Tienganh

NATIONAL ECONOMICS UNIVERSITY
SCHOOL OF BANKING AND FINANCE


Co-editors: MSc. Le Phong Chau

Dr. Do Hoai Linh
ENGLISH FOR
BANKING AND FINANCE
(The third edition)
NATIONAL ECONOMICS UNIVERSITY PUBLISHING HOUSE

2020
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2
LIST OF AUTHORS
Contents Authors
Unit 1: Functions
of Financial Market Assoc. Prof. Dr. Le
Part 1
Unit 2: Regulation Thanh Tam
of Financial System
Unit 1: An Overview
Dr. Do Hoai Linh
of Commercial Banking
Part 2
Dr. Do Hoai Linh
Unit 2: Internet Banking
MSc. Khuc The Anh
Unit 1: Fundamental
of Corporate Finance
MSc. Le Phong Chau
Unit 2: Special Topics
Part 3
in Corporate Finance
MSc. Le Phong Chau
Unit 3: Valuation
MSc. Tran Thi Thu Hien
Unit 1: Foreign Exchange
Dr. Hoang Thi Lan
Part 4
Unit 2: Foreign Currency Huong
Derivatives
Unit 1: Introduction
Part 5 to Public Finance Dr. Phung Thanh Quang
Unit 2: Taxation
Unit 1: Securities Market

Part 6 Dr. Le Thi Huong Lan
Unit 2: Participants
in Securities Market
Unit 1: Insurance Business
Part 7 Dr. Do Hoai Linh
Unit 2: Insurance Products
1
CONTENTS
PREFACE................................................................................................ 7
PART 1: FINANCIAL MARKET ......................................................... 9
UNIT 1: FUNCTIONS OF FINANCIAL MARKET ........................... 9
1. Reading .......................................................................................... 9
2. Exercises ...................................................................................... 12
3. Translation ................................................................................... 15
4. Terminology ................................................................................ 16
5. References ................................................................................... 18
UNIT 2: REGULATION OF FINANCIAL SYSTEM ....................... 19
1. Reading ........................................................................................ 19
2. Exercises ...................................................................................... 21
3. Translation ................................................................................... 25
4. Terminology ................................................................................ 26
5. References ................................................................................... 28
PART 2: COMMERCIAL BANKING ............................................ 29
UNIT 1: AN OVERVIEW OF COMMERCIAL BANKING........ 29
1. Reading ....................................................................................... 29
2. Exercises ..................................................................................... 32
3. Translation .................................................................................. 34
4. Terminology ............................................................................... 37
5. References ................................................................................... 38
UNIT 2: INTERNET BANKING ....................................................... 41
1. Reading ........................................................................................ 41
2. Exercises ...................................................................................... 44
3. Translation ................................................................................... 47
4. Terminology ................................................................................ 49
5. References .................................................................................. 51
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PART 3: CORPORATE FINANCE.................................................... 53
UNIT 1: FUNDAMENTALS OF CORPORATE FINANCE ............ 53
1. Reading ........................................................................................ 53
2. Exercises ...................................................................................... 56
3. Translation ................................................................................... 59
4. Terminology ................................................................................ 61
5. References ................................................................................... 63
UNIT 2: SPECIAL TOPICS IN CORPORATE FINANCE ............... 65
1. Reading ........................................................................................ 65
2. Exercises ...................................................................................... 67
3. Translation ................................................................................... 71
4. Terminology ................................................................................ 73
5. References ................................................................................... 74
UNIT 3: VALUATION....................................................................... 75
1. Reading ........................................................................................ 75
2. Exercises ...................................................................................... 78
3. Translation ................................................................................... 80
4. Terminology ................................................................................ 82
5. References ................................................................................... 82
PART 4: INTERNATIONAL FINANCE ........................................... 83
UNIT 1: FOREIGN EXCHANGE ................................................... 83
1. Reading ....................................................................................... 83
2. Exercises ..................................................................................... 85
3. Translation .................................................................................. 89
4. Terminology ............................................................................... 91
5. References ................................................................................... 93
UNIT 2: FOREIGN CURRENCY DERIVATIVES........................... 95
1. Reading ....................................................................................... 95
2. Exercises ..................................................................................... 97
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3. Translation ................................................................................ 101
4. Terminology ............................................................................. 102
5. References ................................................................................. 103
PART 5: PUBLIC FINANCE ............................................................ 105
UNIT 1: INTRODUCTION TO PUBLIC FINANCE ...................... 105
1. Reading ...................................................................................... 105
2. Exercises .................................................................................... 107
3. Translation ................................................................................. 111
4. Terminology .............................................................................. 113
5. References ................................................................................. 115
UNIT 2: TAXATION........................................................................ 117
1. Reading ...................................................................................... 117
2. Excercises .................................................................................. 119
3. Translation ................................................................................. 123
4. Terminology .............................................................................. 125
5. References ................................................................................. 125
PART 6: SECURITIES ...................................................................... 127
UNIT 1: SECURITIES MARKET .................................................... 127
1. Reading ...................................................................................... 127
2. Exercises .................................................................................... 129
3. Translation ................................................................................. 134
4. Terminology .............................................................................. 135
5. References ................................................................................. 136
UNIT 2: PARTICIPANTS IN SECURITIES MARKET ................. 137
1. Reading ...................................................................................... 137
2. Exercises .................................................................................... 139
3. Translation ................................................................................. 144
4. Terminology .............................................................................. 145
5. References ................................................................................. 146
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PART 7: INSURANCE ...................................................................... 147
UNIT 1: INSURANCE BUSINESS ................................................. 147
1. Reading ...................................................................................... 147
2. Exercises ................................................................................... 149
3. Translation ................................................................................ 153
4. Terminology ............................................................................. 155
5. References ................................................................................ 159
UNIT 2: INSURANCE PRODUCTS ............................................... 161
1. Reading ...................................................................................... 161
2. Exercises ................................................................................... 164
3. Translation ................................................................................ 167
4. Terminology ............................................................................. 170
5. References ................................................................................ 173
TERMINOLOGY .............................................................................. 175
LIST OF REFERENCES ................................................................. 189
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PREFACE
Having graduated from universities, students will find themselves
facing a fierce competition in the selection and interview process from
many of banking and financial institutions. In addition, if they are
successful in out-performing the competitors, their skills need to be
adopted sharply in daily works to secure the dream job. The course
“English for Banking and Finance” aims to equip students with
industrial experience in international banking, forex, capital markets,
commercial banking, securities, public finance and insurance for them to
have exceptional English skills in the fast-paced, money-making world
of finance, as English is the main communication tool in the industry.
The course is designed and delivered to train students to become a
proficient communicator in English, by developing their proficiency in a
number of areas, including specialist vocabulary and terminology for
this sector, in addition to spoken and written communication skills. The
course contains also presentations prepared and carried out by students
so that they will be able to mature their proficiency professionally.
Key topics covered during the course are:
▪ Financial System
▪ Commercial Banking
▪ Corporate Finance
▪ International Finance
▪ Public Finance
▪ Securities
▪ Insurance
These topics correspond to seven parts with two or three units in
each. The units are structured to consist of a reading with comprehensive
questions, exercises, texts for translation, and lastly terminology.
Participating in this 15-week course, students will have the
opportunity to learn and develop their specialized terminology and
professional English communication in a wide range of topics in
Banking and Finance. It lays out, by a series of well-structured units, a
concrete block foundation for their future profession.
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PART 1: FINANCIAL MARKET
Unit 1: Functions of Financial Market
Introduction: The center of this unit covers the functions of

financial market, which accommodates essential channels to stimulate
the fund flow between individuals, households, firms and governments
that have surplus funds to those that face a financial shortage. Financial
market not only benefits for its participants but also increases efficiency
for the entire economy plus the welfare of all citizens. The study on
functions of financial market provides students with the fundamental
background on banking and financial issues. In this lesson, students will
be given reading passages, exercises and translations, to improve their
reading, pronunciation, translation and writing skills. They are also
introduced to new terms and terminologies related to financial market
and its functions.
1. READING
The Financial Intermediary Function
Financial market performs the essential economic function of
channeling funds from households, firms, and governments that have
saved surplus funds by spending less than their income to those that have
a shortage of funds because they wish to spend more than their income.
This function is shown schematically in Figure 1.
Those who have saved and are lending funds, the lender-savers, are at
the left, and those who must borrow funds to finance their spending, the
borrower-spenders, are at the right. The principal lender-savers are
households, but business enterprises and the government (particularly state
and local government), as well as foreigners and their governments,
sometimes also find themselves with excess funds and so lend them out.
The most important borrower-spenders are businesses and the
government (particularly the federal government), but households and
foreigners also borrow to finance their purchases of cars, furniture, and
houses. The arrows show that funds flow from lender-savers to
borrower-spenders via two routes.
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In direct finance (the route at the bottom of Figure 1), borrowers
borrow funds directly from lenders in financial markets by selling them
securities (also called financial instruments), which are claims on the
borrower’s future income or assets. Securities are assets for the person
who buys them, but liabilities (IOUs or debts) for the individual or firm
that sells (issues) them.
Why is this channeling of funds from savers to spenders so
important to the economy? The answer is that the people who save are
frequently not the same people who have profitable investment
opportunities available to them, the entrepreneurs. In the absence of
financial markets, savers and spenders might never get together.
Without financial markets, it is hard to transfer funds from a person
who has no investment opportunities, to the one who has them; they
would both be stuck with the status quo, and both of them would be
worse off. Financial markets are, thus, essential to promoting
economic efficiency.
The existence of financial markets is also beneficial even if
someone borrows for a purpose other than increasing production in a
business. Say that you are recently married, have a good job, and want to
buy a house. You earn a good salary, but because you have just started to
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work, you have not yet saved much. Over time, you would have no
problem saving enough to buy the house of your dreams, but by then you
would be too old to get full enjoyment from it.
If a financial market were set up so that people who had built up
savings could lend you the funds to buy the house, you would be more
than happy to pay them some interest in order to own a home while you
are still young enough to enjoy it. Then, over time, you would pay back
your loan.
Now we can see why financial markets have such an important
function in the economy. They allow funds to move from people who
lack productive investment opportunities to people who have such
opportunities. Thus, financial markets are critical for producing an
efficient allocation of capital, which contributes to higher production and
efficiency for the overall economy.
Well-functioning financial markets also directly improve the well-
being of consumers by allowing them to time their purchases better.
They provide funds to young people to buy what they need and can
eventually afford without forcing them to wait until they have saved up
the entire purchase price. Financial markets that are operating efficiently
improve the economic welfare of everyone in the society.
Source: Frederic S. Mishkin (2006), The Economics of Money, Banking
and Financial Markets, 7th Edition Update, Addison-Wesley, Longman
QUESTIONS
1.1. What is the main function of financial market?
1.2. Who are the participants in financial markets?
1.3. In what ways do funds flow in the economy?
1.4. How does direct finance work?
1.5. How can financial markets benefit individuals with consuming
purposes?
1.6. Why is financial market so essential to the economy?
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2. EXERCISES
2.1. Read the paragraph below and find the right word or phrase
from the box to fill each of the gaps
shortage purchases efficiency excess improves

indirect finance direct finance channel intermediary securities
The basic function of financial markets is to (1)_____________

funds from savers who have an (2)____________ of funds to spenders
who have a (3)_____________of funds. Financial markets can do this
either through (4)___________, in which borrowers borrow funds
directly from lenders by selling them (5)_____________, or through
(6)_____________, which involves a financial (7)_____________ that
stands between the lender-savers and the borrower-spenders and helps
transfer funds from one to the other. This channeling of funds
(8)_____________ the economic welfare of everyone in the society,
because it allows funds to move from people who have no productive
investment opportunities to those who have such opportunities, thereby
contributing to increased (9)_____________in the economy. In addition,
channeling of funds directly benefits consumers by allowing them to
make (10)_____________ when they need them most.
2.2. Put the words/phrases in order to make sentences
1. If / prices / stay / oil and gas / impact / food / prices / high / there /
be / on / will
……………………………………………………………………
……………………..……………………………………………………
2. The / every / information / financial market / money / available /
any / without / makes / type of / spending.
……………………………………………………………………
……………………..……………………………………………………
3. The / financial market / traded / is / currencies / forex market /
where / are / a
……………………………………………………………………
……………………..……………………………………………………
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4. Mutual fund / ability / give / buy / to / once / a lot of stocks / at /
investors / the
……………………………………………………………………
……………………..……………………………………………………
5. The / forces / any / the / demand and supply / of / price / goods
or services / is / by / determined / of
……………………………………………………………………
……………………..……………………………………………………
2.3. Find the best answer
1) Financial markets have the basic function of
a) getting people with funds to lend together with people who want
to borrow funds.
b) assuring that the swings in the business cycle are less pronounced.
c) assuring that governments need never resort to printing money.
d) providing a risk-free repository of spending power.
2) Financial markets improve economic welfare because
a) they channel funds from investors to savers.
b) they allow consumers to time their purchase better.
c) they weed out inefficient firms.
d) eliminate the need for indirect finance.
3) Well-functioning financial markets
a) cause inflation.
b) eliminate the need for indirect finance.
c) cause financial crises.
d) produce an efficient allocation of capital.
4) The principal lender-savers are
a) governments.
b) businesses.
c) households.
d) foreigners.
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5) Which of the following can be described as direct finance?
a) You take out a mortgage from your local bank.
b) You borrow $2,500 from a friend.
c) You buy shares of common stock in the secondary market.
d) You buy shares in a mutual fund.
2.4. Match the words on the left with the phrases on the right
1. Money a. is a major disruption in the financial markets.

b. is defined as anything that is generally accepted
2. Inflation in payment for goods and services or in the
repayment of debt.
c. relates changes in the quantity of money to changes
3. Financial crisis
in aggregate economic activity and the price level.
4. Monetary theory d. is a continually rising price level.
e. involves decisions about government spending
5. Budget deficit
and taxation.
f. occurs when government expenditures exceed
6. Fiscal policy
tax revenues for a particular time period.
2.5. Put these words and phrases in the appropriate columns

Commercial banks Shares Finance companies Financial market
Financial intermediaries Stock Exchange Savings Associations
Financial cooperatives Stocks Bank borrowing Bonds
Dividend
Direct finance Indirect finance
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
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3. TRANSLATION
Translate the following texts into Vietnamese, paying a special
attention to the standard use of terms and clarification of expression.
Text 1
Primary and Secondary Market
The financial market is a world where new securities are issued to
the public regularly. It is a world full of varied financial products and
services, tailored to the need of every individual from all income
brackets. These financial products are bought and sold on the capital
market, which is divided into primary market and secondary market.
The primary market is also known as new issues market. Here, the
transaction is conducted between the issuer and the buyer. In short, the
primary market creates new securities and offers them to the public.
For instance, Initial Public Offering (IPO) is an offering of the
primary market where a private company decides to sell stocks to the
public for the first time. An important point to remember here is that in
the primary market, securities are directly purchased from the issuer.
In secondary market, the securities issued in the primary market
are bought and sold. Here, you can buy a share directly from a seller
and the stock exchange or broker acts as an intermediary between
two parties.
The secondary market is actually formed by another layer of
investors who deal with primary market investor to buy and sell
financial securities such as bonds, futures and stocks. These dealings
happen in the proverbial stock exchange.
National Stock Exchange (NSE) and New York Stock Exchange
(NYSE) are some popular stock exchanges. Majorly, the trade happens
between investors without any involvement with the company that
issued the securities in the primary market.
Source: http://www.financewalk.com/primary-market-
secondary-market/
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Text 2
The Bond Market
The bond market is where organizations go to obtain very large
loans. Generally, when stock prices go up, bond prices go down. There are
many different types of bonds, including Treasury bonds, corporate bonds,
and municipal bonds. Bonds also provide some of the liquidity that keeps
the U.S. economy functioning smoothly.
It is important to understand the relationship between Treasury
bonds and Treasury bond yields. Basically, when Treasury bond values
go down, the yields go up to compensate. When Treasury yields rise, so
do mortgage interest rates. Even worse, when Treasury values decline,
so does the value of the dollar. This makes import prices rise, which can
trigger inflation. Treasury yields can also predict the future – an inverted
yield curve usually heralds a recession.
Source: https://www.thebalance.com/an-introduction-to-the-financial-
markets-3306233
4. TERMINOLOGY
Bear – Nhà đầu tư bi quan: A name for shareholders who sell
because they expect the price to fall.
Bull – Nhà đầu tư lạc quan: A name for investors who buy
shares because they expect their price to rise.
Corporate bond – Trái phiếu doanh nghiệp: A corporate bond
is a debt security issued by a corporation and sold to investors. The
backing for the bond is usually the payment ability of the company,
which is typically money to be earned from future operations. In some
cases, the company's physical assets may be used as collateral for bonds.
Day trader – Người giao dịch nội nhật: A person who buy and
re-sell shares in a very short time, often just a few hours.
Direct finance – Tài chính trực tiếp: Direct finance is a method
of financing where borrowers borrow funds directly from the financial
market without using a third party service, such as a financial
intermediary.
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Indirect finance – Tài chính gián tiếp: Indirect finance is where
borrowers borrow funds from the financial market through indirect means,
such as through a financial intermediary. This is different from direct
financing where there is a direct connection to the financial markets as
indicated by the borrower issuing securities directly on the market.
Financial market – Thị trường tài chính: A financial market is
a market in which people trade financial securities, commodities, and
other fungible items of value at low transaction costs and at prices that
reflect supply and demand. Securities include stocks and bonds, and
commodities include precious metals or agricultural products.
Forex market (foreign exchange market) – Thị trường ngoại
hối: The foreign exchange market (forex, FX, or currency market) is a
global decentralized market for the trading of currencies. This includes
all aspects of buying, selling and exchanging currencies at current or
determined prices.
Futures market – Thị trường tương lai: A futures market is a
central financial exchange where people can trade standardized futures
contracts; that is, a contract to buy specific quantities of a
commodity or financial instrument at a specified price with delivery set
at a specified time in the future. These types of contracts fall into the
category of derivatives.
Municipal bond – Trái phiếu địa phương: A municipal bond is
a debt security issued by a state, municipality or county to finance
its capital expenditures, including the construction of highways, bridges
or schools. Municipal bonds are exempt from federal taxes and from
most state and local taxes, making them especially attractive to people in
high income tax brackets.
Mutual fund – Quỹ tương hỗ: A mutual fund is a professionally
managed investment fund that pools money from many investors to
purchase securities. While there is no legal definition of the term “mutual
fund”, it is most commonly applied to open-end investment companies,
which are collective investment vehicles that are regulated and sold to the
general public on a daily basis. They are sometimes referred to as
“investment companies” or “registered investment companies”.
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Options market – Thị trường quyền chọn: An option is a
financial derivative that represents a contract sold by one party (the
option writer) to another party (the option holder). The contract offers
the buyer the right, but not the obligation, to buy (call) or sell (put) a
security or other financial asset at an agreed-upon price (the strike price)
during a certain period of time or on a specific date (exercise date).
Primary market – Thị trường sơ cấp: A primary market is a
financial market in which new issues of a security, such as a bond or a
stock, are sold to initial buyers by the corporation or government agency
borrowing the funds.
Secondary market - Thị trường thứ cấp: A secondary market is
a financial market in which securities that have been previously issued
(and are thus second-hand) can be resold.
Securities broker – Nhà môi giới chứng khoán: A regulated
professional individual, usually associated with a brokerage
firm or broker-dealer, who buys and sells stocks and other securities for
both retail and institutional clients through a stock exchange or over the
counter in return for a fee orcommission.
Securities dealer – Nhà kinh doanh chứng khoán: A person or
firm in the business of buying and selling securities for their own
account, whether through a broker or otherwise.
Treasury bond – Tín phiếu kho bạc: A Treasury bond (T-Bond)
is a marketable, fixed-interest U.S. government debt security with a
maturity of more than 10 years. Treasury bonds make interest payments
semi-annually, and the income received is only taxed at the federal level.
Treasury bonds are known in the market as primarily risk-free; they are
issued by the U.S. government with very little risk of default.
5. REFERENCES
1. Frederic S. Mishkin (2006), The Economics of Money,
Banking and Financial Markets, 7th Edition Update, Addison-
Wesley, Longman.
2. http://www.financewalk.com/primary-market-secondary-market/
3. https://www.thebalance.com/an-introduction-to-the-financial-
markets-3306233.
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PART 1: FINANCIAL SYSTEM
Unit 2: Regulation of Financial System
Introduction: The key issues on regulations of financial system

are discussed in this lesson. The enforcement of regulations is triggered
by two main reasons, which are increasing the information available to
investors and ensuring the soundness of financial intermediaries. The
government regulates the financial system using six types of regulations,
namely entry barriers, disclosure, restrictions on assets and operations,
deposit insurance, limits on competitions and interest rate control. The
regulation of financial system could make the system grow sustainably
or get worse off, depending on the levels of deregulation and types of
policies issued. Students will be given reading passages, exercises and
translations to improve their reading, pronunciation, translation, and
writing skills. They are also introduced to new terms and terminologies
related to financial system and its regulations.
1. READING
Regulatory Control in the American Financial System
The financial system is among the most heavily regulated sectors
of the American economy. The government regulates financial markets
for two main reasons: to increase the information available to investors
and to ensure the soundness of the financial system. We will examine
how these two reasons have led to the present regulatory environment.
Increasing Information Available to Investors
Asymmetric information in financial markets means that
investors may be subject to adverse selection and moral hazard
problems that may hinder the efficient operation of financial markets.
Risky firms or outright crooks may be the most eager to sell securities
to unwary investors, and the resulting adverse selection problem may
keep investors out of financial markets. Furthermore, once an investor
has bought a security, thereby lending money to a firm, the borrower
may have incentives to engage in risky activities or to commit outright
fraud. The presence of this moral hazard problem may also keep
19
investors away from financial markets. Government regulation can
reduce adverse selection and moral hazard problems in financial
markets and increase their efficiency by increasing the amount of
information available to investors.
Ensuring the Soundness of Financial Intermediaries
Asymmetric information can also lead to widespread collapse of
financial intermediaries, referred to as a financial panic. Because
providers of funds to financial intermediaries may not be able to assess
whether the institutions holding their funds are sound, if they have
doubts about the overall health of financial intermediaries, they may
want to pull their funds out of both sound and unsound institutions. The
possible outcome is a financial panic that produces large losses for the
public and causes serious damage to the economy. To protect the public
and the economy from financial panics, the government has
implemented six types of regulations.
Restrictions on Entry: State banking and insurance commissions have
created very tight regulations governing who is allowed to set up a
financial intermediary. Individuals or groups that want to establish a
financial intermediary, such as a bank or an insurance company, must
obtain a charter from the state or the federal government. Only if they
are upstanding citizens with impeccable credentials and a large amount
of initial funds will they be given a charter.
Disclosure: There are stringent reporting requirements for
financial intermediaries. Their bookkeeping must follow certain strict
principles, their books are subject to periodic inspection, and they must
make certain information available to the public.
Restrictions on Assets and Activities: There are restrictions on
what financial intermediaries are allowed to do and what assets they can
hold. Before you put your funds into a bank or some other such
institution, you would want to know that your funds are safe and that the
bank or other financial intermediary will be able to meet its obligations
to you.
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Deposit Insurance: The government can insure people’s deposits
so that they do not suffer any financial loss if the financial intermediary
that holds these deposits should fail.
Limits on Competition: Politicians have often declared that
unbridled competition among financial intermediaries promotes failures
that will harm the public. Although the evidence that competition does
this is extremely weak, it has not stopped the state and federal
governments from imposing many restrictive regulations. First are the
restrictions on the opening of additional locations (branches).
Restrictions on Interest Rates: Competition has also been inhibited
by regulations that impose restrictions on interest rates that can be paid
on deposits. These regulations were instituted because of the widespread
belief that unrestricted interest-rate competition helped encourage bank
failures during the Great Depression.
Source: Frederic S. Mishkin (2006), The Economics of Money, Banking
and Financial Markets, 7th Edition Update, Addison-Wesley, Longman.
QUESTIONS
1.1. Why does the government regulate financial markets?
1.2. What problems does asymmetric information bring about?
1.3. What are adverse selection and moral hazard problems?
1.4. What methods does the government use to prevent financial
panics?
1.5. How do restrictions on entry work?
1.6. What tool did the American government apply to deal with
the Great Depression?
2. EXERCISES
1) Which of the following is not a goal of financial regulation?
a) Ensuring the soundness of the financial system
b) Reducing moral hazard
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c) Reducing adverse selection
d) Ensuring that investors never suffer losses
2) Increasing the amount of information available to investors helps
to reduce the problems of ________ and ________ in the financial markets.
a) adverse selection, moral hazard
b) adverse selection, risk sharing
c) moral hazard, transactions costs
d) adverse selection, economies of scale
3) Government regulations to reduce the possibility of financial
panic include all of the following except
a) transactions costs.
b) restrictions on assets and activities.
c) disclosure.
d) deposit insurance.
4) In order to reduce risk and increase the safety of financial
institutions, commercial banks and other depository institutions are
prohibited from
a) owning municipal bonds.
b) making real estate loans.
c) making personal loans.
d) owning common stock.
5) The primary purpose of deposit insurance is to
a) improve the flow of information to investors.
b) prevent banking panics.
c) protect bank shareholders against losses.
d) protect bank employees from unemployment.
6) Asymmetric information is a universal problem. This would
suggest that financial regulations
a) in industrial countries are an unqualified failure.
b) differ significantly around the world.
c) in industrialized nations are similar.
d) are unnecessary.
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insurance maximum restrictions assets

increase disclosure soundness intermediaries
The government regulates financial markets and financial

(1)_____________for two main reasons: to (2) _____________ the
information available to investors and to ensure the
(3) _____________of the financial system. Regulations include
requiring (4) _____________ of information to the public,
(5) _____________ on who can set up a financial intermediary,
restrictions on what (6) _____________ financial intermediaries can
hold, the provision of deposit (7) _____________, reserve requirements,
and the setting of (8) _____________ interest rates that can be paid on
checking accounts and savings deposits.
2.3. Match the words 1-6 to the phrases a-f to make word
partnerships
1. Compliance a. according to law or regulation
b. authorization given to an organization

2. Mandate
to carry out specific responsibilities
3. Supervision c. following rules and regulations
d. working with companies and

