Resume

Samenvatting 'Introduction to Financial Markets'

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Cours
1107TEWBDK (1107TEWBDK)

Établissement
Universiteit Antwerpen (UA)

Uitgebreide en gedetailleerde samenvatting van introduction to financial markets gegeven door prof. Marc de Ceuster

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Publié le 7 octobre 2024
Nombre de pages 71
Écrit en 2024/2025
Type Resume

marc de ceuster
uantwerpen
financial markets
introduction to financial markets
summary

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The actor

The economy consists out of haves and havenots.

Haves possess capital and can lend it out (Lenders)
↓funding from haves to havenots
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?
Government : havenots (have gov debt)
Corporates : havenots (they work w other ppls money)
Bank : in between (they borrow and lend ppls money)
→ Families/households : Haves
__________________________________________________________________________________
The main Actor : Households

Net wealth/Equity = assets – liabilities

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
The household balance sheet gives an overview of the
assets and the liabilities of a single household :
the way ppl store wealth is diff all over the world

Liabilities of a household
 Mortgage loans
 Consumer loans
 Tax debt
__________________________________________________________________________________
Asset = a possession that has value in an exchange transaction

 Tangible/Real assets or derive value from their physical character + 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
Asset Classes
Traditional
 Common stock
 Bonds
 Cash (and cash equivalents)
Alternative
 Real estate
 Commodities

,  Private equity
 Hedge funds
 Venture capital
 Currencies (forex)
__________________________________________________________________________________
Growth Drivers in Net Wealth
 Value changes in assets and liabilities
Example : stocks change value by making good investments
 Net-income from labour, capital or transfers (i.e. pensions, social security based income)
 Inheritances, gifts
______________________________ ____________________________________________________
Wealth Creation

Poor : only have expenses and no assets
Middle : buy a house from the money they save and pay off mortgage loans, then the house is theirs
Rich : generated income on its own like rent + dividends ; they collect assets that generate cash for
you
__________________________________________________________________________________
Wealth inequality
Wealth is not equally distributed
__________________________________________________________________________________
- households are the ultimate owners of all assets in the economy : individuals are the owners of
the corporates and they own all the assets in the economy so they are all there is

- individuals are the bearers of risk within the financial system

__________________________________________________________________________________

, Other Actors

Corporates
This balance sheet gives an overview of the assets >< liabilities of a corporation:

liabilities of a corporate :
Equity shares : claim of shareholders
who own the company in stocks,
when there’s profit they receive a
share in dividends
><
Debt : ppl who lend money to the
company but don’t have anyth to say,
they have to be paid back

Gearing Ratio = D / E = ratio between debt and equity is important
Working with borrowed money is better ! : because the cost of the loan (interest) is lower than the
profit margin you can make ; you increase your own wealth (=leverage)
Financial assets:
HOLDING COMPANIES :
parent company PC : 100 E + 100 D = 200 A
invests it in daughter company
DC : 200 E + 200 D = 400 A
gets 200 equity + is 200 in debt bc it borrowed that from PC
invests 400 in a new company
NC : 400 E + 400 D = 800 A
(control a lot of money w a little money; using debt to raise profits = leverage)
Assets :
‘Fixed’ = long term commitment
__________________________________________________________________________________
Leverage
Companies can be funded with
 shareholder funds (equity) consisting out of the original equity + rights issues + retained
profit
 debt
Leverage = when companies use debt to finance their operations (profit > interest loan)

Most companies use leverage to raise the ROE above the ROA
 ROE = return on equity i.e. profit/equity : return on investement ; how much do I earn on the
money I as shareholder invested = equity
(net income / equity x 100)

 ROA = return on assets i.e. profit/assets : return u get w all the money u use ; financial
performance (net income / total assets x 100)

, The Dupont scheme relates the ROE to the ROA: ROE = ROA x LM
The Leverage Multiplier (LM) = Assets/Equity ratio A / E
__________________________________________________________________________________
Banks

liabilities of a bank :
Banks use much more leverage than companies
! they lend out money from depositors (they
have a lot of debt)

Trading book = assets which the bank has for trading

Banking book = all kinds of loans

Bond portfolio = banks want to transform deposits in sth which has a higher return; they lend the
deposited money to government bonds or lend it out and earn interest on it
Bond = a loan that u give to smn for interest, not dividends
__________________________________________________________________________________
Mutual Fund
= a portfolio manager who gathers mutual funds ; collects
money from a number of investors who share a common
investment objective and invests in equities, bonds, ..;
Mutual funds let you pool your money with other
investors to "mutually" buy stocks, bonds, and other
investments

__________________________________________________________________________________
Insurance Company
You pay money in exchange for insurance
coverage, then they reinvest that money for you
into other interest-generating assets.

liability:
technical provisions

__________________________________________________________________________________
Government balance sheet :
 Liability : huge gov debt
 Assets : some gov buildings, hardly any
 Equity = negative (they could just raise taxes to pay off their debt so no problem)
__________________________________________________________________________________

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