refers to the collective financial transfer mechanisms that facilitate the movement of money and profits between and among financial system participants throughout the world.

– a way of getting deposits and necessary funds to finance project and investments

determining to which uses, projects, or investments that acquired funds will be used

– the process by which necessary funds are given to the uses, projects, or investments that needs funds

– using the funds for its intended purpose.

is a bullish organization that stokes and develops the investment character of Filipinos in the Philippine financial/capital market. It is committed to promoting, developing and advancing awareness and knowledge of capital market and its role int the development of the national economy.

These are short-term securities. They are paper or electronic evidences of deb

Are government-issued securities with maturities of less than 91 days, specifically 35 days or 42 days

Are issued by the Bureau of the Treasury with 91-day, 182-day and 364-day maturities. Transactions are done through bidding online.

are unconditional obligations of the government issuing them, backed up by the full taxing power of the issuing government.

Is a time draft issued by a bank payable to a seller of goods. It is drawn on and accepted by the bank. Are generally used with the purchase of goods or services either domestically or internationally.

" is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount

– is an order for the bank to pay a specified amount of money to the bearer of the time draft on a given date.

– is an order to pay immediately.

is opened for import

– is opened for local purchase

it is a contractual agreement between the bank (known as the issuing bank) on behalf of the buyer (known as the drawer) authorizing another bank, the correspondent bank (known as the advising or confirming bank) to make payment to the beneficiary (or the seller).

It is a receipt issued by a commercial bank for the deposit of money. It is a time deposit with a definite maturity date (of up to one year) and a definite rate of interest.

Are legal contacts that involve the actual sale of securities by a borrower to a lender with a commitment on the part of the borrower to repurchase the securities at a contract price plus a stated interest charge at a later date.

is an agreement involving the purchase of securities by one party to another with the promise to sell them back at a given date in the future

Are PDIC-insured deposit accounts that are usually managed by banks or brokerages and can be a convenient place to store money that is to be used for upcoming investments or has been received from the sale of recent investments. They are very safe and highly liquid investments with higher paying interest rates rather than savings accounts but lower than money market mutual funds.

Are investment funds that pool funds from numerous investors and invest in money market instruments offered by investment companies.

is an investment company that pools the funds of many individuals and institutional investors to form a massive asset base.

which invest primarily in shares of stock.

invest both in shares of stocks and debt instruments combining the features of both the growth funds and the income funds.

invest in long-term debt instruments of government and corporations.

invest purely in short-term debt instruments.

– invest in assets that are expected to reap large capital gain (generally equity securities)

– invest in stocks that regularly pay dividends and in notes and bonds that regularly pay interest

combine the features of both growth funds and income funds

– invest in specific industries as health care, financial services, utilities and extractive industries

invest in a basket of securities that make up some market index as the S&P index of stocks

invest in securities issued in many countries providing diversification

is an agreement that transfers the right of the seller over a security in favor of a buyer. The underlying security carries a promise to pay a certain amount of money on a fixed date like a promissory note. The arrangement allows the buyer to hold the security as a guaranteed source of repayment.

Is an instrument that entitles the holder to a proportionate equitable interest in the securities held by the issuing firm or an entitlement to a pro rata share in a pledged revenue stream, usually lease payments.

refers to U.S. dollar-denominated deposits at foreign banks or at the overseas branches of American banks.

is a form of unsecured, short-term loan that is issued by a bank or corporation in the international money market. Notably, this are denominated in a currency that is different from the domestic currency of the market where the paper—debt security, or bond—is issued.

These are either equity securities or debt securities. These include corporate stocks, mortgages, corporate bonds, treasury securities, state and local government bonds.

a direct borrowings of deficit units from surplus units

are agreements where a property owner borrows money from a financial institution using the property as a security or collateral for the loan

is a bank’s commitment to make loans to regular depositors up to a specified amount.

– are the largest capital market instruments

are debt instruments issued by private companies and government entities to borrow large sums of money that no single financial institution may be willing or able to lend.

are negotiable certificates of deposit with designated maturity or tenor beyond 1 year, representing a bank’s obligation to pay the face value upon maturity, as well as periodic coupon or interest payments during the life of the deposit.

- is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them.

are structures through which funds flow. They are the institutions and systems that facilitate transactions in all types of financial claim. It is a meeting place for those with excess funds (lender) and those who need funds (borrower).

are markets for long-term securities. It has a maturity of more than a year

– are used to produce goods and services to generate revenues.

in this kind of market, companies issue common stocks or bonds, which are marketable/ negotiable to obtain long-term funds

allows security to be traded anonymously. It also improves liquidity because anyone who holds the security can immediately sell the security when the holder needs cash. The holder can even sell the security prior to maturity

It was an Examples of what?

