CHAP 1: OVERVIEW OF FINANCE AND MONEY

1. What is finance?
Finance is the study of concepts, applications, and systems that affect the value
(or wealth) of individuals, companies, and countries over the short and long term
Finance is a broad term that describes two related activities: the study of how
money is managed and the actual process of acquiring needed funds.
Because individuals, business and government entities need funding to operate,
the field is often separated into 3 subject categories: personal finance, corporate
finance, and public finance.
Public finance
The study of the income and expenditure of the Government
The collection of funds and their allocation between various branches of state
activities (essential duties or functions of the state such as building infrastructure,
providing public utility services: electric,gas, telecommunications, water, railroad,
garbage collection, education, defense)
Corporate finance
The financial activities related to running corporation
Goal: Maximizing shareholder value
Personal finance
The application principles of finance to the monetary decisions of an individual of
family unit.
It addresses the ways in which individuals or families obtain, budget, save and
spend monetary resources over time, taking into account various financial risk
and future life events
2. What is money?
Anything is generally accepted in payment for goods or services or in the
repayment or debts.
Money (a stock concept: certain amount at a given point in time is different from
wealth (total collection of pieces of property that serve to store value ex: stocks,
bonds, lands) and Income (flow of earnings per unit of time)
a. The Evolution of Money
If money did not exist, we could all be living in a barter economy
+ Coincidence of wants/needs, lack of divisibility and transferability
b. The Characteristics of Money
Portability (tính Durable: Divisible Limited Supply
di động)
can be easily does not should be able can not have to
transferred from deteriorate (to to be broken much of
one person to become worse: down into something
another, and hư hỏng) when smaller units so because then it
makes the handled and that people can becomes
exchange of can be easily use only as worthless.
money for replaced much as needed
products easier for a transaction

light weight, Coins tend to Penny is small Fluctuates,

convenient, last over 20 enough for grew at a rate
easily years, and almost all of 10-12
transferable paper currency purchases, and percent a year
lasts 18 can write in 1970’s, but
months in checks for for the most
circulation exact amounts part there is a
before being stable and
replaced limited supply

c. Functions of Money (3)

In a long time: means of payment (disappearing), unit of account (likely to
remain), store of value (disappearing)
Medium of exchange (phương tiện trao đổi)
- When any goods or service is purchases, people use money
- Money makes it easier to buy and sell because money is universally
accepted
- Money does not have to have any inherent value (giá trị cố hữu) to
function as a medium of exchange (tiền chỉ xuất hiện tạm thời trong quá
trình trao đổi)
- Money, then, provides us with a shortcut in doing business (cơ sở hỗ trợ
cho nền kinh tế trong việc)
 + Eliminates the trouble of finding a double coincidence of needs (reduces
transaction costs)
+ Promote specialization (tạo đk chuyên môn hóa)
- A medium of exchange must (các tiêu chuẩn tiền phải đáp ứng để thực
hiện hiệu quả chức năng này)
+ be easily standardized (dễ dàng chuẩn hóa và đánh giá giá trị một cách
đơn giản)
+ be widely accepted
+ be divisible (có thể chia được để dễ dàng “trả tiền lẻ”)
+ be easy to carry
+ not deteriorate quickly (không bị tiêu hủy nhanh theo thời gian)
Unit of account (Measure/ Standard of Value: thước đo giá trị)
- Used to measure value in the economy
- Without money, we would have to measure the value of goods and
services in terms of other goods and services
- Reduces transaction costs
Store of value (cất trữ giá trị): Tiền là tài sản có tính thanh khoản cao nhất
- Used to save purchasing power over time
- Other assets also serve this function
- Money is the most liquid of all assets but loses value during inflation
Money is a financial asset that can be used to store wealth (income that you
have saved and not consumed). As a store of wealth, money pays no interest,
but it perfectly liquid. Money’s usefulness as a store of wealth depends on how
will it maintains its value

3. The evolution of the Payments System

Payment system: Method of conducting transactions in the economy
There are 5 means of payment
a. Commodity Money (hóa tệ): hóa tệ phi kim loại và hóa tệ kim loại
Means of payment made out of precious metals such as gold or silver or other
valuable commodities
It has been the prevailing medium of exchange in most societies since classical
times up to around two hundred years ago
Commodity money fulfills the criterion of general acceptance, because it consists
of materials which are already high in demand.
It comes with a number of problems, however:
+ It’s value is not necessarily easily to prove for everyone. Problems of forgery or
debasing have been common in history.
+ Commodity money is generally heavy and hard to transport.
+ The value of commodity money varies with the value of the underlying
commodity and, therefore, is subject to fluctuations of supply and demands for
these goods.

b. Fiat Money/ Paper money (tiền quy ước, tiền pháp định)
The development of bank notes – originally backed by a convertibility guarantee
– succeeded commodity money.
Paper money quickly converted into fiat money: money issued by governments
as legal tender, but without any right of convertibility.

c. Checks
- Checks are an instruction to a bank to transfer money from one person’s
account to the bank account of the recipient once he or she deposits the
check.
- Checks, thus, solve the problem of transport for large amounts of money
and facilitate transactions in a number of other ways.
- However, two problems arise with the use of checks:
+ Moving checks from one point to another takes time
+ The processing of checks does not come for free and imposes a transaction
cost by itself to society

d. Electronic means of payment

Increasingly common forms of means of transaction are electronic payment
services offered online by banks.
Instead of mailing out a check for every single payment, you simply log on to the
bank’s web site or have your money automatically deducted on a regular basis
Electronic payment is a very common means of transaction in many countries.

e. Electronic money (tiền điện tử) : Thẻ thanh toán, tiền mặt điện tử (e-
cash), séc điện tử (e-check)
Not only checks get increasingly substituted by electronic forms of payment, cash
has also been partly replaced by other instruments
- Common forms of E-money include:
+ Debit and credit cards
+ Money cards or “smart” cards
+ E-cash

1. FYI are we headed for a cashless society?

Predictions of a cashless society have been around for decades, but they have
not come to fruition (kết quả). Although e-money might be more convenient and
efficient than a payments system based on paper, several factors work against
the disappearance of the paper system. Still, the use of e-money will likely still
increase in the future
2. Technological advances and payment method?
Technological advances create new methods of payment. Cellphones and other
types of hand-held mobile devices are providing access to the payments system.
3. Measuring money
We defined money as anything generally accepted in payment for goods and
services. Since many commodities have had this function in history, we need a
closer definition of money to measure the actual stock of money in an economy
at a specific point in time.
Changes in the quantity of money are related to: Interest rates, economic growth,
inflation
Liquidity: a measure of the ease an asset can be turned into a means of
payment (money) (mức độ dễ dàng biến một ts thành ptien thanh toán)

- M1: component of the money supply relating to money’s role as a

medium of exchange
Currency (coins and paper money)
All checkable deposits (travelers checks, checking account)
- M2: component of the money supply relating to money’s role as a
store of value
Savings (savings deposit and money market deposit account)
Small time deposits (6 mo.CD)
Money market funds (mutual fund)
 CHAP 2: OVERVIEW OF THE FINANCIAL MARKET
1. Definitions financial system
Provides for efficient flow of funds from saving to investment by bringing savers
and borrowers together via financial markets and financial institutions.
a. Ways and value that financial system gathers money and channel it
Banks and other depository institutions, such as insurance companies, gather
money from consumers in small dollar amounts, aggregate it and then make
loans in much larger dollar amounts.
Savings by consumers in small dollar amounts are the origin of much of the
money that funds large business loans
b. How Fis (banks) make profits
FIs (banks) are profit-making organizations, and the bank in our example has
earned a tidy profit from the deal: The bank borrowed money at 5% by selling
CDs and lends money to the coffee shop owner and other businesses at 9%.
Banks and other lenders earn much of their profits from the spread between
lending and borrowing rates
c. The competitiveness among banks from the perspective of interest
rates
If the financial system is competitive, the interest rate the bank pays on CDs will
be at or near the highest rate that you can earn on CDs of similar maturity and
risk
The coffee shop and other businesses will have borrowed at or near the lowest
possible interest cost, given their risk class.
Competition among banks for deposits will drive CD rates up and loan rates
down.

