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Unit 1 Economics 1 Definitions Economics is the study of how people choose to use resources Economics is the study of the production and consumption of goods and the transfer Resources include the tim.
Unit 1: Economics Definitions - Economics is the study of how people choose to use resources - Economics is the study of the production and consumption of goods and the transfer - Resources include the time and talent people, land, building, equipment and so on and the knowledge of how to combine them + Resources is limited 2 types of economics - Microeconomics : focuses on the actions of individual and industries, like the dynamics between buyers and sellers, borrowers and lenders - Macroeconomics: analyzing the economic activity of an entire country or the international marketplace Theories Adam Swith’s theory Marxism theory Theory of Keynesian School - Swith believed that people who atced in their own selfinterest produced goods and wealth that benefited all of society - He believed that government should not restrict or interfere at maxium Why: They could regulate themselves and, thereby, produce wealth at maxium efficiency - State that capitalism will eventually fail - He believed that such exploitation leads to social unrest and class conflict - He theorized laborers should own and control the means of production - Describes how government can act within capitalistic economics to promote economic stability - Calls for reduced taxes and increased government spending when the economy becomes stagnant, and increased taxes and reduced spending when they economy becomes overly active - This theory strongly influences U.S economic policy today Role of economics - Economics shape the world - Through economic, people and countries become wealthy - Styding economics can help one understand human thought and behavior Questions: What does economics study? What are some main idea’s of Adam Swith’s theory? What are some main idea’s of Mark’s theory? What are some main idea’s of Keyness’s theory? Unit 2: Economics systems Free market economy -Free market system is an economics system in which the market is regulate by the law of supply and demand -Business firms compete freely -No direct government intervention -Government influence the economy though its fiscal and budgetary policies Planned economy Planed economy is an economic system where by the structure of the market is deliberately planned by the state -There is no real competition - Production and consumption quotas are fixed before hand - Direct government intervention Mixed economy Mixed economy is an economics system in which some goods and service are produced by the government and some by private enterprise - It lies between the market economy and the planned economy - Most economics now are mixed Questions: What is a market economy? What is a planned economy? What is a mixed economy? What are differences between a market economy and a planned economy? Free mark economy + The market is supposed to be regulate by the law of supply and demand + Free competition + No direct government intervention Planned economy + Is deliberately planned by the state + No real competition + Direct government intervention Unit 3: Microeconomics Microeconomics is a branch of economics that deals with the how consumers and firms behave while making decisions on the allocation of scarce resources Limits: + Limited incomes + Limited number of hour in a week + Limited budget Allocation decisions: + In a planned economy: Allocation decisions are made mostly by the government + In modern market economics: consumers, workers, and firms have much more flexibility and choice Making optimal trade-off * Consumer theory describes how consumer, based on their preferences maximize their well-being by making some trade-off -Trading-off the purchase of more of some goods with the purchase of less of others - Trading- off current consumption for future consumption * Works - Trading-off working now with continued education - Trading-off their choice of employment (working for small companies or large corporations) - Trading-off labor for leisure * Firms - Trading-off producing some kinds of products instead of the orthers - Trading-off hiring more workers, building new factories or buy new machines Theory of firm describes how these trade-off can be best made by firms The role of price - All of the trade-offs made by consumers, workers, and firm are based on the prices - How are prices determined? + In a centrally planned economy, prices are set by the government + In a market economy, prices are determined by the interration of consumers, workers, and firms The contral role of markets The interaction of consumers, workers, and firms in market detemine the price of a good Questions: What does microeconomics study? What are trade-off made by consumers? What are trade-off made by workers? What are trade-off made by firms? Unit 4: Macroeconomics Monetary policy: sách tiền tệ Fiscal policy: sách tài Economic