Lesson 3: Financial Institutions, Instruments, and Markets Flashcards
links the savers and the users of funds
financial system
entity whose cash inflows are greater than their cash outflows
savers/suppliers of funds
examples of savers/suppliers of funds
households, individuals, corporate/companies, government agencies
examples of financial intermediaries
banks, insurance companies, stock exchange, stock brokerage firms, mutual funds
examples of users/borrows/investors of funds
households, individuals, corporate companies, government agencies
companies in the financial sector that provide a
broad range of business and services including banking, insurance, and
investment management
financial institutions
what services are provided by financial institutions
banking, insurance, and investment management
examples of financial institutions
commercial banks, insurance companies, mutual funds, pension funds
how do commercial banks work
individuals deposit funds, and the bank uses those deposited funds to provide commercial loans and purchase debt securities
Individuals purchase insurance (life, property
and casualty, and health) protection with
insurance premiums
what do insurance companies do with the money they earned with insurance premiums
invest in various securities to pay off claims by policy holders
insurance companies often own
large blocks of a firm’s stocks or bonds and help them improve to also improve the performance of the securities they own
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.
mutual funds
Financial institutions that receive payments from
employees and invest the proceeds on their behalf.
pension funds
examples of pension unds
GSIS, SSS, UITF, investment banks, credit unions
GSIS stands for
government service insurance system
SSS stands for
social security system
UITF stands for
unit investment trust fund
real or a virtual document representing a legal
agreement involving some sort of monetary value.
financial instruments
when a financial instrument is issued
it gives rise to a financial asset on one hand and a financial liability/equity instrument on the other
a financial asset is any asset that is
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
examples of financial assets
notes receivable, loans receivable, investment in stocks, investment in bonds
any liability that is a contractual obligation
financial liability
financial liability includes
deliver cash or other financial instruments to another entity; exchange financial instruments with another entity under conditions that are potentially unfavorable
examples of financial liability
notes payable, loans payable, bonds payable,
any contract that evidences a residual interest in the
assets of an entity after deducting all liabilities.
equity instrument
examples of equity instruments
ordinary share capital and preference share capital
debt instruments generally have
fixed returns due to fixed interest rates
examples of debt instruments
treasury bonds, treasury bills, and corporate bonds
difference between treasury bonds/bills and corporate bonds
treasury bonds and bills are issued by the philippine government; corporate bonds are issued by publicly listed companies
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.
treasury bonds and bills
difference between treasury bills and bonds
treasury bills are short-term; treasury bonds are long-term
equity instruments generally have
varied returns based on the performance of the company
returns from equity instruments come from
dividends or stock price appreciation
types of equity instruments
preferred stock and common stock
has priority over a common stock in terms of claims over
the assets of a company.
preferred stock
on the other hand are the real owners of the
company.
common stock
refers to a marketplace, where creation and trading of
financial assets, such as shares, debentures, bonds, derivatives, currencies, etc.
take place
financial market
types of markets
primary and secondary market
PSE stands for
philippine stock exchange
a place to issue NEW securities (either debt or equity) through a
public offering or a private placement.
primary market
The sale of previously owned
securities takes place in
secondary market
The sale of new securities to the public
public offering
the first offering of stock
initial public offering
sale of new
securities to one investor or a group of investors (institutional investors) is
referred to as
private placement
the PSE is a
primary and secondary market
a venue wherein
securities with short-term maturities (1 year or less) are sold.
money markets
securities with longer-term maturities sold in
capital markets
