Introduction to the Financial System
1. Introduction to the financial system
Hello, and welcome to this case study, Mortgage Trading Analysis in Power BI. My name is Nick Edwards, and I am very excited to be your instructor.2. Welcome!
In this case study, you will learn about the financial system hands-on as you play the part of a Junior Trader at a fictional non-bank mortgage lender, Sooper Mortgage. Mortgage markets are similar globally, but this case study will be based on the U.S. markets. Your objective is to execute a trade of mortgages in the capital markets by analyzing mortgage data, market prices, and Sooper Mortgage's target profit on the trade. The date is September 21st, 2021, and the trade will settle on October 13th, 2021. The datasets in this course describe a population of over 5,000 mortgages, and it derives from real mortgage and financial market data, although they have been altered and simplified for this course.3. Prerequisites
This is an intermediate-advanced course, so you will have an opportunity to test your skills and apply them to complex problems. By the end of this course, you will be confident with new skills and strategies that you can bring with you into the real world. You should be comfortable writing DAX code, a bit of M, and understand the Power Query Editor. Therefore, we recommend you take these courses before starting this case study. If you're unsure, stick around, try a few exercises, and use the hints available. Finally, it's okay if you don't have any financial background. You will find this course engaging as you learn about the financial system. Okay, let's get into the content.4. The financial system
Perhaps you find yourself asking what the financial system is and how trading mortgages fit into it. It's a great question! A financial system is a collective group of people, banks, financial institutions, and lenders working together to move money around in the economy.5. The financial system
People with extra money will save or invest their money with banks and financial institutions. We call these people "savers".6. The financial system
Savers do this because they expect the bank or financial institution to keep their money safe and earn interest over time.7. The financial system
People who need extra money go to lenders. They are called borrowers. In exchange for money, borrowers will sign a loan agreement for the lender and pay some fees.8. Loan agreements
A loan agreement is a promise to repay the borrowed loan amount, usually with interest, in monthly payments.9. The financial system
Lenders are happy to write loan agreements because they make money on the fees they charge to the borrowers. But, for example, when they lend $100,000, where do they get this money?10. The financial system
Lenders get their money by selling their loans in the capital markets to banks or financial institutions. When they do this, the lender will have the money again to write more loans and continue earning fees. Our case study will focus on this part as we trade mortgage loans to financial institutions. Note that some banks also act as lenders, so this step is not always necessary.11. Loans are investments
Banks and financial institutions are happy to purchase loan agreements because they see the loan as an investment that earns interest over time with each monthly payment the borrower makes. For example, a 30-year $100,000 loan with a 5% annual interest rate will pay $195,000 in total. That's $95,000 in interest earned for the investor!12. The financial system
Some interest earned from the investments is also returned to the savers.13. The financial system
And there we are! We've come full circle. This is a simplified version of the financial system. In reality, it is much more complex, with thousands of banks, lenders, and billions of people! This system is so intertwined that if you owe any debt, you may indirectly own a small fraction of it in your own investment account. So a healthy financial system is key to a great economy.14. Let's practice!
We'll continue to explore this in more detail throughout the course. For now, let's put these concepts to use.Create Your Free Account
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