UNIT 1. MONEY & INCOMEI. Money

a. History of money

- a mean of barter

- coins

- paper money

- plastic money: credit card, traveler’s check

b. 4 functions of money

- medium of exchange: a mean of payment & it speeds up the buying & selling process.

- store of value: money allows us to save/accumulate the property/wealth

- units of account: money is used for measuring the relative worth of goods & services.

- standard of deferred payment: money is used as a means of valuing future receipt in loan contract.

c. 4 characteristics of money

- recognizable: in the form of standard (coins or papers)

- durable: lasting the quality of money.

- portable: easily to be transferred between the buyer & seller.

- divisible: nomination

d. the liquidity of money

- money assets: instant assets → to arrange for exchanging goods & services.

- real assets: land, houses, apartments → low liquidity.

- paper assets: bonds, stocks → low liquidity.

Money can be used directly/quickly in the market

e. currency/money/cash

Currency Money Cash

- coins &

banknotes

- currency

exchange

- foreign

exchange

market

- convertible

currency

- medium of

exchange

- money supply

- money market

- monetary

policy: tight or

loose

- currency on

hand

II. Personal finance

Income Outgoings

- salary/wage

- overtime

- commission

- bonus

- fees

- social security

- a pension

- living expenses

- bills

- rent

- mortgage

- health insurance

- tax

UNIT 2. BUSINESS FINANCEI. Capital

- capital structure:

+ debt financing:

* borrow from banks

* short – term debts → interest rates

+ equity financing:

* issue stocks → investors buy stocks → share

-holders (AGM: annual general meeting)

share dividends; membership & management

- assets versus liabilities

II. Revenue

- money coming from business in a given period of time.

- profit = revenue - expenses

- profit dividends for shareholders

tax for government

retain for future use

III. Financial statements

- 3 kinds of financial statements

+ balance sheet: assets & liabilities

+ income/profit & loss statement: revenues &

expenses

+ cash flow statement: money circulation

- financial analysis:

+ measure for liquidity

+ measure for efficiency

+ measure for financial leverage

+ measure for profitability

1. All the money received from business activities during a given period of time is …..

a. assets b. income c. transactions

2. All the money that a business spends on goods or serivices during a given period is …..

a. debts b. expenditure c. liabilities

3. A financial operating plan showing expected income and expenditure is …..

a. account b. budget c. financial statement

4. Anything owned by a business – cash, buildings,machines, equipment, etc is called …..

a. asset b. income c. revenue

5. All the money that a company will have to pay to someone else in the future, is …..

a. debits b. expenditure c. liabilities

6. An entry in an account, recording a payment made

a. credit b.debt c. debit

7. An entry in an account, recording a payment received is …..

a. credit b. debt c. income

8. An adjective describing something without a material existence, which you can’t touch …..

a. current b. intangible c. tangible

9. An adjective describing a liability which has been incurred but not yet invoiced to the …..

a. accrued b. deferred c. receivable

10. Delayed or postponed until a later time …..

a. deferred b. payable c. retained

UNIT 28. VENTURE CAPITALDiscussion questions:

1. If you were starting a new company, how could you try to raise money?

2. A completely new company is often referred to as a ‘start-up’. In what ways can start-ups be risky ventures? Can you think of any star-ups which have become very successful in the last few years? What factors do you think contributes to their success?

3. What are the main ways that established companies raise capital?

the ways to raise capital for a start-up

- new business: start-up → private companies

→ not selling stocks/shares → what are the ways they raise their capital?

- small companies: capital from the founders/owners

- large companies: capital from the other financial organizations: banks

- banks: risk – averse → dangerous for the new company to lend

- venture capital/risk capital companies: funds for new companies.

- some: their capital to fund new ones

- most: capital from other financial organizations

→ angels/high net worth individuals/angel investors

- other investors: pension funds or insurance companies → new companies → potential for rapid growth & successful in their business.

rate of return

- new companies: venture capitalists → their business plan

- what are the standard elements of a business plan?

