2015/7/5 Fudan International Summer session 2015 Why the Course? Why do you choose this course? Chinese financia/ markets Why have you already known about th Why do you want to know about the Chinese financial markets? Why the Course? About financial markets Why"Chinese"Financial Markets? · Basic Questions This course aims to providing the international How do we define the financial markets? students with What is the major function and instruments in the financial markets? financial market Who are the key players? (the government's role? the Chinese characteristics of chinese financial How are the financial markets organized? markets(by comparing with some more advanced) How do we evaluate whether the market is good the reforms that have been done or not so good? Text Book Text Book Foundations of financial Markets and Institutions By Frank J Fabozzi/Franco Modigliani/Frank J Copyright Pearson Education, reprinted by 金融机构基础 CMP(China) US. but not china -Translated version in Chinese is available
2015/7/5 1 Fudan International Summer Session 2015 Chinese Financial Markets Introduction By Zhang Xiaorong July 6th - July 31st Fudan University, Shanghai, China 0-1 Why the Course? • Why do you choose this course? • Why have you already known about the Chinese financial markets? • Why do you want to know about the Chinese financial markets? 0-2 Why the Course? • Why “Chinese” Financial Markets? • This course aims to providing the international students with – an understanding of the basic mechanism in the financial market – the Chinese characteristics of Chinese financial markets (by comparing with some more advanced) – the reforms that have been done – and challenges ahead 0-3 About Financial Markets • Basic Questions – How do we define the financial markets? – What is the major function and instruments in the financial markets? – Who are the key players? (the government’s role?) – How are the financial markets organized? – How do we evaluate whether the market is good or not so good? 0-4 Text Book Foundations of Financial Markets and Institutions, 4th Edition – By Frank J. Fabozzi/Franco Modigliani/Frank J. Jones – Copyright Pearson Education, reprinted by CMP (China) – Talks mainly the markets and schemes in the US, but not China – Translated version in Chinese is available 0-5 Text Book 0-6
2015/7/5 aluation and Grading Teaching Classroom Attendance--20% Lecturing Professor: Xiaorong ZHANG o Bonus up to 5% based on classroom discussion Department of Finance, School of Management Project Presentation--Group work, 30% 25011088(O) udents will be divided into 6 groups o Each group should give a presentation in class on a Email:xizhang@fudan.edu.cn Reserving time by email is preferred Final Thesis --IndividuaL 50% TA: Ye GUAN Each student should write a thesis (5-8 pages)on a Student in Fudan Economics school specific topic regarding Chinese financial markets Email:12307100256@fudan.edu.cn Deadline: 12: 00PM, july 29th Course structure Course schedule Introduction of financial markets and Financial Assets Tues Thur troduction Central Bank Stock Market Market isiting Shanghai July 17 king Sector anking Sector PBoC History of the Chinese Stock Exchange Rate Before 1978 Banking System Markets Regimes Stock Banking SectorStructure Monetary Policy after 2003 Rate Reform july31 (Guest Speaker) riting Reform Types of Assets Types of Assets Real assets Financial asset goods and services Claims on a real asset Lands, plants, equipment, technology know-how, insurance policies, certificate of deposit, bank loans, swaps Futures and options Financial assets are intangible but intangible
2015/7/5 2 • Classroom Attendance——20% ◦ 10 sessions, each accounts for 2% ◦ Bonus up to 5% based on classroom discussion • Project Presentation——Group work, 30% ◦ Students will be divided into 6 groups ◦ Each group should give a presentation in class on a specific topic • Final Thesis ——Individual, 50% ◦ Each student should write a thesis (5-8 pages) on a specific topic regarding Chinese financial markets ◦ Deadline: 12:00PM, July 29th Evaluation and Grading 0-7 Teaching • Lecturing Professor: Xiaorong ZHANG Department of Finance, School of Management Office: Room 214, Siyuan Building Tel: 25011088(O) Email: xrzhang@fudan.edu.cn Reserving time by email is preferred. • TA: Ye GUAN Student in Fudan Economics School, Email: 12307100256@fudan.edu.cn 0-8 Course Structure 0-9 Introduction of Financial Markets and Financial Assets Central Bank Commercial Banks Exchange Rate Regimes Stock Market PBoC Before 1978 History of the Banking System Chinese Stock Markets Reform of PBoC and Monetary Policy Reforming Banking Sector after 2003 RMB Exchange Rate Reform Split-Share Structure Reform Forex Market Course Schedule Mon. Tues. Thur. July 6- July 10 Course Introduction The Central Bank The Central Bank July 13- July 17 The Banking Sector The Banking Sector Visiting Shanghai Futures Exchange July 20- July 24 The Stock Market The Stock Market Exchange Rate Regimes July 27- July 31 RMB Reform (Guest Speaker) Thesis Writing Thesis Evaluation 0-10 Types of Assets • Real Assets – Assets used to produce goods and services – Lands, plants, equipment, technology, know-how, brands 0-11 Types of Assets • Financial Assets – Claims on a real asset – Stocks, bonds, foreign currencies – insurance policies, certificate of deposit, bank loans, swaps – Futures and options • Financial assets are intangible; but intangible assets can also be real assets! 0-12
2015/7/5 Role of financial Assets Role of financial Assets Transfer funds from surplus units to deficit units. Transfer funds from surplus units to deficit units. Example 1: You have graduated from college for 3 Example 2: In your late 305, you have repaid all ars and the salary is just satisfying. Yo your mortgage and your income is more than want to buy a small apartment near your company, but your saving can only cover 30% of it. What can the surplus money? l enough to raise the family. what can you do with Role of financial assets Role of financial Assets Transfer funds from surplus units to deficit units. Transfer funds so as to redistribute unavoidable risk ssociated with cash flows generated from both ork, you have no salary. However, you can tangible and intangible assets. upport your own living with your pension and Example 4: You and your cousin are considering your saving personal investments in the security market. You Who contributes to your pension and your saving? prefer safe return and invest bonds, while he is apparently more aggressive and invests in the stock market with leverage. Whose investment is better? Role of financial Markets Role of financial Markets Intuitively, the financial markets are where we · Role of financial mark an buy or sell financial assets. Determine price or required rate of return Should financial markets be organized? of asset If not, how do you search for potential buyers Provide liquidity Reduce transactions costs which consists of What is the cost associated? search costs and information costs What about the credit risk?
