FINANCIAL MARKETS
Chapter II
Primary Market - markets in which
financial instruments and securities
are initially offered or sold with the
proceeds going to the issuer.
Secondary Market - markets in
which previously issued or ‘seasoned’
instruments or securities are traded.
IPO - a type of public offering in which
shares of a company are sold to
institutional investors usually also to
retail investors.
Financial Institutions
organizations or intermediaries that
help the financial systems operate
efficiently and transfer of funds from
savers and investors.
Money Markets - markets that trade
debt securities and equity
instruments with maturities of less
than one year.
Capital Markets - markets that trade
debt securities and equity
instruments with maturities of more
than one year.
Derivatives - a financial instruments,
a price of which has strong
relationship with an underlying
commodity, currency, economic
variable or financial instrument.
Certificate of Deposit - a time
deposit with a bank.
Commercial Paper - short-term
unsecured debt issued by large
corporations.
Banker’s Acceptance - an order to a
bank by a customer to pay a sum of
money at a future date.
Repurchase Agreement - a form of
short-term, usually overnight
borrowing.
Treasury Bonds - the debt obligation
of the government with maturities of
one year or more.
Corporate Bonds - the means by
which private firms borrow money
directly to the public.
Stocks - represent ownership shares
in a corporation
Future Contracts - calls for delivery of
- an asset at a specified delivery or
maturity date.
Forward Contracts - dealing in
commodities, securities, currencies,
etc. for delivery at some future date at
a price agreed at the time the contract
is made.
OTC Market - an informal network of
brokers and dealers who negotiate
sales of securities with no fixed
location.
Bull Market - is one in which prices
of stocks are rising or expected to rise.
Bear Market - market in which prices
of stocks are falling or expected to fall.
Hedge - transaction or position
designed to mitigate the risk of other
financial exposure.
Option - the right to buy or sell a fixed
quantity of commodity, currency, etc
at a particular date at a particular
price.
Stock Exchange - a market for the
sale and purchase of securities, in
which the prices are controlled by the
law of demand and supply.
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Chapter II
Blue Chips - the stock of a
well-established, financially sound
and historically secured corporation.
Foreign Exchange - markets in
which cash flows from the sale of
products or assets denominated in
foreign currency are transacted.
Mutual Funds - Financial Institution
that pool financial resources of
individuals ans companies and invest
those resources in diversified portfolio
or assets.
Philippine Stock Exchange - the
national stock exchange of the
Philippines, created in the year 1992.
Financial Market - broad term
describing any market place where
trading securities including equities,
currencies and derivatives occur.
Swaps - a kind of derivatives contact
made between two parties to
exchange cash flows in the future.
Annuity - A series of payments of a
fixed amount for a specified number
of periods.
Annuity Due - An annuity with
payments occurring at the beginning
of each period.
Ordinary Annuity - This exists when
the equal payments occur at the end of
each time period; it is also referred to
as a deferred annuity.
Compounding - is the process of
finding the future value of a single
payment or series of payments.
Discounting - the process of finding
the present value of a single or series
pf payments.
FVn - the ending amount in an account,
where n is the number of period the
money is left in an account.
Present Value - the value today of a
future payment, discounted at the
appropriate rate of interest.
Future Value - value of a savings
amount or investment at a specific
time in the future.
Compounding Interest - the interest
earned on interest in addition interest
earned on the principal or investment.
Time Value of Money - the basic
notion that a peso received today is
worth more than peso received at
some future date.
Nominal Interest Rate - interest
rates actually observed in financial
markets.
Real Interest Rate - interest rate that
would exist on a default free security if
no inflation were expected.
Default Risk - the risk that a security
issuer will default on that security by
being late or missing an
interest/principal payment.
Term Structure of Interest Rate - a
comparison of market yields on
security, assuming all characteristics
except maturity are the same.
Effective Interest Return - rate
earned over a 12-month period taking
the compounding interest into
account.
FVAn - the ending value of a stream of
equal payments, where n is the # of
payments of the annuity.
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Chapter II
PVAn - the value today of a future
stream of equal payments (an
annuity).
FVIFAi,n - the future value interest
factor for an ordinary annuity of n
periodic payments paying i percent
interest per period.
PVAIFAi,n - the present value interest
factor for an ordinary annuity.
FVIFi,n - the future value interest
factor for a lump sum left in an
account for n periods paying interest
per period.

Opportunity Cost - The forgone

interest cost from the holding of cash
balances when they are received.
Bond Equivalent Yield - quoted
nominal or stated rate earned on an
investment over a one-year period.
Federal Funds - Short term funds
transferred between financial
institutions, usually for a period of
one day.
Correspondent Banks - banks with
reciprocal accounts and agreements.
Reverse Repurchase Agreement -
An agreement involving the purchase
of securities by one party from
another with the promise to sell them
back.
Negotiable Certificate of Deposit - A
bank-issued, fixed maturity,
interest-bearing time deposit that
specifies an interest rate and maturity
date and is negotiable.
Bearer Instrument - An instrument
in which the holder at maturity
receives the principal and interest.
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Chapter II