First Chapter Exam Flashcards
Two types of investors
- Retail investors
- Institutional investors
Any issuance succeeding the IPO
Secondary public offering
Where the trades are made
Stock market (Secondary market)
Firms that provide financial services and advice to their clients. Generally regulated by the financial laws of the government authority
Financial Institutions
What are the three salient points of financial institutions?
Salient Points:
1. Provide financial services
2. Advice clients
3. Regulated by laws
Financial institutions generally act as an intermediary between the ______________ and _____________
Capital market and Debt market
Why is it necessary to deposit your money in the bank?
Because it will help the economic activity of the country.
Various Types of Financial Institutions
- Banks
- Credit Unions
- Stock Brokerage
- Asset management firms
- Insurance Companies
- Finance Companies
- Remittance Companies
- Trust Companies
- FOREX
Who are the parties involved in a trust arrangement?
Trustee
Trustor
Beneficiary
The collection of foreign currency that a country holds
Gross International Reserves
There are three traditional ways of obtaining funds
o Stocks
o Bonds
o Loans (Debt)
Loan to one or more individuals for household, family or other personal expenditure
Consumer loans
Loans for business
Commercial loans
Father of BPO (Business Process Outsourcing) in the Philippines
Mar Roxas
Best gauge of economic activity
Middle class
Bridge the gap between borrowers and issuers of bonds
Credit-rating agencies
Contributed to the growth of consumer loans in the country.
Investment grade ratings
You can stop the fall if you continue to have the following
- Strategic plans for the company
- Very sound financials
- Very strong management team
Rapid and sustained poverty reduction. Allows people to contribute to and benefit from economic growth. Implies a direct link between the macro and micro determinants of growth
Inclusive growth
Indicators of inclusive economic growth
- Reduced poverty and inequality
- Economic growth and employment
- Key infrastructure endowments
- Access to education and health
- Access to basic infrastructure utilities and services
- Gender equality and opportunity
- Social safety nets
- Good governance and institutions
Elements of inclusive growth
- Rapid and Sustained poverty reduction
- Allows people to contribute and benefit from it
The stock exchange of the Philippines since 1927
Philippine Stock Exchange
An organized market for tradable stocks. This is where brokers and traders buy/sell stocks
The Stock Exchange
Main index of the PSE. Represents the general trend of the market. Composed of 30 most active companies
PSEi
What is the basis for the 30 most active companies in the PSEi? (Three requirements to be part of the Index)
- (public) float
- liquidity
- market capitalization
What do you call stocks not in the PSEI?
All Shares
What are the 6 Sector Indices?
- Financials – BDO, BPI, MBT
- Industrials – MER, PCOR, URC, JFC
- Holding Firms – AC, AEV, SM, JGS
- Property – ALI, SMPH, MEG
- Services – ICT, GLO, TEL, ABS
- Mining & Oil – NIKL, PX, LC
Why buy stocks?
- Capital Appreciation—rise in price; it offers one of the highest potential returns
- Ownership in the business
- Claim—participation in the company’s revenues and assets
How do companies issue stocks?
- Initial public offering
- Secondary offering (2PO)—subsequent issuance of shares after an IPO
- Stock Rights Offering (SRO)—option to holders to buy new shares (offered to public) at a price lower than market price, valid for 30 to 45 days
What are the three stock classifications?
- Common stock
- Preferred stock
- Warrants
What are the three claims on revenues?
- Cash Dividend – if a company declares a P0.10 cash dividends and you own 100 shares, you will be credited P10.00
- Stock Dividend – if a company declares a 10% stock dividend, you own 10 shares, after the dividend it becomes 110 shares
- Property Dividend – dividends in kind
Day dividend declaration is announced
Dividend Declaration Date
The day that will not entitle a buyer to receive a dividend
Ex-Dividend Date
The date when the company verifies who are entitled to receive the dividends
Record Date
Dividend is credited to the trading accounts
Payment Date
PSE uses __________________. Settlement done via the book-entry-system (no physical transfer of certificate) thru Philippine Central Depository (PCD)
scripless trading
How to buy stocks?
- Choose a stockbroker
- Open an Account.
- Give your Order.
- Pay your settlement date
- Receive your proceeds/shares
What does T+2 mean?
o Buyers will pay after 2 bd
o Sellers will receive their proceeds after 2 working days
Agency that facilitates stock clearing and settlement [Settlement Cycle]
Securities Clearing Corporation of the Philippines
Maintains cash accounts [Settlement Cycle]
Settlement Banks
Responsible for safekeeping and overseeing of securities for clients [Settlement Cycle]
Philippine Depository and Trust Corporation (PDTC)
What are the types of orders based on Lot Size?
- Normal Lot—within the board lot table
- Odd Lot—less than the normal unit of trading
- Board Lot—large number of shares traded at an arranged price between two parties
o At least 5M pesos
The maximum and minimum price of the stock for the day. Maximum gain of 50%. Maximum loss of 40%
Trading Threshold
What is the difference between the selling transaction and buying transaction?
Stock transaction tax is levied to the seller, not the buyer.
What are the different types of orders?
- Market order
- Limit order
- Day order
- Good Till Cancelled (GTC)
- Stop Loss Order
Buy or sell immediately at the best available price [Different Types of Orders]
Market order
Sets the maximum/minimum price at which you are willing to buy or sell a stock [Different Types of Orders]
Limit order
Order valid for that day [Different Types of Orders]
Day Order
Order remains open in succeeding trading days until it is finally executed or cancelled [Different Types of Orders]
Good Till Cancelled (GTC)
To limit an investor’s loss on a position. Can be a Day Order or GTC [Different Types of Orders]
Stop Loss Order
[A typical day for a stockholder] Pre-market and during trading hours
o Be aware of what’s happening (be informed)
o Review client statements (check their buying power and holdings)
o Call the client if you have stock picks (buy or sell)
o Inform clients of done transactions
[A typical day for a stockholder] After trading hours
o Inform clients of done transactions
o Do research (technical analysis)
o Cold calling
What are the four styles of transacting in the stock market?
- Position Traders—medium to long term
- Swing Traders—buy on oversold levels and sell on overbought levels
- Day Traders—close position within the day
- Scalp Trading—frequent buying and selling
What are the two approaches to fundamental analysis?
- Top-Down Approach (Big Picture)
- Bottom-Up Approach (Focus only on specific stocks)
Benchmarks
- Historical or future data
- Industry or sector average
- Competitors
The field of technical analysis is based on three assumptions
- The market discounts everything
- Price moves in trends
- History tends to repeat itself
Determining the dollar amount on your account that you are willing to risk
Position Sizing
