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Write an essay on the importance of financial statements of a company.

Suggested points:
How many types of financial statements are there?
What purposes are they used for?
What are the features of each type?
In the current climate, it is increasingly important for both the management
and shareholders to understand their companys financial statements. It is simply
because such accounts can provide a detailed overview of the companys success
and competence. There are 3 primary financial statements, namely the profit and
loss account, the balance sheet and the cash flow statement, which should be
included in most companies annual reports.
First and foremost, the profit and loss account is designed to show revenue
and expenditure over a period of time. In other words, it allows owners to see how
the business has performed and whether it has made an acceptable profit or not. In
detail, the profit and loss account gives figures for total sales or turnover, and for
costs and overheads. The first figure should be greater than the second which
means a profit has been realized. The profit is paid to the government in taxation,
and to shareholders as a dividend, and is retained by the company to finance
further growth or to repay debts
Second, the balance sheet reveals the financial situation of the company on a
particular date. It consists of the companys assets, its liabilities and shareholders
funds. A businesss assets include its cash investments, property and debtors.
Meanwhile, liabilities contain all the money that a company will have to pay
someone else such as taxes, debts, interest and so on. Notably, assets and liabilities

are listed according to their liquidity and term respectively. For instance, current
assets appears before fixed assets. The basic equation is that Assets = Liabilities
+ Owners. Last, the shareholders funds include share capital, share premium and
the companys reserves comprising the years retained profits.
Last but not least, the cash flow statement, which can be called the funds flow
statement or the movements of funds statement, reports the flow of cash in and out
of the business between balance sheet dates. Source of funds can be trading profits,
depreciation provisions, borrowing and so on. Therefore, applications of funds for
example include the purchase of assets, the payment of dividends or the repayment
of loans and so on.
In conclusion, the management should consider all of such accounts as the
profit and loss account, the balance sheet and the cash flow statement before
making any further decisions. They are all useful in determining the current
financial health of a business.

Why does central bank play an important role in the economy?

In todays modern world, a Central Bank plays an increasingly important role
in the economy especially in developing economy. In other words, whether an
economy can develop or not partly depends on how well the Central bank performs
its primary roles such as ensuring monetary stability, maintaining the stability of
the financial system and being the lender of last resort.
Firstly, a Central bank is mainly responsible for ensuring monetary stability to
build a healthy economy in the long run. In other words, the Bank has to maintain
stable price low inflation and consequently gains confidence in the currency. To
achieve it, the Bank implements monetary policy with the most widely used
instruments, namely reserve requirements, discount rate and open market
operations. For example, if the US Federal Reserve System wants to increase the
money supply, it buys government securities in open market operations and vice
versa. That is how a Central bank controls the money supply and then ensures
monetary stability.
Secondly, a Central bank is directly in charge of maintaining the stability of
the financial system. More specifically, a central bank has to detect and reduce any
threats to financial stability, and make sure the overall system is safe and secure. It
monitors and analyses the behavior of the major participants in the financial
system and tries to identify potential risks. In addition, a sound and stable financial
system is crucially necessary for carrying out monetary policy efficiently.
Last but not least, a Central bank sometimes acts as the lender of last resort to
financial institutions in difficulty. For example, when the US financial system is
experiencing great shock due to the terrorist attacks in September 2001, the Fed is
prepared to provide liquidity through temporary adjustments in the size of open

market operations or lending through the discount window to eligible financial

institutions. This is why the Fed and other central banks are known as lenders of
last resort.
In conclusion, an economys development is directly determined by such
main roles of its central bank as ensuring monetary stability, maintaining the
stability of the financial system and being the lender of last resort. Therefore, the
government should provide its central bank with the best chances to operate
efficiently for the sake of the economy

What are roles of a central bank?

Most countries have some form of Central Bank serving as the principle
authority for the nation's financial matters. As time gone by, the roles of central
bank have changed in accordance with the economys target. However, it still
remains the basic functional roles such as ensuring monetary stability, maintaining
the stability of the financial system and being the lender of last resort.

