lesson 4

镇江高等专科学校外语系
Zhenjiang College Байду номын сангаасoreign language Department
Zhenjiang College Foreign Language Department
A Student's Guide to Investing
Financial investment: purchase of financial assets Investment options for individuals include putting savings in a bank account of some kind or using them to buy real estate, bonds, or shares of stock or mutual funds, even some kinds of financial derivatives.
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Zhenjiang College Foreign Language Department
Lesson 4 Foreign Exchange Exposure and
Foreign Exchange Market Transactions
Important Economic Terms and expressions
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Zhenjiang College Foreign Language Department
Random walk theory
The efficient market theory holds that all available information is fully reflected in the price of an asset. Accordingly, changes in price reflect only unanticipated events and, therefore, are random and unpredictable.
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Zhenjiang College Foreign Language Department
Diversification: reduce risk By holding assets that are widely diversified, individuals can avoid many of the risks associated with specific assets, but not the risks associated with the market as a whole.
evaluate the characteristics of each asset and relate them to your personal situation; give your financial portfolio a broad base; look at all the risks you face, not just those in your financial portfolio; think twice before believing you can beat the market. invest those index fund is the most convenient and intelligent way of managing your wealth in the long run.
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Zhenjiang College Foreign Language Department
Swap
Swap: also knows as double deals, consist of a simultaneous sale or purchase of spot currency accompanied by a purchase or sale, respectively, of the same currency for forward delivery. 掉期交易，又称双重交易，指在卖出或买进即期货 币的同时，又买进或卖出远期交割的同一种货币。
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Zhenjiang College Foreign Language Department
Foreign exchange contract
Currency Amount of currency Date of maturity Exchange rate
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Zhenjiang College Foreign Language Department
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翻译
卖出产品换取外汇的出口商可能会 面临这样的风险：如果该外汇出现 贬值，那么结汇后以本币结算的收 入就会减少。 拥有国外资产的基金经理和公司面 临的风险是：他们拥有的外国资产 所在地的货币可能会贬值。
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Translation An exporter who sells its product in foreign currency has the risk that if the value of that foreign currency falls then the revenues in the exporter’s home currency will be lower. Fund Managers and companies who own foreign assets are exposed to fall in the currencies where they own the assets.
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Zhenjiang College Foreign Language Department
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There are five rules for intelligent investors:
Foreign exchange exposure spot/forward transaction call option/ put option Premium/discount/at par Swap transaction hedge
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Zhenjiang College Foreign Language Department
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Zhenjiang College Foreign Language Department
Expected return: Probabilities
Today's price of an asset is influenced by expectations of the asset's price in the future. Expectation of a higher price in the future will cause the asset's price to rise today. Asset prices can be very volatile because of shifts in expectations about future returns.
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Zhenjiang College Foreign Language Department
Returns on investment can be received in four ways: interest, dividends, rent, and capital gains.
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Average returns: risk, tax liability, liquidity
Assets can differ in four ways: in their average returns, their riskiness, their treatment under tax law, and their liquidity.
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Zhenjiang College Foreign Language Department
Book recommended
The Intelligent Asset Allocator: How to Build Your Portfolio to maximize
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Zhenjiang College Foreign Language Department
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Zhenjiang College Foreign Language Department
Option
Option: an agreement between writer and holder, in which the writer grants the holder the right to buy or sell foreign exchanges under specified conditions while the holder assumes an obligation to sell or buy the foreign exchange. Call option: the right to purchase a specified amount of the underlying securities at a specified date Put option: the right to sell a given amount of the underlying security at a given price on or before a specified date.