- due to the high risk from start-ups → high rate of return

- rate of return: the return in terms of the annual percentage of return the investors to get over from their investment.

- in case: investors can’t get their return → buy new company’s shares.

- new company: successful → public company→ listed on the stock exchange → investors: sell their shares to get profit → exit strategy.

- venture capitalists: new company in the early stage → new company: further capital →

mezzanine financing

- mezzanine financing: money invested in a company before it is listed on a stock exchange. It is lower the support from the banks & raise the capital of the new company

- mezzamine financing: convertible bonds or preference shares

+ convertible bonds: bonds that are later be converted into shares & lower interest rates

+ preference shares: fixed dividends

UNIT 29. STOCKS & SHARES 1A. stocks, shares, equities

- securities: stocks, shares & bonds

- in Britain → stock: securities & government bonds

- government bonds: gilt-edged stock/gilts (BE),Treasury notes & Treasury bonds (AE)

- stock market/stock exchange: primary & secondary market

- stock/share: preference & ordinary shares

- market index:

+ DJIA (Dow Jones Industrial Average)

+ NASDAQ (National Association of Securities Dealer Automated Quotation)

+ FTSE (Financial Times Stock Exchange)

+ AIM (Alternative Investment Market)

- market index is used to:

+ measure the market value of stocks

+ provide the price trends of a specific industry or the whole market.

B. going public

- company: a group of people joins together to do business → make profit → share capital

- CoPte: Private limited company

- CoPlc: Public limited company

going public

CoPte CoPlc

company

listed/quoted unlisted

companies companies

- procedures for a company to list & issue stocks

+ public company → advice from investment bank → due diligence from independent accountant → prospectus & financial results → a flotation/IPO→ investment underwrites the stocks

C. ordinary & preference shares

Ordinary shares Preference shares

- receives variable dividends

- have the voting rights

at the AGM

- receive fixed dividends

- are repaid in advance in case of company’s bankrupt or liquidation

UNIT 30. STOCKS & SHARES 2• buying & selling shares - kinds of stock markets

a. based on the capital circulation:

+ primary market: newly isssued shares are sold

- most important function: to mobilize capital for investment.

+ secondary market: issued shares are traded here

b. based on the mode of market

+ security market: all the shares are traded on the trading floor

- listed the shares of the large, famous companies

- shares are traded through auction

- lots of regulations

+ over-the-counter (OTC):

- share trading through computers

- unlisted companies

- fewer regulations

c. based on the goods in the market:

+ share market: shares – preference & ordinary shares are traded

+ bond market: company & government bonds are purchased & sold

+ derivative market: warrants, options are traded

- prices of shares:

* nominal value/par value: the price written on the shares

registered capital

nominal value =

number of shares issued

* market value/price: the price of shares trading at a stock exchange & dependent on the supply & demand

- some stock exchanges: automatic trading system for both the buyers & sellers

- other markets: market makers: traders in stock for bidding & offering price.

→ spread/difference b/w prices: their profit/mark-up

- most customers: their trading through stockbrokers.

• new share issues

- right issues: companies issued the new shares for their existing shareholders.

- others: to capitalize part of their profits or retained earnings by issuing new shares for existing shareholders.

→ script issue, capitalization issue & bonus issue

- own shares: some companies have much cash, they can buy back their own shares.

• categories of stocks & shares

* blue chips: stocks of large companies reputed in profitability, quality & reliability

* growth stocks: stocks expected a rise in value regularly & not paying dividends, so the shareholders’ equity: increase.

* income stocks: stocks having high dividends

* defensive stocks: stocks having regular dividends & rarely increase their prices, stable earnings

* value stocks: stocks that investors believe shares they trade are lower price than the company’s assets.

- dividend = net income - interest for preference shares - retained earnings/the number of ordinary at present

UNIT 32. SHAREHOLDERS

1. Investors

- stock markets: measured by stock indexes (indices)

ex: - Dow Jones Industrial Average (DJIA): is price-weighted average of 30 significant stocks traded on the New York Exchange & the NASDAQ

- The NASDAQ: is the computerized system that facilitates trading & provide price quotations on more than 5,000 of the more actively traded over the counter stocks.

