PR-MT-FM-401-Special-Topics-Reviewer PDF

FM401 – SPECIAL TOPICS IN FINANCIAL MANAGEMENT decisions is always an important constituent for Professor: Ms. Anne A. Tablizo sustainable financial market practices, but Jessa Joy M. Castuera – 4FM1 (PRELIM & MIDTERM)...

FM401 – SPECIAL TOPICS IN FINANCIAL MANAGEMENT decisions is always an important constituent for Professor: Ms. Anne A. Tablizo sustainable financial market practices, but Jessa Joy M. Castuera – 4FM1 (PRELIM & MIDTERM) different concepts like bounded rationality restrict it from happening. LESSON 1. BEHAVIORAL FINANCE Traders rely greatly on technical indicators. However, in many cases, it has been noted that Objectives: investors' behavior in markets is often strange ❑ Modern area of study in finance which aims since it may be the opposite of what the technical to combine behavioral and cognitive market indicators may point to. The goals of any psychological theory with conventional investor are to make profits from a market, and economics and finance to provide the decisions they make to achieve this may not explanations for the reasons why people always be rational. make irrational financial decisions. The two main constituents, cognitive psychology ❑ To help understand why people make certain and the limits to arbitrage, can interpret diverse financial choices and how those choices can market scenarios where the influence of human affect markets. psychology in financial decisions occurs. Therefore, understanding cognitive bias like overconfidence, herd mentality, and loss BEHAVIORAL FINANCE aversion is beneficial. Furthermore, the forces of  Definition: Behavioral finance refers to the study arbitrage may fail, and this limit to the arbitrage focusing on explaining the influence of process contributes to the persistence of financial psychology in the decision-making process of market anomalies. Altogether the study explains investors. It explains the occurrence of irrational the investor's irrational decisions and discloses decision-making in the financial market when it market behavior. However, the problem is that is expected to be a manifestation of rational the behaviors of investors combined with their decisions and an efficient market. different biases make them difficult to predict.  Psychological influences and biases affect the financial behaviors of investors and financial practitioners BEHAVIORAL FINANCE CONCEPTS  Influences and biases can be the source for the Behavioral finance typically encompasses five main explanation of all types of market anomalies concepts: and specifically market anomalies in the stock market, such as severe rises or falls in stock price.  Behavioral finance is an area of study focused on how psychological influences can affect market outcomes.  Behavioral finance can be analyzed to understand different outcomes across a variety of sectors and industries.  One of the key aspects of behavioral finance studies is the influence of psychological biases.  Some common behavioral financial aspects include loss aversion, consensus bias, and familiarity tendencies  The efficient market theory which states all 1. Mental accounting equities are priced fairly based on all available 2. Herd behavior public information is often debunked for not 3. Emotional gap incorporating irrational emotional behavior. 4. Anchoring 5. Self-attribution BEHAVIORAL FINANCE THEORY Behavioral finance explores how factors like psychological influences and biases distort the logical reasoning of people. An environment with well-informed investors following rational  BIASES OF BEHAVIORAL FINANCE 6. Disposition Bias Biases play a major role in an entity's financial  It explains the propensity of investors to decision-making process. hold on to the stocks even if the prices are declining, believing that the prices will appreciate in the future and, at the same time, sell the well-performing stocks. Such investors tend to hold on to a stock losing money, hoping that the price will soon increase. In their minds, it's only a matter of time before the tides change for them, and they can then make profits on all their positions in a market. 7. Mental Accounting  People's budgeting process or spending 1. Confirmation Bias habits may vary based on circumstances.  The confirmation bias occurs when the That is, they don't maintain a consistent investors align to the information that pace. For instance, people may spend for matches with their beliefs. The data could luxury in a mall or while on vacation, and be wrong, but as long as it fits with their they also possess a modest lifestyle at views, they end up relying on it. home or when they are back from vacation. 2. Experiential Bias  It occurs when an investor's memories or experiences from past events make them BEHAVIORAL FINANCE IN THE STOCK MARKET choose sides even when such a decision Efficient market hypothesis is not rational. For instance, previous or Liquid market current bad experience leads them to avoid similar positions. WHAT DOES BEHAVIORAL FINANCE TELL US 3. Loss Aversion  Behavioral finance helps us understand how  Loss aversion makes investors avoid financial decisions around things like taking a risk even if it earns high returns. investments, payments, risk, and personal They give priority to restraining from debt, are greatly influenced by human experiencing losses rather than emotion, biases, and cognitive limitations of experiencing high returns. the mind in processing and responding to information. 4. Familiarity Bias  The familiarity bias is reflected when HOW DOES BEHAVIORAL FINANCE DIFFER investors place their investment in the FROM MAINSTREAM FINANCIAL THEORY stocks from the industry they know and  Mainstream theory, on the other hand, makes understand rather than going after the assumptions in its models that people are securities from an unrelated field. In this rational actors, that they are free from process, they may lose new or innovative emotion or the effects of culture and social opportunities that are revolutionary. relations, and that people are self-interested utility maximizers. 5. Overconfidence  Overconfidence reflects when investors overestimate their abilities or trading skills HOW DOES KNOWING ABOUT BEHAVIORAL and make decisions forgoing factual FINANCE HELP evidences.  By understanding how and when people deviate from rational expectations, behavioral finance provides a blueprint to help us make better, more rational decisions when it comes to financial matters. WHAT IS AN EXAMPLE OF A FINDING IN resolve and recur in the future. If an individual has an BEHAVIORAL FINANCE experiential bias, the thought of a past crisis may  Investors are found to systematically hold on make them see investing in stocks as a bad idea, to losing investments far too long than even if all the evidence points to the opposite. They rational expectations would predict, and they may then decide to invest in less profitable also sell winners too early. endeavors. Many investors are driven by herding PRACTICAL EXAMPLES OF behavior to join the bandwagon to invest in meme BEHAVIORAL FINANCE stocks like AMC and Gamestop ignoring risk factors. For a better understanding, let's look into the following examples from the stock market scenario. The relevance of psychology in financial planning is increasing. Financial advisors combine An investor in the stock market may opt-out traditional concepts with elements of behavioral because of the financial crisis affecting the stock finance theory while developing strategies to market, thinking that the problem will take longer to strengthen the client relationship. NOTES: Reference: https://www.wallstreetmojo.com/behavioral-finance/  CHAPTER 1: INTRODUCTION TO SPECIAL WHAT IS FINANCIAL MANAGEMENT? TOPICS IN FINANCIAL MANAGEMENT It refers to the strategic planning, organizing, directing and controlling of an organization’s OVERVIEW: financial resources to achieve its financial goals and objectives. We go beyond the fundamental concepts of It involves making informed decisions about how budgeting, investing, and risk management in this to allocate, invest and manage funds in order to investigation of particular issues in financial maximize the value of the organization and management. We set out on