INTRODUCTION TO FINANCIAL MARKETS
Prof. Dr. M. De Ceuster
Questions HBO Movie EXAM!! Je kan zelf taal aanpassen op het examen.
• Gaan er twee of drie meerkeuze vragen over zijn.
Open en meerkeuze vragen:
• Hij geeft een begrip en leg uit. Of hij geeft een uitleg en jij moet het begrip geven.
• Concepten kunnen uitleggen
• Oefeningen ook goed kunnen! Er is altijd maar één juist antwoord bij meerkeuze.
INHOUD
Unit 1 – The Financial System ................................................................................................................................. 1
Unit 2 - Fixed Income Markets .............................................................................................................................. 20
Unit 3 – Fixed Income Markets - Institutional Aspects ......................................................................................... 39
Unit 4 – Equity Markets ........................................................................................................................................ 60
Unit 5 – Risk and Return........................................................................................................................................ 91
Unit 6 – Derivatives – Futures / Derivatives: Forwards, Futures and Swaps ...................................................... 107
Unit 7 – Derivatives: Options .............................................................................................................................. 123
Unit 8 – Exercises ................................................................................................................................................ 139
Unit 9 – Financial Intermediation........................................................................................................................ 141
Unit 11 – The Financial Crisis of 2008 ................................................................................................................. 162
Unit 12 – Regulation and Supervision ................................................................................................................. 167
UNIT 1 – THE FINANCIAL SYSTEM
1. THE ACTORS
1. The Haves (Lenders)
These are the people or institutions that possess capital and can lend it to others.
• Households (Families):
o They create wealth and own assets (like houses, savings, stocks).
o They are the main source of capital in the economy.
• Financial Institutions (Banks):
o Act as intermediaries. (Tussenpersoon)
o Collect money from households and lend it out to borrowers.
➔ Haves = People with capital to lend.
1
,2. The Havenots (Borrowers)
These are the people or entities that need more money than they currently have, so they borrow capital.
• Corporations and Governments:
o Need funding (financiering) to invest, grow, or provide public services.
• Financial Institutions:
o Also play a middle role by giving out loans funded by deposits.
➔ Havenots = People or entities that borrow capital.
The Main Actor: Households
Households (families) are central to the economy. They can be both lenders (when saving/investing) and
borrowers (when taking loans).
To understand their financial situation, we draw a balance sheet:
• Assets: Everything they own (e.g. a house worth €100)
• Liabilities (Debts): What they owe (e.g. mortgage of €80)
• Net Wealth (Netto vermogen) = Assets – Liabilities = €100 – €80 = €20
Key Takeaway:
• Households drive the economy by generating wealth (vermogen) and providing capital.
• The financial industry channels this wealth from Haves (savers) to Havenots (borrowers).
• Just like companies, households' financial health can be measured using a balance sheet (balans).
Net Wealth (Netto Vermogen) :
• Net Wealth=Assets−Liabilities= €400,000−€280,000 = €120,000
2
,Notes:
• The house is usually the largest asset (bezit).
• Net wealth shows the true financial position of a household.
• If liabilities exceed assets, net wealth is negative (which is possible, especially in early life stages).
Types of Assets:
An asset is something you own that has value and can be exchanged.
1. Tangible (Real) Assets → Tastbare activa
• Physical items with value.
• Examples:
o House
o Car
o Land
o Gold/bullion
2. Intangible Assets → Immateriële activa
• Non-physical but have legal or economic value.