landscape: bối cảnh kinh tế Supervise : giám sát, quản lý Open market operation: hoạt động thị trường mở The ministry of finance : Tài Government spending : chi tiêu phủ Definition Macroeconomics is a branch of economics that studies the economic activity of an entire country and economy wide phenomena The goal of macroeconomics Bird’s eyes Provide Marco view of country’s Economic growth economic landscape Inflation And so on Two main macroeconomic policies Monetary policy - Control a nation’s money supply Fiscal policy - Control a government’s revenue and spending - Is in the hand of the ministry of finance - Main tools are government spending and taxation - Is supervised by each country’s central bank - Main tools are reserve requirement discount rate, and open market operations The basic objectives of these main macroeconomis policies are: - To promote economic growth: thúc đẩy tăng trưởng kinh tế - To keep inflation under control: giữ lạm phát tầm kiểm soát Differences between Micro and Macro Micro - Is the study of individual and business decisions - Focus on supply and demand and other forces that determine the price Macro - Look at higher up country and government decisions - Centerson economy-wide phenomena such a GDP, national income, inflation, etc,… - Take a top-down approach: Tiếp cận từ xuống - Take a bottoms-up approach: Tiếp cận cách chi tiết Relationship between Micro & Macro - They are interdependent and complement one another - They provide fundamental tools for any finance professional Questions What does macroeconomics sudy? What are difference between micro and macro Unit 5: Demand and supply A What is Demand? All quantities of goods and services buyers are willing and able to buy at various prices Demand describes how price influences buyers behavior - If the price increases, the quantity a buyer will purchase will decrease - If the price decreases, the quantity a buyer will purchase will increase Shift factors of demand - Society’s income - Prices of other goods - Expectation - Tastes The demand curve * A change in price causes a movement along a give demand curve A decrease in price will increase the quantity demand * A change in one of the shift factors will shift the demand curve to the left or to the right A change in income Demand increases or decreasesDemand curve moves to the right or left When society’s income is higher, buyer are willing and able to buy more Demand will increase, the demand curve shifts to the right On the other hand, when society’s income is lower, buyer are willing and able to buy less Demand will decrease, the demand curve moves to the left B What is supply? The seller will be influenced by price when deciding how much to sell at various prices - As the price of a good or service rises, the quantity supplied will increase - As price decreases, the seller will produce less and the quantity supplied will decrease The shift factors of supply - Change in prices of inputs - Technology - Taxes - Supplier’s expectations The supply curve * A change in price causes a movement along a give supply curve + Price increase causes quantity supplied increase + Price decrease causes quantity supplied decrease * A change in one of the shift factors will shift the supply curve to the left or to the right A change in prices of inputsSupply decreases or increases Supply curve moves to the right or left When the price of inputs increases, producers are willing and able to produce less, supply will decrease As the result, the supply curve will move to the left On the other hand, when the price of inputs decreases, producers are willing and able to produce more Supply will increase, the supply curve will move to the right Demand (Supply) -All quantities of good and service buyers (sellers) are willing and able to buy (sell) at various prices - Is influenced by a change in one of shift factors Quantity demand (Quantity supply) - The specific quantity of good and service buyers (sellers) are willing and able to buy (sell) at a certain price - Is influenced by a change in price Shift factors change Make the entire demand/supply curve move to the right or to the left Price change Cause a movement along a give demand/supply curve Equilibrium: Điểm cân - Equilibrium is a situation in which there is no tendency for change - Make in equilibrium when there is no reason for the market price of product to rise or to fall - It occurs where quantity demanded equal quantity supplied Questions: How does the price of a good influence its quantity demand and quantity supplied? What are shift-factors of demand? Analyzing one of shift-factors? What are shift-factors of supply? Analyzing one of shift-factors? Unit 6: Public finance face value: mệnh giá in trái phiếu, cổ phiếu federal debt: Nợ liên bang Public Finance is concerned with how a government can rise and spend its funds Federal Budget Federal Budget is the amount of money that is avaible for a federal government to spend in a particular year - Federal tax revenues mainly come from major sources + Individual income