Ateneo De Naga University

Financial Markets Reviewer

1. Banco Español - Filipino de Isabel II The central monitoring and implementing council for
○ First State Bank money laundering
○ Original name of the Bank of the Philippine ○ Anti-Money Laundering Council
Islands
○ Obras Pias provided 50% of its bank capital 7. The primary objective of republic act 7653
○ Maintenance of Price Stability
2. The group that hacked the BSP Website
○ Anonymous Philippines 8. First mutual savings in the country
○ Monte de Piedad y Caja de Ahorros
3. A journalist convicted under RA. 10175
○ Maria Ressa 9. 3 sources of funding by the Obras Pias
○ Mortgage Financing Loan
4. The act that criminalizes the process of legally ○ Trade with Acapulco
concealing the origin of money obtained from ○ Maritime Insurance
illicit activities
○ Money laundering 10. This was established in 1946 as rehabilitation
■ It is a crime in many jurisdictions with and finance corporation
varying definitions ○ Development Bank of the
■ It is usually a key operation of organized Philippines
crime.
11. 5 offenses under the cybercrime prevention act
5. 2 Government Non-financial Institutions ● Cybersex
○ Government Service Insurance System ● Child Pornography
(GSIS) ● Identity Theft
■ Provides social insurance ● Cybersquatting
■ Security benefits to members and has ● Libel
supported financially a wide range of
economic development both government 12. The republic act that created the New Central
and private Bank Act
➢ RA 7653
○ Social Security System (SSS)
■ Grants to its members those from the 13. The period when banking activities started
private sector benefits such as in the Philippines
● sickness, disability, death, and old-age ● 16th Century
pension.
■ Additional benefits have been 14. This was established in 1974 to promote and
incorporated into scheme, including accelerate the socio-economic development in
● Hospitalization benefits, employees Mindanao
compensation benefits, and maternity ● Philippine Amanah Bank
benefits
15. 3 Major operating sectors of the BSP
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Financial Markets Reviewer
● Banking Services Sector
● Supervision and Examination Sector
● Resource Management Sector
16. This bank was created 3 years after the end
of the American regime
● Central Bank of the Philippines
17. Regional banks operating primarily to serve
the needs of people from far flung areas
○ Rural Bank
18. Organized in 1963 to provide timely and
adequate financial support to the Agrarian
Reform Program
○ Landbank of the Philippines
19. 5 important functions of the Banco Central
ng Pilipinas
○ Money Manager
■ The BSP manages the amount of
money available to the public to keep
prices from increasing more than
usual
■ It does this to preserve the value of
money
■ Earnings and savings are NOT eroded
by abnormal increase of goods and
services
○ Supplier of Money
■ Only BSP can legally issue money in
paper notes and coins and in amounts
consistent with the country’s
economic program.
■ The money it issues is fully
guaranteed by the government and
can be used to pay any goods and
services in the country.
20. Rodriguez Bank
○ Banker's Bank
■ The BSP grants loans and accepts
deposits only from banks as part of
their required reserves.
■ It grants loans to banks for
commercial, production, and similar
purposes as in exports and imports
and agricultural activities.
■ It lends cash to banks in times of
national or local emergencies or its
financial problems directly threatens
the stability of the banks
■ BSP requires banks to set aside and
NOT lend a portion of their deposits
● Banks keep a portion of their cash
in their vaults and a specified
portion deposited with BSP or
invested in Government Securities
bought directly from BSP.
○ Supervisor of all Banks
■ The BSP regularly monitors and
examines the operations of banks as
well as their compliance with banking
rules and regulations.
■ BSP can assign a conservator to
temporarily manage the bank to
prevent it from incurring losses and
affecting other banks
○ Main Bank of the Government
■ The BSP is the official depository of
the government.
■ Some of the tax collections, proceeds
of the sale of government securities,
and foreign loans are deposited to
BSP
■ If government needs money it
withdraws funds from BSP
● First banks that emerged in 19th Century
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Financial Markets Reviewer

● Considered as more of a loan association i. Grants loans, invest in

than a regular bank readily marketable bonds
and other debt securities
21. As prescribed by the New Central Bank Act, c. They differ from commercial
the 7 main functions of the Bangko Sentral are: banking operations.
