Vocabulary

Wednesday, April 19, 2023 3:25 PM

BANKING
- Overdraft: thấu chi
- Standing order: ủy nhiệm chi/Lệnh chi
- Solvency: khả năng thanh toán nợ
- Takeover (bid): tiếp quản
- Stockbroking: môi giới chứng khoán
- Deregulation: gỡ bỏ quy định
- Conglomerate: tập đoàn…
- A loss-making/profit-making company: công ty làm ăn thua lỗ/có lãi

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Unit 1: INTRODUCTION
Tuesday, April 25, 2023 1:57 PM

1. WHY STUDY FINANCIAL MARKETS?

2. WHY STUDY FINANCIAL INSTUTITIONS AND BANKING?
3. STRUCTURE OF THE FINANCIAL SYSTEMS
4. BANKS AND OTHER FINANCIAL INSTITUTIONS
5. WHY STUDY MONEY AND MONETARY POLICY?
6. MONEY AND INFLATION
7. MONEY AND INTEREST RATES
8. HOW WE WILL STUDY MONEY, BANKING, AND FINANCIAL MARKETS

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 Unit 2: TIME VALUE OF MONEY
Tuesday, April 25, 2023 1:56 PM

- Time value of money (TVM): refers to the fact that money in hand today is worth more than the expectation of the same amount to be received in
the future.
- Principal (khoản nợ/tiền gốc/vốn gốc): the original sum of money borrowed in a loan/put into an investment.
- Interest (chi phí tài chính lãi vay): the cost of borrowing money - the borrower pays a fee to the lender for the loan
○ Typically expressed as a percentage
○ Either simple or compounded
 Simple interest: based on the principal amount of a loan or deposit.
 Compound interest: based on the principal + the accumulative interest
□ Compounding: the process - an asset's earnings, from either capital gains/interest - are reinvested - to generate additional earnings
overtime. (earnings from both its initial principal and the accumulated earnings from preceding periods).
- Present value: the current value of a future sum of money/stream cash flows given a specified rate of return (tỷ suất sinh lợi).
○ An amount of money today - worth more than the same amount in the future/money received in the future is not worth as much as an equal
amount received today.
○ Unspent money today - could lose value in the future by an implied annual rate - due to inflation/the rate of return if the money was invested.
- Net present value (NPV - giá trị hiện tại ròng): the difference = the PV of all future cash flows - the PV of all curent and future cash flows.
○ Used in capital budgeting + investment planning => to analyze the profitability of a projected investment/project.

VOCABULARY:
- Discounting: chiết khấu

1. How do economists define 'money'? Give examples.

○ Money is defined (also referred to as the money supply) as anything that is generally accepted as payment for goods/services/in the repayment
of debts nominal interest rate: the rate denominated in dollars or in some other
○ Example: gold coins, paper money, checks, saving deposits. currency (in money term) (tỉ lệ lãi suất danh nghĩa)
2. What are the functions of money? real interest rate: the rate denominated in units of consumer goods
○ Medium of exchange fixed interest rate: an unchanging rate charged on a liability such as a
○ Unit of account loan or mortgage
○ Store of value variable interest rate: an interest rate on a loan or security that
3. Why do we need to measure the time value of money? fluctuates over time because it is based on an underlying benchmark
=> There are at least 3 reasons why this is true. interest rate or index that changes periodically
○ That you can invest it, earn interest, and end up with more in the future
○ That the purchasing power of money can change over time due to inflation
○ That the receipt of money expected in the future is, in general, uncertain.
NPV calculation
It is useful for evaluating opportunities
It does not factor in unforeseen variables like hidden costs. So it is a good starting point but not a defendative metric
EXP hidden cost: property taxes, homeowner fees for gabage collecting or snow plowing
Future value (FV)
FV=PV(1+r)^n
=1,000(1+10%)^5=1,610.5
Basic concepts
*Opportunity cost of capital
It is the differences in return between an investment one makes and another that one choose not to make
*Yield to maturity (YTM) (Lợi suất đáo hạn) or internal rate of return (IRR) (tỷ suất hoàn vốn nội bộ)
- Yield is return from security
EXP: the return from bond is its yield
YTM is the total return anticipated on a bond if the bond is held until it matures.
YTM is the IRR of the bond
The IRR of a project is the discount rate that equates the PV of future cashflows to the initial investment . It is the discount rate that makes
the NPV equal to 0
The value of IRR is viewed like a break-even analysis for a project
*Effective annual rate (EAR) (lãi suất hiệu quả)
*Discounting (chiết khấu dòng tiền)
computing the present value of a future sum of money khác (in retail: reducing the price)
Phân biệt in finance với in retail
*Annuity (niên kim)
*Annuity contract immediate annuity
*ordinary annuity
*perpetuity: the stream of annuity cash flows that lasts forever
*amortization: the process of paying off a loan's principal gradually over its term

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 *Unit 3: INTEREST RATES
Thursday, April 27, 2023 4:30 PM

- Interest rate: the cost of borrowing money.

○ Normally expressed as a percentage over the period of one year.
○ The compensation for the service and risk of lending money.
○ Without interest - people would not be willing to lend/save their cash (requiring a deferment of the opportunity to give up spending in the present).
- Classification:
○ Nominal interest rate (lãi suất danh nghĩa): the amount of interest payable payable: lãi phải trả - dùng cho nợ ngắn hạn
○ Real interest rate (lãi suất thực): the purchasing power of interest receipts - calculated by adjusting the nominal rate charged to take inflation into
account (= Nominal interest rate - Inflation rate)
- How interest rates are determined:
○ Supply and demand: interest rate levels - a factor of the supply and demand of credit
 An increase in the demand for credit - raise interest rates and vice versa.
 An increase in the supply of credit - reduce interest rates.
○ Inflation: the higher the inflation rate - the more IRs are likely to rise.
 Lenders - demand higher IRs (as a compensation for the decrease in the purchasing power of the money they will be repaid in the future)
○ Government:
 The government buys more securities - banks are injected with more money than they can be used for lending => decreasing IRs
 The government sells securities - money from bank is drained for the transaction - rendering less funds for lending => rising Irs
- Other forms of interest rates: buy the bonds as an investment shall also give you some interest
○ Coupon rate vs Yield to maturity (YTM - lãi suất đáo hạn):
 Coupon rate: the yield paid by a fixed income security
□ The annual coupon payments paid by the issuer related to the bond's face/par value.
□ This yield - will change as the value of the bond changes => giving the bond's yield to maturity.
 Yield to maturity: the total rate of return - will have been earned by a bond when it makes all interest payments + repays the original
principal. The YTM is considered a long-term bond yield expressed as an annual rate
□ Essentially a bond's internal rate of return if held to maturity.
exp: coupon rate
A US Government bond with FV of 1,000$ and coupon payment is made every half year of 5% per annum compounded semi-annually
Yield to maturity
A bond whose par value is $100. The bond is currently priced at a discount of $95.92, matures in 30 months, and pays a semi-annual coupon of 5%. Therefore, the current yield of
the bond is (5% coupon x $100 par value) / $95.92 market price = 5.21%.

A bond holder receives income from 3 sources:

-Interest/coupon payment;
-Earning interest by reinvesting these coupon payment. Since coupon themselves represent interest, the 2nd source of income may be perceived as interest on interest;
-At the time of maturity, he shall earn income in terms of the face value.

The YTM calculation of a bond takes into account the following things:
-The bond's current market price
-Its Par value/face value
-Coupon rate
-Time to maturity
Two assumptions of YTM calculation:
-The bond is held to maturity and that consequently the investor will receive all the projected cashflows.
-All intermediate coupons will be reinvested at the YTM itself whatever the value may be
-YTM is a complex but accurate calculation of a bond's return that helps investors compare bonds with different maturities and coupons
Price of bond and IRs move in opposite directions. Why?
If interest rates rise, new borrowers have to pay a higher rate to attract investors to buy their bonds, existing bonds lose value
If IRs fall, existing bonds paying a higher IR than the market rate increase in value
Consequently, the yield of a bond - how much income it gives - depends on its purchase price as well as its coupon.

