第03章 资本市场(讲义)简易版

Section 3.1 Text⏹Purpose and ParticipantsFirms that issue capital market securities and the investors who buy them have very different motivations than they have when they operate in the money market. Firms and individuals use the money market primarily to warehouse funds for short periods of time until a more important need or a more productive use for the funds arises. By contrast, firms and individuals use the capital market for long-term investments. The capital markets provide an alternative to investment in asset such as real estate or gold. Meanwhile, the primary reason that individuals and firms choose to borrow long-term funds is to reduce the risk that interest rates will rise before they pay off their debt. This reduction in risk comes at a cost. However, most long-term interest rates are higher than short-term rates due to risk premiums. Despite the need to pay higher interest rates to borrow in the capital markets, these markets remain very active.The primary issuers of capital market securities are governments and corporations. However, governments never issue stocks.Corporations both issue bonds and stocks. One of the most difficult decisions a firm faces can be whether it should finance its growth with debt or equity. The distribution of a firm’s capital between debt and equity is its capital structure.⏹Trading in the Capital MarketCapital market trading occurs in either the primary market or the secondary market. Investment funds, corporations, and individual investors can all purchase securities offered in the primary market, where new issues of stocks and bonds are introduced. When firms sell securities for the first time, the issue is an initial public offering.The capital markets have well-developed secondary market. A secondary market is where the sale of previously issued securities takes place, and it is important because most investors plan to sell long-term bonds before they reach maturity and eventually to sell their holdings of stocks as well.1. BondsThe capital markets are where securities with original maturities of greater than one year trade. Capital market securities fall into three categories: bonds, stocks, and mortgages. In this section, we focus on bonds.Bonds are securities that represent a debt owed by the issuer to the investor. Bonds obligate the issuer to pay a specified amount at a given date.Treasury BondsThe government issues notes and bonds to finance the national debt. The difference between notes and bonds is that notes have an original maturity of 1 to 10 years while bonds have an original maturity of 10 to 30 years. (Recall from last chapter that Treasury bills mature in less than 1 year.)Government notes and bonds are free of default risk because the government can always print money to pay off debt if necessary.Corporate BondsWhen large corporations need to borrow funds for long periods of time, they may issue bonds. The bond indenture is a contract that states the lender’s rights and privileges and the borrower’s obligations. Any collateral offered as security to the bondholders will also be described in the indenture.The degree of risk varies widely among issues because the risk of default depends on the company’s health, which can be affected by a number of variables. The interest rate on corporate bonds varies with the level of risk. Bonds issued by a company with high credit rating has lower interest rates than those with poor ratings.2. StocksShares of stock in the firm represent ownership. A stockholder owns a percentage interest in a firm consistent with the percentage of outstanding stock held. The ownership is in contrast to a bondholder, who holds no ownership interest but is rather a creditor of the firm.Ownership of stocks gives the stockholder certain rights regarding the firm. One is the right of a residual claimant: Stockholders have a claim on all assets and income left over after all other claimants have been satisfied. If nothing is left over, they get nothing. As noted, however, it is possible to get rich as a stockholder if the firm does well.Investors can earn a return from stocks in one of two years. Either the price of the stock rises over time, or the firm pays the stockholder dividends. Frequently, investors earn a return from both sources. Stocks are more risky than bonds because stockholders have a lower priority than bondholders when the firm is in trouble. The returns to investors are less assured because dividends can be easily changed, and stock price increases are not guaranteed. Despite these risks, it is possible to make a great deal of money by investing in stocks, whereas it is very unlikely by investing in bonds. Another distinction between stocks and bonds is that stocks do not mature.Section 3.2 Specialized TermsAsset n.liquid（current、floating、working、circulating）assetsnon-performing assetnon-performing loaninvisible assets / intangible assetsassets management companyasset restructuring / assets reorganizationassets evaluation / assets appraisal / property assessment / capital ratingratio of liabilities to assets / asset-liability ratioFixed assets refer to assets bought by a company for its continued use for a number of years, rather than for resale. There are three categories of fixed assets: 1） tangible assets, such as land and equipment, 2） intangible assets, such as a company's logo or brand, 3） investments, such as stakes in joint ventures.Premium n.A premium of 2 per cent is paid on long-term investments.Your first premium is now due.Specific regulations governing the issue of share certificates at a premium are separately issued by the State Council.Obligate v.Bonds obligate the issuer to pay a specified amount at a given date.The regulation obligates listed companies to release information about their operations. Rating n.The United States held S&P's top rating for seventy years and never had a downgrade. However, last Friday one of the three major credit rating agencies — S&P, downgraded long-term United States government debt. S&P lowered its opinion of Treasury securities one step from the highest rating, triple-A, to AA-plus.The goal is to improve the country's credit rating so as to ease the concerns of investors and reduce borrowing costs.Stock n.preferred stock common stockStock holder = share holder Stock exchange = stock markettrash stock state-owned stockSpecial treatment stock performance stockblue chip red chip controlling shareholder / majority shareholder Corporations can sell stock as a way to raise money. Stock represents shares of ownership in a company. Investors who buy stock can trade their shares or keep them as long as the company is in business.Dividend n.A company might use some of its earnings to pay dividends as a reward to shareholders. Or the company might reinvest the money back into the business.For a growing company, it will have to keep most of its profit to buy more plants and equipment and thus its dividend payout ratio