ADVANCED EDUCATION PROGRAM

ECONOMIC GEOGRAPHY

Finance
How has capital become so powerful?

Nguyen Hoang Nam, PhD

Email: nguyenhoangnam275@gmail.com

Hanoi, 2022

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Outline
❑ Financial system
❑ Finance, Saving and Investment
❑ Financing public goods and PPPs

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system
Financial system is a system of financial institutions that allows
the exchange of funds between Lenders-Savers and Borrower-
Spenders.
• Allows transfer of funds from individuals or businesses
without investment opportunities to ones who have them
• Improves economic efficiency
• Operates at national and global levels.

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system
• Two different categories of financial institutions: financial
intermediaries and financial markets

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system
• Financial intermediaries include banks and mutual funds
– Banks are institutions that take deposits from people who
want to save and use the deposits to make loans to people
who want to borrow. They pay depositors interest on their
deposits and charge borrowers slightly higher interest on
their loans.
– Mutual funds are institutions that sell shares to the public
and use the proceeds to buy a portfolio, of various types of
stocks, bonds, or both. They allow people with small
amounts of money to easily diversify.

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system
• Financial markets are the institutions through which savers
can directly provide funds to borrowers. Financial Markets
include Bond Markets and Stock Markets

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system
– Bond Markets
◦ A bond is a certificate of indebtedness that specifies
obligations of the borrower to the holder of the bond
(maturity and interest rate).
◦ Characteristics of a Bond
· Term: The length of time until the bond matures.
· Credit Risk: The probability that the borrower will fail to
pay some of the interest or principal.
· Tax Treatment: The way in which the tax laws treat
the interest on the bond. Municipal bonds are federal
tax exempt.

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financial system
– Stock Markets
◦ Stock represents a claim to partial ownership in a firm and
is therefore, a claim to the profits that the firm makes.
◦ The sale of stock to raise money is called equity financing.
◦ Owner of shares vs owner of bonds. Compared to bonds,
stocks offer both higher risk and higher returns.
◦ Most stock tables provide the following information:
· Price (of a share)
· Volume (number of shares sold)
· Dividend (profits paid to stockholders)
· Price-earnings ratio
Nguyen Hoang Nam How has capital become so powerful?
 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Finance, Saving and Investment

• Recall that GDP is both total income in an economy and
total expenditure on the economy’s output of goods and
services:
Y = C + I + G + NX

• Assume a closed economy – one that does not engage in

international trade:
Y=C+I+G

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Finance, Saving and Investment

• Now, subtract C and G from both sides of the equation:
Y – C – G =I
• The left side of the equation is the total income in the
economy after paying for consumption and government
purchases and is called national saving, or just saving (S)

• Substituting S for Y - C - G, the equation can be written as:

S=I
=> For the economy as a whole, saving must be equal to
investment.
Nguyen Hoang Nam How has capital become so powerful?
 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Finance, Saving and Investment

• National saving, or saving, is equal to:
S=I
S=Y–C–G
S = (Y – T – C) + (T – G)

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Finance, Saving and Investment

• National Saving is the total income in the economy that
remains after paying for consumption and government
purchases.
• Private Saving is the amount of income that households have
left after paying their taxes and paying for their consumption.
Private saving = (Y – T – C)
• Public saving is the amount of tax revenue that the
government has left after paying for its spending.
Public saving = (T – G)

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Finance, Saving and Investment

Surplus and Deficit
• If T > G, the government runs a budget surplus
because it receives more money than it spends.
Then the surplus of T - G represents public saving.
• If G > T, the government runs a budget deficit because it
spends more money than it receives in tax revenue.

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Financing public goods

• A public good is a good that is both non-excludable and non-
rival
Examples: fresh air, highways, bridges, radio signals, street
light, water treatment plan
• Problem of “free riding”: insufficient money to finance the
supply of good and service
• Role of state/government in providing services => Public
goods are often financed by tax revenues => Might not
enough

Nguyen Hoang Nam How has capital become so powerful?

 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Public private partnerships (PPPs)

• Public private partnerships (PPPs) are agreements between
government and the private sector for the purpose of providing
public infrastructure, community facilities and related services.
• The private sector enter into a contract with government for the
design, delivery, and operation of the facility or infrastructure
and the services provided. the public partner focuses on
monitoring compliance with the objectives.
• The private sector finance the capital investment and
recover the investment over the course of the contract.
• The asset transfers back to the public sector at the end of the
contract
Nguyen Hoang Nam How has capital become so powerful?
 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Benefits of PPPs in financing projects

• Financing projects through a public-private partnership can
allow a project to be completed sooner or make it a possibility in
the first place.
• Risks are distributed between the public and private partners
according to the ability of each to assess, control and cope with
them.
• Private-sector technology and innovation help provide better
public services
• The public sector provides incentives for the private sector to
deliver projects on time and within budget.
• In addition, creating economic diversification makes the
country more competitive in facilitating its infrastructure
Nguyen Hoang Nam How has capital become so powerful?
 Financial system
Finance, Saving and Investment
Financing public goods and PPPs

Examples of PPPs in financing public good

• Public-private partnerships are typically found in transport
infrastructure such as highways, airports, railroads, bridges and
tunnels.

• Municipal and environmental infrastructure include water

and wastewater facilities.

• Public service accommodations include school buildings, prisons,

student dormitories and entertainment or sports facilities.

Nguyen Hoang Nam How has capital become so powerful?

Quiz 6

1. Why did Citi expand beyond the United States?

2. How does financialization affect everyday social life?
3. The Cayman Islands as an offshore financial centre (OFC)

4. How does financialization affect everyday social life?

5. Why Islamic banking and finance is a good
contemporary example?

Nguyen Hoang Nam How has capital become so powerful?

Nguyen Hoang Nam How has capital become so powerful?