VARIOUS FORMS OF INTEREST RATE

*Variable rate: It is the amount charged to a borrower for a variable rate loan such as a mortgage
-It is usually expressed as an annual percentage and fluctuates in tandem with a rate index
*Fixed rate: It is an interest rate that stays the same for the life of a loan or for a portion of the loan term, depending on the loan agreement
How can we call the change in initial investment after a period of investing in some debt instrument?
- Capital gain
DIVIDEND
- the distribution of some of a company's earnings to a class of its shareholders as determined by the company's board of directors
- they are payments made by publicly-listed companies as a reward to investors for having put their money into the venture

generate: chia thành

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 *Unit 4: FINANCIAL STATEMENTS
Thursday, April 27, 2023 2:57 PM

FINANCIAL STATEMENT: to provide an overview of a business' financial condition in both short and long terms.
- Types:
○ Profit and Loss account (báo cáo KQHĐKD)
○ Balance sheet (bảng CĐKT)
○ Source and Application of Funds Statement (báo cáo lưu chuyển tiền tệ)
PROFIT AND LOSS ACCOUNT
- To show revenue and expenditure
- To give figures for
○ Total sales or turnover
○ Costs and overheads (chi phí chung/chi phí gián tiếp)
 Overheads: an ongoing expense of operating a business - do not directly generate profits.
□ Include: accounting fees, advertising, depreciation, insurance, interest, legal fees, rent, repairs, supplies, taxes, telephone bills, travel
and utilities costs.
- Sample:
○ Total sales / Turnover / Revenue (Promotion)
 Net sales (Sales costs/Costs of goods sold)
 Gross profit (Total expenses: SG&A expenses, etc.)
 Net profit before tax (Tax) Dividends
Retained profit/Retained Earnings (to reinvest or reserve)
BALANCE SHEET
- To show the financial situation of the company on a particular date (generally the last day of its financial/fiscal year)
- To list
○ Company's assets: everything of value that is owned by a person/company:
 Cash investments + Property (buildings, machines, etc.)
 Debtors - money owed by customers (accounts receivable - khoản phải thu)
 Assets = Current Assets + Fixed Assets + Intangible Assets (tài sản vô hình) everything of value that is owned by a person or company
□ Current assets (tài sản ngắn hạn): include money in bank + cash at vault (tiền mặt trong kho quỹ) + investments + money owed by
customers + inventory
□ Long-term assets (tài sản dài hạn): fixed assets (buildings, equipment, machines) + financial assets + investment property (bđs đầu
tư) + intangible assets.
 Intangible assets: nonphysical resources and rights - have a value to the firm <= give the firm some kind of advantage in the
investment property market place - goodwill, copyrights, trademarks, patents and computer programs.
-it is real estate property purchased to earn a ROI through:
+Rental income; ◊ Goodwill (lợi thế thương mại) - reflects the ability of the entity to make a higher profit than would be derived from selling
+Future resale of the property the tangible assets. is the good relationship between a business and its customers that is calculated as part of its value when it is sold
Goodwill comes in a variety of forms: reputation, domain names, intellectual property, and commercial secrets
○ Liabilities = creditors (account payable - khoản phải trả)
 Money that a company will have to pay to someone else - taxes, debts, interests, mortgage payment (thanh toán nợ thế chấp/trả góp),
suppliers., overdrafts
○ Shareholders' funds: is what remains from the assets after all creditors have theoretically been paid share premium: thặng dư vốn cổ phần
 Share capital (vốn chủ sở hữu) original investment in the business/venture when shares were first issued
 Share premium (thặng dư vốn cổ phần): chênh lệch tăng do mua bán cổ phiếu quỹ/giá phát hành thêm CP mới lớn hơn so với giá IPO.
 Company's reserves (year's retained profits - lợi nhuận giữ lại) (Retained earning/profit/reserves)
- Book-keeping (ghi sổ): the recording of the value of asset, liabilities, income, and expenses in daybooks, journals, and ledgers - which debit and credit
entries are chronologically (theo trình tự thời gian) posted to record changes in value.
○ Daybook (sổ hóa đơn): a descriptive and diary-like record of day-to-day financial transactions
○ Journal (sổ nhật ký): a formal and chronological record of financial transactions before their values are accounted in general ledger as debits and
credits.
○ Ledger (sổ cái): a record of accounts - each recorded individually (on a separate page) with its balance.
○ Debit - represents a reduction of liability in asset - Credit - represents a balancing increase in liability/reduction of asset.
 Debit: recorded on the left-hand side of a T account.
 Credit: recorded on the right-hand side of a T account.
○ 2 types of book-keeping:
 Single-entry book-keeping system/single-entry accounting system: one-sided accounting entry to maintain financial information.
 Double-entry book-keeping: each txn is recorded in 2 accounts - one is debited - the other is credited => the total debits = the total credits.
□ Assets = Liabilities + Owners'/Shareholders' equity
□ Assets - Liabilities = Shareholders' equity
□ Shareholders' equity = Net assets
□ Company's market capitalization (chỉ số vốn hóa thị trường): Total share value = Shares no. * Market price.

SOURCE & APPLICATION OF FUNDS STATEMENT

- Also: Sources and uses of funds statement/Funds flow statement/Cash flow statement/Movements of funds statement/Statement of changes in
financial position.
- To show the flow of cash IN and OUT of the business between BS dates.
- To include:
○ Sources of funds (nguồn vốn):
 Trading revenues (doanh thu bán hàng) - Depreciation provisions (khấu hao) - Borrowing (vay mượn) - Sale of assets (bán tài sản) - Issuing
of shares.

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 of shares.
○ Applications of funds (sử dụng vốn):
 Purchase of fixed/financial assets - Payment of dividends - Repayment of loans - Trading losses (available in a bad year)

CONSOLIDATED ACCOUNTS (BCTC hợp nhất)

- If a company has a majority interest in others => BS and profit and loss accounts of the parent company and the subsidiaries - normally combined in
consolidated accounts. difference between subsidiaries (công ty con) and branch (chi nhánh)?

COSTS
- Definition
○ In practice: the amount of money given up in order to get something
○ In accounting: expenditure which decreases in assets/increases in liabilities - made to obtain economic benefits - usually resources that can
produce revenues
- Classification
○ Direct costs - Indirect costs
 Direct costs: outlays that can be identified with a specific product, department or activities of the company
 Indirect costs: outlays that can NOT be identified with a specific object but many products, departments or activities of the company
 Example: Company A produces potato snacks
□ Direct costs: costs to buy potatoes + costs to rent location for advertising
□ Indirect costs: salary for office employees
○ Product costs - Period costs
 Product costs (giá thành sản phẩm): costs that can be directly associated with production
 Period costs (chi phí theo thời kỳ): costs that are NOT directly associated with production - but with the passage of a time period
○ Fixed costs - Variable costs - Mixed costs
 Fixed costs (chi phí cố định): cost that DOES NOT change over the short-term - independent of the output
 Variable costs (chi phí biến đổi): cost that changes in relation to production volume or sales volume
 Mixed costs (chi phí hỗn hợp): contain elements of fixed + variable costs - partly affected by changes in the level of activity
EXAMPLE: Salesman's salary = basis salary + commission on sales
○ Controllable costs - Uncontrollable costs
 Controllable costs: costs that can be influenced or regulated by the manager responsible for it
 Uncontrollable costs: costs that ARE NOT under the control of a specified manager
○ Out-of-pocket cost - Sunk cost:
 Out-of-pocket cost (chi phí phát sinh): cash payments that an individual or company incurs on behalf of the company - WILL be refunded in
the future
 Sunk cost (chi phí chìm): cost that has already been incurred and thus CANNOT be recovered
○ Incremental cost - Opportunity cost - Imputed cost
 Incremental cost (chi phí biên - differential cost): the change a company experiences within its BS/IS due to the production and sale of one
additional unit of production
EXAMPLE: Production increased from 9000 units --> 1000 units - associated costs increased from $45000 --> $50000
 Opportunity cost: often used in finance and economics - when trying to choose one investment - either financial/capital over another
EXAMPLE: the increased earnings that will be resulted definitely from the deposit (Invest in Company XYZ's stock >< Deposit i n a bank)
 Imputed cost (chi phí ẩn/chi phí quy đổi - implicit cost):

