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NATIONAL ECONOMICS UNIVERSITY -*** - GROUP ASSIGNMENT INTERNATIONAL INVESTMENT What are the principal functions of the capital market? How does the capital market fulfill those functions in Vietnam? GROUP Nguyn Khnh Linh Đ Phương Tho Đ Khnh Nhi Đo Phương Mai Lê Hong Tng Trnh Trung D ng HANOI, 2023 TABLE OF CONTENT Chapter I Introduction to the capital market 1.1 Definition and types of capital market 1.1.1 Definition of the capital market 1.1.2 Types of Capital Market 1.2 Capital market instruments 1.2.1 Equities 1.2.2 Debt Securities 1.2.3 Derivatives 1.2.4 Exchange-Traded Funds 1.2.5 Foreign Exchange Instruments 1.3 The importance of capital market in economic development Chapter II Principal Functions of the Capital Market .4 2.1 Channel for Savings and Investment 2.2 Allocation of Capital Resources .5 2.3 Liquidity provision, risk protection, and policy .5 2.4 Mobilization of foreign capital Chapter III Overview of Capital Market in Vietnam 3.1 Brief history of capital market in Vietnam .7 3.2 Current status and development of capital market in Vietnam .10 Chapter IV The capital market fulfills those functions in Vietnam 12 4.1 Channel for Savings and Investment in Vietnam's Capital Market 12 4.1.1 Overview of savings and investment in Vietnam 12 4.1.2 How capital market in Vietnam mobilizes savings and investment .17 4.2 Allocation of Capital Resources in Vietnam's Capital Market (Linh) 21 4.2.1 Overview of capital allocation in Vietnam 21 4.2.2 How capital market in Vietnam facilitates capital resources allocation 23 4.3 Providing Liquidity, Risk Protection, and Policies in the Vietnamese Capital Market 24 4.3.1 Overview of Liquidity Provision, Risk Protection, and Policies in the Capital Market of Vietnam 24 4.3.2 The current situation of liquidity Provision, risk protection, and policies in the capital market in Vietnam 24 4.4 Mobilizing foreign capital in Vietnam's capital market 30 4.4.1 Overview of mobilizing foreign capital in Vietnam's capital market 30 4.4.2 The status of mobilizing foreign capital in Vietnam's capital market 31 Chapter V Challenges and Opportunities for Vietnam's Capital Market .33 5.1 Challenges facing Vietnam's capital market 33 5.2 Opportunities for Vietnam's capital market 36 Chapter VI Conclusion 40 6.1 Summary of the principal functions of the capital market 40 6.2 Future prospects of Vietnam's capital market .40 TABLE OF FIGURE Picture 1: The development history of the Vietnamese stock market 10 Picture 2: The stock market liquidity recorded in 12/2022 .27 Table 1: Top stocks traded in the month .26 Table 2: Summary table of VN30 futures trading data from 2017-7/2022 29 Table 3: Value of foreign investors' transactions on the stock market from 2016-2020 31 Chart 1: Stock market capitalization and credit scale in the period 2015 - 2022 .11 Chart 2: Savings to GDP ratio of Vietnam (%) .13 Chart 3: Asset accumulation rate in GDP of Vietnam (%) 14 Chart 4: Accumulated asset growth rate for the period 2016 - 2019 (%/year) 15 Chart 5: Number of new domestic investors' securities accounts opened .20 Chart 6: Raising capital through the Vietnamese stock market in the year to June 2021 22 Chart 7: Trading Volume and Average Trading Volume of VN30 Index Futures Contracts (From August 2017 to July 2022) 29 Chart 8: Percentage of foreign investors' trading value in the securities market from 2011-2019 (%) 32 Chart 9: Value of Vietnam's international bonds outstanding, 2009-2021 .33 Chart 10: The proportion of Vietnam's international bonds outstanding by issuer, 2012-2021.34 Chart 11: Market capitalization of domestic listed companies by the end of 2020 (% of GDP) 34 Chapter I Introduction to the capital market 1.1 Definition and types of capital market 1.1.1 Definition of the capital market Capital market is a place where buyers and sellers indulge in trade (buying/selling) of financial securities like bonds, stocks, etc The trading is undertaken by participants such as individuals and institutions Capital market trades mostly in long-term securities The magnitude of a nation’s capital markets is directly interconnected to the size of its economy which means that ripples in one corner can cause major waves somewhere else 1.1.2 Types of Capital Market Types of capital market: - Spot market: assets are traded for immediate delivery It has three components: a seller, a buyer, and an order book Once a buying/selling order is filled, the transaction concludes right away Spot markets are available for an array of investment assets, including stocks, bonds, cryptocurrencies, and foreign currency (Forex) Forex markets include exchanging one money for another - A future market is designed to trade contracts calling for future delivery - Option markets enable contracts that grant the right to buy or sell certain securities at specific prices within a certain time Including: - Leasing market: is a part of the capital market, dealing with the supply-demand relationship of capital, in which the capital supplier acts as a lessor who commits to buy assets and equipment at the request of the lessee (who needs capital) and holds title to the rental property - Stock market: A stock market, also known as a stock exchange, is a venue to trade securities, such as bonds and shares Sellers of securities are matched with their buyers in a stock market and they trade with each other using rules imposed by the market's governing authority - Bond market: refers broadly to the buying and selling of various debt instruments issued by a variety of entities Corporations and governments issue bonds to raise debt capital to fund operations or seek growth opportunities In return, they promise to repay the original investment amount, plus interest The mechanics of buying and selling bonds - works similarly to that of stocks or any other marketable