Chapter One

Introduction
 Why Study Financial Markets and
Institutions? (1)
Markets and institutions are primary channels
to allocate capital in our society.
• Proper capital allocation (phân bổ vốn hợp lý)
leads to growth in: (sp economic growth)
Societal wealth
Want to be rich => Invest your savings => Work & consume income (Presnet/future consumption : Car/ h
•
Invest : buy land, equipment for producing (directly)
Indirrectly (small savings) -> invest in financial institution

• Income For ex: Corporation take invest ment to expand operating-> create
jobs, improve gdp

• Economic opportunity
Factors affect invest: risk & return

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 Why Study Financial Markets and
Institutions? (2)
In this text we will examine:
• the structure of domestic and international markets.

• the flow of funds through domestic and international

markets.
• an overview of the strategies used to manage risks
faced by investors and savers.
Investors:
Savers:

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:

Financial Markets
Market: Relationship between seller/buyes, interest rate is , demand for funds,
supply of funds
ới

ứ
Financial markets are one type of structure
ng
g through which funds flow (from suppliers to investors/demander).

ó
Financial markets can be distinguished along
g
two dimensions:
h
• primary versus secondary markets.
ò
i
ụ
• money versus capital markets.
Thị trường tài chính là một loại cấu trúc mà qua đó dòng vốn chảy vào.
Thị trường tài chính có thể được phân biệt theo hai khía cạnh:
thị trường sơ cấp và thứ cấp.
tiền so với thị trường vốn.

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 Primary versus Secondary Markets (1)

Primary markets
• Markets in which users of funds (e.g., corporations)
raise funds by issuing new financial instruments (e.g.,
stocks and bonds).
Secondary markets
• Markets where existing financial instruments are
traded among investors (e.g., exchange traded: NYSE
and over-the-counter: NASDAQ).
Issuers (companies, government)
Investors (pp they buy financial instruments from financial institution)

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 Primary versus Secondary Markets (2)
Figure 1-2 Primary and secondary Market Transfer of Funds
Time Line

Security
firms

Access the long description slide.

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 Primary versus Secondary Markets
Concluded

How were primary markets affected by the

financial crisis? (nhiều người bỏ ko đầu tư, công ty ko có vốn chạy dự án, ko tạo viece làm, gdp giảm….)
Credit growth  GDP growth rate

Do secondary markets add value to society or

are they simply a legalized form of gambling?
• How does the existence of secondary markets affect
primary markets?
Government try to shape the structure of the market, and put the price of product
shapely between buyers and sellers

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 Money versus Capital Markets

Money markets (Short-term debt market)

• Markets that trade debt securities with maturities of one year
or less (e.g., CDs and U.S. Treasury bills).
• little or no risk of capital loss, but low return.

Capital markets
• Markets that trade debt (bonds) and equity (stock)
instruments with maturities of more than one year.
• substantial risk of capital loss, but higher promised return.
Figure 1.3

Access the long description slide. 1-8

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 Money Market Instruments
Outstanding, ($Tn) (skiped slide)
Figure 1-4 Money Market Instruments Outstanding

Source: Federal Board, “Financial Accounts of the United States,” Statistical

Releases, Washington, DC, various issues, www.federalreserve.gov.
Access the long description slide. 1-9
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 Capital Market Instruments
Outstanding, ($Tn) (Skipped slide)
Figure 1-5 Capital Market Instruments Outstanding

Source: Federal Reserve Board, “Financial Accounts of the United States,” Statistical
Releases, Washington, DC, various issues. www.federalreserve.gov.
Access the long description slide. 1-10
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 Foreign Exchange (FX) Markets
FX markets
• trading one currency for another (e.g., dollar for yen).
Spot FX (Thị trường giao ngay)
• the immediate exchange of currencies at current exchange
rates. (Sure! Let's say you're traveling from the United States to Japan and you need Japanese yen (JPY) to cover your expenses. You go to a foreign
exchange booth at the airport and exchange your US dollars (USD) for Japanese yen at the current exchange rate.
• For example, let's assume the exchange rate is 1 USD = 110 JPY. If you exchange $100 USD, you will receive 11,000 JPY in return. This is a spot foreign exchange
transaction because you're exchanging currencies at the current exchange rate, and the transaction is settled immediately, providing you with the Japanese yen you
need for your trip.