ACCOUNTING (tài chính kế toán): An information system - to identify, collect, measure and communicate information about economic units to those with an
interest in the unit financial affairs.
Why do companies need to care about flows of cash in and out?
TYPES OF ACCOUNTING SYSTEMS -Cash flow statement shows the real cash available to keep the business running day-to-day
(profits are only o paper until money actually comes in)
-Its cash that pays the
Commercial Paper Some problems firms may face with cashflow though their business is doing well?
Why issue? -Unexpected late payments or non-payments (Bad debts)
To actively mobilize short-term capital rather than depending on loans from banks -Unforeseen costs
-Unexpected drop in demand
Exp of Intangible Assets -Investing too much in fixed assets
Goodwill Solutions?
Copyrights - Credit control (chasing overdue accounts)
Trade marks - Stock control: kiểm soát kho hàng
Patents (bằng sáng chế) +Keeping low levels of stock
Computer programs +Minimizing work-in-progress
Staff morale, contacts, reputation, expertise of company etc. +Delivering goods to customers more quickly
Difference between Trademark and Brand? -Expenditure control (delaying spending on capital equipment)
-A sales promotion to generate cash quickly
A=L+E
-Using an outside company to recover a debt (factoring firms: công ty chuyên mua bán nợ)
Net assets=Share holders' Equity
Company's Market Capitalization (Market Cap) = Total share value
=Total Number of shares outstanding*Current share price Terms to be distinguished
Depreciation (GB) vs Amortization (US)?
Large-cap => $10 bil or more
Mid-cap => $2 bil to $10 bil
Small-cap => $300 mil to $2 bil
Is Market-cap a good measure to consider when a company wants to buy another company?
No, it isn't. So, which measure?
Enterprise Value (EV) is a more comprehensive measure
EV=MC+Total Debt - C
Total Debt=Short-term+Long debt; C=Cash and Cash equivalents
Ratios used to compare companies: EBITDA/EV; EV/EBIT; EV/EBITDA; EBIT/EV; EV/Sales

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 Unit 5: RISKS AND RETURNS
Tuesday, May 23, 2023 12:47 PM

DEFINITION
- The concept of risk and return - makes reference to the possible economic loss/gain from investing in securities
○ Return (on their investment): a gain made by an investor
○ Risk: the chance or odds that the investor is going to lose money
- In the case that:
○ An investor chooses to invest in an asset with minimal risk => Possible return: often modest
○ An investment with a high-risk component - higher possibility of generating larger profits.
- TO COMPENSATE FOR THE HAZARDS
○ A Risker investment - provide higher profits
○ Gains - are what attract some investors | the danger - deters others
○ A less risky investment - provide relatively modest rates of return since the security of the investment - brings investors in rather than the chance
for higher returns

TYPES OF RISK AND RETURN

- 2 TYPES OF RISKS (systematic risks - unsystematic risks)
○ Systematic risks: that can influence a complete economic market/at minimum a significant portion of it
the risk inherent to the entire  The dangers of losing assets as a result of various macroeconomic or political risks (impacting the general market performance), including:
market or market segment  Political risk: arises largely due to political insecurity in a nation or area.
->"undiversifiable risk",
"volatility" or "market risk" □ If a country goes to war => the operating firm are deemed unsafe and therefore risky.
 Market risk - the byproduct of investors' overall inclination to follow the market
□ It is essentially the inclination of security values to shift together.
 Exchange rate risk - rises from the unpredictability of currency value fluctuations.
□ Result: it impacts enterprises that conduct foreign exchange operations (export and import firms)/firms that do business in a foreign
country
 Interest rate risk - by a shift in the market's rate of interest.
□ Mostly affected fixed-income assets since bond costs are connected to interest rates, but it also affects the valuation of stocks.
○ Unsystematic risks: that impacts only one sector/one business - the danger of losing money on an investment because of a business or sector-
specific hazard.
 A shift in leadership/a safety recall on a good/a legislative reform that might reduce firm sales/a new rival in the market
○ Comparison:
Systematic Unsystematic
Ability of being under control Can't be controlled Can be controlled
Causes Caused by external factors Caused by internal factors
Repercussions Cause chaos within an entire economic Only cause issues to a specific organization or sector- 2 t
- 2 TYPES OF RETURN:
○ Realized return: the actual return on an investment over a specific time.
 Nothing can alter a realized return
 Merely provides information for investors to help them make wiser financial choices in the future.
○ Expected return: the estimate of profits or loses that an investor may expect from an investment => used to estimate if an investment will have a
positive/negative net outcome on average

RISK AND RETURN CONCEPT

- Risk: The acceptable amount of risk: is measured by the amount of money they can potentially lose on their initial investment
○ High-risk: a considerable possibility that money will be lost / a margin possibility that all the money someone has could be lost
- Return: the quality of funds you anticipate gaining back from an investment > the amount you first put
○ If expressed in negative figures: a quantity of money lost
○ Are often displayed as a percentage of the initial investment
- Risk and return: when an investment works effectively - risk and return ought to be highly correlated
○ The larger the risk of an investment is, the higher the possible reward
○ An extremely safe investment => typically provide smaller returns
Risk - Return Tradeoff: the potential return rises with an increase in risk.
- Trading principle that links high risk with high reward
○ An appropriate tradeoff depends on a variety of factors: an investor's risk tolerance + his years to retirement + the potential to replace lost funds.
- Individuals - associate low levels of uncertainty with low potential returns + high levels of uncertainty/risk with high potential returns.
- Invested money can render higher profits if the investor accepts a higher possibility of losses.
Risk - Return Relationship: determines investment pricing
- An asset's price represents the harmony between its risk of failure - its prospective return in a productive market
○ The level of volatility/the gap between true and predicted returns => used to calculate risk | this discrepancy - known as standard deviation (độ
lệch chuẩn)
○ Returns with a high standard deviation - more volatile and riskier than other investments.
- Risk and return - essentially opposite interrelated concepts - in the sense that investors seek high returns but low risk
○ Larger risks - equate with higher potential profits in an efficient market.
Smaller returns - are associated with safer (reduced risk) investments

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 ○ Smaller returns - are associated with safer (reduced risk) investments
=> how investors select assets in the market - how investors establish asset values.
Risk and Return - Key takeaways
- The definition of risk and return
- Risk classification (systematic and unsystematic)
- Opposite interrelated concepts
- Risk and return being highly correlated when an investment working effectively

Rate of return - It is the conversion of an return over a standard length period, typically within one year (annualised return)
Return on Investment (ROI) - return on equity/assets/capital employed

Special consideration
1st: measuring
What is a penny stock?
SEC, is any stock that is traded at below $5. A penny stock is traded over the counter
However, many bih companies have stocks traded at less than $5/share
So, investors may define penny stock as any stock below $3 that is traded
Measuring singular risks IN CONTEXT
Some drawbacks of penny stock?
Lack of liquidity
Less regulatory standard
Large bid-ask spread
Small capitalization
Price volatility
-> They are highly speculative

ETF (Exchange Traded Fund): Quy hoan doi danh muc

EXP of a leveraged ETF investment:
Today, an investor buys a leveraged ETF at price of $100/share;
2:1 ratios
S&P 500 index
Next day: S&P climbs 2%
Expected rate of return vs. Required rate of return?
ERR reflects the return an investor anticipates receiving from an investment
RRR reflects the return an investor demands as compensation for postponing consumption and assuming risk. This rate depends on:
+ Risk-free rate
+
Types of investors:
+Risk-seeking
+Risk-neutral
+Risk-averse (generally)
If odds of winning or losing are identical(50/50), they are likely to reject the gamble

-Research individual securities

Understanding their own finance and risk profile
Having an idea of how much time and money

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Investment bank is a financial institution assisting the initial sale of securities in primary market
Investment bank underwrites securities, guaranteeing a price for a corporation's securities, selling them to the public and buying the rest if they are not sold out
Corporate bonds:
- Convertible bonds
- Warrants
*Unit 6: FINANCIAL MARKETS - Zero - coupon bonds vs. Coupon bonds
- High-yield bonds/Junk bonds
Thursday, May 11, 2023 4:41 PM

