VIETNAM NATIONAL UNIVERSITY

INTERNATIONAL UNIVERSITY

REPORT
MONEY MARKET IN VIET NAM
Lecturer: Nguyen Kim Thu
Subject: Financial Institutions and Markets

Ho Chi Minh City, Vietnam

 GROUP MEMBERS

No Name ID

1 TRẦN THỤY YẾN THU BAFNIU17051

2 NGUYỄN VÕ HÀ PHƯƠNG BAFNIU17032

3 NGUYỄN BẢO NGỌC BAFNIU17016

4 NGUYỄN HOÀNG THIÊN NHÃ BAFNIU17067

5 VÕ HOÀNG MINH NHỰT BAFNIU17005

 A. MONEY MARKET
1. Definition:

The money market is the short-term capital market (less than 1 year),
where the activities of supply and demand for short-term capital take
place. Short-term capital includes short-term valuable papers , which
means trading in low-risk short-term debts and high liquidity . The money
market takes place mainly through the operation of the banking system ,
as banks are the most important entity in providing and using short-term
capital.
The money market is a decentralized market in the business offices of
banks and professional investment tools through the wide telephone and
internet network. Transactions in money market are transactions of
capital transfer with high solvency and low risk to investors.
The money market is the place to buy and sell short-term valuable papers,
which meet the needs of short-term capital of the economy.
2. Classification:
Money markets are classified based on the type of organization or type of
instrument.
+ Classification by organizational structure:

 Primary money market : a place to specialize in

issuing new bonds of banks, financial companies , treasuries ...
The primary money market is really a place to find capital of
bond issuers and supply of capital of bond buyers.
 Secondary money market : specialized in organizing the
trading of bonds issued in the primary market, but it is
transformative in the morphology. That is, bonds have a
physical artifact, namely machines and supplies ... now they
need money, which means they need capital in the form of
money.
+ Classification by debt instrument:

 The market for short-term borrowing between credit

institutions under the control of the central bank .
 The market of short-term bonds and the market of other
valuable documents such as commercial bills , delivery
contracts , treasury bills of financial companies, certificates of
savings deposits , bank drafts, etc.
 3. Participants
– State bank of Vietnam
– Commercial banks
– Brokers and Dealers
– Corporations
– Individuals
– Other financial institutions

B. Money markets’ instruments in Vietnam

1. Treasury bills (T-bills)
a) Introduction:
Treasury Bill (T-Bill) is a short-term debt instrument of the US
Government with maturities of less than 1 year. T-bill has a face value of
1000 USD, maximum purchase value is 5 million USD, and usually has
maturity of 1 month, 3 months, 6 months. Treasury bills are discounted
securities which are not paid interest by issuers but sold at prices lower
than par value. When the maturity is due, the investor receives the full
face value, so the difference between the par value and the purchase price
of the stock is the interest of the investor. The longer the maturity period,
the interest rate which investors received is higher.

b) Characteristics:

Treasury bills are considered the least risky financial instrument in the
money market because there is almost no possibility of default from
issuers, that is, it is impossible for the government to be insolvent. When
the debt comes due, the government can always raise taxes or print
money to pay off the debt. However, its interest rate is often lower
than other instruments circulating in the money market.
Treasury bills are considered the most liquid instrument on the currency
market because it is the most traded. T-bills are often used by central
banks of countries as a tool to run monetary policy through the open
market.
T-Bill Investment Pros and Cons

 Pros

- Zero default risk since T-bills have a U.S. government guarantee.

- T-bills offer a low minimum investment requirement of $100.

- Interest income is exempt from state and local income taxes but subject
to federal income taxes.

- Investors can buy and sell T-bills with ease in the secondary bond market.

 Cons

- T-Bills offer low returns compared with other debt instruments as well as
when compared to certificates of deposits (CDs).

- The T-Bill pays no coupon—interest payments—leading up to its

maturity.

- T-bills can inhibit cash flow for investors who require steady income.