an adventure to learn ensure its long-term financial health. about the complexity of modern banking, including the new approaches and instruments, developed to traverse ever changing economic landscapes. From KEY ASPECTS OF FINANCIAL sustainable finance and behavioral economics to MANAGEMENT INCLUDE: sophisticated risk hedging and cryptocurrency Financial Planning management, this subject delves into unusual but  This involves setting financial goals and critical aspects of managing finances in a global creating a roadmap to achieve them. It marketplace. Throughout this voyage, we will look at includes forecasting future financial how environmental social and governance (ESG) needs, estimating revenues and factors are transforming investment strategies and expenses, and developing budgets. making sustainability a priority for firms and investors alike. We will also delve into the intriguing world of behavioral economics, investigating how human Capital Budgeting psychology influences financial decisions and how  This process involves evaluating and understanding these behavioral influences can help selecting investment projects that are us make better judgement. expected to generate positive returns. It helps in allocating resources to projects Special Topics in Financial Management that will add value to the organization. can include the investigation of cutting-edge technologies that are challenging traditional financial Capital Structure Management institutions. Cryptocurrencies and block chain  Deciding how to finance the organizations technology, for example have offered new program operations and investments is a critical for value exchange and investment, causing financial aspect of financial management. This experts to be both excited and cautious. involves determining the right mix of Furthermore, our reason will include specialized risk equity and debt financing to optimize the management tactics that go beyond typical cost of capital. approaches, such as derivatives options and futures, Working Capital Management which play official roles in managing exposure to  Managing the day-to-day operational unpredictable markets and unexpected events. liquidity of the organization is crucial. It involves managing cash, accounts As we embark on this journey, it is critical to receivable, accounts payable and remember that the financial landscape is continually inventory to ensure the smooth running of charging. New Obstacles will emerge as well as new business operations. and imaginative answers. By delving into these specialized areas, you have a better understanding Risk Management of the complexities of financial management allowing  Identifying assessing and mitigating you to negotiate challenging financial challenges with financial risks is essential. Financial confidence and adaptability. So, whether you’re a Managers need to make decisions that finance professional looking to broaden your balance risk and return, ensuring the knowledge, an entrepreneur looking to make sound organization can handle unforeseen financial decisions or an individual looking to improve events without significant negative your personal financial acumen, studying special impacts. topics in financial management promises insights that go beyond the ordinary, providing you with a Financial Analysis and Reporting richer perspective on the multifaceted world of  Regularly analyzing financial statements finance. and reports helps in assessing the financial health of the organization. Financial managers use these insights to  make informed decisions and Some examples of special topics in financial communicate the organization’s financial management might include: performance to stakeholders. 1. Merger and Acquisitions (M&A) Profitability and Cost Management.  This area deals with the strategies,  Analyzing costs and identifying valuation techniques and financial opportunities to reduce expenses while considerations involved in the buying and maintaining or increasing revenue is a selling and combining of companies. key aspect of financial management. 2. International Finance Dividend Policy  This topic explores the challenges and  Deciding whether to distribute profits to opportunities of managing financial shareholders as dividends or reinvest operations in a global context, including them in the business is an important issues related to exchange rates, consideration that impacts the international markets, and cross-border organization’s financial structure and investments. shareholders’ expectations. 3. Derivatives and Risk Management. Financial Control.  Derivatives instruments such as options,  Monitoring actual financial performance futures, and swaps are explored in depth, against budgets and plans is crucial for along with their applications in managing identifying deviations and taking financial risk. corrective actions when necessary. 4. Behavioral Finance Corporate Finance  This area studies how psychological  Financial managers also deal with factors and human behavior influence mergers, acquisitions, vestitures and financial decision-making. Often other corporate finance transactions that challenging traditional economic theories. impact the organization’s structure and financial position. 5. Real Estate Finance  Focuses on the financial aspects of real estate investment and development Effective financial management involves a including property valuation, financing thorough understanding of financial principles, strategies and real estate investment economic factors, and the specific industry in which trust. the organization operates. It requires making well- informed decisions that align with the organization’s overall strategic objectives and considering both 6. Corporate Restructuring short-term and long-term financial implications.  Covers strategies for changing the organizational structure of a company, such as spin-offs divestitures and WHAT IS SPECIAL TOPICS IN financial reengineering. FINANCIAL MANAGEMENT? It refers to advanced or specialized areas within 7. Private Equity and Venture Capital the field of financial management that require a  Explores the processes and strategies deeper understanding and expertise. involved in investing in private companies These topics often go beyond the fundamental and startups. concepts of finance and delve into specific areas of interest or concern for business investors and 8. Advanced Investment Analysis financial professionals. The content overed in  This topic might cover complex special topics courses can vary widely based on investment strategies, portfolio the focus of the course and the current trends in optimization and advanced asset the financial industry. valuation techniques. 9. Financial Modeling and Forecasting VITAL OF SPECIAL TOPICS IN FINANCIAL  Focuses on building sophisticated MANAGEMENT IN ADDRESSING THE COMPLEX financial modes to analyze and predict FINANCIAL CHALLENGES: future financial outcomes. 1. Adaptation to Changing Environment. 10. Sustainable Finance  Financial Management is constantly  Explores the integration of environmental evolving due to changes in regulations social and governance (ESG) factors into economic conditions and technological financial decision-making. advancements. Special topics allow professionals to stay updated with the latest trends, tools and strategies These special topics courses are often enabling them to adopt ad make informed offered at the graduate level or as advanced decisions. electives in undergraduate finance programs. They provide students with the opportunity to deepen their 2. In-depth Understanding understanding of specific financial concepts and  Special topics provide a deeper explore areas of finance that align with their career understanding of complex financial goals and interest. Additionally, these specialized concepts that may not be covered in skills and knowledge can be valuable in careers standard courses. This understanding involving financial analysis, investment, baking, helps financial managers make more corporate fiancé and more. informed decisions and devise effective strategies. Special topics in financial management generally refer to specific subjects or areas within the 3. Risk Management broader field of financial management that require  Certain special topics, such as focused attention due to their company unique derivatives, risk management and characteristics, or emerging importance. These alternative investments, focus on topics often delve into advanced concepts , mitigating financial risks. Understanding specialized techniques or evolving trends within the these topics is essential to safeguarding realm of financial management. an organizations financial health and stability. SIGNIFICANCE OF SPECIAL TOPICS IN 4. Advanced Techniques FINANCIAL MANAGEMENT  Special topics often introduce advanced ❑ Special topics in financial management play a quantitative techniques, data analysis crucial role in enhancing the understanding and methods and financial models that can decision-making capabilities of financial provide a competitive edge. Proficiency professionals and organizations. in these techniques allows financial ❑ These topics typically go beyond the foundational professionals to analyze data, forecast concepts and delve into specific areas that are trends and make accurate projections. highly relevant in today’s complex financial 5. Strategic Decision-Making landscape.  