LEARNING COMPETENCIES:

• Distinguish a financial institution from financial

instrument and financial market.
• Enumerate the varied financial institutions and their
corresponding services.
• Compare and contrast the varied financial
instruments.
• Explain the flow of funds within an organization –
through and from the enterprise—and the role of the
financial manager.
LEARNING OBJECTIVES:

• Prepare a diagram illustrating how the

Financial System works
• Define Financial Markets, Financial Institutions
and Financial Instruments.
• Identify the types of Financial Markets,
Financial Institutions and Financial
Instruments.
PRIVATE PLACEMENTS
• the sale of a new security directly to
an investor or group of investors.
FINANCIAL MARKET
•an organized forum that lets the lender
along with other suppliers of funds,
and Borrower, along with other users
of funds, meet and make transactions.
FINANCIAL INSTITUTION

•intermediaries that channel the savings of

individuals, businesses, and governments
into loans or investments.
FINANCIAL SYSTEM
How transactions between suppliers
and users of funds take place. How
would they prove that there was a
transaction so that the demander
will be able to repay the supplier on
time and at the right amount?
FINANCIAL INSTRUMENTS is a real or a
virtual document representing a legal
agreement involving some sort-of
monetary value These can be debt
securities like corporate bonds or equity
like shares of stock.
 FINANCIAL INSTRUMENTS
• Financial Assets any asset that is cash, equity instrument
of another entity, contractual right to receive cash or
another financial asset from another entity, and
contractual right to exchange instruments with another
entity under conditions that are potentially favorable
• Financial Liabilities is any liability that is a contractual
obligation. To deliver cash or other financial instrument to
another entity, To exchange financial instruments with
another entity under conditions that are potentially
unfavorable,
 FINANCIAL INSTRUMENTS
Debt Instruments -generally have fixed returns
due to fixed interest rates.
Examples:
• Treasury Bonds and Treasury Bills are issued by
the Philippine government.
• Corporate Bonds are issued by publicly listed
companies.
Equity Instruments-generally have varied returns
based on the performance of the issuing company.
Examples: Preferred and Common Stock
 FINANCIAL MARKETS
Primary Market-market where a security is
sold when it is first issued and sold to
investors.
Secondary Market-the market where
subsequent trading takes place and individual
investors trade among themselves
 FINANCIAL MARKETS

Money Market-are a venue wherein securities

with short-term maturities (1 year or less) are
sold.
Capital Market-securities with longer-term
maturities
 FINANCIAL INSTITUTION

Commercial Banks-Individuals deposit funds at

commercial banks, which use the deposited
funds to provide commercial loans to firms and
personal loans to individuals, and purchase debt
securities issued by firms or government
agencies.
Insurance Companies -iindividuals purchase
insurance (life, property and casualty, and
health) protection with insurance premiums.
 FINANCIAL INSTITUTION
Mutual Funds-are owned by investment companies which
enable small investors to enjoy the benefits of investing in a
diversified portfolio of securities purchased on their behalf
by professional investment managers.

Pension Funds-Financial institutions that receive payments

from employees and invest the proceeds on their behalf.

Other financial institutions -Financial institutions that

receive payments from employees and invest the proceeds
on their behalf.
 •STEPS IN THE FINANCIAL
PLANNING PROCESS
•ILLUSTRATE THE FORMULA
AND FORMAT IN THE
PREPARARTION OF BUDGETS
AND PROJECTED FS