Group 8

Financial
Market and
Institutions'
Mergers and
Acquisitions
FINANCIAL MANAGEMENT 2
1 Financial System
2 Flow of funds
3 Innovation in Finance
4
5
Financial Markets and Intermediaries
Mergers and Acquisitions
Agenda
 Our Management Team

Sophia Jane Allysa Mae Joanne

Custodio Fajanilan Maye
Leader Member Calinisan
Member

Back to Agenda
 Our Management Team

Marielle Princess Rose Anne

Delos Reyes Nicole Bustinera
Member Tumbaga Member
Member

Back to Agenda
 Group 8

Financial
System SOPHIA JANE N.
CUSTODIO
AC2A - REPORTER

Definition
Benefits
Components
Back to Agenda
Financial System Back to Agenda

Definition

It is a set of institutions, such as banks, insurance

companies, and stock exchanges, that permit the exchange
of funds.
Who has capital? Back to Agenda
Who needs capital? Back to Agenda
 Providing a way of making payments

Giving a way of earning interest in the form of time value

Benefits Protecting against financial risks

Collecting and distributing financial information

Governing regulations to maintain stability

Back to Agenda Maintaining liquidity and converting investments into cash

Financial institutions are at the
core of the financial system,
giving individuals the ability to
save and invest whenever and
wherever they want.
COMPONENTS

Financial Institutions

Financial Markets

Financial Instruments

Financial Services
 Financial Institutions

economic entities that help individuals and businesses

with several financial services, enabling them to
deposit, save, invest, and manage their monetary
resources
 Financial Markets

from the name itself, a type of marketplace that

provides an avenue for the sale and purchase of assets

help businesses to grow and expand by allowing

investors to contribute capital
 Financial Instruments

real or virtual documents (contracts) representing a

legal agreement involving any kind of monetary value

can be created, traded, modified, and settled

 Financial Services

economic services provided by the finance industry, which

encompasses a broad range of businesses that manage
money

provide investors with a way of managing assets and offer

protection against risks
Importance

Back to Agenda
Resources
https://www.investopedia.com/terms/f/financial-system.asp

https://corporatefinanceinstitute.com/resources/wealth-
management/financial-system/

https://www.wallstreetmojo.com/financial-system/#h-explanation
 Group 8

Flow of SOPHIA JANE N. CUSTODIO

ALLYSA MAE M. FAJANILAN

funds AC2A - REPORTER

Definiton
Procedure
Importance

Back to Agenda
Flow of funds Back to Agenda

DEFINITION

The “Flow of Funds” is the movement of money in and out of

bank accounts. Flows can vary depending upon the number of
times money moves, the currency, the payment rail, type of
business, the goods or services the business provides, by whom
the business is run, and asset types that the business holds.
 Group 8
How to use flow of funds as
a tool for analysis:
Group together homogenous economic
According to 1
Management entities and form one sector.
Study Guide:

The profit and loss account and balance

2
Flow of sheet for each sector need to be drawn up.

Funds Classify the sector as having a surplus or

Procedure 3
being deficient.
 Direct Approach
Method #1

Online Marketplace
Third Party Processor

How does
Method #2

Business in the Flow

the flow of Method #3

funds work?
Third Party Processor + Business
Method #4

Back to Agenda
How Direct Approach

does the
flow of SOURCE

funds
work? DESTINATION

Procedure

Back to Agenda
How Third Party Processor

does the SOURCE

flow of
funds TPP
work?
Procedure
DESTINATION
Back to Agenda
How Business in the Flow

does the SOURCE

flow of
funds BUSINESS
work?
Procedure
DESTINATION
Back to Agenda
How Third Party Processor + Business

does the SOURCE

flow of
funds
TPP

work? BUSINESS

Procedure
DESTINATION
Back to Agenda
How
does the
flow of
funds
work?
Procedure

Back to Agenda Flow of funds in a financial System

 Flow of funds
IMPORTANCE

It provides important clues

about the gaps that exist in
It provides important clues
the financial system and
about how the financial
provides a roadmap for the
system operates in a country.
steps which need to be taken
to fill that gap.
Back to Agenda
 Group 8