2015/7/5 3 Role of Financial Assets • Transfer funds from surplus units to deficit units. – Example 1: You have graduated from college for 3 years and the salary is just satisfying. You really want to buy a small apartment near your company, but your saving can only cover 30% of it. What can you do now? 0-13 Role of Financial Assets • Transfer funds from surplus units to deficit units. – Example 2: In your late 30s, you have repaid all your mortgage and your income is more than enough to raise the family. What can you do with the surplus money? 0-14 Role of Financial Assets • Transfer funds from surplus units to deficit units. – Example 3: You retire at age 65. Since you don’t work, you have no salary. However, you can support your own living with your pension and your saving. – Who contributes to your pension and your saving? – And how? 0-15 Role of Financial Assets • Transfer funds so as to redistribute unavoidable risk associated with cash flows generated from both tangible and intangible assets. – Example 4: You and your cousin are considering personal investments in the security market. You prefer safe return and invest on government bonds, while he is apparently more aggressive and invests in the stock market with leverage. – Whose investment is better? 0-16 0-17 Role of Financial Markets • Intuitively, the financial markets are where we can buy or sell financial assets. • Should financial markets be organized? • If not, how do you search for potential buyers or sellers? • What is the cost associated? • What about the credit risk? 0-18 Role of Financial Markets • Role of financial markets –Determine price or required rate of return of asset – Provide liquidity – Reduce transactions costs, which consists of search costs and information costs
2015/7/5 Classification of financial Markets Financial Market Participants Various ways in classifying financial markets · Household sector Debt vs equity markets Primary Need: Invest Funds Money market vS capital market · Business sector Primary Need: Raise Funds Cash or spot vs derivatives market · Government sector Over-the-counter vs, intermediated market imary Need: Raise Funds But they can have other needs to Instruments and institutions Globalization of financial Markets in the financial markets central bank, treasury Since 1970s the financial markets have commercial banks, investment banks, security firms, insurance companies, mutual fund Deregulation or liberalization of financial Benchmark interest rate, required reserve markets ratio, capital adequacy ratio, interest rate Technological advances Stock exchange, stocks, warrants, ETF Increased institutionalization commercial Paper, Bonds, T-bonds, T-bills, What are the benefit and costs of financial markets become global and integrated? options, futures, swap, forward, NDF Classification of Classification of Global Financial Markets Global Financial Markets McDonald's issues uS dollar bond in the (also called national McDonalds issues Japanese Yen bond in Japan. In 2005, IFC and ADb issued rmb bond in Chinas inter-bank market In 2010, McDonalds issues RMB bond in Hong Domestic Market What's the purpose of financing in the foreign ket and Euromarket?