taxes: thuế thu nhập cá nhân + Payroll taxes: thuế sử dụng lao động + Corporate income taxes: thuế thu nhập doanh nghiệp Individual income taxes A tax paid by people on the money they earn Corporate income taxes A tax that a company has to pay on its profits Federal funds Payroll taxes A tax imposed on wages, salaries of employees and employers Trust funds - Federal funds are general revenues wich include income taxes and corporate taxes - Fund the government in general - Trust funds are shaped by payroll taxes - Pay for very specific programs such as social, Security and Medicare Borrowing When? When the government spends more money than its takes in from tax revenue 10 Why? Beacause they want to make up the difference How? By issuing and selling treasury bonds or other types of securities What is the treasury bond? Treasury bond is a debt security, issued by the government of a nation - Anyone can buy - It has fixed interest rate - The price of a bond is less than the worth and a bond is mature on the date at which it is worth its face value Federal Debt What is the Federal Debt? The federal debt is the sum of the debt held by the public plus the debt held by federal account Debt held by the public - Debt held by the public is total amount the government owens to all of its creditors in the general public - Creditors: + International investors + Domestic private in vestors + Federal reserve bank + State and local government - Two-Thirds of the federal debt is debt held by the public Debt held by federal account - Debt held by federal account is the amount of the money that the treasury has borrowed from itself - Creditors: Itself - One-Third of the federal debt is debt held by federal account Questions: What are two types of funds from taxation? What is the federal debt? What are main sources of government revenues? 11 Unit 7: Fiscal policy shrinks = Slow down: Definition Fiscal policy is a government policy related to taxation and public spending Aims Maintain: + Economic growth + High employment + Low inflation Tools - Government spending Increase spending Create jobs Create income People spend more on purchase Economy grows - Taxation Increase taxes Less income People spend less on purchase Economy shrinks Types - Expansionary fiscal policy: CSTK nới lỏng + Definition: Fiscal policy is expansionnary when taxation is reduced or public spending is increased + Expansionary fiscal policy might occur when a government feels its economic is not growing fast enough or unemployment is too high + Aims: It’s used to create jobs, increase spending & demand and develop the economy 12 - Contractionary fiscal policy: CSTK thắt chặt + Definition: Fiscal policy is contractionary when taxation is increased or public spending is reduced + Contractionary fiscal policy might occur when a government feels its economy is growing too fast or inflation is high + Aims: It’s used to decrease spending & demand, put pressure on price and slow down the economy What? Expansionary fiscal policy Contractionary fiscal policy when taxation is reduced or public when taxation is increased or spending is increased public spending is reduced When? The economy is not growing fast enough or unemployment is too high The economy is growing too fast or inflation is high What for? Create jobs, increase spending & Decrease spending & demand, demand and develop the economy put pressure on price and slow down the economy Factors * Inside factors: - The level of economic growth or unemployment likely in the future - Whether or not to run a budget deficit - Political considerations * Outside factors: - Fiscal policies of other countries - The requirements of IMF Deficit spending 13 Deficit spending is spending funds obtained by borrowing or printing instead of taxation Deficit spending is helpful Deficit spending is harmful + When unemployment is high or + When unemployment is low or the economy is slowing down economy is overheating • Government undertakes project to • A deficit may result in rising price create jobs or inflation • More money is being pumped • Additional government spending into the economy, the economy creates more competition for will then expand scarce workers and resources Deficit spending can be financed in ways: By borrowing If the government borrows money, the interest rate may rise Printing more money If the government prints more money, price and inflation may rise Questions: In what way (How) government spending and taxation affect the economy? What is deficit spending? How is deficit helpful or harmful for the economy? What is expansionary fiscal policy? What is contractionary fiscal policy? What factor should be considered in making decisions on the fiscal policy? Unit 8: Taxation a compulsory fee: Expenditure: Undeclare: không công khai Tax-deductible: khấu trừ thuế 14 Definition of taxation Taxtion is a compulsory fee that individuals or corporations must pay to the government Functions Main functions - Raise revenus to finance government expenditure Other functions: - Dissuade people from