Financial Market Business Organization - is an entity formed for the
purpose of carrying on commercial enterprise.
Interrelated Meanings Of Finance
1.The management of large amounts of money
especially by governments or large companies;
2.The giving of support for an enterprise and
3. The monetary resources and affairs of a
government, organization or person
* lahat ng project for the gov. dadaan sa bidding,
kung sino pinaka mura tas di nasasacrifice yung
quality
Types Of Finance
1. Public Finance
- It includes tax systems, government
expenditures, budget procedures, debt issues
and other government concerns.
* other term for gov.; give service to the filipino.
* taxes, fees mga permit ganun, mga fine or penalty
jaywalking, professional fee pag nagpalicense.
2. Corporate Finance
- Businesses bring in financing through equity
investments and credit arrangements, and by
purchasing securities.
- Start ups may receive inveştments from
angel investors or venture capitalists, and
established companies may sell stocks or
bonds.
* for private corporation
3. Personal Finance
- Earning more money and spending less
money is the basis of personal finance.
- individuals may earn more money by
starting a business, taking on additional jobs,
or investing.
Financial Management Within A Business
Organization
Business - is an entity where the skills, energy, and
enterprise owners are linked with money, its
sources, and investments, and its success is
measured by wealth, or profit derived from its
operation.
Financial Management
1. To collect fund for the company at a low
cost and;
2. To use this collected funds for earning
maximum profits.
Therefore: Financial Management means to plan
and control the finance of the company.
* minimize expenditure and maximize profit
From The Perspective Of The Corporation:
● Financial Management deals with decisions
that are supposed to maximize the value of
the shareholders' wealth
- This means maximizing the market value of
the shares of stocks
* perspective - how do you perceive or understand
* perspective of corporation in FM - minimize cost
and maximize the value of shareholders wealth
* shareholders lang ang owner not stakeholders
* fluctuation of stocks change rapidly in a matter of
seconds
Shares Of Stocks
- represent the form of ownership in a
corporation.
* evidence ; stock certificate
* revenue nila dividends
* every end of the year nagbibigay ng dividend
* disadvantage ng corp - double taxation
The Changes In The Price Of A Stock May Vary
Due To The Following:
● Profitable operation
● Nature of the business
● Prospects of the business
● Projected earnings and time frame for the
realization of such projected earnings
● Ability to meet maturing obligations
● Appropriate capital structure
● Dividend policies
● Investing decisions
● Management and market sentiments
Functions Of Financial Management
1. Estimate required capital
- Financial managers' first duty is to forecast
the amount of required capital. There are
several areas for using financial planning
and implementation such as establishment,
expansion, and modernization of business,
investment in fixed assets and meeting daily
working capital requirements.
2. Determine capital structure
- After determining the requirement of capital
funds, a decision has to be made regarding
the type and proportion of different sources
of funds. At this stage, the financial manager
has to evaluate the appropriate mix of debt
and equity capital and various short and
long-term debt ratios. The main objective is
to maximize shareholders wealth with a
minimum cost of capital.
3. Evaluate and select sources of funds
- The Financial manager will have several
options from which he can raise capital for
the company. He will choose that option
which will provide greater earning
possibilities at less cost. He will compose
leverage to maximize the shareholder's
value.
4. Allocate and control funds
- Financial managers determine the necessary
amount of funds in each financial area and
allocate the funds accordingly. Any change
in the financial decision that increases or
decreases in allocated amount can be
implemented at times. The manager always
tries to keep the standard of the business
firm.
5. Distribute profits or surplus
- After a certain time, the business experience
profits. Here management decides whether
to distribute the profits or retain it for future
use. Businesses can combine dividends and
retained earnings to distribute the profits.
6. Monitoring financial activities
- The Financial manager has to be remaining
alert all the time about financial activities
and business positions. Any flaws in the
financial aspect can affect the overall
business decision. So the manager should
continuously monitor the financial activities
of the firm.
Financial Manager
● Is a person who takes care of all the
important financial functions of an
organization.
