Unit 13The Business of Making MoneyExercises1. Questions on the text:1) What are the latest developments in private equity in recent years?Compared to the 1980s, the targets of todays private equity groups are much bigger in size. In recent years, the private equity industry has raised record money and its share of mergers and acquisitions has grown massively. The industry has also become a byword for money-making skills but its wealth has also brought many enemies.2) According to the article, what are the main inconveniences for a company to be a publicly quoted company?The main inconveniences for a publicly quoted company include: its executives have to face intrusive media coverage; it has to obey strict and long corporate-governance codes; it also has to face the threats of activist investors and short sellers and the scrutiny by some politicians.3) What are the main reasons for a company to get listed on a stockmarket?Traditionally there are three main reasons to get a companys share listed on a stockmarket. The first is to raise capital, either to expand the business or to allow the founders to realise their wealth. The second is to help retain staff, who can be offered share options as an incentive to stay and work hard. The third involves prestige; customers, suppliers and potential employees may be reassured (and attracted) by the apparent seal of approval given by a public listing. Meanwhile, being publicly listed gives a company better access to fund investors and retail investors.4) Why are companies in the Anglo-Saxon economies reluctant to borrow from banks?Companies in the Anglo-Saxon economies were reluctant to borrow from banks because their often felt nervous about the possibility of the sudden withdrawal of credit from the banks, due to a change in lending policy, new management or an economic downturn.5) According to the article, what are the main sources for todays companies to raise money (including equity capital and debt)?Nowadays the main sources for companies to raise money are: first, equity market; second, banks, though much less important than they used to be; third, bond market; fourth, private equity.6) How do private-equity firms respond to the problems identified by Professor Jensen with regard to public companies?Professor Jensen argued that the structure of a public company creates an inherent conflict between investors and the managers they hire to run the business, particularly with regard to the use of free cash flow. He also argued that borrowing imposed discipline on executives. Private-equity firms have applied his argument in practice by gearing up the balance sheets of companies they buy with more debt than public firms are willing to accept. Though private equity firms, in the process, often have a bad reputation for relentlessly cutting unprofitable operations and shedding jobs, academic studies suggest that they create jobs rather than destroy them.7) What are the similarities and differences between todays private-equity firms and the conglomerates of the 1970s and 1980s？Similarities between todays private-equity firms and the conglomerates of the 1970s and 1980s are: first, both of them use their financial power to construct diverse industrial empires; second, both claim that they could improve the companies they owned through superior management. The differences are: first, the conglomerates used highly rated shares to buy companies while private-equity firms use borrowed money; second, the conglomerates used to make ever-bigger acquisitions continuously to expand while private-equity firms claim to sell regularly their portfolio companies or business for profit.8) What make it impossible for the private-equity model to become the norm for companies?There are several reasons: first, what might be logical for an individual company might not be best for the economy overall. If all companies were to substitute debt for equity on the scale that private-equity firms have, there would be an increase in the cost of debt. That would lead to lower equity returns; second, since private-equity firms need an exit route to sell their investments, a public market will be needed in the end for someone to realise their profit; third, a bigger role for private equity might make the economy more vulnerable because in a world where most companies carried private-equity-style debt levels, companies would be much more vulnerable and recessions might become much more frequent and consequently monetary policy would become more difficult, and even government revenues might be affected.9) According to the article, what factors have helped the development of private-equity firms since 2003?Those factors are: low interest rates, lots of liquidity and rising asset prices10) What are the signs showing that private-equity firms may now face the peak of the cycle？