Đề cương tiếng anh chuyên ngành Microeconomics macroeconomics

CHAPTER 1
UNIT 1: ECONOMICS
It talks about ECONOMICS. There are 3 main ideas:
Idea 1: Important concepts.
-

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Resources includes the time and talent people have available, the land, buildings, equipment, and other
tools on hand, and the knowledge of how to combine them to creat useful products and services..
People’s choice (Important choices) involves:
 How much time to devote to work, to school and to leisure.
 How many dollars to spend or save.
 How to combine resources to produce goods and services.
 How to vote and shape the level of taxes and the role of government.
Well-being includes the satisfaction people gain from their products and services that they consume, from
their time spent in leisure and in job, and the security and services provided by effective government.
Economics
 Economics is the study of how people choose to use the resources. Because resources are limited.
 Economics is the study of the production and the consumption of goods and the transfer of wealth
to produce and obtain those goods.
 Important of economics: Economics shape the world. Because buying and selling are activities vital
to survival and success, studing economics can help one understand human thought and behavior.
 Benefit from studying economics: When we have knowdlege of economics, we can predict
economic development in the future. We can give advice when the economy enters recession or
overheating. Economics helps a high income job.

Idea 2: 2 main types: macroeconomic & microeconomic
-

Microeconomics focuses on the actions of individuals and industries, like the dynamics between buyers and

sellers, borrowers and lenders.
Macroeconomics studies the economic activity of an entire country or the international marketplace.

Idea 3: Famous economist & theorities.
-

Adam Smith:
 Invisible hand
 Free market & profit motive
 Private ownership of the means of production.
=> Free market economy.
He believed that people who acted in their own self – interest produced goods and wealth that
benifited all of society.
 Market can regulated itself to maximize efficiency, gov shouldn’t interfere.
Karl Marx: He believed that such an exploitation leads to social unrest and class conflict.
 Criticísm of capitalism
 Support public ownership of the means of production.
Keynessian School: The role of Gov in the economy. He described how government can act within
capitalistic economics to promote economics stability.


-

-





Direct gov control planning of all economic activities.

Visible hand => gov control of economic activities at macro level (through macro economic
policies: reduced taxes and increased gov spending when the economy becomes stagnant, and vice
versa when the economy is overheating.)
=> mixed economy

Some question:
1.




2.

3.
4.
5.
6.

What are the aspect of country’s economy?
How country uses its resources.
How much time laborers devote to work and leisure.
The outcome of investing in industries.
Why business succeed or fail.
Why did you choose to study economics?
Because the knowdlege of economics is very necessary. When we have knowdlege, we can predict
economic development in the future. We can give advice when the economy enters recession or
overheating. Economics helps a high income job.
What is economist?
They are people who study economics.
What is capitalism?

The economic system in which the means of production is privately held.
What purpose do people use their resources for?
People use resources to maximize their benefits and improve their well – being.
What are means of production?
Means of production is used to produce goods & services.

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UNIT 2: ECONOMIC SYSTEMS
1. What is a free market economy?
Free market economy is an economic system in which:
- The market is regulated by law of demand and supply.
- There are a lot of free competition among companies compete freely.
- Gov affects through policies: fiscal & budgetary policy.
2. What is a planned economy?
Planned economy is an economic system in which:
- No free competition
- Gov directly affects the economy.
3. What is a mixed economy?
Mixed economy is an economic system in which: goods and services are produced by the gov and some
by private enterprise.
4. What are the differences between a market economy and a planned economy?
- A market economy has competition
A planned economy hasn’t competition
- A market economy has affect through law of demand and supply, through fiscal & budgetary policies
of government.
A planned economy has directly affect by gov.
UNIT 3: MICROECONOMICS


It talks about MICROECONOMICS. There are 3 main ideas:

Idea 1: The limit (limit budget, limit resources, financial resources, human resources)
- For a person: Limit includes: time, money, health, grey matter,…
- For a nation: Limit includes: land, capital, labor, technology,…
=> So we must/should save resources, use effectively, avoid waste by: set feasible objective and target, choose the
most demand for a particular period.
Idea 2: The allocation of scare resources
In planned economy
It is done by gov

In modern market economy

- Firms are told what & how much to produce,
how to produce it.
- Workers have little flexibility in choice of jobs,

It is done by interact between consumers, workers and

hours worked, even where they live.

firms.