- T-bills have interest rate risk, so, their rate could become less attractive
in a rising-rate environment.

 The treasury bill sale price is calculated according to the following

formula:

F P: The selling price of treasury bills

P F: The par value of treasury bills
rt
1 r: The interest rate for treasury bills winning
365  100
(calculated in percentage%).
t: number of days in term bills
365: Number of days per year.
 T-Bill prices fluctuate similarly to other debt securities. Many factors
can influence T-Bill prices such as maturity dates, market risk, the
Federal Reserve, inflation.

c) Forms of treasury bill issuance

 In the primary market, Treasury bills are issued in various forms:
auctions, issued directly through the treasury system, or issued
through agents.

1. Regarding to auctions (through SBV):

- Based on the bidding form of the members, the State Bank will
determine the winning price and the volume of Treasury bills to be
mobilized. The State Bank may implement the bidding method and the
percentage of bidding volume, depending on market conditions.
- T-bill bidding is conducted in one of two forms, including:
+Bidding with interest-rate competition;
+Bidding combines interest rate competition and no interest rate
competition.
- Tendering bidding results are determined by one of two methods,
including:
+Bidding unit price;
+Multi-price bidding.
2. Issuance of Treasury bills directly through the state treasury:
- The State Bank issues treasury bills directly in case of temporary
shortage of central budget
- Issuance scheme includes basic contents: purpose, volume, term, form
of bills, bills face value, interest rates, expected issuance time, etc.
- The State Treasury shall record the purchase of bills of the State Bank
and the State budget and payment of bills upon maturity.
3. Released through an agent:

- State Treasury may issue Treasury bills through dealers and credit
institutions (Commercial Bank, Financial Company, Insurance
Company,..)
- Agents enjoy a release fee set by the Ministry of Finance.
- These agents are entitled to a fee prescribed by the Ministry of Finance.

 In the secondary market, treasury bills are centrally deposited and

traded through a specialized Government bond trading system. An
important legal basis for implementing Treasury bill transactions,
 creating liquidity for the treasury bill market in particular and the
bond market in general, demonstrates the close connection between
the money market and stock market.
2. Inter-bank market
 Since the money market is formed, the SBV has focused on the
organization and administration of the market, a series of legal
documents issued, shall specify for each type of activity, as
Directive 07/CT-NH1 dated 10/July 1992, Decision 132/QD-NH14
dated 07 Oct 1993 on the establishment of the inter-bank market,
Decision 114/QD-NH14 regulating the organization and operation
of the interbank market, Decision 190/QD-NH14 dated 10 June
1993 amending and supplementing a number of provisions of the
Regulation on organization and operation of the relevant market
bank. These are legal documents that the SBV issued first, the
basic legal framework for creating, forming credit market
relationship between credit institutions. At this stage, the
interbank market is in the early development level, by the credit
institutions are not familiar with this form of transaction and no
reliance should be mutual relationship between credit institutions
hardly used or not arising through the intermediary of the SBV.
 Banks with excess reserves lend capital, while banks with
insufficient reserves lend money
 In fact, the purpose of making loan in the interbank market is
to liquidate and pay, not making loans to individuals or
organizations. Borrowers (usually large commercial banks)
want to earn interest with the excess money and lenders (small
banks) want to raise more money.
Classifications:
1. Domestic Interbank Market:
 Participants: SBV, credit institutions, mainly commercial banks
 Purpose:
– Ensure the required reserve
– Management of required reserved by SBV
– Ensure liquidity
– Disbursement.
– Business temporarily idle funds
Interest rate: negotiated by 2-party agreement (formed on the basis of
supply-demand relationship, partnership, rating ...)
- Term: Overnight, 1 week, 2 weeks, 1 month, 2 months, 3 months.
Most are under 3 months.
On Tuesday December 17, Vietnam Three Month Interbank Rate
was quoted at 4.40 percent. The average of Interbank Rate in
 Vietnam is 7.58 percent from 1998 to 2019, reaching an all time
high of 19.77 percent in August of 2008 and a record low of 2.37

percent in June of 2018. (https://tradingeconomics.com/vietnam/interbank-rate)

