Full summary Introduction to financial markets

INTRODUCTION TO FINANCIAL
MARKETS
UNIT 1: THE FINANCIAL SYSTEM

SECTION 1: THE ACTORS


HAVES OR HAVENOTS
Haves = possess capital and can lend it out (lenders)
Havenots = have more needs than money, they will raise capital (borrowers)

Haves Havenots
• Households • Corporates
• The rest of the world • The government
• The financial industry


HOUSEHOLDS (THE MAIN ACTOR)
When a single household owns a house of 100, but has a remaining mortgage debt of 80,
the net wealth is 20.
 Net wealth = assets – liabilities




Assets

 Real assets = thing that you can grab, tangible things
 Financial assets
o Stocks = a part of a company that you have
o Bonds = money you lend to a company or government, they pay you back with interest
▪ Govies
▪ Corporates
o Mutual funds = a mix of stocks and bonds managed by experts
o Deposits = money you put in a bank for safekeeping
o Cash = money you have in hand or in your bank account




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,Liabilities

 Mortgage loans = money you borrow from a bank to buy a house
 Consumer loans = money you borrow from a bank to buy things like a car
 Tax debt = money you owe to the government in taxes
 Net wealth = assets – liabilities



TYPES OF ASSETS
Tangible assets = real assets = derive value from their physical character & utility they generate.
Intangible assets = derive value from a legal claim to some future benefit. (ex.: a patent)
Financial assets = intangible assets that represent a claim to future cash. (ex.: stocks)




 The way that people store money and wealth is different all over the world
 In BE, the financial assets are a little bit smaller than the real assets (almost 50/50)



ASSET CLASSES
Two types of asset classes and their subclasses:

 Traditional assets = assets that are highly liquid and regulated
o Common stock = a share of ownership in a company
o Bonds = money you lend to a company
o Cash = money you have in the hand or in a bank account

 Alternative assets = less common, less liquid and higher risk, buter also a higher potential on returns
o Real estate = land or buildings you own and can sell or rent out
o Commodities = physical goods, like gold, oil or wheat that you can trade
o Private equity = investing in companies that are not on the stock market
o Hedge funds = a pool of money managed by experts
o Venture capital = money invested in new or small business with high growth potential
o Currencies (fores) = buying and selling different currencies




LIABILITIES
Liabilities = financial debt that a person or company owes to another party.

 Mortgage loans = money you borrow from a bank to buy a house
 Consumer loans = money you borrow to buy things like a car
 Tax debt = money you owe to the government in taxes

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,GROWTH DRIVERS IN NET WEALTH
 Value changes in assets and liabilities
o Ex.: If your house becomes more valuable, you become wealthier
o Ex.: If you pay off a loan, you have less debt, it increases your wealth
 Net income from labour, capital or transfer
o Labour income = your salary or wages
o Capital income = money from investments
o Transfers = money you receive from the government (pension, social security, etc)
 Inheritances & gifts
o Ex.: If your parents leave you a house, your wealth increases, without you must work for it



New sources come form good investments!!!
Wealth is dynamic!
>> If the stock markets grow, we will be wealthier
>> You still have the same number of shares, but the value will change everything




WEALTH CREATION




Poor family
= No assets and liabilities (they work hard, but everything they earn need to be spend)

Middle class
= Poor family with a home (they buy a house with their salary, and borrow money from the bank for it)

Rich class
= Got a lot of assets (assets generate cash on their own, you don’t need to work for it)



Wealth inequality = the gap between rich and poor people




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, WEALTH INEQUALITY




 Also in developed countries, there is wealth inequality




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