AE18 FINALS REVIEWER PDF

Summary

This document is a review of financial markets, covering topics such as different types of financial markets, mortgage markets, and various financial instruments. It also includes information about asymmetric information problems and the purposes of derivatives.

Full Transcript

2 TYPES OF FINANCIAL MARKETS 1. Money Market 2. Capital Market 2 PARTIES OF MORTGAGE 1. Mortgagor 2. Mortgagee 2 FUNCTIONS OF FINANCIAL SYSTEM 1. Risk Sharing 2. Liquidity 2 COMPOSITION OF CAPITAL MARKET 1. Primary Market 2. Secondary Market 2 TYPES OF MORTGAGE MARKET...

2 TYPES OF FINANCIAL MARKETS 1. Money Market 2. Capital Market 2 PARTIES OF MORTGAGE 1. Mortgagor 2. Mortgagee 2 FUNCTIONS OF FINANCIAL SYSTEM 1. Risk Sharing 2. Liquidity 2 COMPOSITION OF CAPITAL MARKET 1. Primary Market 2. Secondary Market 2 TYPES OF MORTGAGE MARKET 1. Primary Market 2. Secondary Market 2 ASYMMETRIC INFORMATION PROBLEMS 1. Moral Hazard 2. Adverse Selection 2 SOURCES OF FUNDS IN FINANCIAL SYSTEM 1. Debt Instrument 2. Equity Instrument 2 PURPOSES OF DERIVATIVES 1. Hedging 2. Speculation 2 SOURCES OF DEMAND OF MONEY 1. Transaction 2. Specautionary 2 FACTORS THAT AFFECT PERSONAL INTEREST 1. Market factor 2. Perceived Risk factor 2 BROAD SEGMENTS OF STOCK MARKETS 1. Organized Stock Exchange 2. Over-the-Counter (OTC) Exchange 2 PRIMARY ISSUERS OF MARKET SECURITIES 1. Government 2. Corporation 2 FOREIGN CURRENCY EXCHANGE RATE TRANSACTIONS 1. Spot transaction 2. Forward transaction 2 TYPES OF OPTION 1. Put Option 2. Call Option 2 FUNCTIONS OF FOREX MARKET 1. To convert currency 2. Providing insurance against tax risk 2 CASHLESS SOCIETY IS DIFFICULT TO BUILD 1. Expensive 2. Household protecting their privacy 2 IMPORTANCE OF FOREX MARKET EXCHANGE 1. Allow currency conversion 2. Facilitate global rate 3 INTEREST RATES 1. Simple 2. Nominal 3. Discounted 3 DERIVATIVES CONTRACT COMPONENTS 1. Underlying Asset 2. Counterparty 3. Expiration or Maturity 3 WAYS HOW TO PURCHASE T-BILLS 1. Secondary Market 2. Competitive Auction/Bid 3. Non Competitive Auction/Bid 3 GOVERNMENT NON-BANK FINANCIAL INSTITUTION 1. Government Service Insurance System (GSIS) 2. Social Security System (SSS) 3. Pag-ibig 3 GOVERNMENT BANKING INSTITUTIONS 1. Development Bank of the Philippines 2. Land Bank of the Philippines 3. Philippine Al-Amanah Islamic Investment Bank 3 MANAGING FOREIGN EXCHANGE RISK 1. Foreign Currency Forward 2. Foreign Currency Futures 3. Foreign Currency Option 3 TYPES OF INTEREST RATE SWAP 1. Fixed-to-Floating Swap 2. Floating-to-Fixed Swap 3. Floating-to-Floating Swap 4 ADVANTAGES OF STOCK MARKETS 1. Most accessible market 2. Ready market 3. Liquidity of market 4. Operates in full public view 4 TYPES OF MONEY AGGREGATES 1. M1 Narrow Money 2. M2 Broad Money 3. M3 Broad Money Liabilities 4. M4 Liquidity Money 4 TYPES OF FINANCIAL INSTITUTIONS IN THE PHILIPPINES 1. Commercial Universal Bank 2. Rural Coop 3. Thrift Banks 4. Non-bank and Quasi-banking 4 FEATURES IF COMMON SHARES 1. Par Value 2. Authorized Capital or Outstanding Shares 3. Book Value 4. Maturity 4 STOCK MARKET PARTICIPANTS 1. Investors/Market Regulators 2. Stockbroker 3. Stock Exchange 4. Transfer Agent 4 STRUCTURE OF PHILIPPINE FINANCIAL SYSTEM 1. Bangko Sentral ng Pilipinas 2. Banking Institutions 3. Private Non-Banking Financial Institutions 4. Government Non-Banking Financial Institutions 4 FINANCIAL ASSETS AND FINANCIAL LIABILITIES 1. Money 2. Bonds 3. Stocks 4. Debt 5 C’s 1. Character 2. Capacity 3. Collateral 4. Condition 5. Capital 5 KINDS OF MONEY MARKET INSTRUMENTS 1. Treasury Bills 2. Repurchase Agreements 3. Commercial Paper 4. Bankers’ Acceptance 5. Negotiable Certificate of Deposits 5 TYPICAL EXAMPLES OF DERIVATIVES 1. Futures Contracts 2. Forward Contracts 3. Call Options 4. Foreign Currency Futures 5. Interest Rate Swaps 5 WAYS HOW FOREX MARKET WORKS 1. Buying rate 2. Selling rate 3. Quoted rate 4. Bid price 5. Ask price 5 MOST DESIRABLE OUTCOMES FOR A PAYMENT SYSTEM 1. Security 2. Efficiency 3. Speed 4. Smooth 5. Effective 6 CHARACTERISTICS OF RESIDENTIAL MORTGAGE ??? 1. Mortgage Interest Rate 2. Loan Term 3. Collateral 4. Down Payment 5. Private Mortgage Insurance (PMI) 6. Borrower Qualification 7. Amortization of Mortgage Loan*** 7 Money Market Participants 1. National Government (thru the Bureau of Treasury) 2. Universal Banks/Commercial Banks 3. Money Market Mutual Funds 4. Brokers and Dealers 5. Corporations 6. Other Financial Institutions 7. Individuals 7 FINANCIAL ASSETS 1. Cash on hand and in banks 2. Petty cash 3. Demand, savings and time deposits 4. Undeposited checks 5. Foreign currencies 6. Money orders 7. Bank drafts 7 TYPES OF DEBT INSTRUMENTS 1. Notes 2. Bonds 3. Debentures 4. Certificate 5. Mortgages 6. Leases 7. Other agreements

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