The interbank rate is the rate of interest charged on short-term loans made
between banks in the local currency. This page provides - Vietnam
Interbank Rate- actual values, historical data, forecast, chart, statistics,
economic calendar and news. Vietnam Three Month Interbank Rate -
actual data, historical chart and calendar of releases - was last updated on
December of 2019. (https://tradingeconomics.com/vietnam/interbank-rate)

Actual Previous Highest Lowest Dates Unit Frequency

4.40 4.40 19.77 2.37 1998- Percent Daily
2019

- OTC transactions are: The same term has many market price.
- Trading methods: Telephone, fax the contract ....
- Use Reuters Dealing System: Reuters has built a site the average
exchange rate on the interbank market of Vietnam (VNIBOR) on a daily
basis bid of some banks.
2. Foreign Interbank market:
 Participants: SBV, CI
 Function
 SBV: To ensure foreign currency reserves, the payment
service requirements of customers, ...
Tools: Implementing monetary policy through measures
aimed at stabilizing the exchange rate, affecting total money
supply
 CI: liquidity needs other currencies than USD,
 Buy and sell foreign currency spot, forward
Loan transactions, send Eurodollar: overnight, term ....
 Banks have foreign elements are present in different price
Limitations of Interbank market in Vietnam:

- Number of participants and transaction size and limit primarily to

address liquidity needs. The transfer of capital usually takes place only
one way between the lending group: the listed commercial bank and the
borrowing group: joint-stock commercial banks, joint-venture banks and
branches of foreign banks.
- Interest rates on the interbank market does not accurately reflect the
supply-demand relations and trends of the currency market.
The role of banks in collecting information and participating in the
interbank market regulation is weak, especially in cases where the capital
supply is larger for the market.
3. Repurchase agreement (repo)
 Define: Besides Treasury bills and Inter-bank fund, repo is another
popular instrument in the Vietnamese money market. Repo is
Contract of sale of securities with the commitment of the seller
to repurchase such securities from the buyer at a specific price
on a specific date in the future. In this day, repos are very active
in the Vietnamese stock market.

In essence, the repurchase agreement is a loan with collateral,

where collateral is money market instruments, treasury
securities, securities secured by mortgage contracts, securities
secured by assets, even stocks.

The difference between the acquisition price and the selling

price is the interest of the loan. The determination of
repurchase price is based on repo interest rate agreed with
customer.

Example:
Nov 29th, 2019

Sell 1000T-bills
Bank A Bank B
$900/T-Bills

December 29th ,2019

 Buy 1000 T-Bills
Bank A Bank B
$920/ T-Bills

 Bank A borrows from Bank B $900,000 for 1 month  Pay

interest exp =$20,000

The factors that determine the repo rate:

The formula for calculating the interest of a repo transaction

is:
The interest of repo= original price x (repo interest/365) x number of
days

1)Quality: The higher the credit quality and liquidity of

collateral, the lower the repo rate.

2) Repo term: The effect of repo term on interest rates depends

on the shape of the yield curve

3)Delivery and receipt requirements: As noted above, if the

mortgage delivery to the lender is required, the reppo interest rate
will be lower. If the collateral can be deposited at the borrower's
bank, the borrower must pay a higher repo rate.

4)Availability of collateral. The harder the collateral is, the

lower the reppo interest rate. To understand why, one should
remember that the borrower (or mortgage collater, in other words) has
a security, which is a hot or special security. The party who needs the
collateral (the lender) will be willing to lend the money at a lower repo
rate to get the collateral.

Which securities can be accepted to repo?

The process of determining what type of security is acceptable

for repurchase can be complicated because it determines the risk
of the contract itself and also determines the price and profit of
the repo. Below are some examples of the stocks that Security
company in Vietnam accept for repo.

