FIN2001 - FINANCIAL MARKETS
AND INSTITUTIONS
1
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FIN2001 - Financial Markets and Institutions: Overview of the Financial System, Summaries of Financial Market
A comprehensive overview of the financial system, covering key concepts such as financial markets, institutions, and instruments. It delves into the functions and structures of financial markets, including debt and equity markets, primary and secondary markets, exchanges and over-the-counter markets, and money and capital markets. The document also explores the role of financial institutions in facilitating the flow of funds and mitigating risks. Additionally, it introduces the concept of sustainable finance, highlighting its importance, esg criteria, benefits, challenges, and key stakeholders. Finally, the document examines the functions, objectives, and tools of a modern central bank.
Typology: Summaries
2023/2024
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FIN2001 - FINANCIAL MARKETS
AND INSTITUTIONS
Chapter 1
OVERVIEW OF THE
FINANCIAL SYSTEM
Readings
1. Chapter 1 , 4 , 5 ; Thị trường tài chính, Financial
Markets and Institutions, 12 th Edition; Jeff Madura;
South-Western Cengage Learning ( 2018 ).
2. Chapter 2 , 7 , 9 , 10 ; Financial Markets and
Institutions; Federic S. Mishkin, Stanley G. Eakins;
Pearson ( 2017 ).
1.1 The financial system
◼ Financial system consists of financial markets, financial
institutions and financial instruments which interact to
facilitate the flow of funds through the financial system.
◼ There are two basic mechanisms by which funds flow through
the financial system:
◼ Direct financing : where funds flow directly through
financial markets.
◼ Indirect financing : where funds flow indirectly through
financial institutions (intermediaries) in the financial
intermediation market.
1.2 Financial market
1.2.1 Functions of financial market
◼ Function of channeling funds
◼ Function of encouraging saving and investment
◼ Function of raising the financial asset’s liquidity
◼ Financial markets play an important role in the economy.
◼ Financial markets allow funds to move from people who lack
productive investment opportunities to people who have such
opportunities.
◼ Financial markets are critical for producing an efficient allocation
of capital, which contributes to higher production and efficiency for
the overall economy
◼ Debt and equity markets
◼ Primary and secondary markets
◼ Exchanges and Over-the-counter markets
◼ Money and capital markets
1.2.2 Structure of financial market
1.2.2 Structure of financial market
❖ Primary and secondary markets ◼ A primary market is a financial market in which new issues of a security, such as a bond or a stock, are sold to initial buyers by the corporation or government agency borrowing the funds ◼ Primary market transactions provide funds to the issuer of securities ◼ A secondary market is a financial market in which securities that have been previously issued can be resold. ◼ Secondary market transactions make the financial instruments more liquid ◼ Secondary market determines the price of the security that the issuer sells in the primary market (^10)
Primary and secondary markets Primary market Secondary market SPO
IPO
Primary market
1.2.2 Structure of financial market
❖ Money and capital markets ◼ A money market is a financial market in which only short-term debt instruments (generally those with original maturity of one year or less) are traded. ◼ A capital market is a financial market in which longer term debt (generally with original maturity of more than one year) and equity instruments are traded.
How funds flow through the financial system
1.3.2 Types of financial institutions
◼ Depository Institutions
◼ Commercial Banks ◼ Savings and Loan Associations and Mutual Savings Banks ◼ Credit Unions
◼ Contractual Savings Institutions
◼ Life Insurance Companies ◼ Property and Casualty Insurance Companies ◼ Pension Funds and Government Retirement Funds
◼ Investment Intermediaries
◼ Finance Companies ◼ Mutual Funds ◼ Money Market Mutual Funds ◼ Investment banks ◼ Securities Firms
Types of financial intermediaries
1.4.1 What is Sustainable Finance? ◼ Definition
◼ Sustainable finance integrates environmental, social, and
governance (ESG) factors into financial decision-making.
◼ Importance
◼ Focuses on long-term investments in sustainable projects,
promoting economic growth while reducing environmental
pressures (Sustainable finance).
1.4.2 ESG Criteria in Sustainable Finance ◼ Environmental: Climate change mitigation, biodiversity preservation, and pollution prevention. ◼ Social: Issues like inequality, inclusiveness, labor relations, and human rights. ◼ Governance: Management structures, employee relations, and executive remuneration (Sustainable finance).