FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS
 Financial instruments are assets that can be
traded. These assets can be cash, a contractual
right to deliver or receive cash or another type
of financial instrument, or evidence of one's
ownership of an entity.
Assets
These are items owned by the firm which
have the monetary value.
Two Kinds of Asset

a. Fixed Asset
 Consist of land, buildings, fixtures and
equipment which are acquired not for
resale but rather intended for use in the
operation of the business.
b. Current Asset
 Usually made up of cash, accounts, notes
receivable and inventories.
 They are invariably changing from one time to
another.
Most Common Financial Instruments
1) Savings
 Most common type of financial product that
can be offered to customer.
 Investor earns minimal interest on this type of
investment.

a) Regular Account
 The depositor is issued a passbook .

b) Time Deposit
 More long-term basis of savings where the
depositor is issued a time deposit certificate.
2) Loans

 When it comes to bank transactions, the bank

offers loan to the individuals and organizations
who need funds.
 The interest rate they charge on the loans is
higher than what they pay to the depositors.
 Short-term loans are payable within one year
or less, while long- term loans are those that
are due beyond one year or more.
Collateral- An asset like real property and
vehicles that is attached to loans.
 In case of default payment, the lending
institution may take ownership of the collateral
in lieu of money.
3) Bonds

 A loan granted to other organizations by

individuals and organizations with excess
funds.
 Bonds are long-term debt or liabilities of
the firm set forth in writing and made
under seal.
 When corporations are in need of capital
intended for long-term use, they generally
resort to borrowing.
 Bonds represent promises to pay the holder
thereof by the issuing corporation of the
principal and interest on a fixed future date.
 The corporation is the debtor (borrower)
while the bondholder is the creditor.
Indenture
 A debt contract which sets forth the rights of
the parties to a bond issue as well as their
obligations to each other.
 In the event that the corporation becomes
insolvent or unable to pay their loans, the
bondholders can assume control of the enterprise.
4) Security

 When an investor has a security, this means

that he or she has the financial instrument
signifying ownership of stocks of a publicly
traded company, or bond issued by a
government agency.
Security Market
 The place which sales and purchases of stocks
and other securities takes place.
5) Treasury Bills
 The government may also issue financial
instruments or securities to the public. Often
referred to as T-bills, they yield no interest but
sold at a discount. The earning on T-bills is
minimal as the risk is very low.
6) Insurance Products
 Almost everything nowadays can be insured-
homes, vehicles, businesses and other
properties, among others.
  Insurance products are both by policy holders
from insurance companies as protection of life
and property.
7) Mutual Funds
 Mutual funds are based on the pooling of
funds from different investors. The funds are
then invested into different financial products
such as securities, stocks and bonds.
 The fund is managed by a fund manager
employed by the mutual fund company by
creating an online account for each investor and
each account has their own password . Only the
investor or his representative can access the
account.

 The investor is able to monitor how the

investment is performing in the market in
terms of yield.
 FLOW OF FUNDS IN A BUSINESS ORGANIZATION

Suppliers of Funds Demanders of Funds

(those who have surplus (in the form of loans and /
money) or investments from the
 Individuals/ Households supplier)
 Organizations (profit  Individuals/ Households
and nonprofit)  Organizations (profit
 Government and nonprofit)
 Government

Fig. 3 Suppliers of funds dealing directly with demanders of funds

 Suppliers of Funds
(those who have surplus money)
 Individuals/ Households
 Organizations (profit
and non-profit)
 Government
Financial Institutions or
Intermediaries
 Commercial Banks
 Savings Banks
 Investment Banks
 Insurance Companies
Demanders of Funds
(in the form of loans and /
or investments from the
supplier)
 Individuals/ Households
 Organizations (profit
and non-profit)
 Government

Fig. 4 Flow of funds with financial institutions

 All transactions are completed through financial institutions.
 Activity #1:
1. Activity per group, they will find inspirational story
of successful Certified Public Account/
Businessmen or woman and is now on the peak of
their career. (Video or pictures can be presented
per group). Should be submitted, uploaded on
google classroom.

Assignment #1:
Based on the video each group have chosen, they will
do a reflection of themselves individually by writing it
down and explain it during class session. Their written
works should also be submitted/ upload on
gclassroom.
Another Reminder:
Assessment will be given on google form that will be
posted on their google classroom.
Assigned Date: Sept. 24, 2021
Submission Date: Sept. 27, 2021