Transcript 18Future Contracts,Options and Swaps

Financial English
Unit 18:
Futures
Contracts,
Options and
Swaps
Unit 18:
•
Revision of Unit 17
•
Background information of Unit 18
•
Useful points of this unit
•
Text
•
Exercises
•
Assignment
Revision of Unit 17
Review of Unit 17
•
Dictation
•
Blanks filling
Dictation
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.
Check-up
5.
Dictation
Key to Dictation:
1. Financial derivatives are financial contracts, or
financial instruments, whose values are derived from
the value of something else.
2. OTC derivatives are largely subject to counterparty
risk.
3. Derivatives can be used to acquire risk, rather than to
insure or hedge against risk.
4. Derivatives pose unsuitably high amounts of risk for
small or inexperienced investors.
5. Trading in derivatives should not adversely affect the
economic system because it is not zero sum in utility.
Blanks filling
Fill in the blanks with proper words or phrases given below
except
with
Korea
from
division
market
Market
integration
in
exchange
Korea Exchange (KRX) was created through the _________
of the three existing Korean spot & futures __________
(Korea Stock Exchange, Korea Futures Exchange and
KOSDAQ) under the ____________ Stock & Futures
Exchange Act. The securities and futures ___________ of
former exchanges are now operated as the business
_____________ of the KRX:
Blanks filling
the Stock Market Division (KSE), KOSDAQ Market
Division and Futures ___________ Division. As of 31
December 2007, the Korea Exchange had 1,757 listed
companies ___________ a combined market capitalization of
$1.1 trillion. The exchange has normal trading sessions
_________ 09:00am to 03:00pm on all days of the week
_____________ Saturdays, Sundays and holidays declared
by the Exchange __________ advance.
Check-up
Check-up
Korea Exchange (KRX) was created through the
integration of the three existing Korean spot & futures
exchanges (Korea Stock Exchange, Korea Futures
Exchange and KOSDAQ) under the Korea Stock &
Futures Exchange Act.The securities and futures markets
of former exchanges are now operated as the business
divisions of the KRX: the Stock Market Division (KSE),
KOSDAQ Market Division and Futures Market Division.
As of 31 December 2007, the Korea Exchange had 1,757
listed companies with a combined market capitalization
of $1.1 trillion. The exchange has normal trading sessions
from 09:00am to 03:00pm on all days of the week except
Saturdays, Sundays and holidays declared by the
Exchange in advance.
NOTE
Blanks filling
KOSDA:
韩国创业板市场，成立于 1996 年 7 月，是
在已有的场外交易市场上发展起来的，它的目的是
为知识密集型、创造高附加值的高科技新兴公司以
及小企业融资，同时也为寻求高风险、高预期回报
的投资者提供新的投资工具。
KRX：韩国证券期货交易所
KSE：原韩国证券交易所
Text : Background Information
本章旨在介绍期货、期权、掉期的定义，以及如何
操作期货、期权、掉期交易。期货交易是一种标准化交
易。标准化指的是在期货交易过程中除合约价格外，期
货合约所有条款都是预先规定好的。期货交易的了结
（即平仓）一般有两种方式，一是对冲平仓；二是实物
交割。期权，它是在期货的基础上产生的一种金融工具。
从其本质上讲，期权实质上是在金融领域中将权力和义
务分开进行定价，使得权力的受让人在规定时间内对于
是否进行交易，行使其权力，而义务方必须履行。掉期
交易是当事人之间约定在未来某一期间内相互交换他们
认为具有等价经济价值的现金流的交易。掉期交易与期
货、期权交易一样，是近年来发展迅猛的金融衍生产品
之一，成为国际金融机构规避汇率风险和利率风险的重
要工具。
Text : Useful points of this unit
本章重点:
通过本章学习，学生应该掌握
1、期货合约如何运作
2、如何交易期货合约
3、期权表各部分名称
4、期权如何运作
5、掉期交易如何结束
Unit 18:
18.1 Futures
18.2 Options
18.3 Swaps
Listening
Text
18.1 Futures
Listen carefully to the first part of the text and then
try to translate some sentences.
Text :
INTRODUCTION
A futures contract is a type of derivative
instrument, or financial contract, in which two parties
agree to transact a set of financial instruments or
physical commodities for future delivery at a specified
price, traded on an exchange. The terms "futures
contract" and "futures" refer to essentially the same
thing. For example, you might hear from news about "oil
futures", which means the same thing as "oil futures
contract". If you want to get really specific, you could
say that a futures contract refers only to the specific
characteristics of the underlying asset, while "futures" is
more general and can also refer to the overall market as
in: "He's a futures trader."