DERIVATIVES AND FUTURES

- Derivatives: instruments that are issued on the basis of existing instruments (stocks and bonds) - for a variety of purposes (spreading risks/protecting
profits/generating profits)
○ A financial security - contract between 2 or more parties whose value is based on an agreed-upon underlying financial asset, index or security
 Common underlying instruments: bonds, commodities, currencies, market indexes
 Common derivatives: futures - forwards - option - swap and warrant (chứng quyền) contracts
- Purposes:
○ Speculating: speculators seek to profit from changing prices in the underlying asset, index or security
○ Hedging: farmers who are committed to selling rice at a good price will be protected if prices fall
- Examples:
○ Commodity derivatives: used by farmers/millers (chủ nhà máy xay xát) to provide a degree of "insurance"
 Farmer - an acceptable price => profit from price rising
 Miller - a guaranteed supply => profit from price falling
 Although both have reduced risks by hedging - both remain being exposed to the risks of price changing
- Terms in derivatives:
○ Long position: means that the investor has bought the derivative instrument.
 The holder - owes the security and will profit from price rising
○ Short position (selling short): means that the investor has sold the derivative instrument
 The practice of selling assets - usually securities that have been borrowed from a third party (usually - a broker) => buying identical assets
back at a later date to return to the lender
- Terms in options:
○ Long call (mua quyền chọn mua): the buyer of a call option - the right to buy the underlying asset
○ Short call (bán quyền chọn mua): the seller of a call option - the obligation to sell the underlying asset
○ Long put (mua quyền chọn bán): the buyer of a put option - the right to sell the underlying asset
○ Short put (bán quyền chọn bán): the seller of a put option - the obligation to buy the underlying asset
○ Out of the money (lỗ):
 strike price > market price (call option)
 strike price < market price (put option)
○ In the money (lãi):
 strike price < market price (call option)
 Strike price > market price (put option)
○ At the money (hòa vốn): strike price = market price
- Example: Assuming a trader is long a call option on stock A:
○ Expects the price to rise => Having the right to buy the underlying stock
 Gain money if the stock price - the predetermined strike price > the premium
○ Expects the price to decrease => sells a call => Seller being obligated to deliver the shares to the long call holder (if the call option is exercised)
 Gain money = premium received by the buyer if: stock price < predetermined strike price
 Lose money if stock price - predetermined strike price > premium

FORWARDS:
- Forwards contract: an agreement between 2 parties to buy/sell an asset at a predetermined future point in time at a predefined price
○ Being a derivative - used to effectively hedge risk.
- Features:
○ Terms and features: are able to be determined and defined by counterparties to fit their specific needs
○ Counterparty's default risk: All parties - exposed to the counterparty's default risk
○ Trading market: the OTC market - directly (and privately negotiated) between 2 parties, without going through an exchange or other
intermediary
○ Underlying assets: can be stocks, bonds, foreign currencies, commodities or some combination thereof
○ Maturity and Liquidity: Tend to be held to maturity and have little/no market liquidity - settle at the end of the contract term
○ Any commitment between 2 parties to trade an asset in the future => a forward contract

FUTURES:
- Futures contract: a legal agreement - generally made on the trading floor of a futures exchange - to buy/sell a particular commodity or financial
instrument at a certain price at a specified time in the future
○ Buyer - is known as to hold a long position
○ Seller - is said to be having short position
- Features:
○ Usually closed out prior to maturity
○ Have no credit risk: The ability to trade future contracts - relies on clearing house (which manages the payments between buyer and seller)
 Clearing houses - usually large banks/companies offering financial services.
- Comparison between futures and forward contracts:
Forwards Futures
Exchange Private contract between 2 parties Traded on an exchange

TACN3 Page 9
 Contract terms Not standardized Standardized ones
Delivery dates Usually one specified delivery date Range of delivery dates
Settlement Settled at the end of contract Settled daily
Delivery Delivery or final cash settlement (usually) Contract is usually closed out prior to maturity
Risk Credit risk (available) Virtually NO credit risk.
- Purposes:
○ Speculation using futures:
 When an investor enters into a future contract without having exposure to the price of an underlying asset
□ In long position: gain money in case of price rising - lose money in case of price falling
□ In short position: lose money in case of price rising - gain money in case of price falling
 Loss profit maximum = the price of the product
○ Hedging using futures: to reduce risk
 When an investor enters into a future contract with exposure to the price of an underlying asset
□ Long position will hedge the risk: gain money in case of price falling - lose money in case of price rising
□ Short position will hedge the risk: lose money in case of price falling - gain money in case of price rising
P rises falls Hedge Speculation
profit + - Short position Long position
- + Long position Short position
 Example: an investor pays 50$ to possess a stock
□ If the stock price fall to below 50$ - he will lose => decide to enter a short position in the future contracts (help gain profit if the price
falls)
 In case of price fall as predicted => the loss in stock will be offset by the gain in future contracts

OPTIONS (Put/Call option):

- Terminologies:
○ Expiration date/Maturity: the date in the contract
○ Exercise price/Strike price: the price in the contract
○ An at-the-money (ATM) option: an option whose strike price is approximately equal to the present price of the underlying stock
○ An in-the-money (ITM) option:
 An ITM call: strike price i< the present price of the underlying
 An ITM put: strike price > the present price of the underlying
○ An out-of-the-money (OTM) option:
 An OTM call: strike price > the present price of the underlying => entire premium consists of only extrinsic value
- PUT OPTION:
○ Long put: When an investor has purchased a put option and currently owns the put - in the hope of the price of underlying stock/index FALLING
BELOW the strike price
○ Short put: When the seller of the option has the obligation to buy assets - no right to opt out if the buyer exercises his right to sell
 In the hope of the strike price being LOWER THAN the price of the underlying assets
EXAMPLE: Suppose that you write a put contract with a strike price of $40 which expires in 3 months. 100 shares + a three-month put with a
strike price of $40 => costs $4
 If the stock price is below $40 in three months => the option will be exercised
 If the stock price is below $36 in three months => the seller of the option will lose money
- CALL OPTION:
○ Related definitions:
 Underlying asset: the financial instrument (stock/futures/commodity/a currency/an index) on which a derivative's price is based
 Strike price: at which a specific derivative contract can be exercised
 Expiration date: the last day that an option/futures contract is valid
 Option premium: the income received by an investor who sellers/writes an option contract to another party.
○ 2 parties of the call option:
 The buyer: has the right - NOT the obligation to buy an agreed quantity of a particular commodity/financial instrument from the seller at a
certain time for a certain place.
 The seller/writer: has the obligation to sell the underlying instrument AT THE STRIKE PRICE if the buyer exercises the option
○ Usage:
 Buy a call option: expect the underlying asset's price rise
 Sell a call option: expect the underlying asset's price fall
○ Hedging and Speculation:
 Hedging (to buy/sell assets with a certain price):
□ A contract to buy/sell a commodity or financial asset at a prearranged price in the future as a protection/insurance against price
change
 Speculation:
□ Investors - buy assets at a higher price in the hope of making a capital gain/selling in the hope of buying them back at a lower price
□ Investors - engage in a certain position based on their beliefs/prediction on the market trend

- Comparison between Options and Futures contract

Main similarities

TACN3 Page 10
 ○ Main similarities
- Tools in the world of investment and finance
- Standardized agreements traded on an public exchange
- 2 parties (buyer and seller)
- Widely used to benefit from leverage (*) and for hedging purposes
(*): used to effectively multiply the power of the capital.
○ Differences
OPTION FUTURE
Obligation - Buyer - not obligated to complete the transaction Both are obligated to complete the contracts
- Seller - obligated to transact if the buyer chooses
Risk - Seller - unlimited risk Both are subject to unlimited risk
- Buyer - limited risk
Profit - Seller - limited potential to gain
- Buyer - unlimited potential to gain
Price behavior Price depends on both the price + the volatility of the underlying Prices - mainly affected by the prices of underlying assets
assets
Time Option can be exercised any time before the expire date specified On the date specified in the contracts.

SWAPS
- Interest swaps:
○ Definition: an agreement between 2 companies - to exchange interest payments
 One party paying a fixed rate - The other paying a floating rate
○ Features: Zero Sum Game
 Used to transform a floating rate loan into a fixed-rate loan (and vice versa)
○ Role of financial intermediary:
 Non-financial companies arranges a swap by dealing with bank/other institutions
 Financial institutions makes a profit on a pair of offsetting transactions
- Currency swaps:
○ Definition: an agreement - 2 parties exchange the principal amount of a loan + the interest in one currency for those in another.

