FIMA 30083 Capital Market Reviewer PDF

FIMA 30083 CAPITAL MARKET Reviewer The Equity Market The Derivatives Market Outline Overview of Financial Market Terminologies: - Market - Market Structure...

FIMA 30083 CAPITAL MARKET Reviewer The Equity Market The Derivatives Market Outline Overview of Financial Market Terminologies: - Market - Market Structure Market Four Types of Structure - “Pamilihan” 1. Perfect Competition Is a place where your buyers and sellers 2. Oligopoly can meet to facilitate the exchange or 3. Monopoly 4. Monopolistic Competition transaction of goods and services. Financial Market Four Functions of Financial Market Market Structure 1. Price Determination Refers to how different industries are 2. Mobilization of Savings classified and differentiated based on their 3. Ensures Liquidity degree and nature of competition for goods 4. Saves Time and Money and services. Structures of Financial Market - ito lang ang pagkakaiba nila, 1. By Nature of Claim depending on their degree and a. Debt Market nature of competition. b. Equity Market - in the market, we compete to survive 2. By Timing of Delivery in industry. a. Cash Market b. Future Market FOUR TYPES OF MARKET STRUCTURE: 3. By Maturity of Claim 1. Perfect Competition a. Money Market 2. Oligopoly b. Capital Market 3. Monopoly i. Primary Market 4. Monopolistic Competition ii. Secondary or Stock Market Perfect Competition 4. By Organizational Structure - How does perfect competition a. Exchange-Traded Market happen? b. Over-the-Counter Market It occurs where there is a large number of The Money Market small companies competing against each Types of Instruments Traded in the Money other. Market Sell similar products (homogeneous), lack 1. Treasury Bills price influence over commodities, and are 2. Certificate of Deposits free to enter and exit the market. 3. Commercial Paper - Perfect example: Wet and dry 4. Banker’s Acceptance market. Palengke. Market sellers of 5. Repurchase Agreement (Repo) meat, fruits, and vegetables. 6. Eurodollars - pare-pareho yung tinda nila. They The Bond Market sell similar products in a single lane. FIMA 30083 CAPITAL MARKET Reviewer But they are little in the industry they No competitor, and it is the sole seller of operate. products in the entire market. - if a similar product is homogeneous, kapag different products “it is Restrict other companies from entering the heterogeneous”. market; has the power to control the market - here in perfect competition: Similar and set prices for its goods. products. MONOPOLY PERFECT COMPETITION (Homogenous) - single company - Large no. of small companies - no competitor competing - EX: Meralco, Maynilad - sell similar products Monopolistic Competition Oligopoly Refers to an imperfectly competitive market Consists of a small number of large with the traits of both the monopoly and companies that sell differentiated or competitive market. identical products. - opposite of perfect competition. Sellers compete among themselves and - kailangan competitive ang bawat isa. can differentiate their goods in terms of If napag-iwanan ka ng ibang quality and branding to look different. competitors, ma-aaccquire or mamemerge ka. Example: P&G, Jack and Jill, Unilever - competitiveness is a must and strategy. Shampoo (Men) - Best example: Philippines major - P&G (Head and Shoulders) telecommunication companies - Unilever (Clear) (Smart, Globe, and Sun) Shampoo (Women) OLIGOPOLY (Homogenous) - P&G (Pantene) - small no of large companies - Unilever (Sunsilk) - Competitive strategies are dependent within the organization of Jack and Jill, they Conetive Horgre ar aependen nies - still compete with themselves. EX. TRICO - MONOPOLISTIC COMPETITION Monopoly - Imperfectly competitive market with - Mono means “isa lang” monopoly - siya ang nag-cocontrol and dictate - compete among themselves the price for the service they offer. - Create same goods A single company represents the whole - EX. P&G, Jack and Jill, Unilever industry. FINANCIAL MARKET FIMA 30083 CAPITAL MARKET Reviewer - same definition pa rin with the - the main reason is for expansion capital market. purposes and to introduce the Primarily refers to a marketplace where company to the general public. buyers and sellers participate in the trade. - Corporation date: Kailan siya naging legal entity, nung private Known for transparent pricing, strict company pa siya. regulations, costs and fees, and clear - Listing date: Kung kailan siya guidelines. nag-enlist doon sa Philippine Stock - may regulatory bodies (stricter Exchange. regulations) because it is regulated by different NGRAs. - Gray side: Financial Risk. - NGRAs (National Government Regulatory Agencies) - lalabas FUNCTIONS OF FINANCIAL MARKET daw sa exam 1. Price Determination - example of NGRAs 2. Mobilization of Savings - Security of Exchange 3. Ensures Liquidity Commissions (SEC) 4. Saves time and money - BSP (Oversight function) - Other relevant agencies Price Determination - major economic concept: “There is - Interaction between investors, no such thing as free lunch” All industries, and other market forces transaction and movement entails helps to determine the price. cost. Just like the financial market, if - paggalaw ng inflation, paggalaw ng you want to make a transaction, interest rate, pagbaba ng there are fees associated with that. employment rate. Helps determine and set the price. Acts as an intermediary between savers Mobilization of Savings and investors, or they help savers to - Helps in connecting those with become investors. On the other hand, they money with those who require also help