Text :
 HOW EXACTLY DOES A FUTURES
CONTRACT WORK?
 WHO TRADES FUTURES?
 HOW TO TRADE FUTURES?
Text :
HOW EXACTLY DOES A FUTURES CONTRACT
WORK?
Let's say, for example, that you decide to subscribe to
cable TV. As the buyer, you enter into an agreement with
the cable company to receive a specific number of cable
channels at a certain price every month for the next year.
This contract made with the cable company is similar to a
futures contract, in that you have agreed to receive a
product at a future date, with the price and terms for
delivery already set. You have secured your price for now
and the next year - even if the price of cable rises during
that time. By entering into this agreement with the cable
company, you have reduced your risk of higher prices.
Text :
That's how the futures market works. Besides the
example of a cable TV provider, a producer of wheat
may be trying to secure a selling price for next season's
crop, while a bread maker may be trying to secure a
buying price to determine how much bread can be
made and at what profit. So the farmer and the bread
maker may enter into a futures contract requiring the
delivery of 5,000 bushels of grain to the buyer in June at
a price of $4 per bushel. By entering into this futures
contract, the farmer and the bread maker secure a price
that both parties believe will be a fair price in June. It is
this contract and not the grain that can then be bought
and sold in the futures market.
Text :
So, a futures contract is an agreement between two
parties: a short position - the party who agrees to deliver a
commodity - and a long position - the party who agrees to
receive a commodity. In the above scenario, the farmer
would be the holder of the short position (agreeing to sell)
while the bread maker would be the holder of the long
(agreeing to buy).
Sentence Translation
In every futures contract, everything is specified: the
specific commodity description, the quantity and quality of
the commodity, and the date and method of delivery. The only
variable is the price. The “price” of a futures contract is
represented by the agreed-upon price of the underlying
commodity or financial instrument that will be delivered in
the future. For example, in the above scenario, the price of
the contract is 5,000 bushels of grain at a price of $4 per
bushel.
Text :
Sentence Translation
 WHO TRADES FUTURES?
Futures traders are traditionally placed in one of two
groups: hedgers and speculators. A hedger tries to minimize
risk by buying or selling now in an effort to avoid rising or
declining future prices. Conversely, the speculator will try to
profit from the risks by buying or selling now in anticipation
of rising or declining future prices.
In a fast-paced market into which information is
continuously being fed, speculators and hedgers bounce off and benefit from - each other. The closer it gets to the time of
the contract's expiration, the more solid the information
entering the market will be regarding the commodity in
question. Thus, all can expect a more accurate reflection of
supply and demand and the corresponding price.
Text :
Trader
Short
Long
The Hedger
Secure a price now
to protect against
future declining
prices
Secure a price now
to protect against
future rising prices
Secure a price now
in anticipation of
declining prices
Secure a price now
in anticipation of
rising prices
The
Speculator
Text :
 HOW TO TRADE FUTURES?
You can invest in the futures market in a number of
different ways, but before taking the plunge, you must be
sure of the amount of risk you're willing to take. As a
futures trader, you should have a solid understanding of
how the market and contracts function. You'll also need to
determine how much time, attention, and research you can
dedicate to the investment. Talk to your broker and ask
questions before opening a futures account.
Unlike traditional equity traders, futures traders are
advised to only use funds that have been earmarked as pure
"risk capital"- the risks really are that high. Once you've
made the initial decision to enter the market, the next
question should be “How?” Here are three different
approaches to consider:
Text :
۞ Do It Yourself - As an investor, you can trade your
own account without the aid or advice of a broker. This
involves the most risk because you become responsible
for managing funds, ordering trades, maintaining
margins, acquiring research and coming up with your
own analysis of how the market will move in relation
to the commodity in which you've invested. It requires
time and complete attention to the market.
Text :
۞ Open a Managed Account - Another way to participate
in the market is by opening a managed account, similar to
an equity account. Your broker would have the power to
trade on your behalf, according to conditions agreed upon
when the account was opened. This method could lessen
your financial risk because a professional would be
making informed decisions on your behalf. However, you
would still be responsible for any losses incurred as well as
for margin calls. And you'd probably have to pay an extra
management fee.
Sentence Translation
Text :
۞ Join a Commodity Pool - A third way to enter the
market, and one that offers the smallest risk, is to join a
commodity pool. Like a mutual fund, the commodity pool
is a group of commodities which can be invested in. No
one person has an individual account; funds are combined
with others and traded as one. The profits and losses are
directly proportionate to the amount of money invested.
