Unit 2

1. Unit 2 Financial Market

2. Subjects: • 1 Learning objectives • 2 Pre-reading activities • 3 Information related to the text • 4 Words and expressions • 5 Exercises

3. Learning objectives • 1. The meaning of finance. • 2. The famous financial markets throughout the world • 3. The nature and exchange of stocks and other financial instruments. • 4. The determination of foreign exchange rate

4. Pre-reading Activities Conversation- Money Exchange A: Excuse me, Madam. Is it possible for me to change foreign money here? B: That is handled over there. It’s position number five. C: Good morning, sir. May I help you? A: Good morning. I’d like to change some pounds sterling into US dollars. C: How much do you want to change? A: Let me see. 1000 pounds.

5. Pre-reading Activities C: Which do you prefer, cash or travelers cheques? The exchange rate for cash is higher than for travelers cheques, but you have to pay 1% commission on travelers chques, so in the end both cost you about the same. A: In cash, please.

6. Pre-reading Activities C: Very well, sir. Today’s exchange rate is 1.8858 US dollar to the pound, so 1000 pounds will be 1885 dollars and 8 cents all together. Would you please fill in this form, giving us your full name in capitals, your passport number, and also a contact telephone number, and sign your name? A: I’ve lots to write, huh? Yes, I understand. That’s banking business；everything in order. There.

7. Pre-reading Activities C: That’s right. Here you are, Sir, your 1885.8 US dollars. A: Thank you. Oh, could you split this one hundred dollar note into 20 dollar notes C: Certainly, here you are. A: Thank you very much. Good-bye.

8. Information related to the text • Money and the Banking System • Finance & Financial Markets • Types of Financial Markets • International Financial Markets • ICBC

9. Money and the Banking System “Money is whatever is generally accepted in exchange for goods and services — accepted not as an object to be consumed but as an object that represents a temporary abode(住处） of purchasing power to be used for buying still other goods and services.” — Milton Friedman

10. To most of us, money is nothing but the currency of a country. But to some people, money is either the best friend or the worst demon. To economists, however, money is a subject for study and for something to be money, it must at least have the following characteristics: portability, divisibility, stability, durability and acceptability. Money and the Banking System

11. First of all, money must be light in weight and easy to carry. That is why all modern money (i.e. the currencies of the world’s countries) is in the form of printed paper or metal coins which are easy to carry and handle. Money and the Banking System

12. Money and the Banking System • Second, it must be easily divisible into smaller parts with a fixed value for each unit. • Take Chinese Renminbi for example. The biggest denomination up to 1999 is 100 yuan, followed by 50, 10, 5, 2, 1, 0.5, 0.2, 0.1, 0.05, 0.02 and 0.01 yuan. All denominations are available in paper notes, with the last seven also available in coins.

13. Money and the Banking System • The US currency has seven denominations in paper notes, i.e. 100, 50, 20, 10, 5, 2 and 1 dollar, and seven denominations in coins, i.e. one dollar, half dollar, quarter ($0.25), dime ($0.1), nickel ($0.05) and cent ($0.01).

14. Money and the Banking System • Third, money must be stable in value, and this is best understood in times of inflation. People will lose confidence in their currency and refuse to save it if its real value keeps on falling. • Fourth, money must be able to stand the wear and tear of repeated transactions during its life in circulation. The average life of all paper currency in the US is about five years.

15. Money and the Banking System • The US dollar bill, the most heavily used paper note, has an average life of eighteen months, while its metal equivalent, the one-dollar coin, enjoys a life which is ten times longer. • Last, for money of a country to function at all, it must be made legal tender for that country by its government and be acceptable to the public. The currency of one country may or may not be acceptable in other countries. Even the US dollar is not acceptable in every country in the world.

16. Finance & Financial markets • Finance signifies capital in monetary form that is in the form of funds lent or borrowed, normally for capital purposes, through financial markets or financial institutions. • When talk about the finance, we should mention the currency. • (the goods to goods exchanges; mental currency; note currency)

17. Finance & Financial markets • Because mental currency (silver & gold) is very difficult to take along with, so the financial market appeared in order that people can change the note currency.

