Chapter 2. Financial Market and Financial Intermediation

Chapter 2: Financial Market and Financial
Intermediation
MARKETS AND
FINANCIAL
MARKET
Objectives:
1. Understand the concepts of markets,
financial assets, and financial market.
2. Get an overview of the financial system,
financial market and factors related to
financial market.
3. Get an overview of Financial Intermediation.
Contents:
Market
Financial Assets
Financial Market
1. MARKET
CONCEPT OF MARKET:
 Relationship: Buyer - Seller - Other People.
 Place: Anywhere.
 Time: Any time.
 Exchange activities: Exchange ability +
Transfer of ownership.
Exchange objects: commodities and
services
TYPES OF MARKETS::
Product Market
Production Factors Market
Financial Market
FINANCIAL ASSETS:
CONCEPT OF FINANCIAL ASSETS
 Financial assets are those whose value is
not based in its material content (unlike real
estate including houses and land) but on
relations in the market.
It includes financial instruments such as
stocks, bonds, bank deposits, currencies
and other valuable papers.
CONCEPT OF FINANCIAL ASSETS
Financial assets are intangible assets, the

future benefit of which is the right to gain
interest or profit..
EXAMPLES OF FINANCIAL ASSETS
 Treasury bills.
 Bonds
 Stocks
 Savings deposit
 Derivative securities
VALUE OF FINANCIAL ASSETS
FINANCIAL ASSET ASSESSMENT
1. Expect cash flow

2. Discount rate
3. Net present value calculation (NPV)
DISCOUNT RATE
1. Currency purchasing power risk (inflation risk):

reducing purchasing power of money value.
2. Interest rate risk: The market interest rate
changes.
Value of financial assets

= Net present value of expected cash flow
(NPV)
The nature of financial assets
- Currency
- Liquidity
- Profitability - Exchange Can share
- Taxable values
Nature
Complex
Period (Convertible
Can convert bonds...)
(Money/Others
FINANCIAL MARKET
3.1 Concept of Financial Market.
3.2 Formation of Financial Market.
3.3 Functions of Financial Market.
3.4 Roles of Financial Market.
3.5 Financial System.
3.6 Kinds of Financial Market
3.1 Concept of Financial Market.
- Financial Market: Place where trading of financial

assets (stocks, bonds ...).
 Financial Assets: are those whose value is not
based in its material content (unlike real estate
including houses and land) but on relations in the
market.
It includes financial instruments such as stocks,
bonds, bank deposits, currencies and other
valuable papers
- Underdeveloped social economy: Excessive wealth =>
stored.
- Socio-economic development, project scale is
increasingly high => The need for capital is increasing.
- As the socio-economic development: wealth is in
excess,
surplus capital => Expectation to be profitable within
future.
- The flow of investment capital, many forms of
investment appeared => Monetary, capital coordinator.
To solve the problem: excess capital <=> Lack of
capital.
- Direct credit relationship between population classes

or commercial credit application between enterprises.
- Relationships with loans through financial
intermediaries.
- Actively issuing valuable papers: Establish
transaction market.
* Financial system: The whole set of different parts of

a financial structure, where financial relationships
operate in different fields but interrelated under
certain regulations. Components of the financial
system operate in the following areas: creating
financial resources, attracting financial resources and
transferring financial resources (capital conduction).
* Financial departments:
- Household and personal finance.
- Business Finance.
- Financial social organizations.
- Public finance.
- International finance.
- financial intermediation.
Capital Supply: Financial Capital Demand:

- Household Market - Household
- Business - Business
- Institutional Capital Capital - Institutional
Investors mobilization allocation Investors
- Government - Government
- Foreign - Foreign
Investors Financial Investors
intermediation
* Financial Intermediation:
1. Credit institutions:
- Bank: Commercial bank; State bank.
- Cooperative credit institutions: People's Credit Fund; credit
cooperatives.
- Non-bank credit institutions: Financial Company; Financial leasing
company.
2. Other financial institutions:
- Securities Company.
- fund management company.
- Insurance company.
3.4 Functions of financial market.
- Price => Determine prices of financial assets

between buyers and sellers of financial assets.
- Liquidity => Create liquidity for financial assets.
- Cost => Minimize search costs and information
cost of financial asset transactions
3.5 Roles of financial market.
- Center => It is the center that regulates the

