FINANCE - MONEY

Lecturer: Tran Huu Tuyen

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 INTRODUCTION

LECTUTER STUDENT
Tran Huu Tuyen (MPP) Monitor: Mỹ Anh
Lecturer in Money, Banking and Tel: 0582722101
Finance, Banking Academy of
Vietnam

Area of interest: Monetary

Economics - Development
Economics - Banking & Finance
Tel: 0943.999.328
Mail: tuyenth@hvnh.edu.vn

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SOME RULES

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 GOOGLE CLASSROM
CLASS FIN86A02

Step 1: Students go to https://classroom.google.com, click the

+ sign on the right side of the screen and select "Join class”

Step 2: Students enter the class code and will immediately join
in Class
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 READING LIST

English Text Books:

• Frederic S. Mishkin, (2016), The economics of money, banking and financial

markets, 11th Edition, Pearson Press.
•Jonathan Gruber, Public Finance and Public Policy (3rd Edition) WORTH
Publishers, 2010.
• Ross, Westerfield, and Jaffe, (2012), Corporate Finance, 10th Edition, McGraw-
Hill Education

Vietnamese Textbook

•PGS.TS. Tô Kim Ngọc, TS Nguyễn Thanh Nhàn (2018), Giáo trình tiền tệ ngân
hàng, Học viện ngân hàng
•PGS.TS. Mai Thanh Quế, PGS.TS. Lê Thị Diệu Huyền (2018), Giáo trình tài chính
học, Học viện ngân hàng

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 TOPIC 1

OVERVIEW OF
FINANCE MONEY

Lecturer: Tran Huu Tuyen

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 CONTENTS

MONEY FINANCE

Definition &
Definition
Classification

Functions Components

Financial Vietnamese
Evolution of
System and fiancial system
money
Real Economy
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MONEY

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DEFINITION

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 DEFINITION

Economists define money (also referred to as the money

supply) as anything that is generally accepted as payment for
goods or services or in the repayment of debts.
TIN T LÀ CÁC LOI CÓ NHIU DNG KHÁC NHAU NH TÀI SN,HÀNG
HÓA,....
Cash là tin t ph bin nht

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FUNCTIONS OF MONEY

Medium of exchange

Unit of account

Store of value

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 MEDIUM OF EXCHANGE
phuong tien trao doi
In almost all market transactions in our economy, money in
the form of currency or checks is a medium of exchange; it
is used to pay for goods and services.

The use of money as a medium of exchange promotes

economic efficiency by minimizing the time spent in
exchanging goods and services.

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 MEDIUM OF EXCHANGE

Place Time Double

coincidence
of wants

Price Demand

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 UNIT OF ACCOUNT
do luong gia tri
Money is used to measure value in an economy

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 UNIT OF ACCOUNT

The number of prices = N ∗ (N − 1)/2

Number of goods Barter economy Money economy

3 3 3

10 45 10

100 4.950 100

1000 499.500 1.000

10000 49.995.000 10.000

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 STORE OF VALUE
tich luy gia tri
A store of value is used to save purchasing power from the
time income is received until the time it is spent.

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STORE OF VALUE

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 EVOLUTION OF MONEY

Crypto-
E-Money currency
?
Checks
Fiat
Commodity

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 COMMODITY MONEY

A commodity money is a physical good that has ‘intrinsic

value’ – a use outside of its use as money.

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COMMODITY MONEY

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 COMMODITY MONEY

Easily standardized

Widely accepted

Divisible

Easy to carry

Not deteriorate quickly

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 FIAT MONEY
Fiat money is issued by governments as legal tender
(meaning that it must be accepted as legal payment for debts)
but not convertible into coins or precious metal.

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FIAT MONEY

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 CHECKS
A check is an instruction from you to your bank to transfer
money from your account to someone else’s account when she
deposits the check.

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 E-MONEY
Electronic payments technology can substitute not only for
checks but also for cash, in the form of electronic money (or e-
money)—money that exists only in electronic form.

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 CRYPTO-CURRENCY
A cryptocurrency is a digital or virtual currency that is secured
by cryptography.

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CRYPTO-CURRENCY

What is Bitcoin?

How to get Bitcoin?

Opportunities and
Risks

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 CRYPTO-CURRENCY
Bitcoin is a cryptocurrency invented in 2008 by an unknown person
or group of people using the name Satoshi Nakamoto. The currency
began use in 2009 when its implementation was released as open-
source software.

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CRYPTO-CURRENCY

Nguồn: http://bitcoin.stackexchange.com

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CRYPTO-CURRENCY

Nguồn: https://www.coindesk.com/price/
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FINANCE

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 WHAT IS FINANCE?

Finance is defined as the management of money and

includes activities such as investing, borrowing,
lending, budgeting, saving, and forecasting.

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QUESTION

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 DEFINITION

A financial system consists of institutional units (such as a household, corporation,

or government agency) and markets that interact, typically in a complex manner,
for the purpose of mobilizing funds for investment and providing facilities, including
payment systems, for the financing of commercial activity (IMF).

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CLASSIFICATION OF FINANCIAL SYSTEM

Bank-based

Banks play a leading role in mobilizing

savings, allocating capital, overseeing
the investment decisions of corporate
managers, and providing risk
management vehicles.
Market-based
Securities markets share center stage
with banks in getting society's savings
to firms, exerting corporate control,
and easing risk management.

