RINNA O.

SAHITARIOS AUGUST 14, 2023

FM312 CAPITAL MARKET ASSIGNMENT NO. 2

Introduction of Capital Market

In the Philippines, a wide range of financial institutions, resources, and activities involved in the buying and
selling of financial instruments like stocks, bonds, and derivatives are together referred to as the"capital
market". The following characteristics apply to the Philippine stock market:

1. Philippine Stock Exchange (PSE): The main stock exchange in the Philippines is called the PSE. It
gives businesses a place to list and exchange their shares. The primary stock market indicator that monitors
the performance of the largest listed companies in the nation is the PSE Composite indicator (PSE).

2. Bond Market: The Philippines has an alive bond market that enables organizations like businesses and
the government to raise money by issuing bonds. Both corporate and government bonds, with variable
maturities and interest rates, are available on the bond market.

3. Mutual Funds: Mutual funds are financial organizations that pool money from many different investors
to invest in a variety of securities. The Philippine Investment Funds Association (PIFA) oversees and
regulates the nation's mutual fund industry.

4. Securities and Exchange Commission (SEC): The regulatory body in charge of monitoring and
overseeing the Philippine capital market is the SEC. It ensures that market players abide by laws and
regulations to promote ethical and transparent trading.

5. Initial Public Offerings (IPOs): An IPO happens when a company decides to go public and list its shares
on the stock market. Investors can participate in a company's early development and possibly profit from a
rise in share price through IPOs.

6. Regulatory Framework: The capital market in the Philippines is governed by a number of laws and
regulations. The Securities Regulation Code (SRC) is the main piece of legislation that governs the
securities market. Additional laws and regulations include the Securities Exchange Act, the Anti-Money
Laundering Act, and SEC rules.

7. Market Participants: A few of the numerous participants in the Philippine capital market include
brokers, investment banks, custodial banks, asset management companies, individual and institutional
investors, and other financial intermediaries.

8. Economic Impact: The capital market is crucial for mobilizing savings and directing them toward
productive endeavors. It makes it possible to trade financial assets, provides investors with liquidity, and
helps companies raise money for growth.

Overall, the Philippine capital market is a crucial component of the country's financial system since it
provides a channel for firms to raise cash and enables investors to participate in the growth of the economy.
Inflation

Inflation in the capital market refers to the result of rising prices on financial assets, such as stocks,
bonds, and other investments. When there is inflation in the larger economy, the value of investments made
on the capital markets often decreases. This is brought on by a drop in the value of the currency, which
lowers the actual return on investment.

Inflation can affect the capital market in several ways:

 Interest rates: As central banks attempt to keep rising prices in check, higher interest rates are the
effect of inflation. This increase in interest rates could result in higher borrowing costs and less
readily available, inexpensive capital for businesses and investors.
 Bond yields: Inflation reduces the purchase power of fixed-income securities like bonds. The yield
on fixed-interest assets must rise in order to maintain the real rate of return as inflation rises. If bond
rates do not rise at the same rate as inflation, investors may suffer a real-dollar loss.
 Stock market: The impact of inflation on stock values can be influenced by various factors. Lower
earnings for enterprises are a result of pressure on profit margins caused by rising labor, raw
material, and other input costs. This may lead to a decline in stock values. However, other sectors of
the economy, such as those linked to or dependent on commodities, may benefit from inflationary
pressures.
 Asset allocation: Inflation may have an effect on how you decide to allocate your assets. In response
to price increases, investors may attempt to allocate a larger portion of their portfolios to assets that
are protected from inflation, such as commodities, real estate, inflation-protected instruments, or
stocks of companies that have strong pricing power.
 Investor sentiment: The mood and actions of investors might also be impacted by inflationary
pressures. Investors' anxiety and uncertainty brought on by high inflation may boost selling pressure
and market volatility.
 When making capital market investment selections, it's crucial for investors to take inflationary
pressures into account. The effect of inflation on investment portfolios can be lessened by
diversifying across asset classes and purchasing assets that are safeguarded against inflation.

Update in the Capital Market

There have been several updates in the capital market recently:

1. Stock market performance: The stock market has seen a significant increase in recent weeks. Major
stock indices such as the S&P 500 and the Dow Jones Industrial Average have reached new all-time
highs. This is largely attributed to positive corporate earnings and optimism surrounding the
economic recovery from the COVID-19 pandemic.
 2. Initial Public Offerings (IPOs): There has been a surge in IPO activity as companies take advantage
of the market rally. Many companies have successfully gone public and raised significant amounts of
capital. Tech companies, in particular, have been at the forefront of the IPO boom.

3. Special Purpose Acquisition Companies (SPACs): SPACs continue to be a popular choice for
companies looking to go public. These shell companies raise funds through an IPO with the sole
purpose of acquiring another company. This allows private companies to bypass the traditional IPO
process and become publicly traded quickly.