+ traditionally home to many high-tech stocks such as Microsoft, Intel, Dell, Cisco.

- FTSE 100 (Footsie): jointly owned by the Financial Times & the London Stock Exchange, an index of blue-chip stocks on the London Stock Exchange.

These indices: the change in the average prices of selected groups of important stocks.

several stock markets crash when these indices have fallen considerably on a single day

ex: ‘Black Monday’

* On Oct. 19th, 1987 when the Dow Jones Industrial Average (DJIA) lost almost 22.6% in a single day

* That event marked the beginning of a global stock market decline, making Black Monday one of the most notorious days in recent financial history

* By the end of the month, most of the major exchanges had dropped more than 20%

- animal names used to describe the investors

* bulls: investors expecting the prices rise.

* bears: investors expecting the prices fall.

* stags: investors buying new shares that will be over-subscribed (mua chứng khoán quá nhiều) to hope the demand to be over the available stocks → to sell them for a profit.

* bull market

* bear market

2. Dividends & capital gains

2.1. dividends

* cum dividends: investors receive the next div. the company pays.

* ex dividends: investors do not receive their div.

→ cum div. share price: higher b/c of the estimated value of the coming dividends.

2.2. capital gains

* some shareholders: capital gains → raising their money by selling stocks at the higher prices than the one they bought.

* some do not receive their dividends → tax on capital gains is lower than the income tax for their dividends.

3. Speculators

- speculators: people buying & selling stocks for a profit

* day traders: persons who purchases & sells stocks during one trading day/before the settlement day.

+ settlement day: the day on which the buyers have to pay for the sellers the stocks they have bought.

+ settlement day: usually 3 business days after the trade was made.

+ before the settlement day: day traders do not need to pay the money.

* online brokers: persons who works with the day traders for low commission

- speculators:

* short position (vị thế đầu cơ bán trước): a position showing sales over purchases in anticipation of a fall in prices.

* long position (vị thế đầu cơ mua trước): a position showing purchases over sales in anticipation of a rise in prices/the investors keep or own their securities due to a rise in prices.

UNIT 32. SHARE PRICES1. Factors

- financial situation of the company.

- situation of the industry where the com. works

- state of the economy.

- belief of the investors.

→ price-sensitive information (thông tin giá nhạy cảm) may make the prices change.

2. Predicting prices

* random walk hypothesis (giả thuyết bước đi ngẫu nhiên): giá chứng khoán phản ánh những phản ứng đối với tin tức thị trường theo kiểu ngẫu nhiên, vì thế khó mà tiên đoán được. Giả thuyết bước đi ngẫu nhiên do nhà toán học người Pháp Louis Bachelier đưa ra đầu tiên năm 1900 và hồi sinh vào thập niên 1960.

* fundamental analysis (phân tích cơ bản):

+ a share: true or correct value & different from its stock market value.

+ its true value: reflecting its present value of the future income from dividends.

+ major factors for that way:

- fundamental information of the company (phân tích thông tin cơ bản của công ty)

- financial statement analysis

- company’s operation analysis (phân tích hoạt động của công ty)

→after analysis, analyst must show his prediction for some important targets: expected revenue, book value for shares, recommendations for trading shares.

* technical analysis (phân tích kỹ thuật)

+ studying charts of past stock prices allows you to predict the future changes.

ex: head & shoulder pattern (biểu đồ đầu & 2 vai mẫu dạng đồ thị này bao gồm: 1 đợt tăng vọt giá sau cùng (đầu) tách biệt 2 đợt tăng giá nhỏ (2 vai) dù 2 vai không nhất thiết bằng nhau. Vai 1 là bước đột phá giá thứ nhì trong bối cảnh giá lên và vai 2 là bước đột phá thứ nhất trong bối cảnh giá xuống. Ta có thể vẽ đường cổ vai nối từ đáy của 2 vai, và sự khẳng định xu hướng giá được nhìn nhận khi có mức giá đóng cửa quyết định nằm dưới đường cổ vai này. Mục tiêu định giá được dựa trên khoảng cách thẳng đứng từ đầu đến cổ vai sau đó dự đoán giá xuống từ vị trí mà đường cổ vai bị xuyên qua.

