Câu hỏi ôn thi money banking and financial market 2017

NGÂN HÀNG CÂU HỎI ÔN THI
HỌC PHẦN: MONEY, BANKING AND FINANCIAL MARKET
BỘ MƠN: TÀI CHÍNH CƠNG
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vấn đề chính như sau:
I.
NHĨM CÂU HỎI 1
1. Definition of money. The differences between money and wealth and income.
- Money as anything that is generally accepted in payment for goods or services
or in repayment of debts:
 Currency (paper money, coins)
 Checks
 Saving deposit
 …
- Wealth includes not only money but also other assets such as bonds, common
stocks, art, land, furniture, cars and houses.
Income is a flow of earnings per unit of time.
Money, by contrast, is a stock. It is a certain amount at a given point of time
Ex: If someone tells you that he has an income of $1,000, you cannot tell
whether he earned a lot or a little without knowing whether this $1,000 is
earned per year, per month, or even per day. But if someone tells you that she
has $1,000 in her pocket, you know exactly how much this is.
2. Players of money demand of the economy. Role of each player in Vietnam
economy.
- Players of Money Demand
 Institutions
 Individuals
 Banks
 Government
- Role of each player in Vietnam economy
 Institutions: Institutions in Vietnam, including businesses, corporations, and

non-profit organizations, are key drivers of economic activity. They contribute
to the demand for money by investing in infrastructure, technology, and human
capital. Institutions generate employment opportunities, pay wages and
salaries, and contribute to the production of goods and services. Their financial

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activities, such as borrowing, investing, and managing capital, impact the
overall demand for money in the economy.
 Individuals: Individuals in Vietnam contribute to the demand for money
through their consumption, saving, and investment behaviors. Their spending
patterns affect various sectors of the economy, such as retail, housing, and
transportation. Individuals' savings provide capital for investment and
contribute to the overall money supply. The demand for money by individuals
is influenced by factors such as income levels, consumer confidence, interest
rates, and inflation.
 Banks: Banks play a crucial role in the Vietnamese economy by facilitating
financial transactions, providing credit, and promoting economic growth. They
serve as intermediaries between savers and borrowers, channeling funds to
productive sectors. Banks lend money to businesses and individuals,
supporting investments, consumer spending, and entrepreneurship. They also
offer a range of financial services such as deposits, loans, and payment
systems, contributing to the efficiency of the economy.
 Government: The government of Vietnam has an important role in shaping the
country's economy. It formulates and implements fiscal and monetary policies
to promote economic stability, growth, and social development. The
government's demand for money is driven by public expenditures, including
infrastructure projects, education, healthcare, and defense. It raises funds
through taxation, borrowing from domestic and international sources, and

official development assistance. The government also influences the demand
for money through monetary policies set by the State Bank of Vietnam, which
regulates interest rates, manages the money supply, and maintains price
stability.
3. Players of money supply process.
Four Players in the Money Supply Process
- Central Bank (the most important): the government agency that oversees the
banking system and takes responsibility for conducting monetary policy
- Banks (Commercial Banks): the financial intermediaries that accept deposits
from individuals and institutions and make loans
- Depositors: individuals and institutions that holds deposits in banks
- Borrowers: individuals and institutions that borrow from depository institutions
and institutions that issue bonds purchased by the depository institutions.

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4. Which type of money is the best store of value? When is cash used to store value?
- Historically, precious metals like gold and silver have been widely regarded as
stores of value due to their scarcity and long-standing acceptance, their relative
ease of transport, and the ease of exchanging them for different denominations.
These metals have intrinsic value and have been used as a medium of exchange
and a store of wealth for centuries.
-

Cash is discussed as a form of storing value in the following circumstances:
 Precautionary motive: Cash is often held as a precautionary measure to
meet unforeseen expenses or emergencies. By keeping cash on hand,
individuals and businesses can quickly access funds when needed, without
relying on other forms of payment or credit.

