Transcript A summary of financial crisis in 2008

Unit 9 Money
• Language associated with finance
Part I Review & Exercises
Currency code
• CNY
• USD
• AUD
• HKD
• CAD
• JPY
• KRW
• GBP
• EUR
– ISO 4217
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Currency name & symbol
Chinese Yuan Renminbi (RMB¥)
United States Dollar ($)
Australian Dollar ($A)
Hong Kong Dollar (HK$)
Canadian Dollar (C$)
Japanese Yen (J¥)
Republic of Korean Won (₩)
Great Britain Pound, Sterling (£)
Euro (€)
Trends
• p.72
“Language review”
Trends
Degree of change
• sharply, dramatically, considerably, significantly,
moderately, slightly…
Speed of change
• rapidly, quickly, suddenly, gradually, steadily,
slowly…
Exercise: describe the graph
Sales of ABC Company in different markets
80
70
60
50
Asia
USA
Britain
Europe
40
30
20
10
0
2005
2006
2007
2008
2009
Exercise: describe the graph
Vocabulary: fill in the blanks with proper terms
• As an individual, you can put your money on deposit
____ in
a bank, and as long as the bank doesn’t fail and the
interest Your
economy keeps functioning, you will get ____.
money is lent out to people, businesses and
financetheir own projects,
governments who need it to ____
and the bank will make its money on the difference
between what it pays out in interest on deposits and
loans
it gets in interest from its ____.
• If you want to live more dangerously you can buy
bonds and as long as the organization or
some ____,
country you’ve invested in by lending it money
doesn’t default, you will get your interest payments,
and later your bonds
____ will eventually be repaid.
Vocabulary: fill in the blanks with proper terms
shares
• To live even more dangerously, buy some ____
and
share in the profitability of your chosen company. In
good times, thedividends
____ will be more than what you
would get from bonds, and the shares
____ themselves will
capital____
gain if you sell
increase in value, giving you a ____
them. But if the company runs into trouble and goes
bankrupt, you will be among the last to be paid back,
and you may get only part of what you put in, or you
may lose all your money.
risk
• This illustrates the trade-off between ____
and ____.
return
Vocabulary: fill in the blanks with proper terms
• From the point of view ofinvestors
____, the world’s financial
markets exist in order to channel money to profitable
investment activities and projects. From the point of
view ofborrowers
____ such as companies and governments,
financial centres exist so that they can find capital on
the best terms.
mutual funds/unit trust
• Most investors are notinsurance
private individuals but
pension funds
institutions likebanks
____, companies
____, ____ and ____ who may,
of course, be investing money of private individuals
money
indirectly. The market they invest in include the ____
stock markets for shares,commodities
andcurrency
____ markets, ____
____
markets for anything from gold to pork bellies, and
property
____ (building and land).
Vocabulary: fill in the blanks with proper terms
futures
• There are also markets for ____
in currencies, equities,
future is a fixed-price
bonds and commodities: a ____
contract to buy a certain amount of something for
delivery at a fixed future date.
• There are markets foroptions
____ in currencies, equities,
and bonds. Here, an investor buys the right to buy or
sell a certain amount of these things at a certain price
and particular date in the future. This is a form of
betting on how prices will move.
• Central
____ banks
____ like the Bank of England and the European
Central Bank are crucial for financial centres because
interest____
rates (the “price of money”) and
they set basic ____
money ____
supply (the amount of money circulating in
control ____
an economy).
Key terms
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M1: money
M2: near money/cash, quasi-money
capital gain
return on investment (ROI)
securities: stock or bond that represents an
obligation of the issue to provide the purchaser
an expected or stated return on investment
~ company/market/exchange
• stock, share, equities
• treasury / government bond 国库券/政府债券
• corporate bond 企业债券
Key terms
• primary market: market where firms sell new
issues of securities publicly for the first time
• secondary market: market where subsequent
owners trade previously issued shares of stock
and bonds
• common/ordinary stock/share: security
providing owner voting rights but only a residual
claim to company assets
• preferred/preference stock/share: security
providing owner preferential dividend payments
and first claim to company assets after it pays
all debts; it seldom confers voting rights
Key terms
• convertible preferred stock: giving a stockholder the
option of converting preferred stock into common
shares at some stated price 可兑换优先股
• NASDAQ (National Association of Securities Dealers
Automated Quotations) system: nationwide, OTC
(over-the-counter) securities trading network
• the NASDAQ Composite index: a stock market index
of all of the common stock and similar securities
listed on the NASDAQ stock market, meaning it has
over 3,000 components. It is highly followed in the
US as an indicator of the performance of stock of
technology companies and growth companies.
