TERMINOLOGY OF TRADE AND

FINANCE

winter semester 2011-2012

Part 1

Organisation of the course

•

The course consists of 8 meetings.

•

Every 2nd meeting, i.e. meetings 2, 4, 6, 8, includes a half an hour test.

•

Note 1: Although students will be provided with ‘skeletal’ information regarding the
material covered electronically, they are strongly advised and recommended to take
their own notes.

•

Note 2: Students caught using cribs or otherwise cheating or communicating with
other students during a test will be given a ‘0’ score without any discussion.

Forms of assessment

•

Full and active attendance is a must and will be recognized.

•

Four written tests. Positive grades (min. 50% score) from all written tests, the
average from all tests must be 70% to pass the course (all students take the tests
together, absence means a ‘0’ score, there are no re-takes.

•

Students who fail to meet the above requirements will write a re-take in the re-take
session.

•

Students who aspire to get ‘very good’ or ‘excellent’ are expected to either write an
essay / a report on one of the subjects which will be given in the middle of the
semester or give an oral presentation on a finance / business related subject
suggested or of their own choice.

Examples of test tasks

•

Decide whether the following statements are True (T) or false (F ):

To budget means to raise funds for an investment. (F)

•

Complete the sentences.

‘Budget’ means ………………………………………………………………………….............. (a

detailed plan made by an organisation or a how much it will receive in income and
how much it will spend, on what, etc. over a particular period of time).

•

Provide the missing verbs (in their correct form)

A company has a few ways of …………………. funds for investment. (raising)

•

Provide the missing term.

The difference between the price of a product or service and the cost of producing

it is the ………………… (profit margin)

To be or not be interested in finance and

trade?

Do we even have a choice?

•Are you a financier? Are you a businessperson?

•Trade, investment, business, finance – definitions

trade –
1. the activities of buying and selling
2. a particular area of business or industry
3. the people or companies involved in 2
4. a job or type of work
jack-of-all-trades
trade-off
investment -
1. money used to earn more money
2. the process of spending money to gain sth
3. something you are ready to spend money expecting future benefits
4. effort, time, energy required to achieve something
business –
1. the work of buying and selling for money
2. an organization involved in buying and selling
3. something to be discussed and resolved
to do business
to be in business
to go back to business to go out of business
to get down to business
finance –
1. decisions on how money is spent or invested
2. money used to pay or make an investment
to raise / to obtain finance /

•No business without finance? No finance without business?

Finance as a section of

economics

1.

•

resources allocation

resources = funds = money = capital
to allocate to / for sth
• resource management
to manage
•acquisition
to acquire
•investment
to invest in sth.
2.

financial market

financial operations
to operate on the financial market
•participants in the financial market
banks
financial firms
economic entities
institutional investors
private (individual) investors
brokers
3.
•Allocation process is aimed at asset optimization

1. capital budgeting or capital investment planning

2. financing
3. dividend policy

Finance as a section of economics

(c.d.)

•

Capital budgeting – investment selection with capital available
capital

- contribution in cash
- contribution in kind
- retained earnings
return on capital = profit or capital gain

rate of return

•

Financing-related decisions
- size of resources or funds available
- sources of financing (internal or external)
external sources:

- bank credit

to take / draw / contract a credit
- securities
- bonds or debentures
- stocks or shares

common stock

preferred stock
to issue

issuance

issuer

Finance as a section of

economics

(c.d.)

• Dividend policy

- distribution of profit
- retention of earings

to retain earnings
retained earnings

why to retain earnings

- to run the business / to conduct current activity
- to have funds for additional investment
- to have funds for contingencies
contingency

4.
• Risk

risk management
risk profiling
risk version = reluctance to take risk
risk-averse

Finance as a section of economics

(c.d.)

Fields covered by finance:
•

personal finance

natural person

individual people
households couples

•

corporate finance
legal person
economic entity
small / medium / large-size enterprise

•

public finance
public institution
government
non-profit institution / organisation

What is common?
•

target(s)
to set a target
to adopt a strategy

to choose ways

to achieve a target

•

financial instruments

•

financial market mechanisms

Finance as a section of

economics

(c.d.)

