FUNDAMENTALS OF FINANCIAL MARKET Chapter 1 FINANCIAL’SYSTEMSAND! THE FINANCIAL MARKET, Scanned with CamScannerFiner ~ andiveck - One - Asyomedy > Soreness oud enders, NAME: __ PASCUAL, RAYMOND A Dat FUNDAMENTALS OF FINANCIALMARKET 1o- 24 - 2090 E1-4. True or False. Write the word TRUE if the statement is true and FALSE if the statement is false before the number of each statement. If FALSE, encircle the wordis which made it incorrect and replace with the correct word that will make the statemenUs true. TRUE TAVE FALSE = FINES, RUE FALSE indirect FALSE direct 1. Financial system is a set of arrangements or conventions embracing the lending and borrowing of funds by non-financial economic units and the intermediation of this function by financial intermediaries in order to facilitate the transfer of funds, to create additional money when required, and to create markets in debt and equity instruments including their derivatives so that the price and allocation of funds are determined efficiently. 2, Financial system is composed of network of inter-related systems of financial markets, intermediaries and services. 3. Finance came from the French word(finens)which means “to end and settle a debt” FINE 4. Funds can flow from lender-savers to the borrower-spenders in two routes: via direct financing or indirect financing 5. In ec) financing, the borrowing activity between both parties stil happens though indirectly through the intervention of a financial intermediary. 6, In(@direePyFinancing, the borrower-spenders borrow and deal directly with lenders through selling financial instruments (or securities). FAME asynmnety Fase - eros ad deals 7. Information@ymmetnoccurs when one stakeholder to a transaction holds superior information than the other party. 8(Lenders and Borrowers>pre also known as fund demanders and fund providers, respectively 23 Scanned with CamScannerMorey stow * Dike Cosh Stach cosy TRUE ‘TRUE ‘THE Thee FASE, nents ‘TRVE TRUE FUNDAMENTALS OF FINANCIALMARKeT 9. Financial intermediary are special type of financial entity that acts as third party to facilitate the borrowing activity between lenders and borrowers 10. Financial instruments are medium of exchange of contractual obligation ofa party, where such contract can be traded 14. Financial Markets is same with the other economic markets where suppliers and buyers of financial instruments meet. 12. Regulatory environment is the governance body to ensure that the transactions that occur within the financial systems complies with the laws and regulations imposed to the actors as well as the elements that plays within the system. 13. With the flow of financial instruments, Gfic@is created. @ricis used to either be reinvested or earned out from the system flows. 14. The price is normally driven by the level of risk on how the issuer of the financial instruments. 15. Financial market refers to channels or places where funds and financial instruments such as stocks, bonds and other securities are exchanged between wiling individuals and/or entities, FASE aoe, PAISE, FAISE 16. Price(Valuationefers to the interaction between buyers and sellers in the financial market in order to come up with price of the traded financial instrument. 17. All ypes of financial markets offer the €imila) degrees of liquidity 18. Transaction costs in the financial market can be classified into two types: Cinders feé)and information costs. PASE TRUE 19, Finder's feejare costs incurred to look for financial instruments that can be purchased or sold by a party. 20. Information costs are costs related in evaluating investment characteristics of a financial instrument, 24| Scanned with CamScannerMowey ~ cara - hea, - Tap 15sve- Sueno - broke - Deder FALSE FALSE yRoE TRUE THE TRUE PASE FUNDAMENTALS OF FINANCIALMARKET 21. Capital) market is the sector of the financial system where financial instruments that will mature or be redeemed in one year or less from issuance date are traded, 22, @oney)market is the sector of the financial markets where financial instruments issued by governments and corporations that will mature beyond one year from issuance date (long-term) are traded 23. Capital market securities are classified into two: equity (which represent ownership interest) and debt. 24, Primary market is a type of financial market wherein fund demanders such as corporation or a government agency raise funds through new issuances of financial instruments e.g. bonds and stocks. 25. Public Offering occurs when securities are offered for sale to the general public. 26. Private placement occurs when the issuer looks for a single investor, an institutional buyer or group of buyers to purchase the whole securities issuance instead of offeringit to the general public 27 (Tap Issues usually used for issuance of treasury bills, bonds and other securities issued by the government and are commonly executed exclusively with market makers.Guction)is a method that occurs when issuers are open to receive bids for their securities at all times. FASE TRUE FALSE 28.@rimarp market refers to the market wherein the securities issued in primary market are subsequently traded ie. resold and repurchased (secondhand). 