1) SHS (Saigon – Hanoi Security company): Military Bank (MB),

Eximbank, Vietcombank, Habeco, Sabeco, Bao Viet Cooperation
 2) ACBS (Asia Commercial Bank Security company): mainly
accept to repo stocks of banks portfolio: consist of 9 OTC stocks

3) SBS (Sacombank Security company): Eximbank, MB,

Habubank, Hoàng Anh - Gia Lai, Vinaconex…

Benefits of repo:

1)Increase the liquidity of unlisted stocks: stocks of profitable but

private companies are more valuable because they can be used to
borrow money
2)Increase the liquidity of capital

3)Give investors more capital to expand their portfolio:

investors have access to strong capital funds to fund their investments

4)Increased investment efficiency: more investments can be made

at the same time

Disadvantages of repo:

1)The market is more risky - domino effect: if the market suddenly

falls, investors fall back to buy back securities, securities companies
cannot sell those stocks to recover debts because of stock prices.
Coupon the whole market Will become even more depressed.

2)Liquidity of the obstruction of clearance of Repo contracts

3)Stock price bubble risk: when an investor continually buys and

repurchases a particular stock, it increases the demand for that stock
and thus increases the price rapidly. Stock prices escalate without
truly cognitive growth in the corporation.

4)Inexperienced evaluation: Joint stock companies in Vietnam have

no experience in assessing the profitability of a stock or its future so it
may increase the risk of repo.

5)Outdated portfolio accepted for repos: discourage investors from

paying attention to repo services

6)Poor customer service

  Solution:

1)Manage risk and increase repo efficiency: assign safety ratios to

security companies, send periodic reports to Security Committee

2)Implement strict rules: punish the manipulator, avoid

disproportionate information
3)Increasing marketing activities: letter, telephone, consulting
services, seminars

4)Developing administrative capacity.

4.Commercial paper (CP)

Commercial paper is a short-term, unsecured debt instrument issued by a
company, usually to finance payables and inventory and to meet short-
term debt. The term on commercial paper is rarely longer than 270 days
It were established on the basis of trade relations between entities in the
economy. In the process of development, the negotiable instrument
gradually changed its character from a common debt certificate into a
credit circulation tool that can function as a means of transportation and
payment cash in the economy.
The basic type of commercial paper (CP):
 Drafts:
A draft is an unconditional written order by one person (the
drawer) directing another person (the drawee) to pay a certain sum
of money on demand or at a definite time to a named third person
(the payee) or to bearer
 Notes:
Often called a promissory note—is a written promise to pay a
specified sum of money on demand or at a definite time. There are
two parties to a note: the maker (promisor), and the payee
(promisee). The maker might execute a promissory note in return
for a money loan from a bank or other financial institution or in
return for the opportunity to make a purchase on credit.
Benefits of commercial paper (CP) in Viet Nam:
1. Due to the nature of circulation, commercial paper have become a
credit circulation tool to replace cash, save cash and contribute to
monetary stability.
2. It is also a legal basis in the relationship of buying and selling,
protecting the interests of entities in commercial credit, eliminating the
deep debt situation among businesses.
3. Commercial paper is a security asset when the bank receives a
discount or mortgage loan
4. Expand banking credit service
HOWEVER, in recent years, commercial paper and commercial paper-
related businesses have not yet come into economic life in Vietnam. For
the main reasons are as follows:
1. The law on commercial paper in Vietnam has revealed a number of
inadequacies such as incomplete, not feasible, and not suitable with
international practices and practices.
2. The entities involved in the commercial do not really have
confidence in the CP and the ability to convert money when it’s not
yet due
Solution to bring commercial paper into economic life in Vietnam
1. Quickly creating a legal corridor for the existence and for the
implementation of transactions related to commercial paper safely
and profitably.
2. Organize propaganda, dissemination and discussion of commercial
paper and the benefits of CP to enterprises
3. In the first time, the State should have reasonable incentives for
businesses as well as credit institutions involved in negotiable
relations.
5. Negotiable Certificates of Deposit (CD)
Definition:
Certificate of deposit (Certificate of deposit) is a type of valuable paper
issued by the bank to raise capital from other organizations and
individuals. In other words, it is a valuable paper similar to a savings
book, issued by the bank to certify the customer's ownership of a term
deposit at the bank.
In Vietnam, there are three types of Certificate of Deposit:
1. Registered: Is valuable paper issued in the form of a certificate or
book with the owner's name.
2. Unregistered: Is a valuable paper issued in the form of a certificate
without the owner name. Anonymous deposit certificate is owned
by the holder of a deposit certificate.
3. Book-registered: This is a non-transferable certificate of deposit,
sold at face value and pay interest at maturity.
Registered and book- registered CD are considered non-bearer
instrument for individual and corporate, respectively whereas
unregistered CD is bearer instrument.
Advantages of Certificates of Deposit (CD)
 Certificate of deposit is a risk-free investment property guaranteed
by large financial institutions.
 Both principal and interest are guaranteed for the entire time you
deposit as a form of savings deposit.
 Certificates of deposit usually have higher interest rates than
regular savings accounts with the same terms.
 Buyers can "pledge", transfer or sell valuable papers to borrow
money extremely flexible.
Disadvantages of Certificates of Deposit (CD)
 Limited Liquidity: The owner of a CD cannot access their money
as easily as a traditional savings account. To withdrawal money
from a CD before the end of the term requires that a penalty has to
be paid.
 Inflation Risk: CD rates may be lower than the rate of inflation.
This means that your money may lose its purchasing power over
time if interest gains are outdone by inflation rates.

