Beruflich Dokumente
Kultur Dokumente
! Allows transfers of funds from person or business without investments to one who has them ! Improves economic efficiency.
Funds Returns
Funds
Financial System
Returns
Lenders
Users
Funds
Borrower-Spenders 1.! Business Firms 2.! Government 3.! Households 4.! Foreigners
Lenders-Savers 1.! Households 2.! Business Firms 3.! Government 4.! Foreigners
Funds
DIRECT FINANCE
Exchanges and Over-the-Counter Markets Secondary markets are organized in two ways: 1. Exchanges such as the stock market (that is why it is also known as the Philippine Stock Exchange) 2. Over-the-counter (OTC) market dealers buy and sell their inventory of securities to anyone who come to them and is willing to accept their prices.
Transactions Costs
! Financial intermediaries make profits by reducing transactions costs ! Reduce transactions costs by developing expertise and taking advantage of economies of scale
Asymmetric Information
An inequality brought about when one party does not know enough about the other party to make accurate decisions. For example: banks and financial institutions spend time and resources through credit/ background information of the borrower to ascertain whether to lend or not
Adverse Selection The problem created by asymmetric selection before the transaction occurs Potential borrowers most likely to produce adverse outcomes are ones most likely to seek the loan and be selected
Moral Hazard The problem created after the transaction (loosely described as conflict of interest) Hazard that the borrower has incentives to engage in undesirable (immoral) activities making it more likely that it wont pay the loan back
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Restrictions on Entry Disclosure Restriction on Assets and Activities Deposit Insurance Limits on Competition Restriction on Interest Rates
Investment Houses
! Involved in underwriting of securities, financial consultancy (issue management and underwriting of public offering of debt and equity securities, loan syndication and financial packaging and advisory for corporate mergers, acquisitions and restructuring) among others. ! Enabling laws: PD 129 series of 1973 and RA 8366 series of 1997. ! May be allowed to perform quasi-banking functions as approved by the Monetary Board ! Minimum capital requirement of P 300 M ! Foreign ownership allowed up to 60%
Financing Companies
! Enabling law: RA 8556, amending RA 5980 ! 'Financing companies' hereinafter called companies, are corporations, except banks, investments houses, savings and loan associations, insurance companies, cooperatives, and other financial institutions organized or operating under other special laws, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, by direct lending or by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property;
Financing Companies
Financing companies shall be organized in the form of stock corporations at least forty percent (40%) of the voting stock of which is owned by citizens of the Philippines and shall have a paidup capital of not less than Ten million pesos (P10,000,000) in case the financing company is located in Metro Manila and other first class cities, Five million pesos (P5,000,000) in other classes of cities and Two million five hundred thousand pesos (P2,500,000) in municipalities:
Securities Dealers
! Buying and selling of securities ! Minimum capital of P 5.0 M ! Mostly members of the Philippine Stock Exchange
Investment Companies
Sells its own securities to the public and invest the proceeds in stocks and bonds (bond fund)
Insurance Companies
! Engaged in property-liability (non-life), life insurance, and/or multiple-line products ! Minimum capital of P 100 M. Recent regulation allow for adjustment of risk ! Regulated by the Insurance Commission ! Sellers (agents) are carefully screened
Pre-Need Companies
! Sells pension, education, memorial plans subject to the approval of the SEC and the Insurance Commission ! Capital Requirements: Minimum paid-up capital of P 100 M. Existing pre-need companies shall comply with the following minimum unimpaired paid-up capital: ! P 100M for companies selling at least three (3) types of plan; ! P 75 M for companies selling two (2) types of plan; ! P 50M for companies selling a single type of plan. ! Existing pre-need companies with traditional education plans shall have a minimum unimpaired paid-up capital P 100M