Summary - Introduction to financial markets [UAntwerpen, Handelsingenieur]

Introduction to Financial Markets

Introduction:

Grading: assignment: Give opinion about an article from Financial Times, …

Exam: MCQ,



1. Unit 1: The Financial System
1.1. The Actors
1.1.1. Haves or Havenots?


2 big groups: (from macro-perspective viewpoint, all the households, all coorporates,
governments,… → if they want to do something, they need money, but money is uneven spread
among these groups)

- Haves: financial industry (bank)
- Havenots: government, corporates, financial industry (bank)

Bank (financial industry): both borrowing and lending



Haves → Money → Havenots

Haves → Money – through Financial Industrie → Havenots



1.1.2. The Main Actor: Households


If the households are the crucial players → how do we look at their wealth?

Net wealth based on Balance sheet: Assets and Debt (liabilities)

Assets (house)

Liabilities (mortgage loan,…)

Net wealth: what do you really have?




1

,Balance sheet:




What do households own?

Activa

- Real assets: tangible assets
o Cars
o Real estate
- Financial Assets:
o Stocks: participations in companies
o Bonds: ‘kind of loans’
▪ Governments or corporates
o Mutual Funds: kind of portfolio you buy with all kinds of stocks inside
o Deposits
o Cash

Passiva

- Mortgage loans
- Consumer loans (when buying a car, spread out over months,…)



Real Versus Financial Assets:

- US:
o Adults have more Financial assets than Real assets
- India:
o Real assets are more than financial assets

 The way how people store wealth is different all over the world




2

,Kind of Assets

- Tangible assets/real assets {= synonyms}: you derive value from the fact that you can use
it
- Intangible assets: derive value from a legal claim to some future benefit
[they give you a claim somewhere in the future]
o Financial assets: are intangible assets that represent a claim to future cash



Asset Classes:

We devide financial assets into different categories

- Traditional asset classes: stocks, bonds, all kind of cash instruments
- Alternative asset classes: Real estate, commodities , private equity, hedge funds,
venture capital, currencies



Liabilities:

- Mortgage loans
- Consumers loans
- Tax debts



Growth drivers in net wealth:

What are the drivers of the changes in wealth?

- value changes in assets and liabilities:
o e.g. good investments will lead to changes in wealth
o e.g. both changes in assets or liabilities are possible
- Net-income from labour, capital or transfers:
o Security income
- Inheritances, gifts

=>wealth is something dynamic, and its very relative → if stock markets grow with 50% a year,
we are much more wealthy, if next year there is a big crash → all the wealth we had just
evaporates




3

, Wealth Creation:

‘’Assets put money in your pocket, whether you work or not, and liabilities take money from your
pocket.’’ Robert Kiyosaki

Poor familiy: no assets/liabilities

→salary → rent, food, leisure – everything they own is spent

Middle class: ‘poor families with a home’

→salary → rent, food,… the money, left over they buy a house

Rich class: got really assets on their balance sheet,

which generates an income

• Dividends from stocks, rents they get paid,..
• Collecting assets that generates cash for you



If you want to get rich → you need to get independent and build up asssets that generate an
income itself



Wealth is not uniformly distributed:

- Wealth is not distributed over the world
- Africa is lighter colour → US, Europe, Australia : wealth
- Unevenly distributed




Wealth distribution

- Regional composition of global wealth
- X-as – percentile
- Wealthiest people: North America/ Europe
- Middle class: high in China
- High poverty in: Africa, India, Asia-Pacific
- Poor people in the US/Europe: top left corner




4