Purpose of issuing certificates of deposit:

1. In the context of the current global financial market fluctuations,
most will choose short terms to easily change the mode of
investment. Thus, it can be seen that the purpose of issuing
certificates of deposit completely comes from the demand for long-
term capital. The high interest rates offered by banks aimed at
stimulating demand to encourage investors to buy CDs instead of
bank deposits.
2. In addition, personal income tax and procedures are also the cause
of banks issuing certificates of deposit. According to current
regulations, banks will be proactive in CD issuing activities and
investors will not have to pay taxes.
3. Another reason is that many banks are aiming to comply with
Basel II. Accordingly, besides credit risks, banks must control
market risks and operational risks. If following the new standard
framework, it is certain that CAR of Vietnamese banks will be
much lower than current levels. As such, raising capital is the only
way to achieve the new capital adequacy ratio as the CD is
included in the bank's Tier II capital.
Benefits when participating in deposit certificates
Certificate of deposit is a safe, high-interest and easily transferable form
of deposit that will help customers feel secure and meet flexible funding
for future plans. Outstanding benefits when buying certificates of deposit
such as:

1. Enjoy interest on the amount purchased: Similar to savings,

monthly interest will be on the amount that customers deposit.
However, with long-term deposit certificates, customers will enjoy
higher interest rates than regular savings deposits.
2. Transferable: If the customer needs to use the money urgently or
does not want to own the certificate of deposit anymore, it is
possible to transfer his / her deposit certificate to other people, the
transfer price is agreed by the two parties. pros. At that time, the
bank will act as an intermediary confirming the right to transfer
ownership of the money certificate.
3. Giving, donating, inheriting, authorizing others as prescribed
by law and issuing organization: Customers can give or give to
children, parents, acquaintances ... Not too complicated such as
inheritance, need an inheritance, a lawyer, a witness ... For long-
term deposit certificates, customers only need to go to the bank to
confirm giving, giving and authorizing others. The bank will
support the procedures for giving or giving simply and quickly.
Interest rate of certificates of deposit at some banks
Recently, a series of commercial banks are constantly racing to issue
certificates of deposits with the most attractive interest rates, even called
by many people "super interest rates" for long terms. Please refer to the
information of interest rates of certificates of deposits of some typical
banks below to make investment
options that bring the highest
efficiency.
 Factors Saving Certificates of deposit