4. Counterparties institutions, and not personal or retail
customers
e. other institutions in an agreement,

5. Statutory
contract or transaction
f. watching over people or an
6. Wholesale organization to make sure they are
behaving correctly
23
2.4. Put the words/phrases in order to make the sentences
1. An important trend / years / financial markets / growing / in /
recent / internationalization / is /of / the
……………………………………………………………………
……………………..……………………………………………………
2. The yield / climbed / 10-year Treasury note / 2.39 percent / on /
to / the
……………………………………………………………………
……………………..……………………………………………………
3. Citigroup / a / capacity / in / has / 180 percent / forecasted /
by 2020/ increase
……………………………………………………………………
……………………..……………………………………………………
4. Trump / a / 45 percent / has / on / tariff / suggested / from China /
goods / slapping
……………………………………………………………………
……………………..……………………………………………………
5. Financial shares / three of / reported results / American lenders /
climbed / after / the largest
……………………………………………………………………
……………………..……………………………………………………
2.5. Work in pair. One is for and the other is against the following
statements – explain why. Then the whole class put their answers in
the blackboard and check who are more convincing.
1. The current bank regulation in Vietnam is very good.
2. Commercial banks in Vietnam need to be regulated more strictly.
3. Securities market in Vietnam has not been well-regulated.
4. Deposit insurance in Vietnam covers for all depositors.
5. State Bank of Vietnam’s Circulars are more concrete than
Prime Minister’s Decisions on similar topic.
24
6. The global financial crisis 2008 is rooted from the de-
regulation environment to financial system.
7. Optional… (as students may think of more topics)
3. TRANSLATION
Text 1
The creation of the International Money Market
In most countries, local corporations commonly need to borrow
short-term funds to support their operations. Country governments may also
need to borrow short-term funds to finance their budget deficits. Individuals
or local institutional investors in those countries provide funds through
short-term deposits at commercial banks. In addition, corporations and
governments may issue short-term securities that are purchased by local
investors. Thus, a domestic money market in each country serves to transfer
short-term funds denominated in the local currency from local surplus units
(savers) to local deficit units (borrowers).
The growth in international business has caused corporations or
governments in a particular country to need short-term funds
denominated in a currency that is different from their home currency.
First, they may need to borrow funds to pay for imports denominated in
a foreign currency. Second, even if they need funds to support local
operations, they may consider borrowing in a currency in which the
interest rate is lower. This strategy is especially desirable if the firms
will have receivables denominated in that currency in the future. Third,
they may consider borrowing in a currency that will depreciate against
their home currency, as they would be able to repay the loan at a more
favorable exchange rate over time. Thus, the actual cost of borrowing
would be less than the interest rate of that currency.
Meanwhile, there are some corporations and institutional investors
that have motives to invest in a foreign currency rather than their home
currency. First, the interest rate that they would receive from investing in
25
their home currency may be lower than what they could earn on
short-term investments denominated in some other currencies. Second,
they may consider investing in a currency that will appreciate against
their home currency because they would be able to convert that currency
into their home currency at a more favorable exchange rate at the end of
the investment period. Thus, the actual return on their investment would
be higher than the quoted interest rate on that foreign currency.
Source: Jeff Madura (2008), International Financial Management, 9th Edition,
Thomson South – Western
Text 2
The Great Depression
The Great Depression was a severe worldwide economic
depression that took place during the 1930s. The timing of the Great
Depression varied across nations; in most countries, it started in 1929
and lasted until the late 1930s. It was the longest, deepest, and most
widespread depression of the 20th century. In the 21st century, the Great
Depression is commonly used as an example of how far the world's
economy can decline.
The Great Depression had devastating effects in countries both
rich and poor. Personal income, tax revenue, profits and prices dropped,
while international trade plunged by more than 50%. Unemployment in
the U.S. rose to 25% and, in some countries, rose as high as 33%.
Cities all around the world were hit hard, especially those
dependent on heavy industry. Construction was virtually halted in many
countries. Farming communities and rural areas suffered as crop prices
fell by about 60%. Facing plummeting demand with few alternate
sources of jobs, areas dependent on primary sector industries such as
mining and logging suffered the most.
Source: https://en.wikipedia.org/wiki/Great_Depression
4. TERMINOLOGY
Adverse selection – Lựa chọn đối nghịch: Adverse selection
refers to a situation where sellers have information that buyers do not, or
26
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.
Asymmetric information – Thông tin không cân xứng:
Asymmetric information, sometimes referred to as information failure, is
present whenever one party to an economic transaction possesses greater
material knowledge than the other party. This normally manifests itself
when the seller of a good or service has greater knowledge than the
buyer does, although the opposite is possible. Almost all economic
transactions involve information asymmetries.
Debt market – Thị trường nợ: A market that is involved in the
trading of debt instruments such as government and corporate bonds, as
well as has an involvement with the trading of packaged loan products
that are sold to investors.
Deposit Insurance – Bảo hiểm tiền gửi: Protection provided usually
by a government agency to depositors against risk of loss arising from
failure of a bank or other depository institution. Deposit insurance is
mandatory, and pays claims from a pool of funds to which every depository
institution regularly contributes. However, it covers only a fixed maximum
amount per account holder. Also called depository insurance.
Disclosure – Công khai thông tin: Disclosure is the act of
releasing all relevant information pertaining to a company that may
influence an investment decision. For example, to be listed on major
U.S. stock exchanges, companies must follow all of the Securities and
Exchange Commission's (SEC) disclosure requirements and regulations.
To make investing as fair as possible for everyone, companies must
disclose both good and bad information.
Dividend – Cổ tức: A dividend is a distribution of a portion of a
company's earnings, decided by the board of directors, to a class of its
shareholders. Dividends can be issued as cash payments, as shares of
stock, or other property.
Equity market – Thị trường vốn chủ sở hữu: The market in
which shares are issued and traded, either through exchanges or
over-the-counter markets. Also known as the stock market, it is one of
27
the most vital areas of a market economy because it gives companies
access to capital and investors a slice of ownership in a company with
the potential to realize gains based on its future performance.
Moral hazard – Rủi ro đạo đức: Moral hazard is the risk that a
party to a transaction has not entered into the contract in good faith, has
provided misleading information about its assets, liabilities or credit
capacity, or has an incentive to take unusual risks in a desperate attempt
to earn a profit before the contract settles. Moral hazards can be present
any time two parties come into agreement with one another. Each party
in a contract may have the opportunity to gain from acting contrary to
the principles laid out by the agreement.
5. REFERENCES
Banking and Financial Markets, 7th Edition Update, Addison-
Wesley, Longman.
2. Jeff Madura (2008), International Financial Management, 9th
Edition, Thomson South – Western.
3. https://en.wikipedia.org/wiki/Great_Depression
28
PART 2: COMMERCIAL BANKING
Unit 1: An Overview of Commercial Banking
Introduction: The banking sector, which is the backbone of an

economy, plays a critical role in its development. Through an
intermediary institution as a bank, savers (lenders) give funds to
spenders (borrowers), probably in the form of loans or mortgages.
Acting as a financial intermediary, bank promotes the soundness and
efficiency of the financial system and the economy as a whole.
Students are exposed to main items of a balance sheet in banks,
through which they will see how banks earn profits (and losses).
Non-transaction deposit accounts for highest proportion in liabilities
and equity, while loans take the largest share in assets. This fact
somehow reveals how banks earn income. Additional information is
located in the translation part.
1. READING
Main Items of Commercial Bank’s Balance Sheet
Banks play a pivotal role in the economy, channeling funds
from units in surplus to units in deficit. They reconcile the different
needs of borrowers and lenders by transforming small-size, low-risk
and highly liquid deposits into loans which are of larger size, higher
risk and illiquid (transformation function). We discussed the main
reasons banks have advantages in the intermediation process relating
to matching the needs of ultimate lenders (depositors) and borrowers.
There are some main items of bank’s assets and liabilities:
Checkable Deposits. Checkable deposits are bank accounts that
allow the owner of the account to write checks to third parties.
Checkable deposits include all accounts on which checks can be drawn:
non-interest-bearing checking accounts (demand deposits), interest-
bearing NOW (negotiable order of withdrawal) accounts, and money
market deposit accounts (MMDAs). Checkable deposits and money
market deposit accounts are payable on demand; that is, if a depositor
29
shows up at the bank and requests payment by making a withdrawal, the
bank must pay the depositor immediately. Checkable deposits are a
liability for the bank. They are usually the lowest-cost source of bank
funds because depositors are willing to forgo some interest in order to
have access to a liquid asset that can be used to make purchase.
Non-transaction Deposits: Non-transaction deposits are the
primary source of bank funds. Owners cannot write checks on non-
transaction deposits, but the interest rates are usually higher than
those on checkable deposits are. There are two basic types of non-
transaction deposits: savings accounts and time deposits (also called
certificates of deposit or CDs). Savings accounts, to which funds can
be added or from which funds can be withdrawn at any time,
transactions and interest payments are recorded in a monthly
statement or in a small book (the passbook) held by the owner of the
account. Time deposits have a fixed maturity length, ranging from
several months to over five years, and have substantial penalties for
early withdrawal (the forfeiture of several months’ interest). Small-
denomination time deposits are less liquid for the depositor than
passbook savings, earn higher interest rates, and are a more costly
source of funds for the banks.
Borrowings: Banks obtain funds by borrowing from the
Federal Reserve System, the Federal Home Loan banks, other banks,
and corporations. Borrowings from the Fed are called discount loans
(also known as advances). Banks also borrow reserves overnight in
the federal (fed) funds market from other banks and financial
institutions. Banks borrow funds overnight in order to have enough
deposits at the Federal Reserve to meet the amount required by the
Fed. Other sources of borrowed funds are loans made to banks by
their parent companies, loan arrangements with corporations, and
borrowings of Eurodollars (deposits denominated in U.S. dollars
residing in foreign banks or foreign branches of U.S. banks).
Securities: A bank’s holdings of securities are an important
income-earning asset: Securities. These securities can be classified
into three categories: government and agency securities, state and
local government securities, and other securities. The government
30
and agency securities are the most liquid because they can be easily
traded and converted into cash with low transaction costs. Because of
their high liquidity, short-term government securities are called
secondary reserves. State and local government securities are
desirable for banks to hold, primarily because state and local
governments are more likely to do business with banks that hold their
securities. State and local government and other securities are less
marketable (hence less liquid) and are also riskier than government
securities, primarily because of default risk.
Loans: Banks make their profits primarily by issuing loans.
They have generally produced more than half of bank revenues. A
loan is a liability for the individual or corporation receiving it, but an
asset for a bank, because it provides income to the bank. Loans are
typically less liquid than other assets, because they cannot be turned
into cash until the loan matures. Loans also have a higher probability
of default than other assets.
Source: Barbara Casu, Claudia Giradone, Philip Molyneux (2006),
Introduction to Banking, Pearson Education Canada Publishing House; and
Frederic S. Mishkin (2015), The Economics of Money, Banking and
Financial Markets, Pearson Education Limited Publishing House.
QUESTIONS
1.1. What is a key role of banks?
1.2. How many ways can banks use to raise funds?
1.3. Why do checkable deposits be the low – cost source
of banks?
1.4. What is a passbook?
1.5. Why do banks pay higher interest rate on time deposit than
saving deposit?
1.6. Can banks borrow fed funds from Fed?
1.7. What is Eurodollar?
1.8. Why are government bonds called secondary reserves
of banks?
1.9. What is the major source of revenues in banks?
31
2. EXERCISES
2.1. Match the words 1-7 to the words/phrases a-g to make word
partnerships
1. apply a) a balance
2. withdraw b) online
3. choose c) for a loan
4. shop d) money
5. set e) money into a pre-paid card
6. carry f) a credit limit
7. load g) a variable interest rate
2.2. Complete the sentences with the word partnerships from

Excercise 2.1
1. I may use my card to__________________ and buy goods from
a website.
2. With my PIN code and my multi-functional card I can
______________ from cash dispensers everywhere.
3. It is cheaper if you don’t__________________ from one month
to the next but choose the debit option.
4. The bank uses the credit rating to____________ for a customer.
5. Parents can__________________ onto a pre-paid card for their
children to take with them when they travel.
6. When customers arrange a mortgage, they can____________ or a
fixed interest rate.
7. If you need money, you can__________________ at your bank.
2.3. Complete this mortgage application form with the words in the
box. You may not need all the words/phrases.
borrow collateral house or flat variable
maturity date property valuation interest and principal credit
32
MORTGAGE APPLICATION
1. The amount of the mortgage: How much do you want
to______________?
2. You will need to make a deposit. What can you arrange
as______________ for the bank to have some security.
3. Why do you need the money: Are you buying a (n)
__________________?
4. When will the _______________ be in 25 or 30 years?
5. Do you want to have a fixed interest rate or a
(n)_____________interest rate?
6. Do you want to pay interest only or_________________?
7. Do you want to have a (n)_________________?
1. Credit institution / an enterprise / in / one or / several or /
means / engaging / all banking activities
……………………………………………………………………
……………………..……………………………………………………
2. A commercial bank / making loans / as / whose / a bank
main businesses / are deposit-taking / and / is defined
……………………………………………………………………
……………………..……………………………………………………
3. A microfinance institution / for / that / specializes / banking
services / a financial organization / in / low-income groups / or
individuals / means
……………………………………………………………………
……………………..……………………………………………………
4. Interest rate / a rate / means / or paid / for / money / which
is charged / the use of
……………………………………………………………………………
……………..……………………………………………………………
5. A mortgage / that / by / the collateral / is secured / of /
specified real estate / property / is a debt instrument
……………………………………………………………………………
……………..……………………………………………………………
33
1. The interest _________________ will be lowered if you
make 12 consecutive payments on time.
a) Rate
b) Return
c) Level
2. We can transfer the money _________________ into your
bank account.
a) Exactly
b) Directly
c) Evenly
3. This is not a one-time fee. It is a _________________ fee.
a) Re-occurring
b) Re-happening
c) Re-taking
4. He ________________ on his loan. (= He couldn't pay his loan)
a) Defeated
b) Defaulted
c) Devastated
5. In the United States, it is illegal to _________________ an
application fee for a federal loan.
a) Cover
b) Cause
c) Charge
3. TRANSLATION
Translate the following texts into Vietnamese paying special
attention to the standard use of terms and clarification of expressions.
Text 1
Credit Overview
Credit is your reputation as a borrower. It tells others how
likely you are to repay your loans. Credit is made up from
information about your borrowing history. Most of the information
34
comes from your credit reports. A credit report contains information
about your borrowing history. Lenders (and others) provide
information that ends up on credit reports. They report how much
you have borrowed, how you have repaid, and other details about
your borrowing behavior. Your credit report is the master document
that's behind your “credit”. You can view your own report for free (at
least once per year under federal law).
When somebody wants to see your credit report, they request
one from a credit reporting company or “credit bureau” - credit
reporting agencies collect all of the information that appears in your
credit report. Credit bureaus are information warehouses, but they
might not keep as much data as you think. Again, they get that
information from lenders you have worked with, public records
databases, and other sources. They distribute or sell that information
when you apply for a loan or when a company wants your
information. Credit bureaus have a ton of information. There are
hundreds or thousands of lines of information about you in their
databases, and it is difficult for lenders to sort through all of it.
Most companies use credit scores instead of reading through
everything in your credit reports. Credit scores are numbers
generated by a computer program that reads through your credit
reports. It looks for patterns, characteristics, and red flags in your
history. Based on what the program finds, it generates a credit score.
Credit was originally used for lending decisions. Nowadays, credit
scores and reports are used in other areas of your life. Consumers and
lawmakers constantly watch what credit is used for, and debate about
the fairness of credit scoring and the expanding use of those scores.
In addition to lending decisions, credit score is used for insurance
and employment approvals.
Source: https://www.capitalone.co.uk/creditmadeclearer/credit-intro.jsf#what-
is-credit
http://banking.about.com/od/creditscoresandreporting/
a/whatiscredit.htm
35
Text 2
Introduction of Bank Guarantee
Bank guarantee is an instrument issued by the bank (known as
the issuing bank or the guarantor) on behalf of the client (known as the
applicant or the principal) which secures the payment for a third party
(known as the beneficiary) in case the client fails to fulfill the
contractual commitment. Bank guarantees are facilitated in international
trade transactions, as collateral and as credit enhancement instruments.
Cross border bank guarantees are usually issued to secure
transactions involving:
 supply of goods/services;
 construction and shipbuilding contracts;
 large scale service contracts and technology transfers;
 mergers and acquisitions and;
 warranties.
Usage of bank guarantee is widespread because of its unique features:
 A bank guarantee can be issued as a backup for both financial as
well as non-financial transactions. For example, it can be issued
for financial transactions such as Loans, Overdrafts, Joint
Ventures, Bonds and Reinsurance. And it can also be issued for
non-Financial transactions such as Sale, Lease and Construction
projects.
 A bank guarantee if individually issued can provide security to
both the parties involved in the transaction. It can secure the
party entitled to receive the payment – seller, contractor, lessor or
lender and it can secure the party entitled to receive the
goods/services – buyer, employer, lessee etc.
In international trade, the risk of payment is covered by
documentary letter of credit; however, bank guarantee also offers to
cover the risk of non-performance of obligations other than payment.
Source: http://tradesamaritan.com/world-trade/products/bank-
guarantee-an-introduction
36
4. TERMINOLOGY
Bank account – Tài khoản ngân hàng: An account which
customer has with a bank, where customer can deposit and
withdraw money.
Checks (Cheque) – Séc: A note to a bank asking them to pay
money from your account to the account of the person whose name is
written on the note.
Credit score – Điểm tín dụng: A credit score is a numerical
expression based on a level analysis of a person's credit files, to
represent the creditworthiness of that person. A credit score is
primarily based on credit report information typically sourced from
credit bureaus.
Current account (Checking account) – Tài khoản vãng lai:
An account in a bank from which customers can withdraw money
when they want. Current accounts do not always pay interest.
Deposit account – Tài khoản tiền gửi: An account which pay
interest but on which notice has to be given to withdraw money.
Interest-bearing demand deposit – Tiền gửi giao dịch có trả
lãi: The deposit that provides all services as non-interest bearing
deposits and pay interest to the depositor as well.
Maturity - Kỳ hạn: The date at which something becomes due
for payment or repayment.
Non-interest bearing demand deposit – Tiền gửi giao dịch
không trả lãi: Non-interest bearing deposits represents deposits that do
not earn explicit interest payment but provide the customer with
payment services, safekeeping of funds, and recordkeeping for any
transactions carried out by check, card, or via an electronic network.
Non-transaction deposit – Tiền gửi phi giao dịch: A deposit
that cannot be used for payment directly but must be converted into
currency for general use.
Outstanding loan – Dư nợ cho vay: An outstanding loan is the
portion of a loan that has yet to be repaid. Creditors sometimes use
37
the term “outstanding balance” to describe the part of a loan that still
needs to be repaid.
Overdraft – Thấu chi: An overdraft occurs when money is
withdrawn from a bank account and the available balance goes below
zero. In this situation, the account is said to be "overdrawn". If there
is a prior agreement with the account provider for an overdraft, and
the amount overdrawn is within the authorized overdraft limit, then
interest is normally charged at the agreed rate. If the negative balance
exceeds the agreed terms, then additional fees may be charged and
higher interest rates may apply.
Preferential loan – Khoản vay ưu đãi: Preferential loan
means a loan, in respect of which no interest is payable or interest is
payable at a preferential rate, made directly or indirectly to an
individual or an institution by a credit institution.
Saving account – Tài khoản tiết kiệm: An account maintained
by retail financial institutions that pay interest but cannot be used
directly as money.
Saving deposit/Thrift deposit – Tiền gửi tiết kiệm: Interest -
bearing fund left with a depository institution for a period of weeks,
months or years.
Transaction deposit – Tiền gửi giao dịch: A deposit service in
which checks or draft against the deposit may be used to pay for
purchase of goods and services.
Yield curve – Đường cong lãi suất: A graphic picture of how
interest rates vary with different maturities of securities as viewed at
a single point in time.
5. REFERENCES
1. Barbara Casu, Claudia Giradone, Philip Molyneux (2006),
Introduction to Banking, Pearson Education Canada
Publishing House.
Banking and Financial Markets, Pearson Education Limited
Publishing House.
38
3. Capital One, Introduction to credit, retrieved at
http://www.capitalone.co.uk/creditmadeclearer/credit-
intro.jsf#what-is-credit.
4. Justin Prichard (2014), What is credit and How is it used,
Retrieved at
http://banking.about.com/od/creditscoresandreporting/a/w
hatiscredit.htm
5. Bank guarantee, Retrieved at:
http://tradesamaritan.com/world-trade/products/bank-
guarantee-an-introduction
6. National Assembly (2010), Law on Credit Institutions No.
47/2010/QH12 approved by the Vietnam National
Assembly on June 16, 2010.
7. National Assembly (2010), Law on The State bank of
Vietnam No. 46/2010/QH12 approved by the Vietnam
National Assembly on June 16, 2010.
39
40
PART 2: COMMERCIAL BANKING
Unit 2: Internet Banking
Introduction: Human is standing on the brink of revolution of

technology that we often call the “4.0 Age”, which will fundamentally
alter the way we live, work, and contact with others. In its scale, scope,
and complexity, the transformation will be unlike anything humankind
has experienced before. The banking sector is no exception. Internet
banking is the latest delivery channel as well as new services for
financial system. Internet banking is a self-service that allows customers
to perform financial activities in the Internet. Students will learn the
banking services provided through Internet, and challenges that both
banks and their clients have faced. The technology of Internet banking is
further introduced in the translation part to expose students to the new
age of banking sector.
1. READING
Perspective on Internet Banking
Internet banking is the latest delivery channel for financial
services. Internet banking is a self-service that allows customers to
perform financial activities over the Internet. It is defined as a self-
service that enables bank customers to get access to their accounts and
the latest general information on bank products and services, and
conduct all financial transactions anytime from anywhere through the
use of a bank’s website. Through the Internet banking, customers can: i)
verify real time account balances anytime from any location; ii) move
funds instantly from one account to another; iii) confirm that deposits
have been made, checks have cleared and online transactions have taken
place; iv) view and print images of checks that have passed through a
customer’s account; v) Place an order for a new check; vi) submit an
application for loans and credit cards; and vii) carry out online bill paying.
For banks, Internet banking may save the price of services - in the
long run - a bank can save on money by not paying for tellers or for
41
managing branches. Moreover, it is cheaper to make transactions over the
Internet. Customer Base - the Internet allows banks to reach a whole new
market - and a well-off one too, because there are no geographic
boundaries with the Internet. The Internet also provides a level playing
field for small banks who want to add to their customer base. Efficiency -
Banks can become more efficient than they already are by providing
Internet access for their customers. The Internet provides the bank with an
almost paperless system. Customer Service and Satisfaction - Banking on
the Internet not only allows the customer to have a full range of services
available to them but it also allows them some services not offered at any
of the branches. The person does not have to go to a branch, where that
service may or may not be offered. With better and faster options, a bank
will surely be able to create better customer relations and satisfaction. No
wonder some experts have predicted that the expansion of Internet
banking may eventually spell the doom for neighborhood brick and mortar
branch offices with their huge resource demands.
Challenges in providing Internet services
However, there are some real limits to what the Internet can do, at
least with current technology. Customers of many virtual banks have to
mail in their deposits or drive to pre-arranged ATM location to obtain
the spendable cash they need. They sometimes complain about their
inability to speak with live service representatives in order to straighten
out problems. Most online only bankers have found they must
compensate their customers when they do not have a network of
neighborhood branch offices by promising higher interest rates on
electronic accounts they do attract.
The Net and customer privacy and security
Probably the greatest challenge facing Internet services is the issue
of customer safety and security. The Net has proven especially
vulnerable to fraud and identity theft in which sensitive private
information about businesses and individuals is stolen by unauthorized
person and used to run up large credit card bills or to ravage the savings
and reputation of victims. Moreover, the Net has been used to move
money around the global to finance terror. In an attempt to combat
account fraud, money laundering, diversion of funds to terrorist
42
organizations, and thieves of credit cards and Social Security numbers
and other forms of private data, regulated financial firms have been
asked to assess the risk they and their customers face from illegal
manipulation of their accounts and, to move beyond today’s dominant
single - factor authentications systems (in which customers are usually
asked for password, PIN, or Social Security number) toward multi-factor
authentication systems (in which customer may be asked for a password
initially, then perhaps for a card or token with encoded information, and
then possibly must pass a fingerprint, voice recognition, or other
biometric test to gain access to their accounts). Clearly, customer
privacy and account security are major issues that will shape the future
expansion of Internet provided financial services.
Source: Vishesh Srivastav (2014), E-banking and Its Overview, Institute
of Research Engineers and Doctors; and
Peter S. Rose and Sylvia C. Hudgins (2010), Bank Management and
Financial Services, McGraw-Hill Irwin Press, 8th Edition
QUESTIONS
1.1. What is Internet banking? How is it different from traditional
banking services?
1.2. What are financial services currently available on the Internet?
1.3. What have problems been encountered in Internet service
delivery?
1.4. List solutions for virtual banks to make their services more
approachable to customers.
1.5. What are the risks exposed to customers when they use the
Internet banking?
1.6. Are financial institutions concerned enough about security
and privacy to take significant steps to protect their
customers? Explain your judgment.
1.7. What should you do if suspect yourself become the victim of
Internet fraud?
1.8. Make a list of the advantages and disadvantages of Internet
banking. Discuss it with a partner.
43
2. EXERCISES
2.1. Match the verbs 1-8 with the nouns a-h
1. to access a. a bill online
2. to carry b. a password
3. to click on c. a risk
4. to enter/input/key in/type in d. an electronic payment
5. to fall into e. an icon
6. to make f. funds
7. to pay g. the Internet
8. to transfer h. the wrong hands
2.2. Put the words/phrases in the box in the appropriate columns
retailer purse convenience make a payment
bank withdraw deposit cost-savings
service provide telephone POS device smart card
security reader flexibility transfer money
Participants Devices Benefits Transactions

retailer purse convenience make a payment
-------------- -------------- --------------- ----------------
--------------- -------------- --------------- ----------------
--------------- -------------- --------------- ----------------
2.3. Use the words and phrases given in Excersise 2.2 to complete
the sentences
1. Electronic money provides more______________ than cash
because the lock function makes it difficult to steal.
2. The_________________ is used by the retailer to receive
payment from customers.
3. A company that offers a service is called
a____________________.
44
4. When you put money in your bank account, we say that you
have made a (n) _____________________.
5. Recently, commercial banks and retailers have offered more
_________________ with Internet banking services.
2.4. Match the words 1-6 to the words/phrases a-f to make word
partnerships
1. a high a. business hours
2. a low risk of b. fraud
3. an Internet only c. interest rates
4. offers higher than average d. level of security
5. outside e. saving account
6. vulnerable f. to fraud
1. Banks / an essential element /which / transforms / idle capital /
in the form of deposits / into / working capital/ in a free enterprise
system / in the form of loans / for a fee/ are
……………………………………………………………………
……………………..……………………………………………………
……………………………………..……………………………………
……………………………………………………..……………………
……………………………………………………………………..
2. Consumers / from / for financial products and services / offered
online and their availability 24/7/ have benefited/ lowering transactional
costs
……………………………………………………………………
……………………..……………………………………………………
……………………………………..……………………………………
……………………………………………………..……………………
……………………………………………………………………..
45
3. Use of the internet / banks / to deliver/ a lower cost / standard
and expanded banking services / at / than / through bricks-and-mortar
branches / allowed / to more customers
……………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
…………………………………………………………..
4. Technology / has permitted / many financial management
transactions / that / previously were / considered disparate/ the
convergence of
……………………………………………………………………
……………………..……………………………………………………
……………………………………..……………………………………
……………………………………………………..……………………
……………………………………………………………………..
5. Electronic / through / customers of a bank / online banking / an /
is / enables / that / to conduct / payment system / financial transactions /
a range of / the bank’s website
……………………………………………………………………
……………………..……………………………………………………
………………………………………..…………………………………
………………………………………………………..…………………
1. How much is your __________________? = How much money
did you borrow?
a) Interest
b) Origination fee
c) Principal
2. The bank hasn't __________________ our loan yet.
a) Processed
b) Provided
c) Answered
46
3. __________________ interest is basically accumulated interest.
a) Accredited
b) Accrued
c) Acclimated
4. __________________ of the loan amount = No matter how
much the loan amount is.
a) Apart
b) Instead
c) Regardless
5. He couldn't pay his loan. = He is _________________ in
repaying his loan.
a) Delinquent
b) Devious
c) Deprived
3. TRANSLATION
Text 1
ACHs and Checks: The Tide is Turning, but Slowly
Everyday billions of dollars flow across the United State as
businesses, households, and governments pay their bills and depository
institutions collect those funds and route them into the correct accounts.
Some institutions and individuals pay by checks – still a popular route,
though now accounting for less than half of value of all payments made
in the United States – and others by currency and coins, money orders,
and credit and debit cards. A third route is the direct deposit of funds
electronically. At work daily route these “electronic dollars” to the
accounts of their rightful owners is a nationwide network of automated
clearinghouses (ACHs).
ACHs permit businesses to electronically deposit their employee’s
paychecks and allow households and businesses to make regular
47
payments on their mortgages and to pay utility bills and other recurring
costs via computer, thereby avoiding checks and other less convenient
payment methods. The hard fact to explain, however, is why electronic
transactions have not completely taken over the American payment
system. In Europe, they nearly have (with some countries reporting that
at least two-thirds of their payments move electronically).
Source: Peter S. Rose and Sylvia C. Hudgins (2010), Bank
Management and Financial Services, McGraw-Hill Irwin Press, 8th Edition
Text 2
Financial Service Facilities of the Future
Despite continually advancing technology, most experts seem to
agree that the total number of financial service outlets industry wide will
probably not decline significantly; indeed, the total of all financial
services facilities may continue to grow in the future if the population
desiring to use these services continues to increase. However, the design
and function of most financial service facilities are likely to evolve into
new configurations – more wholly or partially automated facilities with
broad self-service capability and adjacent to other stores and shops.
Future facilities will also likely include information accessing equipment
that is so portable that financial service outlets will be able to visit or
accompany the customer, whether he or she goes, rather than requiring
the customer to visit them.
The use of “digital cash” will permit customers to be their own
financial service branches for certain transactions. Customers will be
able to carry a pocketsize computer terminal to register payments for
goods and services and to transfer funds as needed or carry a “smart
card”, which is an electronic purse holding a specified amount of
electronic money to spend. When all the customer’s electronic money is
spent on purchases of goods and services, the card can be electronically
“refilled” again with digital cash in order to support future purchases.
But even with these innovative services, there is still likely to be a
significant role for traditional full-service branch offices geared to the
48
special service needs of the neighborhoods and communities they serve,
helping customer plan for the future with the aid of a broad menu of
service offerings and expert financial advice.
Source: Peter S. Rose and Sylvia C. Hudgins (2010), Bank Management
and Financial Services, McGraw-Hill Irwin Press, 8th Edition
4. TERMINOLOGY
ATM (Automatic Teller Machine) – Máy giao dịch tự động: An
ATM combines a computer, record - keeping system, and cash vault in
one unit, permitting customers to enter a financial firm’s book - keeping
system with either a plastic card.
Authentication – Xác thực: (1) An action of checking that
something is true, such as an instruction sent to a bank by email; (2) a
method of proving the identity of a person or company.
Biometrics – Sinh trắc học: Are distinctive, measurable
characteristics that are used to identify people. These identifiers are
categorized as physical or behavioral characteristics, related the shape of
specific body parts or a pattern of behavior.
CHAPS (Clearing House Automated Payments System) – Hệ