THREE MAIN TYPES OF TRADERS:

- Hedgers: face risk associated with the asset price - to reduce risk
- Speculators: base on the future price movement to make profit - to accept risk to gain profit
- Arbitrageurs: take advantage of a discrepancy of prices in two different markets - no risk

DERIVATIVE MARKET IN VIETNAM

- In Vietnam
○ Buon Me Thuot coffee exchange:
○ Banks and financial institutions
=> in the need of having a derivative market with regulations and standards.
- Main points:
○ The launch of derivative markets has been approved by Prime Minister in 2014
○ After a period of 3-year preparation => the plan is scheduled to start in 2017
○ HNX has issued its membership for derivative trading
○ The market will initially start with stock index and government bond futures.

TACN3 Page 11
Unit 6: FINANCIAL MARKETS (cont.)
Tuesday, May 16, 2023 1:59 PM

INTRODUCTION
How company finance their activities?
Companies need money for?
- Business assets (buildings, machinery, furniture and franchise rights)
- Employees (employee salaries, commissions and bonuses)
- Insurance
- Debts
This money comes from:
- Small company: might use the savings of its owners/go to the bank and ask for a loan
- Larger, establishes company: be able to use a number of finance, usually both internal and external

SOURCES OF CAPITAL
• Internal sources of finance
○ Retained profits: the portion of net income that the company does NOT distribute to its shareholders as dividends
 RE = Beginning Re + Net Income = Dividends
 To be reinvested in its core business / To pay debt
○ Stock reduction (giảm hàng tồn kho): stocks - products of the firm - are kept ready for sale in warehouses/stockrooms
 Reducing its stock levels = Releasing the equivalent amount of money for its own use
○ Asset sales (Sale of assets): A company - sells its assets => the cash generated is used internally for financing the capital needs
 Drawback: benefits of useful assets which are sold can NO MORE accrued to the business => POSSIBLE SOLUTION: Sale and
Lease Back (bán và tái thuê)
○ Credit limit to customers: Generating money by cutting the total of outstanding invoices (unpaid invoices)
○ Depreciation: a part of their profits is kept back => for the depreciation of their assets (due to factors such as age and usage)
 These profits - help to fund the future replacement of the assets.
• External sources of finance
○ Banks:
 Overdrafts (thấu chi): be allowed to take more money out of your account than what is actually in it
 Secured loans: be allowed to borrow an amount of money - secured by some valuable possessions of yours legally signed over
to the bank
 Mortgages: a special form of secured loan - will be lent money in return for the security of property that you own.
○ Finance house: Hiring purchase or lease over paying the full amount to the supplier of goods - help delay the cash payments
 Hire purchase: companies - try to hire machines + equipment instead of buying => paying for the machine in installments
 Hire equipment by leasing: when a company leases a piece of equipment, it never intends to own it
○ Factoring company: collects money from the debtors on behalf of the business + charges a premium for this service
 involves the somewhat strange process of selling the company's bills.
○ Suppliers: to raise the finance by extending credit from suppliers.
○ Debentures (trái khoán tín dụng): documents given to people/institutions who lend money to companies
 Tell the lender when they can expect to be repaid + how much in interest they can expect to receive until then
 The interest is not paid in any one year - the holders can actually force the company - close down to be repaid.
 Holders - do not own the company
□ Do not have a vote
□ Have no say in running the business
□ Their interest - must be paid annually - paid out before anything is paid to the holders of shares.
○ Shares: the unit of equity ownership in a corporation
 Ownership - represented by a stock certificate, which names the company and the shareowner
 Shareholders - owner of one/more shares of stock in a corporation.
 A common shareholder - normally entitled to 4 basic rights of ownership:
□ Claim on a share of the company's undivided assets in proportion to number of shares held
□ Proportionate voting power in the election of directors and other business conducted at shareholder meetings/by proxy
□ Dividends when earned and declared by the Board of directors
□ Preemptive right to subscribe to additional stock offerings before they are available to the general public
 Classification:
□ Preference shares: carry a fixed rate of dividend (expressed as a percentage) - be paid out before the dividends to the
ordinary shareholders
 Do not have the right to vote
□ Cumulative preference shares: a type giving its owner the right to receive regular payment (dividend) from the company.
 Any shortfall => be carried forward to the next year
□ Participating preference shares: receive the usual fixed dividend - but may also participate in further dividends if any
money is left over after all dividends due on other shares have been paid.
 Issuing shares:

TACN3 Page 12
  Issuing shares:
□ Public issue
□ Offer for sale
 Placing
□ Rights issue
BONDS
- Background:
○ Long-term debt securities - issued by government agencies/corporations
○ Often classified according to the type of issuer
○ Maturities of between 10 - 30 years
○ Issued in the primary market through a telecommunication network
- Common basic characteristics: Face value - Coupon rate - Coupon date - Maturity date - Issue price - Others (Yield)
- Types of bonds
○ Government bond: a debt security issued by a government - to support government spending
 The gvm also issues things like zero-coupon/z-bonds - paying no coupon + are offered at a discount at sale.
○ Municipal bond (trái phiếu đô thị): a debt security issued by a state/municipality/country - to finance its capital expenditures
 Including the construction of highways, bridges or schools.
○ Corporate bond: a debt security issued by a corporation and sold to investors
 Convertible bond (trái phiếu chuyển đổi): debt issued by corporations - give the holder the option to convert the bonds into
shares of common stock at a later date
 Callable bond: can be redeemed by the issuer at some point prior to its maturity
○ Asset-backed securities (chứng khoán đảm bảo bằng tài sản): issued by banks/other financial sector participants
- Bond valuation:
○ Bonds - debt obligations with long-term maturities issued by governments or corporations => obtain long-term funds
○ Bonds - purchased by financial institutions wishing to invest funds for long-term periods
○ Bond price (value) = PV of cash flows to be generated by the bond

 C: coupon payment provided in each period

 Par: par value of bond
 k: required rate of return per period used to discount the bond (lợi suất yêu cầu)
 n: number of periods to maturity
○ Coupon payment = coupon rate x par value
- Factors affecting bond prices:
○ Required rate of return of a bond is determined by:
 Risk-free rate (lợi suất phi rủi ro) - of T-bill
 Credit risk premium (phần bù rủi ro tín dụng) -
- Bond risks:
○ Interest rate risk
 Interest rate rises => bond prices fall and vice versa
 The longer the time to a bond's maturity is, the greater its interest rate risks
○ Reinvestment risk: that CFs will have to be reinvested in the future at lower rates => reducing income
○ Inflation risk: that the purchasing power of a bond's cash flows may decline
○ Credit/Default risk: that the issuer of a bond is unable/unwilling to make interest payments or pay off the face value
○ Rating downgrades: that company whose bonds are invested in receive a rating downgrade
 Rating downgrade => higher required yield to compensate for the increased perceived risk => the market price of the bond
falls => holding period return HPR decrease
○ Liquidity risk: that investors may have difficulty in finding a buyer when they want to sell - may be forced to sell at a significant
discount to market value.

TACN3 Page 13
*Unit 8: MERGERS AND ACQUISITIONS (M&A)
Tuesday, June 6, 2023 1:07 PM

A TAKEOVER / AN ACQUISITION
- An acquisition: When one company takes over another and clearly establishes itself as the new owner
○ Legal view: the target company - ceases to exist - the buyer "swallows" the business => the buyer's stock continues to be traded
- A merger: When 2 firms agree to go forward as a single new company (rather than separately owned and operated) - Merger of equals
○ The firms - of about the same size
○ Both companies' stock are surrendered - New company stock - is issued in its place.
○ In practice: Actual mergers of equals - don’t happen very often

WAYS TO ACQUIRE A COMPANY

- A raid: buying as many of a company's stocks as possible on the stock market.
- A takeover bid: a public offer to a company's stockholders - to buy their stocks at a certain price during a limited period of time

TYPES OF MERGERS
- Horizontal: two companies - operating in the same space/competitors offering the same good or service - combined for the following
reasons:
○ To reduce competition
○ To increase market share
○ To acquire additional plants and equipment
○ To achieve synergy and economies of scales
- Vertical: a company either acquires/merges with another in an immediately-related stage of production and distribution for the following
reasons:
○ To guarantee the supply and cost of raw materials and components.
○ To be closer to the customers (by cutting out the wholesaler/dealing directly with the retail trade)
- Diversification: a company acquires another in an entirely different sphere for the following reason:
○ To move into a sector that promises a greater growth of profits.