businesses to raise money to money. expand their business. Ensures Liquidity - should there be any excess after - how fast or easy nacoconvert yung your saving, then yun yung pera na asset into cash. pang-iinvest natin. - stockholding (Nandiyan ang financial - hindi tayo pwedeng mag-invest in market para ibenta or bumili sa the financial market if yung money is kanila.) (1) for survival (2) for emergency Investors can easily sell those assets and funds. convert them into cash whenever they want. - when we try to invest in the financial market, we have to make sure that Saves time and money yung perang iyon is kaya nating i-let Serve as a platform where buyers and go. sellers can easily find each other without “to raise money to expand their business.” making too much effort or wasting time. FIMA 30083 CAPITAL MARKET Reviewer - we have different ways to participate such as debentures or bonds, are traded in trade industries. It may be through between investors. brokers (online or traditional), or us (we can trade to different platforms). *common debt instruments: debentures, bonds and other fixed incomes securities *issued to investors: certificate of indebtedness Equity Market: A market wherein the investors buy and sell equity instruments. It is the market for equity claims. *selling of equity instruments such as your stocks *they do buy and sell, still a market that facilitate buying and selling but this time financial instruments na yung tinitrade natin such as equity *bought from publicly listed company: shares of stock (buyers are part of the ownership team — a part owner— with that simple transaction *issued to buyers: certificate of ownership By Timing of Delivery Cash Market: This market can be defined STRUCTURES OF FINANCIAL MARKET as a market where all the transactions are settled in real-time between buyers and sellers. *bumili ng shares of stock = ise-settle ko siya today *cash or spot market - other term Futures Market: Futures market is one wherein commodities are delivered at a future specified date. *ise-settle siya some time in the future pa By Nature of Claim *pre-determined yung price na ise-settle Debt Market: The market is the market some time in the future din — future wherein fixed claims or debt instruments, specified date. specific dapat yung date FIMA 30083 CAPITAL MARKET Reviewer By Organizational Structure Primary Market: A financial market, Exchange-Traded Market: This market wherein the company listed on a stock has a centralized organization with the exchange, for the first time, issues new standardized procedure. security or already listed company brings the fresh issue. It is also known as IPO *normally, stock-listed companies (traded (Initial Public Offering) over the exchange) *centralized = lahat ng transactions can be *Initial listing sa stock exchange seen by all other parties involved *From being a private to being a publicly *standardized ang procedure = kung ano listed one ang control sa isang transaction, similar din with the other ones Secondary Market: Alternately known as *pagbili ng shares of stocks sa bdo = same the Stock market, a secondary market can lang sa pagbili ng shares of stocks sa cebu be defined as an organized marketplace, pacific wherein already issued securities are traded between investors, such as Over-the-Counter Market: This market is individuals, merchant bankers, stockbrokers characterized by a decentralized and mutual funds. organization, having customized procedures. The Money Market - an organized exchange market where *transaction for the foreign exchange participants can lend and borrow short-term, *it differs to other currencies high-quality debt securities with average *decentralized: may regulators pa rin pero maturities of one year or less. decentralized yung organization, the parties involved (buyers and sellers can customize TYPES OF INSTRUMENTS their procedure) — sa exchange-traded Traded in the Money Market kung ano yung registered or settlement bank, yun na yun 1. Treasury Bills - issued with a full guarantee by the By Maturity of Claim government - Bureau of the Treasuries Money Market: The market where - issued to refinance Treasury bills monetary assets such as commercial paper, reaching maturity and to finance the certificate of deposits, treasury bills, etc. government's deficits which mature within one year or less, are - short-term in nature, usually with tenors of traded is called money market. 91, 182 and 364 days and sold at a Capital Market: The capital market is discount defined as a market wherein medium and long term financial assets are dealt with. *In the Philippines, issued by the National More than one year ang maturity. Government of the Republic of the Philippines through Bureau of the It can be further divided into two types: Treasuries FIMA 30083 CAPITAL MARKET Reviewer *More than a year = Treasury Bonds - a form of short-term debt that is issued by *Safest Investment = US Treasury Bills a firm but guaranteed by a bank — being (guaranteed by Federal Reserve) (default utilized in International Trade, ginagamit risk-free) natin on behalf of our client (drawer or drawee) 2. Certificate of Deposit (CD) - created by a drawer, providing the bearer - issued directly by a commercial bank, but the rights to the money indicated on its face it can be purchased through brokerage firms at a specified date. - fixed maturity date and interest rate, and - often used in international trade because they attract a penalty for withdrawing prior of the benefits to both the drawer and the to the time of maturity bearer - short-term in nature, usually