Introduction To Capital Market PDF

INTRODUCTION TO CAPITAL MARKET Prepared by: Chimes Carie Carreon  LEARNING OBJECTIVES At the end of the lesson students will be able to: Explain what is Capital Market and its purpose Identify and Differentiate Types of Capital Markets Analyze the Participants in Capital Market Differentia...

INTRODUCTION TO CAPITAL MARKET Prepared by: Chimes Carie Carreon  LEARNING OBJECTIVES At the end of the lesson students will be able to: Explain what is Capital Market and its purpose Identify and Differentiate Types of Capital Markets Analyze the Participants in Capital Market Differentiate and Explain the different capital markets Assess the Present Condition of the Capital Market  HUMAN GRAPH: MARKET SENTIMENT Based on how strongly you agree or disagree with the statement, move to the spot in the room that best represents your opinion: "Strongly Agree," "Agree," "Neutral," "Disagree," or "Strongly Disagree."  “CAPITAL MARKETS ARE ESSENTIAL FOR ECONOMIC GROWTH.”  "ONLY LARGE COMPANIES CAN BENEFIT FROM CAPITAL MARKETS."  "INVESTING IN THE STOCK MARKET IS JUST LIKE GAMBLING." “THE DEBT MARKET IS SAFER THAN THE EQUITY MARKET.”  "REGULATION IN CAPITAL MARKETS DOES MORE HARM THAN GOOD." "DERIVATIVES ARE TOO COMPLICATED FOR THE AVERAGE INVESTOR." "THE PHILIPPINE CAPITAL MARKET IS WELL- DEVELOPED AND COMPETITIVE ON A GLOBAL SCALE."  "MARKET CONDITIONS TODAY ARE MORE FAVORABLE FOR INVESTORS THAN THEY WERE 10 YEARS AGO."  "CAPITAL MARKETS ARE PRIMARILY BENEFICIAL TO WEALTHY INDIVIDUALS AND LARGE INSTITUTIONS."  "WITHOUT CAPITAL MARKETS, BUSINESSES WOULD STRUGGLE TO GROW."  "THE CAPITAL MARKETS ARE NOT JUST A PLACE FOR TRADING ASSETS, BUT A REFLECTION OF OUR COLLECTIVE TRUST AND AMBITION TO SHAPE THE FUTURE." -AI  WHAT IS CAPITAL MARKET? Is a financial market where individuals, companies, and governments come together to buy and sell financial securities, such as stocks, bonds, derivatives, and commodities. This market facilitates the flow of capital between investors and borrowers, offering them a platform to trade and raise fund  PURPOSE OF CAPITAL MARKETS I. FACILITATE EFFICIENT ALLOCATION OF CAPITAL Match investors who have excess funds with borrowers who need capital for investment and expansion. Allows investment capital to flow to projects and companies that have higher growth potential and economic growth  PURPOSE OF CAPITAL MARKETS II. PROVIDE A PLATFORM FOR COMPANIES TO RAISE CAPITAL Serve as a source of long-term financing for companies. Companies can raise funds for various purposes such as research and development, infrastructure development, and working capital  PURPOSE OF CAPITAL MARKETS III. ENABLE INVESTMENT OPPORTUNITIES FOR INDIVIDUALS Enable individuals to invest their savings in various financial securities. By investing, individuals can diversify their portfolio, accumulate wealth , and secure their financial future.  PURPOSE OF CAPITAL MARKETS IV. ENHANCE LIQUIDITY Provide liquidity to financial securities, allowing investors to buy and sell securities easily. Investors can convert their investments into cash quickly without significant price impact.  PURPOSE OF CAPITAL MARKETS V.PRICE DISCOVERY AND RISK MANAGEMENT Serve as a mechanism to determine fair value of financial securities through price discovery Interaction of supply and demand in these securities help establishing market prices for trade assets.  PURPOSE OF CAPITAL MARKETS VI.ENABLE RISK TRANSFER AND HEDGING Provide various derivative instruments to facilitate risk transfer and hedging. Allow market to mitigate their exposure to price fluctuation, interest rate change, and other market risks  PURPOSE OF CAPITAL MARKETS VII.FOSTER ECONOMIC GROWTH AND DEVELOPMENT Play pivotal role in stimulating economic growth and development Attract domestics and foreign investment leading to increased economic activities.  TYPES OF CAPITAL MARKETS PRIMARY MARKET Is where new securities are issued and sold for the first time by companies or governments to raise capital. Facilitates capital formation by enabling businesses and governments to raise funds for expansion, infrastructure projects, or debt refinancing.  