Forward FX
• the exchange of currencies in the future on a specific date and
at a pre-specified exchange rate. Certainly! Let's say you are a business owner in the United States and you need to import
goods from Europe three months from now. However, you are concerned that the exchange rate between the US dollar (USD) and the euro (EUR) might fluctuate during this time, which
could affect the cost of your imports.
• To mitigate this risk, you decide to enter into a forward foreign exchange contract with your bank. You agree to exchange a specific amount of USD for EUR at a pre-specified exchange rate
on a specific date in the future, let's say three months from now.
• For example, you and your bank agree on a forward exchange rate of 1 USD = 0.85 EUR, and you want to exchange $10,000 USD. Three months later, regardless of the actual exchange rate
at that time, you will receive 8,500 EUR based on the agreed-upon rate.
• This forward foreign exchange transaction allows you to lock in the exchange rate in advance, protecting you from potential exchange rate fluctuations and providing certainty about the
cost of your imports.
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 Derivative Security Markets (1)

Derivative security
• A financial security whose payoff is linked to (i.e.,
(payoff of contract increase due to the dollars I signed increase),

“derived” from) another previously issued security

such as a security traded in capital or foreign
exchange markets.
• Generally, an agreement to exchange a standard quantity of
assets at a set price on a specific date in the future.
• The main purpose of the derivatives markets is to
transfer risk between market participants.
Chứng khoán phái sinh
Một chứng khoán tài chính mà khoản hoàn trả của nó được liên kết với (tức là “có nguồn gốc” từ) một chứng khoán khác đã được phát hành trước đó,
chẳng hạn như chứng khoán được giao dịch trên thị trường vốn hoặc ngoại hối.
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Nói chung, một thỏa thuận trao đổi một lượng tài sản tiêu chuẩn ở một mức giá ấn định vào một ngày cụ thể trong tương lai.
© 2019 McGraw-Hill Education.
Mục đích chính của thị trường phái sinh là chuyển giao rủi ro giữa những người tham gia thị trường.
 Derivative Security Markets (2)

Selected examples of derivative securities

• Exchange listed derivatives
• Many options, futures contracts
• Over the counter derivatives
• Forward contracts.
• Forward rate agreements.
• Swaps.
• Securitized loans.

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 Derivatives and the Crisis (1)
Money crisis: value of money decrease ,ER
Finanacial crisis: STOCK INDEX
Credit crisis: bad debt increase, non perform loans

1. Mortgage derivatives allowed a larger amount of

mortgage credit to be created in the mid-2000s.
• Growing importance of ‘shadow banking system’.

2. Mortgage derivatives spread the risk of mortgages to

a broader base of investors.
3. Change in banking from ‘originate and hold’ loans to
‘originate and sell’ loans.
• Decline in underwriting standards on loans.
Các công cụ phái sinh thế chấp cho phép tạo ra lượng tín dụng thế chấp lớn hơn vào giữa những năm 2000.
Tầm quan trọng ngày càng tăng của 'hệ thống ngân hàng ngầm'.
Các sản phẩm phái sinh thế chấp làm lan truyền rủi ro thế chấp đến nhiều nhà đầu tư hơn.
Thay đổi trong hoạt động ngân hàng từ khoản vay “khởi tạo và giữ” sang khoản vay “khởi tạo và bán”.
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Từ chối các tiêu chuẩn bảo lãnh cho các khoản vay.
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 Derivatives and the Crisis (2)

1. Subprime mortgage losses were large, reaching over

$700 billion.
2. The “Great Recession” was the worst since the
“Great Depression” of the 1930s.
• Trillions $ global wealth lost, peak to trough stock prices fell
over 50% in the U.S.
• Lingering high unemployment and below trend growth in the
U.S.
• Sovereign debt levels in developed economies reached post-
war all-time highs.
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 Financial Institutions (FIs)
Financial Institutions.
• Institutions through which suppliers channel money to users
of funds. Học viện Tài chính.

• Các tổ chức thông qua đó các nhà cung cấp chuyển tiền cho người sử dụng vốn. Certainly! Here are two simple examples of financial institutions:

• 1. Credit Unions: Credit unions are financial cooperatives owned and operated by their members. They provide financial services similar to commercial banks, such as savings accounts,
loans, and other banking products. Credit unions are often formed by individuals or communities with a common bond, such as employees of a specific company or residents of a particular
area. Members pool their funds, which are then used to provide loans and other financial services to fellow members.

• 2. Investment Banks: Investment banks primarily engage in activities related to raising capital for corporations, governments, and other entities. They assist in underwriting and issuing
stocks, bonds, and other securities. Investment banks also provide advisory services for mergers and acquisitions, conduct research and analysis on financial markets, and offer trading and
brokerage services. They play a crucial role in facilitating capital raising and investment activities for businesses and institutions.