thống thanh toán bù trừ tự động: A computerized system for clearing
cheques organized by the banks.
Depository Institution – Tổ chức nhận tiền gửi: A financial
institution that obtains its funds mainly through deposits from the public.
This includes commercial banks, savings and loan associations, saving
banks and credit unions.
49
Digital cash (E-cash) – Tiền điện tử: A European commission
describes digital cash (E-cash) as a digital equivalent of cash, stored on
an electrolic devide or remotely at a server.
Direct debit – Ghi nợ trực tiếp: A system where a customer
allows a company to charge cost to his or her bank account
automatically and where the amount charged can be increased or
decreased with the agreement of the customer.
Electronic Banking – Ngân hàng điện tử: The use of computers
to carry banking transactions, such as withdrawals through cash
dispensers or transfer of funds at point of sale.
E-business – Kinh doanh điện tử: General term that refers to any
type of business activities on the Internet, including Marketing,
branding, and research.
E-commerce – Thương mại điện tử: A general term that is
normally used to refered to the process of buying and selling goods or
services over the Internet.
Electronic Fund Trasfer – Chuyển tiền điện tử: A system for
transferring money from one account to another electronically (as when
using a smart card).
Electronic Purse (same as digital wallet) – Ví điện tử: A piece
of personalized software on the hard drive of a user’s computer that
contains, in coded form, such items as credit card information, digital
cash, a digital identity certificate, and standardized shipping information,
and can be used when paying for a transaction electronically.
Fraud and Identity Theft – Lừa đảo và trộm danh tính: When
your personal details are stolen and identify fraud is when those detail
are used to commit fraud.
Money Laundering – Rửa tiền: The process of creating the
apperance that large amounts of money obtained from serious crimes,
such as drug trafficking or terriost activity, orginated from a
legitimate source.
Smart Card – Thẻ thông minh: Credit card with microchip, used
for withdrawing money from ATMs or for purchases at POS terminal.
50
Security Token – Thiết bị xác thực: A physical devide that an
autherized user of computer services is given to ease authetication.
Virtual bank – Ngân hàng ảo: Internet based financial institution

that offers deposit and withdrawal facilities, and other banking services,
through automated teller machines or other devices, without having a
physical (brick and mortar) walk in premises.
5. REFERENCES
1. Karen Furst, William W. Lang, Daniel E. Nolle (2000), Internet
Banking: Developments and Prospects, Retrieved at:
https://www.newyorkfed.org/medialibrary/media/newsevents/e
vents/research/2001/Furst.pdf
2. Ioannis Koskosas (2011), The Pros and Cons of Internet Banking:
A Short Review, Business Excellence and Management.
3. Matthew Johnson (2008), A New Approach to Internet
Banking, Technical Report, University of Cambride.
4. Peter S. Rose and Sylvia C. Hudgins (2010), Bank
Management and Financial Services, McGraw-Hill Irwin
Press, 8th Edition.
5. Vishesh Srivastav (2014), E-banking and Its Overview,
Institute of Research Engineers and Doctors.
51
52
PART 3: CORPORATE FINANCE
Unit 1: Fundamentals of Corporate Finance
Introduction: Corporate finance is primarily concerned with

maximizing shareholder value through long-term and short-term
financial planning and the implementation of various strategies. The
financial managers have to deal with the funding sources and the capital
structure of corporations, in addition to allocating financial resources to
an asset portfolio that increases the value of the firm to shareholders.
This unit introduces a brief introduction to the fundamentals of corporate
finance and familiarizes students to a wide variety of real-world terms
and concepts, including liabilities, equity, dividend, shareholder, among
others. This introduction to corporate finance will bring the students to
the key English terms they may need for a high-powered career in
finance and banking.
1. READING
How Do Corporations Raise Capital?
Large corporations could not have grown to their present size
without being able to find innovative ways to raise capital
to finance expansion. Corporations have five primary methods for
obtaining that money.
Issuing bonds: A bond is a written promise to pay back a specific
amount of money at a certain date(s) in the future. In the interim,
bondholders receive interest payments at fixed rates on specified dates.
Holders can sell bonds to someone else before they are due.
Corporations benefit by issuing bonds because the interest
rates they must pay investors are generally lower than rates for most
other types of borrowing and because interest paid on bonds is
considered to be a tax-deductible business expense. However,
corporations must make interest payments even when they are not
showing profits. If investors doubt a company's ability to meet its
interest obligations, they will either refuse to buy its bonds or demand a
53
higher rate of interest to compensate them for their increased risk. For
this reason, smaller corporations can seldom raise much capital by
issuing bonds.
Issuing preferred stock: A company may choose to issue new
“preferred” stock to raise capital. Buyers of these shares have special
status in the event the underlying company encounters financial trouble.
If profits are limited, preferred-stock owners will be paid their dividends
after bondholders receive their guaranteed interest payments but before
any common stock dividends are paid.
Selling common stock: If a company is in good financial health, it
can raise capital by issuing common stock. Typically, investment
banks help companies issue stock, agreeing to buy any new shares issued
at a set price if the public refuses to buy the stock at a certain minimum
price. Although common shareholders have the exclusive right to elect a
corporation’s board of directors, they rank behind holders of bonds and
preferred stock when it comes to sharing profits.
Investors are attracted to stocks in two ways. Some companies pay
large dividends, offering investors a steady income. Nevertheless, others
pay little or no dividends, hoping instead to attract shareholders by
improving corporate profitability, and hence, the value of the shares
themselves. In general, the value of shares increases as investors come to
expect corporate earnings to rise. Companies whose stock prices rise
substantially often “split” the shares, paying each holder, say, one
additional share for each share held. This does not raise any capital for
the corporation, but it makes it easier for stockholders to sell shares on
the open market. In a two-for-one split, for instance, the stock's price is
initially cut in half, attracting investors.
Borrowing from financial institutions: Companies can also raise
short-term capital, usually to finance inventories, by getting loans from
financial institutions as banks or other lenders. A bank loan can be
secured or unsecured. The former is a loan in which the borrower
pledges some asset (e.g. an equipment or property) as collateral. If the
borrower defaults on the loan, the bank would have the legal right to
repossess the collateral and sell it, to recover sums owing to it.
54
Interest rates on unsecured loans are nearly always higher than for
secured loans, because an unsecured lender's options for recourse against
the borrower in the event of default are severely limited. An unsecured
lender must sue the borrower, obtain a money judgment for breach of
contract, and then pursue execution of the judgment against the borrower's
unencumbered assets (that is, the ones not already pledged to secured
lenders). In insolvency proceedings, secured lenders traditionally have
priority over unsecured lenders when a court divides the borrower's
assets. Thus, a higher interest rate reflects the additional risk that, in the
event of insolvency, the debt may be uncollectible.
Using profits: As noted, companies also can finance their
operations by retaining their earnings. Strategies concerning retained
earnings vary. Some corporations, especially electric, gas, and other
utilities, pay out most of their profits as dividends to their stockholders.
Others distribute, say, 50 percent of earnings to shareholders in
dividends, keeping the rest to pay for operations and expansion. Still
other corporations, often the smaller ones, prefer to reinvest most or all
of their net income in research and expansion, hoping to reward
investors by rapidly increasing the value of their shares.
Source: http://economics.about.com/od/smallbigbusiness/a/corp_capital.htm
QUESTIONS
1.1. What are bond, preferred stock and common stock?
1.2. When do the preferred stockholders receive dividend?
1.3. How do companies borrow from financial institutions?
1.4. What are retained earnings?
1.5. Which financing sources are liabilities of companies?
1.6. What are the differences between preferred stock and
common stock?
1.7. What are the rights of a common stockholder?
1.8. Is there a positive payout ratio pursued by all companies?
1.9. What is the rationality of retaining earnings rather than
paying out as dividend?
55
2. EXERCISES
2.1. Match words 1-10 to definitions a-j
1. audited a. reduction in value of an asset over time

2. fixed asset b. money paid to shareholders
c. asset purchased for long-term use,
3. depreciation
such as land, buildings and equipment
4. net d. after any deductions
e. accounts checked by an
5. shareholder
independent examiner
f. an expense that has been incurred
6. dividend
but has not yet been paid
g. money which must be paid out
7. current liabilities
within one year
h. money which must be paid out
8. share capital
after one year
i. money raised by issuing shares in
9. long-term liabilities
the company
10. accrued expense j. a person who has invested in the
company through buying shares
arm outstanding traded pounds' worth

cash flow subsidiary went public sale or return
liabilities tied up founded in its own right
Parker Publishing was (1)_________________ in 1872 by

Hieronymous Parker, originally as the publisher of a religious periodical
called The Preacher. It now specializes in lifestyle magazines, and,
through its (2) _________________ Tekpress, also publishes several
highly successful periodicals on consumer interest subjects such as
56
computing and hi-fi. The distribution (3) ________________ also
distributes magazines from other publishers, and has become highly
profitable (4) _________________.
The company (5) _________________ in 1987. The shares,
originally priced at 50p, are (6) _________________ at the time of
writing for around £3.20.
Like many magazine publishers, Parker is vulnerable to
(7) _________________ problems. As their magazines are on
(8) _________________, they usually have millions of pounds
(9)____________________ from retailers, and have
(10) _________________ of several millions more in printers' bills. In
addition they have to keep large sums of money
(11) _________________ in stock - the firm's warehouses in London
and Manchester usually contain around five million
(12) _________________ of magazines.
1. The fiscal year to March 31st can also be called the year
__________ March 31st.
a. finishing b. ending c. terminating
2. Another term for “main business” is __________ business.
a. central b. first c. core
3. A company which makes a profit can be described as profitable
or __________.
a. profit-getting b. profit-making c. profit-having
4. A company which makes a loss can be described as
__________.
a. loss-getting b. loss-making c. loss-having
5. “Profit before tax” can also be called __________.
a. pre-tax profit b. without-tax profit c. non-tax profit
6. Another word for shareholders (especially in American English)
is __________.
a. ticket-holders b. stockholders c. paper-holder
57
7. Another word for “operating costs” is __________.
a. overheads b. headings c. heads
8. A company which makes neither a profit nor a loss is said to
__________.
a. fall even b. drop even c. break even
2.4. Read the sentences below and find the right word or phrase
annual report capital intensive cost-benefit analysis

into partnership joint venture lease
monopoly profit margin recoup
start-up costs supply and demand working capital
1. Before deciding to invest in a new computer system, we need to

do a (1) ________to see if it's going to be worth it.
2. The new machinery cost a lot, but we'll (2) ________the
investment in just a few months.
3. You can read about the company's finances, performance and
plans for the future in its (3) ________
4. We don't actually own our delivery lorries. We
(4) ____________them.
5. We'd like to launch a new airline, but the (5) _______are
very high.
6. Airlines are a very (6) _________form of business, as
aeroplanes are extremely expensive.
7. Jewellery retailers need a lot of (7) ___________, as the cost of
their stock is high.
8. Petrol filling stations operate on a very narrow (8) _________.
They only make about 1p a litre.
9. All business is subject to the laws of (9) ______________.
10. The new mobile phone banking service is a
(10) ________between ÜberBank and Telkom.
58
11. ÜberBank and Telkom have gone (11) _________ with
each other.
12. In Italy, Telecom Italia used to have a (12) ________on
telecommunications.
2.5. Money TV was the financial news Cable TV station. Put the
story in order
a. After a shaky start, Money TV went into profit after three years.
b. They raised some capital from a merchant bank.
c. As a result, Money TV’s advertising revenue fell dramatically.
d. Three companies, JYP Entertainment, YG media and SM
Communications formed a consortium.
e. Money TV started to make heavy losses.
f. A new station, the Money Channel was launched by CUBE
Media Group, the US media empire.
g. Money TV went into liquidation.
h. They bought equipment, rented premises, hired staff and set up
Money TV.
i. Viewing figures dropped sharply because of competition from
The Money Channel.
3. TRANSLATION
Text 1
A Part of the Balance Sheet
Liabilities and owners’ equity: The firm’s liabilities are
classified as either current or long-term. Current liabilities, like current
assets, have a life of less than one year (meaning they must be paid
within the year) and are listed before long-term liabilities. Accounts
payable (money the firm owes to its suppliers) is one example of a
current liability.
59
A debt that is not due in the coming year is classified as a
long-term liability. A loan that the firm will pay off in five years is one
such long-term debt. Firm borrows long-term debts from a variety of
sources. We will tend to use the terms bond and bondholders generically
to refer to long-term debts and long-term creditors, respectively.
Finally, by definition, the difference between the total value of assets
(current and fixed) and the total value of liabilities (current and long-term)
is the shareholders’ equity, also called common equity or owners’ equity.
This feature of the balance sheet is intended to reflect the fact that, if the
firm was to sell all of its assets and use the money to pay off its debts, then
whatever residual value remains belongs to the shareholders.
Source: Ross, S. et al. (2002), Fundamentals of Corporate Finance, McGraw-
Hill, New York
Text 2
Financial Problems in Business
Businesses have lives of their own. Making your business work
requires thinking through the challenges you might face. Keep in mind
that financial problems do not make your business a failure - businesses
experience growing pains and turning points.
Cash flow
Very few businesses escape cash flow problems. If you are in a
business, where you bill for services performed or goods sold - as so
many businesses do - your revenues can look good on paper while your
bank account looks terrible. No one likes doing it, but keeping track of
your receivables and getting clients to pay can be necessary to your
business' health and growth.
Funding
When you are getting started and at pivotal growth points in your
business, you can easily find yourself needing more money than you
have. That is when you have tough decisions to make about getting
financing. You can choose debt financing such as loans and lines of
credit, or attract investors and sell equity in your business in exchange
for the capital you need to move forward.
60
Economic cycles
You can have great management, the right product or service and
the best sales and service methods, and still struggle because of outside
forces. Sometimes, the economy or your industry goes through a crisis.
Because of consumer choices and habits, demand for your product can
suddenly fall off without warning. One of the challenges businesses face
is to plan for the inevitable periodic downturns so they can sustain
themselves through economic bad weather.
Source: http://smallbusiness.chron.com/financial-problems-business-4073.html
4. TERMINOLOGY
Breach of contract – Vi phạm hợp đồng: A legal cause of
action in which a binding agreement or bargained-for exchange is not
honored by one or more of the parties to the contract by non-
performance or interference with the other party's performance. In the
context, breach of contract means the borrower is in default of loan.
Collateral – Tài sản đảm bảo: A borrower's pledge of
specific property to a lender, to secure repayment of a loan. The collateral
serves as protection for a lender against a borrower's default - that is, any
borrower failing to pay the principal and interest under the terms of a
loan obligation.
Common stock – Cổ phiếu thường/Cổ phiếu phổ thông: Equity
without priority for dividends or in bankruptcy.
Economic downturns - Suy thoái kinh tế: A general slowdown
in economic activity. Macro-economic indicators such as GDP (gross
domestic product), investment spending, capacity utilization, household
income, business profits, and inflation fall, while bankruptcies and
the unemployment rate rise.
Finance – Tài trợ: Deal with the sources of funding to
expand business.
Go public – Chào bán cho công chúng đầu tư: Before securities
can trade on a securities market (stock exchange), they must be issued to
61
the public. A public issue of debt or equity can be sold directly to the
public with the help of underwriters.
Insolvency proceedings – Thủ tục tố tụng phá sản: A legal
status of a person or other entity that cannot repay the debts it owes
to creditors. Bankruptcy is not the only legal status that an insolvent
person or other entity may have, and the term bankruptcy is therefore not
a synonym for insolvency. In some countries, including the United
Kingdom, bankruptcy is limited to individuals, and other forms of
insolvency proceedings (such as liquidation and administration) are
applied to companies. In the United States, bankruptcy is applied more
broadly to formal insolvency proceedings.
Money judgment – Phán quyết phạt tiền: Amount of money that
a lender receives due to a borrower breach the contract.
Payout ratio – Tỷ lệ trả cổ tức: Amount of cash paid out to
shareholders divided by net income.
Pay off – Thanh toán hết: All debts are paid out by a company.
Preferred stock – Cổ phiếu ưu đãi: Stock with dividend priority
over common stock, normally with a fixed dividend rate, often without
voting rights.
Retained earnings – Lợi nhuận giữ lại/Lợi nhuận chưa phân
phối/Lợi nhuận không chia: Corporate earnings not paid out as
dividend.
Residual value – Giá trị còn lại: The remaining value of
assets after they have been fully paid off debts when a firm sells
its assets.
Share split – Chia tách cổ phiếu: An increase in a firm’s
shares outstanding without any change in owner’s equity. When a
split is declared, each share is split up to create additional shares. For
example, in a three-for-one stock split, each old share is split into
three new shares.
Tax-deduction – Khấu trừ thuế: A reduction of the income
subject to tax, for various items, especially expenses incurred to
produce income.
62
5. REFERENCES
1. Ross, S. et al. (2002), Fundamentals of Corporate Finance,
McGraw-Hill, New York.
2. http://economics.about.com/od/smallbigbusiness/a/corp_capital
.html
3. http://smallbusiness.chron.com/financial-problems-business-
4073.html
63
64
Unit 2: Special Topics in Corporate Finance
Introduction: This unit introduces selected special topics in

corporate finance, such as leasing, capital budgeting and acquisitions.
Leasing provides companies with fixed assets without paying a large
amount of money at one time to purchase. Capital budgeting involves
the forecast of short-term cash outflows and inflows by the financial
managers to determine the cash need and liquidity position. Acquisition
is a corporate action in which a company buys most or all of another
firm's ownership stakes to assume control of it in different ways. Being
exposed to these topics, students are familiar to various operations
performed by a financial manager, who should advise the Chief
Executive Officer (CEO) and Board of Directors (BOD) with regards to
financial matters.
1. READING
Leases
What are leases?
Leases allow a company to use some of its operating fixed assets
(i.e., buildings, plant and other fixed assets) under a rental system. In
certain cases, the company may purchase the asset at the end of the
contract for a predetermined and usually very low amount. Leases pose
two relatively complicated problems for external financial analysts:
- First, leases are used by companies to finance the assets. Even if
those items are not shown on the balance sheet, they may represent a
considerable part of a company’s assets.
- Second, they represent a commitment whose extent varies
depending on the type of contract:
 Equipment leasing may be treated as similar to debt, depending
on the length of the period during which the agreement may not
be terminated.
65
 Real estate leasing for buildings may not be treated as actual
debt in view of the termination clause contained in the contract.
Nonetheless, the utility of the leased property usually leads
the company to see out the initially determined length of the
lease, and the termination of a lease may then be treated as
the early repayment of a borrowing (financed by the sale of
the relevant asset).
In a lease contract, the firm (lessee) commits itself to making fixed
payments (usually monthly or semiannually) to the owner of the asset
(lessor) for the right to use the asset. These payments are either fully or
partially tax-deductible, depending on how the lease is categorised for
accounting purposes. The lessor is either the asset’s manufacturer or an
independent leasing company.
If the firm fails to make fixed payments, it normally results in the
loss of the asset and even in bankruptcy, although the claim of the lessor
is normally subordinated to other lenders.
Reasons for leasing
There are different reasons a firm can prefer leasing:
- The firm may not have the borrowing capacity to purchase an asset.
- Operating leases provide a source of off-balance-sheet financing
for heavily leveraged firms. However, this opportunity does not reduce
the firm’s financial risk. Lenders are in fact careful in considering the
cash flow effects of lease payments.
- The firm may want to avoid bond covenants.
Types of leases
The lease contract may take a number of different forms, but
normally is categorised as either an operating or a financial lease.
For operating leases, the term of the lease contract is shorter than
the economic life of the asset. Consequently, the present value of lease
payments is normally lower than the market value of the asset. At the
end of the contract, the asset reverts back to the lessor, who can either
offer to sell it to the lessee or lease it again to somebody else. In an
operating lease, the lessee has generally the right to cancel the lease and
return the asset to the lessor. Thus, the lessee bears little or no risk if the
asset becomes obsolete.
66
A financial (or capital) lease normally lasts for the entire economic
life of the asset. The present value of fixed payments tends to cover the
market value of the asset. At the end of the contract, the lease can be
renewed at a reduced rate or the lessee can buy the asset at a favourable
price. This contract cannot be cancelled by the lessee.
Although the differences between operating and financial lease are
obvious, some lease arrangements do not fit neatly into one or another of
these extremes; rather, they share some features of both types of leases.
These leases are called combination leases.
Source: Vernimmen, P. et al. (2005), Corporate Finance:
Theory and Practice, John Wiley & Sons, West Sussex.
QUESTIONS
1.1. What are leases?
1.2. What are problems caused by leases for financial analysts?
1.3. What are advantages of operating leases for lessee?
1.4. What are advantages of financial leases?
1.5. What are differences between operating leases and
financial leases?
1.6. Why do firms prefer leasing to borrowing money to
buy assets?
2. EXERCISES
2.1. Match words and phrases 1-11 to definitions a-k
1. advance a. a request to supply goods or services
2. cash flow problems b. this money is often paid to reserve something
3. change in demand c. pay your bills
4. deposit d. expenses you do not expect
e. not enough money coming in to
5. invoice
cover expense
f. when people or companies start needing more
6. lack of cash
or less of a product or service
7. meet expenses g. send someone a bill for work you have done
67
h. money you pay someone to start a job; they
8. order
receive the rest at the end
9. pay in full i. pay bills at a later date
10. put off payment j. completely pay off a debt
11. unforeseen costs k. when money is not available
insolvent liquidity net positive

reputation reserves suppliers working
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 investor. More technically, it is (1)_______________ profit plus
depreciation plus variation in (2)________________. The flow off funds
is cash received and payments made by a company during a specific
period – except that many people also use the term cash low to describe
this. New companies generally begin with adequate funds or
(3)________________ capital for the introductory stage during which
they make contacts, find customers and build up sales and a
(4)___________________. 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)_________________ tend to demand quick
payment, customers usually insist on extending the payment term. The
business does not have enough cash to pay short-term expenses. A
(6)_________________ 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 (7)_________________ - unable to meet their liabilities.
2.3. Choose the best word from each pair in Italic type
1. Anderson Accounting has been taken over/taken up by
Berlin Brothers.
68
2. Collins Corporation has made a bid/profit to buy
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.
2.4. Put these words/phrases in order to make sentences
1. office space / a large impact /of /on / your lease/will / your
business /of /the future / have
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
2. stability of location / a bigger, better location / do / to / want /
possibly price / ? / to / you / lock in / or / move to / and / the flexibility
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
3. would be better / to / is / renegotiation / there / or / for / any time /
worse / for / come up / that / ? / your lease
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
4. the office space / you / measure / make sure / want to /
accurately / for yourself /will / to / you / it / have envisioned
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
69
5. if / very successful / a change of location, / a lot of leverage /
your business / to raise / and/ will have / becomes / your rent / would
suffer from / at renewal time / the landlord
……………………………………………………………………………
……………..……………………………………………………………
……………………………..
2.5. For each sentence, find one word to replace the underlined
phrase. (The first two letters have been given to help you)
1. The problem is that the company is not concentrating on a few
important things.
Un_________ (9)
2. Robert now has a bigger than 50% stake in English Petroleum.
Ma__________(8)
3. I think that selling off non-core assets is necessary to save
the company.
Di___________ (10)
4. Europe Airlines has formed an arrangement to work together
with Alpha Airlines.
Al___________(8)
5. Global Electric’s latest company that it has bought is
Cambridge Electra.
Ac___________(11)
6. At the moment, we just make shoes but we want to start doing
business in other areas.
Di___________(9)
70
3. TRANSLATION
Text 1
Cash Budgeting
The cash budget shows not only the cash flows that have already
taken place, but also all the receipts and disbursements that the company
plans to make. These cash inflows and outflows may be related to the
company’s investment, operating or financing cycles.
The cash budget, showing the amount and duration of expected
cash surpluses and deficits, serves two purposes:
- To ensure that the credit lines in place are sufficient to cover any
funding requirements.
- To define the likely uses of loans by major categories.
Planning cash requirements and resources is a way of adapting
borrowing and investment facilities to actual needs and, first and
foremost, of managing a group’s interest expense. It is easy to see that a
better rate loan can be negotiated if the need is forecast several months
in advance. Likewise, a treasury investment will be more profitable over
a predetermined period, during which the company can commit not to
use the funds.
The cash budget is a forward-looking management chart showing
supply and demand for liquidity within the company. It allows the
treasurer to manage interest expense as efficiently as possible by
harnessing competition not only among different banks, but also with
investors on the financial markets.
Source: Vernimmen, P. et al. (2005), Corporate Finance: Theory and
Practice, John Wiley & Sons, West Sussex
71
Text 2
Classifying Acquisitions
Acquisitions are a number of different transactions, which can
range from one firm merging with another firm to create a new firm to
managers of a firm acquiring the firm from its stockholders and creating
a private firm. A firm can be acquired by another firm in several ways:
In a merger, the boards of directors of two firms agree to combine
and seek stockholders’ approval for the combination. In most cases, at
least 50% of the shareholders of the target and the bidding firm have to
agree to the merger.
In a consolidation, a new firm is created after a merger, and both
acquiring firm and target firm stockholders receive stock in this firm.
In a tender offer, one firm offers to buy the outstanding stock of
the other firm at a specific price and communicates this offer in
advertisements and mailings to stockholders. By doing so, it bypasses
the incumbent management and board of directors of the target firm.
Consequently, tender offers are used to carry out hostile takeovers. The
acquired firm will continue to exist as long as there are minority
stockholders who refuse the tender. From a practical standpoint,
however, most tender offers eventually become mergers if the acquiring
firm is successful in gaining control of the target firm.
In a purchase of assets, one firm acquires the assets of another,
though a formal vote by the shareholders of the firm being acquired is
still needed.
There is one final category of acquisitions that does not fit into any
of the four described here. A firm may be acquired by its own
management or by a group of investors, usually with a tender offer.
After this transaction, the acquired firm can cease to exist as a publicly
traded firm and become a private business. These acquisitions are called
management buyouts if managers are involved and leveraged buyouts
if the funds for the tender offer come predominantly from debt.
Source: Damodaran, A. (2001), Corporate Finance:
Theory and Practice, John Wiley & Sons, New Jersey
72
4. TERMINOLOGY
Acquisition – Thâu tóm: A corporate action in which a company
buys most, if not all, of another firm's ownership stakes to assume
control of it.
Bond covenant – Hợp đồng trái phiếu: A legally binding term of
agreement between a bond issuer and a bond holder.
Cash budget – Ngân quỹ: Forecast of sources and uses of cash.
Cash deficit – Thâm hụt tiền mặt: A shortage of available funds
to satisfy current obligations.
Cash surpluses – Thặng dư tiền mặt: It is the cash that exceeds
the cash required for day-to-day operations.
Consolidation – Hợp nhất: An acquisition which target firm
and acquiring firm become new firm: stockholder approval needed
from both firms.
Financial (capital) lease – Thuê tài chính: Long-term,
noncancelable lease.
Lease – Thuê tài sản: Long-term rental agreement.
Lessee – Người đi thuê: User of a leased asset.
Lessor – Người cho thuê: Owner of a leased asset.
Leveraged buyouts (LBO) – Mua lại theo kiểu vay nợ:
Acquisition in which (1) a large part of the purchase price is debt-
financed and (2) the remaining equity is privately held by a small group
of investors.
Management buyouts (MBO) – Mua lại để giữ quyền quản lý:
Leveraged buyout whereby the acquiring group is led by the
firm’s management.
Merger – Sáp nhập: An acquisition which target firm becomes
part of acquiring firm, stockholder approval needed from both firms.
Minority stockholder – Cổ đông thiểu số: A shareholder who
does not exert control over a company.
Operating lease – Thuê hoạt động: Short-term and cancelable lease.
73
Purchase of assets – Mua tài sản: An acquisition which target
firm remains as a shell company, but its assets are transferred to the
acquiring firm.
Tender offer – Mời thầu: An acquisition which target firm
continues to exist, as long as there are dissident stockholders holding
out. Successful tender offers ultimately become mergers. No shareholder
approval is needed.
5. REFERENCES
1. Damodaran, A. (2001), Corporate Finance: Theory and
Practice, John Wiley & Sons, New Jersey.
2. Vernimmen, P. et al. (2005), Corporate Finance: Theory and
Practice, John Wiley & Sons, West Sussex.
74
Unit 3: Valuation
Introduction: Valuation is the process of determining the current

