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    22 views18 pages

    Screenshot (10) - Merged PDF

    Uploaded by

    BAROTEA Cressia Mhay G.

    Copyright:

    © All Rights Reserved
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    ‘The financial system performs the essential economic function of, channeling funds from those who are investor (sav ts to those who need funds (users of funds). Rother words, the Financial System tani ye alls sae onda lend ds sao (4) 5 =e pg Private es oarar cd Binns Placement Ciameg Flow of funds Flow of seciiities/notes/bonds/debt ins, Financial Hi ! Meet Rose Rose is an entrepreneur and investor. She managed her investments and cash very well. She has an idle cash and she want to put her excess cash in some financing activities that will make her excess cash grow. What she should do with that cash. 2%) Financial System Jack is an entrepreneur, and he owned a small clothing shop. He is planning to expand his business but does not have enough cash to pay for the expansion. Where can Jack get the additional funding? arta Deu ay PVT Sees If Rose knows that Jack is in needs of funds, or if Jack knows that Rose is willing to invest funds, Rose and Jack may agree to make a Private Placement - the sale of a new security directly to an investor or group of investors. Financial System And sinée Rose observed that Jack’s business has been profitable, Rose is willing éo lend Jack the money since she is confident that Jack can repay his loan. Rose is now expecting to be 20% richer from her lending to Jack, and Jack can now expand his operations'to gain more profit from his business. Financial System (ee) teats BTC Private Caaed Placement Flow of funds | However, if these facts are unknown to them, Rose and Jack can go to a FINANCIAL MARKET which is an organized forum that lets Rose, along with other suppliers of funds, and Jack, along with other users of funds, meet and make transactions. ‘Once Rose and Jack have met in the Financial Market, they can now agree to make a private placement. Is an organized forums in which the suppliers and users of various types of funds can r ransactio\ tly ered POT Umaga Financial System (3) . \ Eee Private Te ears Bis Placement aes Flow of funds Flow of securities /notes/bonds/debt ins, If Rose and Jack do not want to make an effort to find a counterparty in the Financial Markets, Rose and Jack may go to a FINANCIAL INSTITUTION. A Financial Institution will receive Rose's supply of funds and match it with Jack's demand of funds. Unlike the Financial Markets were Rose and Jack knows to whom the fund went and from whom the funds came, Financial Institutions served as an intermediary to the supplier and users of funds, ° Financial Institutions La - intermediaries that channel the savings of individuals, businesses, gees == 2nd governments into SE loans oF investments, ered PTT CU mea ay Financial System — Placement a Flow of funds Flow of seciiities/notes/bonds/debt ins, Financial System How transactions between suppliers and users of funds take place? 2. How would they prove that there was a transaction so that the demander or users of funds will be able to repay theSupplier on @ time and at the right amount? + Verbal agreement @ © Witten agreement e due to the increased need for security for the performance of obligations arising from these transactions and due to the growing size of the @ financict system, the tronsfers of funds from one party to another are ‘made through Financial Instruments. Financial Instruments ~ is a a virtual docume representing a legal_agreement involving some sort-of monetary value (Source: Investopedia - Sharper Insight. Smarter Investing. | Investopedia. (2016). Financial instruments are contracts for monetary as: that can be purchased, traded, created, modified, 0 |__settled When a financial instrument is issued, it gives rise to a sset on one hand and a financial liability or ent _on the other. (Corporate Finance Institute) ” Financial Instrument will ° e Financia assets FESUIttO a/AN: ——ginancial bitty any asset that is any liability that is a contractual obligation: e Cash ‘To deliver cash or other financial instrument Bonds Payable * An equity instrument of another entity to another entity. © A contractual right to receive cash or another financial asset from another entity. ‘* Examples: Notes Payable, Loans Payable, Examples: Notes Receivable, Loans Receivable, Investment in Stocks, puanciat mstRUMENT Investments in Bonds e Equity Instrument is any contract that evidences a residual Interest in the assets of an entity after deducting all liabilities. (IAS 32) * Examples: Ordinary Share Capital, « Preference e Let’s EX wn. are the HOLDERS © | Who are the MAKERS of Financial Assets? of Financial Liabilities? e when companies are in need of funding (users of funds), they either sell debt securities (or bonds) or issue equity instruments. The proceeds from the sale of the debt securities and issuance of bonds will be used to finance the company’s plans. On the other hand, investors buy deft securities of equity instruments (supplier of funds) in hopes of receiving returns through interest, dividend income or appreciation in the financial asset's price. INANGIAL IN: IT could be any document that rep { TYPES OF FINANCIAL ) INSTRUMENTS Why “so many” Fin inancial Instrument eFinanceManagement.com hittps://efinancemanagement.com/sources-of finance/financial-instruments Derivatives Instrument Cash Instrument Tat aes de att AEE sot Classes ‘Are financial instruments that have values determined from underlying assets, uch as interest rates, currency, bonds, stocks, and stock indexes. Derivatives are financial instruments that derive the value in response to changes in interest rates, financial instrument prices, commodity prices, foreign exchange rates, credit risk and indices, Cash instruments include things like deposits and loans, as well as easily transferable securities. This type of instrument is directly influenced by the market, so any market fluctuations will be directly reflected in the cash asset's value, We can also categorize financial instruments by asset class, depending on whether they are debt or equity poe reflect a loan the investor made to the issuing enti’ on the other hand, reflect ownership ofthe issuing entity. ace financial instruments that are represented on th primarily consist of currency a reign market and Equity-Based Financial Instruments Generally have varied returns based on the p: formance of the issuing company. = Returns from equity instruments come from either dividends or stock price appreciation Preferred Stock has priority over a common stock in terms of claims over the assets of a ‘company. + if a company were to be liquidated and its assets have to be distributed, no azzet will be distributed to common stockholders unless all the claims of the preferred stockholders have been given. Moreover, preferred stockholders have also priority over common stockholders in_cash vidend declaration. No cash dividends will bee given to common stockholders unless all the dividends due to preferred stockholders are paid first. (Cayanan, 2015) Ceti on te oer har te ra umes ofthe compan

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