 Speculative motive: Cash can be held as a store of value when there is
uncertainty about future investment opportunities or market conditions. If
individuals or businesses anticipate a decline in the value of other assets,
they may convert those assets into cash to preserve their wealth. This
speculative motive for holding cash allows for flexibility in responding to
changing economic conditions.
 Transaction motive: Cash is used to store value temporarily for everyday
transactions. Individuals and businesses hold cash for immediate spending
needs, such as buying goods and services or paying bills. This ensures
liquidity and convenience in day-to-day economic activities.

5. Forms of money.
- Commodity money:
 Is money made up of precious metals or another valuable commodity: cow,
sheep, stone necklace, …
 Cons: This form of money is very heavy and is hard to transport from one
place to another.
- Fiat money:
 Is currency decreed by the government as legal tender.
 The value of fiat money is derived from the relationship between supply
and demand rather than the value of the material that the money is made of.
It is based on faith.
 Cons: They are easily stolen and can be expensive to transport in large
amounts because of their bulk.
- Checks:
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-

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 A check is an instruction from you to your bank to transfer money from
your account to someone else’s when she deposits the check.
 Checks allow transactions to take place without the need to carry around
large amounts of currency.
 Cons: It takes time to get checks from one place to another; it often takes
several business days before a bank will allow you to make use of the funds
from a check you have deposited; the paper shuffling required to process
checks is costly.
Electronic payment:
 Transmit your payment electronically via internet.
 Cost savings when a bill is paid electronically from your bank account.
E-money:
Exists only in electronic form: (3 forms)
 Debit Card: A debit card is like a plastic version of your bank account.
Instead of using cash, you can use a debit card to pay for things. When you
make a purchase, the money is automatically taken out of your bank
account. It's a convenient way to shop without carrying cash.
 Stored-Value Card: A stored-value card is like a gift card or a prepaid card.
It already has a certain amount of money loaded onto it. You can use this
card to make purchases until the balance runs out. Once the money is used
up, you can add more funds to the card if needed. It's like having a mini
wallet with a specific amount of money on it.
 E-Cash (Electronic Cash): E-cash is like having digital money in your
computer or mobile device. It's a way to make payments online without
using physical cash. You can buy things or transfer money electronically
using special digital tokens or certificates. It's a digital version of cash that
you can use for secure transactions over the internet.

6. Definition of inflation. Classify inflation into 3 main types. Give examples of each
type of inflation in Vietnam.
- Definition: Inflation is an increase in the overall level of prices. It is
characterized by a decline in the purchasing power of money, which means that
the same amount of money can buy fewer goods and services.
- Types of inflation:
 Creeping inflation: prices rise 3 percent a year or less
 Walking Inflation: inflation is between 3-10 percent a year
 Galloping Inflation: inflation rises to 10 percent or more a year
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 Hyperinflation: prices skyrocket more than 50 percent a month
Examples in VN:
 Creeping Inflation: In Vietnam, a period of creeping inflation occurred in
the early 2010s. For example, between 2011 and 2013, the average annual
inflation rate ranged from around 9% to 11%. This type of inflation allows
for relatively stable economic conditions, and measures can be taken to
control and manage it.
 Walking Inflation: in the late 1980s to early 1990s, following economic
reforms. During this period, inflation was somewhat elevated but remained
below more severe levels. For instance, in the early 1990s, annual inflation
rates ranged from approximately 20% to 30%.
 Galloping Inflation: during the late 1980s and early 1990s. In 1988,
inflation soared to around 300%, and by 1994, it reached an alarming rate
of approximately 40%.
 Hyperinflation: the period of the Vietnam War from the mid-1960s to the
mid-1970s. During that time, inflation reached astronomical levels due to

war-related factors and economic instability, severely devaluing the
currency.

7. Causes and effects of inflation.
- Causes of inflation:
 Quantity theory: too much money in the economy causes inflation
 Demand-pull theory: when demand for goods/services exceeds existing
supplies
 Cost push theory: when producers raise prices to meet increased costs,
leads to wage price spiral.
- Effects of inflation:
+ Creeping inflation stimulates the economic development, it benefits
economic growth. This kind of inflation makes consumers expect that
prices will keep going up, which boosts demand.
+ High inflation has negative effects on the economy:
 To business Impact: High inflation disrupts planning, squeezes profit
margins, and distorts pricing strategies, making it challenging for
businesses to operate effectively.
 To commodity Circulation Impact: High inflation reduces consumer
purchasing power, leading to decreased demand, lower sales, and
potential economic contraction.
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 To money and Credit Impact: High inflation erodes the value of
money, affects savings and investments, limits access to credit, and
hinders investment.
 To state Budget Impact: High inflation strains the state budget,
increases the cost of providing public goods and services, and may
result in fiscal deficits and borrowing.