worth of an asset or a company, which inform managers or investors to
make important financial decisions. There are different valuation
methods, namely Discounted Cash Flow (DCF) analysis, Comparable
transactions, Price Multiples and Asset-based valuation. There are ones,
such as the comparables method, simple to use, and more involved
methods, such as the discounted cash flow model. Learning in more
details of these techniques, students will see that there is no method that
is best suited for every situation. However, by knowing the characteristics
of the company, the valuers can select a valuation method that best suits
the situation, and even perform several valuations to create a range of
possible values or average all of the valuations into one.
1. READING
Valuation Methods
Knowing what an asset or a company is worth and what determines
that value is a pre-requisite for intelligent decision making - in choosing
investments for a portfolio, in deciding on the appropriate price to pay or
receive in a takeover and in making investment, financing and dividend
choices when running a business. Valuation is the process of determining
the current worth of an asset or a company. Some assets are easier to value
than others are, the details of valuation vary from asset to asset, and the
uncertainty associated with value estimates is different for different assets.
The four main methods of valuation are:
Discounted cash flow is based on the idea that a company is worth
as much as the net present value of the cash flows generated by a
company for distributing around its shareholders.
Price multiples compare the price per pound of the sales or profits
between companies to illustrate how a business might be priced.
75
Asset-based valuations price the balance sheet assets of a business
separately to reach the value of the whole.
Comparable transactions considers the past sales of similar
companies as well as the market value of publicly traded firms that have
an equivalent business model to the company being valued.
Discounted cash flow (DCF) valuation is theoretically the most
pure. It keeps the mind focused on the actual value of the cash benefits
derived from ownership rather than what other people might pay for a
business. The main weakness is that it is highly dependent on forecasts.
In fact, in many cases it is necessary to be able to forecast more than 10
years into the future before one has a valuation which is any more
accurate than a simple price multiple method. Consequently, DCF
valuation tends to be used primarily within companies for the purposes
of determining strategy. Consultants recommend using it as a means of
assessing which course of action is most likely to build shareholder
value. Where one does not have full information about operations, it is
usually very difficult to carry out a DCF accurately.
Price multiples approach is the most widely used method of
valuation. In fact, because they are so widely used, they are often the
most reliable means of predicting the market price of a business. They
are easy to use, and they do not require a great deal of information about
the operation to be applied. Different multiples are used in different
situations. Trade buyers, who tend to have a very strong idea about the
profitability of businesses within their sector, often prefer to use sales
multiples, although they do rely on instinct for their accuracy.
P/E (price to earning) ratio enables one to compare the price of a
pound of profit across different businesses. On the face of it, it is more
rigorous than sales multiples, although it does not take different
accounting treatments into account, and often fails to predict what a
trade buyer, who is in a position to alter the cost base of the business,
might be prepared to pay. P/E ratio is the most widely used method of
valuation among stockbrokers because it makes it possible to compare
the financial benefits of holding different shares.
76
Asset-based valuations are used only where the value of a business
is easily expressed in terms of its assets. Where the primary assets are
intangible, such as brands, copyrights, human capital, or goodwill, then
asset-based valuations are less popular (or, if they are used, it is in
conjunction with another valuation method). Investment trusts, property
companies, mining companies, and other businesses, whose assets have a
clear market value, are suitable for asset-based valuation.
A comparable transaction is a method of valuing a company that
is for sale. To get a more accurate valuation, more than one comparable
transaction should be used. This method of valuation can help identify
the current value and potential growth for a company. Comparable
transactions look at multiples such as the EV/EBITDA ratio, among
others, to determine a value. The difficulty with this approach is the
limited availability of financial data regarding past transactions between
private companies. A comparable transaction approach is generally used
in conjunction with other valuation techniques including the discounted
cash flow and other comparable company analysis techniques.
Source: Reuvid, J. (2002), The Corporate Finance Handbook,
Kogan Page Ltd, London;
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/background/
valintro.htm; and
http://www.investopedia.com/terms/c/comparable-transaction.asp
QUESTIONS
1.1. What is function of valuation?
1.2. What are advantages and disadvantages of DCF method?
1.3. What is price multiples method?
1.4. Why is price multiples approach the most widely used
method of valuation?
1.5. What is asset-based method?
1.6. What are disadvantages of the asset-based method?
1.7. What are disadvantages of the comparable transaction method?
1.8. What is the best method?
77
2. EXERCISES
2.1. Read the text “Valuation methods” again. Are these statements
below true (T), false (F) or not given (NG)?
1. Valuation is an important tool to investors in making decision
of whether to buy or sell shares.
2. Valuation is determining the value of a company or an asset at
a certain time.
3. Price multiples approach is the most preferred method because
of the ease in use.
4. Asset-based method is suitable for pricing company in which
the primary assets are tangible.
5. DCF method should be used for valuation in the short-term.
6. P/E is the only ratio, which is used in the price
multiples method.
2.2. Match the terms with the examples
1. Book value a. My company liquidated this old machine

2. Market value for $1,500 which was the highest offer.
3. Intangible assets b. Our company offers an amazing investment
package. You will earn $6,000 after 5
4. Tangible assets
years if you invest $4,000 today.
5. Net present value
c. Inventories, buildings, cars.
6. Cash flow
d. This building’s residual value is $1,000.
e. Smart Invest company pays $2,500/month
to hire a new office.
f. Land use rights, patents.

1. valuation / should not / their / business owners / do / business / own
……………………………………………………………………
……………………..……………………………………………………
……………………………………………………………………………
…………………………………………………
78
2. most important / discounted cash flow / revenue growth / and /
valuation / step / is/ the first / in / determining
……………………………………………………………………
……………………..……………………………………………………
……………………………………………………………………………
…………………………………………………
3. that / a willing seller / will / for / the business / the business
price / pay / will / a willing buyer / and / accept
……………………………………………………………………
……………………..……………………………………………………
……………………………………………………………………………
…………………………………………………
4. for most businesses / a / will be / some / a selling price /
combination / to set / of / the fairest way / valuation methods / business
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
5. a key role / many areas / corporate finance / in / valuation /
mergers and acquisitions / plays / and / portfolio management / including
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
active investment determine active investor securities

passive investor firm-specific passive investment valuation
The Role of Valuation in Portfolio Management

The role that valuation plays in portfolio management is
(1)___________ in large part by the investment philosophy of the
investor. Valuation plays a minimal role in portfolio management for a
(an) (2)____________, whereas it plays a larger role for a (an)
(3)_____________. Even among active investors, the nature and the role
79
of valuation is different for different types of active investment. Market
timers use (4)_____________much less than investors who pick stocks,
and the focus is on market valuation rather than on (5)______________
valuation. Among security selectors, valuation plays a central role in
portfolio management for fundamental analysts, and a peripheral role for
technical analysts.
2.5. Find the words
1 2 3 4 5 6 7 8 9 10
1. Valuation 1 W V A L U A T I O N
2. Profit 2 B C R O D E X N E Y
3. Tangible 3 T S T A S S E T S L
4. Price 4 K A E Q T U C A S H
5. Intangible 5 A Z N V N I E N F T
6. Multiples 6 X C L G M C O G P R
7. Ratio 7 P R O F I T G I E G
8. Cash 8 Z W R R J B E B V L
9. Net 9 P Q P T H O L L N I
10. Assets 10 M U L T I P L E S O
3. TRANSLATION
Text 1
Market Value
This is the value of any asset, or collection of assets, when traded
in an organized market – or negotiated between private parties – in an
unencumbered transaction without duress. The various securities and
commodities exchanges are examples of organized markets, as are
literally thousands of regional and local markets and exchanges that
enable buyers and sellers to find mutually acceptable values for all kinds
of assets. There is nothing absolute in market value. Instead, it represents
80
a momentary consensus of two or more parties. In a sense, the parties to
a transaction adjust their respective individual assessments of the asset’s
economic value sufficiently to arrive at the consensus.
Despite its potential variability, market value is generally regarded
as a reasonable criterion in estimating the current value of individual
balance sheet assets and liabilities, as contrasted with their recorded
value. It is frequently used in inventory valuation and in capital
investment analysis where future recovery values have to be estimated.
On a larger scale, mergers and purchases of going concerns are also
based on market values negotiated by the parties involved. A true market
value can be found only by actually engaging in a transaction. Thus,
unless the item is in fact traded, any market value assigned to it remains
merely an estimate, which will tend to shift as conditions change and the
perceptions of the parties are altered.
Source: Helfert, E. A. (2001), Financial Analysis Tools and Techniques,
McGraw-Hill
Text 2
Book Value
The book value of an asset or liability is the stated value as
reflected on the balance sheet, which has been recorded and at times
modified according to generally accepted accounting principles. While
book value is handled consistently for accounting purposes, it usually
bears little relationship to current economic value. It’s a historical value
that, at one time, might have represented market value, but the passage
of time and changes in economic conditions increasingly distort it.
Assets of a long-term nature are particularly subject to changes in
economic value over time. The frequently quoted book value of common
shares, which represents the shareholder’s proportional claim on the
composite net result of all past transactions in assets, liabilities, and
operations, is especially subject to distortion. As a residual amount, it is
affected by all past and present accounting adjustments as well as value
changes. Its usefulness for economic analysis is, therefore, questionable
under most circumstances.
Source: Helfert, E. A. (2001), Financial Analysis Tools and Techniques,
McGraw-Hill
81
4. TERMINOLOGY
Book value – Giá trị sổ sách: The value of a security or asset as
entered in a company's books.
Cash flow – Dòng tiền: The total amount of money being
transferred into and out of a business, especially as affecting liquidity.
Intangible assets – Tài sản vô hình: Nonmaterial asset, such as
technical expertise, a trademark, or a patent.
Market value – Giá trị thị trường: The amount for which
something can be sold on a given market.
Net present value – Giá trị hiện tại ròng: A project’s net
contribution to wealth – present value minus initial investment.
Profit – Lợi nhuận: A financial gain, especially the difference
between the amount earned and the amount spent in buying, operating,
or producing something.
Shareholder – Cổ đông: An owner of shares in a company.
Stockbroker – Người môi giới chứng khoán: A broker who buys
and sells securities on a stock exchange on behalf of clients.
Tangible assets – Tài sản hữu hình: Physical asset, such as plant,
machinery, and offices.
Valuation – Định giá: The process of determining the current
worth of an asset or a company.
5. REFERENCES
1. Helfert, E. A. (2001), Financial Analysis Tools and Techniques,
McGraw-Hill.
2. Reuvid, J. (2002), The Corporate Finance Handbook, Kogan
Page Ltd, London.
3. http://pages.stern.nyu.edu/~adamodar/New_Home_Page/back
ground/valintro.htm
4. http://www.investopedia.com/terms/c/comparable-transaction.asp
82
PART 4: INTERNATIONAL FINANCE
Unit 1: Foreign Exchange
Introduction: Money gives its holder the power to purchase

goods and services produced by residents of other countries.
However, the purchase of goods and services produced in another
country generally requires firstly the possession of the other
country’s currency. This is done on the foreign exchange (FX)
market, which is the largest financial market in the world by virtually
any standard. On completion of this unit, students are expected to
realize the important role of FX market as well as understand its
structure and basic operational practices. Access to primary and
specific English terminologies regarding international finance in
general, and foreign exchange in particular, helps students be self-
confident in adopting knowledge from developed countries in
the world.
This unit begins with a reading of function and structure of the
FX market. Followings are exercises relating to terminologies in
international finance in general and foreign exchange in particular. It
concludes with translation exercises.
1. READING
Function and Structure of the Foreign Exchange Market
Broadly defined, the foreign exchange (FX) market encompasses
the conversion of purchasing power from one currency into another,
bank deposits of foreign currency, the extension of credit
denominated in a foreign currency, foreign trade financing, trading in
foreign currency options and futures contracts, and currency swaps.
The structure of the foreign exchange market is an outgrowth of
one of the primary functions of a commercial banker: to assist clients
in the conduct of international commerce. For example, a corporate
client desiring to import merchandise from abroad would need a
83
source of foreign exchange if the import was invoiced in the
exporter’s home currency. Alternatively, the exporter might need a
way to dispose of foreign exchange if payment for the export was
invoiced and received in the importer’s home currency. Assisting in
foreign exchange transactions of this type is one of the services that
commercial banks provide for their clients, and one of the services
that bank customers expect from their bank.
In terms of operation mechanism, the foreign exchange market
consists of two categories: over-the-counter and exchange-traded.
Over-the-counter (OTC) markets mean trading does not take place in
a central marketplace where buyers and sellers congregate. Rather,
the foreign exchange market is a worldwide linkage of bank currency
traders, nonbank dealers, and FX brokers, who assist in trades,
connected to one another via a network of telephones, computer
terminals, and automated dealing systems. Reuters and Electronic
Broking Services (EBS) are the largest vendors of quote screen
monitors used in trading currencies. The communication system of
the FX market is second to none, including industry, government, the
military, and national security and intelligent operations. While the
spot and forward foreign exchange markets are OTC markets, a
future contract is typically exchange-traded, that is, traded on
organized exchanges rather than over the counter. A client desiring a
position in futures contracts contacts his broker, who transmits the
order to the exchange floor where it is transferred to the trading pit.
In the trading pit, the price for the order is negotiated by open outcry
between floor brokers or traders.
The FX market can also be viewed as a two-tier market. One
tier is the wholesale or interbank market and the other tier is the retail
or client market. FX market participants can be categorized into five
groups: international banks, bank customers, nonbank dealers, FX
brokers, and central banks. International banks provide the core of
the FX market. They stand willing to buy or sell foreign currency for
their own account. These international banks serve their retail clients,
the bank customers, in conducting foreign commerce or making
84
international investment in financial assets that require foreign
exchange. Bank customers broadly include MNCs, money managers,
and private speculators. Nonbank dealers are large nonbank financial
institutions such as investment banks, mutual funds, pension funds,
and hedge funds. FX brokers match dealer orders to buy or sell
currencies for a fee, but do not take a position themselves. The
central bank of a particular country intervenes in the FX market in an
attempt to influence the price of its currency against that of a major
trading partner.
Source: Cheol S. Eun and Bruce G. Resnick (2007), International
Financial Management, McGraw-Hill/Irwin Publishing
QUESTIONS
1.1. Does the FX market refer to the conversion of one
country’s currency to another country’s currency only?
1.2. What is the primary function of the FX market? Suppose
you are an importer/exporter, how can you conduct your
business without a FX market?
1.3. What does it mean by over-the-counter foreign exchange
market?
1.4. What is the difference between OTC markets and
exchanges?
1.5. What are motivations of the FX market participants?
1.6. In your opinion, what does a financial manager need to
take into consideration when the company operates
globally?
2. EXERCISES
1. When the government does not control the exchange rate in
any way, the currency is______________.
a. freely convertible b. totally convertible c. absolutely
convertible
85
2. The Japanese yen is trading for less than its usual value. You
can talk about____________.
a. a small yen b. a bad yen c. a weak yen
3. When you change money, you usually have to pay
a______________.
a. commission b. percentage c. fee
4. Changes in the value of currencies are
called_______________.
a. currency fluctuations b. currency alterations c. currency
changes
5. An Internet site, which does currency calculations, based on
the latest exchange rates is called a______________.
a. currency changer b. currency converter c. currency setter
2.2. Match the words/phrases 1-9 with the phrases a-i to make
definitions
1. Currency a. The theory explaining the change in

depreciation foreign currency exchange rates as
inflation rates in the countries change
2. Spot Forex b. A position of holding fewer assets than
transactions liabilities in a given currency
3. Net exposure c. Foreign exchange transactions
involving the immediate exchange of
currencies at the current exchange rate
4. Currency d. A position of holding more assets than
appreciation liabilities in a given currency
5. Law of one price e. A country’s currency rises in value
relative to other currencies
6. Net long in f. In an efficient market, identical goods
a currency and services produced in different
countries should have a single price
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7. Purchasing g. The exchange of currencies at a
power parity specified exchange rate (or forward
exchange rate) at some specified date
in the future.
8. Net short in a h. A country’s currency falls in value
currency relative to other currencies
9. Forward foreign i. A financial institution’s overall foreign
exchange exchange exposure in any given
transactions currency
2.3. Read the paragraph below and find the right word or
phrase from the box to fill each of the gaps. One can be used
for several times.
converted pounds increases

current fall more expensive
rise decreases easier
cheaper harder dollar
transferred spot immediate
dealer future forward
Spot exchange transactions involve the (1)________________

exchange of currencies at the (2)____________(or
(3)_______________) exchange rate. Spot transaction can be
conducted through the foreign exchange division of commercial
banks or a nonbank foreign currency (4)___________________ For
example, a U.S. investor wanting to buy British (5)______________
through a local bank, essentially has the dollars
(6)_________________ from his or her bank account to the
(7)______________ account of a pound seller at the spot rate.
Simultaneously, pounds are transferred from the seller’s account into
an account designated by the U.S. investor. If the dollar depreciates
in value relative to the pound, the value of the pound investment, if
(8)______________ back into U.S. dollars, (9)________________ If
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the dollar appreciates in value relative to the pound, the value of the
pound investment, if (10)_____________ back into U.S. dollars,
(11)_____________ The appreciation of a country’s currency (or a
(12)_______________ in its value relative to other currencies) means
that the country’s goods are (13)________________ for foreign
buyers and foreign goods are (14)__________________ for foreign
sellers (all else constant). Thus, when a country’s currency
appreciates, domestic manufacturers find it (15)________________
to sell their goods abroad and foreign manufacturers find it
(16)_______________ to sell their goods to domestic purchasers.
Conversely, depreciation of a country’s currency (or a
(17)____________ in its value relative to other currencies) means the
country’s goods become (18)_______________ for foreign buyers
and foreign goods become (19)_______________ for foreign sellers.
2.4. True/False questions
1. FX market participants can be categorized into three groups:
international banks, bank customers, and nonbank dealers.
2. A change in the exchange rate from $1.5/£ to $1.2/£ means
devaluation of the dollar.
3. A change in the exchange rate from $1.5/£ to $1.2/£ means
revaluation of the dollar.
4. Twenty-four-hour-a-day currency trading means trading on
an organized exchange.
5. FX brokers match dealer orders to buy and sell currencies
and take a risky position themselves.
1. is / market / the / in / dynamic / exchange / most / foreign /
world/ the
……………………………………………………………………………
……………..……………………………………………………………
……………………………..
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2. of / exchange / market / foreign / the / banks / core /
international / the / provide
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
3. is / buy (sell) / of / of / the own currency / using
(purchasing) / a central bank / intervention / the / foreign currency
reserves / to / process
……………………………………………………………………
……………………..……………………………………………………
……………………………………..……………………………………
……………………………………………………..……………………
……………………………………………………………………..
4. a / banking / of / correspondent / market / interbank /
relationships / is / network / the
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
5. counter / the / are / exchange / and / the / over / markets /
forwards / markets / foreign / spot
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
3. TRANSLATION
Text 1
How is Foreign Exchange Traded?
You cannot go to a centralized location to watch exchange rates
being determined; currencies are not traded on exchanges such as the
New York Stock Exchange. Instead, the foreign exchange market is
89
organized as an over-the-counter market in which several hundred
dealers (mostly banks) stand ready to buy and sell deposit
denominated in foreign currencies. Because these dealers are in
constant telephone and computer contact, the market is very
competitive; in effect, it does not function differently from a
centralized market.
An important point to note is that although banks, companies, and
governments talk about buying and selling currencies in foreign
exchange markets, they do not take a fistful of dollar bills and sell
them for British pound notes. Rather, most trades involve the buying
and selling of bank deposits denominated in different currencies. So
when we say that a bank is buying dollars in the foreign exchange
market, what we actually mean is that the bank is buying deposits
denominated in dollars.
Trades in the foreign exchange market consist of transactions in
excess of $1 million. The market that determines the exchange rates
is not where one would buy foreign currency for a trip abroad.
Instead, we buy foreign currency in the retail market from dealers
such as American Express or from banks. Because retail prices are
higher than wholesale, when we buy foreign exchange, we obtain
fewer units of foreign currency per dollar, that is, we pay a higher
price for foreign currency than the exchange rates published daily in
newspapers and Internet sites.
Source: Frederic S. Mishkin (2013), The Economics of Money, Banking,
and Financial Markets, Pearson Education Limited
Text 2
Yuan’s Global Popularity Will Impact Vietnam’s Economy
The inclusion of China’s Yuan into the International
Monetary Fund (IMF)’s basket of reserve currencies will
influence finance across the globe, and Vietnam is no exception.
The change will have both positive and negative impacts on
Vietnam’s economy.
90
China will now have to restrain its devaluation of the Yuan in
order to take more responsibility in applying policies to harmonize
global benefits. The expected stability of Chinese foreign exchange
policies would therefore benefit Vietnam’s economy. Also, if the
Yuan becomes even more popular, stable and healthy, then Chinese
and Vietnamese firms would not have to use the US dollar in
payment. The shift could also help stabilize the payment and trade
relations between the two countries.
On the other hand, Vietnamese firms would be at a high risk
of Chinese takeover, as many Vietnamese firms are scheduled to
be equitized. In the long run, a more prevalent Yuan in payment
would impact Vietnam’s exports and imports. When the Yuan’s
value and popularity increase, Chinese partners could suggest
making more use of the Yuan in payment. Prices of materials and
equipment imported from China will increase, causing
Vietnamese commodities to cost more. To minimize the impacts,
domestic firms should capitalize on advantages from the free trade
agreements Vietnam has signed in order to diversify material
import markets.
Source: http://vietnamnews.vn/economy/343830/yuans-global-popularity-will-
impact-vn-economy.html
4. TERMINOLOGY
Currency devaluation – Phá giá tiền tệ: A fall in a fixed
exchange rate which reduces the value of a currency in terms
of others.
Currency revaluation – Nâng giá tiền tệ: A deliberate
increase in the price of a currency with a fixed exchange rate.
Electronic Broking Services (EBS) – Dịch vụ môi giới ngoại hối
điện tử: A wholesale electronic trading platform used to trade foreign
exchange (FX) with market making banks. It was originally created as a
partnership by a number of the world's largest banks and is now part
of ICAP.
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Exchange – Thị trường giao dịch tập trung: An
organized market where (especially) tradable securities, commodities,
foreign exchange, futures, and options contracts are sold and bought.
Forward foreign exchange transactions – Giao dịch kỳ hạn:
The exchange of currencies at a specified exchange rate (or forward
exchange rate) at some specified date in the future.
ICAP – Công ty môi giới ngoại hối ICAP: A world-leading
foreign exchange broker and provides a full voice, electronic and hybrid
broking service for the widest range of currency pairs, including most of
the actively traded currencies in major, minor and emerging markets.
Law of one price – Quy luật một giá: In an efficient market,
identical goods and services produced in different countries should
have a single price.
Net exposure – Trạng thái ngoại tệ ròng: A financial
institution’s overall foreign exchange exposure in any
given currency.
Net long (short) in a currency – Trạng thái trường (đoản)
ngoại tệ: A position of holding more (fewer) assets than liabilities in
a given currency.
Over-the-counter (OTC) – Thị trường giao dịch phi tập trung:
OTC dealers convey their bid and ask quotes and negotiate execution
prices over such venues as the telephone, mass e-mail messages, and,
increasingly, instant messaging.
Purchasing Power Parity – Thuyết ngang giá sức mua: The
theory explaining the change in foreign currency exchange rates as
inflation rates in the countries change.
Spot foreign exchange transactions – Giao dịch giao ngay:
Foreign exchange transactions involving the immediate (or after two
working days) exchange of currencies at the current (or spot)
exchange rate.
Trading pit – Phiên giao dịch: An area on the trading floor of
a futures and options exchange where contracts are bought and
sold in a live open outcry auction.
92
5. REFERENCES
1. Cheol S. Eun and Bruce G. Resnick (2007), International
Financial Management, McGraw-Hill/Irwin Publishing.
Banking, and Financial Markets, Pearson Education
Limited.
3. http://vietnamnews.vn/economy/343830/yuans-global-popularity-
will-impact-vn-economy.html
93
94
PART 4: INTERNATIONAL FINANCE
Unit 2: Foreign Currency Derivatives
Introduction: Financial management of the multinational

enterprise will need to consider the use of financial derivatives. The
financial manager of a multinational enterprise may purchase these
financial derivatives in order to reduce the risks associated with the
foreign exchange rates and everyday management of corporate cash
flow as well, hedging, or may use the instruments to take positions in
the expectation of profit, speculation. For these financial instruments
being used effectively, the financial manager must understand certain
basics about their structure and pricing. On completion of this unit,
students are equipped with fundamentals of their use for speculative
purposes. Following spots and forwards, which were introduced in
the previous unit, two common foreign currency financial
derivatives, futures and options, will be covered in this unit.
This unit begins with a reading of fundamentals of foreign
currency derivatives. Followings are exercises relating to specialized
terminologies of individual instruments. It concludes with translation
exercises.
1. READING
Foreign Currency Derivatives
Financial derivatives, so named because their values are
derived from an underlying asset like a stock or a currency, are a
powerful tool used in business today for two very distinct
management objectives, speculation and hedging. In this article, we
mention futures and options.
A foreign currency futures contract is an alternative to a
forward contract that calls for future delivery of a standard amount of
foreign exchange at a fixed time, place, and price. It is similar to
futures contracts that exist for commodities (hogs, cattle, lumber, and
so on), interest bearing deposits, and gold. Most world money centers
95
have established foreign currency futures markets. In the United
States, the most important market for foreign currency futures is the
International Monetary Market (IMM) of Chicago, a division of the
Chicago Mercantile Exchange. Contract specifications are established
by the exchange on which futures are traded. For example, in the
Chicago IMM, the major features that must be standardized are size
of the contract, method of stating exchange rates, maturity date, last
trading day, collateral and maintenance margins, settlement,
commissions, and use of a Clearing House as a counterparty. These
also make futures contracts different from forward contracts.
Financial managers typically prefer foreign currency forwards over
futures because of forwards’ simplicity of use and position
maintenance. Financial speculators typically prefer foreign currency
futures over forwards because of the liquidity of the futures markets.
A foreign currency option is a contract giving the option
purchaser (the buyer) the right, but not the obligation, to buy or sell a
given amount of foreign exchange at a fixed price per unit for a
specified time period (until the maturity date). The most important
phrase in this definition is “but not the obligation”; this means that
the owner of an option possesses a valuable choice. There are two
basic types of options, calls and puts. A call is an option to buy
foreign currency, and a put is an option to sell foreign currency.
Every option has three different price elements: 1) the exercise or
strike price; 2) the premium; and 3) the underlying or actual spot
exchange rate in the market. An option whose exercise price is the
same as the spot price of the underlying currency is said to be at-the-
money (ATM). An option that would be profitable, excluding the
cost of the premium, if exercised immediately is said to be in-the-
money (ITM). An option that would not be profitable, again
excluding the cost of the premium, if exercised immediately is
referred to as out-of-the-money (OTM).
Speculation is an attempt to profit by trading on expectations
about prices in the future. In the foreign exchange market, one
speculates by taking a position in a foreign currency and then closing
96
that position after the exchange rate has moved; a profit results only
if the rate moves in the direction that the speculator expected.
Financial derivatives are a powerful tool in the hands of careful and
competent financial managers. They can also be very destructive
devices when used recklessly. In the right hands and with proper
controls, financial derivatives may provide management with
opportunities to enhance and protect their corporate financial
performance. On the other hand, they may bring down the enterprise
through uncontrolled speculation.
Source: David K. Eiteman, Arthur I. Stonehill, and Michael H. Moffett
(2009), Multinational Business Finance, 12th edition, Pearson Publishing
QUESTIONS
1.1. Are derivatives known as a powerful tool for hedging
against exchange rate risk only?
1.2. Do you agree that using derivatives helps investors or
enterprises be save from risks?
1.3. Are Spot and Spot Arbitrage derivative tools? What are
instruments called derivatives?
1.4. What are the main differences between Futures and
Forwards?
1.5. What are important factors of an option contract?
1.6. What are similarities and differences between forwards -
futures - swaps and options?
2. EXERCISES
from the box to fill each of the gaps. One word can be used for
several times.
maturity date good-faith long

contract size settled-up distinctions
contingent claims securities delivery months derivative
97
standardized marked-to-market tailor-made
derived from short mature
exchange-traded initial performance bond with
collateral daily settlement derivative
Both forward and futures contracts are classified as