• Examples:
o Patents (octrooien)
o Copyrights
o Trademarks (Handelsmerken)
3. Financial Assets (Intangible + Claim on Future Cash)
• Examples:
o Stocks – Ownership in a company
o Bonds (obligatie) – A form of loan (lening); you lend money and get interest
o Mutual funds (belligingsfondsen) – A mix/portfolio of investments
o Deposits – Savings or fixed-term deposits
o Cash – The most liquid asset
Liabilities (Debts You Owe)
• Mortgage loans – Used to buy property, biggest debt for most households (= hypothecaire leningen)
• Consumer loans – Car loans, electronics paid over time (= consumentenkredieten)
• Tax debt – Unpaid taxes you owe to the government (= belastingschuld)
Net Wealth = Assets – Liabilities
Balance sheet = overview of assets and liabilities
Asset = bezit, activa
Liabilities = schulden
Equity = eigen vermogen
Stock = aandeel, participation in a company
Bond = obligatie, a kind of loan issued by the government or by other corporates
Issued = uitgegeven door
Mutual funds = a kind of portfolio you buy (stocks and bonds, diversification)
Mortgage loan = hypothecaire lening
Consumer loan = aankoop spreiden in de tijd (vb you buy a car an spread it over a few months)
Deposit = Het in bewaring geven van geld aan een bank
3
, Real versus Financial Assets
Source: Credit Suisse, Global Wealth Report 2018
The financial assets is different around the world
The way people store wealth is different. In Belgium the financial assets are a little bit smaller than the real
estate in general (not 50-50).
• Belgium: More real estate than financial assets
• USA: More financial assets than real estate (vastgoed)
• India: Real assets dominate (land, gold)
• China: Somewhere in between
Asset Classes
Traditional Asset Classes
• Stocks (Equity) – Partial company ownership
• Bonds (Debt) – Lending money to governments/companies
• Cash & Equivalents – Highly liquid (e.g., savings accounts)
Alternative Asset Classes
• Real Estate (vastgoed) – Either owning property or financial products backed by property income
• Commodities (grondstoffen) – Oil, gold, etc. (riskier)
• Private Equity – Investing in private companies (e.g. your neighbor’s business)
• Hedge Funds – Complex, risky strategies (for wealthy investors)
• Venture Capital – Investing in startups (high risk, high reward)
• Currencies (Forex) – Trading between different currencies (Valuta’s) → Betaalmiddel in een land
4
Prof. Dr. M. De Ceuster
Questions HBO Movie EXAM!! Je kan zelf taal aanpassen op het examen.
• Gaan er twee of drie meerkeuze vragen over zijn.
Open en meerkeuze vragen:
• Hij geeft een begrip en leg uit. Of hij geeft een uitleg en jij moet het begrip geven.
• Concepten kunnen uitleggen
• Oefeningen ook goed kunnen! Er is altijd maar één juist antwoord bij meerkeuze.
INHOUD
Unit 1 – The Financial System ................................................................................................................................. 1
Unit 2 - Fixed Income Markets .............................................................................................................................. 20
Unit 3 – Fixed Income Markets - Institutional Aspects ......................................................................................... 39
Unit 4 – Equity Markets ........................................................................................................................................ 60
Unit 5 – Risk and Return........................................................................................................................................ 91
Unit 6 – Derivatives – Futures / Derivatives: Forwards, Futures and Swaps ...................................................... 107
Unit 7 – Derivatives: Options .............................................................................................................................. 123
Unit 8 – Exercises ................................................................................................................................................ 139
Unit 9 – Financial Intermediation........................................................................................................................ 141
Unit 11 – The Financial Crisis of 2008 ................................................................................................................. 162
Unit 12 – Regulation and Supervision ................................................................................................................. 167
UNIT 1 – THE FINANCIAL SYSTEM
1. THE ACTORS
1. The Haves (Lenders)
These are the people or institutions that possess capital and can lend it to others.
• Households (Families):
o They create wealth and own assets (like houses, savings, stocks).
o They are the main source of capital in the economy.
• Financial Institutions (Banks):
o Act as intermediaries. (Tussenpersoon)
o Collect money from households and lend it out to borrowers.
➔ Haves = People with capital to lend.
1
,2. The Havenots (Borrowers)
These are the people or entities that need more money than they currently have, so they borrow capital.
