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Chapter 1 - Introduction
Chapter 1 - Introduction
Chapter 1 - Introduction
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
1-2
© 2019 McGraw-Hill Education.
Why Study Financial Markets and
Institutions? (2)
In this text we will examine:
• the structure of domestic and international markets.
1-3
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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.
1-4
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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)
1-5
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Primary versus Secondary Markets (2)
Figure 1-2 Primary and secondary Market Transfer of Funds
Time Line
Security
firms
1-7
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Money versus Capital Markets
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
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
© 2019 McGraw-Hill Education.
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.
1-11
© 2019 McGraw-Hill Education.
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),
1-13
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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
• 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.
yêu cầu tài chính (tiền gửi và hợp đồng bảo hiểm)
chứng khoán vốn và chứng khoán nợ
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
1-21
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FIs Benefit the Overall Economy
1-22
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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
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.
© 2019 McGraw-Hill Education.
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
1-25
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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.
1-26
© 2019 McGraw-Hill Education.
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.
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
© 2019 McGraw-Hill Education.
Percentage Shares of Assets of Financial
Institutions in the United States, 1948–2016
Long Description
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.