(BAC 106) INTERNATIONAL BUSINESS AND TRADE REVIEWER (MIDTERM)

BUSINESS - the regular production or purchase and sale of goods undertaken with the objective of earning profit and
acquiring wealth through the satisfaction of human wants. (Stephenson)

GLOBALIZATION - the worldwide trend of economic integration across borders allowing businesses to expand beyond
their domestic boundaries. Companies may conduct any business activity anywhere in the world, compete and sell
anywhere, source their raw materials or conduct research and development (R&D) and produce anywhere.

MULTINATIONAL COMPANY (MNC) - is any company that engages in business functions beyond its domestic borders.
This includes all types of companies, large and small, that engage in international business.

INTERNATIONAL BUSINESS - when a company conducts any business functions beyond its domestic borders; It is also
the process of focusing on the resources of the globe and objectives of the organizations on global business
opportunities and threats.

LOW-COST COUNTRIES – countries, usually with cheap labor are becoming manufacturing and service providers.

DEVELOPED ECONOMIES - have mature economies with substantial per capita Gross Domestic Products (GDPs) and
international trade and investments.

DEVELOPING ECONOMIES - such as Hong Kong, Singapore, South Korea, and Taiwan, have economies that have grown
extensively over the past two decades yet have sometimes struggled recently, especially during the setbacks of the
Asian crisis in the late 1990s.

TRANSITION ECONOMIES - The former systems relied on state-owned organizations and centralized government
control to run the economy. In the transition to a free market and capitalistic system, many government-owned
companies were converted to private ownership. The market and not the government then determined the success of
companies

LEAST DEVELOPED COUNTRIES - the poorest nations often plagued with unstable political regimes, high
unemployment, and low worker skills which have yet to show much progress in the evolving global economy. Most
of these countries are located in Central and South America, Africa, and the Middle East.

GLOBALIZATION DRIVERS

 Global Markets - People who shop for their goods or services anywhere in the world; Other channels may be
more complex and differ by country

 Governments - The US government keeps a close watch on trade barriers that directly affect US companies;
many countries restrict foreign ownership in defense-related industries or other industries such as agriculture
when they are considered essential to the survival of the country; Falling to trade and investment, encouraging
globalization and global strategies.

 Globalization Cost Driver - Usually, it pays to procure your raw materials or components in low-cost countries
with absolute cost advantages; Industries where individual unit costs drop substantially with more volume tend
to be more globalized; To be cost-competitive, firms in this industry must go global and sell worldwide.

 The Competition -A high volume of trade in an industry is a strong indicator of globalized industry and suggests
that success is related to cross-borders;

LIST OF DEVELOPED COUNTRIES LIST OF DEVELOPING COUNTRIES

Russia Turkey
Poland Philippines
Portugal Zambia
Brunei China
Italy Costa Rica
Bahrain Togo
Oman Angola
Bulgaria Iraq
Slovakia Mexico
Qatar Thailand

FOREIGN DIRECT INVESTMENT - The country owns an organizational unit located in another country
TARIFFS - taxes most often charged to goods imported into a country.
GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)- tariff negotiations between several nations reduced the
average worldwide tariff on manufactured goods.
WORLD TRADE ORGANIZATION (WTO) - a formal structure for continued negotiations to reduce trade barriers and to
act as a mechanism for settling trade disputes.
REGIONAL TRADE AGREEMENTS – is an agreement among nations in a particular region to reduce tariffs and develop
similar technical and economic standards.
EUROPEAN UNION (EU) - Austria, Belgium, Britain, Bulgaria, Cyprus, Czech, Republic, Denmark, Estonia, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal,
Romania, Slovakia, Slovenia, Spain, and Sweden, plus Norway and Switzerland in the related European Free Trade Area.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) – is a multilateral treaty that links the United States, Canada, and
Mexico in an economic bloc that allows freer exchange of goods and services.

RAPIDLY DEVELOPING ECONOMIES (RDES) LCCs using the benefits of foreign investments to grow rapidly into world
competitors

TRIAD the world’s dominant trading partners: the European Union, the United States, and Japan

OUTSOURCING is when a company in one country contracts with a company in another country to perform some
business function

OFFSHORING is when a company in one country moves a business function such as manufacturing to another country,
usually to take advantage of lower costs.

GLOBAL PRODUCT - When companies can sell the same product or deliver the same service regardless of the nationality
of the customer, the industry has a global product

GLOBAL CUSTOMERS - look for products or services ignoring national boundaries, seeking instead the best price and
quality rather than national location

INTERNATIONAL ORGANIZATION FOR STANDARDIZATION (ISO) - developed a set of technical standards known as ISO
9001 for quality in manufacturing and ISO 14000 for environmental management. ISO compliance is part of product-
safety law in many European countries.

SUSTAINABLE PRACTICES- refer to business practices that minimize the impact of business operations on the earth’s
environment, thereby enhancing the ability of the earth’s ecosystems to stay healthy and to continue functioning
indefinitely.

THE STRATEGY OF INTERNATIONAL BUSINESS - Firms that compete in the global market place face two types of
competitive pressures: (1) Pressure for cost reductions; and (2) Pressure for local responsiveness.
PRESSURE FOR COST REDUCTION - A firm tries to minimize its unit cost; a firm might outsource certain functions to low-
cost foreign suppliers in an attempt to reduce cost.
PRESSURE FOR LOCAL RESPONSIVENESS - a firm differentiates its product offering and marketing strategy from country
to country in an effort to accommodate the diver’s demands; differences in infrastructure and traditional practices;
distribution channels; host government demands
 Global standardization strategy
-High cost reduction; low local responsiveness
-products often serve universal needs
-focus on increasing profitability and profit growth
-pursue a low-cost strategy on a global scale
 Localization Strategy
-Low Cost production; High Local Responsiveness
-appropriate na gamitin kung may substantial differences across nations w/ regards to consumer taste and
preference
-iniincrease ng isang company yung value ng produkto sa pamamagitan nga po ng pagcucustomize nila ng kanilang
products and services na magmamatch or sakto sa panlasa at preference ng mga consumer.
 Transnational strategy
-High Cost reduction; High Local Responsiveness
-achieve low cost thru location economies and differentiate their product offering across geographic markets to
account local differences
- Transnational businesses consider the cultures in the countries they operate in and how best to appeal to those
people.
 International Strategy
-Low Cost reduction; Low Local Responsiveness
-they sell products that serves universal needs but do not face significant competitors and they are not confronted
with pressure to reduce their cost structure.
IMPORTERS - bumibili ng mga goods and services mula sa ibang bansa.
EXPORTERS - nagbebenta ng mga produkto at serbisyo sa ibang mga bansa.
TRADE SURPLUS - kung ang isang bansa ay mas nagbebenta ng mga produkto at serbisyo kasya bumibili.
TRADE DEFICIT - ang tawag kung ang isang bansa ay mas bumibili kaysa nagbebenta.
Formula of a country's balance of trade: Value of its imports - value of its exports
INTERNATIONAL CONTRACT MANUFACTURING OR OUTSOURCING- Ito yung kapag mataas ang labor cost ng isang
bansa, marami sa kumpanya nila ay nagmamanufacture ng product sa ibang mga bansa na mayroong mababang labor
cost.
STRATEGIC ALLIANCES- isa itong agrement sa pagitan ng dalawang kumpanya na kung saan mayroon po silang goal na
dapat ma-achieve that will benefit them both.
FOREIGN DIRECT INVESTMENT (FDI) -ito naman po yung formal na pagtatayo ng mga business establishment sa ibang
bansa para makapagbuild ng mga factories and offices to serve other markets in a nation.
- Its common form is foreign subsidiary - isa po itong independent company na pagmamay ari ng isang foreign firm.
OFFSHORING- Nangyayari naman po ang offshoring kapag yung mga facilities sa foreign country ay pinalitan ng US
manufacturing facilities na kung saan ito po ang ginagamit para makapagproduce ng goods na ibabalik din sa United
States para ibenta.
MULTINATIONAL CORPORATIONS (MNC) CORPORATIONS (MNC)
- Kumpanya na nag-ooperate sa iba't ibang mga bansa.
- nag-aadjust sila ng mga product, operations , marketing, and distribution base sa environment ng bansang kinalalagyan
ng kanilang business.
-willing sila na mag-adopt ng cultural and economic differences sa iba't ibang market na kinatatayuan ng business nilam
CULTURE- paniniwala, kaugalian, values at behaviors na isinasagawa ng mga miyembro ng isang society o community
OVERCOMING LANGUAGE BARRIERS- Pinakamabisang paraan para maovercome ito ay pag-aralan ang foreign language
na maaaring maencounter sa business mo. Dapat rin tandaan na sa bawat kultura ng bansa at mayroon silang sariling
pakahulugan sa mga nonverbal language.
UNCERTAINTY AVOIDANCE- isa po itong cultural mindset na nagpapakita kung gaano katolerant ang isang culture sa
mga uncertainty and changes.
DISTRIBUTION OF POWER -ito naman ay kung paano idinidistribute at nagpapakita ng pagpapahalaga sa power
INDIVIDUALISM -nakafocus sa sariling konsepto at personal na achievement.
-Mas gusto ang competition kaysa cooperation.
-Mas gustong nag-iisa kaysa group.
-Private
COLLECTIVISM
-Nakafocus sa kabuuang grupo at mga paniniwala nito kaysa sa sariling paniniwala.
-Mas mahalaga ang tagumpay ng grupo as a whole kaysa sa pansarili nyang tagumpay
-Mas importanteng imaintan ang positive relationship kaysa magkumpleto ng mga task
CULTURAL CONTEXT -nakabase ang kahulugan sa setting o lugar na pinagmula ng mensahe.
HIGH CONTEXT CULTURES
- Mataas ang pagkakapare pareho ng mga miyembro
- Ang kahulugan ng mensahe ay makukuha sa context imbis na sa mismong salitang ginamit. Kumbaga may
nakatagong kahulugan.
LOW CONTEXT CULTURES
-Mataas ang oagkakaiba iba ng mga miyembro
-Ang kahulugan ng mensahe ay malinaw at nauunawaan agad dahil. Literal na kahulugan ito ng salitang ginamit.
MONOCHRONIC -mahalaga ang oras at kailangang mataas ang pagpapahalaga at respeto sa mga deadlines
POLYCHRONIC - hindi gaanong mahalaga ang punctuality. Okay lang kung late dahil hindi naman ito kinokonsider na
rude.
TARIFFS - ito yung mga taxes sa mga produktong ini-import sa bansa. Tinatawag din itong customs, import duties or
import fees. Ito yung nagbibigay ng advantage sa mga domestic product sa bansa natin para maprotektahan ang
industry ng bansa.
GLOBAL AND REGIONAL ECONOMIC COOPERATION AND INTEGRATION
ECONOMIC INTEGRATION- involves agreements between countries that usually include the elimination of trade barriers
and aligning monetary and fiscal policies, leading to a more interconnected global economy. It is consistent with the
economic theory, which argues that the global economy is better off when markets can function in unison with minimal
government intervention. Economic integration is beneficial in many ways, as it allows countries to specialize and trade
without government interference, which can benefit all economies. It results in a reduction of costs and ultimately an
increase in overall wealth.
GATT & WTO - goal is to manage the reduction in trade barriers around the world.
THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) - is a series of rules governing trade that was first created in
1947 by twenty-three countries. By the time it was replaced with the WTO, there were 125 member nations now 164
members. GATT has been credited with substantially expanding global trade, primarily through the reduction of tariffs.