d. The function of allocating funds to business or investment projects

An important function of the financial system is to allocate money to the most
productive investment projects in the economy. If the financial system is
working properly, only projects with high-risk adjusted rates of return are funded,
and those with low rates are rejected.
2. Function of financial market
Perform the essential function of channeling funds from economic players that
have saved surplus funds to those that have a shortage of funds (SSUs and
DSUs)
+ Surplus spending units: savings, saver, lender, investor, households
+ Deficit spending units: borrowers, businesses, government
Promotes economic efficiency by producing an efficient allocation of capital,
which increases production
Directly improve the well-being of consumers by allowing them to time purchases
better
Financial claims = Financial asset = Financial instrument = Financial product =
Financial security: giấy chứng nhận nợ/ vốn
a. Marketability
Ease with which a financial asset may be sold to another SSU
+ Match maturity of claim to planned investment period
+ Buy claim with longer maturity, but sell at end of period
+ Buy claim with shorter maturity, then reinvest
b. Direct financing
- The simplest way for funds to flow
Borowers borrow funds directly from lenders (saver) in financial markets by
selling them securities
- Efficient for large transactions if preferences match
+ DSUs and SSUs “seize the day” (nắm bắt thời cơ): DSUs fund desired projects
immediately; SSUs earn timely returns on savings
+ Direct markets are “wholesale” markets:
Transaction>1 tỷ;
Institutional arrangements common (
Investment bankers “underwrite” new issues of securities: Buy entire
issues of securities from DSUs and find SSUs to buy securities at higher
prices, profit from difference “underwriting spread”
Brokers and dealers bring buyers and sellers of direct claims
together
Brokers buy or sell at best possible price for their clients,
Dealers “make markets” by carrying inventories of securities
(Brokers are agents of investors who match buyers with sellers of
securities; dealers link buyers and sellers by buying and selling
securities at stated prices. (Môi giới là đại lý của nhà đầu tư, kết nối
người mua với người bán chứng khoán; các đại lý liên kết người
mua và người bán bằng cách mua và bán chứng khoán ở mức giá
đã nêu) => “Bid-ask spread” (buy securities at bid price and sell at
ask price) is dealer’s gross profit
 Private placements=private offering= non-public offering: phát hành
riêng lẻ lợi là speed and low transactions costs are simplest)

- Problem is DSUs and SSUs cannot always match preferences

+ Not every SSU can afford “wholesale denominations (mệnh giá)
+ DSU and SSU often prefer different terms of maturity
c. Indirect financing
- Financial intermediaries “transform” claims:
+ raise funds by issuing claims to SSU
+ use funds to buy claims issued by DSU
- Claims can have unmatched characteristics:
+ SSU has claim against intermediary
+ Intermediary has claim against DSU
Thị trường trực tiếp: thông qua nhà môi giới (broker)
Thị trường gián tiếp: thông qua trung gian tài chính (intermediaries: ăn lời trên lãi
suất)
Facilitating (tạo điều kiện thuận lợi) transactions between DSU and SSU: trung
gian
Phân biệt broker với dealer
Sự khác nhau giữa thị trường trực tiếp và gián tiếp
Practice
- Financial markets improve economic welfare: allow consumers to time
their purchase better
- Financial market has characteristic: It channel funds from lenders-savers
to borrowers-spenders.
- The principal lender-saver: Households
- Savers-lenders-investors: người thừa tiền
- Borrowers-spenders: người thiếu tiền
- With direct finance funds are channeled through the financial market from
the savers directly to the spender
 - Securities (chứng khoán) are assets for the person who buys them, but are
liabilities for individual or firm that issue them.
- With direct finance, funds flow directly from the lender/saver to the
borrower. With indirect finance, funds flow from the lender/saver to a
financial intermediary who then channels the funds to the
borrower/investor.
Criteria to classify FM (5)
- Nature/ Characteristics of repaying money: Debt and Equity Market
- Methods of organizing and trading: OTC and exchange Market
- Method/ Procedure to channel fund: Indirect and Direct Markets
- Maturity of financial instruments: Money market & Capital Market
- Operational purpose of the market: Primary market & Secondary market

1. Structure of financial system

Dựa trên tính chất hoàn trả
Debt Markets (thị trường nợ) Equity Markets (thị trường cổ phiếu)
- Short-term (<1y) - Pay dividends (cổ tức), in theory
- Long-term (>1y) forever
- Intermediate term (maturity in- - Represents an ownership claim in the
between) firm
- Borrowing-lending relationship - Phát hành ck vốn để tăng vốn, ck vốn
- Phát hành nợ để tăng vốn, ck nợ xác nhận quyền được sở hữu một
xác nhận quyền được nhận lại phần thu nhập và ts của cty phát hành
khoản vốn đã cho nhà phát hành
vay và tiền lãi theo thỏa thuận vay

Dựa trên mục đích hoạt động

Primary market (sơ cấp) Secondary market (thứ cấp)
- New security issues sold to initial - Securities previously issued are
buyers bought
- Còn gọi là new issue market - Nơi phát hành ck cty ra công chúng,
- Các ck lần đầu được phát hành không kiếm profit -> tính thanh khoản
cho cp-> hỗ trợ giá trị cho cp và giao
dịch primary
- Các ck đã được phát hành và mua đi
bán lại nhằm thay đổi quyền sở hữu
 Dựa trên thời hạn luân chuyển
Monetary market (tiền tệ) Capital market (vốn)
- Short-term (<1y) - Long-term (>1y)
- Use of a temporary surplus of funds - Generally used to secure long-term
by banks or businesses financing for capital investment
- Securities: Treasury bills, CDs, - Securities: Stocks, Corporate bonds,
Commercial paper, Federal Funds, local and state government bonds,
REPO, Bank Acceptance commercial loans

Dựa trên phương thức tổ chức

Exchanges/ Centralized market (tập Over-the-counter market (phi tập
trung) trung OTC)
- Trades conducted in central - Dealers at different locations
locations buy and sell

Practice
- A corporation issues new shares of stock: primary market -> direct
- Characteristics of debt and equity: long-term financial instruments, involve
a claim on the issuer’s income and enable a corporation to raise funds
- Indirect finance: make a deposit at a bank
- Investment bank: an important financial institution that assists in the initial
sale of securities in the primary market
- When an investment bank underwrite securities, it guarantees a price for
a corporation’s securities and then sells them to the public
- Primary market: IPO (initial public offering)
- Secondary market: foreign exchange market, futures market, options
market
- Corporations receive funds when their stock is sold in the primary market.
Why do corporations pay attention to what is happening to their stock in
the secondary market? The existence of the secondary market makes
their stock more liquid and the price in the secondary market sets the
price that the corporation would receive if they choose to sell more
stock in the primary market.
- The higher a security’s price in the secondary market the more funds a
firm can raise by selling securities in the primary market
- A corporation acquires new funds only when its securities are sold in the
primary market by an investment bank
- Equity instruments (long-term) are traded in the capital
 - Two methods of organizing a secondary market: A secondary market can
be organized as an exchange where buyers and sellers meet in one
central location to conduct trades ex: New York Stock Exchange. A
secondary market can also be organized as an over-the-counter market. In
this type of market, dealers in different locations buy and sell securities to
anyone who comes to them and is willing to accept their prices ex: the
federal funds market.

2. Financial Instruments
a. Definition
A financial instrument is any contract that gives rise to both a financial asset in
one entity and a financial liability or equity instrument in another entity
A financial asset can be cash, an equity instrument of another entity, or a
contractual right (nghĩa vụ hợp đồng) to receive cash or another financial asset
from another entity
Financial liability (trách nhiệm tài chính) is any contractual obligation to deliver
cash or another financial asset with another entity
b. Functions (3)
- Financial instruments act as a means of payment (like money)
+ Employees take stock options as payment for working
- Financial instruments act as stores of value (like money)
+ Financial instruments generate increases in wealth that are larger than from
holding money
+ Financial instruments can be used to transfer purchasing power into the
future
- Financial instruments allow for the transfer of risk (unlike money)
+ Insurance contracts allows one person to transfer risk to another
c. Types of instruments
Debt instruments and Equity instruments
d. Capital market instruments (bonds, stocks, mortgages, consumer &
commercial loans)
Bonds
 - Characteristics:
+ Face value: là số tiền ghi trên bề mặt của tờ trái phiếu. Là số vốn gốc mà tổ
chức phát hàng phải hoàn trả cho trái chủ khi trái phiếu hết hạn.
+ Maturity là khoảng thời gian tính từ ngày phát hành đến ngày đáo hạn của
trái phiếu
+ Interest/ coupon bond (lãi trái phiếu): là khoản tiền lãi mà nhà phát hành
cam kết trả cho người sở hữu trái phiếu đối với trái phiếu chiết khấu, khoản tiền
lãi này được xác định trên cơ sở chênh lệch giữa giá bán lúc phát hành và mệnh
giá của nó.
+ Bondholder (người sở hữu trái phiếu): có thể được ghi tên sở hữu trên
trái phiếu (trái phiếu đích danh) và không ghi tên (trái phiếu vô danh)

- Agreement by issuer to pay interest on specified dates and redeem

(get back) the bond upon maturity
+ Consol (trái phiếu trả lãi vô thời hạn): no maturity=perpetuity, pay interest
forever. Vd: lương hưu
+ Coupon Securities (tiền lãi trái phiếu, người phát hành bond trả): Make
interest payments – usually semiannually
+ Zero-coupon (trái phiếu không trả lãi): Make no interest payments, sold
at price well below face value
+ Tax exempt (thu tiền lãi của trái phiếu mà không trả thuế): Interest
earned is not taxed
Tính lãi trái phiếu: Coupon = Coupon rate x Famedice value (số tiền gốc mà
người bán sẽ trả khi hết hạn)
Những cái cần có trên tờ trái phiếu: Issuer, face value, coupon rate, maturity,
coupon paid period
Interest rate: lãi suất (con nợ) khác với Yield/ Return: lợi suất (chủ nợ)
 Trái phiếu có lãi suất thả nổi
 Trái phiếu được ưu tiên thanh toán
 Trái phiếu có điều khoản bảo vệ
 Trái phiếu có thể được mua lại
  Trái phiếu có thể bán lại
 Trái phiếu có thể chuyển đổi
- Types of bonds (4):
+ Registered bond – Non-registered bonds/ bearer bonds
+ Government bond: là trái phiếu do chính phủ phát hành nhằm mục đích bù
đắp thâm hụt ngân sách hoặc làm công cụ điều tiết tiền tệ. Gồm 2 loại: trái phiếu
kho bạc (treasury bonds) và công trái nhà nước (state bonds) – Municipals (trái
phiếu chính quyền địa phương) – Corporate bond (trái phiếu công ty)
+ Convertible bond
+ Bond with warrant: the warrant gives you the right to buy a certain number
of fixed-price shares of the stock of the company that issues the bond.

