Bài giảng tài chính tiền tệ bản tiếng Anh ( Finance and Money by English )

Tài liệu bao gồm bài giảng môn Tài chính tiền tê thuộc khối Tài Chính. Nội dung hoàn toàn bằng Tiếng Anh.We study the effects of financial markets and institutions on the economy, and look at their general structure and operations. Topics include:Function and Structure of Financial MarketsInternationalization of Financial MarketsTypes and Functions of Financial IntermediariesRegulation of the Financial System

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Banking, and Financial Markets?

1 Channel funds from savers to investors,

thereby promoting economic efficiency

2 Affect personal wealth and behavior of

business firms

Why Study Banking and Financial

Institutions?

1 Financial Intermediation

Helps get funds from savers to investors

2 Banks and Money Supply

Crucial role in creation of money

3 Financial Innovation

Why Study Money and Monetary Policy?

1 Influence on business cycles, inflation, and interest rates Finance and Money

 Mishkin, Frederick S (2010), The

Economics of Money, Banking and

Financial Markets, 9th Edition, Pearson

 Lloyd B Thomas (2006), Money, banking and financial markets, Thomson

 Miller, Van Hoose (2007 ),Money, banking and financial markets, Thomson

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Overview of the Course

 An Overview of the Financial System

 Money and payment system

 Understanding Interest Rates

 Central Banking and the Conduct of

Monetary Policy

 Depository Institutions: Banks and Bank Management

 The foreign exchange

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of the Financial System

.

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Chapter Preview

Suppose you want to start a business to

develop iPhone App, but you have no start

up funds.

At the same time, Makena has money to invest for retirement.

If the two of you could get together,

perhaps both of your needs can be met But how does that happen?

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Chapter Preview

We study the effects of financial markets and

institutions on the economy, and look at their

general structure and operations

Topics include:

─ Function and Structure of Financial Markets

─ Internationalization of Financial Markets

─ Types and Functions of Financial Intermediaries

─ Regulation of the Financial System

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Function of Financial Markets

 Channels funds from person or business without investment opportunities (i.e., “Lender-Savers”)

to one who has them (i.e., “Borrower-Spenders”)

 Improves economic efficiency

 People who need funds

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Financial Markets Funds Transferees

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Segments of Financial Markets

1. Direct Finance

• Borrowers borrow directly from lenders in

financial markets by selling financial instruments which are claims on the borrower’s future income or assets

2. Indirect Finance

• Borrowers borrow indirectly from lenders via financial intermediaries (established to source both loanable funds and loan opportunities)

by issuing financial instruments which are claims on the borrower’s future income or assets

Indirect vs Direct Finance

 Indirect finance

 Borrowers and lenders meet through a

financial intermediary (e.g bank)

 Loan is a liability for borrower, and asset for

a bank

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 Direct finance

 Borrowers sell securities directly to lenders

 e.g corporate and Treasury bonds

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Function of Financial Markets

Financial Instruments

securities, financial assets

Definition

: written legal obligation of one party to

transfer something of value, usually

money, to another party at some future date, under certain conditions

a security is an asset for the buyer/lender,but a liability for the issuer/borrower/seller

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 shares of stock in Time Warner, Inc

 shares of ownership in TW

 a claim on the earnings/assets of TW

 a liability for Time Warner

 an asset for me

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 my mortgage

 I am the borrower (liability)

 the bank is the buyer/holder (asset)

 the bank has a claim on my house

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 buyer transfers risk to seller

 e.g insurance policies, futures contract

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Valuing financial instruments

sizing, timing & certainty of

promised cash flows

Size: how much is promised?

 the larger the cash flows, the greater

the value

Timing: when is it promised?

 the sooner the cash flows are received, the greater the value

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Certainty: how likely its it that

payments will be made?

 the likelier the payments the greater

the value

Under what conditions?

 e.g insurance, derivatives

 payments when we need them the most are more valuable

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Importance of Financial

Markets

This is important For example, if you save

$1,000, but there are no financial markets, then you can earn no return on this—

might as well put the money under your

mattress.

However, if a carpenter could use that

money to buy a new saw (increasing her

productivity), then she’d be willing to pay you some interest for the use of the funds.

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Markets

Financial markets are critical for producing

an efficient allocation of capital, allowing funds to move from people who lack

productive investment opportunities to

people who have them.