_________________ or _________________ because their values
are _________________ or contingent upon the value of the
underlying security. But while a futures contract is similar to a
forward contract, there are many _________________ between the
two. A forward contract is _________________ for a client by his
international bank; in contrast, a futures contract
has_________________ features and is_________________. The
main_________________ features are the _________________
specifying the amount of the underlying foreign currency for future
purchase or sale and the_________________ of the contract. Futures
contracts have specific _________________ during the year in which
contracts _________________ on a specified day of the month.
A/an _________________ (formerly called margin) must be
deposited into a_________________ account to establish a futures
position. The account balance will fluctuate
through_________________ This can be viewed as
_________________ money that the contract holder will fulfill his
side of the financial obligation.
1. call (put) / buy (sell) / an / is / the / to / option / asset /
a / underlying
……………………………………………………………………
……………………..……………………………………………………
2. exercise / the / is / price / stated / known / the / or / striking /
paid / as / price
……………………………………………………………………………
……………..……………………………………………………………
98
3. is / marked-to-market / futures contract / daily / at / settled-
up / the settlement price / a/ or
……………………………………………………………………
……………………..……………………………………………………
4. holds / contract / a / buyer / position / of / a / futures / long / a
……………………………………………………………………
……………………..……………………………………………………
5. have / option / to / does / option / exercise / is / disadvantage/
to / the / owner / if / not / it / his / the
……………………………………………………………………
……………………..……………………………………………………
2.3. Match the words/phrases 1-8 with the phrases a-h to make
definitions
1. Direct a. The option can be exercised at any time during

quotes the contract
2. Currency b. The price of one unit of the domestic currency
futures in the foreign currency
c. One counter party exchanges the debt service
3. Maintenance
obligations of a bond denominated in one currency
performance
for the debt service obligations of the other counter
bond
party denominated in another currency
4. Marking to d. The option can be exercised only at the maturity
market date of the contract
e. A standardized foreign exchange contract
5. Currency
with a future delivery date that is traded on
swap
organized exchanges
6. American f. The price of one unit of the foreign currency in
option the domestic currency
7. Indirect
g. Collateral needed to maintain an asset position
quotes
99
h. The process of establishing daily price gains and
8. European
losses in the futures market by the change in the
option
settlement price of the futures contract
2.4. True/False questions

1. Currency futures and forward contracts are like options in
that they specify the purchase or sale of some currency at
some future date.
2. Informal forward contracts replace futures contract with
highly standardized, exchange-traded assets.
3. Option contracts call for a daily setting up of any gains or
losses of the contract.
4. Another name for option premium is option strike price.
5. A futures contract is tailor-made for a client by his
international bank.
6. Currency option contracts are conducted through over-the-
counter markets and organized exchanges as well.
1. In futures markets, a _______________ serves as the third
party to all transactions.
a. broker b. intermediary c. clearinghouse
2. A forward contract states a price for the _______
transaction.
a. immediate b. future c. standardized
3. The_______________is a price representative of futures
transaction prices at the close of daily trading on the exchange.
a. settlement price b. exercise price c. spot price
4. By using futures contracts, ________________ attempt to
avoid the risk of price change of the underlying asset.
a. speculators b. arbitrageurs c. hedgers
5. For an option contract, premium is the______________ of
that option.
a. price b. future spot price c. exercise price
100
3. TRANSLATION
Text 1
Vietnam to Launch Derivatives Market in Early 2017
Vietnam plans to open a derivatives market in the first quarter of
2017 in a bid to draw more investment to its capital markets, with
futures contracts set to launch first. The market will initially start with
two main derivative products - stock index and government bond futures
- and once fully operational, more instruments will be introduced, the
exchange said.
The launch of the derivatives market is designed to support the
country's stock market by providing more instruments to hedge risks and
attracting more investors.
Le Ha, an analyst at Vietcombank Securities, said making more
products available was a positive step. Gains would be gradual, but
overall it could help Vietnam's efforts to become a viable emerging
market, she said. “This may also partially help shorten the process of
upgrading Vietnam's stock market”, she added.
The plan was approved in 2014 by then Prime Minister Nguyen
Tan Dung and has been welcomed by experts and investors following
feasibility studies. In Southeast Asia, Singapore and Thailand also have
derivatives markets.
Vietnam's stocks are on the radar for frontier market investors,
offering the region's second-cheapest stocks. The combined market
capitalization of the country's two stock exchanges in Ho Chi Minh City
and Hanoi are comparatively modest at around a sixth of Thailand's and
a quarter of Singapore's.
Source: http://www.reuters.com/article/vietnam-stocks-
idUSL3N1BR25L, September 15th, 2016
101
Text 2
The 1995 Failure of Barings Bank
Barings Bank was a British merchant bank based in London,
and the world's second oldest merchant bank (after Bahrenburg
Bank). It was founded in 1762 and was owned by the German-
originated Baring family of merchants and bankers. The bank
collapsed in 1995 after suffering losses of £827 million ($1.3 billion)
resulting from poor speculative investments, primarily in futures
contracts, conducted by an employee named Nick Leeson working at
its office in Singapore.
Initially, Leeson had been buying options contracts on the Simex
and selling on Osaka in a strategy designed to take advantage of price
differentials between equivalent contracts listed on the two exchanges.
Lesson's trading strategy seems, however, to have evolved well beyond
arbitrage. But Leeson started gambling when he decided simultaneously
to buy and sell stock index futures on the Nikkei 225. Instead of buying
on one market and immediately selling on another market for a small
profit, the strategy approved by his superiors, Leeson bought on one
market then held on to the contract, gambling on the future direction of
the Japanese markets. Leeson sold up to 40,000 such option contracts.
For it to pay off, Lesson's strategy required that the Nikkei had to stay in
the 18,500 - 19,500 range. When the Kobe earthquake struck on January
17th, 1995, the Nikkei wobbled. Worried that the market would fall
below 18,500, Leeson seems to have bought Nikkei futures on a huge
scale in an attempt to push it up. On January 23rd, the Tokyo stock
market plunged 1,000 points to under 17,800. When he failed, as a
result, the huge losses sank the bank.
Source: http://www.colorado.edu/economics/courses/econ2020/4111/
section8/section8-Barings.html
4. TERMINOLOGY
At-the-money (ATM) – Trạng thái hòa vốn: An option whose
exercise price is the same as the spot price of the underlying currency.
102
Call options – Quyền chọn mua: An option to buy a currency
or an underlying asset at a specified price.
Clearing House – Trung tâm thanh toán bù trừ: Clearing
houses act as third parties to all futures and options contracts, as
buyers to every clearing member seller, and as sellers to every
clearing member buyer.
Exercise price – Giá thực hiện: The price that must be paid if the
option is exercised.
In-the-money (ITM) – Trạng thái lời: An option that would be
profitable, excluding the cost of the premium, if exercised immediately.
Option holder – Người mua quyền: The buyer of an option.
Option writer – Người bán quyền: The seller of an option.
Out-of-the-money (OTM) – Trạng thái không có lời: An option
that would not be profitable, excluding the cost of the premium, if
exercised immediately.
Premium – Phí quyền chọn: The cost or price of the option.
Put options – Quyền chọn bán: An option to sell a currency or
an underlying asset at a specified price.
Speculation – Đầu cơ: An attempt to profit by trading on
expectations about price in the future.
5. REFERENCES
1. David K. Eiteman, Arthur I. Stonehill, and Michael H.
Moffett (2009), Multinational Business Finance, 12th
edition, Pearson Publishing.
2. http://www.colorado.edu/economics/courses/econ2020/4111/
section8/section8-Barings.html
3. http://www.reuters.com/article/vietnam-stocks-idUSL3N1BR25L,
September 15th, 2016.
103
104
PART 5: PUBLIC FINANCE
Unit 1: Introduction to Public Finance
Introduction: Public finance is the study of the role of the

government in the economy. It is about the revenue, expenditure and
debt management of the government and the impact of these measures to
the society. Public Finance is, therefore, about fiscal institutions, the tax
systems, expenditure programs, and budget procedures, stabilization
instruments, and public debt. In detail, public finance mainly analyzes
the role of the government in distribution of resources, allocation of
income, and macroeconomic stability.
This unit provides an overview of public finance system. The aim
of this unit is to introduce some general ideas such as public
deficit/surplus or the roles of public finance. Besides, exercises and
translation parts will inform students the technical terms related to
government revenue and expenditure as well as public finance
management.
1. READING
Public Finance
Public finance is the study of the role of the government in the
economy. It is the branch of economics, which assesses the government
revenue and government expenditure of the public authorities and the
adjustment of one or the other to achieve desirable effects and avoid
undesirable ones. The purview of public finance is threefold:
governmental effects on (1) efficient allocation of resources, (2)
distribution of income, and (3) macroeconomic stability.
Why public finance is needed
Governments provide public goods, which are government -
financed items and services such as roads, military forces and
streetlights. Private citizens would not voluntarily pay for these services,
and therefore businesses have no incentive to produce them.
105
Public finance also enables governments to correct or offset
undesirable effects of a market economy. These effects are called
spillovers or externalities. For example, households and industries may
generate pollution and release it. Polluting is a spillover because it
affects people who are not responsible for it. To correct a spillover,
governments can encourage or restrict certain activities. For example,
governments can sponsor recycling programs to encourage less
pollution, impose laws that restrict pollution, or impose charges or taxes
on activities that cause greenhouse gasses.
Public finance provides government programs that moderate the
income of the affluent and the poor. These programs include social
security, welfare, and other social programs. For instance, some elderly
people or people with disabilities require financial assistance because
they cannot work. Governments redistribute income by collecting taxes
from their wealthier citizens to provide resources for their needy ones.
Public spending
Each year, national, state and local governments plan a budget to
determine how much money they will spend during the upcoming year.
Economists classify government expenditures into three main types.
Government purchases of goods and services for current use are classed
as government consumption. Government purchases of goods and
services intended to create future benefits – such as infrastructure
investment or research spending – are classed as government investment.
Government expenditures that are not purchases of goods and services,
and instead just represent transfers of money – such as social security
payments – are called transfer payment.
Public revenue
Governments must have funds, or revenue, to pay for their
activities. Governments generate some revenue by charging fees for the
services they provide, such as entrance fees at national parks or tolls for
using a highway. However, most government revenue comes from taxes,
such as personal income tax, corporate income tax, sales tax, excise tax,
value-added tax, etc.
Source: http://hocday.com/english-for-finance-and-accounting.html?page=6
106
QUESTIONS
1.1. What are public goods?
1.2. Why do governments have to provide public goods?
1.3. What is a spillover effect?
1.4. In what way does a government correct a spillover effect?
1.5. Do governments spend their entire budget on the purchases
of goods and services?
1.6. Where does public revenue come from?
1.7. What is the difference between personal income tax,
corporate income tax, sales tax and excise tax?
2. EXERCISES
1. Foreigners who reside in Vietnam for 183 days or more in a tax
year are considered tax residents in Vietnam and subject to__________.
a. personal income tax b. corporate income tax c. value-added tax
2. State Budget is an itemized accounting of the payments
received by __________ (taxes and other fees) and the payments made
by_________________ (purchases and transfer payments).
a. corporates b. government c. individuals
3. ______________ occurs when a government spends more
money than it takes in.
a. A budget balance b. A budget surplus c. A budget deficit
4. The National Assembly shall decide on the State budget in
aggregate, structure and level of _____________ for important sectors,
such as training and education, science and technology.
a. expenditures b. revenues c. gap budget
5. _______________is a form of tax that applies to the production
or import of certain goods including cigarettes, cigars, spirits, beer,
certain automobiles, assorted types of petrol, air conditioners and the
provision of certain services including massage parlours, casinos, golf
clubs and lotteries.
a. Value-added tax b. Excise tax c. Direct tax
107
6. Several countries provide ___________________ no
requirement for contributions to vulnerable people such as veterans of
armed forces, people with disabilities and very old people.
a. wages b. credit c. income support
2.2. Read the paragraph below and find the right word from the
box to fill each of the gaps
commission money liabilities tax
properties citizens contributions functions
companies service resources financial
Public revenues are the revenues which are collected by the
state from the (1) __________________ and the economy and they
serve to cover the public needs i.e. for the needs of the state and
citizens. Public expenditures are understood as the usage of the
(2) __________________ collected from public revenues for covering
the public needs and for functioning the government. To be able to
perform its (3)__________________, the state should dispose with
financial recourses. In many countries, there are state
(4) __________________ and the state collects revenues from its own
properties. Those revenues are not often sufficient to cover the
expenditures made by the state in performing its functions, and are of
interest to citizens and the government. For that reason, in all
countries, the government, besides the revenues from its own
properties, collects also other revenues collected from citizens and
(5) __________________. The most accepted principle is that every
citizen is obliged to pay (6) __________________ and other public
(7)_________________ fees and to participate in the settlement of the
public expenditures in a way prescribed by law. The government may
collect public revenues from different sources, including revenues
from the state and public enterprises and institutions, taxes,
(8) __________________, customs duties, public loans and gifts
and aid.
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2.3. Put these words/phrases in order to make sentences.
1. in which / financial health / is / revenues / expenditures / an
indicator / exceed / of / public deficit
……………………………………………………………………
……………………..……………………………………………………
2. issuance of debt / a means / raise / through / money / to / the / is
/ bond
……………………………………………………………………
……………………..……………………………………………………
3. collecting taxes / redistribute / their / wealthier citizens /
provide / governments / income / by / from / to / resources / for / their
needy ones
……………………………………………………………………
……………………..……………………………………………………
4. non-tax revenues / compulsory / tax levies / collected / sources /
other than / are / from / revenues
……………………………………………………………………
……………………..……………………………………………………
5. impose / charges / taxes / activities / greenhouse / gasses /
Governments / can / or / on / that / cause
……………………………………………………………………
……………………..……………………………………………………
6. how much / a / country / national debt / indicates / lenders /
owes / outside / itself / of / to
……………………………………………………………………
……………………..……………………………………………………
7. an economy / goods / services / is / a / part / produced / and /
or / (re)distributed / government / of / in / which / and / are / by /
agencies / public sector
……………………………………………………………………
……………………..……………………………………………………
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2.4. Match the words/phrases 1-9 to the phrases a-i to make word
partnerships
1 - subsidies a - tax paid on the sale of specific items for

2 - public sector personal use
3 - tax credit b - taxpayer expenditures on specific items that
can be credited directly against their tax
4 - private sector
liability
5 - excise tax
c - individuals and businesses that interact in
6 - sales tax
the economy
7 - corporate income
d - those federal, state, and local governments
tax
that interact in the economy
8 - direct tax
e - government payment made to encourage a
9 - budget deficit certain economic activity
f - a tax that can not be shifted to other
g - total expenditures are greater than total
revenues
h - a tax that applies to total expenditures on a
broad range of goods
i - a tax on the accounting profits of corporations
2.5. Decide whether following statements are true or false. If false,

correct them
1. A budget deficit is an indicator of financial health in which
revenue exceed expenditures.
2. Being poor means that a country lacks sufficient resources to
respond to rising demands and expectations for public
services. In most cases, it also means that the country lacks
financial resources to pay for all ongoing programs.
3. The main revenues of the government come from fees
and grants.
4. A value added tax (VAT) is a consumption tax added to a
product's sales price. It represents a tax on the “value added” to
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the product throughout its production process. Each seller in the
product chain includes a VAT charge on the buyer's income.
5. Externality in economics, an externality is the cost or benefit that
affects a party who did not choose to incur that cost or benefit.
6. A redistributive policy is one where everyone must pay out of
their own pocket, usually though taxes; money spent on
programs, which benefit everyone equally.
7. A distributive policy is one where money is taken from one
group and given to another, usually from wealthier individuals
in the form of higher taxes, to subsidize social welfare
programs, which benefit those in need.
8. Taxpayer is an individual or entity that is obligated to make
payments to municipal or government taxation agencies. The
term taxpayer generally describes one who pays taxes.
9. Public goods are non-excludable but rivalrous in that
individuals cannot be effectively excluded from use and where
use by one individual does not reduce availability to others.
10. The term “public debt” is used interchangeably with the term
sovereign debt.
3. TRANSLATION
Text 1
Decentralization in State Budget Management
Decentralization in state budget management is among matters of
great importance in macro-economic and financial management, which is
very sophisticated issue and related to a series of relations among levels of
management in the formation, distribution and use of State budget fund.
The aim of decentralization is to encourage local government to
proactively manage and execute the budget while preserving the lead of
the central budget in macro-regulation to ensure an even development
between regions and areas.
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In recent years, the decentralization of state budget management
has contributed to the stabilization and rationalization of national
finance, paving the ways for the stable and rapid growth of the economy;
social development and bringing into full play domestic resources for the
modernization and industrialization of the country.
However, the current system of decentralization has started
revealing shortcomings and limitations such as the delegation of
authority and responsibility to different levels of Government, agencies
and individuals seems unclear or even duplicated falling short of
promoting local agencies and Government to take full use of available
resources for socio-economic development and poverty reduction and at
the same time, tightening fiscal discipline and putting to most effective
use of financial resources.
Source: World Bank and Ministry of Planning and Budget of Korea (2003),
Report to the Public Expenditure Management Seminar jointly organised by
the Vietnam Ministry of Finance, Republic of Korea
Text 2
Public Revenue Budgeting
Accurate revenue forecasts are a key input to the preparation of a
credible budget. Revenues allow the government to finance expenditures
and deliver services to its citizens. Optimistic revenue forecasts can lead
to unjustifiably large expenditure allocations that will eventually require
either an in-year and potentially disruptive reduction in spending or an
unplanned increase in borrowing to sustain the spending level. On the
other hand, pessimism in the forecast can result in the proceeds of an
over-realization of revenue being used for spending that has not been
subjected to the scrutiny of the budget process. As the consequences of
revenue under-realization may be more severe, especially in the short
term, there shoud be more attention given to the over-estimation of
revenues than the possibility of over-realization.
Revenues earned by the government are received from sources such
as taxes levied on the incomes and wealth accumulation of individuals and
corporations and on the goods and services produced, exported and
imported from the country, non-taxable sources such as government-owned
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corporations’ incomes, central bank revenue and capital receipts in the form
of external loans and debts from international financial institutions.
It is recognized that the revenue out-turn can deviate from the
originally approved budget for reasons unrelated to the underlying
quality of the forecast, such as a major macroeconomic shock. For this
reason, the calibration allows one unusual year to be excluded by
focusing on significant deviations from the forecast occurring in a
significant number of years covered by the assessment.
Source: http://siteresources.worldbank.org/PEFA/Resources/
FinalTextofTheThreeRevisedIndicators.pdf
4. TERMINOLOGY
Excise tax – Thuế tiêu thụ đặc biệt: An excise or excise tax
(sometimes called a duty of excise special tax) is an inland tax on the
sale, or production for sale, of specific goods or a tax on a good
produced for sale, or sold, within a country or licenses for specific
activities. Excises are distinguished from customs duties, which are
taxes on importation. Excises are inland taxes, whereas customs duties
are border taxes. Typical examples of excise duties are taxes on gasoline
and other fuels, and taxes on tobacco and alcohol.
Externality – Ngoại ứng: In economics, an externality is the cost or
benefit that affects a party who did not choose to incur that cost or benefit.
Income tax – Thuế thu nhập: A government levy (tax) imposed
on individuals or entities (taxpayers) that varies with the income or
profits (taxable income) of the taxpayer. Income tax may include
personal income tax and corporate income tax.
Public goods – Hàng hóa công cộng: Goods that are both non-
excludable and non-rivalrous in that individuals cannot be effectively
excluded from use and where use by one individual does not reduce
availability to others.
Revenue out-turn – Kết quả thu thực tế: The actual amount of
revenue collected at the end of a budget period, rather than the figure
that was expected or calculated earlier.
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Sales tax – Thuế doanh thu: A sales tax is a tax paid to a
governing body for the sales of certain goods and services. Usually laws
allow (or require) the seller to collect funds for the tax from the
consumer at the point of purchase. When a tax on goods or services is
paid to a governing body directly by a consumer, it is usually called a
use tax. Often laws provide for the exemption of certain goods or
services from sales and use tax.
Social security – An sinh xã hội: These are programs of
government intended to promote the welfare of the population through
assistance measures guaranteeing access to sufficient resources for food
and shelter and to promote health and well-being for the population at
large and potentially vulnerable segments such as children, the elderly,
the sick and the unemployed.
Social security may refer to:
Social insurance, where people receive benefits or services in
recognition of contributions to an insurance program. These services
typically include provision for retirement pensions, disability insurance,
survivor benefits and unemployment insurance.
Services provided by government or designated agencies
responsible for social security provision. In different countries, that may
include medical care, financial support during unemployment, sickness,
or retirement, health and safety at work, aspects of social work and even
industrial relations.
Basic security irrespective of participation in specific insurance
programs where eligibility may otherwise be an issue. For instance,
assistance given to newly arrived refugees for basic necessities such as
food, clothing, housing, education, money and medical care.
Spillover effects – Tác động lan tỏa: A secondary effect that
follows from a primary effect, and may be far removed in time or place
from the event that caused the primary effect.
Tariff – Thuế quan: The list of items upon which a duty is
imposed when they are imported into a country, together with the rates
at which such articles are taxed. The term tariff is also used in reference
to the actual custom or duty payable on such items.
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Custom duties – Thuế xuất nhập khẩu: Tariffs or taxes payable
on merchandise imported or exported from one country to another.
Taxpayer – Người nộp thuế: An individual or entity that is
obligated to make payments to municipal or government taxation
agencies. The term taxpayer generally describes one who pays taxes.
Tax resident – Cá nhân cư trú phải chịu thuế: A person who
maintains a residency in a given place and is liable for tax(es).
Value-added tax – Thuế giá trị gia tăng: An indirect tax on the
domestic consumption of goods and services, except those that are zero-
rated (such as food and essential drugs) or are otherwise exempt (such as
exports). It is levied at each stage in the chain of production and
distribution from raw materials to the final sale based on the value
(price) added at each stage. It is not a cost to the producer or the
distribution, and whereas its full brunt is borne by the end consumer, it
avoids the double taxation (tax on tax) of a direct sales tax.
5. REFERENCES
1. Allen Schick (1999), A Contemporary Approach to Public
Expenditure Management, Governance, Regulation, and
Finance Division World Bank Institute.
2. Ian MacKenzie (2008), English for the Financial Sector
Student’s Book, Cambridge University Press, UK.
3. Jon Marks (2007), Check Your English Vocabulary for
Banking and Finance, A&C Black Publisher, UK.
4. Mohammad Ishfaq (2010), Grossary of Public Finance,
Economic reseach and fiscal policy, UAE.
5. World Bank and Ministry of Planning and Budget of Korea
(2003), Report to the Public Expenditure Management
Seminar jointly organised by the Vietnam Ministry of Finance,
Republic of Korea.
6. http://hocday.com/english-for-finance-and-accounting.html?page=6
7. http://siteresources.worldbank.org/PEFA/Resources/FinalText
ofTheThreeRevisedIndicators.pdf
115
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PART 5: PUBLIC FINANCE
Unit 2: Taxation
Introduction: Tax is a compulsory contribution to state revenue

or other levy imposed upon a taxpayer (an individual or legal entity) by
a state or the public authorities to fund various public expenditures. A
failure to pay, or evasion of or resistance to taxation, is usually
punished by law. The tax systems are diverse in different countries.
Thus, studying about tax is important, especially in the context of
global integration.
This unit provides the general knowledge of taxation as the first
simple steps for students to build up basic terms before they dive in
taxation theories and practices. Particularly, this lesson provides key
definitions and popular types of taxes as well as an introduction of
taxation system in selected countries.
1. READING
Taxation – The Most Important Source of Budget Revenue
What is taxation?
Taxation refers to compulsory or coercive money collection by a
levying authority, usually a government. The term “taxation” applies to
all types of involuntary levies, from income to capital gains to estate
taxes. Governments use tax revenues to pay soldiers and police, to build
dams and roads, to operate schools and hospitals, to provide food to the
poor and medical care to the elderly, and for hundreds of other purposes.
Without taxes to fund its activities, government could not exist.
Throughout history, people have debated the amount and kinds of
taxes that a government should impose, as well as how it should
distribute the burden of those taxes across society. Unpopular taxes have
caused public protests, riots, and even revolutions. In political
campaigns, candidates’ views on taxation may partly determine their
popularity with voters.
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Taxation is the most important source of revenues for modern
governments, typically accounting for 90 percent or more of their
income. The remainder of government revenue comes from borrowing
and from charging fees for services. Countries differ considerably in the
amount of taxes they collect. In the United States, about 30 percent of
the gross domestic product (GDP), a measure of economic output, went
for tax payments in 2000. The 30 percent figure is relatively low from a
historical standpoint. Because of a new round of tax cuts in 2003, the tax
percentage share of GDP was expected to be lower than at any time
since 1959 when many major government programs, such as Medicare
and Medicaid, did not exist. In Canada, about 35 percent of the country’s
gross domestic product goes for taxes. In France, the figure is 45
percent, and in Sweden, it is 51 percent.
In addition to using taxation to raise money, governments may
raise or lower taxes to achieve social and economic objectives, or to
achieve political popularity with certain groups. Taxation can
redistribute a society’s wealth by imposing a heavier tax burden on one
group to fund services for another. Also, some economists consider
taxation as an important tool for maintaining the stability of an economy.
Types of taxes
Governments impose many types of taxes. In most developed
countries, individuals pay income taxes when they earn money,
consumption taxes when they spend it, property taxes when they own a
home or land, and in some cases estate taxes when they die. In the
United States, federal, state, and local governments all collect taxes.
There are several types of taxes, such as:
- Individual income tax: An individual income tax, also called a
personal income tax, is a tax on a person’s income.
- Corporate income tax: An assessment levied by a government on
the profits of a company.
- Payroll tax: A tax that an employer withholds and pays on behalf
of his employees, and it is based on the wage or salary of the employee.
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- Consumption tax: A consumption tax is a tax levied on sales of
goods or services. The most important kinds of consumption taxes are
general sales taxes, excise taxes, value-added taxes, and tariffs.
- Property tax: A property tax is a tax on an individual’s wealth-
the value of all the person’s assets, both financial (such as stocks and
bonds) and real (such as houses, cars, and artwork).
Source: http://taxation5.blogspot.com/2008/11/i-introduction-to-
taxation.html
QUESTIONS
1.1. What is taxation?
1.2. Which purposes do governments use taxes for?
1.3. Where do government funds come from?
1.4. How can taxation redistribute a society’s wealth?
1.5. What is the different between individual income tax and
corporate income tax?
1.6. Why is taxation regarded as the most important source of
budget revenues?
2. EXCERCISES
2.1. Match the words/phrases 1-6 to the phrases a-f to make word
partnerships
1. Income tax a. Tax on profits made by selling assets such as

businesses, rented houses and shares.
2. Capital gains tax b. Tax on the assets of a person who has died.
Used to be called “death duties”.
3. Value Added Tax c. Tax on earnings, profits from investments and
(VAT) any other sources of personal income.
4. Corporation tax d. Tax on goods and services. In Vietnam, it is
usually charged at 10%.
5. Wealth tax e. This is the name for the tax paid by companies.
6. Inheritance tax f. Tax on assets (such as houses) payable in
some countries.
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1. Last year I paid too much tax, so this year I received a tax
__________.
a) refund b) rebate c) reduction
2. “Profit before tax” can also be called __________.
a) pre-tax profit b) without-tax profit c) non-tax profit
3. A country with very low taxes is known as a __________.
a) tax heaven b) tax haven c) tax paradise
4. The principal aim of offshore banking in tax havens is to reduce
the customer's tax __________.
a) liabilities b) expenses c) costs
5. Many Americans use tax software to complete their ta_______.
a) returns b) retainers c) resources
6. I had to pay ____________ taxes. (= taxes from previous years)
a) ancient b) back c) previous
7. That income will be taxed at a higher _________________.
a) rating b) ration c) rate
8. You children can be considered your _________________.
a) deductions b) exemptions c) dependents
9. Here are some examples of filing __________________: single,
married filing jointly, married filing separately, etc.
a) statuses b) states c) statements
10. For tax __________________, you may be considered
“single”, even though you are married.
a) goals b) purposes c) aims
11. On tax forms, the most common way to refer to one's husband
or wife is “__________________”.
a) mate b) spouse c) ball-and-chain
12. If you have any _________________ (= more, extra) income,
you should fill out this form.
a) extraneous b) added c) additional
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2.3. Read the paragraph below and find the right word from the box
to fill each of the gaps
unavoidable rate non-inventory asset sales tax
corporation tax value-added tax short or long-term consumption tax
Certain taxes are (1)______________ though. As a registered

business entity, you must pay a (2)_________________, which would
either be sales tax in the US or value added tax in the rest of the world.
(3)______________ is levied against the consumer, which means that
the company has no liability other than the act of collecting the tax
which is calculated on the sale price of a product. This tax is held by the
company until a determined time when it is paid to the appropriate
governmental department. As there is no tax due from the production of
the goods, sales tax does not affect the profit of an organization, unlike
(4)_______________ which is levied on both the consumer and
the producer.
Capital gains tax, which is basically a tax on the sale of
(5)________________ that has increased in value since purchase. The
difference in value is then treated as a taxable source of income and thus
has tax levied against it. The (6)______________ of taxation varies
depending on the income tax bracket of the individual or corporation
selling the asset and whether it is a (7)________________ gain. Short -
term gains are anything up to one year. As any accountant dealing with
capital gains tax knows, it is advisable to wait for over 12 months after
the point of purchase before selling the asset so that long-term capital
gains tax is due at a lower rate. Tax due on both short and long-term
gains can be deferred by a variety of methods.
(8)__________________ is the taxation method for taxing the
income of a business entity classified as a corporation; the tax rate is
dependent on the taxable earnings of that corporation. As with income
tax, the tax due may be reduced with the aid of tax credits.
Source: https://www.english4accounting.com/unit/9/reading
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2.4. Read the sentences below and find the right word from the box
ability-to-pay benefit contractionary direct expansionary income