4. Increased retail investor participation: The rise of online trading platforms and social media
forums has led to a surge in retail investor participation. Retail investors have been actively trading
stocks, often targeting heavily shorted companies and creating significant volatility in the market.

5. Regulatory scrutiny: Given the increased retail investor activity, regulators are closely monitoring
the market for potential wrongdoing. Recent market events, such as the GameStop short squeeze,
have prompted regulatory bodies to review trading practices, potential market manipulation, and the
role of social media platforms in influencing stock prices.

Overall, the capital market has been performing well, driven by positive market sentiment and the
ongoing economic recovery. However, increased retail investor participation and regulatory scrutiny
have added an element of uncertainty to the market.

Instruments of the Capital Market

 Stocks: Shares of ownership in a company that are traded on stock exchanges. Investing in stocks
allows individuals and institutional investors to participate in the ownership and profits of a publicly
traded company.
 Bonds: Debt instruments issued by governments, municipalities, and corporations to raise capital.
Bondholders lend money to the issuer in exchange for regular interest payments and the return of the
principal amount at maturity
 Mutual Funds: Investment vehicles that pool money from multiple investors to invest in a
diversified portfolio of stocks, bonds, or other securities. Mutual funds are managed by professional
fund managers.
 Exchange-Traded Funds (ETFs): Similar to mutual funds, but they trade on exchanges like stocks.
ETFs allow investors to gain exposure to a broad market or a specific sector through diversified
portfolios of underlying assets.
 Derivatives: Financial contracts that derive their value from an underlying asset, such as stocks,
commodities, or currencies. Examples include options, futures, and swaps. Derivatives are used for
speculative purposes or to hedge against potential losses.
  Commodities: Physical goods such as oil, gold, natural gas, wheat, etc., that are traded on
commodity exchanges. Investors can trade commodity futures contracts to speculate on the future
price movements of these goods.
 Foreign Exchange (Forex): The trading of different currencies against each other. Forex markets
allow participants to speculate on the exchange rate between two currencies, such as the U.S. dollar
and the euro.
 Real Estate Investment Trusts (REITs): Companies that own and manage income-generating real
estate properties, such as office buildings, shopping malls, or apartment complexes. Investors can
buy shares of REITs on stock exchanges.
 Options: Financial contracts that give the holder the right but not the obligation to buy or sell an
underlying asset at a predetermined price within a specific period. Options are often used for risk
management or speculative purposes.
 Private Equity: Investments made in privately held companies, either through direct investments or
through private equity funds. Private equity firms typically acquire or invest in companies with
growth potential and aim to generate profit through various strategies.

What are the Regulations Capital Market?

Regulatory bodies implement regulations in the capital market to promote transparency, equity, and investor
protection in the trading and issuance of securities and other financial instruments. These regulations aim to
maintain the stability of the financial system, fight fraud, and safeguard market integrity. The following are
typical capital market restrictions:

1. Securities and Exchange Commission (SEC) Regulations: These rules cover standards for public
corporations' financial reporting as well as the registration, offering, and trading of securities. The
SEC also regulates the operations of broker-dealers, investment advisers, stock exchanges, and other
market players.
2. Listing Requirements: Companies must fulfill specific listing standards before they can list on a
given stock exchange. These specifications include minimum market capitalization thresholds,
corporate governance norms, and financial disclosure requirements.
3. Insider Trading Regulations: Regulations against insider trading restrict those having access to
confidential information from using such information to their advantage in the market. All market
participants are supposed to have an even playing field thanks to these restrictions.
4. Anti-Money Laundering (AML) Regulations: These regulations mandate that financial institutions
take action to stop money laundering and terrorism financing. This include performing due diligence
on customers, reporting unexplained transactions, and keeping records of transactions for a
predetermined amount of time.
 5. Market Abuse Regulations: Market manipulation, insider trading, and the unlawful disclosure of
inside information are all prohibited by market abuse legislation. These rules are intended to protect
unfair activities and uphold the integrity of the market.
6. Investor Protection Regulations: A number of laws have been put in place to safeguard investors
from dishonest practices and false information. These include rules governing financial advisors,
prospectus rules, and standards for comprehensive information disclosure.
7. Market Surveillance: Regulatory organizations use surveillance techniques and systems to keep an
eye on trade activity for irregularities that could point to insider trading or market manipulation.
8. Capital Adequacy Requirements: Capital adequacy standards set the minimum amount of capital
that banks and other financial institutions must possess to maintain their financial stability.
9. Corporate Governance Regulations: Regulations governing corporate governance make ensuring
that organizations have efficient management and supervision systems. They outline the duties and
obligations of directors as well as the standards for board independence and openness in the
decision-making process.
10. International Regulations: International rules and regulations, such as those published by the
Financial Stability Board (FSB) and the International Organization of Securities Commissions
(IOSCO), are applicable to the capital markets. These seek to address concerns with cross-border
markets and worldwide regulatory coordination.