(cn li nh trn)

The importance of share prices to a business (Hnh, cn thm vdu)

Most companies are hardly satisfied with their share price and always want to
see it higher and higher. Despite of the fact that the company itself does not receive
any cash benefits from appreciation in share price, its managers are always
obsessive about the share price. There are 3 main reasons why the share prices are
so important to a business.
First of all, the price of a company's shares is often used as an indication of
the overall strength and health of a company. In general, if the share price of the
company has continued to increase, the company and its management are
considered to be doing a good job. In other words, the managers are at risk of
being removed from the company if the share price falls too deeply.
The second reason is that a company with high share prices can easily offer
new shares to the market to raise capital. Everyone wants to invest their money in
successful companies because of safety. Therefore, trying to maintain the price of a
companys shares at high level will bring the company opportunities of getting
more money from the investors to expand its business.
Last but not least, takeovers are also important reason why the management
of a public company would be concerned about its share price. If a companys
share price is falling at a rapid rate, it would mean that the company would be
more likely to be acquired as the share would be much cheaper and bidders would
be better able to make offers to shareholders. As a result, it is the best interest of
the management of a listed company to ensure that its share price remains
relatively stable so as to ensure that there is litter or no likelihood of being taken
over.

What are the advantages and disadvantages of offering shares to the

public?
Recently, the media has reported about the very successful IPO (initial public
offering) of Facebook and Twitter. However, these actions did not benefit them
100%. In this essay, I will discuss about the advantages and disadvantages of
offering share to the public.
Listing your company in public exchange can benefit you in many aspects,
not only finance. Firstly, of course, your company can gain capital, even huge
capital, from selling your shares publicly. For example, Twitter and Facebook
gained over one billion dollars through its IPO. Secondly, it can enhance your
prestigious, your public image through the price of your shares. Last but not least,
when your shares are public, you can attract and retain good managers and
employees through liquid equity participation.
On the other hand, having your shares public can also cause several
difficulties. The first one is that from your IPO, you have to disclose your finance
and business information. It can be useful for your competitors, while you do not
have any information about them. Another problem is the agency issue of new
shareholders. They can intervene in and change your strategy to develop. And
lastly, companies still have to face the risk of not raising enough fund from selling
shares to public to cover all the costs.
In conclusion, when you intend to float your company, you need to consider
carefully both opportunities and challenges of going public to find out whether
your company is really ready for that.

In an acquisition, it is not easy for the acquiring firm to digest the

swallowed company?
Essay:
Nowadays, acquisitions have become a trend when a company wants to
expand its business. However, research has shown that roughly 20 percent of all
acquisitions are successful, approximately 60 percent produce disappointing results
and the remaining 20 percent are clear failures. For various reasons, it is not easy
for the acquiring firm to digest the swallowed company in an acquisition.
The first thing is about integration difficulties. Integration challenges include
combining two different corporate cultures, linking different financial and control
system and building effective working relationships. Integration is quite complex
and requires a large number of activities. If the acquiring firm overlooks that, it can
lead to significant problems.
Secondly, some acquiring firms can face large debt. To finance acquisitions,
some companies significantly increase their levels of debt. However, high debt can
have several negative effects on the firms. For example, because high debt increase
the likelihood of bankruptcy, it can lead to a downgrade in the firms credit rating,
which raises the companys cost of debt. As a result, the firms may face financial
problems which affect operating efficiency.
Finally, acquisitions make firms become larger and sometimes too large to be
efficient. Because of the complexities generated by the larger size, the managers of
the firms have to implement more bureaucratic controls to manage the combined
firms operations. As a result, the managers spend a lot of time on these activities
and produce less innovation which is the very important factor contributing in the

firms success. In the long run, it is not good for the health of the firms and makes
their outcomes worse.

What is the most common method of payment in international

trade?
Among many methods of payment in international trade, Documentary Credit
is the most common one. Documentary Credit, which is often referred as Letter of
Credit, is an undertaking issued by an oversea bank to exporter through a bank in
exporters country, to pay for the goods provided that the exporter complies fully
with the terms and conditions established by the L/C. Based on this, the L/C can
protect both exporter and importer.
Firstly, Documentary Credit can eliminate the risk of non-payment for the
seller. Providing that the seller presents all necessary documents as stated in the
L/C, the issue bank has to pay for the seller. Therefore, if the buyer breaches the
contract, the seller still receives the money. Moreover, the L/C is separated from
the contract, so that if the buyer has anything to complaint about the goods, the
bank still has to pay the seller first, then the two parties will resolve the dispute on
their own.
On the other hand, Documentary Credit can also protect the buyer from the
risk of wrong goods, missing goods or inferior goods. The bank will comply
strictly according to the terms and conditions written in the L/C. For example, if
the goods are damaged, the exporter cannot get a clean bill of lading. Thus, he
cannot take the payment from bank.
To conclude, Documentary Credit is the most common choice of all importers
and exporters around the world. When the trust has been built in both parties, they
may switch to other less cost-consuming method of payment.