* efficient market hypothesis:

+ share price change: based on the behavior of the investors due to the relevant information.

3. Types of risk

- systematic risk: risk that can’t be diversified away as it is the risk of market movements or of market segment movements, it is also known as market risk (rủi ro không thể lãng tránh được do đó là rủi ro của các biến chuyển thị trường hoặc các biến chuyển đoạn khúc thị trường, hay còn gọi là rủi ro thị trường)

+ eliminated by diversification

- unsystematic risk: risk that affects individual companies & their shares

+ reduce unsystematic risk by having a broad collection of different investments (diversified porfolio)

UNIT 33. BONDSDefinitions of Bond

- bond: a debt investment in which an investor loans money to an entity (corporate or government) that borrows the funds for a defined period of time at a fixed interest rate.

- bonds: used by companies, municipalities, states & the U.S & foreign governments to finance a variety of projects & activities.

- bonds: commonly referred to as fixed-income securities & are one of the 3 main asset classes, along with stocks & cash equivalents.

- the indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid & when the loaned funds (bond principal) are to be returned (maturity date).

- interest in bond: usually paid every 6 months (semi-annually).

- the main categories of bonds: corporate bonds,municipal bonds, & the U.S Treasury bonds, notes & bills, which are collectively referred to as simply “Treasuries”.

- 2 features of a bond: credit quality & duration are the principal determinants of a bond’s interest rate.

- bond maturities range from a 90 day; Treasury bill to a 30 – year government bond.

- corporate & municipals: typically in the 3 to 10-year range.

1. Government & corporate bonds

- bonds: loans to local & national governments, & to large companies.

- bondholders: fixed interest payments, once or twice/year.

- principal: money invested by bondholders.

- maturity date: the date when the loan ends.

- in Britain, government bonds: gilt –edged stock or gilts (công trái).

- in the U.S, government bonds:

* Treasury notes: 2 to 10 - year maturity (kỳ phiếu kho bạc)

* Treasury bonds: 10 to 30 - year maturity (trái phiếu kho bạc)

- corporate bonds (trái phiếu công ty): less interest to bondholders but safer than shares.

- credit ratings (đánh giá tín dụng/khả năng trả nợ) the company’s ability to repay the loan to the bondholders.

- credit agencies: Standard & Poor’s & Moody’s → grade, rate the ability of the company to repay the loans to the bondholders.

- to default (không trả lãi/không trả lại vốn vay):fail to pay interest or repay the principal.

- use the letter to grade, rate the credit ratings of a company like AAA, Aaa, Baa, BBB, C, etc …

- insolvent (không có khả năng trả lãi/trả lại vốn vay): unable to pay the interest or repay the capital.

2. Prices & yields

- bonds: traded by banks → as market makers to bid & offer prices with a small spread.

- prices of bonds: inversely with interest rates.

- yield of a bond (lãi suất trái phiếu): income from bonds.

- coupon (tiền lãi trái phiếu): the amount of interest a bond pays.

- floating – rate notes (trái phiếu có lãi suất thả nổi) bonds whose interest rate varies with market interest rates.

3. Other types of bonds

- convertible shares (convertibles): bonds that later can be changed into shares.

- zero coupon bonds (trái phiếu không trả lãi/trái phiếu chiết khấu): bonds that pay no interest but are sold at a big discount on their par value.

- capital gain at maturity (khoản lãi vốn lúc đáo hạn)

- junk bonds (trái phiếu nhảy vọt/trái phiếu rủi ro cao): low credit rating but high interest bonds.

- fallen angels (trái phiếu mất giá/trái phiếu thất thời): bonds of companies that were previously in a good financial situation.

