International Financial Markets in Vietnam

Running head: FINANCIAL MARKETS
Financial Markets
Name of the Student
Name of the University
Author Note

FINANCIAL MARKETS1
Table of Contents
Task 1: International Financial Markets..........................................................................................2
Task 2: Investing Risks and Returns...............................................................................................3
References........................................................................................................................................8
Appendix..........................................................................................................................................9

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Task 1: International Financial Markets
1. Spot markets are extremely important to the retail outlets in Vietnam as they involve a
contract between two parties in which they agree to conduct trade on the spot. Even
though the actual transaction may take place at a later date, the agreement creates a safety
net for the parties entering into the transaction. In this manner, the Vietnam outlets can
enter into spot contracts on the day the demand and price are high for the product. This
protects them from any adverse conditions that are likely to occur in the future and also
make profits on an instant basis (Lee Stevenson & Lee, 2014).
2. Forward markets are the ones where a transaction between two parties is entered into
with the understanding that the deal would take place at the existing rates on a future
date. One of the main benefits of a forward contract is that its size is not rigid and can be
used to meet the requirements of a particular customer. This allows the retail outlets to
enter into a transaction from any customer in the world. Another advantage is that these
contracts protect the retailers against the risk of market fluctuations. For frequent foreign
exchange transactions, these contracts are extremely safe (Lee, Lin & Pasari, 2014).
3. Some of the payment mechanisms that can be used by these outlets include opening a
bank account in an international bank from which cash can be deposited directly into the
business. Other methods include using trade instruments like a letter of credit in which
the bank provides guarantee to the buyers about the delivery and quality of the goods
(Ahn & Sarmiento, 2013). Through this, the cash can be obtained quickly from a buyer
and sent to the head branch in Australia. A documentary collections can also be used by
the retail outlet in which the collection of the amount from the buyer is entrusted with the
bank and the payments happen in a quick manner.

FINANCIAL MARKETS3
4. There are two methods in which a foreign exchange quotation happens. These are the
direct and indirect methods of quotation. For a direct foreign exchange quotation between
AUD and Vietnamese Dong, one unit of Vietnamese Dong is expressed in terms of
Australian Dollars. In case of an indirect quotation, one unit of Australian Dollar is
expressed in terms of Vietnamese Dong. In terms of determining the settlement currency,
the factors prevalent in the market that are likely to effect the currency need to be
considered (King, Osler & Rime, 2013). The deal should always have the stronger
currency as a settlement currency because the payment received would be greater in
terms of value for a transaction on which the amount is paid at a later date.
5. International markets that function smoothly provide businesses with access to the capital
both in the short run and in the long term. It provides the funds necessary to expand or set
up a new business. The main advantage of using the bond markets in a foreign country is
the low interest rates charged by them in comparison to the home markets. Hence, the
cost of expanding the business would be much lower than it would otherwise have been.
The Dow Theory suggests that the conditions existing in a market on a given date are
good indicators of the short term happenings in the market (Banerjee, Devereux &
Lombardo, 2016). Therefore, the markets can be used to analyse the situation and choose
whether to invest in a particular market or not.
Task 2: Investing Risks and Returns
1. The stocks of Wesfarmers that have been selected for investment are bound to be
impacted by the rate of inflation in the economy. Other macroeconomic factors affecting
it would be the interest rates set by the Central bank and the conditions existing in foreign
markets. The industry factors that would impact the share selection are the regulations