Nguyen Ha Trang | 2111320015

ĐỀ CƯƠNG TIẾNG ANH CHUYÊN NGÀNH 3

TÀI CHÍNH NGÂN HÀNG (ESP233)
Bài tập giáo trình

UNIT 1 – INTRODUCTION
Exercise 1:
1. A mortage is a loan to buy a property.
2. Money you put in the bank is called a deposit.
3. Money paid to a retired person is called a pension.
4. Securities representing part-ownership of a company are called stocks.
5. Bonds are interest-paying securities issued by companies that need to borrow money.
6. A sharestakeover is when a company gains control of another one by putting its stock.
7. A merger is when two formerly separated companies join together.

Exercise 2:
1. Conglomerates – Tập đoàn – Groups of companies that have joined together.
2. Depositors – People who place money in bank accounts.
3. Deregulated – Bãi bỏ thủ tục – Abolished or ended rules and restrictions.
4. Fines – Phí phạt – Sum of money paid as penalties for breaking the law.
5. Prohibit – Make it illegal to do something.
6. Regulation – Control of something by rules or laws.
7. Repealed – Bãi bỏ đạo luật – Cancelled or ended (a law)
8. Underwriting – Bảo lãnh – Guaranteeing to buy a company’s newly issued stocks if no one else does.

Exercise 3:
Regulation and deregulation
In the late 1920s, several American commercial banks that were (1) underwriting security issues for
companies weren't able to sell the stocks to the public, because there wasn't enough demand. So they used
money belonging to their (2) depositors customers lost a lot of money. to buy securities. If the stock price
later fell, their This led government to step up the (3) regulations of banks, to protect depositors' funds, and
to maintain investors' confidence in the banking regulation of banks, to system. In 1933 the Glass-Steagall
Act was passed, which (4) prohibited American commercial banks from underwriting securities. Only
investment banks could issue stocks for corporations. In Britain too, retail or commercial banks remained
separate from investment or merchant banks. A similar law was passed in Japan after World War II.
Half a century later, in the 1980s and 1990s, many banks were looking for new markets and higher
profits in a period of increasing globalization. So, most industrialized countries (5) deregulated financial
systems. The Glass Steagall Act was (6) repealed. A lot of commercial banks merged with or acquired
investment banks and insurance companies, which created large financial (7) conglomerates. The larger
American and British banks now offer customers a complete range of financial service, as the universal banks
in Germany and Switzerland have done for a long time. The law forbidding US commercial banks from
operating in more than one state was also abolished. In Britain, many building societies, which specialized in
mortgages, started to offer the same services as commercial banks.
Yet in all countries, financial institutions, are still quite strictly controlled, either by the central bank
or another financial authority. In 2002, ten of Wall Street's biggest banks paid (8) fines of $1.4 billion for
having advised investors, in the 1990s, to buy stocks in companies that they knew had financial difficulties.
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They had done this in order to get investment banking business from these companies - exactly the kind of
practice that led the US government to separate commercial and investment banking in the 1930s.

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UNIT 2 – TIME VALUE OF MONEY

Exercise 1:
1 Nominal interest rate the rate denominated in dollars or in some other currency.

2 Real interest rate the rate denominated in units of consumer goods.

an unchanging rate charged on a liability, such as a loan or

3 Fixed interest rate
mortgage.

an interest rate on a loan or security the fluctuates over time

4 Variable interest rate because it is based on an underlying benchmark interest rate or
index that changes periodically

the rate of return used to discount future cash flows back to their
5 Discount rate
present value.

money that is paid only on an original amount of money that has

6 Simple interest been borrowed or invested, and not on the extra money that the
original amount earns.

interest that is calculated on both the amount of money invested

7 Compound interest
or borrowed and on the interest that has been added to it.
the rate at which prices increase over time, causing the value of
8 Inflation rate
money to fall.
the rate at which someone who borrows money is charged,
9 Annual percentage rate
calculated over a period of twelve months.

10 Effective annual rate (EAR) the actual rate of interest paid or charged over one year.

Exercise 2:
1. A single payment made at a particular time, as opposed to a number of smaller payments or
installments. → lump sum.

2. The amount of profit that an investment earns calculated as a percentage of the money that was
originally invested. → rate of returns.

3. The loss of potential gain from other alternatives when one alternative is chosen. → opportunity cost.

4. The value of all future cash flows (positive and negative) over the entire life of an investment
discounted to the present. → net present value.

Exercise 3:
An important, special type of annuity is a perpetual annuity of a perpetuity. The classic example is the
"console" bonds issued by the British government in the nineteenth century, which pay interest each year on
the stated face value of bonds but have no (1) maturity date. Another example, and perhaps a more relevant

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one, is a share of preferred stock that pays a fixed cash dividend each period (usually every quarter year) and
never (2) matures.
A disturbing feature of any perpetual annuity is that you cannot compute the future value of its cash
flows because it is (3) infinite. Nevertheless, it has a perfectly well-defined and (4) determinable present
value. It might at first seem paradoxical that a series of cash flows that lasts forever can have a (5) finite value
today. But consider a perpetual stream of $100 per vear. If the interest rate is 10% per year, how much is this
perpetuity worth today?
The answer is $1,000. To see why, consider how much money you would have to put into a bank
account offering interest of 10% per year in order to be able to take out $100 every year forever. If vou put in
$1,000, then at the end of the first year you would have $1,100 in the account. You would take out $100, (6)
leaving $1.000 for the second vear. Clearly, if the interest rate staved at 10% per vear, and you had a fountain
of youth nearby, you could go on doing this forever.

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UNIT 3 – INTEREST RATES

Exercise 1:
1 mortgage Thế chấp A loan to buy a house or property
2 default Vỡ nợ Not pay back a loan
3 funds Quỹ tiền mặt Money
4 variable Linh hoạt (LS) Changes over time
5 fixed Cố định (LS) Stays the same over time
Đồng ký hợp đồng: Người đồng kí
vào hợp đồng vay tiền (Cosigner) Guarantee a loan for somebody else
6 co-sign
đóng vai trò là một nguồn trả nợ bổ
sung cho người vay chính.
7 cash advance Tạm ứng tiền mặt Money that you borrow on a credit card
A check to see how well you can pay back
8 credit rating Xếp hạng tín dụng
a loan
An opinion on how well you can pay back
9 credit evaluation Thẩm định tín dụng
a loan
10 credit limit Hạn mức tín dụng The maximum you can borrow
11 annual Thường niên Yearly
12 savings Khoản tiết kiệm A bank account to save money
A bank account you use for day to day
13 chequing Tài khoản vãng lai
expenditures
Being able to pay for goods or pay back a
14 afford Có khả năng chi trả
loan
15 interest Lãi suất The cost of borrowing money
Your income after you pay income taxes
16 net income Thu nhập ròng
and expenses
17 gross income Thu nhập gộp Your income before you pay taxes
18 prime Lãi suất ngân hàng The basic interest rate that banks use

Exercise 2:
Credit cards are a convenient way to (1) purchase goods. They also come in handy when you have a
shortage of (2) funds. If you need a little extra money for the weekend, you can take out a (3) cash advance.
In spite of these benefits, credit card (4) debt can also cause serious problems for people. People spend more
than they can (5) afford. Also because of the high (6) interest on money borrowed, the credit card debt
becomes harder and harder to (7) pay back. Eventually, some people are forced to (8) default on their
payments. This is why credit card companies put a (9) limit on the amount that people can borrow.

