Finals

Question 1

Types of Investment

Answer 1

Deposit

Government Securities

Question 2

The major DEPOSIT INSTRUMENTS include…

Answer 2

Time Deposit Account
Checking Account
Savings Account

Question 3

It usually requires a minimum amount of deposit with a fixed term to maturity, meaning the depositor cannot withdraw from his/her account before the fixed maturity date.

Answer 3

Time Deposit Account

Question 4

This type of account provides a higher fixed rate of return compared to a savings account or a checking account.

Answer 4

Time Deposit Account

Question 5

It allows the depositor to issue checks from his/her account to pay for various expenditures instead of delivering bills or coins as payment.

Answer 5

Checking Account

Question 6

Checks issued are subject to a clearing float (usually 3 days) when deposited by the payee.

Answer 6

Checking Account

Question 7

It provides a low fixed rate of return but provides the convenience of availability by allowing the depositor to easily deposit and withdraw from the account at any banking day.

Answer 7

Savings Account

Question 8

provided by financial institutions, mostly banks

Answer 8

deposit instruments

Question 9

banks are monitored by:

Answer 9

Bangko Sentral ng Pilipinas (BSP)

Question 10

bank deposits are insured with:

Answer 10

Philippine Deposit Insurance Corporation (PDIC)

Question 11

the insured amount is only up to ______ per depositor for every bank.

Answer 11

₱500,000

Question 12

A comprehensive rating system

Answer 12

CAMELS

Question 13

CAMELS

Answer 13

Capital adequacy, Asset quality, Management indicators, Earnings quality, Liquidity, and Sensitivity to risk factors.

Question 14

Rating Range CAMELS

Answer 14

1 as the highest and 5 as the lowest rating

Question 15

fall under the category of debt securities and most of them are also classified as fixed income instruments.

Answer 15

government securities

Question 16

government securities list

Answer 16

Treasury Bills (T-bills) 
Treasury Notes (T-notes) and Treasury Bonds (T-bonds)

Question 17

They have maturities of one year or less.

Answer 17

Treasury Bills (T-bills)

Question 18

There are three major types of Treasury bills—91-day, 182-day, and 364-day T-bills.

Answer 18

Treasury Bills (T-bills)

Question 19

They are considered discount securities because they are issued at a discount relative to their face value.

Answer 19

Treasury Bills (T-bills)

Question 20

Investors earn from the difference between the face value and the discounted price they paid for upon purchase of the instrument.

Answer 20

Treasury Bills (T-bills)

Question 21

T-notes and bonds have maturities longer than one year which could be from two to 25 years.

Answer 21

Treasury Notes (T-notes) and Treasury Bonds (T-bonds)

Question 22

T-notes and bonds pay coupon interest at regular intervals. Fixed rate T-notes, for example, pay coupon interest every semi-annual period. Retail T-bonds denominate every ₱5,000 pay coupon interest quarterly.

Answer 22

Treasury Notes (T-notes) and Treasury Bonds (T-bonds)

Question 23

The principal is repaid upon maturity of the instrument.

Answer 23

Treasury Notes (T-notes) and Treasury Bonds (T-bonds)

Question 24

addtnl info

Answer 24

There are other government securities issued by government agencies aside from the Bureau of Treasury such as bonds issued by local government units (LGUs). The primary difference is that these bonds are not backed unconditionally and are not direct and general obligations of the National Government. Because of this difference, a higher rate of return is required compared to Treasury securities.

Question 25

Corporate Debt Securities

Answer 25

securities from companies

Question 26

Corporations issue DEBT INSTRUMENTS in the form of…

Answer 26

Commercial papers

Corporate bonds

Question 27

These are short-term instruments issued by corporation for their immediate needs.

Answer 27

Commercial papers

Question 28

These are long-term debt instruments issued by corporations.

Answer 28

Corporate bonds

Question 29

Most of them provide fixed coupon payments although there are already variable-rate corporate securities. Fixed rate bonds pay coupon payments at regular intervals, usually semi-annually.

Answer 29

Corporate bonds

Question 30

They are characterized by its maturity, par value, and coupon rate.