 To consumption and Living Standards Impact: High inflation
reduces real income, diminishes purchasing power, and lowers the
overall standard of living for individuals and households.
8. Performance of inflation.
- Creeping Inflation:
 Moderate and stable price increases.
 Allows businesses and individuals to plan and adjust gradually.
 Can incentivize spending and investment.
 Central banks aim to manage creeping inflation within a target range for
price stability and sustainable economic growth.
- Walking Inflation:
 Higher rate of price increases compared to creeping inflation.
 Creates some challenges for businesses in planning and pricing strategies.
 May start to impact consumer purchasing power.
 Requires careful monitoring to prevent acceleration into galloping inflation.
- Galloping Inflation:
 Extraordinarily high inflation rates, often above 20% to 50% annually.
 Severely disrupts the economy and exacerbates recessions.
 Rapid loss of money's value affects businesses, employees, and government
credibility.
 Foreign investors tend to avoid countries facing galloping inflation, limiting
capital inflow.
- Hyperinflation:
 Extreme form of inflation with inflation rates reaching triple-digit
percentages monthly.
 Rapid loss of purchasing power and economic instability.
 Destroys savings, undermines confidence, and leads to economic collapse.
 Requires immediate and drastic measures to restore stability, such as
currency reforms.

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9. Instruments of Financial Market? The development of these instruments in
Vietnamese Financial Market?
- Instruments of Money Market
•Short-term Debt Securities –Issued by governments, financial institutions and
corporations
•Investors are paid interest for the use of their funds.
•Generally low-risk
•Treasury bill
•Bank certificates of deposit
•Commercial paper
• Banker’s acceptances
• Repurchase agreements
•…
- Ex: Treasury bills issued via auctions at the SBV Operations Centre will be
registered and deposited at the Vietnam Securities Depository (VSD). The bills
will be listed and traded at the Hanoi Stock Exchange, and its clearance and
settlement payment are implemented via the VSD.
10. Explain “adverse selection problem” ?
- Adverse selection is the problem created by asymmetric information before the
transaction occurs. Adverse selection occurs when the potential borrowers who
are the most likely to produce an undesirable (adverse) outcome-the bad credit
risks-are the ones who most actively seek out a loan and are thus most likely to
be selected.
- Because adverse selection makes it more likely that loans might be made to bad
credit risks, lenders may decide not to make any loans even though there are
good credit risks in the market place.
11. Explain “moral hazard problems”?

- When borrower has incentive to use proceeds of loan for more risky venture
after loan is funded
- Bank manager must manage interest rate risk
- Moral hazard is the problem created by asymmetric information after the
transaction occurs.
- The borrower might engage in activities that are undesirable (immoral) from the
lender’s point of view, because they make it less likely that the loan will be paid
back => lenders may decide that they would rather not make a loan
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12. Explain “Asymmetric Information”?
- "Asymmetric information" is a term that refers to when one party in a transaction
is in possession of more information than the other.
- In certain transactions, sellers can take advantage of buyers because asymmetric
information exists whereby the seller has more knowledge of the good being sold
than the buyer. The reverse can also be true.
13. Explain function of a bank loan officer?
The function of a bank loan officer is to evaluate loan applications and make
decisions that balance the needs of the borrower with the risk to the bank, in order to
ensure that loans are profitable and sustainable for both parties.
The specific duties of a bank loan officer may include:
 Marketing, prospecting for potential customers: This is considered as one of the
important tasks to increase the sales of a credit officer. You are responsible for
finding new customers and zoning potential customers. Credit staff will advise
customers on loan products or use services such as savings deposits, payment
deposits and other bank facilities.
 Client consultant: Based on the existing data about the customer, the credit officer
will work directly with the customer, give the most appropriate advice,
enthusiastically answer service questions, and help customers understand as

