FINMARK
FINMARK
FINMARK
UNIT 1
OVERVIEW OF FINANCIAL MARKETS
2. Of course, a debt instrument's holder is called an investor, and he is at that point entitled to get
a settled peso sum depending on the terms of the instrument.
3. Definitely, when calculating the price of a financial asset, the present value of the projected
cash flows (a stream of cash payments over time) is used as the basis. Even if the cash flows in
question are uncertain.
4.
6. Financial assets are also known as financial instruments and shares, so they are related. They
are intangible assets with a profit or worth that is usually a claim on future cash.
7. The following are the differences between the two types of financial instruments: debt
instruments are fixed-income portfolios, while equity instruments gain based on the issuer's
earnings.
8. Yes, the degree of certainty of anticipated cash flows is determined by the characteristics of the
debt and equity instruments issuer. The cash flow is established with confidence if one of the
parties never defaults on the debt instrument that was issued. Holders of equity securities, on
the other hand, are unsure about the volume and timing of dividend payments, which are
linked to business earnings.
9. Yes, a financial market is a physical location where financial assets are exchanged or traded.
10. Yes, organizations seeking to collect funds in any country are already authorized to trade with
other countries. This is due to the globalization of financial markets, which has resulted in the
development of a global financial system.
CASE
ANSWERS:
1. A debt instrument is the type of financial instrument that the Republic of the Philippines has
issued.
3. A debt instrument is the type of financial instrument that the Republic of the Philippines has
issued.
4. The original terms of 91, 182, and 364 days denoted the amount of time a debt instrument
would take to mature, or the initial length of a debt. Furthermore, since the debt instrument's
maturity date is one year or less, it is considered short-term.
5. An initial deposit is the bare minimum. In this case, the P500,000.00 face sum is the minimum
amount needed to open an account.
UNIT 2
THE FINANCIAL MARKETS
ANSWERS to the QUESTIONS:
1. The two-year bond is a short-term debt instrument, not a long-term debt instrument. It is then
classified as a medium-term instrument with a maturity ranging from one to ten years. A debt
instrument is often considered short-term if its maturity is less than a year.
2. Yes, a corporation's stockholders are called residual claimants to the company enterprise. Since
the company must compensate all of its debt holders before paying its equity holders, it must
pay all of its debt holders first. Furthermore, the equity instrument's issuer is only required to
pay the holder a sum dependent on earnings.
3. Bonds are known as fixed-income securities. They are debt instruments that enable the lender
to make fixed peso or dollar payments.
4. The maturity to say of financial markets is listed. The money market (short-term debt
instruments) and the stock market are two of them (long-maturity financial assets).
5. Money market instruments are traded overnight, yes. A money market is a financial market
where debt securities or instruments with a one-year or shorter maturity are traded (which
could between from overnight to one year).
6. No, capital markets only contained trade equity (stocks) and debt instruments (bonds) with
maturities of one year or more.
7. Primary markets are those where creditors, such as companies, collect capital by issuing new
financial instruments (stocks and bonds) and selling them to investors.
8. Of course, fund users (borrowers) such as companies may collect funds in the primary market
by issuing new financial instruments. This occurs when fund users have new projects or
increased output requirements but do not have enough internally produced funds to meet
them.
9. Secondary markets are markets where financial instruments such as securities are exchanged
(rebought and resold) after they have already been distributed in primary markets.
10. No, the Philippine Stock Exchange doesn't just deal with stocks and bonds. It is where debt
instruments (such as bonds) and other securities are bought and sold, in addition to stocks.
CASE
ANSWERS:
UNIT 3
THE MONEY MARKET
10. Money-market instruments are almost exclusively traded by computer systems, such as the
COL Financials' COL Fund Source. Dealers of money-market instruments (e.g., banks and non-
banks) sign contracts with one another or with a central clearinghouse, promising to conclude
transactions on the agreed-upon terms.
CASES
B. Since it is short-term, low-risk, unsecured, and highly liquid, this instrument is known as a
Money Market Instrument.
D. The method aided the company by supplying short-term funds that were required for working
capital or seasonal adjustments in order to cover expenditures related to the issuance of shares.
E. Commercial Paper and Treasury Bills are two money market instruments that are sold at a
discount and repaid at par.
C. Since there is no interest rate written on the instrument's face, it is known as a zero-coupon
bond. As a result, the instrument is sold at a discount and can be returned at face value.
D. T-91 indicates that the Treasury bill has a 91-day maturity period.
UNIT 4
THE BOND MARKET
2. The prospectus, also known as an official statement, contains the following information:
The financial condition of the issuer
The purpose for which the debt is being sold
Schedule for the interest and principal payments required to service the debt
The security offered to bondholders in the event the debt is not serviced as required
3. Underwriters are responsible for organizing the syndicate and allocating a percentage of the
bonds to each of the member firms in the selling of bonds.