Financial Institutions are distinguished by:

• Whether they accept insured deposits.
• Depository versus non-depository financial institutions.
• Whether they receive contractual payments from customers.
Các tổ chức tài chính được phân biệt bởi:
Liệu họ có chấp nhận tiền gửi được bảo hiểm hay không.
Tổ chức tài chính lưu ký và không lưu ký.
Liệu họ có nhận được khoản thanh toán theo hợp đồng từ khách hàng hay không.
One easy example of a financial institution that accepts insured deposits is a savings bank. Savings banks are depository institutions that primarily accept deposits from
individuals and provide a range of financial services, including savings accounts, checking accounts, loans, mortgages, and other banking products. They are often 1-16
chartered at the state level and are subject to regulatory oversight. Savings banks typically offer FDIC (Federal Deposit Insurance Corporation) insurance on deposits,
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provides depositors with protection against the loss of their funds in the event of bank failure.
 Percentage Shares of Assets of Financial
Institutions in the United States, 1948–2016

Figure 1-7 Flow of Funds in a World with F ls.

We describe and illustrate this flow of funds in Chapter 2.

Access the long description slide. 1-17
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 Non-Intermediated (Direct) Flows of
Funds - Dòng vốn không qua trung
gian (Trực tiếp)
Flow of Funds in a World without FIs
Direct Financing
Financial Claims (equity and debt instruments)
Dòng vốn trong một thế giới không có FI
Tài trợ trực tiếp
Khiếu nại tài chính (vốn chủ sở hữu và công cụ nợ)
FC on equity: right to vote, claim on dividend
payment, if compay bankrupt: the last perso to
receive payoff from companies

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 Intermediated Flows of Funds

Flow of Funds in a World with FIs

yêu cầu tài chính (tiền gửi và hợp đồng bảo hiểm)
chứng khoán vốn và chứng khoán nợ

Access the long description slide.

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Depository versus Non-Depository FIs
Depository institutions - Là tổ chức nhận ký gửi, bảo quản, xác nhận việc
chuyển nhượng và chuyển nhượng trái phiếu trên thị trường.
• commercial banks, savings associations, savings banks, credit
unions. Tổ chức lưu ký
• ngân hàng thương mại, hiệp hội tiết kiệm, ngân hàng tiết kiệm, hiệp hội tín dụng.

Non-depository institutions
• Contractual
• insurance companies, pension funds,
• Non-contractual
• securities firms and investment banks, mutual funds.
Các tổ chức không lưu ký
theo hợp đồng
công ty bảo hiểm, quỹ hưu trí,
Không có hợp đồng

công ty chứng khoán và ngân hàng đầu tư, quỹ tương hỗ .

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 FIs Benefit Suppliers of Funds

• Reduce monitoring costs.

• Increase liquidity and lower price risk.
• Reduce transaction costs.
• Provide maturity intermediation.
• Provide denomination intermediation.
Giảm chi phí giám sát.
Tăng tính thanh khoản và giảm rủi ro về giá.
Giảm chi phí giao dịch.
Cung cấp trung gian đáo hạn.
Cung cấp mệnh giá trung gian.

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 FIs Benefit the Overall Economy

• Conduit through which Federal Reserve

conducts monetary policy
• Provides efficient credit allocation
• Provide for intergenerational wealth transfers
• Provide payment services
Ống dẫn qua đó Cục Dự trữ Liên bang thực hiện chính sách tiền tệ
Cung cấp phân bổ tín dụng hiệu quả
Cung cấp sự chuyển giao tài sản giữa các thế hệ
Cung cấp dịch vụ thanh toán

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 Risks Faced by Financial Institutions
-Rủi ro mà các tổ chức tài chính phải
đối mặt
Tín dụng

• Credit •
Ngoại bảng

Off-balance-sheet
Ngoại hối
Quốc gia hoặc chủ quyền Thanh khoản
Lãi suất Công nghệ
Chợ hoạt động

•
mất khả năng

Foreign exchange • Liquidity thanh toán

• Country or sovereign • Technology

• Interest rate • Operational
• Market • Insolvency

Volcker Rule: Insured institutions may not engage in

proprietary trading
Quy tắc Volcker: Các tổ chức được bảo hiểm không được tham gia vào giao dịch độc quyền

he Volcker Rule prohibits insured financial institutions from engaging in proprietary trading for a couple of reasons:

