Financial Markets

PM 4
institutions that deal in
all types of financial
transactions, right
from accepting
deposits and granting
a loan to the allocation
of credit into various
investment portfolios

provide both owned

capital and borrowed
capital for medium and
long requirements to
the business
organizations
  Credit Creation - intermediaries between the
savers and the borrowers
 Provide Funds - provide both owned and
borrowed capital
 Infrastructural Development - banking base
Advantages of in an economy offering financial services needed
for the development
Financial
Regional Balances – promotes regions
Institutions on equal footing with developed regions
 Economic Development – funding all the
development plans
 Employment Generation - creates new
employment opportunities
  Price discovery (model-driven mechanism) buyer and a
seller agree on a price that is acceptable to both parties
 Valuation is (model-driven mechanism) the present
value of presumed cash flows of an asset, based on
many factors
Price  interest rates,
Discovery vs  competitive analysis
 technological changes both in place and envisioned
Valuation
Which Comes First?
 Overpriced/ underpriced
 Trading opportunities
  Complex Process - process time-consuming
and expensive

Disadvantages
 Restriction on the Borrower – loan
of Financial covenants
Institutions
 System of Collateral Securities - grant
loans only against some security
  provide liquidity, capital, and participation
 price discovery - agree on the current value of
a financial asset or commodity (demand and
supply; risk aversion; transaction costs
Bottomline  efficient allocation of capital and assets in a
financial economy
 helps stimulate economic activity and fosters
economic growth
Commercial Banks Finance Company

Commercial Banks Finance Company

Thrifts Mutual Funds

Thrifts Mutual Funds

Insurance Pension Funds

Insurance Pension Funds

Security Firms

Security Firms Exchange Traded Fund

  financial intermediary that provides liquidity by bridging
sources of capital from depositors and creating credit
that can be extended to borrowers
 Functions of a commercial bank include deposit
acceptance, credit creation, treasury and payments, and
other agency and advisory services
Commercial
Banks
 Deposit Accounts
Commercial Credit Cards
Bank Loan Services
Products and Treasury Management
Services  Insurance
Wealth Management
  Investment banks cater to large institutions to
manage their money.
Commercial  These banks help large companies create
Banks vs capital and underwrite debts.
Investment  They also assist in mergers and acquisitions.
Banks  An investment bank can also help a large entity
connect with investors through the issuing of
bonds or stocks.
 • Asian Alliance Investment Corporation
• Asian Focus Group Inc.
• BPI Capital Corporation
• Eastgate Capital Partners, Inc.
• First Abacus Financial Holdings Corporation
• First Metro Investment Corporation
List of top • FSG Capital Inc.
investment • Insular Investment & Trust Corporation

banks in the • Investment & Capital Corporation of the Philippines

• Mabuhay Capital Corporation, Inc.
Philippines • Medco Holdings, Incorporated
• Navarro Amper & Co
• PNB Capital and Investment Corporation
• Punongbayan & Araullo
• SB Capital Investment Corporation
• Unioil Resources & Holdings Company, Inc
  depository institutions
 savings and loan associations/ savings and mortgage banks that
help members' savings grow at a higher interest rate
 they are savings banks that specialize in real estate

Thrifts  originally, thrifts only offered savings accounts and time deposits,
but over the past 20 years, the banks' scope of services has
expanded
 they now offer the same products as credit unions and commercial
banks
 Thrift
Commercial
 specialize in mortgages and
real estate lending; promote  for the profit/ grow earnings
a culture of savings and and have no specific mandate
Thrift vs homeownership in terms of asset class

Commercial  individuals and small

businesses
 range of powers given to
commercial banks is mainly
Banks  mandate is to the members
determined by state
of the thrift, not profit  receive deposit insurance
 thrifts are chartered by the
state or may be not
 May be PDIC insured
 Savings associations and Savings Banks
Thrifts can be
Credit unions
 Savings Association/
Savings Banks Credit Union
 not-for-profit institutions owned by their members
 open to the general public
 Each member has equal ownership and voting rights,
 focus primarily on accepting savings and profits are returned to members in the form of
deposits and providing mortgage reduced fees, competitive interest rates, and improved
loans services.
 Savings institutions specialize in real  a specific field of membership that serve a particular
estate financing group of individuals who share a common bond, such as
 financial services, such as basic employees of a specific company
checking accounts, time deposits, and  service offerings may be more limited compared to
remittances. banks
 either a corporation or mutual (a type  regulated by regulatory bodies specific to credit unions
of business where making a deposit is
like purchasing stock in the
organization)
 governed by an elected board of
directors
  All Bank Inc
 BPI Direct BanKo
Savings  Philippine Savings Bank (PSBank)
banks in the  Robinsons Bank
Philippines  EastWest Bank
 Philippine Business Bank (PBB)
  Financial institutions that provides insurance contracts