Who are the Investors?

Individuals or organizations that put their money or capital into different financial products including stocks,
bonds, derivatives, and mutual funds are referred to as investors in the capital market. These investors are
essential to the capital market because they give businesses and governments the money, they need to raise
finance for their endeavors or daily operations. In the capital market, some prevalent types of investors
include:

1. Individual Investors: These are retail investors who invest their personal funds in the capital market.
They can include individual traders, professionals, or high net worth individuals

2. Institutional Investors: These are organizations that pool large amounts of money from multiple
investors and invest in the capital market on their behalf. They can include pension funds, insurance
companies, mutual funds, hedge funds, and private equity firms.

3. Banks and Financial Institutions: Commercial banks and other financial institutions also participate in
the capital market as investors. They invest their own capital or manage funds on behalf of their clients.

4. Governments: Governments often raise capital by issuing bonds or other debt instruments in the capital
market. They can also be investors in the market by investing their surplus funds to earn returns.
5. Foreign Investors: Investors from foreign countries also participate in the capital market of another
country. They can invest in stocks, bonds, or other financial instruments to diversify their portfolios or take
advantage of opportunities in different markets.

Overall, investors in the capital market provide liquidity, facilitate price discovery, and support economic
growth by directing funds towards productive investments. They also assume risk and seek returns on their
investments based on their investment objectives and risk appetite.

What are the Financial Intermediaries?

Financial intermediaries in the capital market play a crucial role in facilitating the flow of funds between
investors and companies or governments in need of capital.

1. Commercial banks: Commercial banks are the most common type of financial intermediary in the
capital market. They accept deposits from individuals and businesses and provide loans and credit to
companies and governments.

2. Investment banks: Investment banks act as intermediaries between companies and investors in the
capital market. They help companies raise capital through activities like underwriting initial public offerings
(IPOs), issuing bonds, and facilitating mergers and acquisitions.

3. Mutual funds: Mutual funds pool funds from multiple investors to invest in a diversified portfolio of
securities such as stocks, bonds, and other assets. They offer individuals an opportunity to invest in a range
of assets and benefit from professional management.

4. Insurance companies: Insurance companies invest their policyholders' premiums into various financial
instruments such as stocks, bonds, and real estate. They act as financial intermediaries by providing
insurance coverage and investing their policyholders' funds to generate returns.

5. Pension funds: Pension funds are retirement plans managed by employers, labor unions, or government
entities. They mobilize funds from employees and employers and invest them in various financial assets
such as stocks, bonds, and real estate.

6. Venture capital and private equity firms: These firms provide capital to startups and small companies
that have high-growth potential but may not have access to traditional sources of funding. They invest in
these companies in exchange for equity ownership and actively participate in their strategic decision-making
processes.

7. Brokerage firms: Brokerage firms facilitate the buying and selling of securities on behalf of individual
and institutional investors. They provide access to different capital markets and execute trades on behalf of
their clients. Brokerage firms also offer various financial services like research, investment advice, and
portfolio management.
These financial intermediaries in the capital market help allocate funds efficiently, mitigate risks, and match
investors with suitable investment opportunities. They contribute to the overall liquidity and stability of the
capital market.

Currency

The currency used in the capital market depends on the country and its respective financial system. In most
cases, the local currency is used for transactions within the capital market. For example, in the United States,
the currency used is the US dollar, while in the Eurozone countries, the euro is used.

However, in some international capital markets, especially for cross-border transactions, major global
currencies such as the US dollar, euro, British pound, and Japanese yen are commonly used. These
currencies are widely accepted and traded across different countries and markets

Additionally, in certain cases, specific financial instruments or products in the capital market may be
denominated in a different currency. For example, international bonds or debt securities issued by a
company or government may be denominated in a currency other than the local currency.

Overall, the currency used in the capital market depends on the country, its financial system, and the specific
transaction or financial instrument being traded.

Derivatives

Derivatives are financial instruments whose value is derived from the underlying assets. They are
extensively used in the capital market for various purposes such as hedging, speculation, and arbitrage. Here
are some common derivatives used in the capital market:

1. Options: Options give the holder the right, but not the obligation, to buy or sell an underlying asset at a
pre-determined price (strike price) within a specific period of time. Options are widely used for hedging
against potential price fluctuations, as well as for speculating on the future direction of an asset's price.

2. Futures: Futures contracts obligate the buyer to purchase an asset or the seller to sell an asset at a
predetermined price and date in the future. They are commonly used for hedging against price volatility and
for speculation on future price movements.