Exercise 3:
Mortgages
Most people don't have enough in (1) savings to purchase a house so they take out a house loan, which
is called a (2) mortgage. Before you get a mortgage, the bank will do a thorough (3) credit evaluation to
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make sure you can the loan, If the bank feels you are a (5) credit risk they may ask you to find somebody else
to (6) co-siqn your mortgage. This person will be responsible to pay your mortgage if you (7) default.

Exercise 4:

1 Repayment mortgage Thế chấp trả cả gốc & lãi You pay the capital sum and the interest.
You pay the interest in installments, and
2 Interest-only mortgage Thế chấp chỉ trả lãi suất you pay the capital sum by another
method.
An interest-only mortgage, with the
3 Endowment mortgage Thế chấp TS thừa kế
capital repaid by an endowment.
Your current and mortgage accounts are
4 Offset mortgage Thế chấp bù đắp
combined to reduce the interest.
The mortgage interest rate stays the
5 Fixed rate mortgage Thế chấp LS cố định
same.
Base-rate tracker Thế chấp theo LS ngân The mortgage interest rate is linked to
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mortgage hàng định kỳ the interest rate of country’s central bank.
The mortgage lender can change the
7 Variable rate mortgage Thế chấp LS linh hoạt
interest rate as they wish.
The mortgage interest rate can only rise
8 Capped mortgage Thế chấp có chừng mực
as far as a certain level.

Reading:
1. Mortgage repayments, along with the cost of necessary to bring consumer prices inflation back
overdrafts and credit card debts, are set to rise after to target in the medium term.”
the Bank of England surprised the City yesterday
by announcing its first rise in interest rates for more 5. A response from the London Board of
than a ycar. Businesses and Exporters described the move as
premature, and likely to damage businesses,
2. News of the quarter-point rise to 5% was especially those dependent on export earnings.
cautiously welcomed by some financial
institutions, but was largely condemned by industry 6. Many homeowners will face higher monthly
and trades unions. bills through increased mortgage costs, especially
those with variable rate and base-rate tracker
3. A statement from the Bank of England's mortgages. If mortgage lenders pass on the rise in
monetary policy committee said that strong growth, full, it will add around £20 to the monthly
a recent recovery in consumer spending, buoyant repayments on a £100,000 mortgage. According to
export markets and signs of a pick-up in Sarah Parker of the Family Income Monitoring
investments meant that action was necessary in Unit, the average family will need to find around
order to meet the government's 2.5% inflation another £40 a month.
target.
7. Few analysts predicted a rate increase, and some
4. The statement said: "With inflation likely to had even been expecting a decrease to help boost a
remain above target for ne while, it was judged subdued housing market. Many were talking about
the increase being a pre-emptive strike, with the

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small increase in borrowing costs now intended to Bank's policy and further interest rate rises -
ward off the need for a more painful rise later. perhaps up to 5.75% - unfolding over the next
twelve months. Fears that further rate increases
8. In the City's money markets, however, there would affect consumer spending wiped £17bn off
were expectations of a further tightening of the the value of the London stock market.

Task 1. Choose the definition which is closest to the meaning in the article.
1. the City (paragraph 1) 4. a pick-up in investments (paragraph 3)
a. the people of London a. an increase in share prices
b. financial professionals working in London b. a drop in share prices

2. a quarter-point rise (paragraph 2) 5. in the medium term (paragraph 4)

a. a 0.25% rise a. over the next few months
b. a 2.5% rise b. over the next few years

3. consumer spending (paragraph 3) 6. a pre-emptive strike (paragraph 7)

a. money spent by businesses a. an action taken before it becomes necessary
b. money spent by ordinary people b. an action taken after it becomes necessary

Task 2. Find words in the artiele with the same meaning as the following
7. steady economic expansion (paragraph 3): strong growth
8. higher than desired (paragraph 4): above target
9. too soon (paragraph 5): premature
10. avoid (paragraph 7): ward off
11. occurring (paragraph 8): unfolding
Task 3. Complete the definitions.
1. The move was condemned by industry means businesspeople thought the action was
a. a good thing b. a bad thing c. neither good nor bad
2. Most banks passed on the 0.25% rise in full means that most banks increased their lending rates by...
a. less than 0.25% b. 0.25% c. more than 0.25%
3. Base-rate tracker mortgages are_______ the Bank of England's interest rate.
a. lower than b. the same as c. linked to
4. I'll need to find an extra £40 a month means that I'll have toe another £40 a month.
a. pay b. earn c. save

Exercise 5:

is bought at a price below its face value, and the face value is repaid at
1 A discount bond
the maturity date.
pays the owner of the bond a fixed interest payment (coupon payment)
2 A coupon bond every year until the maturity date, when a specified final amount (face
value or par value)
3 The yield to maturity is what economists mean when they use the term interest rate.
4 Discount bonds make payment only at their maturity dates.
5 Coupon bonds have payments periodically until maturity.

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Exercise 6:
Joe took out a (1) loan so that he could buy a car. The car cost $10,000 and the bank agreed to (2) lend
him $8,000. About a year later, Joe lost his job and started to worry about his (3) debt. How could he (4)
repay it with no salary coming in? Out of the $8,000 that he had originally (5) owed, he still (6) borrowed
more than $5,000.

Exercise 7:
- Pay off a mortgage: Trả khoản thế chấp - Set up a loan facility: HĐ tín dụng ngắn hạn
- Earn interest - Run your finances
1. He earns interest of 8% on his account.
2. She wanted to start her own business, so she asked the bank to set up a loan facility.
3. She lost her job and with no regular income it was difficult to pay off a mortgage.
4. He was an accountant, so it was not surprising that he was good at run his finacnces.

