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ESSAY QUESTIONS
Question 01: List the major stock market indexes on Vietnamese
Stock Exchange, and explain what they tell us.

• VN-INDEX: All companies listed on HOSE.

• VN30: Top 30 companies with the largest capitalization (vốn hóa)
and liquidity on HOSE.
• HNX-INDEX: All companies listed on HNX.
• HNX30: Top 30 companies with the largest capitalization and
liquidity on HNX.
• UPCOM: All companies listed on UPCOM.

Question 02: Please list and explain three tools of monetary control.
What is the most powerful tool?

• Open market operations: Refinancing (tái cấp vốn) operations are

the main form of open market operations. They involve weekly
reverse transactions (giao dịch đảo ngược) that are reversed
within two weeks. A second operation is long term refinancing
operations.
• Lending to banks: It is carried out (thực hiện) by the national
central banks. This lending takes place through a lending facility
called the marginal lending facility (cơ sở cho vay cận biên).
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Banks can borrow overnight loans from the national central banks
at the marginal lending rate.
• Reserve requirement: National Central Bank imposes (áp đặt)
reserve requirements such that (sao cho) all deposit-taking
institutions (tổ chức nhận tiền gửi) are required to hold 2% of the
total amount of checking deposits (tiền gửi séc) and other short-
term deposits in reserve accounts national Central Banks.
 The most powerful tool is Open market operations because they
are the main determinants (yếu tố) of changes in interest rates and
the monetary base, the main source of fluctuations in the money
supply.

Question 03: Which of the two bonds in each example would you
expect to generally pay the higher interest rate? Explain why.

a) a U.S. government bond or a Brazilian government bond.

b) a U.S. government bond or a municipal bond with the same term
and issued by a creditworthy municipality (trái phiếu đô thị có
cùng kì hạn và được phát hành bởi một đô thị đáng tin cậy).

(Depends on personal opinion)

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Question 04: Suppose the Fed sells government bonds. Use a graph
of the money market to show what this does to the value of money.

When the Fed sells government bonds, the money supply

decreases. This shifts the money supply curve from MS1 to MS2 and
makes the value of money increase. Since money is worth more, it
takes less to buy goods with it, which means the price level falls

Question 05: List some financial intermediations, and why are they
important?

Some financial intermediations:

• Commercial banks (Ngân hàng thương mại)

• Credit unions (Hiệp hội tín dụng)
• Life insurance companies (Công ty bảo hiểm nhân thọ)
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• Finance companies (Công ty tài chính)

• Mutual funds (Quỹ tương hỗ)

Financial intermediations are important because they provide

liquidity services (cung cấp dịch vụ thanh khoản), promote risk
sharing (thúc đẩy chia sẻ rủi ro), and solve information problems.
Therefore, allowing small savers and borrowers to benefit from
financial markets.

Question 06: Which of the two bonds in each example would you
expect to generally pay the higher interest rate? Explain why.

a) a 6-month Treasury bill or a 20-year Treasury bond

b) a Microsoft bond or a bond issued by a new recording
company

(Depends on personal opinion)

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Question 07: Using separate graphs, demonstrate what happens to

the money supply, money demand, the value of money, and the price
level if:
a) the Fed increases the money supply.
b) people decide to demand less money at each value of money.

• The Fed increases the money supply. When the Fed increases the
money supply, the money supply curve shifts right from MS1 to
MS2. This shift causes the value of money to fall, so the price level
rises.

• People decide to demand less money at each value of money. Since

people want to hold less at each value of money, it follows that the
money demand curve will shift to the left from MD1 to MD2. The
decrease in money demand results in a lower value of money and so
a higher price level.
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Question 08: What are the advantages of open market operations

compared to other Tool of Monetary Policy?
• Control the volume
• Flexible and precise ( linh hoạt và chính xác)
• Easily reversed (đảo ngược)
• Implemented quickly (thực hiện)
Question 09: What are capital markets and money market, and why
are capital markets important to corporations?
• The money market is the market in which only short-term debt
instruments (maturity terms of less than one year) are traded.
 The money markets important to corporations because:
o The least price fluctuations => least risky investments.
o More widely (rộng rãi) traded than long term securities =>
more liquid.
o Source of funds. (Nguồn vốn)
o Earn interest on surplus.
• The capital market is the market in which long term debt
instruments (maturity terms of one year or greater) and equity
instruments are traded.
 The capital markets important to corporations because:
o Reduce corporation's interest payments (Giảm các khoản
thanh toán lãi của công ty).
o Channeling funds (Kênh dẫn vốn).
o Financial stability (Ổn định tìa chính).
o Allocate risk (Phân bổ rủi ro).