By entering a commodity pool, you also gain the
opportunity to invest in diverse types of commodities. You
are also not subject to margin calls. However, it is
essential that the pool be managed by a skilled broker,
because the risks of the futures market are still present in
the commodity pool.
End of part 1
Text :
期货合约的商品品种、数量、质量、交货时
间、运输方式等条款都是既定的，唯一的变
量是价格。期货的价格是由事先商定好的待
交割的商品或金融工具的价格来体现的。
Text :
期货交易者通常可以分为两类：套期保值者
和投机者。前者通过买卖期货合约尽可能减
少因价格波动造成的损失；而后者则是为了
谋利才在看涨时买入，看跌时卖出期货合约。
Text :
另一种进入期货市场的方式是开始委托账户，
类似于股票交易是开立的账户。账户开立后，
期货经纪人按商定的条件接受委托进行交易。
采取这种方法可以在业内人士的指导下进行期
货交易，有利于降低金融风险。但操作造成的
损失以及相应的保证金追加仍需由委托方承担，
而且开户人还要额外支付委托费。
Text : Language Points
subscribe vi. offer to buy, as of stocks and shares预订,
认购
What magazine do you subscribe to?
你订阅什么杂志？
cable
n. short for cable television 有线电视
The cable users reached 96.38 million.
全国有线电视用户9638万户。
How Cable Modems Work?
有线电视市制解调器是如何工作的？
Text : Language Points
Secure vt. to obtain or get possession of 获得
使安全
to make or become free from danger, fear, etc 保证,
I will secure some good seats. 我会找到好位子的。
secure (sth.) against 使… 免受…
Some measures are needed to secure the farmland against shift sand.
需要采取措施使农田免遭流沙的侵袭。
It is highly necessary to secure against the danger of the coming
typhoon.
预防即将来临的台风的危险很有必要。
Text : Language Points
enter into a contract 订立合同
make/enter into/ sign a contract 签订合同
Agree to an offer and therefore enter into a contract.
同意要约， 因此合同成立。
We are glad to have enter into a contract with you for the supply
of 50 ton wool.我们很高兴和你方签订了一个供应50吨羊毛的
合同。
bushel n. 蒲式耳( 谷物计量单位)
美国 Winchester bushel=35.238 升
Text : Language Points
a short position
空头交易， 相信价格会跌并卖出期
货合约。 也称为 “ 空头 ” 或“ 卖空”
a long position
多头交易， 相信价格会涨并买入期
货合约。 也称为“ 多头”或 “ 买空”
scenario n. an outline or a model of an expected or a
supposed sequence of events 预料或期望的一系列事件
的梗概或模式
This is the ultimate nightmare scenario.
这是一个极为恐怖、梦魔一般的电影脚本。
It looked ominously like we were about to repeat the
earlier scenario.
而且看上去很不妙，好象我们又得重复上次那一幕了。
Text : Language Points
conversely adv. 相反地
You can add the fluid to the powder or, conversely, the powder
to the fluid.
可以将液体加到粉末里, 或者相反, 将粉末加到液体里。
anticipation
n. an expectation 期望
I have an excited anticipation of an approaching climax.
我对即将来临的高潮报以热烈的期盼。
expiration n.the finish of something; ending 终 [截] 止,
满[ 届] 期 ( of)
The contract may be renewed on expiration of that term.
合同期满可以续订。
Text : Language Points
take the plunge 毅然从事, 冒险尝试
They have finally decide to take the plunge and get marry.
他们最後毅然决定结婚。
earmark vt. to reserve or set aside for a particular
purpose 指定用途： 指拨或留置一边
Correct speech is an earmark of the educated man.
正确的谈吐是受教育者的特征。
Governments at all levels also earmark large amounts of funds
for the establishment of special rehabilitation centers each year.
各级政府每年都投入大量资金， 建设专门的戒毒场所。
Text : Language Points
proportionate adj. being in due proportion;
proportional 成比例的： 成合适比例的； 成比例的
Wages will rise at a rate proportionate to the amount of work
you do
工资将与你所做的工作量成比例增加。
Attention must be paid to stable and proportionate
development, but stable and proportionate are relative terms,
not absolute.
要注意经济稳定、 协调地发展， 但稳定和协调也是相对的，
不是绝对的。
be subject to 受控制; 服从... 的指挥
Promotion should be subject to merit.
升迁取决于业绩。
Listening
Text
18.2 Options
Listen carefully to the second part of the text and
then try to translate some sentences.