Stock (tham gia vào cty: >= 35% quyền phủ quyết; còn 51% là quyền ưu
tiên)
- Stock represents ownership
+ Stockholders: Owns part of the corporation and receives dividends from the
issuer
+ Capital Gains: Difference between price initially paid and amount received
when stock is sold
- Types of corporate stock
+ Preferred stock (cp ưu đãi): fixed dividends, priority over common stock
+ Common stock: Variable dividends, based on company’s profits
+ Convertible: Preferred stock that can be converted into common stock at a
stated price
- Types of Stocks
+ By the number of stock
Authorized stock/ shares (cp được ủy quyền): no correlation between the
par value of a stock and its market value.

Issued stocks (cp đã được phát hành)

 Treasury stock/ Reacquired stock (cp quỹ):
+ The market price of the stock is depressed, and the company can
repurchase the shares at an effective discount.
+ Repurchasing the shares will increase the earnings per share since
there will be fewer outstanding shares.
+ The Treasury shares can be used instead of cash to make required
employee stock options or retirement plan contributions.
Outstanding stocks/shares (cp đang lưu hành): Cổ phiếu đang lưu hành
bằng số lượng cổ phiếu phát hành trừ đi cổ phiếu quỹ.
+ By the benefits of stock for shareholders
Common stocks
Residual owners: stockholders of a firm are the owners, who are
entitled to dividend income and a prorated share of the firm’s earnings only
after all the firm’s other obligations have been met (họ chỉ được hưởng thu
nhập từ cổ tức và một phần thu nhập theo tỷ lệ của công ty sau khi tất cả các
nghĩa vụ khác của công ty đã được đáp ứng.)
Stock return decomposition (sự phân tích lợi nhuận cp): Returns to
stock investments come in two forms:
Dividend yield (lợi suất): due to dividend payments
Captain gain: due to stock price appreciation (giá cp tăng)
+ By the form of stock
Registered stock
Non-registered stock

Advantages of stock ownership Disadvantages of stock ownership

-Provide opportunity for higher returns than - Stocks are subject to many
other investments (cơ hội sinh lời cao) different kinds of risk:
-Over past 100 years, stocks earned annual + Business risk
returns that we roughly double the returns + Financial risk
provided by corporate bonds + Purchasing power risk (rủi ro sức mua):
- Good inflation hedge since returns typically Chance that return lags inflation rate
exceed the rate of inflation (phòng ngừa lạm (khả năng profit chậm hơn tỷ lệ lạm
phát) phát)
 - Easy to buy and sell stocks + Market risk: market goes up and down
- Price and market information is easy to find + Event risk: corporate event
in financial media - Hard to predict which stocks will go
- Unit cost per share of stock is low enough to up in value due to wide swings in
encourage ownership profits and general stock market
performance
- Low current income compared to
other
investment alternatives

Common Stock
Characteristics (6) - Equity capital: evidence of ownership position in a firm, in the
form of shares of common stock
- Publicly Traded Issues: shares of stock that are readily
available to the general market and are bought and sold in the
open market
- Public Offering (chào bán ra công chúng): an offering to sell to
the investing public a set number of shares of a firm’s stock at a
specified price (đầu tư số lượng cp nhất định của một cty ở mức
giá xác định)
- Rights Offering: an offering of a new issue of stock to existing
stockholders (chào bán đợt phát hành cp mới cho các cổ đông
hiện tại), who may purchase new shares in proportion to their
current ownership (mua cp mới theo tỷ lệ sở hữu hiện tại của họ)
- Stock Spin-Off (tách cp): conversion of one of a firm’s
subsidiaries to a stand-alone company by distribution of stock in
the new company to existing shareholders (chuyển đổi một trong
các cty con thành cty độc lập bằng cách phân phối cp của cty
mới cho các cổ đông hiện hữu)
Values (5) - Par Value (Face value: mệnh giá): the stated, or face, value of a
stock.
Accounting term and not very useful to investors
- Book Value (giá trị số sách cp): the amount of stockholders’
equity.
The company’s assets – (the company’s liabilities + preferred
stock) -> để tính ra gtri vốn chủ sở hữu
- Market Value (giá cp đang giao dịch trên thị trường): the current
price of the stock in the stock market
- Market Captilization: the overall current value of the company in
the stock market
Total number of shares outstanding (số cp đang lưu hành) x by the
 market value per share
- Investment Value: the overall current value of the company in the
stock market
Total number of shares outstanding x by the market value per
share
*Outstand stock: cp đang hiện hành nằm trong tay các cổ đông
not công ty

Preferred stock
Definition Preferred stockholders give up many of the rights of ownership in
exchange for some of the protection enjoyed by creditors

Rights of -
Can’t vote for the board of directors (không được tham gia quản
ownership lý công ty và vote)
- Sharing in success: Cash dividends are fixed in amount -> If
company does exceptionally well, preferred stockholders don’t
get to share in the success
Preferred - Cash dividend preference (ưu đãi cổ tức bằng tiền mặt): Receive
stockholders’s full cash dividend before common stockholders (được ưu tiên
protections chia cổ tức trước)
- Liquidation preference (ưu đãi thanh lý): If the company goes
bankrupt, preferred stockholders are entitled to have their
investment repaid in full (cty làm ăn có lãi hay không thì mức cổ
tức cố định hằng năm vẫn được hưởng bình thường)
Cumulative and • When a corporation fails to declare (không công bố dividends on
Noncumulative cumulative preferred stock, such dividends accumulate and
preferred stock (cổ require payment in the future before any dividends may be paid
phiếu ưu đãi tích to common stockholders.
lũy) • Dividends on cumulative preferred stock that are passed (chuyển
giao) are referred to as dividends in arrears (cổ tức trả sau).
• With noncumulative preferred stock -> not necessary to
provide for passed dividends (không cần thiết phải chia cổ tức)
Participating • Participating preferred stock issues provide for additional
Preferred Stock dividends to be paid to preferred stockholders after dividends of a
(cổ phiếu ưu đãi specified amount are paid to the common stockholders -> A
tham gia) participating provision (điều khoản tham gia) giống cp phổ thông
• Rare
Convertible - Preferred stock is convertible when it can be exchanged by its
Preferred Stock (cổ owner for some other security of the issuing corporation
phiếu ưu đãi có thể - Conversion rights generally provide for the exchange of preferred
chuyển đổi) stock into common stock.
Có thể chuyển đổi sang cp thường, convertible bond/loan: chuyển từ
 nợ sang vốn góp nếu DN làm được những điều kiện đưa ra thì họ sẽ
chuyển từ trái phiếu sáng cổ phiếu
Callable Preferred • Many preferred issues are callable, meaning they may be called
Stock and canceled at the option of the corporation.
• The call price is usually specified in the original agreement and
provides for payment of dividends in arrears as part of the
repurchase price (Giá mua lại thường được quy định trong thỏa
thuận ban đầu và quy định việc thanh toán cổ tức còn nợ như
một phần của giá mua lại)
Redeemable Redeemable preferred stock is preferred stock that is
Preferred Stock (cổ redeemable at the option of the stockholder or upon other
phiếu ưu đãi có thể conditions not within the control of the issuer (có thể mua lại theo
hoàn lại) lựa chọn của cổ đông hoặc theo các điều kiện khác không nằm
trong tầm kiểm soát của tổ chức phát hành)
• Somewhat like a loan in that the issuing corporation may be
forced to repay the stock proceeds (giống như một khoản vay
trong đó công ty phát hành có thể bị buộc phải hoàn trả số tiền
thu được từ cổ phiếu)
 Mortgages ( vay thế chấp)
- Mortgages: is a loan used to purchase a home/land/ building, where the
property serves as the borrower’s collateral (tài sản thế chấp)
- Amortized (trả dần, khấu trừ dần, trả 1 phần tiền gốc và lãi)—principal
and interest is gradually repaid over the life of loan
- Fixed Rate—Rate of interest is fixed
- Variable-Rate—Rate of interest varies depending on financial environment
- Securitization—Individual mortgages may be “pooled” and sold as a unit
to reduce uncertainty (Chứng khoán hóa—Các khoản thế chấp riêng lẻ có
thể được “gộp chung” và bán thành một đơn vị để giảm bớt sự không chắc
chắn)
 - Mortgages may be insured by government agencies: Federal Housing
Authority (FHA), Veterans Administration (VA)