- Consumers have very limited set of goods to

=> Have much more flexibility and choice.

choose.
=> Many tools of microeconomics are limited
relevance in these countries.
Idea 3: 3 important themes of microeconomics





Making optimal trade off
 Trade off is consideration of choices/exchanges to maximize benefits.
 Consumer:
 Consumer theory: Consumer theory describes how consumer based on their preferences,
maximize their well – being by trade off the purchase of more of some goods with the
purchase of less of others.
 Trade off of consumer: They face the limited income. They trade off between spending and
saving, current consumption and future consumption, buying more or less.
 Worker: Trade off of worker: They face the limited time. They trade off between working and
leisuring, working and continuing higher educationg, working for small and large education.
 Firm:
 Theory: Theory of the firms describes how these trade off can be best made.
 Trade off: They face the limited financial resources, human resources. They trade off
producing this sets of product with other, buying machine and hire more workers.
The roles of prices: decide choices/trade offs
The central roles of market.:
 Links supply and demand, buyer and seller.
 Determine prices: in planned economy: determined by gov // in market economy: determined by the
interaction of consumers, workers, firms.
 Allocate resources.


____________________________________________________________________________________________
UNIT 4: MACROECONOMICS
It talks about MACROECONOMICS. There are 4 main ideas:
Idea 1: The goal of macroeconomics

The goal of macroeconomics is to look at overall economics trend such as: employment levels, economic growth,
inflation,..
Idea 2: Macroeconomics policies
Fiscal policy
- Controls a gov’s revenue and spending.
- Supervised by Ministry of Finance.
- Tools: taxation and gov spending.

Moneytary policy
- Controls a nation’s money supply.
- Supervised by Central Bank.
- Tools: reserve requirement, discount rate, open
market operation.

=> Macroeconomics objectives:
- High economics growth.
- Keep inflation under control.
- High employment.
- Balance of payment.
Idea 3: Different between macro and micro-economics
Macro
- It is the study of country and gov decisions.
- Focuses on the activities of entire country or
internation economy, economy-wide phenomenal
(GDP, inflation,…)
- Look at overall economic trends: employment
levels, economic growth, inflation,..
- Uses: fiscal policy and moneytary policy
- Top-down approach.

Micro
- It is the study of individual and businesses decisions.
- Focuses on the economic behaviors of individual:
household, consumer, enterprise,…
- Make regarding the allocation of resources and prices
of goods and services.
- Uses: price policy and competitive policy.
- Bottom-up approach.

Idea 4: Relationship between macro and micro.
They are interdependent and complement one another. Example: increased inflation (macro) => price of goods will
increase (micro).
=> provide fundamental tool to study economy.


UNIT 5: DEMAND AND SUPPLY
It talks about DEMAND AND SUPPLY . There are 4 main ideas:
Idea 1: Difference between demand/supply and quantity demanded/quantity supplied?
Supply/demand is the quantity of goods and services, the sellers/buyers are willing to sell/buy at every
price levels.
The quantity supplied/quantity demanded is the quantity of goods and services the sellers/buyers are
willing to sell/buy at specific price in period of time.
Idea 2: Relation between prices and quantity demanded/quantity supplied?



If the prices of goods increase, the quantity demanded will decrease.
If the price of good increase, the quantity supplied will increase.

Idea 3: The shift factors of demand and supply? Example.

- The shift factors of demand are: society’s income, prices of substitute goods, expectation of buyer tastes.
Example: If the income increases, the demand will increase. Demand curve will shift to the right. And vice
versa.
- The shift factors of supply are: the prices of input, technology, gov policy (taxes,…), supplies expectation.
Example: If the prices of input increases, the supply will decrease. The supply curve will shift to the left.
Idea 4: Demand/Supply curves? Equilibrium? Excess demand/supply?
- Demand/Supply curve is the graph which show relation between prices and quantity demanded/supplied.
- Equilibrium:
+ What? It is the point where demand curve cuts supplied curve.
+ Intersection of demand curve and supply curve?
When demand curve and supply curve intersect, we have equilibrium. Equilibrium occurs when quantity
demanded is equal to quantity supplied. So price unchanged.
- Excess:




Demand:
+ When? If quantity demanded is bigger than quantity supplied, this is a shortage. So price of good will
increase.
+ advantages: the companies make more profits, promote productions.
+ disadvantages: it restrict consumption, it may result inflation.
Supply:
+ When? If quantity supplied is bigger than quantity demanded, this is surplus. So price of good will
decrease.
+ advantages: they have to pay less money for goods, so encourages the consumptions.


