1.Show 4 players of money demand of the economy?

Describe role of one

player in money demand in Vietnam economy?

- Demand for money is the relationship between the quantity of money

people want to hold and the factor that determine that quantity
- Four playes of money is
+ Institutions
+ Individuals
+ Banks
+ Government
- Role of Individuals ( Bussiness) in money demand in Vietnam
economy :
- - Example: An institution need money to buy its equipments, goods or
need it for investment opportunities…

2. Which of the following three expressions uses the economists’ definition of

money? Explain the reason briefly.

“How much money did you earn last week?”=> Income

“When I go to the store, I always make sure that I have enough money.”

“The love of money is the root of all evil.”=> Quan điểm cá nhân

 Money is everything excepted generally in payment for goods or services or

in repayment of debts.
 Currency (paper money and coins)
 Check
 Saving deposit

Following the economists’definition of money, expression 2 is true about

money. Because in economist, money is every thing excepted generally in payment
for good or services or in repayment of debt. So in expression 2, when you come to
store, you will buy something that you want and you use money to pay it.

3. Present instruments of Capital Market? Give an example in Vietnamese

Capital Market?

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 - Capital market is the market in which longer-term debt and equity
instruments are traded.

- Tools on the capital market:

Bond

• A bond is a debt investment in which an investor loans money to an entity

which borrows the funds for a defined period of time at a variable or fixed
interest rate.

• Government Bonds : Bonds sold by the U.S. Department of the Treasury.

• Municipal Bonds: Bonds issued by state or local governments

• Revenue bonds are used toward a project that will produce revenue
(projects on road, bridge…). Interest and principle is paid on the basis
of the income of the project.

• General Obligation Bonds: the local governments guarantee that they

will pay interest and principle by all their financial receipt and tax
revenue

• Corporate Bonds: Issued by corporations

Stock; Stock is a type of security that signifies ownership in a corporation and

represents a claim on part of the corporation's assets and earnings.

• Common stock – ownership claims in corporations.

– Vote on major company decisions

– Cash dividends

– Price appreciation

Preferred stock – stockholders with preference in the payment of dividends

Convertible Securities: Stockholder has the right to exchange the bond or

preferred stock for a fixed number of shares of common stock.

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  Example about Vietnamese Capital market:
After more than 30 years of reform and renovation (1986-2017), the capital
market in Vietnam (stock market, banking credit market and insurance
market) has made remarkable achievements. positive for the process of
innovation and economic development. Specifically:
Firstly, it has met the demand for capital mainly for the economy in recent
years. In 2000, most of the capital of businesses was borrowed from the
banking system with a credit debt of 40% of GDP, with a market cap of
0.28% of GDP. By 2017, outstanding loans are over 130% of GDP and the
stock market capitalization is over 70% of GDP. In addition, total
outstanding debt of the bond market in 2017 reached 37.45% of GDP, of
which government debt outstanding reached 27.4% of GDP.
- The capital markets in Vietnam are divided into 2 categories:
+ The primary market, where newly issued securities are sold and bought;
and
+ The secondary market, where securities are sold or bought after the stock
is sold at the primary market: Hanoi and Ho Chi Minh city Stock Exchanges
and the OTC trading market
- Some of the instruments used in Vietnamese Capital market:
+ Stocks market: The system of securities business and service organizations
has rapidly developed in terms of quantity, scale of capital, operations and
technology.
+ Insurance market: Up to now, there have been 6 life insurance companies
operating in the life insurance sector

4. Is cash the best store of value? Why or why not? When are you willing to
hold cash for storing value?

- Cash is a kind of money and it has a function of storing value.

 Store of value:
+ Save purcharing power from the time income is receivrd to the time it os
spent
+ Money : the most liquid asset but not the most attractive store of value
+ Help banking syterm develop

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 - Cash is not the best way to store value. Because the function of
storing the value of money depands on the stability of the general
price level, as the value of money is determined by the volume of
good that it can be exchanged. When the price increases, the value of
money goes down and the opposite. The rapid devaluation of the
money will make people out lesstqant to keep it, this happens when
hyperinflation occur.
- We will hold cash for storing value when the price level is stable and
the economic does not have high inflation.

5. Are you willing to give up using cash and instead use an electronic means of
payment? Why or why not?

- Cash ( Fiat money) : is currency that a government has declared to be

legal tender but is not backed by physical commodity
- Electronic money: money that exists only un electronic form ( Debit
card Visa card or Master Card)
- Pros and Cons :
Cash:
Pros :
 Convenience : although there are rare ossacsions where businesses
won’t take cash nearly every retailer accept it.
 There are no transaction fees with cash like there are with credit
cards.
 Minizines bookkeepimg, which means less stress and less hassle.

Cos:

 Money in the drawer can be tempting for emplayees to steal

 A safe needs to be on site or frequent trips to the bank for
deposits must be made which takes time and money.
 Money at your location increases yours rick for theft not just
from employees but criminals as well.
E-money

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 Pros:
 Credit cards are safer than cash.
 Become the most common method of payment, and customers
except the ability to pay by credit card at any location
 Accepting credit card increaser cash flow.Credit card transactions
are deposited directly into your account no need to head to the
bank
 Accepting credit cards creates legitimacy. Customers see those
credit card logos on your door, the brands they trust that are in
their wallet, and strangely enough, there is a transference of
confidence to your business.

Cos:

 Credit Cards can add another level of difficulty to bookkeeping and

accepting credit cards can be an added monthly expense in most
cases.
 Credit cards do come with risks such as chargebacks and fraud.
 Refunds on credit cards are not immediate. Many steps are involved in
issuing refunds, the general rule of thumb for a refund to be processed
on a credit card is 2-30 days depending on many factors.

- I think I will use both of them. Because nowdays in Vietnam, using E-means of
payment doesn’t popular so using cash is more easier to pay and when you needs
money in emergency, you can use cash immediately. On the hands, electronic
means of paymeantsill has many profit.

6. Definition of inflation? Describe 3 main types of inflation? Give an example

of galloping inflation in Vietnam.

 Define of inflation :
- Inflation is an increase in the overall level of prices.

- Inflation is not an increase in the price of a specific good or service relative

to the prices of other goods and services.

 3 main types of inflation :

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 1. Creeping inflation: prices rise 3 percent a year or less
2. Walking Inflation: inflation is between 3-10 percent a year
3. Galloping Inflation: inflation rises to 10 percent or more a year
4. Hyperinflation: prices skyrocket more than 50 percent a month

 Example of galloping inflation in Vietnam:

- By the end of 2008, inflation in Vietnam reached 12.6%. Some of
the causes of Vietnam's high inflation are externally induced such as
dramatic increasesin the international prices of food, fuel and construction
materials have a large impact on domestic prices, but others are home-made
such as the unsterilised liquidity inflows, unusually high domestic credit
growth, expansionary fiscal policy, and aggressive public
investment were the principal home-made causes of Vietnam's high
inflation.
7. Present causes of inflation?

 Quantity theory: too much money in the economy causes inflation:

 Demand pull theory:
- Cause :
+ A growing economy: people buy more thing -> demand rises -> price rise
-> inflaton
+ Asset inflation : Export increses -> domestic products decrease -> price
increase-> inflation
+ Government spending
+ Inflation expectation
 Cost push theory: When producers raise price to meet increased costs, leads
to wage price spiral
- Cost push inflation develops because the higher cost of production fators
decreases in aggregate supply in the economy. Since ther are fewer goods
being introduced “( supply weaken) and demand for there goods remains
consistent the prices of finished goods increase
- Wage price spiral:

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8.Present effects of inflation?

i. Income redistribution: One risk of higher inflation is that it has a

regressive effect on lower-income families and older people in society. This
happen when prices for food and domestic utilities such as water and heating
rises at a rapid rate
ii. Falling real incomes: With millions of people facing a cut in their wages or
at best a pay freeze, rising inflation leads to a fall in real incomes.
iii. Negative real interest rates: If interest rates on savings accounts are lower
than the rate of inflation, then people who rely on interest from their savings
will be poorer. Real interest rates for millions of savers in the UK and many
other countries have been negative for at least four years
iv. Cost of borrowing: High inflation may also lead to higher borrowing costs
for businesses and people needing loans and mortgages as financial markets
protect themselves against rising prices and increase the cost of borrowing
on short and longer-term debt. There is also pressure on the government to
increase the value of the state pension and unemployment benefits and other
welfare payments as the cost of living climbs higher.

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 v. Risks of wage inflation: High inflation can lead to an increase in pay claims
as people look to protect their real incomes. This can lead to a rise in unit
labour costs and lower profits for businesses
vi. Business competitiveness:If one country has a much higher rate of inflation
than others for a considerable period of time, this will make its exports less
price competitive in world markets. Eventually this may show through in
reduced export orders, lower profits and fewer jobs, and also in a worsening
of a country’s trade balance. A fall in exports can trigger negative multiplier
and accelerator effects on national income and employment.
vii. Business uncertainty: High and volatile inflation is not good for business
confidence partly because they cannot be sure of what their costs and prices
are likely to be. This uncertainty might lead to a lower level of capital
investment spending.

Overall, a high and volatile rate of inflation is widely considered to be damaging

for an economy that trades in international markets. In your analysis focus on the
impact on

• Uncertainty / business and consumer confidence

• The competitiveness of producers in international markets

• The effects on the real standard of living

• The possible impact on levels of income inequality

9.What is inflation? Describe the effects of creeping inflation?

 Define of inflation :
- Inflation is an increase in the overall level of prices.
- Inflation is not an increase in the price of a specific good or service
relative to the prices of other goods and services.
 Effects of creeping inflation
- Encourages Spending and Investing
A predictable response to declining purchasing power is to buy now, rather than
later. Cash will only lose value, so it is better to get your shopping out of the way
and stock up on things that probably won't lose value.

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For consumers, that means filling up gas tanks, stuffing the freezer, buying shoes
in the next size up for the kids, and so on. For businesses, it means making capital
investments that, under different circumstances, might be put off until later. Many
investors buy gold and other precious metals when inflation takes hold, but these
assets' volatility can cancel out the benefits of their insulation from price rises,
especially in the short term.

Over the long term, equities have been among the best hedges against inflation. At
close on Dec. 12, 1980, a share of Apple Inc. (AAPL) cost $29 in current (not
inflation-adjusted) dollars. According to Yahoo Finance, that share would be
worth $7,035.01 at close on Feb. 13, 2018, after adjusting for dividends and stock
splits. The Bureau of Labor Statistics' (BLS) CPI calculator gives that figure as
$2,449.38 in 1980 dollars, implying a real (inflation-adjusted) gain of 8,346%.

Say you had buried that $29 in the backyard instead. The nominal value wouldn't
have changed when you dug it up, but the purchasing power would have fallen to
$10.10 in 1980 terms; that's about a 65% depreciation. Of course not every stock
would have performed as well as Apple: you would have been better off burying
your cash in 1980 than buying and holding a share of Houston Natural Gas, which
would merge to become Enron.

- Causes More Inflation

Unfortunately, the urge to spend and invest in the face of inflation tends to boost
inflation in turn, creating a potentially catastrophic feedback loop. As people and
businesses spend more quickly in an effort to reduce the time they hold their
depreciating currency, the economy finds itself awash in cash no one particularly
wants. In other words, the supply of money outstrips the demand, and the price of
money – the purchasing power of currency – falls at an ever-faster rate.

When things get really bad, a sensible tendency to keep business and household
supplies stocked rather than sitting on cash devolves into hoarding, leading to
empty grocery store shelves. People become desperate to offload currency, so that
every payday turns into a frenzy of spending on just about anything so long as it's
not ever-more-worthless money.
10.Analyze the performance of galloping inflation in the economy?

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For example, individuals with tangible assets, like property or stocked
commodities, may like to see some inflation as that raises the value of their assets
which they can sell at a higher rate. However, the buyers of such assets may not be
happy with inflation, as they will be required to shell out more money.

People holding cash may also not like inflation, as it erodes the value of their cash
holdings. Inflation promotes investments, both by businesses in projects and by
individuals in stocks of companies, as they expect better returns than inflation.

However, an optimum level of inflation is required to promote spending to a

certain extent instead of saving. If the purchasing power of money remains the
same over the years, there may be no difference in saving and spending. It may
limit spending, which may negatively impact the overall economy as decreased
money circulation will slow overall economic activities in a country. A balanced
approach is required to keep the inflation value in an optimum and desirable range.

High, negative or uncertain value of inflation negatively impacts an economy. It

leads to uncertainties in the market, prevents businesses from making big
investment decisions, may lead to unemployment, promotes hoarding as people
flock to stock necessary goods at the earliest amid fears of price rise and the
practice leads to more price increase, may result in imbalance in international trade
as prices remain uncertain, and also impacts foreign exchange rates.

11.Analyze the performance of hyperinflation in the economy?

-Hyperinflation is a Man-Made Disaster

When the currency is perceived as having liitle or no value,people begin to hoard

commodities and goods that have value .As prices begin to rise,basic goods-such
as food and fuel-become scare,sending prices in an upward spiral.whereas normal
inflation is measured in terms of monthly price increases,hyperinflation is
measured in terms of exponential daily increases that can approach 5 to 10% a
day.Hyperinflation occurs when the inflation rate exceed 50% for a perod of a
month

-Effects of hyperinflation

There are a number of pittals to hyperinflation .People will tend to hoard goods-
including perishables like food-because of rising prices,which in turn,can create
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shortage in stockpiles.Saving become worthless affecting cosumers’s bottom
lines.And because people aren’t depositing their money,finance institutions and
lenders may go out business .Tax revenus also fail,meaning government can’t
keep up with providing basic services.Printing more money becomes the only
option,making the hyperinflation even worse

12.Present instruments of Money Market?Give an example in Vietnamese

Money Market

* Money market is a financial market in which only short-term debt instruments

are traded.

+,Treasury bills

-Government issues treasury bills

-Treasury bills are the most liquid of all the money market instruments

=>Treaury bills have no possibllity of default

+,A certificate of deposit

-CD is a debt instrument sold by a bank to depositors

-Banks raise money

+,Commercial paper

-Commercial paper is a debt instrument issued by large banks and well-known

corporation

-Borrow money from the seller.Today commercial paper is also issued to raise
money in the finance market

+,Banker’saceeptances

-Banker’s acceptances are issued by a firm and guaranteed for a fee by a bank that
stampsit “accepted”

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This is the promise of payment of a film that guaranteed by a bank.Banker’s
acceptances often used on international trade

Thiếu vận dung

các công cụ này trên thị trừờng tiền tệ ơ Việt Nam: giới thiệu về thị trường tiền tệ ở
Việt Nam và cho vài con số, một số công cụ hiện đang được sử dụng ở thị trường
tiền tệ Việt Nam

13.Show 4 players in money supply process of the economy?