• debt securities: notes, bonds, mortgages, leases

• equity securities: stocks

It was an Characteristics of what?

• greater default and market risks

• higher return yield

• wider price fluctuations

this market is composed of:

• stock market for equity or stock securities

• bond market for debt securities

• derivative securities market for securities deriving their value from another security

serves as the medium or agent of exchange transactions dealing with equity securities. It involves institutions and analysts who review the performance of listed companies.

It is a measure of the price level of the shares listed in the exchange by the indicated category. It is useful as a track record of changes in stock prices over time. It reports price movements of groups and the entire market. It reports the volume of shares traded, price range during the year, earnings per share and dividends per share.

• Commercial and industrial

• Property

• Mining

• Oil

-are issued by the government’s treasury

- they are backed by the full faith and credit of the government, hence, free from risks and low rates of interests (yield to maturity) to investors

- longer maturity, hence, wider price fluctuations and subject to interest rate risk

- they have a maturity of 1 to 10 years

-LGU bonds have only been acknowledged as a potential tool for development

- It reduces the dependence of LGUs on the national government in implementing their development programs and encourages and rewards transparent good governance among local government executives

- It attracts private institutional capital and providing the investing public with alternative long-term investment instruments

- Are long-term bonds issued by private corporations

- Bond indenture is the legal contract that specifies the rights and obligations of the bond issuer and bondholders (investors), term of bond, interest rate and interest payment dates.

refers to the market where derivative securities are traded

- are financial instruments which payoffs are linked to another previously issued securities.

- Represents agreements between two parties to exchange a standard quality of an asset or cash flow at a predetermined price at a specified date in the future

• This does not involve securities and are negotiated because it results from negotiation between a borrower and a lender.

• It is where the buyer and the seller deal with each other, either directly or indirectly through a broker or a dealer, with regard to both price and volume.

– is an agreement between the borrower and the lender for a definite period of time.

– length of period from the date the loan is taken to its maturity date, the date of loan is to be repaid.

– it is a group of banks where the amount of financing or funds that is large may be obtained.

Is where a one-on-one transaction takes place between the borrower and a lender.

-also includes market for foreclosed properties (properties that are taken by the lenders because the borrowers were unable to pay their loan and since the property is used as the collateral, the property is taken over by the lender).

- Is where the real property like land (residential, agricultural or industrial), building (residential, commercial, etc.) and big machineries are used to guarantee or secure big loans.

- It is a type of loan but secured loan guaranteed by a collateral if the company/person mortgages the property

Involves parties and transactions related to loans granted to households who desired to buy properties, travel, obtain education for themselves or loved ones or other similar needs.

(5 years)

(3 years)

These are the exchanges that started as physical places where trading took place. Exchanges are situated in a certain location with definite rules of trading.

Have never been a “place” but often a well-organized networks of trading relationships centered on one or more dealers. Dealers act as market makers by quoting prices at which they will sell or buy to other dealers and to their clients or customers.

It is where trading is done by independent third-party matching prices on orders received to buy and sell particularly security. Stocks are sold to the highest bidder, the one who offered the highest price, on the trading floors.

Provides the physical and institutional structure through which the money of one country is exchanged for that of another country, the rate of exchange between currencies is determined, and foreign exchange transaction are physically opted.

is an agreement between a buyer and a seller that a given amount of one currency is to be delivered at a specified rate for some currency.

Are called such because buying and selling is done “on the spot” that is, immediate delivery and payment. The buyer pays immediately and the seller delivers immediately.

Is where contracts are originated and traded that give the holder right to buy something in the future at a price specified in the contract.

Are contractual agreements between a buyer and a seller at a time zero (0) to exchange a prespecified, non-standardized asset for cash at some later date.

Is where the stock options are traded. They are traded in securities marketplaces among institutional investors, individual investors and professional traders and trades can be one contract or many

Are agreements between two parties (counterparties) in exchanging specified periodic cash flows in the future based on an underlying instrument or price.

refers to transactions between broker-dealers and large institutions.

refers to transactions that take place between securities firms and large institutional investors like pension funds and investment companies.

• - are the financial institutions that act as bridge between investors or savers and borrowers or security issuers.

- An entity that acts as the middleman between two parties in a financial transaction, such as a commercial bank, investment bank, mutual fund, or pension fund.

obtaining funds directly

is a result of financial intermediation.

these are financial institutions that accept deposits from surplus units.

- these issue contracts that are not deposits and perform financial intermediation.

• The biggest of the depository institution.

• They have been the pioneers in financial intermediation.

• They cater to the needs of households, agriculture and industry.

• They encourage the habit of thrift and savings and provide loans at reasonable rates

These are more popular type of banks in the rural communities.

