CABUYAO INSTITUTE OF TECHNOLOGY

Enterprise Park, Banay-Banay, City of Cabuyao, Laguna

SENIOR HIGH SCHOOL DEPARTMENT
TAKE HOME ACTIVITY - BUSINESS FINANCE
Name: _____________________________________________ Date: ____________
Grade/Section: _______________________________ Score:____________
LEARNING ACTIVITY SHEET
FINANCIAL INSTITUTION, FINANCIAL INSTRUMENT AND FINANCIAL MARKET
Background Information for Learners
Financial institutions/ intermediaries are organizations that perform certain financial and monetary
transactions/activities such as deposits, accepts investments currency exchange and provide loans to
businesses. These are the firms that bridge the gap between surplus units (SUs) or investors/lenders and
deficit units (DUs) or borrowers. They channel funds from lenders to borrowers and include depository
and non-depository institutions.

Other than being a channel, they are lenders and borrowers at times. When they underwrite securities or
act as brokers or dealers, they are intermediaries. If they buy securities, they are investors or lenders, and
when they are the ones issuing securities, they are borrowers. Some of the major categories of financial
institutions are Commercial Banks, Investment Banks, Insurance Companies, Brokerages, Investment
Companies and Non-bank Financial Institutions.

Financial Instrument. Monetary contract between parties or any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of another entity.
They can be created, traded, modified and settled.

TYPES OF FINANCIAL INSTRUMENTS:

-Deposits -Other account receivables & payables
-SDRs (Special Drawing Rights) -Financial derivatives
-Borrowings -Letter of guarantee
-Loans -Letter of credit
-Shares and other equity -Financial commitments
-Debentures or bonds -Pledged financial assets

In finance, financial instruments are classified as to their term or maturity date. They can either be short-
term (with maturity of one year or less) or long- term (with maturity of more than one year). Short- term
instruments belong to the money market, while long- term instruments belong to the capital market.

Financial Market refers to a marketplace, where creation and trading of financial assets, such as shares,
debentures, bonds, derivatives, currencies, etc. take place. It plays a crucial role in allocating limited
resources, in the country’s economy. It acts as an intermediary between the savers and investors by
mobilizing funds between them.
The financial market provides a platform to the buyers and sellers to meet for trading assets at a
price determined by the demand and supply forces.
Financial markets are classified as either (1) primary or secondary market or (2) money or capital
market. Although we have other classifications of financial markets, these two are the basic
classifications of financial markets.

Money Market: The market where monetary assets such as commercial paper, certificate of deposits,
treasury bills, etc. which mature within a year, are traded is called money market.
It is the market for short-term funds. No such market exists physically; the transactions are
performed over a virtual network, i.e. fax, internet or phone.

Capital Market: The market where medium and long term financial assets are traded in the capital
market. It is divided into two types:
(a) Primary Market: A financial market, wherein the company listed on an exchange, for the
first time, issues new security or already listed company brings the fresh issue.
(b) Secondary Market: Alternately known as the Stock market, a secondary market is an
organized marketplace, wherein already issued securities are traded between investors, such as
individuals, merchant bankers, stockbrokers and mutual funds.
(Mariano, N.L. (2017) Capital Markets. Rex Book Store)
Collateral: Is an asset promised by a business to a creditor if repayment of a loan isn’t completed.
Demand: The amount of a product or service that individuals want to buy to satisfy their wants and needs.
Supply: Is the basic economic concept that describes the total amount of a specific good provided to the
market for consumption.

TYPES OF COOPERATIVES

Cooperatives vary depending on the service offered and the way that the members are organized.
They also differ depending on the economic activity, how members use the Cooperative and kind of
management.

There are six types of classification: Agricultural Co-op, Consumer Co-op, Credit Union,
Housing Co, and insurance Co-op and Worker co-ops. Those types of cooperatives include
producer/marketing, retail supply, utilities, cable television, agricultural services, fish marketing, child
care, farmers' markets and community service.
 Producer / Marketing Cooperatives
 Consumer Cooperatives
 Worker Cooperatives
 Housing Cooperatives
 Financial Cooperatives
 New Generation Cooperatives
 Multi-Stakeholder Cooperatives
 Non-profit Community Service Cooperatives

Producer / Marketing Cooperatives: The Producer Co-ops were one of the first kinds of Cooperatives
developed to explore and provide solutions to the farmers’ production in the early 1880s. Producers Co-
ops are also known as marketing co-op where the members provide the co-op with the same production
that the co-op markets in a processed or value-added form.