+ disadvantages: profits of companies will decrease, shouldn’t promote production.
CHAPTER 2

UNIT 6: PUBLIC FINANCE

It talks about GOV BUDGET REVENUE. There are 2 main ideas:
Taxes
Individual income taxes
Corporate income taxes
Custom duties
Excise tax
=> Federal Fund
=> Gov spending

Payroll taxes
=> The Trust funds
=> specific
programs
=> social security,
medi care

Borrowing
By issue bonds so must pay interest and principle at maturity.
=> 2 debt
+ Debt held by Federal Account => borrowed from Trust funds.
+ Debt held by the Public => borrowed from:
 International & domestic investor To earn interest
 State & local government
 Federal Reserve => to control money supply

- Gov spending:











Provide public services: transport, education, healthcare, security, electric supply,…
Repay debts (interest + principle)
Invest in firms & projects.
Grant aids, supports, pensions, welfare.
Finance development programines
Pay administration costs: salary, building,…
Organize national/international events.
Fund diplomatic activities.
Adjust supply & demand, stabilize prices.

II. Some question
1. What is the difference between federal fund and trust fund?
Federal fund is designated from income tax and corporate tax. It uses for conducting the annual
appropriation process.
Trust fund is designated from payroll tax. It uses to pay for very specific government programs.
2. What is federal budget used for?
A part of revenue is used for specific government program or government activities in general.
3. What is the debt helb by public and debt held by the federal account?
 Debt held by the federal account is the amount of money that the treasury has borrowed from its self.
(trust fund)
 Debt held by the public is the total amount the government owes to all its creditors. (in the table)
4. Who does the government owe money to?

There are domestic investors and foreign investors.
o The domestic investors include: the general public, the general account.
o The foreign investors include: foreign individual, the governments of foreign countries.
5. What is public finance use for?
It is uses to:
+ to ensure the government existence and operation.
+ to fufill macro objectives and encourage micro growth
+ to redistribute incomes and ensure social equality.


6. What is the public finance?
It is study of how the government sector pay for expenditures through taxed and borrowing.

UNIT 7: FISCAL POLICY
It talks about FISCAL POLICY. There are 4 main ideas:
Idea 1: Concepts? & Effects?
-

Concepts: Fiscal policy is a government policy related gov spending and taxation.
Effects:
 The economy tends to grow.
If the gov spends more money to build a new highway, it will have create jobs. Jobs create income that
people spend on purchases => total demand will increase.
 The economy tends to shrink.
If the gov increases taxes, it will decrease total demand. Households and businesses have less of their income
to spend, they purchase fewer goods.

Idea 2: Deficit spends? Helpful or harmful?
-

What is deficit spending?
Deficit spending is spending funds obtained by borrowing or printing instead of taxation.
When?
Deficit runs when the gov spends more than it receives. And to finance the deficit, the gov borrows or prints money.
Helpful or harmful?
 Helpful
When unemployment is high, deficit will create jobs, jobs create income. The economy will expand because
more money is being pumped into it.
 Harmful
When unemployment is low, a deficit may result in rising prices or inflation. The additional gov spending
creates more competition for scarce workers and resources and this inflates wages and prices.

Idea 3: 2 types of fiscal policy: contractionary/expansionary: What? When? What for?
Expansionary/Loose
Contractionary/Tight
Expansionary means gov spending increases or
Contractionary means gov spending decreases or
taxation decreases or both.
taxation increases or both.
When?
When unemployment is too high, economy is not
When inflation is too high, economy is
growing fast enough.
overheating.
“By increasing spending or cutting taxes, the gov
“ This policy reduces the amount of money in the
leaves individuals and businesses with more
economy available for purchasing goods, so
money to purchase goods or invest in new
decreasing spending, demand, and ultimately ,

equipment. When they increase their purchases,
pressure on prices.”
raise demand, which requires additional
production, creating jobs, generating more
spending. The result is higher employment and a
growing economy.”
What for? Use to reduce unemployment, promote economic
Use to slowdown overheating economy, keep
growth.
inflation under control.
Idea 4: Factors to consider in fiscal policy decision making: Inside & Outside factors.
What?