Depending on each term Compared with savings deposit,

and each bank, the certificates of deposit are usually
current highest savings higher and more stable interest
Interest rate interest rate is about 6 -
rates, depending on the long or
7%. medium term, the highest interest
rate of certificates of deposit is
also nearly 9%.
Normally, savings Certificate of deposit with longer
deposits have terms of 1 term; May be 6 months, 9 months,
Period month, 2 months, 3 12 months, 18 months, 24
months, 6 months, 12 months, 36 months or 84
months, 24 months ... months ... depending on the bank
and issue.
Savings deposit is a In theory, customers who buy
highly liquid channel, certificates of deposit are not
customers can withdraw withdrawn before maturity, if any,
Creditial money when it is due and they must also wait after half of
also withdraw money the term (depending on the bank),
before maturity but bear so the liquidity will be less than
very low demand interest the form of savings.
rates.

Compare certificates of deposits and savings books

Should invest in certificates of deposit or savings?

Each investment channel has different advantages and disadvantages, so
which channel to choose, customers must also carefully consider based
on lucrative investment needs, future spending situation to choose which
channel, which term and which bank is the best.
Although, currently, interest rates of certificates of deposit are higher than
those of savings accounts, they have a longer term and usually do not
have flexible pre-term capital withdrawal like ordinary savings books. So
this channel will be more suitable for customers with idle finance and
temporarily unused for a fixed period of time.
If you have an idle amount of money and there are no plans in the future,
buying a certificate of deposit is a good choice to enjoy the highest
interest rates. However, before making a choice, you need to research
carefully to bring the initiative and maximize your benefits.

6. Banker acceptances (BA)

Definition
BA is a money market instrument created by a non-financial company
and is guaranteed by a bank. This is a commitment in which the bank
accepts payment of a certain amount on a specified future date. BA is
commonly used in international trade transactions and is traded in the
form of valueable discounts on the secondary market.

Payment commitments of the parties related to the BA

With the stamp of "acceptance" attached to its date and signature, the
bank or drawee has made an official commitment to pay in writing to
perform the bill payment. The term was unconditionally accepted on the
due date. Once created, the BAs are actually committed to paying by the
following two entities:
First, accepting bank will be primarily responsible for this type of
instrument.
Second, the beneficiary inscribed on the bill of exchange (payee) - the
first endorser to whom the bill of exchange is transferred - will be the
next legal person to pay the bill to the holder when the payment is due. In
cases where the bank accepts to be insolvent due to force majeure
circumstances such as bankruptcy, the beneficiary named in the draft
must make the final payment.

The international payment method applied to BA

1. In the form of letters of credit: Letter of Credit (Letter of Credit) is
an unconditional payment commitment issued by a bank to the
beneficiary listed on that commitment when the beneficiary
presents a complete set of documents. Valid as stated in the letter
of credit.
2. Collection form: Collection is a form of payment whereby the
exporter presents documents at the collecting bank and requests the
bank to collect the loan without the bank's commitment. There are
two types of collection:
 Clean Collection (Collection)
 Document Collection (Document Collection).
 Depending on the term of the draft to be drafted, including: D / P
(Documents against Payment) - D / A (Documents against
Acceptance) - Collection of deferred payment. However, due to the
nature of the transaction, the BAs are only implemented in the form
of D / A - Collection with deferred payment.
3. In the form of open accounts: Open account trading is a trade
financing method whereby goods are delivered before the payment
is due, usually 30 or 90 days.

