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FINANCING ORGANIZATIONS MSC NGO THI HANG Course outline Lecture Topic Readings Introduction Chapter 1 + 2 Fundamentals of Financial institutions Chapter 7 + 8 + 5 + 6 Central bank and Monetary policy Chapter 9 + 10 + 8 + 9 Commercial Banks Chapter 17 10 + 11 Financial regulation Chapter 18 + 3 12 Mid-‐term exam 13 + 14 +15 Mutual Fund, Hedge Fund and ETF Chapter 20 16 + 17 Insurance Companies and Pension Funds Chapter 21 18 + 19 Investment banks and Venture Capital firms Chapter 22 20 + 21 Group presentation 22 Course Review Materials • Lecture PPT slides • Text book: Financial Markets and Institutions (8th Edition) – Frederic S Mishkin, Stanley G Eakins Pearson, 2015 • Readings: will be provided before each lecture Advisors: MSc Ngo Thi Hang Email: ngohang@hvnh.edu.vn Assessment • Participation: 10% • Mid-‐term test: 20% • Group assignment: 15% • Presentation: 15% • Final exam: 40% Lecture 1+2+3 Introduction and fundamentals of Financial institutions MSC TUAN LE (THOMAS) Main content Why study financial institutions? Overview of financial institutions 2.1 Overview of Financial system 2.2 The importance of FIs 2.3 Types of FI 2.4 Regulation of the Financial system Why do financial crises occur? PART 1 WHY STUDY FINANCIAL INSTITUTIONS? What is Financial Institutions? a financial institution is an institution that provides financial services for its clients or members • One of the most important financial services provided by a financial institution is channeling of funds in the economy • The financial institution acts as a financial intermediary Why study Financial Institutions? • Financial institutions make financial system work • Without FIs, funds could not be transferred from those with savings (fund providers/savers) to those who have investment projects and are in need (fund users/spenders) à They thus play a crucial role in improving the efficiency of the economy vs Why study Financial Institutions? • FIs are among the largest employers in the world and frequently pay very high salaries • Knowing how financial institutions are managed may help you get a better deal when you need to borrow from them or if you decide to supply them with funds 10 Moral Hazard • Agency problem (debt market): Suppose you lend Mr Thomas $9,000 (with 10% interest rate) to set up his business of an ice-cream shop in banking academy Instead of concentrating on the main business, Thomas use it on an innovation of ice-cream that never melt (riskier project) You may decide not to make the loan ØIf Thomas succeeds: You only get 10%, Thomas gets a lot more ØIf Thomas fails: You loss $9,000 36 Tools to solve Moral Hazard (Debt) 37 Asymmetric information 38 Asymmetric information • How do FIs help reduce asymmetric information? ØExpertise in screening out bad credit risks from good ones (reduce loss from adverse selection) ØExpertise in monitoring the borrowers/fund users (reduce loss from moral hazard) 39 Types of FIs 40 Regulation of the FIs • The financial system is among the most heavily regulated sectors of the American economy • The government regulates financial markets for two main reasons: • to increase the information available to investors, and • to ensure the soundness of the financial system 41 PART 3 Why do Financial crises occur ? What is Financial crisis? A financial crisis occurs when an increase in asymmetric information from a disruption in the financial system prevents the financial system from channeling funds efficiently from savers to households and firms with productive investment opportunities 43 Dynamics of Financial Crises in Advanced Economies Stage 1 • Initiation of Financial Crisis Stage 2 • Banking Crisis Stage 3 • Debt deflation 44 45 Dynamics of Financial Crises in Advanced Economies • Typical crises: • The Great Depression 1929 – 1933 • The Global Financial Crisis 2007-‐2009 46 Dynamics of Financial Crises in Emerging Economies Stage 1 • Initiation of Financial Crisis Stage 2 • Currency Crisis Stage 3 • Full-‐Fledged Financial Crisis 47 Dynamics of Financial Crises in Emerging Economies • Typical crises: • Financial Crises in Mexico, 1994–1995; • East Asia, 1997–1998; • Argentina 2001–2002 49 Thank you ... securities in the Seasoned-Equity Offering 20 21 Function ? ?of ? ?FIs • List ? ?of fact to be explained later: Stocks are not the most important source ? ?of external financing Marketable... loss from moral hazard) 39 Types ? ?of ? ?FIs 40 Regulation ? ?of the ? ?FIs • The financial system is among the most heavily regulated sectors ? ?of the American economy • The government... decentralize market (no physical location) 17 Markets and ? ?FIs that involve 18 Function ? ?of ? ?FIs: Indirect finance • The process ? ?of indirect finance using financial intermediaries,