Money is a special good in finance market which is bank based or market based

MONEY- A SPECIAL GOOD Definition - Money is anything that is widely used and accepted in transactions involving the tranferring of goods or services from one person to another anything

PROFESSIONAL MODERN BANKING IN VIETNAM

Lecturer: Ms Nguyen Thi Thuy Dung

Faculty of Banking- Insurance

Academy of Finance

Aug 2020

CHAPTER 1: M ONEY IS A

SPECIAL GOOD IN FINANCE

OR MARKET BASED

I MONEY- A SPECIAL GOOD

 Definition

- Money is anything that is widely used and accepted

in transactions involving the tranferring of goods

or services from one person to another

(anything is accepted as payment for goods)

? Can you name some forms/ types of money?

I MONEY- A SPECIAL GOOD

 Types of money

- Commodity money: Used in barter economy where products are exchanged for products The value of the product is considered as the value of money.

- Fiat money: has low intrinsic value; but it is legal and valid (legal tender) due to government’s regulations

- Bank money: consists of transactions relating to the withdrawing and depositing which are held

at banks or the use of bank money

I MONEY- A SPECIAL GOOD

- Cryptocurrency (UNREGULATED): a digitalcurrency in which encryption techniques are used toregulate the generation of units of currency and verify

the transfer of funds, operating independently of acentral bank

i.e bitcoin, ethereum ,etc

MONEY- A SPECIAL GOOD

 Functions

- A medium of exchange:

+ Solve the limitations of a barter system

+ Money facilitate transactions

- A measure of value

+ an unit of account and a common measure of value+commodities value is expressed in money

- A standard of deferred payment

+ Borrowing- related activities

- A store of value

+Saving purpose

? Which assets can also be used as the store of value?

=> Why do we need to know about these functions of money?

 The central bank is solely responsible to issue

banknotes

 Banknote circulation rule: money being used over

a period of time is equal to the total price of all goods produced in that time

MV= PY M: money supply V: speed of money’s circulation Y: the output of the economy

P: price index

MONEY SUPPLY

SAYINGS AND QUOTES

“A Penny saved is a

penny earned” servant, but a bad “Money is a good

master”

II THE FINANCIAL SYSTEM: BANK-BASED

OR MARKET- BASED?

II THE FINANCIAL SYSTEM: BANK-BASED

OR MARKET- BASED?

BANK-BASED VS MARKET- BASED FINANCE

SYSTEM?

 Classification criteria: when company wish to

expand its business, which source of fund will be used?

 The role of financial markets: directly transfer

funds from savers to spenders

 The role of banks:

- The most important financial intermediaries

- Convert savings of unused parties to capital for

production, business and consumption

- Save transactions cost and information handling

III BANK IS NOW DOMINATING THE FINANCE MARKET (FUTURE MAY NOT BE)

THE BANKING SYSTEM IN VIETNAM

TYPES OF CREDIT INSTITUTIONS

 Definition

"Bank” means a credit institution permitted to conduct

all banking activities and other related business

operations

“Credit institution“ means an enterprise conducting

monetary business and providing banking services in

the form of receiving deposits, extending credits and

providing payment services

? Commercial banks Vs non-bank credit

institutions

“Non-bank credit institution“ means a credit institution

permitted to engage in some banking activities as its

regular business, but not permitted to receive deposits

from individuals and to provide payment services via

clients’ bank accounts” (i.e finance companies, finance

leasing companies…)

(Law of credit institutions)

VIETNAM BANK FOR SOCIAL POLICIES (VBSP)

“Anywhere there is the poor

where social policy bank is”

- Operate not for profit purpose

- Perform socio-policy lending

programs of the government;

- Targeted customers: the poor and

the poor beneficiaries

=> Distinction between VBSP and

commercial banks?

VIETNAM DEVELOPMENT BANK (VDB)

- the previous form: the

Development Assistance fund

- Serve development goals of the

government

- Mobilize capital to implement

investment credit in infrastructure,

supporting industries, environment

protection… and export credit

=> Distinction between VDB and

Commercial banks?