supply and demand of money from the redundant
to the lacking place.
- Investment => Attract investment in socio-
economic development.
- Government => Contribute to the government's
macro regulation on regulating money supply and
demand and preventing inflation.
3.5 Kinds of financial market.
A. Based on the term of the instruments:
a1. Currency market.
- Concept: A market for issuance and resale of short-
term financial instruments (less than 1 year).
- Including:
+ Short-term lending market for intermediary
financial institutions.
+ The interbank market.
+ Forex market.
A. Based on the term of the instruments:
a2. Capital market.
- Concept: A market for issuance and resale of long-
term financial instruments (more than 1 year).
- Including:
+ Stock market.
+ Rental credit market.
+ The mortgage market.
B. Based on the form of capital mobilization:
b1. Debt instrument market.
- Concept: A market in which people in need of capital
raise capital based on the issuance of debt instruments.
- Including:
+ Debt instruments: There is mortgage and no mortgage.
+ Terms of debt instruments: Short-medium-long term.
+ Kinds of debt instruments: Bonds, treasury bill...
B. Based on the form of capital mobilization:
b2. Stock market.
- Concept: A market in which institue in need of
capital raise capital based on the issuance of
stock.
C. Based on the market rank:
c1. Primary market.
- Concept: A market for buying and selling newly
issued securities.
- Including:
+ Trading is conducted through an intermediary
financial institution.
C. Based on the market rank:
c2. Secondary market.
- Concept: The market for resale or rebuy of
issued securities.
- Including:
+ The purchase and sale is conducted through
brokerage companies.
3. Intermediary Financial Institutions
OBJECTIVES: Recognize and understand the
intermediary financial institutions
Contents
1. Securities Company.
2. Investment funds and fund management companies.
3. Commercial Bank.
4. Financial company.
5. Insurance company.
6.People's Credit Fund.
7. Retirement fund.
8. Inspection and supervision system of financial markets.
1. The Securities Company
1.1 Concept.
1.2 Conditions for securities company
establishment.
1.3 The role of securities company.
1.4 Operating principles of securities
company.
1.5 Securities company operations.
1.1 Concept.
- Being a securities trading organization, having legal
status, own capital, independent accounting, operating
under license of the State Securities Commission.
- Being an intermediary financial institution in the stock
market, performing financial intermediation through
securities trading activities, securities brokerage,
securities underwriting, investment consulting and
investment fund management.
1.2 Conditions for securities company establishment.
a. Working office conditions:
- Having a working office to ensure securities trading
operations.
- Having sufficient material facilities, techniques, office
equipment, technology system suitable to the
professional process of securities trading.
b. Capital conditions:
Enterprises wishing to conduct securities business must
have contributed capital at the time of establishment of the
company at least equal to the legal capital level prescribed
for each transaction as follows:
- Securities brokerage: 25 billion VND;
- Securities dealing: 100 billion VND;
- Securities underwriting: 165 billion VND;
- Securities investment consultancy: 10 billion VND.
c. Conditions of personnel:
There is a General Director (Director), at least 03 employees
with a securities practice certificate suitable for each securities
trading operation applying for the license and at least 01
compliance controller. The General Director (Director) must meet
the following criteria:
- Not being subject to criminal prosecution or serving a prison
sentence or prohibited from practicing securities;
- Have at least 02 years of experience working in professional
departments of organizations in the fields of finance, securities,
banking, insurance or in finance, accounting and investment
departments in other enterprises;
- Have a certificate of financial analysis practice or a fund
management practice certificate;
- Not be sanctioned for administrative violations in the field
of securities and securities markets within the latest 06
months up to the time of application submission.
If there is a Deputy General Director (Deputy Director)
in charge of the profession, he / she must satisfy the
standards specified at Points a, b and d, Clause 5, Article 74
of the Law on Securities 2019 and possess a securities
practice certificate that is suitable with the charge
profession.
d. Conditions on structure of shareholders, capital-contributing
members:
- Have at least 02 founding shareholders, capital contributing
members are organizations. In case the securities company is
organized in the form of a one-member limited liability company,
the owner must be an insurance enterprise or a commercial bank
or a foreign organization that meets the provisions of Clause 2,
Article 77. of the Securities Law 2019.
- The total capital contribution ratio of organizations must be at
least 65% of the charter capital, of which organizations being
insurance enterprises and commercial banks own at least 30% of
the charter capital.
e. Conditions on shareholders, capital-contributing members:
- Shareholders, capital contributors are individuals who are
not belong to the cases not entitled to establish and manage
enterprises in Vietnam in accordance with the Law on
Enterprises.
- Shareholders, capital-contributing members that are
organizations must have legal status and are operating legally;
profitable business for 2 years immediately preceding the year
of application for the license; The most recent annual financial
statements must be audited with full acceptance.
- Shareholders, capital contributors own from 10% or more
