of all evil?
14. Does money make the world go around?
15. What does taking a 'staycation' mean?