• Their role is to promote and expand the rural economy in an orderly and effective manner by providing the people in the rural communities with basic financial services (ex. Helping farmers through the stages of production from buying seedlings to marketing their produce)

These are financial intermediaries that sell life insurance policies

- They offer protection against pure risk.

- They offer protection against injury or property loss resulting from accidents, work-related injuries, malpractice, natural calamities and the like.

Sells contracts to provide income to policyholders during their retirement years

They allow investors to purchase mutual funds that buy different securities in the securities market like stocks, long-term bonds or short-term debt instruments issued by businesses or government units.

They are financial intermediaries that pool relatively small amount of investor’s money to finance large portfolios of investments that justify the cost of professional management. By pooling funds, these organizations reduce the risks of diversification.

• These are profit-oriented financial institutions that borrow and lend funds to households and businesses.

act as financial intermediaries in a sense that they look for investors or savings units for the benefit of the borrowers or deficit unit.

buys securities and resells them and make a profit on the difference between their purchase price and their selling price.

These are agencies where people and some small businesses “pawn” their assets as collateral in exchange of an amount much smaller value that the value of the asset.

These are corporations organized for the purpose of accepting and executing trusts and acting as trustee under wills, as executor, or as guardian.

These are individuals or companies who loan funds to borrowers, generally consumers or households.

– are markets in which user of funds (corporation) raise funds, through new issues of financial instruments such as stocks and bonds. They issue primary securities (original or new shares).

• Equity security (stock)

• Debt security (bond)

– it is where primary market transactions are done which help the corporations issuing the stocks or bonds sell these securities to interested investors.

agrees the sale of the issues but does not intend to hold the shares or bonds on his own account.

first-time issues for the public

are markets for currently outstanding securities. These securities were previously bought and owned and now being resold either by the initial investors or those who have purchased securities in this market.

are shares held by the public

is a financial institution organized usually as a corporation or a partnership which principal business is to buy and sell securities.

the group that receives income, majority of which typically comes from wages and salaries. Such income is spent on goods and services, and a part is saved.

– is equal to current income fewer current expenditures.

goods that are consumed within a current period.

are the firms that bridge the gap between surplus units or investors/lenders and deficit units or borrowers. They channel funds from lender to borrowers. They include depository (commercial and thrift banks) or non-depository institutions.

are businesses other than financial institutions or intermediaries. They include trading, manufacturing, extractive industries, construction, genetic industries, and all firms other than the financial ones. When they buy securities, they lenders, investors, or savers; when they issue the securities, they are the borrowers.

This refers to the participants from the rest of the world – household, governments, financial and non-financial firms and central banks. Goods and services and financial instruments/securities are exchanged across national boundaries.

They prefer risk-free assets than risky assets as long as the expected returns on each asset are the same. In order for them to invest in a risky asset, they will require a higher return.

They are the investors who are ready to pay a higher price for an investment regardless of the risks involved

They are investors who do not take into account the risks involved in the investment and who are focused only on the expected returns.

stock prices are going up and market indices go up. It is the rise in the value of the market of at least 20%

It is when the economy is bad, recession is looming and stock prices are falling. It makes it tough for investors to pick profitable stocks.

– it means you are scared easily. Fear overrides their need to make profits so they will turn only to money market securities or get out of the market easily.

– They are high-risk investors looking for the one big score in a short period of time. They buy on hot tips and invest in companies without doing their due diligence.

It denotes percentage earnings or yield on investment. - It is the cost of using money expressed as percentage of the principal for a given period of time, which is usually per year.

It is the amount of money that people desire to hold as a store of value. - It is how much money people and firms decide to hold in their wallets which the primary benefit is that it is the most liquid of all assets, hence, the demand for money is the demand for liquidity.

people hold on to money to pay for expenses such as payment for bills, tuition fee, etc.

people hold on to money in preparation for unforeseen additional expenses caused by unexpected events like sickness, injury from accident or loss of property.

businessmen and investors hold on to money with the intention of using it when opportunity to earn more arises.

It is the average number of times a unit of currency is used to purchase final goods and services. - It is the number of times that a unit of money is spent on the total value of goods and services produced per year. - It refers to the number of times per year that the peso or currency travels around the economy from wallet to wallet, person to person, firm to firm, person to firm and firm to person.

means that people hold only a small amount of money. This is because people are careful in spending money and they spend less; thus, they use a small amount of money many times.

means that people hold more money in their wallets. Therefore, if they have more money in their wallets, they will use such bigger amount less often, thus reducing the velocity of money.

It refers to the interest rate before taking inflation into account. Nominal can also refer to the advertised or stated interest rate on a loan, without taking into account any fees or compounding of interest.