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CLASSIFICATION OF FINANCIAL SYSTEM

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GROUP WORK

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CLASSIFICATION OF FINANCIAL SYSTEM

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 COMPONENTS

END-USERS
FINANCIAL SYSTEM

FINANCIAL INSTITUTIONS

FINANCIAL MARKETS

REGULATORY AUTHORITIES

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COMPONENTS

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 END-USERS

•Ultimate lenders (savers): the

person or organization with a surplus
of income over expenditure.
•Ultimate borrowers (spenders): the
person or organization with a deficit
of income over expenditure.

End users of a financial system are the firms, households, individuals,

government that use the services offered by the institutions and markets.

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QUESTION

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 END USERS
LENDERS requirements: BORROWERS requirements:
§Minimisation of risk §Minimisation of costs
§Maximisation of returns §Maximisation of period they
§Liquidity want to borrow

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 FINANCIAL INSTITUTIONS
CLASSIFICATION

Deposit-taking Non-deposit-taking
• Banks • Insurance companies
• Building societies (S&L • Investment banks
associations) • Pension funds
• Credit unions • Unit trusts and OEICs
• Friendly societies • Investment trusts

Principal liabilities are Principal liabilities are

deposits not deposits

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 FINANCIAL MARKETS

•Definition: Financial markets are markets in which funds are

transferred from those who have excess funds (savers,
lenders) to those who have a shortage (investors,
borrowers).

•Structure: Classified according to the characteristics of

participants and securities involved.
•Based on security types:
§ Bond and Stock Markets
§ Money and Capital Markets

•Based on market levels:

§ Primary Markets and Secondary Markets

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 REGULATORY AUTHORITIES
Why do we need regulation?

ASYMMETRIC
EXTERNALITIES
INFORMATION
 REGULATORY AUTHORITIES
Why do we need regulation?

A villager shows dead sea fish he collected on a beach in

Phu Loc district, in the central province of Thua Thien Hue
on April 21, 2016. Photo by AFP
 ASYMMETRIC INFORMATION
• Asymmetric information: The imbalance in information between two
parties of a transaction

• Buyers/sellers not equally informed about product

§ Can be difficult to determine credit worthiness, mainly for

consumers and small businesses
§ Borrowers know more than lenders about borrowers’ future
performance
§ Borrowers may understate risk

• Asymmetric information is much less of a problem for large

businesses

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 ASYMMETRIC INFORMATION
•Adverse selection
§ Potential borrowers who are most likely to produce adverse outcomes
are ones who most likely to seek loans and be selected
§ Occurs before transactions

•Moral hazard
§ Hazard that borrower has incentives to engage in undesirable
(immoral) activities making it more likely that won’t pay loan back
§ Occurs after transactions
Adverse
Selection
Asymmetric
Information
Moral Hazard

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 ASYMMETRIC INFORMATION
The Market for Lemon by Akerlof Geogre

George Arthur Akerlof

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ASYMMETRIC INFORMATION
AI in Insurance Companies

A smoker who successfully manages to

obtain insurance coverage as a nonsmoker

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REGULATORY AUTHORITIES

Consumer Protection

The government regulates financial

markets and financial intermediaries to
increase the information available to
investors

Financial Stability
Prevent financial panics, contagion (the high
probability that one bank failure will spread
to other banks)

Chartering, reporting requirements,

restrictions on assets and activities, deposit
insurance and anti-competitive measures
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 REGULATORY AUTHORITIES

• UK: Financial Services Authority (FSA)

• US: Federal Reserve System ; Securities & Exchange
Commission, + Federal Deposit Insurance Corporation,
• EU: European Central Bank

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 REGULATORY AUTHORITIES
IN VIETNAM

GOVERNMENT

NATIONAL FINANCIAL
SUPERVISORY COMMISSION

STATE BANK OF
MINISTRY OF FINANCE
VIETNAM

BANK INSURANCE SECURITIES

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REGULATORY AUTHORITIES

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QUESTION

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 DIRECT AND INDIRECT FINANCE
²DIRECT FINANCE: the transfer of funds from surplus units
(lenders/savers) to deficit units (borrowers) occurs via financial
markets.

SAVERS/ FINANCIAL
BORROWERS
DEPOSITORS
LENDERS MARKETS

²INDIRECT FINANCE: the transfer of funds does not occur directly

from lenders to borrowers – financial intermediaries interpose
between lenders and borrowers.

SAVERS/ FINANCIAL
BORROWERS
DEPOSITORS
LENDERS INTERMEDIARIES

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 DIRECT AND INDIRECT FINANCE
TRADITIONAL MODEL

DIRECT FINANCING
FINANCIAL
MARKETS

SAVERS/
BORROWERS
DEPOSITORS

FINANCIAL
INTERMEDIARIES
INDIRECT FINANCING

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 DIRECT AND INDIRECT FINANCE

Financial Markets or Intermediaries?

•Lenders
§ Small savers prefer intermediaries like banks and building societies
=> accept lower interest rates but reduce transaction costs
§ Big lenders buy securities => higher returns
•Borrowers
§ Big borrowers usually issue securities because it is feasible and at
lower interest rate/ high fixed cost of issuing securities while the deal
is large enough
§ Small borrowers usually use intermediaries => May be difficult to
issue securities due to high level of risk/ high fixed cost of issuing
securities while the deal is small

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DIRECT AND INDIRECT FINANCE

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 CONCLUSIONS

•Financial markets and financial intermediaries allow

that the surplus of funds held by units with I > E is
transferred to units with I < E

•In many cases, direct finance alone cannot guarantee

that such transfer occurs – FIs are necessary

•FIs facilitates the transfer by eliminating the need that

requirements of savers match those of borrowers and by
reducing transaction costs

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