Text :
Options are contracts that give the owner the
right, but not the obligation, to buy (in the case of a
call option) or sell (in the case of a put option) an asset.
The price at which the sale takes place is known as the
strike price, and is specified at the time the parties
enter into the option. The option contract also
specifies a maturity date. In the case of a European
option, the owner has the right to require the sale to
take place on (but not before) the maturity date; in
the case of an American option, the owner can require
the sale to take place at any time up to the maturity
date. If the owner of the contract exercises this right,
the counterparty has the obligation to carry out the
transaction.
Text :
 TYPES OF OPTIONS
 HOW TO READ AN OPTION TABLE
 WHY DO WE USE OPTIONS?
 HOW OPTIONS WORK?
Text :
TYPES OF OPTIONS
The two types of options are calls and puts:
A call gives the holder the right to buy an asset at a certain
price within a specific period of time. Calls are similar to
having a long position on a stock. Buyers of calls hope that
the stock will increase substantially before the option
expires.
A put gives the holder the right to sell an asset at a certain
price within a specific period of time. Puts are very similar
to having a short position on a stock. Buyers of puts hope
that the price of the stock will fall before the option expires.
Text :
HOW TO READ AN OPTION TABLE
Text :
Column 1: Strike Price - This is the stated price per share for
which an underlying stock may be purchased (for a call) or
sold (for a put) upon the exercise of the option contract.
Option strike prices typically move by increments of $2.50 or
$5 (even though in the above example it moves in $2
increments).
Column 2: Expiry Date - This shows the termination date of
an option contract. Remember that U.S. listed options expire
on the third Friday of the expiry month.
Column 3: Call or Put - This column refers to whether the
option is a call (C) or put (P).
Text :
Column 4: Volume - This indicates the total number of
options contracts traded for the day. The total volume of
all contracts is listed at the bottom of each table.
Column 5: Bid - This indicates the price someone is
willing to pay for the options contract.
Column 6: Ask - This indicates the price at which
someone is willing to sell an options contract.
Column 7: Open Interest - Open interest is the number of
options contracts that are open; these are contracts that
have neither expired nor been exercised.
Text :
WHY DO WE USE OPTIONS?
There are two main reasons why an investor would
use options: to speculate and to hedge.
Speculation on option is a similar thing as betting on
the movement of a security. The advantage of options is
that you aren't limited to making a profit only when the
market goes up. Because of the versatility of options, you
can also make money when the market goes down or
even sideways. Speculation is the territory in which the
big money is made - and lost. Options are used in this
manner because they have the reputation of being risky.
Text :
This is because when you buy an option; you have to be
correct in determining not only the direction of the stock's
movement, but also the magnitude and the timing of this
movement. To succeed, you must correctly predict whether a
stock will go up or down, and you have to be right about how
much the price will change as well as the time frame it will
take for all this to happen. And don't forget commissions! The
combinations of these factors means the odds are stacked
against you. So why do people speculate with options if the
odds are so slim? Beside from versatility, it's all about using
leverage. When you are controlling 100 shares with one
contract, it doesn't take much of a price movement to generate
substantial profits.
Text :
Sentence Translation
The other function of options is hedging. Think of this as
an insurance policy. Just as you insure your house or car,
options can be used to insure your investments against a
downturn. Critics of options say that if you are so unsure of
your stock that you need a hedge, you shouldn't make the
investment. On the other hand, there is no doubt that hedging
strategies can be useful, especially for large institutions. Even
the individual investor can benefit. Imagine that you wanted to
take advantage of technology stocks and their upside, but say
you also wanted to limit any losses. By using options, you
would be able to restrict your downside while enjoying the full
upside in a cost-effective way.
Text :
HOW OPTIONS WORK
Now that you know the basics of options, here is an
example of how they work. Say, that you discover a house
that you'd love to purchase. Unfortunately, you won't have
the cash to buy it for another three months. You talk to the
owner and negotiate a deal that gives you an option to buy
the house in three months for a price of $200,000. The
owner agrees, but for this option, you pay a price of $3,000.
Now, consider two theoretical situations that might
arise:
Text :
1. It's discovered that the house is actually the
true birthplace of Elvis! As a result, the market value
of the house skyrockets to $1 million. Because the
owner sold you the option, he is obligated to sell you
the house for $200,000. In the end, you stand to make
a profit of $797,000 ($1 million - $200,000 - $3,000).