There have been great changes in personal banking recently in Viet

Nam
10 years ago, terms ATM, cash card, internet banking are strange with
most Vietnamese people. However, nowadays, these words become part of our
normal lives. This happening proves great changes in personal banking recently in
Viet Nam.
Firstly, instead of buy gold to save, now people deposit their money in the
bank. It is common that most Vietnamese households have a saving account at
local bank. Banks now also offer a variety of saving accounts which allow clients
to choose among different maturity and purposes, such as: saving account 18 years
for children, saving account for retirement, saving account for studying abroad, etc.
Secondly, transferring money through banks has become popular. For
example, in the past, college students needed to go home to get subsidy from their
parents. However, at the current time, they usually have a debit card alongside
which their parents can directly transfer the money to through banks.
Last but not least, along with the development of e-commerce, payment
services at banks also thrive. Customers who have taken part in online transactions
are all familiar with the payment through internet with their checking account at
banks. In addition, when shopping at huge mall, consumers often use their debit
card or credit card in order to both protect themselves from pickpockets and pay in
a faster way.
To conclude, personal banking will get more and more popular in our daily
lives.

Documentary credit is often used to finance international trade?

Why is it chosen so widely? Are there any risks or disadvantages for
the exporter and the importer when they decide to use documentary
credit?
Documentary credit (also Letter of credit) has increasingly become the first
and last resort for many credit executives attempting to eliminate transaction risks,
and it is essential to trade, particularly important to international commerce.
However, it is not always the best way to finance foreign trade because of its
disadvantages to both importers and exporters.
Why is it choosen so widely??? (advantages)
- firstly, L/C reduces the risk of non performance by both sides. In
international trade, as the seller and the buyer are in different countries, there is a
common problem of payment due to the difference of time between dispatch and
delivery. Obviously, seller would like to receive payment for the goods when
delivering them to the carrier and the buyer would prefer to delay the payment
until receipt of the goods. Thanks to L/C, exporter can eliminate credit risk
whereas importer can have its shipment assured. Furthermore, with the
participation of banks, all documents are examined strictlly in compliance with the
terms of the L/C, so if any discrepacies arise, cash recovery will be much more
easier.
Are there any risks or disadvantages for the exporter and the importer when
they decide to use documentary credit? (disadvantages)
Exporter:
- Obviously, L/C takes more time than other methods of payment. As
mentioned above, strict compliance is required for payment. Unless all the

documents are 100% compliant with the terms and conditions of the L/C, the bank
will not issue payment.
Importer:
- Because LC is operated on the basis of documentation, not verification of
quantities and qualities, so the importer have to mention all necessary terms (for
example quality certification) in detailed if he want the goods to be delivered meet
the requirements.
Besides, the cost of this kind of payment is also more expensive than others
because it may include issuing, receiving, negotiating, and other fees associated
with L/C.

What are the disadvantages and advantages of mergers and

acquisitions?
Merger and acquisition has become the most prominent process in the
corporate world. The key factor contributing to the explosion of this innovative
form of restructuring is the massive number of advantages it offers to the business
world. However, there are also some disadvantages of resulting business that put
the merged firms into troubles.
The very first advantage of M&A I want to mention here is synergy. When
two or more companies get together and are supported by each other, the resulting
business is sure to gain profit in terms of financial gains and work performance.
Cost efficiency is another beneficial aspect of merger and acquisition. This is
because any kind of merger actually improves the purchasing power and reduces
the costs. Moreover, with a merger it is easy to diversify the products, services and
long-term prospects. The target business may be able to offer you products and
services which you can sell through your channels. Apart from the factors above,
reasons for acquiring companies include getting stronger position in a market and
larger market share, reducing competition, and benefiting from economies of scale.
Besides, there are also a number of good arguments against mergers and
acquisitions. The first thing is that diversification can damage the companys
image, good will and shared values such as quality, good service, innovation, etc.
Staff redundancy is also a big problem if what made the company special was
human capital rather than its products and customer base. When the top executives
are replaced, it may have an effect on motivation. Furthermore, there may be a
conflict of objectives between different businesses, meaning decisions are more
difficult to make and causing disruption in running of the business.