4. Yes, there are bond issuers who sell to investors directly. Some issuers are now able to sell
their bonds directly to investors over the internet, bypassing the use of underwriters or
brokers, thanks to advancements in technology. Governments at all levels, both national and
subnational, are the most common issuers of these bonds.
5. The Philippine Dealings and Exchange Corporation is the country's trading infrastructure for
fixed-income financial instruments (PDEx).
6. A callable bond is one that can be exchanged for cash before its maturity date. Furthermore,
the issuer may reserve the right to call the bonds at a certain date, in which case the owner is
obligated to sell the bonds to the issuer at a price that is typically higher than the current
market price.
7. When an investor buys zero-coupon bonds, he or she gains money from non-payments that
can be reinvested before the bond matures, giving the investor more clarity about the return
on investment.
8. Yes, a convertible bondholder has the option to swap his instrument for another security.
Usually, it's the issuer's common stock. Furthermore, the conversion ratio (the number of
shares for which each bond may be exchanged) and conversion value are specified in the
prospectus for a convertible issue (the price of the common shares for which it may be traded).
10. Investors use well-known rating agencies' ratings to determine the issuer's ability to service
the bonds, considering factors such as financial power, planned use of funds, political and
regulatory climate, and future economic shifts. Furthermore, they can be used to measure the
likelihood of default (default risk) and set bond prices.
CASES
SOLUTIONS:
A.
B.
C.
D.
E.
UNIT 5
THE EQUITY MARKET
ANSWERS to the QUESTIONS:
1. In 1602 the Dutch East India Company established the first shareholder-owned company.
2. The primary purpose of equity markets is to raise capital. Companies can also raise funds
through loans or venture capital.
4. A floatation, also known as an Initial Public Offering (IPO), is the mechanism by which a
company sells its stock to the general public. This may happen for a variety of reasons. One of
them is that the company might need more money to take advantage of new opportunities.
5. In the Philippines, Additional Listing refers to the sale of additional shares by a publicly listed
company. A secondary offering occurs when one or more investors who own a significant
portion of a company's stock offer such securities for sale to the general public.
6. The approaches or methods when selling shares are:
Throughout the case of high-quality issuers, the investment banker typically acts as an
underwriter, committing capital to buy shares from the issuer and resell them to the
public, or, in some situations, selling the shares by offer.
The shares are distributed on a finest basis by an investment bank. It's basically
promising to purchase shares on behalf of the issuer using its best efforts.
It's an all-or-nothing deal. This is a biggest success in which all shares are sold at the
offer price and the entire offering is cancelled if any shares remain unsold.
7. The Philippine Stock Exchange Index, or PSEi, is a benchmark for calculating the stock
market's success in the Philippines. The PSEi is made up of 30 common stocks from the stock
exchange's top 30 listed firms, and these companies reflect the stock market's overall
movement in the Philippines.
8. Firm earnings, cash flow, dividends, asset valuation, analyst recommendations, index
inclusion, interest rates, bond returns, global economic news, and fads are all variables that
influence share prices in the stock market.
9. Divide the annual dividend per common share by the current price per share to get the
dividend yield.
Dividend yield = Annual Dividend per Common Share/Current Price per Share
10. Price/earnings ratio, return on equity, return on capital, and total return are the main numbers
used by investors when determining which stocks to buy.
CASE
ANSWERS:
1. Yes, the Philippine Stock Exchange Index includes Ayaland Territory (PSEi). To be called a
Blue Chip Company, it must have an established track record as well as regular high volume
trades. One of the basic requirements they must meet is a free float amount of 12%, which the
Ayaland Land currently has at 54.3%. Market capitalization is another aspect to consider.
Another consideration is that the company's market capitalization is P572.275 billion, with
14.730 million outstanding shares and a current share price of P38.95.2. The Ayaland Land has
a Price/Earnings Ratio of 9.02%.
2.
3. The ALI code is referred to as a "ticker" in technical terms. On the internet, “ticker” symbols
can be used to obtain information about share prices; in this case, ALI stands for Ayaland
Property, Inc.
4. The possible factors that caused the 52-week price range difference of Ayala Land are:
Current earnings and future estimated earnings
Announcement of dividends
Employee layoffs due to pandemic
A change of management
Economic factors such as inflation
5. If I were a shareholder or an investor, I would buy Ayala Land stock because it is the country's
leading and largest real estate firm, with a billion-peso net income generated annually from its
numerous target markets. They are indeed a PSEi Blue Chip Business, and they have strategy
to identify a net income during this pandemic, giving prospective investors fair confidence
that they can gain on their investment funds even if the country's economic situation remains
insecure. Furthermore, the consumer research and valuations of the said business as of
November 18, 2020, clearly show that buying multiple stocks from them would result in a
large return of investment and money, so investing in Ayala Property, Inc. is a reasonable
choice.
UNIT 6
THE FOREIGN EXCHANGE MARKET
ANSWERS to the QUESTIONS:
1. The spot market, futures market, options market, and derivatives market are the four different
markets in a foreign exchange market.