-

Inside factors:
Growth, inflation, employment, revenue (tax revenue, borrowing, printing), public reactions, role of Gov.


-

+ If the gov borrows money, it will decrease the supply of money available in the economy for lending, and the cost
of borrowing money, the interest rate, may rise.
If the gov prints money, it will increase the supply of money in the economy, without a corresponding increase in
available goods; prices – and inflation – are likely to rise.
+ grow, employment rate: same the table
Outside factors:
requirements by international organizations: IMF(often grants aid packages subject to conditions relating to fiscal
policy), WTO, ASEAN, APEC,…; other government’s policy such as: Switzerland has generous tax programs so it
can tempt companies to relocate.

UNIT 8: TAXATION
It talks about TAXATION. There are 4 idea:
Idea 1: Functions of taxation
-

-

Raise funds for gov expenditures: serve as the main source of the gov budget revenue.
Redistribute wealth in the society =>ensure social equality, reduce the gap between the rich & the poor.
 Levied on income tax
 Who has income, that person must pay tax
 Who have high income, that person must pay higher taxes
 Who have no income, he or she does not have to pay tax
Control supply & demand, production & consumption in the market.
Stabilize prices, national finance, control inflation.
 When economy slowdown, investments stagnate, production & consumption are reduced: Gov reducing
taxes on production, reduce tax on goods produced to encourage the creation of profits, stimulate investment
in manufacturing. Or increase income taxes on savings and income from reserve assets, which will
encourage the introduction of capital into investment, production and business.
When the economy is flourishing, to prevent the risk of an economy "hot"
development leading to excessive inflation and crisis , Gov increases tax rate to
reduce investment and reduce the consumption.
Regulated aggregate demand: encourage (by cutting taxes) or discourage (by increasing tax) investments in certain
industries.
Adjust allocation of scarce resources, act as the tool to control the economy at macro-level.
Affect foreign trade (raise export & limit import), protect national production, ensure the balance of payments.
Custom duties


-

=> Taxes serve as an important tool for macroeconomic regulation.
Idea 2: Disadvantages of taxation

-

Double taxation:
 It means business profits are generally taxed twice: companies pay tax on their profits, and the share holders
pay income tax on dividends
High marginal tax rate
 Means the tax people pay on any additional income is always high, which is generally a disincentive to both
working and investing.
Regressive sales tax
 Why? Because poorer people need to spend a larger proportion of their income on consumption than the rich.

Idea 3: Tax evasion (illegal way to avoid taxes)
Idea 4: Tax avoidance (legal way to reduce taxable income)
Tax avoidance

Tax evasion


- Firms reduce taxable income by:
 Paying more benefits for the staff : company
cars, free health insurance, subsidized
lunches.
 Doing charity: to reach tax-deductable.
- Avoid tax on profits
 Using accelerated depreciation accounting.

 Raising investments & expenses: on new
factories, machines, ….
=> Make use of tax loopholes.
 Set up head-offices in tax heaven.
(?) What is tax haven/heaven?
=> Tax heaven is the country where tax are low.

- Making wrong income declaration:
 The self-employed people – whose income is
more difficult to control than that of company
employee. Because they also undeclared parttime evening jobs.
- Making wrong accounting records.
- Smuggling & trade fraud.
- Laundering money
(?) What is laundering money?
=> The criminal organizations tend to pass money
through a series of companies in very complicated
transactions in order to disguise its origin from tax
inspectors and the police.

Some Questions:
1.

How many kinds of taxes?

There are 2 kinds of taxes: direct tax and indirect tax.
-

Direct tax is a tax levied on taxable person such as income tax.

-

Indirect tax is a tax levied on goods and services such as payroll tax, excise tax and custom duties,…

2.

How many kinds of tax rates?

There are 2 kinds: progressive income tax and regressive income tax.
-

Progressive is a tax charging at higher rates on higher incomes.

-

Regressive is a tax charging at lower rates on higher sales.