consuming some kinds of products - Encourage capital investment Advantages Disadvantages Progressive tax (income tax) is designed - Progressive tax is always high to redistribute wealth and income - Regressive tax (sales tax) is not really fair - Business profits are generally taxed twice Tax evasion Means making false or no declaration to the tax authorities sefl-employed people undeclare their income Many people undeclare their part-time jobs Avoiding tax on salary Tax avoidance means reducing the amount of tax you pay to a legal minimum To reduce income tax liability, employers give 15 - Perk highly paid employees lots of perks + Company cars + Free health insurance + Subsidized lunches - Tax shelters: individuals postpone the payment of tax through + Life insurance policies + Pension plans + Other investments - Tax-deductible: the income on which tax is calculated can be subtracted through + Donations + Charities Avoiding tax on profits - Tax loss: Companies bring forward capital enpanditure so that at the end of the year all profits have been used up - Laundering money (rửa tiền): Criminal organizations tend to pass money through a series of company in very complicated transactions to disguise its origin from the inspectors and the police - Tax havens: Multinational companies often sepup head offices in countries where taxes are low Questions: What are function of taxations? What are ways to avoid tax? - Way to avoid tax on salaries - Way to avoid tax on profits? 16 What are aways to evade tax? Unit 10: Insurance Definiton of insurance: Insurance is a financial arrangement that redistributes the cost of unexpected losses Role of insurance - Predict lossess in advance - Finance the cost of losses: bù đắp chi phí tổn thất - Redistribute the cost of losses in advance: phân phối lại chi phí tổn thất trước Operating principles of insurance: Nguyên tắc hoạt động bảo hiểm - An insurance system collects premium (phí bảo hiểm) from participants in the system - It gives a promis that the insured (người bảo hiểm) will be compensated (bồi thường) in the event of a loss - It redistributes the cost of losses from the unfortunate few members to all the members of the insurance pool (=fund) Benifits to the insured - The insured are relieved of the uncertainly about a loss - The insured are compensated when the loss actually occurs - If no loss occurs during a year, the insured still eliminate anxiety about a loss Insurance contracts - Insurance contracts are legal - Insurance contracts will enforce (khả thi) - Insurance contracts from a special class of contract in that the law requires parties to them, the insured and the insures, to exercise the utmost (tối đa) good faith towards each other (tin tưởng lẫn nhau) 17 Questions: How does the insurance system operate? (= What is the operating principle of insurance?) What benefits does the insured receive from the insurance system? Unit 11: Money and its functions - Concept of money: money is a commodity accepted by general consent as a medium of economic exchange - Function of money: + Medium of exchange + Measure of value: thước đo giá trị + Store of value: kho lưu trữ giá trị + Standard of Defferred Payment: bảng vị toán chậm A medium of exchange is anything that is widely accepted in payment for good and services and in settlerment (=payment) of debt - A as medium of exchange, money is used to exchange good and services - Money is the most commor medium of exchange Money as a Measure of Value - Money is used to measure value of goods and services in unit of account - The unit of account (đơn vị tính tốn) is the unit in which prices are quoted and account are kept Money as a store of Value Money is used to make purchase in the future 18 Money as a standard of Deferred Payment Money is used to settlerment debt/ pay for debt (thanh toán nợ) in the future Commodity Money - Is a useful good that services as a medium of exchange - The value of CM is about equal to the value of the material contained in it - Material: gold, silver,… Token Money - Is a means of payment - The value or buying power greatly excrods its eist of production - Material: metal, paper, plash polymer, … => Chức quan trọng nhất: Money as a medium of exchange makes easier, quicker, more conseniences, without that function other function don’t work Questions: Name function of money? Analyyne are of the function? What are two type of money? Unit 12: Monetary policy Denifition Moneytary policy is a government policy which controls a nation’s money supply and supervised by each country’s central bank Objectives (mục tiêu) - Maintain price stability - Exchange stability - Full employment & maxium output: số lượng tối đa - Economic growth 19 Quantities tools of Monetary policy ( công cụ định lượng CSTT) * The reserve requirment - The reserve requirment (RR) is the perantage the Fed sets ( để lại) as the minium amount of resenes as bank must have When Fed Money Supply Money Supply RR When Fed RR * The discount rate ( DR) - The discount rate is the rate of interest the Fed charges (tính) for those loans (khoản vay) When Fed Money Supply Money Supply DR When Fed DR * Open market operation - Open market operation are the End’s buying and selling government security (mua & bán TPCP NHTW) Fed Money Supply buys bords 20 Fed Money Supply sell bords typers of monetary policy Expansionary monetary policy - MP is expansionary when the money supply is increased - Expansionary MP might occur when the economy is slowing down - The central bank increases the money supply by lowering reserve equirements, dropping discount rate or buying more bonds Contractionary monetary policy - MP is restrictive when the money supply is decreased - Restrictive MP might occur when the economy is overhesding - The central bank decreases the money supply buy raising reserve requirements increasing discount rate, or selling Questions: What are those tool monetary policy? What is Expansionary monetary policy ? What is Restrictive monetary policy ? Unit 14: The foreign exchange market (Thị trường trao đổi ngoại hối) Definition The foreign exchange market is the market in which national currencies such as dollars, pease, deutsche market, yen, francs and others are exchangeed Function - The foreign exchange market is an over-the-counter market, the primary communication instruments being the telephone and the computer 21 - The foreign exchange market enables banks and international corporations to trade foreign currencies in large amounts - The foreign exchange market trades 24 hours a day London-The world’s largets foreign exchange centre - London’s trading position arises partly from the large volume of international financial business generated here - London aslo benefits from its geographical location which enables it to trade among different time zones Types of transaction Spot transactions (ngay tức thì) Spot transactions are undertaken for an actual exchange of currencies two business days later Forward transaction Involve a delivery date further into the future, possibly as far as a year or more ahead Participants - Customer (multinational corporations) They require foreign currencies forcross border trade or investment business - Market makers (bank) they quote + They quote buying and selling rate for curencies + They earn profits from the difence between buying and selling rate - Brokers (specialist companies) (môi giới) + They act as intermediaries between bank + They contact the bank throughout the world to find the best dealing rate + They charge a commision for their services 22 Questions: What is the concept and the function of the Forex market? What are participants in the Forex market? Unit 15: The Financial markets Definition A market in wich financial instrument (such as equities, bonds, curremcies, etc,…) are traded Indirect finance Funds Financial Funds Intermediaries - Lenders-savers - Household - Business firms Borrowers-spenders Funds - - Government Financial market Funds Direct finance - Foreigners - Business firms - Government - Household - Foreigners Debt and equity markets Debt market - Debt market: a financial market in which debt instruments (bonds, mortgage) are trade - Debt instrument: Short-term, intermediate-term and long-term - Debt holders: receive predeteminded fixed interest rate Equity market - Equity market: a financial market in which equity instruments such as common stocks are trade - Equity instrument: long-term securities - Equity holders: receive periodicial payments, called dividents 23 Owning a corporation’s equities Advantages: - Equity holder benefit directly from any increases in the firm’s profittability or asset value - Equity holder have the right to vote on important issues of the company Disadvantages: Equity holder are residual claimants Primary and secondary markets Primary market - A financial market in which new securities are issued and sold to initial buyers - Not well known to the public - Function: raise fund for issuing forms secondary market - A financial market in which previously issued securities are resold to investors Exchange - All transactions are made in one central location - The NY&American stock exchange OTC markets - All transactions are made in different location - The foreign exchange market Money market - Is a financial market in which only short term debt instruments are traded Capital market - Is a financial market in which longer term debt and equity instruments are traded - >= year - Less liquid - Bigger fluctuation in price - Users: financial intermediaries - < year - More widely traded, more liquid - Smaller fluctuation in price - Users: corporations and banks - Well know to the public - Function: + Maked in eassier and quicker to sell financial instruments to raise cash + Determine the price of fresh shares in primary market 24 Questions: What is the difference between Debt market & Equity market? What is the difference between Primary market & Secondary market? What is the difference between Money market & Capital market? What are the advantages and disadvantages of owning a corporations equity? ->>