FINANCIAL INSTRUMENTS…

FINANCIAL
INSTITUTIONS…

FINANCIAL MARKETS…
Objectives:

 Definefinancial instruments, financial institutions

and financial markets.
 Describe the role of financial instruments, financial
institutions and financial markets.
 Valuethe roles of financial managers in achieving
the goals of the organization
PRE-TEST
1. It is a financial intermediary handling individual savings. It receives
premium payments placed in loans or investments to accumulate funds to
cover future benefits.

A. life insurance company C. savings bank

B. commercial bank D. credit union

2. Which of the following is not a financial institution?

A. A pension fund C. A commercial bank

B. A newspaper publisher D. An insurance company

3. It is a set up so that employees of corporations or governments can receive

income after retirement.

A. life insurance company C. Savings bank

B. Pension fund D. credit union

PRE-TEST
4. It is a type of financial intermediary that pools savings of
individuals and makes them available to business and
government users. Funds obtained through the sale of shares.

A. Mutual Funds C. Savings and loans

B. Commercial banks D. Credit Union

5. Most businesses raise money by selling their securities in a

_____________.

A. direct placement C. public offering

B. stock exchange D. private placement

PRE-TEST
6. Which of the following is not a service provided by financial institutions.

A. Buying the businesses of customers

B. Investing customers’ savings in stocks and bonds

C. Paying savers’ interest on deposit

D. Lending money to customers

7. By definition, the money market involves the buying and selling of.

A. funds that mature in more than one year.

B. flows of funds.

C. stocks and bonds.

D. short-term funds.
PRE-TEST
8. It creates financial relationship between suppliers and users of
short-term funds.

A. financial market C. stock market

B. money market D. capital market

9. Firms that require funds from external sources can obtain

them from

A. financial markets. C. financial institutions.

B. private placement. D. All the above.

OVERVIEW OF THE FINANCIAL
SYSTEM

FINANCIAL USERS OF FUNDS

SAVERS INTERMEDIARIE (Borrowers/Investors)
S Households
Households
Individuals Individuals
Banks
Corporations Insurance Corporations
Companies Stock Exchange Companies
Government Agencies Stock Brokerage Firms Government Agencies
Mutual Funds
DIFFERENTIATE THE FINANCIAL
INSTRUMENTS, FINANCIAL INSTITUTIONS
AND FINANCIAL MARKETS
DIFFERENTIATE THE FINANCIAL
INSTRUMENTS, FINANCIAL INSTITUTIONS
AND FINANCIAL MARKETS
DIFFERENTIATE THE FINANCIAL
INSTRUMENTS, FINANCIAL INSTITUTIONS
AND FINANCIAL MARKETS
DIFFERENTIATE THE FINANCIAL
INSTRUMENTS, FINANCIAL INSTITUTIONS
AND FINANCIAL MARKETS
DIFFERENTIATE THE FINANCIAL
INSTRUMENTS, FINANCIAL INSTITUTIONS
AND FINANCIAL MARKETS
FINANCIAL INSTITUTIONS

are companies in the financial

sector that provide a broad
range of business and services
including banking, insurance,
and investment management.
FINANCIAL INSTITUTIONS

Examples:
Commercial Banks
Insurance Companies
Mutual Funds
Pension Funds
COMMERCIAL BANKS
provide mechanism where savers can
put their excess funds through
deposits
give the depositors interest on the
money deposited to them
lend the money to borrowers
invest the deposits to government
securities and corporate bonds
INSURANCE COMPANIES
categorized into life and non-life
insurance products
receive premium payments from the
insured individuals/companies
Premiums – used to fund claims
Excess premiums – invest but have
to follow guidelines in investing
MUTUAL FUNDS
provide opportunities for big and small
investors to invest in financial
instruments which they would not have
considered on their own, or they may
have considered but do not have time or
expertise to do it.
Investments are pooled and the funds are
invested by professional managers for a
fee.
MUTUAL FUNDS
one has to buy shares of the mutual
fund and the buying price depends on
the NAV of that fund when the
purchase is made.
Examples:
Philam Strategic Growth Fund, Inc.
ALFM Growth Fund, Inc.
United Fund, Inc.
PENSION FUNDS
receive payments from employees and
invest the proceeds on their behalf.
set up so that employees of
corporations or government can
receive income after retirement.
FINANCIAL INSTRUMENTS

a real or a virtual document

representing a legal agreement
involving some sort of
monetary value.
classified into equity securities
and debt securities.
EQUITY SECURITIES
classified into two categories:

PREFERREDSTOCKS
COMMON STOCKS
PREFERRED STOCKS

has priority over a common stock

in terms of claims over the assets of
a company
has priority over a common stock
in cash dividend declaration
COMMON STOCKS

Common Stockholders are the

real owners of the company.
The growth potential of their
investments is unlimited.
COMMON STOCKS
Example:

JOLLIBEE JAN 2009 AUG 2014 SEPT 2022

PRICE 40.00 192.50 246.00

Common Stockholders have voting

rights
COMMON STOCKS
PREFERRED STOCKS JOLLIBEE
COMMON STOCKS
PREFERRED STOCKS GLOBE
COMMON STOCKS
PREFERRED STOCKS BDO
COMMON STOCKS
PREFERRED STOCKS SHELL
DEBT SECURITIES
Issued by the National Treasury
Treasury Bills – less than one year
Treasury Notes – one to ten years
Treasury Bonds – ten years or more

Issuedby Publicly Listed Companies

Corporate Bonds – five to ten years
DEBT SECURITIES
Treasury Bills, Notes and Bonds
low interest rates
very low risk of default
Corporate Bonds
higher interest rates
higher risk of default
FINANCIAL MARKET

refers to a marketplace,
where creation and trading
of financial assets, such as
shares, debentures, bonds,
derivatives, currencies, etc.
take place.
FINANCIAL MARKET

PHILIPPINE STOCK EXCHANGE (PSE)

provides a system for the trading
of these financial instruments.
FINANCIAL MARKET

STOCK BROKERAGE FIRMS

Online and Live Brokers
Online: COL Financial and BPI
Trade
PRIMARY MARKET
takes place when there is sale of new
securities issued through a public
offering or private placement.

SECONDARY MARKET
takes place when there is sale of
previously owned securities.
PUBLIC OFFERING
the sale of new securities to
the public.

PRIVATE PLACEMENT
the sale of new securities to one
investor or a group of investors.
RISK-RETURN TRADE-OFF
RISK-RETURN TRADE-OFF
 This is a trade-off which an investor
faces between risk and return while
considering investment decisions.
 Higher risk is associated with greater
probability of higher return and lower
risk with greater probability of smaller
return.