Capital Markets Overview

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Questions and Answers

What is one of the purposes of capital markets?

To provide liquidity to financial securities (correct)

To ensure fixed returns on all investments

To eliminate all financial risks for investors

To restrict individual investment opportunities

How do capital markets contribute to price discovery?

Through supply and demand interactions (correct)

By enforcing fixed pricing on securities

By regulating interest rates directly

By eliminating competition among buyers

What is the primary market known for?

Providing a platform for daily trading of stocks

Regulating financial market participants

Facilitating the issuance and sale of new securities (correct)

Offering loan facilities for corporations

Which of the following best describes an Initial Public Offering (IPO)?

The first offering of shares to the public by a private company Signup and view all the answers

What economic impact do capital markets have?

They play a pivotal role in stimulating economic growth Signup and view all the answers

What is one primary purpose of capital markets?

Provide a platform for companies to raise capital Signup and view all the answers

Which statement best reflects the importance of capital markets for economic growth?

They help businesses grow by providing necessary capital Signup and view all the answers

What type of securities can be traded in capital markets?

Stocks, bonds, derivatives, and commodities Signup and view all the answers

What misconception might people have about investing in the stock market?

It is just like gambling Signup and view all the answers

What role do capital markets play in the flow of capital?

They facilitate efficient allocation of capital Signup and view all the answers

The capital markets are a reflection of what?

Collective trust and ambition Signup and view all the answers

How are capital markets beneficial to investors?

They offer a platform to trade and invest capital Signup and view all the answers

What can be said about the debt market compared to the equity market?

It is perceived to be safer than the equity market Signup and view all the answers

What is the primary function of stock exchanges like NYSE and NASDAQ?

To provide a marketplace for trading previously issued stocks Signup and view all the answers

What is a seasoned equity offering (SEO)?

An issuance of additional shares by already listed companies Signup and view all the answers

What do bond markets primarily deal with?

Fixed-income securities Signup and view all the answers

What is the primary purpose of private placements?

To raise capital by selling securities to a select group of investors Signup and view all the answers

What is a key benefit of commodity exchanges?

Allowing hedging and speculation on price movements Signup and view all the answers

What does a debt issuance allow issuers to do?

Borrow money and promise to repay it with interest Signup and view all the answers

In which market can investors speculate on the future price movements of assets?

Derivatives Markets Signup and view all the answers

What is the role of the Philippine Stock Exchange (PSE)?

To serve as a primary market for initial public offerings and secondary offerings Signup and view all the answers

What type of securities does the Philippine Dealing & Exchange Corp. (PDEx) primarily deal with?

Fixed-income securities like bonds Signup and view all the answers

What is the primary purpose of foreign exchange markets?

To buy and sell currencies Signup and view all the answers

Which entity conducts auctions for Treasury bills and bonds in the Philippines?

Bangko Sentral ng Pilipinas Signup and view all the answers

What role does the Philippine Stock Exchange (PSE) serve?

It is where securities are traded after their initial issuance. Signup and view all the answers

What is the purpose of the Philippine Dealing & Exchange Corp. (PDEx)?

To provide platforms for trading securities. Signup and view all the answers

What distinguishes the secondary market from the primary market?

It allows investors to buy and sell previously issued securities Signup and view all the answers

What is a Real Estate Investment Trust (REIT)?

A company that manages and operates income-generating real estate Signup and view all the answers

Which of the following is NOT a type of secondary market mentioned?

Primary Markets Signup and view all the answers

Study Notes

Capital Markets Explained

Capital Markets are financial marketplaces that facilitate the buying and selling of financial securities.
The primary function of Capital Markets is to connect individuals, companies, and governments seeking to raise capital, or invest in securities.
Key elements of Capital Markets: Stocks, bonds, derivatives, commodities.

The Purpose of Capital Markets

Efficient Capital Allocation: Capital Markets match investors with excess capital to borrowers who need capital for investment and expansion.
Capital Raising Platform for Companies: Companies raise funds for various purposes through Capital Markets including research and development, infrastructure development, working capital, and more.
Investment Opportunities for Individuals: Capital Markets allow individuals to diversify their portfolios, accumulate wealth, and secure their financial future.
Enhancing Liquidity: Investors can easily buy and sell securities through Capital Markets, providing greater liquidity and the ability to quickly convert investments into cash.
Price Discovery and Risk Management: Capital Markets establish fair values for financial securities through price discovery based on supply and demand dynamics.
Risk Transfer and Hedging: Capital Markets offer instruments to mitigate potential risks through risk transfer and hedging.
Economic Growth and Development: Capital Markets play a vital role in economic growth by attracting domestic and foreign investment, and stimulating economic activities.

Types of Capital Markets

Primary Market: The Primary Market refers to the initial issuance and sale of securities (new stocks and bonds) by companies and governments.
- Initial Public Offerings (IPO): Companies go public by offering their shares to the public in the Primary Market.
- Seasoned Equity Offerings (SEO): Already listed companies offering shares to the public in the Primary Market.
- Private Placement: Direct sale of securities to specific investors, not the general public. Securities are not listed on an exchange and thus have less trading ability.
- Debt Issuances: Companies borrow money from investors and promise to repay principal and interest over a specific period.
Secondary Market: The Secondary Market involves subsequent trading of previously issued securities between investors.
- Stock Exchanges (NYSE, NASDAQ, LSE, TSE): Centralized platforms facilitating trading of publicly listed stocks.
- Bond Markets (US Treasury, OTC): Traded government bonds, municipal bonds, etc. offering investors interest income.
- Commodity Exchanges (CME, LME): Trading of physical commodities like metals, energy products, and agricultural products.
- Derivatives Markets (CBOE, CME): Trading of financial contracts deriving value from underlying assets or indices.
- Foreign Exchange Markets: Trading of currencies.

Primary Markets in the Philippines

Philippine Stock Exchange (PSE): Primary market for stocks, facilitating IPOs and secondary offerings.
Philippine Dealing & Exchange Corp. (PDEx): Primary market for fixed-income securities, including bonds.
Bangko Sentral ng Pilipinas (BSP): Conducts auctions of government securities (T-bills and bonds).
Real Estate Investment Trusts (REITs): Allow investors to invest in income-generating real estate properties listed on the PSE.

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Description

Explore the fundamental concepts of Capital Markets, including their role in financial transactions, capital allocation, and investment opportunities. Understand how these markets connect investors and borrowers and the importance of liquidity in the trading of securities.