WORLD TRADE ORGANIZATION (WTO) is a formal structure for continued negotiations and for settling trade disputes
among nations.
WTO HAS SEVERAL OBJECTIVES. These include:
• administering trade agreements based on GATT and those negotiated later;
 • cooperating with other international organizations such as the UN and the
World Bank;
• providing technical assistance and training for developing countries;
• monitoring the trade policies of member nations;
• providing a forum for current and future trade negotiations;
• adjudicating trade disputes.
REGIONAL TRADE AGREEMENTS (RTAS) - agreements among groups of nations to reduce tariffs and develop similar
technical and economic standards.

ECONOMIC UNION (EU) - adds to the common market the agreement to coordinate economic policies, which include
such factors as monetary policies, taxation, and currencies

EUROPEAN UNION - is a group of 25 countries that act as a common market with the goal of being a complete economic
union. It included just six countries and by 1995 the EU totaled 15 countries.

EUROPEAN MONETARY UNION (EMU) - is the EU country that uses the euro as a common currency

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) - links the United States, Canada, and Mexico in an economic
bloc that allows the freer exchange of goods and services.

GLOBAL TRADE AND FOREIGN DIRECT INVESTMENT

TRADITIONAL THEORIES OF TRADE help explain the importing and exporting of goods among nations.

The ECONOMIC THEORIES OF TRADE generally tell us that free trade between nations is, on average, beneficial for all of
the involved countries.

In MERCANTILISM PHILOSOPHY, the objective of between-country trade was for a country to win by exporting more
than it imported.

ZERO-SUM GAME - when one side loses, another side gains.

MERCANTILISM- the objective of between-country trade is for a country to win by exporting more than it imports.

FAVORABLE TRADE BALANCE - a surplus of exports over imports overall or applied to a particular country.

SPECIE-FLOW MECHANISM - when the supply or amount of money in a country increases, the prices in that country
tend to go up as well.

ABSOLUTE ADVANTAGE - is an economic concept that is used to refer to a party’s superior production capability.
Specifically, it refers to the ability to produce a certain good or service at a lower cost (i.e., more efficiently) than
another party). It is when the production of a good in country A takes fewer units of labor than production of the good
in country B.

According to ADAM SMITH, for the world to benefit from absolute advantages, a country should produce goods for
which it has absolute advantage and import those goods in which it has absolute disadvantage.

The THEORY OF COMPARATIVE ADVANTAGE suggests that countries should specialize not only in those products for
which they have absolute advantage but also for those products in which they have comparative advantage.
Comparative advantage itself is an economy’s ability to produce a good or service at a lower opportunity cost than its
trading partners.

The HECKSCHER–OHLIN THEORY argues that a nation’s comparative advantage comes from the relative abundance of
its factor endowments.

OPPORTUNITY COSTS - the choice to produce one good requires you to give up the opportunity to produce another
good.

PRODUCT LIFE CYCLE THEORY - adds another consideration regarding how to look at the specialization of production
based on absolute or comparative advantage

HARVARD STRATEGIC MANAGEMENT PROFESSOR MICHAEL Porter rejects the notion that comparative advantage is
sufficient to explain world trade

FREE TRADE as a threat to national sovereignty, the need to protect infant industries, the argument that trade must be
fair, and the protection of local jobs
EXPORTING AND importing are not the only strategies for companies to engage in international operations. Foreign
direct investment (FDI) is another option. Exporting and licensing are types of market relationships that usually require
contracts.

MONOPOLISTIC ADVANTAGE THEORY - when foreign companies have unique competitive advantages over local
companies. It is an economic view of FDI that argues that FDI should occur only when foreign companies have unique
competitive advantages over local companies.

INTERNALIZATION THEORY - looks at the relative efficiency of using the market (e.g. import or export) to go
international contrasted with building or acquiring your own organization in another country. Asks the question of when
it is less costly to do something yourself in another country rather than selling your product or service. Uses the concept
of transaction costs to point out that contracts are not free

DUNNING’S ECLECTIC THEORY - focuses on three advantages that a company must have to succeed with FDI: ownership,
internalization, and location

OWNERSHIP ADVANTAGE - means that a company must have some strategic competitive advantages over local
companies.

INTERNALIZATION ADVANTAGE - means that a company must gain some cost savings over exporting its product or
service or licensing its production processes or brand name.

LOCATION ADVANTAGE - means that there must be some profit reason to go into a foreign location. This means that
there must be some profit motive to produce in another country. This comes from lower-cost production that can serve
either local or home markets

FOREIGN DIRECT INVESTMENT (FDI) - having ownership or control of at least 10 percent or more of an enterprise in
another country or acquires ownership or controlling stake in the shares of a company in one country, or establishes
businesses there.

TRANSACTION COSTS - the costs associated with negotiating, monitoring, and enforcing contracts

FOREIGN EXCHANGE MARKET - The foreign exchange market is a combination of national central banks, private banks,
and foreign exchange dealers and brokers through which people and companies can sell or buy foreign currencies.

EXCHANGE RATE - represents the prices of foreign currencies in terms of other currencies.

TYPES OF FOREIGN EXCHANGE TRANSACTIONS

1. SPOT TRANSACTION - an immediate transaction at a specific exchange rate

2. FORWARD TRANSACTION - an agreed-upon future exchange rate

3. CURRENCY SWAP- A swap involves two exchanges.

STOCK MARKET - is a financial institution where companies can sell shares of ownership and investors also can trade
these shares to other investors.
PEGGED EXCHANGE - fixing the value of a currency relative to another currency rather than to a commodity such as
gold.
LENDER - If the bond issuer is the borrower and the coupon is the interest rate. Therefore, the bondholder is the lender.
DUNNING’S ECLECTIC THREE ADVANTAGES - Ownership advantage/Internalization advantage/Location ADVANTAGE

THEORIES OF GLOBAL TRADE - Mercantilism/absolute advantage/comparative advantages/Heckscher–Ohlin theory/

Product life cycle
TWO OPTIONS IN STRATEGY IN INTERNATIONAL OPERATIONS - Exporting and importing/Foreign direct investment

CONTEMPORARY THEORIES OF FDI - Monopolistic advantage theory/Internalization theory/Dunning’s eclectic theory

TWO SIDES OF THE EXCHANGE RATE - bilateral exchange rate/currency cross rate

FOREIGN EXCHANGE TRANSACTIONS IN DIFFERENT FORMS - The spot transaction/ forward transactions/currency swap

EXCHANGE-RATE SYSTEM - is a variety of rules that countries can use to govern the value of their currencies relative to
the values of other nations’ currencies

THREE MAJOR EXCHANGE-RATE SYSTEMS - the gold standard/Bretton Woods system/floating system
WHAT DETERMINES EXCHANGE RATES?

 Purchasing Power Parity Purchasing power parity (PPP) – means that, ignoring tax differences, transportation
costs, and trade restrictions, goods and services in any two countries should have the same prices after
converting each of their currencies into a common currency. This is also called the Law of One Price.
 Foreign Exchange Arbitrage – Because currencies trade in markets all over the world, exchange rates may differ
in different markets. When exchange rates do differ, there is an opportunity to make money by buying lower
and selling higher. In fact, the word “arbitrage” means buy low and sell high.

CAPITAL MARKET - is a market where individuals, governments, and businesses that do not have an immediate use for
their money transfer that money to individuals, governments and businesses that do have a need and a use for that
money.

COMMERCIAL BANKS - banks that specialize in making loans to companies rather than to individuals as customers.
However, as the banking industry has been deregulated, many commercial banks offer bank services to consumers as
well.

BOND MARKET - where companies can take on debt using a financial instrument called a bond. Companies have used
bonds for a long time.

BONDS - are a form of debt, somewhat like a loan from a bank but with a slightly different relationship to investors.

DIVIDENDS – a certain percent of the profits of a company is paid out to the owners (stockholders) in the form of
dividends.

TYPES OF GLOBAL CAPITAL MARKET - Bond Market/Stock Market/Global Financial Markets /International Bond Market

TYPES OF INTERNATIONAL BONDS ISSUED - foreign bonds/Eurobonds/global bonds

EUROCURRENCY MARKET - The market for getting loans in a currency that is different from the lending bank’s home
currency.

FOREIGN BONDS - When a foreign company issues bonds in the local currency

EUROBONDS - means that any bond issued in a currency other than the local currency

GLOBAL BONDS - are similar to Eurobonds but are issued in several currencies at once, which can include the currency
of the country in which they are issued

BRETTON WOODS AGREEMENT ADOPTED AND CREATED - pegged exchange rate/International Monetary Fund (IMF)

THE IMPORTANCE OF TRADE WORKS GLOBALLY - trade and investment are a platform for our country to deliver our
goods and services to global consumers

FUNCTIONS OF THE WTO

1. Trade Negotiations
2. Implementation and Monitoring
3. Building Trade Capacity

HOW DO FOREIGN EXCHANGE MARKETS OPERATE?

The foreign exchange market is primarily over-the-counter (OTC.) It happens both by way of digital platforms or
on the telephone between banks and different members.
 (SMP 1) BUSINESS COMMUNICATION FEVIEWER (MIDTERM)
COMMUNICATION
 Communication is derived from the Latin word “Communicare” that means to impart or to share.
 Communication is a practice of exchanging information, ideas, and opinions from one person to another.
 Communication fosters the immediate understanding from one country to another that made ‘globalization’
possible.
 According to American Management Association, ‘Communication is any behaviour that results in an exchange
of meaning’.
 Communication is the process by which facts is transmitted between individuals and/or organizations so that an
understanding response result’ as defined by Peter Little.
 Newman and Summer Jr. state that, ‘Communication is an exchange of facts, ideas, opinions or emotions by
two or more persons’.
 Keith Davis defined communication as the method of transferring of facts, data and understanding from an
individual to another. It is basically a bridge of meaning between individuals. With the bridge, a person can
safely cross the river of misunderstanding’.
 Louis A. Allen describes Communication as the total of all the things that a person does. To build an
understanding in the mind of another individual. It includes a systematic and continuous process of telling,
listening and understanding.
ROLE OF COMMUNICATION IN BUSINESS
 ‘Business Communication’ is a term that is used for the exchange of messages within an organization,
companies, and personnel and proprietors of a business that has formal affairs.
 Communication has a huge influence on a business. Effective communication can endorse the interest
of a business. Or else, it will show that the business or organization is in poor light and may have a
negative impact on the business.
 Communications’ basic problem is that the meaning conveyed can be distorted because it must be
realized that the source and receiver of a message has their own knowledge and limitations.
 Communication is the life blood of the business. No business can develop in the absence of effective
communication system.
INTERNAL COMMUNICATION - Communication of individuals within an organization or companies. Modes of
Internal Communication consist of face-to-face and written communication like memos, reports, office order,
circular, fax, etc.
EXTERNAL COMMUNICATION - When people in the organization communicate with anyone outside the
organization. These people may be clients or customers, dealers or distributors, media, government, general
public etc. are the examples of external communication.
PURPOSE OF COMMUNICATION