UNIT 4: FINANCIAL STATEMENTS

Exercise 1: Basic terms in financial statements. Decide which of the alternatives (a-c) each definition
describes.
1. A charge for arranging a transaction (e.g. buying or selling securities)
a. commission b. fee c. tax
2. A charge for a service performed by a bank
a. commission b. fee c. tax
3. Payments for an insurance policy.
a. commission b. premiums c. tariffs
4. A reduction in the value of an asset, charged against profits.
a. amortization b. loss c. waste
5. Adjective meaning after all deductions have been made.
a. gross b. net c. zero
6. Adjective meaning for a whole group of companies.
a. consolidated b. corporate c. mutual
7. Adjective meaning one year or less in financial statements.
a. annual b. long-term c. short-term
8. Part-ownership (less than 50%) of other companies.
a. conglomeration b. liabilities c.minority interests
9. Things of value that cannot be physically touched, such as reputation (goodwill), brand names and
trademarks.
a. intangible assets b. liabilities c. tangible assets
10. The net worth of a company - the amount by which assets exceed liabilities.
a. dividends b. profit c. shareholders' equity

Exercise 2:
1. Liquid assets/Available assets/Floating assets are anything that can quickly be turned into cash.
2. Net current assets/capital assets/permanent assets are the excess of current assets (such as cash,
inventories, debtors) over current liabilities (creditors, overdrafts, etc.).

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3. Wasting assets are those which are gradually exhausted (used up) in production and cannot be
replaced.
4. Current assets/circulating assets/floating assets are those which will be consumed or turned into
cash in the ordinary course of business.
5. Intangible assets are those whose value can only be quantified or turned into cash with difficulty, such
as goodwill, patents, copyrights and trademarks.
6. Net assets, or shareholders' equity, on a business's balance sheet, is assets minus liabilities (which is
generally equal to fixed assets plus the difference between current assets and current liabilities).
7. Fixed assets/capital assets/permanent assets such as land, buildings and machines, cannot be sold
or turned into cash, as they are required for making and selling the firm's products.

Liquid assets/Available assets/Floating assets Tài sản thanh khoản

Net current assets/capital assets/permanent assets Tài sản lưu động ròng/thường xuyên
Wasting assets Tài sản hao mòn
Current assets/circulating assets/floating assets Tài sản lưu động/Tài sản thả nổi
Intangible assets Tài sản vô hình
Net assets Tài sản ròng
Fixed assets/capital assets/permanent assets Tài sản cố định

Exercise 3: Complete the text by inserting the correct form of the verbs in the box.
Fixed assets such as buildings, plant and machinery (but not land) gradually (1) lose value or decay,
because they (2) wear out more modern and efficient versions are developed. Consequently, they have to be
replaced every so often. The cost of buying or replacing fixed assets that will be used over many years is not
(3) deducted from a single year's profits but is accounted for over the several years of their use and wearing
out. This accords with the matching principle that costs are identified with related revenues. The process of
(4) converting an asset into an expense is known as depreciation.
Various methods of depreciation (5) exist but they all (6) involve estimating the useful life of the asset,
and dividing its estimated cost (e.g. purchase price minus any scrap or second-hand value at the end of its
useful life) by the number of years. The most usual method of depreciation is the straight line method, which
simply spreads the total expected cost over the number of years of anticipated useful life, and charges an equal
sum each year. The reducing or declining balance method (7) writes off smaller amounts of an asset's value
each year in cases where maintenance costs for the use of an asset are expected to (8) increase over time. The
annuity system of depreciation (9) spreads the cost of an asset equally over a number of years and (10)
charges this, and an amount representing the interest on the asset's current value, each year.
Some tax legislations (11) allow accelerated depreciation: writing off large amounts of the cost of
capital investments during the first years of use: this is a measure to (12) encourage investment.

Exercise 4: Insert the following words in the gaps of the text.

Cash flow is essentially a company's ability to earn cash. It is the amount of cash made during a
specified period that a business can use for investment. (More technically, it is (1) net profit plus depreciation
plus variations in (2) reserves). The flow of funds is cash received and payments made by a company during
a specific period - except that many people also use the term cash flow to describe this! New companies
generally begin with adequate funds or (3) working capital for the introductory stage during which they make

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contacts, find customers and build up sales and a (4) reputation. But when sales begin to rise, companies often
run out of working capital: their cash is all tied up in work-in-progress, stocks and credit to customers. It is an
unfortunate fact of business life that while (5) suppliers tend to demand quick payment, customers usually
insist on extended credit, so the more you sell, the more cash you need. This provokes a typical (6) liquidity
crisis: the business does not have enough cash to pay short-term expenses. A (7) positive cash flow will only
reappear when sales growth slows down and the company stops "overtrading". But companies that have not
arranged sufficient credit will not get this far: they will find themselves (8) insolvent unable to meet their
liabilities.

Exercise 5:
Keeping financial records. Recording income and
1 Bookkeeping Ghi sổ
expenditure, valuing assets and liabilities, and so on.
Writing down the details of transactions (debits and
2 Accounting Kế toán
credits)
Managerial Preparing budgets and other financial reports necessary for
3 Kế toán quản trị
accounting management.
Working out the unit costs of products, including
4 Cost accounting Kế toán chi phí
materials, labout and all other expenses.
5 Tax accounting Kế toán thuế Calculating an individual’s or a company’s liability for tax.
Inspection and evaluation of accounts by a second set of
6 Auditing Kiểm toán
accountants.
‘creative Kế toán sáng tạo Using all available accounting procedures and tricks to
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accounting’ → Quản trị LN disguise the true financial position of a company.

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UNIT 5 – RISKS AND RETURNS

Vocabulary
To officially prepare financial records, bills, etc. and give them to someone or
1 Render
make them available.
2 Tradeoff A balancing of two opposing situations or qualities, both of which are desired.
A collection of company shares and other investments that are owned by a
3 Portfolio
particular person or organization.
4 Reward Money that is earned from successful investments.
Person who sells shares when prices are expected to fall, in order to make a profit
5 Bear
by buying them back again at a low price.
6 Bull market A time when the prices of most shares are rising.
Something that you own such as shares in company or buildings, or land that you
7 Holding
rent and farm.
A share with a very low value because it considered a high-risk investment, for
example in a company that is small, little know, or not very successful.
8 Penny stock
 Cổ phiếu penny: Những cổ phiếu của công ty có vốn hoá nhỏ, giá thấp
nhưng biến động mạnh, hợp với NĐT ưa rủi ro.
Increasing by one addition after another, and including all the amounts that have
9 Cumulative
been added before.
The value of a company, divided into many equal parts owned by the
10 Equity shareholders, or one of the equal parts into which the value of a company is
divided.

