Financial markets Unit 1: the financial
system
Inhoud
Section 1: the actors ................................................................................................................................ 3
Haves ................................................................................................................................................... 3
Have-nots ............................................................................................................................................ 3
Householts........................................................................................................................................... 3
Kinds of assets ..................................................................................................................................... 3
- Tangible assets ......................................................................................................................... 3
- Intangible assets ...................................................................................................................... 3
- Financial assets ........................................................................................................................ 3
Asset classes ........................................................................................................................................ 3
- Traditional ................................................................................................................................ 3
- Alternatives.............................................................................................................................. 3
Liabilities .............................................................................................................................................. 3
Growth drivers in net wealth............................................................................................................... 3
- Wealth changes due to ........................................................................................................... 3
- Wealth creation ....................................................................................................................... 3
Final thought ....................................................................................................................................... 4
Section 2: balance sheets of other actors ............................................................................................... 4
Corporates ........................................................................................................................................... 4
- Funding .................................................................................................................................... 4
- Leverage .................................................................................................................................. 4
- Dupont scheme ....................................................................................................................... 4
- Leverage multiplier .................................................................................................................. 5
Financial market – bank....................................................................................................................... 5
- Difference typical bank and non-bank..................................................................................... 5
1
, ........................................................................... 5
Financial sector- mutual fund .............................................................................................................. 5
Financial sector – insurance company................................................................................................. 6
The government .................................................................................................................................. 6
Section 3: the financial system ................................................................................................................ 6
Importance .......................................................................................................................................... 6
- Linked with economic growth ................................................................................................. 6
- Facilitate production, employment and consumption ............................................................ 6
- Recourses flow to most efficient uses ..................................................................................... 6
Semi- / in- / direct finance ................................................................................................................... 6
- Direct finance .......................................................................................................................... 6
- Indirect finance ........................................................................................................................ 6
Section 4: role of the government........................................................................................................... 7
Regulation............................................................................................................................................ 7
Other roles........................................................................................................................................... 7
Section 5: review questions ..................................................................................................................... 8
2
,Section 1: the actors
Haves
- Possess capital and can lend it out = lenders
- Householts
Have-nots
- Have more needs than money and will have to raise capital = borrowers
- Corporates, government, financial industry, etc ..
Householts
- Nett-wealth = assets – liabilities
- Household balance sheet
o Overview of assets and liabilities
Kinds of assets
- Tangible assets
o Real assets
o Assets with a physical character
- Intangible assets
o Legal claim to a future benefit
- Financial assets
o Intangible asset
o Claim to future cash
Asset classes
- Traditional
o Common stocks, bonds, cash
- Alternatives
o Real estate, hedge funds, currencies
o Commodities: invest in Cu, steel , grain etc
o Private equity: shares that can’t be bought on the stock market
Liabilities
- Mortgage loans
- Consumer loans
- Tax debt
Growth drivers in net wealth
- Wealth changes due to
o Value changes in assets and liabilities
o Net-income from labour, capital or transfers
o Inheritances, gifts
- Wealth creation
o Assets put money in your pocket and liabilities take money from your pocket
3
, Final thought
- Households are the ultimate owners of all assets in the economy
- Households are the ultimate bearers of risk within the financial system
Section 2: balance sheets of other actors
Corporates
- Funding
o Shareholders funds (equity)
o Debt
- Leverage
o Raise ROE above ROA
o Return on equity above return on assets
- Dupont scheme
o
4
system
Inhoud
Section 1: the actors ................................................................................................................................ 3
Haves ................................................................................................................................................... 3
Have-nots ............................................................................................................................................ 3
Householts........................................................................................................................................... 3
Kinds of assets ..................................................................................................................................... 3
- Tangible assets ......................................................................................................................... 3
- Intangible assets ...................................................................................................................... 3
- Financial assets ........................................................................................................................ 3
Asset classes ........................................................................................................................................ 3
- Traditional ................................................................................................................................ 3
- Alternatives.............................................................................................................................. 3
Liabilities .............................................................................................................................................. 3
Growth drivers in net wealth............................................................................................................... 3
- Wealth changes due to ........................................................................................................... 3
- Wealth creation ....................................................................................................................... 3
Final thought ....................................................................................................................................... 4
Section 2: balance sheets of other actors ............................................................................................... 4
Corporates ........................................................................................................................................... 4
- Funding .................................................................................................................................... 4
- Leverage .................................................................................................................................. 4
- Dupont scheme ....................................................................................................................... 4
- Leverage multiplier .................................................................................................................. 5
Financial market – bank....................................................................................................................... 5
- Difference typical bank and non-bank..................................................................................... 5
1
, ........................................................................... 5
Financial sector- mutual fund .............................................................................................................. 5
Financial sector – insurance company................................................................................................. 6
The government .................................................................................................................................. 6
Section 3: the financial system ................................................................................................................ 6
Importance .......................................................................................................................................... 6
- Linked with economic growth ................................................................................................. 6
- Facilitate production, employment and consumption ............................................................ 6
- Recourses flow to most efficient uses ..................................................................................... 6
Semi- / in- / direct finance ................................................................................................................... 6
- Direct finance .......................................................................................................................... 6
- Indirect finance ........................................................................................................................ 6
Section 4: role of the government........................................................................................................... 7
Regulation............................................................................................................................................ 7
Other roles........................................................................................................................................... 7
Section 5: review questions ..................................................................................................................... 8
2
,Section 1: the actors
Haves
- Possess capital and can lend it out = lenders
- Householts
Have-nots
- Have more needs than money and will have to raise capital = borrowers
- Corporates, government, financial industry, etc ..
Householts
- Nett-wealth = assets – liabilities
- Household balance sheet
o Overview of assets and liabilities
Kinds of assets
- Tangible assets
o Real assets
o Assets with a physical character
- Intangible assets
o Legal claim to a future benefit
- Financial assets
o Intangible asset
o Claim to future cash
Asset classes
- Traditional
o Common stocks, bonds, cash
- Alternatives
o Real estate, hedge funds, currencies
o Commodities: invest in Cu, steel , grain etc
o Private equity: shares that can’t be bought on the stock market
Liabilities
- Mortgage loans
- Consumer loans
- Tax debt
Growth drivers in net wealth
- Wealth changes due to
o Value changes in assets and liabilities
o Net-income from labour, capital or transfers
o Inheritances, gifts
- Wealth creation
o Assets put money in your pocket and liabilities take money from your pocket
3
, Final thought
- Households are the ultimate owners of all assets in the economy
- Households are the ultimate bearers of risk within the financial system
Section 2: balance sheets of other actors
Corporates
- Funding
o Shareholders funds (equity)
o Debt
- Leverage
o Raise ROE above ROA
o Return on equity above return on assets
- Dupont scheme
o
4