of the charter capital of a securities company and the
related persons of such shareholders, capital contributors (if
any) do not own more than 5% of the charter capital of 01
other securities company.
- Foreign shareholders and capital-contributing members
must meet the conditions specified in Article 77 of the Law
on Securities 2019.
a. For Businesses:
- Enterprises issue shares in the market aiming to raise
capital through the securities channel.
- Securities companies are intermediaries in raising
capital for businesses through underwriting and
securities brokerage.Enterprises issue shares in the
market aiming to raise capital through the securities
channel
b. For investors:
- To be able to trade on the stock market, investors must have
securities trading accounts opened at securities companies.
Securities companies through brokerage and investment
advisory activities will act as a bridge for transactions
between investors.
- Especially, securities companies will be a channel that
provides useful information sources including market analysis
reports, industry analysis, business analysis ... for investors to
have own judgment more accurately.
c. For the stock market:
- On the primary market, the securities company will
help the issuer evaluate the stock before its initial
public offering (IPO).
- On the secondary market, securities firms play the
role of market regulation through securities dealing,
including increasing income for the company in
addition to creating liquidity, adjusting stock prices.
1.4 Operating principles of securities company.
- Ethical principles: Ensuring honesty and responsibility; consider the
benefits of customers first.
- Financial principles:
+ Ensuring capital requirements, principles of accounting and
reporting according to the regulations of the State Securities
Commission;
+ Do not use customer money for business (except for customer
transactions);
+ Customers' securities may not be used as collateral for loans
unless the customers agree in writing.
a. Stockbroker.
b. Securities dealing.
c. Securities underwriting operations.
d. Securities investment advisory.
a. Stockbroker:
* Concepts:
- Brokerage is a business activity of a securities company in
which a securities company on behalf of a client conducts
transactions on a stock exchange or OTC market.
- The customer will be responsible for the economic
consequences of such transaction
** Securities brokerage:
- Opening trading accounts: Securities company must open
securities trading accounts for each customer on the basis
of a contract signed between the customer and the
company.
- Cash and securities management of customers: Securities
companies must manage customers' deposits for securities
transactions separately from their own money, and
separate securities of customers from securities of
securities companies.
** Securities brokerage:
- Receiving transaction orders: Helping customers to place
transaction orders or providing infrastructure, trading
accounts for customers to make transactions online.
- Responsibility to customers: Providing information on
securities codes necessary for customers to trade
effectively. However, the Client is solely responsible for his
or her own trading decisions.
- Support operations: Securities mortgage loan (margin
loan); lending for advance payment of securities.
* Concepts:
- A transaction in which a securities company buys and
sells securities for itself.
- A transaction in which a securities company buys and
sells securities for itself in order to gain profit or
interfere with the price regulation in the market.
**Regulations:
Regulations on securities dealing activities of
securities company comply with Circular 121/2020/TT-
BTC dated 31/12/2020.
- Ensure that there are enough funds and securities to
pay for trading orders for its own account.
- Securities company must prioritize the execution of
client's orders before executing its own orders.
**Regulations:
- In case the client's securities purchase or sale order can
greatly affect the price of that type of securities, the
securities company is not allowed to buy, sell in advance
of the same kind of securities for itself or disclose
information to the party. third buy and sell that
securities.
- When a client places a limit order, the securities
company is not allowed to buy or sell the same security
for him / her at a price equal to or better than that of the
client before the client's order is executed.
c. Securities underwriting operations.
* Concepts:
- The securities company commits to the securities
issuer to carry out the procedures before offering
securities.
- Receiving to purchase part or all of the securities of
the issuing organization for resale or purchase of the
remaining undistributed securities of the issuing
organization or assisting the issuer in distributing
securities to the public.
**Regulations:
Securities company is only allowed to underwrite
the issue, the total value of securities is not greater
than equity and not exceeding 15 times the difference
between the value of short-term assets and short-term
liabilities calculated according to the financial
statements. most recent quarter.
d. Securities investment advisory.
* Concepts:
- Securities consulting is giving advice, analyzing situations
or performing some service-oriented tasks for customers.
- Securities companies must collect and manage customer
information that has been confirmed by customers such
as: Financial status of customers, Income of customers,
investment objectives of customers, ability to accept risks
of customers, business investment experience and
understanding of the Client.
**Regulations:
- Adhere to professional ethics. Don't give false
information to entice customers.
- Ensure honesty and objectivity in consulting activities.
2. Investment funds and fund management companies
2.1. Investment funds.
2.2. fund management companies


