HERNANDEZ, NINA CASSANDRA M.

BSBA FM2-G2
BANKING AND FINANCIAL INSTITUTION

1. Describe what financial markets are.

-Financial markets are places where lending and borrowing of financial instruments
takes place. Place where lender and borrowers such as business entities, investors.
banks, etc. meet to exchange instruments such as bonds, stocks and other financial
and non- financial assets.

2. Distinguish between public financial markets and corporate financial market.

-The primary distinction between a private and a public company is that a public
company's shares are traded on a stock exchange, unlike private company's shares
are exchanged privately or over-the-counter.

3. Distinguish between primary market and secondary market.

-The primary market is where securities are created, but the secondary market is
where they are traded between investors. A stock exchange is considered a secondary
market because it only bridges sellers and buyers of stock in order for them to make
a transaction.

4. What are the basic functions of the financial markets? Explain them.

 Raising Capital. Through financial markets, firms or individuals can raise funds
by reinvesting profits, borrowing money from banks or bonds; and by selling
stock.
 Commercial Transactions. Financial markets serve as medium to make a
transaction commercial, meaning individuals and entities can exchange
payments for goods andservices through financial markets. - -Price Setting.
Financial market helps in the price determination of goods and services based
on the individuals selling and buying behavior.
 Asset Valuation. Because financial markets are able t identify prices, it is the
place perfect to determine an asset's market value for buyers and sellers of
such.
 Arbitrage. This market strategy happens due to the changes in currency values
which are taken advantage by investors through simultaneous purchase and
sale od the same asset in different markets.
 Investing. This function makes financial markets very popular today due to
portability and individuals' ability to open accounts, and buy and sell stocks
easily. Business and other organizations re able to acquire funds by the
issuance of stocks and bonds through the financial market.
 Risk Management. Financial markets are place for different financial
instruments. with different risk attached, that are being traded and invested by
many. Investors and issuers are able to diversify their portfolio with high and
low risk instruments through the financial markets.

5. What are the two principal sources of funds in the financial market? Explain briefly.
-Two principal sources of funds in the financial markets are debt financing and equity
financing. Debt financing entails borrowing money, whereas equity financing entails
selling a portion of the company's stock.
6. Distinguish between the organized stock exchange and over-the-counter exchange.
-When brokers and dealers conduct business directly over computer networks and by
phone, a decentralized dealer market takes place or an Over-the Counter Exchange.
In contrast, a stock exchange is a controlled and organized market where buyers and
sellers trade equities in a safe, transparent, and systematic manner.

7. What are the attributes of financial markets that investors as well as creditors are
looking for? Explain them briefly.
-Investors prefer financial markets over other trading ways because of liquidity, reliability,
legal procedures, suitable investor protection and regulation and low transaction
cost. Financial markets make financial instruments more liquid because it opens a
place for active traders, sellers and buyers, with the same preference or appetite, to
meet. Financial markets also aid in assuring reliable transaction, trusted exchange,
by proper disclosure of relevant information in between parties and enforceable
mitigations according to the contract. Since financial market is a vast network of
exchange, a balance between regulation and protection is observed to meet investor
preference, but at the same time protect interest. Lastly, with technological
advancement, financial markets are now able to open platforms that charges low
transaction cost to those who engage in trading due to accessibility and portability.

8. What benefits could be achieved if the Code of Ethics governing Financial Market
Activities would be implemented and followed by the participants?

 In the observance of professionalism, integrity of capital markets, duties to

clients. conflicts of interest and duties to market counterparts, as mentioned
by the issued circular letter no. CL. 2010-013, can achieve the following:
 Transactions are carried in a right manner of transaction -Capital markets will
gain more trust from their clients by serving them with honesty

 Individuals will continue to patronize financial markets if markets are able to

prioritize client's preference or just simply conducting proper regulations.
 Less dispute or complaint is likely to arise from investors or other traders
regarding an unsettled

 Enter
 All financial participants are recognized and queries are addressed as regards to
financial transactions that takes place.

9. What are the forces that brought about the major changes in the financial markets for
the last two to three decades?
-Exchanging, trading, selling and borrowing had never been more flexible, complex
and vast after two to three decades without technology, deregulation, liberalization,
consolidation and globalization that took place.

10. What is a stock exchange? What is its main purpose?

-A stock exchange is also a financial market that bridges primary sources of shares.
debentures, government securities and bonds with those who want to buy it. The
stock exchange's main purpose lies in the need for sellers and buyers to have a place
to communicate, transact and settle the sale of financial assets, with less ease
whileensuring transparent exchange of financial assets.
11. What is the implication of the SEC granting a “Self-Regulation Organization” status to
the Philippine Stock Exchange?
-“Self-Regulatory Organization” status implies that the bourse, or stock market,
whichis the PSE in this instance, can implement its own rules and establish penalties
onerring trading participants and listed companies.

12. What does “listing of securities” mean?

-Under stock exchange, transparency of financial participants is observed to carry
outfinancial transactions that meets both buyers and sellers needs and wants such
asassuring that expected return of stock is achievable or such company issuing
stocksare solvent enough to liquidate stocks when the time comes. Listing of
securitiesrequires the disclosure of important information of stocks being bought and
sold.