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GR12 Business Finance Module 3-4
GR12 Business Finance Module 3-4
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MODULE NO.: 2
WEEK NO.: 3-4
CONTENT:
Financial Markets
Financial markets are the mechanisms used to trade the financial instruments.
There are many different financial markets in a develop economy each dealing with a different type of
security serving a different set of customers, or operating in a different part of the country. The following
markets are most of interest to the financial manager:
Financial Market functions as both primary and secondary markets for debt and equity securities.
Primary Market
Primary market refers to original sale of securities by governments and corporations. In a primary
market transaction, the corporation or the government is the seller and the transaction raises money
for the corporation or the government.
Government securities- T-Bills ( Treasury Bills) -short term or long term.
Instruction:
Imagine you have Php 20,000 that you can invest in any company stocks that you want.
https://ph.investing.com/equities/philippines
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Aboitize Equity 10 shares @44.80 448 500
Total 19,988
Stock Exchange
Stock exchange is an organized secondary market where securities like shares, debentures of public
companies, government securities and bonds issued by municipalities, public corporations, utility
undertakings, port trusts and such other local authorities are purchased and sold. In order to bring liquidity,
the stocks are traded systematically in a stock exchange.
Types of Markets
1. Physical asset markets versus financial asset materials. Physical asset markets (also called
tangible or real asset markets) are for products such as wheat, autos, real estate, computers and
machinery. Financial asset markets, on the other hand, deal with stocks, bonds, notes and mortgages.
2. Spot markets versus future markets. Spot markets are financial markets in which assets are both
and sold for “on-the-spot” delivery. Future markets are markets in which participants agree to buy or
sell an asset at some future date.
3. Money markets versus capital markets. Money markets are financial markets in which funds are
borrowed or loaned for short periods (less than one year). Capital markets are financial markets for
stocks and for intermediate or long-term debt (one year or longer).
4. Primary markets versus secondary markets. Primary markets are the market in which
corporations raise capital by issuing new securities. Secondary markets are the markets in which
securities and other financial assets are traded among investors after they have been issued by
corporations.
5. Private markets versus public markets. Private markets are markets in which transactions are
worked out directly between two parties. Public markets are markets which standardized contracts are
traded on organized exchanges.
Financial Institutions
Financial institutions are the ones that facilitate the transfer of resources among those investors who
are involved in buying and selling of financial instruments.
1. Central Bank
A central bank is the financial institution responsible for the oversight and management of all other
banks. In the Philippines, the central bank is the Bangko Sentral Ng Piliplinas (BSP) with the primary
objective of maintaining the price stability conductive to a balanced and sustainable economic growth. BSP’s
goals are also to promote and preserve the stability and the convertibility of the national currency which is
the Philippine Peso.
2. Commercial Banks
Commercial banks work directly with businesses. The majority of large banks offer deposit accounts,
lending and financial advice to any business in different industries.
3. Credit Cooperatives
Credit cooperatives are not-for-profit financial institutions that exist to serve its members. Credit
cooperatives provide products and services to people who share something in common, such as where they
work or live, or even their nationality.
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5. Investment Banks and Companies
Investment banks help individuals, businesses and governments by raising capital through the
issuance of securities instead of accepting deposits.
6. Brokerage Firms
Brokerage firm is the one that provides services to individuals and institutions who are willing to buy
and sell available investment securities.
7. Insurance Companies
Insurance companies are financial institutions that help individuals to transfer risk of loss.
8. Mortgage Companies
Mortgage companies are financial institutions that provide funds through loans subject to the
availability of property used as collaterals.
Basic Types of financial Instruments
Investing the hard earned money requires understanding of the basic types of investments.
Investment options are generally available in the investment marketplace like the following financial
instruments:
1. Savings Accounts
Savings accounts are a safe haven to store emergency funds. It provides easy access to extra money
and is generally insured with Philippine Deposit Insurance Company for maximum amount of P500, 000.00.
The main drawback of such accounts is that interest rates tend to be lower compared with that of other
financial instruments.
2. Time Deposits
Time deposits are deposits that cannot be withdrawn over a fixed term or period. Since, they will not
be withdrawn for certain duration, time deposits earn higher interest rates compared to savings and checking
accounts, depending on the amount placed and term.
4. Stocks
The stock market gives the opportunity to buy shares of companies under normal circumstances.
Companies list or sell portions of the shares of stock to raise capital instead of borrowing from financial
institutions or using its cash flow.
5. Bonds
A bond is a debt security wherein someone is borrowing money and there’s another one lending it. As
a security, it means the borrower is under a legal obligation to pay the lender. A bond is a certificate of debt
issued by the government or a company with a promise to pay a specified sum of money at a future date and
carries interest at a fixed rate.
In the Philippines, there are two basic types of bonds: government bonds and corporate bonds.
Government bonds are also called retail treasury bonds, treasury notes, T-bills, and many others.
When investing in government bonds, it means that the investors are lending money to the
government.
Corporate bonds are sometimes called long-term commercial papers. Investing in corporate bonds, it
means that the investors are lending money to a corporation.
6. Mutual Funds
A mutual fund is generally a pool of money from a group of investors entrusted to a financial
institution for investment purposes. The fund is usually professionally managed by a mutual fund manager
for investments in securities, like, shares, of stock, bonds, and money market instruments.