will be lowPrincipal n. adj.repay principal and interestPrincipal-Agent relationshipIn financial services, the principal mechanism of risk control is self-regulation by the sector.Outstanding adj.outstanding billoutstanding debt outstanding loan outstanding issueoutstanding balanceThe outstanding bill must be paid next week.The Bank or credit-card company settles the client's Bills, invoicing him monthly and charging interest on any outstanding debts.IPO= Initial Public OfferingsInitial public offering is a type of offering where the company sells its stock to the public in the securities market, to raise funds and to be listed.Seasoned equity offering is a type of offering where publicly traded companies issue new shares of stock because the capital raised from the previous offering did not meet the companies needs. Types of SEO include share allotment, public equity offerings,convertible corporate bonds offerings and private equity offerings.Bailout n.Bailout loan: Loan made to borrower whose ability to service outstanding indebtedness has become doubtful.Buyout n.The buyout negotiation lasted several days.The more profitable the company is, the easier to raise funds for the buyout.List v.We encouraged eligible large state-owned enterprises to get listed after the stockholding system was established.Withdrawal of state-owned stock helps optimize share-holding structure of listed company. Prior to the submission of IPO programs, the company had the intention to backdoor listing. Disclosure n.The CSRC required securities companies to provide risk disclosure statements.State proposed regulations to standardize the information disclosure.Unless assets are publicly disclosed, corruption is still going to be an issue. Derivative adj. n.Financial DerivativesDerivative SecuritiesFinancial derivative instruments Convertible bond is a hybrid derivative security that has characters of both stock and bond.Merge v.We have decided to merge these small firms into one large company.Please merge all these items together under the item of "incidental expenses".Merge and acquisition （M&A） is an important and effective way for enterprises to expand. Mergers and AcquisitionsAcquisition n.share acquisitionIts competitors have already begun the acquisition and integration work.Upon completion of this acquisition, the company will become the controlling shareholder.Section 3.3 Subject TopicThe Future Financial Centers of ChinaA: As we all know, both Hong Kong and Shanghai are going to be China’s future financial centers. But I think they have their respective characteristics. Do you think so? B: Yes. Hong Kong is a free port and one of the world’s most important markets for gold, foreign exchange and capital everyday. Capital from all over the world flows in and out freely. It has a highly advanced communication network. At the same time, It possesses a management advantage with advanced service industries and numerous qualified personnel. It also has a favorable market environment. However, Hong Kong has its difficulties, such as narrow space, high service cost and more challenges from new financial centers such as Singapore and Taiwan. However, as a financial center witha free capitalist system, Hong Kong would forever be a joint point of Sino-Europeancivilization. It is a bridge that links China with the rest of the world.A: That is true. Compared with Hong Kong, Shanghai also enjoys a great deal of advantages, like wider space and lower service cost. The production capacity of Shanghai is immense.If Shanghai fully exerts its production capacity, it would become incomparable in the future. Since Shanghai has a large population and is the economic center of the Yangtze Valley, its market is extensive. Moreover, in recent years, its investment environment has become more and more favorable. Therefore, a large number of multinational companies and foreign-funded institutions have been attracted to establish their branches there.There foreign investments have stimulated the economic development of Shanghai. In addition, Pudong has opened up and become the financial core of Shanghai.B: What you have said is right, but I think if Shanghai wants to become one of the top financial centers in Asia, it should further improve itself. First of all, it should maintain a sound socialist market-oriented economy with a complete legal system in thefinancial field as the basis. Secondly, it should form a highly advanced financial market system. The system should include an open market for foreign exchange, gold and capital.Next, it should attract more qualified personnel. They should be equipped with comprehensive knowledge in management, finance, trade and foreign languages. Its service industry and infrastructure construction should also be improved. Finally, Shanghai should fully exert its potential to become a highly developed financial center. A: I quite agree with you. Nowadays, with the opening up of China’s financial field, foreign-funded banks and domestic banks will become intense. Is this beneficial to China’s financial industry?B: Yes, the intense competition could in some way benefit China’s financial development.It will stimulate domestic banks to improve their management, operation and services.At the same time, foreign-funded banks in China will bring us advanced knowledge, experience and practice in management. Moreover, the intense competition will help to create a favorable investment environment in China. More opportunities would be provided for domestic banks to engage in international operations. Finally, it will promote fair competition in China’s economic field as well. However, the intense competition will also influence China’s financial environment. For one thing, compared with domestic banks, foreign-funded banks possess advantages in management, technology, service and qualified personnel. The competition will inevitably make domestic banks lose part of their traditional business to foreign-funded banks. The competition will also probably bring difficulties to the central bank’s financial supervision. Since foreign-funded bank s’ operation observes international practice, it differs from that of domestic banks. Therefore, it challenges the efficiency of the central bank’s supervision.Section 3.4 Questions and Answers1. What are the intermediate objectives of monetary policies?— a. Growth in money supplyb. Interest rate levelc. Growth in the volume of creditd. The exchange rate.2. Please point out the full name of SWIFT and its headquarter.— Society for World Inter-bank Financial Telecommunications. Brussels, Belgian.3. What is the biggest difference between off-balance sheet activities and intermediaryactivities of commercial banks?— Off-balance sheet activities constitute potential assets or liabilities and bear certain risk while intermediary activities don’t constitute risks in assets or liabilities.4. What is the main body of offshore financial market?— It is non-residents.。