SAVINGS, INVESTMENT, AND THE FINANCIAL SYSTEM

1. Chapter 13
SAVINGS, INVESTMENT, AND
THE FINANCIAL SYSTEM
-- Group 2 --

2. Group’s members
Mai Trâm
Huy Bảo
Ngọc Tuyền
Khánh Linh

3. IDENTIFICATION
You can know about:
Financial system
Financial markets

4. About the
FINANCIAL SYSTEM

5. About the
FINANCIAL SYSTEM
Financial system is the group of institutions in
the economy that help to match one person’s
savings with another person’s investment.

6. The borrowers and lenders tend to
trade money in exchange for a return
on the investment at some future date.
Derivative instruments are also traded
in the financial markets as well, which
are contracts that are determined based
on an underlying asset’s performance.
I NEED
MONEY
BORROWERS LENDER
S

7. About the
FINANCIAL MARKETS

8. About the
FINANCIAL MARKETS
Financial markets is financial institutions
through which savers can directly provide funds
to borrowers.
A financial market is also a word that describes
a marketplace where bonds, equity, securities,
currencies are traded.
These are markets where businesses grow their
cash, companies decrease risks, and investors
make more cash.

9. About the
FINANCIAL MARKETS
The two most important financial markets are:
the BOND MARKET and the STOCK
MARKET.

10. THE BOND MARKET

11. • The bond market (also debt market or credit market) is
a financial market where participants can issue new debt,
known as the primary market, or buy and sell debt
securities, known as the secondary market.
• Bond is a certificate or indebtedness that specifies the
obligations of the borrower to the holder of the bond.

12. • Individuals, businesses or governments can buy bonds.
• The person who lends money to the bond issuer is called a
bondholder.
• Bonds will bring in income as interest. This is a fixed recurring
revenue; regardless of business results.
• Bonds are essentially debt securities. Therefore, when the
company goes bankrupt or dissolves; then the shares of the
company must be paid to the first bondholders. After paying the
bond debt, the new shares will be distributed to the shareholders.

13. Types of bonds in Vietnam
Government
Bonds Local Government
Bonds
Government-guaranteed
bonds Corporate
bonds
01
02
03
04

14. THE STOCK MARKET

15. • A stock market is the aggregation of buyers and sellers of
stocks (also called shares), which represent ownership claims on
businesses; these may include securities listed on a public stock
exchange, as well as stock that is only traded privately, such as
shares of private companies which are sold to investors through
equity crowdfunding platforms.
• Stock represents ownership in a firm and is, therefore, a claim
to the profits that the firm makes.

16. • The stock market is considered a capital market because it
provides long-term financing for companies.
• Most large companies use the stock exchange to raise capital for
expansion and business operations. For example, Facebook’s IPO
raised about $16B for the company

17. COMPARE STOCK MARKET IN ASEAN

18. COMPARE BOND &
STOCK MARKET

19. BOND & STOCK
Bond Stock
Kind of
Instrument
Debt Equity
Meaning In finance, a bond is a debt
security, in which the authorized
issuer owes the holders a debt and
is obliged to repay the principal
and interest
In financial markets, stock capital raised
by a corporation or joint-stock company
through the issuance and distribution of
shares
Centralization Bonds markets, unlike stock or
share markets, often do not have a
centralized exchange or trading
system.
Stock or share markets, have a
centralized exchange or trading system.
Holders Bond holders are in essence
lenders to the issuer
The stockholders own a part of the
issuing company (have an equity stake)

20. BOND & STOCK
Participants Investors, Speculators,
Institutional Investors
Market maker, Floor trader, Floor broker
Issued By Bonds are issued by public sector
authorities, credit institutions,
companies and supranational
institutions
Stocks are issued by corporations or joint-
stock companies
Owners Bondholders Stockholders or Shareholders

21. FINANCIAL
INTERMEDIARIES

22. FINANCIAL
INTERMEDIARIES
 Financial intermediaries are financial
institutions through which savers can
indirectly provide funds to borrowers.
 It plays the role between savers and
borrowers.
 The two most important financial
intermediaries: BANKS and MUTUAL
FUNDS.

23.  Banks are the financial intermediaries with which people are
most familiar.
 A primary job of banks is to take in deposits from people who
want to save and use these deposits to make loans to people who
want to borrow.
 Besides being financial intermediaries, banks plays a second
important role: they facilitate purchases of goods and services
by allowing people to write checks against their deposits and to
access those deposits with debit cards.
 Stocks and bonds, like bank deposits, are a possible store of
value for the wealth that people have accumulate in past saving,
but access to this wealth is not as easy, cheap, and immediate.
BANKS

24. Saving and Investment in
the National
Income Accounts
Part 2

25. Identity
An equation that must be true because of the way the
variables in the equation are defined.
GDP
Both sides are balanced, different variables are related to
one another.
Y = C + I + G + NX

26. Closed economy Does not interact with other economies
Do not engage in international trade in goods and services
not engage in international borrowing and lending.
Open economy
Interact with other economies
around the world.