- Central Bank (the most important): the government agency that oversees the
banking system and takes responsibility for conducting monetary policy

- Banks (Commercial Banks): the financial intermediaries that accept deposits

from individuals and institutions and make loans

- Depositors: individuals and institutions that holds deposits in banks

Borrowers: individuals and institutions that borrow from depository institutions

and institutions that issue bonds purchased by the depository institutions

14.How can the adverse selection problem explain why you are more likely to
make a loan to a family member than to a stranger?

- Adverse selection is a phenomenon wherein the insurer is confronted with the

probability of loss due to risk not factored in at the time of sale. This occurs in the
event of an asymmetrical flow of information between the insurer and the insured.

giải thích

-Because you know your family member better thsn a stranger ,you know more
about the borrower’s honestly,propensity for risk taking,and other traits.There is
less asymmetric information than with a srager and less likehood of an adverse
selection problem,with the result that you are more likely to lend to the family
member.

15.Think of one example in which you have had to deal with the adverse
selection problem? How can you solve it?
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- Adverse selection is a phenomenon wherein the insurer is confronted with the
probability of loss due to risk not factored in at the time of sale. This occurs in the
event of an asymmetrical flow of information between the insurer and the insured.

Example: Có tiền và cho vay nhưng lại cho người rủi ro vay (cho người trả lãi cao
và nhiệt tình trong tiếp cận vốn vay)

16.If you are an employer in a bank, what kind of moral hazard problems
might you worry about with your employees? How can you solve it?

An employer is a person or institution that hires employees. Employers

offer wages or a salary to the workers in exchange for the worker's work or labor.

- Moral hazard is the problem created by asymmetric information after the

transaction occurs
- The borrower might engage in activities that are undesirable from the lender's
point of view, because they make it less likely that the loan will be paid back so
lenders may decide that they would rather not to make loan

Ex: Employees who do not have owner do not work

Employees use waste corporate property

This varies by the employee's position and the type of business. Moral hazard is
usually a concern with insurance, but you could apply it to employer/employee
relations also. We could look at the payout of a bonus like the insurance payment.
Commissioned employees could have incentive to take more risk or push ahead the
timing of sales, hurting later quarters. Employees, in general, will exhibit moral
hazard by stressing the items they are compensated for while ignoring other
responsibilities. Thus, a salaried worker with sales responsibility but no reward
might not try hard to sell. This could hurt the business

17.If there were no asymmetry in the information that a borrower and a

lender had, could there still be a moral hazard problem? Explain why?

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- Asymmetric information is a problem in finacial markets such as borrowing and
lending. In these markets, the borrower has much better information about his
financial state then the lender. The lender has difficulty knowing whether it is
likely the borrower will default. To some extent, the lender will try to overcome
this by looking at past credit history and evidence of reliable salary. However, this
only gives a limited information. The consequence is that lenders will charge
higher rates to compensate for the risk. If there was perfect information, banks
wouldnt need to charge this risk premium.

- Moral hazard is the problem created by asymmetric information after the

transaction occurs.

- Asymmetry information refers to when Potential borrower knows more about the
risks and returns of an investment project than bank loan officer.

Yes, because even if you know that a borrower is taking actions that might
jeopardize paying off the loan, you must still stop the borrower from doing so.
Because that may be costly, you may not spend the time and effort to reduce moral
hazard, and so moral hazard remains a problem.

18.What is primary function of a bank loan officer?

- A loan officer is a representative of a bank, credit union or other financial

institution that finds and assists borrowers in acquiring loans.Loan officers can
work with a wide variety of lending products for both consumers and businesses.

- A loan officer assists customers with loan applications for cars, college tuition,
homes, and businesses. They are experts at evaluating the financial condition of a
loan applicant, and will also be aware of loans that will fit just about every
financial situation. They determine the applicant's ability to repay the loan
according to the various requirements and stipulations of the institution they
represent.

- Some applicants may be just beginning to establish a credit history; some may be
in the process of overcoming a severe financial blow. Either way, a competent loan
officer will be aware of loan opportunities that may be of interest to applicants who
are seeking a loan, but have extenuating circumstances that are necessary to

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address. They may be able to offer the applicant upcoming promotional specials on
loans, or any special interest rates that are offered for only a short period of time.

- Loan officers are now able to evaluate online applications for loans on the
internet, therefore applicants can interact with a variety of loan institutions rather
than relying on just their local bank.

19.Express your thinking of “Asymmetric Information” and “Adverse

Selection Problem”?

- In economics and contract theory, an information asymmetry is present when one

party to a transaction has more or better information than the other party. (This is
also called a state ofasymmetric information). Most commonly, information
asymmetries are studied in the context of principal-agent problems

- Adverse selection refers generally to a situation where sellers have

information that buyers do not have, or vice versa, about some aspect of
product quality. In the case of insurance, adverse selection is the tendency of
those in dangerous jobs or high-risk lifestyles to get life insurance. To fight
adverse selection, insurance companies reduce exposure to large claims by
limiting coverage or raising premiums.

The adverse selection occurs because the bank can not understand the customer
(asymmetric information) so if the bank raises interest rates to limit demand for
loans, good customers will not borrow; But bad customers will still try to get
loans because they know that if they get loans elsewhere, the interest rate is
very high, not even loans. Thus, when raising interest rates to limit the demand
for loans from customers, the bank has the ability to accumulate bad customers
and expel customers

 This phenomenon makes lenders not willing to lend, borrowers are

difficult to get loans

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20.How is “Moral hazard Problem” solved via commercial bank’s operation?

Moral hazard is the problem created by asymmetric information after the

transaction occurs

- Moral risks in banking operations: mainly borrowers who use loans for wrong
purposes => can not repay debts

- The solution is to thoroughly evaluate before lending to make sure that the
borrower actually has the intended use of the loan as a pledge, is a real investor,
has no bad credit history, requires an asset Ensure the ability to pay then loan and
then supervise the process of using capital ...

21.If the bank at which you keep your saving account is owned by Vietnamese
owners, should you worry that your deposits are less safe than if the bank
were owned by Dutch owners? Explain why?

No because the Vietnamese bank is subject to the same regulations as the Dutch
owned bank.

- Regulations of the State Bank on safe deposit of customers :

+ To ensure the security and safety of banking operations, contributing to the
stabilization of monetary and financial matters and the direction of transactions
related to savings, security and confidentiality in the provision of banking
services. Particularly the regulations on procedures, procedures and places of
transaction.
- Risks that cause financial loss, reduce the market value of bank capital, in more
serious cases can cause bank business losses, even bankruptcy.
+ If a commercial bank has a bad debt / total outstanding loan balance, there is
information about whether the bank has many irrecoverable loans or if the bank
is put under special control by the State Bank. that bank is severely reduced. In
addition, the risk will reduce the solvency of commercial banks for the source
of deposits.

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22.If a bank depositor withdraws $1,000 of currency from an account, what
happens to reserves and checkable deposits?

Reserves will decrease by $1000, checkable deposits will decrease by $1000, but
the monetary base will be unchanged, since reserves decrease by the same amount
as currency increases.

23.If a Commercial bank decides that it wants to hold $1 million of excess

reserves, what effect will this have on checkable deposits in the banking
system?

- The reserve requirement is the amount of funds a bank must have on hand each
night. It is a percent of the bank's deposits. The nation's central bank sets the
percentage rate.

- Payment account (payment deposit account) is the type of account that

customers deposit money for mainly to carry out non-cash transactions such as
bank transfer, bill payment etc. Deposits in the payment account are non-term
deposits.

- A: The $1 million holdings of excess reserves mean that the bank has to reduce
its holdings of loans or securities, thus starting the multiple contraction process.
Because the RRR is 10%, checkable deposits must decline by $10 million.

24.If a Commercial Bank sells $10 million of bonds back to the Center Bank
so as to pay back $10 million on the discount loan it owns, what will be the
effect on the level of checkable deposits?

None. The reduction ò $10 millió indiscount loans and increase of $10million of
bonds held by Center bank leaves the level of reserve inchanged so that checkable
deposits remain unchanged

25.Describe changes in structure of banking Industry? What do these changes

perform in Vietnam?

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26.Analyze evolution of International banking? Does this evolution impact on
Vietnamese banking system?

. The Evolution of International Banking

In the 1970s/1980s, “trade” instruments were becoming expensive and

international trade was growing rapidly. As both sellers and buyers expanded
internationally, the cost of trade instruments was becoming prohibitive. Both
sellers and buyers wished to move to “open account” settlement, particularly with
counter-parties they trusted, having traded with each party for a growing number of
years. Cash based Foreign Currency Accounts (FCAs) increased in number
rapidly, initially still in the “home” financial centre of the companies concerned, to
facilitate foreign currency payables and receivables. However, these payables and
receivables were still made on a cross-border basis, with cross-border access to the
clearing and settlement systems for the currencies concerned, all based upon
washing funds through the “nostro” accounts of bank ABC, XYZ.

These latter accounts were held either directly with the Central Bank in the
country/currency concerned, or with “Correspondents”, a chosen partner bank in
each financial centre. As cash payments grew and grew, as international trade
activity grew and as more traditional Trade instruments became less and less
popular, the incidence of these FCA based solutions also grew. Time zones
impacted heavily on solutions of this nature and “cut-off” times within both
financial centres were key drivers behind services of this nature.

Now, the cost of cross-border wire payments also became prohibitive and both
banks and Cients sought to re-locate these FCAs from the “home” financial centre,
to the appropriate financial centre for the currency concerned, what we used to call
“away”. This logical next step gave Clients in-border access to clearing and
settlement systems, in-border payables and receivables and in-border single
currency liquidity solutions for the currencies concerned.

27.What is expansionary monetary policy? When is this policy applied?

- Expansionary monetary policy is a policy by monetary authorities to expand

money supply and boost economic activity, mainly by keeping interest rates low to
encourage borrowing by companies, individuals and banks. An expansionary
monetary policy can involve quantitative easing, whereby central banks
purchase assets from banks. This has the effect of lowering yields on bonds and
18
creating cheaper borrowing for banks. This, in turn, boosts banks' capacity to lend
to individuals and businesses. An expansionary monetary policy also risks ramping
up inflation.

It is often applied in the short term, when the pressure on economic growth, create
jobs, reduce the unemployment rate.

28.What is tight monetary policy? When is this policy applied?

Money's too tight to mention. When central banks increase official interest rates, it
is known as “monetarytightening”. This is because the central banks typically try
to restrict (ortighten) economic growth by making it more expensive to
borrow money. It helps to control the rate of inflation.

Tight monetary policy will typically be chosen when inflation is above the
inflation target (of 2%) or policymakers fear inflation is likely to rise without a
tightening of monetary policy.

Tight monetary policy is a course of action undertaken by a central bank to slow

down overheated economic growth - to constrict spending in an economy that is
seen to be accelerating too quickly or to curb inflation when it is rising too fast.
The central bank tightens policy or makes money tight by raising short-term
interest rates through policy changes to the discount rate, also known as the federal
funds rate. Boosting interest rates increases the cost of borrowing and effectively
reduces its attractiveness. Tight monetary policy can also be implemented via
selling assets on the central bank's balance sheet to the market through open market
operations.

This means Central bank contracts the money supply in response to fears of rising
prices. The lower money supply increases interest rates. The result of a tighter
monetary policy is lower investment and decrease in the nation’s output.

29.If reserve requirements were eliminated in the future, as some economists

advocate, what effects would this have on the size of money market funds?

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 Another significant power that Central bank hold is the ability to establish reserve
requirement for other banks

The other requiremet is that a percentage of liability is being held as cash or

deposited with the central bank or other agency limits are set on the money supply

All banks are required to hold a minimum percentage of deposits as reserve.

changes in required reserve ratios can have an important influence on the money
supply

Elimination of reserve requirements will increase the

amount of funds that banks could lend. They can thus compete more

effectively against money market mutual funds. This will reduce the

size of the money market mutual funds.

30.Analyze the Central Bank’s function of “Bank of issue”? ( Same 72)

Bank of Issue

Central Bank (CB) has the exclusive monopoly of note issue and the
currency notes issued by the Central Bank are declared unlimited legal tender
throughout the country.

This monopoly brings about:

i. Uniformity of note issue which in turn facilitates trade and exchange within
the country
ii. Enables the Central Bank to influence and control the credit creation of
Commercial Banks
iii. Gives distinctive prestige to the currency notes
iv. Enables govt. to appropriate partly or fully the profits of note issue.

31.“Central Bank is banker, agent and adviser to the Government”. (Same 73)

Give comment for the above statement?

20
 - As the banker of the central government, the central bank
performsseveral functions. Some of the important functions are:
1. It keeps the account of the government and so accepys receipts to
the gorverment and payments by the government.
2. It acts as the collecting banker of the cheques, drafts.ect payable to
the government.
3. It also tranfers funds from one place to another on behalf of the
central government.
4. It also provides short term loans to the government to tide over the
temporary crisis.
5. It also conducts all the international financial transactions on
behalf of thr government. Any payment for imports or receipts
from ecport are all acceptes by it ob behalf of the government.
6. It manages the public debt on behalf of the governemt, spent from
receiving tax payments from the common public
- By virtue of the information that it possesses the central bank function
as the adviser of the government. It help the government tomonitor the
economy/ It formulates the monetary policy and help in the
implementation of the policy. It suggests to the government the type
of foreign policy, tax policy.. depending on the economic conditions
prevailing in the country. Its also maintains the foreign exchange
reserves of the government.

“32.Central Bank is custodian of the Cash reserves of Commercial bank as

well as foreign balances of the country”.( Same 74)

Give comment for the above statement?

There are usually hundreds of banks in a country. There should be some agency to
regulate and supervise their proper functioning. This duty is discharged by the
central bank.

Central bank acts as banker’s bank in three capacities:

It is the custodian of their cash reserves. Banks of the country are required to keep
a certain percentage of their deposits with the central bank; and in this way the
central bank is the ultimate holder of the cash reserves of commercial banks

21
Central bank is lender of last resort. Whenever banks are short of funds, they can
take loans from the central bank and get their trade bills discounted. The central
bank is a source of great strength to the banking system

It acts as a bank of central clearance, settlements and transfers. Its moral

persuasion is usually very effective so far as commercial banks are concerned.