indirect marginal progressive proportional regressive
1. _________________ policy would probably be appropriate for

an economy with a high level of inflation and high aggregate demand.
2. The money that a woman pays to the government from any
money that she earns is ____________________ tax.
3. The ___________________ principle says that poor people
should pay less tax than people who have more money than them.
4. Many people feel that ________________ taxation is a fair
system because the more money a person earns, the larger the percentage
that is paid in taxes.
5. In terms of fiscal policy, an economy with a high level of
cyclical unemployment and low production would be likely to follow a
(n) _________________ policy.
6. Excise taxes are an example of _____________________
taxation because they place a relatively larger burden on low-income
families than on high-income families.
7. A person who earns 16,000 euros a year and pays 25 cents of
the last euro in income tax has a (n)__________________ income tax
rate of 25%.
8. According to the ___________________ principle, a person
who does not use a certain public good should not pay any part of the
taxes which are collected in order to provide it.
9. Under ___________________ taxation the same percentage of
taxes is paid by everyone regardless of level of income earned.
10. A (n) ________________ tax increases the price of a good so
that consumers are actually paying the tax by paying more for the
products. On the other hand, a (n) __________________ tax is an
income or wealth tax, which burdens only the person upon whom is
levied.
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2.5. Determine whether below statements are true or false? Correct
which are false
1. The amount of tax that you have to pay is tax shelter.
2. Money that you make from stocks, bonds, real estate, etc. is
capital gains.
3. In tax terms, the cost of maintaining property or generating
income is the profit.
4. Money that the government gives back to you when you pay
too much in taxes, or have withheld too much from your
salary is a deduction.
5. An expense that you can subtract from your gross income is
a deduction.
6. A tax that has to be paid by owners of houses, etc. is export tax.
3. TRANSLATION
Text 1
Tax System in Vietnam
Since the commencement of the “Doi Moi” policy in 1986,
Vietnam’s economy has shifted from being centrally based to a market-
based economy. The tax system of Vietnam has therefore undergone
crucial reforms since that time. Since Vietnam obtained memberships to
several international organizations such as ASEAN (1995) and WTO
(2007), tax policy and tax reform has become aligned with international
rules and practices, and at the same time tax collection and
administrative processes have been improved. In 2007, the Law on Tax
Administration was first implemented. The Law provides rules on tax
administration, management of information, tax collection and
enforcement, and has provided guidance in areas previously open to
wide interpretation. Later in 2007, the National Assembly also passed
the first Law on Personal Income Tax, covering taxation of all income of
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individuals in Vietnam for the first time. This Law introduced the
concept of personal and family deductions in determining taxable
income of individuals. In 2008, three further major tax laws were
amended: Corporate Income Tax, Value Added Tax and Special Sales
Tax. All four of these laws were implemented since 2009 and were
amended in 2013 with various changes for implementation in 2014.
Tax administration is controlled by the General Department of
Taxation, which operates under the Ministry of Finance. Tax affairs may
also be handled by provincial Tax Departments.
Text 2
Impact of Brexit on Tax
On 23 June 2016, the UK voted to leave the European Union (EU).
Whilst the decision has been made for Britain to exit the EU (Brexit),
Britain will likely remain part of the EU for up to two years following
the time it notifies the European Council of its intention to leave the EU
by triggering Article 50 of the Lisbon Treaty. This two-year period may
be further extended if the European Council unanimously agrees with
the UK to extend the notice period.
Although it is difficult at this stage to provide specific details of
how the UK taxation system will be impacted by Brexit, the likelihood is
that there will not be any immediate change to direct and indirect taxes.
The actual tax impact of Brexit will be better understood once terms of
any post-Brexit agreement have been concluded with the EU.
For example direct taxes are imposed by UK law and as such, most
the UK’s direct tax law will remain unchanged following Brexit. The
UK’s direct tax rules must however comply with EU laws such as the
four freedoms (the free movement of goods, services, people and
capital). Post-Brexit, some UK tax law may no longer be required to
comply with some EU laws and some EU directives should no longer
apply to UK companies.
Source: https://home.kpmg.com/uk/en/home/insights/2016/09/
impact-of-brexit-on-tax.html
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4. TERMINOLOGY
Corporate income tax – Thuế thu nhập doanh nghiệp: A tax on
the accounting profits of corporations.
Government revenues – Thu ngân sách nhà nước: Money
collected by governments to provide goods and services to the public.
Personal income tax – Thuế thu nhập cá nhân: A tax on all
forms of income an individual or household receives.
Progressive tax – Thuế lũy tiến: Tax where the rate increases as
income increases.
Proportional tax – Thuế tỷ lệ: Tax where the rate remains
constant as income increases.
Regressive tax – Thuế lũy thoái: Tax where the rate decreases as
income increases.
Tariffs (duties) – Thuế quan: Taxes on products imported or
brought in from a foreign country.
Tax liability – Nghĩa vụ thuế: The amount of tax that you owe.
Taxes – Thuế: required payments of money to governments used
to provide public goods and services.
5. REFERENCES
2. Jon Marks (2007), Check Your English Vocabulary for
3. University of the Aegean – School of Sciences – Department
of Mathematics – Subject Area: Vocabulary Exercise For
English II.
4. http://taxation5.blogspot.com/2008/11/i-introduction-to-taxation.html
5. https://globalconnections.hsbc.com/singapore/en/tools-data/country-
guides/vn/tax-system
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6. https://home.kpmg.com/uk/en/home/insights/2016/09/impact-
of-brexit-on-tax.html
7. https://www.english4accounting.com/unit/9/reading
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PART 6: SECURITIES
Unit 1: Securities market
Introduction: A securities market is an exchange where sale and

purchase transactions of securities are conducted on the base of demand
and supply. This is the place, where corporates and governments
(issuers) can raise long-term funds for their investment and investors can
make a profit. A well-functioning securities market should be able to
provide timely and accurate information on the past transactions,
liquidity, low transaction costs and securities prices that rapidly adjusted
to all available information. The unit provides an overview of securities
and securities markets, in addition to the differentiation of securities.
The students are introduced to the terminologies of securities while
going through the various parts of the unit.
1. READING
An Overview of Securities Market
Securities market is a component of the wider financial market
where securities can be bought and sold between subjects of the economy,
on the basis of demand and supply.
Securities markets encompass equity markets, bond markets and
derivatives markets where prices can be determined and participants,
both professional and non professionals, can meet.
Securities markets can be split into two levels, which are primary
market, where new securities are issued, and secondary market where
existing securities can be bought and sold. The transactions in primary
market exist between issuers and investors, while the deals are traded
among investors only in secondary market. Liquidity is crucial for
securities traded in the secondary market. Liquidity refers to the ease
with which a security can be sold without a loss of value. Securities with
an active secondary market mean that there are many buyers and sellers
at a given point in time. Investors benefit from liquid securities because
127
they can sell their assets whenever they want. An illiquid security may
force the sellers to get rid of their asset at a large discount.
Secondary markets can further be split into organized exchanges,
such as stock exchanges, and over-the-counter, where individual parties
come together and buy or sell securities directly. The existence of a
secondary market in which securities may be sold and converted into
cash increases the willingness of people to hold stocks and bonds and
thus raises the success of issuers.
Securities are broadly categorized into debt securities, equity
securities and hybrid securities.
+ Debt securities may be called debentures, bonds, deposits, notes
or commercial paper depending on their maturity and certain other
characteristics. The holder of a debt security is typically entitled to the
payment of principal and interest, together with other contractual rights
under the terms of the issue, such as the right to receive certain
information. Debt securities are generally issued for a fixed term and
redeemable by the issuer at the end of that term. Debt securities may be
protected by collateral or may be unsecured, and, if they are unsecured,
may be contractually “senior” to other unsecured debt meaning their
holders would have a priority in a bankruptcy of the issuer. Debt that is
not senior is “subordinated”. Some typical kinds of debt securities are
corporate bonds, money market instruments, government bonds and
municipal bonds.
+ Equity security is a share of equity interest in an entity such as
the capital stock of a company, trust or partnership. The most common
form of equity interest is common stock, although preferred equity is also
a form of capital stock. The holder of an equity is a shareholder, owning a
share, or a fractional part of the issuance. Unlike debt securities, which
typically require regular payments (interest) to the holder, equity securities
are not entitled to any payment. In bankruptcy, they share only the
residual interest of the issuer after all obligations have been paid out to
creditors. However, equity generally entitles the holder to a pro rata
portion of the company’s control, meaning that a holder of the equity
majority is usually entitled to control the issuer. Equity also enjoys
the profits and capital gain, whereas holders of debt securities receive only
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interest and repayment of principal, regardless of how well the issuer
performs financially. Furthermore, debt securities do not have voting
rights outside of bankruptcy. In other words, equity holders are entitled to
the “upside” of the business and to control the business.
+ Hybrid securities are investments structured to have
characteristics of both equity (common and preferred stock) and debt.
Hybrid securities typically promise to pay a rate of return (fixed or
floating) until a certain date, in the same way debt securities do. The
most common type of hybrid security is a convertible bond that has
features of an ordinary bond but is heavily influenced by the price
movements of the stock into which it is convertible. In addition, hybrid
securities include preference share and capital note.
Sources: 1. https://en.wikipedia.org/wiki/Securities_market#Bond
2. https://en.wikipedia.org/wiki/Security_(finance)
QUESTIONS
1.1. What is securities market?
1.2. How are securities markets structured?
1.3. What are differences between active and inactive securities?
1.4. What are the rights of a debt holder?
1.5. List some typical types of debt securities.
1.6. What is an equity security?
1.7. What are rights of a stockholder?
1.8. What are differences between debt and equity?
2. EXERCISES
2.1. Read the paragraphs below and find the right word or phrase
public financial investment banks issuing

commercial loans raising
banks
institutional rating companies bonds
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Thirty or forty years ago, large companies that wanted to borrow
money generally got (1) __________ from banks. Then they discovered
that they could borrow at a lower rate by (2)__________ money directly
from the (3)_________ (and from (4)________________ investors like
insurance companies and pension funds), by (5)_____________ bonds.
This process of disintermediation – cutting out the intermediary (the
bank) between the borrowers and the lenders – is obviously not a good
thing for (6)____________. They now have to lend their money to
borrowers that are less secure than large corporations.
Companies and (7)_______________ institutions are given
investment ratings, reflecting their financial situation and performance,
by (8)_______________ such as S&P and Moody’s. The highest rating
(AAA or Aaa) is given only to top-quality institutions, with minimal
credit risk. One the other hand, companies use (9)____________to issue
their (10)_______________ for them, permitting banks to make money
from fees rather than from interest.
2.2. Match the words/phrases 1-9 with their definitions a-i
1. fight takeover
a. certainty that something will happen
bids
2. raise capital b. the possibility that you will make a loss
3. give financial
c. get money to run a business
advice
d. the money you make when you sell something
4. dividend
for a higher price than you paid for it
5. guarantee e. work against someone trying to buy a company
f. a share in the profits of a company, which is paid
6. profit
to the shareholders
7. risk g. offer parts of a company to investors
8. underwriting h. arrange to sell shares to investors and to guarantee
securities a minimum price
9. issue shares i. help someone with money and investments
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capital profit guarantee

predictable fixed risk
dividend rate of return open-end
1. The interest is _____________ at 2.5% for five years, which
is quite low, so I am looking for an investment with a better
________________.
2. No type of investment comes with a __________ that you will
make a profit. Sometimes you may make a loss.
3. New investors can join at any time because it is an
______________ fund.
4. The investment doesn’t have a fixed interest rate so the
amount you can earn is not ________________.
5. He sold his art collection and made a __________ of $15,000
6. With any investment, there is always a ____________ that
you won’t get back the money you put in.
7. On the date when a bond matures, the company or government
pays back your_________________.
8. The company is doing well, so shareholders will get a good
_______________ this year.
1. initial public offering / time / sells / is / the / company / to / first /
shares / investors / its / a
……………………………………………………………………
……………………..……………………………………………………...
.....................................
2. strategic planning / a / does / so / company / for / is / future / it /
the / ready
……………………………………………………………………………
……………..……………………………………………………………
……………………………..
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3. the / is / which / brokerage department / the / a bank / section of /
shares / for / buys and sells / customers
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
4. when / an / a / acquisition / company / happens / buys / person /
or / business / another
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
5. an / fund / which / investment fund / is / all / its /and / a / it /
clients / invests / takes money / from
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
6. an / information /analyst/ decides / and / looks at / to / what / it /
do / with
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
7. merger / join / to / two / when / make one / a / companies / is /
this / together
……………………………………………………………………
……………………..……………………………………………………
8. buy / on / people / the / shares / stock market
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
1. Which of the following is not a money market security?
a. U.S. Treasury bill b. Six-month maturity
certificate of deposit
c. Common stock d. Bankers acceptance
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2. Which of the following are financial assets?
I. Debt securities II. Equity securities III. Derivative securities
a. I only b. I and II only
c. II and III only d. I, II and III
3. __________ are examples of financial intermediaries.
a. Commercial banks b. Insurance companies
c. Investment companies d. All of the answers are financial
intermediaries
4. __________ are real assets.
a. Bonds b. Production equipment
c. Stocks d. Commercial paper
5. Financial intermediaries exist because small investors cannot
efficiently __________.
a. diversify their portfolios b. gather information
c. monitor their portfolio d. All of the answers
provide reasons why
6. Firms that specialize in helping companies raise capital by
selling securities to the public are called __________.
a. pension funds b. investment banks
c. savings banks d. commercial banks
7. In securities markets, there should be a risk-return trade-off with
higher-risk assets having__________ expected returns than lower-risk assets.
a. higher b. lower
c. the same d. Can’t tell from the information given
8. Security selection refers to __________.
a. choosing specific securities within each asset-class
b. deciding how much to invest in each asset-class
c. deciding how much to invest in the market portfolio versus the
riskless asset
d. deciding how much to hedge
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3. TRANSLATION
Text 1
Role of the Securities Market
The role of the securities market should now begin to evidence
itself. A securities market has three principal functions to which all
others are subservient:
Initially, a securities market is created to help finance growing, or
sometimes new, corporations. A securities market finances directly when
its principals or members invest or lend their own funds. Because this
source of funds is obviously limited, customers must inevitably be re-
cruited to participate in financing operations.
The second important function of a securities market meshes with
the first. A securities market, while providing industry with new capital,
must simultaneously help investors and lenders to locate securities
which meet their objectives.
The third function of a securities market is as crucially important
as the first two, though rarely as appreciated. A securities market
provides liquidity, to varying degrees, for the securities traded within its
domain. Full liquidity would mean ready saleability or purchasability of
any reasonable quantity of a particular security at or near its latest cur-
rent market price. Full liquidity is rarely achieved. All securities contain
degrees of liquidity. American Telephone and Telegraph enjoys a high
degree of liquidity. Most over-the-counter stocks do not.
Source: https://fee.org/articles/the-role-of-the-securities-market/
Text 2
Bond market in Vietnam
In recent years, Viet Nam’s bond market has improved
significantly as the government continues to initiate reforms and pass
enabling legislation. Local government bonds - both in Viet Nam dong
134
and US dollar - are issued in large lots while streamlined procedures
continue to ease corporate bond issuance.
Government and government-guaranteed bonds hold a big share
of the domestic debt market of Viet Nam, making up more than 90% of
the market, followed by municipal and corporate bonds. Government
bonds are commonly issued with tenors of 3 and 5 years. Other
maturities such as 1, 2, 7, 15 years are available, but each accounts for a
small percentage in the whole government bond portfolio. Convertible
bonds, all of which are corporate bonds, have also been introduced.
Bonds are typically purchased at initial auctions by insurance
companies, banks, and individuals, and are held until maturity. In the
absence of mutual funds and pension funds, banks play the role of
market participants. Government bonds are issued through both auction
and underwriting while corporate bonds are mainly issued via
underwriting.
A number of licensed securities companies are authorized to
provide brokering and agency services for the government bond market,
as well as a full range of securities services including underwriting,
brokerage, advisory, portfolio management, and trading in the corporate
bond market.
Source: http://www.waseda.jp/win-
cls/CA_BMGS/ABMF%20Vol1%20Part%202%20Sec%2011%20VIE.pdf
4. TERMINOLOGY
Convertibles – Chứng khoán chuyển đổi: Bonds or preferred
stock that can be converted, at the election of the holder of the
convertibles, into the common stock of the issuing company.
Equity warrants – Chứng quyền: Options issued by the company
that allow the holder of the warrant to purchase a specific number of
shares at a specified price within a specified time. They are often issued
together with bonds or existing equities, and are, sometimes, detachable
from them and separately tradeable.
135
Euro debt securities – Chứng khoán nợ châu Âu: Securities
issued internationally outside their domestic market in a
denomination different from that of the issuer's domicile. They
include eurobonds and euronotes.
Government bonds – Trái phiếu Chính phủ: Medium or long
term debt securities issued by sovereign governments or their agencies.
Typically, they carry a lower rate of interest than corporate bonds, and
serve as a source of finance for governments.
Money market instruments – Công cụ của thị trường tiền
tệ: Short-term debt instruments that may have characteristics of deposit
accounts, such as certificates of deposit, certain bills of exchange. They are
highly liquid and are sometimes referred to as “near cash”. Commercial
paper is also often highly liquid.
Preference shares – Cổ phiếu ưu đãi: Form an intermediate class
of security between equities and debt. If the issuer is liquidated, they
carry the right to receive interest and/or a return of capital in priority to
ordinary shareholders. However, from a legal perspective, they are
capital stock and therefore may entitle holders to some degree of control
depending on whether they contain voting rights.
5. REFERENCES
1. https://en.wikipedia.org/wiki/Securities_market#Bond
2. https://en.wikipedia.org/wiki/Security_(finance)
3. https://m.vietnambreakingnews.com/2016/12/around-700-
state-firms-left-as-vietnam-nears-final-stage-of-privatization/
4. https://fee.org/articles/the-role-of-the-securities-market/
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PART 6: SECURITIES
Unit 2: Participants in Securities Market
Introduction: There are various participants in the securities market.

They are security firms, which primarily offer retail services to
investors, investment banking firms, which primarily offer activities and
services related to corporate customers, and many others. Firms in this
industry help bring new issues of debt and equity to the financial
markets. In addition, they facilitate the trading and market making of
securities after issuance. The unit discusses the differences of these
players and their role in the industry. The students are familiarized to the
key terminologies of the sector by different parts of the lesson as
reading, exercises and translation.
1. READING
How Do Securities Firms Differ From Investment Banks
Securities firms and investment banks often operate in close
proximity, but each has a distinct role in the financial services world. An
investment bank can be thought of as the very top of the pyramid in the
world of securities, as they bring new securities to the marketplace.
Beneath the investment bank, a securities firm works to facilitate
purchases of the new product and of all existing products in the
marketplace. Thus, the two have a symbiotic relationship but with very
different individual functions.
Investment Banking
An investment bank is different from a securities firm, but it is also
different from a commercial bank. The main purpose of an investment
bank is to help a client issue securities, such as stocks and bonds, to the
marketplace. Whereas a commercial bank may lend a client money from
its own capital, an investment bank seeks out new investors to purchase
the securities for its client, thereby raising money for the company. In
order to successfully sell new securities to the marketplace, investment
bankers must make accurate judgments of the value of the company, and
137
price the securities accordingly, in order to generate investor demand.
The success of an investment bank lies in its ability to raise the most
money possible for its clients.
Securities Firms
Securities firms do not issue securities, but rather trade them in the
open market. The securities side of the business can only pair buyers
with the new stock being brought to market, while the investment
banking division actually issues the new stock. Securities firms primarily
exist to facilitate buy and sell transactions between individual investors.
Glass-Steagall Act
The Glass-Steagall Act of 1934 erected barriers between the
banking and securities sides of financial services firms. In the aftermath
of the stock market crash of 1929 and the subsequent Great Depression,
politicians and investors alike were concerned that securities trading had
contributed to the collapse of many banks. Thus, the two entities were
separated by a so-called “Chinese Wall” through which no information
was supposed to pass.
Gramm-Leach Bliley Act
In November 1999, the Glass-Steagall Act was effectively
repealed by the Gramm-Leach Bliley Act, allowing banks to affiliate
themselves once again with securities firms. As a result, many
investment banks and securities firms generated new relationships, and
ultimately most major securities firms had their own investment banking
division. When an investment bank brings new securities to the market,
they are distributed by the securities division of the firm. This helps the
securities division attract and retain clients, as they have access to new
issues before other investors.
Institutional Versus Retail Services
The functions an investment bank performs are institutional in
nature, as they work almost exclusively with companies trying to issue
new securities. After initial issuance, investment banks maintain
relationships with companies and often advise on future mergers and
acquisitions or additional security sales. Securities firms, on the other
138
hand, are primarily retail-oriented, serving the needs of individual
investors. Rather than creating new product and advising corporations,
securities firms focus more on the investment planning needs of
individuals.
Source: http://www.ehow.com/about_6370505_do-firms-differ-
investment-banks.html
QUESTIONS
1.1. Differentiate an investment banks from a securities firm and
locate them in the securities market?
1.2. What are differences between an investment bank and a
commercial bank?
1.3. How does an investment bank issue successfully for its clients?
1.4. Who are customers of investment banks? And what are
services offered?
1.5. Who are customers of securities? And what are services
offered?
2. EXERCISES
2.1. Match the words/phrases 1-10 to the phrases a-j to make
definitions
1. Bankruptcy a. A name for investors who buy shares because

they expect their price to rise
2. Bears b. People who buy and re-sell shares in a very

short time, often just a few hours
3. Bubble c. To get money from investors with which

to run a business
4. Bulls d. To offer securities for sale, to financial

institutions and the public
5. Collateral e. Certificates presenting part-ownership of

a company
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6. Day traders f. Financial organizations that own a lot of shares
7. Institutional g. A name for shareholders to sell share because
investors they expect their price to fall
8. Issue h. A period of rapidly rising share prices, followed

by a quick collapse
9. Raise capital i. Assets a borrower uses to secure or guarantee

for a loan
10. Shares j. When you have no money to pay your debt, so

you have to sell your assets
2.2. Look at the following headlines and decide what type of movement
they are describing. Then put the words or phrases in the table below.
You can add more words or phrases for describing trends.
Oil prices IT stocks Another

rally after take a stock stage
Monday’s beating (2) comes
fall (1) back (3)
Boeing sees
Global coffee quarterly
prices under profits slide
pressure (4) (5)
Telecom
Chinese goes through
stocks take a the roof (7)
tumble (6)
140
To go up To go down To stay the same
................................. ................................. .................................
................................. ................................. .................................
................................. ................................ .................................
bonds mortgage take over merger

deposit shares capital pension
stocks
1. A ________________ is a loan to buy property.
2. Money you put in the bank is called a ____________.
3. Money paid to a retired person is called a
_________________.
4. Securities presenting apart-ownership of a company are called
_______________ or ______________.
5. The money invested in a business is its _______________.
6. _______________ are interest paying securities issued by
companies that need to borrow money.
7. A ______________ is when a company gain control of
another one by buying its stocks.
8. A _______________ is when two formerly separate
companies join together.
1. Debt securities promise __________.
I. a fixed stream of income
II. a stream of income that is determined according to a specific
formula
III. a share in the profits of the issuing entity
141
a. I only b. I or II only
c. I and III only d. II or III only
2. Money Market securities are characterized by _________.
I. maturity less than one year
II. safety of the principle investment
III. low rates of return
a. I only b. I and II only
c. I and III only d. I, II and III
3. Financial institutions that specialize in assisting corporations in
primary market transactions are called.
a. mutual funds b. investment bankers
c. pension funds d. globalization specialists
4. Which of the following is not a money market instrument?
a. Treasury bill b. Commercial paper
c. Preferred stock d. Banker's acceptance
5. ______________ voting of common stock gives minority
shareholders the most representation on the board of directors.
a. Majority b. Cumulative
c. Rights d. Proxy
6. _________ is considered to be an emerging market country.
a. France b. Norway
c. Brazil d. Canada
7. Which one of the following is a true statement?
a. Dividends on preferred stocks are tax-deductible to individual
investors but not to corporate investors
b. Common dividends cannot be paid if preferred dividends are
in arrears on cumulative preferred stock
c. Preferred stockholders have voting power
d. Investors can sue managers for nonpayment of preferred
dividends
142
8. Which one of the following is a true statement regarding
corporate bonds?
a. A corporate callable bond gives its holder the right to exchange
it for a specified number of the company's common shares
b. A corporate debenture is a secured bond
c. A corporate convertible bond gives its holder the right to
exchange it for a specified number of the company's
common shares
d. Holders of corporate bonds have voting rights in the company
1. portfolio / different / a / types / combines / investment / of
……………………………………………………………………
……………………..……………………………………………………
2. the / a / is / aim / to / portfolio / risk / minimize / of
……………………………………………………………………
……………………..……………………………………………………
3. may / portfolio / service / a / offer / bank / management / its /
to / customers
……………………………………………………………………
……………………..……………………………………………………
4. spreading / is / diversification / risk / a / way of /
……………………………………………………………………
……………………..……………………………………………………
5. portfolio / choose / to / in / managers / include / assets /
portfolio / the
……………………………………………………………………
……………………..……………………………………………………
6. the / decisions / the goals of / affect / the / customer / that / the
portfolio manager / makes
……………………………………………………………………
……………………..……………………………………………………
143
7. all / different / investors / have / needs / financial
……………………………………………………………………
……………………..……………………………………………………
8. the chances of / a / is / profit / improved / if / are / making / the
investor’s portfolio / diversified
……………………………………………………………………
……………………..……………………………………………………
3. TRANSLATION
Text 1
Stock Repurchase
Stock repurchase is a transaction in which a firm buys back shares
of its own stock, thereby decreasing shares outstanding, increasing EPS,
and often, increasing the price of the stock. There are two principles of
repurchases, includung: (1) situations in which the firm has cash
available for distribution to its stockholders, and it distributes this cash
by repurchasing shares rather than by paying cash dividends; and (2)
situations in which the firm concludes that its capital structure is too
heavily weighted with equity, and then it sells debt and uses the
proceeds to buy back its stocks.
Stock that has been repurchased by a firm is called treasury stock.
If some of the outstanding stock is repurchased, fewer shares will remain
outstanding. Assuming that the repurchase does not adversely affect the
firm’s future earnings, the earnings per shares on the remaining shares
will increase, resulting in a higher market price per share. As a result,
capital gains will have been substituted for dividends.
Source: Eugene F. Brigham (1992), Fundamentals of Financial
Management, 6th edition, Dryden Press
144
Text 2
The Dominance of Capital Market
In the US, the capital markets have become the dominant element
of the financial system in three ways.
First, capital markets now outstrip depository institutions in the
financial intermediation process. For example, the share of total credit
market debt intermediated by US depository institutions has fallen by
half since 1980, to 23 percent at year-end 2003 from 45 percent. As a
result, funds raised in US debt markets now substantially exceed funds
raised through the US banking system.
Second, the US equity market has become more important as an
investment vehicle. More than half of US households owned equity in
some form (directly, via mutual funds, or in retirement accounts) in 2001
(most recent data available), up from 36.7 percent in 1986. The
development of an equity culture in the United States has been spurred
by the shift from defined benefit pension plans to defined contribution
plans and the widespread use of Individual Retirement Accounts and
401(k) accounts as long-term investment vehicles.
Third, the derivatives market has grown extraordinarily rapidly.
The notional value of derivatives securities outstanding rose to $197
trillion as of year-end 2003 from about $6.7 trillion at year-end 1990.1
Interest rate swaps represent the biggest share of this market, followed
by foreign exchange rate swaps and other derivatives obligations such as
fixed income and equity-related options. Credit-derivative obligations
are a particularly fast-growing segment of this market.
Source: https://www0.gsb.columbia.edu/faculty/ghubbard/
Articles%20for%20Web%20Site/How%20Capital%20Markets%20
Enhance%20Economic%20Performance%20and%20Facilit.pdf
4. TERMINOLOGY
Capital gains – Lãi vốn: Refers to profit that results from a sale of
a capital asset, such as stock, bond or real estate, where the sale price
exceeds the purchase price.
145
Derivatives – Hợp đồng phái sinh: Contracts between two parties
that specify conditions (especially the dates, resulting values and
definitions of the underlying variables, the parties' contractual
obligations, and the notional amount) under which payments are to be
made between the parties.
Derivatives securities – Chứng khoán phái sinh: An asset is
traded in the contract is securities.
EPS (earnings per share) – Lợi nhuận trên một cổ phiếu: The
monetary value of earnings per outstanding share of common stock for a
company. It is calculated by dividing profit after tax by number
outstanding shares.
Individual Retirement Accounts (IRA) – Tài khoản hưu trí cá
nhân: A form of “individual retirement plan”, provided by many
financial institutions, that provides tax advantages for retirement savings
in the United States. An individual retirement account is a type of
“individual retirement arrangement” as described in IRS Publication
590, individual retirement arrangements (IRAs).
Shares outstanding – Số lượng cổ phiếu đang lưu hành: All
the shares of a corporation or financial asset that have been authorized,
issued and purchased by investors and are held by them.
Swaps – Hợp đồng hoán đổi: A derivative in which two
counterparties exchange cash flows of one party’s financial instruments
for those of the other party’s financial instruments.
Treasury stock – Cổ phiếu quỹ: Shares are bought back by
a company.
5. REFERENCES
1. Eugene F. Brigham (1992), Fundamentals of Financial
Management, 6th edition, The Dryden Press.
2. http://www.ehow.com/about_6370505_do-firms-differ-investment-
banks.html
3. https://www0.gsb.columbia.edu/faculty/ghubbard/Articles%20
for%20Web%20Site/How%20Capital%20Markets%20Enhanc
e%20Economic%20Performance%20and%20Facilit.pdf
146
PART 7: INSURANCE
Unit 1: Insurance Business
Introduction: The people in a modern society are exposed to

