Financial Environment

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Objectives:
At the end of the report, the students will be able to:

Understand what financial market, financial institutions, stock market, and interest rate level are.

Know

what are the financial instruments used

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in each environment.
Know

its relationship on our economy.

Financial Market

Broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces
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determining the prices of securities that

Instruments of Financial Markets: Treasury Bills (T-Bills) Commercial Papers Certificate of Deposits Repurchase Agreements Call Loans Shares Debentures Mortgages
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1. 2. 3. 4. 5. 6. 7. 8.

Types

of Financial Markets:

1. 2. 3. 4. 5. 6.

Money market Capital market Derivatives market Foreign Exchange market Insurance Market Commodity Market
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 MONEY

MARKET:

The market for short-term debt instruments maturing in one year or less is known asMoney Market.
CAPITAL

MARKET:

The market for trading long-term instruments (those that mature in more than one year) is known as a Capital Market.
Derivatives

market

Derivatives Market provides instruments which help in controlling financial risk. 4/28/12

Foreign

Exchange market the

Foreign Exchange Market facilitates foreign exchange trading.

Insurance

Market

Insurance Market helps in relocation of various risks.

Commodity

Market

Commodity Market organizes trading of commodities. 4/28/12

Capital

Market

- consists of primary market and secondary

market.

1.

Primary market - newly issued bonds and stocks are exchanged.

2.

Secondary market - buying and selling of already existing bonds and stocks take place.
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Bond

Market - provides financing by

bond issuance and bond trading.

Stock Market - provides financing by

shares or stock issuance and by share trading.

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Parallel

Money Markets:

Some of the parallel money markets are listed as under:

1.

The inter-bank market which is a source to obtain wholesale loans from one bank to another) The market for certificates of deposit. The inter-companies deposit market by which short-term loans can be arranged through the market by one company for another) The foreign currencies market which deals in 4/28/12 foreign currencies deposited short term

2. 3.

4.

Uses

of Money Market:

Some of the most common uses of money market are:

1.

A money market provides the lenders a well organized place for dealings in monetary assets and satisfying the short-term requirements of borrowers as well.

1.

A short-term money market provides a medium for the redistribution of loan able funds among banks.

2.

The money market 4/28/12 provides a mean of meeting

Instruments

of Capital Market:

Some of the most commonly used instruments of capital market are listed below:

1. 2. 3. 4. 5.

Shares/Stocks Debentures Bonds Mortgages Treasury Notes

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Uses and Importance of Capital Markets:

1.

The existence of an organized capital market is absolutely necessary to encourage and mobilize savings and to introduce profitable avenues of investment so that capital formation can be promoted to country.

2.

Businesses often raise their fixed capital from capital market through issue of shares.

3.

The government and local authorities also borrow long term finance from capital market.
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'Financial

Institution - FI

An

establishment

that

focuses

on

dealing with financial transactions,such asinvestments, composed loans and deposits. such Conventionally, financial institutions are oforganizations asbanks, trust companies, insurance companies and investment dealers. 4/28/12

 Difference

between financial institution and non financial institution:

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'Stock

Market

The market in whichshares are issued and traded either through exchanges orover-the4/28/12 counter markets. Also

What

Are Stocks?

1.

Stocks are a share of the ownership of a company. Initially, they are sold by the original owners of a company to gain additional funds to help the company grow. The owners basically sell control of the company to the stockholders. After the initial sale, the shares can be sold and resold on
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 How

Does an Individual Investor Participate in Stock Investing?

1. 2. 3.

Online investing Investment clubs Financial professionals

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 The

Level of Interest Rates

An interest rate is the cost of

borrowing money. Or, on the other side of the coin, it is the compensation for the service and risk of lending money.
1.

Without it, people would not be willing

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 How

Interest Rates are Determined

Supply and Demand

Interest rate levels are a factor of the supply and demand of credit: an increase in the demand 4/28/12 credit for will raise

Inflation
Inflation will also affect interest rate

levels. The higher the rate of inflation, the more interest rates are likely to rise.

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Government
Thefederal funds rate, or the rate that institutions charge each other for extremely short-term loans, affects the interest rate that banks set on the money they lend. The rate then eventually trickles down into other short-term lending rates. The Fed influences these rates by the use of "open market transactions", which is basically the 4/28/12 buying or selling of

1.

1.

Thank You!! Good Day!!

Presented by:

Vinaline M. Calderon Cindy C. Tolentino Joseph R. Bunsoy

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