Central bank controls credit and money supply through its monetary policy which
consists of two parts—currency and credit. Central bank has monopoly of issuing
notes (except one-rupee notes, one-rupee coins and the small coins issued by the
government) and thereby can control the volume of currency.

The main objective of credit control function of central bank is price stability along
with full employment (level of output). It controls credit and money supply by
adopting quantitative and qualitative measures as discussed in Section 8.25.
Following three quantitative measures of credit control by RBI are recalled for
ready reference.

34.Why is central bank “Lender of the last resort”? (Same 75)

"The lender of last resort" is a financial function of the Central Bank of the country
extended to the commercial banks, in the event of the commercial banks' liquidity
position fall short of the required levels to continue the day to day business. Under
such circumstances the Central Bank may resort to Re-discounting the Bills
already discounted by the commercial banks (or similar options) to enhance the
liquidity position and improve the working capital leverage.

"Central bank is the lender of last resort"

Because The Central Bank acts as the lender of last resort and as the bank of
rediscount. Rediscountingcan be defined as conversion of bank credit into Central
Bank Credit. The commercial banksapproach the Central Bank for its financial
needs as it is the lender of the last resort or the ultimate source of finance. It lends
to the commercial banks by rediscounting the eligible bills.The rediscounting
facilities given by the Central Bank impart elasticity and liquidity to the
22
entirecredit structure of the country. It helps the commercial banks in a big way to
prevent them from bank failures. But its assistance is limited only to the banks
which suffer from technical insolvency and not tothose unsound and really
insolvent banks. Moreover a commercial bank is not entitled tofinancial
accommodation simply because it has eligible paper or approved securities.

Unless it is
conducting its business according to sound banking principles, the Central Ba
nk refuses accommodation.

35.Analyze the Central Bank’s function of “Central Clearance, settlement and

transfer”?

The central bank does not deal with the general public directly. It performs its
functions with the help of commercial banks. The central bank is accountable for
protecting the financial stability and economic development of a country.

Apart from this, the central bank also plays a significant part in avoiding the
cyclical fluctuations by controlling money supply in the market. As per the view of
Hawtrey, a central bank should primarily be the “lender of last resort.”

On the other hand, Kisch and Elkins believed that “the maintenance of the stability
of the monetary standard” as the essential function of central bank. The functions
of central bank are broadly divided into two parts, namely, traditional functions
and developmental functions.

Bank of central clearance, settlement, and transfer:

Implies that the central bank helps in settling mutual indebtness between
commercial banks. Depositors of banks give checks and demand drafts drawn on
other banks. In such a case, it is not possible for banks to approach each other for
clearance, settlement, or transfer of deposits.
23
The central bank makes this process easy by setting a clearing house under it. The
clearing house acts as an institution where mutual indebtness between banks is
settled. The representatives of different banks meet in the clearing house to settle
inter-bank payments. This helps the central bank to know the liquidity state of the
commercial banks.

36.How does Central Bank control the level credit in the economy?

 Rationing of Credit:
Under this method the credit is rationed by limiting the amount available to each
applicant. The Central Bank puts restrictions on demands for accommodations
made upon it during times of monetary stringency.

In this the Central Bank discourages the granting of loans to stock exchanges by
refusing to re-discount the papers of the bank which have extended liberal loans to
the speculators.

 Direct Action:
Under this method if the Commercial Banks do not follow the policy of the Central
Bank, then the Central Bank has the only recourse to direct action. This method
can be used to enforce both quantitatively and qualitatively credit controls by the
Central Banks. This method is not used in isolation; it is used as a supplement to
other methods of credit control.

Direct action may take the form either of a refusal on the part of the Central Bank
to re-discount for banks whose credit policy is regarded as being inconsistent with
the maintenance of sound credit conditions. Even then the Commercial Banks do
not fall in line, the Central Bank has the constitutional power to order for their
closure.

This method can be successful only when the Central Bank is powerful enough and
has cordial relations with the Commercial Banks. Mostly such circumstances are
rare when the Central Bank is forced to resist to such measures.

24
  Moral Persuasion:
This method is frequently adopted by the Central Bank to exercise control over the
Commercial Banks. Under this method Central Bank gives advice, then request
and persuasion to the Commercial Banks to co-operate with the Central Bank is
implementing its credit policies.

 Method of Publicity:
In modern times, Central Bank in order to make their policies successful, take the
course of the medium of publicity. A policy can be effectively successful only
when an effective public opinion is created in its favour.

 Regulation of Consumer’s Credit:

Under this method consumers are given credit in a little quantity and this period is
fixed for 18 months; consequently credit creation expanded within the limit

37.What are forms of FDI? Which forms are applied in Vietnam?

What is Foreign Direct Investment - FDI

Foreign direct investment (FDI) is an investment made by a firm or individual in

one country into business interests located in another country. Generally, FDI takes
place when an investor establishes foreign business operations or acquires foreign
business assets, including establishing ownership or controlling interest in a
foreign company. Foreign direct investments are distinguished from portfolio
investments in which an investor merely purchases equities of foreign-based
companies.

*Forms of FDI

-Venture business

- 100% foreign capital business

- Co-operate based on the contract

- Invested depend on construction- operation- transfer form

- Invested depend on construction- transfer- business form

25
- Construction- transfer contract

- Invested through the parent company and childmodel

- Share holding company form

- Formof investment acquisition and merger M and A

- Formof partership

Thiếu phần liên hệ VN

38.Present definition and forms of Foreign Direct Investment (FDI)?

A foreign direct investment (FDI) is an investment in the form of a controlling

ownership in a business in one country by an entity based in another country. It is
thus distinguished from a foreign portfolio investment by a notion of direct control

*Forms of FDI Commented [A1]: Cũng ok

-Venture business

- 100% foreign capital business

- Co-operate based on the contract

- Invested depend on construction- operation- transfer form

- Invested depend on construction- transfer- business form

- Construction- transfer contract

- Invested through the parent company and childmodel

- Share holding company form

- Formof investment acquisition and merger M and A

- Formof partership

26
39.Present definition and forms of Foreign Indirect Investment (FII)?

The foreignexchangemarket (Forex, FX, or currencymarket) is a

global decentralized or over-the-counter (OTC) market for the trading
of currencies. This market determines the foreign exchangerate. It includes all
aspects of buying, selling and exchanging currencies at current or determined
prices. In termsof trading volume, it is by far the largest market in the world,
followed by the Credit market.

Characteristics: There are two characteristics:

- The foreign exchange market is an internationally traded market whoses cope is

spreading across the globe to meet the need soff or eign exchange trading.

- The market continues to use the modern means of trading, due to the difference in
timezone

40.Present definition and features of Foreign Exchange market?

The eurocurrency market is the money market in which currency held in banks
outside of the country where it is legal tender is borrowed and lent by banks.

- the eurocurrency market is utilized by banks, multinational corporations, mutual

funds and hedge funds that wish to circumvent regulatory requirements, tax laws
and interest rate caps often present in domestic banking, particularly in the United
States

(The term eurocurrency has nothing to do with the euro currency or Europe, and
the market functions in many financial centers around the world.) có thể thêm

+ features

1. International Market:
The Euro-currency market is an international market which accepts deposits and
gives credit in currencies from throughout the world.

27
2. Independent Market:
It is a free and independent market which does not function under the control of
any monetary authority.

3. Wholesale Market:
It is a wholesale market in which different currencies are bought and sold usually
above $ 1 million.

4. Competitive Market:
It is a highly competitive market in which the supply and demand for currencies
depends on interest rate changes of Euro-banks.

5. Short-Term Market:
It is a short-term money market in which deposits in different currencies are
usually accepted for a period ranging from a few days to a year and interest is paid
on them.

6. Inter-Bank Market:
It is an inter-bank market in which the Euro-banks borrow and lend dollars and
other Euro-currencies from each other.

41.Present definition and features of Eurocurrency market?

The foreign exchange market is the market in which participants are able to buy,
sell, exchange and speculate on currencies. Foreign exchange markets are made up
of banks, commercial companies, central banks, investment management
firms, hedge funds, and retail forex brokers and investors.

features

Highly Liquid
The forex market has enticed retail currency traders from all over the world
because of its benefits. One of the benefits of trading currencies is its massive
trading volume, which covers the largest asset class globally. This means that
currency traders are provided with high liquidity.

28
Open 24 Hours a Day, 5 Days a Week
In the forex market, as one major forex market closes, another market in a
different part of the world opens for business. Unlike stocks, the forex market
operates 24 hours daily except on weekends. Traders find this as one of the most
compelling reasons to choose forex, since it provides convenient opportunities for
those who are in school or work during regular work days and hours.

Leverage
The leverage given in the forex market is one of the highest forms of leverage that
traders and investors can use. Leverage is a loan given to an investor by his broker.
With this loan, investors are able to enhance profits and gains by increasing
traders’ and investors’ control over the currencies they are trading.

The Biggest in the World of Finance

The foreign exchange market is unique for several reasons, mainly because of its
size. Trading volume in the forex market is generally very large because of the
number of people who participate, the ease of trading as well as accessibility to the
market.

Benefits of Using the Forex Market

There are some key factors that differentiate the forex market from others like the
stock market. There are fewer rules, which means investors aren't held to strict
standards or regulations as those in other markets. There are no clearing
houses and no central bodies that oversee the forex market.

42.Rank the following assets from most liquid to least liquid and explain
briefly:

a. Checking account deposits

b. Houses

c. Currency

d. Washing machines

e. Savings deposits

f. Common stock

29
 a. Checking account deposits =>2
b. Houses => 6
c. Currency => 1
d. Washing machines =>5
e. Savings deposits =>3
f. Common stock => 4
 Explanation: cash is the highest liquid because it can be accepted in any
payment, anywhere. Then to the deposit in the payment account, in
principle can be drawn at any time but have to withdraw cash or where to
accept payment cards, similar to the rest. The house is the most difficult to
sell because it is so valuable that the valuation is complicated so the buyer is
very considerate

43.What are players of money supply process?Describe role of one player in

money supply processin Vietnam economy?

Four Players in the Money Supply Process

- Central Bank (the most important): the government agency that oversees the
banking system and takes responsibility for conducting monetary policy

- Banks (Commercial Banks): the financial intermediaries that accept deposits

from individuals and institutions and make loans

- Depositors: individuals and institutions that holds deposits in banks

Borrowers: individuals and institutions that borrow from depository institutions

and institutions that issue bonds purchased by the depository institutions

Chọn luôn ngân hàng trung ương sau đó nói về hoạt động phát hành tiền mặt của
nó là ok

44.Analyze purposes of money demand?

Purposes of Money Demand

30
 - For investment/business (ví dụ như doanh nghiệp cần tiền để đầu tư dự án,
thay thế máy móc thiết bị, góp vốn liên doah, đầu tư chứng khoán…)

- For consumption (ví dụ như hộ gia đình cần tiền để mua thức ăn, trả tiền
điện, tiền nước, tiền xăng,…)

- Demand of money is impacted by individuals’ income and interest rate

Money demand is influenced by two factors: income and interest. The higher
the income, the higher the demand for money (for example, the more people
buy more goods) and the higher the demand for investment. The higher the
interest rate, the lower the demand for investment (people will not like to
borrow to invest

45.Describe players of money demand? Explain role of individuals in money

demand in Vietnam economy?

- Demand for money is the relationship between the quantity of money

people want to hold and the factor that determine that quantity
- Four playes of money is
+ Institutions
+ Individuals
+ Banks
+ Government
- Role of Individuals ( Bussiness) in money demand in Vietnam
economy :
- - Example: An institution need money to buy its equipments, goods or
need it for investment opportunities…

46.Describe role of 4 players of money demand in Vietnam eeconomy?

- Demand for money is the relationship between the quantity of money

people want to hold and the factor that determine that quantity
- Four playes of money is
+ Institutions
+ Individuals

31
 + Banks
+ Government
Tự giải thích vai trò

47.Analyze the effects of inflation with CPI of 10%?

Moderate inflation is often viewed as having a positive impact on the economy

Moderate inflation Also known as one-digit inflation, the inflation rate is below
10% a year. Moderate inflation causes prices to fluctuate relatively. During this
period, the economy was operating normally, the life of workers was stable. The
stability was shown: The price was rising slowly, the interest rate on deposits was
not high, the situation did not occur. and stockpile goods in bulk ...

It is said that this is the level of inflation that the economy accepts, its effects are
negligible. On the other hand, moderate inflation creates psychological comfort for
workers only looking for income. In this business, stable revenue, less risky and
willing to invest in production and business.

48.Analyze causes of Vietnam inflation in the period 2008-2013?

- There is a huge influx of foreign exchange into the economy, money supply
increases then inflation does. Further more, influx of foreign exchange cause a rise
in demand. For the former, a rise in demand can not be met by import then push price up.
Result in inflation.

- State bank has to undertake too many targets. On one hand they have to
curb inflation, on theother hand they have to stimulate economic growth.
Theoretically, It is impossible to fulfill bothtargets at the same time.

- Some of the causes of Vietnam's high inflation are externally induced such as
dramatic increasesin the international prices of food, fuel and construction
materials have a large impact on domestic prices, but others are home-made such
as the unsterilised liquidity inflows, unusually high domesticcredit growth,

32
expansionary fiscal policy, and aggressive public investment were the
principalhome-made causes of Vietnam's high inflation

49.Analyze causes of Vietnam inflation in the period 1985-1988?

The hyperinflation during this period was the result of the General Adjustment of
Price, Wage and Money conducted in 1985.

- The Vietnamese government adopted a centrally-planned system in which every

aspect of the economy was under the rigid control of the government. There were
only two economic sectors dominating the economy, namely State owned
enterprises (SOEs) and agricultural cooperatives. All production, distribution and
even monetary policy operations, had to comply with the government’s plans. This
mechanism hindered economic development, causing a continuous shortage of
commodities and led to hyper-inflation.

50.Present causes and effects of creeping inflation?