The Co-ops’ mandate is to commercialize the members input by seeking the best price possible on the
market. In Manitoba many groups of suppliers are organized into marketing co-ops to meet the marketing
requirement and to explore and access the market for their product.

These Producer Co-ops include farmers, artists, harvesters and fishers seeking out and selling to end users
to earn and retain the benefit of their owners/producers.

Consumers: Provides community assistance that may not be offered by government. They are owned
and controlled by the people that buy the products and services sold, managed or distributed by the co-ops.
Also considered as CONSUMERS COOPERATIVES.

Their mandate is to acquire the products and services required by their members at the lowest possible
cost with the highest possible quality. These co-ops can operate in three different ways; as buying clubs
where products and services are obtained by the co-op only when the members place an order; as retail
stores where the members come in to shop; and as service providers where members order the service,
such as cable television, internet access, insurance, water or natural gas.

Worker Cooperatives: Worker co-ops are identified as the third type of Cooperative owned and
controlled by their employees. The purpose of the worker co-op is to create jobs for their members and
allow them control of their workplace. Members provide the capital to finance the business, each sharing
the costs and risks of ownership.

The management of a worker co-op is concentrated in the business part and classified as a third type of
co-op where the members are employees.

Usually the worker co-ops are services co-op offering services to other business and they are generally
printing, nursery schools, cleaning, consulting, delivery, manufacturing and food services.
Major benefits to the employee-members include involvement in the policy-making process, through the
election of a Board of Directors, profit sharing through patronage allocations, and a quality of work life
that is established by the membership.
 Housing Cooperatives: Housing co-ops are developed to resolve the living need by offering an
affordable and secure housing in a viable community. The members are tenants/owners having the ability
to manage and control the co-op. The new member pays the exiting member market value for the right to
occupy the housing unit and the housing co-op records the transfer of equity and charges the new member
an initiation fee. The housing co-op, although it still must approve the new member, receives the transfer
fee but does not have to concern itself with the redemption of shares.

Financial Cooperatives: The financial co-ops were initially based on consumer co-ops offering financial
services to their members. Financial co-ops were started in rural communities providing farmers with
micro credit during the early 1900s and they were known as the people’s bank or credit unions, and
saving and credit cooperatives.

These special types of co-ops often come under legislation developed for the uniqueness of the financial
services being provided to their members, deposit taking, loans, trust services, and insurance. Credit
Unions (in English Canada) / Caisses Populaire (French Canada) are the most recognizable or best known
of the financial co-ops. Like other co-ops democratic control is in the hands of their members/owners.

These co-ops have the mandate to provide their members with financial services at the lowest possible
cost and the highest possible return. These services include a variety of deposit vehicles, mortgages, loans,
lines of credit, safety deposit boxes, financial planning, estate administration and insurance.

New Generation Cooperatives: New Generation cooperative or New Formula to view and operate a Co-
op and they are the latest buzzwords in the co-op community describing a variation on the traditional co-
op, yet, retaining the critical co-op principles. New Generation Cooperatives (NGCs) represent an
emerging trend in agriculture, forestry, fishing and other industries that are supplied by producers. These
are distinct types of cooperatives formed to enable members to process raw commodities. As a result,
members not only receive market prices for their produce, they also gain the opportunity to profit from
processing and marketing these value-added products.

It is primarily the financial structure and membership requirements that distinguish NGCs from the more
traditional cooperatives. Typically, higher equity investments are required by members in order to
establish a processing plant. Furthermore, the number of members is limited to those who purchase
delivery rights, as well as by the processing capacity of the plant. Because of the unique structure of
NGCs, members feel a greater degree of personal ownership and a stronger commitment to the
cooperative.

These Cooperatives are referred to as new generation because of four distinct variances from traditional
co-ops:
1. The focus is on the value-added processing or manufacturing of raw commodities delivered to the
co-op by its members and the marketing of the resulting products.
2. A significant equity investment is required by each member, with the total initial equity
contribution being a major portion of the gross project costs.
3. A two-way contract between the member and the co-op requires each member to deliver, and the
co-op to accept, an agreed-upon amount of the raw commodity for each delivery right (special investment
share under Manitoba legislation) owned by the member.
4. Membership is limited to the number of special investment shares (delivery rights) required to be
sold by the co-op to its members in order to meet its processing capacity.

Multi-Stakeholder Cooperatives: allow groups that normally form separate co-ops, such as workers and
consumers, to combine their resources and create a co-op together. This allows co-ops greater strength
and sustainability with the ability to diversify their stakeholders.