with maturity - maturity date usually lies between one date ranging from three months to five years month and six months from the issuing date and can be issued in any denomination — pwedeng mag-fall under capital and money 5. Repurchase Agreement (Repo) market depends on its maturity date or tenor - a short-term form of borrowing that involves selling a security with an *type of a time-deposit agreement to repurchase it at a higher price *pwedeng i-withdraw ang certificate of at a later date deposit kahit hindi pa matured? ideally, - commonly used by dealers in government dapat hindi. pero yes, pwede kaso may securities who sell Treasury bills to a lender penalty. - agreements' date of maturity ranges from overnight to 30 days or more 3. Commercial Paper - Federal Reserve buys repurchase - unsecured loan issued by large institutions agreements as a way of regulating the or corporations to finance short-term cash money supply and bank reserves flow needs - only institutions with a high credit rating *Institution in need of cash - illiquid (No can issue commercial paper — from credit cash, ang meron lang ay debt securities) rating agencies *Debt securities will become collateral - issued in denominations of $100,000 and equivalent = cash (Repurchasing = Higher above (larger values) Price) (Sangla) - comes with a maturity date between one * In US, Federal Reserve, buys Repo to month and nine months. regulate the money supply and bank reserves. Same in Philippines, BSP, but not *GSED - Government Securities Eligible more on the transaction of Repo (control the Dealers (authorized dealers that can Money Supply by implementing Monetary transact on behalf of the National and Fiscal Policies instead — Expansionary Government when they wanted to connect and Contractionary) saver to investor and vice versa) 6. Eurodollars 4. Banker's Acceptance FIMA 30083 CAPITAL MARKET Reviewer - dollar-denominated deposits (outside the - gives companies access to capital to grow US) held in foreign banks, and are thus, not their business, and investors a piece of subject to Federal Reserve regulations ownership in a company with the potential - very large deposits of eurodollars are held to realize gains in their investment based on in banks in the Cayman Islands and the the company's future performance Bahamas - pay a slightly higher interest rate than U.S. - ang iniissue kapag equity market ay government debt certificate of ownership. The Bond Market The Derivatives Market - is where investors go to trade (buy and - refers to the financial market for financial sell) debt securities, prominently bonds, instruments such as futures contracts or which may be issued by corporations or options that are based on the values of their governments. By buying a bond, credit, or underlying assets debt security, you are lending money for a - derives its value sa panibagong assets. set period and charging interest-the same way a bank does to its debtors. - opposite of bills, with a maturity of more than one year. - under ng capital market. - dalawa lang pwede mag-issue: corporations or governments. Bond issued by the corporations “Corporate bonds” Bonds issued by the government “Treasury Bonds” *if the issuer is the government (sometimes referred to as bond issuers), we are called bondholders (tayo ang nagpautang). *in return sa pagpapautang natin, ang iniissue sa atin ay certificate of indebtedness. The Equity Market - a market in which shares of companies are issued and traded, either through exchanges or over-the-counter markets FIMA 30083 CAPITAL MARKET Reviewer 91day TBilI 182- day-T-lill 364-day T bill CAPTAL M - 1- BonD - more than iyp -boUt. securHies Safest 1- Bills around the giobe - USTB - US T-BILLS. - uS gout. CERTS: Mock- cent. of awnenchip /Iquity m. DEBT INSTRUMENT cert. 0$ indebtedness Exchange traded - Centralized - Standardized procedures Over the counter - Decentralized - Customized procedures Treasury Bills - Offered by tha natl gov - Bueary of trea Safest - us t bills Guaranteed by the fed FINANCIAL MARKET 1. Tbills NATURE OF CLAIM - Issue to finance govt deficit Debt - Short term in nature Equity - Less than a year - Certificate of indebtedness MARKET - Issue to refinance yung magmamature na tbills CAPITAL MARKET = more than lyr - Banks and big companies (Gsed- MOnEY Market wIthin 1yr goverment securities eligible dealers) Debt - gray area of companies TBONDS BOND -PDEX TBillS- Less than a year BSP Tenors- 91,182,364 - Issue 30 DAY BILL FIMA 30083 CAPITAL MARKET Reviewer - Bond Issuer - corporate na 2. CDs magbibigay ng cert of indebtedness - Fixed maturity date and interest rate - Pwede i-withdraw pero may penalty Equity Market - Issued by commercial bank - Cert of ownership - In between of money and capital - A piece of ownership marker Derivatives market 3. Commercial Paper - Futures contracts or options that are - Issued by allowed large institutions based on the values of their (with high credit rating - given by underlying assets credit rating agencies) - Derives its values from the - Money market underlying markets 4. Banker’s acceptance - Issued by firm, guaranteed by a bank - 5. Repurchase Agreement (Repo) - Short term form of borrowing - May deficit sa counter party - may securities - Higher price at a later date 6. Eurodollars - Held in foreign bnks, not subject to federal reserve - Very large deposits. Held in cayman islands and the bahamas CAPITAL MARKET Bond Market - Bond, financial debt instruments - Less than a year maturity date - Corporate bonds - issued by corporation - Treasury Bonds - issued by govt - Bond Holder - investors