- To control inflation, the Government must use contractionary monetary policy to

slow economic growth. If the gross domestic product growth rate is more than
the ideal of 2-3 percent, excess demand can generate inflation by driving up prices
for too few goods. There are several tools to use in order to control and maintain
Creeping Inflation

- The first one is Open Market Operation: The Central Bank buys or sells
securities, typically Treasury notes, from its member banks. It buys securities when
it wants them to have more money to lend. It sells these securities, which the
banks are forced to buy. That reduces their capital, giving them less to lend. As a
result, they can charge higher interest rates =>This slows economic growth and
mops up inflation.

- Second, the Central Bank can raise the reserve requirement. That's the
amount banks must keep in reserve at the end of each day. Increasing this reserve
keeps money out of circulation.

33
- Third, the Central Bank can raise the discount rate. That's the interest rate
the Central Bank charges to allow banks to borrow funds from the CB's discount
window.

51.Analyze the effects of inflation with CPI of 30%?

Inflation occurs when prices rise relatively quickly with a two-digit rate of one
year. At low levels of 2: 11.12%, negative impacts are generally negative and the
economy is still acceptable. But when rising to two digits high inflation will cause
general prices to increase rapidly, causing great economic changes, the contract is
indexed. At this time people hoard goods, gold, real estate and never give loans at
normal rates. So inflation will adversely affect production and income because of
the negative impact It is not a big threat to the stability of the economy

52.Is the following statement true, false, or uncertain? Explain your answer.

“In a world without information and transaction costs, financial

intermediaries would not exist.”

 A financial intermediary is a financial institution such as bank, building

society, insurance company, investment bank or pension fund.
A financial intermediary offers a service to help an individual/ firm to save or
borrow money. A financial intermediary helps to facilitate the different needs of
lenders and borrowers.

 The answer is yes because these are two basic reasons for the existence of
intermediary financial institutions

Entities that need intermediary financial institutions are because the surplus capital
does not have a secure investment channel (because there is no sufficient
information - the information is asymmetric) and the person who needs capital is
unaware. Find out who have idle capital to borrow. If both the surplus capital and
the lack of capital are sufficient, they will not need intermediaries

Secondly, entities in the economy need intermediary financial institutions to

transfer capital quickly to the person who needs capital (for example, money
transfer) and a common financial institution. In this area, they can transfer money

34
quickly, safely. If you do not lose transaction costs, what intermediaries need
intermediaries, they themselves transactions

53.Why might you be willing to make a loan to your neighbor by putting your
money in a saving account earning 6% interest rate at the bank and having
the bank lend her the money at a 10% interest rate rather than lend her the
funds yourself even with a 7% interest rate?

 The concept of Asymmetric Information means that there is unequal

knowledge between each party to a transaction, that one party has better
information than the other the party. This creates an imbalance in a
transaction.

- the problem with asymmetric information, where one party has more information
than another, occurs before the transaction takes place/pre-contractual problems.
Used car owners have more information than they disclose while selling their cars.
The people seeking insurance are more likely to need insurance, which means that
the decision maker usually has poor selection.

- Two consequence :

+ Adverse selection refers generally to a situation where sellers have information

that buyers do not have, or vice versa, about some aspect of product quality. In the
case of insurance, adverse selection is the tendency of those in dangerous jobs or
high-risk lifestyles to get life insurance. To fight adverse selection, insurance
companies reduce exposure to large claims by limiting coverage or raising
premiums.

+ Mozal Hazard problem is the problem created by asymmetric information after

the transaction occurs

 A: Because the cost of making the loan to your neighbor are high ( legal
fees, fees for credit check and so on ). You will probably not be able earn
6% on the loan after your expenses even though it has a 10% interest rate.
You are better off depositing your savings with a financial intermediary and

35
 earning 6% interest. In addition you are likely to bear less rick by depositing
your savings at the bank rather than lending them to your neighbor

The borrower might engage in activities that are undesirable from the lender's point
of view, because they make it less likely that the loan will be paid back so lenders
may decide that they would rather not to make loan

54.Compare financial system to financial market?

the financial system is the process by which money flows from saver to user.

the financial market is the place where money flows from savers( lenders) to
users ( borrowers, spenders)

55.Analyze the differences between Debt markets and Equity markets?

36
 • Debt Markets

Debt instruments are issued

─ Short-Term (maturity < 1 year)

─ Long-Term (maturity > 10 year)

─ Intermediate term (maturity in-between)

• Equity Markets

• Equity instruments are issued

─ Pay dividends, in theory forever

─ Represents an ownership claim in the firm

The difference between these two markets is the tools used in the two markets.
Equity markets are trading equity instruments: stocks. Debt markets are also traded
on debt instruments: bonds, bills ... (debt relations). In addition to its debt market,
its instruments have different maturities whereas its equity instrument market is a
stock that has a fixed term.

56.Analyze the differences between Primary market and Secondary markets?

• Primary Market – firms and governments issue securities and sell them
initially to the public.

– New issued securities sold to initial buyers

– When a firm offers a stock for sale to the general public for the first time.

• Secondary Market – collection of financial markets in which previously

issued securities are traded among investors.

- Securities previously issued are bought and sold

* Primary market is where the business mobilizes capital (increase capital for
business activities) and the secondary market is only where to buy and sell shares
(ownership of capital) without raising capital for businesses.

37
57.Introduce Financial Institutions? Describe briefly of Financial Institutions
development in Vietnam?

- Depository institutions: are financial institutions that accept deposits from

individuals and institutions and make loans

+ Commercial bank

+ Savings and loan associations

+ Mutual savings banks

+ Credit unions

- Contractual saving institutions: are financial institutions that acquire funds at

periodic intervals on a contractual basis
+ Life insurance companies
+ Pension funds
- Investment intermediaries: mobilizing capital by many different ways and
use these money to invest in financial market

+ Finance companies

+ Mutual funds

+ Money market mutual funds

+ Investment bank

Thiếu liên hệ

58.What is Commercial bank? Introduce some ancillary financial services

that commercial banks supply to their clients?

 Commercial bank is is a type od financial institution that accepts deposits

offers checking account services, makes business, personal and mortgage
loans, and offers basic financial products like certificates of deposit and
saving accounts to individuals and small business
 some ancillary financial services

38
 i. Issuing credit cards, ATM cards, and debit cards
ii. Storing valuables, particularly in a safe deposit box
iii. Consumer & commercial financial advisory services
iv. Pension & retirement planning
v. international banking,
vi. foreign exchange,
a. insurance,
b. investments,
vii. wire transfers…

59.Where does a commercial bank’s profit come from?

A bank generates a profit from the difference between the level of interest it pays
for deposits and other sources of funds, and the level of interest it charges in its
lending activities.

This difference is referred to as the spread between the cost of funds and the loan
interest rate. Historically, profitability from lending activities has been cyclic and
dependent on the needs and strengths of loan customers.

In recent history, investors have demanded a more stable revenue stream and banks
have therefore placed more emphasis on transaction fees, primarily loan fees but
also including service charges on array of deposit activities and ancillary services
(international banking, foreign exchange, insurance, investments, wire transfers,
etc.). However, lending activities still provide the bulk of a commercial bank's
income.

60.Present history of banking?

The history of banking began with the first prototype banks which were the
merchants of the world, who made grain loans to farmers and traders who carried
goods between cities. This was around 2000 BC in Assyria, India and Sumeria.
Later, in ancient Greece and during the Roman Empire, lenders based in temples
made loans, while accepting deposits and performing the change of money.
Archaeology from this period in ancient China and India also shows evidence of
money lending .

39
Many histories position the crucial historical development of a banking system to
medieval and Renaissance Italy and particularly the affluent cities of Florence,
Venice and Genoa. The Bardi and Peruzzi Families dominated banking in 14th
century Florence, establishing branches in many other parts of Europe.The most
famous Italian bank was the Medici bank, established by Giovanni Medici in
1397.The oldest bank still in existence is Banca Monte dei Paschi di Siena,
headquartered in Siena, Italy, which has been operating continuously since 1472.

The development of banking spread from northern Italy throughout the Holy
Roman Empire, and in the 15th and 16th century to northern Europe. This was
followed by a number of important innovations that took place in Amsterdam
during the Dutch Republic in the 17th century, and in London since the 18th
century. During the 20th century, developments in telecommunications and
computing caused major changes to banks' operations and let banks dramatically
increase in size and geographic spread. The financial crisis of 2007–2008 caused
many bank failures, including some of the world's largest banks, and provoked
much debate about bank regulation.

61.Present your understanding of bank cards’ development in Vietnam

recently?

62.Show name of banking services? Give comment for the development of

making loan to individuals in Vietnam recently?

 Name up bank in services:

- Taking deposits: from their customer and issuing Current or or
checking accounts and savings accounts to individuals and business.
Although the basic type of services offered by a bank depends upon
the type of bank and the country , services provided usually include
+ a current account is a personal bank account which you can take
money out of at any time using your cheque book or cash card
+ saving account is a bank account with a limited number of
transactions per month and which pays a higher interest rate than a
checking account
- Extending loans: to individual and businesses
-Cashing check(cheque)
40
 + A cheque or check is a document that orders a bank to pay a specific
amount of money from a person’s account to the person in whose
name the cheque has been issued

- Facilitating money transactions such a wire transfers and cashier’ s

checks
+ A cashier’s checks or cheque is a cheque is a cheque guaranteed by
a bank , drawn on the bank’ own funds and signed by a cashier
+ An individual can use a cashier’s check instead of a personal check
to guarantee funds are available for payment. A cashier’s check is
secured because the individual must firs deposit the amount of the
check into the issuing institution’s own account
- Issuing credit cards, ATM cards, and debit cards
- Storing valuables particularly in a safe box
- Consumer & commercial financial advisory services
- Pension & retirement planning
 Give comment for the development of making loan to individuals in
Vietnamrecently
- Việc cho vay tư nhân ở việt nam trong những năm gần đây nhìn
chung là tăng.

tín dụng cá nhân, ý nói đến tín dụng tiêu dùng: vay mua nhà, mua ô tô, mua máy
vi tính, điện thoại,…. Chứ không phải doanh nghiệp. Hiện nay xu hướng là đang
tăng đấy, ngày càng nhiều người sẵn sàng vay để tiêu dùng hơn

63.Show the differences between telephone banking and online banking? Give
comment for the development of two these transaction channels in Vietnam?

 the differences between telephone banking and online banking:

- The telephone banking which allows customers to perform
transactions over the telephone
- The online banking used for performing transactions, payments etc.
Over the internet through a bank , credit union or building society’s
secure website
*Liên hệ Việt nam thiếu:

64.What types of commercial bank does Vietnam economy have?

41
 commercial bank: vietcombank, agribank ,..

+) postal savings banks NgânhàngbưuđiệnliênViệt

+) private banks :sacombank, ABC, techcombank

65.Give your comment for the competition of commercial bank and non-bank
institutions in Vietnam?

Competition is that while commercial banks operate extensively, mobilizing

capital from the public, financial companies mobilize capital from inside
corporations and groups so risks are less likely to affect the community. . The
limitation of financial companies is that they can not make payments and receive
deposits for less than one year. However, today's companies have overcome this by
developing new services that operate similarly to a commercial bank. With
attractive profits and risk control, financial companies are now expanding in size
and the number of contributing to the gap of deficits due to lack of supply of
commercial banks.

66.What are “fixed exchange rate”, “free float exchange rate” and “managed
float exchange rate”?

- Fixed exchange rate: is regime applied by a country where by the

government of central bank ties the official exchange rate to another
country’s currency or the price of gold
- Free float exchange rate is regime where the currency price is set by
the forex market based on supply and demand compared with
currencies.
- Managed float exchange rate ( dirty float): is a float exchange rate
where a country’s central bank occasionally intervenes to change the
direction or the pace of change of a country’s currency value.In most
instances, the central bank in a dirty float system act as a buffer
against an externall economic shock before its eddecys become
disruptive to the domestic economy

67.How does Central bank use exchange rate policy to influence the money
supply in the economy?

42
Accordingly there are certain exchange requirements to influence the money
supply ,some Central Banks may require that some or all foreign exchange receipts
generally from exports be exchanged for the local currency ,the rate that is used to
purchase local currency may be market based or arbitrarily set by bank.

68.What effects does legal reserve requirement put on the money supply?

All banks are required to hold a minimum percentage of deposits as reserve.

Changes in required reserve ratios can have an important influence on the money
supply.

Changes in reserve requirements are made sparingly because they present too large
change in monetary policy

Another significant power that Central bank hold is the ability to establish reserve
requirement for other banks.

The other requirement is that a percentage of liability is being held as cash or

deposited with the Central bank or other agency , limits are set on the money
supply.

Explain the impact mechanism: As the central bank increased its compulsory
reserve ratio, the money supply fell and interest rates increased.

69.What effects do changes of legal reserve requirement put on the interest

rate? ( same 68- thay money supply thành interest rate

70.What is the importance of Capital requirement of commercial banks? How

much is Capital Requirement of Commercial bank in Vietnam?

• All banks are required to hold a certain percentage of their assets

as capital.

• A rate which may be established by the Central bank or banking

supervisor.

43
  Để đảm bảo khả năng thanh toán của ngân hàng
 Capital Requirement of Commercial bank in Vietnam is 3000 billions

71.Present history of Central Bank?

A central bank is the term used to describe the authority responsible for policies
that affect a country’s supply of money and credit.

More specifically, a central bank uses its tools of monetary policy—open market
operations, discount window lending, changes in reserve requirements—to affect
short-term interest rates and the monetary base (currency held by the public plus
bank reserves) and to achieve important policy goals

The story of central banking goes back at least to the seventeenth century, to the
founding of the first institution recognized as a central bank, the Swedish
Riksbank.Established in 1668 as a joint stock bank, it was chartered to lend the
government funds and to act as a clearing house for commerce.

A few decades later (1694), the most famous central bank of the era, the Bank of
England, was founded also as a joint stock company to purchase government debt.

Other central banks were set up later in Europe for similar purposes, though
some were established to deal with monetary disarray. CB is to stabilize the
currency after the hyperinflation of paper money, as well as to aid in
government finance. Early central banks issued private notes which served as
currency, and they often had a monopoly over such note issue.

While these early central banks helped fund the government’s debt, they were also
private entities that engaged in banking activities. Because they held the deposits
of other banks, they came to serve as banks for bankers, facilitating transactions
between banks or providing other banking services.

They became the repository for most banks in the banking system because of their
large reserves and extensive networks of correspondent banks. These factors
allowed them to become the lender of last resort in the face of a financial crisis. In

44
other words, they became willing to provide emergency cash to their
correspondents in times of financial distress.