Financial markets also improve the

well-being of consumers, allowing them to time their purchases better.

Financial Markets

 where financial instruments are bought

and sold

 these markets provide

 liquidity for buying/selling

 information through prices

 risk-sharing among buyers/sellers

 classified in various ways…

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 primary market

 New security issues sold to initial buyers

─ Who does the issuer sell to in the Primary

Market?

 secondary market

 Securities previously issued are bought

and sold

 brokers match buyers and sellers

─ Examples include the NYSE and Nasdaq

─ Who trades?

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Debt vs Equity Markets

Money vs Capital Markets

 money market

 short-term debt securities (up to 1 yr.)

 highly liquid, low risk

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Banker's Acceptances Repos

Federal Funds Eurodollars

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Municipalbonds

Loans

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Intermediaries: Indirect Finance

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Function of Financial

Intermediaries: Indirect Finance

Instead of savers lending/investing directly with borrowers, a financial intermediary

(such as a bank) plays as the middleman:

 the intermediary obtains funds from

savers

 the intermediary then makes

loans/investments with borrowers

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Intermediaries: Indirect Finance

 This process, called financial intermediation, is actually the primary means of moving funds from lenders to borrowers

 More important source of finance than securities markets (such as stocks)

 Needed because of transactions costs, risk

sharing, and asymmetric information

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2 Reduce transactions costs by developing expertise

and taking advantage of economies of scale

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 A financial intermediary’s low transaction costs mean that it can provide its

customers with liquidity services

1. Banks provide depositors with checking

accounts that enable them to pay their bills easily

2. Depositors can earn interest on checking and savings accounts and yet still convert them into goods and services whenever necessary

Intermediaries: Indirect Finance

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Function of Financial

Intermediaries: Indirect Finance

FI’s low transaction costs allow them to reduce the exposure of investors to risk,

through a process known as risk sharing

─ FIs create and sell assets with lesser risk to one party in order to buy assets with greater risk from another party

─ This process is referred to as asset

transformation, because in a sense risky assets

are turned into safer assets for investors

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Intermediaries: Indirect Finance

 Financial intermediaries also help by providing the means for individuals and businesses to

diversify their asset holdings.

 Low transaction costs allow them to buy a range

of assets, pool them, and then sell rights to the diversified pool to individuals

Types of intermediaries

 Depository institutions

 “banks”

 accept deposits, make loans

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 least restricted

Savings & Loans

 originally restricted to savings deposits and mortgages

 less restricted today

Credit Unions

 consumer loans

 nonprofit, organized around a group

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 gov’t-sponsored enterprises (GSEs)

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Other Institutions

Pension Funds

1 Rapid growth: encouraged by tax policy

2 Bigger role in stock market

A Sales finance companies

B Consumer finance companies

C Business finance companies

Mutual Funds

1.Regulated by a variety of agencies, including the OSFI 2.Open-end vs closed-end

3.Load vs no-load

4.Money Market Mutual Funds

Government Financial Intermediation

1.Crown Finance Companies:

CMHC, FCC, EDC, BDC

2.Moral hazard problem of government loan guarantees

Securities Market Institutions

1.Investment Banks

2.Securities Brokers and Dealers

3.Organized Exchanges

4.All are regulated by provincial securities commissions

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Asymmetric Information:

Quiz

 Define Asymmetric Information List and explain the two major types of Asymmetric Information that affect financial markets

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Intermediaries: Indirect Finance

 Another reason FIs exist is to reduce the impact

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Function of Financial

Intermediaries: Indirect Finance

 Adverse Selection

1 Before transaction occurs

2 Potential borrowers most likely to produce

adverse outcome are ones most likely to seek a loan

3 Similar problems occur with insurance where

unhealthy people want their known medical problems covered

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 Moral Hazard

1 After transaction occurs

2 Hazard that borrower has incentives to engage in

undesirable (immoral) activities making it more likely that won’t pay loan back

3 Again, with insurance, people may engage in risky

activities only after being insured

4. Another view is a conflict of interest

Adverse Selection and Moral Hazard

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Asymmetric Information:

Adverse Selection and Moral Hazard

 Financial intermediaries reduce adverse selection and moral hazard problems, enabling them to

make profits How they do this is the covered in many of the chapters to come

 Because of their expertise in screening and

monitoring, they minimize their losses, earning a higher return on lending and paying higher yields

to savers

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Intermediaries

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Types of Financial

Intermediaries

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Chapter Summary

Function of Financial Markets: We

examined the flow of funds through the

financial system and the role of

intermediaries in this process.