thoroughly as possible.
 Reviewing loan applications: Loan officers must review loan applications
carefully, looking at factors such as the applicant's credit score, income, and debtto-income ratio, as well as the purpose of the loan.
 Verifying information: Loan officers may need to verify the information provided
by applicants, such as employment history, income, and assets.
 Analyzing risk: Loan officers need to assess the risk of lending to eachapplicant,
considering factors such as credit history, collateral, and the purpose of the loan,
prestige, business capacity, scale of operation, financial capacity, business
situation, business plan (plan), ability torepay principal and interest, loan
collateral...
 Making loan decisions: Based on their analysis, loan officers must make a
decision on whether to approve or deny the loan, and what the terms and
conditions of the loan should be.
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 Providing customer service: Loan officers may also provide customer service to
loan applicants, answering questions and providing guidance throughout the loan
application process.
 Monitor the status of loan use: For loan cases, credit officersare responsible for
checking the status of loan use inaccordance with the bank's regulations and
monitoring therepayment of principal and interest of the customer according tothe
contract between the bank and the borrower capital.
 Finalize the contract according to regulations.
14. How does money withdrawing impact on reserves and checkable deposits of a
bank?
- Reserves: Reserves refer to the funds held by a bank to meet withdrawal demands
and fulfill its regulatory requirements. When a customer withdraws money, the
bank needs to provide the cash from its reserves. As a result, the amount of
reserves held by the bank decreases.

- Checkable Deposits: Checkable deposits are the funds held in bank accounts that
can be easily accessed through checks, debit cards, or electronic transfers. When a
customer withdraws money, the checkable deposit balance in their account
decreases. This reduction in checkable deposits is equal to the amount of money
withdrawn.
15. A bank holds more money of excess reserves, which effects on checkable deposits
in the banking system or not? What will happen with vice versa?
- When a bank holds more money in excess reserves, it does not directly impact
checkable deposits in the banking system but they can influence the lending
capacity of banks, which in turn can have an indirect impact on the growth of
checkable deposits in the banking system.
(Excess reserves are the funds that banks hold beyond their required reserves.
These excess reserves act as a cushion or buffer for the bank, providing
additional liquidity and security.)
-

The increase in excess reserves does not automatically translate into an increase
in checkable deposits in the banking system. Checkable deposits are the funds
held in bank accounts that can be easily accessed through checks, debit cards, or
electronic transfers.

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However, it's important to note that the availability of excess reserves can
indirectly impact checkable deposits through the lending process. When banks
have excess reserves, they have more capacity to extend loans to borrowers. By
making loans, banks create new checkable deposits in the accounts of borrowers.

These newly created deposits increase the overall level of checkable deposits in
the banking system.

-

On the other hand, if a bank reduces its excess reserves, it does not directly
impact checkable deposits either. However, if multiple banks in the banking
system reduce their excess reserves simultaneously, it can reduce the overall
availability of funds for lending. This reduction in lending capacity can
indirectly affect the growth of checkable deposits in the banking system.

16. Changes in structure of banking Industry?
- Consolidation and Mergers: The banking industry has seen significant
consolidation and mergers, resulting in the formation of larger banks to achieve
economies of scale and expand market presence.
- Deregulation and Financial Liberalization: Many countries have implemented
deregulation and financial liberalization measures, allowing banks to enter new
markets and offer a wider range of financial services, leading to increased
competition and innovation.
- Technological Advancements: Banks have embraced technology, such as
online banking, mobile banking, and digital payment systems, transforming the
way customers access financial services and interact with banks.
- Non-bank Financial Institutions: Non-bank financial institutions, including
insurance companies, mutual funds, and investment banks, have gained
prominence, providing alternative sources of funding and investment
opportunities.
- Globalization and Cross-Border Activities: Banks have expanded globally,
engaging in cross-border lending, foreign investments, and international trade
finance, resulting in increased interconnectedness among financial institutions.
- Regulatory Reforms: Stricter regulations and oversight measures have been

