OVERVIEW OF

FINANCIAL MARKET
 OVERVIEW OF
FINANCIAL MARKET

Savers & Financial Market Financial Financial

Borrowers Intermediary Instruments
Financial System

Financial
Intermediary

Savers & Financial Market Financial Financial

Borrowers Intermediary Instruments
Elements of Financial System

Savers & Financial Financial Financial

Borrowers Market Intermediary Instruments
Elements of Financial System

Savers & Financial Financial Financial

Borrowers Market Intermediary Instruments
Elements of Financial System

Savers & Financial Financial Financial

Borrowers Market Intermediary Instruments
Elements of Financial System

Savers & Financial Financial Financial

Borrowers Market Intermediary Instruments
Elements of Financial System

Savers & Financial Financial Financial

Borrowers Market Intermediary Instruments
 FUNCTIONS OF
FINANCIAL MARKET
FUNCTIONS OF FINANCIAL MARKET
Raising Capital
➢Firms often require funds to build new facilities,
replace machinery or expand their business in
other ways.
➢This includes trading of shares, bonds and other
types of financial instruments.
➢Financial market is as important source of capital
for individuals who wish to buy homes or cars, or
even to make credit-card purchases.
FUNCTIONS OF FINANCIAL MARKET
Commercial Transactions
➢The financial market and the long-term capital,
provides grease that makes commercial
transactions possible.
➢This includes things such as arranging payment
for sale of a product abroad, and providing
working capital so that a firm can pay employees
if payments from customers run late.
FUNCTIONS OF FINANCIAL MARKET
Price Setting
➢The value of an ounce of gold or a share of stocks
in no more, and no less, than what someone is
willing to pay to own it.
➢Markets provide price discovery, a way to
determine the relative values of different items,
based upon the prices at which individuals are
willing to buy and sell them.
FUNCTIONS OF FINANCIAL MARKET
Asset Valuation
➢Market prices offer the best way to determine the
value of firm or firm’s asset, or property. The
valuation is equally important to buyer, seller, and
regulator.
➢For example, an insurer may appear strong if it
values the securities it owns at the prices it paid
for them years ago, but the relevant question for
judging its solvency is at what prices those
securities are valued it sold at current prices.
FUNCTIONS OF FINANCIAL MARKET
Arbitrage
➢In countries with poorly developed financial
markets, commodities and currencies may trade
at different prices in different locations.
➢Traders in financial markets attempt to profit
from this divergences, prices moved towards a
uniform level, making the entire economy more
efficient
FUNCTIONS OF FINANCIAL MARKET
Investing
➢The stock, bond and money market provides an
opportunity to earn a return on funds that are
not needed immediately,
➢Financial Market provides an avenue to
accumulate assets that will provide income in
future.
FUNCTIONS OF FINANCIAL MARKET
Risk Management
➢Futures, options and other derivatives contracts
can provide protection against many types of risk
such as the possibility that a foreign currency will
loose value against domestic currency before
export payment is received.
➢This enables the market to attach a price to risk,
allowing firms and individuals to trade risk so
they can reduce their exposure to some while
retaining exposure to others.
STRUCTURE OF
FINANCIALDERIVATIVE
MARKET
DEBT
MARKET

EQUITY
MARKET

MARKET MORTGAGE
MARKET
FOREIGN
EXCHANGE
MARKET
 STRUCTURE OF DEBT MARKET
FINANCIAL MARKET
Financial markets comprise
five key components: DERIVATIVE EQUITY
1. Debt Market MARKET MARKET
2. Equity Market
3. Foreign-exchange
Market
4. Mortgage Market
5. Derivative Market. FOREIGN
MORTGAGE
EXCHANGE
MARKET
MARKET
 DEBT MARKET
➢ Debt instruments are traded in the debt
market, also often referred to as the bond
market.
➢ The debt market is important to economic
activities because it provides an important
DEBT
channel for corporations and governments to MARKET
finance their operations.
➢ Interactions between investors and borrowers DERIVATIVE
MARKET
EQUITY
MARKET
STRUCTURE OF
in the bond market determine interest rates. FINANCIAL
MARKET

