Capital Markets PDF

Capital Markets Financial Asset – a financial asset is a liquid asset that gets its value from a contractual right/claim or Financial System is collectively financial market, the ownership claim. f...

Capital Markets Financial Asset – a financial asset is a liquid asset that gets its value from a contractual right/claim or Financial System is collectively financial market, the ownership claim. financial participants and the financial instrument - The future benefits of a financial asset comes from that are traded in financial market. a claim to future cash. -A financial system is a set of institution, such as - Also known as financial instrument banks, insurance companies and stock exchange - is an intangible asset (ex. Bank deposits, stocks, that permit the exchange of funds. bonds, and etc.) EQUITY VS. DEBT INSTRUMENT Functions of Financial System Equity Instrument – a financial instrument that To channel funds from SUs and Dus represents ownership over a company. To provide medium of exchange Debt Instrument – financial instrument that To provide mechanism for risk sharing represent indebtedness of an issuer to an investor To provide a channel through which the central Derivative instrument – a financial instrument that bank can influence the economy. derives its performances from the performances from the performances of an underlying asset. SU DU Reason for Financial Asset Globalization -Surplus unit - Demanders of fund Expand international trade market & Attract -Supply unit - Deficit unit Foreign investors -Supply of funds - Demand unit Cross-bearer financial flows Multinational financial system Components of Financial System Economic Functions of Financial Asset - Participants 1. Allow the transference of funds from these entities - Financial Asset who have surplus funds to invest to those who need - Financial Market funds to invest in tangible asset 3 Components Financial System 2. They permit the transference of funds in such a - Monetary System way as to redistribute the unavoidable risk - Financial Institution associated with the cash flow generated by tangible - Financial Market assets among those seeking and those providing the (1) Monetary System funds. - Creating money Financial Markets - Transferring money - is a marketplace where financial assets or financial (2) Financial Institution instruments are being traded - Accumulating savings - it is a structure through which traded flow - Lending and investing savings (3) Financial market Money Market – short-term debts instrument - Marketing financial assets (loans, tbills, mutual funds) - Transferring financial assets Capital Market – long-term debt and equity Assets – any sources that is expected to provide instrument (securities, bonds, or other financial future benefits and has economic value. assets) 1. Tangible assets – physical property, it can be Derivatives – ha no value of its own. Value lies on touched. The value of tangible asset depends the underlying asset. on physical. Primary Market – newly issued securities are being 2. Intangible assets – not physical in nature, it traded. The transaction is between issuing entity and values bears no relation to its form physical. investor Secondary Market – previously issued outstanding securities are being traded, the transaction is between investors. - Created on October 26th, 1936 by Financial Market Participants Commonwealth Act no. 83 also known as the Household / consumer – commonly the SUs Securities Act. Financial Institution/Intermediaries – SU & DUs 3. PSE (Philippine Stock Exchange) – it is the Non-financial Institution – have subsidiaries that only stock exchange in the Philippines. It are involved in the same activities of financial works in coordination with the SEC, regulates institutions trading activities on its platform. Government – issue instruments like treasury 4. Insurance Commission (IC) – Regulates the bonds, bill notes insurance industry, including insurance Central Bank companies and products. Regulates Foreign participants – foreign issuing company insurance activity. Philippine Financial System Insurance Companies Financial Institution The nature of Insurance is to provide economic Banking Institution protection against losses that may be incurred due to - Universal Bank chance of unfortunate. - Commercial Bank INSURANCE is a contract represented by a policy, in - Thrift Bank which an individual or entity receives financial - Rural Bank protection or reimbursement against losses from an Non-banking institution insurance company. The company pools client risk to - Investment house make payment more affordable for the insured. - Pawnshop Products offered by Insurance Company - Saving and loans association Life insurance - Credit union Health insurance - Lending Investor Property and casualty insurance - Venture Capitalist Disability insurance Banking Institutions Liability insurance Universal Bank – power of an investment house, Structured settlements authorized to engage in underwriting and other Financial guarantee functions of investment houses and to invest in Long-term care insurance equities of non-allied undertakings. Life Insurance – it is a contract between an insurer, a Commercial Bank – are corporations which in policy holder in which the insurer guarantees addition to the general powers incident to payment of a death benefits to insured beneficiaries corporations are authorized to accept drafts and upon the death of the insured. issue letters of credit. TYPES OF LIFE INSURANCE Thrift Bank – engaged in accumulating savings of TERM LIFE INSURANCE – provides a death depositors and investing them. They are also benefit that pays the policy holder beneficiaries short-term working capital. over a predetermined time period. Regulators of Financial Market WHOLE LIFE INSURANCE – offers protection for 1. BSP (Bangko Sentral ng Pilipinas) – central the entire insured person’s life. Whole life bank of the Philippines. It maintains price insurance includes both a transfer death payout stability conductive to a balanced and and a savings where cash value may build up. sustainable economic growth. UNIVERSAL LIFE INSURANCE – generally 2. SEC (Securities and Exchange Commission) – speaking, this sort of coverage contains a cash regulate market and protects