Commercial Loan & Consumer Loan

 A debt-based funding arrangement between a business and a financial
institution -> used to fund major capital expenditures and or cover
operational costs that the company may otherwise be unable to afford.
(Một thỏa thuận tài trợ dựa trên nợ giữa một doanh nghiệp và một tổ chức
tài chính, thường được sử dụng để tài trợ cho các chi phí vốn lớn và/hoặc
trang trải các chi phí hoạt động mà công ty có thể không đủ khả năng chi
trả)
*Là món vay dành cho những công ty kinh doanh và người tiêu dùng, chủ
yếu là do ngân hàng cung cấp (một số là do công ty tài chính cung câp,
chủ yếu là vay tiêu dùng)
 Consumer Loan (e.g Auto loan)
 Often medium- and long-term loan
 Low liquidity
Money Market Instrument (ngắn hạn)
1. Treasury Bills (T-bills): tín phiếu kho bạc
Represent short-term borrowings of the Government to finance national debt and
new deficits (Công cụ vay nợ ngắn hạn của chính phủ do kho bạc phát hành để
bù đắp cho những thiếu hụt tạm thời của ngân sách nhà nước)
a. Thuộc loại discount security (chứng khoán chiết khấu)
b. Maturites: 3,6,12 months.
c. Có độ rủi ro thấp nhất -> lãi suất cũng thấp
d. High degree of security -> highest liquidity
e. Commonly Used by the Federal Reserve/ State Banks to perform
Open Market Operations
2. Negotiable Certificate of Deposits (NCD): chứng chỉ tiền gửi
a. Denominations (mệnh giá): $100,000 and above (Large Time
Deposits)
b. Issued by banks to raise money for loans
c. Specific maturity date (from 3m to 5y), a stated interest rate, can be
issued in any denomination, much like bonds
d. Most CDs assess a penalty for early withdrawal prior to the CD’s
date of maturity.
e. Low Default Risk -- deposit insurance (bảo hiểm tiền gửi)
f. Good secondary market
3. Commercial paper (CP): thương phiếu
Những giấy nhận nợ do các công ty có uy tín phát hành để vay vốn ngắn hạn từ
thị trường tài chính.
a. Discount security: Thường được phát hành theo hình thức chiết
khấu (bán với giá thấp hơn mệnh giá).
b. Issued by firms (with healthy credit rating) to finance short-term debt
(e.g. inventories, payroll needs, operating expenses)
c. Flexible maturities.
d. Rated according to default risk of issuing company.
e. Not secured by assets
f. Good secondary market.
 *Thương phiếu nguyên thủy (commercial bill) có 2 loại: hối phiếu đòi nợ (bill of
exchange) và hối phiếu nhận nợ (promissory note). Việc chuyển nhượng thương
phiếu được thực hiện bằng hình thức ký hậu
Issuers Mostly larger corporation
Buyers Mutual Funds
Pension Funds
Commercial Bank Trust Departments
State and Local Governments
Non Financial Corporations
Features (2) Short-term and Unsecured
The SEC does not require registration of 270 days
Commercial Paper with maturities less than?
3 credit rating companies Moody’s, S&P, and Fitch

The principal issuers of Commercial Paper Captive, Bank Related, and Independent
include? Finance Companies

How can Commercial Paper be sold in the Direct Paper and Dealer Paper
market?
Smaller and less well-known companies with True
lower credit ratings can issue commercial paper
with credit support?

4. Banker’s Acceptance: Chấp phiếu ngân hàng

A bankers acceptance is a time draft (hối phiếu) drawn by one party (the drawer)
on a bank (the drawee) and accepted by the bank as the bank’s commitment to
pay a third party (the payee) a stated sum on a specified future date. The bank
promises to pay the draft at maturity.

*Chấp phiếu ngân hàng (Banker’s Acceptance-BAs): là các hối phiếu kỳ hạn do
các công ty ký phát và được ngân hàng đảm bảo thanh toán bằng cách đóng
dấu “đã chấp nhận” lên tờ hối phiếu.
*Những người sở hữu chấp phiếu có thể đem bán chúng trên thị trường tiền tệ
với giá chiết khấu để thu tiền mặt ngay khi cần vốn.
+ Banks can provide credit to their customers without using the bank’s own
funds. This is done by creating a negotiable instrument with a specified maturity
date which can be sold at a discount to investors (Điều này được thực hiện bằng
cách tạo ra một công cụ có thể thương lượng với ngày đáo hạn cụ thể và có thể
bán với giá chiết khấu cho các nhà đầu tư)

5. Sale and Repurchase Agreement (REPO): Hợp đồng mua lại

Hợp đồng mua lại (Repurchase Agreement-Repo): là hợp đồng trong đó ngân
hàng bán một lượng tín phiếu kho bạc mà nó đang nắm giữ , kèm theo điều
khoản mua lại số tín phiếu đó sau một vài ngày hoặc một vài tuần với mức giá
cao hơn
- Banks selling one of their bonds to a deposit holding customer, with the
promise to buy it back at a specific date and price.
- Short-term borrowing tools of banks with T-bills as collateral
- Usually very short-term, from overnight to 30 days

6. Fed Funds: quỹ liên bang

- Overnight loans banks use to meet the reserve requirement at the end of
each day
 - Unsecured and are made at a relatively low interest rate.

7. Eurodollar (đồng đô la Châu Âu)

An eurodollar is U.S. currency held in banks outside the U.S. (typically in Europe)
*những đồng đôla Mỹ do các ngân hàng ngoại quốc ở bên ngoài nước Mỹ hoặc
những chi nhánh của ngân hàng Mỹ ở nước ngoài nắm giữ được gọi là đôla
châu Âu.

Practical
1. Prices of money market instruments undergo the least price fluctuations
because of: the short terms to maturity for the securities (giá trị của một
khoản nợ sẽ bị ảnh hưởng bởi lãi mà ngắn hạn thì tức giá sẽ không thay
đổi)
2. US Treasury bills are considered the safest of all money market
instruments because there is no risk of: default (phá sản)
*Notes: demarcation: phân ranh giới, cọc mốc
3. A debt instrument sold by a bank to its depositors that pays annual
interest of a given amount and at maturity pays back the original purchase price
is called: a negotiable certificate of deposit (chứng chỉ tiền gửi)
4. A short-term debt instrument issued by well-known corporations is
called: commercial paper
5. ……are short-term loans in which Treasury bills serve as collateral:
Repurchase agreements (chứng khoản xem như tài sản cầm cố)
*Notes: Federal funds (ngân hàng vay với nhau), US government
agency securities (not short-term)
6. Which of the following instruments is not traded in a money market?
Residential mortgages

TOPIC: FINANCIAL INTERMEDIARIES/ INSTITUTION

 Regulation of the Financial System
- To increase the information available to investors:
+ Reduce adverse selection and moral hazard problems
+ Reduce insider trading (SEC).
- To ensure the soundness of financial intermediaries:
+ Restrictions on entry (chartering process).
+ Disclosure of information.
+ Restrictions on Assets and Activities (control holding of risky assets).
+ Deposit Insurance (avoid bank runs).
+ Limits on Competition (mostly in the past):
+ Branching
+ Restrictions on Interest Rates
- Lower transaction costs (time and money spent in carrying out
financial transactions)
 +

Economies of scale
+ Liquidity services
- Reduce the exposure of investors to risk
+ Risk Sharing (Asset Transformation)
+ Diversification

Transaction Costs
In finance, transaction costs are all fees and commissions paid when buying or
selling securities, such as search costs, cost of distributing securities to
investors, cost of SEC registration, and the time and hassle (rắc rối) of the
financial transaction.
Chi phí giao dịch: time, effort and fee -> 3 methods:
+ Economic of scale: phục vụ cho nhiều người để giảm cost, tài khoản chứng
khoán liên kết với tài khoản tiền
+ Professional business: những người chuyên nghiệp (expertise) sẽ giúp tiết
kiệm thời gian công sức
+ Technology: e-wallet, online (FinTech, BTOB, BTOC, BTOBTOC, BTOCTOC)
Information Asymmetry (Asymmetric information): thông tin bất cân
xứng
Occurs when buyers and sellers do not have access to the same
information; sellers usually have more information than buyers -> một
người biết nhiều hơn người còn lại

