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Summary Financial Markets and Institutions
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- Vrije Universiteit Brussel (VUB)
Summary of Financial Markets and Institutions for BA3 Business Economics at the VUB.
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FINANCIAL MARKETS ANDINSTITUTIONS
BUSINESS ECONOMICS III, SEMESTER I
- Chapter 1: Introduction p. 1
- Chapter 2: Money and Creation of Money p. 5
- Chapter 3: Financial Institutions and Intermediaries p. 17
- Chapter 4: Prudential Regulation p. 39
- Chapter 5: Fixed income Capital Markets p. 53
- Chapter 6: Investing in Equity p. 73
- Chapter 7: Investing in Derivatives p. 103
- Chapter 8: Some Other Instruments p. 121
- Chapter 9: Investing in Private Equity p. 127
p. 131
,FINANCIAL MARKETS AND INSTITUTIONS BUSINESS ECONOMICS III
INTERNATIONAL BUSINESS
FINANCIAL MARKETS AND INSTITUTIONS
Some Practicalities:
- 13 lectures (last one 18th December)
- 2 teachers:
o (1) Rudy Vandorpe (5 lectures)
o (2) Geert Gielens (8 lectures from 25/09- 13/11)
§ geert.gielens@belfius.be
- Material:
o Slides & (your) notes
o Handouts
o Books:
§ De Becker, K., Dombrecht, M., Heremans, D. en Vanneste, J., “Geld en
financiewezen - België in de eurozone”, 6de ed., de Boeck
§ (“Greenbaum, S. I., Thakor, A.V., Boot, A.W.A. , “Contemporary Financial
Intermediation”, 3th ed., Academic Press)
- Approach:
o Encyclopedic - historical
o Insight
o Theory
o Interactive
o Exercises
Content:
- (1) Introduction
- (2) Money and money creation
- (3) Financial intermediaries
o Financial institutions
o Why do banks exist?
o Banks
o (Payment systems)
- (4) Regulatory context
o Monetary authorities
§ Instruments (repos, TLTRO’s)
o Regulatory authorities
- (5) Financial instruments & markets
o Money markets
o Bond markets
o Derivates
§ Interest Rate Swaps
CHAPTER 1: Introduction
Why do banks exist?
- Theory (this will be covered)
Y= C + I + G + (X – M)
- Y- T= C + I + G – T + (X – M)
Y- T – C = I + (G – T) + (X – M)
S = I + (G – T) + (X – M)
- How to get the surplus (savings) to where it is needed (debt in all its forms + equity)
o Financial plumbing system of the economy
1
,FINANCIAL MARKETS AND INSTITUTIONS BUSINESS ECONOMICS III
INTERNATIONAL BUSINESS
Endogenous system:
- Time dependent
- Geogarphy dependent
o There is no unified system in the EU
The Belgian Financial System
Two Countries: A&B
- Starting point: money in the hands of economic agents (consumers, corporations,
governments, institutional players).
o This money is used to transact (buying or selling). Therefore, financial intermediaries
and/or auctions (exchanges/capital markets) are necessary just as payment systems.
o These payment systems (settlement mechanisms like for instance Euroclear for
securities) are currently going through an important change as a result of financial
and technical innovations (Fin. Tech. evolutions).
o Financial Intermediaries can be divided info two subclasses: commercial banks and
shadow banks.
o This system has to be regulated. Within the banking union of the EU, the ECB and the
National Central Banks are the prime regulators. In Belgium we have developed the
Twin peaks model (NBB /FSMA).
o Transactions also happen between countries (or between banks within a given
country). This happens in the (international) capital markets.
o These markets can be physical places, or they can be decentralised between banks
(over the counter).
o (Standard) Derivatives require the intervention of Central Clearing Parties (CCP).
o The international financial system is also influenced by supranational authorities like
the Bank for International Settlements (BIS) or by self-regulation (ISDA/ESMA)
2
, FINANCIAL MARKETS AND INSTITUTIONS BUSINESS ECONOMICS III
INTERNATIONAL BUSINESS
- Financial services and markets authority: FSMA
- Banking system
- Professional parties do use capital markets extensively (mainly derivatives/bonds)
- Limited use of the capital market to raise funding
- Digital systems
Elaborate on derivative:
- What is a derivative:
o Equity: equalize to building
o Derivative: less engine to equity, never an obligation it is a right à no payment or
purchase obligation
Disadvantages of this course:
- Validity depends on time and space. Financial Markets are determined by money and
economy (in 10 years it will change)
o Go back 20 years in the past à still using Belgian Frank
Money evaluates over time:
- Past: bank notes
- Now you are able to pay with the phone
Money depends on the geography:
- An economy is local à Belgian economy is not the same as the French or American economy
o This course will only cover the Belgian Economy
3
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