against fraud value component that increases in accordance (sale and registration of securities, with market interest rates and let you modify your exchanges, broker, dealer). premiums (w/ cert restrictions)  VARIABLE LIFE INSURANCE – this type of cash Casualty insurance means that the policy value life insurance is tied to investments includes liability coverage to help protect you, if accounts, such as bonds and mutual funds. you’re found legally responsible for an accident Variable life insurance premium is typically fixed that causes injuries to another person or damage and the death benefits guaranteed regardless of to another person’s belonging. how the market fares. Types of property and casualty insurance: BURIAL INSURANCE – this type of cash value life Homeowners insurance insurance is tied to investment accounts, such as Car insurance bonds and mutual funds. Variable life insurance Condo insurance premiums are typically fixed and the death Renters insurance -protecting the renters benefit is guaranteed regardless of how market belongings from unexpected circumstances such fares. as theft, a fire or sewer backup damage OTHER TYPES OF LIFE INSURANCE Power sports insurance – speedboat (powered Group life insurance (cheaper) vehicles) Mortgage life insurance (insurance company will Landlord insurance – covers property damage, pay your house when you die) liability protection in case someone gets injured Credit life insurance (pay off a borrower’s on the property. outstanding debts if the policyholder dies) Liability Insurance Accidental death & dismemberment insurance Policy offers to cover its holder against the cost of (covers the unintentional death or specific compensation on due to malpractice, injury or injuries such as loss of limb, eyesight, hearing or negligence speech) The risk incurred against litigation, the risk of Joint life insurance – for married couple lawsuits against the insured resulting from the ▪ First-to-die – will benefit the surviving actions by the insured or others partner Disability Insurance ▪ Second-to-die – when they both died, no is a type of insurance product that provide benefits income in the event that a policyholder is Health Insurance prevented from working and earning an income Is a contract between a company and a due to disability. consumer. The company agrees to pay all or Types of Liability Insurance some of the insured persons healthcare cost in a. commercial general liability insurance return for payment of a monthly premium. b. directors & officers liability insurance – protects The risk insured is the cost of medical treatment director & officers from personal liability for the insured. c. Professional indemnify insurance – protects TYPES OF HEALTH INSURANCE IN THE professionals licensed against negligence PHILIPPINES d. Cyber-risk insurance – breach of data of the 1. Philhealth – public/gov. owned clients/hacked 2. Health maintenance organization – avail by e. Commercia crime insurance – when store got rob company for their employees (group health f. carrier legal liability insurance – logistics company insurance) (dealers of shopee, Lazada, lalamove) 3. Prepaid health card – limited coverage g. Product liability insurance – provides coverage for 4. Private health insurance – for individuals but more businesses against claims related to damages coverage (group health insurance) caused by products. PROPERTY AND CASUALTY INSURANCE h. Trade credit insurance – protect business against Property insurance helps cover stuffs you own the risk of non-payment by their customers. like your house or your car. Long-term care Insurance TYPES OF INSURANCE COMPANIES (based on coverage that provides insuring home-care, ownership) home-health care, and personal or adult day care MUTUAL INSURANCE COMPANIES for individuals age 65 or older with a chronic or - are owned by its policyholders disabling condition that need constant - limited capability to issue stocks supervision. STOCK INSURANCE COMPANIES Structured Settlement - as corporation owned insurance companies policies provide for fixed guaranteed period - they are able to offer shares of their company to payments over a long period of time instead of a the public lump sum typically resulting from settlements on - they have the ability to issue stock a disability or other types of policy WHAT IS DEMUTUALIZATION? Investment Oriented Product This is the process where in structural insurance have a major investment component. They company is converted into a stock insurance include a guaranteed investment contract (GIC) company through insurance. or annuities HOW DO INSURANCE COMPANIES GENERATE A guaranteed investment contract (GIC) is INCOME AND PROFIT? contract between an insurance company and an Insurance companies, in exchange for their investor, typically a person fund or an employer- policies receive payment call insurance premium sponsored retirement plan. The investor agrees to from their policy holders. They generate revenues deposit a sum of money with the insurer provides by investing a portion of their total collected to pay the investor premiums to different investments from different Annuity – the policy holder pays a single premium for financial markets the policy and the life insurance company agrees to Insurance Company/Insurer Two Fundamental Features Policy holder/Insured 1. Whether the periodic payments begin immediately or are deferred to some future WHAT IS REINSURANCE? date. These are some cases where insurance company 2. Whether the dollar amount is fixed comparing also avail services from other Financial Guarantee – the risk insured by the insurance companies to lessen their risk product is the credit risk that the issuer of an issued exposure. bond or other financial contract will fail to make One insurance company buying to other timely payment of interest and principal insurance company to protect themselves. 3 MAJOR TYPES OF INSURANCE COMMISSION (IC) “based on product offered” Life and health insurance companies Property and Casualty Insurance Companies Monoline Insurance Companies LIFE INSURANCE COMPANY & NON-LIFE INSURANCE Life Insurance is the protection and security for your loved ones in the event of the event of your death Non-life Insurance is any other type of insurance other than life insurance