1. For Instruction: This purpose of communication deals with the commanding nature. In this, instructions mainly flow
from the top to the lower level.
2. For Integration: This purpose of communication mainly contains bringing about inter-relationship among the
various functions of the business organization. It supports the union of multiple functions of organization
management.
3. For Information: One of Communication’s primary functions or purposes in an organization is to inform an
individual or a group about a particular task or company policies and procedures etc.
4. For evaluation: Communication is an instrument to assess an individual or a group and their contribution to a
business organization.
5. For direction: Communication is essential for the issuance of instructions or guidelines by the top management to
the lower level.
6. For teaching: A complete communication process is required to teach and educate workers about personal security
on jobs. Communication helps the workers to prevent accidents, risks, etc. and avoid the cost, procedures, etc.
7. For influencing: Influencing others or being influenced by others requires a complete communication process. An
individual who is capable of influencing other individuals can be effective in persuading others.
8. For image building: A business enterprise cannot be separated from the rest of society. There are interrelationships
and interdependence between society and an enterprise operating in society.
9. For employees' orientation: When a new employee enters the organization, he or she is not familiar with the
organization's policies, culture, and programs.
10. Other: When adequate information is given to the decision-maker, effective decision making takes place with
the help of effective
THE COMMUNICATION SITUATION
• There is a person (sender/transmitter) who wants to pass some information;
• There is another person (receiver) to whom the information is to be passed on;
• The receiver partly or wholly understands the message or information passed on to him;
• The receiver responds to the message or gives feedback.
GENERAL PRINCIPLES OF EFFECTIVE COMMUNICATION
1. Know your purpose in communicating
2. Know your audience
3. Know your topic
4. Adjust your speech or writing to the context of the situation
5. Work on the feedback given to you
PRINCIPLES OF EFFECTIVE WRITTEN COMMUNICATION: THE 7Cs
1. Be Clear
2. Be Concise
3. Be Concrete
4. Be correct
5. Be coherent
6. Be Complete
7. Be Courteous
PRINCIPLES OF EFFECTIVE ORAL COMMUNICATION
1. Be clear about your purpose
2. Be complete with the message you deliver
3. Be concise
4. Be natural with your delivery
5. Be specific and timely with your feedback
4(S) BUSINESS COMMUNICATION
1. SHORTNESS – "Brevity is the soul of wit." The message should conveyed briefly and wordiness is
avoided
2. SIMPLICITY – Reveal clarity in the thinking process by using simple terminology and equally simple
concepts.
3. STRENGTH – strong point and conviction in whatever he tries to say.
4. SINCERITY – A sincere approach to an issue is evident to the receiver. If the sender is genuine, it will
be reflected in the manner in which he communicates
COMMUNICATION - is simply defined as the exchange of beliefs, concepts, perceptions, and opinions between or
among people, and various contexts come into play (Madrunio, M., & Martin, I., 2018).
CONTEXT refers to a situation or environment in which communication takes place. It comprises the following as
stated by Madrunio, M., & Martin, I., (2018):
1. Physical or actual setting;
2. The value positions of speakers/listeners; and
3. The importance or appropriateness of a message conveyed
COMMUNICATION ACCORDING TO MODE
1. Visual- is a type of communication that utilizes visuals to transfer information.
2. Verbal-Non-Verbal- the two types of communication are combined so they are more effective since one cannot be
separated from the other.
COMMUNICATION ACCORDING TO CONTEXT
1. INTRAPERSONAL
 The Latin prefix intra – means within or inside.
 Means talking to oneself.
 Some people call it as self or inner talk, inner monologue, or inner dialogue while psychologists call it self-
verbalization or self-statement
2. INTERPERSONAL
 The Latin prefix inter – means between, among, and together.
 It occurs in dyads or small groups or group communication.
3. EXTENDED
 Uses electronic media such as tele, audio, or phone conferencing; video conferencing; skype calls; and other
technological means when communicating.
 A good example of this is e-conference wherein participants do not need to be physically present but are able
to send information and interact actively to reach a wider group of audience or listeners.

4. ORGANIZATIONAL
 The focus is on the task or function that communication plays in an organizational setting.
  Organizations consist of people who work for the company.
TWO TYPES OF ORGANIZATIONAL STRUCTURE
1. Formal- refers to the flow of messages between positions in the organization using designated channels. This
includes the use of the following four approaches:
1.1. Downward- refers to the flow of messages from upper to lower positions Also, the flow of messages is top-
down when the transaction is from an employer to an ordinary staff.
1.2. Upward- this approach is called bottom-up in which the flow of communication is from the subordinates to
their superiors/bosses indicating their views/feedback on organizational policies, issues related to their jobs
1.3. Horizontal- is lateral in approach since the flow of messages between or among individuals has the same level
or position in the organization. However, the communication flow is from different departments or units to
ease the tasks' performance through appropriate coordination.
1.4. Crosswise- is diagonal wherein employees working from different units or departments at various levels
communicate.
2. Informal- Comes from unofficial channels of message flow.
 Also known as "grapevine" messages and the flow of messages is from the different levels of the organization.
 This happens when some employees are dissatisfied with the company's rules and regulations.
 Each organization has its own culture which refers to organizational culture.
 The organization improves its core values, vision and mission statements, goals, and objectives based upon its
history and development.
5. INTERCULTURAL -is communication between or among individuals from different cultural backgrounds

COMMUNICATION ACCORDING TO PURPOSE AND STYLE

1. Formal
 Makes use of standard language, which is used either in oral or written form.
 Lectures, public speaking, research and project proposal, report, business letter, etc. are examples of formal
situations and writings.
2. Informal
 Does not make use of formal language.
 It includes personal and ordinary conversations with friends, family members, or associates about anything
under the sun.
 The mode can be done in oral or written form since the purpose is to socialize and sustain relationships.

BARRIER – an obstacle in a place that prevents us from completing certain task

COMMUNICATION BARRIERS – the aspects or conditions that interfere with the effective exchange of ideas or
thoughts

TYPES OF BARRIER:
1. Physical Barrier – disturbance in the immediate situation which can interfere in the course of an effective
communication (ex. Defects in media, noise, physical ability)
2. Cultural Barrier – similar words can mean different things to people from different cultures, even when they talk
the same language (ex. Diversified cultural background, language and accent, religion)
3. Language Barrier – inability to converse in a language that is known by both the sender and receiver is the
greatest barrier to effective communication (ex. Multi-language, region, inadequate vocabulary)
4. Emotional Barrier – emotional state may influence your capacity to make yourself understood and hampers your
understanding of others. (ex. Fear, insecurity, mistrust, stress)
5. Gender Barrier – men and women have different ways of thinking and communication (ex. Fear, shy,
environment, and misunderstanding)
6. Organizational Barrier – organizational structure affects the capability of the employees as far as the
communication is concerned. (ex. One way flow, rules and regulation)
7. Perceptual Barrier – people have different opinions (ex. Difference in understanding, values, attitudes, opinions
and perception of reality)

PUBLIC SPEAKING – the process of speaking to a group of people in a structured, deliberate manner intended to
inform, influence, or entertain the listeners.

WAYS TO PRESENT A SUCCESSFUL PUBLIC SPEECH

1. Preparation
2. Practice
3. Performance
FACTORS INFLUENCING A PUBLIC SPEAKING
1. The topic of the presentation
2. The attitude of the audience
3. The quality of material
4. Thorough knowledge about the matter
5. The length of the speech
6. Body language
7. Supporting pictograms, diagrams, etc.
8. Pitch variation and so on

PRINCIPLES OF EFFECTIVE ORAL

1. State clearly your purpose. Determine wholeheartedly your objective in communicating.
2. Deliver the message completely. Be sure that your claims are supported by details and significant facts.
3. Make the discussion short. Do not be talkative or wordy with your statements since conciseness in speech is
required.
4. Deliver the speech naturally. Emphasize significant words by using suitable hand gestures and bodily movements.
Display a certain degree of confidence even when you don’t feel confident enough.
5. Be specific and prompt with your response. Inputs are useful when given on time.
 (FM 103) CREDIT AND COLLECTION REVIEWER (MIDTERM)
CREDIT - is the ability to obtain a thing of value in exchange for a promise to pay definite sum of money, on demand or
future determinable time. This creates obligations and rights to both debtors to pay his debt and the right of the
creditor to collect payment. From the definition, the following elements are present:
 It is the ability to obtain a thing of value
 A promise to pay
 Definite sum of money.
 Payable on demand or future time
CHARACTERISTICS OF CREDIT
 IT IS A BI-PARTITE OR A TWO-PARTY CONTRACT - Two parties are involved in the agreement: the debtor
and the creditor. Creditor is the source of credit, the party who extends the loan. Debtor is the party
requesting for a loan.
IT IS ELASTIC - It can be increased or decreased by the creditor.
 THE PRESENCE OF TRUST OF FAITH - The basic element of credit is the creditor's reliance on both the debtor's
ability and willingness to pay his debt.
 IT INVOLVES FUTURITY - Maturity date for settlement of obligation is a future time.
FOUNDATIONS OF CREDIT
 CONFIDENCE - Creditor must trust the debtor's personal character as a measure of his capacity to pay.
Creditor's confidence on the debtor's willingness and capacity to settle obligation is based on trust.
 PROPER FACILITIES - In a credit contract, legal facilities must exist to make the agreement valid. These are the
credit information and credit document.
CREDIT DOCUMENT - is the written agreement signed by both parties identifying principal loan, interest
and maturity date of other supporting papers to determine his credit rating such as copy of income tax
return/withheld or employment certificate for personal loans and financial statements for business
loans.
 STABILITY OF MONETARY STANDARD - Purchasing power of money is considered when extending credit. The
more stable value of money, the greater is the possibility for approving credit.
 GOVERNMENT ASSISTANCE - Regulations protecting both parties are highly considered for credit transactions.
 CREDIT RISK - This is the possibility that the debtor may not fulfill his promise for payment. Credit risk shall be
borne by creditors.

C's OF CREDIT

 CHARACTER - The personality of the debtor, including his mental and moral attitudes determining his
credit rating.

 CAPACITY - This signifies the person's willingness and capacity to pay. This is a measure of his income
level basis of his paying capacity.

 CAPITAL - This consists of the person's real and personal property which can be a strong foundation for
credit approval. His capital can serve as his liquid assets in case of non- payment or non-fulfillment of
obligation.

 COLLATERAL - This is something of value, the debtor's assets as pledge. Common practice is for collateral
to be forty percent (40%) higher than the amount of loan. Inability to discharge loan obligation may
protect creditor with the presence of collateral as his security.

 CONDITIONS - This may include local business conditions or economic conditions during time of loan
application. When a business or economy is facing periods of recession or depression, ability to fulfill loan
payments may be impossible, so creditors may not consider the application.

CLASSIFICATIONS OF CREDIT
1. ACCORDING TO TYPE OF USER

1.1. CONSUMER CREDIT - is a credit used by individuals to help finance or refinance the purchase of commodities
for personal consumption. This is different from business credit in terms of the borrower's purpose, that is, for
personal household use. Consumer credit can be charge account, installment account, revolving credit, or lay-away
plan.
 FUNCTIONS OF CONSUMER CREDIT ARE:
a. Convenient form of payment.
b. Aids in financial emergencies.
c. Buying durable on installment

CHARGE ACCOUNTS - are for non-durable, payable within two months or sixty-day term, in four payments.
INSTALLMENT ACCOUNTS - are for durable, payable for more than six months to one or more years. Payment is
monthly and a down payment is needed before unit on credit is delivered.
REVOLVING CREDIT - is a combination of charge and installment accounts.
THE CREDIT PERIOD IS NINETY DAYS - the debtor can avail of loan renewal after ninety days, or within ninety days, for
the paid portion, provided he had not been delinquent in payment of the original loan.
LAY-AWAY PLAN - is consumer credit where full payment of the product within a period is required before delivery of
the item is made.
REPLEVIN - is the creditor's right to reposses the item under contract that is the durable goods, in case that the debtor
fails to fulfill his obligation. In this case, the debtor has to redeliver the item to the creditor. Other consumer credit
may require a co-maker to serve as guarantor for the loan.
1.2. COMMERCIAL CREDIT - is extended by one businessman to another businessman. The creditor and debtor are
both businessmen. Objects of credit are merchandise or goods which are delivered on consignment basis or under
a credit term.
1.3. COMMERCIAL BANK CREDIT - differs from the preceding in terms of the parties concerned. The creditor is a
commercial bank while the debtor can be a business firm or private businessman. The debtor may consider
commercial bank for loans in order to assist him in business operations or expansions.