BENEFITS FROM MERGERS

- Market share is increased
- Reduced cost of operations
- Elimination of competition and replication

PROBLEMS WITH MERGERS

- Damage of a company's image, goodwill and shared value.
- Unmanageable and inefficient structures (such as large conglomerates)
- Drainage of Human Capital (chảy máu chất xám)
- Cultural conflict
- Possible diseconomies of scale
- .

REASONS FOR ACQUISITIONS:

- Increased market power
- Overcome entry barriers
- Cost of new product development
- Increased speed to market
- Lower risk vs. new product
- Increased diversification
- Avoid excessive competition

PROBLEMS IN ACHIEVING SUCCESS:

- Integration difficulties
- Inadequate evaluation of target
- Large or extraordinary debt
- Inability to achieve synergy
- Too much diversification
- Managers overly focused on acquisitions
- Too large

KEY TERMS

TACN3 Page 14
Takeover Thâu tóm Buyout (= acquisition) Mua lại/mua thôn tính
Merger Sáp nhập LBO (leveraged buyouts) Mua lại dùng đòn bẩy tài chính cao
(mua lại ts = vay tín dụng)
Acquisition Mua lại MBO (leveraged buyouts)
A raid (= a takeover) Thâu tóm Hostile

management buyout

TACN3 Page 15
*Unit 9: BANKING
Tuesday, April 18, 2023 1:33 PM

CENTRAL BANK (a.k.a Reserve bank/Monetary authority):

- Definition: the entity responsible for the monetary policy of a country or a group of member states.
○ Can lend money to other banks in times of need.
- Roles:
○ Central bank controls the nation's money supply
○ Central bank acts as a lender of last resort (người cho vay cuối cùng)
○ Central bank has supervisory powers
- State Bank of Vietnam (SBV)
○ Established on 6 May 1951 - located on Ly Thai To Street, Hanoi
○ Main financial regulatory agency
○ Subsidized loan: khoản trợ cấp của chính phủ

COMMERCIAL BANK
- Defintion: a type of financial institution that provides services (accepting deposits + making business loans + offering basic invesment products)
- Roles
○ To provide financial services to general public and business => ensuring economic and social stability and sustainable growth of the economy
○ To accept various type of deposits from public
 Recurring account deposit (tài khoản tiền gửi định kỳ)
 Fixed deposit (tài khoản tiết kiệm)
○ To provide loans and advances of various froms (an overdraft facility - cơ sở thấu chi, cash credit, bill discounting, money at call etc.)
- Classification
○ 7 state-owned commercial banks (SOCBs)
○ 28 joint stock commercial banks (NHTM cổ phần) (JCSBs)
○ 8 wholly foregin-owned banks
○ 2 joint-stock venture banks (NH liên doanh)
- Services
○ Deposit/Investment account
○ Payments
○ Bank guarantee (bảo lãnh ngân hàng)
○ Lending
○ Factoring (bao thanh toán)
○ Foreign exchange
○ Corporate bond (TPDN)
○ Internet banking (giao dịch NH số)

INVESTMENT BANK
- Responsibilities:
○ Dealing with raising capital
 IPO (phát hành lần đầu)
 Private placement (phát hành riêng lẻ)
 FPO (phát hành thêm)
○ Trading in securities
○ Underwriting securities (bảo lãnh phát hành chứng khoán)
○ Managing corporate merges and acquisition
○ Providing research and financial advisory services to companies
- Note:
○ Derivation: chứng khoán phái sinh
○ Fixed income: công cụ thu nhập cố định
○ Equity security: chứng khoán vốn

MERCHANT BANK (ngân hàng bán buôn)

- Definition: A combination of banking and advisory services
- Functions:
○ Dealing with international financial activities
○ Providing advisory to its clients in various scenarios
- Feature:
○ Client: middle-sized organizations
○ Revenue: advisory fee
- Note:
○ Trade financing: tài trợ thương mại

DIFFERENCES BETWEEN INVESTMENT BANK AND MERCHANT BANK

Basis Investment Bank Merchant Bank

TACN3 Page 16
 Basis Investment Bank Merchant Bank
Activity - Traditional well known for international financial activities
- Engaged in the underwriting and issuance of shares
Merger n Acquisition Assist companies in the acquisition and merges Traditional merchant bank - do not assist in the M&A of companies
Scale Mainly focus on large scale private and public companies Mainly provide services to small scale companies
Trade financing N/A Available

UNIVERSAL BANK (a.k.a Conglomerate/Integrated Bank/Bundled Bank) (ngân hàng đa năng)

- Definition: A type of bank participating in many kinds of banking activities
○ Acts as a combination of a commercial bank, an investment bank and other forms (insurance)
- Functions:
○ Providing wealth and assset management
○ Trading, underwriting and researching as well as financial advisory
- Role:
- Advantages and Disadvantages:
○ Advantages:
 Economies of Scale
 Profitable Diversions
 Resource Utilization
 Easy marketing on the foundation of a brand name
 One-stop shopping
○ Disadvantages:
 Grey Area of Universal Bank
 Non-performing assets (tài sản không tạo thu nhập) problem remained
 No expertise in long-term lending
- Note:
○ Syndicated lend: khoản cho vay tập đoàn
○ Custody: nghiệp vụ cất giữ tài sản
○ Mutual fund: quỹ tương hỗ
○ Bad loan: nợ xấu

SUPRANATIONAL BANK, a.k.a Multilateral (đa phương) Development Bank - MDBs (ngân hàng phát triển đa phương)
- An international financial institution:
○ Created by a group of countries - provides financing and professional advising for the purpose of economic growth
- MDBs finance projects in the form of long-term loans at market rates + very-long-term loans (aka credits) below market rates and through grants (trợ
cấp) => considered as part of the sub-sovereign debt market (thị trường nợ chính phủ)
- Classification:
○ Sub-regional MDBs: Their membership typically includes only borrowing nations.
 The bank - lends to their members + borrows from the international capital markets.
○ Multilateral financial institutions (định chế tài chính đa phương): MFIs are similar to MDBs
 Sometimes - have more limited memberships
 Often focus on financing certain types of projects.

BUILDING SOCIETY (tổ chức cho vay thế chấp)

- Definition: A financial institution, owned by its members
○ Offers banking and other financial services - esp mortage lending (cho vay thế chấp)
- Feature:
○ Invest its profit back into the socity's business
○ More personal, approachable and trustworthy than banks
○ Rely on advice about mortages or other financial services

FINANCE HOUSE (công ty tài chính)

- Definition: abc
- Services:
○ Personal loan (khoản cho vay cá nhân)
○ Asset-based loan (khoản vay có tài sản đảm bảo)
○ Factoring
○ Instalment loan (khoản vay trả góp)

CURRENT ACCOUNT, a.k.a checking account (tài khoản vãng lai)

- Acts as an important indicator about an economy's health.
○ Is defined as the sum of the balance of trade (cán cân thương mại)
- One of two major measures of a country's foreign trade
○ Trade surplus: if its exports exceed its imports
○ Trade deficit: if its imports exceed its exports
- During an economic expansion:

TACN3 Page 17
 - During an economic expansion:
○ Exports are unable to grow at the same rate => CA's deficit widens.

DEPOSIT ACCOUNT (tài khoản tiền gửi)

- Unable to be withdrawn for a preset fixed term or period of time.
- Able to be rolled over for another term.
- The longer the term, the better the yield on the money.
- Deposit accounts provide banks the funds - necessary to lend money to other individuals or entities.
- The bank makes profit from those seeking funds charging a rate higher.
- The term - minimum of 30 days.

