Vocabulary

banks’ product lines – различные финансовые продукты (инструменты), которые выпускает банк

profit margin – размер прибыли

to hedge risks – хеджировать риски (защищаться от рисков)

lucrative – прибыльный, доходный, выгодный

risk-management tool – инструмент (средство) управления рисками

structured note – структурированная краткосрочная ценная бумага

prudent – осмотрительный, осторожный; prudence – осторожность, обдуманность, отказ от рискованных действий – основной принцип в работе банков

Exercises

1. Find in the text the synonyms to the following:

rival, exchange, twelve, to contract, a great number of, profitable, to drop down (plunge), very important, speed, ten years, to spread (increase at a fast rate), controlling (commanding), a profit from investment, wise (cautious).

2. Make up derivatives from the following and translate them into Russian:

produce, compete, profit, invest, to deal, institute, manage, expand

Dangerous Traders

Nicholas Leeson, a 27-year-old trader, bets that Japanese stocks will rise and bankrupts a 227-year-old British investment bank, Barings, in a few weeks of unauthorized trading. Joseph Jett, a 36-old-trader for Kidder Peabody, fools accountants into believing that his trades of government bonds were fabulously profitable; in fact, they were fictitious. Treasurer Robert Citron single-handedly drives Orange County, California, into bankruptcy by betting taxpayers’ money believing that interest rates would drop. They rose, and now the county is forced to cut educational, medical, and other services.

What allowed individual rogues to destroy, harm or humiliate venerable institutions nearly overnight? What allowed sophisticated managers to sleep while underlings brought organizations to or over the brink of extinction? Astonishing greed, arrogance and incompetence are part of the answer. But so, too, are derivatives – financial instruments whose value goes up and down with the value of underlying stocks, bonds, currencies or other assets. The three rogues bought and sold derivatives with borrowed money to make large, reckless bets.

Until this week, it was easy to dismiss fear-mongering calls for regulating derivatives out of existence. Most companies and governments use them to reduce risk – for example, insulating investment funds from the impact of interest rate changes. Moreover, derivatives are only one way to make risky bets. Savings and loan institutions during the 1980s, for example, managed to go bankrupt investing in real estate without any help of derivatives. Now, with the Barings fiasco, these propositions deserve second, third and fourth looks.

How could a world-class bank fail to see what outside analysts had observed – an underling betting the company’s wealth on the unpredictable movements of Japanese stocks? How could Kidder Peabody’s management fail to note that Mr. Jett’s profitable trades had yet to put a dollar in the company’s bank account?

The three calamities deliver a ringing call for vigilance. In the United States, state governments will want to rein in county governments. Corporate executives must toughen oversight procedures. So far, the fiascoes at Bearings and Kidder have hurt only shareholders. But federal regulators will want to reconsider whether banking laws – spruced up in 1990 to require banks to hold large reserves and require regulators to intervene when those reserves drop to dangerous levels – are tight enough to prevent a repetition of the savings and loan fiascoes.

Derivatives serve important corporate purposes, so intervention ought to be carefully crafted. But regulatory authorities need to ask what type of managerial oversight, monitoring and reporting are needed to prevent a future Nicholas Leeson from hiding trades that should never have taken place or a future Joseph Jett from enriching himself from trades that never took place.

The New York Times

Trading on the Markets

Shares change hands when they are traded. When there is a lot of trading in a market, turnover is high. Trading is most often described as moderate or active.

Trading on the stock exchange and on other markets also can be:

dull, lackluster, light, negligible, quiet, slow, sluggish, thin, or weak, when activity is slow;

bumpy, choppy, erratic ,hesitant, mixed, uncertain, or volatile, when the overall direction of prices is not clear:

brisk, heavy, or hectic when there is a high volume of trading, in other words high turnover of shares.

Notes

1. treasurer – казначей: сотрудник крупной компании, занимающийся управлением свободными средствами, заимствованиями, поддержкой рынка ценных бумаг, контролем за учетом.

2. savings and loan association (S & L) = thrift institutions; building societies (UK) – ccудно-сберегательная ассоциация (США): учреждение корпоративного типа, принадлежащее пайщикам или вкладчикам (разновидность mutual funds); аккумулирует сбережения населения и финансирует жилищное строительство; теперь сближается по функциям с банками, получает акционерную форму.