introduced to enhance stability and mitigate risks in the banking industry,
aiming to prevent financial crises and protect consumers.
- Rise of Shadow Banking: Non-bank financial intermediaries operating outside
traditional banking regulations, known as shadow banking, have grown,
presenting new challenges and risks to the banking industry.
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17. Evolution of International banking?
- Early Development: International banking emerged to facilitate cross-border
trade and finance, providing financial services for merchants and traders.
- Colonial Era: European banks played a significant role in financing trade
between colonial powers and their colonies.
- Post-World War II: The establishment of the Bretton Woods system led to
increased international financial integration, with commercial banks expanding
their international operations.
- Eurocurrency Market: The rise of the eurocurrency market allowed banks to
operate in foreign currencies beyond regulatory constraints.
- Financial Deregulation: Financial deregulation and liberalization in the 1980s
and 1990s fostered the growth of international banking.
- Globalization: Banks expanded globally, establishing branches and subsidiaries
in different countries, driven by advancements in technology and liberalized
financial markets.
- Financial Crises: Financial crises, such as the Latin American debt crisis, Asian
financial crisis, and global financial crisis, have shaped the international
banking landscape and led to regulatory reforms.
- Regulatory Framework: International banking operates within various
regulatory frameworks, including international agreements and capital
adequacy standards.
18. Expand Monetary Policy and Tight monetary policy?

- Expansionary monetary policy:
When the central bank raises the money supply, interest rates fall. The economy
moves down the money demand schedule. Lower interest rates reduce costs of
investment; thus, higher investment raises aggregate demand curve.
- Tight moneytary policy:
Central bank contracts the money supply in response to fears of rising prices.
The lower money supply increases interest rates. The result of a tighter monetary
policy is lower investment and decrease in the nation’s output.
19. Reserve Requirement of Monetary Policy.
- Another significant power that Central Bank hold is the ability to establish
reserve requirement for other banks.

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The other requirement is that a percentage of liability is being held as cash or
deposited with the Central Bank or other agency, limits are set on the money
supply.

20. Function of Central Bank.
a) Bank of issue
Central Bank (CB) has the exclusive monopoly of note issue and the currency
notes issued by the Central Bank are declared unlimited legal tender
throughout the country.
This monopoly brings about.
b)

c)

d)

e)

Uniformity of note issue which in turn facilitates trade and exchange within the
country
Enables the Central Bank to influence and control the credit creation of
Commercial Banks
Gives distinctive prestige to the currency notes
Enables govt. to appropriate partly or fully the profits of note issue
Banker, Agent and Adviser to the Government
As Banker and Agent, CB keeps the banking accounts of the Central and
State governments and makes and receives payments on behalf of the
government. It provides short-term advances to the govt. (ways and means
advances to tide over temporary shortage of funds. It advises the govt. on
all monetary and banking matters.
Custodian of the Cash Reserves of Commercial Banks
All Commercial Banks keep part of their deposits as reserves with the
Central Banks. Centralized cash reserves serve as the basis of a larger and
more elastic credit structure and helps Commercial Banks to meet crises
and emergencies. Centralized cash reserves aids the Central Bank to control
credit creation and implement monetary policy.
Custodian of Foreign Balances of the Country
CB holds the foreign exchange assets of all commercial and nonCommercial Banks of the country.It is the responsibility of CB to maintain
the rate of exchange and manage exchange control and other restrictions
imposed by the State. It also maintains reserves with the IMF and obtains
normal drawing and special drawing rights.
Lender of the last resort
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Central Bank never refuses to accommodate any eligible Commercial Bank
experiencing cash shortage in the absence of a Central Bank, Commercial
Banks will have to carry substantial cash reserves which imply restricted
lending and reduced income. As a lender of last resort, Central Bank
assumes the responsibility of meeting directly Or indirectly all reasonable
demands for accommodation by the Commercial Banks.
f) Central Clearance, Settlement and Transfer
As the Central Bank keeps cash reserves of Commercial Banks, it is easier
for member banks to settle their mutual claims in the books of the Central
Bank. These are the clearing house operations of CB wherein cheques are
cleared, claims settled and funds transferred in the books of the member
banks. However, this function can also be performed by any leading bank
in a locality or area.
g) Controller of Credit
CB controls the level of credit in the economy by either expanding or
contracting bank deposits. In modern times, bank deposits have become the
most important source of money in the country. As controller of credit, CB
seeks to influence and control the volume of bank credit and also to
stabilize business conditions in the country.
21. Operation of Central Bank.
- Monetary Policy: Central banks formulate and implement monetary policy
to control the money supply and influence interest rates in the economy.
- Bank Supervision and Regulation: Central banks supervise and regulate
banks and financial institutions to ensure their safety and soundness.
- Lender of Last Resort: Central banks provide liquidity to banks facing
funding shortages during times of financial distress.
- Currency Issuance: Central banks issue and manage the nation's currency.
- Foreign Exchange Management: Central banks manage foreign exchange