ACCORDING TO PURPOSE

1. INVESTMENT CREDIT - is extended by banks for company who intends to purchase fixed assets - land,
building equipment for business use.
2. AGRICULTURAL CREDIT - is a loan intended for the acquisition of fertilizers, pesticides, seedlings,
transportation of agricultural products and farm improvements. Debtors are farm breeders and
creditors are rural banks.
3. EXPORT CREDIT - uses "letter of credit" as a tool for financing international trade. This letter of credit or
LC is issued by the importer's bank; it guarantees payment to the exporter up to some specified amount
of money. In this procedure, the exporter is protected by a substitution of the bank's good faith and
credit for that of the importer.
TWO GENERAL TYPES:
 IMPORT LETTER OF CREDIT - requires payment be made in the importer's currency,
 EXPORT LETTER OF CREDIT - requires that it be made in the exporter's currency.
4. REAL ESTATE LOAN - is intended for the purchase of house and lot, for house construction, or
improvement.
5. INDUSTRIAL CREDIT - is intended to finance industries like logging, fishing, mining, quarrying and the
like.

ACCORDING TO MATURITY
 Short-term loans are payable within a period of one year.
 Intermediate term or medium term loans are payable for a period of five years.
 Long-term loans are payable for more than five years.

ACCORDING TO FORM OF CREDIT

 Cash form of credit.
 Merchandise form of credit.

CLASSES AND KINDS OF CREDIT

 1. PERSONAL CREDIT - Also more commonly known as the Consumer Credit. Individuals utilize this type of
financing to assist finance or refinance the purchase of goods for their own use. Regarding the borrower's
intended usage, which is for personal household use, this differs from business credit. It is a personal loan taken
out to pay for products and services. One type of personal credit is a credit card.
2. MERCANTILE CREDIT - Businessmen lend money to other business people, often known as extending
Commercial Credit - Businessmen make up the debtor and creditor. The products or things that are delivered
under a credit term or on a consignment basis are known as objects of credit.
3. INVESTMENT CREDIT - Investment credit is extended by banks for companies who intend to purchase
fixed assets - land, building equipment for business use.
4. AGRICULTURAL CREDIT - A loan for agricultural purposes includes those for the purchase of seedlings,
insecticides, fertilizers, the transportation of agricultural products, and farm renovations.
5. BANK CREDIT -It is usually referred to as loan given for business or personal needs, with or without collateral.
6. EXPORT CREDIT - A credit given to an importer (company or businessman) in order to finance their
export operation.
7. INDUSTRIAL CREDIT - It is intended for financing the needs of industries like logging, fishing, manufacturing or
others.
8. PUBLIC OR GOVERNMENT CREDIT - Public Credit is a form of credit in general, given by banks or other institutions
to all people. While on the other hand, Government credit is given to a state government entity.

COMMON FORMS OF CREDIT

1. REVOLVING CREDIT - it refers to an open-ended credit account like a credit card or other “line of credit” that can
be used and paid down repeatedly as long as the account remains open.
Example: Credit Card
2. CHARGE CARD - It is a type of electronic payment card that charges no interest but requires that you pay the
statement balance in full, usually monthly. Charge cards are offered by limited numbers of issuers.
Example: American Express
3. INSTALLMENT CREDIT - It gives borrowers a lump sum, and fixed, scheduled payments are made until the loan is
paid in full.
Example: Mortgage, Auto Loan, Personal Loan
4. NON-INSTALLMENT CREDIT - It refers to a system of credit that is payable in one lump-sum amount by a specified
date. It can be secured or unsecured. It is usually for very short term, such as thirty days.
Example: Utility bill

SOURCES OF CREDIT
1. PRIVATE INDIVIDUALS - These are the individual money lenders who loan surplus income to those in immediate
need of cash.
2. RETAIL STORES - These outlets offer merchandise form of consumer credit. It offers a book of account (“palista”)
for customers of the store and collection period is during paydays of the month.
3. PAWNSHOPS - Pawnbrokers extend loans in exchange for collateral, a pawn. Pawn acceptable is personal
property or movable assets.
4. SAVINGS AND MORTGAGE BANKS - any corporation organized for the purpose of accumulating the savings of
depositors and investing them.
5. MUTUAL SAVINGS BANKS - These are mutually owned by their depositors and either pay out their profit to savers
in the in interest dividends or retail them as a reserve cushion against loss. They sell interest bearing savings
deposits to the public and acquire assets largely in the form of urban residential mortgages.
6. SAVINGS AND ASSOCIATIONS - These are organized to obtain funds for home construction, and majority of their
savings are placed in home mortgages.
7. CREDIT UNIONS - These are mutual institutions whose membership have some common bond.
8. INSURANCE COMPANIES - These companies are both mutual and stockholder-owned. They receive funds from
policy holders and place the funds in loans, both individually to home buyers and other small borrowers and also
through security purchases in the organized money and capital markets.
9. PENSION FUNDS - The procedure for pension fund is the reverse of that for insurance companies. The person who
lives the longest beyond retirement receives the highest return in investment, through the periodic pension checks
he receives.
10. BOND AND MONEY MARKET FUNDS - These are companies which accept savings and place them in a pool for
investments that allows diversification of assets.
11. SALES FINANCE COMPANIES - These includes sales and personal finance companies which make loans to
individuals for the purpose of buying automobiles.
12. BANKS - These are commercial banks, savings banks, rural, development and investment banks. They approve
loans based on collateral presented.
INVESTMENT CREDIT INSTRUMENTS - These are promises or orders to pay, a definite or determinable sum of money to
bearer or order, on demand or at a future specified time. This document gives evidence to a credit obligation resulting
from the past transaction which sets forth the responsibility of the debtor to his creditor. These are stocks and bonds.

BONDS - They represent as indebtedness on the part of the issuing corporation.

CORPORATION is the bond issuer or the debtor
BONDHOLDER is the creditor
Advantages of both are:
a. It represents a safe form of investment, that the company must honor its obligation of paying its indebtedness to
the bondholder upon maturity regardless of whether it is losing or making profits.
b. It can be used as collateral to support loans sought by the bondholder from financial institutions.
c. Transfer to another holder is easily done by mere endorsement and delivery of the instrument.
May be issued by: « Generally indicated on the face of certificates
 Government
 Business Corporation

VARIETY OF BONDS
1. The character of security
2. The provisions governing the payment of interest and the repayment of principal
3. The purpose for which they are issued
4. The nature of the issuer
CLASSES OF BONDS
1. Nature of the Issuer = government, municipal,corporate, industrial, etc.
2. Nature of Security = mortgage, collateral, trust,debenture, guaranteed, income, etc.
3. Maturity = long-term, short-term, etc.
4. Termination =(payment and redemption) convertible,redeemable, serial, sinking fund, etc.
5. Form of Instrument =coupon, registered.
6. Purpose = refunding, construction, development,equipment, etc.
CLASSIFICATION OF BONDS
1. COUPON BONDS - Also referred to as a bearer bond or bond coupon, is a debt obligation with coupons
attached that represent semi-annual interest payments.
2. REGISTERED BONDS - It has the name of the owner on the face of the instrument and cannot be transferred
without endorsement. Interest checks are mailed to the holder on record. Registered bonds are registered as
to principal only, and the attached coupons are payable to the bearer.
RETIREMENT OF BONDS
1. CONVERSION - exchanging a new security usually a preferred stock, for the outstanding issue.
2. REDEMPTION - repayment of cash
3. REFUNDING - replacing the outstanding bonds with another issue of later maturity, with perhaps some
alternations in the provision and rate of interest.

STOCKS - Represent permanently investment capital of a corporation contributed by the owners termed as
stockholders which are evidenced by certificates. A stock is an evidence of the investment involving a certain sums of
money, evidence that is transferable to third parties in such a way that the holder may, in normal times, obtain
immediate cash through that sale of said stock.
SHARES OF STOCK - Represents the owner’s right to a certain portion of the assets of corporation upon liquidation and
to certain shares of the profits after prior claims have been paid.
CERTIFICATE OF STOCK - An evidence of the fact that the holder is the owner of a share, or a number of shares, of
stock.
TYPES OF STOCKS
1. COMMON STOCKS - Residual claimant, receiving only that portion of the corporate income which remains
after all other claimants have been satisfied. There is no fixed rate of earnings on common stocks.
2. PREFERRED STOCKS - May be referred as to assets or as to dividends, or both. Holders of preferred stocks
have a right to fixed dividend which is secondary to that of interest on all classes of bonds and notes.

COMMERCIAL CREDIT INSTRUMENTS - are substitutes for money on business transaction. These are promissory note,
checks, bank draft, and bill of exchange.
1. PROMISSORY NOTE - A promissory note is a written promise by a person, called the maker, to another party,
the payee to pay a definite sum of money at a certain future time.
2. CHECKS/CHEQUE - A cheque, or check is a document that orders a bank to pay a specific amount of money
from a person's account to the person in whose name the cheque has been issued.
TYPES OF CHECKS
 1. OPEN CHECKS - This is either payable to bearer or to order. This instrument does not require presentation
through a payee’s banking account.
- Open checks payable to bearer
- Open checks payable to order
2. CROSSED CHECK - This is determined by the presence of two parallel lines on the left corner. It must be
presented through a payee’s banking account for deposit. This instrument requires three days clearing, for those
drawn within the metropolis, before it can be withdrawn by the payee. A crossed check can be payable to
bearer or to order.
3. CERTIFIED CHECK - This is an instrument where the word “certified” or “good for payment” is stamped on its
face. This commonly used for commercial transactions, where payee wants assurance for fund sufficiency.
4. MANAGER’S CHECK (MC) - It is a check issued by the bank, payable to a payee as indicated by the person who
buys the MC. It is often used in situations when the beneficiary does not accept cash or personal checks.
5. TRAVELER’S CHECK - It is a medium of exchange utilized as an alternative to hard currency. Travelers often used
traveler’s check on vacation to foreign countries.
6. OVERDRAFT - It is an extension of credit from a lending institution when an account reaches zero. An overdraft
allows the individual to continue withdrawing money even if the account has no funds in it or not enough to
cover the withdrawal.
7. BOUNCE CHECK - This check is slang for a check that cannot be processed because the account holder has non-
sufficient fund (NSF). Banks return or bounce this check, also known as the rubber checks, rather than honoring
them, and banks charge the check writers NSF fees.
8. STALE DATE CHECK - Check presented at the paying bank after a certain period (typically six months) of its
payment date. A stale check is not an invalid check, but it may be deemed an “irregular” bill of exchange.
9. POST-DATED CHECK - This is an instrument where the date on the face is on future date considering the day of
encashment or payment.