3. Swaps: Swaps are agreements between two parties to exchange cash flows or payment obligations.
Common types of swaps include interest rate swaps, currency swaps, and credit default swaps. Swaps are
used for managing interest rate, currency, and credit risks, as well as for speculating on market trends.

4. Forward contracts: Forward contracts are similar to futures contracts, but they are not standardized and
traded on exchanges. They involve an agreement between two parties to buy or sell an asset at a future date
and price determined at the time of the contract. Forward contracts are usually used for hedging specific
transactions, such as commodity purchases.
5. Exchange-traded funds (ETFs): ETFs are investment funds that track the performance of a specific
index or asset class. They are traded on stock exchanges like individual stocks and offer investors exposure
to a diversified portfolio of assets. ETFs can be used for asset allocation, diversification, and hedging
purposes.

Derivatives play a crucial role in the capital market as they provide investors with the ability to manage risk,
enhance returns, and gain exposure to different asset classes. However, they also carry certain risks, such as
leverage, counterparty risk, and market volatility. It is important for market participants to fully understand
the nature and risks associated with derivatives before engaging in their use.

What are the most traded products in the Philippines?

The most traded products in the Philippines include:

1. Electronics: Electronic products such as smartphones, laptops, tablets, and other consumer electronics are
majorly traded in the Philippines. The country is one of the largest importers of electronic goods in
Southeast Asia.

2. Machinery and Equipment: Machinery and equipment, including industrial machinery, agricultural
machinery, construction equipment, and vehicles, are widely traded in the Philippines. The country relies
heavily on imported machinery for various industries.

3. Petroleum Products: Petroleum products, including crude oil, gasoline, diesel, and liquefied petroleum
gas (LPG), are some of the most traded commodities in the Philippines. The country is a net importer of
petroleum products and heavily depends on them for energy consumption.

4. Chemicals: Chemical products, such as fertilizers, industrial chemicals, pharmaceuticals, and various
other chemical compounds, are also extensively traded in the Philippines. The country imports a significant
number of chemical products to meet domestic demand.

5. Food and Beverages: Food products, including rice, wheat, meat, fish, fruits, and vegetables, are majorly
traded in the Philippines. The country is an importer of various food items to supplement domestic
production and meet the growing demand.

6. Garments and Textiles: The Philippines is known for its textile and garment industry, and these products
are extensively traded both domestically and internationally. The country exports a significant number of
garments and textiles to various markets.

7. Metals and Minerals: The Philippines has significant mineral resources, and metals such as gold, nickel,
copper, and iron ore are traded in substantial volumes. The country is one of the largest producers and
exporters of nickel in the world.
8. Wood and Wood Products: Timber and wood products, including lumber, plywood, and furniture, are
traded domestically and internationally. The Philippines has a significant forestry industry and exports
various wood products.

9. Pharmaceuticals: The pharmaceutical industry in the Philippines is growing rapidly, and pharmaceutical
products, including medicines and healthcare products, are traded extensively.

10. Consumer Goods: Various consumer goods, including clothing, footwear, personal care products, and
household appliances, are traded in the Philippines. The country imports a significant amount of consumer
goods to meet domestic demand.

It is important to note that the trading landscape may vary over time based on market trends, economic
conditions, and government policies.

Overview of Philip Financial Markets?

Philip financial markets refer to the financial markets in the country of the Philippines. The financial sector
in the Philippines is regulated by the Bangko Sentral ng Pilipinas (BSP), which is the central bank of the
country. The financial markets in the Philippines consist of several components, including the stock market,
bond market, money market, and foreign exchange market.

The Philippine Stock Exchange (PSE) is the main stock exchange in the country. It is responsible for
facilitating the buying and selling of stocks and other securities of publicly listed companies. The PSE
Composite Index (PSEi) is the main index that represents the performance of the stock market in the
Philippines.

The Philippines also has a well-developed bond market. The bond market allows corporations, government
entities, and other institutions to raise capital by issuing bonds. The government bond market in the
Philippines is known as the Bureau of the Treasury (BTr) market, where the government issues treasury
bonds and treasury bills to raise funds for its projects and expenses.

The money market in the Philippines is an important part of the financial system. It provides short-term
funding and liquidity for financial institutions and corporations. The main participants in the money market
include banks, corporations, and government entities. The BSP plays a crucial role in the money market by
regulating the interest rates and providing liquidity facilities.

The foreign exchange market in the Philippines is where currencies are bought and sold. It is an important
market for businesses and individuals engaged in international trade and investment. The BSP also plays a
role in the foreign exchange market by implementing policies to manage the exchange rate and maintain
stability in the currency.

Overall, the financial markets in the Philippines are relatively well-developed and provide opportunities for
investors and businesses to access capital, manage risks, and participate in economic growth. The regulatory
framework provided by the BSP ensures that the markets operate in a transparent and efficient manner,
promoting investor confidence and stability in the financial system.