Special topics can cover areas like ❑ The significance of special topics in financial mergers and acquisitions, capital management lies in their ability to provide budgeting and corporate restructuring. targeted and sophisticated solutions to complex Proficiency in these areas in crucial for financial challenges that cannot be adequately making strategic decisions that impact the addressed through conventional financial growth and direction of a company. principles alone. ❑ These specialized areas address specific 6. Sector-Specific Knowledge nuances and emerging issues in the financial  Certain industries or sectors have unique landscape enabling practitioners to navigate financial consideration. Special topics intricate scenarios more effectively. may focus on areas like healthcare finance, real estate finance, or energy finance providing insights that are directly applicable to those sectors. 7. Investor Relations and Communication tailored approaches to multifaceted issues in the  Special topics related to investor relations ever-changing financial landscape. financial reporting and communication skills help financial professional effectively communicate complex SUMMARY: financial information to various stakeholders, fostering transparency and Financial Management is the strategic planning trust. organization, direction, and control of a company’s financial resources in order to fulfill its objectives. 8. Compliance and Regulations Financial planning, capital budgeting, capital  With everchanging regulations in the structure management, working capital financial industry, special topics can help management, risk management, financial analysis professionals navigate compliance profitability management and other important requirements, ensuring that financial elements are covered it necessitates a thorough practices adhere to legal and ethical understanding of financial concepts and industry standards. specifics as well as the ability to connect decisions with strategic goals. 9. Global Perspective  International finance, foreign exchange Special topics in financial management are markets, and cross border investments advanced or specialized areas within the profession are special topics that are essential in a that go further into specific concerns. They deal with globalized economy. Understanding intricacies evolving trends and one-of-a-kind these topics enables financial managers difficulties. M&A international finance, derivatives, to effectively manage international behavioral finance, real estate finance and other transactions and currency risks. areas are examples. These subjects improve knowledge adaptability, strategic decision-making, 10. Career Advancement risk management and communication abilities. They  Proficiency in special topics can set also provide information on compliance, worldwide individuals apart in a competitive job finance career progression research and market. It can lead to career comprehensive financial management. To advancement opportunities and summarize special topics in financial management, specialized roles within finance give specialized tools, techniques, and insights to departments or consulting firms. address complex financial issues, bridging the gap between theory and practice in an ever-changing 11. Research and Innovation financial landscape.  Special topics often involve cutting-edge research and innovation in financial practices. Studying these topics can CHAPTER 2: MERGERS AND ACQUISITIONS inspire professionals to contribute to advancements in the field and drive OVERVIEW: innovation with their organizations. Mergers and Acquisition (M&A) are complex transactions with significant implications for 12. Holistic Financial Management companies industries and the global economy. This  By mastering a range of special topics overview provides insights into the motivations types, financial managers can adopt a holistic impact, legal and regulatory framework, financing approach to financial management methods, and the M&A process in the Philippines. considering various aspects that Additionally. it highlights successful and failed and contribute to a company’s overall financial offers insights into anticipated future trends in the well-being. M&A landscape. It’s important to stay informed about the latest developments in M&A as the landscape In essence special topics in financial continues to evolve. management serve as a toolbox of advanced techniques, insights and strategies that empower professionals to tackle complex financial challenges head-on. Their significance lies in their ability to bridge the gap between theory and practice offering WHAT IS MERGERS AND ACQUISITIONS? due diligence should be executed with  Mergers and Acquisitions (M&A) refer to the extra special care. complex process of combining two or more  An example of a horizontal merger might companies into a single entity or the be if McDonald’s and Burger King joined purchase of one company by another. forces.  These transactions can involve the consolidation of assets, resources and operations as well as the transfer of II. Vertical Merger ownership and control.  Vertical mergers involve two companies in  M&A activities are a fundamental aspect of the same industry who operate in different corporate strategy and can take various stages of production. forms including mergers, acquisitions,  This could involve a retailer who merges takeovers and divestitures. with a wholesaler, or a wholesaler merging with a manufacturer, for example.  This type of merger is ideal for streamlining MOTIVATIONS FOR M&A: operations, boosting efficiencies, and cutting costs across the supply chain, but it 1. Market Expansion can also reduce flexibility and result in new  Companies mat pursue M&A to gain complexities for the business to manage. access to new markets, customers, or  A well-known example of a vertical merger distribution channels. is the deal between EBay and Paypal. 2. Synergy Creation  M&A can create synergy by combining III. Congeneric Merger (also concentric merger) complementary resources capabilities and  In a congeneric merger, the acquire and technologies leading to increased target company have different products or efficiency and profitability. services, but operate within the same market and sell to the same customers.  They could be indirect competitors, 3. Cost Reduction although their products often complement  Combining operations can result in cost each other. As these companies already savings through economies of scale, share similar distribution channels, reduced overhead and optimized production or technology, this type of processes. merger can allow the new business entity to expand its product lines and increase 4. Diversification market share. As a downside, the fact that  Companies may use M&A to diversify their these two companies already operate business portfolios and reduce reliance on within the same industry could limit further a single market or product. diversification.  