It is an interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or to an investor. - It reflects the rate of time-preference for current goods over future goods. - It is calculated as the difference between the nominal interest rate and the inflation rate (RIR = NIR – inflation).

It is the most common type of interest rate, which is generally charged to the borrower of the loan by lenders. - It is the rate of interest is fixed throughout the repayment period of the loan and is usually decided on an agreement basis between the lender and the borrower at the time of granting the loan. - Is a type of interest rate where the rate does not fluctuate with time or during the period of the loan.

It opposite of a fixed interest rate. Here the interest rate fluctuates with time. - It is generally linked to the movement of the base level of interest rate, which is also called the prime rate of interest.

It refers to a value that indicates how much return is generated based on the initial investment made, also called the capital. This rate is expressed as a percentage and is based on the capital and the annual return, which is the amount earned over the course of a year. On an investment is the percentage of loss or gain generated by an investment. This value is based on the initial investment, or capital, and the amount regained over a certain period, such as one year for an annual rate of return.

It refers to a value that indicates how much return is generated based on the initial investment made, also called

It is based on additional amounts paid on a loan that are not part of the actual loan repayment itself. - It is indicative of the amount of interest that has to be paid on a loan. It has nothing to do with any gain or loss made on an investment. When someone takes out a loan, he or she is typically presented with the annual interest rate on that loan, which indicates payment in addition to the actual principal that must be paid.

Have the following important roles in the economy:

1. Ensure the current savings will flow into investment to promote economic growth.

2. Ration the available supply of credit to provide loanable funds to those investment projects with the highest expected rate of returns.

3. Bring into balance the supply of money with the public’s demand for money.

4. Act as the important government tool through its influence on the volume of savings and investment.

It is one of the oldest theories concerning the determination of the pure or risk-free interest rate developed during the 18th and 19th centuries by a number of British economist, refined by Austrian economist Bohm-Bawerk and elaborated by Irving Fisher early in the 20th century. This theory posits that the rate of interest is determined by two factors: Supply of savings and Demand for investment capital. This theory highlights the importance of households and businesses. This theory assumes that individuals have a definite time preference for current over future consumption. It is assumed that a rational individual will always prefer current over future consumption. Therefore, the only way to encourage an individual or family to consume less and save more is to offer a higher rate on interest in current savings

It is often used for forecasting interest rates. - This theory is based on the premise that the interest rate is the price paid for the right to borrow or use loanable funds. Therefore, borrowers create the demand for loanable funds and the lenders, on the other side of the market, seek to provide the loanable funds needed by the borrowers. Households, businesses and governments participate in both sides of the market. They are all both borrowers and lenders at one time or another.

In 1930, John Maynard Keynes introduced the concept of money demand and used the term “liquid preference” for money demand. This theory stipulates that the interest rate is determined in the money market by the money demand and the money supply. - Interest rate is the point where the money demand is equal to money supply. - This gives insights on how investor behaves and how the government uses interest rate as a monetary tool

It came about in the advent of Information age. - It is based on the premise that the financial markets are highly efficient institutions in digesting new information affecting interest rates and security prices. When new information appears about investment, saving or money supply, investors immediately translate this information into investment or borrowing decisions. Interest rates and security prices fluctuate rapidly as new information appears. The theory views that forecasting interest rates requires knowledge of the public’s current set of expectations. If new information is sufficient to alter those expectations, interest rates must change.

It is a quick and easy method of calculating the interest charge on a loan. This is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments. - From the point of view of the saver, the interest rate is the percentage of interest income received over the money lent for a period of time. - From the point of view of the user, the interest rate is the percentage of interest expense paid over the money borrowed for a period of time.

It involves giving interest to interest earned, that is, the interest earned in the first period is added to the principal. The result becomes the principal for the second period, thereby earning a higher interest in the second period.

DETERMINANTS OF INTEREST RATES

Is measured based on the kind of credit and its term, particularly on short-term credit

– It is a spontaneous credit from regular purchase of goods. Some suppliers provide credit terms and cash discounts for early payments such as 2/10, n/30. The discount rate is 2% which means that 2% of the invoice price is deducted once paid within the discount period

These are lending arrangement between a bank and a borrower in which the bank provides the borrower a maximum amount of funds during a specified period of time. Normally, the bank requires the borrower to maintain a minimum cash balance in the bank called compensating balance throughout the term of the loan. It could also be a discounted loan in which the interest is paid in advance.

This is an unsecured short-term bank credit made for a specific purpose. It could be a discounted loan with compensating balance requirements or regular loan in which the interest is paid at the maturity period.

It is the interest rate which equates the present value of all cash flow from the debt instrument with the current value; hence, the net present value of NPV is equal to zero. It is also known as the internal rate of return (IRR).