1. Certificate of deposit – can be issued to individuals, corporations and 14.
14. The principle of the time value of money means that it can grow only through
companies during periods of tight liquidity when the deposit growth of banks is
slow but the demand for credit is high
2. Commercial paper – used for bridge financing
 Used as an alternative to bank borrowing for large and creditworthy
companies;
 It is sold at a discount and redeemed at par; and
 It usually has a maturity period of 15 days to one year.
3. Capital market – classified into two types; both debt and equity can be raised
 Participants – dev’t banks, commercial banks, and stock exchanges
4. Financial market
 They link the households which save funds and business firms which
invest these funds;
 They work as an intermediary between the savers and the investors by
mobilizing funds between them; and
 They allocate funds available for investment into their most productive
investment opportunity.
5. Stock exchange
 By providing a ready market, it extends liquidity to the securities; and
 It provides a platform for buying and selling of old and new securities.
6. Compared to future contracts, forward contracts involve an intermediary or
exchange, rather than direct contact between buyer and seller
7. Secondary market – market for short-term funds which deals in monetary
assets whose period of maturity is up to one year
8. Net Asset Value – value of one unit of investment in Mutual fund
9. Classical interest rate theory states that rising interest rates will increase the
quantity of saving
10. Any nationalized bank issues a treasury bill
11. All financial intermediary institutions in the intermediation market buy primary
securities and sell secondary securities
12. Time Value of Money – concept that a sum of money is worth more now than
the same sum will be at a future date due to its earnings potential in the
interim
13. Discount Rate – sometimes called the required rate of return, is the rate of
interest that is used to find present values
investing so a delayed investment is lost opportunity.
15. Compound interest – interest paid on both the principal and the amount of
interest accumulated in prior periods
16. Present Value – current value of a future amount of money, or series of
payments, evaluated at an appropriate discount rate
17. The formula for computing the time value of money considers:
 The amount it can earn;
 Amount of money;
 Future value; and
 Time frame
18. Simple interest – product of the principal amount multiplied by the period's
interest rate (a one-year rate is standard)
TRUE OR FALSE
1. The number of compounding periods has a dramatic effect on the TVM
calculations T
2. Future Value is a present value of cashflows over one and annual interest rate
divided by the number of compounding periods raised to the same number of
compounding periods per annum F
3. A sum of money that is expected to be paid in the future, no matter how
confidently it is expected, is losing value in the meantime T
4. The time value of money doesn't take into account any capital losses that you
may incur or any negative interest rates that may apply T
5. Time value of money is one of the most popular and influential methods for
valuing investment opportunities. It is also an integral part of financial planning
and risk management activities F
Financial markets – any marketplace where the trading of securities occurs
 There are many kinds of financial markets, including (but not limited to)
forex, money, stock, and bond markets.
 These markets may include assets or securities that are either listed on
regulated exchanges or else trade over-the-counter (OTC).
  Financial markets trade in all types of securities and are critical to the
smooth operation of a capitalist society.
 When financial markets fail, economic disruption including recession and
unemployment can result.
TYPES OF MARKETS
1. Physical asset market – (also called tangible or real asset markets) are for
products such as wheat, autos, real estate, computers and machinery
2. Financial asset market – deals with stocks, bonds, notes and mortgages,
derivative securities whose values are derived from changes in the prices of
other assets
3. Spot market – markets in which assets are bought or sold for “on-the-spot”
delivery
4. Future market – markets in which participants agree today to buy or sell
an asset at some future date
5. Money markets – markets in which funds are borrowed or loaned for short
periods
6. Capital markets – markets for stocks and for intermediate or long-term debt
7. Primary markets – markets in which corporations raise capital by issuing new
securities
8. Secondary markets – markets in which securities and other financial assets are
traded among investors after they have been issued by corporations
9. Private markets – markets in which transactions are worked out directly
between two parties
10. Public markets – markets in which standardized contracts are traded on
organized exchanges
CATEGORIES OF FINANCIAL INSTITUTIONS
1. Investment banks – An organization that underwrites and
distributes new investment securities and helps business
obtain financing.
2. Commercial banks –The traditional department store of finance serving a
variety of savers and borrowers.
3. Financial services corporations – A firm that offers a wide range of financial
services, including investment banking, brokerage operations, insurance and
commercial banking.
4. Credit unions. – Cooperative associations whose members are supposed to
have a common bond, such as being employees of the same firm. Credit unions
are often the cheapest source of funds available to individual borrowers.
5. Pension funds – Retirement plans funded by corporations or government
agencies for their workers and administered primarily by the trust departments
of commercial banks or by life insurance companies.
6. Life insurance companies – Savings in the form of annual premiums; invest
these funds in stocks, bonds, real estate and mortgages; and make payments to
the beneficiaries of the insured parties.
7. Mutual funds – Organizations that pool investor funds to purchase financial
instruments and thus reduce risks through diversification. Money market funds
are mutual funds that invest in short-term, low-risk securities and allow
investors to write checks against their accounts.
8. Exchange trade funds (ETF) – Similar to regular mutual funds and are often
operated by mutual fund companies. ETF buy a portfolio of stocks of a certain
type and then sell their own shares to the public.
9. Hedge funds – Similar to mutual funds because they accept money and use the
funds to buy various securities, but there are some important differences.
10. Private equity companies – Organizations that operate much like hedge funds,
but rather than purchasing some of the stock of firm, private equity players buy
and then manage entire firms.
KINDS OF STOCK MARKET
1. Stock Exchange – most ubiquitous of financial markets; venues where
companies list their shares and they are bought and sold by traders and
investors
2. Over-the-Counter Market – decentralized market; does not have physical
locations, and trading is conducted electronically—in which market participants
trade securities directly between two parties without a broker