1. Risk Mitigation: Proprietary trading involves using a financial institution's own funds to trade for its own profit. This type of trading can expose the institution to
significant risks, including market volatility, potential losses, and conflicts of interest. By prohibiting insured institutions from engaging in proprietary trading, the 1-23
Volcker Rule aims to mitigate these risks and safeguard the stability of the financial system.
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2. Protection of Insured Deposits: Insured financial institutions, such as commercial banks, hold deposits from individuals and businesses that are insured by government
 Regulation of Financial Institutions -
Quy định của các tổ chức tài chính

• FIs are heavily regulated to protect society at

large from market failures.
• Regulations impose a burden on FIs; before
the financial crisis, U.S. regulatory changes
were deregulatory in nature.
• Regulators attempt to maximize social welfare
while minimizing the burden imposed by
regulation.
Các tổ chức tài chính được quản lý chặt chẽ để bảo vệ xã hội nói chung khỏi những thất bại của thị trường.
Các quy định đặt ra gánh nặng cho các tổ chức tài chính; trước cuộc khủng hoảng tài chính, những thay đổi về quy định của Hoa Kỳ về bản chất là bãi bỏ quy định.
Các cơ quan quản lý cố gắng tối đa hóa phúc lợi xã hội đồng thời giảm thiểu gánh nặng do quy định đặt ra. 1-24
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 Enterprise Risk Management
Quản lý rủi ro doanh nghiệp

Enterprise risk management

Nhận thức được tầm quan trọng của việc quản lý tác
động tổng hợp của toàn bộ các rủi ro như một danh mục
rủi ro có liên quan đến nhau.

• Recognizes the importance of managing the

combined impact of the full spectrum of risks Mức độ phổ biến tăng lên do sự thất bại

as an interrelated risk portfolio. của các hệ thống quản lý và đo lường rủi

ro tiên tiến nhằm phát hiện các rủi ro dẫn
đến cuộc khủng hoảng tài chính.
Nhấn mạnh tầm quan trọng của việc xây
dựng văn hóa rủi ro mạnh mẽ.

Popularity rose as a result of the failure of advanced

risk measurement and management systems to detect
exposures that led to the financial crisis.
Stresses importance of building a strong risk culture.

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 Globalization of Financial Markets
and Institutions- Toàn cầu hóa thị
trường và tổ chức tài chính
• The pool of savings from foreign investors is
increasing and investors look to diversify globally now
more than ever before.
• Information on foreign markets and investments is
becoming readily accessible and deregulation across
the globe is allowing even greater access to foreign
markets.
• International mutual funds allow diversified foreign
investment with low transactions costs.
• Global capital flows are larger than ever.
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 Primary versus Secondary Markets Long
nh
Description
ời
g ty
cụ
t
Primary markets are where new issues of financial instruments are offered for
ng
n ban
sale. The time line begins with users of the funds (Corporations issuing
y trở
oàn
debt/equity instruments). Financial instruments flow to underwriting with an
investment bank, then financial instruments flow to the initial suppliers of the
funds, who are the investors. Then the funds flow back to the investment
nh
bank and back to the corporations issuing the debt/equity instruments.
i lý
Các
- The secondary markets is where financial instruments, once issued, are
h,
uốn
traded. Economic Agents (investors) want to sell securities. Financial
thị
h tế
instruments flow to the financial markets, which flow to the economic agents
(investors) wanting to buy securities. The funds then flow back to the
financial markets and back to the economic agents wanting to sell the
securities.

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 Money versus Capital Markets Long
Description
This diagram shows a time line.
- Money market securities take 1 year to reach maturity.
- Capital market securities, such as notes and bonds, take 30 years to reach
maturity, and stocks (equities) have no specified maturity.
Sơ đồ này hiển thị một dòng thời gian.
- Chứng khoán thị trường tiền tệ mất 1 năm để đáo hạn.
- Chứng khoán thị trường vốn, chẳng hạn như trái phiếu và trái phiếu, phải mất 30 năm mới đáo
hạn và cổ phiếu (cổ phiếu) không có thời gian đáo hạn cụ thể.