72.Why is Central Bank “Bank of issue”?

Bank of Issue

Central Bank (CB) has the exclusive monopoly of note issue and the
currency notes issued by the Central Bank are declared unlimited legal tender
throughout the country.

This monopoly brings about:

i. Uniformity of note issue which in turn facilitates trade and exchange within
the country
ii. Enables the Central Bank to influence and control the credit creation of
Commercial Banks
iii. Gives distinctive prestige to the currency notes
iv. Enables govt. to appropriate partly or fully the profits of note issue.

73.Analyze the Central Bank’s function of “Banker, agent and adviser to the
Government”?

- As the banker of the central government, the central bank

performsseveral functions. Some of the important functions are:
1. It keeps the account of the government and so accepys receipts
to the gorverment and payments by the government.
2. It acts as the collecting banker of the cheques, drafts.ect payable
to the government.
3. It also tranfers funds from one place to another on behalf of the
central government.
4. It also provides short term loans to the government to tide over
the temporary crisis.
5. It also conducts all the international financial transactions on
behalf of thr government. Any payment for imports or receipts
from ecport are all acceptes by it ob behalf of the government.

45
6. It manages the public debt on behalf of the governemt, spent
from receiving tax payments from the common public
7. By virtue of the information that it possesses the central bank
function as the adviser of the government. It help the
government tomonitor the economy/ It formulates the monetary
policy and help in the implementation of the policy. It suggests
to the government the type of foreign policy, tax policy..
depending on the economic conditions prevailing in the
country. Its also maintains the foreign exchange reserves of the
government.

8. As the banker of the central government, the central bank

performsseveral functions. Some of the important functions
are:
9. It keeps the account of the government and so accepys receipts
to the gorverment and payments by the government.
10.It acts as the collecting banker of the cheques, drafts.ect payable
to the government.
11.It also tranfers funds from one place to another on behalf of the
central government.
12.It also provides short term loans to the government to tide over
the temporary crisis.
13.It also conducts all the international financial transactions on
behalf of thr government. Any payment for imports or receipts
from ecport are all acceptes by it ob behalf of the government.
14.It manages the public debt on behalf of the governemt, spent
from receiving tax payments from the common public
15.By virtue of the information that it possesses the central bank
function as the adviser of the government. It help the
government tomonitor the economy/ It formulates the monetary
policy and help in the implementation of the policy. It suggests
to the government the type of foreign policy, tax policy..
depending on the economic conditions prevailing in the
country. Its also maintains the foreign exchange reserves of the
government.

46
74.Analyze the Central Bank’s function of “Custodian of the Cash reserves of
Commercial bank”?

All commercial banks in a country keep a part of their cash balances as deposits
with the central bank, may be on account of convention or legal compulsion. They
draw during busy seasons and pay back during slack seasons. Part of these
balances is used for clearing purposes. Other member banks look to it for guidance,
help and direction in time of need.

It affects centralisation of cash reserves of the member banks. “The centralisation

of cash reserves in the central bank is a source of great strength to the banking
system of any country. Centralised cash reserves can at least serve as the basis of a
large and more elastic credit structure than if the same amount were scattered
amongst the individual banks.

It is obvious, when bank reserves are pooled in one institution which is, moreover,
charged with the responsibility of safeguarding the national economic interest,
such reserves can be employed to the fullest extent possible and in the most
effective manner during periods of seasonal strain and in financial crises or general
emergencies…the centralisation of cash reserves is conducive to economy in their
use and to increased elasticity and liquidity of the banking system and of the credit
structure as a whole.”

75.Analyze the Central Bank’s function of “Custodian of the foreign balances

of the country”?

CB holds the foreign exchange assets of all commercial and Non-commercial

banks of the country. It is the responsibility of CB to maintain the rate of exchange
and manage exchange control and other restrictions imposed by the State. It also
maintains reserves with the IMF and abtain normal drawing and special drawing
right.It becomes a custodian of nation’s reserves of international currency or
foreign balances.

76.Analyze the Central Bank’s function of “Lender of the last resort”?

47
"The lender of last resort" is a financial function of the Central Bank of the country
extended to the commercial banks, in the event of the commercial banks' liquidity
position fall short of the required levels to continue the day to day business. Under
such circumstances the Central Bank may resort to Re-discounting the Bills
already discounted by the commercial banks (or similar options) to enhance the
liquidity position and improve the working capital leverage.

"Central bank is the lender of last resort"

Because The Central Bank acts as the lender of last resort and as the bank of
rediscount. Rediscountingcan be defined as conversion of bank credit into Central
Bank Credit. The commercial banksapproach the Central Bank for its financial
needs as it is the lender of the last resort or the ultimate source of finance. It lends
to the commercial banks by rediscounting the eligible bills.The rediscounting
facilities given by the Central Bank impart elasticity and liquidity to the
entirecredit structure of the country. It helps the commercial banks in a big way to
prevent them from bank failures. But its assistance is limited only to the banks
which suffer from technical insolvency and not tothose unsound and really
insolvent banks. Moreover a commercial bank is not entitled tofinancial
accommodation simply because it has eligible paper or approved securities.

Unless it is
conducting its business according to sound banking principles, the Central Ba
nk refuses accommodation.

77.What do you think about prospect of Eurocurrency market all over the
world?

78.What do you think about prospect of Foreign Direct Investment (FDI) in

Vietnam?

79.What is Foreign Direct Investment (FDI)? Describe forms of FDI in

Vietnam?

80What is Foreign Indirect Investment (FII)? Describe forms of FII in

Vietnam?

48
81Definition of Foreign Exchange market? Give your comment for the
importance of Foreign Exchange market to Vietnamese economy as well as
Vietnamese Government?

• Foreign exchange market is not necessarily a physical place, but it is

established network of buyer and seller through the latest technology like e-
wire, internet, in addition to the postal communication system, through
which a currency of one country is converted into the currency of another
country. The exchanges of currency from one to another happen to satisfy
the need of goods, commodities and services, in addition to invest in
financial assets.

• Such market is also known as Euro Currency Market. The banks who are
involved in euro currency market are generally large sized commercial
banks, also known as Euro Banks. Euro banks are involved in acceptance
and lend the funds in currencies of the country of the globe, based on need
of the citizens of the country where they are operating.

Lien he tu lam

82.Definition of money? What is the difference between money and wealth,

and income?

 Money is everything excepted generally in payment for goods or

services or in repayment of debts.
+) Currency
+) Check (paper money or coins)
+) Saving deposit
- Economists differentiate among three different types of money: commodity
money, fiat money, and bank money. Commodity money is a good whose value
serves as the value of money. Gold coins are an example of commodity money. In
most countries, commodity money has been replaced with fiat money. Fiat money
is a good, the value of which is less than the value it represents as money. Dollar
bills are an example of fiat money because their value as slips of printed paper is
less than their value as money. Bank money consists of the book credit that banks
49
extend to their depositors. Transactions made using checksdrawn on deposits held
at banks involve the use of bank money.
* Based in the above definition of money, we can see the difference between
money, wealth and icome:
- Wealth is incluces not money but also other assets ( bonds, common stocks,
land, cars, houses furniture..)
-Income refers to money received by a person or household over some period
time. By contrast, money is stock.

83Analyze function of money?

 Medium of exchange:

- Money is the form of currency or checks are used to pay for goods or
services, as a medium exchange
- Promote economic efficiency by minizining the time spent in exchanging
goods and services and allowing people to specialize in what they do best
- Criteria:

+ Must be easily standardized making it simple to ascertain its value.

+ Must be widely except

+ Must be divisible -> easy to make change

+ Must be easy to carry

+ Must be not deteriorate quickly.

 Unit of account

- Be used to measure the value of good and services, measure value in the
economy.

- Benefit:

50
 + Reduce the number of price reduce transaction costs in the economy

+ Promote money to grow economy becomes more complex ( money ->

transaction instrument -> company need many money to transact)

+ Allow companies to account for production cost, calcutate prices, sales

and evaluate firn performant to select the appropriate investment direction.

 Store of value:

- Save purcharing power from the time income is received to the time it is
spent
- Money: the most liquid asset, not the most attractive store of value
- Help banking system develop.

84Present forms of money? Show forms of money that are existing in modern
society today?

1. Commodity
2. Fiat money
3. Checks
4. Electronic payment
5. E-Money

1.Commodity money:

- Be used at the beginning of money’s era.

- Essential goods were choén to be money: cow, sheep, stone necklace, pieces of
mentals.

- Normal commodity money and mental commodity money: face value= intrinsic
value.

- Value of CM is based on value of material that money is made of.

- Pros: necessary to everyone.

51
- Cons: hard to carry, to transport, to preserve.

- Not easy to divide into pieces, not easy to add up.

2. Fiat Money:
- Fiat money is currency that a government has declared to be legal fender, but is
not backed by a physical commodity.
- The value of filat money is derived from the relationship between supply and
demand rather the value of the material that the money is made of. It is based on
faith.
- Metal Fiat Money and Paper Money: Face value > Intrinsic value
- Remedy all the disadvantages of CM
3. Check:
-A check is an instruction from you to your bank to transfer money from your
account to someone else’s when she deposits the check.
4. Electonic payment:
Transmit your payment electionically via internet
5.E-Money:
- Money that exists only in electronic form.

- Debit card, Visa card, Master car.

85.Causes and Effects of galloping inflation?

 Causes of Inflation
So what exactly causes inflation in an economy? There is not a single, agreed-upon
answer, but there are a variety of theories, all of which play some role in inflation:

1. The Money Supply

- Inflation is primarily caused by an increase in the money supply that outpaces
economic growth.

52
- One way of looking at the money supply effect on inflation is the same way
collectors value items. The rarer a specific item is, the more valuable it must be.
The same logic works for currency; the less currency there is in the money supply,
the more valuable that currency will be. When a government decides to print new
currency, they essentially water down the value of the money already in
circulation. A more macroeconomic way of looking at the negative effects of an
increased money supply is that there will be more dollars chasing the same amount
of goods in an economy, which will inevitably lead to increased demand and
therefore higher prices.

2. The National Debt

- We all know that high national debt in the U.S. is a bad thing, but did you know
that it can actually drive inflation to higher levels over time? The reason for this is
that as a country’s debt increases, the government has two options: they can either
raise taxes or print more money to pay off the debt.

- A rise in taxes will cause businesses to react by raising their prices to offset the
increased corporate tax rate. Alternatively, should the government choose the latter
option, printing more money will lead directly to an increase in the money supply,
which will in turn lead to the devaluation of the currency and increased prices (as
discussed above).

3. Demand-Pull Effect
- The demand-pull effect states that as wages increase within an economic system
(often the case in a growing economy with low unemployment), people will have
more money to spend on consumer goods. This increase in liquidity and demand
for consumer goods results in an increase in demand for products. As a result of
the increased demand, companies will raise prices to the level the consumer will
bear in order to balance supply and demand..
4. Cost-Push Effect
- Another factor in driving up prices of consumer goods and services is explained
by an economic theory known as the cost-push effect. Essentially, this theory states
that when companies are faced with increased input costs like raw goods and
materials or wages, they will preserve their profitability by passing this increased
cost of production onto the consumer in the form of higher prices.

53
5. Exchange Rates
- Inflation can be made worse by our increasing exposure to foreign marketplaces.
In America, we function on a basis of the value of the dollar. On a day-to-day
basis, we as consumers may not care what the exchange rates between our foreign
trade partners are, but in an increasingly global economy, exchange rates are one of
the most important factors in determining our rate of inflation.

* Effects of inflation

1. Spend money on long-term investments.

- We all love to save. But when it comes to long-term investments, sometimes
spending money now can allow you to benefit from inflation down the road. As an
example, let’s say you are looking to take out a mortgage to purchase a home and
economists project significant inflation over the next 50 years. When you consider
you can repay the mortgage down the line with inflated dollars that are worth less
than they are now, then you are using inflation to your benefit.

2. Invest in commodities.
- Commodities, like oil, have an inherent worth that is resilient to inflation. Unlike
money, commodities will always remain in demand and can act as an excellent
hedge against inflation. For most of us, however, purchasing commodities in the
open marketplace is probably too much of a daunting task. In that case, you can
consider commodity-based Exchange Traded Funds (ETFs) which offer the
liquidity of stocks with the inflation hedging power of commodity investment. Just
be careful of and watch out for the problems of ETFs.

3. Invest in gold and precious metals.

- Gold, silver, and other precious metals, like commodities, have an inherent value
that allows them to remain immune to inflation. In fact, gold used to be the
preferred form of currency before the move to paper currency took place. With that
said, even precious metals are liable to being a part of speculative bubbles.

4. Invest in real estate.

- Real estate has also historically offered an inflationary hedge. The old saying
goes: “land is the one thing they aren’t making any more of.” Investing in real
estate provides a real asset. In addition, rental property can offer the landlord the
option of increasing rent prices over time to keep pace with inflation. Plus, there’s

54
the added alternative of the ability to sell the real assets in the open market for
what normally amounts to a return that generally keeps pace with or outstrips
inflation. However, just like with precious metals, we all know that real estate
bubbles can and do exist.

5. Consider TIPS.
- Treasury Inflation Protected Securities (TIPS) are guaranteed to return your
original investment along with whatever inflation was during the lifetime of the
TIPS. But TIPS do not offer the opportunity for significant capital appreciation,
and therefore should only make up a portion of your personal investment portfolio
allocation.

6. Stick with equities..

7. Consider dividend-paying stocks..

8. Save More.
9. Invest in collectibles.

10. Become a patron of the arts.

86.Analyze inflation in period of 2004-2014 in Vietnam?

- Introduction Vietnam is a country which has the advantage of exporting

agricultural commodities and raw products to the world market. However,
nowadays Vietnam does not really create its advantages for exports. The
Vietnamese economy is still suffering from the negative impacts of market
fluctuations. These fluctuations also have big effects on export activities of
Vietnam. Particularly, in recent years, the issues which are volatility of some
strong currencies in the world and the Chinese government devalued their
yuan have caused direct effect on the economy of Vietnam. Export – import
operations are affected firstly. This causes significant impacts on the balance
of trade in general and trade with partner countries in particular. Through this
article, we analyze the fluctuations of yuan and Fed rates and their main
effects on Vietnamese economy. We also focuse on the situation of the
currency market in Vietnam and the actions of the State Bank of Vietnam
(SBV) in helping to stabilize the domestic market. Then, we look at the
negative impacts of exchange rate fluctuations that affect the agricultural

55
 exports and the proposals for maintaining sustainability in agricultural exports
to reduce market risks.