3.

What is tax?

Tax is amount of money that you must pay for government according to your income, your property, goods and
services that you bought before.
Terms:
-

Income tax is a tax levied on income of corporation or individual.

-

Excise duty is a tax levied on specific goods and services: luxury, smoking.

Payroll tax is a tax imposed on employers or employees and are usually calculated as a percentage of the
salaries that employers pay their staff.

Notes:

-

Corporate income tax is a tax based on the income made by the corporation.

-

Custom duty is a tax imposed on imported goods.

-

Tax shelters: in the way, people use them to avoid tax.


(to) tax sth = to impose
levy
fix
set
charge

a tax on sth

tax (n) # taxation (n) (#duty/tariff)
sự đánh thuế

thuế đánh
vào các gd
trong nước

thuế đánh
vào các gd
ngoại thương

taxable >< non-taxable
taxman >< taxpayer

UNIT 9: DIFFERENT TYPES OF TAXES
- Tax on businesses are usually calculated as a percentage of the profits of the businesses, or
what’s left after the company pays its suppliers, workers,… and also after it depreciates its assets.
(The tax is a percentage of what’s left over, not a percentage of what the company brings in in
revenue.)
- Consumption taxes are levied when an individual or household buys stuff.
+ Sales tax: levied as a percentage of the price of most items that are sold to consumers.
+VAT (value added tax) : Indirect tax on domestic consumption of goods & services, except
those that are zero-rated (such as food & essential drugs) or are otherwise exempt (such as
exports).
+ It can also take the form of excise or luxury taxes, which are taxes on specific items (cars,
alcohol,…) at rates that may differ from the overall sales tax rate.
- Wealth tax: a tax on personal property; capital levy.
- Direct tax: a tax, such as an income or property tax, levied directly on the taxpayer.
- Indirect tax: a tax levied on a commodity that is paid by the consumer as part of the market
price.
- Business Taxes: one of five major types of those taxes (1) corporate franchise tax, (2)
employment (withholding)tax, (3) excise tax, (4) gross-receipts tax, (5) VAT.

- Personal Taxes: Tax paid on one’s personal income as distinct from the tax paid on the firm’s
earnings.
- Tax deduction is an amount that is subtracted from the amount that is counted as income for tax
purpose.
Tax credit is an amount that is subtracted directly from a household’s tax bill.
Ex: A household with an income tax rate of 20%. A $1 tax deduction means that the household’s
taxable income decreases by $1, or that the household’s tax bill decreases by 20 cent. A $1 tax
credit means that the household’s tax bill decreases by $1.


UNIT 10: INSURANCE
It talks about INSURANCE. There are 3 main ideas:
Idea 1: Definitions & functions.
-

Insurance is a financial arrangement that redistributes the cost of unexpected losses.
An insurance pool is a fund which combines all insurance premiums.
An insurance premium is the amount of money that the insured pay for insurer to receive a
compensation when the loss occurs.
The compensation is the amount of money that the insurer pays for insured in case of risks,
accident, financial loss,...

Idea 2: Operation of insurance system
An insurance system can redistribute the cost of losses by collecting the premium payment from every
participant in the system.
An insurance system can redistribute the cost of losses from the unfortunate few members who experience
them to all the members of the insurance pool who have paid premiums.
An insurance system is able to operate because all the insured are willing to pay insurance premium.
Some question:

1. What does the insurance arrangement involve?
An insurance arrangement involves the transfer of many different exposures to loss to one insurance
pool.
2. In what way, losses can be predicted before they occur?
Losses can be predicted in advance through the operation of insurance system.
3. What does the insured receive when a loss occur?
The insured is compensated by the insurer when a loss occur.
4. Why are people willing to pay insurance premium?
Because, if the loss occurs, they will be compensated by insurer. Even if no loss occurs people have
still certain benefit such as: eliminated unpleasant mental state and the anxiety.
Idea 3: Insurance >< Gambling
- Gambling will not enforce
- Insurance contract will enforce.
Contract of insurance form a special class of contract in that the law requires parties to them, the
insured and insurer, to exercise the utmost good faith towards each other.