Text :
2. While touring the house, you discover not only that
the walls are chocked-full of asbestos, but also that the
ghost of Henry VII haunts the master bedroom;
furthermore, a family of super-intelligent rats have built a
fortress in the basement. Though you originally thought
you had found the house of your dreams, you now consider
it worthless. On the upside, because you bought an option,
you are under no obligation to go through with the sale. Of
course, you still lose the $3,000 price of the option.
Text :
This example demonstrates two very important
points. First, when you buy an option, you have a right
but not an obligation to do something. You can always
let the expiration date go by, at which point the option
becomes worthless. If this happens, you lose 100% of
your investment, which is the money you used to pay
for the option. Second, an option is merely a contract
that deals with an underlying asset. For this reason,
options are called derivatives, which mean an option
derives its value from something else. In our example,
the house is the underlying asset. Most of the time, the
underlying asset is a stock or an index.
End of part 2
Text :
期权的另一功能是套期保值，就像保险单的作用一样。
正如你给自己的房子和车子上保险一样，期权可以弥
补你的投资失利。期权反对者认为如果你因为对投资
股票实在没信心，而去买期权的话，还不如干脆别投
资。另一些人认为，期权的保值功能确实有效。不仅
个人投资者可以受益，大公司更是获益匪浅。
Text : Language Points
strike price
认购价.根据合约在行权时买入
或卖出期货、期权、权证等衍生金融产品标的证
券（正股）的价格
maturity date
(票据)到期日
European option 欧式期权， 是指只有在合约到期日才
被允许执行的期权， 它在大部分场外交易中被采用。
American option 美式期权， 是指可以在成交后有效期
内任何一天被执行的期权， 多为场内交易所采用。
Text : Language Points
call
short for call option 买入期权又称看
涨期权， 是一种期权合约， 合约持有人有权于
某固定的到期日前按照约定的执行价格买入约定
数量的有价证券或期货的权利。
put
short for put option 卖出期权又称看跌
期权， 它赋予投资者在合约有效期限内按某一确
定价格卖出一定数量的有价证券或期货的权利。
expire
vi. to come to an end; terminate 到达尽
头；终止
Our holidays expire next week.
我们的假期于下星期结束。
My train pass has expired.
我的火车月票过期了。
Text : Language Points
substantially
adv. 充分地
International sales and profits also grew substantially.
国外地区的销量与获利亦大幅增加。
His criticism is substantially correct.
他的批评大体上是正确的。
His opinion accords substantially with mine.
他的意见和我的意见实质上是一致的。
Text : Language Points
be limited to
被限定于
Membership is limited to women.
会员只限于妇女。
She limited herself to three cups of coffee a day.
她限制自己每天喝咖啡不超过三杯。
versatility
n. having a wide variety of skills
多种变化, 多才多艺, 变通
Manufacturing firms in Hong Kong are
renowned for their versatility.
香港的制造商素以灵活应变见称。
Text : Language Points
magnitude
n. the property of relative size or extent
(whether large or small) 数量
Numerical data linearly ordered by magnitude.
按量值大小直线形排列的数字数据。
No one comprehended the magnitude of the problem
then.
当时无人认识到这一问题的严重性。
I want to know the magnitude of this equipment.
我想知道这个设备的大小。
It is an affair of the first magnitude.
这是头等重要的事情。
Text : Language Points
odds
n. the likelihood of a thing occurring
rather than not occurring 胜算
It makes no odds.
没有多大差别。
They battled against heavy odds.
他们以寡敌众。
stack against
使( 事情、 情况) 对某人不利
Stack the cards against sb.
洗牌作弊以欺骗某人
Does our product stack up against the best product?
我们的产品能与最好的比吗？
Text : Language Points
downturn
n. a worsening of business or economic
activity 向下, 下降趋势, 低迷时期
A global downturn means external demand for
Japanese goods and services remains weak.
全球经济滑坡意味着外界对日本产品和服务的需求仍
旧不旺。
An investor with shares can sell off the shares before the
anticipated market downturn.
如果他持有某些股票，他可以在股价指数跌之前把这些股票卖了。
Text : Language Points
critic n. someone who frequently finds fault or
makes harsh and unfair judgments 批评家, 爱挑
剔的人
cost-effective adj. productive relative to the cost
有成本效益的， 划算的
It isn't cost-effective to build cars in such small
quantities.