An example of a congeneric merger is Exzon and Mobil. TYPES OF M&A TRANSACTIONS: I. Horizontal merger IV. Conglomerate Merger  A horizontal merger occurs when two  Unlike the aforementioned types of merger, companies operating in the same market a conglomerate merger occurs between (and selling similar products or services ) two companies whose business activities come together to dominate market share. and industries may be completely  This type is attractive for merging unrelated. In pure conglomerate mergers, companies aiming to build economies of the two firms may continue to operate scale and decrease market competition. separately within their own markets,  However, there are potential downsides. A whereas in a mixed one, they may look to horizontal merger comes with increased expand product or market reach. regulatory scrutiny and stringency and can  While this type of merger can help the new lead to a loss of value if the post-merger entity increase market share and diversify integration is not fully realized. Regulatory its business, it can be especially  challenging to integrate dissimilar VIII. Statutory share or interest exchange companies raising the risk of culture  Again, this provided for in some (but not all) clashes and lost efficiency due to disrupted US state laws. A statutory exchange has business operations. the same outcome as a reverse triangular  An example of a conglomerate merger is merger – the target does not cease to exist; Mars (chocolate bars) and Wrigleys it becomes a subsidiary of ParentCo. (chewing gum).  The advantage of this type of deal as opposed to a triangular merger though is the fact that there’s o requirement for a V. Market-tension and product-extension shell company to make it happen. mergers  A market extension merger describes two companies in the same industry who join IX. Consolidation forces with the aim of expanding market  A statutory consideration occurs when two reach. Commonlly, this type of transaction or more business entities combine to form occurs across multiple geographic regions. a brand new business entity.  A product extension merger occurs when a  The main advantage of this type of merger specific product is added to the product line is efficiency, consolidation tends to improve of the acquirer from the acquired company. the bottom line.  A good example is the Daimier-Chrysier deal that happened in 1998. VI. Statutory merger  In a statutory merger, the laws of the buy- side and sell-side’s state (or states) of X. Share or interest acquisition formation must be followed. If they’re not  An interest or share acquisition is when the the merger will not be legal. The merger buyer purchases shares of the target from plan must be adopted by the boards of the owners, it’s usually the case that the directors and approved by the owners of buyer taxes all of the issued shares, giving the absorbed business entity. Then the the acquirer total control of the target details must be filled with the Secretary of company. One major advantage of a share State in the relevant state (s). In a statutory or interest acquisition is that there are no merger, only one of the two companies statutory requirements. keeps its legal entity in this way it is similar to an acquisition. Asset Purchase  An asset purchase or acquisition is different to a share or interest acquisition in a couple VII. Triangular merger of ways:  A triangular merger occurs when there is an o In an asset acquisition, the target aquiring company (ParentCo), a target does not become a subsidiary of the company and a subsidiary of the acquiring acquiring company; and company. o The purchase price is paid to the  Usually the subsidiary is newly created business itself, not the target’s specifically to help with the acquisition of shareholders. the target i.e. a shell company. Technically speaing the merger is between the subsidiary and the target however, the IMPACT OF M & A outcome of the transaction is that the target M&A transactions can significantly impact the becomes a wholly-owned subsidiary of financial performance, organizational culture and ParentCo. shareholder value of the involved companies.  The main reason for conduction a Success factors and Pitfalls. Success in M&A triangular merger is so that ParentCo can depends on effective integration, cultural acquire the target without assuming its alignment and strategic clarity. Common pitfalls liabilities. include overpaying for acquisitions and poor post-merger execution.  Future Trends. Emerging technologies, cross- advantage an translate into greater pricing border M&A and sustainability considerations are power and bargaining leverage. influencing the future of M&A activities. Responding to Industry Trends. Companies use M&A to adapt to industry Merger and Acquisitions (M&A) play a significant trends such as consolidation in highly and multifaceted role in the business world with far- fragmented markets or addressing disruptive reaching implications for companies, industries and forces like digital transformation. the global economy. Here are key points that highlight the significance and roles of M&A: Access to Talent and Skills. Acquiring companies can provide access to a talented Strategic Expansion and Growth: M&A provides a workforce, specialized skills and expertise strategic avenue for companies to expand their that may be challenging to develop internally. operations customer base and market presence rapidly. This growth strategy can be particularly Enhance Financial Performance. important in highly competitive or saturated markets. Successful M&A can lead to improved financial metrics including increase revenue Market Diversification. Companies can profit margins and shareholder value. diversity their business portfolios through M&A reducing their dependence on a single Portfolio Optimization. M&A allows product, service or market. This companies to divest non-core or diversification helps spread risk and increase underperforming assts, enabling them to resilience. focus on their core strengths and strategic priorities. Access to New Markets: M&A allows Globalization and International companies to enter new geographic regions Expansion. M&A can facilitate international or markets where they may have had limited growth by helping companies establish a or no presence. This access can lead to presence in foreign markets or strengthen increased revenue opportunities and reduced their existing global footprints. market entry costs. Efficiency and Cost Reduction. Combining Capital Allocation. M&A provides a operations and resources through M&A can mechanism for deploying excess capital lead to significant cost savings. By effectively whether through reinvestment in eliminating redundancies, optimizing supply the business returning capital to shareholders chains, and sharing resources, companies or making strategic acquisitions. can enhance their efficiency and profitability. Economic Impact. M&A transactions can Technology and Innovations. Acquiring have a ripple effect on the broader economy, companies with advanced technologies or influencing job creation, investment and innovative products can help organizations economic growth. stay competitive in a rapidly evolving business landscape. M&A can accelerate the Innovation and Research. M&A can support adoption of cutting-edge technologies. innovation and research by bringing together different perspectives resources and Synergy Creation. M&A often aims to create expertise to address complex challenges. synergies where the combined entity is more valuable than the sum of its individual parts. Synergies can manifest in cost savings, LEGAL AND REGULATORY FRAMEWORK OF revenue enhancement and improved over MERGERS AND ACQUISITION IN THE performance. PHILIPPINES Competitive Advantage. M&A can bolster a The legal and regulatory framework for mergers company’s competitive position by and acquisitions (M&A) in the Philippines is governed strengthening its market share, customer by various laws, regulations and government relationship or intellectual property. This agencies. Here is an overview of the key aspects of the legal and regulatory framework for M&A in the planning and compliance with the Bureau of Philippines. Internal Revenue (BIR) regulations. Philippine Competition Act (PCA). The PCA Foreign Investment Act (FIA). The FIA enacted in 