- However, recent events such as the joining the WTO, the great influx of
foreign exchange in 2007-2008, the problems in the foreign exchange markets
in 2009 and 2010 and the global economic crisis as well as the threat of
returning inflation have posed many new challenges for macroeconomic
management and in particular inflation control in Vietnam. The recent debate
on inflation, such as Pham The Anh (2009), Vo Van Minh (2009) and Pham
Thi Thu Trang (2009), has been putting the blame on loose monetary policy,
rigid exchange rate management, market imperfections, and changes in world
prices and in domestic food prices for driving up consumer prices. The many
changes in macroeconomic environment and economic policy during the past
few years have posed the need for a systematic and thorough approach to
identify the key macro determinants of inflation in the new context of
Vietnam

- More specificially, this study indicates the fators which affect a country’s
export and import such as: exchange rate, population size, development gap
among countries…Inside, exchange rate impacts in positive direction, every
1% increase in exchange rate makes exports of Vietnam average increase of
3,469%. It means that the price of Vietnamese export products is affected by
the price of US dollars. Therefore, stabilizing exchange rate is very important
that the export of agricultural goods achieves sustained stable growth. Phan
Thanh Hoan (2007) applies cointegration theory and error correction model in
order to verify impact of exchange rate both in the short term and in the long
term on the balance of trade, thence construct model presenting their
relationship. Result of the study shows the existence that relationship. In the
short term, the impact of exchange rate is under the relative lag. However, in
the long term they come to one balance relation.The influence of exchange
rate on balance of trade is fast and strong, so if that we only base on the
nominal exchange rate to analyze the effect of exchange rate on the balance of
trade is incorrect. For this reason, he use actual exchange rates and mainly
multilateral real exchange rate. Besides, Pham Thi Tuyet Trinh also use ECM
model to determine the impact of real exchange rate on trade balance in short-
run and long-run in Vietnam. The result of impulse response in model showed
that there is a relationship between real exchange rate and trade balance of
Vietnam. Author indicated that “a depreciation real www.sciedupress.com/afr
- - - Accounting and Finance Research Vol. 5, No. 2; 2016 Published by
Sciedu Press 56 ISSN 1927-5986 E-ISSN 1927-5994 exchange rate
56
 immediately causes significant negative impact on trade balance” in short-run
and “real exchange rate does have positive impact on trade balance in the
long-run”. Kristian Nilsson’s research (2015) indicates why the exports of
developing countries are subject to more severe consequences of exchange
rate volatility than the exports of developed countries. First, in which
exporters usually have little market power. Second, developing countries
usually have underdeveloped finacial markets. In the fact that developing
countries almost exclusively trade in US dollars, whereas almost developed
countries, to some extent, trade in their domestic currency. Therefore, the
exports of developing countries depend on the fluctuation of exchange rate
strongly. The study also indicates that the more flexible exchange rate regime
is, the greater the exports of developing countries. Thus, in some extent,
studies indicate relative impact of exchang rate on the exports of developing
countries such as Vietnam.

- - To export agicultural goods rise needs not only the agricultural supports but
also stable policies of exchange rate by the development of domestic financial
markets. However, most of them just stop the impact assessment not specific
solutions to improve ability of the agricultural products export in general in
the world. Different studies have shown the negative impact of exchange rate
on exporting agricultural goods of developing countries such as Vietnam. To
increase in the value of export agricultural goods, in addition to the policies
for supportin agriculture, Vietnam should stabilize exchange rate by the
development of domestic financial markets. - However, the studies just
analyze the impact and there are no specific measures aimed at improving the
ability to export agricultural products deeply. 3. Exchange Rate in Vietnamese
Economy Exchange rate is one of the important macroeconomic policies. The
situation between US dollars and Euro, US dollars and JPY in the past period
of time shows that exchange rate is always sensitively current issue. In
Vietnam, the impact of exchange rate on not only exports and imports,
balance of trade, public debt, FDI but also popular trust. From 2014 to now,
strong curencies in the world have had significant changes. In 2014, US
dollars increase 14 percent and increase over 27 percent in period from 2014
to the middle of the second quarter in 2015 in comparison with different
strong curencies such as: EUR, JPY, GBP, CAD, SEK and CHF.

- Vietnam’s balance of payments shows that for many years before 2006,
foreign exchange inflow to Vietnam was not large. Until 2005, foreign
57
 exchange inflows reached only around USD 9 billion (not including unofficial
inflows). However, within only two years 2006-2007, foreign exchange
actually flooded domestic market due to foreign indirect investment, making
official reserves increase by 1.6 times the cumulative reserves. This situation
posed new challenges for monetary policy in 2007. Within the first 6 months
of 2007, SBV had to inject a large amount of VND (equivalent to roughly
USD 9 billion) to buy foreign exchange to keep the ER stable. The excess
supply of domestic currency was not timely sterilized. At the same time, raw
ma in the d would n It was inflation SBV ne new ch interest Fig more pe The
Vietnam demand stimulu started running interest fees) as aterial prices decade
reach not be able t clear that t n, instead it eeded to buy hallenges fo rate
during Figure Source: Ngu gure 10 sho ersistent inf e global e m’s inflation d
helped Vie us packages to increase g out of cas rate compe s well. Alt -010 -
005 000 005 010 015 020 025 s increased hed double to sustain th the policy o
t contribute y USD to m or SBV and g 2007-2008.

87.Analyze inflation in period of 1975-1991 in Vietnam?

- 6.1. 1975-1989: Broad money and inflation According to monetary theory,

money stock increase is expected to accelerate inflation. However, the story
does not necessary hold true in the case of Vietnam. Previous studies have
found little evidence of a robust link between monetary growth and inflation
in Vietnam. Only period 1975-1989 experienced the slow down of inflation
due to decline in broad money supply. Moreover, Vietnam has higher money
growth but lower inflation in comparison to other transition economies This
fact weakens the argument for the existence of relationship between money
stock and inflation. However, without further analysis it is too soon to
determine for the presence of casual relationship between broad money
growth and CPI inflation. Because the primary transaction and the wrong
transaction has both country in the left hungry. People they have started
against reverse policy. Since the grain happen the year to the last year and to
the interval 2 and month 3 in the summer.
- 6.2: 1989-1991: Lending rate and inflation Lending rate remained
significantly higher than inflation over the period 1989- 1991. In that period,
the economy experienced rapid expansion in private enterprises that required
huge amount of credit. Based on theoretical expectation, it is lending rate that
gives influence on inflation through cost-push. However, previous empirical
studies on Vietnam’s inflation negate the causal relationship between lending

58
 rate and inflation. In reverse, banks could rise up the lending rate in response
to inflationary tax. Indeed, this point was introduced in some previous
empirical studies on Vietnam’s economy.

88.What does Central bank do when the economy is facing high inflation?

- Contractionary Monetary Policy

- One popular method of controlling inflation is through
a contractionary monetary policy. The goal of a contractionary policy is to
reduce the money supply within an economy by decreasing bond prices and
increasing interest rates. This helps reduce spending because when there is
less money to go around, those who have money want to keep it and save it,
instead of spending it. It also means that there is less available credit, which
can also reduces spending. Reducing spending is important during inflation,
because it helps halt economic growth and, in turn, the rate of inflation.
- There are three main tools to carry out a contractionary policy. The first is to
increase interest rates through the central bank, in the case of the U.S., that's
the Federal Reserve. The Fed Funds Rate is the rate at which banks borrow
money from the government, but, in order to make money, they must lend it at
higher rates. So, when the Federal Reserve increases its interest rate, banks
have no choice but to increase their rates as well. When banks increase their
rates, fewer people want to borrow money because it costs more to do so
while that money accrues at a higher interest. So, spending drops, prices drop
and inflation slows.
- Reserve Requirements
- The second tool is to increase reserve requirements on the amount of money
banks are legally required to keep on hand to cover withdrawals. The more
money banks are required to hold back, the less they have to lend to
consumers. If they have less to lend, consumers will borrow less, which will
decrease spending.
- Reducing the Money Supply
- The third method is to directly or indirectly reduce the money supply by
enacting policies that encourage reduction of the money supply. Two
examples of this include calling in debts that are owed to the government and
increasing the interest paid on bonds so that more investors will buy them.
The latter policy raises the exchange rate of the currency due to higher
demand and, in turn, increases imports and decreases exports. Both of these
policies will reduce the amount of money in circulation because the money

59
 will be going from banks, companies and investors pockets and into the
government’s pocket where it can control what happens to it.

89..Analyze main solutions that Central Bank requires Financial Institutions

conduct in order to reduce inflation?

- Set the Reserve Requirement

One of the basic methods used by all central banks to control the quantity of
money in an economy is the reserve requirement. As a rule, central banks
mandate depository institutions to keep a certain amount of funds in reserve
against the amount of net transaction accounts. Thus a certain amount is kept
in reserve, and this does not enter circulation. Say the central bank has set the
reserve requirement at 9%. If a commercial bank has total deposits of $100
million, it must then set aside $9 million to satisfy the reserve requirement. It
can put the remaining $91 million into circulation.
When the central bank wants more money circulating into the economy, it can
reduce the reserve requirement. This means the bank can lend out more
money. If it wants to reduce the amount of money in the economy, it can
increase the reserve requirement. This means that banks have less money to
lend out and will thus be pickier about issuing loans.
In the United States (effective January 19, 2017), smaller depository
institutions with net transaction accounts up to $15.5 million are exempt from
maintaining a reserve. Mid-sized institutions with accounts ranging between
$15.5 million and $115.1 million must set aside 3% of the liabilities
as reserve. Depository institutions bigger than $115.1 million have a 10%
reserve requirement.
- Influence Interest Rates
In most cases, a central bank cannot directly set interest rates for loans such as
mortgages, auto loans, or personal loans. However, the central bank does have
certain tools to push interest rates towards desired levels. For example, the
central bank holds the key to the policy rate—this is the rate at which
commercial banks get to borrow from the central bank (in the United States,
this is called the federal discount rate). When banks get to borrow from the
central bank at a lower rate, they pass these savings on by reducing the cost of
loans to its customers. Lower interest rates tend to increase borrowing, and
this means the quantity of money in circulation increases.
- Engage in Open Market Operations

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 Central banks affect the quantity of money in circulation by buying or
selling government securities through the process known as open market
operations (OMO). When a central bank is looking to increase the quantity of
money in circulation, it purchases government securities from commercial
banks and institutions. This frees up bank assets—they now have more cash to
loan. This is a part of an expansionary or easing monetary policy which brings
down the interest rate in the economy. The opposite is done in a case where
money needs to taken out from the system. In the United States, the Federal
Reserve uses open market operations to reach a targeted federal funds rate.
The federal funds rate is the interest rate at which banks and institutions lend
money to each other overnight. Each lending-borrowing pair negotiates their
own rate, and the average of these is the federal funds rate. The federal funds
rate, in turn, affects every other interest rate. Open market operations are a
widely used instrument as they are flexible, easy to use, and effective.
- Introduce a Quantitative Easing Program
In dire economic times, central banks can take open market operations a step
further and institute a program of quantitative easing. Under quantitative
easing, central banks create money and use it to buy up assets and securities
such as government bonds. This money enters into the banking system as it is
received as payment for the assets purchased by the central bank. The bank
reserves swell up by that amount, which encourages banks to give out more
loans, it further helps to lower long-term interest rates and encourage
investment. After the financial crisis of 2007-2008, the Bank of England and
the Federal Reserve launched quantitative easing programs. More recently, the
European Central Bank and the Bank of Japan have also announced plans for
quantitative easing.
- The Bottom Line
Central banks work hard to ensure that a nation's economy remains healthy.
One way central banks do this is by controlling the amount of money
circulating in the economy. They can do this by influencing interest rates,
setting reserve requirements, and employing open market operation tactics,
among other approaches. Having the right quantity of money in circulation is
crucial to ensuring a healthy and sustainable economy.

90.Present financial transaction channels? Give comment for the development

of these channels in Vietnam?

 Financial transaction channels

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- A branch, banking center or financial center is a retail location where a bank
or financial institution offers a wide array of face to face service to its
customers.

- ATM is a computerized telecommunications device that provides a financial

institution's customers a method of financial transactions in a public space
without the need for a human clerk or bank teller
- Mail is part of the postal system which itself is a system wherein written
documents typically enclosed in envelopes, and also small packages
containing other matter, are delivered to destinations around the world
- Telephone banking is a service provided by a financial institution which
allows its customers to perform transactions over the telephone
- Online banking is a term used for performing transactions, payments etc. over
the Internet through a bank, credit union or building society's secure website.

 The development of these channels in Vietnam?

- Cash payments

Vietnam has one of the highest cash dominated economy in the world, with
almost 90 percent of all transactions conducted in cash. With low banking
penetration, lack of ATMs and cashless systems, complexities of digital
payment systems, and lack of consumer trust, consumers are compelled to fall
back to cash based transactions.

To reduce cash dependence, the government needs to incentivize non-cash

systems especially in the e-commerce and bill payment sectors and reduce
product complexity for easier adoption. The government also needs to educate
the masses to inform about the value proposition of adopting digital payments,
as most users do not see any benefits or value in using such a system.

- Digital banking

As more and more customers turn to technology for conducting bank

transactions, Vietnam offers a huge potential for digital banking. With
growing internet access, commercial banks have been developing internet
banking services on mobile devices to offer better services. Almost 44 percent

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 of customers of commercial banks have used digital services in 2016 with
money transfer/receive, bank cards, and internet banking leading amongst all
services.

To promote digital banking, commercial banks in cooperation with digital

payment service providers have launched promotions to incentivize digital
banking services such as bonus interest rates for deposits and discounts on e-
payment of utility bills. Banks should continue to invest in technology in spite
of high costs, which will be cost effective in comparison to expanding branch
networks. Transactions conducted through digital channels are predicted to
contribute 40 percent of banking revenue by 2018.

- Payment Cards

Bankcard market in Vietnam has been growing steadily over the years driven
by the middle-class, low banking penetration, increase in e-commerce
transactions, and new card technologies. Bankcards currently in circulation in
Vietnam have increased by 11.36 percent in 2016 to 111 million, in
comparison to 2015. However, only 15 percent of users have used the
bankcards in 2016. The major reason for low usage is the lack of sufficient
ATMs in rural areas, which account for 70 percent of the population.
Although the number of point of sales and ATMs has increased by 13.77
percent and 5.39 percent respectively in 2016, banks need to ensure equal
distribution of such systems amongst urban and rural areas to increase usage.