Non-profit Community Service Cooperatives: Provides services to the community on a not for profit
basis, for example a child care centre owned and operated by the parents using the centre.
Now, try this!
After reading the main concepts on financial institution, financial instrument and financial market above,
accomplish the following activities with the best that you can by answering the questions given.

ACTIVITY 1. TRUE/FALSE Directions: Read each statement below carefully. Write X if the
statement is TRUE and Y if otherwise on the space provided for. (15 POINTS)
______ 1. Financial institution matches the supply and demand for funds.
______ 2. Financial system channels the funds from the savings unit to the deficit units.
______ 3. Financial instrument and securities are traded in the financial market.
______ 4. Financial intermediaries provide channel through which the central bank can influence the
economy, in general and the financial system, in particular.
______ 5. Borrowers and savers fall under deficit units.
______ 6. Bank is an example of financial intermediary.
______ 7. Lender is otherwise known as savings unit.
______ 8. Financial institutions include banks, credit unions, asset management firms, building societies,
and stock brokerages, among others.
______ 9. Borrowers are also known as creditors.
_____ 10. Financial institutions can be divided in two major parts: Banking Institution and Non-banking
institution.
_____ 11. Financial intermediary links the savers and users of funds.
_____ 12. When the BSP produces a surplus in the currency of the country, inflation will be
uncontrollable.
_____ 13. Globalization permits foreign participants to be part of the financial system.
_____ 14. Exchange rates is one of the activities in a financial system.
_____ 15. Financial systems affect a country’s economy.

ACTIVITY 2. FINANCE TERMS Directions: Each term in the following list is essentially or nearly a
synonym for another in the same list. Identify these pairs by putting the letter of the synonym on the
blank provided for. (14 POINTS)

Term Means essentially the same as

a. Appreciation ________________
b. Supply of foreign currency ________________
c. Law of one price ________________
d. Dirty float ________________
e. Floating exchange rate ________________
f. Devaluation ________________
g. Demand for domestic currency ________________
h. Pegged exchange rate ________________
i. Revaluation ________________
j. Fixed exchange rate ________________
k. Managed float ________________
l. Depreciation ________________
m. Purchasing power parity ________________
n. flexible exchange rate ________________

ACTIVITY 3. SENTENCE ANALYSIS Directions: Read the following statements below and identify
whether:
A- Both statements are TRUE C- 1st statement is TRUE; 2nd statement is FALSE
B- Both statements are FALSE D- 1st statement is FALSE; 2nd statement is TRUE
Write the letter of your answer on the space provided before each number. Use CAPITAL letters
only.(10POINTS)
_____1. Capital markets carry out the desirable socioeconomic function of directing capital to productive
uses.
- Capital markets can be in a national or an international setting.
_____2. Debt is defined as money that is borrowed and must be repaid.
- Equity is money that is invested in return for a percentage of ownership.
_____3. All investments are risky.
- Basically, a higher rate of return means a higher risk.
_____4. When savers make investments, they convert risk-free assets into risky assets.
- Cash or savings are risk-free assets.
_____5. Mutual funds are pools of money managed by an investment bank.
- This investment bank is investing in stocks and bonds all over the world.
_____6. Financial intermediaries are very important in the capital marketplace.
- Bank loan is a financial intermediary.
_____7. In direct investments, the company invests in the capital market with its own effort.
- While in the indirect investment, the company invests through a financial intermediary.
_____8. Creditors, or debt holders, purchase debt securities and deduct future interest income in return for
their investment.
-When investors buy bonds, they are lending the issuers of the bonds their money.
_____9. The most common example of a debt instrument is the bond.
- All types of organizations can issue bonds.
____10. Stocks are the type of equity security with which most people are familiar.
- When investors buy stock, they owe a share of a company’s assets and earnings.