NEGOTIATION AND ENDORSEMENT

 NEGOTIABLE INSTRUMENT can be transferred from one person to another by either negotiation or by
assignment. The Negotiable Instrument Act does not deal with transfer of negotiable instruments by
assignment. The Negotiable Instrument Act does not deal with the general law that regulates the transmission
of negotiable instruments by operation of law or devolution. The transfer of a negotiable instrument by
assignment is dealt with in accordance with the Transfer of Property Act.
 KINDS OF ENDORSEMENT
1. An endorsement of a check authorizing payment to an entity other than the entity to which the check was
originally written. A special endorsement consists of a signature and a statement identifying the entity to
which the check should be paid.
2. Blank or general endorsement - If the endorser signs his name only and does not specify the name of the
endorsee, the endorsement is said to be in blank Sec. 16(1). The effect of a blank endorsement is to convert
the order instrument into bearer instrument (Sec. 54), which may be transferred merely by delivery.
3. Restrictive endorsement - Stating the effect of endorsement, Section 50 provides that “the endorsement of
negotiable instrument followed by delivery transfers to the endorsee the property herein with the right of
further negotiation.” However, Section 50 permits restrictive endorsement.
RESTRICTIVE ENDORSEMENT - An endorsement which prohibits the endorsee from further negotiating
the instrument or restricts the endorsee to deal with his instrument as directed by the endorser
4. Qualified Endorsement - An endorsement -- the placement of signature on the back of a negotiable
instrument -- coupled with an additional phrase, e.g. “without recourse” or “for deposit only”, limiting the
liability of the endorser (signer) in the event the instrument is dishonored. A qualified endorsement makes it
more difficult for a thief or embezzler to cash an instrument.

USES AND LIMITATIONS OF CHECK

1. SAFETY AND CONVENIENCE - It is safer to bring along with you checks for big amounts payable rather than
cash. If lost in the hand of the payee, he may request for replacement from the drawer.
2. STOP PAYMENT NOTICE - Drawer may notify bank stop payment of certain check issued due to stand some
default in the performance of any obligation on the part of the payee.
3. FOR ODD AMOUNTS - Some transactions may require odd amounts which can be easily paid by simply
indorsing a check.
4. AS A RECEIPT - Acceptable and payment through checks serve as official receipt for business transactions,
particularly when received by the drawer together with his monthly bank statement.
5. FOR LARGE AMOUNTS - checks are convenient to use as instrument for paying large amounts of business
transactions.
LIABILITY OF GENERAL INDORSER - NEGOTIABLE INSTRUMENTS
 Sec. 66. LIABILITY OF GENERAL ENDORSER. - Every endorser who endorses without qualification, warrants to all
subsequent holders in due course: (holders in good faith)
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b) That the instrument is, at the time of his endorsement, valid and subsisting;
APPLICATION OF SECTION 66
• Deals with the liability or warranties of one negotiating by general endorsement, as distinguished from
qualified endorsers or persons negotiating by mere delivery
• It has been held that this section includes an endorser for collection

LIABILITY OF GENERAL INDORSER

1. That the instrument is genuine and in all respects what it purports to be
2. That he has a good title to it
3. That all prior parties had capacity to contract
4. And that the instrument is, at the time of his endorsement, valid and subsisting

FOURTH WARRANTY OF GENERAL INDORSER AND QUALIFIED INDORSER, DISTINGUISHED

While the qualified endorser or person negotiating by delivery warrants that he is ignorant of any fact that will
render the instrument valueless or impair its validity, the general endorser warrants the instrument he is endorsing is
valid and subsisting regardless of whether he is ignorant of that factor or not.

TYPES OF DEPOSIT AND ACCOUNTS

ACCOUNT NUMBER - numbers to uniquely identify an account

TYPES OF DEPOSITS
1. SAVINGS BANK ACCOUNT - is suitable for people who have a definite income and are looking to save money.
Withdrawals can be made either by signing a withdrawal form or by issuing a cheque or by using an ATM card.
The rate of interest on savings bank account varies from bank to bank and also changes from time to time. A
minimum balance has to be maintained in the account as prescribed by the bank.
2. CURRENT DEPOSIT ACCOUNT - Big businessmen, companies, and institutions such as schools, colleges, and
hospitals have to make payment through their bank accounts. They need to have an account from which
withdrawal can be made any number of times.
3. FIXED DEPOSIT ACCOUNT - Some bank customers may like to put away money for a longer time. Such deposits
offer a higher interest rate. Therefore, money is deposited in a fixed deposit account to earn interest at a higher
rate. This type of deposit account allows the deposit to be made of an amount for a specified period. This period
of deposit may range from 15 days to three years or more during which no withdrawal is allowed.
4. RECURRING DEPODIT ACCOUNT - While opening the account a person has to agree to deposit a fixed amount
once in a month for a certain period. The total deposit along with the interest therein is payable on maturity.
However, the depositor can also be allowed to close the account before its maturity and get back the money
along with the interest till that period.
TYPES OF RECURRING DEPOSIT ACCOUNT:
 Home Safe Account or Money Box Scheme - For regular savings, the bank provides a safe or box

(Gullak) to the depositor. The safe or box cannot be opened by the depositor, who can put money in it
regularly, which is collected by the bank’s representative at intervals and the amount is credited to
the depositor’s account. The deposits carry a nominal rate of interest.
 Cumulative-cum-Sickness deposit Account - A certain fixed sum is deposited at regular intervals in this
account. The accumulated deposits over time along with interest can be used for payment of medical
expenses, hospital charges, etc.
 Home Construction deposit Scheme/Saving Account - we can deposit the money regularly either for
the purchase or construction of a flat or house in future. The rate of interest offered on the deposit, in
this case, is relatively higher than in other recurring deposit accounts.
THE UNPAID SELLER
(a) when the whole of the price has not been paid or tendered;
(b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the
condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.

 RIGHT OF STOPPAGE IN TRANSIT - The right of stoppage of goods in transit, arises to an unpaid seller after he has
parted with the possession of the goods. The seller has the right to resume possession of the goods while they
are in the course of transit and to retain them until payment or tender of the price.
 THE RIGHT TO STOP GOODS IN TRANSIT - The UCC expands the rights of a seller to stop goods in transit where
the goods are in the hands of other bailees, such as a carrier or warehouse man. However, once the goods have
been received by the buyer, the right of stoppage is lost. Under the UCC, a seller may stop goods in transit in two
instances, where the debtor is insolvent or where the buyer repudiates or fails to pay prior to delivery.
 THE BUYER'S INSOLVENCY - A seller may stop goods in transit upon learning of the buyer's insolvency. Insolvency
under the UCC is either: where a buyer fails to pay debts when due; or is balance sheet is insolvent (liabilities
exceed assets).
 ANTICIPATORY BREACH - The seller may stop goods where the buyer breaches the contract or fails to make
payment when due. This right of stoppage is limited to large shipments of goods.
 (FM ELEC 3) FRANCHISING REVIEWER (MIDTERM)

ORIGINS OF FRANCHISING
 It can be track back to the middle ages (400 A.D – 1500 A.D)
 Courts or Lords could also grant rights to operate ferries, hold markets, and perform the business activities today
carried out by professionals.
 The licensee (or franchisee) would pay the licensor (franchisor) a specific fund from tax revenues collected or
assessments made and in return receive military or forms protection.
 In the early 19th century in England, the tavern and pub owners, in order to partially solve their financial need,
turned to brewing companies for financial assistance.
 In the middle 19th century, franchising system was introduced when the singer sewer machine company formed
a franchised in 1851. Singer had been experiencing difficulty in marketing its new product. This was done
through franchise system.
 In 1898, William E. Metzger of Detroit became the first official franchisee of the general motors corporation.
 The general motors corporation lacked the capital to open retail outlets. Because of this, they began selling
automobiles through the franchise system.
 From that simple beginning, franchising as a concept spread throughout the United States economy in the early
20th century.
 Henry Ford followed the examples of General Motors and, after establishing a mass production system for the
model T, he looked for an efficient mechanism for the distribution of the product. His search ended in
franchising
RICHARD CHARLES NICHOLAS BRANSON
- an English business magnate, investor, and author.
- he founded the Virgin Group, which today controls more than 400 companies in various fields.
FRANCHISING – a method of business expansion characterized by a trademark license, payment of fees, and significant
assistance and/or control. Franchising is primarily a method of distribution of goods or services. Franchising is simply a
business technique, a means of distributing or providing goods or services to the consumer. It is a cooperative strategic
arrangement of spreading the risks and using the resources, capabilities and competencies without completing a merger
or an acquisition. It is a contractual agreement executed between two parties – the franchisor and the franchisees.
MODES OF FRANCHISING
1. Direct franchising
2. Subsidiary or branch office
3. Area development agreements
4. Master franchise
5. Joint ventures (Multi-unit franchising, affiliation or conversion franchising, franchise within a franchise,
subordinated equity arrangements, management agreement, and franchise buy-ins)

FRANCHISE
- a license that describes the relationship between the franchisor and franchisee including use of trademarks,
fees, support and control
- is the agreement or license between two legally independent parties which gives:
• a person or group of people (franchisee) the right to market a product or service using the trademark or
trade name of another business (franchisor)
• the franchisee the right to market a product or service using the operating methods of the franchisor
• the franchisee the obligation to pay the franchisor fees for these rights
• the franchisor the obligation to provide rights and support to franchisees
BUSINESS FORMAT FRANCHISE – this type of franchise includes not only a product, service and trademark, but also the
complete method to conduct the business itself, such as the marketing plan and operations manuals
DISCLOSURE STATEMENT – also known as the UFOC, or Uniform Franchise Offering Circular, the disclosure document
provides information about the franchisor and franchise system
FRANCHISE AGREEMENT – the legal, written contract between the franchisor and franchisee which tells each party what
each is supposed to do
FRANCHISEE – the person or company that gets the right from the franchisor to do business under the franchisor’s
trademark or trade name.
FRANCHISOR – the person or company that grants the franchisee the right to do business under their trademark or
trade name
PRODUCT DISTRIBUTION FRANCHISE – a franchise where the franchisee simply sells the franchisor’s products without
using the franchisor’s method of conducting business
ROYALTY – the regular payment made by the franchisee to the franchisor, usually based on a percentage of the
franchisee’s gross sales
TRADEMARK – the franchisor’s identifying marks, brand name and logo that are licensed to the franchisee
UFOC – the Uniform Franchise Offering Circular, UFOC, is one format for the disclosure document which provides
information about the franchisor and franchise system to the prospective franchisee.
FRANCHISING APPEARS IN FOUR PRIMARY MODES:
1. Business Format franchises for products - Franchisor does not actually produce a product
2. Business Format franchises for services - Franchisor does not itself actually produce or provide a service for
resale.
3. Product franchises - Franchisor manufactures and distributes a tangible product offered through franchised retail
dealership.
4. Affiliation franchises - Uniquely American Phenomenon. Franchisor recruits into a franchise system a successful
independent retail operator.
METHOD OF DISTRIBUTION
a. Product Distribution Franchise - simply sell the franchisor’s products and are supplier-dealer relationships.
b. Business Format Franchise - not only use a franchisor’s product, service and trademark, but also the complete
method to conduct the business itself, such as the marketing plan and operations manuals. Business format
franchises are the most common type of franchise
METHOD OF EXPANSION - Traditional ways of raising capital includes: venture capital lenders, bank and commercial
financing, public or private placement of securities through investment banking channels. A business seeking to expand
into foreign markets that are geographically or culturally remote from the franchisor.
Two types of franchising arrangements:
1. Single-unit (direct-unit) franchise - an agreement where the franchisor grants a franchisee the rights to open
and operate ONE franchise unit
2. Multi-unit franchise - an agreement where the franchisor grants a franchisee the rights to open and operate
more than one unit.
• Area Development - franchisee has the right to open more than one unit during a specific time, within
a specified area.
• Master Franchise (Sub-Franchising) - gives the franchisee more rights than an area development
agreement.
MULTIPLE FORMS OF FRANCHISING
 Traditional single-unit retail franchises
 Multiple-unit franchises
 Franchises with or without growth options or rights of first refusal
 Trade area franchises
 Mobile and home delivery franchises
 One or more tiered sub franchising arrangements
 Hybrid ownership arrangements: Joint ventures and other shared equity business arrangements
INVESTMENT OPPORTUNITY - Shortcut to new business opportunity; Provides faster and easier brand of recognition
ECONOMIC IMPACT - Franchising is a major contributor to the growth of the U.S. and world economies.
BUSINESS OPPORTUNITY is a business investment program in which the seller of the opportunity offers to provide
goods or services to the buyer to enable the buyer to start the business, and the seller assures the buyer that the
business opportunity is essentially free of risk based on a variety of features.
HOW TO RECOGNIZE A FRANCHISE?