2015 is the primary law governing regulates foreign investments in the Philippines. competition and antitrust matters in the M&A transactions involving foreign entities may Philippines. It prohibits anti-competitive be subject to registration and approval by the agreements, abuse of dominant positions and appropriate government agencies such as the anti-competitive mergers and acquisitions. The Philippine Economic Zone Authority (PEZA) or Philippine Competition Commission (PCC) is the the Board of Investment (BOI). regulatory authority responsible for enforcing the PCA. Labor Code. M&A transactions may have labor related implications such as employee transfers Notification Requirements. Under the PCA severance packages and collective bargaining M&A transactions that meet certain financial agreements. Compliance with labor laws is thresholds must be notified to the PCC for review essential during the M&A process. and clearance before they can proceed. These thresholds are specified in the PCA’s Other Regulatory Bodies. Depending on the implementing rules and regulations. industry or sector involved additional regulatory agencies may have oversight over M&A Review Process. The PCC conducts a review to transactions. For example the Bangko Sentral ng determine if a proposed M&A transaction will Pilipinas (BSP) regulates financial institutions substantially lessen competition in the relevant including banks. market. The review includes an assessment of market shares., potential anti-competitive effects Secrecy of Bank Deposits Act. In cases and the presence of barriers to entry. involving banks or financial institutions, the secrecy of Bank Deposits Act may apply Notification Timelines. Once a notification is restricting access to bank records and filled the PCC has specific timelines to compete information. Its essential for parties involved in its review. In cases that raise competition M&A transactions in the Philippines to engage concerns the PCC may require remedies or legal counsel and regulatory experts to navigate conditions to address these concerns. the complex legal and regulatory landscape. Compliance with the applicable laws and Anti-Competitive Behavior. The PCA also regulations is critical to ensuring that M&A empowers the PCC to investigate and penalize transactions proceed smoothly and without legal anti-competitive behavior including cartes challenges. monopolies and mergers that substantially lessen competition. FINANCING MERGERS AND ACQUISITION Securities Regulation Code (SRC). The TRANSACTIONS IN THE PHILIPPINES Securities and Exchange Commission (SEC) Financing mergers and acquisitions (M&A) administers the SRC which regulates securities transactions in the Philippines as in other countries and publicly traded companies. M&A typically involves a combination of financing transactions involving publicly listed companies methods, depending on the specific circumstances of may require SEC approval and compliance with the deal, the financial position of the acquirer, and disclosure requirements. regulatory considerations. Corporate Code. The Corporation Code of the Here are common financing methods for M&A Philippines governs the information and transactions in the Philippines. operation of corporations. M&A transactions involving corporations are subject to the rules ad Cash Financing. Cash financing is the simplest procedures outlined in the Corporate Code. and most straightforward method. The acquiring Tax Regulations: M&A transactions can have company uses its cash reserves or raised new tax implication, including capital gains , funds to pay for the acquisition. This approach documentary stamp tax, and value-added tax. provides liquidity to the seller and minimizes the Companies involved in M&A should consider tax need for complex financial arrangements.  Debt Financing. Companies may opt for debt Joint Ventures and Partnership. Instead of financing to fund M&A transactions. This involves outright acquisition companies may opt for joint borrowing money other from bans or financial ventures or partnerships where they share institutions to cover the acquisition cost. The ownership and control. These arrangements can debt can be structures as term loans, revolving involve sharing the financial burden and risk of credit facilities or bonds. Debt financing allows the transaction. the acquirer to leverage its balance sheet, but it also comes with interest payments and debt Government and Incentive Program. In some servicing obligations. cases the Philippine government or relevant industry bodies may provide financial incentives Equity Financing. Equity financing involves or support for specific M&A transactions, issuing new shares of stock to raise capital for the especially those that promote economic acquisition. This can dilute existing shareholders development, innovation or job creation. ownership stakes but provides an avenue to fund the transaction without incurring debt. Equity Cross-Border Financing. For international financing can take the form of common equity or M&A deals involving Philippine companies preferred equity. financing can come from foreign banks, financial institutions, or investors. Cross-border financing Seller Financing. In same cases, the seller may requires consideration of currency exchange provide financing to the buyer. This can be in the rates and international regulations. form of a deferred payment plan, earn-outs It is essential to note that the choice of financing based on future performance, or vendor method for an M&A transaction in the Philippines financing, where the seller loans a portion of the depends on factors such as the financial health purchase price to the buyer. Seller Financing can of the aquirer, the valuation of the target company facilitate deals when traditional financing sources regulatory compliance and the overall strategic are limited. objectives of the deal. Additionally, legal and regulatory considerations, including approval Leveraged Buyouts (LBOs). Leveraged from the Securities and Exchange Commission buyouts involve using a significant amount of (SEC) and compliance with antitrust regulations debt to finance the acquisition with the should be addressed during the M&A financing expectation that the acquired company’s cash process in the Philippines. Consulting with flows will be used to repay the debt. LBOs are a financial advisors, legal experts, and accountants common method for acquiring companies in the experienced in Philippine M&A transactions is Philippines especially for private equity firms. crucial for navigating the complexities of M&A financing in the country. Mezzanine Financing. Mezzanine financing combines elements of debt and equity financing. It involves subordinated debt or preferred equity M&A PROCESS IN THE PHILIPPINES with higher interest rates or equity kickers. The mergers and acquisitions (M&A) process in Mezzanine financing can be used to bridge the the Philippines typically follows a structured gap between senior debt and equity in M&A approach, which includes several key steps and deals. considerations. It’s important to note that specific regulations legal requirements and cultural fators can Asset-Based Financing. Asset based financing influence how M&A transactions are conducted in the uses the assets of the target company as Philippines. collateral for loans or lines of credit. This method is often employee when the target company has Here’s an overview of the M&A process in the valuable assets, such as real estate, inventory or country: receivable. 1. Strategic Planning and Due Diligence. a. Identify Objectives: The M&A process Convertible Securities. Convertible securities begins with the identification of strategic such as convertible bonds or preferred stock can objectives. Companies must determine why be used as a hybrid financing method. These they are pursuing the transaction (e.g. securities start as debt but can be converted into market expansion, synergy creating, equity at a predetermine conversion price or diversification). ratio.  