Notes:

* government bonds: classified according to the length of time before maturity → 3 main categories

+ bills: debt securities maturing in less than 1 year

+ notes: debt securities maturing in 1 to 10 years

+ bonds: debt securities maturing in more than 10 years

* municipal bonds:

+ major advantage: the return is free from federal tax.

+ depending on your personal situation, a municipal bond can be a great investment on an after tax basis

* corporate bonds

+ short - term corporate bonds: less than 5 years

+ intermediate bonds: 5 to 12 years

+ long - term bonds: over 12 years

+ corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government

UNIT 34. FUTURES1. Commodity futures

* Forward & future contracts: agreements to sell an asset at a fixed price on a fixed date in the future

* Futures: traded on a wide range of agricultural products, industrial metals, precious metals & oil

* Futures: invented to enable regular buyers & sellers of commodities to protect themselves against losses or to hedge against future change in price

* Futures: standardized contracts, which are for fixed quantities & fixed time period that are traded on a special exchange

* Forwards: individual, non –standardized contracts between 2 parties, traded OTC, directly

between 2 companies or financial institutions, rather than through an exchange.

* spot price (giá giao ngay): the price that would be paid for immediate delivery

* backwardation (chênh lệch giá xuống): the short term demand that pushes the spot price above the future price

* futures & forwards: used by speculators

2. Financial futures (giao dịch tài chính kỳ hạn)

* currency futures & forwards (giao dịch tiền tệ kỳ hạn và giao sau): contracts that specify the price at which a certain currency will be bought or sold on a specified date

* interest rate futures (giao dịch lãi suất kỳ hạn): agreements b/w banks & investors & companies to issue fixed income securities at a future date

* stock futures (giao dịch chứng khoán kỳ hạn): fix the price for a stock (chốt giá cho một chứng khoán)

* stock index futures (giao dịch chỉ số chứng khoán) fix a value for an index on a certain date (chốt một giá trị cho một chỉ số)

* future trading: a zero – sum game because the amount of money gained by one party will be the same as the sum lost by the other (giao dịch kỳ hạn là trò chơi được mất ngang nhau vì lượng tiền mà 1bên kiếm được sẽ bằng lượng tiền mà bên kia mất đi

* definition of zero – sum game

+ a situation in which one participant’s gains result only from another participant’s equivalent losses

* the net change in total wealth among participant is zero; the wealth is just shifted from one to another

* options & future contracts: examples of zero - sum game (excluding cost). For every person who gains on a contract, there is a counter – party who lost. Gambling: also an example of a zero – sum game

* a stock market; however, is not a zero –sum game because wealth can be created in a stock exchange

UNIT 35. DERIVATIVES1. Options

* derivatives: financial products whose value is derived on/depends on another financial product, such as a stock, a stock market index or interest rate payments. (sản phẩm phái sinh là những sản phẩm tài chính mà giá trị của chúng phái sinh từ hay phụ thuộc vào sản phẩm tài chính khác như một cổ phiếu, một chỉ số thị trường chứng khoán, hoặc

những khoản chi trả lãi suất)

* purpose of derivatives:

+ to manage the risks with the securities

+ to protect securities against fluctuations in value

+ to speculate the securities

* main kinds of derivatives

+ options: like futures except that they give the right (not the obligation) to buy or sell an asset in the future (quyền chọn cũng giống như những giao dịch kỳ hạn chỉ khác là chúng trao quyền (nhưng không ràng buộc) để mua hoặc bán một tài sản trong tương lai)

+ call option: the right to buy an asset for a specific price, either at any time before the option ends or on a specific future date (quyền chọn mua: quyền mua một tài sản với một giá cụ thể ở bất cứ thời điểm nào trước khi quyền chọn kết thúc hoặc vào một thời điểm cụ thể trong tương lai)

+ put option: the right to sell an asset at a specific price within a specific period or on a specific future date (quyền chọn bán: quyền bán tài sản ở một giá cụ thể trong một thời hạn được quy định hoặc vào một thời điểm cụ thể trong tương lai)

