9/09/2023

INTRODUCTION TO
FINANCE AND
BANKING
Tran Ngoc Thanh
[email protected]

Learning 0bjectives
● To examine how the workings of financial markets such
as bond, stock and foreign exchange markets affect your
everyday life.
● To examine how financial institutions work.
● To examine the role of money in the economy.
● Identify the basic links among monetary policy, the
business cycle, and economic variables.

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TIMELINE
Lesson 1 Why Study Money, Banking, and Financial Markets?

Lesson 2 What is money

Lesson 3 An Overview of the Financial System

Lesson 4 The Meaning of Interest Rate

Lesson 5 The Behavior of Interest Rate

Lesson 6 The Risk and Term Structure of Interest Rate

Lesson 7 Central Bank

TIMELINE

Lesson 8 Commercial Banks

Lesson 9 The Money Supply Process

Lesson 10 The Foreign Exchange Market

Lesson 11 International finance

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MATERIALS

MATERIALS

MAIN MATERIALS Mishkin, F. S., (2015). The Economics of Money, Banking and Financial
Markets, 11th Edition, Pearson Addison Wesley, Boston

REFERENCES Roger LeRoy Miller, David D. VanHoose .- Money, banking, and

financial markets /.- 3rd ed.- Mason, MN : Thomson South-Western
West, 2007.- xxii, 511, [39] p. : ill. ; 24 cm (33.2.1).

PGS. TS. Sử Đình Thành và TS. Vũ Thị Minh Hằng, 2008, Nhập môn
Tài chính – Tiền tệ, NXB Lao Động Xã Hội

BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC KINH TẾ - TÀI CHÍNH
THÀNH PHỐ HỒ CHÍ MINH

The Economics of Money, Banking,

and Financial Markets

Chapter 1: Why Study Money, Banking,

and Financial Markets?

TRẦN NGỌC THANH

[email protected]

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Đại học Kinh tế - Tài chính thành phố Hồ Chí Minh
www.uef.edu.vn
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Table of contents

01 Financial Markets
& Securities 02 Financial Institutions
& Banking

03 Money &
Monetary Policy 04 Foreign Exchange Markets
& International Finance

Financial Markets
Financial markets are markets in which …… are …… from
people and firms who have an excess of available funds to
people and firms who have a need of funds.

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Financial Instrument - Security

● Financial instrument/ Security is a claim on the

issuer’s future income or assets.

Bond Stock

Bond Market & Interest Rates

● A bond is a ……. security that promises to make fixed

payments periodically for a specified period of time.
● An interest rate (coupon rate) is the cost of borrowing
or the price paid for the rental of funds.

Bond (intrest)
Bond issuer Bond Holder
(Borrower) (Lender)

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The Bond Market & Interest Rates

WHAT IF THE INTEREST RATE INCREASES

FROM 10% TO 20%?

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Face value

Maturity Time Interest/ coupon rate

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Bond Market & Interest Rates

Figure 1 Interest Rates on Selected Bonds, 1950–2017

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Stock Market

● Stock represents a share of ownership in a corporation.

● Share of stock is a security that claims on the residual
earnings and assets of the corporation (commonly know as
stock)

Stock (dividend)

Share issuer Shareholder

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Financial Intermediaries/Institutions

● Financial intermediaries: ……. that borrow funds from people

who have saved and in turn make loans to people who need
funds.
○ Banks
○ Other financial institutions: finance companies, insurance
companies, pension funds, mutual funds,...

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Financial Innovation & Financial Crises

● Financial innovation: the development of new financial

products and services
○ Fintech (online banking), AI technology.
○ Crypto finance with blockchain.

● Financial crises: major disruptions in financial markets that

are characterized by sharp declines in asset prices and the
failures of many financial and nonfinancial firms.

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Money Supply & Inflation

● Money supply is the sum of currency and other liquid assets in

a country's economy
● The aggregate price level (price level) is the …… price of
goods and services in an economy
● Inflation is a continual ………. in the price level.
● Inflation rate is the percentage change of the price level
(usually measured per year)

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Money Supply & Inflation

Figure 4 Aggregate Price Level and the Money Supply in the United States,
1960–2017

Increase in the
money supply might
cause ……

Source: Federal Reserve Bank of St. Louis, FRED database: https://fred.stlouisfed.org/series/M2SL;

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Money & Business Cycles

● Aggregate output is the

total production of goods
and services in the
market (usually
calculated by the gross
domestic product - GDP)
● Business cycles are the
upward and downward
movement of aggregate
output produced in the
economy

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Money & Business Cycles

Figure 3 Money Growth (M2 Annual Rate) and the Business Cycle in the
United States, 1950–2017

Money growth
…… before
almost every
recession

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Monetary Policy

● Monetary policy is the management of the money supply

and interest rates
● Conducted by the central bank

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Fiscal Policy

● Fiscal policy deals with government spending and taxation

● Conducted by the Government
● Budget deficit is the excess of expenditures over revenues
for a particular year.
● Budget surplus is the excess of revenues over expenditures
for a particular year.

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Fiscal Policy
Figure 7 Government Budget Surplus or Deficit as a Percentage of Gross
Domestic Product, 1950–2016

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Foreign Exchange Market

● The foreign exchange market: where funds are converted

from one currency into another
● A change in the exchange rate affects consumers and
businesses.

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Foreign Exchange Market

Figure 8: The Exchange Rate and Consumer Prices in Australia from 1995 to 2011

Source: Reserve Bank of Australia. https://www.rba.gov.au/publications/bulletin/2011/sep/2.html

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International Finance

● Financial markets have become integrated throughout the world =>

International financial system.
● The international financial system has impact on domestic economies.

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Other terms

● Aggregate income, the total income of factors of production (land,

labor, and capital) from producing goods and services in the economy
during the course of the year, is equal to aggregate output.
● Nominal GDP: GDP measured with current prices (compared periods in
the same year)
● Real GDP: GDP measured with constant prices, thus eliminating any
distortion caused by inflation (compared among different years)

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THANK YOU FOR

LISTENING!
Do you have any questions?
[email protected]

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