Adverse Selection ( lựa chọn Moral Hazard (rủi ro đạo đức)

 nghịch)
Occurs when one party in a Occurs after the transaction (loan)
transaction has better information than takes place, when one party has an
the other party incentivize to behave differently once
an agreement is made between
parties
Before transaction occurs After transaction occurs
Potential borrowers most likely to Occur is borrowers engage in
produce adverse outcome are ones activities that increase the probability
most likely to seek loan and be that the borrower will default
selected
Có thể giao dịch với người xấu Hiểu về người mà mình giao dịch
nhưng đã dùng tiền đó sai mục đích -
> hậu quả là mất tiền
Why would a business owner take on additional risk that would increase
the firm’s probability of default? The reason is that owners (borrowers) share
dispro-portionately in the upside gains while the lenders share disproportionately
in the downside losses. To see this, note that a lender (the bank) is no better off
whether the firm makes a small profit or a huge profit. In either situation, the
payment to the bank is the same—limited to interest plus the repayment of
principal. The owners are much better off if the firm is a huge success rather than
a modest suc- cess because the owners keep the additional profits. Also, if the
loan contract is for limited liability, the maximum loss the owner can incur is the
dollar amount of equity invested in the firm.
Vậy tại sao người chủ doanh nghiệp lại mạo hiểm với dự án mới và làm
tăng rủi ro phá sản của công ty thay vì giữ nguyên cam kết với ngân hàng
là đầu tư vào vốn lưu động? Lý do là vì khoản trả nợ cho ngân hàng (người
cho vay) luôn cố định bất kể doanh nghiệp (người đi vay) làm ra ít lợi nhuận hay
nhiều lợi nhuận. Do đó nếu mạo hiểm với các dự án rủi ro nhưng đem lại lợi
nhuận cao, ngân hàng chịu rủi ro mất vốn nhiều hơn trong khi lợi nhuận nếu đạt
được nhiều hơn thì doanh nghiệp là người thụ hưởng.
Ngân hàng và các định chế tài chính trung gian là các chuyên gia trong việc giảm
thiểu chi phí giao dịch và chi phí liên quan đến vấn đề chênh lệch thông tin. Nếu
các định chế tài chính không thể tìm ra giải pháp hữu hiệu cho vấn đề chi phí
giao dịch và chênh lệch thông tin, họ sẽ hạn chế cho vay đối với các cá nhân và
doanh nghiệp nhỏ. Chi phí giao dịch và thông tin thường lớn đối với các cá nhân
và doanh nghiệp nhỏ, do đó họ thường tìm đến các định chế tài chính trung gian
trên thị trường tín dụng khi có nhu cầu về vốn (thị trường gián tiếp). Ngược lại,
đối với các doanh nghiệp lớn, do chi phí giao dịch và thông tin có xu hướng thấp
hơn, do đó họ có thể thực hiện các giao dịch tài chính trên thị trường trực tiếp.
The owner of a woodworking shop goes to a local bank for a business loan.
The company is in financial trouble and may fold unless the owner is able
to secure a loan for working capital. What is the owner to say when asked if
he can repay the loan?
Moral hazard is when one party can take risks knowing the other party will bear
the consequences. It describes the risk present when two parties don't have the
same information about actions that take place after an agreement is in place.
The situation creates a temptation to ignore the moral implications of a decision:
doing what benefits you most instead of doing what is right.. For example, a
driver with an auto insurance policy that provides full coverage, accident
forgiveness, and no deductible may exercise less care while driving than
someone with no insurance or a less generous policy because the first driver
knows the insurance company, not him, pays 100% of the costs if he has an
accident. In the business world, common examples of moral hazard
include government bailouts.
Imagine you rent a car and opt for the maximum insurance coverage possible.
Damaging the vehicle does not have significant negative consequences for you,
because the insurance company pays for repairs—or a replacement car—if
something happens.
Để giải quyết vấn đề lựa chọn nghịch hay tránh cho vay những đối tượng có rủi
ro cao này, ngân hàng phải thu thập càng nhiều thông tin càng tốt về các đối
tượng này. Tất nhiên, việc thu thập thông tin sẽ mất thời gian và chi phí và điều
này sẽ ảnh hưởng đến giá của khoản vay, tức lãi suất. Giả sử một ngân hàng
thiếu các thông tin tin cậy về khả năng trả nợ của khách hàng. Nếu ngân hàng
này đề ra mức lãi suất cho vay quá cao, những khách hàng “tốt” tức có khả năng
trả nợ sẽ không vay và tìm nguồn tài trợ khác, cuối cùng chỉ còn lại những khách
hàng “xấu” tức ít có khả năng trả nợ đồng ý với mức lãi suất cao của ngân hàng
đưa ra. Nếu lãi suất đưa ra quá thấp, danh mục cho vay của ngân hàng sẽ tràn
ngập khách hàng có rủi ro tín dụng cao và khả năng mất vốn do không thu hồi
được nợ của ngân hàng sẽ tăng lên. Kết quả là, nếu nguồn thông tin ở một thị
trường nào đó không sẵn có để thu thập hoặc không tin cậy ở mức chi phí hợp lý
thì ngân hàng sẽ quyết định không cho bất cứ khách hàng nào trong thị trường
đó vay. ủa người cho vay tại thời điểm khoản vay được cấp.

The Principal – Agent Problem / Agency Problem

Ownership & control: “the large corporation is owned by so many shareholders
that no single shareholder owns a significant proportion of the outside stock.
Therefore no single shareholder has the power to really control the actions of the
officers of the corporation”
Result of separation of ownership by stockholders (principlas: người chủ) from
control by managers (agents: người quản lý)

 The bulk of the dividends go to outside shareholders (phần lớn cổ tức

được chuyển cho cổ đông bên ngoài)
 All the major decisions are taken by the corporate officers (
 The outside shareholders are unable to control the corporate officers. (cổ
đông bên ngoài không thể kiểm soát các quan chức của công ty)
 The interests of the shareholders and the corporate officers diverge
significantly (lợi ích của các cổ đông và cán bộ công ty khác nhau đáng
kể)
Shareholders: Profit
Corporate Officers: Power, Prestige, Personal Wealth
Senior managers enrich themselves at the expense of the shareholders
Trách nhiệm của principal: not run the business, withdrawal maximize profit from
company
Trách nhiệm của agent: run the business

Tools to solve the problems arising from moral hazard (vấn đề

principal – agent)
- Monitoring (auditing):
+ equity contracts less desirable
+ công ty thường có ban kiểm soát kiểm tra ban giám đốc, ban quản trị để
báo cáo cho các cổ đông -> bảo vệ lợi ích người chủ
- Government regulation to increase information:
+ đưa ra luật rõ ràng -> đảm bảo hành vi người quản lý
+ laws to force firms to adhere to standard accounting principles (i.e., to
make profit verification easier); laws to impose penalties on people who
commit the fraud of hiding/stealing profits.
- Financial intermediaries active in the equity market: Quỹ đầu tư (chỉ định
đầu tư, ủy thác đầu tư hoàn toàn cho quỹ) trung gian giúp khách hàng
quản lý tiền
+ Venture capital firms (công ty đầu tư mạo hiểm) use the funds of their
partner firms to help entrepreneurs to start new businesses; in exchange
for the use of the venture capital, the firm receives an equity share (vốn cổ
phần) in the new business. • Venture capital firms have their people
participating in the management of the firm (i.e., easier profit verification
and thus lower moral hazard: xác minh lợi nhuận dễ dàng hơn và do đó
giảm thiểu rủi ro đạo đức). • Moreover, the equity in the firm is not
marketable (buôn bán to anyone except the venture capital firm (i.e.,
elimination of the free-riding of other investors: loại bỏ quyền tự do hưởng
lợi của các nhà đầu tư)).