这么小批量地制造汽车不划算。
Text : Language Points
Elvis
Elvis Presley“猫王”原名艾尔维斯.普莱
斯利，是20１９７７年世纪这个星球上
最伟大的流行音乐家，摇滚乐的上帝。
１９３５年１月８日出生 于美国南方一
个叫图普洛的小村镇，１９５６年，猫
王开始走红，他的嗓音也同身体动作相
配合，把黑人的心灵和热情溶入牛仔歌
曲，唱出了摇滚乐奇迹。１９７７年８
月１６日，去世时他才４２岁。他一生
中共录制了各种歌曲７２０首，开了１
６００多场演唱会。
Text : Language Points
skyrocket vi. shoot up abruptly, like a rocket 飞涨,
突升
You know that the cost of production have skyrocketed in
recent year.
您知道近年来生产成本已大幅度上涨。
obligate
vt. to compel, constrain, or oblige morally or
legally使负(法律上或道义上的)义务
He felt obligated to help.
他感到有责任帮忙。
Parents are obligated to support their children.
父母有抚养子女的义务。
Member States are obligated to carry them out.
各会员国必须执行这些决定。
Text : Language Points
tour
vi. make a tour of a certain place 巡游,巡回
make a tour of the world 周游世界
adj. packed full to capacity 塞满了的
chock-full
The train was chock-full of travellers.
火车上挤满了旅客。
asbesto
n.
a
naturally
occurring
silicate
mineral with long, thin fibrous crystals 石棉
Text : Language Points
Henry Ⅶ
亨利七世（1457-1509），英国国王
（1485-1509，都铎王朝的创始者）他是亨利六世同母
异父弟里士满伯爵爱 德华•都铎和兰开斯特公爵约翰•
冈特的孙女玛格丽特之子。被视为兰开斯特派首领。
曾流亡法国。1485年在法国援助下杀死理查三世，宣
布继承英格兰王位。1486年同约克王朝爱德华四世之
女约克的伊丽莎白结婚，宣布约克和兰开斯特两大家
族合并，结束了玫瑰战争。采取联姻政策。亨利七世
为长子亚瑟聘娶西班牙公主──阿拉贡的凯瑟琳，尔后
长子亚瑟早逝，为继续保有与西班牙之间以联姻方式
获得的友好关系，亨利七世说服凯瑟琳留下，并将其
嫁给次子亨利；亨利七世的长女玛格丽特嫁给苏格兰
国王詹姆斯四世。亨利七世任内奖励工商业发展。有
贤王之称。
Text : Language Points
fortress
n. a fortified defensive structure 城堡,要塞
The soldiers occupied the fortress.
那些士兵占领了堡垒。
The easiest way to capture a fortress is from within.
堡垒是最容易从内部攻破的。
upside n. the highest or uppermost side of anything 好处
the upside of levity
轻松所带来的好处
Text : Language Points
skyrocket
飞涨, 突升
vi. shoot up abruptly, like a rocket
You know that the cost of production have skyrocketed in
recent year.
您知道近年来生产成本已大幅度上涨。
obligate
vt. to compel, constrain, or oblige morally or
legally使负(法律上或道义上的)义务
He felt obligated to help.
他感到有责任帮忙。
Parents are obligated to support their children.
父母有抚养子女的义务。
Member States are obligated to carry them out.
各会员国必须执行这些决定。
Listening
Text
18.3 Swaps
Listen carefully to the third part of the text and
then try to translate some sentences.
Text :
Swaps are contracts to exchange
cash (flows) on or before a specified
future date based on the underlying
value of currencies/ exchange rates,
bonds/interest rates, commodities,
stocks or other assets.
Text :
 TYPES OF SWAPS
 WHO WOULD USE A SWAP?
 EXITING A SWAP AGREEMENT
Text :
TYPES OF SWAPS
A swap is an agreement between two parties to
exchange sequences of cash flows for a set period of time.
Usually, at the time the contract is initiated, at least one of
these series of cash flows is determined by a random or
uncertain variable, such as an interest rate, foreign exchange
rate, equity price or commodity price. Conceptually, one
may view a swap as either a portfolio of forward contracts,
or as a long position in one bond coupled with a short
position in another bond.
Text :
Unlike most standardized options and futures
contracts, swaps are not exchange-traded instruments. Instead,
swaps are customized contracts that are traded in the overthe-counter (OTC) market between private parties. Firms and
financial institutions dominate the swaps market, with few (if
any) individuals ever participating. Because swaps occur on
the OTC market, there is always the risk of a counterparty
defaulting on the swap.
We will discuss the two most common and most basic
types of swaps: the plain vanilla interest rate and currency
swaps.