* accounting manager - prepare FS
* financial manager - analyze position of the
company
Main Functions Of A Financial Manager:
1. Raising of funds
2. Allocation of funds
Points to consider in allocating the funds:
- The size of the firm and its growth
capability
- Status of assets whether they are long term
or short term
- Mode by which the funds are raised
3. Profit planning
- proper usage of the profit generated by the
firm
4. Understanding capital markets
- shares of the company are traded on stock
exchange and there is a continuous sale and
purchase of securities.
5. Investing the capital
- Every organization or firm needs to invest
money in order to raise more capital and
gain regular returns. Hence, the financial
manager needs to invest the organization's
funds in safe and profitable ventures.
6. Effective management of money
- also responsible for effectively managing
the firm's money. Money is required for
various purposes in the firm such as
payment of salaries and bills, maintaining
stock, meeting liabilities, and the purchase
of any materials or equipment.
7. Financial control
- Not only does the financial manager have to
plan, organize, and obtain funds, but he also
has to control and analyze the firm's
finances in the short-term and the long-term.
be able to identify when cash dividends'
must be declared or given by the firm.
* managerial position - under top and middle
manager
* CFO - top management

VP for Finance or Chief Financial Officer' (CFO) Guiding Principles For Financial Management
- The Financial Manager VP for Finance or Systems
CFO is generally called a Financial Manager 1. Consistency
due to the nature of his duties which is to - financial policies and systems must remain
manage the overall finances of the company. consistent over time.
2. Accountability
Primary roles of a Financial Manager:(FIDO) - must be able to explain and demonstrate to
● Financing all stakeholders how you have used your
- consist of planning and executing decisions resources and what you have achieved.
regarding methods on financing long-term 3.Transparency
acquisitions (such as business expansions) - must be open about its work and its
- Or working capital that corresponds with the finances, making information available to all
company's daily operations like product stakeholders.
purchase, operating expenses payment, etc. 4. Integrity
* nagdedecide finance not accounting; pero depende - must be open with honesty and propriety.
sa company if magkasama or hindi 5. Financial Stewardship
● Investing - must take good care of the financial
- Investing means deciding on where to put resources it has been given and ensure that
your excess cash to make it more profitable. they are used for the purpose intended.
- Investments may either be under the
category of "short-term or long-term". 6. Accounting Standards
● Operating - systems for keeping records and
- Operating actions deal with the company's documentation must observe accepted
day to day activities. The VP's task for external accounting standards
finance is to decide how work capital
accounts such as receivable accounts and Financial System
inventories can be funded. The business has ● Primary Function of the Financial System is
an option of whether "long-term or short- Financial Intermediation
term assets" are used to fund working capital * How does Financial System actually work
needs. * intermediation - intermediary, siya namamagitan
● Dividend Policies sa lahat, pinaka bridge saatin
- Cash dividends are paid by corporations to
existing shareholders based on their
shareholdings in the company as a return on
their investment. Some investors buy stocks
because of the dividends they expect to
receive from the company. Non-declaration
of dividends may disappoint these investors.
Hence, it is the job of a financial manager to
5 Basic Functions of Financial System (SLPRP)
1. Savings function
- As already stated, public savings find their
way into the hands of those in production
through the financial system. Financial
claims are issued in the money and capital
markets, which promise future income
flows. The funds, in the hands of the
producers, result in the production of better
goods and services and an increase in
society's living standards. When savings
flow decline, however, the growth of
investment and living standards begins to
fall
* saving function - emergency fund, capital,
2. Liquidity Function
- Money in the form of deposits offers the
least risk of all financial instruments. But its
value is mostly eroded by inflation. That is
why one always prefers to store funds in
financial instruments like stocks, bonds,
debentures, etc. However, in such
investments (i) a greater level of risk is
involved, (ii) and the degree of liquidity
(i.e., conversion of the claims into money) is
less. The financial markets provide the
investor with the opportunity to liquidate the
investments.
* liquidity - para maconvert assets to cash
3. Payment Function
- The financial systems offer a very
convenient mode of payment for goods and
services. The check system, credit card
systems et al are the easiest methods of
payment in the economy; they also
drastically reduce the cost and rime of
transactions.
4. Risk Function
- The financial markets provide protection
against life, health, and income risks. These
are accomplished through the sale of life,
health, and property insurance policies.
Overall, they provide immense opportunities
for the investor to hedge himself/herself
against or reduce the possible risk involved
in various instruments.