 Receiving pre-sale disclosure

 Protecting a business relationship
 Escaping a business relationship
 Avoiding the creation of inadvertent
MINNESOTA LAW (The Minnesota Franchise Act chapter 80C Minnesota Statutes.)
A “franchise” is created when one person or business grants another the right to offer, sell or distribute goods or
services, using the trademark, trade name, commercial symbol or advertising of the grantor; the grantee pays
consideration for the right to enter into or maintain the relationship; and there is an ongoing “community of
interest” between the parties relative to the distribution of the goods or services.
IP ISSUES IN FRANCHISING
 franchisor will license to the franchisee the intellectual property rights and know-how associated with that
business as well as provide initial and ongoing training and support;
 the intellectual property rights that are licensed in a franchising arrangement almost always include
trademarks, copyright and often include trade secrets,
 industrial designs and patents - depending on the nature of the business

NOT FOR FRANCHISE BUSINESS- businesses that are not considered “replicable” and do not lend themselves to the
franchise model
  CREATIVE BUSINESS - require particular skills whether of an artistic or creative nature which cannot be easily
taught so they are not replicable
 TECHNICAL BUSINESS - unlikely to be franchised because in the great majority of franchises a relatively short
period of induction training is provided by the franchisor.
Three primary legal steps you need to take in order to make an informed buying decision and position yourself for
success as a franchisee. These are:
• Reviewing the Franchise Disclosure Document (FDD)
• Conducting Your Due Diligence
• Negotiating Your Franchise Agreement

ADVANTAGES AND DISADVANTAGES OF FRANCHISING

 Advantages of owning a Franchise
✔ “Owning a franchise allows you to go into business for yourself, but not by yourself.”
✔ A franchise provides franchisees with a certain level of independence where they can operate their business.
✔ A franchise provides an established product or service which already enjoys widespread brand name
recognition. This gives the franchisee the benefits of customer awareness which would ordinarily take years to
establish.
✔ A franchise increases your chances of business success because you are associating with proven products and
methods.
✔ Franchises may offer consumers the attraction of a certain level of quality and consistency because it is
mandated by the franchise agreement.
✔ Franchises offer important pre-opening support: • site selection • design and construction • financing (in
some cases) • training • grand-opening program
✔ Franchises offer ongoing support • training • national and regional advertising • operating procedures and
operational assistance • ongoing supervision and management support • increased spending power and access
to bulk purchasing (in some cases)
 Disadvantages of owning a Franchise
✔ The franchisee is not completely independent. Franchisees are required to operate their businesses according
to the procedures and restrictions set forth by the franchisor in the franchise agreement. These restrictions
usually include the products or services which can be offered, pricing and geographic territory. For some people,
this is the most serious disadvantage to becoming a franchisee.
✔ In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees.
✔ Franchisees must be careful to balance restrictions and support provided by the franchisor with their own
ability to manage their business.
✔ A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs
into an unforeseen problem.
✔ The term (duration) of a franchise agreement is usually limited and the franchisee may have little or no say
about the terms of a termination.

STRATEGY - has its roots in the Greek word ‘strategos’ meaning general of an army, and the post of an army general
was a ‘strategia’ and it means the plans and the tactics of deploying armed forces and to deceive enemy forces on the
war fronts. In business context, strategy has more or less the similar connotation. It means devising plans to augment
and allocate firm’s resources in order to win customers in the market front.

TWO SEGMENTS OF RETAIL SECTOR

 IN-STORE RETAILERS
Formats of in-store retailing:
 Range of merchandise
 Pricing
 Location of the store
 Communication customer service
 Design and display
 Non-store retailers

EVOLUTION OF ORGANIZED RETAILING

 Barter system; Discovery of common means of currency
 Commodities fulfill the Basic needs; Buyers shifting to higher order needs;
 Buyers expecting more convenience and less time-consuming purchase situations;
 Small sized stores transforming to bigger size offering value-pricing; and
 Started in Western world esp.in US and Europe
ANSOFF’S PRODUCT MARKET GROWTH MATRIX
1. Market Penetration - A retailer chooses to penetrate the existing market with the existing products. (Market
Existing) (Product Existing)
2. Product Development - A retailer pursues growth through new format development in addition to its product
basket. (Market Existing) (Product New)
3. Market Development - A retailer pursues growth through new market development. (Market New) (Product
Existing)
4. Diversification - A retailer chooses to enter a new market with a new product in order to grow through
diversification. (Market New) (Product New)

PREPARING FOR FRANCHISING

 Franchisability
1. Profitability
2. Flexibility
3. Transferability of business Model
4. Standardization
5. Prototype
6. Trustworthiness
7. Management Competency
FRANCHISE FEASIBILITY STUDY
1. The underlying business
2. Products and services
3. Systematization of business
4. The support system and the fees
5. The potential for expansion
DESIGNING THE FRANCHISE SYSTEM
1. Management Competency
2. Competitor’s Analysis
3. Conflict management
4. Economic Impact
5. Financing Requirements
6. Exit strategies
7. Marketing strategy
8. Management Information System
9. Business Policy
10. Training Program Calendar
11. Monitoring Mechanism
12. Support Mechanism
ASSESSING A POTENTIAL FRANCHISEE
Qualities of a Franchisee
1. Ability to perform without supervision – Familiarities; Prioritize works; Focus on not only who will do it
but when it has to be done; Unit supervisor has responsibility for long range plan including total
component budget
2. Being self-disciplined - A franchisee should be self- disciplined with regard to time management and
should be able to allocate time for paperwork, meeting, and moving in the market.
3. Ability to work under pressure - No franchise guarantees income and profit without putting any efforts.
Initial years of setting up a business may be very difficult and full of teething problems. A franchise
should be able to work under such pressures.
4. Attitude to learn from failures - Failures are but stepping stone to success; there is no mistake in life,
only lessons; every failure is a lesson in learning; failing is not bad staying down is; no failure is final.
5. Ability to meet standards - A franchise should be able to create standards and continuously strive to
achieve them.
6. Ability to make difficult decisions - Not everything would be smooth while running a franchise.
Sometimes a franchise is required to take difficult decisions for the smooth functioning of the
franchise.
7. Ability to take a balanced view - A franchisee should be able to take a holistic perspective of any
business issues that may emerge during the currency of the franchise. A biased or a narrow may greatly
hamper the business prospects.
8. Tolerance to ambiguity - Business is a very complex system and clarity may prevail at all the aspects of
business.
 9. Receptiveness - A franchisee should be receptive and have an open mind in interaction with the
franchisors. Franchisor offers a great deal of support to the franchisee for an effective franchise
operation.
10. Growth Orientation - A franchisee should have a long term growth orientation rather than a short term
profit orientation. This helps in maintaining a long term relation to a franchisor.
11. Ability to delegate - It is not possible to do everything on one’s own. A franchisee therefore should be
able to delegate task to other and get many things done rather than doing things oneself. It is however,
not easy to delegate.
12. Internal locus control - A franchisee should be able to put in adequate efforts to be successful. A
tendency to attribute external factors for success- including luck- could be unfavorable for effective
functioning of a franchise. A franchisee should have an internal locus of control; a franchisor should be
able to assess these qualities through an appropriate mechanism.