Text :
Plain Vanilla Interest Rate Swap
The most common and simplest swap is a
"plain vanilla" interest rate swap. In this swap, Party
A agrees to pay Party B a predetermined, fixed rate of
interest on a notional principal on specific dates for a
specified period of time. Concurrently, Party B agrees
to make payments based on a floating interest rate to
Party A on that same notional principal on the same
specified dates for the same specified time period.
Text :
In a plain vanilla swap, the two cash flows are paid
in the same currency. The specified payment dates are
called settlement dates, and the time between are called
settlement periods. Because swaps are customized
contracts, interest payments may be made annually,
quarterly, monthly, or at any other interval determined
by the parties.
Text :
Plain Vanilla Foreign Currency Swap
The
plain
vanilla
currency
swap
involves
exchanging principal and fixed interest payments on a loan
in one currency for principal and fixed interest payments on
a similar loan in another currency. Unlike an interest rate
swap, the parties to a currency swap will exchange principal
amounts at the beginning and end of the swap. The two
specified principal amounts are set so as to be
approximately equal to one another, given the exchange rate
at the time the swap is initiated.
Text :
 WHO WOULD USE A SWAP?
The motivations for using swap contracts fall into two basic
categories: commercial needs and comparative advantage. The
normal business operations of some firms lead to certain types
of interest rate or currency exposures that swaps can alleviate.
For example, consider a bank, which pays a floating rate of
interest on deposits (i.e., liabilities) and earns a fixed rate of
interest on loans (i.e., assets). This mismatch between assets
and liabilities can cause tremendous difficulties.
Text :
The bank could use a fixed-pay swap (pay a fixed
rate and receive a floating rate) to convert its fixed-rate
assets into floating-rate assets, which would match up well
with its floating-rate liabilities.
Some companies have a comparative advantage in
acquiring certain types of financing. However, this
comparative advantage may not be for the type of financing
desired.
Sentence Translation
Text :
Sentence Translation
In this case, the company may acquire the financing for
which it has a comparative advantage, and then use a swap
to convert it to the desired type of financing.
For example, consider a well-known U.S. firm that
wants to expand its operations into Europe, where it is less
well known. It will likely receive more favorable financing
terms in the US. By then using a currency swap, the firm
ends with the Euros it needs to fund its expansion.
Text :

EXITING A SWAP AGREEMENT
Sometimes one of the swap parties needs to exit the
swap prior to the agreed-upon termination date. This is
similar to an investor selling an exchange-traded futures or
option contract before expiration. There are four basic ways
to do this.
Text :
Buy Out the Counterparty
Just like an option or futures contract, a swap has a calculable
market value, so one party may terminate the contract by
paying the other this market value. However, this is not an
automatic feature, so either it must be specified in the swaps
contract in advance, or the party who wants out must secure
the counterparty's consent.
Enter an Offsetting Swap
For example, Company A from the interest rate swap example
above could enter into a second swap, this time receiving a
fixed rate and paying a floating rate.
Text :
Sell the Swap to Someone Else
Because swaps have calculable value, one party may sell the
contract to a third party. As with Strategy 1, this requires the
permission of the counterparty.
Use a Swaption
A swaption is an option on a swap. Purchasing a swaption
would allow a party to set up, but not enter into, a potentially
offsetting swap at the time they execute the original swap.
This would reduce some of the market risks associated with
Strategy 2 “Enter an Offsetting Swap”.
End of part 3
Text :
有些公司在某种金融产品的获取上占有相对
优势，但这种占优势的金融产品并不是他所
需要的。
Text :
在这种情况下，该公司会使用掉期交易与其
它公司互换金融产品，以自己的优势产品换
取自己所需的产品。
Text : Language Points
conceptually
adv. in a conceptual manner 概念地
He can no longer think conceptually; conceptually, the
idea is quite simple.
他不再从理论的角度来考虑问题；
这个想法很简单。
从理论上来说，
portfolio n. the complete investments held by an individual
investor or by a financial organization 有价证券( 组合)
Portfolio investment in the form of 'China funds' is also
popular.
“中国基金” 形式的投资组合亦颇受欢迎。
Text : Language Points
default
vi. to fail to make payment when due; to fail to
fulfil or perform an obligation, engagement, etc 不履行责
任； 不履行契约
违约
defaulting
违约罚金 default fine
Proceeded against the defaulting debtor.