Structure of Financial Markets: We

examined market structure from several perspectives, including types of

instruments, purpose, organization, and time horizon.

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Chapter Summary (cont.)

Function of Financial Intermediaries: We examined the roles of intermediaries in

reducing transaction costs, sharing risk, and reducing information problems.

Types of Financial Intermediaries: We

outlined the numerous types of financial intermediaries to be further examined in later chapters.

 Mishkin: chapter 3

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Chapter 2 Money & the

Payments System Chapter 2 Money & the Payments System

the Definition

Money is an asset that is generally accepted as payment for goods and services or repayment of debt

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money, income, & wealth

 accumulated assets at pt in time

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 money, wealth are STOCKS

 amount at a point in time

 income is a FLOW

 amount during a time period

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 I put it under my bed

II Functions of Money

payments

(medium of exchange)

accepted as payment for

goods and services main function of money

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 barter for stuff

need “double coincidence

 I have oranges,

want to trade it for fish

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be willing to give up oranges

AND

I have to want the oranges

& be willing to give up fish

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double coincidence of wants

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to act as money, must be

money is a unit of account

money is used to

measure value

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money is a store of value

use money to save,

accumulate wealth,

buy stuff later

money is liquid asset

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Definition

Liquidity a measure of the ease an asset can be turned into a means of payment (Money)

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The Liquidity Spectrum

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money is NOT always

a good store of value political instability poor economy

high inflation

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How We Pay for Things (I)

 Commodity Money:

 Objects with intrinsic value

 has its own value as a good

 -gold & silver coins

 Fiat Money :

 Value comes from government decree (or fiat)

 no value other than fact that it’s accepted in

exchange for goods and services

 Checks:

Instructions to the bank to shifts funds from your

account to that of the person or firm whose name is

written in the “Pay to the Order of” line.

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U.S money is fiat

money!

 NOT backed by gold since 1934

 coins do not contain silver

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fiat money is more

How We Pay for Things (II)

 Credit Cards

 Debit Cards

 Electronic Funds transfers

especially automated clearing house (ACH transactions)

 Stored Value Cards

 E-Money

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 Issuer makes payment for you

 You have to pay it back

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•Scan the numbers at the bottom of the

check.

•Check Conversion: Turns a check into an ACH transaction

•Similar to using a debit card

The Future of Money

Which function of money will be

with us for a long time?

 Means of payment: disappearing

 Unit of account: likely to remain

 Store of value: disappearing

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Monetary Aggregates

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Comparing measures

 get larger

 M1 < M2

 add less liquid assets to larger measures

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Components of M2

M1 22%

small CDs 20% savings

39%

money

market

19%

Growth Rates in Monetary

Aggregates

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Money Growth and Inflation

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Inflation is an increase in the overall level of prices.

 Computing CPI Inflation

 Survey people to see what they bought

 Figure out what it would cost to buy the

same basket of goods & service today.

 Compute the percentage change in the cost

of the basket of goods.

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Measures of Inflation

Expenditure Deflator

fixed-weight and a deflator

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Interest Rates

 Mishkin: chapter 4,5

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Not all interest rates are

created equal!

 many interest rates at one time

 But interest rates do move together over time

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Interest rate structure

 Why do yields differ?

Little known about the issuers

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Prospects of repayment improve.

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Bond Ratings:

Investment Grade

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Speculative Grades

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 DaimlerChrysler, Union Pacific, Mattel, Home Depot

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Interest rates: a snapshot

1/07 1/08

30 yr mortgage 6.22% 5.76%

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I Risk Structure of Interest

Rates

 debt with same maturity,

but different characteristics

 default risk

 tax treatment

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 Baa > AAA > U.S Treasury

 size of the spread varies

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A Default Risk

 risk of not receiving timely payment of

principal and interest

U.S government debt

 zero default risk

 backed by “full faith and credit”

of U.S government

 power to tax largest economy

 power to issue stable currency

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