* risk function ng financial system - problem pag
nahack, parang insurance sa pera mo sa bank pero
hindi lahat insured
5. Policy Function
- Most governments intervene in the financial
system to influence macroeconomic
variables like interest rates or inflation. For
example, the federal bank or a central bank
does indulge in several cuts in CRR and try
to force the interest rates down and increase
the availability of credit-at cheaper rates to
the corporates.
* rules and regulation ng gov. both national and
LGU
* work of central bank - regulate money supply, and
prints money, sa kanila yung control ng money
kung ilan yung ilalabas
* policy function - para maging compliant tayo,
meron silang right to intervene
The financial system is the process by which money
flows from savers to users.
Understanding the Financial System
● Financial System
● Savers
● Users
● Financial Institutions
● Financial Markets
● Savings is a function of many variables.
● Funds can be transferred between users and
savers directly or indirectly.
Financial System: A global perspective
● The financial system is more connected.
● Financial institutions are more global.
● Only 3 of the 30 largest banks in the world
are US institutions.
● Most nations have a central bank.
* more connected - mas napapadali yung access
* hedge funds - parang pool daw
Financial System ● Non-Financial Institutions
- collection of institutions that facilitate the - are businesses such as trading,
flow of funds between lenders and manufacturing, extractive industries,
borrowers construction and genetic industries. Non-
financial institutions can also be the lender
The Financial System: Saving and borrowers just like financial institutions.
- When people earn income, they typically - They are also financial institutions that offer
don’t want to consume their entire income various banking services but do not have a
all at once. banking license. Generally, these institutions
- But they may have no idea what to do with are not allowed to take traditional demand
the unconsumed income. deposits readily available funds, such as
- This unconsumed income is called saving those in checking or savings accounts from
the public.
The Financial System: Investment ● The Government
- On the other hand, there are people who - is the national, provincial, city and towns
may wish to spend money on various comprising the Philippines as a whole.
potentially valuable projects but either have ● The Central Bank
no money of their own or may wish to spend - is an institution that manages a state’s
their personal funds on projects other than currency, money supply and interest rate.
their own Central banks also usually oversee the
- The money that these people need for their commercial banking system of their
spending plans is called investment respective countries.
● Foreign participants
The Financial System Makes Saving = Investment - refers to the participants from the rest of the
- The financial system makes it easier for world such as households, government,
lenders (those who have the saving funds) financial and nonfinancial firms, and central
and borrowers (those who need funds for banks.
investment) to find each other - They exchange goods and services across
- Both groups benefit when the financial national boundaries. International trade and
system does its job well international finance are parts of
- When the financial system fails, both groups globalization.
suffer
Role of Financial Institution
Financial System Participants ● Regulation of monetary supply
● Households or consumers ● Banking services
- are generally described as that group ● Insurance Services
receiving income, the majority of which ● Capital Formation
typically come from wages and salaries. ● Act as a Government Agent for Economic
● Financial institutions growth
- channel the funds from lenders to borrowers. ● Financing the small and medium scale
They can also be the lenders and borrowers enterprises
themselves. If they buy securities they are ● Pension Fund services
lenders but if they are the ones issuing the ● Trust fund services
securities, they are borrowers. ● Investment Advice
6 Parts of the Financial System
1. Money
- Start of the financial system and the means
for making purchases. Accumulating money
is a determining factor in defining wealth.
Those who store more money are wealthier
than those who do not.
● Money in the Philippines: Banks, ATMs,
cards & currency exchange like coins, bank
notes
2. Financial Instruments
- are also known as securities, though the
layman's terms are stocks, bonds, mortgages
and insurance.
3. Financial Markets
- are trading houses that are dedicated to the
purchase and sale of stocks and bonds, such
as the New York Stock Exchange or
Philippine Stock Exchange (PSE). Buyers
and sellers gather at the market to determine
buying and selling prices for securities,
typically with assistance from a stockbroker.
Markets continually fluctuate, resulting in
inherent risks in the process.
4. Financial Institutions
- The common term for financial institutions
is banks. Though once a brick and mortar
building that held money in vaults, modern
financial institutions offer a variety of
products and services including mortgages,
insurance and brokerage accessibility.