1. Liquidity Management d. They can accept checking
2. Currency Issue accounts, government deposits
3. Lender of Last Resort and foreign currency deposits
4. Financial Supervision and perform trust functions upon
5. Management of Foreign Currency approval from Central Bank
Reserves
6. Determination of exchange rate policy 3. Rural Banks
7. Being the banker a. Regional banks operating
primarily to serve the needs of
22. Private Bank Institutions people in the provinces and
● These companies perform the service of sub-urban areas
safekeeping funds through the b. Perform the following functions:
acceptance of money deposits and the i. Granting of short-term
provision of credit through lending of loans to farmers,
money merchants, cooperatives
1. Commercial banks to finance their
a. Covers the widest range of requirements in the
functions among all financial pursuit of their business
intermediaries. which are principally
b. Their services include aimed at countryside
i. Receiving, dealing, development.
exchanging, and handling ii. They also accept savings
money, safe deposit, and time deposits to
custodianship, accumulate funds for
trusteeship, and money local development.
claims domestically and iii. They also serve as
internationally channels for disbursement
and collections of
2. Thrift Banks supervised credit
a. Are savings and mortgage banks, programs and they act as
stock savings and loan correspondents for other
associations, and private financial institutions.
development banks which in
addition to accepting savings and
time deposits,
b. perform the following functions:
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Financial Markets Reviewer
FINANCIAL MARKETS
Financial markets
● the meeting place for people,
corporations and institutions that either
need money or have money to lend or
invest.
Without the global financial markets
● governments would not be able to
borrow money
● companies would not have access to the
capital they need to expand
● investors and individuals would be
unable to buy and sell foreign
currencies.
Corporations rely on the financial markets to
provide funds for short-term operations and for
new plant and equipment.
Financial capital may be raised
● by either borrowing money through a
debt offering of corporate bonds or short
term notes,
● or by selling ownership in the company
through an issue of common stock.
Financial markets (bond and stock markets) and
financial intermediaries (banks, insurance
companies among others) have the basic
function of getting people together by moving
funds from those who have a surplus of funds to
those who have a shortage of funds.
The principal lender-savers are households, but
business enterprises and the government as well
as foreigners and their government, sometimes
also ting themselves with excess funds and so
lend them out.
The most important borrower-spenders are
businesses and the government but households
and foreigners also borrow funds flow from
lenders to borrowers indirectly through financial
intermediaries such as banks or directly through
financial markets, such as the Philippine Stock
Exchange.
WHAT FINANCIAL MARKETS DO?
1. Raising capital.
a. Firms often require funds to
build new facilities, replace
machinery or expand their
business in other ways.
b. Shares, bonds and other types of
financial instruments make this
possible.
c. The financial markets are also an
important source of capital for
individuals who wish to buy
homes or cars, or even to make
credit-cardpurchases.
2. Commercial transactions.
a. The financial markets provide
the grease that makes many
commercial transactions
possible.
b. This includes such things as
arranging payment for the sale of
a product abroad, and providing
working capital so that a firm can
pay employees if payments from
customers run late.
3. Price setting.
a. Markets provide price discovery,
a way to determine the relative
values of different items, based
upon the prices at which
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Financial Markets Reviewer
individuals are willing to buy and
sell them.
4. Asset valuation
a. Market prices offer the best way
to determine the value of a firm
or of the firm's assets, or
property.
5. Arbitrage.
a. In countries with poorly
developed financial markets,
commodities and currencies may
trade at very different prices in
different locations
6. Investing.
a. The stock, bond and money
markets provide an opportunity
to earn a return on funds that are
not needed immediately, and to
accumulate assets that will
provide an income in future.
7. Risk management.
a. Futures, options and other
derivatives contracts can provide
protection against many types of
risk, such as the possibility that a
foreign currency will lose value
against the domestic currency
before an export payment is
received.
STRUCTURE OF FINANCIAL MARKETS
There are many different financial markets in a
developed economy each dealing with a
different type of security serving a different set
of customers, or operating in a different part of
the country.
Debt and Equity Markets
● Funds in a financial market can be
obtained by a firm or an individual in
two ways
The most common method is to issue a debt
instrument, such as a bond or mortgage, which
is a contractual agreement by the borrower to
pay the holder of the instrument fixed peso
amounts at regular intervals (interest and
principal payments) until a specified date (the
maturity date), when a final payment is made.
Debt instrument
● short term if its maturity is less than a
year and long-term if its maturity is ten
years or longer.
● Debt instruments with a maturity
between one and ten years are said to be
intermediate-term.
The second method of raising funds is by
issuing equity instruments, such as common or
ordinary stock, which are claims to share in the
net income and the assets of a business.
Equities
● often make periodic payments
(dividends) to their holders and are
considered long-term securities because
they have no maturity date.
● Owning stock means that you own a
portion of the firm and thus have the
right to vote on issues important to the
firm and to elect its directors.
Primary Market
● refers to the original sale of securities by
governments and corporations.
● The primary markets for securities are
not well known to the public because the
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Financial Markets Reviewer
selling of securities to initial buyers
often takes place behind closed doors.
Corporations engage in two types of primary
market transactions:
● Public offerings
○ involves selling securities to the
general public
○ Public offerings of debt and
equity must be approved by and
registered with the Securities and
Exchange Commission.
○ Registration requires the firm to
disclose a great deal of
information before selling any
securities.