Recoup
1 to get back money that you have spent or lost
nhận bồi thường
having the ability to bear something unpleasant or annoying, or to keep going
2 Tolerant
despite difficulties
Bankroll
3 to support a person or activity financially
Cấp ngân quỹ
Compensate to pay someone money in exchange for something that has been lost or damaged
4
Bồi thường or for some problem
investment in a company or in government debt that can be traded on the
5 Security
financial markets and produces an income for the investor
6 Bear to accept, tolerate, or endure something, especially something unpleasant
Steadfast
7 staying the same for a long time and not changing quickly or unexpectedly
Kiên định
8 Preference the fact that you like something or someone more than another thing or person
Volatility the quality or state of being likely to change suddenly, especially by becoming
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Biến động worse
10 Framework a system of rules, ideas, or beliefs that is used to plan or decide something

Word search
1. an amount of something positive, such as food or profit, that is produced or supplied: yield
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2. the difference between a particular number and the average or normal number: deviation
3. an increase in value: depreciation
4. a disadvantage of a situation: downside
5. a collection of investments that are owned by a particular person or organization: portfolio

Fill in the blank

1. DISPOSABLE income and discretionary income are key economic indicators do used to gauge
companies' and individuals' financial health.
2. We can create income ALLOCATION strategies that don't collapse with our confidence when the
market goes haywire – an that can reduce income volatility to near zero.
3. LIQUIDITY ratios are an important class of financial metrics used to determine a debtor's ability to
pay off current debt obligations without raising external capital.
4. This part of the law is only APPLICABLE to companies employing more than five people.
5. This article is written for users who have purchased a new machine with a 1 year warranty, but found
that their warranty expired PREMATURELY.
6. The BULK of the asset reduction comes from changes in the way Shell's pension plan holdings are
recorded, the company said.
7. The decline began in the market and led to PANIC selling as more investors were unwilling to risk
additional losses. The market sharply declined and was followed by the Great Depression.
8. But the only REPERCUSSION for lying on the declaration or refusing to wear a mask on the plane
is getting banned from the airline, if caught.
9. Each move is completely CUSTOMIZED to catered to the customers' needs.
10. If the business loses any more money, we won't be able to BALANCE books this year.

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UNIT 6 – FINANCIAL MARKETS

Exercise 1:

1 Stocks or shares Certificates representing part-ownership of a company.

2 Financial results Details about sales, costs, debts, profits, losses, ect.
3 Nominal values The price written on a stock (which never changes)
4 Secondary market The market on which stocks can be re-sold.
5 Market price The price on which a stock is currently being traded on the stock exchange.
6 Primary market The market on which new stocks are sold.
Underwrite
7 The guarantee to buy newly issued stocks if no other buyers can be found.
bảo lãnh
Prospectus A document inviting the public to buy stocks, giving information about the
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bản cáo bạch company and stating the terms of sales.
Due diligence
9 A detailed examination of a company and its financial situation.
thẩm định chuyên sâu
Market makers
10 Traders in stocks who quote bid (buying) and offer (selling) prices.
nhà tạo lập thị trường
Coporate
11 The organization raising money by offering bonds for sales.
borrowers/issuers
12 Coupon The amount of interest paid by a bond.
13 Principal The amount of capital making up a loan.
14 Default Failure to pay interest or repay a loan at the scheduled time.
Market-makers
15 People or organizations that buy or sell securities for customers.
Brokerage companies
16 Spread The difference between the buying and selling prices of securities.
The rate of income a bondholder receives, taking into account the bond’s
17 Yield
purchase price.
18 Over the counter A contract made directly between two parties, not using an exchange.
An exchange of future payments on borrowed money according to
19 Interest rate
specified terms.
20 Call option An option giving the buyer the right to buy something
21 Put option An option giving the buyer the right to sell something.
22 Forwards Contracts for non-standardized quantities or timel periods
23 Futures Contracts to buy or sell standardized quantities exchange
Making risky transactions, hoping to make a gain by anticipating future
24 Speculation
price changes
Making transactions designed to diminish future price risks Substances like
25 Commodity agricultural products and metals which can be bought or sold with futures
contracts.
26 Premium The money the writer of an option receives
27 Strike price The price at which an underlying asset will be traded.
To exercise To use or implement an option (to take up the possibility of buying or
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thực hiện selling something)

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Exercise 2:
1. Investment banks generally guarantee to find buyers new bond issues
2. Bondholders can sell at a profit if market interest rates fall
3. Although companies do not have to pay dividends they are obliged to honor bond interest payments
4. The amount of interest a bond pays depends on the issuer's credit rating
5. Companies can deduct interest expenses from their taxable profits

Exersice 3:
Some companies issue floating-rate notes - bonds whose coupon varies with market interest rates – (1)
especially when interest rates are high and expected to fall.
If they wish to pay a lower interest rate, companies can also issue convertible bonds, which are bonds
that give the owner the option to exchange them for a fixed number of shares of the company's common stock.
Convertibles pay lower interest rates than ordinary bonds because the buyer gets the possibility of making a
profit with the convertible option, (2) and their value increases if the stock price rises.
Some companies also issue warrants attached to bonds, giving the right, but not the obligation, to buy
stocks in the future at a particular price. Although they are usually issued with bonds, warrants can be detached
from the bonds and traded separately. Like convertibles, (3) they allow an issuers to reduce the interest rate
that the bond offers.
Some companies also issue zero coupon bonds which pay no interest but are sold at a discount on their
par value, and redeemed at 100% at maturity. Some investors buy them in order to make a capital gain at
maturity, (4) which is taxed at a lower rate than that applied to interest payments.
Bonds that pay a high interest rate are called high yield bonds or junk bonds. Some are issued to finance
leveraged buyouts, (5) others are issued by companies with a credit rating below investment grade, and
therefore with a higher risk of default.

Exercise 4:
1. Hedging (which is not the only strategy used buy hedge funds) means protecting themselves against
future price changes.
2. Making a profit form a fall in the value of an asset is called short position.
3. Borrowing money on top of one’s own money to increase the size of one’s investments is called using
leverage.
4. Buying and keeping assets and selling them later if their price rises is called taking long positions.
5. Day traders never have to pay for their stocks if they sell them at a profit before the settlement day.

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UNIT 7: FINANCIAL INSTITUTION

Exercise 1: Match these terms with their definitions.

1. financial financial institutions that acquire funds by issuing liabilities, and in turn, use those
intermediaries funds to acquire assets by pursuing securities or making loans.

the reduction in transaction costs per dollar of

2. economies of scale
transactions as the size (or scale) of transactions increases

3. financial the primary route for moving funds from lenders

intermediation to borrowers

4. transaction costs The time and money spent in carrying out financial transactions

services that make it easier for customers to

5. liquidity services
conduct transactions

6. depository financial intermediaries that accept deposits from individuals and institutions and
institutions make loans

7. thrift institutions savings and loan associations, mutual savings

(thrifts) banks, and credit unions

8. financial panic the widespread collapse of financial intermediaries

9. credit risk the risk arising because borrowers may defalt

10. interest-rate risk the riskiness of earning and return on bank assets caused by interest-rate changes

Exercise 2: Mark these statements T (True) or F (False)

1. Financial intermediaries can lower transaction costs. T
2. Financial intermediaries and indirect finance are not really significant in financial markets. F
3. Successful financial intermediaries are more likely to gain higher earnings on their investments than small
savers. T
4. Lack of information only creates problems in the financial system before the transaction is entered intc. F
5. Financial intermediaries can be called financial intermediation. F
6. Thrifts belong to financial intermediaries. T
7. Credit Unions gain funds from deposits and mainly give consumer loans. T
8. Money Market Mutual Funds sell shares to gain funds. T
9. An investment bank is a bank or a financial intermediary. F
10. Investments in mutual funds are very safe. F

Exercise 3: Choose the best answer

1. Examples of REAL assets include
A. bridges.
B. human capital. - nguôn nhâu lưc
C. preferred stock shares.
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D. All of the above.

