Understanding the role of the

financial markets and institutions

Define financial markets
Identify the participants in the financial
markets
Appreciate the importance of financial markets
as providers of funds to business establishments
Enumerate and distinguished the types of
markets
Distinguish categories of financial institutions
Understand the role of the stock market
Know the kinds of stock markets
Explain the reasons for transactions in stock
market
Discuss the role and operation of a stock
exchange
 Financial markets

 the meeting place for people, corporations, and

institutions.

 exist as a vast global network of individuals and

financial institution.
ex. lenders, borrowers, owners of public
companies worldwide
 Participants in the financial markets

Financial markets

Public financial markets Corporate financial markets

national state
Large corporations

Local government
 Importance of financial markets

- to provide funds for short- term operations

and for new plant and equipment.

Firms Public
Secondary
(raise financial Markets (institution and
markets
capital) individuals)
 Structure and function of the financial markets

1. Physical asset versus financial asset markets

Physical asset market- it is also called
tangible or real asset markets.
Financial asset market- deal with financial
instruments.
2. Spot markets versus future markets
Spot markets- assets are bought or sold for “on
the spot delivery”.
Future markets- participants agree today to
buy or sell an asset at some future date.
 Structure and function of the financial markets

3. Money markets versus capital markets

Money markets- funds are borrowed or
loaned for short periods.
Capital markets- it is for stocks and for
intermediate or long- term debt.
4. primary markets versus secondary markets
primary markets- corporations raise capital
by issuing new securities.
Secondary markets- securities and other
financial markets are traded among investors after
they have been issued by corporations.
 Structure and function of the financial markets

5. Private markets versus public markets

Private markets- are work out directly
between two parties.
Public markets- standardized contracts
are traded on organized exchanges.
 Financial institutions

 it is an establishment that conducts financial

transactions such as investments, loans and deposits.

Categories in financial institutions:

1. Investment banks- assist in the initial sale of newly
issued securities.
2. Commercial banks- accept deposits and provide
security and convenience to their customers.
3. Financial services corporations- firm that offers
a wide range of financial services, including
investment-banking, brokerage operations, insurance
and commercial banking.
 Financial institutions

4. Credit unions- cheapest source of funds

available to individual borrowers.
5. Pension funds- offered by most corporations
and government agencies
6. Life insurance companies- provide insurance
policies to individuals and firms for death, illness,
and damage to property
7. Mutual funds- sell shares to surplus units.
- use funds to purchase a portfolio of
securities.
 Financial institutions

 money market funds- invest in short- term, low- risk

securities and allow investors to write checks against
their accounts.
8. Exchange trade funds- securities that closely
resemble index funds, but can be bought and sold
during the day just like common stocks.
9. Hedge funds
10. Private equity companies
 Stock markets

- a securities that are already outstanding and owned by

the investors are usually bought and sold through the
secondary market.
- provide unique services and benefits to corporations,
individual investors and governments.

Two main section:

 Primary market- it is where new issues are first sold
through initial public offering.
 Secondary market- where participants include both
institutional and individual investors.
 Kinds of stock market

1. The organized stock exchange

- a visible marketplace for secondary market
transactions .

2.The over- the- counter (otc)

- a telecommunication network.
 Reasons for transactions in stock

 Information motivated reasons

- believes that they have superior information
about a particular information.

 Liquidity motivated reasons

- transact in the secondary market.
 Stock exchange

- it is an organized secondary market.

- it is an entity that brings buyers and sellers of stocks

and securities together.

- supplies a platform from which to buy and sell shares

in certain listed companies.
 Role of Stock exchange

 Raising capital for businesses

 Mobilizing savings for investment
 Facilitating company growth
 Profit sharing
 Corporate governance
 Creating investment opportunities for small
investors
 Government capital raising for development projects
 Barometer of the economy
 Listing of securities in stock exchange

 Listing
- admission of securities to dealings on an organized
stock exchange.

 Principal objective of listing

- To provide liquidity and marketability to listed
securities and ensure effective monitoring of trading
for the benefit of all participants in the market.
 Types of listing of securities

 Listing for public issue

 Listing for rights issue
 Listing of bonus shares
 Listing for amalgamation or merger
 Philippine stock exchange
(as of September 21, 2014)

52- 52- stocks open high low close volume

wee week
k low
high
75.3 63.5 Asia united bank 74 74.95 74 74.95 67.100
corp.