27. North Korea
is a closed economy?
nutrition energy and
machines
exporting

28. Saving = Investment?
GDP
Y = C + I + G + NX
In closed economy Y = C + I + G
Y - C - G = I
National saving
S = Y - C - G
S = I

29. Introduce T
S = Y - C - G = (Y - T - C) + (T - G)
Private saving – public saving
(Y - T - C)
(T - G)
Private Saving: Income - Pay for the government in taxes - what
individuals consume
Public Saving: tax collections by the government - what the
government spends
T: the amount that the government collects from households in taxes minus the amount it
pays back to households in the form of transfer payments

30. Private saving – public saving
Suppose that, in a closed economy:
GDP = $16 billion.
Consumption = $9 billion.
Government purchases = $2.5 billion.
Tax revenue = $2 billion.
Find private saving and public saving

31. Private saving – public saving
Suppose that, in a closed economy:
GDP = $16 billion.
Consumption = $9 billion.
Government purchases = $2.5 billion.
Tax revenue = $2 billion.
Find private saving and public saving
Private saving = Y – T – C = $16 - 2 - 9 = $5 billion
Public saving = T - G = $2 -2.5 = -$0.5 billion
(Y - T - C)
(T - G)

32. Investment
refers to businesses buying new capital, equipment and buildings
NOT purchasing stocks and bonds
The LEGO Group signed an MoU on December 8, 2021 to
build a new factory in Vietnam

33. Saving
Buy corporate
bonds or equities
Purchase a
certificate of
deposit at the
bank
Buy shares of a
mutual fund
Accumulate in
saving or
checking
accounts

34. The market for
loanable funds

36. Example of loanable funds market
Mutual fund firms Commercial banks
Investment banks
Stock exchanges

37. What is the market for loanable funds ?
● The market in which those who want to save supply funds and
those who want to borrow to invest the demand curve
● People go to this market to deposit their saving and borrow
money
● There is one interest rate for both the return to saving and the
cost of borrowing

38. Example of loanable funds
bonds
savings deposits
loans

39. Supply and demand of
loanable funds

40. Sources of supply and demand in
loanable market
● Supply comes from national saving including both public
saving and private saving
● Demand comes from households and firms who want to
borrow to make investment

41. The interest rate
is price of the loan

43. • High interest rate makes borrowing more expensive, the
quantity of demand falls
• High interest rate makes saving more attractive, the quantity of
supply rises
• When the interest is high
The demand curve slopes downwards
The supply curve slopes upwards

45. Policy 3:
Government
Budget Deficits
and Surpluses

46. • When the government spends more than it receives
in tax revenues, the short fall is called the budget
deficit.
• The accumulation of past budget deficits is called
the government debt.

47. • If the government’s spending exactly euqals
tax revenue, then the government has a
balanced budget.

48. • Government borrowing to finance its budget
deficit reduces the supply of loanable funds
available to finance investment by
households and firms

49. • This fall in investment is referred to as
crowding out.
- The deficit borrowing crowds out private
borrowers who are trying to finance investments

50. • A budget deficit decreases the supply
of loanable funds
- Shifts the supply curve to the left.
- Increases the equilibrium interest rate.
- Reduces the equilibrium quantity of loanable
funds.

52. • When government reduces national saving
by running a deficit, the interest rate rises
and investment falls.

53. • A budget surplus increases the supply of loanable
funds, reduces the interest rate, and stimulates
investment.

54. ● The debt of the U.S.
federal government,
expressed here as a
percentage of GDP, has
varied throughout history.
● Wartime spending is
typically associated with
substaintial increases in
government debt.

55. KAHOOT
Play time

57. Summary

58. • The financial system is made up of financial institutions
such as the bond market, the stock market, banks, and
mutual funds.
• All these institutions act to direct the resources of
households who want to save some of their income into
the hands of households and firms who want to borrow

59. • National income accounting identities reveal some important
relationships among macroeconomic variables
• In particular, in a closed economy, national saving must equal
investment.
• The saving and investment rate determines the growth rate and
long-run level of GDP and comsumption

60. • Financial institutions attempt to match one person’s saving
with another person’s investment
• The interest rate is determined by the supply and demand for
loanable funds

61. • The supply of loanable funds comes from households who
want to save some of their income.
• The demand for loanable funds comes from households and
firms who want to borrow for investment.

62. • National saving equals private saving plus public
saving.
• A government budget deficit represents negative public
saving and, therefore, reduces national saving and the
supply of loanable funds.
• When a government budget deficit crowds out
investment, it reduces the growth of productivity and
GDP.

63. THANK YOU FOR YOUR
LISTENING
-- Group 2 --