In conclusion, before making any decisions, it is necessary to consider

carefully gains and losses because everything has its two sides. This will help you
reduce the risks and get benefits as much as possible.

Why is there high percentage of failures of mergers and acquisitions?

Merger and acquisition has become the most prominent process in the
corporate world. However, achieving acquisition success has proven to be very
difficult, while various studies have shown that 50% of acquisitions were
unsuccessful. The reasons are very diverse but I want to mention here three main
ones.
I think the first reason is that they gauged the strategic fit wrongly. If the
acquisition is too far outside the parent companys core competency, things are not
likely to work. For instance, a company that sells to its business customers through
catalog and Internet sales will not suitable with a company that relies on direct
sales even if the products are in the same industry. Therefore, you should ask
whether the target company fits your strategy, your operations, and your
distribution channels.
The second reason is that they did not understand clearly the new companys
culture. Just because your two companies are in the same industry does not mean
you have got the same culture. The difference between the working styles can
cause the conflicts between the staff or even the conflicts at the management level,
meaning decisions are more difficult to make and causing disruption in running of
the business.
One more reason making the failure of acquisition is that they did not
communicate clearly or enough. In the absence of information and communication,
rumors will fly and people at the acquiring company will assume the worst. They
should communicate to the entire team clearly and honestly and consistently, not
just the top executives. This will make the staff less confused and more
concentrated on their work.

What are derivatives? Why are they important?

There is no doubt that exchange market has changed dramatically since the
introduction of derivatives. A derivative is a financial security, such as an option
or futures contract, whose value depends on the performance of an underlying
security or asset. In the present age, they are playing an increasingly important role
in investors portfolio.
The first and most important role of derivatives could be risk management.
Risk manager is the process of identifying the desired level of risk, determining the
actual level of risk and altering the later equal to the former. The process can fall
into the hedging and speculation. If you hedge, you make transactions that are
designed to reduce risk regarding a particular price, interest rate or exchange rate.
A speculator anticipates future change in a market and makes risky transaction,
hoping to make a gain
Secondly, derivatives are also used to provide leverage or gearing, such that
a small movement in the underlying asset can cause a large difference in the value
of the derivative. If the value of the underlying asset move correctly the way the
investors expect, they can obtain huge spread. For example, if you think a share
worth 100 $ will rise, you can buy a call option give the right to buy at 80 $.
Consequently, you can earn 20 $ value of options.
Moreover, the widely recognized benefit attributed to derivative instrument
is price discovery. Futures market price depends on a continuous flow of
information from around the word and requires a high degree of transparency. A
range of factors impacts supply and demand of asset as well as the value of
underlying asset in derivatives contract. The way people absorb it constantly
changes the price of commodity.

Ultimately, derivatives such as futures, options and swap developed to allow

companies to reduce uncertainty by guaranteeing future prices at a reasonable cost.
So, they allow companies to plan more effectively.
What are risks faced by business people on the foreign market? What do they
do to avoid these risks?
In the present age, foreign business is playing an increasingly important
role in our lives. Therefore, international investment is getting stronger and
stronger. However, although the benefits of investing internationally are widely
accepted theories, many investors are still hesitant to invest abroad because of
huge riskes.
Likely the biggest barriers to investing in international markets are the
transaction costs. Although we live in a relatively globalized and connected
world, transactions costs can still vary greatly depending on which foreign market
you are investing in. In addition, if you are investing through a fund manager or
professional manager, you will also see a higher fee structure such as: accounting
fee, market research fee, determination value of portfolio fee,
The next part of concern for retail investors is in the area of currency
volatility. When investing directly in a foreign market , you have to exchange your
domestic currency (USD for U.S. investors) into a foreign currency at the current
exchange rate in order to purchase the foreign stock. The solution to mitigating this
currency risk is to simply hedge currency exposure. For instance, you can use
derivatives such as swaps, futures to eliminate your risk.
Another risk in foreign markets, especially in emerging markets, is liquidity
risk. Liquidity risk is the risk of not being able to sell your stock quickly enough
once a sell order is entered. Further, its so necessary to evaluate the liquidity of