29. Internal or National market refers to the financial market operating in a certain country 30. In a@ealef)market, the buyer and the seller of the securities are brought together by a brokerand the trade occursat that point, In e(Groke)market, the buyer and seller are not brought directly together by a third party. Scanned with CamScannerFUNDAMENTALS OF FINANCIALMARKET Chapter 2 FINANCIAL INTERMEDIARIES! AND OTHER PARTICIPANTS: Scanned with CamScannerFUNDAMENTALS OF FINANCIALMARKET NAME: __PAscum, RAYMOND A: Date;_10- 4 4020 E2+1. True or False. Write the word TRUE if the statement is true and FALSE if the statement is false before the number of each statement. If FALSE, encircle the word/s which made it incorrect and replace with the correct word that will make the statement/s true 1. One of the roles of financial market is to provide efficient allocation of TAVE | resources between fund providers and fund demanders 2, itis not uncommon that income received by a party or entity does not match TQUE | required expenditures, hence, resuiting in deficits find 3. Deficits may be resolved through transferring fund! rites Texace | excess fundsffromFund demanda’s\with deficits). This can be done either @ twa through direct financing or indirect financing, denotes 4. Financial intermediaries were formed during the time when market unio - | Fase | conditions make it Gasy) for lenders of funds to transact directly with borrowers of funds. 5. Financial intermediation is the process of Gireci)financing using financial intermediaries as the main oute to transfer funds from lenders to borrowers. Tnditen = FALSE Examples of financial intermediaries are depository institutions, insurance companies, asset management firms, regulated investment companies and investment banks. 6. The existence of financial intermediaries is also beneficial for the economy. Services provided by financial intermediaries creates opportunities to WE financial savvy people. Not to mention other economic benefits that this will help as well as managing the risk on the part of the investors. 7. Financial intermediaries also serve a savings and wealth storage function, TRUE allowing parties with excess funds to store their funds in risk-free/low-risk financial instruments. Tas | 8 Financial intermediaries possess the experiise to make sure that funds will Hivicest | ERUE flow in the economy in the most Gifectivé)manner. To ensure efficient 59 Scanned with CamScanner= FUNDAMENTALS OF FINANCIAL MARKET allocation, financial intermediaries manage asymmetric information to 3 certain degree in its operations. 9, Gjmmetis)information occurs when potential borrowers have more Asjpmetic “FASE | information about the transaction compared to the bank 10.@roblem on random)selection means that high risk borrowers that would [FALSE | tend to default is more likely to be more active in borrowing funds than low Adverse - risk borrowers who pay on time. 11. Moral hazard occurs when borrowers have the tendency to take TRUE undesirable or immoral risks (for the lender) with the money, once they receive it, not disclosed during the loan granting process. 12. Through financial intermediaries, individuals and firmsmay put their money | in trustworthy banks financial intermediaries rather than directly to fame - | FASE | borrowers. Financial intermediaries are also better equipped at screening out bad borrowers from good borrowers which may reduce risk of@ndom) selection. : 13. Financial Intermediaries play the role as experts and facilitators to enable TWE to assign values to financial instruments based on different factors, "4. Through its depositary function, financial intermediaries, specifically banks, fave allow creation of money through its bank loan services, This allows existing and new funds to be allocated efficiently. 15@olvene)of uate lenders is enhanced through the presence of financial intermediaries. For example, a borrower receives Money from an ultimate Migihy =P TASE | oe through a vehicle like loan, the lender's cash position is zero up until the loan matures and the lender receives the payment, save | 16 Price risk means that prices of financial instruments may vary overtime. ‘17. Diversification is the process of investing funds in a portfolio of assets that ‘TWE have individual returns that do not move at the same direction together. 16. There are two main economies of scale that are optimized by financial intermediaries: transaction costs and research costs. ThE 60] Scanned with CamScannerSone = Gest - Aign - Degostoy ‘Lashto ens TAVE FASE PASE TRUE THE TRUE WE PAISE FAS FUNDAMENTALS OF FINANCIALMARKET 19. The financial system serves as the main structure for making payments for any goods, service or securities that are purchased. 20. GiDtypes of financial intermediaries offer protection to individuals and ‘organizations against adverse incidents that may occur. 21. The financial system provides the @orst) mechanism to allow the government to implement its monetary policies to manage economic growth, steady employment rate, equilibrium of balance of payments and inflation. 22. Financial intermediaries exist to foster a more favorable transaction terms between fund providers and fund demanders compared if the two parties directly deal with each other. 