Chapter 1 Flashcards
It allows for the exchange of funds between financial market participants such as lenders, investors and borrowers
Financial system
operate at the national and global levels
financial systems
is a combination of people, institutions, businesses, and processes that facilitate financial transactions
financial systems
example of international financial institutions
world bank
international monetary funds
asian development bank
example of domestic financial institutions
bdo
pse
tagum cooperative
funds are sourced from banks and other financial intermediaries
formal financial sector
funds are sourced from family, friends, relatives and private creditors
informal financial sector
facilitates the proper movement of funds from lenders to borrowers
robust formal financial sector
participate in financial markets as the biggest source of funds and acquire money to finance the acquisition of personal assets
household
participate in the financial markets by acquiring loans to finance business activities such as daily operations, corporate expansions etc.
businesses/firms
participates in financial markets by borrowing from domestic and international entities to finance public services
government
Businesses sells its stocks and/or bonds directly to savers without a financial intermediary
direct transfers
Businesses sells its stocks and/or bonds through an investment bank. The investment bank subsequently sells it to savers/depositors
indirect transfer through investment banks
Businesses sell their stocks and/or bonds through a financial intermediary (i.e. commercial banks). Financial intermediaries sell it’s own securities to savers/depositors
indirect transfer through financial intermediary
BUSINESS > securities > SAVERS > dollars > BUSINESS
Direct transfer
BUSINESS > securities > INVESTMENT BANKING HOUSES > securities > SAVERS > dollars > INVESTMENT BANKING HOUSES > dollars > BUSINESS
indirect transfer through investment bankers
BUSINESS > business’ securities > FINANCIAL INTERMEDIARY > intermediary’s securities > SAVERS > dollars > FINANCIAL INTERMEDIARY > dollars > BUSINESS
indirect transfer through a financial intermediary
Markets that sell tangible products such as agricultural produce, automobiles, real estate and electronics
physical markets
Markets that sell financial securities such as stocks, bonds, mortgages etc.
financial markets
Markets that sell short-term, highly liquid debt securities. Money markets include treasury bills and commercial papers
money markets
Markets that sell intermediate and long-term securities such as corporate bonds and stocks
capital markets
help corporations design securities to attract investors, buy these securities and resell them to savers.
investment bank
caters to certain financial services such as savings, checking and time deposits
commercial banks
Large conglomerate that combine many financial institutions within a single corporation
financial services corporations
Accept money from savers then use it to buy securities to reduce risks through diversification
mutual funds
Accepts deposits from savers and issue mortgage loans to borrowers
savings and loans associations
Pays the beneficiary of an insured person after death in exchange for premiums paid during the lifetime of the insurer
life insurance companies
example of financial institutions
manulife
metrobank
fami mutual funds
bpi
TREASURY BILLS
market
participants
riskiness
maturity
money market
government
default free
91 days to 1 year
COMMERCIAL PAPERS
market
participants
riskiness
maturity
Money
private corporations
low default risk
270 days
CORPORATE BONDS
market
participants
riskiness
maturity
capital
private corporations
more risk than treasury but less risk than stocks
up to 40 years
PREFERRED STOCK
market
participant
riskiness
maturity
capital
private corporations
more risk than corp. bonds but less risk than common stock
unlimited
COMMON STOCK
market
participants
riskiness
maturity
capital
private corporation
risky
unlimited