b. Due Diligence. Both the acquiring and 6. Shareholder and Regulatory Approval taret companies conduct due diligence  Obtain the approval of the shareholders of to assess each other’s financial helath both the acquiring and target companies, as legal compliance, operational requiring by the Philippine Corporation performance and potential risks. Due Code. Ensure compliance with regulatory diligence is a crucial step to evaluate approvals including any clearance from the the deal’s feasibility. SEC or other relevant government agencies. 2. Valuating and Negotiation a. Valuation. Determine the fair market value 7. Closing and Transfer Ownership. of the target company. Valuation methods  Complete the transaction by transferring may include discounted cash flow analysis, ownership and control of the target comparable company analysis and asset- company to the acquiring entity. Ensure that based valuation. all conditions precedent to the closing have been satisfied. b. Negotiation. Negotiate the terms of the deal, including the purchase price payment 8. Post-Merger Integration. structure, warranties and representations.  Develop and implement a post-merger Engage in discussions with legal and integration plan to combine the operations, financial advisors to ensure a favorable systems, and cultures of the two companies agreement. seamlessly. Address workforce issues, custom workforce issues. Customer 3. Regulatory Approvals: relationships and any other critical a. Antitrust Approval. In cases where the integration challenge transaction may result in substantial market power or concentration, approval from the Philippine Competition Commission (PCC) 9. Reporting and Compliance may be required to ensure compliance with  Fulfill all post-closing reporting antitrust regulations. requirements, including notifications to regulatory bodies and updates to corporate b. SEC Approval. If the M&A involves public records. Comply with tax obligations, companies approval from the Securities and including capital gains tax, documentary Exchange omission (SEC) may be stamp tax, and other relevant taxes. necessary. 10. Monitoring and Evaluation 4. Documentation and Legal Compliance.  Continuously monitor the performance of a. Transaction Documents. Draft and finalize the merged entity to ensure that the all necessary legal agreements, including expected benefits and synergies are the sale and purchase agreement; realized. shareholder agreements, and any other  Address any issues or challenges that may contracts relevant to the transaction. arise during the post-merger phase. b. Legal Compliance. Ensure that the M&A transaction complies with Philippine It is important to note that the M&A process in corporate laws and regulations, including the Philippines can be complex and may involve those related to foreign ownership specific, industry regulations or additional restrictions and taxations. considerations depending on the nature of the transaction. Engaging legal financial and tax advisors with expertise in Philippine M&A 5. Financing and Transaction transactions is highly recommended to navigate the  Determine the financing structure for the process successfully while ensuring compliance with transaction. This may involve a combination local laws and regulations. Additionally, cultural of cash payments, debt financing, equity sensitivity and effective communication with all issuance, or other financial instruments. stakeholders are essential elements of a successful M&A transaction in the Philippines.  IMPACT OF M&A 4. Industry and Market Dynamics Mergers and Acquisitions (M&A) have a profound Private Impact: impact on various aspects of a company and in M&S can reshape industry dynamics by environment. Here’s a breakdown of the impact of consolidating market share, increasing M&A in key areas. competitiveness and fostering innovation. It ma lead to more efficient markets and 1. Financial Performance improve products/services Positive Impact: M&A ca lead to improved financial Negative Impact: performance through increased revenue, Excessive M&A activity can result in cost synergies and economies of scale. It monopolistic behavior or antitrust can enhance profitability, liquidity, and concerns negatively affecting overall financial stability. competition, integration challenges can disrupt market dynamics and create Negative impact: uncertainty. Poorly executed M&A can result in financial strain due to overpayment for acquisitions, integration cost, or cultural It is important to note that the impact of M&A clashes that disrupt operations. This can can vary widely depending on factors such as the lead to short-term financial challenges. specific goals of the transaction. The industries involved the quality of due diligence and integration planning and the ability to manage change 2. Organizational Culture and Human effectively. Successful M&A typically requires careful Resources: consideration of these factors and a proactive approach to addressing challenges that may arise. Positive impact: M&A can promote a culture of innovation Companies that prioritize cultural alignment, and diversity when integrating employees effective communication and a focus on long-term from different backgrounds,. It can also value creation tend to mitigate negative impacts and provide growth opportunities and career maximize the positive outcomes of M&A development for enterprise. transactions. Additionally, engaging with stakeholders, including employees customers, and Negative Impact: shareholders in the M&A process can help build Cultural clashes between merging support and manage potential disruptions. companies can lead to employee disengagement, reduced morale and In summary, Mergers and Acquisitions have increased turnover. Integration for reaching effects on financial performance challenges may result in layoff or organization a culture stakeholders and industry workforce redundancies. dynamics. While there are potential benefits, there are also risks and challenges that must be manage to ensure a successful outcome. 3. Stakeholder and Shareholder Value Positive impact: Successful M&A can create value for SUCCESSFUL M&A EXAMPLE stakeholders and shareholders by San Miguel Corporation’s Acquisition of Holcim enhancing competitiveness and Philippines generating higher returns. It can lead to In 2019 San Miguel Corporation one of the increased stock prices, dividends, and Philippines largest and most diversified overall shareholder wealth. conglomerates, acquired a significant stake in Holcim, Philippines. A leading cement manufacturer. Negative Impact: This acquisition marked San Miguel’s expansion into Poorly executed M&A can erode the construction materials industry. stakeholder and shareholder value if the expected benefits are not realized. Share prices may decline and investor confidence can wane. Ayala Corporation’s Acquisition of Healthway Ayala Land’s Acquisition of Negros Navigation Medical (2GO Group ) In 2018, Ayala Corporation one of the Philippines Ayala Land, a prominent real estate oldest and largest conglomerate acquires a majority developer, attempted to diversify its business by stake in Healthway Medical. A healthcare service acquiring Negros Navigation, a transportation and provider. This move was part of Ayala’s strategy to logistics company. In 2010, the deal faced issues expand its presence in the healthcare sector. related to financial performance, leading to the withdrawal of Ayala Land from the acquisition. Negros Navigation eventually merged with ATS Consolidated. Jollibee Foods Corporation’s Acquisition of Coffee Bean & Tea Leaf In 2019 Jollibee Foods Corporation, a Philippine Long Distance Telephone Company’s Philippine based multinational fast-food company (PLDT) Acquisition of Digital acquired the Coffee Bean & Tea Leaf, a global coffee Telecommunications Philippines, Inc. (Digitel) and tea chain. This acquisition was part of Jollibee’s In 2011, PLDT, one of the largest effort to expand its footprint in the global coffee telecommunications companies in the Philippines, market. acquired Digitel. The merger aimed to strengthen PLDTs market position. However, the integration Aboitiz Equity Ventures’ Acquisition of GNPower process proved challenging and subscribers faced Mariveless Coal Plant service disruptions and other issues. The acquisition In 2020, Aboitiz Equity Ventures a major faced regulatory scrutiny and eventually. PLDT conglomerate with interests inpower, banking