Chapter 1:

Money market mutual fund shares: khi góp tiền vào các quỹ tương hộ thì cũng như
ta mua chứng chỉ; quỹ tương hộ trong thị trường tiền tệ chỉ đầu tư vào những khoản
ngắn hạn thôi, rủi ro thấp => cho phép NĐT rút lượng tiền đầu tư ra với giá cố định
khi nào NĐT muốn => tính thanh khoản rất cao => giống như đi vay deposit => lý do
vì sao đc xếp vào nhóm M2.

Chapter 2.2:

1. Loanable fund approach:

- Houshold demand: housing expenditures, automobiles, household items
 i >< quantity demanded of loanable funds
- Business demand: invest in fixed assets and short-term assets; evaluate using NPV
(NPV>0)
- Government demand:
+ Municipalities issue municipal bonds
+ The federal gov issues Treasury securities and federal agency securities
 Interest-inelastic (vertical)
- Foreign demand:
+ Influenced by the i different between countries (the greater the differential, the
greater the demand)
+ Demanded quantity of domestic loanable funds by foreign gov >< domestic i

2. Bond market approach:

- Determinants of asset demand (Ảnh hưởng cầu tài sản)
+ Wealth -> demand tăng
+ Expected return: tăng -> cầu tăng
+ Risk: tăng -> cầu giảm
+ Liquidity: tăng -> cầu tăng
+ Info cost: tăng -> cầu giảm
- Shifts in demand for bonds:
+ Wealth: tăng -> cầu tăng
+ Expected return: tăng -> cầu tăng
+ Expected inflation: tăng -> cầu giảm
+ Expected return on other assets: tăng -> cầu giảm
+ Risk: tăng -> cầu giảm
+ Liquidity: tăng -> cầu tăng
+ Info cost: tăng -> cầu giảm
- Shifts in supply for bonds:
+ Expected profitability of investment opportunities: tăng -> cung tăng
+ Expected inflation:
+ Gov budget deficit:

 Conclusion:
- Price bond >< quantity demanded by lenders
- Price bond ~ quantity supplied by borrowers
- i ~ quantity of loanable funds supplied by lenders
- i >< quantity of loanable funds demanded by borrowers

3. Liquidity preference framework:

- Shifts in demand for money:
+ Income -> store of value, ability to carry transactions
+ The price level -> medium of exchange/ purchasing power
- Shifts in supply: MS by CB

4. Interest rate risk: The risk that the price of a financial asset will fluctuate in response
to changes in i
- Prices and returns for long-term bonds are more volatile (biến động) than those for
shorter-term bonds
- No interest-rate risk for any bond whose maturity = holding period (return = yield)
- Bonds with maturity > holding period , i tăng P giảm (capital loss)

Chapter 2.3:
1. Interest rate: Risk structure
- Real rate of interest
- Expected inflation
- Default risk

- Illiquidity risk:
- Maturity risk

 Income tax considerations (thuế thu nhập) : thuế tăng -> i tăng

2. Interest rates: term structure (cấu trúc kì hạn lãi suất)

 - Yield curve :
X-axis: Time to maturity; Y axis: YTM

3. Theories of term structure:

- Expectations theory: NĐT ko có sự phân biệt về công cụ nợ có kỳ hạn khác nhau
 i dài hạn = trung bình i ngắn hạn
 Short and long rates move together
- Segmented markets theory: cái duy nhất đc quan tâm là kỳ hạn của khoản đầu tư
 NDT lựa chọn kỳ hạn dài hay ngắn hoàn toàn phụ thuộc vào dự báo về future CF
 Rates đc quyết định bằng lượng cung-cầu đối với công cụ nợ mà ko bị chi phối bởi
các công cụ nợ có kỳ hạn khác
- Liquidity premium theory (Preferred Habitat theory)
+ The interest rate on a long-term bond will equal an average of short-term interest rates
expected to occur over the life of the long-term bond plus a liquidity premium (also
referred to as a term premium) that responds to supply and demand conditions for that
bond.
+ Investors are likely to prefer short-term bonds over longer-term bonds.

Chapter 3.1: Financial system

1. Risk sharing:
+ Allowing savers to hold many assets (diversification)
+ Diversification: splitting wealth among many different assets to reduce risk
2. Liquidity:
 Financial markets and intermediaries help make financial assets more liquid
3. Information:
- Convey info to both savers and borrowers by determining the prices of stocks,
bonds, and other securities.