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 Money Market Instruments Outstanding,
à
($Tn) Long Description
g In 1990 there was 2.06 trillion outstanding, of which 18.1% was federal funds
and repurchase agreements, 27.1% was commercial paper, 25.7% was U.S.
à
Treasury bills, 26.5% was negotiable C Ds, and 2.6% was banker's
acceptances. In 2000 there was 4.51 trillion outstanding, of which 26.5% was
federal funds and repurchase agreements, 35.6% was commercial paper,
g
14.4% was U.S. Treasury bills, 23.3% was negotiable C Ds, and 0.2% was
banker's acceptances. In 2010 there was 6.5 trillion outstanding, of which
25.6% was federal funds and repurchase agreements, 16.7% was commercial
paper, 28.6% was U.S. Treasury bills, 29.1% was negotiable C Ds, and 0.0%
was banker's acceptances. In 2016 there was 7.97 trillion outstanding, of
which 45.8% was federal funds and repurchase agreements, 11.8% was
commercial paper, 19.0% was U.S. Treasury bills, 23.4% was negotiable C Ds,
and 0.0% was banker's acceptances.

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ưu
p,

là
Capital Market Instruments Outstanding,
($Tn) Long Description
g,
và
,6

là
In 1990 there was 14.93 trillion outstanding, of which 23.6% was corporate
h stocks, 25.5% was mortgages, 11.4% was corporate bonds, 11.1% was
cho
i
treasury securities, 7.9% was state and local government bonds, 9.6% was
iếu
i
U.S. government agency bonds, and 10.9% was consumer loans. In 2000
o
và
there was 40.6 trillion outstanding, of which 43.4% was corporate stocks,
ăm
16.8% was mortgages, 12.1% was corporate bonds, 5.7% was treasury
h,
3%
securities, 3.7% was state and local government bonds, 10.6% was U.S.
government agency bonds, and 7.7% was consumer loans. In 2010 there was
và
67.9 trillion outstanding, of which 31.3% was corporate stocks, 20.9% was
mortgages, 16.8% was corporate bonds, 9.0% was treasury securities, 4.2%
was state and local government bonds, 11.4% was U.S. government agency
bonds, and 6.4% was consumer loans. In 2016 there was 90.2 trillion
outstanding, of which 49.6% was corporate stocks, 15.3% was mortgages,
13% was corporate bonds, 15.1% was treasury securities, 4.1% was state and
local government bonds, 9.0% was U.S. government agency bonds, and 3.9%
was consumer loans. Return to slide containing original image. 1-30
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 Percentage Shares of Assets of Financial
Institutions in the United States, 1948–2016
Long Description

Financial claims (equity and debt securities) from the users of

funds and financial claims (deposits and insurance policies) from
the suppliers of funds flow through the financial institution
(brokers and asset transformers) in the form of cash.
Các yêu cầu tài chính (vốn chủ sở hữu và chứng khoán nợ) từ người sử dụng quỹ và các yêu cầu tài chính (tiền gửi và hợp
đồng bảo hiểm) từ các nhà cung cấp vốn chảy qua tổ chức tài chính (người môi giới và người chuyển đổi tài sản) dưới
dạng tiền mặt.

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 Intermediated Flows of Funds Long
Description

Using intermediated financing, the users and suppliers

of funds use brokers and asset transformers to
exchange cash. The users of funds exchange equity and
debt securities through the asset transformers who
exchange deposits and insurance policies with the
suppliers of funds for cash which is passed back to the
users of the funds.
Sử dụng tài chính trung gian, người sử dụng và nhà cung cấp vốn sử dụng các nhà môi giới và người chuyển đổi tài sản để trao
đổi tiền mặt. Người sử dụng quỹ trao đổi vốn cổ phần và chứng khoán nợ thông qua người chuyển đổi tài sản, những người trao
đổi tiền gửi và hợp đồng bảo hiểm với các nhà cung cấp vốn để lấy tiền mặt và được chuyển lại cho người sử dụng quỹ.

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 Appendix: FIs and the Crisis Concluded
Long Description

The values decrease from about 14,000 until early 2009

where it hit about 6500 and then increased to a value
of about 10,000 in January 2010.

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 Overnight LIBOR, 2001 – 2010 Long
description

The rate was about 7.0 in 2001 and decreased to 2.0 by

2002, it decreased to 1.0 by 2004 then increased
steadily to 5.0 during mid 2006. It remained there until
mid 2007, then decreased sharply to just above 0 by
2009 (with the exception of one large spike prior to
2009). Since 2009, the rate has remained flat at just
above 0.

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 Non-Intermediated (Direct)
Flows of Funds Long Description

Financial claims (equity and debt instruments) would

flow back and forth between the users of funds and the
suppliers of funds in the form of cash.

Các yêu cầu tài chính (vốn chủ sở hữu và công cụ nợ) sẽ
được luân chuyển qua lại giữa người sử dụng vốn và
nhà cung cấp vốn dưới dạng tiền mặt.

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