and decided to divest and sell a portion of Digitel’s assets other industries, acquired a significant stake in the to ensure competition. GNPower Marivele Coal Plant. This acquisition reinforces Aboitiz;s presence in the power generation San Miguel Corporation’s Investment in Mislatel sector. Consortium: In 2018, San Miguel Corporation sold its telecommunications assets to the Mislatel SM Investments Corporation’s Acquisition of Consortium, which included China Telecom, Udenna Goldilocks Bakeshop Corporation and Chelsea Logistics Holdings. The onsortium was awarded a license to operate as the In 2019, SM Investments Corporation, on of the Philippines third major telecommunications player. Philippines largest conglomerates acquired a However, delays and regulatory hurdles hampered majority stake in Goldilocks Bakeshop, a well-kown its progress and as of my last update in 2021, the Filipino bakery and restaurant chain. This acquisition consortium faced challenges in rolling out services aimed to strengthen SM’s presence in the food and and meeting its commitments. retail industry. Universal Robina Corporation’s (URC) Acquisition of New Zealand-based Griffin’s FAILED MERGERS AND ACQUISITION Foods IN THE PHILIPPINES In 2014, URC a subsidiary of JG Summit San Miguel Corporation’s Acquisition of Holdings, acquired Griffin’s Foods, a New Zealand Philippine Airlines (PAL) based snacks and biscuits company. While the In 2014, San Miguel Corporation (SMC) a acquisition initially appeared to be a strategic move major conglomerate in the Philippines announced its to expand URC’s international footprint, it faced intention to acquire a 49% stake in Philippine Airlines challenges in terms of integrating the two businesses (PAL). However, the deal faced numerous regulatory and achieving the expected synergies. and financial challenges leading to its eventual collapse. SC decided to abandon the acquisition URC later announced that it was divesting certain plans and PAL sought alternative investors. Griffin’s assets signaling a change in its strategy. Please keep in mind that the status of these mergers and acquisitions may have evolved and it is essential to verify the latest developments and outcomes if you are researching these cases for current information.  FUTURE TREND IN MERGERS Special Purpose Acquisition Companies AND ACQUISITION (SPAC’s) While SPACs have gained significant Technology-Driven M&A attention in recent years their impact on M&A Technology companies are likely to continue may evolve. Regulatory changes and to drive M&A activity. This includes increased scrutiny may shape the future of acquisitions related to artificial intelligence, SPAC transaction. cybersecurity, cloud computing and digital transformation as businesses seek to remain competitive in the digital age. Private Equity Activity Private equity Activity. Private equity firms are expected to remain active in M & A targeting Cross-Border M&A distressed assets and growth opportunities in Globalization remains a driving force and various industries. cross-border. M&A is expected to increase. Companies will seek to access new markets, talent pools, and technologies through Telecommunications and 5G Investments international acquisitions. With the rollout of 5G technology, the telecommunications sector is likely to see increased M&A activity as companies Sustainability and ESG Focus compete to expand network infrastructure Environmental Social and Governance (ESG) and services. considerations are becoming increasingly important in M&A. Companies will look for targets with strong ESG profiles to align with Supply Chain Resilience stakeholder expectations and regulatory The COVID-19 pandemic highlighted the pressures. importance of resilient supply chains. M&A may focus on diversifying supply sources. Improving logistics and enhancing supply Healthcare and Biotech M&A chain technology. The healthcare and biotechnology sectors are poised for continued growth, driven by Regulatory and Antitrust Scrutiny aging populations, healthcare innovations, Government and regulatory bodies are and the need for pandemic related solutions. expected to closely monitor M&A deals M&A in these industries is expected to remain especially in cases involving tech giants and robust. other market dominating companies, increased scrutiny may impact deal Renewable Energy clean Teach structures and approvals. As the world transitions to cleaner and more Health Technology and Telemedicine sustainable transitions to cleaner and more The healthcare sector is expected to continue sustainable energy sources. M&A in embracing technology including telemedicine renewable energy and clean technology and heathtech solutions. M&A in this space sectors is likely to surge Companies will seek may involve companies seeking to enhance to acquire expertise and technologies in their digital healthcare capabilities. these areas. Space and Satellite Technology Pharmaceutical and Life Sciences Consolidation The space industry, including satellite Consolidation within the pharmaceutical and technology and commercial space life sciences industries expected to continue exploration is poised for growth. M&A may driven by the need for reason and play a role in consolidating and expanding development capabilities, drug pipelines and companies in this sector. market access. Consumer Behavior and E-Commerce LESSON 2. MERGER & ACQUISITION Changing consumer preferences and habits may drive M&A in the e-commerce direct-to- OVERVIEW: consumer and online retail spaces. Mergers and Acquisition (M&A) are complex transactions with significant implications for companies industries and the global economy. SUMMARY o Provides insights into the motivations types, impact, legal and regulatory Mergers and Acquisitions (M&A) involve framework, financing methods, and the combining two or more companies or acquiring one M&A process in the Philippines. by another. They serve various strategic purposes o It highlights successful and failed and like market expansion, synergy creation, cost offers insights into anticipated future reduction and diversification. Types of M&A include trends in the M&A landscape. horizontal, vertical and conglomerate mergers. Due o It’s important to stay informed about the diligence valuation, legal compliance and financing latest developments in M&A as the are crucial in the M&A process. M&A can impact landscape continues to evolve. financial performance culture and stakeholder value. Success factors include effective integration while pitfalls include overpaying and poor execution. MERGER AND ACQUISITIONS Future trends in M&A include technology, cross-  Refer to the complex process of combining border deals and sustainability. two or more companies into a single entity or the purchase of one company by another. In the Philippines, M&A is regulated by the Philippine Competition Act (PCA) requiring These transactions can involve the: notification and review by the Philippine Competition Consolidation of assets Commission (PCC) The Securities Regulation Code Resources and operations (SRC) governs publicly traded companies. Transfer of ownership and control Compliance with tax regulations the Foreign Investment Act (FIA) labor laws and industry-specific regulators is essential Legal Counsel and experts are necessary to navigate the complex regulatory M&A ACTIVITIES ARE A FUNDAMENTAL landscape. ASPECT OF CORPORATE STRATEGY AND CAN Financing M&A in the Philippines involves TAKE VARIOUS FORMS namely: methods like cash, debt, equity, seller financing Mergers leveraged buyouts (LBOs) mezzanine financing. Acquisitions Joint ventures, government programs and cross- Takeover border financing are also options. The choice Divestitures depends on the acquirers financial position, target valuation, and regulatory compliance. Consideration of SEC approval and antitrust regulations is crucial in MOTIVATIONS OF M&A M&A financing in the Philippines. Consulting with Market Expansion experts is recommended for a successful M&A Synergy Creation transaction. Cost Reduction Future trends in mergers and acquisitions Diversification reflect the evolving business landscape and the dynamic nature of M&A activity. It’s important for businesses and investor to say informed about these TYPES OF M&A TRANSACTIONS trends and adapt their strategies accordingly to 1. Horizontal Merger capitalize an opportunity and navigate potential  A merger occurring between companies challenge in the M&A activity in specific regions and in the same industry. Horizontal merger is industries so staying up-to-date with relevant a business consolidation that occurs developments is essential for making informed between firms who operate in the same decisions in the M&A space. space, often as competitors offering the same good or service. 