 Financial intermediaries:
-
- Commercial banks:
+ Huy động vốn chủ yếu dưới dạng:
Checkable deposits
Saving deposits
Time deposits
+ Sử dụng vốn để
Commercial loans
Consumer loans
Mortgage loans (Cho vay BĐS)
Mua, đầu tư CK

Chapter 3.2: Financial instruments

Assets Financial assets

Anything of value owned by a person/
firm
A financial claim, meaning that if you own
a financial asset => have a claim on
someone else to pay you money
2 parts:
+ Securities => tradable
+ Not securities

1. Financial asset:
Non-marketable Marketable
Can’t be traded between or among Can be traded … after their original issue
investors in public markets and before they mature
May be redeemable (a reverse or expire
transaction between the borrower and
the lender)
Examples: Market capitalization
- Saving accounts = total market value of a company
- Term deposits = Number of shares x Price per share
 - Certificates of Deposits

2. Securities:
 Short-term: maturity of less than a year
- Least price fluctuation and least risky investments
- Some common short-term securities:

(1) Treasury bill (T-Bill):

- Bought at a discount and at maturity the investor receives full face value
- After initial sale => active secondary market
- The most liquid and the safest of all the money market instruments
- Mainly held by banks

(2) Certificate of Deposits (CDs): Chứng chỉ tiền gửi

- A debt instrument sold by a bank to depositors that pay annual interest of a given
amount and at maturity pays bank the OG price
+ Usually maturities 1-5 days
+ Small-denomination CDs: safe investment, low interest
- Negotiable Bank Certificates of Deposits (NCDs):
+ CDs that can be traded in secondary markets
+ Maturities: 2 weeks – 1 year
+ Large denomination, higher face value and shorter term than CDs

(3) Commercial paper (Thương phiếu)

- Issued by large banks and well known corporations with good credit ratings
- Typical maturity of 30 days
- Similar to IOU
- Unsecured
- Companies issue commercial paper to raise cash for current transactions, many find
it costs less than bank loans
- Most buyers are large institutions

(4) Banker’s acceptance

- Guaranteed for payment by a commercial bank (the bank “accepts” the
responsibility to pay)
- Allow businesses to avoid problems associated with collecting payment from
reluctant debtors
- Used to facilitate international transactions

(5) Eurodollars
- Dollar denominated deposits located in non-US banks
- Mostly held in EU but also in other countries
- Buyers and sellers are large institutions

(6) Repurchase agreement (repos)

- The borrower agree to sell an amount of gov securities (usually T-bills) to the lender
and commit to repurchase them in a near future with a specified price
- Effective short-term loans (maturity less than 2 weeks)
- T-bills in REPOs serve as collateral, an asset that the lender receives if the borrower
does not pay back the loan

(7) Overnight funds

- Typically overnight loans by banks to other banks
- A bank might find that it does not have enough settlement deposits at CB => borrow
balances from another bank with excess settlement balances
- Interest rate is mostly watched

 Long-term: maturity > 1 year

(1) Bonds = Debt securities. => Bond markets is where interest rate is determined
- “IOUs”
- Borrowers (issuers): the Treasury, gov agencies, corporations to finance their
operations
- Issuers have to repay the face amount on the maturity date and to pay interest on a
periodic time in the amount of the coupon rate x face value
- Could be traded on secondary market and its price could change over time.
- Face value (par value/ principle): the amount the bond promises to pay its owner at
some date in the future
- Maturity date:
- Coupon interest: some pay once a year, twice a year and some don’t pay any at all.
- Different kinds of bonds:
+ Treasury bonds:
Most widely traded, most liquid security in the capital market
Held by banks, households, foreigners
+ Municipal bonds: by state and local gov
Coupon interest payments are free of federal income tax
+ Corporate bonds: by corporations
The amount for any given corporation is small
Not as liquid as other securities
Some types: Zero-coupon bonds; convertible bonds; consol bonds (no maturity date)
…

(2) Stocks = Equity

- Have no maturity
- Represent partial ownership in the corporations that issued them
- Investors can have income from:
+ Dividends
+ Capital gain (selling the stock for a higher price)
- NOT GUARANTEED any return on the investment
- 2 types: Common stocks and Preferred stocks
+ Common: own a portion of the company, can vote on major decisions, receive a return
in form of dividends and capital gains
+ Preferred: don’t have voting powers, but have priority in receiving dividends; this are
paid at a pre-set rate (% of face value)
(3) Mortgages (Thế chấp tài sản)
- Prime mortgage: offer to who qualify various criteria
- Sub-prime mortgage: do not have sufficient income to qualify for the 1st
type/unable to make a down payment => higher risk of default
- Mortgage-backed securties: debt obligations representing claims on a package of
mortgages.

3. Derivatives
- Financial contracts whose value are derived from the values of underlying assets
(such as debt securties or equity securties…)
- Purpose:
+ Speculation
+ Risk managment (hedging = phòng hộ):
- Most common:
(1) Forward contract:
- Customized between 2 parties to buy/ sell a specified asset for a price agreed upon
today (the forward price) with delivery and payment occuring at specified future
date (the delivery date)
- Contrast to spot contract (everything occur today)

(2) Future contract:

- Standardized contract -> buy/sell a specified asset of standardized quantity and
quality for a price agreed upon today (future price) with delivery …
 (3) Options:
- Give the buyers (owner) the right, but not the obligation, to buy/ sell an underlying
asset at a specified strike price or before a specified date
- Buyer pays a premium to seller for this right (đọc lại Lý thuyết TCNH)

