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Financial Instruments Debt Instruments Share Instruments Comparison Between Debt Instruments and Share Instruments 1. Definition: Video are borrowing instruments held by lenders. are monetary contracts are assets that can be traded 2. Types of Financial Instruments ShareEquity Debt Deposit Participation interest Derivative II. DEBT INSTRUMENTS 1. Definition For the issuer: a security to raise funds For the holder: a fixed income asset (interest + principal) A contractual agreement pay at regular interval until the maturity date 2. The maturity of Debt Instruments
Financial instrument Group 7: Van Thi Ngoc Tran Thi Ly Hoang Thi Ngoc Mai Outline I II III IV Financial Instruments Debt Instruments Share Instruments Comparison Between Debt Instruments and Share Instruments Click icon to add picture Definition: Video are borrowing instruments held by lenders I FINANCIAL INSTRUMEN TS are monetary contracts are assets that can be traded Types of Financial Instruments Share/Equity Debt Deposit Click icon to add picture II DEBT INSTRUMENT S Definition - For the issuer: a security to raise funds - For the holder: a fixed income asset (interest + principal) A contractual agreement - pay at regular interval until the maturity date Types The number of year The maturity of Debt Instruments Long – term debt ≥ 10 years Intermediate – term debt Short – term debt ≤ x < 10 years < year Click icon to add picture Types of Debt instruments II DEBT INSTRUMEN TS Bonds Mortgages Commercial papers Certificate of Deposits Bankers’ acceptances …………… Click icon to add picture II DEBT INSTRUMENT S Bonds in Vietnam Main types of bonds in Vietnam - Based on issuers: + Government bonds + Local government/ municipal bonds + Corporate bonds II Debt Instruments Bonds in Vietnam Bond investing Types Risk Government bonds low Local government bonds/ municipal bonds Corporate bonds Liquidity high Interest rate Purpose low Financing the national debt medium medium medium Financing public interest projects high high Financing firm’s funds low II Debt Instruments Bonds in Vietnam Current Vietnam credit ratings, according to main rating agencies Website: World Government Bonds II Debt Instruments Vietnam Government bonds + issued by the Ministry of Finance + with a specified term denomination and interest rate REGULATIONS ON THE ISSUE OF GOVERNMENT BONDS issued along with Decree of the Government No 72 CP on the 26th of July 1994) II Debt Instruments Vietnam Government bonds - are issued in the following forms: + Treasury credits: < year + Treasury bonds: ≥ year + Project bonds: ≥ year (specific projects in accordance with the State's investment plan) REGULATIONS ON THE ISSUE OF GOVERNMENT BONDS issued along with Decree of the Government No 72 CP on the 26th of July 1994 Click icon to add picture Current trading price of stock Market perception about future of Co Includes value of Intangible Assets MARKET VALUE Benefits & Risks Ease of trading Volatility Flexibility Credit risk Capital growth Sector specific risk Low costs Lack of knowledge Liquidity Unexpected events Available information Ways to reduce risks Diversify portfolio Have a long-term outlook Research investments before making them Monitor investments regularly and reallocate resources as necessary Factors that infuence share prices Supply and Demand Economic factors (interest rate, economic outlook, deflation, inflation, etc) Company’s earnings How to buy stock online? Step 1: open an online Step 2: Select the stock you brokerage account want to buy Things to consider: How? - Commission price - Researching companies you - Access to research already know from your - Trading platform experience as a consumer, starting from the company’s annual report - Using the tools provided by the brokers’ website How to buy stock online? Step 3: decide how many shares to Step 4: choose your stock order type buy Stock order: an instruction to buy/sell on The number of shares you can buy the stock market depends on the price of one share and the minimum number of shares you have Market orders: buy or sell the stock at the to buy best available current market price Ex: VIC: 116,000 VND/share immediately With mil VND -> can buy 25.86 shares Limit orders: is an order to buy a stock at HOSE stock exchange only allows you to no more than a specific price, or to sell a buy shares with 10 multiples => can security at no less than a specific price only get 20 shares ways of buying stocks without a broker Direct stock purchase plan (DSPP) Dividend reinvestment plan (DRIP) _a program that enables individual _the act of using one's dividends to buy investors to purchase a company's stock more shares in the same company directly from that company How? DRIPs allow investors to reinvest their cash Investors make monthly deposits and the dividends into additional shares or company applies that amount towards fractional shares of the underlying stock on purchasing shares the dividend payment date Advantage: easy, convenient and Disadvantage: shares are not marketable inexpensive through stock exchange Disadvantage: shares are illiquid, not available in all companies Stock index - A measurement of a section of the stock market - Used to describe the market, and compare the return on specific investment types Price-weighted index: each component of the index is weighted according to its current share price In price-weighted indices, companies with a high share price have a greater weight than those with a low share price Market-value-weighted index (capitalization-weighted/cap-weighted): a type of stock market index in which each component of the index is weighted relative to its total market capitalization In a capitalization-weighted index, companies with larger market capitalization exert a greater impact on the index value US stock indices Dow Jones Industrial Average (Dow) - price-weighted index - measures the stock performance of 30 large companies listed on stock exchange in the United States -> reflects the price movements of a few large companies rather than the broader market S&P 500 - Market-value index -measures the stock performance of 500 large companies listed on stock exchanges -> Compared with the Dow, the S&P 500 is a better measure of the economy’s overall health NASDAQ Composite - market-value weighted index - measures the stock performance of companies that are heavily towards information technology companies Japan stock index The Nikkei 225 -price weighted index - measures the stock performance of 225 large, publicly owned companies in Japan from a wide array of industry sectors Vietnam stock indices HN-Index VN-index -is a stock market index for the Ha Noi Stock -is a stock market index for the Ho Chi Minh City Exchange that measures the performance of Stock Exchange that measures the performance of 374 companies listed on Hanoi stock exchange 390 companies listed on HCMC stock exchange Calculation -Using the Paasche price index HN-index Vn-index Difference between debt and share instruments BASIS FOR COMPARISON DEBT EQUITY Meaning Funds owed by the company towards another Funds raised by the company by party is known as Debt issuing shares is known as Equity What is it? Loan Funds Own Funds Reflects Obligation Ownership Term Comparatively short term Long term Status of holders Lenders Proprietors (owners) Risk Less High Types Term loan, Debentures, Bonds etc Shares and Stocks Return Interest Dividend Nature of return Fixed and regular Variable and irregular Collateral Essential to secure loans, but funds can be raised otherwise also Not required ... II III IV Financial Instruments Debt Instruments Share Instruments Comparison Between Debt Instruments and Share Instruments Click icon to add picture Definition: Video are borrowing instruments. .. Video are borrowing instruments held by lenders I FINANCIAL INSTRUMEN TS are monetary contracts are assets that can be traded Types of Financial Instruments Share/Equity Debt Deposit Click... year The maturity of Debt Instruments Long – term debt ≥ 10 years Intermediate – term debt Short – term debt ≤ x < 10 years < year Click icon to add picture Types of Debt instruments II DEBT INSTRUMEN