Tiền tệ ngân hàng FTU - Lý thuyết chương 5

Readings Mishkin (2021), The Economics of Money, Banking, and Financial Markets, 13th edition, Pearson, Chapters 2+8. Cecchetti and Schoenholtz (2014), Money, Banking, and Financial Markets, 4th edition, McGraw-Hill, Chapter 3. Lecture 5 Financial Markets and Institutions 2 Introduction Introduction The international financial system exists to facilitate the design, sale, and exchange of a broad set of contracts with a very specific set of characteristics. We obtain financial resources through this system: – Directly from markets, and – Indirectly through institutions. 3 3-4 4 Introduction Introduction Indirect Finance: An institution stands between lender and borrower. – We get a loan from a bank or finance company to buy a car. Direct Finance: Borrowers sell securities directly to lenders in the financial markets. – Direct finance provides financing for governments and corporations. 5 Financial Instruments We will survey the financial system in three steps: 1. Financial instruments or securities – Stocks, bonds, loans and insurance. – What is their role in our economy? 2. Financial Markets – New York Stock Exchange, Nasdaq… – Where investors trade financial instruments. 3. Financial institutions – What they are and what they do. 6 Underlying Versus Derivative Instruments Financial Instruments: The written legal obligation of one party to transfer something of value, usually money, to another party at some future date, under certain conditions. Two fundamental classes of financial instruments. – Underlying instruments are used by savers/lenders to transfer resources directly to investors/borrowers. – The enforceability of the obligation is important. – Financial instruments obligate one party (person, company, or government) to transfer something to another party. – Financial instruments specify payment will be made at some future date. – Financial instruments specify certain conditions under which a payment will be made. • This improves the efficient allocation of resources. • Examples: stocks and bonds. 7 8 Financial Markets Underlying Versus Derivative Instruments • Financial markets are places where financial instruments are bought and sold. • These markets are the economy’s central nervous system. • These markets enable both firms and individuals to find financing for their activities. • These markets promote economic efficiency: – They ensure resources are available to those who put them to their best use. – They keep transactions costs low. Derivative instruments are those where their value and payoffs are “derived” from the behavior of the underlying instruments. – Examples are futures and options. – The primary use is to shift risk among investors. 9 The Role of Financial Markets 1. Allocation of capital – Efficient allocation of capital, which increases production 2. Liquidity: – Ensure owners can buy and sell financial instruments cheaply. – Keeps transactions costs low. 3. Information: – Pool and communication information about issuers of financial instruments. 4. Risk sharing: – Provide individuals a place to buy and sell 11 risk. 10 The Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets (D&E) Investment Banks underwrite securities in primary markets Brokers and dealers work in secondary markets Exchanges (D&E) Over-the-Counter (OTC) Markets NYSE, NYBE, CBOT FX, Fed funds Money and Capital Markets Money markets deal in short-term debt instruments Capital markets deal in longer-term debt and equity instruments 12 Internationalization of Financial Markets Financial Institutions Foreign Bonds: sold in a foreign country and denominated in that country’s currency Firms that provide access to the financial markets, both Eurobond: bond denominated in a currency other than that of the country in which it is sold – to savers who wish to purchase financial instruments directly and – to borrowers who want to issue them. Also known as financial intermediaries. Eurocurrencies: foreign currencies deposited in banks outside the home country – Examples: banks, insurance companies, securities firms, and pension funds. – Eurodollars: U.S. dollars deposited in foreign banks outside the U.S. or in foreign branches of U.S. banks Healthy financial institutions open the flow of resources, increasing the system’s efficiency. 14 13 Figure 1 Sources of External Funds for Nonfinancial Businesses: A Comparison of the United States with Germany, Japan, and Canada Eight Basic Facts 1. Stocks are not the most important sources of external financing for businesses 2. Issuing marketable debt and equity securities is not the primary way in which businesses finance their operations 3. Indirect finance is many times more important than direct finance Source: Andreas Hackethal and Reinhard H. Schmidt, “Financing Patterns: Measurement Concepts and Empirical Results,” Johann Wolfgang Goethe-Universitat Working Paper No. 125, January 2004. The data are from 1970–2000 and are gross flows as percentage of the total, not including trade and other credit data, which are not available. 4. Financial intermediaries, particularly banks, are the most important source of external funds used to finance businesses. Eight Basic Facts (cont’d) 5. The financial system is among the most heavily regulated sectors of the economy 6. Only large, well-established corporations have easy access to securities markets to finance their activities 7. Collateral is a prevalent feature of debt contracts for both households and businesses. 8. Debt contracts are extremely complicated legal documents that place substantial restrictive covenants on borrowers Asymmetric Information: Adverse Selection and Moral Hazard Adverse selection occurs before the transaction Transaction Costs Financial intermediaries have evolved to reduce transaction costs – Economies of scale – Expertise The Lemons Problem: How Adverse Selection Influences Financial Structure Moral hazard arises after the transaction If quality cannot be assessed, the buyer is willing to pay at most a price that reflects the average quality Agency theory analyses how asymmetric information problems affect economic behavior Sellers of good quality items will not want to sell at the price for average quality The buyer will decide not to buy at all because all that is left in the market is poor quality items This problem explains fact 2 and partially explains fact 1