- Debt contracts (không nhất thiết): chuyển từ hợp đồng đầu tư sang hợp
đồng cho vay (trả nợ cho công ty trước) -> lời ăn lỗ chịu
+ Equity (contracts claims on profits in all situations) ngược với Debt
contracts (independent from the profits of the firms)

Tools to solve moral hazard in debt contracts

- Net Worth and Collateral
- Monitoring and Enforcement of Restrictive Covenants
- Financial Intermediation – banks and other intermediaries have special
advantages in monitoring
Mặc dù hợp đồng nợ làm giảm mức độ rủi ro đạo đức so với hợp đồng vốn
nhưng chúng không giải quyết được vấn đề. Người đi vay có động cơ thực
hiện các khoản đầu tư rủi ro hơn người cho vay mong muốn: người đi vay
nhận được tất cả lợi nhuận từ khoản đầu tư rủi ro nếu họ thành công, nhưng
người cho vay sẽ mất phần lớn, nếu không phải tất cả, khoản vay của họ nếu
người đi vay thất bại. • Giải pháp cho vấn đề rủi ro đạo đức lại nằm ở các
trung gian tài chính. Tuy nhiên, các công cụ khác cũng có thể được sử dụng:
A. tạo ra sự khuyến khích-tương thích với hợp đồng nợ (tức là điều chỉnh các
khuyến khích của người đi vay và người cho vay), B. giám sát và thực thi các
giao ước hạn chế.
Although debt contracts reduce the amount of moral hazard in comparison to
equity contracts, they do not solve the problem. Borrowers (người đi vay)
have incentives to take investments riskier than lenders (người vay) would
like: borrowers get all the gains from a risky investments if they succeed, but
lenders lose most, if not all, of their loan, if borrowers fail. • The solution to the
problems of moral hazard lies again in financial intermediaries. However,
other tools also can be used: A. making debt contract incentive–compatible
(i.e., aligning the incentives of borrowers and lenders), B. monitoring and
enforcement of restrictive covenants.
Mặc dù hợp đồng nợ làm giảm mức độ rủi ro đạo đức so với hợp đồng vốn
nhưng chúng không giải quyết được vấn đề. Người đi vay có động cơ thực
hiện các khoản đầu tư rủi ro hơn người cho vay mong muốn: người đi vay
nhận được tất cả lợi nhuận từ khoản đầu tư rủi ro nếu họ thành công, nhưng
người cho vay sẽ mất phần lớn, nếu không phải tất cả, khoản vay của họ nếu
người đi vay thất bại. • Giải pháp cho vấn đề rủi ro đạo đức lại nằm ở các
trung gian tài chính. Tuy nhiên, các công cụ khác cũng có thể được sử dụng:
A. tạo ra sự khuyến khích-tương thích với hợp đồng nợ (tức là điều chỉnh các
khuyến khích của người đi vay và người cho vay), B. giám sát và thực thi các
giao ước hạn chế.
A. Investors are more likely to take on riskier investment projects when using
borrowed funds than when using their own funds. Thus the moral hazard
problem can be reduced by increasing the stake of personal net worth (the
difference between personal assets and liabilities).
Các nhà đầu tư có nhiều khả năng thực hiện các dự án đầu tư rủi ro hơn
khi sử dụng vốn vay hơn là khi sử dụng vốn của chính mình. Do đó, vấn
đề rủi ro đạo đức có thể được giảm bớt bằng cách tăng phần sở hữu trong
giá trị ròng cá nhân (sự khác biệt giữa tài sản cá nhân và nợ phải trả).
B. . A restrictive covenant (giao ước hạn chế) is a provision aimed at
restricting the borrower’s activity. There are four types of possible
covenants: 1. Those which discourage undesirable behaviour by the
borrower (i.e. not to undertake risky investment projects: không thực hiện
những dự án đầu tư rủi ro). Examples: – to use the debt contract only to
finance specific activities, such as the purchase of a fixed asset; – to
prohibit the firm from issuing new debt, or disposing of its assets; – to
restrict dividend payments if some ratios have not reached a critical level
(mức tới hạn); – to limit purchases of major assets or merger activities
C. 2. Those which encourage desirable behaviour from the lender’s point of
view. One example is a mortgage loan with a provision that requires the
borrower to purchase life insurance that pays off the loan in the event of
the borrower’s death.
D. 3. Covenants that keep collateral valuable (giao ước giữ tài sản thế chấp
có giá trị)
E. 4. Covenants that provide information about the activities of the borrowing
firm, such as quarterly accounting and income reports. The presence of
covenants reduces moral hazard problems and explains why debt
contracts are often complicated legal documents.
F. Covenants do not eliminate moral hazard problems: it is not possible to
rule out every risky activity. Moreover, covenants must be monitored and
enforced. Monitoring typically involves increasing returns to scale, which
implies that it is more efficiently performed by specialised financial
institutions. Individual lenders tend to delegate (ủy thác) the monitoring
activities instead of performing them directly. Thus the monitor has to be
given an incentive to do its job properly. • However, because monitoring
and enforcement are costly, investors can free-ride on those activities
undertaken by other investors. Thus in the bond market (as well as in the
stock market) the freerider problem arises. The consequence will be that
insufficient resources will be devoted to these activities. • Financial
intermediaries, and especially banks, can be seen to provide solutions
both to the incentive problem and to the free-rider problem.
G. Banks have a comparative advantage relative to direct lending in
monitoring activities in the context of costly state verification. In fact, they
have a better ability to reduce monitoring costs because of their
diversification. • Several conditions are required for delegated monitoring
to work: – existence of scale economies in monitoring, i.e., a typical bank
finances many projects, – small capacity of investors as compared to the
size of investments, i.e., each project needs the funds of several investors,
– low cost of delegation, i.e., the cost of monitoring the financial
intermediary itself has to be less than the surplus gained from exploiting
scale economies in monitoring investment projects.

Giao ước hạn chế là một điều khoản nhằm hạn chế hoạt động của người đi
vay. Có bốn loại giao ước có thể áp dụng: 1. Những giao ước ngăn cản hành
vi không mong muốn của người đi vay (tức là không thực hiện các dự án đầu
tư rủi ro). Ví dụ: – chỉ sử dụng hợp đồng nợ để tài trợ cho các hoạt động cụ
thể, chẳng hạn như mua tài sản cố định; – cấm công ty phát hành nợ mới
hoặc xử lý tài sản của mình; – hạn chế thanh toán cổ tức nếu một số tỷ lệ
chưa đạt đến mức tới hạn; – để hạn chế việc mua các tài sản lớn hoặc các
hoạt động sáp nhập
2. Những khuyến khích hành vi mong muốn theo quan điểm của người cho
vay. Một ví dụ là khoản vay thế chấp với điều khoản yêu cầu người đi vay
mua bảo hiểm nhân thọ để trả hết khoản vay trong trường hợp người đi vay
qua đời.
3. Các giao ước giữ tài sản thế chấp có giá trị.
4. Các thỏa thuận cung cấp thông tin về hoạt động của công ty đi vay, chẳng
hạn như báo cáo thu nhập và kế toán hàng quý. Sự hiện diện của các giao
ước làm giảm các vấn đề rủi ro đạo đức và giải thích tại sao hợp đồng nợ
thường là những văn bản pháp lý phức tạp.

Tools to solve Averse Selection (Lemons problem)

- Lemon problem: xuất hiện ở thị trường second-hand car -> User thường
định giá average giữa 2 giá của bad và good nên “lemon” được bán nhiều
hơn
+ Lemon: bad user car
+ Peach: good user car
- Private production and sale of information: free rider
+ Bên thứ 3 sản xuất và bán thông tin
+ Sẽ không còn hiệu quả nếu có vấn đề free rider vì DN sẽ bị mất revenue
và không sản xuất được nữa

- Government regulation to increase information

+ Minh bạch thông tin, công bố báo cáo tài chính để khuyến khích nhà sản
xuất

- Financial intermediaries
+ Nhà băng đứng giữa giải quyết
+ Commercial bank (huy động vốn và cho vay), customer dư tiền và muốn
cho vay -> mang tiền đến ngân hàng thương mại (thông tin minh bạch) ->
bank sẽ đem tiền mình cho người cần tiền vay -> bank đã giải quyết

- Collateral (tài sản thế chấp) and Net Worth (giá trị vẻ ngoài)
+ Vẻ ngoài tạo giá trị
 Tools to solve agency problem

Mutual fund: cty quản lý quỹ khác với Investment fund: quỹ đầu tư
Financial Intermediaries

Ở Mỹ, các định

chế tài chính phi
ngân hàng như
công ty bảo hiểm,
quỹ hỗ tương,
quỹ hưu trí và
các công ty tài
chính khác phát
triển rất mạnh (Krunt và Levine, 1999), do đó các công ty Mỹ tìm đến nguồn tài
trợ từ các trung gian phi ngân hàng này cũng là điều có thể giải thích được
Facts of Financial Structure
1. Stocks are not the most important source of finance for businesses.
2. Issuing marketable securities is not the primary funding source for
businesses.
3. Indirect finance (financial intermediation) is far more important than direct
finance.
4. Banks are the most important source of external finance.
5. The financial sector is among the most heavily regulated.
6. Only large, well established firms have access to securities markets.
7. Collateral is a prevalent feature of debt contracts.
8. Debt contracts are typically extremely complicated legal documents with
restrictive covenants.