reserves and intervene in foreign exchange markets to stabilize the
domestic currency.
- Economic Research and Analysis: Central banks conduct economic
research and analysis to inform policy decisions and provide insights on the
state of the economy.
- Financial Stability: Central banks monitor and address systemic risks to
maintain financial stability.

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Payments System Oversight: Central banks oversee payment and settlement
systems to ensure their efficient and secure functioning.

22. Definition and forms of Foreign Direct Investment (FDI). Relating to Vietnam?
- Definition of Foreign Direct Investment (FDI): FDI refers to the investment
made by a company or individual from one country into a business or project
located in another country. It involves a long-term commitment, as the investor
seeks to establish a lasting interest and control in the foreign enterprise. FDI
typically involves acquiring equity ownership or establishing subsidiaries, joint
ventures, or branches in the foreign country.
- Forms of Foreign Direct Investment:

-

 Greenfield Investment: The establishment of a new business or facility in
a foreign country.
 Merger and Acquisition: The acquisition of an existing company or its

assets in a foreign country.
 Joint Venture: The formation of a new business entity through a
partnership between a domestic and foreign company.
Relating to Vietnam
 Foreign Direct Investment (FDI) in Vietnam: Foreign companies and
individuals can invest directly in Vietnam by establishing new businesses,
acquiring existing companies, or entering joint ventures with Vietnamese
partners. Vietnam has implemented policies to attract FDI, including tax
incentives, streamlined administrative procedures, and special economic
zones. FDI has played a crucial role in Vietnam's economic growth,
particularly in industries such as manufacturing, services, and real estate.

23. Definition and forms of Foreign Indirect Investment (FII). Relating to Vietnam?
- Definition of Foreign Indirect Investment: Foreign Indirect Investment, also
known as Portfolio Investment, refers to the investment in financial assets, such
as stocks, bonds, or other securities, of a foreign country without establishing a
significant controlling interest in the invested entity. It involves purchasing
securities issued by foreign companies or governments, with the primary
objective of earning financial returns rather than gaining managerial control.
- Forms of Foreign Indirect Investment:
 Equity Investment: Buying shares or stocks of foreign companies listed on
stock exchanges.
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 Bond Investment: Investing in foreign government or corporate bonds.
 Mutual Fund Investment: Investing in mutual funds that allocate funds
across various foreign securities.

Relating to Vietnam
 Foreign Indirect Investment in Vietnam: Foreign investors can participate
in Vietnam's financial markets by purchasing stocks, bonds, or other
securities issued by Vietnamese companies or the government. Vietnam has
gradually opened its financial markets to foreign investors, allowing them
to trade on the stock exchange and invest in government bonds. The
government has taken steps to improve market transparency and enhance
investor protection to attract foreign portfolio investment.

24. Definition and features of Foreign Exchange Market
 Foreign exchange market is not necessarily a physical place, but it is
established network of buyer and seller through the latest technology like ewire, internet, in addition to the postal communication system, through which a
currency of one country is converted into the currency of another country. The
exchanges of currency from one to another happen to satisfy the need of goods,
commodities and services, in addition to invest in financial assets
 Such market is also known as Euro Currency Market. The banks who are
involved in euro currency market are generally large sized commercial banks,
also known as Euro Banks Euro banks are involved in acceptance and lend the
funds in currencies of the country of the globe, based on need of the citizens of
the country where they are operating.
25. Definition and features of Eurocurrency Market.
- The Eurocurrency Market refers to the market where currencies are deposited,
lent, borrowed, and invested outside their home countries. It involves the trading
of currencies in the form of bank deposits, loans, and other financial instruments
in offshore financial centers.
- The banks who are involved in euro currency market are generally large sized
commercial banks, also known as Euro Banks Euro banks are involved in
acceptance and lend the funds in currencies of the country of the globe, based on
need of the citizens of the country where they are operating.