- Financial institutions now compete in the
financial market by offering one-stop
shopping for financial transactions and
advice.
5. Regulatory Agencies
- were introduced by the government to
monitor the activities of financial
institutions and markets. Through
examination and enforcement of strict
guidelines, regulatory agencies supervise
members of the financial system to ensure
the safety of the public's money and
investments. Government examiners review
the systems in place at financial institutions
and markets, and they teach and encourage
best practices.
PDIC - 500,000 insured
6. Central Banks
- Every country in the world has a central
bank that is integral to each country's
government. The founding of central banks
was originally a means to finance wars, but
today's central banks control the availability
of money and credit. They are integral to the
stability of the country's financial system as
they oversee national currency and its value.
Types of Non-Financial Institutions
1. Insurance Companies
- Risk-pooling institutions like insurance
companies work with economic risks such
as death, damage and risks of loss to make a
return. The two main types of insurance
companies are general insurance and life
insurance. General insurance is more of a
short term contract while life insurance is
long term and is active until the insurer’s
death.
2. Payday Lenders
- Specialized sectoral financiers like payday
lending companies and real estate financiers
provide short term loans and limited
financial services to a targeted demographic.
- They can help with unsecured business loans
and are a quick fix for borrowers. Those
struggling to get credit or with limited
recourse to funds are more likely to use a
payday lender when securing a loan.
3. Financial Service Providers
- are made up of management consultants,
security and mortgage brokers and financial
advisors. They operate on a fee-for-service
basis and offer advice to investors and
brokers. They improve informational
efficiency for investors and offer a
transactions service for investors to liquidate
their assets.
4. Institutional Investors “Lender-Savers”) to one who has them (i.e.,
- are organizations that trade securities in “Borrower-Spenders”)
volumes that qualify for lower commissions. ● Savers benefit – earn interest
This kind of non-bank financial institution ● Investors benefit – access to money
can be found working with pension funds otherwise not available
and mutual funds. ● Economy benefit – efficient means of
bringing savers and borrowers together.
What does the financial system do?
The financial system serves multiple purposes:
1. It helps entrepreneurs find the money needed to
turn business ideas into reality
2. It helps entrepreneurs pursue business projects
without having to personally carry too much of the
risks associated with their projects
3. It helps to protect lenders from irresponsible
borrowers
4. It helps to foster economic growth by channeling Financial Markets Funds Transferees
savings to the most valuable projects and cutting off
funds for the less valuable projects Lender-Savers
1.Households
Financial Markets and Institutions 2.Business firms
3.Government
Why study Financial Markets and Institutions? 4.Foreigners
● They are the foundation of the overall
financial system in which financial Borrower-Spenders
managers operate 1.Business firms
● Individuals use both for investing 2.Government
● Corporations and governments use both for 3.Households
financing 4.Foreigners

The Financial Institutions And The Financial Segments of Financial Markets

Markets 1. Direct Finance
● Is an establishment that conducts - Borrowers borrow directly from lenders in
transactions such as investments, loans, and financial markets by selling financial
deposits. instruments which are claims on the
● Provide a mechanism for those with excess borrower’s future income or assets
funds (savers) to lend to those who need
funds (borrowers). 2. Indirect Finance
- Borrowers borrow indirectly from lenders
Flow Of Funds via financial intermediaries (established to
● Financial system provides a transmission source both loanable funds and loan
mechanism between saver-lenders and opportunities) by issuing financial
borrowers-spenders. instruments which are claims on the
● Channels funds from person or business borrower’ s future income or assets
without investment opportunities (i.e.,

Importance of Financial Markets
● This is important. For example, if you save
$1,000, but there are no financial markets,
then you can earn no return on this - might
as well put the money under your mattress.
● However, if a carpenter could use that
money to buy a new saw (increasing her
productivity), then she is willing to pay you
some interest for the use of the funds.
● Financial markets are critical for producing
an efficient allocation of capital, allowing
funds to move from people who lack
productive investment opportunities to
people who have them.
● Financial markets also improve the well-
being of consumers, allowing them to time
their purchases better
Structure of Financial Markets
- It helps to define financial markets along a
variety of dimensions (not necessarily
mutually exclusive).
