chap 1 finance

• Finance is the application of economic principles to decision-making involving the allocation of money under conditions of uncertainty
• Finance is based on analytical methods, using statistical, probability, and mathematics to solve problems, and economic principles
• Finance uses accounting information as inputs to decision-making and is global in perspective
• Finance is the study of how to raise money and invest it productively
• Capital markets and capital market theory focus on the financial system, the structure of interest rates, and the pricing of risky assets
• Capital markets are used primarily to sell financial products such as equities (stocks) and debt securities like bonds
• Financial markets include any place or system that provides buyers and sellers the means to trade financial instruments
• Financial intermediaries act as the middleman between two parties in a financial transaction, such as commercial banks, investment banks, mutual funds, or pension funds
• Financial regulators are government entities responsible for overseeing and regulating financial markets and institutions to protect consumers, maintain financial stability, and promote fair and transparent financial practices
• Financial management, also known as business finance or corporate finance, involves financial decision-making within a business entity
• Financial management is about monitoring, controlling, protecting, and reporting on a company's financial resources
• Key objectives of financial management include creating wealth for the business, generating cash, and providing an adequate return on investment
• Financial managers are primarily concerned with investment decisions and financing decisions within organizations
• Investment management deals with managing the investments of individuals or institutions and blends economics, psychology, accounting, statistics, mathematics, and probability theory to make decisions involving future outcomes
• financial markets are the places where buyers and sellers meet to trade financial assets
• capital market is a broad one that is used to describe the in-person and digital spaces in which various entities trade different types of financial instruments.
• Capital markets are composed of the suppliers and users of funds.
• Equities are stocks, which are ownership shares in a company. Debt securities, such as bonds, are interest- bearing IOUs.
• Three components of financial system of an economy Financial Markets, Financial Intermediaries, Financial Regulators
• Investment management is the specialty area within finance dealing with the management of individual or institutional funds.
• The Three Areas within the Field of Finance CAPITAL MARKETS AND CAPITAL MARKET THEORY, Financial Management, Investment management
• Financial system's three components:

  • Financial markets
  • Financial intermediaries
  • Regulators of financial activities
• An asset is any resource that we expect to provide future benefits and has economic value; another term for a financial asset is a financial instrument
• Two types of assets:

  • Tangible assets: have physical substance (e.g., buildings, aircraft, land, machinery)
  • Intangible assets: no physical form (e.g., patents, copyrights, trademarks)
• For every financial instrument, there are at least two parties involved:

  • Issuer: agrees to make future cash payments
  • Investor: owns the financial instrument and has the right to receive payments from the issuer
• Debt instruments:

  • Require fixed payments to the holder (e.g., bonds, mortgages)
  • Specify fixed payments, including interest, to the investor

  Equity instruments:

  • Allow a company to raise money without incurring debt (e.g., stock)
  • Come with a “claim” on the earnings and/or assets of the corporation
• Common stock:

  • Entitles the holder to dividends that vary in amount and may be missed depending on the company's fortunes

  Preferred stock:

  • Pays a set schedule of dividends and does not come with voting rights
• Financial markets provide three major economic functions:

  1. Price discovery: interactions of buyers and sellers determine asset prices

  2. Liquidity: presence of buyers and sellers ready to trade

  3. Reduced transaction costs: classified into search costs and information costs
• Financial intermediaries include:

  • Depository institutions
  • Nondeposit finance companies
  • Regulated investment companies
  • Investment banks
  • Insurance companies
• Financial intermediaries' services:

  • Facilitating trading of financial assets
  • Providing investment advice
  • Managing financial assets
  • Providing a payment mechanism
• Types of financial markets:

  • Domestic market: where issuers issue securities and investors trade them
  • Foreign market: where securities of non-domiciled issuers are sold and traded
  • Money market: includes financial instruments with a maturity of one year or less
• Capital market:

  • Where long-term financial instruments issued by corporations and governments trade

  Derivative market:

  • Financial contract value dependent on an underlying asset, group of assets, or benchmark

  Cash market:

  • Market for immediate purchase and sale of a financial instrument
• Primary market:

  • Where an issuer first issues a financial instrument

  Secondary market:

  • Where financial instruments are resold among investors

  Market efficiency:

  • Asset prices rapidly reflect all available information
• The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the Philippines, established in 1993 with three pillars: price stability, financial stability, and a safe, secure, and efficient payments and settlements system
• Financial institutions provide services as intermediaries for financial transactions; nonbank financial companies (NBFCs) offer similar services to banks but are not regulated or overseen by authorities
• Private banking offers personalized financial services to high-net-worth individuals, including wealth management services
• (6) BOARD MEMBERS 1. Ralph G. Recto 2. Benjamin E. Diokno

  3. Anita Linda R. Aquino

  4. Romeo L. Bernardo

  5. Rosalia V. De Leon

  6. V. Bruce J. Tolentino
• Finance is the application of economic principles to decision-making, involving assets like patents, copyrights, and trademarks
• For every financial instrument, there are at least two parties involved: the issuer and the investor
• Debt instruments require fixed payments, while equity instruments allow companies to raise money without incurring debt