Lesson 3: Financial Institutions, Instruments, and Markets

Question 1

links the savers and the users of funds

Answer 1

financial system

Question 2

entity whose cash inflows are greater than their cash outflows

Answer 2

savers/suppliers of funds

Question 3

examples of savers/suppliers of funds

Answer 3

households, individuals, corporate/companies, government agencies

Question 4

examples of financial intermediaries

Answer 4

banks, insurance companies, stock exchange, stock brokerage firms, mutual funds

Question 5

examples of users/borrows/investors of funds

Answer 5

households, individuals, corporate companies, government agencies

Question 6

companies in the financial sector that provide a
broad range of business and services including banking, insurance, and
investment management

Answer 6

financial institutions

Question 7

what services are provided by financial institutions

Answer 7

banking, insurance, and investment management

Question 8

examples of financial institutions

Answer 8

commercial banks, insurance companies, mutual funds, pension funds

Question 9

how do commercial banks work

Answer 9

individuals deposit funds, and the bank uses those deposited funds to provide commercial loans and purchase debt securities

Question 10

Individuals purchase insurance (life, property
and casualty, and health) protection with

Answer 10

insurance premiums

Question 11

what do insurance companies do with the money they earned with insurance premiums

Answer 11

invest in various securities to pay off claims by policy holders

Question 12

insurance companies often own

Answer 12

large blocks of a firm’s stocks or bonds and help them improve to also improve the performance of the securities they own

Question 13

owned by investment companies that
enable small investors to enjoy the benefits of investing in a diversified portfolio of
securities purchased on their behalf by professional investment managers.

Answer 13

mutual funds

Question 14

Financial institutions that receive payments from
employees and invest the proceeds on their behalf.

Answer 14

pension funds

Question 15

examples of pension unds

Answer 15

GSIS, SSS, UITF, investment banks, credit unions

Question 16

GSIS stands for

Answer 16

government service insurance system

Question 17

SSS stands for

Answer 17

social security system

Question 18

UITF stands for

Answer 18

unit investment trust fund

Question 19

real or a virtual document representing a legal
agreement involving some sort of monetary value.

Answer 19

financial instruments

Question 20

when a financial instrument is issued

Answer 20

it gives rise to a financial asset on one hand and a financial liability/equity instrument on the other

Question 21

a financial asset is any asset that is

Answer 21

cash, equity instrument of another entity, contractual right to receive cash or another financial asset from another entity; contractual right to exchange instruments with another entity under conditions that are potentially favorable

Question 22

examples of financial assets

Answer 22

notes receivable, loans receivable, investment in stocks, investment in bonds

Question 23

any liability that is a contractual obligation

Answer 23

financial liability

Question 24

financial liability includes

Answer 24

deliver cash or other financial instruments to another entity; exchange financial instruments with another entity under conditions that are potentially unfavorable

Question 25

examples of financial liability

Answer 25

notes payable, loans payable, bonds payable,

Question 26

any contract that evidences a residual interest in the assets of an entity after deducting all liabilities.

Answer 26

equity instrument

Question 27

examples of equity instruments

Answer 27

ordinary share capital and preference share capital

Question 28

debt instruments generally have

Answer 28

fixed returns due to fixed interest rates

Question 29

examples of debt instruments

Answer 29

treasury bonds, treasury bills, and corporate bonds

Question 30

difference between treasury bonds/bills and corporate bonds

Answer 30

treasury bonds and bills are issued by the philippine government; corporate bonds are issued by publicly listed companies

Question 31

These bonds and bills have usually low interest rates and have very low risk of default since the government assures that these has been paid.

Answer 31

treasury bonds and bills

Question 32

difference between treasury bills and bonds

Answer 32

treasury bills are short-term; treasury bonds are long-term

Question 33

equity instruments generally have

Answer 33

varied returns based on the performance of the company

Question 34

returns from equity instruments come from

Answer 34

dividends or stock price appreciation

Question 35

types of equity instruments

Answer 35

preferred stock and common stock

Question 36

has priority over a common stock in terms of claims over the assets of a company.

Answer 36

preferred stock

Question 37

on the other hand are the real owners of the company.

Answer 37

common stock

Question 38

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

Answer 38

financial market

Question 39

types of markets

Answer 39

primary and secondary market

Question 40

PSE stands for

Answer 40

philippine stock exchange

Question 41

a place to issue NEW securities (either debt or equity) through a public offering or a private placement.

Answer 41

primary market

Question 42

The sale of previously owned securities takes place in

Answer 42

secondary market

Question 43

The sale of new securities to the public

Answer 43

public offering

Question 44

the first offering of stock

Answer 44

initial public offering

Question 45

sale of new securities to one investor or a group of investors (institutional investors) is referred to as

Answer 45

private placement

Question 46

the PSE is a

Answer 46

primary and secondary market

Question 47

a venue wherein securities with short-term maturities (1 year or less) are sold.

Answer 47

money markets

Question 48

securities with longer-term maturities sold in

Answer 48

capital markets