23. Maturity intermediation gives fund providers / investors more alternatives in terms of how long they want to invest in financial instruments and borrowers have more choices on the length of maturity of their debts. 24, Diversification is the economic function exercised by financial intermediaries which converts more risky assets to less risky assets through sharing of risks. One good example of diversification is the activities performed by mutual funds. 25. In order to maximize return from their available funds, investors should be able to develop skills essential to assess risk and return characteristics of their financial instrument altematives. Once they develop these skills, investors can use these to evaluate whether to buy or sell a financial instrument. 26. Most financial intermediaries are exposed to((ow) levels of liquidity risk. Liquidity risk refers to the risk that liablty holders (e.g. depositors for banks) may require cash in exchange of the financial claims they have from the institution. 27.Gankgare firmsthat accept cash deposits from individuals, companies and entities 61! Scanned with CamScannerFoun - Savitgs - eds counting - Degartent of Loong ond Credit Overdraft (ot) Fase TRUE FUNDAMENTALS OF FINANCIALMAR ker 28. Loans can be divided into G9) categories: business, commercial or industrial loan; commercial or residential real estate loans; individual loans for vehicle or credit card purchases and all other loans. Loans are the main revenue-generating assets for banks. 29. Commercial Banks are banks authorized to accept drafts/checksand issue letters of credit; discount and negotiate promissory notes, drafts, bills of exchange, and other evidences of debts; receive deposits; buy and sel foreign exchange and gold or silver bullion; and lend money against securities consisting of personal property or first mortgages on improved Teal estates and the insured improvement thereon. FALSE FALSE FALSE FALSE PAISE 30.GavingSBanks are banks are primarily mobilized small savings and provide loans at generally longer and easier terms than do commercial banks as they cater to the lower income groups. 31. (rif) Banks are organized for the purpose of accumulating savings deposits, and investing them for specified purposes, such as readily marketable bonds and securities, commercial papers and accounts receivables, drafts, bils of exchange, acceptance or notes arising from loans, whether secured or unsecured, mortgages on real financing forhome building or home development, such other investments and loans as allowed by the Monetary Board of the BSP in pursuit of national economic objectives. 32.0 Dis a standing credit facility offered by the BSP to aid banks to meet temporary liquidity needs through refinancing the loans that banks extend to their clients, 33. The BSP's rediscounting is administered by the Credit and Cooperative; 34. For banks participating in the clearing operations of the Philippine Clearing House Corporation, BSP offers an @nderdrafDcredit line(UCL) facility to cover for any shortfall demand deposit accounts of the banks with the BSP resulting from clearing operations eI Scanned with CamScannerWs - ‘Tasuionge OrcA CUSE g Fewale ~ FASE THE FALSE TE FALSE TROE FASE TRUE PAUSE: FUNDAMENTALS OF FINANCIAL MARKET 35. For solvent banks experiencing liquidity problems resulting from causes beyond their control, BSP offers fully secured emergency loans to serve as financial assistance to help in resolving liquidity woes. This is pursuant to Section 84 of RA No. 36. Contractual savings institutions are financial intermediaries that obtain funds at periodic intervals based on an existing contract. Unlike depository institutions, contractual savings institutions can project more accurately how Much money they need to pay in the future (in the form of benefits promised), 37. Gssurance) companies offer services to assume isk or become underwriters of the risk associated with various insurable occurrences. 38. Investment intermediaries are organizations whose primary objective is to maximize return from investments in various financial instruments to add value for the investors. 39. Exchange traded funds possess characteristics of both open-ended and closed-ended funds. They areGlosednd funds, but the share pricing has ‘small premiums/discounts from the NAV, like an@penended fund. 40. RICs allow individual shareholders to combine their resources to take advantage of lower transactions costs when purchasing large number of stocks or bonds, 41, Hedge funds are usually organized as a @ubliOinvestment partnership or offshore investment corporation which uses various trading strategies to gain better position in different markets, 42. In Separately Managed Account, instead of investing in a shared fund like a mutual fund, a fund can be made that will be based on the specific necessities of a sole investor. Investments done through the fund will suit the specific objectives required by the sole investor. 43, Investment banks are highly (quid) institutions that have significant influence on how primary and secondary markets work. 63 Scanned with CamScannerHousehold - Treasury ~ do tot ntcessarily operate, TRUE WE FUNDAMENTALS OF FINANCIALMARKeT 44. Finance companies raise their funds through issuing stocks and bonds or selling commercial papers. Finance companies then lend out the funds to individual consumers (to buy furniture, vehicles, home improvements) and small businesses. 