• Corporations and Governments:
o Need funding (financiering) to invest, grow, or provide public services.
• Financial Institutions:
o Also play a middle role by giving out loans funded by deposits.
➔ Havenots = People or entities that borrow capital.
The Main Actor: Households
Households (families) are central to the economy. They can be both lenders (when saving/investing) and
borrowers (when taking loans).
To understand their financial situation, we draw a balance sheet:
• Assets: Everything they own (e.g. a house worth €100)
• Liabilities (Debts): What they owe (e.g. mortgage of €80)
• Net Wealth (Netto vermogen) = Assets – Liabilities = €100 – €80 = €20
Key Takeaway:
• Households drive the economy by generating wealth (vermogen) and providing capital.
• The financial industry channels this wealth from Haves (savers) to Havenots (borrowers).
• Just like companies, households' financial health can be measured using a balance sheet (balans).
Net Wealth (Netto Vermogen) :
• Net Wealth=Assets−Liabilities= €400,000−€280,000 = €120,000
2
,Notes:
• The house is usually the largest asset (bezit).
• Net wealth shows the true financial position of a household.
• If liabilities exceed assets, net wealth is negative (which is possible, especially in early life stages).
Types of Assets:
An asset is something you own that has value and can be exchanged.
1. Tangible (Real) Assets → Tastbare activa
• Physical items with value.
• Examples:
o House
o Car
o Land
o Gold/bullion
2. Intangible Assets → Immateriële activa
• Non-physical but have legal or economic value.
• Examples:
o Patents (octrooien)
o Copyrights
o Trademarks (Handelsmerken)
3. Financial Assets (Intangible + Claim on Future Cash)
• Examples:
o Stocks – Ownership in a company
o Bonds (obligatie) – A form of loan (lening); you lend money and get interest
o Mutual funds (belligingsfondsen) – A mix/portfolio of investments
o Deposits – Savings or fixed-term deposits
o Cash – The most liquid asset
Liabilities (Debts You Owe)
• Mortgage loans – Used to buy property, biggest debt for most households (= hypothecaire leningen)
• Consumer loans – Car loans, electronics paid over time (= consumentenkredieten)
• Tax debt – Unpaid taxes you owe to the government (= belastingschuld)
Net Wealth = Assets – Liabilities
Balance sheet = overview of assets and liabilities
Asset = bezit, activa
Liabilities = schulden
Equity = eigen vermogen
Stock = aandeel, participation in a company
Bond = obligatie, a kind of loan issued by the government or by other corporates
Issued = uitgegeven door
Mutual funds = a kind of portfolio you buy (stocks and bonds, diversification)
Mortgage loan = hypothecaire lening
Consumer loan = aankoop spreiden in de tijd (vb you buy a car an spread it over a few months)
Deposit = Het in bewaring geven van geld aan een bank
3
, Real versus Financial Assets
Source: Credit Suisse, Global Wealth Report 2018
The financial assets is different around the world
The way people store wealth is different. In Belgium the financial assets are a little bit smaller than the real
estate in general (not 50-50).
• Belgium: More real estate than financial assets
• USA: More financial assets than real estate (vastgoed)
• India: Real assets dominate (land, gold)
• China: Somewhere in between
Asset Classes
Traditional Asset Classes
• Stocks (Equity) – Partial company ownership
• Bonds (Debt) – Lending money to governments/companies
• Cash & Equivalents – Highly liquid (e.g., savings accounts)
Alternative Asset Classes
• Real Estate (vastgoed) – Either owning property or financial products backed by property income
• Commodities (grondstoffen) – Oil, gold, etc. (riskier)
• Private Equity – Investing in private companies (e.g. your neighbor’s business)
• Hedge Funds – Complex, risky strategies (for wealthy investors)
• Venture Capital – Investing in startups (high risk, high reward)
• Currencies (Forex) – Trading between different currencies (Valuta’s) → Betaalmiddel in een land
4
