Capital Markets Quiz Midterms

Front 1

Short term

Back 1

Money market

Front 2

Long term

Back 2

Capital market

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A segment of the financial market with dealings in short term maturities of financial contracts

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Money market

Front 4

The exchange of assets in the financial system

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The Philippine financial markets

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T-bills issued by

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Bureau of Treasury

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Most money market instruments are

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fixed-income debt instruments

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A segment of the financial market with dealings in maturities beyond 1 year

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Capital market

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It refers to the issuance of new securities representing an actual transfer of funds from the investor to the issuing entity commonly called IPO

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Primary market

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It refers to the trading of securities providing a liquidity mechanism in the market for investors

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Secondary market

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It can be an organized market or over-the-counter market

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Secondary market

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A financial obligation that has to be repaid with interest

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Debt

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A form of ownership in an enterprise and does not have to be repaid

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Equity

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Debts of private corporations, which carry interest payments

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Commercial papers

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Has an inferior claim to a financial asset after debts, preferred shares among others

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Equity ownership

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It refers to the market dealing in foreign currencies

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Foreign exchange market

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Most of the trading in foreign currencies is done using the

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Philippine dealing system

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It includes all financial contracts deriving its value from any underlying assets

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Derivatives market

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In a foreign exchange market there is a ____?

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Grey market

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It provide a risk management tool in the financial system

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Derivatives

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The four different markets operating in the financial system have their own peculiarities

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True

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What are the money market instruments?

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Treasury bills

Small investors program bills

Cash management bills

Reverse repurchase agreements

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Domestic government debt issued regularly to finance the national government needs for capital.

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Treasury bills

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This bills are used as a monetary tool to control liquidity. It is also used as a monetary tool to control liquidity

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Treasury bills

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It is an another form of government debt issued and launched in the late 1990s to attract retail investors. Basically, these instruments have similar characteristics as the regular auctioned instruments but issued in smaller denominations

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Small investors program bills

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Short term debt notes used in times of tight liquidity and interest rate volatility, allowing the government to meet its funding requirements as it stabilizes the interest rate condition of the market

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Cash management bills

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Non tradable overnight placements in the inter-bank call loan market as a short term outlet for excess liquidity of banks. This is BSPs principal tool in its open market operations to control luquidity in the financial system

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Reverse repurchase agreement

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Unsecured debt instruments issued by resident corporations which state the terms and conditions of the borrowing

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Short-term commercial papers

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Short term debt obligations issued by large commercial banks. The issuing bank guarantees credit

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Banker's acceptances

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Aside from the BSP, the banking sector is a major investor in money market

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True

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Like treasury bills but longer in tenor

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Treasury bonds

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Direct unconditional obligation of the Philippine government, like treasury bonds, but shorter in tenor, usually 2-7 years

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Fixed rate notes

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The government is issuing these instruments with similar characteristics as the regular auctioned instruments

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Small investor's program bonds

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The most common form of corporate borrowing issued by resident corporations

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Ling term commercial papers

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A pool of homogeneous assets that are securitized

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Asset backed securities

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Debts of local government units undertaken to finance local government projects

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Municipal bonds

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Intended to beef-up the bank's capital structure in order to comply with the BSP's capital adecuacy ratio

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Tier 2 Capital notes of Banks

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Dollar dominated obligations of the republic of the Philippines and other private companies

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Dollar-linked notes

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The largest issuer of debt in the country

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Philippine government

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GOCC

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Government Owned or Controlled Corporations

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A major investor in domestic debt instruments

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Banking sector

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The country's first centralized electronic infrastructure for trading of fixed-income securities

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Fixed Income Exchange

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Picture of the company

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Snapshots of Philippine capital market

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Common stocks represent the bulk of trading in the PSE

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True

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Most of the issues traded in the Philippine stock exchange are shares of common stocks

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True

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Only Philippine nationals may acquire

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Class A shares

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Any person, corporation, or association may acquire

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Class B shares

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Given preference over common shares whereby the preferred holders are entitled to dividends or assets of the corporation in case of liquidation

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Preferred stocks

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Can be converted into common shares at a specified time and price in the future

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Covertible shares

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This sector includes banks and other financial institutions (Prime: BDO, BPI) (other: ATR, KimEng, Sun Life financials)

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Financial issues

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This sector includes electricity, power and water; food beverage and tobacco; construction, infrastructure and allied services

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Industrial issues

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This sector includes companies such as Ayala Corporation, JG Summit Holdings..

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Holding firms issues

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Responsible in making rules and regulations and other decisions in the company

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Board Of Directors

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Outsiders example is chairman

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Board of Trustees

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This sector includes land developers, and real estate companies

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Property issues

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This sector includes media; telecommunications; information technology; transportation services; hotel and leisure

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Services issues

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This sector includes companies engaged in mineral exploration and extraction

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Mining and oil issues

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Examples include PLDT 10% Cumulative convertible Preferred Series; Ayala Corporation Preferred class A and B shares

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Preferred

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Example include ABS- CBN Holdings Corporation Philippine Deposit Receipts, GMA

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warrants, Philippine deposit receipts

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Lusted under this board are information Capital Technology ventures, Inc and Makati Finance corporation

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Small and medium enterprises

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Provides a platform for the buyers and the sellers to meet with the provision of real time weighted average rate and volume of trads for the peso

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Philippine Dealing System

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Most transactions in foreign currency are done through the

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Philippine Dealing System

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The corporate bond market is small relative to the government bond market

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Huge government debts

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Interest rates are largely mandated by government policy. There are instances that the government rejects all bids for its auctioned securities to maintain interest rates

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Transparency in the rate determination

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Rating agencies operate in the country. Normally ratings are assigned prior to issue of debt papers and there is a formal annual review of the debt ratings

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Limited rating appeal

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Banks dominate the retail savings market, and the availability of easy, cheap bank credit makes inneffectual access of the capital markets as source of capital

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Importance of bank

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Most common foreign exchange transactions are done in the spot market

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Spot transactions

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A commitment to buy one currency against another currency at a future date at a pre determined foreign exchange rate

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Foreign exchange forward contracts

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Is an agreement between two or more parties, where the cash flows are exchanged in two different currencies based on an agreed notional amount and maturity

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Swap contracts

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These are contracts which obligate the holder to buy or sell an asset at a predetermined delivery price at a predetermined future

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Forward contracts

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These contracts specify a simultaneous exchange in cash flows by both parties based on movements linked to the prices, values, or returns, of an underlying asset instruments

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Swap contracts

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is a right but not an obligation to buy or sell an underlying asset at a certain date and price

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Option contracts

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Gives the holder the right to buy (but not the obligation) the underlying asset by a certain date for a certain price

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Call option

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Gives the hokder the right to sell (but nit the obligation) the underlying asset by a certain date for a certain price

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Put option

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Major investor in money market

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Banking sector

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Largest issuer of debt in the country

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The Philippine government

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Entitled to dividends or assets of the corporation in case of liquidation

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Preferred stocks

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Can be converted into common shares at a specified time and price in the future

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Convertible shares

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Aside from the own debt issuance, the government assumed or guaranteed part of the debt issued by a number of

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GOCC

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Issuers of private debt are limited to

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Top domestic companies

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Usually issued together with a bond, preferred stock, or common shares that give the holder the right to buy a proportionate amount of commonshares at a specified price and time

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Warrants

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Commercial banks in the Philippines are allowed to engage in foreign exchange transactions

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True