2. In – the – money & out – the - money

* in – the – money (trong giá):

+ for a call option: when the option’s strike price is below the market price of the underlying asset (đối với quyền chọn mua: đó là khi giá thực hiện của quyền chọn ở dưới giá thị trường của tài sản cơ bản)

+ for a put option: when the strike price is above the market price of the underlying asset (đối với quyền chọn bán: đó là khi giá thực hiện của quyền bán ở trên giá thị trường của tài sản cơ bản)

* out – the – money (ngoài giá):

+ for a call option: when an option’s strike price is higher than the market price of the underlying asset (đối với quyền chọn mua: đó là khi giá thực hiện của quyền chọn cao hơn giá thị trường của tài sản cơ bản)

+ for a put option: when the strike price is below the market price of the underlying asset (đối với quyền chọn bán: đó là khi giá thực hiện của quyền chọn thấp hơn giá thị trường của tài sản cơ bản)

* premium (hồi kim)

+ the total cost of an option (tổng phí của một quyền chọn)

+ the difference between the higher price paid for a fixed – income security & the security’s face amount of issue (chênh lệch giữa giá cao hơn chi trả cho một chứng khoán có lợi tức cố định và số lượng danh nghĩa lúc phát hành của chứng khoán đó)

* strike price (giá thực hiện) = exercise price

+ the price at which a specific derivative contract can be exercised (giá mà ở đó một hợp đồng phái cụ thể có thể được thực hiện)

* strike prices are mostly used to describe stock & index option, in which strike prices are fixed in the contract (giá thực hiện phần lớn được dùng để mô tả quyền chọn chỉ số và cổ phiếu, trong đó giá thực hiện được ấn định trong hợp đồng)

3. Warrants & swaps

* warrants (chứng khế): like options, give the right but not the obligation , to buy stocks in the future at a particular price, probably higher than the current market price (chứng khế, giống như quyền chọn, trao quyền, nhưng không ràng buộc, để mua cổ phiếu trong tương lai ở một giá cụ thể, có thể cao hơn giá thị trường hiện tại)

+ option: maturity of 3, 6 or 9 months, while the warrants: long maturity of up to 10 years

* swaps (hoán đổi): arrangements between institutions to exchange interest rates or currencies

e.g. dollars for yen) (hoán đổi là những sắp xếp giữa các tổ chức để trau đổi lãi suất hay tiền tệ)

UNIT 36. ASSET MANAGEMENT1. Allocating & diversifying assets

* asset management: managing financial assets for institutions or individuals.

* the management of a client’s investments: by a financial service company, usually an investment bank.

* the company will invest on behalf of its clients & give them access to a wide range of traditional & alternative product offerings that would not be to the average investor

* asset managers: decide how to allocate funds they’re responsible for: how much to invest in share mutual funds, bonds, cash, foreign currencies, precious metals, or other types of investments.

* asset allocation decision: depending on objectives & size of the portfolio

* portfolio: a grouping of financial assets such as stocks, bonds & cash equivalents

* portfolios are held directly by investors and/or managed by financial professionals.

* unit trusts (BE) (công ty đầu tư ủy thác): an unincorporated mutual fund structure that allows funds to hold assets & pass profits through to the individual owners, rather than reinvesting them back into the fund (một cấu trúc quỹ hỗ tương không có tư cách pháp nhân cho phép quỹ nắm giữ tài sản và chuyển lợi nhuận cho chủ sở hữu cá nhân, chứ không phải tái đầu tư trở lại quỹ)

* mutual funds (AE): the investment fund is set up under a trust deed. The investor is effectively the beneficiary under the trust (quỹ đầu tư được thành lập theo một chứng thư ủy thác. Nhà đầu tư thực ra là người hưởng lợi theo sự ủy thác này)

2. Types of investors

- investors: different goals/objectives for their investments

* regulate income from the investment & do not pay attention to the size of their capital

* preserve their capital to avoid risks → capital preservation: asset manager would allocate more money in bonds not in stocks.