E. only A and B above.

2. By definition, key activities of INVESTMENT BANKS include:

A. taking in deposits and making loans.
B. offering investment (stock pick) advice to stock traders.
C. underwriting of initial public offerings of corporate bonds.
D. investing in portfolios of assets to increase returns to shareholders.

3. By definition, examples of FINANCIAL assets include

A. ATM machines.
B. special financial knowledge acquired through working as a bank manager.
C. 100 shares of General Motors stock.
D. all of the above.

4. By definition, which (if any) of the following statements describing dealers, brokers, and financial
intermediaries are TRUE?
A. Brokers stand ready to buy or sell the assets in which they trade should gaps arise between the amount
demanded and the amount supplied, a process known as "brokerage commissioning."
B. Financial intermediaries sell lower-risk assets with short maturities to savers and then use these funds to
buy higher-risk assets with longer maturities from borrowers, a process known as "asset transformation."
C. Dealers sell lower-risk assets with short maturities to buyers and then use these funds to buy higher-risk
assets with longer maturities from sellers, a process known as "making the market."
D. none of the above.

Exercise 4:
1. The largest source of EXTERNAL FINANCE for U.S. businesses is.
A. stocks
B. bonds
C. bank and nonbank loans
D. venture capital firms
E. retained earnings

2. The TRANSACTIONS COSTS associated with a loan contract refer to

A. the principal plus interest payments of the borrower under the loan contract.
В. the costs of bringing together borrowers and lenders and preparing the loan contract.
C. the costs of reducing asymmetric information problems associated with the loan contract.
D. all of the above.

3. The following cools help solve ADVERSE SELECTION PROBLEMS in financial markets:
A. private production and sale of credit ratings for individuals and firms
B. government regulation to increase information to investors
c. use of financial intermediaries that specialize in the gathering of information about would-be borrowers
D. inclusion of collateral requirements in loan contracts as a quality signal
E. all of the above

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4. Which of the following is NOT a tool used by corporations to reduce PRINCIPAL AGENT PROBLEMS.
A. Stockholders engage in costly state verification by auditing an observing management.
B. Venture capital firms provide funds to new firms in exchange for equity and membership on the board of
directors.
C. Firms issue equity instead of debt because principal-agent problems are smaller with equity.
D. Governments regulate firms by imposing standard accounting principles and punishing fraud.

Exercise 5: Word search

Find a word or phrase in the text that has a similar meaning.
1. a type of moral hazard problem, arise when a person or institution has multiple objectives (interests), some
of which conflict with each other
→ conflict of interest
2. the problem created by asymmetric information after the transaction occurs
→ Moral Hazard
3. the problem created by asymmetric information before the transaction occurs
→ Adverse selection
4. annual income payments upon retirement
→ Аnnuity
5, a short-term debt instrument ised by large banks and well-known corporations
→ Commercial Paper
6. the primary route for moving funds from lenders to borrowers
→ Financial Intermediation
7. he time and money spent in carrying out financial transactions
→ Transaction cost.
8. uncertainty about the returns investors will earn on assets
→ Risk
9. This process of risk sharing
→. asset transformation
10. financial intermediaries that accept deposits from individuals and
institutions and make loans
→ commercial banks

Exercise 6: Choose the most appropriate answer (A, B, C, or D).

1. A financial firm such as a bank that borrows
funds from savers and lends them to borrowers, 3. Debt security created by pooling together a
A. Financial intermediary group of mortgage loans =
B. Commercial bank A. Mortgage-backed security
C. Investment bank B. Mortgage contract
D. Financial company C. Mortgage deal
D. Mortgage security
2. Loan backed by real property in the form of
buildings and houses = 4. The institutions accept deposits from
A. House loan individuals and then lend pooled deposits to
B. Mortgage firms, governments, and individuals =
C. Line of credit A. Commercial banks
D. Loan agreement B. Thrift institutions
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C. Credit unions
D. Depository institutions 8. _____ provide loans directly to consumers
and businesses or aid individuals in obtaining
5. Savings institutions that obtain funds through financing of durable goods and homes.
long-term contractual arrangements and invest A. Commercial banks
these funds on the capital market = B. Depository institutions
A.Contractual savings organizations C. Finance companies
B. Mutual funds D. Credit unions
C. Finance companies
D. Brokerage firms 9. A/An _____ is a financial firm that serves as a
financial intermediary by taking in deposits and
6. Financial institutions that facilitate financial using them to make loans.
market trades between buyers and sellers for a A. Commercial bank
fee = B. Universal bank
A. Investment companies C. Savings bank
B. Brokerage firms D. Finance company
C. Savings banks
D. Securities firms 10. _____ are open-end investment companies
that can issue an unlimited number of their
7. _______ assist individuals to purchase new or shares to their investors and use the pooled
existing securities issues or to sell previously proceeds to purchase corporate and
purchased securities. government securities.
A. Brokerage firms A. Credit unions
B. Investment firms B, Mutual funds
C. Finance companies C. Thrift institutions
D. Hedge funds D. Hedge funds

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UNIT 8: MEGERS & ACQUISITIONS

Exercise 1: Complete the texts with the words in the boxes.
diversifying reducing optimizing reinforcing rationalizing searching

Sooner or later, all companies need to introduce new products and services. Large companies often have the
choice of innovating - developing new products, services or markets themselves - or of buying another, smaller
company with successful products. If the other company is too big to acquire, another possibility is to merge
or amalgamate with it. Other reasons for taking over or combining for taking over or combining with other
companies include:
1. reinforcing your company's position;
2. reducing competition;
3. rationalizing production;
4. optimizing the use of a plant or invested capital;
5. diversifying products or markets; and
6. searching for synergy (the belief that together the companies will produce more than the sum of the
two separate parts).

buy grow increase launch persuade sell

A company that wants to (7) grow or diversify can (8) launch a raid - in other words, simply (9) buy a large
quantity of another company's shares on the stock exchange. A "dawn raid" consists of buying shares through
several brokers early in the morning, before the market has time to notice the rising price, and before
speculators join in. This will immediately (10) increase the share price, and may (11) persuade a suffice
number of otre chareholders to (12) sell for the raider to take control of the company

Exercise 2. Choose the best word to go into space.