On the security front, the government is undertaking numerous measures to

increase card security to improve consumer trust. Banks have been instructed
to convert magnetic cards into chip cards to increase security and prevent
fraud. Authorities also aim to make all ATM cards EMV-standard chip cards
by 2020, to reduce risks in e-commerce for both buyers and sellers. Credit
card service providers have been instructed to compensate card owners for
loss not caused by owners from November 2016 to protect the customer’s
interest.

- Digital Wallets and Payment Apps

Digital payment solutions or e-wallets offering services such as bill payment,

online shopping, and money transfer are fast emerging as alternatives to
traditional banking. With a high percentage of internet users and mobile

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 subscribers along with low banking penetration, e-wallets have immense
potential in the region. In just one quarter in 2016, e-wallet penetration
increased by 50 percent. Currently, almost 10 million customers use e-wallets
from over 10 different service providers

To promote e-wallets, the State Bank has released the Circular 39, officially
recognizing e-wallet services as a payment service like other payment and
collection services. The government has granted licenses to numerous
companies in payment services such as 1Pay and WePay, to ensure
compliance and security. Commercial banks are also increasing cooperation
with e-wallets to further their services and value addition.

Banks such as Vietcombank and Viet Capital Bank have tied up with Payoo
app for numerous services. Not only commercial banks but also foreign
investment funds and technology firms have stepped up their investments in e-
wallet service providers. MoMo, a service of M-Service, which works as an e-
wallet and a payment app, has raised a US$28 million Series B round from
Standard Chartered Private Equity (SCPE) and global investment bank
Goldman Sachs. Similarly, VNPTPay and Payoo received investments from
South Korea’s UTC Investment and NTT Data respectively.

91.Definition of Financial Market? Show function and importance of

Financial Market?

* Definition of Financial Market:

Financial market is the place where money flows from savers to users
* Functions of Financial Markets:

- Channels funds from persons or business without investment opportunities to one

who has them

- Improves economic efficiency.

 Importance of Financial market:

- This is important. For example, if you save $1000, but there are not financial
market then you earn no return on this might as well put the money under
your mettress.

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 - However, if a carpenter could use that money to buy saw ( omcreasing her
productivity) then she’d be willing to pay you some interest for use of the
funds.
- Financial market are critical for producting an efficient allocation of capital,
allowing funds to from people who lack productive investment opportunities
to people who have them.
- It also improve the well being of consumers, allowing them to tim their
purchases better.

92.Explain diagram of flows of funds through Financial Market?

- Direct finance.
Borrowers borrow directly from lenders in financial markets by selling financial
instruments which are claims on the borrower's future income or assets
- Indirect finance.

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Borrowers borrow indirectly from lenders via financial intermediaries (established
to source both loanable funds and loan opportunities) by issuing financial
instruments which are claims on the borrower's future income or assets

93.Forms of Financial Market?What do you think of these forms’

development in Vietnam?

 Forms of Financial Market. (chú ý là có nhiều tiêu thức phân loại khác
nhau, chia thành từng tiêu thức cho đỡ nhầm )
 Debt Markets.
Debt instruments are issued
- Short-Term (maturity < 1 year).
- Long-Term (maturity> 10 year).
- Intermediate term (maturity in-between).
 Equity Markets
Equity instruments are issued
- Pay dividends, in theory forever.
- Represents an ownership claim in the firm.
 Primary Market - firms and governments issue securities and sell them
initially to the public.
- New issued securities sold to initial buyers.
- When a firm offers a stock for sale to the general public for the first time.
 Secondary Market - collection of financial markets in which previously
issued securities are traded among investors.
- Securities previously issued are bought and sold
 Exchanges.
- Trades conducted in central locations (e.g., New York Stock Exchange, CBT)
 Over-the-Counter Markets.

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- Dealers at different locations buy and sell.
- Best example is the market for Treasury securities.
 Money Market: Short-Term (maturity <= 1 year).
 Capital Market: Long-Term (maturity > 1 year) plus equities.
b. What do you think of these forms' development in Vietnam? Tự liên hệ nhé

94.Some economists suspect that one of the reason that economies in

developing countries grow so slowly is that they do not have well-developed
financial markets. Does it argument make sense?

* Definition of Financial Market:

Financial market is the place where money flows from savers to users

 Yes, because a well-developed financial market helps boost the economy by

using idle funds in order to invest them in profitable ventures. Therefore, by
not having a well-developed financial market, many idle funds are not being
used because of the risk it would represent to lend money without a financial
intermediary. Just as the economic multiplier theory states, an amount
invested in the financial market is multiplied by such number to get the
contribution of such amount to the national production.

95.“Because corporations do not actually raise any funds in secondary

markets, they are less important to the economy than primary market”.

Give your comment to the above statement.


Primary market:
- Firms or gorverments issue securities and sell them initially to the public.
- New issued securities sold to initial buyers
- When a firm offer a stock for sale to the general public for the first tme.
 Secondary market:
- Collection of financial market in which previously issued securities are traded
among investors.
- Securties previously issued are bought and sold.
 Explain:

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This statement is false. Prices in secondary markets determine the prices that firms
issuing securities receive in primary markets. In addition, secondary markets make
securities more liquid and thus easier to sell in the primary markets. Therefore,
secondary markets are, if anything, more important than primary markets.

96.If you suspect that a company will go bankrupt next year, which would you
rather hold, bonds issued by the company or equities issued by the company?
Explain why?

When the firm is going to bankrupt people will prefer to hold bonds as the
possibility of getting the money back for those who have bonds is more than
shareholders as those whom holding bonds are paid before shareholders.
Moreover, when a company went bankrupt its assets will not be enough to pay
both bonds and stockholders so in this case bonds holders will be paid even if it is
not all but at least they will get some of their money while stockholders might get
nothing.
So, holding bond is more better than holding stock because bonds holders are paid
first.

97Analyze functions of Financial market? What do these functions perform in

Vietnam?

Channels funds from person or business without investmnet opportunities ( lender-

saver) to one who has them (borrower-spenders)
 Improves economic efficiency
 This is important. For example, ifyou save $1000, but there are no financial
markets, then you can earn no return on this-might as well put the money
under your mattress
 However, if a carpenter could use that money to buy a new saw ( increasing
her productivity), then shed willing to pay you some interest for use of the
funds.
 Financial markets are critical for producing an efficient allocation of capital,
allowing funds to move from people who lack productive investment
opportunities to people who have them.

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  Financial matkets also improve the well being of consumers, allowing them
to time their purchases better.

 Vietnam’s function financial market: The intermediary functions of financial

markets include the following:

 Transfer of resources: Financial markets facilitate the transfer of real

economic resources from lenders to ultimate borrowers.

 Enhancing income: Financial markets allow lenders to earn interest or

dividend on their surplus invisible funds, thus contributing to the
enhancement of the individual and the national income.

 Productive usage: Financial markets allow for the productive use of the
funds borrowed. The enhancing the income and the gross national
production.

 Capital formation: Financial markets provide a channel through which

new savings flow to aid capital formation of a country.

 Price determination: Financial markets allow for the determination of price

of the traded financial assets through the interaction of buyers and sellers.
They provide a sign for the allocation of funds in the economy based on the
demand and to the supply through the mechanism called price
discovery process.

 Sale mechanism: Financial markets provide a mechanism for selling of a

financial asset by an investor so as to offer the benefit of marketability and
liquidity of such assets.

 Information: The activities of the participants in the financial market result

in the generation and the consequent dissemination of information to the
various segments of the market. So as to reduce the cost of transaction of
financial assets.

98.Introduce transferees of Financial market? Why is the order of lender

team and borrower team different?

 Transferees in the financial markets include:

 Lender – Saver:
+ Households
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 + Business Firms
+ Government
+ Foreigners
 Borrower –Spender:
+ Business Firms
+ Government
+ Households
+ Foreigners
 Having the order of lender team and borrower team differment because:
lender are a person or insitutions have money but they don’t use that. And
then they want save the money in the bank or invest something which can
bring profit for their. The first tranferees in them is households after that is
business firms, Government, foreigners.

99.What are differences between Exchanges and OTC markets? Show your
understanding of HOSE?

 Exchanges:
+ Trades conductedin central locations
 Over the counter market:
+ Dealers at different locations buy and sell
+ Best example is the marke for Treasure securities.
*The main difference between Exchange and OTC is:
OTC vs Exchange
Many financial markets around the world, such as stock markets, do their trading
through exchange. However, forex trading does not operate on an exchange basis,
but trades as ‘Over-The-Counter’ markets (OTC). We’ll examine some differences
between exchange trading and over-the counter markets in this article.
Differences
The differences also demonstrate that there is more counter party risk in over-the-
counter traded markets than in exchange traded ones, because the ‘exchange’ acts
as the regulatory, and is a counter-part to each transaction thus ensuring the
delivery of funds or securities.
Also, exchange traded markets have less chances of price manipulation by
mediators, since trading is on a centralized system. However, in OTC markets, it

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 will largely be determined by how many dealers are trading in a particular security
at a given time.
And since there are fewer clients willing to trade in OTC markets, the result will be
less liquidity, whereas exchange traded markets tend to have many participants and
clients, thus, there’s a generally higher level of liquidity.
Summary:
In exchange markets, there’s a regulator (exchange) through which transactions are
completed, while in OTC markets there is no regulator.
Exchange markets have less chances of price manipulation, while the many
competing traders in OTC markets can manipulate prices.
Exchange markets ensure transaction security, while OTC markets are prone to
fraud and dishonest trade;

- Information about HOSE:

Ho Chi Minh City Stock Exchange or Ho Chi Minh Stock
Exchange (HOSE or HSX), located in Ho Chi Minh City, is the largest stock
exchange in Vietnam. Established in 2000 as the Ho Chi Minh City Securities
Trading Center (HoSTC), it is an administrative agency of the State Securities
Commission, along with the Hanoi Securities Trading Center. The stock exchange
is located at 45-47 Ben Chuong Duong, District 1, Ho Chi Minh
City, Vietnam. The current top executive of HSX, with the title of Deputy
Chairman, is Mr. Tran Dac Sinh.
The Stock Trading Center of Vietnam is also the official mechanism through
which new government bonds are issued, and it functions as the secondary market
for a number of existing bond issues. All securities traded on the Stock Trading
Center of Vietnam are denominated in Vietnamese dong (VND). Par value is
standardized at VND10,000 for equities and VND100,000 for bonds. Trading is
conducted daily with two matching sessions: morning (9 a.m. - 11.30 a.m.) and
afternoon (1 p.m. - 3 p.m.).
The State Securities Commission (SSC), a body established formally in 1996, is
responsible for capital markets development, licensing of participants, and the
issue and enforcement of regulations. A wide range of regulations, with significant
input from multilateral bodies such as the International Finance Corporation, have
been promulgated, including those dealing with such issues as insider trading, take-
over trigger points and margin lending. To be listed, a company must have been
profitable for at least 2 years, have a minimum capitalization of VND5b
(approximately US$318,000), and have at least 50 shareholders who are not
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 employees of the company, holding at least 20% of stake. Foreign invested joint
venture companies are technically qualified to list, but to do so, they must be
reorganized into joint stock company status. Companies intending to list must also
submit to audit by an approved, independent auditing company.

100.Analyze risks in banking management?

Potential borrower knows more about the risks and returns of an investment project than
bank loan officer
 Adverse Selection Problem
+ When least desirable borrowers pursue a loan most diligently
+ Adverse selection is the problem created by asymmetic information before the
transaction occurs. Adverse selection occurs when the potential borrowers who are
the most likely to produce an undesiable (adverse) outcome – the bad credit risks –
are the ones who most actively seek our a loan and are thus most likey to be
selected.
+ Because adverse selection makes it more likely that loans might be make to bad risks,
lenders may decide not to make any loans even though there are good credit risks
in the market place.
Example:
+ friend A :a conservativeperon
+ Friend B: a inveterate gambler

We will choose friend B because we don’t have enough information about the
project. Inaddition, friend B always show us the advantages of the project and
promiss pay us high interest.
 Moral Hazard Problem
+ When borrower has incentive to use proceeds of loan for mare risky venture after
laon is funded
+ Bank manager must manage interest rate risk
+ Moral hazard is the problemcreatedby asmmetric information after the transaction
occurs
+ The borrower might engage in activities that are undersirable (immoral) from the
lander’spoint of view, because they make it less likely that the loan will be paid
back => lenders may decide that they would rather not make a loan
+ Example: you made a loan to friend who need the money to invest in opening a
shop. Once you have made the loan, however, the friend use your money to
gamble at cards. The risk of moral hazard might therefore discourage you from
making the loan to the friend.

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 Conclution, because of its asymmetric information and its two consequences, it is an
adverse selection and a moral hazard problem , so it is easy for banks to face
bad debt.

101.Present types of banking services? Give comment for the development of

banking services in Vietnam.

*Banking services
Although the basic type of services offered by a bank depends upon the type of bank
and the country, services provided usually include:
 Taking deposit from their customers and issuing current or checking
accounts and savings accounts to individuals and businesses
 Current account
A account is a personal bank account which you can take money out of at any time
using your cheque bokk or cash card.
 Saving account:
+ A saving account is a bank account with a limited numberof transactions per month and
which pays a higher interest rate than a checking account
+ Why
 Extending loans to invididuals and business
 Cashing check (cheque)
 Facilitating money transactions such as wire tranfers and cashier’s checks:
+ A cheque or a check is a document that orders a bank to pay a specific amount of
money from a person’s account to the person in whose name the cheque has been
issued.
+ cashier’s checks or a cheque is a cheque guaranteed by a bank, drawnon the bank’s
own funds and signed by a cashier
+ An invididual can use a cashier’s check instead of a personal check to guaranteed funds
are available for payment. A cashier’s check is secured because the invididual must
first deposit the amount of the check into the issuing institution’s own account.
 Issuing credit cards, ATM cards, and debit cards
 Storing valuables, particular in a safe deposit box
 Consumer and commercial bank advisory serveces
 Pension & retirement planning
*Vietnam’s banking serveces: we can see with the develop of customer’s demand, the
banking serveces will be expand with many new serveces in the future.