• financial sector

- tasks:
- lending and borrowing
to lend to sb. lender
to borrow from sb. borrower
- short / medium / long-term investing
- over-night investing / deposits

investor

- participants or players in the financial market
- banks
- nonbank financial intermediaries
to act as an intermediary
- commercial banks
- insurance companies

to insure against sth.

insurer
- pension funds

Finance as a section of

economics

(c.d.)

•

fiscal policy is concerned with the application of taxes
- tasks:
- to level out the business cycle
- to achieve / maintain full employment
- to achieve / maintain price stability
- to maintain sustained economic growth
- instruments:
- taxation

tax
personal income tax
corporate income tax
excise duty
tax rate
tax brackets
taxation policy tax reliefs tax exemptions to exempt from tax

•

fiscal policy is not the same as monetary policy !!!

•

monetary policy is concerned with money supply control

PUBLIC FINANCE

• Public finance covers the finance of the country as a

whole, all the administrative subdivisions of the country,
including counties, voivodeships, municipalities.

• Public finance is concerned with:

- identification of expenditure outlays required by public
sector entities
- identification of sources of revenues for public sector
entities
- determination of the size of required expenditure, i.e.
the budgeting process
- issuance of municipal bonds, debt issuance, for
financing public works projects

CORPORATE FINANCE and PERSONAL

FINANCE

• Corporate finance

aim: to ensure funds for conducting economic activity
factors involved:
- risk
- profitability
- optimization of assets
- stock value
sources of funds:
- ownership equity
- long-term funding - credit
- bond issue
- short-term funding – credit lines – to open a credit line
to reflect the company’s capital structure

PERSONAL FINANCE

•

sources of personal income:

- salaries

- commissions
- bonuses
- fees
- pensions

old-age pensions
disability pensions

- savings
- borrowings

•

issues involved:
- income to cost of living ratio
- disposable income
- tax impact
- inflation impact
-rate of saving vs rate of borrowing

MONEY – a medium of exchange –

a full legal tender

• barter = exchange
to barter = to exchange things of the same value
• payment to pay for sth.
• settlement of accounts / of debts

to settle an account / payment / an invoice

• Functions of money:

- measure of value
- medium of

exchange

- store of value

• Forms of money:

- paper money - bank notes
- government notes

- metallic money - coins
• Money can be secured (by gold reserve, government securities,

commercial papers, general assets or their combination) or unsecured

Money c.d.

•cash (= paper money and coins) petty cash
•cash = bank deposits (currency in hand; deposits in checking and savings accounts; money orders)
•to cash = to convert a negotiable instrument (e.g. money order) to money available to the holder of the

instrument

•Why to keep cash?
- to be able to pay (transaction motif)

to cover / cater for current expenses / payment obligations

to benefit from cash discounts on cash payment
to keep production or activity moving
- to be prepared for a rainy day, for unforeseen expenses (precautionary motif)
cautioncautious to take precautions
- to take advantage of opportunities which arise when interest rates or exchange rates change (speculative
motif)
interest rate on …
exchange rate (of one currency to another)
to speculate

- to maintain creditworthiness (allowing for easy access to credit)

creditworthiness

creditworthy
•to invest on a short-term basis

cash surplus

MONEY SUPPLY

•money supply = all money issued by the central bank of a given country

•mint
to mint

•money supply

- how to measure
- how to control (and why)

•What to measure?

demand deposits
money in bank vaults
traveller’s checks
negotiable payment orders
time deposits
overnight and other repurchase agreements at commercial banks
money market fund shares
debt notes
treasury bills
liquid securities
savings bonds
cash in circulation

Exchange rate

• currency the dollar the euro
• weak / strong currency

to strengthen to weaken the currency

• exchange rate = the price of one currency expressed in

terms of another currency
the exchange rate of the euro to the dollar

• floating / fixed exchange rates
• buying / selling exchange rates
• the central bank - monitors the currency market

-maintains the level of exchange
- supports the currency

• the exchange rate policy

Convertibility

• convertibility = the freedom to convert /of

conversion of one currency to another one at a
market rate

• external convertibility (non-residents)
• internal convertibility (residents can maintain

bank deposits denominated in foreign currencies
and convert the home currency to a foreign
currency

• currency transactions
• currency market

Financial markets

• stock market
• option market
• foreign exchange market
• derivatives market
• Functions of financial markets

- to raise capital
- to transfer risk
- to facilitate international trade