1. Berlin Brothers bought a ……… shareholding in Anderson Accounting.
a. more-than-half b. biggest c. majority
2. In the UK, mergers and acquisitions are not ……… by the government.
a. controlled b. checked c. regulated
3. However, they are subject to a voluntary ………
a. code of conduct b. code of practice c. way of doing things
4. Buying a company for less than the value of its assets, then selling those assets to make a profit is called
a. asset stripping b. profiteering c. exploitation
5. Sometimes a controlling interest in a company is bought by its managers. This is called a management
………
a. buy-out b. buy-up c. buy-in
6. In the past, a lot of small banks were ……… by larger ones.
a. bought up b. eaten up c. chewed up
7. In other words, there was ……… in the banking industry.
a. amalgamation b. combining c. consolidation
8. A takeover of a foreign company is known as a ……… deal.
a. cross-boundary b. cross-border c. cross-state

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Exercise 3. Choose the best word from each pair in bold type.
1. Anderson Accounting has been taken over/ taken up by Berlin Brothers.
2. Collins Corporation has made a bid/ play for Dacher Deutsche.
3. The board of Dacher Deutsche rejected/ denied Collins Corporation's offer.
4. Eastern Electricity has joined/ merged with Grampian Gas
5. Inter-tek has been sold by its father/ parent company, Harrison Holdings.
6. Inter-tek has been acquired/ got by Johnson & Johnson
7. Harrison Holdings is expected to sell more of its subsidiaries/ children in the future.

Reading
A collection of companies portfolio of businesses

An offer to buy a bid

Most important activity core competence

Controlling all stages of one particular type of business vertical integration

Organization comprising several companies conglomerate

What stocks in a public company are worth shareholder value

Adding new and different products or services diversifying

A company's sales expressed as a percentage of the total sales in a market market share

Reductions in costs resulting from increased production economies of scale

Money paid to investment banks for work done fees

All the individuals or organizations that regularly or occasionally purchase goods

customer base
or services from a company

Best, perfect or ideal (adjective) optimum

Combined production or productivity that is greater than the sum of the separate
synergy
parts

People or companies that try to buy and sell other companies to make a profit raiders

Large corporations or groups of companies offering a number conglomerate conglomerates

Buying a company in order to sell its most valuable assets at a profit asset stripping

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UNIT 9: BANKING
Excercise 1: Match up the terms with the definitions.
an arrangement by which a customer can withdraw more from a bank
Overdraft account than has been deposited in it, up to an agreed limit; interest on the
debt is calculated daily.
a card which guarantees payment for goods and services purchased by the
Credit card
cardholder, who pays back the bank or finance company at a later date.
a computerized machine that allows bank customers to withdraw money,
Cash disposers/ATMs
check their balance and so on.
a fixed sum of money on which interest is paid, lent for a fixed period,
Loan
and usually for a specific purpose.
an instruction to a bank to pay fixed sums of money to certain people or
Standing order
organization at stated times.
Mortgage a loan, usually to buy property, which serves as a security for the loan.
Cash card a plastic card issued to bank customers for use in cash dispensers.
doing banking transactions by telephone or from one's own personal
Home banking
computer.
Current account one that generally pays little or no interest, but allows the holder to
Direct debit withdraw his or her cash without any restrictions.
one that pays interest, but usually cannot be used for paying cheques or
Deposit account
checks, and on which notice is often required to withdraw money.

Excercise 2: Match the words with the correct definitions.

Balance the remaining amount of money in an account
Credit money paid into a bank
Statement a record of the financial transactions of a person or business
Deposit put an amount of money in an account
Cheque note to a bank asking it to pay money from your account to a named person or business.
Cash money in the form of bank notes and coins.
Debit an amount of money deducted from an account.
Withdrawal the removal of money from an account.
Teller a machine or person who count out Money.
Dispenser a container designed to give out money in regulated amounts.
Casher a clerk who pays out and receive cash at a bank

Excercise 3: Match the verbs with the correct explainations.

Clear pass the cheque through the clearing system.
Draw write a cheque.
Reconcile make two accounts agree.
Adjust change an account.
Circulate move around the country.
Cross draw two lines down the middle of a cheque.
Present show and ask for payment.
Honour pay.

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Find the words or expressions in the text which mean the following:
Deposit to place money in a bank; or money placed in a bank.
Foreign currency the money used in countries other than one's own.
Yield How much money a loan pays, expressed as a percentage
Liquidity available cash, and how easily other assets can be turned into cash.
Maturity the date when a loan becomes repayable.
to guarantee to buy all the new shares that a company issues, if they
Underwrite
cannot be sold to the public.
Take over when a company buys or acquires another one.
Merger when a company combines with another one.
Stock broking buying and selling stocks or shares for clients.
Portfolio taking care of all a client's investments.
Deregulation the ending or relaxing of legal restrictions.
a group of companies, operating in different fields, that have joined
conglomerate
together
Bluechip a company considered to be without risk.
Solvency ability to pay liabilities when they become due.
(khả năng thanh toán)
Collateral anything that acts as a security or guarantee for a loan.
(TS thế chấp)

Match up the verbs and nouns below to make common collocations.

Charge Interest
Do Business
Exchange Currencies
Issue Bonds
Make Deposits
Offer Loans
Pay Profits
Raise Funds
Receive Advice
Underwrite Security issues

Exercise 1: This exercise defines the most important kinds of bank. Fill in the blank the name of each
type of bank.
(1) Central banks supervise the banking system; fix the minimum interest rate; issue bank notes,
control the money supply; influence exchange rates; and act as lender of last resort.
(2) Commercial banks are businesses that trade in money. They receive and hold deposits in current
account and saving accounts, pay money according to customer's instructions, lend money, and offer
investment advice, foreign exchange facilities and so on. In some countries such as England these banks have
branches in all major towns, in other countries there are smaller regional banks. Under American law, for
example, banks can operate in only one state. Some countries have banks that were originally confined to a
single industry, e.g. the Credit Agricole in France, but these now usually have a far wider customer base.
In some European countries, notably Germany, Austria, and Switzerland, there are (3) universal banks
combine deposit and loan banking with share and bond dealing, investment advice, etc. yet even universal
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banks usually from a subsidiary, known as a (4) finance house lend money - at several per cent over the base
lending rate - for hire purchase or instalment credit, that is, loans to consumers that are repaid in regular, equal
monthly amounts.
In Britain, the USA and Japan, however, there is, or used to be, a strict separation between commercial
banks and banks that do stockbroking or bond dealing. Thus in Britain, (5) merchant banks specialize in
raising funds for industry on the various financial markets, financing international trade, issuing and
underwriting securities, dealing with takeovers and mergers, issuing government bonds, and so on. They also
offer stockbroking and portfolio management services to rich corporate and individual clients. (6) Investment
banks in the USA are similar, but they can only act as intermediaries offering advisory services, and do not
offer loans themselves.
Yet despite the Glass-Steagall Act in the USA, and Article 65, imposed by the Americans in Japan in
1945, which enforce this separation, the distinction between commercial and merchant or investment banks
has become less clear in recent years. Deregulations in the US and Britain is leading to the creation of
"financial supermarkets" conglomerates combining the services previously offered by stockbrokers, banks,
insurance companies, etc.
In Britain, there are also (7) building societies that provide mortgages, i.e. they lend money to home-
buyers on the security of house and flats, and attract savers by paying higher interest than the banks. The
saving and loan associations in the United States served a similar function, until most of them went
spectacularly bankrupt at the end of the 1980s.
There are also (8) supreme national banks such as the World Bank or the European Bank for
Reconstruction and Development, which are generally concerned with economic development.