2. Vertical Merger and a subsidiary of the acquiring  involve two companies in the same company. industry who operate in different stages of production. This could involve a retailer who merges with a wholesaler, or a 8. Statutory Share or Interest Exchange wholesaler merging with a manufacturer  A statutory exchange has the same outcome as a reverse triangular merger – the target does not cease to exist; it 3. Congeneric Merger (aka Concentric Merger) becomes a subsidiary of ParentCo.  A type of merger where two companies are in the same or related industries or markets but do not offer the same 9. Consolidation products.  Two or more business entities combine to form a brand new business entity. 4. Conglomerate Merger  A corporation made up of several different 10. Asset Purchase or Share Acquisition independent businesses.  The target does not become a subsidiary of the acquiring company;(asset)  The purchase price is paid to the 5. Market-tension and Product-extension business itself, not the target’s Mergers shareholders. (shares)  A market extension merger describes two companies in the same industry who join forces with the aim of expanding IMPACT OF M&A market reach. Success factors and Pitfalls  A product extension merger occurs Future Trends when a specific product is added to the product line of the acquirer from the acquired company SIGNIFICANCE OF M&A o Product extension merger takes Strategic Expansion and Growth place between two business Access to Talent and Skills organization that deal in products Market Diversification that are related to each other and Enhance Financial Performance operate in the same market. Access to New Markets Portfolio Optimization Efficiency and Cost Reduction Globalization and International Expansion Technology and Innovations Capital Allocation Synergy Creation Economic Impact Competitive Advantage Innovation and Research Responding to Industry Trends 6. Statutory Marger  In a statutory merger, the laws of the buy- LEGAL AND REGULATORY FRAMEWORK OF side and sell-side’s state ( or states) of MERGERS AND ACQUISITION IN THE formation must be followed. PHILIPPINES Philippine Competition Act (PCA) Notification Requirements 7. Triangular Merger Corporate Code  Occurs when there is an acquiring Review Process company (ParentCo), a target company Tax Regulations  Notification Timelines FAILED M&A IN THE PHILIPPINES Foreign Investment Act (FIA) Ayala Land’s Acquisition of Negros Navigation Anti-Competitive Behavior (2GO Group) Labor Code Philippine Long Distance Telephone Company’s Securities Regulation Code (SRC) (PLDT) Acquisition of Digital Other Regulatory Bodies Telecommunications Philippines, Inc. (Digitel) Secrecy of Bank Deposits Act San Miguel Corporation’s Investment in Mislatel Consortium Universal Robina Corporation’s (URC) FINANCING MERGERS AND ACQUISITION Acquisition of New Zealand-based Griffin’s TRANSACTIONS IN THE PHILIPPINES Foods Cash Financing Cross-Border Financing Debt Financing FUTURE TREND IN M&A Equity Financing Technology-Driven M&A Seller Financing Supply Chain Resilience Mezzanine Financing Leveraged Buyouts Cross-Border M&A (LBOs) Regulatory and Antitrust Scrutiny Asset-Based Financing Sustainability and ESG Focus Convertible Securities Health Technology and Telemedicine Joint Ventures and Partnership Healthcare and Biotech M&A Government and Incentive Program Space and Satellite Technology Renewable Energy clean Teach M&A PROCESS Consumer Behavior and E-Commerce 1. Strategic Planning and Due Diligence. Pharmaceutical and Life Sciences 2. Valuating and Negotiation Consolidation 3. Regulatory Approvals: Special Purpose Acquisition Companies 4. Documentation and Legal Compliance. (SPAC’s) 5. Financing and Transaction: Private Equity Activity 6. Shareholder and Regulatory Approval Telecommunications and 5G Investments 7. Closing and Transfer Ownership 8. Post-Merger Integration. 9. Reporting and Compliance 10. Monitoring and Evaluation SUMMARY ❖ Mergers and Acquisitions (M&A) involve IMPACT OF M&A combining two or more companies or acquiring 1. Financial Performance one by another. 2. Organizational Culture and Human ❖ Serve various strategic purposes like market Resources expansion, synergy creation, cost reduction and 3. Stakeholder and Shareholder Value diversification. 4. Industry and Market Dynamics ❖ Types of Mergers ❖ Due diligence valuation, legal compliance and financing are crucial in the M&A process SUCCESSFUL M&A EXAMPLE ❖ M&A can impact financial performance culture and stakeholder value San Miguel Corporation’s Acquisition of Holcim ❖ Success factors include effective integration Philippines while pitfalls include overpaying and poor Ayala Corporation’s Acquisition of Healthway execution Medical ❖ Future trends in M&A include technology, cross- Jollibee Foods Corporation’s Acquisition of border deals and sustainability. Coffee Bean & Tea Leaf Aboitiz Equity Ventures’ Acquisition of GNPower Mariveless Coal Plant SM Investments Corporation’s Acquisition of Goldilocks Bakeshop  LESSON 3. FINANCIAL MARKET KEY FUNCTIONS AND ADVANTAGES OF FINANCIAL INTERMEDIARIES THE BASIC FUNCTIONS OF THE 1. Financial intermediaries hire highly qualified FINANCIAL SYSTEM people to assess risky investments. 2. Financial intermediaries know how to diversify Promote savings 3. Hiring financial intermediaries has a cost Enable payment advantage or economy of scale. Protect against risks 4. Financial intermediaries provide savers with Present a means to wealth liquidity. Provide liquidity Provide credit facilities FINANCIAL MARKET  A financial market is a mechanism in which THE PHILIPPINE FINANCIAL SYSTEM buyers and sellers trade financial assets such as stocks, bonds, currencies and derivatives. THE FINANCIAL SYSTEM Defined as the diversified financial activities  Unlike financial intermediaries, it is not a performed by different economic units whose source of funds, but a link to provide a forum activities are so closely related to one in which suppliers of funds and buyers of other, and which take into account the use of loans/investments can transact business money, credit, and the various instruments directly (Khan, et al., 2006) associated with money.  Financial markets are generally characterized as having formal regulations; The different economic units are the transparent pricing; basic regulations on financial institutions: banks and non-banks, trading, costs, and fees; and market forces business organizations, and individuals. which determine the prices of the securities These units engage in vastly different that are being traded. activities and may operate either domestically or internationally with or without help of other financial institutions. MONEY MARKET  The money market is a market intended for short-term placements. A placement usually FINANCIAL INTERMEDIARY takes at most one year to mature. A financial intermediary brings together the users and the providers of funds without  Money markets exist because individuals or having them meet face to face. For this firms look for temporary investments where reason, they are also known to engage in an their idle funds can be placed to earn income. indirect form of funds channeling.  To some extent, companies look for short- People and firms can go directly to the term financing to support their seasonal provider or users of funds. By doing so, the needs. Because of money markets, the use of a financial intermediary is eliminated, temporary needs of the providers and users resulting in a higher return. of funds are met. However, if this is the case, why do some people and business still tap the services of financial intermediaries? → The answer is that approaching financial intermediaries can be advantageous t