18. Types of financial markets • Money market • Capital market Money markets are the places where people can raise short term funds usually with maturity up to one year. Money markets enable market participants to borrow or lend liquid assets and thereby meet needs for cash or investment of cash.

19. Types of financial markets The commercial banks often borrow the funds in this market because the change amount of the preparing cash for saving account handing to the central banks. Capital market are the places where people can raise long term funds usually with maturity up to more than one year.( Many nations just borrow the loans from this financial market)

20. International Financial Markets Example: the southeast Asian financial crisis in 1997 (the attract by the quantum fund of Soros ) It first happed in the country of Thailand in the financial market. The exchange rates of the Thailand currency decreased rapid. Then the influence delivered to the southeast Asian.

21. 1 The imperfect financial industry system in these countries (soup flourish) 2 Too much depend on the foreign direct investment 3 The attract of the Quantum fund( this fund has gain $3 billion from the southeast Asian financial crisis) International Financial Markets

22. The presidents of china claimed that the exchange rate of Reminbi will not decrease. So Chinese government just used the half of the foreign storage to stable the exchange rates. International Financial Markets

23. In 1998, the Quantum fund also attracted the financial market of Hong Kong. The linking exchange rate increased rapidly. At last, the central bank of China has interrupted into the financial market with regard to the requirement of the Hong Kong government. International Financial Markets

24. International Financial Markets In this fight with the Quantum fund, the People Bank of china has used one third of the foreign storage($20 billion)

25. Case study • Do you know any international banks? • How many banks do you know in China? • Do you know the issue of going public of ICBC?

26. foreign exchange trading Real-time price Convenient trading Professional consultant Qualified service

27. A brief introduction ICBC is China' s largest commercial bank. By the end of 2002, ICBC's total assets had occupied a quarter of the sum of domestic assets owned by China' s commercial banks.

28. A brief introduction It has 71 sub-branches and stock-controlling banks in all major international financial centers around the world, has internationally advanced computer networks and technology platforms, has a wide range of businesses and also owns the largest customer throng in China. ICBC' s operating performance received attention from the financial circle of the world.

29. A brief introduction ICBC was appraised as "China' s best bank" for three successive times by famous financial journals, such as the Banker and the Global Finance ; The Banker rated 1000 major banks worldwide according to their first- class capitals，ICBC had been among the first ten for four consecutive years, and been the first in China for five consecutive years ; ICBC has been rated the strongest 500 enterprises in the world for four consecutive years

30. New words necessities n.生活必须品 principal n.本金 interest n.利息 operation n.经营，业务 tangible adj.有形的 exchange n.交换 reserve n.准备金，储备 debit n.借记，借方 credit n.信用，贷方 currency n. 货币 circulation n. 流通 acquisition n.取得，收购

31. New words lopsided adj.不均衡的 allocation n.分配 principal n.本金 penetrate adj.渗透 finance n.金融 financial adj.金融的 equity n.(常用复数)所有权，股票 bond n. 债券 data processing 数据处理 integrate v.使…一体化 speculative adj.投机的

32. Key to Exercises Text A I. Answer the following questions according to the text 1. Is allocation of money in equilibrium at all times? No, the allocation of money is lopsided in various areas at different date. Therefore, the quantity of currency is more or less. 2. Under what conditions is credit conducted? Credit is conducted on the condition that the principal and the interest should be paid back later.

33. Key to Exercises Text A I. Answer the following questions according to the text 3. Describe finance and financial markets. Finance is usually defined as financing of money by penetration of payment, borrowing and lending of money. Financial markets are the markets for financing funds. There are two types of financial market: money market and capital market.

34. Key to Exercises Text A I. Answer the following questions according to the text 4. What distinguishes money market and capital market? A way of distinguishing markets is on the basis of the maturity of the securities. The money market is a financial market in which only short-term debt instruments are traded while the capital market is the market in which longer-term debt and equity instruments are traded.

35. Key to Exercises Text A I. Answer the following questions according to the text 5. What methods can be used to prevent financial crisis? We can take measures such as strengthening macroeconomic control, improving foreign trade structure, watching the financial markets closely, and if necessary, we can apply for the help of those international organizations

36. Key to Exercises Text B II

37. The End.Questions are welcome!