CHAPTER 3
UNIT 11: MONEY AND ITS FUNCTION
It talks about MONEY AND ITS FUNCTION. There are 3 main ideas:
Idea 1: Definition of money
Money is a commodity accepted by general consent as a medium of economic exchange.
Idea 2: Functions of money
+ Medium of exchange: A medium of exchange is anything that is widely accepted in payment for goods and
services and in settlement of debts.
+ Measure of value: Money measure value in its unit of accounts. The unit of account is the unit in which prices
are quoted and account are kept.
+ Store of value: It means if you have money but you don’t buy goods in certain, you can save it to buy in the
future

+ Standard of deferred payment: Means If you buy something but you don’t pay immediately, you can pay it in
the future.
Idea 3: 2 types of money.




Commodity money is a useful good that serves as a medium of exchange. As a result, the value of
commodity money is about equal to the value of the material contained in it. Example: gold, silver, copper,
furs, skins,…
Token money is a means of payment whose value or purchasing power as money greatly exceeds its cost of
production or value in uses other than as money. Example: cash, bank note, credit card,…

Some question:
1. What determine the value of commodity money?
The value of material contained in it.
2. Which national currency is the most strongest currency?
This is USD. Because it is used widely in international transaction and it is one of the major reserve currencies
in the world.
3. Which function of money is the most important?
This is medium of exchange. Because it helps all transactions would be easy and save time. If without this
function other functions would not be done.
4. Why is installen buying more and more popular?
Because:



Firstly it helps buyer meet their needs when they lack money.
Secondly supplier can promote their trade



Moreover it helps reduce inflation rat when there is less money in circulation.

UNIT 12: MONEYTARY POLICY
It talks about MONEYTARY POLICY. There are 2 main ideas:
Monetary policy is a government policy related to a nation’s money supply by each country’s central bank.
Idea 1: The quantity tools of moneytary policy
- Reserve requirement:



Definition: Reserve requirement is the percentage the fed sets as the minimum amount of reserves bank
must have.
Effect: By changing the reserve requirements, the fed can increase and decrease the money supply. If the
fed increase the reserve requirement it contracts money supply, banks have less money to lend out.

- Discount rate:



Definition: The discount rate is the rate of interest the fed charges for those loans.
Effect:
 An increase in the discount rate makes it more expensive for bank to borrow from the Fed.
 An decrease in the discount rate makes it less expensive for bank to borrow from the Fed.

- Open market operation



Definition: It is the fed’s buying and selling government security.
Effect the money supply: To expand the money supply the fed buys bonds.
To contract the money supply the fed sells bonds.

Idea 2: 2 moneytary policies
What?

When?

Expansionary
Means the central bank decrease reserve
requirement, discount rate or buying more
bonds. It can increase bank lending capacity.
When the economy slows down.

Restrictive
Means the central bank increase reserve
requirement, discount rate, or selling more
bonds. It can reduce investment, consumption
or even government expenditure.
When the economy is overheating.

What
Use to increase the money supply and to
Use to decrease the money supply and to cool
for?
promote economic growth.
an overheating economy.
Effect ?

It causes the demand curve shift to the right.
It causes the demand curve shift to the left.
=> They are interdependent and complement one another because there are many overlapping issues between two
policies.


Some question:
1. How does the fed control the percentage of deposits bank keep in reserve?
The fed controls the percentage of deposits bank keep in reserve by controlling the reserve requirement of all
us banks.
2. How does the fed control the percentage of deposits bank keep in reserve?
The fed controls the percentage of deposits bank keep in reserve by controlling the reserve requirement of all
us banks.
3. What is primary tools of monetary policy?
This is open market operation. Because changes in discount rate and reserve requirement are not used in day do
day fed operation. They are used mainly for major changes. So the fed uses open market operation.
4. How can the banks encourage people to borrow and spend more money?
The bank can encourage… by offering lower interest rate or easier approvals.
5. When does the aggregate demand cure shift to the right?
When an increase in the money supply.
6. When will prices begin rising?
Prices will start rising when market participants bid against each other for increasing scare goods.
7. What do the central bank can reduce the money supply?
There are: raise reserve requirement, increase the discount rate, sell bond in the open market.