Excercise 2: Complete the text using these words.

Commercial banks are businesses that trade in money. They receive and hold (1) deposits pay money
according to (2) customer’ instructions, (3) lend money etc.
There are still many people in Britain who do not have bank (4) accounts. Traditionally, factory
workers were paid (5) wages in cash on Fridays. Non-manual workers, however, usually receive a monthly
(6) salary in the form of cheque or a (7) transfer paid directly into their bank account.
A (8) current account usually pays little or no interest, but allows the holder to (9) withdraw his or
her cash with no restrictions. Deposit accounts pay interest. They do not usually provide (10) cheque facilities,
and notice is often required to withdraw money. (11) Standing order and direct debits are ways of paying
regular bills at regular intervals.
Banks offer both loans and overdrafts. A (12) bank loan is a fixed sum of money, lent for a fixed
period, on which interest is paid, bank usually require some form of security or guarantee before lending. An
(13) overdraft is an arrangement by which a customer can overdraw an account, i.e. run up a debt to an agreed
limit; interest on the (14) debt is calculated daily.
Banks make a profit from the (15) spread or differential between the interest rates they pay on deposits
and those they charge on loans. They are also able to lend more money than they receive in deposits because
(16) depositors rarely withdraw all their money at the same time. In order to (17) optimize the return on their
assets (loans), bankers have to find a balance between yield and risk, and (18) liquidity and different
maturities, and to match these with their (19) liabilities (Deposits). The maturity of a loan is how long it will
last; the yield of the loan is its annual (20) return - how much money it pays - expressed as a percentage.

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Exercise 3: Put the correct prepositions to complete each sentence.

1. A cheque is simply an order to your bank to pay money from/out of your account to someone else's.
2. A customer can pay by cheque for goods and services.
3. With a bank card, the customer's bank guarantees payment up to limit, say $500.
4. When an account holder pays a cheque credits the amount of the cheque into her bank, the bank credits the
amount of the cheque to her account and sends the cheque to be presented to the drawer's bank.
5. In Britain the clearing system is operated by the Clearing House in London.
6. The Clearing House adds up the total each bank owes to each other bank and reconciles the difference in
the bank's accounts with the Bank of England.
7. This process, from the time when the payee pays the cheque into her bank until the cheque is debited to the
drawer's bank account, takes three days.

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UNIT 10
B. VOCABULARY
Match these terms with their definitions.
Write your answers here:
bill of exchange document that shows details of goods being transported; it entitles the receiver to
(hối phiếu) collect the goods on arrival
invoice
list of goods sold as a request for payment
(hoá đơn điện tử)
issuing bank
bank that issues a letter of credit (i.e. the importer's bank)
(ngân hàng phát hành)
collecting bank bank that receives payment of bills, etc. for their customer's account (i.e. the
(ngân hàng thu hộ) exporter's bank)
document of title
document allowing someone to claim ownership of goods
(tài liệu quyền sở hữu)
clean collection
payment by bill of exchange to which documents are not attached
(nhờ thu trơn)
bill of lading signed document that orders a person or organization to pay a fixed sum of money
(vận đơn đường biển) on demand or on a specified date
Confirming bank bank that confirms they will pay the exporter on evidence of shipment of goods
method of financing overseas trade where payment is made by a bank in return for
documentary collection
delivery of commercial documents, provided that the terms and conditions of the
(nhờ thu kèm chứng từ)
contract are met
letter of credit payment by bill of exchange to which commercial documents (and sometimes a
(thư tín dụng L/C) document of title) are attached
Word search
1. promise or guarantee given to or by a bank undertaking
2. load of goods sent to a customer consignment
3. person or company that acts as a middleman in a transaction intermediary
4. date when a bill of exchange is due for payment maturity

D. EXERCISES
Exercise 1: Information search
Match the risks (a-g) with the payment methods.
1. Open account 3. Bills for collection
b) Importers may delay payment. b) Importers may delay payment.
c) Importers may not pay at all. c) Importers may not pay at all.
d) It takes a long time to process payment in some d) It takes a long time to process payment in some
countries. countries.
e) Importers may not accept the bill of exchange. e) Importers may not accept the bill of exchange.
2. Documentary credit f) Bank charges may be high.
a) Exporters must comply with the conditions of the
credit documents.
4. Advance payment
g) Exporters must take care to present the correct
f) Bank charges may be high.
document.

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Use an appropriate form of the words in the box to complete the sentences which describe the procedure for
documentary collection.
1. The first step the exporter takes is to ask his bank to draw a bill of exchange on the overseas buyer.
2. The exporter's bank forwards the bill of exchange, together with the commercial documents, to the importer's bank.
3. At the same time, the exporter dispatches the goods.
4. The exporter must take care to present the correct documents to the bank.
5. When the importer accepts the bill of exchange, the bank will.
6. If the importer dishonours the bill, the exporter may have to find an alternative buyer or ship the goods back again.
7. In some parts of the world, banks may be slow to remit payment to the exporter's bank.

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SHORT ANSWER

1. The reasons for the time value of money concept:

- An opportunity cost of not being able to use that money for a while.
- Inflation
- The risk that borrowers won’t repay money.

2. Compounding interest is more complicated to compute than single interest because:

compounding interest is not only being earned on the principle sum invested, but also on the interest
that was previously earned.

3. It is more complicated to measure the present or future value of a stream of cash flows because:
calculating PV or FV needs many factors:
- Whether the investment will be at the beginning or the end of the year
- Initial amounts and cash inflows
- Length of time
- Interest rate

4. The most used time value of money calculation is future value since this will be used when having
long-term financial goals and want to know how much needed to contribute each year to meet that
goal.

5. Calculation which is essential for evaluating the profitability of different projects is net present
value (NPV) because it shows how much the cash inflows and outflows would be worth today at a
certain rate of returns.