asset, whereby bids are matched with offers Mortgage market: the business of lending money to buy houses and other property 1.2 Capital market instruments 1.2.1 Equities Equity securities refer to the part of ownership that is held by shareholders in a company In simple words, it refers to an investment in the company’s equity stock for becoming a shareholder of the organization The main difference between equity holders and debt holders is that the former does not get regular payment, but they can profit from capital gains by selling the stocks Also, the equity holders get ownership rights and they become one of the owners of the company When the company faces bankruptcy, then the equity holders can only share the residual interest that remains after debt holders have been paid Companies also regularly give dividends to their shareholders as a part of earned profits coming from their core business operations 1.2.2 Debt Securities Debt Securities can be classified into bonds and debentures: * Bonds: Bonds are fixed-income instruments that are primarily issued by the center and state governments, municipalities, and even companies for financing infrastructural development or other types of projects It can be referred to as a loaning capital market instrument, where the issuer of the bond is known as the borrower Bonds generally carry a fixed lock-in period Thus, the bond issuers have to repay the principal amount on the maturity date to the bondholders * Debentures: Debentures are unsecured investment options unlike bonds and they are not backed by any collateral The lending is based on mutual trust and, herein, investors act as potential creditors of an issuing institution or company 1.2.3 Derivatives Derivative instruments are capital market financial instruments whose values are determined from the underlying assets, such as currency, bonds, stocks, and stock indexes The four most common types of derivative instruments are forwards, futures, options and interest rate swaps: - - Forward: A forward is a contract between two parties in which the exchange occurs at the end of the contract at a particular price Future: A future is a derivative transaction that involves the exchange of derivatives on a determined future date at a predetermined price Options: An option is an agreement between two parties in which the buyer has the right to purchase or sell a particular number of derivatives at a particular price for a particular period of time Interest Rate Swap: An interest rate swap is an agreement between two parties which involves the swapping of interest rates where both parties agree to pay each other interest rates on their loans in different currencies, options, and swaps 1.2.4 Exchange-Traded Funds Exchange-traded funds are a pool of the financial resources of many investors which are used to buy different capital market instruments such as shares, debt securities such as bonds and derivatives Most ETFs are registered with the Securities and Exchange Board of India (SEBI) which makes it an appealing option for investors with a limited expert having limited knowledge of the stock market ETFs having features of both shares as well as mutual funds are generally traded in the stock market in the form of shares produced through blocks ETF funds are listed on stock exchanges and can be bought and sold as per requirement during the equity trading time 1.2.5 Foreign Exchange Instruments Foreign exchange instruments are financial instruments represented on the foreign market It mainly consists of currency agreements and derivatives Based on currency agreements, they can be broken into three categories i.e spot, outright forwards and currency swap 1.3 The importance of capital market in economic development The importance of the financial market is given by the significant role it plays in the finances (financing) of the enterprises and of the state, by the percentage the direct financing has among Document continues below Discover more from: Kinh tế đầu tư KTĐT1 Đại học Kinh tế Quốc dân 814 documents Go to course CÂU HỎI TRẮC NGHIỆM THAM KHẢO 35 Kinh tế đầu tư 100% (12) Nhóm câu hỏi - điểm KTĐT1 36 Kinh tế đầu tư 100% (11) Nhóm-2-Kinh-tế-đầu-tư 04 22 Kinh tế đầu tư 100% (6) Bài tập KTĐT có lời giải Kinh tế đầu tư 90% (10) Nhóm câu hỏi điểm KTĐT 11 Kinh tế đầu tư 100% (3) TÀI LIỆU ÔN KTĐT 84 Kinh tế đầu tư 100% (3) the methods for financing Beyond what is apparently important - the high volume of transactions on the stock market - what really counts is the place the (primary) market holds in the development first of the stock companies (direct financing), and this is sometimes forgotten, or appears secondary The well functioning of the financial market is a strong fundament for ensuring a lasting growth, on the long term, of the national economy If to a certain extent they can be replaced as financing sources, it must not be understood that financing through the banking system and financing through the capital market are perfectly replaceable, but rather complementary In most cases, the issuing of shares or bonds tend to sooner supplement, than replace the bank loans, especially when the allocation of some important resources is wanted for sustaining some large investment plans, when a farther horizon for the maturity of the loan is sought, or even obtaining non-refundable funds for the price of dilution of capital and future dividends More and more issuers turn to financing instruments which not until long ago seemed too sophisticated, and the “theoretical” advantages of the listing on the stock exchange start to be put into practice The ability of the capital market to mobilize important financial resources is no longer doubted and any company listed on the stock exchange will also consider from now on the issuing of bonds or shares among its financing options Moreover, the current moment is an