Those signs are: first, bond yields have been rising, making takeovers more expensive; second, the high level of corporate profits suggests that it could be difficult for private-equity firms to wring more money out of these companies; third, the relentless campaign against private-equity tax privileges may lead to government actions against the interests of private-equity firms; last, more and more private-equity deals often leads to more competition and thus lower returns.2.Fill in each blank of the following sentences with one of the phrases in the list given below: 1) The journey usually takes six weeks but you should allow for delays caused by bad weather.2) A popular bicycle rental scheme in Paris that has transformed travel in the city has run into problems just 18 months after its successful launch.3) Chinas import as a proportion of total trade has substantially increased in recent years as its been pursuing a more balanced trade.4) A growing pile of evidence shows that skimping on sleep promotes weight gain.5) Such a move would put the bank in danger of going bust.6) We have turned down four applicants already.7) When youre cooking, you should keep all the ingredients close at hand.8) She wrote to him in the belief that he would help her.9) Dr. Cong will continue to lead the company as its CEO and hold a stake in it for three years.10) A lot of questions were being asked at the conference today and surprisingly the officials answered them in spades.11) In the absence of outside leadership, we have created these guidelines in order to respond timely and effectively.12) With the joining of South Africa, the Bric club of influential emerging economies is now in pursuit of a common market among them.3. Match the terms in column A with the explanations in column B:A B 1)corporate governance a) An investor who attempts to force a corporation tomake changes in management, board structure,investment policies, use of retained earnings, orother practices, often by introducing shareholderproposals or putting forward alternative directors. 62)bridge financing b) An interest group that endeavors to influencepublic policy and especially governmentallegislation, regarding its particular concerns andpriorities. 83) trade union c) A privilege, sold by one party to another, thatgives the buyer the right, but not the obligation, tobuy or sell a stock at an agreed-upon price within acertain period or on a specific date. 104)stakeholder d) A method of financing, used by companies before their IPO, to obtain necessary cash for themaintenance of operations. 25)short seller e) The set of processes, customs, policies, laws, and institutions affecting the way a corporation (orcompany) is directed, administered or controlled. 16) activist investor f)An organization of workers that have bandedtogether to achieve common goals such as higherwages or better working conditions. 37)venture capital g) The process of buying an undervalued companywith the intent to sell off its assets for a profit. 98) pressure group h) An investor who sells a commodity, currency, or security which he or she does not own at the timeof sale. 59)asset stripping i)Money provided by investors to startup firms and small businesses with perceived long-term growthpotential. 710)stock option j)Person, group, or organization that has direct or indirect stake in an organization because it canaffect or be affected by the organizations actions,objectives, and policies. 44. Translate the following into Chinese:出于幾個原因，上市的前景對私募股權(quán)投資公司而言具有相當(dāng)?shù)奈?。對?chuàng)始人和其他高級合伙人來說，上市提供了一個契機，既可以實現(xiàn)他們所創(chuàng)造的企業(yè)的一部分價值，又能成為資本的另一個來源，使他們能為其公司提供資金。對公司而言，上市為新職位引進(jìn)高級人才提供了“通貨”，甚至還能在未來的收購中使用這一“通貨”。對投資者而言，上市是一個機會，讓他們能夠加入到私募股權(quán)投資公司源源不斷的錢流之中，而過去他們對此只能無奈地挑刺和眼紅?，F(xiàn)如今他們不僅能投資基金，還能直接投資于私募股權(quán)投資公司本身。然而，這些公司可不是標(biāo)準(zhǔn)的上市公司。私募股權(quán)投資公司的價值在于他們能夠迅速而有力地改善證券投資公司的狀況，向管理層提供大筆的股權(quán)激勵薪酬，并且實施高度專一的公司治理和監(jiān)督。而這一切只有在沒有公開市場的關(guān)注和審視之下才能實現(xiàn)。因此，即便已經(jīng)上市，這些公司仍然竭其所能盡力為其證券投資公司保持“黑匣”的狀態(tài)。因此，與其他上市公司相比，它們向投資者披露的信息更少，在公司治理和信托方面所作的承諾更有限。經(jīng)濟(jì)景氣時，市場信任私募股權(quán)經(jīng)理們，相信他們知道用“黑匣”式投資方式要達(dá)到的目的。這時債權(quán)融資更加容易，而估值會隨之迅速上升，同時早期的回報激發(fā)了巨額的籌資水平，這一切在第一批私募股權(quán)投資公司上市時達(dá)到了頂峰。不過，在如今的經(jīng)濟(jì)背景下，投資者惶然不安，同時信任不足使上市的私募股權(quán)投資公司的股票變得十分脆弱。即便是在經(jīng)濟(jì)平穩(wěn)時期，不管是投資者還是分析師都沒有充分的把握預(yù)測這些公司的收入和現(xiàn)金流程度。在目前的環(huán)境下，由于人們對任何一種信息披露和透明度不足的交易模式缺乏了解和信心，因此它們不可能成為上市股票市場支持的解決方案，即使它們以前具備競爭優(yōu)勢。5. Fill in each of the following gaps with one of the sentences given below:1)For many, buying shares is about making a quick profit, not investing for the long-term.2)Banks remain reluctant to lend.3)Their rise was partly driven by the conclusion that equity markets were not the most efficient means of raising capital.4)The approach was simple.5)After about five years, during which time debt would have been paid off and profits lifted, the company would either be floated or sold directly to a new buyer.Supplementary ReadingHow Long Can U.S. Stocks Keep Their Edge?1. Which one of the following statements about the Templeton Growth fund is NOT true?A. It was started by John Templeton.B. It can invest in foreign companies.C. It has always preferred U.S. Stocks since its launch. D. Many of its top holdings are U.S. companies. 2. According to the article, the decline of euro _ U.S. Stocks.A. has no impact on B. is good news for C. reduced the domestic attractiveness of D. has nothing to do with3. Which one of the following statements is NOT the reason cited by mutual funds to invest in U.S. Stocks?A. Many U.S. companies are successful global companies.B. The U.S. economy is in great shape. C. The outlook for major international markets is rather mixed. D. U.S. companies are quite profitable. 4. According to the money managers cited in the article, emerging markets _.A. usually have very low valuation of good quality companies. B. have negative returns for equity funds.C. have attracted a lot of capital flows in recent years. D. will continue bringing huge profits to investors. 5. When Mr. Kinniry of the Vanguard Group said “that discount has now been closed”, “that discount” refers to_.A. the price differences between different U.S. Stocks.B. the difference in price-to-earnings multiples between different emerging-market stocks.C. the price differences between different emerging-market stocks.D. the diffe