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Financial Institutions

The document discusses why businesses raise funds and how they do so. It covers various types of financial markets and institutions that help facilitate capital raising, including primary and secondary markets, money markets, capital markets, and over-the-counter markets. Financial institutions discussed include banks, funds, and insurance companies.

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Deza Mae Pabatao
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25 views21 pages

Financial Institutions

The document discusses why businesses raise funds and how they do so. It covers various types of financial markets and institutions that help facilitate capital raising, including primary and secondary markets, money markets, capital markets, and over-the-counter markets. Financial institutions discussed include banks, funds, and insurance companies.

Uploaded by

Deza Mae Pabatao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FINANCIAL

INSTITUTION
S
WHY DO
BUSINESS
RAISE FUND?
WHY DO
BUSINESS
RAISE FUND?
EXPANSION

PURCHASE OF EQUIPMENT

START-UP CAPITAL

DEBT PAYMENT

EXPENSES
HOW DO
BUSINESS RAISE
CAPITAL?
CAPITAL FORMATION
PROCESS DIAGRAM
MARKET
 Is the means through which buyers and sellers are brought
together to aid in the transfer of goods and services
 Does not need to have a physical location
 Does not necessarily own the goods and services involved.
those who establish and administer the market need only to
provide a cheap, smooth transfer of goods and services
 A market can deal in any variety of goods and services
CHARACTERISTICS
 AVAILABILITY OF INFORMATION
 LIQUIDITY
 LOW TRANSACTION COST
FINANCIAL MARKET
 Mechanism through which deficit units meet surplus unit
 Mechanics through which buyers and sellers are brought together to
facilitate the exchange of financial asset
 Financial asset are often known as securities or financial investments
 Thus, financial market exist in order to bring together buyers and sellers
of securities
TYPES OF
FINANCIAL
MARKET
PHYSICAL ASSET VS.
FINANCIAL ASSET
 Physical asset are for tangible or real assets with physical
existence
 Financial asset markets are for intangible financial
instruments with contractual provision
CAPITAL VS MONEY MARKET
 Capital market instruments have longer maturity
 Involve financial assets that have life span of more than one year
 It is the market from which long term capital raised for the setting up and
sustained growth of business organizations
 Money market instruments have shorter maturity
 Involve financial assets that have a life span of less than one year
 It is the market of short-term borrowing instruments
PRIMARY MARKET
 Market where new issues are sold by corporations to acquire new
capital via the sale of common stock, preferred stocks or bonds.
 The sale take place through an investment banker.
 In which corporation raise new capital
 Initial public offering (IPO) (unseasoned new issue)
 Seasoned new issue market
 Refers to the offering of an additional amount of an already existing security
 Shares involve the initial offering for a security to the public
SECONDARY MARKET
 Involves between owners after the issue has been sold to the public by
the company
 The proceeds from the sale in the secondary market do not go to the
company, as in the case of ipo
 In which existing securities are traded among investors
 NYSE
 PSE
PRIMARY MARKET VS
SECONDARY MARKET
OVER-THE-COUNTER MARKET
 Market for securities outside the control of the official stock exchange
 Trading securities not listed in the physical stock exchange
 The broker-dealers are linked by a network of telephones and computer
terminals through which they deal directly with one another and with
customers
BLOCK SHARE
TRADING
 Traders are institution
 Essentially a communication network among institutional investors that
trade large blocks without the aid of a brokerage house
EQUITY VS DEBT
MARKET
 IN EQUITY MARKET, CORPORATE STOCKS ARE TRADED
 IN DEBT MARKET, BONDS OR CORPORATE LIABILITIES ARE
TRADED
WHAT IS FINANCIAL
INSTITUTIONS
TYPES OF FINANCIAL INSTITUTIONS
 Banks
 Commercial banks
 Middleman between saver and borrowers
 Investment banks
 An organization that helps to sell new investment securities (bonds, stocks)
 Financial services corporation
 A firm that offers a wide range of financial services, including investment banking,
commercial banking, brokerage and insurances

 Funds-pool money to invest


 Mutual funds
 Pension funds-retirement plans
 Hedge funds
 Exchange traded funds

 Other financial institutions


 Life insurance companies: collect premiums and invest
 Private equity: borrows money to invest/manage the whole company

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