Introduction to Financial Markets

FOR LEVIEIEIEIE

Financial Market

A marketplace where buyers and sellers trade financial assets such as stocks, bonds, currencies, commodities, and derivatives.

Financial Market

play a vital role in the global economy by facilitating the flow of capital between individuals, businesses, and governments.

Philippine Stock Exchange (PSE)

The country’s primary stock exchange, providing aa venue for companies to raise capital by issuing shares and for investors to buy and sell stocks.

Stock Market

A segment of the financial market where ownership shares (stocks) of publicly listed companies are issued and traded.

Bond Market

The market for issuing and trading government and corporate bonds, enabling long-term debt financing and fixed-income investment.

Money Market

A market for short-term borrowing and lending (one year or less) via instruments like treasury bills, commercial papers, and repos.

Foreign Exchange (Forex) Market

The global market where participants buy and sell different currencies, facilitating international trade and investment.

Derivatives Market

A market for financial contracts—such as futures, options, and swaps—whose value is derived from an underlying asset.

Mutual Fund

An investment vehicle that pools money from many investors to buy a diversified portfolio of securities, managed by professionals.

Insurance Market

Sector where insurers collect premiums and provide life, health, property, and casualty coverage, transferring specified risks.

Commodities Market

Marketplace for trading raw materials such as agricultural products, metals, and energy resources.

Philippine financial market

Regulated by the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP) to ensure its integrity and stability.

Bangko Sentral ng Pilipinas (BSP)

The Philippines’ central bank; formulates monetary policy, issues currency, supervises banks, and promotes financial stability.

Banks and Financial institutions

sector consisting of universal banks, commercial banks, rural banks, and cooperative banks. These institutions provide a wide range of financial services, including deposit-taking, lending, foreign exchange transactions, and investment banking activities. In addition to banks, the financial system includes non-bank financial institutions such as insurance companies, securities firms, and microfinance institutions.

Securities and Exchange Commission (SEC)

Regulatory body overseeing securities issuance, disclosure, and trading to protect investors and ensure market fairness.

Insurance Commission

Regulator that supervises insurance companies, ensuring their financial soundness and safeguarding policyholder interests.

Philippine Stock Exchange (PSE)

The primary stock exchange in the Philippines, facilitating the buying and selling of securities and promoting capital market development for listed companies.

Non-Bank Financial Markets

Markets such as bonds, money, and foreign exchange that operate outside the traditional banking sector.

Individual Investor

A private person who buys and sells financial assets for personal goals, supplying liquidity and participating in price discovery. Often trade stocks, bonds, and mutual funds to build their portfolios.

Institutional Investor

An entity—e.g., pension fund, insurance company, or mutual fund—that invests large pools of capital on behalf of beneficiaries. They play a significant role in financial markets by providing liquidity and influencing price movements through their investment decisions.

Stockbroker

Licensed intermediary that executes securities trades for clients, offers investment advice, and ensures trade settlement.

Investment Bank

A financial institution that underwrites securities, advises on mergers, conducts research, and provides market liquidity. They also facilitate capital raising for corporations and governments.

Commercial Bank

A bank that accepts deposits, issues loans, conducts foreign exchange, and offers a broad suite of financial services. A crucial player in the financial system, serving both individuals and businesses by providing essential banking services like savings accounts, checking accounts, and various loan products.

Regulator

Authority (e.g., BSP, SEC) that enforces rules, monitors markets, and maintains integrity, transparency, and stability. They oversee financial institutions and ensure compliance with laws to protect investors and maintain market confidence.

Market Intermediary

An entity, such as a clearinghouse or custodian, that facilitates trade settlement, asset safekeeping, and transactional security. They play a vital role in the functioning of markets by ensuring efficient transaction processing and reducing counterparty risk.

Issuer

A company, government, or organization that offers securities—stocks or bonds—to raise capital from investors. Responsible for providing detailed information about the securities to potential investors and adhering to regulatory requirements.

Capital Mobilization and Allocation

Financial markets mobilize funds from various investors and allocate them to those in need of capital, such as businesses and governments. This efficient distribution of capital supports investment, stimulates economic activity, and promotes overall economic growth.

Facilitating Investment and Economic Expansion

Financial markets, especially the stock and bond markets, enable companies and governments to raise capital through initial public offerings (IPO) and debt issuance. These funds support business growth, job creation, technological progress, and overall economic development.

Enhancing Liquidity and Risk Management

Financial markets offer liquidity, enabling investors to quickly buy or sell assets at fair prices. This helps them manage portfolios effectively, adapt to changing conditions, and access cash when needed. Additionally, markets provide tools like derivatives for hedging and managing financial risk

Price Discovery and Market Efficiency

Financial markets facilitate price discovery through buyer-seller interactions, helping determine the fair value of assets. This promotes efficient resource allocation, market transparency, and informed investment decisions. Efficient markets also attract both domestic and foreign investors, supporting economic growth.

Fostering Savings and Investment Culture

The behavioral tendency of individuals to set aside income and invest in financial assets for long-term wealth formation. This promotes a culture of financial planning, helps individuals build personal wealth, fund retirement, and achieve long-term financial goals.

Supporting Government Financing

Allow the Philippine government to raise funds by issuing bonds and treasury bills to finance budget deficits. These funds support infrastructure, social programs, and other initiatives, promoting economic development and public welfare.