an asset before purchase. One method is to simply observe the bid-ask spread of
the asset over time.
Investing in foreign market is often a great way to diversify your portfolio and
get potentially higher returns. However, for the average investor, measure the
international markets can be a difficult task that can be fraught with challenges. By
understanding some of the main risks and barriers faced in international markets,
an investor can position themselves to minimize these risks.
Is Inflation always bad to the economy?
Inflation is such a commonly used term in the twentieth century. It simply
means that is a rise in the general prices of goods and services, resulting in a fall in
the value of money. As you can see, it's not so easy to label inflation as either good
or bad - it depends on the overall economy as well as governments controlling.
To begin with, there are so many negative effects which have derived from
inflation. Uncertainty about what will happen next makes consumers less likely to
spend. This hurts economic output in the long run. Beside, People living off a fixedincome, such as retirees, see a decline in their purchasing power and, consequently,
their standard of living
Secondly, inflation increase the cost of borrowing so that it make difficult for
investors approach the potential loans. Altogether, production cost is also
relatively go up and business activities go to wall.
However, one cannot deny that inflation has contributed to the worlds
economies in many beneficial ways. Inflation is a sign that an economy is
growing. In some situations, little inflation (or even deflation) can be just as bad as
high inflation. The lack of inflation may be an indication that the economy is

weakening. People like to complain about prices going up, but they often ignore
the fact that wages should be rising as well.
Finally, you need to know that inflation isn't intrinsically good or bad. Like so
many things in life, the impact of inflation depends on specific situation as well as
actual purpose.

"What should we do to reduce risks to minimum?

Essay
Risk is the potential of losing something of value, weighed against the
potential to gain something of value. Risk appears in many activities such as doing
business, investing in securities and lending. Reducing risk is not quite easy,
however there are some solutions that can help us reduce risk of respective activity
to minimum.
In doing business, successful companies generally want to diversify; to
introduce products or services and enter new market. However, entering new
market may bring the companies risk of failure because of various reasons such as
government policy, difference of culture, etc. A good solution for these companies
to reduce risk is that they can buy another company with existing products
and customers, which is often called mergers and acquisitions. For example,
Nestle bought a lot of companies including Kraft foods and Spillers Petfoods to
diversify company. As a result, that brought the company huge profits.
For investing activities, especially investing in stocks and bonds, investors
can face interest rate risk, volatility risk or default risk. To reduce these risks,
the investors can divesify their portfolios. For example, they can invest in both

short-term bonds and long-term bonds to reduce interest rate risk. In addition,
instead of investing their money in only one company, they can buy stocks of
different kinds of companies, which can help them reduce both default risk
and volatility risk.
Lending is also a risky field. When you lend money to another person, you
can be at risk of not getting money back from that one. Therefore, to reduce that
kind of risk, banks generally require borrowers to have enough collateral to
guarantee the amount of the loans. Possible collateral includes houses, cars,
securites or your saving accounts. If the borrowers can not pay the loans, the
banks will be entitled to auction these possessions to get their money back.
Why do companies merge with each other?

Nowadays, when business environment has become more and more

competitive, companies have to grow to survive, merging with another company is
considered to be one of the best solutions to this problem because it offers many
great benefits to firms.
Firstly, merger helps companies achieve synergy and economies of scale. As
we know, the more products we make, the lower the cost per unit is. When merger
happens, fixed costs are distributed over a large volume of production and that
causes the unit cost of production to decline. As a result, companys profit will rise.
Therefore, the two companies will work more efficiently together than either will
separately.
Secondly, diversification is also another goal of merging. When a company
wants to enter a whole new field to reduce the impact of a particular industry's
performance on its profitability, it is advisable to merge with another firm rather

than set up a new company with new brand, new process, new chains,etc. Merging
help us move into a sector which promises greater growth or profits with lower
costs.
Last but not least, mergers can give the acquiring company an opportunity to
grow market share without having to really earn it by doing the work themselves instead, they buy a competitor's business for a price. For example, a beer company
may choose to buy out a smaller competing firm, enabling the smaller company to
make more beer and sell more to its loyal customers.