various risks. A homeowner faces a large potential for variation
associated with the possibility of economic loss caused by a house fire.
A driver faces a potential economic loss if his car is damaged. A larger
possible economic risk exists with respect to potential damages a driver
might have to pay if he injures a third party in a car accident for which
he is responsible. Fortunately, they could be protected by insurance. An
insurance contract covers a policyholder for economic loss caused by a
peril named in the policy. The policyholder pays a known premium to
have the insurer guarantee payment for the unknown loss. In this
manner, the policyholder transfers the economic risk to the insurance
company. This unit discusses the definition of risk, which is the
variation in potential economic outcomes, and how insurance works to
hedge people against risks.
1. READING
Risk and Insurance
When someone states that there is risk in a particular situation,
the listener understands what is meant: that in the given situation
there is uncertainty about the outcome, and the possibility exists that
the outcome will be unfavorable. Therefore, in insurance field, risk is
a condition in which there is a possibility of an adverse deviation
from a desired outcome that is expected or hoped. It is intuitively
obvious that there are some situations in which the risk is greater
than in other situations.
It would seem that the most commonly accepted meaning of
degree of risk is related to the likelihood of occurrence. The degree
of risk is measured by the probability of the adverse deviation. In the
case of a large number of exposure units, estimates can be made
about the likelihood that a given number of losses will occur, and
predictions can be made on the basis of these estimates. Here the
147
expectation is that the predicted number of losses will occur. In the
case of aggregate exposures, the degree of risk is not the probability
of a single occurrence or loss; it is the probability of some out-come
different from that predicted or expected. Insurance companies make
predictions about losses that are expected to occur and charge a
premium based on this prediction.
Regardless of the manner in which risk is defined, the greatest
burden in connection with risk is that some losses will actually occur.
When a house is destroyed by fire, or money is stolen, or a wage
earner dies, there is a financial loss. When someone is negligent and
that negligence results in injury to a person or damage to property,
there is a financial loss. These losses are the primary burden of risk
and the primary reason that individuals attempt to avoid risk or
alleviate its impact. There is no escape from the presence of risk, and
humanity must accordingly seek ways of dealing with it. It is a case
to have insurance in human life.
Insurance is a complicated and intricate mechanism, and it is
consequently difficult to define. However, in its simplest aspect, it
has two fundamental characteristics, including: i) Transferring or
shifting risk from one individual to a group; and ii) Sharing losses,
on some equitable basis, by all members of the group.
To illustrate the way in which insurance works, let us assume
that there are 1,000 dwellings in a given community and, for
simplicity, that the value of each house is $100,000. Each owner
faces the risk that his or her house may catch on fire. If a fire occurs,
a financial loss of up to $100,000 could result. Some houses will
undoubtedly burn, but the probability that all will burn is remote.
Now, let us assume that the owners of these dwellings enter into an
agreement to share the cost of losses as they occur, so that no single
individual will be forced to bear an entire loss of $100,000.
Whenever a house burns, each of the 1,000 owners contributes his or
her proportionate share of the amount of the loss. If the house is a
total loss, each of the 1,000 owners will pay $100 and the owner of
the destroyed house will be indemnified for the $100,000 loss. Those
who suffer losses are indemnified by those who do not. Those who
148
escape loss are willing to pay those who do not because by doing so
they help eliminate the possibility that they themselves might suffer a
$100,000 loss. Through the agreement to share the losses, the
economic burden of the losses is spread throughout the group. This is
essentially the way insurance works, for what we have described is a
pure assessment mutual insurance operation.
Insurance can therefore be defined as an arrangement by which
one party (the insurer) promises to pay another party (the insured) a
sum of money if something should happen which causes the insured
to suffer financial loss. By so doing, the responsibility for paying for
such losses is then transferred from the insured to the insurer. In
return for accepting the burden of paying for losses when they occur,
the insurer charges the insured a price called premium.
Source: Emmett J. Vaughan, Therese M. Vaughan (2007), Fundamentals of Risk
and Insurance, Wiley Publishing House, 10th edition
QUESTIONS
1.1. What is the definition of risk in the world of insurance?
1.2. How is risk measured?
1.3. How do insurance companies calculate premium?
1.4. What are characteristics of insurance?
1.5. Why do people agree to pay for insurance premium even
if their assets will not be definitely lost?
1.6. How does insurance work?
2. EXERCISES
2.1. Match the words/phrases 1-10 with the phrases a-k to
make definitions
1. Accident insurance a. date at which contract goes into force
2. Effective date b. a contract providing income for a

specified period of time, or duration of
life for a person or persons
149
3. Beneficiary c. who to receive payment
4. Hazard d. circumstance which tends to increase

the probability or severity of a loss
5. Policy e. party(ies) covered by an

insurance policy
6. Premium f. fair value or the price that could be

derived from current sale of an asset
7. Mortgage g. a note used to secure a loan for

real property
8. Market value h. money charged for the insurance

coverage reflecting expectation of loss
9. Insured i. a written contract ratifying the legality

of an insurance agreement
10. Annuity k. insurance for unforeseen bodily injury
2.2. Complete the sentences with words from the left column of
Exercise 2.1
1. ________________ covers medical expenses and
compensation in the case of bodily injury to the insured
person occurred.
2. Life insurance proceeds are considered tax-free to the -
________________ and are not reported as gross income.
3. Physical________________: physical environment which
could increase or decrease the probability or severity of a loss.
4. The amount of insurance ______________ that is required
for insurance coverage depends on a variety of factors.
5. As _____________holder of the life insurance policy, John
Smith had to decide who the beneficiary would be in the
event of his death.
6. A company’s ________________ is a good indication of
investors’ perceptions of its business prospects.
150
7. A named ________________ is essentially the owner of
the car insurance policy.
8. This is frequently used in employment agreements that tie
the _______________ to the day the employee start works.
9. Defined benefit pensions and Social Security are two
examples of lifetime guaranteed ________________ that
pay retirees a steady cash flow until they pass.
10. In a residential________________, a home buyer pledges
his or her house to the bank.
1. Insurance business / carried out / profit generation / means /
the operation / by insurance enterprises / for the purpose of
……………………………………………………………………
……………………..……………………………………………………
2. Premium / to insurance enterprises / means / to be paid / by
the insurance buyers / a sum of money
……………………………………………………………………
……………………..……………………………………………………
3. Life insurance / a class of insurance / where the insured is
alive or dead / means / provided to cases
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
4. The State / shall / the legitimate rights / protect / and / interests /
of / organizations and individuals / insurance / participating in
……………………………………………………………………
……………………..……………………………………………………
……………………………………..
5. The insurance enterprises / fulfill / all financial requirements /
in order to / their commitments / to insurance buyers / must satisfy
……………………………………………………………………
……………………..……………………………………………………
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1. Which of the following is NOT an operating goal of an insurer?
a) Comply with legal requirements
b) Concentrate risk
c) Meet customer needs
d) Earn a profit
e) Fulfill its duty to society
2. What are the three core functions that exist within a typical insurer?
a) Accounting, actuarial, and underwriting
b) Actuarial, claims, and underwriting
c) Accounting, marketing and distribution, and sales
d) Claims, marketing and distribution, and underwriting
e) Actuarial, marketing and distribution, and sales
3. Which of the following errors is the most significant
problem in measuring insurer profitability?
a) Errors in setting adequate rates
b) Errors in estimating future investment returns
c) Errors in estimating loss reserves
d) Errors in estimating sales growth
e) Errors in classification of loss exposure units
4. Which of the following is the primary reason insurer
solvency is monitored by regulators?
a) Insurers hold large sums of money for the benefit of consumers
b) Insurers are inherently financially unstable
c) The cost of insurer insolvencies is shifted to taxpayers
d) Solvency of insurers is easily measured without much cost
e) The claims-paying ability of insurers can be analyzed by
most consumers and businesses
5. Which of the following insurance covers vehicles?
a) Racing
b) Life
c) Automobile
d) Mortgage
152
policyholders the cost of lawsuits coverage pets
people libel and slander homeowners liability
Liability Protection
Liability coverage protects against (1) _____________ for
bodily injury or property damage that (2)______________ or family
members cause to other (3)__________ It also pays for damage
caused by (4)_____________ The liability portion of the policy pays
for both the cost of defending the policyholder in court and any court
awards-up to the limit of the policy. (5)____________ is not just in
the home but extends to anywhere in the world. Liability limits
generally start at about $100,000. However, experts recommend that
(6)________________ purchase at least $300,000 worth of
protection. An umbrella or excess liability policy, which provides
broader coverage, including claims for (7)_______________, as well
as higher liability limits, can be added to the policy. Generally,
umbrella policies cost between $200 to $350 for $1 million of
additional (8)___________________ protection.
3. TRANSLATION
Text 1
How Insurance Works
Insurance is a contract that transfers the risk of financial loss
from an individual or business to an insurance company. The company
collects small amounts of money from its clients and pools that money
together to pay for losses.
Insurance is divided into two major categories:
153
 Property and Casualty insurance
 Life and Health insurance.
Property and casualty insurance provides protection to businesses
and individuals for losses related to their belongings or assets, both
physical and financial. Life and health insurance protects people from
financial loss due to premature death, sickness or disease.
Insurance uses probability and the law of large numbers to
determine the cost of insurance premiums it charges its clients based on
various risk factors. The rate must be sufficient for the company to pay
claims in the future, pay its expenses, and make a reasonable profit, but
not so much it turns away customers.
The more likely an event will occur for a given client (i.e., a
house near the water flooding when the area has a high history of
flooding), the more insurance companies will need to collect to pay the
anticipated claims.
Insurance companies market their products and services to
consumers in different ways. The price companies charge for insurance
coverage is subject to government regulation. Insurance companies may
not discriminate against applicants or insureds based on a factor that
does not directly relate to the chance of a loss occurring.
Source: https://www.investprogram.org/students/insurance-in-real-
life/how-insurance-works
Text 2
Insurance Accounting in The United States of America
Insurers are required to use statutory accounting principles (SAP -
Statutory Accounting Principles) when filing annual financial reports
with state regulators and the Internal Revenue Service. SAP, which
evolved to enhance the industry’s financial stability, is more
conservative than the generally accepted accounting principles (GAAP),
established by the independent Financial Accounting Standards Board
(FASB). The Securities and Exchange Commission (SEC) requires
publicly owned companies to report their financial results using GAAP
154
rules. Insurers outside the United States use standards that differ from
SAP and GAAP. As global markets developed, the need for more
uniform accounting standards became clear. In 2001, the International
Accounting Standards Board (IASB), an independent international
accounting standards setting organization, began work on a set of
standards, called International Financial Reporting Standards (IFRS)
that it hopes will be used around the world. Since 2001, over 100
countries have required or permitted the use of IFRS.
In 2007, the SEC voted to stop requiring non-U.S. companies
that use IFRS to re-issue their financial reports for U.S. investors
using GAAP. In 2008, the National Association of Insurance
Commissioners began to explore ways to move from statutory
accounting principles to IFRS. Also in 2008, the FASB and IASB
undertook a joint project to develop a common and improved
framework for financial reporting.
Source: Emmett J. Vaughan, Therese M. Vaughan (2007), Fundamentals of Risk
and Insurance, Wiley Publishing House, 10th edition
4. TERMINOLOGY
Accident insurance – Bảo hiểm tai nạn: A sudden and
accidental equipment breakdown that causes damage to the equipment
that necessitates repair or replacement. Insurer coverage applies to loss
or damage resulting from an accident to a covered object.
Annuity – Niên kim: A series of equal payments at regular
intervals Annuities are classified by the frequency of payment dates.
The payments (deposits) may be made weekly, monthly, quarterly,
yearly, or at any other interval of time. An annuity which provides for
payments for the remainder of a person's lifetime is a life annuity.
Automobile insurance – Bảo hiểm ô tô: Auto insurance is a
policy purchased by vehicle owners to mitigate costs associated with
getting into an auto accident. Instead of paying out of pocket for auto
accidents, people pay annual premiums to an auto insurance company;
the company then pays all or most of the costs associated with an auto
accident or other vehicle damage.
155
Beneficiary – Người thụ thưởng: A beneficiary is any person
who gains an advantage and/or profits from something. In the financial
world, a beneficiary typically refers to someone who is eligible to
receive distributions from a trust, will or life insurance policy.
Beneficiaries are either named specifically in these documents or
have met the stipulations that make them eligible for whatever
distribution is specified.
Effective date – Ngày có hiệu lực: Date on which a transaction is
recorded or when an agreement (such as a contract or an insurance
policy) takes effect.
FASB – Financial Accounting Standards Board: The Financial
Accounting Standards Board (FASB) is a private, non-profit
organization, whose primary purpose is to establish and
improve generally accepted accounting principles (GAAP) within
the United States in the public's interest.
Fire insurance – Bảo hiểm cháy nổ: Fire insurance covers
damage or loss to a property because of fire. It is a specific form of
insurance in addition to homeowner’s or property insurance, and it
covers the cost of replacement and repair or reconstruction above what
the property insurance policy covers. Fire insurance policies cover
damage to the property, and may also cover damage to nearby
structures, personal property and costs because of not having the
capacity to live in or use the property if damages occur.
GAAP – Generally Accepted Accounting Principles – Các
nguyên tắc kế toán chấp nhận chung: the standard framework of
guidelines for financial accounting used in any given jurisdiction;
generally known as accounting standards or standard accounting
practice. These include the standards, conventions, and rules
that accountants follow in recording and summarizing and in the
preparation of financial statements.
Health insurance – Bảo hiểm sức khỏe: the insurance that covers
the whole or a part of the risk of a person incurring medical expenses,
spreading the risk over a large number of persons.
156
Holder policy – Chủ hợp đồng bảo hiểm: Entity that owns an
insurance policy and has the right to exercise all privileges under the
contract of insurance, except where restricted by the rights of an
assignee (see assignment). A policyholder may or may not be the
insured, or the sole or one of the beneficiaries of the policy. Also
called policyowner.
IASB – International Accounting Standards Board – Hội
đồng chuẩn mực kế toán quốc tế: The independent, accounting
standard-setting body of the IFRS Foundation. It is responsible for
developing International Financial Reporting Standards (IFRS),
previously known as International Accounting Standards (IAS) and
promoting the use and application of these standards.
IFRS – International Financial Reporting Standards –
Chuẩn mực báo cáo tài chính quốc tế: A common global language
for business affairs so that company accounts are understandable and
comparable across international boundaries.
Insurance company – Công ty bảo hiểm: A company that
offers insurance policies to the public, either by selling directly to an
individual or through another source such asan employee's benefit plan.
An insurance company is usually comprised of multiple insurance
agents. An insurance company can specialize in one type of
insurance, such as life insurance, health insurance, or auto
insurance, or offer multiple types of insurance.
Insurance premium – Phí bảo hiểm: An insurance premium
is the amount of money that an individual or business must pay for
an insurance policy. The insurance premium is considered income by
the insurance company once it is earned, and also represents a
liability in that the insurer must provide coverage for claims being
made against the policy.
Insurance policy – Hợp đồng bảo hiểm: A contract (generally
a standard form contract) between the insurer and the insured which
determines the claims which the insurer is legallyrequired to pay. In
exchange for an initial payment, known as the premium, the insurer
promises to pay for loss caused by perils covered under the policy
language.
157
Insured – Người được bảo hiểm: The person, group,
organization whose life or property is covered by an insurance policy.
Insurer – Người cung cấp bảo hiểm: A person or company that
contracts to indemnify another in the event of lossor damage.
Life insurance – Bảo hiểm nhân thọ: A protection against
financial loss that would result from the premature death of an insured.
The named beneficiary receives the proceeds and is thereby safeguarded
from the financial impact of the death of the insured. The death benefit
is paid by a life insurer in consideration for premium payments made by
the insured.
Marine insurance – Bảo hiểm hàng hải: Covers the loss or
damage of ships, cargo, terminals, and any transport or cargo by which
property is transferred, acquired, or held between the points of origin
and final destination.
Mortgage – Tài sản thế chấp: A mortgage is a debt
instrument, secured by the collateral of specified real estate property,
that the borrower is obliged to pay back with a predetermined set of
payments. Mortgages are used by individuals and businesses to
make large real estate purchases without paying the entire value of
the purchase up front. Over a period of many years, the borrower
repays the loan, plus interest, until he/she eventually owns the
property free and clear. Mortgages are also known as “liens against
property” or “claims on property”. If the borrower stops paying the
mortgage, the bank can foreclose.
National Association of Insurance Commissioners – Hiệp hội
các cơ quan quản lý bảo hiểm quốc gia: The U.S. standard-setting
and regulatory support organization created and governed by the chief
insurance regulators from the 50 states, the District of Columbia and
five U.S. territories.
Physical hazard – Rủi ro thân thể: A type of occupational
hazardthat involves environmental hazards that can cause harm with or
without contact. Physical hazards include ergonomic hazards, radiation,
heat and cold stress, vibration hazards, and noise hazards.
158
Property and Casualty insurance – Bảo hiểm tài sản và tai
nạn: they are types of coverage that help protect the assets of the
insureds (for example, home or car) - and also provide liability
coverage to help protect them if they are found legally responsible for
an accident that causes injuries to another person or damage to another
person's belongings.
SAP – Statutory Accounting Principles – Các chuẩn mực kế
toán theo luật định: A set of accounting rules for insurance companies
set forth by the National Association of Insurance Commissioners. They
are used to prepare the statutory financial statements of insurance
companies.
Umbrella insurance policies – Hợp đồng bảo hiểm bao phủ
toàn diện: An umbrella insurance policy is extra liability
insurance coverage that goes beyond the limits of the insured's home,
auto or watercraft insurance. It provides an additional layer of security to
those who are at risk for being sued for damages to other people's
property or injuries caused to others in an accident. It also protects
against libel, vandalism, slander and invasion of privacy.
REFERENCES
1. Basic Principle of Insurance, Retrieved at:
https://www.youtube.com/watch?v=mRaOHTZSaA8
2. Caroline (2009), Principles and Practice of Insurance, Unit 1
Introduction of Insurance, Retrieved at:
http://www.nou.edu.ng/uploads/NOUN_OCL/pdf/edited_pdf3
/ENT%20121.pdf
3. Cathy Pareto (2010), Introduction to Insurance, Retrieved
at: http://elibrary.vssdcollege.ac.in/web/data/books-com-
sc/bcom-3/Introduction%20To%20insurance.pdf
4. Emmett J. Vaughan, Therese M. Vaughan (2007),
Fundamentals of Risk and Insurance, Wiley Publishing
House, 10th edition.
159
5. Financial Consumer Agency of Canada (2011),
Understanding Insurance Basic, Retrieved at:
http://publications.gc.ca/collections/collection_2011/acfc-
fcac/FC5-24-2011-eng.pdf
6. Insurance Information Institution (2010), Insurance
Handbook – A Guide to Insurance: What It Does and How
It Works, Retrieved at:
http://adda.org/files/Insurance_Handbook_20103.pdf
7. Judy Feldman Anderson, Robert L Brown, Risk and
Insurance, Society of Actuaries,
8. Mayer Brown (2014), Vietnam’s Insurance Market:
An Overview.
9. National Assembly (2000), Law on Insurance Business,
No. 24/2000/QH10 approved by the Vietnam National
Assembly on December 9, 2000.
160
PART 7: INSURANCE
Unit 2: Insurance Products
Introduction: Facing the growing demand for broader and more

diversified insurance products, purely traditional insurance products
have gradually been replaced by financial product packages. Whether
it's auto, medical, liability, disability or life, insurance serves as an
excellent risk-management and wealth-preservation tool. Having the
right kind of insurance is a critical component of any good financial
plan. This lesson presents various insurance products and how they
work. It is also illustrated by the introduction of the insurance market
and insurance companies, as well as the legal requirements in Vietnam.
1. READING
The Variety of Insurance Products
The insurance industry safeguards the assets of its
policyholders by transferring risk from an individual or business to
an insurance company. Insurance companies act as financial
intermediaries in that they invest the premiums they collect for
providing this service. Insurance company size is usually measured
by net premiums written, that is, premium revenues less amounts
paid for reinsurance. There are some insurance products:
Auto Insurance Basics
Auto insurance protects against financial loss in the event of an
accident. It is a contract between the policyholder and the insurance
company. The policy holder agrees to pay the premium and the
insurance company agrees to pay losses as defined in the policy.
Auto insurance provides property, liability and medical coverage:
- Property coverage pays for damage to, or theft of, the car.
- Liability coverage pays for the policyholder’s legal
responsibility to others for bodily injury or property damage.
- Medical coverage pays for the cost of treating injuries,
rehabilitation and, sometimes, lost wages and funeral expenses.
161
Homeowners Insurance Basics
Homeowners insurance provides financial protection against
disasters. It is a package policy, which means that it covers both
damage to property and liability, or legal responsibility, for any
injuries and property damage policyholders or their families cause to
other people. This includes damage caused by household pets.
Business Insurance Basics
Property insurance compensates a business if the property used
in the business is lost or damaged as the result of various types of
common perils, such as fire or theft. Property insurance covers not
just a building or structure but also the contents, including office
furnishings, inventory, raw materials, machinery, computers and
other items vital to a business’s operations. It includes: Liability
Insurance, Commercial Vehicle Insurance, and Workers
Compensation Insurance
Life Insurance Basics
Many financial experts consider life insurance to be the
cornerstone of sound financial planning. It can be an important tool
in the following situations: Replace Income for Dependents, Pay
Final Expenses, Create an Inheritance for Heirs, Pay Federal “Death”
Taxes and State “Death” Taxes, Make Significant Charitable,
Contributions, Create a Source of Savings.
Annuities Basics
Annuities are financial products intended to enhance retirement
security. An annuity is an agreement for one person or organization to
pay another a series of payments. Usually the term “annuity” relates to a
contract between an individual and a life insurance company.
There are many categories of annuities. They can be classified by:
- Nature of the underlying investment: fixed or variable
- Primary purpose: accumulation or pay-out (deferred
or immediate)
- Nature of payout commitment: fixed period, fixed amount
or lifetime
- Tax status: qualified or nonqualified
162
- Premium payment arrangement: single premium or flexible
premium
An annuity can be classified in several of these categories at
once. For example, an individual might buy a nonqualified single
premium deferred variable annuity
Long-term Care Insurance Basics
Long-term care insurance pays for services to help individuals
who are unable to perform certain activities of daily living without
assistance, or require supervision due to a cognitive impairment such
as Alzheimer’s disease.
Features of Long-term Care Policies
The best policies pay for care in a nursing home, assisted living
facility, or at home. Benefits are typically expressed in daily
amounts, with a lifetime maximum. Some policies pay half as much
per day for at-home care as for nursing home care. Others pay the
same amount, or have a “pool of benefits” that can be used as needed
Disability Insurance Basics
Disabling injuries affect millions of Americans each year.
Disability insurance, which complements health insurance, helps replaces
lost income if an individual is unable to work due to a disability.
Source: Insurance information Institution (2010), Insurance Handbook – A
Guide to Insurance: What It Does and How It Works, Retrieved at:
QUESTIONS
1.1. Why is insurance company defined as financial
intermediation?
1.2. How many types of insurance product are there?
1.3. How can we calculate the size of an insurance company?
1.4. What are coverage areas of auto insurance?
1.5. How many types of annuity that a life insurance company
provides to customers according to the nature of payout
commitment? What are they?
1.6. Could customers buy package policy for Homeowner
insurance?
163
2. EXERCISES
questions proposal form past and concurrent declarations