a/ Concepts:
- A non-bank financial intermediary that
attracts idle money from various sources
to invest in stocks, bonds, currency or
other types of assets.
a/ Concepts:
- All these investments are strictly regulated by
fund management companies, supervisory banks
and other authorities.
- Is a professional investment organization funded
by all investors. From the savings and idle money
scattered among the population are gathered into
large sources of capital for professionals to use in
the field of profitable investment.
b/ The benefits of investing through funds:
- Diversification of investment portfolios =>
Risk reduction.
- Professional investment management.
- Minimize investment costs.
c/ Participants:
* Fund management company:
- Implement investment fund management
- Established under the operating license of the
State Securities Commission
- Organized in the form of a joint stock company or
a limited company.
c/ Participants:
* Supervisory Bank: To preserve and deposit assets
of the securities investment fund and supervise the
fund management company.
* Investors: Contributing capital to a securities
investment fund by purchasing investment fund
certificates, benefiting from the investment of a
securities investment fund.
d/ classification:
* Closed fund: is a fund that issues fund certificates only once when
raising capital for the fund and does not repurchase investment fund
certificates when investors have a need to resell. After the end of
capital mobilization (closing the fund), fund certificates will be listed
on the Stock Exchange.
* Open-ended fund: The total capital of an open-ended fund
fluctuates according to each trading day due to its peculiar nature that
the investor is entitled to sell the fund certificates to the fund, and the
fund must repurchase fund certificates at net value at the deal time.
Fund certificates are not listed on the Stock Exchange.
e/ Distinguish between Closed fund and Open-ended fund.
Content Closed fund Open-ended fund
Issuance/release Issue a fund certificate only once. After the initial public offering,
Fund certificates will not be open-ended funds can unlimited
bought back by the issuer until the issue and repurchase fund
fund matures certificates
Transaction Trading on the Stock Exchange. Investor transactions are performed
Trading is like trading stocks directly with the fund management
company
Duration Certain term The duration of the operation is
infinite
Characteristics • The scale of capital is stable • The size of the capital changes
• Transaction price according to • Transaction price is based on net
supply and demand asset value
• Highly flexible, thus providing • Transaction by period as regulated
instant liquidity. by the fund management company
2.2. fund management companies.
- An intermediary financial institution specializing in
establishing and managing investment funds, serving the
public's medium and long-term investment needs.
- Being an organization with legal entity status providing
services of securities investment fund management and
securities investment portfolio management.
2.2. fund management companies.
- Fund management company is licensed by the State Securities
Commission to establish and supervise operations.
=> Entrusting investor is an individual or an organization.
=> Fund management practitioner means a person who has a
fund management practice certificate issued by the State
Securities Commission.
3. Commercial Bank
3.1 Concept.
3.2 Functions of Commercial Banks.
3.3 The roles of the Commercial Banks.
3.4 Operations of commercial banks.
3. Commercial Bank
3.1 Concept.
- Is a type of business established under the provisions
of the law on credit institutions and related legal
documents. Operating under the supervision of the State
Bank.
- These businesses operate in the financial and monetary
sector with the regular content of receiving deposits.
- Using the raised money to provide credit, perform
payment services and other business services.
3. Commercial Bank
3.2 Functions of Commercial Banks.
- Deposit mobilization function
- Credit function.
- Payment intermediary function.
3. Commercial Bank
3.4 Operations of commercial banks.
- Capital mobilization operations (deposit receiving operations,
savings books...).
- Credit granting operations (lending, guarantee, L/C opening).
- Payment services (domestic money transfer, international
payment, collection,...).
- Buying and selling foreign exchange ...
- Treasury operations (safe deposit box rental service for
storing valuable papers, gold, jewelry ...)
4. Financial Company
4.1 Concept.
4.2 Classification of finance companies.
4.3 Operations of finance companies.
4.1 Concept.
A type of non-bank credit institution, whose
function is to use equity capital, mobilized capital
and other capital sources to lend, invest, provide
financial and monetary advisory services and
perform some other transactions in accordance
with the law, but cannot provide payment services,
cannot accept deposits for less than 1 year.
4.2 Classification of finance companies.
- General finance company.