3. Exporters and importers, investors, speculators, and governments are all participants in the
foreign exchange industry.
4. The US dollar is the most commonly traded currency, accounting for 40-45% of all transactions
since the first systematic study in 1989.
5. When trading takes place through several time zones, the Herstatt Risk (named after the well-
known failure of the German bank Herstatt) arises. It's the danger that comes with settling
foreign exchange transactions. Furthermore, it is possible that one party will fail to fulfill the
terms of a contract at the agreed-upon period.
6. Exchange rates fluctuate because they are highly unpredictable, reacting to recent events such
as the failure of proposed legislation, the election of a specific politician, or the publication of
unexpected economic data.
7. Covered interest arbitrage affects exchange rates by transferring funds from a domestic
currency with a lower interest rate to a foreign currency with a higher interest rate. Higher
interest rates provide a better return to lenders in a given economy as compared to other
nations. As a result of the higher interest rates, international capital is attracted and the
exchange rate rises. Decreased rates, on the other hand, have the inverse relationship.
8. A country's money supply is directly related to its central bank's gold reserves under the gold
standard scheme, and notes and coins can be exchanged for gold at any time.
9. Exchange rates are not the goal of monetary policy in a floating-rate environment.
Governments and central banks use their policies to achieve other objectives, such as price
stability or economic development, and to enable exchange rates to shift in accordance with
market forces.
10. Banks, electronic information systems such as Reuters and electronic currency-trading
systems, daily newspapers, and websites can all provide exchange rate information. Similarly,
the Banko Sentral ng Pilipinas publishes a regular Reference Exchange Rate Bulletin in our
country (BSP).
CASE
ANSWERS:
A. If invested in the Philippines:
Initial capital = P500,000,000
C. I recommend that you place your money in the United States. It is projected to make more
money in the United States than in the Philippines, with a gap of P4,525,441.88.
UNIT 7
THE DERIVATIVES MARKET
ANSWERS to the QUESTIONS:
1. A derivatives market is a segment of the financial markets that has begun to expand in recent
years, especially the over-the-counter market for commodities, which are transactions
arranged privately between two parties known as financial institutions without the use of an
exchange's intermediation.
2. Forwards and options are the two most common types of derivatives. Forward agreements set
a price for something that will be delivered in the future, while Options contracts enable, but
do not require, either or both parties to receive certain benefits under certain provisions.
3. When trading derivatives, the risks are counterparty risk, price risk, legal risk, and settlement
risk.
4. The types of derivatives include forwards, interest rate swaps, currency swaps, interest-rate
options, commodity derivatives, equity derivatives, credit derivatives, and synthetic securities.
5. The danger that a derivatives dealer customizes its product to meet the needs of a particular
customer is known as price risk. It is particularly associated with the disadvantage of
personalized derivatives, as when a customer sells out its positions, there might be few others
interested in that specific derivative.
6. A forward contract is a contract that sets a price for something that will be delivered in the
future. It can also be customized with the user's preferred size and expiration date.
7. Exchanging sources of interest payments in two different currencies is what currency swaps
are all about. Over the existence of the derivative, the values will be determined by what
happens to the exchange rate between the two currencies involved.
8. A simple or plain vanilla refers to the simplest or most common version of a financial
instrument, such as options, shares, futures, and swaps.
Furthermore, changes in a derivative's value are normally caused by the fact that it has an
underlying notional quantity, such as a number of currency units or shares.
UNIT 8
THE PHILIPPINES CRYPTOCURRENCY OVERVIEW
2. The Circular 944, or Guidelines for Virtual Currency Exchanges, issued by the Bangko Sentral
ng Pilipinas in 2017 required VC exchanges to obtain a certificate of registration to function as
a remittance and transfer firm.
3. A Ponzi scheme is a deceptive investment scheme that promises high returns with little risk to
investors. This is similar to a pyramid scheme in that both depend on new investors' money to
pay off previous investors.
5. An E-Wallet is a form of electronic card that can be used to make online purchases using a
computer or smartphone. Furthermore, an E-wallet is a form of prepaid account in which a
user can save money for future online transactions including grocery payments, online
purchases, and flight tickets.
6. The coins and paper money minted and printed by a country's central bank that are
designated and circulated as legal tender in the country are known as fiat money or real
currencies. In the world, it is also used and agreed as a medium of exchange. The Philippine
Peso is an example of this.
8. A public key is a series of letters/numbers that anyone in the Bitcoin community can see,
while a private key is a separate collection of letters/numbers that is kept hidden
between/among transactions.
9. The term "ICO" stands for "Initial Coin Offering." It is the cryptocurrency industry's version of
a public offering (IPO). Furthermore, an ICO is a means of raising funds for a business seeking
to develop a new coin, app, or service.
10. The Philippine Digital Asset Exchange (PDAX), which was established in 2017, is the
cryptocurrency trading platform authorised by the Bangko Sentral ng Pilipinas. The BSP gave
it permission to function as a virtual currency exchange.