* accumulate their capital → lots of risks → capital accumulation: the portfolio will include more stocks than bonds because stocks: better profit potentials than bonds but their prices: more volatile

3. Active & passive investment

* active investment: buying & selling more often, adapting the portfolio to changing the market context.

* passive investment: purchasing & keeping securities, making portfolio unchanged for a long time.

* index – linked funds: to track/follow the change of the stock market index → these funds: purchase lots of different stocks in this index → index may fluctuate so will the funds.

* investors in these funds: charge the lower fees than the actively managed accounts.

* investors: not outperform the market, that means they can’t make their return more than the average one in the market.

UNIT 37. HEDGE FUNDS & STRUCTURED PRODUCTS

1. Hedge funds (quỹ đầu tư hợp tác)

* hedge fund: an aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short & derivative positions in both domestic & international markets with the goal of generating high returns (một danh mục đầu tư được quản lý một cách năng nổ cho những khoản đầu tư sử dụng đến các chiến lược tiên tiến như đầu cơ vay nợ(đòn bẩy tài chính), trường vị đoản vị, phái sinh ở cả thị trường trong nước lẫn quốc tế với mục tiêu tạo ra lợi nhuận cao)

* legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors & require a very large initial minimum investment (về mặt pháp lý, quỹ đầu tư hợp tác thường được thiết lập với tư cách quan hệ đối tác đầu tư tư nhân dành cho một số ít các nhà đầu tư và đòi hỏi một mức đầu tư tối thiểu ban đầu rất lớn).

* investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least 1 year (việc đầu tư vào các quỹ đầu tư hợp tác có tính thanh khoản kém vì các khoản đầu tư này thường buộc nhà đầu tư phải giữ tiền trong quỹ ít nhất 1 năm).

2. Leverage or gearing, arbitrage

* gearing or leverage: borrowing money as well as using their own funds to increase the amount of capital available for investment → the fund: hold much larger positions or investments.

* hedge funds: investing where they see opportunities to make short – term profits, generally using a wide range of derivative contracts - options, swaps

* gearing/leverage: a fundamental analysis ratio of a company’s level of long – term debt compared to its equity capital. Gearing is expressed in percentage form (tỷ lệ phân tích cơ bản về mức độ nợ dài hạn của một

công ty so với vốn chủ sở hữu của nó. Đòn bẩy tài chính được thể hiện dưới dạng tỷ lệ bách phân).

* company with high gearing – more long – term liabilities than shareholder equity – are considered speculative (công ty với vốn vay cao – nhiều nợ dài hạn hơn so với vốn cổ đông – được xem là mang tính đầu cơ) → taking long or short position.

* in simpler terms, gearing explains how a company finances its operation – either through outside lenders or through shareholders ( đơn giản hơn, đòn bẩy tài chính/vốn vay giải thích cách thức một công ty cấp vốn cho hoạt động của mình hoặc thông qua các công ty cho vay bên ngoài hoặc thông qua các cổ đông).

3. Arbitrage

* the simultaneous purchase & sale of an asset in order to profit from a difference in the price (việc mua bán đồng thời một tài sản để kiếm lợi từ sự chênh lệch giá).

* it is a trade that profits by exploiting price differences of identical or similar financial instruments,on different markets or in different forms (là một ngành kinh doanh kiếm lợi nhuận bằng cách khai thác chênh lệch giá của các công cụ tài chình giống nhau hoặc tương tự ở các thị trường khác nhau hoặcở các hình thức khác nhau).

* arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time (kinh doanh chênh lệch giá tồn tại là hệ quả của sự thiếu hiệu quả của thị trường, kinh doanh chênh lệch giá cung cấp một cơ chế để đảm bảo giá cả không chênh lệch nhiều so với giá trị hợp lý trong những khoảng thời gian dài).

4. Structured products

* customized financial instruments by using derivative products – futures, forwards, options, warrants, etc – similar to hedge funds & depending on customers’ requirements & changes in the markets.