- Specialized finance company:
+ Factoring finance company.
+ Consumer credit finance company
+ Finance leasing company
a/ Capital mobilization operations:
- Receive deposits with a term of 1 year or more.
- Issuing promissory notes, bonds, certificates of
deposit and other valuable papers to raise capital.
- Borrowing capital from domestic and foreign
credit institutions and financial institutions
b/ Capital use operations:
- Short-term loans, medium and long-term loans.
- Consumer lending in the form of installment loan.
- Discount, rediscount and mortgage of valuable papers.
- Guaranteed by their reputation and ability (meet the
conditions specified in Decree 39/2014 / ND-CP).
- Factoring (meeting the conditions specified in Decree
39/2014/ND-CP).
- Issue a credit card
5. Insurance Company
5.1 Concept.
5.2 Characteristics of insurance.
5.3 The role of insurance.
5.4 Types of insurance.
5.1 Concept.
Insurance is a method of protection
against financial losses. It is a form of risk
management, mainly used to cover accidental
risks or possible losses. A business that
provides insurance is called an insurer or an
insurance company.
Insurance is a special kind of service.
Insurance is both reimbursable and non-
refundable.
5.3 The role of insurance.
- Preserve capital for production and business
and stabilize the life of the insured.
- Prevent and limit losses.
- Contribute to promoting economic relations
of countries through reinsurance activities.
- Insurance is a tool of credit.
a/ Based on the object of insurance:
* Non-life insurance:
- Property insurance: Insurance operations have the object of insurance
which is the property and related interests. For example, insurance for
domestically transported goods, insurance for construction works, insurance
for ships ....
- Civil liability insurance: having an insured object is the insured's indemnity
liability arising under the provisions of the law on civil liability. For example,
insurance for ship owner's civil liability, motor vehicle owners ....
* Life insurance: Insurance for human life and human health.
b/ Based on the method of deployment:
- Voluntary insurance: A line of insurance where the
insurance contract is signed according to the will of the
policyholder and purely on the principle of agreement.
- Compulsory insurance: Insurance operations in which the
law provides for the insurance obligation of organizations and
individuals that have a certain relationship with the type of
subject that must be insured.
6. People's Credit Fund
6.1 Concept.
6.3 Basic activities.
6.1 Concept.
People's credit fund means a credit institution
voluntarily established by legal entities,
individuals and households in the form of a
cooperative to perform a number of banking
activities in accordance with the Law on Credit
Institutions and The Law on Cooperatives is
mainly aimed at helping each other develop
production, business and life.
- A member of the credit fund has the right to own and
manage all assets and operations of the fund in proportion
to the capital contribution.
- The scope of credit funds is narrow.
- The strength of a credit fund is to follow customers.
- Each credit fund is an independent economic unit but has
a close relationship with each other. Through capital-
regulating, information, and risk-spreading activities to
ensure the development of the fund system.
6.3 Basic activities.
- Mobilize capital, receive deposits, and
borrow capital from other financial
institutions.
- Loans, payment services and treasury.
- Other activities in accordance with the law.
7. Retirement Funds
7.1 Concept.
7.2 Classification of Retirement Funds.
7. Retirement Funds
7.1 Concept.
The retirement fund is formed from the
contributions of the participants of
pension insurance (employees and
employers) and carries out investment
activities to pay retirement benefits to
employees when retire.
7. Retirement Funds
7.2 Classification of Retirement Funds.
- The pension fund operates under a
predetermined benefit rate mechanism.
- The pension fund operates under a
fixed-rate mechanism.
8. Inspection and supervision system of financial markets
1. Inspection field.
2. Scope of work.
3. Inspection activities.
8. Inspection and supervision system of financial markets
1. Inspection field.
2. Scope of work.
3. Inspection activities.
THANK YOU!

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Chapter 2: Financial Market and Financial

Production Factors Market

Financial assets are intangible assets, the

FINANCIAL ASSET ASSESSMENT

1. Expect cash flow

1. Currency purchasing power risk (inflation risk):

Value of financial assets

- Financial Market: Place where trading of financial

- Direct credit relationship between population classes

* Financial system: The whole set of different parts of

Capital Supply: Financial Capital Demand:

- Price => Determine prices of financial assets

- Center => It is the center that regulates the

2.1. Investment funds.

2.2. fund management companies

2.1. Investment funds.

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