Erra Jhenn M.

Lopez
Block B

Please Answer the following questions without copying from the internet.

For 50 points answer in your own understanding

1. What is the function of financial markets?
Financial markets work by communicating with buyers and sellers who decide
the price of the assets traded. Financial markets are an indication that demand-
based and supply-based funds are distributed to the economy through a
system called the price discovery process.
 Price Determination: A financial market's demand and supply of a commodity
help to decide its price. The buyers are the providers of the money, while the
businesses need the funds. The relationship between these two participants and
other market forces therefore helps to decide the rate.
 Mobilization of savings: It is important for an economy to be efficient that the
cash does not sit idle. A financial market therefore helps to connect those with
money to those who need money.
 Ensures Liquidity: Assets that are traded in the stock market by buyers and
sellers have high liquidity. It means investors can easily sell those assets and,
whenever they want, turn them into cash. An significant incentive for investors to
engage in trade is liquidity.
 Saves time and money: Financial markets act as a forum where, without
making too much effort or wasting time, buyers and sellers can find each other
easily. It also allows them to reach economies of scale, as these markets handle
so many transactions. This leads to lower transaction costs for investors and
commissions.

2. What is the role of investors in our financial market?

We are all informed that investors are those who purchase investments, stocks,
financial instruments, etc. Since the purchase and sale of financial instruments and
securities is the aim of the financial markets, investors will play a significant role, as
they are the ones who will buy these instruments and securities. But before investors
decide to buy it, they want to check whether the company has good prospects for the
future, ensuring that their investment will earn something. The business must
therefore reflect good value and potential success in order to attract investors.

3. What financial markets do and what serves as its basic functions?

Financial markets produce equity products that provide a return for those with
surplus funds (investors/lenders) and make those funds available to those who
need extra cash (borrowers). Only one form of financial market is the stock
market. It’s basic functions are Price determination, Funds mobilization, liquidity,
risk sharing, easy access, reduction in transaction costs and provision of the
information and capital formation

4. How does funds in a financial market can be obtained by a firm or an individual?

Based upon what I read, funds can be obtained through banking and bonds by a
corporation or an entity in a financial market. An person, for example, is an employee
receiving his salary on a monthly basis. If he keeps it to himself, unlike if he puts it in
the bank, his money won't grow, it will grow as time passes.
5. What is the structure of Financial Market
There are five main components in the financial markets: the debt market, the
equity market, the foreign exchange market, the mortgage market and the derivatives
market. In the debt market, debt instruments are exchanged, often sometimes
referred to as the bond market. For economic activities, the debt market is important
because it provides an important outlet for businesses and governments to fund their
activities. In the equity market, also known as the capital market, equity instruments
are traded. Foreign-exchange markets are where currencies are exchanged so that
funds can be transferred from one nation to another. Foreign exchange market
operations decide the foreign exchange rate and the price of one currency in
comparison to another currency. A mortgage is a long-term loan which is backed by
a real estate guarantee. Securities backed by mortgages (also called securitized
mortgages) are securities sold directly to investors to sell mortgages. A large number
of mortgages bundled into a mortgage pool protect the securities. A mortgage pass-
through is the most common form of mortgage-backed security, a security that
guarantees to distribute the cash flows of mortgage payments made by borrowers in
the underlying mortgage pool to investors. Financial derivatives are transactions
which obtain the underlying financial assets from their values. Derivative tools include
contracts for options, futures contracts, forward contracts, swap agreements, and
agreements for cap and floor. These tools allow market players to achieve financial
objectives and to manage financial risks more effectively.

II. For 50 points answer in your own understanding

1. Describe the nature of the basic services of financial institutions.
Financial Instituition offers a variety of services to individuals as well as
businesses. These services includes deposit products, loans and investment.
Commercial Bank - A commercial bank is a type of financial institution that accepts
deposits, provides checking account services, makes corporate, personal, and
mortgage loans, and offers individuals and small businesses basic financial products
such as deposit certificates (CDs) and savings accounts. In comparison to an
investment bank, a commercial bank is where most individuals do their banking.
Investment Bank - Investment banks excel in the provision of services designed to
promote corporate transactions, such as the funding of capital expenditure and equity
deals, including initial public offerings (IPOs). They most typically provide investor
brokerage services, serve as trading exchange market makers, and handle mergers,
acquisitions, and other corporate restructurings.
Insurance Companies - Insurance firms are among the most well-known non-bank
financial institutions. One of the oldest financial services is the supply of insurance,
whether for individuals or companies. Asset management and financial risk
protection, protected by insurance policies, is an important service that encourages
individual and corporate investments that drive economic growth.
Brokerage Firms - Investment firms and brokerages, such as Fidelity Investments, a
provider of mutual funds and exchange-traded funds (ETFs), specialize in offering
investment services that provide wealth management and financial advice services.
They also have access to investment options ranging from stocks and bonds to
lesser-known alternative investments, such as hedge funds and investments in
private equity.

2. What is financial intermediary?

A financial intermediary is a corporation or an entity serving as an intermediary
between the service provider and the customer. In a financial sense, it is the
institution or person that is in between two or more parties. A financial intermediary,
in theoretical words, channels assets into investments. In the financial system,
financial intermediaries operate for benefit and there is sometimes a need to control
the same activities.

3. Give some services offered by a universal bank.

Credit, loans, deposits, wealth management, investment advice, payment
processing, bond transfers, subscription, and financial analysis can be provided by
universal banks. Although a universal banking system enables a multitude of
services to be provided by banks, it does not mandate them to do so. Banks can still
choose, in a universal system, to specialize in a subset of banking services.

4. What is considered the most important and significant financial intermediary in our
financial system?
The most important financial intermediaries are banks: banks convert deposits
into loans, thereby improving access to capital by functioning as a financial
intermediary between savers and borrowers. While perhaps the most well-known of
the financial intermediaries, within a wider community, banks serve only one
intermediary.

5. Describe the nature of operations of insurance companies.

Ratemaking - It applies to insurance pricing and the estimation of insurance
premiums.
Underwriting - It refers to the method of selecting, classifying, and pricing
insurance applicants. The person who decides to approve or deny an application is
the underwriter.
Production - Refers to insurers' distribution and marketing operations. Agents
that sell insurance are also referred to as manufacturers.
Claim settlement - examines the basic objectives in adjusting claims, the
different types of claim adjustors, and the various steps in the claim-settlement
process.
Reinsurance - It is an arrangement in which the primary insurer who initially
writes the policy passes some or all of the possible risks associated with that
insurance to another insurer.