Innovation
of Finance ALLYSA MAE M.
FAJANILAN
AC2A - REPORTER

Definiton
Types
Causes of Financial Innovation
Advantages & Disadvantages
Classification of Financial
Innovation
 Financial Innovation

Financial innovation is the creation of new financial

instruments, products, services, institutions, or markets.
The innovations and use of digital technologies improve
economic opportunity and promote financial inclusion
 TYPES OF
FINANCIAL
INNOVATION

Process Innovations
Financial Institutional
Innovation
Product Innovations
 Innovative financial business
processes give clients better
services and boost the
Process Add a
effectiveness of business
subheading
operations. These innovations
Innovations include new company
procedures that boost
productivity and open up new
markets, among others.
Financial Institutional
Innovation
The advancement of the financial system, which is a prerequisite
for economic growth, depends on innovation. Examples include
the establishment of a new organization providing innovative
practices or services. However, creating a regulatory framework
that promotes innovation, globalization, and the growth of the
financial sector while maintaining a fair balance between private
and social incentives is challenging.
 Product Innovation

Such innovations include the introduction of new credit,

deposit, insurance, leasing, hire purchase, and other financial
products. Product innovations are introduced to respond
better to changes in market demand or to improve the
efficiency.
There are Technological
various advancements and
causes of payment system
financial innovations.
innovations,

Competition
such as:

There are
various Customer Service
causes of
financial Economic
innovations,
Liberalisation
such as:
 Financial intermediaries benefit
from economies scale by bundling
related financial services that can be
delivered to the customers
preferring a conveniently offered
Advantages of suite of products.

Innovation in The Internet and mobile technology have

drastically increased the ability to inform

Finance and interact remotely between

businesses and directly with customers. In
addition, technology has increased access
and the efficiency of direct delivery
channels, offering lower-cost, tailored
financial services and improving financial
inclusion
 Fintech companies have de
facto control over sensitive
information. Users must be
given more autonomy and
control over their data.
Disadvantages
of Innovation in
Fintech and big tech face
cybersecurity challenges.
Finance Moreover, the attacks spread as
interconnectivity expands and
service disaggregation adds
more links.
Classification
of financial
Innovation

Market Broadening Instrument

Risk Management Instrument

Arbitraging Instruments and

Processes
Market Broadening Instruments

In which increase the liquidity of markets and the

availability of funds by attracting new investors and
offering new opportunities for borrowers
 Risk Management
Instruments

Which reallocate financial risks to those who are less

averse to them or who have offsetting exposure,
and who are presumbly better able to shoulder
them.
Arbitraging Instruments and
Processes

Are instruments which enable investors and borrowers to

take advantage of differences in cost and returns between
markets, which reflect differences in the perception of risk as
well as in information, taxation and regulations.
Thank you for
listening!
 Group 8

Financial
Markets and
Intermediaries CALINISAN, JO ANNE
MAYE O.
AC2A - REPORTER

Definiton
Role
Examples
Back to Agenda
Financial Markets
Back to Agenda

Financial markets refer broadly to any marketplace where

the trading of securities occurs, including the stock
market, bond market, forex market, and derivatives
market, among others. Financial markets are vital to the
smooth operation of capitalist economies.
Understanding the Financial Back to Agenda

Markets

Financial markets allocate resources and provide liquidity for

firms and entrepreneurs, which is essential for the proper
operation of capitalist economies. Trading financial holdings is
made simple for buyers and sellers by the markets. Financial
markets design securities as a way to reward investors and
lenders who have extra money while also making that money
available to those who need it (borrowers).
 Stock Markets and
Examples of IPOs

Financial
OTC Derivatives and the
Markets 2008 Financial Crisis: MBS
and CDOs
Stock Markets and Back to Agenda

IPOs
A business will require access to funding from investors as it grows. The requirement for
access to far bigger quantities of capital than the company can obtain through
continuous operations or a conventional bank loan arises frequently as the business
expands. Companies can raise this amount of capital by selling shares in an IPO to the
general public (IPO). This transforms the company from a "private" business with a
small number of stockholders to a publicly traded business, whose shares will
subsequently be held by a large portion of the general public. The IPO also gives early
shareholders in the company the chance to sell out a portion of their investment,
frequently receiving enormous prizes as a result. Initially, the IPO price is often
determined by the thorough their pre-marketing procedure, underwriters.
Stock Markets and Back to Agenda