DIFFERENCES BETWEEN CURRENT ACCOUNT AND DEPOSIT ACCOUNT

Current account Deposit account
Meaning For the purpose of securely and quickly providing frequent access to A fixed sum of money is deposited into a bank account for a fixed
funds on demand - through a variety of channels. period.
Purpose To facilitate regular transactions To earn sum of money through interest rate
Operator Businessmen + organization that have a higher number of regular Individuals and organizations that have idle money (khoản tiền nhàn
transactions with the bank rỗi)
Interest No interest is paid Very high interest
Maturity No maturity Fixed period and can be further renewed
Withdrawal Be allowed without any restriction Be unallowed unless a penalty is paid
Cheque The holders - get cheque facilities (usually for withdrawal) Do not get a cheque book but a deposit receipt (biên lai gửi
book tiền/phiếu gửi tiền)

PERSONAL ACCOUNT
- An account for use by an individual for their own needs
- Use to differentiate them from those accounts for corporate or business use
- May be used generically for fiancial accounts at banks and for service accounts such as accounts with the phone company, electric company...

CHEQUE
- A negotiable document:
○ Orders a bank to pay a specific amount of money from a person's account to the person whose name is on the cheque that has been issued.
○ Both the drawee and the payee - may be natural persons/legal entities.
- Parts of cheque:
○ 7 - Drawee + Payee + Date of issue + Amount of currency + Drawer + Machine readable routing and account information + Counterfoll (cuống séc)

TACN3 Page 18
*Unit 10: PAYMENT METHODS IN INTERNATIONAL TRADE
Tuesday, June 20, 2023 12:34 PM

PAYMENT TERMS IN FOREIGN TRADE (according to the increasing level of risk)

Cash in advance
- Definition: in which full/significantly partial payment is required before the ownership of the goods is transferred
○ The most secure and least risky method of international trading for exporters
- Applicability:
○ Political unrest (bất ổn chính trị): high political and commerical risks of the importer's home country
○ Goods made to order (hàng theo yêu cầu): the exporter's product is unique/in heavy demand
○ New and unfamiliar customer: importer - a new customer + less-established operating history
 The importer's creditworthiness (uy tín trả nợ) is doubtful/unsatisfactory/unverifiable
- Risks:
○ To exporter: exporter - exposed to virtually no risk
○ To importer: shipping per the order is not implemented/exporter - does not ship per the order
 Exporter - does not ship when requested
 Least attractive option for the buyer due to the possible creation of unfavorable cash flow
- Pros and Cons
○ Pros:
 Payment before shipment
 Risk of non-payment is eliminated
○ Cons:
 Customers may be lost to competitors
 The shipment of the goods is not guaranteed by payments
Letter of credit - most secure for both buyers and sellers
- Definition: a legal document issued by banks/financial institutions
○ To guarantee that a buyer's payment to a seller - will be received on time + for the correct amount
○ A promise - to pay the holder, if the holder fulfills certain obligations
○ The bank - will be required to cover the full/remaining amount of the purchase
- Parties involved
○ LC Applicant (bên yêu cầu mở LC): the buyer/the party initiation the request to the Issuing Bank to issue a LC
○ LC Beneficiary (bên thụ hưởng): the seller/the party receiving payment under the LC
○ Issuing Bank (NHPH): issuing the LC in favor of a seller at the request of a buyer
○ Advising Bank (NHTB): notifying the LC beneficiary of the issuance of an LC in his favor
○ Confirming Bank (NHXN): adding its own undertaking to pay the LC beneficiary
- Classification
○ Commercial LC (thư tín dụng thương mại): a DIRECT/PRIMARY payment method in which the issuing bank makes the payments to the
beneficiary
○ Standby LC (thư tín dụng dự phòng): a SECONDARY payment method in which the bank pays the beneficiary only when the holder
cannot
○ Revocable LC (thư tín dụng có thể hủy ngang): CAN be cancalled or modified by the Issuing Bank at the customer's instructions without
prior agrrement of the beneficiary
○ Irrevocable LC (thư tín dụng không thể hủy ngang): the issuing bank is NOT ALLOWED to make any changes without the approval of the
beneficiary
○ Confirmed LC (thư tín dụng có xác nhận): involves a bank other than the issuing bank guaranteeing the LC
 The 2nd bank - the confirming bank (typically the seller's bank) and it ensures payment under the LC if the holder and the issuing
bank default
○ Unconfirmed LC (thư tín dụng không có xác nhận): only the Bank issuing the LC will be liable for payment of this LC
- Applicability: LC - often used when buyers and sellers do not know each other
○ Especially common in international trade/are used in domestic business
- Advantages:
○ For exporter: credit risk is eliminated in case the order is changed/cancelled
 Pre-shipment risk protection
○ For importer: shipment assured
 Document inspected
 Better sales term may be allowed
 Relatively low-cost financing is possible
 Easy cash recovery if discrepancies arise
- Process
(The importer)
Complete a contract with the exporter - Fill in an L/C application form and sends it to bank for approval - The importer's bank (issuing

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 Complete a contract with the exporter - Fill in an L/C application form and sends it to bank for approval - The importer's bank (issuing
bank) approves the application + sends the LC details to the exporter's bank (advising bank)
(The exporter)
Draft/Bill of exchange (hối phiếu)
- Definition: a written financial document
○ An unconditional order for a sum of money, involving three parties - drawer - drawee - payee
○ Draft is drawn by the drawer - to direct a drawee to pay a definite sum of money to a payee - on demand/at a specified future date.
- Classification (based on timings of payment):
○ Sight draft (hối phiếu trả ngay): which is payable when it is presented
○ Time draft (hối phiếu trả chậm): payable at a fixed future date/a determinable future time such as 30 days after presentation (after
sight)
○ Drafts can be converted to a Banker's Acceptance (chấp phiếu ngân hàng) - which then can be traded on a secondary market, reducing
risks.
Bill for Collection (nhờ thu)
- Definition: in which the exporter hands over the task of collecting payment for the goods supplied to their bank
- Classification:
○ Clean collection (nhờ thu trơn)
○ Document Against Payment (thanh toán đổi chứng từ)
○ Document Against Acceptance (chấp nhận đổi chứng từ)
- Pros and Cons
○ Pros:
 Lesson the work for both parties by transferring the payment collection duty to their bank
 The payment process is less complicated and less costly compared to using a LC
○ Cons:
 High costs to return the unpaid-for goods that have been shipped
 The risk of non-payment still presents
 In case of an importer's default on the D/A terms, the exporter would have to collect the payment themselves
Open account (ghi sổ)
- Definition: a credit sale where the goods are shipped and delivered before due payment, usually in 30 to 90 days
○ Most advantageous option to the importer in cash flow and cost terms, but it is consequently the highest risk option for the exporter.
- Applicability: only used for transactions between exporters and importers which have already established a trustworthy and long-term
business relation.
- Risks:
○ To exporter
 Payment is blocked due to political events in buyer's country
 Payment may be delayed by the importer
 Payment may not be made
○ To importer
 Shipment per the order may not be performed (product/quantity/quality/shipping method)
 Shipment is not performed when requested, either early or late.
- Pros and Cons
○ Pros:
 Greater flexibility in making trade
 Saving time for both exporter and importer
 A successful trade relationship is established and maintained
 Competitiveness in the global market is boosted
 Transaction costs are lowered
○ Cons:
 Exposed significantly to the risk of non-payment
 Additional costs associated with risk mitigation measures
 Highly vulnerable to government currency control

DOCUMENTS USED IN FOREIGN TRADE

Bill Of Lading
- Definition: a document issued by the shipping company after the shipment of goods
○ A contract between the exporter/the shipper and the shipping company - for the carriage of goods from the port of loading to the port
of destination
- Functions:
○ Acts as a contract to carry the goods
○ Acts as a shipper's receipt
○ Establishes ownership over goods if negotiable
Commercial Invoice:
- Definition: essentially a bill from the seller to the buyer - describing the parties to the agreement, the goods to be sold, and the terms
involved, as agreed between the seller and buyer
- Components:

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 - Components:
○ Name & address: of the exporter
○ Description of the goods: quantity + weight + value of goods
○ Trade terms: trade terms + location associated with the terms
○ Freight and insurance: charges for transport and insurance
Insurance Certificate
- Definition: issued by an insurance company - certifies that an insurance policy has been bought + shows the most importance provisions of
the insurance contract
- Lists:
○ The effective date of the policy
○ The type of insurance coverage purchased
○ The types and dollar amount of applicable liability