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II.
NHÓM CÂU HỎI 2
1. Name some assets which have liquidity and set order following the most liquidity?
Here are some examples of assets in order of decreasing liquidity:
-

-

-

Cash and Cash Equivalents: Cash and cash equivalents are the most liquid
assets. They include physical cash, bank account balances, and highly liquid
instruments like Treasury bills. Cash is readily available for immediate use in
transactions
Stocks and Bonds: Stocks and bonds are more liquid than real estate. They can
be bought and sold relatively easily on financial markets. However, certain
stocks and bonds may have lower liquidity if they have limited trading volumes
or are subject to trading restrictions.
Real Estate: While real estate can have substantial value, it is generally less
liquid compared to other assets. Selling property may take time and involve
various transaction costs.

2. Players of money demand and money supply process in the economy?
3. Purpose of money demand?
- For investment/ business. Demand of money is impacted by individual’ income
and interest rate.
- For consumption. Demand of money is impacted by individual’ income and

price of goods.
4. Causes and effects of inflation?
5. Inflation of Vietnam in period 1985-1988?
- In the mid-1980s, Vietnam was transitioning from a centrally planned economy
to a more market-oriented system.
- During this period, Vietnam experienced high inflation due to economic reforms
and rapid changes in the economy.
- The inflation rate was relatively high, with annual inflation reaching double or
even triple digits.
- Factors contributing to inflation included an increase in money supply, price
liberalization, and supply-demand imbalances in the economy.
- High inflation during this period posed challenges for individuals, businesses,
and the overall stability of the economy.
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6. Inflation of Vietnam in period 2004-2013?
- In the 2000s, Vietnam underwent significant economic growth and integration into
the global economy.
- During this period, inflation remained a concern for Vietnam, but the rate was
relatively lower compared to the 1985-1988 period.
- Annual inflation rates ranged from single digits to low double digits.
- Factors contributing to inflation included rising energy and food prices, increased
domestic demand, and global economic conditions.
- The government implemented various measures to manage inflation, including
fiscal policies, monetary policies, and price controls.
- Despite efforts to control inflation, it remained a challenge and affected the cost of
living for people in Vietnam.
7. The importance of financial intermediaries in the development of history?
- Mobilizing Savings: Financial intermediaries, such as banks and mutual funds,

gather savings from individuals and channel them towards productive investments.
This process helps to allocate savings efficiently and direct funds to productive
uses, stimulating economic growth.
- Providing Payment Services: Financial intermediaries facilitate the smooth flow of
payments within an economy. Through the provision of checking accounts, debit
cards, and electronic payment systems, they enable individuals and businesses to
transact conveniently, promoting economic activities.
- Reducing Transaction Costs: Financial intermediaries help to reduce transaction
costs associated with financial activities. They pool resources from numerous
individuals and allocate them efficiently, thus reducing the costs and risks
associated with individual transactions.
- Managing Risk: Financial intermediaries specialize in managing various types of
risks. They evaluate creditworthiness, collect information, and make informed
lending decisions. By diversifying their loan portfolios, they reduce the risk of
individual default and promote stability in the financial system.
- Enhancing Liquidity: Financial intermediaries provide liquidity services by
offering deposit accounts that allow individuals to convert their assets into money
easily. This enhances the liquidity and tradability of financial assets, making them
more attractive to investors.
- Facilitating Capital Formation: Financial intermediaries play a vital role in
facilitating capital formation by connecting borrowers and savers. They channel
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funds from savers to borrowers, promoting investment, entrepreneurship, and
economic expansion.
Providing Financial Advice: Financial intermediaries offer financial advice and
expertise to individuals and businesses, helping them make informed decisions

about investments, savings, and financial planning.