insured and insurer endorsements underwriting process subject matter
documentation insurer cover note or policy
Documentation
The purpose of insurance (1)______________ is to bring
understanding and clarity between the (2)_____________ . Common
documents include (3)________________ filled by proposer,
providing details of material facts and containing proposer’s
(4)__________ the agent has to get these filled up from the proposer.
Others are premium receipt, cover note/certificate of insurance/
policy document enshrining terms and conditions, (5)____________
that incorporate changes during policy period and renewal notices,
inviting renewal of insurance.
A proposal form contains details of proposer’s identity, the
(6)____________ of insurance, sum insured, details of
(7)____________ insurance and previous loss experience. Based on
such information in proposal and any further documents called for,
the insurance company processes the proposal in what is known as
the (8) ____________.
The number and nature of (9)_______ in a proposal form vary
according to the class of insurance concerned. Where a proposal
form is not used, the (10) ________ records the information obtained
orally or in writing, and confirms it within a period of 15 days with
the proposer and incorporates the information in its (11) _________.
1. Which of the following is NOT an operating goal of an insurer?
a) Comply with legal requirements.
b) Concentrate risk.
164
c) Meet customer needs.
d) Earn a profit.
2. Which of the following is NOT a reason insurers are subject
to governmental regulation?
a) Protect consumers against fraud.
b) Guarantee insurer profit.
c) Maintain insurer solvency.
d) Prevent unfair discrimination.
e) Protect consumers against unethical marketing behavior.
3. COPE is an acronym describing a common tool used in
underwriting the fire peril and other causes of loss to property.
What does COPE stand for?
a) Conditions, Omissions, Perils, and Exclusions
b) Construction, Occupancy, Protection, and External exposure
c) Commercial, Operations, Production, and Entertainment
d) Concealment, Omissions, Protection, and Exclusions
e) Construction, Occupancy, Perils, and External exposure
4. PAP is an acronym describing a common tool used in auto
insurance. PAP stands for?
a) Professional Automatic Policy
b) Profile Agreement Profession
c) Personal Auto Policy
d) Personal Agreement Policy
1. The difference between / and / are / pricing in / other
industries / arises from / the fact that / insurance rates /
subject to / government regulation / the pricing of insurance
…………………………………………………………..……
………………………..………………………………………
…………………………………………………..……………
……………………………………………………….………
165
2. The permissible loss ratio / provision for expenses / is / the
premium / that / will be available / to pay losses / after / the
percentage of
…………………………………………………………………
………………………..………………………………………
…………………………………………………..……………
…………………………………………………………………
3. Underwriting / the process of / is / selecting and classifying /
exposures
…………………………………………………………………
………………………..………………………………………
…………………………………………………..……………
…………………………………………………………………
4. Insurance companies / credit scoring / have used / as /
underwriting / auto and homeowners insurance/ a tool for
…………………………………………………………………
………………………..………………………………………
…………………………………………………..……………
…………………………………………………………………
5. Incurred losses / during / under consideration / refer to /
actually taking place / the particular period / those losses
…………………………………………………………………
………………………..………………………………………
…………………………………………………..……………
…………………………………………………………………
2.4. Match the words 1-5 with the phrases a-e to make definitions
1. Pure Premium a. amount of premium (fees) used to purchase
reinsurance
2. Ceded Premium b. portion of the insured loss (in dollars) paid
by the policy holder
3. Deductible c. coverage protecting the insured against loss
or damage to real or personal property
from flood
166
4. Flood d. that portion of the premium equal to
expected losses void of insurance company
expenses, premium taxes, contingencies, or
profit margin
5. Loss e. physical damage to property or bodily
injury, including loss of use or loss of income
2.5. Complete the sentences with words from the left column of
Exercise 2.4
1. The tariff and the case-by-case ratings are expressed in
terms of ______________ by way of co-reinsurance, that is
to say pure premiums based on the potential claims cost of
risks plus the co-reinsurance operating costs
2. In the _____________ method, the pure premium is
1st calculated by summing the losses and loss-adjusted
expenses over a given period, and dividing that by the
number of exposure units.
3. Your _____________ should be listed as part of the terms
and conditions of your contract on the declaration page of
your insurance policy
4. ______________ is usually caused by a volume of water
within a body of water, such as a lake, overflowing
5. A capital___________ is essentially the difference between
the purchase price and the price at which the asset is sold
3. TRANSLATION
Text 1
Vietnam’s Insurance Market
Vietnam started liberalizing its insurance market by allowing
foreign insurers to participate in the domestic market almost 20 years
ago. Since then, its insurance market has grown exponentially.
Before the 1990s, Vietnam’s insurance market was dominated by
167
state-owned insurance enterprises. As at the end of 2013, there were
a total of 57 players from the state and the private sector, the latter
including both domestic and foreign-invested companies. The
Insurance Supervisory Authority (the ISA), a subordinate body
within the Ministry of Finance (MOF), and the MOF itself, are the
two key regulatory bodies that oversee insurance activities,
including the establishment of insurers, sale and purchase of equity
interests in insurance companies, the formulation, sale and
implementation of insurance contracts, and other insurance-related
activities.
Insurers can offer the following seven types of life insurance
products: (i) whole life insurance, (ii) pure endowment insurance,
(iii) term life insurance, (iv) endowment insurance, (v) annuity
insurance, (vi) investment-linked insurance, and (vii) pension
insurance. The terms, conditions and premium scales of life
insurance products must be approved by the MOF before they can
be offered to the public.
Despite Vietnam’s economic challenges in recent years,
Vietnam’s insurance premium market’s double-digit growth
continued steadily in the last eight years where statistics are
available. There are several good reasons to support the position that
Vietnam possesses the fundamentals to remain a promising insurance
market in the medium and long terms. These include: i) Its
population is over 90 million, of which over 60 percent are under 30
years old, with an emerging middle class; ii) Penetration of both life
and non-life insurance services compared to other countries in the
region remains relatively low; iii) Its economic growth rate ranged
from 5 percent to 9 percent in the last 15 years; and iv) The
government continued its efforts to streamline the regulatory
framework in line with international best practices and standards and
to comply with Vietnam’s WTO Commitments.
Source: Mayer Brown (2014), Vietnam’s Insurance Market: An Overview,
retrieved at:
https://www.mayerbrown.com/files/Publication/6d202e21-8507-4513-b40f-
26ebfd22b5ab/Presentation/PublicationAttachment/
0a09ff10-9ced-4a52-88e8-2c6039a2b5f3/140129-VTN-Insurance.pdf
168
Text 2
Insurance Companies in Vietnam
A local company may be licensed to engage in the following
business activities: (i) insurance and reinsurance business, (ii)
prevention and mitigation of risk and loss, (iii) loss inspection, (iv)
acting as loss inspection and claim settlement agents, (v) third- party
claim agents, and (vi) fund management and capital investment.
Whilst the Insurance Regulations do not expressly prohibit an insurer
from concurrently conducting insurance and insurance brokerage
activities, there is an implication that these two sets of activities have
to be mutually exclusive.
Foreign companies must meet several conditions in order to set
up a subsidiary in Vietnam. Some of the conditions are similar to
those applicable to the cross-border supply of insurance, such as:
holding the necessary insurance licences issued by their home
country; having operated for at least 10 years; having assets of US$ 2
billion or more; and having operated profitably in the last three years
before application. In addition, a new insurance company must meet
the minimum legal capital (i.e., owner’s capital) requirement for its
respective business lines, which ranges widely from VND 4 billion
(approx. US$ 190,000) for insurance brokerage, to VND 300 billion
(approx. US$ 14.3 million) for non-life insurance, or VND 700
billion (approx. US$ 33.3 million) for life and life and health
re-insurance.
Since 2012, foreign non-life insurers are expressly allowed to
open their branches in Vietnam. Such a branch will be considered a
dependent unit of the foreign non-life insurer and has no independent
legal status under Vietnamese laws. Thus, the foreign non-life insurer
must guarantee and be liable for all obligations and commitments of
its branch in Vietnam. Branches of foreign non-life insurers may
only engage in the insurance business activities within the scope of
business of its parent foreign company and to the extent permitted
under the laws of Vietnam. The minimum legal capital requirement
for a branch of a foreign non-life insurer is VND 200 billion (approx.
169
US$ 9.5 million). Since the regulations on the establishment of the
branch of foreign non-life insurers in Vietnam only came into effect
from early 2012, to the best of our knowledge, no such branch has
been established to date. In addition, since a foreign non-life insurer
has the ability to open a Local Company with limited liability
(thereby insulating the parent company from liabilities in Vietnam), a
branch may not be a popular option for a foreign non-life insurer
Source: Mayer Brown (2014), Vietnam’s Insurance Market: An Overview,
retrieved at: https://www.mayerbrown.com/files/Publication/6d202e21-8507-
4513-b40f-26ebfd22b5ab/Presentation/PublicationAttachment/ 0a09ff10-9ced-
4a52-88e8-2c6039a2b5f3/140129-VTN-Insurance.pdf
4. TERMINOLOGY
Bodily injury liability – Trách nhiệm thương tích cơ thể:
Bodily injury liability is an insurance coverage which is applied
when a person is legally liable for injuring other people in an auto
accident. In most states, purchasing a minimal amount of this
coverage is a requirement. Bodily injury liability includes payments
that include compensation to the injured individuals and legal
defense costs. It also includes claims for bodily injury liability such
as medical bills, pain and suffering, and loss of income.
Commercial vehicle insurance – Bảo hiểm xe thương mại: A
policy of physical damage and liability coverages for amounts,
situations, and usage not covered by a personal auto policy.
Disability insurance – Bảo hiểm thương tật:
Disability insurance offers income protection to individuals who
become disabled for a long period of time, and as a result can no
longer work during that time period.
Endorsement – Chứng thực: Refers to the signing of a
document that allows for the legal transfer of a negotiable from one
party to another; it can also refer to an attachment to a document that
amends or adds to it. Typically, an endorsement is an added
provision to an insurance policy, referred to as a rider, though it can
also include additional options such as various license endorsements.
170
Financial intermediary – Trung gian tài chính: An entity
that acts as the middleman between two parties in a financial
transaction, such as a commercial bank, investment banks, mutual
funds and pension funds. Financial intermediaries offer a number of
benefits to the average consumer, including safety, liquidity,
and economies of scale involved in commercial banking, investment
banking and asset management. Although in certain areas, such as
investing, advances in technology threaten to eliminate the financial
intermediary, disintermediation is much less of a threat in other areas
of finance, including banking and insurance.
Insurance brokerage – Môi giới bảo hiểm: A specialist in
insurance and risk management. Brokers act on behalf of their clients
and provide advice in the interests of their clients. Sometimes an
insurance broker will act as agent of an insurer. A broker will help
you identify your individual and/or business risks to help you decide
what to insure, and how to manage those risks in other ways.
Liability nsurance – Bảo hiểm trách nhiệm: A insurance policy
that protects an individual or business from the risk that they may be
sued and held legally liable for something such as malpractice, injury or
negligence. Liability insurance policies cover both legal costs and any
legal payouts for which the insured would be responsible if found
legally liable. Intentional damage and contractual liabilities are typically
not covered in these types of policies.
Long-term care insurance – Bảo hiểm chăm sóc y tế dài hạn:
Coverage that provides nursing-home care, home-health care,
personal or adult day care for individuals above the age of 65 or with
a chronic or disabling condition that needs constant
supervision. Long-term care insurance offers more flexibility and
options than many public assistance programs.
Net premiums – Phí bảo hiểm thuần (ròng): The
expected present value of a policy’s benefits less the expected present
value of future premiums. The net premium calculation does not take
into account future expenses associated with maintaining the policy
Non-life insurance – Bảo hiểm phi nhân thọ: Any insurance
that is not determined to be life insurance. It is called property and
171
casualty, including automobile and homeowners policies, provide
payments depending on the loss from a particular financial event.
Package policy – Bảo hiểm trọn gói: An insurance product
that includes coverage for more than one type of insurance. For
example, liability and property insurance may both be included as a
part of a package policy. It is common for businesses that are looking
to buy commercial insurance to buy commercial package policies
Proposal form – Giấy yêu cầu bảo hiểm: A standard
printed document that is completed by a person who
is requesting insurance coverage. Proposal form is the most
important and basic document required for life insurance contract
between the insured and insurance company. It includes the insured's
fundamental information like address, age, name, education,
occupation etc. It also includes the person's medical history.
Reinsurance – Tái bảo hiểm: Reinsurance, also known as
insurance for insurers or stop-loss insurance, is the practice of
insurers transferring portions of risk portfolios to other parties by
some form of agreement to reduce the likelihood of having to pay a
large obligation resulting from an insurance claim. The party that
diversifies its insurance portfolio is known as the ceding party.
Retirement security – An sinh hưu trí: A pension given to a
person who has retired from regular employment, either one paid by
the state or one arising from the person's former employment.
Settlement agents – Đại lý thanh toán: (1) The party involved
in completing a transaction between a buyer and seller. This is done
through the transfer of securities to the buyer and the transfer of cash
or other compensation to the seller. (2) A real estate professional
who functions chiefly for the buyer by conveying the selling interest
from the buyer to the seller and ensuring the orderly transfer of the
legal title from the seller to the buyer through the closing process.
Workers compensation – Bảo hiểm lao động: Workers'
compensation is a publicly-sponsored system that pays monetary
benefits to workers who become injured or disabled in the course of
their employment.
172
5. REFERENCES
1. Cathy Pareto (2010), Introduction to Insurance, Retrieved at:
http://elibrary.vssdcollege.ac.in/web/data/books-com-
sc/bcom-3/Introduction%20To%20insurance.pdf
fcac/FC5-24-2011-eng.pdf
3. Insurance information Institution (2010), Insurance
http://adda.org/files/Insurance_Handbook_20103.pdf)
4. Judy Feldman Anderson, Robert L Brown, Risk and
Insurance, Society of Actuaries, Retrieved at:
file:///C:/Users/Linh%20Do/Downloads/P-21-05.pdf
5. Mayer Brown (2014), Vietnam’s Insurance Market: An
Overview, retrieved at:
https://www.mayerbrown.com/files/Publication/6d202e21-
8507-4513-b40f-
26ebfd22b5ab/Presentation/PublicationAttachment/0a09ff10-
9ced-4a52-88e8-2c6039a2b5f3/140129-VTN-Insurance.pdf
6. National Assembly (2000), Law on Insurance Business,
No. 24/2000/QH10 approved by the Vietnam National
Assembly on December 9, 2000.
173
174
TERMINOLOGY
Part/
English Vietnamese
Unit
Part 7,
Accident insurance Bảo hiểm tai nạn
Unit 1
Part 3,
Acquisition Thâu tóm
Unit 2
Part 1,
Adverse selection Lựa chọn đối nghịch
Unit 2
Part 7,
Annuity Niên kim
Unit 1
Part 1,
Asymmetric information Thông tin không cân xứng
Unit 2
ATM (Automatic Teller Part 2,
Máy giao dịch tự động
Machine) Unit 2
Part 4,
At-the-money Trạng thái hòa vốn
Unit 2
Part 2,
Authentication Xác thực
Unit 2
Part 7,
Automobile insurance Bảo hiểm ô tô
Unit 1
Part 2,
Bank account Tài khoản ngân hàng
Unit 1
Part 1,
Bear Nhà đầu tư bi quan
Unit 1
Part 7,
Beneficiary Người thụ thưởng
Unit 1
Part 2,
Biometric Sinh trắc học
Unit 2
175
Part 7,
Bodily injury liability Trách nhiệm thương tích cơ thể
Unit 2
Part 3,
Bond covenant Hợp đồng trái phiếu
Unit 2
Part 3,
Book value Giá trị sổ sách
Unit 3
Part 3,
Breach of contract Vi phạm hợp đồng
Unit 1
Part 1,
Bull Nhà đầu tư lạc quan
Unit 1
Part 4,
Call options Quyền chọn mua
Unit 2
Part 6,
Capital gains Lãi vốn
Unit 2
Part 3,
Cash budget Ngân quỹ
Unit 2
Part 3,
Cash deficit Thâm hụt tiền mặt
Unit 2
Part 3,
Cash flow Dòng tiền
Unit 3
Part 3,
Cash surpluses Thặng dư tiền mặt
Unit 2
CHAPS (Clearing House
Hệ thống thanh toán bù trừ tự Part 2,
Automated Payments
động Unit 2
System)
Part 2,
Checks (Cheque) Séc
Unit 1
Part 4,
Clearing house Trung tâm thanh toán bù trừ
Unit 2
176
Part 3,
Collateral Tài sản đảm bảo
Unit 1
Commercial vehicle Part 7,
Bảo hiểm xe thương mại
insurance Unit 2
Cổ phiếu thường/cổ phiếu phổ Part 3,
Common stock
thông Unit 1
Part 3,
Consolidation Hợp nhất
Unit 2
Part 6,
Convertibles Chứng khoán chuyển đổi
Unit 1
Part 1,
Corporate bond Trái phiếu doanh nghiệp
Unit 1
Part 5,
Corporate income tax Thuế thu nhập doanh nghiệp
Unit 2
Part 2,
Credit score Điểm tín dụng
Unit 1
Part 4,
Currency devaluation Phá giá tiền tệ
Unit 1
Part 4,
Currency revaluation Nâng giá tiền tệ
Unit 1
Current account Part 2,
Tài khoản vãng lai
(Check account) Unit 1
Part 5,
Custom duties Thuế hải quan
Unit 1
Part 1,
Day trader Người giao dịch nội nhật
Unit 1
Part 1,
Debt market Thị trường nợ
Unit 2
Part 2,
Deposit account Tài khoản tiền gửi
Unit 1
177
Part 1,
Deposit Insurance Bảo hiểm tiền gửi
Unit 2
Part 2,
Depository institution Tổ chức nhận tiền gửi
Unit 2
Part 6,
Derivatives Hợp đồng phái sinh
Unit 2
Part 6,
Derivatives securities Chứng khoán phái sinh
Unit 2
Part 2,
Digital Cash (E-cash) Tiền điện tử
Unit 2
Part 2,
Direct debit Ghi nợ trực tiếp
Unit 2
Part 1,
Direct finance Tài chính trực tiếp
Unit 1
Part 7,
Disability insurance Bảo hiểm thương tật
Unit 2
Part 1,
Disclosure Công khai thông tin
Unit 2
Part 1,
Dividend Cổ tức
Unit 2
Part 2,
E-business Kinh doanh điện tử
Unit 2
Part 2,
E-commerce Thương mại điện tử
Unit 2
Part 3,
Economic downturns Suy thoái kinh tế
Unit 1
Part 7,
Effective date Ngày có hiệu lực
Unit 1
Part 2,
Electronic banking Ngân hàng điện tử
Unit 2
178
Electronic Broking Dịch vụ môi giới ngoại hối Part 4,
Services điện tử Unit 1
Part 2,
Electronic Fund Trasfer Thanh toán điện tử
Unit 2
Electronic Purse (same as Part 2,
Ví điện tử
digital wallet) Unit 2
Part 7,
Endorsement Chứng thực
Unit 2
Part 6,
EPS (earnings per share) Lợi nhuận trên một cổ phiếu
Unit 2
Part 1,
Equity market Thị trường vốn chủ sở hữu
Unit 2
Part 6,
Equity warrants Chứng quyền
Unit 1
Part 6,
Euro debt securities Chứng khoán nợ châu Âu
Unit 1
Part 4,
Exchange Thị trường giao dịch tập trung
Unit 1
Part 5,
Excise tax Thuế tiêu thụ đặc biệt
Unit 1
Part 4,
Exercise price Giá thực hiện
Unit 2
Part 5,
Externality Ngoại ứng
Unit 1
Part 3,
Finance Tài trợ
Unit 1
Part 3,
Financial (capital) lease Thuê tài chính
Unit 2
Part 7,
Financial intermediary Trung gian tài chính
Unit 2
179
Part 1,
Financial market Thị trường tài chính
Unit 1
Part 7,
Fire insurance Bảo hiểm cháy nổ
Unit 1
Part 1,
Forex market Thị trường ngoại hối
Unit 1
Forward foreign exchange Part 4,
Giao dịch kỳ hạn
transactions Unit 1
Part 2,
Fraud and identity theft Lừa đảo và trộm danh tính
Unit 2
Part 1,
Futures market Thị trường tương lai
Unit 1
GAAP - Generally
Các nguyên tắc kế toán chấp nhận Part 7,
Accepted Accounting
chung Unit 1
Principles
Part 3,
Go public Chào bán cho công chúng đầu tư
Unit 1
Part 6,
Government bonds Trái phiếu Chính phủ
Unit 1
Part 5,
Government revenues Thu ngân sách nhà nước
Unit 2
Part 7,
Health insurance Bảo hiểm sức khoẻ
Unit 1
Part 7,
Holder policy Chủ hợp đồng bảo hiểm
Unit 1
IASB - International
Hội đồng chuẩn mực kế toán Part 7,
Accounting Standards
quốc tế Unit 1
Board
Part 4,
ICAP Công ty môi giới ngoại hối ICAP
Unit 1
180
IFRS - International
Chuẩn mực báo cáo tài chính Part 7,
Financial Reporting
quốc tế Unit 1
Standards
Part 5,
Income tax Thuế thu nhập
Unit 1
Part 1,
Indirect finance Tài chính gián tiếp
Unit 1
Individual Retirement Part 6,
Tài khoản hưu trí cá nhân
Accounts (IRA) Unit 2
Part 3,
Insolvency proceedings Thủ tục tố tụng phá sản
Unit 1
Part 7,
Insurance brokerage Môi giới bảo hiểm
Unit 2
Part 7,
Insurance company Công ty bảo hiểm
Unit 1
Part 7,
Insurance policy Hợp đồng bảo hiểm
Unit 1
Part 7,
Insurance premium Phí bảo hiểm
Unit 1
Part 7,
Insured Người được bảo hiểm
Unit 1
Part 7,
Insurer Người cung cấp bảo hiểm
Unit 1
Part 4,
Interest rate parity theorem Thuyết ngang giá lãi suất
Unit 1
Interest-bearing demand Part 2,
Tiền gửi giao dịch có trả lãi
deposit Unit 1
Part 4,
In-the-money Trạng thái lời
Unit 2
181
Part 4,
Law of one price Quy luật một giá
Unit 1
Part 3,
Lease Thuê tài sản
Unit 2
Part 3,
Lessee Người đi thuê
Unit 2
Part 3,
Lessor Người cho thuê
Unit 2
Part 3,
Leveraged buyouts Mua lại theo kiểu vay nợ
Unit 2
Part 7,
Liability insurance Bảo hiểm trách nhiệm
Unit 2
Part 7,
Life insurance Bảo hiểm nhân thọ
Unit 1
Part 7,
Long-term care insurance Bảo hiểm chăm sóc y tế dài hạn
Unit 2
Part 3,
Management buyouts Mua lại để giữ quyền quản lý
Unit 2
Part 7,
Marine Insurance Bảo hiểm hàng hải
Unit 1
Part 3,
Market value Giá trị thị trường
Unit 3
Part 2,
Maturity Kỳ hạn
Unit 1
Part 3,
Merger Sáp nhập
Unit 2
Part 3,
Minority stockholder Cổ đông thiểu số
Unit 2
Part 3,
Money judgment Phán quyết phạt tiền
Unit 1
182
Part 2,
Money laundering Rửa tiền
Unit 2
Part 6,
Money market instruments Công cụ của thị trường tiền tệ
Unit 1
Part 1,
Moral hazard Rủi ro đạo đức
Unit 2
Part 7,
Mortgage Tài sản thế chấp
Unit 1
Part 1,
Municipal bond Trái phiếu địa phương
Unit 1
Part 1,
Mutual fund Quỹ tương hỗ
Unit 1
National Association of Hiệp hội các cơ quan quản lý bảo Part 7,
Insurance Commissioners hiểm quốc gia Unit 1
Part 4,
Net exposure Trạng thái ngoại tệ ròng
Unit 1
Net long (short) in a Part 4,
Trạng thái trường (đoản) ngoại tệ
currency Unit 1
Part 7,
Net premiums Phí bảo hiểm thuần (ròng)
Unit 2
Part 3,
Net present value Giá trị hiện tại ròng
Unit 3
Noninterest - bearing Tiền gửi giao dịch không trả Part 2,
demand deposit lãi Unit 1
Part 7,
Non-life insurance Bảo hiểm phi nhân thọ
Unit 2
Part 2,
Non-transaction deposit Tiền gửi phi giao dịch
Unit 1
Part 3,
Operating lease Thuê hoạt động
Unit 2
183
Part 4,
Option holder Người mua quyền
Unit 2
Part 4,
Option writer Người bán quyền
Unit 2
Part 1,
Options market Thị trường quyền chọn
Unit 1
Part 4,
Out-of-the-money Trạng thái không có lời
Unit 2
Part 2,
Outstanding loan Dư nợ cho vay
Unit 1
Part 2,
Overdraft Thấu chi
Unit 1
Thị trường giao dịch phi Part 4,
Over-the-counter
tập trung Unit 1
Part 7,
Package policy Bảo hiểm trọn gói
Unit 2
Part 3,
Pay off Thanh toán hết
Unit 1
Part 3,
Payout ratio Tỷ lệ trả cổ tức
Unit 1
Part 5,
Personal income tax Thuế thu nhập cá nhân
Unit 2
Part 7,
Physical hazard Rủi ro thân thể
Unit 1
Part 6,
Preference shares Cổ phiếu ưu đãi
Unit 1
Part 2,
Preferential loan Khoản vay ưu đãi
Unit 1
Part 3,
Preferred stock Cổ phiếu ưu đãi
Unit 1
184
Part 4,
Premium Phí quyền chọn
Unit 2
Part 1,
Primary market Thị trường sơ cấp
Unit 1
Part 3,
Profit Lợi nhuận
Unit 3
Part 5,
Progressive tax Thuế lũy tiến
Unit 2
Property and casualty Part 7,
Bảo hiểm tài sản và tai nạn
insurance Unit 1
Part 5,
Proportional tax Thuế tỷ lệ
Unit 2
Part 7,
Proposal form Giấy yêu cầu bảo hiểm
Unit 2
Part 5,
Public goods Hàng hóa công cộng
Unit 1
Part 3,
Purchase of assets Mua tài sản
Unit 2
Part 4,
Purchasing Power Parity Thuyết ngang giá sức mua
Unit 1
Part 4,
Put options Quyền chọn bán
Unit 2
Part 5,
Regressive tax Thuế lũy thoái
Unit 2
Part 7,
Reinsurance Tái bảo hiểm
Unit 2
Part 3,
Residual value Giá trị còn lại
Unit 1
Lợi nhuận giữ lại/Lợi nhuận
Part 3,
Retained earnings chưa phân phối/Lợi nhuận
Unit 1
không chia
185
Part 7,
Retirement security An sinh hưu trí
Unit 2
Part 5,
Revenue out-turn Kết quả thu thực tế
Unit 1
Part 5,
Sales tax Thuế doanh thu
Unit 1
SAP - Statutory Các chuẩn mực kế toán theo luật Part 7,
Accounting Principles định Unit 1
Part 2,
Saving account Tài khoản tiết kiệm
Unit 1
Saving deposit/Thrift Part 2,
Tiền gửi tiết kiệm
deposit Unit 1
Part 1,
Secondary market Thị trường thứ cấp
Unit 1
Part 1,
Securities broker Nhà môi giới chứng khoán
Unit 1
Part 1,
Securities dealer Nhà kinh doanh chứng khoán
Unit 1
Part 2,
Security token Thiết bị xác thực
Unit 2
Part 7,
Settlement agents Đại lý thanh toán
Unit 2
Part 3,
Share split Chia tách cổ phiếu
Unit 1
Part 3,
Shareholder Cổ đông
Unit 3
Part 6,
Shares outstanding Số lượng cổ phiếu đang lưu hành
Unit 2
Part 2,
Smart card Thẻ thông minh
Unit 2
186
Part 5,
Social security An sinh xã hội
Unit 1
Part 4,
Speculation Đầu cơ
Unit 2
Part 5,
Spillover effects Tác động lan toả
Unit 1
Spot foreign exchange Part 4,
Giao dịch giao ngay
transactions Unit 1
Standard accounting Part 2,
Thông lệ kế toán chuẩn
practices Unit 1
Part 3,
Stockbroker Người môi giới chứng khoán
Unit 3
Part 6,
Swaps Hợp đồng hoán đổi
Unit 2
Part 3,
Tangible assets Tài sản hữu hình
Unit 3
Part 5,
Tariff Thuế quan
Unit 1
Part 5,
Tariffs (duties) Thuế quan
Unit 2
Part 5,
Tax liability Nghĩa vụ thuế
Unit 2
Part 5,
Tax resident Cá nhân cư trú phải chịu thuế
Unit 1
Part 3,
Tax-deduction Khấu trừ thuế
Unit 1
Part 5,
Taxes Thuế
Unit 2
Part 5,
Taxpayer Người nộp thuế
Unit 1
187
Part 3,
Tender offer Mời thầu
Unit 2
Part 4,
Trading pit Phiên giao dịch
Unit 1
Part 2,
Transaction deposit Tiền gửi giao dịch
Unit 1
Part 1,
Treasury bond Tín phiếu kho bạc
Unit 1
Part 6,
Treasury stock Cổ phiếu quỹ
Unit 2
Umbrella insurance Hợp đồng bảo hiểm bao phủ Part 7,
policies toàn diện Unit 1
Part 3,
Valuation Định giá
Unit 3
Part 5,
Value Added Tax Thuế giá trị gia tăng
Unit 1
Part 2,
Virtual bank Ngân hàng ảo
Unit 2
Part 7,
Workers compensation Bảo hiểm lao động
Unit 2
Part 2,
Yield curve Đường cong lãi suất
Unit 1
188
LIST OF REFERENCES
1. Alen Schick (1999), A Contemporary Approach to Public

Expenditure Management, Governance, Regulation, and
Finance Division World Bank Institute.
2. Barbara Casu, Chaudia Giradone, Philip Molyneux (2006),
Introduction to Banking, Pearson Education Canada
Publishing House.
3. Capital one, Introduction to Credit, retrieved at
http://www.capitalone.co.uk/creditmadeclearer/credit-
intro.jsf#what-is-credit.
4. Cheol S. Eun and Bruce G. Resnick (2007), International
Financial Management, McGraw-Hill/Irwin Publishing.
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191
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NATIONAL ECONOMICS UNIVERSITY

SCHOOL OF BANKING AND FINANCE

Co-editors: MSc. Le Phong Chau

NATIONAL ECONOMICS UNIVERSITY PUBLISHING HOUSE

Unit 1: Securities Market

Introduction: The center of this unit covers the functions of

shortage purchases efficiency excess improves

The basic function of financial markets is to (1)_____________

1. Money a. is a major disruption in the financial markets.

2.5. Put these words and phrases in the appropriate columns

Introduction: The key issues on regulations of financial system

insurance maximum restrictions assets

The government regulates financial markets and financial

1. Compliance a. according to law or regulation

b. authorization given to an organization

3. Supervision c. following rules and regulations

d. working with companies and

e. other institutions in an agreement,

Introduction: The banking sector, which is the backbone of an

2.2. Complete the sentences with the word partnerships from

Introduction: Human is standing on the brink of revolution of

Participants Devices Benefits Transactions

CHAPS (Clearing House Automated Payments System) – Hệ

Virtual bank – Ngân hàng ảo: Internet based financial institution

Introduction: Corporate finance is primarily concerned with

1. audited a. reduction in value of an asset over time

arm outstanding traded pounds' worth

Parker Publishing was (1)_________________ in 1872 by

annual report capital intensive cost-benefit analysis

1. Before deciding to invest in a new computer system, we need to

Introduction: This unit introduces selected special topics in

insolvent liquidity net positive

Cash flow is essentially a company’s ability to earn cash. It is the

Introduction: Valuation is the process of determining the current

1. Book value a. My company liquidated this old machine

2.3. Put the words/phrases in order to make sentences

active investment determine active investor securities

The Role of Valuation in Portfolio Management

Introduction: Money gives its holder the power to purchase

1. Currency a. The theory explaining the change in

converted pounds increases

Spot exchange transactions involve the (1)________________

Introduction: Financial management of the multinational

maturity date good-faith long

Both forward and futures contracts are classified as

1. Direct a. The option can be exercised at any time during

2.4. True/False questions

Introduction: Public finance is the study of the role of the

1 - subsidies a - tax paid on the sale of specific items for

2.5. Decide whether following statements are true or false. If false,

Introduction: Tax is a compulsory contribution to state revenue

1. Income tax a. Tax on profits made by selling assets such as

unavoidable rate non-inventory asset sales tax

corporation tax value-added tax short or long-term consumption tax

Certain taxes are (1)______________ though. As a registered

ability-to-pay benefit contractionary direct expansionary income

1. _________________ policy would probably be appropriate for

Introduction: A securities market is an exchange where sale and