Answer 30

Corporate bonds

Question 31

They may be classified as short-term (1 to 5 years), intermediate (5 to 12 years), and long-term (more than 12 years).

Answer 31

Corporate bonds

Question 32

Bonds with longer maturities require a higher rate of return. The par value is the amount of principal expected to be repaid upon maturity.

Answer 32

Corporate bonds

Question 33

Bond prices are also stated relative to its par value

Answer 33

Corporate bonds

Question 34

Annual coupon payments are determined by multiplying the annual coupon rate as a percentage of par value regardless of the interval. A final tax of 20% is also levied on coupon interest of corporate bonds.

Answer 34

Corporate bonds

Question 35

Corporate bonds are also traded like government securities using the PDEx platform.

Answer 35

Corporate bonds

Question 36

are financial instruments that represent ownership in a corporation.

Answer 36

stocks

Question 37

EQUITY SECURITIES

Answer 37

investment in stock issued by another company.

Question 38

EQUITY SECURITIES are classified under two MAIN CATEGORIES. These are…

Answer 38

Common stocks

Preferred stocks

Question 39

Is the return provided by the investment fixed or variable?

Answer 39

Investors earn from an equity investment through dividends and capital gains. Dividends issued by corporations may vary from year to year since the earnings of the company also fluctuate from period to period. Companies are not required to declare annual dividends. Since owners of common shares only have a residual interest in the earnings of the business, dividends are only declared if there are enough available funds after the payment of commitments to creditors. Thus, equity investors are exposed to greater variability of returns. Being exposed to greater variability also means that if the fixed obligations have been settled, then the excess earnings would all go to the common stockholder.

Question 40

Who is the issuer of the investment?

Answer 40

Only corporations issue common shares. The credit standing of these corporations influences the protection of capital of their shareholders. If corporations default on their debt obligations, more so that they cannot provide sufficient returns or even repay the capital of shareholders since creditors have seniority over claims to the assets of the corporation.

Question 41

Can the investment be liquidated immediately at a known price?

Answer 41

If the equity investment represents ownership in a listed company, then the instrument is considered liquid since the stock exchange would facilitate the availability of known bid and ask prices for the shares and access to a wide base of buyers and sellers as well. Investors would only need to look for a stock broker in order for the individual to purchase and sell shares in the stock market.

Question 42

How long is the term to maturity of the investment?

Answer 42

Common shares do not have a term to maturity. The shareholder may hold the stock indefinitely.

Question 43

addtnl information

Answer 43

the common stockholders also have voting rights. Also, because of its residual interest, the potential upside of equity returns is essentially limitless.

Question 44

Preferred stocks differ from common shares in terms of:

Answer 44

PREFERENCE AS TO DIVIDENDS
SENIORITY OVER CLAIMS TO ASSETS
THE ABSENCE OF VOTING RIGHTS

Question 45

What are the COMMON TYPES of POOLED FUNDS?

Answer 45

An individual may invest in the shares of mutual funds, units in the Unit Investment Trust Funds (UITFs) offered by banks, or in Exchange Traded Funds (ETFs) traded in the stock exchange.

Question 46

What are the ADVANTAGES in investing in POOLED FUNDS?

Answer 46

Most pooled funds only require a small amount of investment relative to the capital required if the individual would create his/her own portfolio.
Investing in pooled funds avoids the transaction costs incurred in buying individual securities, as well as the required time spent if one was to manage his/her own portfolio.
Investment professionals with the appropriate knowledge and skill manage these pooled funds.

Question 47

When are GAINS EARNED and LOSSES INCURRED in POOLED FUNDS?

Answer 47

The initial price and the returns derived from mutual funds and UITFs are based on the movement of the net asset value (NAV) per share or per unit. Gains are earned when the NAV per share or per unit increases from the price a share or a unit was bought. Losses are incurred when the NAV per share or per unit decreases.
Investments in ETFs earn gains and incur losses similar to how listed equity investment works.

Question 48

What are COMMON ALTERNATIVE INVESTMENTS?

Answer 48

Common alternative investments are in the form of tangible assets such as real estate, antiques, art works, horses, etc.