8. Risks in lending money?
- Credit Risk: The risk of borrowers defaulting on loan payments.
- Interest Rate Risk: The risk of fluctuations in market interest rates affecting the
profitability of loans.
- Liquidity Risk: The risk of not having enough funds to meet short-term
obligations.
- Market Risk: The risk of losses due to changes in asset prices, interest rates, or
foreign exchange rates.
- Operational Risk: The risk of losses arising from internal processes, systems, or
human errors.
- Reputation Risk: The risk of damage to a lender's reputation, leading to loss of
customers and investor confidence.
9. Differences between financial system to financial market?
- Scope: The financial system encompasses all financial institutions, regulations,
and mechanisms in an economy. In contrast, a financial market represents a
specific segment or platform within the financial system where trading of
financial assets occurs.
- Function: The financial system performs a broader function of mobilizing
savings, allocating funds, providing payment services, managing risks, and
supporting economic activities. Financial markets, on the other hand, primarily
facilitate the buying and selling of financial assets.
- Participants: The financial system includes various participants such as banks,
insurance companies, pension funds, and regulatory authorities. Financial
markets involve buyers and sellers of financial assets, including individuals,
corporations, institutional investors, and financial intermediaries.
- Regulation: The financial system is subject to regulations and oversight from
regulatory bodies to ensure stability, transparency, and fair practices. Financial
markets are also regulated, but the focus is primarily on market operations,

investor protection, and maintaining market integrity.

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10. Differences between Debt markets and Equity markets?
- Debt Markets
 Debt instruments are issued
 Short-Term (maturity < 1 year)
 Long-Term (maturity > 10 year)
 Intermediate term (maturity in-between)
 Involve fixed-income securities like bonds
 Provide fixed interest payments to investors
 Debt holders have higher priority in claims
 Considered less risky
 Provide stable income streams








Equity Markets
Equity instruments are issued
 Pay dividends, in theory forever
 Represents an ownership claim in the firm
Involve ownership shares in companies
Offer potential dividends and capital gains

Equity holders have residual claims
Considered riskier
Provide variable returns

11. Differences between Primary market and Secondary markets?
Primary Market
- firms and governments issue securities and sell them initially to the public.
- New issued securities sold to initial buyers
- When a firm offers a stock for sale to the general public for the first time.
Secondary Market
- collection of financial markets in which previously issued securities are traded
among investors.
- Securities previously issued are bought and sold
12. Financial Institutions. The development of Financial Institutions in Vietnam?
a) Depository institutions: are financial institutions that accept deposits from
individuals and institutions and make loans.
 Commercial bank
 Savings and loan associations
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 Mutual savings banks
 Credit unions
In Vietnam, the banking sector has undergone significant development and reforms. The
State Bank of Vietnam (SBV) is the central bank responsible for overseeing monetary
policy and regulating the banking industry. The Vietnamese banking system consists of
state-owned banks, joint-stock banks, and foreign banks. Efforts have been made to
improve governance, enhance financial stability, and increase access to financial services
for individuals and businesses.
b) Contractual saving institutions are financial institutions that acquire funds at

periodic intervals on a contractual basis.
 Life insurance companies
 Pension funds
In Vietnam, the development of contractual savings institutions has gained momentum.
Insurance companies, both domestic and foreign, provide life insurance, health insurance,
and other insurance products to individuals and businesses. The government has also
implemented reforms to develop the pension system, encouraging individuals to save for
their retirement through various pension funds.
c) Investment intermediaries
 Finance companies
 Mutual funds
 Money market mutual funds
 Investment bank
The development of investment intermediaries in Vietnam has been relatively nascent
compared to depository institutions. However, there has been a growing interest in
mutual funds and brokerage services, providing individuals with opportunities to invest in
a diversified portfolio of assets and participate in the capital markets.
13. Definition and history of commercial bank? Services of Commercial bank?
Relating to banking system in Vietnam?
- Definition:
 A commercial bank accepts deposits from customers and in turn makes loans,
even in excess of the deposits; a process known as fractional-reserve banking.
Some banks (called Banks of issue) issue banknotes as legal tender.
 A commercial bank is a type of financial institution that accepts deposits,
offers checking account services, makes business, personal and mortgage
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