(4) Swap:

Chapter 3.3: Financial markets

1. Functions:
- Transfer funds from those who have excess funds (surplus units) to those who need
funds (deficit funds)
- Flow of funds:
Funds transferred when 1 party purchases financial assets which are previously held
by another party .
2. Structure:
(1) Money market vs. Capital market
- Money market:
+ Trade short-term (max 1 year) debt instruments
+ Money market securities
+ Common instruments: short-term securities
 Low risk, high liquid, low return

- Capital market:
+ Long-term securties (more than 1 year)
+ Capital market securities
 High risk, low liquidity, high return

(2) Debt market vs Equity market

- Debt market:
+ Fixed-income market
+ Bonds, mortgage, loan

- Equity market:
+ Stocks are traded
+ Common and preferred stocks

(3) Primary market vs Secondary market

- Primary market:
+ Deficit economic units sell new securities
+ Not well-known to public cause selling securities to initial buyers often takes place
behind closed doors
+ Usually made by underwriting securities from investment bank

- Secondary market:
+ Investors trade previously issued securities
+ Liquidity
+ Brokers are agents of investors who match buyers with sellers of securities
+ Dealers buy securities for 1 price and sell them for a higher price
 Dealer may actually be a client of another broker
 Make it easier to sell financial instruments to raise funds

3. Exchanges vs OTC (in secondary markets)

 Exchanges:
- Buyers and sellers (or agents or brokers) meet in one central location to conduct
trades
- Ex: New York Stock Exchange
 OTC (Over-the-counter)
- Dealers at different locations who have an inventory of securities stand ready to buy
and sell securities to anyone who comes to them and is willing to accept their prices.
- No fixed location
Ex: NASDAQ

 Conclusion:

4. Derivatives market:
- Divided in 2:
+ Exchange-traded derivatives
+ OTC derivatives
- Participants:
+ Hedgers
+ Speculators
+ Margin traders
+ Arbitrageurs

5. International bond markets

- Foreign bonds: sold in foreign country, denominated in that country’s currency
- Eurobond: denomiated in a currency other than that of the country in which it is sold
 Eurocurrencies (foreign currencies deposited in banks outside the home country)
Chapter 3.4 + 3.5: Financial intermediaries + Financial system

1. Types of financial intermediaries:

(1) Depository institutions: accept deposits from individuals and institution and make
loans => Các tổ chức nhận tiền gửi
- Commercial banks
- Thrift institutions (thrifts):
+ Savings and Loans Associations (S&Ls)
+ Mutual savings banks
+ Credit unions

(2) Contractual savings institutions: acquire funds at periodic intervals on a

contractual basis (Thu nhận vốn theo hợp đồng)
- Insurance companies
+ Collect premiums from customers then invest the premiums to obtain funds necessary
to pay claims and other costs.

- Pension funds and gov retirement funds

+ Pension (Quỹ hưu trí): invest contributions from workers and firms in stocks, bonds
and mortgage to earn money to make pension benefit payments
- Investment bank

 The liquidity of assets is not as important as depository institutions

 They tend to invest in long-term securities: corporate bonds, stocks, mortgages

(3) Investment intermediaries: provide investment services

- Finance companies
+ Raise funds by selling commercial paper and issuing stocks and bonds
+ Lend these funds to consumers
- Mutual funds (Quỹ đầu tư tương hỗ)
+ Selling shares to investors and invest money in a portfolio of financial asset
- Money market mutual funds
+ Same characteristics with mutual fund BUT to some extent also like depository
institution => cause it offers deposit-type accounts
+ KEY: shareholders can write checks against value of their shareholdings
- Investment banks => VN ko có NH đầu tư
+ Providing advice to firms issuing stocks and bonds
+ Considering M&A with other firms

 Commercial banks accept deposits, make loans, safeguard assets, and work
with many different types of clients, including the general public and
businesses.
Investment banks, on the other hand, provide services to large corporations
and institutional investors.

2. Functions:
- Reduce transaction costs:
+ economies of scale (tính kinh tế nhờ quy mô): giảm chi phí trung bình bằng cách tăng
khối lượng hàng hoá dịch vụ
+ economies of scope: hiệu quả dc hình thành bởi sự đa dạng, ko phải số lượng
+ liquidity services
- Risk sharing
- Reduce asymmetric information (Giảm chi phí thông tin)
+ Adverse selection = lựa chọn đối nghịch, cho vay bên ko tín => before transaction
+ Moral hazard = rủi ro đạo đức => after transaction
 Problems:
Principal-agent problem: agent acts in their own interest rather than principal’s interest.
Conflict of interest

 How to solve:
3. Market efficiency
- Refers to ease, speed, low cost of trading securities
- Market of large companies is generally efficient
- Real estate is generally inefficient

4. Financial structure facts

5. Financial crisis:

- Characterized by sharp declines in asset prices and firm failures

- Occurs when an increase in asymmetric infomation