Financial Institutions, Instruments, and Markets

• The Financial System 

  Household saving/Surplus Cash -> financial institutions/ markets/instruments (provide loans) -> borrowers (individuals, corporate entities) -> cash returned 
• BSP (Banko Sentral ng Pilipinas) - regulates operations of financial institutions and intermediaries (cash exchange rates) 
• Basic Elements of a Financial System:

  • Financial Institutions
  • Financial Markets
  • Financial Instruments
  • Lenders and Borrowers
• Banks:

  • Universal Bank
  • Commercial banks
  • Thrift bank
  • Rural and Cooperative Bank
  • Islamic Bank
• Financial Institutions: organizations that provide financial services (loan, fund administration, financing, depository, and safekeeping)
• Financial Institutions:

  • Depository Institutions
  • Financial Intermediaries
  • Investment Institutions
• Depository Institutions: accepts deposits (banks, savings and loan association, trust companies, and credit unions)
• Banks: accept deposits and bills payment, provide loans and facilitate the transfer of funds
• Universal Bank: biggest bank in terms of assets, loan portfolios, and revenue 

  • Widest scope of banking activities, has the most number of branches nationwide 
  • LandBank 
  • UCPB 
  • BDO 
  • BPI 
  • EastWest 
  • MetroBank 
• Commercial Bank: provides commercial loans and offers investment products; limited banking services 

  • Robinson's Bank 
  • Bank of Commerce
  • PBCOM
• Thrift Bank: includes savings, mortgage, private development, stock savings, loan associations, micro-finance 

  Provides diversified financial services to individuals and SME's 

  • CBS 
  • Bank One 
  • BPI Family Savings Bank 
  • RCBC Savings Bank 

  *provide lower interest; better check thrift banks 
• Rural and Cooperative Bank: intended to promote and expand rural economy by providing people basic financial services 

  Focuses on farmers who need financial help 

  Engage in micro financing to assist small individual entrepreneurs 

  • BCB - Bataan Cooperative Bank
  • Teachers Bank
• Islamic Bank: aims to promote and accelerate development of ARMM 

  Subject to the basic principles of Sharia law 

  Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP)
• Savings and Loan Association: accumulates the savings of its members and stockholders 

  Can be for stock and non-stock corporations 

  *Provide higher loan amount 
• Trust Companies: acts as a fiduciary agent or trustee on behalf of a person or corporate entity 

  Manages assets, stock transfer, ownership management of beneficiaries. Custodian arrangement in court hearings 
• Credit Union: mainly controlled and operated by its members (companies)
• Financial Intermediaries : middleperson between two parties- the investors and the borrowers; accumulate the money from investors and offer the accumulated money to individuals or corporate entities
• Financial Intermediaries:

  • Mutual Funds
  • Pension Funds
  • Insurance Companies
•  Mutual Funds: accumulate money by selling stocks or bonds 

  Funds are pooled together and channeled to borrowers 

  • Net Asset Value per share (NAVPS) 
  • ATRAM 
  • PhilEquity 
  • FAMi 
• Pension Fund: Set up by a business for paying the pensions requirements of all employees who retire 

  • Compulsory contributions 
• Insurance Companies: pools (get money from individuals and companies) together the proceeds of insurance policies sold to the public and invests the accumulated funds in high-yield maturing securities from investing houses
• Investment institutions: company engaged in buying securities of other companies which are listed in the stock exchange for investment purposes only; Earns income from holding securities in the form of interest or dividends
• Market: the place where sellers and buyers meet 

  • They trade stocks (share of private companies) - Stock Broker 
• Financial Market: the place where buying and selling occurs to trade equity securities such as: 

  • Bonds and stocks 
  • Currencies 
  • Derivative securities 
  • Notes 
• Financial Market:

  • Money Market
  • Commercial Papers
  • Primary Market
  • Secondary Market
  • Public Market
• Capital Market: stocks and bonds are issued for medium and long term periods 

  PSE (Philippine Stock Exchange) 
• Stocks: equity securities (Dividends) 

  Bonds: considered debt securities (Interest) 
• Money Market: matures in less than one year 
• Commercial Papers: mas conservative ang return; Unsecured corporate debt instruments of less than one year
• Primary Market: issues new share of stock
• Secondary Market: permits trading of outstanding issues exchange/centralized market 

  • Second hand stocks are sold 
• Public Market: financial securities of publicly-listed corporation are traded 

  • Organized financial market 
• Financial Instruments: contracts that give rise to the formation of financial assets 

  • Cash 
  • Holder: Financial Asset 
  • Government: Financial Liability 
  • Check 
  • Loan 
• Bonds 

  Bond: represents the debt of the party issuing the bond 

  Either a private business or government 

  Earn income through interest 
• Bonds:

  • Term Bond
  • Serial Bond
  • Secured Bond
  • Debenture Bond
  • Convertible Bond
  • Callable Bond
• Term Bond: one-time pay; single maturity date
• Secured Bond: security is issued in the form of real property 

  2 Liabilities Arise: 

  • Interest  
  • Face value 
• Debenture Bond: not supported by any collateral or security 

  • Strong belief in the financial capacity of the issuing company
• Convertible Bond: bond is a debt security 

  • Can be converted into a share of stock 
• Stocks: financial security that signifies ownership of assets of the corporation 

  • Stock Certificate: evidenced of the holders shares of stock 
  • Shareholders or Stockholders: holders of certificate 
  • Dividends