Classification BA
Based on the beneficiaries directly from the BA, BA can be classified
into the following categories:
1. B.A sponsors the importer
 Not based on letter of credit: When the importer and its bank
complete a financing agreement through the BA, the bank agrees
to accept the bill drawn up by the importer and the importer
agrees to refund any foreign exchange Any bill that has been
accepted by the bank, the importer will issue a deferred payment
bill for bank payment.
 Based on the letter of credit: Another form of funding for
importers is funding through the use of BA on a letter credit
basis. This letter of credit will indicate that the accepting bank
will accept the deferred payment draft issued by the exporter
when the forward bill of exchange and the collection of
documents have transferred the ownership of the goods.
(endorsement) presented to the bank.
2. BA sponsors exporters: Any exporter may wish to seek BA
financing if the exporter knows the importer's reputation very well
and wants to grant the importer a commercial credit, but the
exporter need money in the interim.
3. BA refinancing: A refinancing BA arises when a foreign bank
issues a demand draft to demand money from a bank in the country
to finance a transaction of its customer. This overseas bank is not
reputable or reputable to seek any form of funding because they
cannot sell their own BA, or cannot sell their BA at a preferred
price. currency market.

Advantages of BA
 1. Accepted and committed to unconditional payment by a bank on
the due date: The first BA is a short-term commercial financing
instrument created by a non-financial company and secured by a
bank payment. The BA is traded on Currency market in the form of
discounted value less than the value recorded on its surface. This
tool, which is used very popularly in Currency market, has
developed economies and has been widely used in international
trade transactions.
2. Discounted at the present time is allowed for holders and freely
traded on Currency market: The BA after being created will
become a product and traded on the Currency market. The
advantage of BA is that it does not need to hold an approved bill of
exchange until the due date of payment.
3. Diversification of the subjects to create conditions for mobilizing
the capital of the entire people: The regulation to allow the transfer
of the right to enjoy the amount stated in the draft has been
accepted by a bank by endorsement on that bill of exchange.
Diversifying the subjects that hold bills of exchange which are
limited to the participants. Accordingly, BA investors are not
necessarily exporters, importers or banks but anyone who wants to
hold such BA if accepting a certain amount of investment risk.
Therefore, the subjects holding BAs are diversified and facilitate
the mobilization of capital for the entire population.

Disadvantages of BA
1. Transaction risk: Trading risk is the present or future risk arising
from transaction errors leading to the inability to deliver goods or
services, or to maintain a competitive or managerial advantage.
The buyer's information is not good during contract performance.
Trading risks include: production process, system development,
computer system breakdown, the variety of goods and services and
the internal control of the environment ...
2. Liquidity risk (liquidity risk): Liquidity risk is the present or future
risk related to the insolvency of the accepting bank when the BA is
due. Liquidity risk includes the inability to manage unanticipated
changes or declines in payment sources. Liquidity risk can also
arise from not being able to recognize changes in the market that
affect the ability to liquidate assets quickly and at a minimum cost.
3. Foreign currency risk: Foreign exchange risk is the present or
future risk affecting capital or income arising from the conversion
of a bank's financial statements from one currency to another. This
relates to the diversity of book value in accounting for the
accounting of bank assets arising from the diversity of exchange
rates used when converting income streams from foreign currencies
to local currency and vice versa.
4. Reputable risks: Similar to liquidity risks, reputation risks are the
present or future impacts on an organization's income or capital
resources arising from adverse opinions of community. This affects
the ability of an organization to create new relationships or
continue to maintain existing relationships. The bank lends its
reputation to the BAs it sponsors. Therefore, investors are very
interested in the reputation of the accepting bank in BA
transactions.

The situation of using BAs in Vietnam:

In the transactions of exporting goods from Vietnam to other

countries, the most popular payment method is favored by Vietnamese
enterprises (especially small and medium-sized enterprises). The most
current payment is documentary credit (referred to as L / C payment -
letter of credit).

L / C is essentially a conditional payment commitment of the issuing

bank. Therefore, Vietnamese exporters can be assured of the solvency
of the buyers. But not every L / C has money. The reason is that the
risks that may occur at any time due to the nature of L / C are very
vulnerable to Vietnamese enterprises not paying attention, causing the
application to fail and the bank to refuse to pay.

Actually, the form of BA has not really developed in Vietnam.