BM1904

NAME: DATE: SCORE: ____________

Financial Markets and Institutions (15 items x 5 points)

Assume that you recently graduated with a degree in finance and have just reported working as an investment
adviser at the brokerage firm of Mac Lyn Don & Co. Your first assignment is to explain the nature of the Philippine
financial markets to Pedro Juan, a professional basketball player who recently came to the Philippines from the
United States. Juan is a highly ranked basketball player who expects to invest substantial amounts of money
through Mac Lyn Don & Co. He would like to understand in general terms what will happen to his money. Your
boss has developed the following questions that you must use to explain the Philippine financial system to Juan.
1. What are the three (3) primary ways in which capital is transferred between savers and borrowers? Describe
each.
2. What is a market?
3. Differentiate the following types of markets:
a. physical asset markets vs. financial asset markets;
b. spot markets vs. futures markets;
c. money markets vs. capital markets;
d. primary markets vs. secondary markets; and
e. public markets vs. private markets.
4. Why are financial markets essential for a healthy economy and economic growth?
5. Briefly describe each of the following financial institutions: investment banks, commercial banks, financial
services corporations, pension funds, mutual funds, exchange-traded funds, hedge funds, and private
equity companies.
6. If Apple decided to issue additional common stock, and Juan purchased 100 shares of this stock from Mac
Lyn Don & Co., the underwriter, would this transaction be a primary or a secondary market transaction?
7. Would it make a difference if Juan purchased previously outstanding Apple stock in the dealer market?
Explain.
8. What does it mean for a market to be efficient? Explain why some stock prices may be more efficient than
others.
9. After your consultation with Pedro Juan, he wants to discuss these two (2) possible stock purchases:
a. While in the waiting room of your office, he overheard an analyst on a financial TV network say that a
particular medical research company just received Food and Drug Administration (FDA) approval for
one of its products. Based on this “hot” information, Pedro Juan wants to buy many shares of that
company’s stock. Assuming the stock market is highly efficient, what advice would you give him?
b. He has read several newspaper articles about a huge initial public offering (IPO) being carried out by a
leading technology company. He wants to purchase as many shares in the IPO as possible and would
even be willing to buy the shares in the open market immediately after the issue. What advice do you
have for him?
10. How does behavioral finance explain the real-world inconsistencies of the efficient markets hypothesis
(EMH)?

Rubric for Grading:

CRITERIA PERFORMANCE INDICATORS POINTS
Content Provided pieces of evidence, supporting details, and factual scenarios 2
Grammar Used correct grammar, punctuation, spelling, and capitalization 1
Organization of ideas Expressed the points in clear and logical arrangement of ideas in the paragraph 2
TOTAL 5

Reference
Brigham, E. F. & Houston, J. F. (2017). Fundamentals of financial management (concise) (9th ed.). Boston, MA: Cengage Learning.

02 Task Performance 1 *Property of STI

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