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Question 10: Advantages and disadvantages of Reserve

Requirements as a tool of monetary policy?
• Advantages:
o A powerful way of affecting the money supply and interest rates
o Have a high power => affect the bank system
• Disadvantages:
o No longer binding for most banks
o Can cause liquidity problems
o Increases uncertainty for banks
Question 11: Please list all goals of monetary policy. Which one is
the most important goal and explain the reason?
• 6 goals of monetary policy:
o Price stability and Nominal anchor (Ổn định giá và mỏ neo
danh nghĩa)
o High employment and output stability (Việc làm cao và ổn định
đầu ra)
o Economy growth (Tăng trưởng kinh tế)
o Stability of financial markets (Ổn định thị trường tài chính)
o Interest rate stability (Ổn định lãi suất)
o Stability in foreign exchange markets (Ổn định thị trường ngoại
hối)
• The most important goal is Price stability because a rising price
level (inflation) => uncertainty in the economy => hampers (cản
trở) economic growth.

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Question 12: Analyze the difference between Money Market and

Capital Market. (Meaning, financial instruments, institutions, risk
factor, liquidity, purpose)
Capital Market Money Market
Long-term debt
Meaning/ Only short-term debt
instruments and equity
Purpose instruments are traded
instruments are traded.
Uncertainty about the More widely traded than
Liquidity amount of funds they will long-term securities =>
receive in the future. more liquid
Have smaller
Wider price fluctuations fluctuations in prices
Risk
=> Risky investments than long-term securities
=> safer investments.
• Stock
• US Treasury Bills
• Mortgages &
• Commercial Paper
Mortgages Backed
Financial • Repurchase
Securities
Instruments Agreement
• Corporate Bonds
• Federal Funds
• US government
Agency Securities
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Question 13: Describe the primary and secondary markets, explain

the link between them. And why are secondary markets so important
to businesses?

Primary Market Secondary Market

New issues of a security are sold Securities that have been

to initial buyers. previously issued can be resold

Not well known to the public

because the selling of securities Exchange markets, futures
to initial buyers often takes markets, and options markets.
place behind closed doors.

• Brokers: agents of investors

who match buyers with
Investment institutions assist in
sellers of securities
the initial sale of securities by
• Dealers: link buyers and
underwriting (bảo lãnh) them.
sellers by buying and selling
securities at stated prices.

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 Secondary markets are so important to businesses because:

• Make it easier and quicker to sell these financial instruments to raise
cash.
• Link: Determine the price of the security that the issuing firm sells
in the primary market (Xác định giá chứng khoán mà công ty phát
hành bán trên thị trường sơ cấp).

Question 14: What are the basic differences between bonds and
stocks?

Bonds Stocks

Have maturity date Have no maturity date

Long-term Periodic payments (dividends)

Low risk High risk

Borrowers pay the holders the The holders claim to share in the
fixed dollar amount regular net income and the assets of
intervals business

Bond holders do not share in Benefit directly from any

benefit because their payment increase in the corporation's
are fixed profitability or asset value.

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Question 15: What is the difference between saver–lenders and

borrower–spenders, and who are the major representatives of each?

• Saver-lenders who have saved and are lending funds => households
• Borrower-spenders who must borrow funds to finance their spending
=> businesses and the government (particularly the federal
government)

Question 16: When expected inflation rises, how will the price of
bonds change? Please explain.

• When expected inflation rises, the price of bonds will fall.

• Explain: When expected inflation rises => The demand for bonds
falls, the demand curve shifts to the left and the supply for bonds
rises, the supply curve shifts to the right => The bond price falls.

Question 17: List the functions of the financial market in the

economy.

• Channeling funds from lenders/savers to borrowers/spenders (Kênh

dẫn vốn từ người tiết kiệm đến nhà đầu tư)
• Producing an efficient allocation of capital (Phân bổ nguồn vốn hiệu
quả)
• Improve the economic welfare in the society (Cải thiện phúc lợi xã
hội)
• Promoting economic efficiency (Điều tiết nền kinh tế hiệu quả)
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• Direct finance: borrowers borrow funds directly from lenders in

financial markets by selling them securities.
• Securities are assets for the person who buys them, but are liabilities
for the individual or firm that issues (phát hành) them.

Question 18: Identify three money market instruments.

• US Treasury Bills:
o Short -term debt instrument are issued in 1,3,6 months matunities to
finance the federal government (tài trợ cho chính phủ liên bang).
o Pay a set amount at maternity.
o The most liquid of all money market instruments
o The safest money market instrument
• Negotiable Bank Certificates of Deposit (Chứng chỉ tiền gửi ngân hàng
có thể chuyển nhượng):
o Sold by a bank to depositors that pays annual interest of a given
amount at maturnity pays back the original purchase price. (được
bán bởi ngân hàng cho người gửi tiền mà trả lãi hàng năm với một
số tiền nhất định khi đáo hạn trả lại giá mua ban đầu.)
o Sold in the secondary market.
o Important source of funds for commercial banks.