2015/7/5 4 Classification of Financial Markets • Various ways in classifying financial markets –Debt vs. equity markets – Money market vs. capital market – Primary vs. secondary market – Cash or spot vs. derivatives market –Over-the-counter vs. intermediated market 0-19 Financial Market Participants • Household Sector – Primary Need: Invest Funds • Business Sector – Primary Need: Raise Funds • Government Sector – Primary Need: Raise Funds But they can have other needs too. 0-20 Instruments and Institutions in the Financial Markets • central bank, treasury • commercial banks, investment banks, security firms, insurance companies, mutual funds • Benchmark interest rate, required reserve ratio, capital adequacy ratio, interest rate • Stock exchange, stocks, warrants, ETF • commercial Paper, Bonds, T-bonds, T-bills, convertibles, Repo • options, futures, swap, forward, NDF 0-21 Globalization of Financial Markets • Since 1970s, the financial markets have become more and more integrated –Deregulation or liberalization of financial markets – Technological advances – Increased institutionalization • What are the benefit and costs of financial markets become global and integrated? 0-22 Classification of Global Financial Markets Internal Market (also called national market) External Market (also called international market, offshore market, and Euromarket) Domestic Market Foreign Market 0-23 Classification of Global Financial Markets • Examples – McDonald’s issues US dollar bond in the US. – McDonald’s issues Japanese Yen bond in Japan. – In 2005, IFC and ADB issued RMB bond in China’s inter-bank market. – In 2010, McDonald’s issues RMB bond in Hong Kong. • What’s the purpose of financing in the foreign market and Euromarket? 0-24
2015/7/5 The chinese characteristics More About Chinese Characteristics For chine (Some say that none financial theory in the Are financial markets all the same over the world? text book holds in Chinal) re there any "types"of financial markets? Can we talk about financial markets without Are Chinas financial markets special? Why or why mentioning the economic reform Can we talk about the financial markets How did the China's financial markets evolve in the transition from a planned economy to t ithout mentioning the legal environment? market economy? How do we predict the future arket without putting it in a globa How Do We Learn About the How Do We learn about the Chinese Characteristics? Chinese Characteristics? What are these in China? By supplementary readings and anecdotes in PBoC. CSRC. CIRC. CBRC. SAFE MOF ABC, ICBC, CBC, BOC, BoCom, AMC Do you know the background of all these? hanghai Stock Exchange, Shenzhen Stock 5.21 soaring(growing by xchange, SME Board, GEM Board 1994: RMB managed floating Tradable shares and non-tradable shares 1995: 327 T-bill Futures Event orporate bonds, debentures 1998: RMB pegged Dim sum bond, Panda Bond 2005-2006: State-owned commercial banks No textbook on these is available so far! listed in Shanghai and Hong Kong How Do We Learn about the Chinese Characteristics? Combine the all Do you know the background of all these? In mid 2007, Jack sold his house in California 2005: Reform of non-tradable shares or $0.5 million, and bough an apartment in 2005: RMB back to managed floating Beijing, which cost RMB 3 million($0. 4 million 007: 5.30 stamp tax doubled quivalent, exchange rate 7.5) 2010: Stock index futures launched 2013: lending rate floor removed -2013: T-bill Futures trading restarted 2014: Shanghai Hong Kong Stock Connect 2015: stock market collapse
2015/7/5 5 The Chinese Characteristics • For Chinese Financial Markets – Are financial markets all the same over the world? – Are there any “types” of financial markets? – Are China’s financial markets special? Why or why not? – How did the China’s financial markets evolve in the transition from a planned economy to the market economy? – How do we predict the future? 0-25 More About Chinese Characteristics • (Some say that none financial theory in the text book holds in China!) • Can we talk about financial markets without mentioning the economic reform? • Can we talk about the financial markets without mentioning the legal environment? • Can we understand the Chinese financial market without putting it in a global background? 0-26 • What are these in China? – PBoC, CSRC, CIRC, CBRC, SAFE, MOF – ABC, ICBC, CBC, BOC, BoCom, AMC – Shanghai Stock Exchange, Shenzhen Stock Exchange, SME Board, GEM Board – Tradable shares and non-tradable shares – Corporate bonds, debentures – Dim sum bond, Panda Bond • No textbook on these is available so far! How Do We Learn About the Chinese Characteristics? 0-27 How Do We Learn About the Chinese Characteristics? • By supplementary readings and anecdotes in the market • Do you know the background of all these? – 1992: “5.21” soaring (growing by 105.5%) – 1994: RMB managed floating – 1995: 327 T-bill Futures Event – 1998: RMB pegged – 2005-2006: State-owned commercial banks listed in Shanghai and Hong Kong 0-28 • Do you know the background of all these? – 2005: Reform of non-tradable shares – 2005: RMB back to managed floating – 2007: “5.30” stamp tax doubled – 2010: Stock index futures launched – 2013: lending rate floor removed – 2013: T-bill Futures trading restarted – 2014: Shanghai Hong Kong Stock Connect – 2015: stock market collapse How Do We Learn About the Chinese Characteristics? 0-29 Combine the All • In mid 2007, Jack sold his house in California for $0.5 million, and bough an apartment in Beijing, which cost RMB 3 million ($0.4 million equivalent, exchange rate 7.5). 0-30
2015/7/5 Combine the all Combine the all In 2012, he sold his apartment in Beijing for The total living cost in Beijing from 2007 to RMB 6.3 million($1 million equivalent 2012 was about $o 1 million in total exchange rate 6.3), and went back to the US Jack found he now had a surplus of $0. 6 million! and bought back his house with $o 4 million How did he make it? Who paid for it?
2015/7/5 6 Combine the All • In 2012, he sold his apartment in Beijing for RMB 6.3 million ($1 million equivalent, exchange rate 6.3), and went back to the US and bought back his house with $0.4 million. 0-31 Combine the All • The total living cost in Beijing from 2007 to 2012 was about $0.1 million in total. • Jack found he now had a surplus of $0.6 million! • How did he make it? Who paid for it? 0-32