Key terms: for reference
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the par value of shares 股票面值
the net value of shares 股票净值
the market value of shares 股票市值
opening price 开盘价
closing price 收盘价
suspension of business in case of skyrocketing of stock
prices 涨停板
suspension of business in case of slump of stock prices
跌停板
account day 交割日
board 股票行市牌
quoted price 牌价
share index 股票指数
share-list 股票行情
Part II Financial crisis
• pp.74-75
Reading “Financial disasters”
Part II Financial crisis: key terms
Current Financial Crisis
• recession: a period when trade and industry are
not successful and there is a lot of
unemployment; temporary decline in economic
activity or prosperity
• depression: a long period of time when there is
a lot of unemployment and poverty because
there is very little economic activity
• subprime mortgage
• credit crunch
• bailout
Part III Seminar
Group Work
• Task 1: Every group member chooses one
article from the handout and read it in 15
minutes, then reports the main idea of what you
have read to the whole group in turn.
• Task 2: Based on the information reported,
group members discuss the following questions:
1. What happened? Why did it happen?
2. What solutions to the US banking system are
advanced by the experts? In your opinion, will
those proposals be feasible and effective?
3. What possible solutions may you put forward?
A summary of financial crisis in 2008
• The fallout within the financial industry in 2008 has caused “credit crunch” in
the U.S… A series of bank and insurance company failures triggered a
financial crisis that effectively halted global credit markets and required
unprecedented government intervention. Fannie Mae (FNM) (房利美) and
Freddie Mac (FRE) (房地美) were both taken over by the government.
Lehman Brothers declared bankruptcy on September 14th after failing to find
a buyer. Bank of America agreed to purchase Merrill Lynch (MER) (美林证
券), and American International Group (AIG) was saved by an $85 million
capital injection by the Federal Reserve and the federal government.
Followed shortly, on Sept. 25, 2008, JP Morgan Chase (摩根大通) acquired
WaMu‘s banking (华盛顿互惠银行) operations from the Federal Deposit
Insurance Corp. WaMu had 2,200 branches and nearly 5,000 ATMs. In fact,
by September 17, 2008, more public corporations had filed for bankruptcy in
the U.S. than in all of 2007. These failures caused a crisis of confidence that
made banks reluctant to lend money amongst themselves, or for that matter,
to anyone.
A summary of financial crisis in 2008
• The crisis rooted in real estate and subprime lending.
Commercial and residential properties saw their values
increase precipitously in a real estate boom that began in the
1990s and increased uninterrupted for nearly a decade.
Increases in housing prices coincided with a period of
government deregulation that not only allowed unqualified
buyers to take out mortgages but also helped blend the lines
between traditional investment banks and mortgage lenders.
Real estate loans were spread throughout the financial system
in the form of CDOs and other complex derivatives in order to
disperse risk; however, when home values failed to rise and
home owners failed to keep up with their payments, banks were
forced to acknowledge huge write downs and write offs on
these products. These write downs made several institutions
approach insolvency. These financial institutions were forced to
raise capital or go bankrupt.
A summary of financial crisis in 2008
• The U.S. Federal Government chartered the two leading
mortgage institutions at the center of the crisis, Fannie Mae in
1938 and Freddie Mac in 1970. Fannie and Freddie were able
to take on super-high risks at their discretion, because US
Government implicitly promised these institutions that it would
make good on their debts. In the 1990s, although beginning in
1977, Congress pushed mortgage lenders, including Fannie
and Freddie, to expand subprime lending, and with the implicit
promise of federal backing which they obliged. With the
creation of mortgage-backed securities, which decreases risk
by spreading the risk, and the moral hazard created by
government, subprime lending soared. Mortgage lenders began
to take on super-high risks and then passed them on as
mortgage-backed securities, which were packaged in almost
any kind of investment funds and purchased by institutional and
individual investors.