7. Annuities
An annuity is an insurance product that pays out income on a predetermined amount during the
lifetime or upon its maturity. It is being used as part of a retirement strategy. Annuities are popular choice for
investors who want to receive a steady income stream upon retirement.
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THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT
ACTIVITY NO.: 1
GENERAL INSTRUCTIONS:
a.) Only this/these activity sheet/s is/are allowed to be returned to the adviser.
b.) Write your answer/s neatly and legibly.
c.) Read specific instructions carefully before doing the task/s.
d.) Do not submit extra paper if possible.
e.) CHEATING IS STRICTLY PROHIBITED. It is subject to punishment.
For clarifications and concerns, please contact your subject teacher.
MULTIPLE CHOICE Direction: Choose the letter corresponding to the correct answer for
each of the questions provided below. Write the letter of your answer before the number.
2. Firms that require funds from external sources can obtain them from
______________________.
A. financial market C. financial institutions
B. private placement. D. all of the above
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A. stocks and bonds
B. bonds and commercial paper
C. commercial paper and Treasury bills
D. Treasury bills and certificates of deposit
______________2. Dividend payments change directly with changes in earnings per share
______________3. The wealth of corporate owners is measured by the share price of the
stock.
______________4. Financial markets are intermediaries that channel the savings of
individuals, businesses, and government into loans or investments.
______________5. The money market involves trading of securities with maturities of one
year or less while the capital market involves the buying and selling of securities with
maturities of more than one year.
______________6. The wealth of corporate owners is measured by the share price of the
stock.
______________7. Risk and the timing of cash flows are the key determinants of share price,
which represents the wealth of the owners in the firm.
______________8. When considering each financial decision alternative or possible action in
terms of its impact on the share price of the firm's stock, financial managers should accept
only those actions that are expected to maximize shareholder value.
______________9. An increase in firm risk tends to result in a higher share price since the
stockholder must be compensated for the greater risk.
______________10. Stockholders expect to earn higher rates of return on investments of
lower risk and lower rates of return on investments of higher risk.
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ACTIVITY NO.: 2
NAME: __________________________________________________________ GRADE & SECTION: ________________________
GENERAL INSTRUCTIONS:
a.) Only this/these activity sheet/s is/are allowed to be returned to the adviser.
b.) Write your answer/s neatly and legibly.
c.) Read specific instructions carefully before doing the task/s.
d.) Do not submit extra paper if possible.
e.) CHEATING IS STRICTLY PROHIBITED. It is subject to punishment.
For clarifications and concerns, please contact your subject teacher.
PART 1
Direction: Complete the chart. Identify the roles of the following financial institutions
FINANCIAL INSTITUTIONS ROLES/PURPOSES
Commercial banks
Insurance Companies
Mutual funds
Pension funds
Other Financial Institutions
PART 2
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Direction: Before each statement on the space provided, write TRUE if the statement is correct or
FALSE if the statement is incorrect.
___________1. High cash flow is generally associated with a higher share price whereas higher risk
tends to result in a lower share price.
___________2. When considering each financial decision alternative or possible action in terms of its
impact on the share price of the firm's stock, financial managers should accept only those actions
that are expected to increase the firm's profitability.
___________3. To achieve the goal of profit maximization for each alternative being considered, the
financial manager would select the one that is expected to result in the highest monetary return.
___________4. Dividend payments change directly with changes in earnings per share.
___________5. The wealth of corporate owners is measured by the share price of the stock.
___________6. Risk and the magnitude and timing of cash flows are the key
determinants of share price, which represents the wealth of the owners in the firm.
___________7. When considering each financial decision alternative or possible action in terms of its
impact on the share price of the firm's stock, financial managers should accept only those actions
that are expected to maximize shareholder value.
___________8. An increase in firm risk tends to result in a higher share price since the stockholder
must be compensated for the greater risk.
___________9. Stockholders expect to earn higher rates of return on investments of lower risk and
lower rates of return on investments of higher risk.
___________10. The key capital market securities are bonds (long-term debt) and both common
stock and preferred stock (equity, or ownership).
THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT FOR SALE! THIS MODULE IS NOT
ACTIVITY NO.: 3
NAME: __________________________________________________________ GRADE & SECTION: ________________________
GENERAL INSTRUCTIONS:
a.) Only this/these activity sheet/s is/are allowed to be returned to the adviser.
b.) Write your answer/s neatly and legibly.
c.) Read specific instructions carefully before doing the task/s.
d.) Do not submit extra paper if possible.
e.) CHEATING IS STRICTLY PROHIBITED. It is subject to punishment.
For clarifications and concerns, please contact your subject teacher.
____________1. Primary and secondary markets are markets for short-term and long-term securities,
respectively.
_____________2. Financial markets are intermediaries that channel the savings of individuals,
businesses, and government into loans or investments.
_____________3. The money market involves trading of securities with maturities of one year or less
while the capital market involves the buying and selling of securities with maturities of
more than one year.
_____________4. Holders of equity have claims on both income and assets that are secondary to the
claims of creditors.
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_____________5. Preferred stock is a special form of stock having a fixed periodic dividend that must
be paid prior to payment of any interest to outstanding bonds.