UNIT 14: FOREIGN EXCHANGE MARKET
It talks about FOREIGN EXCHANGE MARKET . There are 5 main ideas:
Idea 1: Definition & Features
•

Definition: Foreign exchange market is a market in which national currencies are exchanged

•

Features:

+ Organizational mechanism: it is an over-the-counter market: not an organized market with fixed hours
and a physical meeting place
+ Means of transactions: the primary communications instruments are telephone and computer
+ Scale: it is an international market: the transactions are made among different commercial banks and
their foreign branches and agents all over the world.
Idea 2: Functions
•

Satisfy the demand for foreign currencies in large amount

•

Enhance international trade, goods and service circulations among countries

•

Support investments in financial and real assets across the national borders

•

Facilitate international debt settlement, disbursement of foreign aid and support

•

Develop tourism and diplomacy, international relation

•

Exchange rates serve as important macroeconomic tool to adjust import and export, ensure the balance of
trade, push up production and investment

Idea 3: Types of transactions
Spot transactions: are undertaken for an actual exchange of currencies (delivery or settlement) within 2
business days later (from the value date)
Forward transactions: involve the delivery date further into the future, possibly as far as a year or more ahead




Idea 4: London – the leading FOREX market
• London itself is one of the greatest financial & trading centres in the world
• The great volume of international financial and trade dealings are generated on the market, including
insurance, eurobonds, shipping, banking and foreign trade…)
•

London enjoys favorable geographical location which enables it to trade with all continents within the
trading day

Idea 5: Participants in the FOREX
•

Customers: multinational corporations, foreign trade companies, investors, financial organizations, the
governments, tourists… →they gain the demanded foreign currencies

•

Dealers: commercial banks and their foreign branches and agents → they earn profit by the difference
between buying and selling prices


•

Brokers: specialist companies acting as intermediaries among banks → they earn commission for their
services

UNIT 15: FINANCIAL MARKET
It talks about FINANCIAL MARKET. There are 2 main ideas:
Financial market is a market in which financial instruments are traded: debt, bonds, shares,..
Idea 1: Functions of financial markets.
Channeling funds from those who have saved surplus funds to those who have a shortage of funds.
Idea 2: Structure of financial markets.


Debt and equity markets

Debt market
is a financial market in which debt instruments
like bonds, mortages are traded
Debt instrument include: short term, long term,
and intermediate term
Debt holder receive predetermined fixed
interest rate but can interfered in the running of
the company

Equity market
Is a financial market in which equity
instrument, such as common stock is traded
Equity instruments are consider as long term
ones. Because they don’t have maturity date.
Equity holders get dividends share ownership,
vote on the important decisions.

? What is debt instrument?
The debt instrument is a contractual agreement by the borrower to pay holder of instrument fixed dollar
amount at regular interval until a specified date.



? Why is it risker to invest in stocks?
=> Because:
 The dividends are not fixed, but depend on the Co.profit and business success.
 To get back the funds, stockholders have to sell their stocks (i.e. transfer the ownership to other
investors.) The may face the low liquidity of the stocks or get a loss caused by selling price drop.
 In case of bankruptcy, stockholders are the last ones to get back their invested funds (after suppliers,
tax, agents, banks, bondholders, other creditors.)
Primary and secondary markets.

Primary market
Is a market in which fesh securities are sold to
initial buyers.
It is not well known to the public. Because the
selling of securities take place behind closed
doors

Function of primary market is to raise fund for
issue of firms

Secondary market
Is a market in which issued securities are
resold
It is well known to the public
+ make it easier and quicker to sell financial
instruments to raise cash.
+ help determine the prices of fresh share in
primary market.


? What is short term, long term and intermediate term?
 Short term if its maturity is less than a year.
 Long term if its maturity is ten years or longer
 When debt instruments with a maturity between one and ten yars are said to intermediate – term


Exchanges and OTC markets.
 Exchange market is the financial market in which buyers and sellers of securities meet in one
central location to conduct trade.
 OTC market is the financial market in which buyers and sellers of securities meet in different
central location to conduct trade.



Money and capital markets
 Money market is a financial market in which only short term debt instruments are traded. And the
money market is safer and more liquid than capital market.

 Capital market is a financial market in which longer term debt and equity instruments are traded.
? Why is money market safer and more liquid than the capital market?
 Safer: because short term securities have smaller fluctuation in prices than long term securities.
 More liquid: because money market securities are usually more widely traded than longer term
securities.