45. Aside from financial intermediaries, there is a significant number of Participants who interact with each other to buy or sell different kinds of financial instruments. FALSE FALSE TRUE TRUE FASE 46. Thefamily and communifsector are composed of individuals and families, including families serving charitable, religious and non-profit organizations, 47. In the Philippines, the government sector includes the national government agencies (NGAs), local government units (LGUs) and government-owned and controlled corporations (GOCCs). Normally, the national government raises funds specifically through the Bureau of 48. Non-financial corporations issue financial instruments to raise funds for their business requirements and trade financial instruments in the money market (for short-term) or capital market (for long-term) as investment in case they have excess funds. 49. The foreign sector consists of all entities, individuals, assets and organizations that are situated outside ofthe jurisdiction of a certain country Supranational institutions refer to an international entity formed by two or more central governments via intemational treaties, 50. Non-profit organizations are businesses that exist to respond to specific Causes like humanitarian aid, socio-civic causes, environment, arts and many more. These @perafé)to generate profit or monetary for its investors. Non-profit organizations include foundations and endowments. Scanned with CamScanner ~FUNDAMENTALS OF FINANCIAL MARKET Chapter 3 FINANCIAL)REGULATION AND THE CENTRAL BANK( Scanned with CamScannerSystenic. > Seciol ~ be > Meoginiyg ~ Seni NAME: FUNDAMENTALS OF FINANCIAL MARKET —FAscumk, RMON A Dates__ 10 = 24-2070 E34. True or False. Write the word TRUE if the statement is true and FALSE if the statement is false before the number of each statement. If FALSE, encircle the word/s which made it incorrect and replace with the correct word that will make the statements true, THE TAVE THE 1, Every country must implement its regulatory system to ensure controls and governance. 2. Regulation was designed to set rules and guidelines to be followed that is designed to ensure balance among the individuals, firms and/or citizens as the case maybe. 3. Public Utility Research Center in the University of Florida defined regulation is a process whereby the designated government authority provides oversight and establishes rules for firms in an industry ir NUE PALE TNE TWEE 4. @ystematidvisk is the probability of a firm to failits objective that will result to ripple effect 5. Consumer protection on the other hand is a factor to consider that policies enforced assumes the effect to the consumers’ welfare. 6. Efficiency enhancementis a factor that is considered to ensure the dynamism and aglity of the policy to adopt in a fast-changing environment. 7. In broader scope, the policy should take into consideration the alignment in the objectives of the society or what is factored as Eultural)objectives, 8. Financial regulation is a type of regulation whereby rules and standards were set to oversight the ability of the companies to establish and maintain appropriate level of capital to sustain its operation. It also includes setting controls over the market factors that will affect the financial sustainability of the firms and players in the industry. 9. Financial sector has an important role in shaping the overall economy of a country hence it is a must that this must@ct BS regulated 410. Firms in the financial market must be able to understand how to respond ‘and Gninimize)their leverage in the industry and compete. 11. The behavior of the firmsin the industry can be regulated by their ibehavior, Their behavior in the marketcan be demonstrated on their: (1) integrity on their activities; and (2) integrity on their representation, 42, Given that financial marketis heavily a@radueDproviding industry, information symmetry isa plus to all customers/clients that enable them to make sound decision. 43. Government role is to set standards to regulate and ensure that information provided in the market are fair, consistent, and conservative. 44. Market stability is an external and fatal factorto be considered by the ficms in the financial market. 1] Scanned with CamScanner‘inctobility - Filtginas Seven ~ Uso, - Goad oF Davestrneis FUNDAMENTALS OF FINANCIALMARKET i or threat whereby it arises where a 15. Systemic Gabo rae cet is commitment because of ther vit ities that deals on funding 16. Financial Activities has been referred to activities certain transaction or expenditures. In the financial market, the financial activities are focused on the trading of securities and financial 17. Setting rules to set standards, control and order on the financial ities, regardless of the source, is called as financial activity is created under the New Central Bank ‘Actor Republic Act 7653 and an attached agency of the Department of Finance. Under the Philippine law, this will act as the central monetary authority which will act as a corporate body that is responsible concerning 19. Bangko Sentral ng Pilipinas shall be governed by the Monetary Board. 