IPOs

Once the company's shares are listed on a stock exchange and trading in it
commences, the price of these shares will fluctuate as investors and
traders assess and reassess their intrinsic value and the supply and demand
for those shares at any moment in time.
OTC Derivatives and the 2008 Back to Agenda

Financial Crisis: MBS and CDOs

The mortgage-backed securities market has been largely acknowledged as one of

the causes and aggravating aspects of the 2008–2009 financial crisis
(MBS).These are a particular class of OTC derivatives in which the cash flows
from various mortgages are bundled, divided, and sold to investors. The crisis
was the consequence of a series of incidents, each of which had its own catalyst
and culminated in the banking system coming dangerously close to collapsing.
The Community Development Act, which required banks to relax their credit
restrictions for customers with lower incomes, has been blamed for sowing the
seeds of the crisis and establishing a market for subprime mortgages.
OTC Derivatives and the 2008 Back to Agenda

Financial Crisis: MBS and CDOs

The quantity of subprime mortgage debt, which Freddie Mac and Fannie Mae
guaranteed, kept rising until the early 2000s, even as the Federal Reserve Board
started to sharply lower interest rates to prevent a recession. the availability of
cheap money and lax credit standards encouraged a housing boom that sparked
speculation, raised housing costs, and resulted in a real estate bubble. In the
interim, investment banks used the mortgages they had acquired on the
secondary market to establish a type of MBS known as collateralized debt
obligations (CDOs), seeking quick profits in the wake of the dotcom bust and the
2001 recession.
OTC Derivatives and the 2008 Back to Agenda

Financial Crisis: MBS and CDOs

Investors were unable to comprehend the dangers involved with the deal
since subprime mortgages were packaged with prime mortgages. The
housing bubble, which had been accumulating for several years, had
finally burst when the CDO market heated up. Subprime borrowers
started to default on loans that were worth more than their homes as
housing prices dropped, hastening the slide in prices. Investors tried to
sell the liabilities after realizing the MBS and CDOs were worthless due to
the toxic debt they represented. The CDOs, however, lacked a market.
 Group 8

Financial
Markets and
Intermediaries
BUSTINERA, ROSE
ANNE B.
AC2A - REPORTER

Types
Importance
Back to Agenda
 Stock Markets

Types of Bond Markets

Financial Derivatives Markets

Markets
Commodities Markets

Cryptocurrency Markets
Back to Agenda
Stock Markets
Back to Agenda

These are venues where companies list their shares and

they are bought and sold by traders and investors. Stock
markets, or equities markets, are used by companies to
raise capital via an initial public offering (IPO), with shares
subsequently traded among various buyers and sellers in
what is known as a secondary market.
Bond Markets
Back to Agenda

It is the marketplace, allowing investors to buy bonds from

companies to finance their projects. The bonds are a
promise of repayment to the companies or the
government purchasing them within a specified period.
The companies have to pay the principal amount and
interest for a complete settlement.
Derivatives Markets
Back to Agenda

The derivatives market deals with derivatives, which derive

their value from an underlying asset. Individuals and firms
can trade in futures, options, forward contracts, and
swaps here. Such trades can be entered either via over-
the-counter or in exchange-traded derivatives to manage
the financial risk.
Commodities Markets
Back to Agenda

Commodities markets are venues where producers and

consumers meet to exchange physical commodities such
as agricultural products, energy products, precious metal,
or "soft" commodities. These are known as spot
commodity markets, where physical goods are exchanged
for money.
Cryptocurrency Markets
Back to Agenda

A cryptocurrency is a digital currency, which is an

alternative form of payment created using encryption
algorithms. The use of encryption technologies means that
cryptocurrencies function both as a currency and as a
virtual accounting system.
Other Types
Back to Agenda

Over-the-Counter Markets

Money Markets

Forex Markets
 Transfer of Savings and
Alternatives for Investment

Importance Establishes the Price

of Financial
Markets
Facilitates Liquidity

Reduced Cost of
Transaction
Back to Agenda
 Back to Agenda

Importance of Financial Markets

Transfer of Savings and
Establishes the Price
Alternatives for Investment
It provides a platform for the transfer of Financial market provides a platform for
savings from the households to the the interaction of the demand of the
investors. funds and the supply of funds.