6. What are High Return, Low Risk Investments for Retirees according to you?
- Real estate investment trusts. - Peer-to-peer lending.
- Dividend-paying stocks. - Municipal bonds.
- Annuities. Annuities are investment contracts between you and an insurance company.
- U.S. Treasury notes and bonds. Yields on U.S. Treasury notes and bonds are a good deal higher than
what you can get on certificates of deposit and money market funds.
- Treasury inflation-protected securities. Treasury inflation-protected securities, better known as TIPS,
are another form of U.S. Treasury debt.

7. What is your checklist when choosing investments?

- Risk-appetite (khẩu vị rủi ro) - Inflation
- Budget - Affordability of investments
- Your understanding of the types of investments - Fees for managing mutual funds and ETFs
- The market you are investing in (bull or bear) - Brokerage Commissions for trade execution
- Interest rate fluctuations

8. What are stock investing tips for beginners?

- Set Investment Goals. Now it is time to decide what you want to get out of investing. ...
- Invest Early. The earlier you start investing, the better/ the mor profit you may have. ...
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- Make Investments Automatic. - Set Up Retirement Accounts.

- Look at Your Finances. - Be Wary of Commissions.
- Learn About Investing. - Diversify Your Investments.

9. How many possible effects are there on interest rates of an increase in the money supply?
There are four possible effects: the liquidity effect, the income effect, the price-level effect and the
expected-inflation effect. The liquidity effect indicates that a rise in money supply growth will lead to
a decline in interest rates; the other effects work in the opposite direction. The evidence seems to
indicate that the income, price-level, and expected-inflation effects dominate the liquidity effect such
as an increase in money supply growth leads to higher-rather than lower-interest rates.

10. Why will bonds with the same maturity have different interest rates?
Because there are three factors: default risk, liquidity, and tax consideration. The greater a bond’s
default risk, the higher its interest rate relative to the interest rates of other bonds; the greater a bond’s
liquidity, the lower its interest rate; and bonds with tax-exempt status will have lower interest rates
than they otherwise would. The relationship among interest rates on bonds with the same maturity that
arises because of these three factors is known as the risk structure of interest rates.

11. What is the interaction among traders in the market?

It is what actually sets prices on a day-to-day basis. The trader who values the security the most (either
because of less uncertainty about cash flows or because of greater estimated cash flow) will be willing
to pay the most. As new information is released, investors will revise their estimates of the true value
of the security and will either buy or sell it, depending on how the market price compares with their
estimated valuation. Because small changes in estimated growth rates or required returns result in large
changes in price, it is not surprising that the markets are often volatile.

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7.6 Why do financial intermediaries play an important role in the financial system?
Financial intermediaries play an important role in the financial system because they reduce transaction costs,
allow risk sharing, and solve problems created by adverse selection and moral hazard. As a result, financial
intermediaries allow small savers and borrowers to benefit from the existence of financial markets, thereby
increasing the efficiency of the economy.

7.7 What may happen if the economies of scope that help make financial intermediaries successful?
The economies of scope that help make financial intermediaries successful can lead to conflicts of interest
that make the financial system less efficient.

7.8 What are the government regulations for controlling the financial markets and financial
intermediaries?
The regulations include requiring disclosure of information to the public, restrictions on who can set up a
financial intermediary, restrictions on what assets financial intermediaries can hold, the provision of deposit
insurance, limits on competition, and restrictions on interest rates.

7.9 How can economies of scale help explain the existence of financial intermediaries?
Financial intermediaries can take advantage of economies of scale and are better able to develop expertise,
leading to lower transaction costs and thus enabling their savers and borrowers to benefit from the existence
of financial markets.
7.10 What are the problems of asymmetric information?
Asymmetric information results in two problems: adverse selection, which occurs before the transaction takes
place, and moral hazard, which occurs after the transaction has taken place. Adverse selection refers to the
fact that bad credit risks are the ones most likely to seek loans, and moral hazard refers to the risk of the
borrower engaging in activities that are undesirable from the lender’s point of view.

7.11 Does adverse selection influence the functioning of financial market?

Yes. Adverse selection interferes with the efficient functioning of financial markets.

7.12 What are the tools to reduce the adverse selection problems?
Tools that help reduce the adverse selection problem include private production and sale of information,
government regulation to increase information, financial intermediation, and collateral and net worth.

What payment methods do you know that are used in international trade?
• Cash in advance
• Letter of credit
• Bill for collection
• Open account

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10.1. What are some of the risks involved in trading internationally?

o Risk of not being paid - Buyer's insolvency (Rủi ro vỡ nợ)/ Credit risk
• Buyer's inability to honor full payment for goods or service rendered on due date
• When selling/supplying products without collecting full payment or experienced late payment

o Buyer's acceptance risk (Rủi ro chấp nhận hợp đồng)

The exporter may have to consider shipping the goods back to his country, finding an alternative buyer
or even abandoning the consignment, all of which could be expensive.

o Seller's Performance Risk (Rủi ro thực hiện hợp đồng)

• Seller fail to carry out his obligations in a sales contract
• Importers cannot receive the goods or receive goods which are different from those ordered or
of poor quality or in a damaged condition.

o Force majeure (Rủi ro bất khả kháng)

• Natural Disaster
• Political Risk
• Foreign Exchange risk

10.2.What payment methods do you know that are used when exporting or importing goods?
- Open Account: An open account is a credit sale where the goods are shipped and delivered before
payment is due.
- Bills for Collection: Trade collections are initiated when an exporter draws a bills of exchange on an
overseas buyer
o Clean Collection
o Documentary Collection (D/C)
- Documentary Credit: often referred to as a Letter of Credit.
- Advance Payment: Exporters receive payment from an overseas buyer in full, or in part, before the
goods are dispatched.

10.3.What are the roles of the banks in international trade?

Commercial banks make possible the reliable transfer of funds and translation of business practices
between different countries and different customs all over the world.
o Foreign branch banking: allow multinational companies to consolidate their finance business
at a single bank.
o Foreign exchange: convert and trade foreign currencies.
o Banking services: corporate current accounts and lock boxes.
o Corporate finance: simplify the process of corporate finance.
o Financing foreign: trade globally.

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10.4.Prepare a list of recommendations for either exporters or importers to have a smooth payment
transaction.
- Currency Choice:
Is easily converted into other currency.
- Agree on kind of time of payment:
o Advance payment
o At sight payment
o Deferred payment
o Combined payment
- The conflicts of interest raised by the point at which money is deemed to be made are clear.
 Negotiators must work out this carefully.
- If there are any documents involved in the process of payment, exporter and importer should
make sure there are no differences in details among those documents. If there are, both have to
ask for amendments or give instructions to any other party related in the process.

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