Introduction to Financial Markets
Unit 1: The financial system
Section 1: the actors
Haves or havenots?
The economy consists out of haves and havenots. Haves possess capital and can lend it out
(Lenders). Havenots have more needs than money and they will have to raise capital (borrowers).
Would you consider the following entities as haves or havenots on a macroeconomic level?
• Corporates
• The government Households
• The financial industry
• The rest of the world
What happens in the global entities (who are the haves and havenots?):
The government is a havenot: it needs to be financed
Corporates are havenots: they work with other people’s money
A bank: there is no wealth (everything that comes in, goes out again). The wealth lays with the
individuals
➔ The purpose is to get the money from the haves to the nothaves.
The Main Actor: Households
When a single household owns a house of 100 but at the same time has a remaining mortgage debt
of 80, its net wealth is 20.
Net wealth = assets - liabilities
The household balance sheet gives an overview of the assets and the liabilities of a single
household.
Assets: house for example
Liabilities: mortgage loan at the bank
1
,The Household Balance Sheet
Real assets: things you can grab
Mutual fund: a portfolio you buy
Bonds are a kind of loan, that might have been issued by corporates or de overheid
Mortgage loans: what the bank takes on your house when you take a loan
Consumer loans: what you get when you want to buy something
Kinds of assets
An asset is a possession that has value in an exchange transaction.
Tangible assets or real assets derive value from their physical character and the utility they generate.
Intangible assets derive value from a legal claim to some future benefit.
Financial assets are intangible assets that represent a claim to future cash.
When the claim has to do something with cash, we talk about financial assets
Real versus Financial Assets
In the US: adults have more financial and real assets
2
,India: financial assets are relatively small compared to the real assets
In China: more real assets
▪ They way how people store wealth, is different around the world
If you look at Belgium, financial assets are bigger than real estate
Asset classes
Traditional asset classes
• Common stock
• Bonds
• Cash (and cash equivalents)
Alternative asset classes
• Real estate
• Commodities
• Private equity
• Hedge funds
• Venture capital
• Currencies (forex)
Hedge funds: people give there money to your business, and they manage it closely. The company
sells and buys stocks from it
Traditional asset classes: bonds and stocks …
Cash asset: your savings account for example
Real estate is financialized. You can buy it yourselve, but you can also buy a certificate that represents
a whole portfolio of real estate: in that case you buy a financial asset of which the cash flows/ the
claims / the cash that you will get comes from the rent that these buildings are delivering.
People trade in commodities. It’s extremely dangerous / a lot of financial risk.
Hedge funds is for the wealthy or institutional investors, because it’s very expensive
Liabilities
• Mortgage loans
• Consumer loans
• Tax debt
Growth Drivers in Net Wealth
▪ Value changes in assets and liabilities
▪ Net-income from labour, capital or transfers (i.e. pensions, social security based income)
3
, ▪ Inheritances, gifts
What are the drivers of the changes in net wealth?
The source of new wealth comes from the fact that you made good investments. (a car for example is
not a good investment)
The value changes in the assets or the value changes in the liabilities, drive basically what is
happening to your net wealth.
Wealth creation
“Assets put money in your pocket, whether you work or not, and liabilities take money from your
pocket.” Robert Kiyosaki
Everything changes your wealth. Inheritances and gifts do.
The middle class is not really wealthy: they are just people with homes and not much extra. They
have an income and expenses and whit what is left after the expenses, they buy assets and liabilities
If you want to become rich, the stress needs to be on having assets
4
Unit 1: The financial system
Section 1: the actors
Haves or havenots?
The economy consists out of haves and havenots. Haves possess capital and can lend it out
(Lenders). Havenots have more needs than money and they will have to raise capital (borrowers).
Would you consider the following entities as haves or havenots on a macroeconomic level?
• Corporates
• The government Households
• The financial industry
• The rest of the world
What happens in the global entities (who are the haves and havenots?):
The government is a havenot: it needs to be financed
Corporates are havenots: they work with other people’s money
A bank: there is no wealth (everything that comes in, goes out again). The wealth lays with the
individuals
➔ The purpose is to get the money from the haves to the nothaves.
The Main Actor: Households
When a single household owns a house of 100 but at the same time has a remaining mortgage debt
of 80, its net wealth is 20.
Net wealth = assets - liabilities
The household balance sheet gives an overview of the assets and the liabilities of a single
household.
Assets: house for example
Liabilities: mortgage loan at the bank
1
,The Household Balance Sheet
Real assets: things you can grab
Mutual fund: a portfolio you buy
Bonds are a kind of loan, that might have been issued by corporates or de overheid
Mortgage loans: what the bank takes on your house when you take a loan
Consumer loans: what you get when you want to buy something
Kinds of assets
An asset is a possession that has value in an exchange transaction.
Tangible assets or real assets derive value from their physical character and the utility they generate.
Intangible assets derive value from a legal claim to some future benefit.
Financial assets are intangible assets that represent a claim to future cash.
When the claim has to do something with cash, we talk about financial assets
Real versus Financial Assets
In the US: adults have more financial and real assets
2
,India: financial assets are relatively small compared to the real assets
In China: more real assets
▪ They way how people store wealth, is different around the world
If you look at Belgium, financial assets are bigger than real estate
Asset classes
Traditional asset classes
• Common stock
• Bonds
• Cash (and cash equivalents)
Alternative asset classes
• Real estate
• Commodities
• Private equity
• Hedge funds
• Venture capital
• Currencies (forex)
Hedge funds: people give there money to your business, and they manage it closely. The company
sells and buys stocks from it
Traditional asset classes: bonds and stocks …
Cash asset: your savings account for example
Real estate is financialized. You can buy it yourselve, but you can also buy a certificate that represents
a whole portfolio of real estate: in that case you buy a financial asset of which the cash flows/ the
claims / the cash that you will get comes from the rent that these buildings are delivering.
People trade in commodities. It’s extremely dangerous / a lot of financial risk.
Hedge funds is for the wealthy or institutional investors, because it’s very expensive
Liabilities
• Mortgage loans
• Consumer loans
• Tax debt
Growth Drivers in Net Wealth
▪ Value changes in assets and liabilities
▪ Net-income from labour, capital or transfers (i.e. pensions, social security based income)
3
, ▪ Inheritances, gifts
What are the drivers of the changes in net wealth?
The source of new wealth comes from the fact that you made good investments. (a car for example is
not a good investment)
The value changes in the assets or the value changes in the liabilities, drive basically what is
happening to your net wealth.
Wealth creation
“Assets put money in your pocket, whether you work or not, and liabilities take money from your
pocket.” Robert Kiyosaki
Everything changes your wealth. Inheritances and gifts do.
The middle class is not really wealthy: they are just people with homes and not much extra. They
have an income and expenses and whit what is left after the expenses, they buy assets and liabilities
If you want to become rich, the stress needs to be on having assets
4
