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Chap 007
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Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Financial Markets & Non Bank Financial Institutions
An Overview of the Financial System
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Flow of Funds Through The Financial SystemINDIRECT FINANCE
DIRECT FINANCE
Lenders – Savers
1. Households2. Business Firms3. Government4. Foreigners
Borrowers - Spenders
1. Business Firms2. Government3. Households4. Foreigners
Financial Intermediaries
Financial Markets
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Direct Finance
Financial Markets
Lenders – Savers
1. Households2. Business Firms3. Government4. Foreigners
Borrowers - Spenders
1. Business Firms2. Government3. Households4. Foreigners
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Function of Financial Markets
FINANCIAL MARKETS channel funds from savers to spenders
FINANCIAL MARKETS are important because
They improve the economy They improve the welfare of
consumers
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Structure of Financial Markets
DEBT & EQUITY MARKETS
Debt Market (Borrowings) e.g. Bond
Mortgage
Equity Market (Shareholdings)e.g. Common Stock
Preferred Stock
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Primary and Secondary Markets
Primary MarketInitial Public Offering (IPO)Rights OfferingPrivate Placement
Secondary MarketExchangesOver-the-Counter (OTC) Market
Structure of Financial Markets
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
OTC in the Philippines
Stocks sold over the counter are outside the jurisdiction of the PSE
Some securities such as bonds sold are subject to the requirements of the Bangko Sentral ng Pilipinas (BSP) Circular 392 and its related regulations, including the rules governing the Over-the-Counter (OTC) Fixed Income Market issued by the Securities Exchange and Commissions (SEC) Memorandum Circular 14.
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Structure of Financial Markets
ISSUER
SELLING GROUP
INVESTORS
Underwriting Syndicate
Originating Inv. Banker
Other Inv. Bankers
Other Inv. Bankers
Primary Market: Sample IPO
Process
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Money & Capital Markets
Money MarketSecurity Traded: DebtMaturity: < One Year
Capital MarketSecurity Traded: Debt and EquityMaturity: At least One Year (for debt)
No Maturity for Equity
Structure of Financial Markets
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Internationalization of Financial Markets
International bond market (foreign bonds)
Eurobonds
Eurocurrencies
World stock markets
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Indirect Finance
Lenders – Savers
1. Households2. Business Firms3. Government4. Foreigners
Borrowers - Spenders
1. Business Firms2. Government3. Households4. Foreigners
Financial Intermediaries
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Function of Financial Intermediaries
FINANCIAL INTERMEDIARIES are institutions that borrow funds from savers and then lends these funds to others
FINANCIAL INTERMEDIATION is the process of indirect finance whereby financial intermediaries link savers and borrowers
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Function of Financial Intermediaries
Financial intermediaries are important because:
They can reduce transaction costs They can provide customers with
liquidity services
Other Concepts Risk sharing (asset transformation) Asymmetric information – financial panic
Adverse Selection Moral Hazard
Financial Markets & Non Bank Financial Institutions Atty. Rene B. Betita
Type of Institution Components Regulator/s
Banking Universal, Commercial, Thrift, Rural, Specialized Government, Microfinance
BSP, SEC
Non-Bank Financial
Investment HousesFinancial CompaniesSecurities DealersInvestment CompaniesInsurance CompaniesPawnshopsPre-need CompaniesVenture Capital Corporations
BSP, SECSECSECSECSEC, ICSEC, BSPSECSEC
Non-Bank Thrift Mutual Building and Loan AssociationsNon-stock Savings and Loans
SEC
SEC
Financial Intermediaries in the Philippines
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