INVESTIGATING AND EVALUATING A FRANCHISE

 How to evaluate a franchise offering?
1. SELF-EVALUATION - his or her own suitability as a franchisee.
2. MERITS OF FRANCHISE OFFERING - must know how to assess each franchise offering.
3. ASSESSMENT OF PRICE-VALUE RELATIONSHIP - thorough and careful assessment of the franchised fees
and package of products and services.
4. COMPARE OTHER FRANCHISE OFFERINGS - compare franchise offerings in the same industry sectors as
well as with other industry involving comparable levels of investment.
Other sources of information include FDDs:
 Annual Report
 Publicly Traded Franchisor
 Interviews
 With Other Franchisees In The System
 Inquiry
 Public Agencies
 Research
 Basic Economic Research In The Public Library
RISK FACTORS:
 External risk factors
 Competent but not prominent franchisors
 High risk but honest start-ups
 Severely undercapitalized franchisors
 Rapid decline in consumer popularity
 Aggressive franchisors
 Absolute level of investment required
 Guard against overextended financially
 Change inevitably occur significant impact in the franchise
 Rapidly evolving technological change
 Rarely profitable in first few years
 Vulnerability to significant regulations
UPSIDE OPPORTUNITY
1. Franchise is vulnerable to encroachment by other franchised or franchisor-owned outlets;
2. Franchisor or its affiliate is distributing identical goods by the same brand through other channels of
distribution
3. Franchise agreement entitles or may compel the franchisee to expand or contract the goods and services the
franchisee is offering periodically
INVESTIGATING THE FRANCHISE OPPORTUNITY
Selection of sector/industry
1. What are the industry’s economic traits?
 Market size and growth rate at unit level and also at national level
 Scope of competitive rivalry and its intensity at unit level
 Number of players and key advantage each one of them offer
 Buyer needs and requirements
2. What are the key driving forces of the industry?
 Internet and e-commerce
 Buying segment changes
  Product marketing innovation
 Rapid or significant technological changes, entry and exit of major firms, regulatory policies, etc…
3. What market positions do the competing brands occupy?
 Use the technique called “Strategic Group Mapping”
4. What are the Key Success Factors?
 Bases on which the customers choose between competing brands available in the industry
 Resources and competitive capabilities that a company needs to be competitively successful
 Approach to achieve a sustainable competitive advantage
CRITERIA FOR OVERALL EVALUATION
 Knowing the self
 Hiring services of the consultant
 Knowing the financial strength
 Meeting the franchisees
 Knowing the industry and the franchisors
 Hiring services of the consultant
 Preparing for the interview
 Processing the information available
 Determining the payments to be made
PREPARING FOR INTERVIEW
 General questions
 Legal contract related questions
 Market and marketing related questions
 Finance Related Questions
THE FOUR “RS” OF FRANCHISING
 Realism
 Resources
 Research
 Resolve
 (FM 104) CAPITAL MARKET REVIEWER (MIDTERM)
 THE FINANCIAL SYSTEM
 It means that one party to a transaction has more or superior information than the other party, resulting in an
imbalance of power in a transaction.
 In terms of a financial system, information asymmetry can lead to an inefficient allocation of financial resources.
THREE COMPONENTS OF FINANCIAL SYSTEM:
1. Financial Markets;
2. Financial Intermediaries;
3. Regulators of Financial Activities
FINANCIAL ASSETS/FINANCIAL INSTRUMENT
 ASSET - defined as any resource that is expected to provide future benefits and, hence, has economic value. Assets
can be divided into two categories:
 Tangible Asset - A tangible asset is an asset that has a finite monetary value and usually a physical form.
Assets with a finite or discrete value. Can typically always be transacted for some monetary value though
the liquidity of different markets will vary. Its common characteristics are: physical form, drive future
economic benefit, may depreciate, used as collateral and may hold residual value. (ex. Buildings, aircraft,
land, and machinery)
 Intangible Asset - Asset that is not physical in nature. Goodwill, brand recognition and intellectual property,
such as patents, trademarks, and copyrights, are all intangible assets. An intangible asset can be classified
as either indefinite or definite.
o Financial Asset - are intangible assets where typically the future benefits come in the form of a claim to
future cash. Another term used for a financial asset is a financial instrument. Certain types of financial
instruments are referred to as securities and generally include stocks and bonds. For every financial
instrument there is a minimum of two parties:
• Issuer - the party that has agreed to make future cash payments
• Investor - the party that owns the financial instrument and therefore the right to receive the
payments made by the issuer.
 FINANCIAL INTERMEDIARIES - the claims held by the final wealth holders generally differ from the liabilities issued
by those entities that are the final demanders of funds because of the activity of entities operating in financial
systems.
 DEBT INSTRUMENT - a financial instrument in which the issuer agrees to pay the investor interest plus repay the
amount borrowed. It can be in the form of a note, bond, or loan.
 EQUITY INSTRUMENT - specifies that the issuer pay the investor an amount based on earnings, if any, after the
obligations that the issuer is required to make to investors of the firm’s debt instruments have been paid. (ex.
Common stock and partnership shares)
FINANCIAL MARKET – is a market where financial instruments are exchanged. The more popular term used for the
exchanging of financial instruments is that they are “traded.” Financial markets provide the following three major
economic functions:
1. Price Discovery
2. Liquidity
3. Reduced transaction costs
Two main ways to allocate funds:
1. through banks
2. through financial markets
 CLASSIFICATION OF FINANCIAL MARKET
1. Capital Market (Primary Market and Secondary Market)
2. Money Market
INTRODUCTION TO CAPITAL MARKET
CAPITAL MARKET
 Are venues where savings and investments are channel between the suppliers who have capital and those who
are in need of capital. The entities that have capital include retail and institutional investors while those who
seek capital are businesses, governments and people.
 Capital markets are financial markets that bring buyers and sellers together to trade stocks, bonds, currencies,
and other financial assets.
 Capital markets also reduce the cost of doing business by providing the global economy with a reliable source
of cash or liquidity.
 Capital markets bring borrowers and lenders together in efficient ways and help channel resources to create a
healthy national and global economy.
 Capital markets allow traders to buy and sell stocks and bonds, and enable businesses to raise financial capital
to grow.
COMPOSITION OF CAPITAL MARKET
1. Primary Market
2. Secondary Market
MOST COMMON CAPITAL MARKETS
1. Stock Market - refers to the market where regular activities of buying, selling, and issuance of shares of publicly held
companies take place. A stock market is a regulated and controlled environment.
2. Bond Market - the market for the trading and issuance of debt securities. It is often called the debt market, fixed-
income market, or credit market—is the collective name given to all trades and issues of debt securities.
PRODUCTS IN THE CAPITAL MARKET
1. Equities - it refers to an investment in the company’s equity stock for becoming a shareholder of the organization.
The equity holders get ownership rights and they become one of the owners of the company.
2. Debt Securities - can be classified into bonds and debentures:
 Bonds - are fixed-income instruments that are primarily issued by the center and state governments,
municipalities, and even companies for financing infrastructural development or other types of projects.
 Debentures - unsecured investment options unlike bonds and they are not backed by any collateral
3. Derivatives - is a capital market financial instruments whose values are determined from the underlying assets, such
as currency, bonds, stocks, and stock indexes. Common types of derivatives are:
 Forward - is a contract between two parties in which the exchange occurs at the end of the contract at a
particular price.
 Future - is a derivative transaction that involves the exchange of derivatives on a determined future date at a
Pre-determined price.
 Options - is an agreement between two parties in which the buyer has the right to purchase or sell a particular
number of derivatives at a particular price for a particular period of time.
 Interest Rate Swap: an interest rate swap is an agreement between two parties which involves the swapping
of interest rates where both parties agree to pay each other interest rates on their loans in different
currencies, options, and swaps.
Common examples of derivatives include futures contracts, options contracts, and credit default swaps
4. Exchange – Traded Funds - a pool of the financial resources of many investors which are used to buy different
capital market instruments such as shares, debt securities such as bonds and derivatives
5. Foreign Exchange Instruments - financial instruments represented on the foreign market. It mainly consists of
currency agreements and derivatives
BOND MARKET - The bond market is for participants that are involved in the issuance and trading of debt securities. It
primarily includes government-issued and corporate debt securities and can essentially be broken down into three
main groups: issuers, underwriters, and purchasers.
KEY PLAYERS IN BOND MARKET
1. Issuers - The issuers sell bonds or other debt instruments in the bond market to fund the operations of their
organizations. This area of the market is mostly made up of governments, banks, and corporations. The biggest of
these issuers is the government, which uses the bond market to fund a country's operations.
Municipal Bonds (Muni bonds) - are locally issued by states, cities, special-purpose districts, public utility
districts, school districts, publicly-owned airports and seaports, and other government-owned entities who seek
to raise cash to fund various projects.
2. Bond Writers/Underwriters - The underwriting segment of the bond market is traditionally made up of investment
banks and other financial institutions that help the issuer to sell the bonds in the market. A lot of work needs to be
done—such as creating a prospectus and other legal documents—in order to sell the issue.
3. Bond Purchasers - The final players in the market are those who buy the debt that is being issued in the market.
PROS & CONS OF BOND MARKET
Pros
 Tend to be less risky and less volatile than stocks.
 Wide universe of issuers and bond types to choose from
 The corporate and government bond markets are among the most liquid and active in the world.
 Bondholders have preference over shareholders in the event of bankruptcy.
Cons
 Lower risk translates to lower return, on average.
 Buying bonds directly may be less accessible for ordinary investors.

PARTICIPANTS IN EQUITY MARKET
1. Companies
2. Retail Investors and Institutional Investors
3. Financial Intermediaries
4. Regulatory Authority
 PROCEDURES IN EQUITY MARKET
1. Risk Management
2. Information Dissemination
3. Settlement and Clearing
ADVANTAGES & DISADVANTAGES OF EQUITY MARKET
Advantages of Equity Market
 Equity Markets help in the creation of wealth for the investors by getting ownership in the company. It is a
tool useful for investors to make high profits.
 It is a platform that gives access to a cheaper source of finance for the issuing company.
 This Market boosts the Company’s expansion and research and development targets.
 Equity Market gives Companies a platform for making them visible to the world.
 It provides liquidity for investors. They can easily enter and exit the markets.
 The investors get a dividend return and capital gain return, which is, however, not fix in nature.
 The Equity Market frees the company from any interest rate burden as there is no commitment about
dividend on equity by the company.
Disadvantages of Equity Market
 Equity Market volatility is the biggest risk for the issuing company and the subscriber.
 This market does not give a guaranteed return to the investor.
 As Equity shareholders have ownership in the company, at the time of liquidation, they get money on the
basis of the residual claim.
 One of the biggest disadvantages of the Equity Market is that disclosure of a lot of information takes place for
the general public at large.

PHILIPPINE STOCK EXCHANGE, INC.

Philippine Stock Exchange, Inc. / Pamilihang Sapi ng Pilipinas (PSE)
 It is the national stock exchange of the Philippines. The exchange was created in 1992 from the merger of the
Manila Stock Exchange and the Makati Stock Exchange.
 Philippine Stock Exchange has 275 listed companies
 PSE is overseen by a 15-member Board of Directors, chaired by José T. Pardo.
 The Philippine Stock Exchange was formed on December 23, 1995, from the merger of the Manila Stock
Exchange (MSE) (established on August 12, 1927, based on Muelle de la Industria, Binondo, Manila) and the
Makati Stock Exchange (MkSE) (established on May 15, 1963, based in the Makati Central Business District,
within Ayala Tower One).
The PSE has eight constituent indices:
● PSE All Shares Index (ALL)
● PSE Composite Index (PSEi)
● PSE Dividend Yield Index (PSE DivY)
● PSE MidCap Index (PSE MidCap)
● PSE Financials Index (FIN)
● PSE Holding Firms Index (HDG)
● PSE Industrial Index (IND)
● PSE Mining and Oil Index (M-O)
● PSE Property Index (PRO)
● PSE Services Index (SVC)
● PSE Total Returns Index (TRI)
● PSE SME Sector (SME)
 The PSEi is the main index of the PSE, while the All Shares Index is the broader index of the exchange.
 As of March 28, 2022, the Philippine Stock Exchange has 281 listed companies with a total market
capitalization of Php18.25 trillion. There are 126 active trading participants registered at the PSE.
 Apart from these functions, the PSE has committed itself to (a) protecting the interest of the investing public;
and (b) developing and maintaining an efficient, fair, orderly and transparent market.
PSE ORGANIZATIONAL STRUCTURE
1. Listings and Disclosure Group
2. Compliance and Surveillance Group
3. Operations/Automated Trading Group
4. Finance and Investment Group
5. Business Development and Information Group
SECURITIES AND EXCHANGE COMMISSION / KOMISYON SA MGA PANAGOT AT PALITAN (SEC)
 It is the agency of the Government of the Philippines charged with the registration and supervision of corporations
and securities, as well as capital market institutions and participants, in the Philippines.
 The SEC was established on 26 October 1936 by virtue of Commonwealth Act No. 83, or the Securities Act, in order
to safeguard public interest in view of the local stock market boom at the time.
 The major functions of the SEC include the registration and supervision of corporations, including financing and
lending companies. It is also charged with the registration of securities, analysis of every registered security, and
the evaluation of the financial condition and operations of applicants for security issue.
Securities and Exchange Commission (SEC) has a three-part mission:
1. Protect investors
2. Maintain fair, orderly, and efficient markets
3. Facilitate capital formation
The SEC’s five Divisions:
1. Division of Corporation Finance
2. Division of Trading and Markets
3. Division of Investment Management
4. Division of Enforcement
5. Division of Economic and Risk Analysis

TRADING PLATFORM - Is a software system used to trade securities. It allows investors to open, close, and manage
market positions online through a financial intermediary, such as an online broker.
Two types of trading platforms:
1. Commercial platforms - Are designed for day traders and retail investors. They are characterized by ease of use and
an assortment of helpful features, such as real-time quotes, international news feeds, live, interactive charts,
educational content, and research tools.
2. Proprietary platforms - Are customized platforms developed by large brokerages and other financial institutions for
their own trading activities. These are not available to the public
CRITICAL FACTORS TO CONSIDER WHEN CHOOSING A TRADING PLATFORM
1. User-Friendly Interface
2. Reliability
3. Security
4. Automatic Trading
5. Average Trading Costs
6. Functionalist and Available Features
POPULAR TRADING PLATFORMS
 Interactive Brokers: Interactive Brokers is the most popular trading platform for professionals, with low fees and
access to markets around the world.
 TradeStation: TradeStation is a popular trading platform for algorithmic traders who prefer to execute trading
strategies using automated scripts developed with EasyLanguage.
 TD Ameritrade: TD Ameritrade is a popular broker for both traders and investors, especially following its acquisition
of thinkorswim.
 Robinhood: Robinhood is a commission-free trading platform targeting millennials. It started off as a mobile app and
now has a web interface as well. The platform makes money from several sources, from interest on cash in its
accounts to selling order flow to large brokerages.
 The most popular platform for many foreign exchange (forex) market participants is MetaTrader, which is a trading
platform that interfaces with many different brokers. Its MQL scripting language has become a popular tool for
those looking to automate their trading in currencies.
BEST TRADING PLATFORMS PHILIPPINES
1. Capital.com – Best Trading Platform in the Philippines
2. eToro – Best Trading Platform For Beginners in the Philippines
3. Crypto.com – Best Crypto Trading Platform in the Philippines
4. Coinbase – Participate in Governance on crypto Networks
5. Skilling – Best Forex Trading Platform in the Philippines
6. Binance – Apply over 100x Leverage on Cryptos
7. Libertex – Best Online Trading Platform in the Philippines
8. Alpaca – Commission-Free Broker
9. First Metro Securities – Best Stock Trading Platform in the Philippines
10. AB Capital Securities – Popular Trading Platform in the Philippines
CORPORATE SECURITIES - Corporate securities are debt instruments issued by public or private corporations to finance
their operations. It includes corporate bonds, preferred stock and common stock.