● Private placements
○ is a negotiated sale involving a
specific buyer.
○ The accounting legal and selling
costs of public offerings can be
considerate.
Secondary Market
● After the securities are sold to the public,
they can be traded in the secondary
market between investors.
● popularly known as Stock Market or
Exchange.
Brokers are agents of investors who match
buyers with sellers of securities; dealers link
buyers and sellers by buying and selling
securities at stated prices.
1. The Organized Stock Exchange.
a. The stock exchanges will have a
physical location where stocks
buying and selling transactions
take place in the stock exchange
floor
2. The Over-the-Counter (OTC) Exchange.
a. shares, bonds and money market
instruments are traded using a
system of computer screens and
telephones.
b. Dealers in an over-the-counter
market attempt to match the
orders they receive from
investors to buy and sell its
stock.
Secondary markets serve two important
functions:
1. They make it easier to sell these
financial instruments to raise cash;
2. They determine the price of the security
that the issuing firm sells in the primary
market.
Stock Exchange
● is an entity (a corporation or mutual
organization) which is in the business of
bringing buyers and sellers of stocks and
securities together
● The purpose of stock exchange
○ is to facilitate the exchange of
securities between buyers and
sellers, thus providing a market
place, virtual or real.
● supplies a platform from which to buy
and sell shares in certain listed
companies.
● It regulates the company's behavior
through requirements agreed upon by the
company in order to be listed.
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Financial Markets Reviewer
Listing agreement
● ensures that the company provides all
the information pertaining to its working
from time to time, including events that
affect its valuation .
Large volumes are possible in these markets
because of two things.
● Ease of settlements.
○ The shares that are traded in are
received and delivered through
an electronic entry in the books
of buyers and sellers.
● guarantee of trades.
○ Sellers get their money, buyers
get their shares.
Stocks that trade on an organized exchange are
said to be listed on that exchange.
To be listed, firms must meet certain minimum
criteria concerning, for example number of
shareholders and asset size.
OTC trading requires a brokerage firm to
match a prospective buyer and a prospective
seller at a price acceptable to both.
The brokerage firm may purchase shares for its
own account or sell shares that it has been
holding.
Several electronic services post bid and offer
prices for OTC shares as well as information
about trading volume.
Day Trading
● is the buying and selling of shares,
currency, or other financial instruments
in a single day. The intention is to profit
from small price fluctuations —
sometimes traders hold shares for only a
few minutes.
● Investors typically buy or sell a share
based on their analysis of economic or
market trends, research into specific
companies, or as part of a strategy to
benefit from the regular dividends that
companies issue.
Day traders
● favor shares that are liquid -those are
easy to buy and sell in the secondary
market.
● This is different from long-term
investing, in which assets are held for
longer periods in order to generate
growth or income.
Day Traders should be knowledgeable of the
following:
1. Market data
a. The current trading information
for each day-trading market.
Rather than using market data
that is available free of charge
but can be up to an hour old, day
traders pay a premium for access
to real-time data.
b. Day traders must be able to trade
on news or announcements
quickly, so they need to watch
the market and stay close to their
trading screens at all times.
Scalping - strategy in which traders hold their
share or financial asset (known as their
“position”) for just a few minutes or even
seconds.
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Financial Markets Reviewer
2. Margin trading
● A method of buying shares that
involves the day trader
borrowing a part of the sum
needed from the broker who is
executing the transaction.
3. Bid-offer spread
● The difference between a price at
which a share is sold, and that at
which it is bought.
Potential Day Traders should be aware that:
1. High risk occupation
● Day traders typically suffer severe losses
in their first months to trading, and many
never graduate from profit-making
status.
2. Stressful
● Day traders must watch the market
during the day, concentrating on dozens
of fluctuating indicators in the hope of
spotting market trends.
3. Expensive
● Day traders pay large sums in
commission for training, and for
computers.
Money markets and Capital markets
Commercial banks were the center of
financial markets.
Savers and investors kept most of their
assets on deposit with banks, either as
short-term demand deposits, such as
cheque-writing accounts, paying little or
no interest, or in the form of certificates
of deposits that tied up the money for years.
WHAT MONEY MARKETS DO
The phrase is usually applied to the buying and
selling of debt instruments maturing in one year
or less.
Money Markets
● are related to the bond markets, in which
corporations and governments borrow
and lend based on longer-term contracts.
Money markets and the bond markets serve
different purposes.
● Bond issuers
○ typically raise money to finance
investments that will generate
profits
● Government issuers
○ for the purpose of public benefits
● Issuers of money
○ market instruments are usually
more concerned with cash
management or with financing
their portfolios of financial
assets.
Money markets attach a price to liquidity, the
availability of money for immediate investment.
The interest rates for extremely short-term use
of money serve as benchmarks for longer-term
financial instruments.