对不履行职责的债务人提起诉讼
plain vanilla
标准版 （型） 的， 普通的， 单纯的
Text : Language Points
Plain Vanilla Interest Rate Swap
纯利率掉期交易，是
相同种货币资金的不同种类利率之间的交换交易，一
般不伴随本金的交换。是藉利息支付方式的改变，而
改变债权或债务的结构，双方签订契约后，按照契约
规定，互相交换付息的方式，如以浮动利率交换固定
利率，或是将某种浮动利率交换为另一种浮动利率。
订约双方不交换本金，本金只是作为计算基数。
principal
n. the original amount of a debt on which
interest is calculated 资本, 本金
Text : Language Points
plain vanilla foreign currency swap 纯货币掉期交易 ，
是指两种货币之间的交换交易、在一般情况下，是指
两种货币资金的本金交换，利率固定。纯货币互换(又
称纯货币掉期)是指两笔金额相同、期限相同、计算利
率方法相同，但货币不同的债务资金之间的调换。双
方互换的是货币，它们之间各自的债权债务关系并没
有改变。初次互换的汇率以协定的即期汇率计算。货
币互换的目的在于降低筹资成本及防止汇率变动风险
造成的损失。
Text : Language Points
exposure
n. lack of shelter from some danger 暴露于
某种风险之下
Exposure to public attention.
公诸于众；公开张扬暴露于公开的注意之下
mismatch n. a bad or unsuitable match 错误的结合
Their marriage was a mismatch, and they had little in common.
他们的婚姻不般配， 两人几无共同之处。
If the mismatch is caused by a virus, the antivirus software may be
able to patch up the damage.
如果失常是由病毒引起的， 这种反病毒程序能够修补这些损坏。
Text : Language Points
liability n. an obligation to pay money to another party 债务
a company with more liabilities than assets
一个负债多于资产的公司
legal exemption from liability for damages.
免除对损失进行赔偿的责任和义务。
The business failed because its assets were not so great as
its liabilities.
这家商行因资不抵债而倒闭。
Text : Language Points
terminate vt. bring to an end or halt 使停止, 使结
束, 使终止
Many adjectives terminate in- ful.
许多形容词的字尾是－ ful。
The contract will terminate soon.
契约快要期满了。
offset vt. compensate for or counterbalance 弥补, 抵销
His skills offset his opponent's superior strength.
他高超的技术抵销了他对手较强的力量。
Text : Language Points
swaption n. an option granting its owner the right but
not the obligation to enter into an underlying swap. 调期
期权,是建立在利率调期或货币调期基础上的期权。
Exercises of this Unit
Exercises of Unit 18
•
True or False
•
Case Analysis
•
Discussion
Text : Exercise
True or False
1. "Futures contract" and "futures" are different financial
derivatives. ( )
2. More complex derivatives can be created by combining the
elements of futures, options and swaps. ( )
3. The speculator of futures will secure a price now to protect
against future rising prices. ( )
4. You can not trade futures without a broker. ( )
5. Puts are very similar to having a long position on a stock. ( )
Check-up
Text : Exercise
True or False
1. "Futures contract" and "futures" are different financial
derivatives. ( F )
2. More complex derivatives can be created by combining the
elements of futures, options and swaps. ( T )
3. The speculator of futures will secure a price now to protect
against future rising prices. ( F )
4. You can not trade futures without a broker. ( F )
5. Puts are very similar to having a long position on a stock. ( F )
Text : Exercise
Case Analysis
Read the material carefully and do the calculation
after it.
For example, let's say that, with an initial margin of
$2,000 in June, Joe, the speculator, buys one
September contract of gold at $350 per ounce, for a
total of 1,000 ounces or $350,000. By buying in June,
Joe is going long, with the expectation that the price of
gold will rise by the time the contract expires in
September.
Text : Case Analysis
By August, the price of gold increases by $2 to $352 per
ounce and Joe decides to sell the contract in order to
realize a profit.
Calculation:
The 1,000 ounce contract would now be worth
$_____________ and the profit would be $
____________. Given the very high leverage (remember
the initial margin was $2,000), by going long, Joe made a
____________% profit. （END OF THE CASE）
Check-up
Text : Key to Case Analysis
The 1,000 ounce contract would now be
worth $352,000 and the profit would be
$2,000.
Given
the
very
high
leverage
(remember the initial margin was $2,000), by
going long, Joe made a 100% profit!
Text : Discussion
Discussion
Discuss with your classmates about the differences
between the futures and the options, according to
the following hints:
Rights and obligations
Underlying
Benefit symmetry or asymmetry
Margin
Settlements
Assignments
1. Review the Text .
2. Keep in mind
•
the work of future contracts
•
the work of an option
•
How to exit a swap
3. Do exercises in the book.