June 1, 2023

FINALS

Capital Markets Topic 5: Pre-Assessment

1. CMIP

CMIP means Capital Market Institute of the Philippines. It is a bullish organization

that will stoke and develop the investment character of Filipinos in the Philippine financial
and capital markets. CMIP is committed to promoting, developing, and advancing awareness
and knowledge of the capital market and its role in the development of the national economy
through developing, organizing, and conducting programs, projects, research, and other
activities to upgrade the competencies of members, practitioners, entrepreneurs,
professionals, teachers, and students in dealing with the Philippine Capital Market.

2. Money Market Instrument

Money market instruments are short-term debt securities that are highly liquid and
have a low level of risk. These instruments are typically issued by governments, financial
institutions, and corporations to meet short-term funding needs or as investment vehicles for
individuals and institutions seeking low-risk, short-term investments. Some common
examples of money market instruments include Treasury Bills, Certificates of Deposit,
Commercial Paper, Repurchase Agreements, and Treasury Notes and Bonds.

3. Treasury Bills

Treasury Bills are also known as T-bills. These are short-term debt obligations
issued by governments, typically with maturities of less than one year. They are
considered to be virtually risk-free and are often used as benchmarks for other money
market instruments.

4. A Banker’s Acceptance

A banker's acceptance (BA) is a financial instrument that is widely used in

international trade transactions. It is a time draft or a post-dated check drawn on and
accepted by a bank, making it a guarantee of payment to the holder of the instrument at a
future date. Bankers’ acceptances are commonly used in international trade because they
provide a level of assurance to exporters, allowing them to mitigate credit risk.

5. A Commercial Letter

A commercial letter of credit is a financial instrument issued by a bank on behalf

of a buyer (importer) to guarantee payment to a seller (exporter) for goods or services. It
provides assurance to the exporter that they will receive payment as long as they comply
with the terms and conditions specified in the letter of credit. By using a commercial
letter of credit, the seller gains confidence that they will receive payment, as long as they
fulfill the specified conditions.
June 1, 2023
FINALS

Capital Markets Topic 8 – Pre-Assessment

1. What is a non-depository financial institution?

A non-depository financial institution (NDFI) is a type of financial institution that

does not accept deposits from customers like traditional banks. Instead, NDFIs focus on
other financial services, such as providing loans, investments, insurance, and other
financial products. They play an important role in the financial system by complementing
the services offered by depository institutions, such as banks and credit unions.

2. Give 3 examples of a non-depository institution

 Investment Banks: These institutions assist companies and governments in

raising capital through underwriting securities offerings, facilitating mergers
and acquisitions, and providing advisory services. They also engage in trading
and investment activities.

 Insurance Companies: Insurance companies offer various types of insurance

policies to individuals and businesses. They collect premiums and provide
coverage against potential risks, such as life insurance, property and casualty
insurance, health insurance, and more.

 Securities Firms: Securities firms, also known as brokerage firms or

investment firms, facilitate the buying and selling of securities such as stocks,
bonds, and derivatives on behalf of clients. They may also provide research
and investment advisory services.
June 1, 2023
FINALS

Credit and Collection

1. What is the importance of credit evaluation?

Credit evaluation is important for various stakeholders in the financial system,

including lenders, investors, and even individuals. It is crucial for assessing creditworthiness,
managing credit risk, making investment decisions, determining interest rates, and
facilitating responsible financial decision-making. It helps maintain the stability and
efficiency of the financial system while enabling lenders, investors, and individuals to
manage their financial activities effectively.

2. What are the factors that lenders consider when evaluating an individual or business that
is seeking credit?

 Credit History: Lenders examine the borrower's credit history, including their past
repayment behavior and credit utilization.
 Credit Score: Lenders often use credit scores, such as FICO scores or VantageScores, as a
numeric representation of an individual's creditworthiness.

 Income and Employment Stability: Lenders evaluate the borrower's income and
employment stability to assess their ability to repay the debt.

 Debt-to-Income Ratio: Lenders analyze the borrower's debt-to-income ratio (DTI), which
compares the borrower's monthly debt obligations to their monthly income.

 Collateral and Assets: For certain types of loans, lenders may consider the availability
and value of collateral or assets that can be used as security for the loan.

 Purpose of the Loan: Lenders evaluate the purpose for which the borrower seeks credit.

 Financial Statements and Business Performance (for businesses): When evaluating

businesses, lenders often require financial statements, such as income statements, balance
sheets, and cash flow statements.

 Personal and Business Guarantees: Lenders may request personal or business guarantees,
which hold individuals or business owners personally liable for repayment in case of
default.

3. How do credit investigation companies make credit reports?

Credit investigation companies, also known as credit bureaus, create credit reports
by collecting data from various sources, such as financial institutions, lenders, and public
records. They verify and standardize the data to ensure accuracy and receive regular
updates to keep the information current. Credit scoring models are used to assess
creditworthiness and generate credit scores. The credit reports provide a summary of an
individual's or business's credit history, outstanding debts, payment patterns, credit
utilization, and other relevant information. Privacy and data security measures are
implemented to protect the confidentiality of the information.