FUNCTIONS OF BANKS

 Capital mobilization: take deposits in forms of

demand deposits, term deposits, savings deposits

 Credit extension/ making loans: lend money to

individuals and business

 Payment service provision: provide means of

payment, provide domestic and international

payment service…

 Other services: safe-keeping box, consultation,

treasury

FUNCTIONS OF BANKS: CREATING MONEY

EXERCISES: FILL IN THE MISSING GAP

One of the most vital roles of banks is money creation.Banks create money through “fractional (1) r…

banking” This term refers to the fact that banks keep

only a small portion of their (2) d…… on hand When a

customer comes into the bank and deposits $100,perhaps $10 of that will be kept on hand in the form of

cash or (3) l… assets The remaining $90 will be lent out to customers as (4) l……, or used to (6) b… the

stock or bonds of other companies This phenomenon is

known as the (5) m…-m… and can be expressed as the

formula: m = 1 / reserve requirement If the reserverequirement is 10% (or 0.1), every dollar deposited with

a bank, can become $10 of new money

 Classification based on ownership

EXERCISES: ENGLISH- VIETNAMESE TRANSLATION

Banks’ maturity transformation

Many investors are willing to invest on a very short term

basis, but many projects require long-term financial

commitments What banks do, then, is borrow short-term, in the form of demand deposits and short-term certificates of deposit, but lend long-term; mortgages, for instance, are

frequently repaid over 30 years

EXERCISES: ENGLISH- VIETNAMESE TRANSLATION

Banks’ maturity transformation (cont.)

By doing this, banks transform debts with very short maturities (deposits) into credits with very long

maturities (loans), and collect the difference in the

rates as profit However, they are also exposed to the risk that short-term funding costs may rise much faster than they can recoup through lending.

WRITING SKILLS

1 Types of piece of writing:

 Paragraph: a distinct section of piece of writing, usually

dealing with a single theme/ idea and indicated by a newline, indentation or numbering

 Essay: a shorter pieces of writing that often require the

student to practice a number of skills such as closereading, analysis, comparison and contrast, persuasion,conciseness…

 Thesis: a statement or theory that is put forward to be

maintained or proved/ a long essay or dissertationinvolving personal research, written by a candidate for auniversity degree

 Report: written for a clear purpose, to a particular

audience, clearly structured with headings, titles,sections…

WRITING SKILLS (CONT.)

3 Essay writing: Types of essay

 Define/ Explain/ Evaluate

 Classification

 Compare- Contrast

 Cause- Effect

 Opinion

 Others (Narrative, description)

 Combination of different types

TOPIC 1 FOR WRITING TO PREPARE FOR FINAL EXAM

Topic 1 : Define a commercial bank Explain why commercial banks are one of the most important

financial intermediaries in the society

Step 1: Type of essay: Define/Explain

Step 2: Define a commercial bank (Introduction)

Step 3: Explain its functions as a financial intermediary.

Step 4: Explain reasons why commercial banks are one of the most important financial intermediaries in the society

Step 5: Conclusion

TOPIC 1 FOR WRITING TO PREPARE FOR FINAL EXAM

Mock answer:

A commercial bank refers to a special business operating in finance and monetary field Its main functions are receiving deposits, lending and providing other banking services for profit.

Commercial banks are where people can safely deposit their savings, which banks then pay interest on. If there were

no banks, people would have to store and protect their savings themselves, which would involve major risks. Commercial banks issue loans to both people and companies. Without banks, it would be very hard for people to buy a home or start a business, or for companies to make investments, for example.

In another way, commercial banks bridge the gap between

savers and borrowers in the society

 The first reason for the importance of commercial banks

couldn’t function without banks. By attracting savingsand granting credits, banks are the oil for the wheels that keep the economy turning Without banks as a go-between, savers and borrowers would have to find eachother personally, and a single transaction between asaver and a borrower would be very costly

 Moreover/ Secondly/ What is more, the saver would

would lose all their savings A bank lends money to alot of people and companies If some are unable torepay their loans, the bank can absorb these losses andsavers will not be affected

commercial banks act as a key component of thefinancial system, which allocate funds from savers toborrowers in an efficient manner The existence ofcommercial banks make it easier for the economy tooperate smoothly

THE CASE OF VIETNAM: BANK-BASED VS

(ii) Domestic credit to private sector by banks (% of GDP)

=> Source: World Bank – World Development indicator

https://databank.worldbank.org/source/world-development-indicators#

 Data analysis: See Excel spread-sheet

 Data presentation