ACTIVITY 4. FINANCIAL SYSTEM Directions: Visit the BSP website (http://www.bsp.gov.ph/) and
let’s find out how well you internalize the information from the website by answering this activity.
Choose the letter that corresponds to your answer. Write your answer on the space provided for.
(15POINTS)
______ 1. Which of the following actions will be appropriate if there is an inflationary pressure due to
excessive demand?
a. BSP to slow down inflation by implementing incrementing monetary policy.
b. BSP to slow down inflation by implementing contractionary monetary policy.
c. BSP check the availability and cost of money in circulation and identify if it matches the demand.
d. Only B and C
______ 2. What might be the possible reason explaining ‘why BSP adopts inflation targeting?’
a. Increases accountability of the financial system and helps build credibility
b. Enables comprehensive approach to monetary policy
c. Allows mere focus on price stability
d. All of the above
______ 3. What might happen if The BSP increases policy interest rate?
a. It increases accountability of the financial system and helps build credibility.
b. Banks’ interest rates will follow the increase.
c. There will be lower cost of borrowing.
d. There will be an excessive demand for currency.
______ 4. The first pillar of the BSP focuses on ‘Price Stability,’ what does it imply?
a. All banks should help BSP make the price of goods and services stable.
b. They focus on preserving of purchasing power.
c. The BSP tries to lower cost of borrowing.
d. The citizens have the ability to buy goods and services in a reasonable price.
______ 5. Financial stability serves as the 2nd Pillar of the BSP. How can BSP sustain its 2nd mandate?
a. The BSP should sustain it through inflation targeting and monitoring.
b. The BSP should sustain it through banking supervision and regulation.
c. The BSP should sustain it through close monitoring of banks and other financial institutions.
d. The BSP should sustain it through financial literacy campaign to government, households and firms.
______ 6. One of the supervising and regulating duties of the BSP is the surveillance to financial
institutions. For banks, one thing they check is the implementation of the so called, AML Act, which
stands for?
a. Anti-Money Laundering Act
b. Anti-Money Loandering Act
c. Anti-Mobile Loandering Act
d. Anti-Mobile Laundering Act
______ 7. What will happen when the BSP accomplishes its supervising and regulating duties of financial
institutions?
a. The country will have a stable and manageable inflation.
b. The BSP will have complied with Consumer Protection Laws and Safety and Soundness of Financial
Institutions.
c. The BSP will have good implementation of the AML Act since there is a close monitoring of financial
institutions.
d. The BSP will conduct a consistent and reliable financial literacy campaign to government, households
and firms.
______ 8. What should the BSP do to ensure safe and efficient payments and settlements of financial
transactions?
a. It must comply with the Consumer Protection Laws and Safety and Soundness of Financial Institutions.
b. It must efficiently operate the PhilPaSS for transacting parties that directly benefit the financial system.
c. It must implement the AML Act and conducts a close surveillance of financial institutions.
d. It must strengthen its efforts to financial literacy campaign for the government, households and firms.
______ 9. Which of the following fall under the other functions of the BSP?
a. They maintain price stability.
b. They serve as custodian of official reserves.
c. They implement the AML Act and conduct a close surveillance of financial institutions.
d. They support financial education literacy campaign.
______ 10. In order to have efficient payments and settlement system, the BSP owns the PhilPaSS. What
does PhilPaSS stand for?
a. Philippine Pricing and Settlements System
b. Philippine Pricing and Settling System
c. Philippine Payments and Settling System
d. Philippine Payments and Settlements System
______ 11. BSP grants licenses and special authorities to the following ______________
a. pawnshops, mutual fund companies and schools.
b. banking institutions, other financial institutions, NBFI w/o quasi banking functions.
c. commercial banks, universal banks, thrift banks, cooperative banks, rural banks.
d. banking Institutions, other financial institutions, SEC, CDA, IC.
______ 12. This happens when the financial system is able to effectively distribute and manage FUNDS
between surplus (savers) and deficit units (spenders) and RISKS attendant to the movement of funds and
provision of services.
a. financial surplus
b. financial stability
c. efficient financial system
d. price stability
______13. If the BSP maintains its credibility, then inflation expectations will ___________
a. allow greater focus on price stability.
b. remain well-anchored.
c. promote transparency in monetary policy.
d. become forward-looking.
______14. If the investment and consumer growth will be slower then, aggregate demand growth will
___________ .
a. remain well-anchored.
b. be slower too.
c. be manageable and ideal.
d. become forward-looking.
______ 15. This refers to the action taken to manage the availability and cost of money and credit to
attain stable prices.
a. Inflation targeting
b. Monetary Policy
c. Rediscounting
d. Redress and Literacy
ACTIVITY 5: FINANCIAL INSTITUTIONS Directions: Identify the following banking institutions
into their respective group. Write UB-Universal Banks; CB-Commercial Banks; TB-Thrift Banks; CPB-
Cooperative Banks; and RB-Rural Banks. (15 POINTS)
Exercise 6. ESSAY Directions: Read each question below and answer it properly. Write your answer on
the spaces provided for.
1. Discuss the meaning of financial system. What is its importance to the nation? (10 POINTS)
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

2. What are the roles of the financial institution, financial instrument and financial market in the well-
being of the country (Philippines)? (10 POINTS)
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

Reflection:
Complete this statement: (11 POINTS)
In the activity, I have learned
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________