Lesson 1-2 CAPM

• Central Bank and its monetary board — determines the rules, regulations, and monetart policies
• Financial System — decribe collectively the financial market, the participants, and the financial instruments and securities that are traded in the financial market
• Financial Participants

  1. Household or consumers
  2. Financial Institutions
  3. Non-Financial Institutions
  4. Government
  5. Central Bank
• Household or consumers — define as all rsident small groups of person, not necessarily related but who shared same living accomodation or all of their income and who consume good and sevices.
• Financial Institutions — Bridge the gap between savers and borrowers.
• Financial Institutions = intermediaries
• Non-financial Institutions — privide services that are not neces suited by the banks
• Example of Non-financial Institutions

  1. Insurance Firms
  2. Venture Capitalists
  3. Currency Exchange
  4. Microloan Organizations
  5. Pawnshops
• Government — power to make and/or enforce laws to control a country
• Central Bank — National bank
• Central Bank — provide financial and banking services for its country government as well as implementing the government monetary policy and issuing currency
• Bangko Sentral ng Pilipinas — the agency that is in charge of the Philippine monetary and finan system
• Monetary Policies — refers to the regulation that affect money supply
• BSP = Balancer
• Expansionary and Contractionary Policies — involve changing the level of money supply in a country
• Expansionary Policies — expands (increase) the supply of money
• Contractionary Policies — decrease the supply of the country’s currency
• Money Supply — the total of currency and coins and demand deposits in the economy
• Financial Market — meeting place for those buyer and seller of financial securities
• Primary Market — issued generally for public offering/public traded security like stocks
• Secondary Market — only transfer ownership but do not affect the total outstanding shares/ securities in the market
• 4 Kinds of Government Securities

  1. Cash Managment Bill
  2. Treasury Bill
  3. Treasury Note
  4. Treasury Bond
• Capital Market — market for long term securities
• Equity Securities = Stocks
• Security Market — where the companies issued common stocks/bonds that are marketable/negotiable to obtain ling term funds
• Types of Secutiry Market

  1. Stock Market
  2. Bond Market
  3. Derivative Market
  4. The negotiable/ non-securities market
  5. Auction Market
  6. Foreign Exchange Market
  7. Future Market
  8. Option Market
  9. Third Market
• Stock Market — medium of exchange transactions that deal equity securities
• Bond Market — market where bond issued and traded
• Derivative Securities Market — where derivative securities are traded
• The negiotable/ non-securities Market — not limited to loan market
• Auction Market — done by an independent third party
• Foreign Exchange Market — the money of one country is exchanged for the money of another country.
• Future Market — where contracts are originated. Contractual Agreement between a buyer and seller
• Option Market — gives an investor the right but not the obligation
• Call Option — right ti buy stock
• Put Option — right to sell a stock
• Third Market — companies OTC
• Sample of Third Market

  • Insurance Companies
  • Mutual Funds