GABARAN KIMBERLY G.

BSMA-3B

CHAPTER II SUMMARY

FINANCIAL MANAGEMENT
CONCEPTS

FINANCIAL CAPITAL FINANCIAL

MARKETS ALLOCATION INSTITUTIONS

SPOT MARKETS INVESTMENT BANKS

FUTURES MARKETS STOCK MARKETS COMMERCIAL BANKS

MONEY MARKETS FINANCIAL SERVICE CORP.

STOCK MARKET
CAPITAL MARKETS RETURNS CREDIT UNION

PRIMARY MARKETS PENSION FUNDS

STOCK MARKET
EFFICIENCY
SECONDARY LIFE INDURANCE COM
MARKETS
MUTUAL FUNDS
REALRETURN
EXCHANGE TRADED FUNDS

NOMINAL RETURN HEDGE FUNDS

PRIVATE EQUITY COM

CHAPTER II: FINANCIAL MARKETS AND INSTITUTION

The management of financial resources is called financial management. It guides how to find and use
the best investment and financing opportunities in the continuously changing and complex
environments. Financial Management is actually a basic skill that consists of certain concepts and
techniques that are useful not only for business life, but also in our personal life. It is a righteous
statement that “money makes the world go round”. Finance is actually the life blood of an organization,
and mismanagement in finance may easily lead to bankruptcy.

Economic system relies heavily on financial resources and transactions, and economic efficiency rests
in part on efficient financial markets. Financial markets provide our specialized, interdependent
economy with many financial services, including time preference, distribution of risk, diversification of
risk, transactions economy, transmutation of contractual arrangements, and financial management.

Types of Financial Market

 Spot Market: The market in which assets are sold and bought for “on-the-spot” delivery.
 Future Market: The markets in which participants agree today to buy and sell at some future
date.
 Money Market: The financial markets in which funds are borrowed or loaned for short periods
(less than one year)
 Capital Market: The financial markets for stocks and for intermediate or long-term debts (more
than one year)
 Primary Markets: It is the markets in which corporations is raise capital by issuing new securities.
 Secondary: Markets in which securities and other financial assets are traded among investors
after they have been issued by corporation.

What is the definition of financial institution? A financial institution is responsible for the supply of
money to the market through the transfer of funds from investors to the companies in the form of
loans, deposits, and investments. Financial institutions are regulated to control the supply of money in
the market and protect consumers.

Types of Financial Institution:

 Investment banks: it is a financial services company that acts as an intermediary in large and
complex financial transactions.
  Commercial banks: it makes money by providing and earning interest from loans such as
mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks
with the capital to make these loans. A commercial bank is where most people do their banking.
 Financial services corporations: A firm which offers a wide range of financial services, including
investment banking, brokerage operations, insurance, and commercial banking.
 Credit unions: is a type of not-for-profit financial institution controlled by its members, the
people who deposit money into it.
 Pension funds: are investment pools that pay for workers' retirements. Funds are paid for by
either employees, employers, or both.
 Life insurance companies: take savings in the form of annual premiums; invest these funds in
stocks, bonds, real estate, and mortgages; and make payments to the beneficiaries of the
insured parties.
 Mutual funds: are corporations that accept money from savers and then use these funds to buy
stocks, long-term bonds, or short-term debt instrument issued by businesses or government
units.
 Exchange Traded Funds (ETFs): are similar to regular mutual funds and are often operated by
mutual fund companies.
 Hedge funds: are also similar to mutual funds because they accept money from savers and use
the funds to buy various securities, but there are some important differences.
 Private equity companies: are organizations that operate much like hedge funds; but rather than
buying some of the stock of a firm, private equity players buy and then manage entire firms.

Capital allocation means distributing and investing a company's financial resources in ways that will
increase its efficiency, and maximize its profits. A firm's management seeks to allocate its capital in ways
that will generate as much wealth as possible for its shareholders. The stock market serves two very
important purposes. The first is to provide capital to companies that they can use to fund and expand
their businesses. The secondary purpose the stock market serves is to give investors those who purchase
stocks the opportunity to share in the profits of publicly-traded companies. Investors can profit from
stock buying in one of two ways. Some stocks pay regular dividends (a given amount of money per share
of stock someone owns). The other way investors can profit from buying stocks is by selling their stock
for a profit if the stock price increases from their purchase price.