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• Federal (FED) Funds:

o Overnight loans between banks of their deposits at the Federal
Reserve (Khoản vay qua đêm giữa các ngân hàng của tiền gửi của
họ tại Cục Dự trữ Liên bang).
o Sensitive to the credit needs of the banks, so the interest rate on these
loans, called the federal funds rate.
Question 19: Definition of capital market and money market.
Explain why they are so important to corporations.
• The money market is a financial market in which only short-term
debt instruments (maturity terms of less than one year) are traded
• The financial market in which longer-term debt instruments (maturity
terms of one year or greater) and equity instruments are traded.
 They are so important to corporations:

o The least price fluctuations => least risky investments.

o More widely traded than longer-term securities => more liquid

o Reduce corporation's interest payments.

o Channeling funds
o Financial stability

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FORMULA ESSAY QUESTIONS

Question 1:
a) If the interest rate is 10%, what is the present of a security that
pay you $1,100 next year, $ 1,210 the year after, and $ 1,331 the
year after that?
b) If the security sold for $3,500, is the yield to maturity greater or
less than 10%?
Why?
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Question 2: Assume that you just hit the $30 million Jackpot in the
New York Lottery, which promises you a payment of $7.5 million for
the next four years. You are clearly excited, but have you really won
$30 million? (if interest rate is 8.5%).

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Question 3:
a) Find the price of a 10% coupon bond with a face value of $1000,
a 12% yield to maturity, and 8 years to maturity.
b) Find the price of a 10% coupon bond with a face value of $1000,
a 9% yield to maturity, and 8 years to maturity.
c) Find the price of a 10% coupon bond with a face value of $1000,
a 10% yield to maturity, and 8 years to maturity.
• Give a conclusion about the relation between price of coupon bond
and yield to maturity.
• When the coupon bond is priced at its face value, the yield to
maturity equals the coupon rate.
• The price of a coupon bond and the yield to maturity are negatively
related.
• The yield to maturity is greater than the coupon rate when the bond
price is below its face value.

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Question 4: You have some extra money to invest for one year. After
a year, you will need to sell your investment to pay tuition. After
watching CNBC or Nightly Business Report on TV, you decide that
you want to buy Intel Corp. stock, rate of return is 12%. You call your
broker and find that Intel is currently selling for $50 per share and pays
$0.16 per year in dividends. The analyst on CNBC predicts that the
stock will be selling for $60 in one year. Should you buy this stock?
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Question 5: You have some extra money to invest for one year. After
a year, you will need to sell your investment to pay tuition. After
watching CNBC or Nightly Business Report on TV, you decide that
you want to buy Intel Corp. stock, rate of return is 9%. You call your
broker and find that Intel is currently selling for $55 per share and pays
$0.57 per year in dividends. The analyst on CNBC predicts that the
stock will be selling for $50 in one year. Should you buy this stock?
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Question 6:
a) Calculate the rate of return of a $1,000 face value coupon bond with
a coupon rate of 10% that is bought for $1,000, held for one year,
and then sold for $ 1,150; duration of this coupon bond is 5 years.
b) Calculate the rate of return of a $ 1,000 face value coupon bond with
a coupon rate of 10% that is bought for $ 1,000, held for one year,
and then sold for $ 950; duration of this coupon is 5 years.

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Question 7: Imagine that you want to purchase a stock that is selling
for $35. The expected dividend next year is $2.73 and analyst forecast
the stock price one year from today being $38.5. According to the
capital asset pricing model the cost of equity is 9%. Using the one-
period valuation model. What should the stock be selling for? Should
you purchase it?
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Question 8: WT Co. has just now paid a dividend of $3 per share; the
dividends are expected to grow at a constant rate of 8% per year
forever. If the required rate of return on the stock is 12%, what is the
current value on stock, after paying the dividend?
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Question 9: F Co, Ltd is forecasted to pay $5.00 dividend at the end
of year one; a $5.50 dividend at the end of year two; a $6.5 dividend
at the end of year three. At the end of the third year the stock will be
sold for $238. If the discount rate is 10%, what is the price of the stock?
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Question 10:
a) Find the price of a 8% coupon bond with a face value of $1000, a
10% yield to maturity, and 5 years to maturity.
b) Find the price of a 8% coupon bond with a face value of $1000, a
6% yield to maturity, and 5 years to maturity.
c) Find the price of a 8% coupon bond with a face value of $1000, a
8% yield the maturity, and 5 years to maturity.
Give a conclusion about the relation between price of coupon bond
and yield to maturity.
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