TYPES OF PRIMARY OFFERINGS I.Initial Public Offerings (IPO) Is the first offering of shares to the public by a private companies. It is the process through which a company becomes publicly traded on a stock exchange.  TYPES OF PRIMARY OFFERINGS II.Seasoned Equity Offerings (SEO) Already listed companies issues additional shares to the public SEOs are typically undertaken by more established companies that have a track record and in the market  TYPES OF PRIMARY OFFERINGS III.Private Placement Involve the sale of securities directly to a select group of investors without offering them to the general public Used by companies that prefer to avoid the cost and regulatory requirements associated with public offering  TYPES OF PRIMARY OFFERINGS IV.Debt Issuances Allow issuers to borrow money from the investors and promise to repay the principal amount with the interest over a specified period of time. Allows companies and government to borrow money for infrastructure project or capital investment. PRIMARY MARKETS IN THE PHIL. PHILIPPINE STOCK EXCHANGE (PSE) Primary market for stocks, allowing companies to raise capital through IPOs and secondary offerings  PRIMARY MARKETS IN THE PHIL. PHILIPPINE DEALING & EXCHANGE CORP. (PDEx) Primary market for fixed-income securities. Use to raise capital by issuing bonds and other debt securities. PRIMARY MARKETS IN THE PHIL. BANGKO SENTRAL NG PILIPINAS Auction is another form of capital market in the Phil. conducted by the central bank. They offer T-bills, and bonds. PRIMARY MARKETS IN THE PHIL. REAL ESTATE INVESTMENT TRUST Allow investors to invest in income-generating real estate properties. REITs are listed in the PSE  TYPES OF CAPITAL MARKETS SECONDARY MARKET is where previously issued securities are bought and sold among investors after their initial issuance in the primary market. Facilitates price discovery based on supply and demand dynamics.  TYPES OF SECONDARY MARKET I.Stock Exchanges (NYSE, NASDAQ, LSE, TSE) These centralized platforms facilitate of publicly listed stocks Provide a transparent and regulated marketplace where buyers and sellers can interact and trade shares in companies  TYPES OF SECONDARY MARKET II.Bond Markets (US Treasury, OTC) Market for fixed-income securities such as government bond, and municipal bonds Allow investors to earn interest income on their investments, as well as diversify their portfolion beyond stocks.  TYPES OF SECONDARY MARKET III.Commodity Exchange (CME, LME) Commodity Exchanges facilitate the trading of physical commodities such as metals, energy product, and agricultural products, and other raw materials. Promote Price discovery and risk management  TYPES OF SECONDARY MARKET IV.Derivatives Markets (CBOE, CME) Secondary Market for financial contracts derived form underlying assets or indices Allow investors to speculate on the future price movements of assets and or hedge against potential risk  TYPES OF SECONDARY MARKET V.Foreign Exchange Markets Secondary market where currencies are bought and sold. Enables individuals, businesses, and institutions to exchange one foreign currency for another, facilitating international trade and investments. SECONDARY MARKETS IN THE PHIL. PHILIPPINE STOCK EXCHANGE (PSE) It is where securities are traded after their initial issuance in the primary market. SECONDARY MARKETS IN THE PHIL. PHILIPPINE DEALING & EXCHANGE CORP. (PDEx) Provide platforms for investors to trade securities, and determining the price at which trades occur.  ANSWER THE FOLLOWING QUESTIONS 1. You are advising a client who wants to invest in the stock market. They are deciding between buying newly issued stocks (Primary Market) or buying stocks that are already being traded (Secondary Market). How would you explain the differences between these two options? What are the benefits and risks of investing in each market? 2. If you were an investor, which capital market would you prefer to venture into: the primary market or the secondary market? Within each chosen market, specify which types of investments (e.g., IPOs or bonds for the primary market; stock trading or bond trading for the secondary market) you would pursue. Explain your choices and how they might benefit you as an investor.