Facilitates Liquidity Reduced Cost of Transaction

Through trading in the financial market Financial market helps in reducing the
assets can be easily converted into cost of transaction in terms of effort,
cash or cash equivalents. money and time.
 Group 8

Mergers and
Acquisitions DELOS REYES,
MARIELLE U.
AC2A - REPORTER

Introduction
Mergers vs Acquisitions
Types of M&A
Examples
Back to Agenda
 MERGERS and
ACQUISITIONS
Introduction

In previous lessons, it was stated that one advantage of corporate organization is

that the expected life of a corporation can be unlimited. On certain infrequent
occasions, management/owners may decide to restructure the firm's basic asset
mix and/or its financial structure.

Some approaches used by firms to restructure include merging with or

acquiring another firm.

Mergers and Acquisitions (M&A)

Back to Agenda

['mar-jǝrs ǝn(d),a-kwa-'zi-shǝns]

A general term that describes the consolidation of

companies or assets through various types of financial
transactions, including mergers, acquisitions,
consolidations, tender offers, purchase of assets, and
management acquisitions.
 Group 8
How Do Mergers Differ From
Acquisitions?
The terms mergers and acquisitions are often used
interchangeably, however, they have slightly different
meanings.

Mergers In general, "acquisition" describes a transaction,

and wherein one firm absorbs another firm via a takeover.
Acquisitions The term "merger" is used when the purchasing and
Mergers vs.
target companies mutually combine to form a
Acquisitions
completely new entity.
 Merger
Types of In a merger, the boards of directors for

Mergers
two companies approve the combination
and seek shareholders' approval.

and Acquisition
Acquisitions In a simple acquisition, the acquiring
company obtains the majority stake in the
acquired firm, which does not change its
name or alter its organizational structure.
The following are some
common transactions
that fall under the M&A Consolidations
umbrella. Consolidation creates a new company by
combining core businesses and
abandoning the old corporate structures.
 Tender Offers
Types of In a tender offer, one company offers to

Mergers
purchase the outstanding stock of the
other firm at a specific price rather than

and
the market price.

Acquisition of Assets
Acquisitions In an acquisition of assets, one company
directly acquires the assets of another
company.
The following are some
common transactions Management Acquisitions
In a management acquisition, also known
that fall under the M&A as a management-led buyout (MBO), a
umbrella: company's executives purchase a
controlling stake in another company,
taking it private.
 Group 8

Mergers and
Acquisitions TUMBAGA, PRINCESS
NICOLE B.
AC2A - REPORTER

How Mergers Are Structured

Two Financing Methods
How Acquisitions Are Financed
How M&A Are Valued?
Back to Agenda
 How Mergers
Are Structured Types of Mergers
Mergers can be structured in a number of different ways, based on the relationship between the two companies involved in the deal:

Horizontal Merger: Two companies that are in direct competition and share the same product lines and markets.

Vertical Merger: A customer and company or a supplier and company. Think of an ice cream maker merging with a cone
supplier.

Congeneric Mergers: Two businesses that serve the same consumer base in different ways, such as a TV manufacturer
and a cable company.

Market-extension Merger: Two companies that sell the same products in different markets.

Product-extension Merger: Two companies sell different but related products in the same market.

Conglomeration: Two companies that have no common business areas.

Mergers may also be
distinguished by
following two
financing methods:

1. Purchase Mergers
2. Consolidation Mergers
How Mergers
Are Structured
How are Acquisitions Financed?
 How are Price-to-Earnings Ratio (P/E Ratio)

Mergers and
Acquisitions
Enterprise-Value-to-Sales Ratio (EV/Sales)

Valued? Discounted Cash Flow (DCF)

Replacement Cost
THANK YOU
FOR
LISTENING!

Back to Agenda