Insurance
  auto, health, homeowners, and life insurance
 businesses obtain insurance policies for field-specific risks, For
example, a fast-food restaurant's policy may cover an employee's
injuries from cooking with a deep fryer.
 medical malpractice insurance covers injury- or death-related
Insurance liability claims resulting from the health care provider's negligence
or malpractice.
 There are also insurance policies available for very specific needs
such as business closures due to civil authority, kidnap, ransom,
and extortion (K&R) insurance, identity theft insurance, and
wedding liability and cancellation insurance
 Policy Policy/
Contract
 components of any insurance type are the premium, policy limit, and deductible
Premium Policy Limit
A policy’s premium is its price, typically a monthly
cost. Often, an insurer takes multiple factors into The policy limit is the maximum amount an insurer will pay
for a covered loss under a policy.
account to set a premium. Here are a few
examples: Maximums may be set per period (e.g., annual or policy
term), per loss or injury, or over the life of the policy, also
Auto insurance premiums: Your history of property known as the lifetime maximum.
and auto claims, age and location,
creditworthiness, and many other factors that may Typically, higher limits carry higher premiums.
vary by state.
Deductible
Home insurance premiums: The value of your The deductible is a specific amount you pay out of
home, personal belongings, location, claims pocket before the insurer pays a claim. Deductibles
history, and coverage amounts. serve as deterrents to large volumes of small and
insignificant claims.
Health insurance premiums: Age, sex, location,
health status, and coverage levels. For example, a $1,000 deductible means you pay the
first $1,000 toward any claims. Suppose your car's
Life insurance premiums: Age, sex, tobacco use, damage totals $2,000. You pay the first $1,000, and
health, and amount of coverage. your insurer pays the remaining $1,000.
  a business entity which provides armed or unarmed
security services and expertise to clients in the private or
public sectors

 Investment Banks (not a bank and has nothing to do w/

investments)/ name is created to mislead
 Financial institution wc intermediates issuance of financial
securities; help other institutions issue securities

Security  Operates in the primary market (new issue) – securities are

issued and funds are raised (funding function)
 fees they earn:
Firms  Underwriting fees for arranging the sale of securities (debt or equity)
on behalf of clients.
 Advisory fees for providing strategic guidance

 Brokerages – Financial institution wc help provide liquidity

 Operates in the secondary market (buy and sell financial
securities)
 Brokers are compensated in commissions or fees that are
charged once the transaction has been completed.
  a business which lends money to people and charges
them interest while they pay it back.
 unlike a bank, a finance company does not receive cash
deposits from clients, nor does it provide some other
services common to banks, such as checking accounts
 make a profit from the interest rates (the fees charged
Finance for the use of borrowed money) they charge on their
Companies loans, which are normally higher than the interest rates
that banks charge their clients
 Many finance companies lend to clients who cannot
obtain loans from banks because of a poor credit
history
 clients secure their loans with finance companies by
offering collateral
 If Bob borrowed $5,000 from a finance company to cover the costs of
starting a house-painting business, the finance company might ask that
he offer his pickup truck as collateral. If Bob were to default (fail to
make payments) on the loan, the finance company would take
possession of his pickup truck.

 Some large companies own finance companies

Finance that provide clients with loans to purchase goods
from the large company
Companies  The Ford Motor Company owns Ford Motor Credit Company (FMCC),
and Daimler Chrysler owns a finance company called Daimler
Chrysler Financial Services.
 People who purchase vehicles from General Motors
obtain their loans from General Motors Acceptance
Corporation (GMAC)
General Motors was the first of the Big Three American auto manufacturers to open a
captive finance company, establishing branches of GMAC in Detroit, Chicago, New
York, San Francisco, and Toronto in 1919.

The following year GMAC expanded to Great Britain, and by 1928 they had issued
more than four million loans. In 1985 the company earned $1 billion in revenues.

That same year GMAC began offering home loans and soon after branched out further
by lending to large and small businesses and by selling insurance.

After recording earnings of $1.8 billion in 2001, GMAC had financed more than $1
trillion in loans on more than 150 million vehicles since its inception.
Mutual
Funds
UITF vs Mutual
Fund?
 Mutual fund shares are redeemable. This
means that when mutual fund investors want
Mutual funds generally sell and purchase their to sell their fund shares, they sell them back to
shares on a continuous basis, although some funds the fund or to a broker acting for the fund.
will stop selling when, for example, they reach a
certain level of assets under management.

Investors sell their shares at the current NAV

Investors purchase shares in the mutual fund from
per share, minus any fees the fund may
the fund itself, or through a broker for the fund.
charge at redemption, such as deferred sales
Investors cannot purchase the shares from other
loads or redemption fees.
investors on a secondary market

The price that investors pay for mutual fund

shares is the fund’s current net asset value (NAV) Mutual funds are registered with the SEC and
per share plus any fees that the fund may charge subject to SEC regulation. In addition, the
at purchase, such as sales charges or loads investment portfolios of mutual funds
typically are managed by separate entities
known as investment advisers that are also
registered with the SEC.
  Cannot borrow money
 Cannot invest in commodities

Restrictions
to MF
Relatively safe
fund
Relying less on children during the later years

Popular as life expectancy increases

Pension
Fund
Private pension fund and public pension fund
Exchange
Traded Fund

https://www.pse.com.ph/exchange-traded-fund/
The acronym for Intraday Net Asset Value. NAV informs investors about the worth of an asset at the end of each trading
day. INAV informs investors about the worth of an asset after every 15 seconds. It is the end-of-day value of a fund.