102.Definition of Commercial bank? Analyze purposes of the bank?

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* Commercial bank : is a type od financial institution that accepts deposits offers
checking account services, makes business, personal and mortgage loans, and
offers basic financial products like certificates of deposit and saving accounts to
individuals and small business.

* Purposes of the bank:

+ Provide loans: Banks have influenced economise and politics for centuries.
Historically, the primary purpose of the bank was to provide loans to trading
companies. Banks provided funds to allow businesses to purchase inventory and
collected those funds back with interest when goods were sold.
For centuries, the banking industry only deal with businesses, not consumers.
Commercial lending today is a very intense activity, with banks carefully
analyzing the financial condition of their business clients to determine the level of
risk ineach loan transaction.
+ Provide banking services have expanded to incluse services directed at
individuals and risk in these much smaller transactions are pooled.
+A bank generates a profit from a difference between the level of interest it pays
for deposits and the other source of funds and the level of interest it charges in its
lending activities.
This difference is referred to as the spread between the cost of funds and the loan
interest rate. Historycally, profitability from lending activities has been cyclic and
dependent on the needs and strengths of loan customers.
In recent history, insvestors have demanded a more stable revenue stream and
banks have therefore placed more emphasis on transaction fees, primarily loan fees
but also including service charges on array of deposit activities and ancillary
services ( international banking, foreign exchange, insurance, investments, wire
transfers, etc.) However, lending activities still provide the bulk of a commercial
bank`s income.
Price stability
The purpose of the Bank's monetary policy is to aim at achieving price stability.
Price stability is an indispensable foundation for the economy in achieving stable
and sustainable growth, and in this aim, the Bank fulfills its role of contributing to
the sound development of the national economy
Financial system stability

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Another important purpose of the Bank is to ensure the smooth and stable
operations of payment and settlement systems, thereby contributing to financial
system stability (Article 1, paragraph 2 of the Act). The Bank seeks to achieve this,
such as through the provision of payment and settlement services to financial
institutions and the appropriate exercise of the lender of last resort function.

103.Present financial transaction channels of Commercial bank? What

channels are developed in Vietnam?

A branch, banking center or financial center is a retail location where a bank or

financial institution offers a wide array of face to face service to its customers.
ATM is a computerized telecommunications device that provides a financial
institution's customers a method of financial transactions in a public space without
the need for a human clerk or bank teller
Mail is part of the postal system which itself is a system wherein written
documents typically enclosed in envelopes, and also small packages containing
other matter, are delivered to destinations around the world
Telephone banking is a service provided by a financial institution which allows its
customers to perform transactions over the telephone
Online banking is a term used for performing transactions, payments etc. over the
Internet through a bank, credit union or building society's secure website
(Lien he ben duoi )
+ Multi-channel bank
This model is applied in most banks in Vietnam. Multi-channel banks understand
simply the channels that people are doing everyday such as: Internet Banking,
Mobile Banking, transaction counters, ATMs ...
The limitation of these channels is the lack of synchronization. Consequently, it is
difficult for customers to optimize their experience, as well as to perform seamless
transactions across multiple channels.
In addition, the product integration or launch a utility of the bank also takes up a
lot of time due to independent development for each transaction channel. This will
reduce the competitive advantage from the bank, as well as optimize the benefits
for customers.

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Applying new and modern trading methods is considered a necessary solution for
multi-channel banking group, especially in the context of customers interacting in
many different ways as present.
+ Omni-Channel Banking
Overcoming the limitations of multi-channel banks, Omni-Channel Banking offers
customers a seamless and seamless experience across all transaction channels:
Internet Banking, Mobile Banking, ATMs, counters the questioner. With this form,
the user will easily complete an ongoing transaction on any platform.
In addition, this model can be extended to many other connection protocols such as
social networking and affiliate partners. This will help users more convenient
during the shopping, entertainment online such as booking movie tickets or receive
discount vouchers ...
The product is integrated once for all channels through synchronization. As a
result, the customer experience is always seamless and seamless. Now, users no
longer have to bother about channel selection, since all forms offer the same
experience.
With a synchronous and seamless experience across all transaction channels,
providing more convenience to customers with high levels of security, the Omni-
Channel Banking has become a global trend and is catching up. development in
Vietnam.

104.Introduce types of Commercial bank?

+ Public Sector Banks:
Refer to a type of commercial banks that are nationalized by the government of a
country. In public sector banks, the major stake is held by the government. In
India, public sector banks operate under the guidelines of Reserve Bank of India
(RBI), which is the central bank. Some of the Indian public sector banks are State
Bank of India (SBI), Corporation Bank, Bank of Baroda, Dena Bank, and Punjab
National Bank.
+ Private Sector Banks:
Refer to a kind of commercial banks in which major part of share capital is held by
private businesses and individuals. These banks are registered as companies with
limited liability. Some of the Indian private sector banks are Vysya Bank,

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Industrial Credit and Investment Corporation of India (ICICI) Bank, and Housing
Development Finance Corporation (HDFC) Bank.
+ Foreign Banks:
Refer to commercial banks that are headquartered in a foreign country, but operate
branches in different countries. Some of the foreign banks operating in India are
Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American
Express Bank, Standard & Chartered Bank, and Grindlay’s Bank. In India, since
financial reforms of 1991, there is a rapid increase in the number of foreign banks.
Commercial banks mark significant importance in the economic development of a
country as well as serving the financial requirements of the general public.

105.Show the differences between commercial banks and non-bank financial

institution? What do you think about the development and competition of
commercial bank and non-bank financial institution?

- A commercial bank is a type of financial institution that accepts deposits; offers

checking account services; makes business, personal and mortgage loans; and
offers basic financial products like certificates of deposit (CDs) and savings
accounts to individuals and small businesses.
- Non-bank financial institution or Non-banking financial companies (NBFCs) are
financial institutions that offer various banking services, but do not have a banking
license. Generally, these institutions are not allowed to take deposits from the
public, which keeps them outside the scope of traditional oversight required under
banking regulations. NBFCs can offer banking services such as loans and credit
facilities, retirement planning, money markets, underwriting and merger activities.

The basic difference between a commercial bank and a non-bank financial

institution is that the non-bank financial institution does not fully implement its
banking activities and is not subject to strict control by the central bank.

106.“Centre Bank is the bank of Commercial Banks”.

Analyze above statement.

Give your comment for the above statement.

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- Direct interest rate regulation (regulation of interest rates or floor and ceiling
interest rates) will directly affect the money supply of credit institutions - The
indirect interest rate regulation (regulated through the rediscount rate coupled with
the interest rates on the open market) will indirectly affect the increase or decrease
of money supply of credit institutions The central bank lends to commercial banks
(referring to as the last lender) –

- The central bank is the payment center of the commercial banking system
(commercial banks pay through the central bank system)All else being equal, a
larger money supply lowers market interest rates. Conversely, smaller money
supplies tend to raise market interest rates. The current level of liquid money
(supply) coordinates with the total demand for liquid money (demand) to help
determine interest rates.

In a market economy, all prices, even prices for present money, are coordinated
by supply and demand. Some individuals have a greater demand for present money
than their current reserves allow; most homebuyers don't have $300,000 lying
around, for example. To get more present money, these individuals enter the credit
market and borrow from those who have an excess of present money (savers).
Interest rates determine the cost of the borrowed present money.

107.What is Discount Rate Policy of Centre Bank? Show effects of the policy
on Commercial Bank’s operation.

108.Present content of two following direct instruments: Credit Limits and

Interest Rate Limits.

109When is Tight Monetary Policy applied? What tools are used in the
Policy?

110.What are instruments of Monetary Policy’s? Analyze more detail about

Legal Reserve Requirement?

111.Show the differences between Centre Bank and Commercial Bank?

112.Present operation mechanism of Open-Market Operation?

113.When does Centre Bank implement Expansionary Monetary Policy?

What are tools of the policy?

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114.Analyze roles of Central Bank?

- Central bank give money to commercial banks in the time of crises to avoid
panic life situtions in the market.
- Resevers are just like saving halp to fall back upon form difficult ot
contigent situation.
- Banks itseft has no money, for this there are some legislations required, that
are issused in the form of Prudential regulations by Central Bank for
determining credit policy.
- Central bank plays a critical role in every transaction, business and daily
activities, whether it is Economic activity or Individual activity
- Central banks monitors the purchase and repurchase so that loss woulg not
be there in the exchange rates.
- The central bank has a munber of policy instruments that can effect the
major objectives of monetory policy:
+ Stability of prices
+ Stability of exchange rate.
- Central bank focus on
+ Quantitatives monetary policy
+ Qualtative monetary policyi

115.What are objectives of Monetary Policy? Which objective is the most

important to Vietnam? Explain the reason?

116.What does Central bank do when the economy needs more money to meet
money demand?

117“Adjusting interest rate has strong influences on the money supply”.

Give your comment for the above statement.

- Direct interest rate regulation (regulation of interest rates or floor and ceiling
interest rates) will directly affect the money supply of credit institutions - The
indirect interest rate regulation (regulated through the rediscount rate coupled with
the interest rates on the open market) will indirectly affect the increase or decrease
of money supply of credit institutions The central bank lends to commercial banks
(referring to as the last lender) –

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- The central bank is the payment center of the commercial banking system
(commercial banks pay through the central bank system)All else being equal, a
larger money supply lowers market interest rates. Conversely, smaller money
supplies tend to raise market interest rates. The current level of liquid money
(supply) coordinates with the total demand for liquid money (demand) to help
determine interest rates.

In a market economy, all prices, even prices for present money, are coordinated
by supply and demand. Some individuals have a greater demand for present money
than their current reserves allow; most homebuyers don't have $300,000 lying
around, for example. To get more present money, these individuals enter the credit
market and borrow from those who have an excess of present money (savers).
Interest rates determine the cost of the borrowed present money.

118.What is definition of International Finance? Analyze the importance of

International Finance?

 Definition of International finance: International finance (also referred to

as international monetary economics or international macroeconomics) is the
branch of financial economics broadly concerned
with monetary and macroeconomic interrelations between two or more
countries. International finance examines the dynamics of the global financial
system, international monetary systems, balance of payments, exchange
rates, foreign direct investment, and how these topics relate to international
trade.
Sometimes referred to as multinational finance, international finance is
additionally concerned with matters of international financial management.
Investors and multinational corporations must assess and manage international
risks such as political risk and foreign exchange risk, including transaction
exposure, economic exposure, and translation exposure.
 The important of international finance :
 Diminishing national boundaries
 Rise in global companies
 Rising world trade volumes
 Increased cross border capital flow
 Changing nature of money and capital markets
 Expanding technical infrastructure
 Global consumers and global competition
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  Development of supporting financial infrastructure
 Increased competition at global level

119.Introduce International Financial Institutions? Analyze the importance of

these institutions to Vietnamese Economy?

An international financial institution (IFI) is a financial institution that has been

established (or chartered) by more than one country, and hence are subjects
of international law. Its owners or shareholders are generally national
governments, although other international institutions and other organizations
occasionally figure as shareholders. The most prominent IFIs are creations of
multiple nations, although some bilateral financial institutions (created by two
countries) exist and are technically IFIs. The best known IFIs were established
after World War II to assist in the reconstruction of Europe and provide
mechanisms for international cooperation in managing the global financial system.
Today, the world's largest IFI is the European Investment Bank, with a balance
sheet size of €573 billion in 2016. This compares to the two components of the
World Bank, the IBRD (assets of $358 billion in 2014) and the IDA (assets of
$183 billion in 2014). For comparison, the largest commercial banks each have
assets of c.$2,000-3,000 billion.

• Multilateral development banks

• Bretton Woods institutions
• Regional development banks
• Bilateral development banks and agencies
• Other regional financial institutions

120.Present forms of International Finance briefly?

 The Foreign Exchange Market

 Domestic and International Money Markets

 Domestic and International Capital Markets

 The Derivatives

 International Equity and M&A

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  Using the Global Capital Markets: Global

 Banking Strategy and Implementation

121.What is Foreign Direct Investment (FDI)? Analyze advantages of FDI for

Vietnam’s development?

 A foreign direct investment (FDI) is an investment in the form of

a controlling ownership in a business in one country by an entity based in
another country.[1] It is thus distinguished from a foreign portfolio
investment by a notion of direct control.
The origin of the investment does not impact the definition, as an FDI: the
investment may be made either "inorganically" by buying a company in the target
country or "organically" by expanding the operations of an existing business in that
country.
- advantages of FDI for Vietnam’s development
 Economic Development Stimulation.
Foreign direct investment can stimulate the target country’s economic
development, creating a more conducive environment for you as the investor
and benefits for the local industry.

 Easy International Trade.

Commonly, a country has its own import tariff, and this is one of the reasons
why trading with it is quite difficult. Also, there are industries that usually
require their presence in the international markets to ensure their sales and
goals will be completely met. With FDI, all these will be made easier.

 Employment and Economic Boost.

Foreign direct investment creates new jobs, as investors build new
companies in the target country, create new opportunities. This leads to an
increase in income and more buying power to the people, which in turn leads
to an economic boost.

 Development of Human Capital Resources.

One big advantage brought about by FDI is the development of human
capital resources, which is also often understated as it is not immediately
apparent. Human capital is the competence and knowledge of those able to

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 perform labor, more known to us as the workforce. The attributes gained by
training and sharing experience would increase the education and overall
human capital of a country. Its resource is not a tangible asset that is owned
by companies, but instead something that is on loan. With this in mind, a
country with FDI can benefit greatly by developing its human resources
while maintaining ownership.

 Tax Incentives.
Parent enterprises would also provide foreign direct investment to get
additional expertise, technology and products. As the foreign investor, you
can receive tax incentives that will be highly useful in your selected field of
business.

 Resource Transfer.
Foreign direct investment will allow resource transfer and other exchanges
of knowledge, where various countries are given access to new technologies
and skills.

 Reduced Disparity Between Revenues and Costs.

Foreign direct investment can reduce the disparity between revenues and
costs. With such, countries will be able to make sure that production costs
will be the same and can be sold easily.

8. Increased Productivity.
The facilities and equipment provided by foreign investors can increase a
workforce’s productivity in the target country.

9. Increment in Income.
Another big advantage of foreign direct investment is the increase of the target
country’s income. With more jobs and higher wages, the national income normally
increases. As a result, economic growth is spurred. Take note that larger
corporations would usually offer higher salary levels than what you would
normally find in the target country, which can lead to increment in income.

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