Advanced English Dialogue for Business – Participation certificate

Listen to a Business English Dialogue About Participation certificate

Eugene: Quinn, have you heard of participation certificates?

Quinn: No, what are they?

Eugene: They’re investment products that allow investors to participate in the cash flow generated by a pool of underlying assets, such as mortgages or loans, without directly owning those assets.

Quinn: That sounds interesting. How do participation certificates work?

Eugene: Investors buy shares in the certificate, and as the underlying assets generate income, they receive a portion of that income based on their share of the certificate.

Quinn: Are participation certificates similar to bonds or stocks?

Eugene: They’re somewhat similar to bonds in that they provide a steady stream of income, but they’re different because they’re typically backed by specific assets and don’t represent ownership in a company like stocks do.

Quinn: What are the risks associated with participation certificates?

Eugene: One risk is that the underlying assets may not perform as expected, leading to lower-than-anticipated returns or even losses for investors. Additionally, changes in interest rates or economic conditions can also impact the value of participation certificates.

Quinn: How do investors assess the potential returns of participation certificates?

Eugene: They typically consider factors like the credit quality of the underlying assets, the terms of the certificate, and the prevailing interest rate environment to gauge the potential income and risks associated with the investment.

Quinn: Can participation certificates be traded on the secondary market?

Eugene: It depends on the specific terms of the certificate, but some participation certificates may be tradable on secondary markets, allowing investors to buy or sell them before they mature.

Quinn: Thanks for explaining, Eugene. Participation certificates seem like a unique way to invest in income-generating assets.