- Financial institution definition

Financial institution (bank, credit union, finance company, insurance company,
stock exchange, brokerage company): middleman between those who want to
lend and those who want to borrow
Classify financial institutions into:
+ Bank and non-bank financial institutions
+ Depository and non-depository institution
+ Depository institutions, contractual savings institutions and investment
intermediaries
No need for financial intermediaries:
+ Costless transactions
+ Securities can be purchased in any denomination (giáo phái).
+ Perfect information about the quality of financial instruments
Reasons for financial intermediation
 - Gathering of Information
+ Intermediaries are efficient at obtaining information, evaluating credit risks,
and are specialists in production of information
- Asymmetric Information
+ Adverse selection and Moral Hazard
- Transaction costs
+ Cost of bringing lender/ borrower together
+ Reduced when financial intermediation is used
+ Relevant to smaller lenders/ borrowers
- Portfolio Diversification
+ Spread investments over larger number of securities and reduce risk
exposure
+ Option not available to small investors with limited funds
+ Mutual Funds – pooling of funds from many investors and purchase a
portfolio of many different securities

Depository Commercial banks  Raise funds by issuing checkable deposits, savings

institutions deposits, time deposits
(ngân hàng  Use funds to make commercial, consumer and
thương mại mortgage loans and to buy government securities/
có nghiệp vụ municipal bonds
nhận tiền  Gather small amounts of money from households
vay) and make (bigger) loans
Savings and loan  Obtain funds through savings deposits, time and
associations checkable deposits.
 Use funds to make mortgage loans and commercial
loans (often for small businesses)
Mutual saving banks Giống savings and loan associations
Credit unions  Small cooperative lending institutions organized
around a particular group: union members,
employees of a particular firm,...
 Acquire funds from deposits (called shares) and
make consumer loans
Contractual Life insurance  Insure people against financial hazards following a
savings companies death and sell annuities (annual income payments
institutions upon retirement)
(acquire  Acquire funds from the premiums that people pay for
funds at the insurance contract and use funds to buy
periodic corporate bonds, mortgages, and stock (restricted in
intervals on a the amount they can hold).
contractual Fire and casualty  Insure people against loss from theft, fire and
basis): tạo ra insurance companies accidents.
các hợp đồng  Acquire funds from the premiums that people pay for
để thu hút the insurance contract and use funds to buy
tiền municipal bonds (largest), corporate bonds and
stocks, government securities
 Have a greater possibility of loss of funds if major
disasters occur  buy more liquid assets than life
insurance compnaies
Pension funds, gvt  Provide retirement income in the form of annuities to
retirement funds employees who are covered by a pension plan.
 Acquire funds from contributions from employers and
employees (automatically deducted from paychecks
or contribute voluntarily).
 Use funds to buy corporate bonds and stocks
Investment Finance companies  Raise funds by selling commercial paper and by
intermediarie issuing stock and bonds
s  Lend funds to consumers and to small business.
 Gather big amounts of money and then lend small
amounts to consumers & SMEs
Mutual funds  Acquire funds by selling shares to many individuals
 Use funds to purchase diversified portfolios of stocks
and bonds.
 Investments in mutual funds can be risky
Money market mutual  Similar to mutual fund but also function as a
funds depoitory institution
 Sell shares to acquire funds and use to buy money
market instruments
 Shareholders can write checks against the value of
their shareholding
Investment banks  Not take in deposit and lend them out.
 Help a corporation issue securities:
 Which type of securities to issue
 Help sell (underwrite) the securities by purchasing
them from corporation at a predetermined price and
resell in the market.
  Act as deal makers and earn fees by helping
corporations in M&A deals

How does a mutual fund lower transactions costs through economies of

scale?
Answer: The mutual fund takes the funds of the individuals who have purchased
shares and uses them to purchase bonds or stocks. Because the mutual fund
will be purchasing large blocks of stocks or bonds they will be able to obtain
them at lower transactions costs than the individual purchases of smaller
amounts could.

CHAP 3: THEORY OF ASSET DEMAND

Factors Wealth  All economic resources that a person have
affecting  As wealth increases, the demand for financial
demand for assets also increases based on asset demand
assets elasticity related to wealth.
For example, the demand for shares of the Vietnam
stock market is 1.3 meaning that demand for shares
increases by 130% when investors' wealth increases
by 100%
 There are two types of financial assets:
necessity asset(elasticity < 1) and luxury asset
(elasticity > 1)
Expected return the rate that express how much people can earn
 when investing.
 A higher expected return results in an increase
in demand for assets (and demand for other
assets goes down)
 Formula for expected return:
e
R = ∑ p i x Ri
∑pi = 1
Re : expected return
Ri: expected return in each case (i)
pi: pribalbility in each case (i)
Risk uncertainty of asset’s expected return
 In financial market, most investors have risk
averse preference. Therefore, When the risk of
an asset goes up, demand for one asset goes
down, thus increasing demand for other assets
(other factors unchanged)
The riskier, the higher return
 Diversification:
“The issue is that why investors hold many risky
asset instead of only one?”
 One of the most important principle
in finance is that “Do not put all
eggs in one basket”
 When investors hold risky assets
that have opposite trend of
expected return, the risk of portfolio
can be decreased
 Risk can be classified into 2 types:
 Diversification risk
 Non-diversification risk
=> What is more important?
 The higher the non-diversification
risk, the higher the return
Liquidity the ability to transfer asset to cash easily and cost
low fee.
 If liquidity goes up, then demand goes up for
that asset, thus demand falls for the other
assets.
Example: there is two options:
 Buy 100 ounce gold with 34mil/ounce
  Buy one real estate with 3,4 billion.

Theory of
asset demand

The  Information:
relationship  Good or bad news can affect the decision of investors and other
between participants in the markets.
markets  The transparency (tiêu chí công khai minh bạch) is the most
important factors.
 Expectation:
 Expectation and behavior can affect the trend of markets.
 Price is not the most important factors affecting the investment
decision
 Asset demand theory is a dynamic model, there is a close relationship
between markets
Example: When there is a change in the price of oil-gold-USD, real estate –
stock market.

CHAP 4: INTEREST RATE

Interest rate is the price of using a unit of loan (usually money) over a given
period of time
Classificatio Banking business (căn cứ  Deposit rate (saving rate)
n based on vào nghiệp vụ ngân hàng)  Rate for loan (borrowing rate)
 Discount rate
 Rediscount rate
 Interbank interest rate
 Basic interest rate
The value of interest  Nominal interest rate: The interest rate
account for the nominal value of the
currency, not including the inflation rate.
Often published officially in credit
contracts or on debt instruments.
  Real interest rate: the interest rate
adjusted by change in expected inflation
rate.
 The relationship between nominal and
real interest rate is expressed by Fisher
equation:
 i = i r + πe
Where, i: nominal interest rate
ir : real interest rate
πe : expected inflation rate(*)
 When real interest rate is low, borrower
will have more incentive to borrow and
lender will have less incentive to lend
The flexibility of interest  Fixed rate
rate  Floating rate
Types of currency for  Domestic currency interest rate
lending  Foreign currency interest rate
The credit source  Domestic rate
 International rate

Valuatin Instruments of Simple loan A loan as a borrower will pay the lender the
g credit market (vay đơn) principal and an interest as the cost of using
interest the loan at maturity (vay trả gốc lẫn lại)
rate Example: borrow 100mil for 1 year, 10%/yr
borrowing rate. After 1 year, you have to pay
110mil (100mil as the principle and 10mil as
interest)
Fixed is the loan method by which the borrower
repayment repays the loan by paying the fixed amount
loan (vay hoàn after a fixed period of time throughout the loan
trả cố định) period. (trả góp mỗi kỳ)
Example: you borrow the bank 1bil to buy
house for 15 years and each year you have to
repay the bank 150mil (including part of
principle and interest)
Coupon bond Bond that pay interest as a coupon
(trái phiếu trả periodically until the maturity. At maturity, the
lãi định kỹ) bondholder will receive the face value of the
bond
 Example: Tinh Viet bond has a face value of
100tr, 10%/yr coupon rate, paid annually.
Discount bond a bond is sold at a price lower than the face
(zero coupon value. At maturity, the bondholder will receive
bond): trái the face value. This kind of bond does not pay
phiếu chiết coupon.
khấu Example: Treasury bond has a face value of
10mil, sold at a price of 9mil, 1 year maturity.
Time value of Simple interest  The interest rate is calculated on the
money FV=Px(1+i.t) principal only. The interest is not
included to the principle to calculate
interest for the next period.
 Used for credit contract with 1 year
maturity or shorter.
 Since simple rate is usually in the form
of % per annum, you want to calculate
the interest rate for a given term, first
calculate the term in how much part of a
year then multiply it with the simple rate.
For example: if the simple rate is 16%/yr then
the simple rate for 2-year is 32%, 6-month is
8%.
Example:
a. A credit contract
has a value of 100mil, 10%/yr simple interest
rate. Calculate the future value of the contract
at maturity if the maturity is 3-year, 3-month,
9-month.
b. Calculate the
simple interest rate applied for the credit
contract with the value of 10mil. Known that
the future value of the contract at maturity is
12tr. The maturity is 6-month and 1-year
c. Calculate the
present value od the credit contract, known
that the future value is 50mil, 12%/year simple
interest rate. The maturity is 1-month.
Compound  When loan contract has multiple periods
interest (lãi of interest, the interest accrued in the
suất kép) preceding period is added to the
 FV = P x (1 + principal for interest calculation for the
i/n)n.t next period, the method of calculating
such interest is called the compound
interest rate.
 Usually applied for long term contract
(longer than 1 year)
Example:
a. A customer buy a bond with 2-year
maturity, 12%/year compound interest
rate. Interest is paid each 6-month.
What is the future value the customer
receive?
b. If you want to have 1bil after 30 years,
how much you have to save today.
Known that the compound interest rate
of the bank is 10%/year.
Effective value  The real interest rate arises in a year,
of money depending on the nominal interest rate
ief = (1+i/n)n -1 stated in the contract and the number of
period interest paid in one year
ief: effective Example: Calculate the effective interest rate
interest rate if the interest is paid each 6-month, 3-month,
(%/year) 1-month known that the nominal interest rate
stated in the contract is 12%/year.
i : nominal
interest
rate(%/year)