TYPES OF CORPORATE SECURITIES

1. Bonds
 The bond, as a debt instrument, represents the promise of a corporation to pay a fixed sum at a specified
maturity date, and interest at regular intervals until then. Bonds may be registered in the names of
designated parties, as payees, though more often, in order to facilitate handling, they are made payable to
the “bearer.” The bondholder usually receives his interest by redeeming attached coupons.
 Bonds may be no callable for a specified period, perhaps for five or 10 years, and their redemption price
may be made equal to the face amount plus a “premium” amount that declines as the bond approaches its
maturity date.
 The principal type of bond is a mortgage bond, which represents a claim on specified real property.
 Corporations have developed hybrid obligations to meet varying circumstances. One of the most important
of these is the convertible bond, which can be exchanged for common shares at specified prices that may
gradually rise over time.
 Another of the hybrid types is the income bond, which has a fixed maturity but on which interest is paid
only if it is earned.
 Still another hybrid form is the linked bond, in which the value of the principal, and sometimes the amount
of interest as well, is linked to some standard of value such as commodity prices, a cost of living index, a
foreign currency, or a combination of these.
2. Stock
 Those who provide the risk capital for a corporate venture are given stock, representing their ownership
interest in the enterprise.
 The stockholder’s interest is divided into units of participation, called shares.
 A stock certificate ordinarily is given as documentary evidence of share ownership.
 A corporation may endow different kinds or classes of stock with different rights. Preferred stock has
priority with respect to dividends and, if the corporation is dissolved, to the division of assets. Dividends on
preferred stock usually are paid at a fixed rate and are often cumulated in the event the corporation finds it
necessary to omit a distribution.
 Common stock, in some countries called ordinary shares, represents a residual interest in the earnings and
assets of a corporation. Whereas distributions to bonds or preferred stock are ordinarily fixed, dividends
paid on common stock are set at the time of payment by the directors and tend to vary with earnings.

SUPPLY OF CAPITAL FUNDS

Funding, also called financing, represents an act of contributing resources to finance a program, project, or need.
Funding can be initiated for either short-term or long-term purposes. The different sources of funding include:
 Retained earnings - Businesses aim to maximize profits by selling a product or rendering service for a price
higher than what it costs them to produce the goods. It is the most primitive source of funding for any company.
 Debt capital - Companies obtain debt financing privately through bank loans. They can also source new funds by
issuing debt to the public. In debt financing, the issuer (borrower) issues debt securities, such as corporate
bonds or promissory notes. Debt issues also include debentures, leases, and mortgages.
 Equity capital - Companies can raise funds from the public in exchange for a proportionate ownership stake in
the company in the form of shares issued to investors who become shareholders after purchasing the shares.
 Other Funding Sources - Funding sources also include private equity, venture capital, donations, grants, and
subsidies that do not have a direct requirement for return on investment (ROI), except for private equity and
venture capital. They are also called “crowdfunding” or “soft funding.” Crowdfunding represents a process of
raising funds to fulfill a certain project or undertake a venture by obtaining small amounts of money from a large
number of individuals. The crowdfunding process usually takes place online.

GROWING IMPORTANCE OF INTERNATIONAL MARKET

 Securities exchanges now operate in more than 100 countries worldwide.
 The top four securities markets worldwide (based on dollar volume) are the NYSE, Nasdaq, London Stock
Exchange, and Tokyo Stock Exchange.
 Bond markets, too, have become global, and more investors than ever before regularly purchase government
and corporate fixed-income securities in foreign markets.
INTERNATIONAL INVESTMENT PERFORMANCE
  A motive for investing overseas is the lure of high returns. A market with high returns in one year may not do so
well in the next, and currency fluctuations create additional risk.
 Investors can compare activity on U.S. and foreign exchanges by following market indexes that track the
performance of those exchanges.
WAYS TO INVEST IN FOREIGN SECURITIES
 Investors can make foreign security transactions either indirectly or directly. One form of indirect investment is
to purchase shares of a U.S.-based multinational corporation with substantial foreign operations.
 Purchasing shares in a mutual fund or exchange-traded fund that invests primarily in foreign securities is
another way to invest indirectly. Investors can make both of these indirect foreign securities investment
transactions through a stockbroker.
 To make direct investments in foreign companies, investors have three options. They can purchase securities on
foreign exchanges, buy securities of foreign companies that trade on U.S. exchanges, or buy American
depositary shares (ADSs).
RISK IN INVESTING INTERNATIONALLY
 Changes in trade policies, labor laws, and taxation may affect operating conditions for the country’s firms. The
government itself may not be stable.
 International investing involves securities denominated in foreign currencies. Trading profits and losses are
affected not only by a security’s price changes but also by fluctuations in currency values.
 The price of one currency in terms of another is called the currency exchange rate.
 Currency exchange risk is the risk caused by the varying exchange rates between the currencies of two
countries.
MARKET MANIPULATION
 Market manipulation refers to artificial inflation or deflation of the price of a security. Also known as price
manipulation or stock manipulation, it involves the literal manipulation of a financial market for personal gain.
 Market manipulation can be difficult not only for authorities but also for the manipulator. These difficulties are
exacerbated by the increase in the size of the market and the number of participants in it.
 Therefore, it is easier for one to manipulate the prices of the stock of a small company, like a penny stock. This is
because other market participants and regulators tend to pay closer attention to companies with medium or
large market capitalization.
How does Market Manipulation work?
 Deflating the price of a security can be achieved by placing a significantly large amount of small order at a
price that is lower than the current market price of that security.
 One of the ways of inflating the price of a security is by placing an equal number of buy and sell orders for the
same security simultaneously, but by using different brokers. Thus, the orders cancel each other out.
Techniques of Market Manipulation - involve spreading false information via online channels that are frequently
visited by investors. The barrage of bad information on message boards, when combined with market signals that
seem legitimate on the surface, can encourage traders to execute a given trade. The two major techniques of market
manipulation are:
1. Pump and Dump - is a manipulation technique that is used frequently in order to inflate the price of security
artificially. The manipulator then sells out, and followers are left with an overvalued security. This works on stocks
with micro-market capitalization.
2. Poop and Scoop - The poop and scoop technique is not as frequently used as the pump and dump. Here, the
price of the stock of a medium or large-cap company is artificially deflated. Once it happens, the manipulator buys
the undervalued shares, thus making a profit. Poop and scoop is rarer because it is significantly tougher to
artificially affect the prices of a good company.

CURRENCY MANIPULATION - This is also a type of market manipulation but is considered a different class, given that it
is executed by legal authorities such as central banks and sovereign governments. Currency manipulation isn’t
effectively illegal but is frowned upon and considered to be malpractice by the World Trade Organization (WTO).
FRAUDULENT TRANSACTION - Corporate securities is the unauthorized use of an individual’s accounts or payment
information. Fraudulent transactions can result in the victim’s loss of funds, personal property, or personal information.

THE MOST COMMON TYPES OF FRAUD

1. Identity Theft - Identity theft occurs when someone steals your personal information—which can include your
name, Social Security number, bank account number, and credit card information—often through data mining.
2. Mortgage Fraud - These scams include foreclosure rescue schemes, loan modification schemes, and equity
skimming, among others. They are often carried out by real estate and mortgage professionals who misuse their
specialized knowledge and authority.
 3. Credit and Debit Card Fraud - Credit or debit card fraud can occur when someone steals or finds your card or
manages to obtain the information from the card to purchase goods, withdraw cash, or otherwise use your card in a
fraudulent manner.
4. Deceptive Interest Rate Reduction Robocalls - A relatively new twist on credit card fraud, according to the FTC,
comes in the form of robocalls that "guarantee to reduce your credit card interest rate" (for a fee). These types of
offers are usually scams and no more effective at getting credit card companies to lower your interest rate than if you
called the company yourself for free.
5. Fake Charities - Fake charities use the same techniques to steal your money that legitimate charities use to raise
funds, according to the Federal Trade Commission (FTC). Before you donate, make sure you know where your money
is going.
6. Prize and Lottery Fraud - Prize and lottery fraud come under many names—sweepstakes, drawings, foreign
lotteries, and more. This type of fraud often targets the elderly and originates with a phone call or postcard
7. Debt Collection Fraud - bogus outstanding debts. These are not legitimate debt collectors. If you have actual
unpaid debt, subject to collection, you have rights there, as well.

INSIDER TRADING –It involves trading in a public company's stock by someone who has non-public, material information
about that stock for any reason. Insider trading can be either illegal or legal depending on when the insider makes the
trade. Insider trading is illegal when the material information is still non-public, and this sort of insider trading comes
with harsh consequences.
THREE ELEMENTS OF INSIDER TRADING:
1. The person must be an insider;
2. The insider sells or buys the security of the issuer; and
3. The insider is in possession of material nonpublic information with respect to the issuer or its security.
PERSONS WHO ARE CONSIDERED “INSIDERS”
 The issuer;
 A director or officer (or any person performing similar functions) of, or a person controlling the issuer;
 A person whose relationship or former relationship to the issuer gives or gave him access to material information
about the issuer or the security that is not generally available to the public;
 A government employee, director, or officer of an exchange, clearing agency and/or self-regulatory organization
who has access to material information about an issuer or a security that is not generally available to the public; or
 A person who learns such information by a communication from any forgoing insiders
The enumeration provided under the SRC, as reproduced above, shows that persons outside the company may be considered
insiders under certain circumstances. These are:
 Regulators - These persons have access to material nonpublic information about an issuer or a security, such as: (i) a
government employee; and (ii) a director or officer of an exchange, clearing agency and/or self-regulatory organization
 Close relationships - These are persons whose relationship or former relationship to the issuer give or gave them access
to material nonpublic information about the issuer or the security.
 Outsiders - These are persons who learn such information by a communication from any for going insiders. The
connection can be very remote, as when the third person learns of the material nonpublic information from regulators or
common-law partners of the insider.
TRADE: DISCLOSE OR ABSTAIN
 There can be no “insider trading,” even if an insider is in possession of material nonpublic information, if the insider does
not trade the security of the issuer. Selling or buying the security is an indispensable element of the offense of insider
trading.
 Insiders have the duty to disclose or abstain, which means that insiders are obligated to disclose material information to the
other party or abstain from trading the shares of his corporation.
MATERIAL NONPUBLIC INFORMATION - The Securities Regulation Code is replete with provisions using the term “material
information.” Insider trading requires that the information must not only be material, it must also be nonpublic. Information is
“material nonpublic” if:
 It has not been generally disclosed to the public and would likely affect the market price of the security after being
disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or
 Would be considered by a reasonable person important under the circumstances in determining his course of action
whether to buy, sell or hold a security.

INSIDER TRADING IN TENDER OFFERS

Where a tender offer has commenced or is about to commence, it shall be unlawful for:

1. Any person (other than the tender offer or) who is in possession of material nonpublic information relating to such tender offer, to
buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person knows or has reason to
believe that the information is nonpublic and has been acquired directly or indirectly from the tender offer or, those acting on its
behalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of such issuer; and
2. Any tender offer or, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, and any
insider of such issuer to communicate material nonpublic information relating to the tender offer to any other person where such
communication is likely to result in a fraudulent transaction.