Flow Of Funds
● Funds flow indirectly from ultimate lenders
(households) through financial
intermediaries (banks or insurance
companies) or directly through financial
markets (stock exchange, bond markets) to
ultimate borrowers (business firms,
government or other households.
Major Categories Of Financial Institutions And
Their Roles In The Financial Systems
1. Commercial Banks
- accepts deposits and provides security and
convenience to their clients.
- They also make loans that individuals and
businesses use to buy goods and expand
business operations.
- they also served often under-appreciated
roles as payments within the country and
between nations , eg. Debit cards, credit
cards and cheques.
2. Investment Banks
- is a financial intermediary that performs a
variety of services for businesses and
government.
- These services include underwriting debt
and equity offerings, facilitating mergers
and other corporate reorganizations, and
acting as a broker for institutional clients.
3. Insurance Companies
- They pool risk by collecting premiums from
a large group of people who want to protect
themselves and/or their loved ones against a
particular loss such as a fire, car accident,
illness, lawsuit, disability or death.
- They help individuals and companies
manage risk and preserve wealth.
4. Brokerages
- acts as an intermediary between buyers and
sellers to facilitate securities transactions.
- They are compensated via commission after
the transaction has been successfully
completed.
5. Investment Companies
- is a corporation or a trust through which
individuals invest in diversified,
professionally managed portfolios of
securities by pooling their funds with those
of other investors, eg. Mutual funds.
 - They help individuals and companies
manage risk and preserve wealth.
6. Non Bank Financial Institutions
a. Savings And Loans
- typically offers lower borrowing rates than
commercial banks and higher interest rates
on deposits.
b. Credit Unions
- typically higher rates on deposits and charge
lower rates on loans in comparison to
commercial banks.
- Memberships are not open to the public, but
rather restricted to a particular membership
group.
Financial Markets And Financial Instruments
Financial Markets
- is a market in which people trade financial
securities, commodities and other fungible
items of value at low transaction costs and at
prices that reflect supply and demand.
- Some are relatively small with only few
participants, while others like the Philippine
Stock Exchange (PSE) and the Makati Stock
Exchange (MSE) markets trade trillions of
Pesos daily.
Primary Markets Vs Secondary Markets
● Primary Markets
- also known as “new issue markets”, are
facilitated by underwriting groups, which
consists of investment banks that will sell a
beginning price range from a given security
and then oversee its sale directly to the
investors.
● Secondary Markets
- is where investors purchase securities or
assets from other investors, rather than from
issuing companies themselves.
● Over-The-Counter (OTC) Markets
- refer to a dealer market. These are stocks
that are not trading on a stock exchange like
PSE but instead from very small companies.
● Capital Markets
- is one in which individuals and institutions
trade financial securities. They are intended
for long- term finance.
● Stock Markets
- allow investors to buy and sell shares in
publicly traded companies.
● Bond Markets
- is a debt investment in which an investor
loans money to an entity (corporate or
governmental), which borrows the funds for
a defined period of time at a fixed interest
rate.
● Money Markets
- are also called cash investments because of
their short maturities.
● Foreign Exchange (FOREX) And The
Interbank Market
- facilitate the trading of foreign exchange.
Financial Instruments
● These are assets that can be traded.
Types Of Financial Instruments
1. Cash Instruments
- are directly influenced and determined by
markets.
- These are securities that are easily
transferable.
2. Derivative Instruments
- is a financial contract with a value that is
derived from an underlying asset.
Asset Classes
1. Equity- based Financial Instruments
- represent ownership of an asset
- Returns from equity instruments come from
either dividends or stock price appreciation
- include common stocks and preferred
stocks.
2. Debt-Based Financial Instruments
a. Short Term Debt Based (one year or less)
● Treasury Bills Or T-Bills
- a short dated government security, yielding
no interest but issued at a discount on its
redemption price.
● Commercial Papers
- promissory notes issued by financial
institutions or large firms with very short to
short maturity period; usually 2 to 30 days,
and not more than 270 days, and secured
only by the reputation of the issuer.
● Cash Equivalents
- investments securities that are for short
term investing and they have a high credit
quality for loans.

B. Long Term Debt Based (more than a year)

● Corporate Bonds
- borrowers issued bonds to raise money
from investors willing to lend them money
for a certain amount of time.