especially favorable one for the unfolding of this financing process for businesses, a process also propelled by an overall economic conjuncture favorable for investments that seek placements as profitable as possible Chapter II Principal Functions of the Capital Market 2.1 Channel for Savings and Investment The capital market provides several options for individuals and businesses to invest their savings and earn returns on their investments Some of the popular channels for savings and investment in the capital market are: ● Stocks: Stocks or equities of public companies are a popular investment option in the capital market Investors purchase stocks of companies with the expectation of earning returns through capital appreciation and dividends ● Bonds: Bonds are debt instruments issued by governments, corporations, or other organizations to raise capital Investors can purchase bonds and earn returns through coupon payments and capital gains ● Mutual Funds: Mutual funds pool money from multiple investors and invest in a diversified portfolio of stocks, bonds, and other securities Investors can earn returns through capital appreciation and dividends ● Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds, but they trade on stock exchanges like individual stocks Investors can earn returns through capital gains and dividends ● Real Estate Investment Trusts (REITs): REITs are companies that own and operate income-generating real estate properties Investors can invest in REITs and earn returns through rental income and capital appreciation ● Commodities: Commodities such as gold, silver, oil, and agricultural products can also be traded in the capital market Investors can earn returns through capital appreciation and dividends 2.2 Allocation of Capital Resources The allocation of funds from household savings to businesses is a critical process in capital markets Based on their investment goals and risk tolerance, households can allocate their money through financial products such as bank deposits, bonds, stocks, mutual funds, and ETFs Businesses can raise capital for expansion by issuing financial instruments such as stocks or corporate bonds, as well as investing in mutual funds or real estate projects Household capital can be used by businesses to invest in new projects, supplement working capital, or acquire other businesses in order to grow Government policies can also influence capital allocation by encouraging investment in strategic industries or start-ups through incentives, financial support, or investment regulation The Central Bank's interest rate and monetary policy can also affect the availability and cost of capital, influencing business and individual investor investment decisions When allocating these funds, it is critical that these entities manage their risk These subjects frequently seek investment opportunities with high return potential while minimizing risk It is also important to remember that capital allocation is a dynamic process in which it is necessary to keep track of portfolio performance, diversify investments, and stay current on market trends and economic conditions to adapt to changes in capital markets 2.3 Liquidity provision, risk protection, and policy Liquidity, risk protection, and policy are important factors in capital markets and influence the performance of investors and businesses In the context of the evolving capital market, liquidity provision, risk protection, and policy become even more important Liquidity provision: Liquidity is the market's ability to transact asset transfers quickly, easily, and at an appropriate transaction value The higher the liquidity, the more attractive the market is to investors, and makes it easier for investors to buy and sell assets quickly Ways of liquidity provision to capital markets include: ● Creation of Financial Instruments: Some financial instruments such as ETFs (Exchange Traded Funds), mutual funds, or certificates of deposit are used to enhance the liquidity of assets in the market ● Set a minimum for maximum trading volume: Ensure trading is not too centralized and facilitate different investors' participation in the market ● Defined circulation security system: Includes the technical infrastructure to process transactions and ensure the fast and secure transfer of financial assets ● Accumulating information about the trading of financial assets in the market and providing alerts on prices, trading volumes, and trading times is an effective means of increasing liquidity in the market Risk protection: Risk protection is a policy applied to minimize risk when investing in capital markets Risk is one of the fundamental elements of capital markets, so risk protection helps to reduce the unexpected risks of investors and businesses Ways of risk protection in capital markets include: ● Risk assessment and management: Investors and companies need to assess potential risks when investing and manage them to minimize negative impacts ● Future contracts, options, bonds, and other financial products are secured by financial organizations such as banks or insurance companies to reduce risk and instill investor confidence ● Training and skill development: Providing individual investors with the necessary knowledge and experience to identify risks and implement investment strategies can reduce risk ● Profit generation and loss reduction: When investing, investors and companies should focus on profit generation and minimizing losses to achieve the best investment results Policy: Policies are applied in the capital market to help enhance the development of the market, improve the purchasing power of investors, and keep the market stable The capital market policy includes: ● Monetary policy: Apply monetary policies to control inflation, and maintain prices and market stability
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