Notes:

* capital protection: this may be in the form of hedging, utilizing forwards, futures or swaps contracts or it could be in the form of insurance using options (bảo vệ vốn: đây có thể theo hình thức tránh rủi ro, sử dụng các hợp đồng giao sau, kỳ hạn hoặc có thể là hình thức bảo hiểm sử dụng quyền chọn).

* yield enhancement (nâng cao lợi suất): điều này thường đạt được bằng cách bán quyền chọn đối với một tài sản cơ bản. Hồi kim từ quyền chọn được ký phát (bán) cung cấp lợi suất rhu nhập bổ sung).

* full participation (tham gia đầy đủ): đây là những sản phầm có đặc tính rủi ro tương tự như tài sản cơ bản, nhưng cho phép khách hàng sự tiện lợi của việc có thể kinh doanh các loại tài sản bất thường như các chỉ số chứng khoán nước ngoài hay một chỉ số khu vực thị trường cụ thể.

UNIT 39. MERGERS & TAKEOVERS1. Mergers, takeovers & joint venture

1.1. M & A

* a general term used to refer to the consolidation (sự hợp nhất) of companies.

* a merger: a combination of at least 2 companies to form a new company.

* an acquisition/a takeover: the purchase of one company by another in which no new company is formed.

* the term M & A refers to the department at financial institutions that deals with mergers & acquisitions.

1.2. joint venture

* a joint venture (JV) exists when 2 or more companies decide to work together for a specific project or product.

* a JV: the cooperation of 2 or more individuals or businesses in which each agrees to share profit, loss & control in a specific enterprise.

* forming a JV is a good way for companies to partner without having to merge.

* JVs: typically taxed as a partnership.

1.3. takeover/acquisition

* happening in 2 ways:

+ takeover bid: a company can offer to buy all the shareholders’ shares at a certain higher price than the market price during a limited period of time.

+ raid: a company can buy as many as shares as possible on the stock exchange to hope to gain a majority part in that company.

2. Hostile of friendly

2.1. friendly takeover

* a situation in which a target company’s management & board of directors agree to a merger or acquisition by another company.

* in a friendly takeover, a public offer of stock or cash is made by the acquiring firm, & the board of target firm will publicly approve the buyout form which may yet be subject to shareholder or regulatory approval.

2.2. hostile takeover

* in contrast to friendly takeover, where company being acquired does not approve the buyouts & fights against the acquisition.

* the acquisition of one company (called the target company) by another (called the acquirer) that is accomplished not by coming to an agreement with the target company’s management, but by going directly to the company’s shareholders or fighting to replace management in order to get the acquisition approved.

* various ways of depending companies against a hostile takeovers:

+ a white knight: an individual, or another company rescues a company to avoid the hostile takeover bid

+ the poison pill: a defensible way of some companies to reduce the takeover bid by selling all the important assets that make the takeover bid more expensive.

3. Integration

3.1. horizontal integration:

* the acquisition of additional business activities that are at the same level of the value chain in similar or different industries. This can be achieved by internal or external expansion.

* because the different firms are involved in the same stage of production, horizontal integration allows them to share resources at that level.

* if the products offered by the companies are the same or similar, it is a merger of competitors.

3.2. vertical integration

* when a company expands its business into areas that are at different points on the same production path, such as when a manufacturer owns its supplier and/or distributor.

* vertical integration can help companies reduce costs & improve efficiency by decreasing transport expenses & reducing turnaround (hoàn toàn) time, among other advantages.

* 2 possibilities of vertical integration

+ backward integration

- a form of vertical integration that involves the purchase of suppliers. Companies will pursue (đuổi theo) backward integration when it will result in improved efficiency & cost savings.

- for example, backward integration might cut transportation costs, improve profit margins & make the firm more competitive.

+ forward integration

- a type of vertical integration that involves the purchase of control of distributors.

- a business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products.

- a good example of forward integration is when a farmer sells his/her crops at the local market rather than to a distribution center.