20.Gssuranc®)\Commission mandated by virtue of Executive Order No. 192 's. 2015 to ensure enforcement of the provisions of the Insurance Code or Republic Act 10607, i.e. to regulate and supervise the insurance, pre- need, and health maintenance organization industry. It is governed by Department of Finance that supervises and regulates the operations of life and non-life companies, mutual benefit associations, and trusts for 21. The Securities and Exchange Commission is the national government regulatory agency to administer oversight on the corporate sector, capital market participants and securities and investment instrument and promote corporate governance over these. It was created on October 26, 19. the Commonwealth Act No, 83 22(Philippine EconomiG Zone Authority's the lead agency to promote investment in country and thereby generate local and foreign investment in the country. Itis an attached an agency of the Department of Trade and Industry. The agency provides advisory, actualization and post 23. Money supply is the availabilty of financial resources for deployment in the financial system. It is making the money available for use or for trade 24, Money is expected to be regulated somehow to enable the sovereign to 25. The central bank, BSP for the case of the Philippines, is authorized by the republic under R.A. 7653 that they have the sole power to issue Currency, within the territory of the Philippines. Given itis a sole authority, No one is allowed to issue or reproduce any document or object for h lly based on the consumer price index. In economics, the consumer price index or CPI is the weighted average value of the basket of prices of all commodities representing the market Fale segment or firm was F | failure to address the risks of the market. ‘TRUE instruments. TAVE acti regulation. 48. The Bangko Sentral ng( PALSE: THOE money, banking and credit. FALSE The Monetary board is composed of members. FASE charitable uses, TRUE FASE services to the investors. TRUE or investment. TRUE | “have control tots economy, TRUE general monetary circulation 26. The purchasing power is practi TWE Thue 27. There are two types of inflation: the core inflation and headline inflation. 92 Scanned with CamScannerne - Heedlint, Sugg = Commission ~ FUNDAMENTALS OF FINANCIALMARKET FAISE PAISE TRUE TRUE TRUE TAUE ‘TRUE ThE FALSE LSE TRUE WE TRUE 28. Per the BSP @eadling) inflation is used for most of the economic estimates where it excludes in the equation the movement of the commodities or incidents with very volatile movement or outliers. 29. Gar inflation on the other hand captures the changes of the cost of living based on the movement of the basket of commodities as a whole. 30. The payment system is a set of interrelated processes of settlement of goods or services rendered in exchange for a set of instruments that will undergo either a banking or non-banking procedures. 31. The e-banking with the other features allows payment and money transfers. This shows that payment system works within an infrastructure providing efficient solution and real-time processing of payment with reduce risk 32. Since the payment system facility, nowadays, involve well defined parties and rules. The payment system facilities have verification process to allow the users to validate the transaction before completing the authority to make payments. Also, one advantage for established payment system is the absence of physical cash or financial instrument, everything can be made virtually or if applicable electronically, this minimizes the risk of loss, theft and misappropriation. 33. In the emergence of the e-banking system that serves as the platform of the payment system facilities. The payment system may facilitate the settlement of the financial market transaction. 34. Currently, certain platforms are integrated with online brokerage ‘companies to (1) factate opening an account; (2) facilitate purchase or sale of the transactions; and (3) reduce human intervention provides objective approach to manage financial market transactions. 35. Drivers in the market that led to failure for businesses are: competitiveness, market behavior, consistency, and stability. 36. Money is the basic form of the financial system. Money@emandis the ‘availabilty of financial resources for deployment in the system. 37. Bangko Sentral ng Pilipinas is the top financial regulator in the Philippines. Together with it are: Philippine Securities and Exchange Commission, Insurance and Board of Investments 38. Characteristics for an Effective Payment System is that it should have (1) standard methods of transmiting payment message; (2) agreed means of settlement; (3) common operating procedures and rules. 39. Payment System is a set of interrelated processes of settlement of {goods or rendering of service in exchange for set of instruments that will undergo either a banking or non-banking procedures. 40. Financial Regulation set rules and standards to oversight the ability of the companies to establish and maintain appropriate level of capital to sustain in the operation. Scanned with CamScanner