FINANCING TECHNIQUES
Bankers' Acceptance (chấp phiếu ngân hàng)
- Definition: the time draft/bill of exchange drawn on an acceptance by a bank
○ Accepting the draft => the bank makes an unconditional promise to pay the holder - the specified amount of money on maturity
- Functions: Used for international trade - means of ensuring payment
- Advantages
○ Exporter - collects funds by selling Ba in the market
○ Foreign exchange risk - is eliminated by the exporter
○ Future payment of draft is guaranteed by importer's bank
Discounting
- Definition: trading/selling a draft prior to the maturity date at a value less than the par value of the bill
○ The amount of the discount - depends - on the amount of time left before the maturity + the perceived risk attached to the bill
- Features:
○ Low cost financing with few fees
○ Perhaps with/without recourse
 With recourse (có truy đòi): the bank - CAN make the exporter liable - in case of default in payment by the importer
 Without recourse (miễn truy đòi): the bank - has NO RECOURSE to the exporter + takes liability for non-payment
○ The importer's credit sales is converted into cash by discounting the draft
Factoring
- Definition: in which a business would sell its accounts receivable (khoản phải thu - invoices) of short maturities to a third party (factor) =>
meet its short-term liquidity needs (nhu cầu thanh khoản ngắn hạn)
○ Discount charged by a factor
○ 2 types: recourse factoring - non - recourse factoring
- Applicability:
○ Clients geographically dispersed (rải rác) => occasional exporting
Forfaiting
- Definition: allows exporters to obtain cash by selling their medium and long-term foreign accounts receivable at a discount - on a "without
recourse" basis
○ Forfaiter: a specialized finance firm/a department in a bank - performing non-recourse export financing
○ Current minimum transaction size: $100,000
- Applicability: most popular in Europe
○ Exports of capital goods/commodities
○ Large projects on medium + long-term credit (180 days to 7 years or more)
- Advantages:
○ The risk of non-payment by foreign buyers is eliminated with 100% financing of contract value.

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REVISION
Monday, June 26, 2023 3:53 AM

ESSAY
1. What are the possible advantages and drawbacks companies may deal with when a merger happens/a successful
merger? (Unit 8)
- Advantages:
○ Increase in market share
 When companies merge, the new one gains a larger market share and gets ahead in the competition
 Thereby, their financial position in the market is enhanced significantly.
○ Elimination of competition/competitors and replication
 Companies with similar products may merge to prevent the increase in duplication and elimination of
competition.
○ Economies of scale
 The achievement of economies of scale, such as bulk buying of raw materials, resulting in cost reductions.
 Reduction in the cost of operations
 The investments on assets are now spread out over a larger output, which leads to technical economies.
- Drawbacks
○ Cultural conflict => reduction in the number of personnel/lay-off
 Difference in culture exists => gap in communication and affect the performance of the employees
 Unsatisfactory working environment => underperforming risks of staff
○ Unmanageable and inefficient structure, especially large conglomerates
 May find it hard to achieve the same degree of control as previous
 May undergo possible diseconomies of scale from the increased size.
 More unlikely to create and maintain synergy

2. How does the stock price affect the company?/Why are share prices important to business?
- Generally reflects the company's overall financial health
○ The trajectory of the stock price is evaluated by analysts to gauge its general health
○ Analysts also rely on its earning history and Price to earnings (P/E) ratio, which signal whether a company's share
price adequately reflects its earnings
○ All of this data aids analysts and investors in determining the company's long-term viability
- Makes an effect on the decisions of financing of investors
○ Having a healthy share price => more likely to receive equity financing which helps finance for the expansion of
operations, acquisitions and debt pay-off.
○ Also: creditors - in favor of companies with higher-priced shares that typically correlate with their earnings.
 Better able to deal with long-term debt repayments, which highlights their high possibility of attracting
lower-interest-rate loans, thereby strengthening their balance sheet
- Link with the prevention of a takeover
○ The fall in a company's stock price leads to a higher likelihood of a takeover, for the fact that its market value is
cheaper.
○ Therefore, a company whose shares trade at high prices is better positioned to take over a competitive interest,
which is able to discourage the risk of being taken over.

3. Which is the most secure and popular payment method? (LC - unit 10) / documentary credit
○ Definition:
○ A legal agreement to pay against the document
○ To guarantee the payment of the buyer being on time and with the correct amount
○ A promise to pay the holder if the holder manages to fulfill his obligations
○ The bank is required to pay the total/remaining amount of the purchase
○ Most secure method for international traders due to its two important principles:
○ Autonomy:
 LC is an agreement by a bank to pay against document
 A separate contract from the sales contract and is unrelated to it

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  A separate contract from the sales contract and is unrelated to it
 The bank is required to pay whatever disputes between the seller and the buyer
○ Strict compliance
 The bank will only pay if the shipping documents are exactly in line with the buyer's instructions
 If the bank refuses to pay, this cites a discrepancy indicating an aspect of the document not being in
line with the terms of the credit.
○ Risks and problems associated with LC
○ There are a very few risks possibly arising because potential problem areas related to it can be easily
eliminated
○ However, the correct presentation and strict compliance with the terms and conditions of the credit must
be performed to effect the full payment.
 Failure to do so can lead to the exporter losing his protection of the credit.

4. The functions of central bank (3 - unit 9)

- Controls the money supply of a country
○ To ensure a nation's economy remains healthy => regulates the amount of money in circulation
○ Tools: influencing interest rates, in charge of money printing, setting bank reserve requirements
 Central bank mandate depository institutions to keep a certain amount of funds in reserve => always kept
back and never circulates
○ Other tactics: open market operations and quantitative easing, involving the acts of selling out or buying up
securities
- Acts as the lender of last resort
○ Provides emergency credit to financial institutions that are struggling financially and near collapse/financial crisis
○ However - some argue - having a lender of last resort => moral hazard - bank can take excessive risks knowing
that they will be bailed out
- Has supervisory powers
○ Oversee the inter-bank market => to ensure that the relevant financial laws are respected
○ Monitor the whole national payment system => make sure that they are working properly

5. How does the central bank use monetary policies to control inflation?
- In a purely economic sense, inflation refers to a general increase in price levels, also the decrease in the purchasing
power of money.
○ This happens due to an increase in the quantity of money, the growth of the money stock increases faster than
the level of productivity in the economy.
○ This leads to a general decrease in prices and the cost of living, which many economists paradoxically interpret to
be harmful to the health of the economy.
○ Therefore, most central banks pursue a certain monetary policy to hold back inflation.
- Practices: Use inflation targeting in order to keep economic growth steady and prices stable
○ If prices rise faster than their target, central banks tighten monetary policy by increasing interest rates or other
hawkish policies
 Higher rates => more expensive borrowing/reducing money supply => curtailing both consumption and
investment, both of which reply heavily on credit.
○ If inflation falls and economic output declines, the central bank will lower interest rates and allow cheaper
borrowing, along with several other possible expansionary policy tools.
6. Main purposes of derivatives
- Hedging: the intention of reducing risks of losing value due to adverse movements of price in the asset
○ The value of the derivatives is linked to the value of the underlying asset => risk mitigation is of importance
○ By hedging - the losses are offset by the profits in the derivative contract
- Speculation: the investments that hold a substantial risk but also expects a significant gain or other major profit.
○ Decisions are made based on the speculator's guesses regarding the market changes
○ Extremely risky and associated with high possibility of huge losses.
SHORT QUESTIONS
1. The difference between futures and forward contracts is …………………………………….
2. Producers and buyers often choose to hedge because ………………………………………...
3. Speculators can make money on currency futures if ………………………………………….
4. If you believe that a share price will rise, possible option strategies include………………….

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 4. If you believe that a share price will rise, possible option strategies include………………….
5. On the contrary, if you think a share price will fall, possible option strategies include……....
6. The risk with currency and interest rate swaps is that ………………………………………...
7. What are the obligations of companies whose shares are traded on stock exchanges?
8. What is an over-the counter market?
9. What does a company normally do if it wishes to raise further share capital?
10. What is a bonus issue?
11. What rights do shareholders have?
12. Distinguish spot exchange rate and forward exchange rate?
13. Distinguish nominal interest rate and real interest rate
14. Distinguish demand and time deposit
15. How do interest rates affect exchange rate?
16. What are the reasons of horizontal merger/vertical merger?

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