FOREIGN
MORTGAGE
EXCHANGE
MARKET
MARKET
 EQUITY MARKET
➢ Equity instruments are traded in the equity
market, also known as the stock market. The
stock market is the most widely followed
financial market.
➢ It is important because fluctuations in stock
prices effect investors’ wealth and hence their DEBT
MARKET
saving and consumption behavior, as well as
the amount of funds that can be raised by DERIVATIVE EQUITY
MARKET MARKET
selling newly issued stocks to finance STRUCTURE OF
FINANCIAL
investment spending. MARKET

FOREIGN
MORTGAGE
EXCHANGE
MARKET
MARKET
 FOREIGN EXCHANGE MARKET
➢ Foreign-exchange markets are where
currencies are converted so that funds can
be moved from one country to another.
➢ Activities in the foreign-exchange market
DEBT
determine the foreign-exchange rate, the MARKET

price of one currency in terms of another.

DERIVATIVE EQUITY
MARKET MARKET
STRUCTURE OF
FINANCIAL
MARKET

FOREIGN
MORTGAGE
EXCHANGE
MARKET
MARKET
 MORTGAGE MARKET A mortgage is a long-term
loan secured by a pledge
of real estate.
➢ Mortgage-backed securities, also called
securitized mortgage, are securities issued to sell
mortgages directly to investors.
➢ The securities are secured by a large number of
mortgages packaged into a mortgage pool.
➢ The most common type of mortgage-backed DEBT
MARKET

security is a mortgage pass-through, a security

that promises to distribute to investors the cash DERIVATIVE
MARKET
EQUITY
MARKET
flows from mortgage payments made by STRUCTURE OF
FINANCIAL
MARKET
borrowers in the underlying mortgage pool.
MORTGAGE FOREIGN
EXCHANGE
MARKET MARKET
 DERIVATIVE MARKET
➢ Financial derivatives are contracts that derive
their values from the underlying financial
assets.
➢ Derivative instruments include options
contracts, futures contracts, forward contracts,
swap agreements, and cap and floor DEBT
MARKET

agreements.
➢ These instruments allow market players to DERIVATIVE
MARKET
EQUITY
MARKET

achieve financial goals and manage financial STRUCTURE OF

FINANCIAL
risks more efficiently. MARKET

FOREIGN
MORTGAGE
EXCHANGE
MARKET
MARKET
 FUNCTIONS OF FINANCIAL MARKET
Primary Market Secondary Market
➢Refers to original sale of securities ➢It is popularly known as Stock
by government and corporation. Market or Exchange.
➢Are not well known to the public ➢After securities are sold to the
because selling securities to initial public they can be traded in
buyers often takes place behind secondary market between
closed doors. investors.
➢Two (2) types of primary market ➢Brokers: are agents of investors
transactions: public offerings and who match buyers with sellers of
private placements. securities.
➢Dealers: link buyers and sellers by
buying and selling securities and
stated prices.
 Segments of Stock Market

Organized Stock Exchange Over-the-Counter (OTC) Exchange

➢The stocks exchanges will have a ➢Shares, Bonds and money market
physical location where buying and instruments are traded using a
selling transactions takes place. system of computer screens and
microphone.
➢Examples are Philippine Stocks
Exchanges, NYSE, Japan Nikkei and ➢Dealers attempt to match up the
NASDAQ orders they receive from investors
to buy and sell its stock.
 Mission,
Vision &
Corporate
Values
PRODUCT OFFERINGS
PRODUCT
OFFERINGS
 PRODUCT OFFERINGS