Yield to Simple loan - For compound interest: yield to maturity

maturity (An equal to nominal interest rate of the
interest rate loan.
that makes - For simple interest:
the present (1 + i.t) = (1 + i*)
value of future Where,
income i: nominal interest rate
(including i*: yield to maturity
principal Fixed P = C/i* x [ 1 – 1/(1+i*)t ]
ainterest) repayment Where,
equal to the loan P: present value
price of an C: fixed repayment annually
 instrument) i*: yield to maturity
t: maturity

Coupon bond P = C/i* x [ 1 – 1/(1+i*)t ] + FV/(1+i*)t

Where,
P: price of bond (present value)
C: coupon
i*: yield to maturity
t: maturity
FV: face value of bond
 Perpeptuity:
i* = C/P
 Note: nominal rate of bond calculated
as follow
i = C/FV
Zero coupon FV = P (1 + i*)t
bond (discount Where,
bond) FV: face value of bond
P: discounted price of bond
i*: yield to maturity
t: maturity

Theories Loanable funds framework (việc Liquidity preference theory (tính

cho vay) thanh khoản)
Phân tích We have money: put into bank or  In this theory, equilibrium
factor ảnh buy bond (đều là cách lend our interest rate is defined by
hưởng đến money) supply and demand of money
demand, Money interest rate tăng -> bỏ tiền (cash).
supply để vào bank hấp dẫn hơn -> bond  Main assumption: people use
biết được price sẽ giảm do ế only two main assets: bond
lãi suất MIR là tỷ suất lợi nhuận -> đem and cash as reservation.
tiền ra thị trường để kiếm được lợi  Money does not have return
nhuận như vậy là cơ sở để đòi hỏi and bond has return rate equal
tỷ suất để đòi bond to interest rate.
Money supply is controlled by
Central Bank.
Note Buyer of the bond (lender) Thuyết về nhu cầu giữ tiền mặt trong
 + Demand of bond = Supply of người
bond Cash is the most liquidity asset,
+ Demand of loan = Supply of loan cannot create return profit
Tài sản đại diện cho nợ: bond -> Bond can return profit
nó negative relationship with MIR Ms chỉ thay đổi bởi nhà nước nên
song song với trục IR, còn Md giảm

Shift in + Wealth tăng -> Demand bond + Income effect: Tăng thu nhập ->
demand tăng -> Bond price tăng -> MIR Md tăng -> IR tăng
curve tăng + Price level effect: Mức giá bán
+ Relative risk tăng -> Demand ngoài xh tăng -> Md tăng -> IR tăng
bond tăng -> Price giảm -> MIR
tăng
+ Relative liquidity tăng ->
Demand bond tăng -> Price tăng -
> MIR giảm
+ Expected return: Market rate
and Inflation rate
Shift in + Investment profitability (đầu tư Phụ thuộc vào quyết định của
supply sinh lời) tăng -> Demand to Central Bank
curve borrow tăng -> Supply tăng -> + Khủng hoảng thì lãi cao (đứt gãy
Price giảm -> Profitability tăng -> nguồn cung)-> DN muốn nhưng
IR tăng không làm được vì thiếu tiền -> bank
+ Expected inflation rate tăng -> sẽ đưa lãi cao nhằm hút tiền từ dân
Lạm phát sẽ giúp DN vì thu nhập rồi -> bơm vào cho nhà sx
ngoài kỳ vọng sẽ bù cho tiền lãi trả + Suy thoái thì lãi thấp (giảm nguồn
ngân hàng -> Supply of bond tăng cung)-> DN không có khả năng tăng
-> Price giảm -> IR tăng sx mặc dù có tiền -> DN không có
+ Budget deficit tăng -> Gvt issue nhu cầu vay -> bank sẽ cho lãi giảm
more bond -> Supply of bond tăng để không hút tiền của dân
-> Price giảm -> IR tăng
Factors + Expected inflation tăng:
affecting cả Demand (người cho vay) giảm ->
hai demand Price giảm -> IR tăng
và supply Supply (người đi vay) tăng ->
Price giảm -> IR tăng
=>P giảm, i tăng; Q new unknown
+ Economic growth tăng:
Demand: Wealth tăng -> D tăng ->
P tăng -> IR giảm
 Supply: Invest opportunity tăng ->
S tăng -> P giảm -> IR tăng
=>Q new tăng; P,i unknown
If you think MIR tăng trong tương lai -> not buy bond now because price of
bond and MIR have negative relationship -> demand bond giảm -> Price
bond gaimr -> giá thị trường tăng
Expected inflation rate tăng -> Real interest rate giảm because nominal
interest rate not change dưa vào Fisher equation: Nominal = Real +
Expected inflation
“Increase in money supply will always lead to the decrease in interest
rate?” Right or Wrong
Answer: No. Xem xét lạm phát tăng nhanh hơn nguồn cung hay không vì
ngoài liquidity effect làm giảm interest rate thì 3 yếu tố còn lại (income
effect, price level, expected inflation effect) làm tăng interest rate. Trong
ngắn hạn thì i giảm nhưng trong dài hạn thì không biết
Tăng cung tiền:
+ Tăng liquidity -> tiếp cận khách hàng -> giảm i vì kiềm chế lạm phát
+ Tăng income, price level, expected inflation effect -> tăng i
 We will have three following cases:
- Liquidity effect is larger than other effects
- Liquidity effect is lower than other effects and expected inflation
effect is adjusted slowly
- Liquidity effect is lower than expected inflation effect and expected
inflation effect is adjusted quickly
 Recent research stated that increase in money supply will lead
interest rate decrease in short term

CHAP 5: FOREIGN EXCHANGE MARKET

 Foreign exchange rate is defined by value of one currency on value
of another currency.
  Based on the management of currency, we have standardized
exchange rate and open market exchange rate (OTC)
 Based on timing of transaction: open and close exchange rate.
 Types of transaction: spot and forward.
 When one currency increase value, we call it appreciation and
depreciation as reverse
 Role of exchange rate: when a domestic currency appreciates, goods
and services of country will be more expensive and those of foreign
countries will be cheaper (benefit of import). Thus, when a domestic
currency depreciates, export will be better.
 2.1. Law Of One Price: the price of a given security, commodity or
asset has the same price everywhere when exchange rates are taken
into consideration..
 2.2. Purchasing power theory (PPP): two currencies are in
equilibrium or at par when a basket of goods (taking into account the
exchange rate) is priced the same in both countries.
Long run
 Main point: any factor that increases demand of domestic goods
relative to demand of foreign goods will make domestic currency
appreciate and vice versa.
 4 main factors: relative price level, tax barrier and quota restriction,
preference between domestic and foreign goods, country productivity.
+ Relative price level (mức giá): Tăng thuế xuất, giảm hạn ngạch -> sử
dụng đồng tiền Việt nhiều hơn
+ Tax barrier and quota restrictions: tăng -> import giảm
+ Import demand: Import tăng -> tăng giá trị đồng tiền nước ngoài
+ Country productivity: Tăng -> người dân giàu -> dùng ít tiền mu asp
Short run
+ Inflation: Vd USA: 2% -> 4%: tăng gấp đôi
 VN: 6% -> 9%: tăng 50%
=>USA giá mắc hơn -> đồng Mỹ giảm giá trị
+ Interest rate: Vd trên
=>USA lãi nhiều hơn -> đồng Mỹ tăng giá trị
3 giá trị tỷ giá:
+ Fixed exchange rate system: Trung Quốc
+ Floating exchange rate system: bank không kiểm soát tỷ giá thay đổi
theo thị trường -> tạo điều kiện có thể bị đánh sập giá trị của một đồng tiền
+ Combination system (hành lang tỷ giá): ấn định giá trần giá sàn nếu vượt
mức gvt sẽ can thiệp -> giữ giá trị nằm trong hành lang tỷ giá nhưng không
phải là fix vì sẽ ảnh hưởng đến xuất nhập khẩu