mod 1 bus fin

• Planning refers to proper usage of the profit generated by the firm
• Understanding Capital Markets


  Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities
• Shareholders


  • Elect the Board of Directors (BOD)
  • Each share held is equal to one voting right
  • The BOD's responsibility is to carry out the objectives of the shareholders
• Financial institution


  Companies in the financial sector that provide a broad range of business and services including banking, insurance, and investment management
• Types of Financial Institutions

  • Depository Institutions
  • Non-Depository Institutions
• Depository Institutions


  Allowed to accept monetary deposits from the consumers legally
• Depository Institutions


  • Commercial banks
  • Savings banks
  • Credit unions
  • Savings and loan associations
• Commercial Banks


  • Accept deposits from the public and offer security to their customers
  • Transactions can be done through checks or credit/debit cards
• Saving Banks


  Perform the function of accepting the savings from the individuals and lending to the other consumers
• Credit Unions


  • Associations that are created, owned, and also operated by the participants who are voluntarily associated with saving their money and then lending it members of their union only
  • Not-for-profit organizations enjoying tax-exempt status
• Saving and Loan Association

  • Collect the funds of many of the small savers and then lend them to home buyers or other types of borrowers
  • Specialize in providing help to the people in getting residential mortgages
• Non-Depository Institutions


  • Serve as the intermediary between the savers and the borrowers, but they do not accept the time deposits
  • Perform their activities of lending to the public either by way of selling securities or through the insurance policies
• Insurance Companies


  • Individuals purchase insurance (life, property and casualty, and health) protection with insurance premiums
  • Pool these payments and invest the proceeds in various securities until the funds needed to pay off claims by policyholders
  • Often own large blocks of a firm's stocks or bonds, and attempt to influence the management of the firm to improve the firm's performance
• Mutual Funds


  • Owned by investment companies that enable small investors to enjoy the benefits of investing in a diversified portfolio of securities purchased on their behalf by professional investment managers
  • When they invest in newly issued debt or equity securities, they finance new investment by firms
  • When they invest in debt or equity securities already held by investors, they are transferring ownership of the securities among investors
• Pension Funds


  Financial institutions that receive payments from employees and invest the proceeds on their behalf
• Other financial institutions


  • Government Service Insurance System (GSIS)
  • Social Security System (SSS)
  • Unit investment trust fund (UITF)
  • Investment banks
  • Credit unions
• Financial Instrument


  • A real or a virtual document representing a legal agreement involving some sort of monetary value
  • Can be debt securities like corporate bonds or equity like shares of stock
  • When a financial instrument is issued, it gives rise to a financial asset on one hand and a financial liability or equity instrument on the other
• Financial Asset


  • Cash
  • An equity instrument of another entity
  • A contractual right to receive cash or another financial asset from another entity
  • A contractual right to exchange instruments with another entity under conditions that are potentially favorable
• Financial Liability


  • A contractual obligation to deliver cash or other financial instrument to another entity
  • A contractual obligation to exchange financial instruments with another entity under conditions that are potentially unfavorable
• Equity Instrument


  Any contract that evidences a residual interest in the assets of an entity after deducting all liabilities
• Equity Instruments


  • Ordinary Share Capital
  • Preference Share Capital
• Debt Instruments


  • Generally have fixed returns due to fixed interest rates
  • Examples: Treasury Bonds and Treasury Bills issued by the Philippine government, Corporate Bonds issued by publicly listed companies
• Equity Instruments


  • Generally have varied returns based on the performance of the issuing company
  • Returns from equity instruments come from either dividends or stock price appreciation
• Preferred Stock


  Holders have priority over a common stock in terms of claims over the assets of a company
• Common Stock


  Holders are the real owners of the company
• Financial Market


  A marketplace, where creation and trading of financial assets, such as shares, debentures, bonds, derivatives, currencies, etc. take place
• Types of Financial Market

  • Stock market
  • Bond market
  • Commodities market
  • Derivatives market
• Stock market


  • Trades shares of ownership of public companies
  • Each share comes with a price, and investors make money with the stocks when they perform well in the market
• Bond market


  • Offers opportunities for companies and the government to secure money to finance a project or investment
  • Investors buy bonds from a company, and the company returns the amount of the bonds within an agreed period, plus interest
• Commodities market


  • Traders and investors buy and sell natural resources or commodities such as corn, oil, meat, and gold
  • A specific market is created for such resources because their price is unpredictable
  • There is a commodities futures market wherein the price of items that are to be delivered at a given future time is already identified and sealed today
• Derivatives market


  • Involves derivatives or contracts whose value is based on the market value of the asset being traded
  • The futures mentioned above in the commodities market is an example of a derivative