MODULE 9

INTTRODUCTION TO
CAPITAL MARKETS
AND INVESTMENTS
Further, the following question may have
entered your mind at one time or another

1. What happens to the money raised by

campanies from selling of their stocks?
2. What causes the prices of stock to go up
and down
3. What motivates most people to learn
more about investment option and the
dynamics involved in the investment market
In this module, you will learn the
dynamic in capital markets and
investment in module 8, it was
discussed that campanies sells stocks to
raise capital and as a form of long –
term financing along with corporate
bonds. Here , there will be a discussion
of their risk taken by investor , and
along the lose these question will be
answered
1. How caan an investor minimize risk?
2. Can investor- individuals and
campanies alike- actually calculate
risk?
3. How do inventor react to
information and how to these piece of
information affect investment
decisions?
4. What factors cause the raise and fall
of piece of investment products?
 0verview Of The Philippines
Financial System
The financial system consist of all dealings with financial
assets . Recall the discussion in previous module that there is
minutiae of interaction between the supplies and the user of
fund , and these interaction allow both the suppliers and the
user of fund to finance their need and meet their financial
objectives.
Money Market – Is the segment of
the financial market which cover s
financial or investment products
with maturities of one year less.
Capital Market – Is the segment of the
financial market with dealing that mature
in more than one year. It covers long-term
loanable funds which users of fund access
in order to finance fixed investment.
 Component Of The Capital
Market
The first component of the capital
market is the bond market which is the
market is the market for debt
instrument. The second component is
the mortgage market . Which consist of
loan on residential , commercial,and
industrial real estate and farmland.
 Primary Vs. Secondary Market
The primary market – Is where new
issuses of secureties or shares of stock
are sold to the investing public for the
first time. When a famous fast-food
chain in the philippines decided to sell
stocks to the public for the first time
1993 , the stocks wew sold in primary
market .
 Exchanges And Over- The
Counter Market
Secondary markets can be organized in two one
way is through exchanges such as the new York
stocks exchange and the philippines stock
exchange. An exchange is where buyer and
sellers of securities meet in one central
locationfor trading. The other method is for
transaction to be carried world, are able to
trade with one another through this method.
 Efficient Market Hypothesis
The Efficient Market Hypothesis (EMH) states
that for the financial market to be considered
efficient, it has to reflect all information in
determining the piece of securities and other
investment product.Since those prices walways
incorporate and reflect all relevant information,
it is impossible for one single investor or grouup
of investors to bet the market included in this
hypothesis is the premise that information is
made available to the investing public.
 Dundamental Analysis
Fundamentalm analysis – Is a methoddology where in investors
narrow down their choices on which financial products to purchase or
invest in by analyzing industry and economic data that may affct the
prices of stock, securities, and other finacial products.

A. ThThe company’s earning as reflected in its financial statement (and

financial ratio)
B. e quality and reputation of a company’s top management team
C. Overall economic outlooj and specific industry outlook
D. Competition
E. Market condition
F. The company’s intrinsic value which is the actual value of the
company base on the perception of the investing publicof itts true
value(If a company’s intrinsic value is greater that is market value,
then it is a good ttime to buy shares of tocks of the company.
 Technical Analysis
Both fundamental and technical analysis rely on the use
of historical data to predict the movement of prices of
securities, However, technical analysis zeroes in on stock
price histories data on prices are used in order to predict
pattern on price movement.
A. Price charts such as lin e charts, or thhe candlestick approach,
which was papularized by rge Japanese,are used.
B. Recogniyion of pattern such as support and resistance(A
resistance takes place when there are more sellers that buyers
which cause pressure an upward pressure on prices.a close
look will make one realize that it is largely economics as well
the law of supply and demand, specifically.)
C. Volume is critical in technical analysis. A nalysis monitor the
total number of shares traded in a day.
 Bull VS. Bear Market
Bull market and bear markett are terminologies useed
in the investing to describe the prevailing market
conditions wether the market is on the rise (bull) or in
decline (bear). A bull market Is characterized by
sustained increase in market share prices. The overall
economic capital income (PCI), gross national product
(GPN), and gross domestic product (GDP) also on the
upswing.
A bear market is characterized bt slowing down in
economic activity, In a bear market, share pricess are
declining and investor become pessimistic,believing
that the downtrend willcontinue.
 Investment
An investment is any of asset that is acquired by an
investor (could be an individual or an organization)
with the intent to utilize it to generate income and
eventually accumulate wealth.
There are many types of investment in the market .
When a newlywed couple purchases a house, it might
be considered an investment because the real estate
(land) will appreciate in value over time.
An equally important concept when choosing which
investment products are best for maximizing return
and helping individual or another firm achieve
financial goals is the concept of risk.
 Risk
Risk is defined s a chance of loss. In finance that the
actual return be different from the expected return on an
investment.
Systematic Risk – This type of risk has effect thatt are wider in
scope. It is almost impossible for an investor to avoid or not be
affected by this type of risk.
Political event- a coup d’etat, for example, or a concerntrate
effort to crub corruption in government will surely effect the
prices of securities traded in a particular country.
A natural disaster a massive earthquake, for instance
can effect the prices of investment product offered by
financial intermediaries operating in the country, as was
the case in the aftermath of the 1990 luzon earthquake
Diversification is a risk management
technique wherein an investor includes
a wide variety of assets or investment
product in his orher porfolio.

A porfolio is a collection of financial assets

which an investor has decided on invest in.
Bank savings accounts, stocks, bonds,
mutual fund accounts, and other financial
product can be included in an investor’s
porfolio.
 Measurement Of Risk
The most basic measurement of the risk of an assets
is its expected return. The expected is measured
because other outcomes are possible. Using the
probability distribution, a single measure should be
used in order to make a decision. The computation
uses the probabilities associated with each possible
outcome as the weight.Consider the information
below.
 Risk And Return On Profolio
One again, portfolio is decided as a grouping of
assets. It is one thing to evaluate the risk and return
of individual assets. However, when these assets are
grouped together, each has an effect on the overall
expected return and level of risk of the portfolio.
 The Covariance
The covariance is statistical measure of how the
movement of two variable affects each other. When
applied in risk analysis, it measures the co-movement
of assets. This is important when analyzing risk and
return on portfolios. Assets will more that likely move
in different direction,especially on portfolio that are
diversified.
The concept of covariance will be illustrated further
through a computation of the covariance of two
assets using the same example given earlier. The
important variable to be included in the computation
are the probabilities associated with different
outcomes.
 The Concept Of Beta (B)
Beta - Is a measure of market risk or systematic risk, Beta is
also the measure of a stock’s tendency to move with the
market or with an average stock that has the same
characteristic as the market.
Volatility- Of an asset is the degree of the movement of its
price relative to the movement of the average prices of stock
in the market.