Listing
➢ The Philippine stock market is a viable destination for
companies seeking to go public and offers a solid platform
for equity financing and long-term growth.
➢ PSE is home to a wide spectrum of firms – ranging from
the biggest Philippine conglomerates to small, medium,
and emerging enterprises – which have successfully tapped
the equities market for their funding requirements.
 PRODUCT OFFERINGS

Trading
➢ World-class and advanced technologies are utilized by the
PSE to provide investors a smooth and transparent trading
experience.
➢ Investing in the Philippine stock market is possible through a
diverse pool of global and domestic trading participants.
 PRODUCT OFFERINGS

Market Data
The PSE provides extensive range of real-time and historical
market data is available to empower investors in developing
and maximizing trading strategies, as well as to provide
quality basis for the conduct of academic research.
 PRODUCT OFFERINGS

Post-Trade
➢ Through the Securities Clearing Corporation of the
Philippines, PSE offers clearing, settlement, and collateral
management services that meet global standards, enable
the prudent mitigation and management of counterparty
risks, and ensure transparency and uphold the integrity of
the Philippine market.
Interpreting Stocks Tables
and Basics of Day Trading
Common Terms Used in Stocks Tables
✓52 Week High - The highest price that a stock has
traded at during the previous year
✓52 Week Low - The lowest price that a stock has
traded at during the previous year
✓Stock Symbols - A unique series of letters assigned
to a security for trading purposes
Common Terms Used in Stocks Tables
✓ Dividends/Share - A share of a company's profits
passed on to the shareholders on a periodic basis
✓ Volume - The number of stock shares traded
during a given period of time
✓ Yield - The return or earnings for investing in a
stock
✓ Price - The amount paid to purchase a stock
Common Terms Used in Stocks Tables
✓ Price - The amount paid to purchase a stock
✓ Earnings/Share - A company’s profit per share of
stock
✓ P/E - A number calculated from the price per share
of the stock divided by the earnings per share of
that stock for the past 12 months; indicates the
value of a stock
Common Terms Used in Stocks Tables
✓ Day Last - The price of a stock at the last trade of
the day
✓ Net Change - The difference between the closing
price of a stock on the current trading day and the
previous day's closing price
Common Terms Used in Stocks Tables
✓ Previous Close - The closing price of a stock on the
prior day of trading
✓ Open - The price of a stock’s first transaction on a
day of trading
✓ Bid - The price a potential buyer is willing to pay
for a share of stock
Common Terms Used in Stocks Tables
✓ Ask - The price at which a stockholder is willing to
sell shares of stock
✓ % Change - The difference between the current
price and the previous day's price of a stock
✓ 52 Week Average - The average stock price for the
past year
Common Terms Used in Stocks Tables
✓ Day’s High - The highest price that a stock has
traded that day
✓ Day’s Low - The lowest price that a stock has
traded that day
✓ Average Volume - The average number of stock
transactions, generally for the past year
Common Terms Used in Stocks Tables
✓ Market Cap - The value of a company based on its
number of outstanding shares times the current
price of a single share
✓ Exchange - The market where the stock is listed for
trading
DAY TRADING
• It is the buying and selling of shares, currency or
other financial instruments in a single day.
• The intention is to profit from small prices
fluctuations.
• Sometimes traders hold shares only a few
minutes.
 DAY TRADING
Potential Day Traders should be knowledgeable
on the following:
1. Market Data
2. Scalping
3. Margin Trading
4. Bid-offer spread
 DAY TRADING
Potential Day Traders should be aware that:
1. Day Trading is a high risk
occupation
2. Day Trading is stressful.
3. Day Trading is expensive.
ATTRIBUTES OF FORMAL FINANCIAL MARKET
1. Liquidity
2. Transparency
3. Reliability
4. Legal procedures
5. Suitable investor protection and
regulation
6. Low Transaction Cost
FORCES OF CHANGE IN A FINANCIAL MARKET
1. Technology
2. Deregulation
3. Liberalization
4. Consolidation
5. Globalization