Group 1
FINANCIAL
MARKETS
AN INTRODUCTORY PRESENTATION
GARCIA, CATHERINE
1 STACY
GARCIA, KIMBERLY
2
KATE
Members 3
LAMANILAO, HARAH
JEAN
MENDOZA, CARL
4 GABRIEL
WHAT IS FINANCIAL
1 ASSET
DEBT AND EQUITY
2 INSTRUMENT
GENERAL PRINCIPLES FOR
3 DETERMINING THE PRICE OF A
Content
FINANCIAL ASSET
ELEVEN PROPERTIES OF
TOPICS TO BE DISCUSSED
4 FINANCIAL ASSETS
PRINCIPAL ECONOMIC
5 FUNCTIONS OF FINANCIAL
ASSETS
WAYS TO CLASSIFY THE
6 FINANCIAL MARKET
What is Financial
Market?
Financial Market
A marketplace where the trading of financial assets/instruments
occurs.
What is a Financial
Asset?
Financial Assets
Financial assets are intangible assets where typically the future
benefits come in the form of a claim to future cash.
Example of Financial
Assets
• Bond
• Securities
• Stock
• Option
• Debenture
• Cash
• Cash Equivalent
• Certificate of deposit
Parties Involved in a
Financial Assets
ISSUER
1 • the party that has agreed to make future
cash payments
INVESTOR
• the party that owns the financial asset and
2 therefore the right to receive the payments
Debt vs Equity Instrument
A financial instrument can be classified by the type of claims
that the investor has on the issuer.
Debt Instruments
Also referred to as an Instrument of Indebtedness is an asset that
an entity, such as an individual, or the government, uses to raise
capital or to generate investment income through a debt.
Equity Instruments
Equity Instruments represents ownership of an asset, it is an
investment for people who want to own an asset or part of an
asset while also receiving an income on it.
Debt vs Equity Instruments
DEBT INSTRUMENTS EQUITY INSTRUMENTS
The issuer becomes a bondholder, lender, or just an
The issuer becomes a co-owner and a shareholder.
investor who receives fixed monthly income.
The investor gets decision-making power within the
The investor does not have decision-making power.
company.
The investor receives monthly fixed interests without The investor carries the company’s risks since they have
shouldering any risk an incentive to receive higher dividends.
General Principles for
Determining the Price of a
Financial Asset
40 SUPPLY &
DEMAND
30
The most fundamental
principle is the interaction of
20
supply and demand. If more
people want to buy an asset
than sell it, its price tends to
10 rise, and vice versa.
0
Qty 1 Qty 2 Qty 3 Qty 4 Qty 5
CASH FLOW
ANALYSIS
Cash flow analysis is a financial
evaluation method used to assess
the inflows and outflows of cash
associated with a business,
investment, project, or financial
asset over a specific period of
time.
Examples of Methods Used
in Cash Flow Analysis
• Yi e l d - t o - M a t u r i t y
• Yi e l d - t o - C a l l
• Yi e l d - t o - P u t
• Discounted Cash Flow
Interest
• Dividend Discount Model
20%
REGULATORY
ENVIRONMENT
Financial markets and institutions
are subject to extensive laws and
regulations aimed at protecting
investors and safeguarding the
stability and integrity of the
financial system.
Securities and Exchange
Commission (SEC)
Banko Sentral ng Pilipinas (BSP)
Economic Indicators
Economic factors like GDP
growth, inflation rates, and
interest rate trends can impact
asset prices. A strong economy
generally supports higher asset
prices.
Risk
Assessment
It aims to quantify, understand,
and manage the various risks
that investors may face when
allocating their capital. Higher-
risk assets typically require
higher expected returns.
Capital Asset Pricing Model
(CAPM)
CAPM provides a framework for Elements:
estimating the expected return on
an investment, taking into 1.) Risk-Free Rate
account the asset's systematic
risk or market risk. 2.) Market Risk Premium
3.) Beta
Eleven Properties of
Financial Assets
Properties of
Financial Assets
1 Moneyness
-Ability to be used in transactions.
2 Divisibility
-Minimum Size to be exchanged for money.
3 Reversibility
-Cost of investing and turning it back into cash.
Properties of
Financial Assets
4 Cash Flow
-Returns investors realize holding fin assets.
5
Term for Maturity
-Length of period until last payment.
6
Convertibility
-Ability to be converted to other fin assets.
Properties of
Financial Assets
7 Currency
-Ability to be denominated in currency.
8
Liquidity
-Ability to be converted into cash on demand.
9
Return Predictability
-”Will it have cash flow?”
Properties of
Financial Assets
10
Complexity
-Combination of two or more simple assets.
11
Tax Status
-Ability to or not to be taxed by Government.
Ways to Classify the
Financial Market
Functions of
financial
markets:
• The raising of funds in the capital
market
• The transfer of risk in the
derivative market
• International trade in the currency
market
Kinds of Financial Markets
• Capital Markets
• Commodities Market
• Money Market
• Mutual Funds
• Derivatives
Capital Market
• Stock market - which provides capital through the issuance of
shares and allows the subsequent trading thereof in the secondary
market.
• Bond market - which facilitates financing through the issuance of
bonds and enables the subsequent trading
Commodities Market
Is a market where primary products such as
raw materials are traded on a regulated
commodities exchange in which they are
bought and sold in standardized contracts.
Money Market
The money market is a financial market wherein
short-term assets and open-ended funds are
traded between institutions and traders. The
market offers very high liquidity as the assets
can easily convert into cash.
Mutual Fund
Mutual funds are companies that pool money from
investors to purchase stocks, bonds and other assets.
Mutual funds create a more diversified portfolio than
most investors could on their own. "Mutual funds" are a
category that include index funds, bond funds and target-
date funds.
Derivatives
Are financial contracts designed to create pure
exposure to an underlying commodity, asset, rate,
index or events.
It refers to how the price of a particular contact is
derived from the price of an underlying commodity
or security or an interest rate, exchange rate or an
index.
End of Presentation
Thank You
ANY QUESTIONS?
