Introduction to the Financial System – Key Vocabulary

41 vocabulary flashcards covering the financial system, its institutions, instruments, markets, and managerial roles, designed for exam review.

Financial System

The network that channels funds from savers (investors) to users (borrowers) through financial institutions, markets, and instruments.

Savers (Suppliers of Funds)

Households, individuals, companies, or agencies whose cash inflows exceed outflows and who provide excess funds to the financial system.

Users of Funds (Demanders)

Households, corporations, or governments that borrow or raise capital to finance spending or investment needs.

Financial Intermediary

An institution (e.g., bank, insurance company) that stands between savers and users, accepting funds from the former and providing them to the latter.

Financial Market

A platform (physical or electronic) where financial instruments such as stocks or bonds are issued and traded.

Financial Instrument

A legal contract—real or virtual—that represents monetary value, such as a share of stock or a bond.

Debt Security

A financial instrument representing a loan made by an investor to a borrower, promising repayment with interest (e.g., bonds, T-bills).

Equity Security

An ownership interest in a company, giving the holder a claim on residual assets and earnings (e.g., common or preferred shares).

Certificate of Deposit (CD)

A time deposit issued by a bank that pays interest over a fixed term and is repayable at maturity.

Treasury Bill (T-bill)

A short-term debt security (91, 182, or 364 days) issued by the national government and sold at auction.

Treasury Note

A medium- to long-term government debt security traded in the capital market, paying periodic interest.

Retail Treasury Bond

A government bond sold in small denominations to individual investors, providing periodic coupon payments.

Commercial Paper

An unsecured, short-term promissory note issued by corporations to meet short-term liabilities.

Corporate Bond

A long-term debt security issued by a corporation to raise capital, promising fixed interest payments.

Ordinary Share (Common Stock)

An equity security conveying ownership, voting rights, and variable dividends based on company performance.

Preference Share (Preferred Stock)

An equity security granting priority in dividend payments and asset claims over common shares, usually with fixed dividends.

Philippine Stock Exchange (PSE)

The organized marketplace where publicly listed Philippine companies’ shares are bought and sold.

Philippine Dealing and Exchange Corp. (PDEX)

The trading platform for corporate and government debt securities in the Philippines.

Primary Market

The market for initial issuance of new securities, where issuers receive the proceeds.

Secondary Market

The market where existing securities are bought and sold among investors after the primary issuance.

Initial Public Offering (IPO)

A company’s first sale of shares to the public, transforming from private to publicly traded status.

Money Market

The segment of the financial market dealing with short-term (≤1 year) instruments such as Treasury bills.

Capital Market

The market for long-term securities—bonds, Treasury notes, and equities—with maturities longer than one year.

Commercial Bank

A financial intermediary that accepts deposits, extends loans, and may invest in securities; regulated by the BSP.

Insurance Company

A firm that pools premiums to provide life or non-life coverage and invests surplus funds under Insurance Commission rules.

Stock Brokerage Firm

A licensed intermediary that executes buy/sell orders for clients on the stock exchange, either online or through live brokers.

Mutual Fund

An investment vehicle that pools money from many investors to buy a diversified portfolio managed professionally.

Net Asset Value (NAV)

The per-share price of a mutual fund, equal to total portfolio value minus liabilities, divided by shares outstanding.

Unit Investment Trust Fund (UITF)

A pooled investment product offered by banks, similar to mutual funds but structured as trust accounts.

Pension Fund

A fund (e.g., GSIS, SSS) that collects contributions to provide retirement benefits and invests the assets for growth.

Capital Structure

The mix of debt and equity a company uses to finance its operations and growth.

Capital Budgeting

The process of evaluating and selecting long-term investment projects based on expected costs and cash flows.

Working Capital Policies

Guidelines for managing short-term assets and liabilities, including credit terms, inventory levels, and cash management.

Cash Dividend

A distribution of a corporation’s earnings to shareholders in cash, declared by the board when adequate retained earnings and cash exist.

Board of Directors (BOD)

The elected body that oversees corporate management, protects shareholder interests, and declares dividends.

Vice President (VP) for Finance

Senior executive who helps set financing, investment, operating, and dividend policies, aligning them with shareholder wealth maximization.

Vice President (VP) for Operations

Executive in charge of production efficiency, capacity planning, and sourcing materials to meet customer demand cost-effectively.

Vice President (VP) for Administration

Executive overseeing administrative support functions—HR coordination, payroll, vendor payments, and cost-saving initiatives.

Financing Activities

Cash flows related to obtaining capital (e.g., issuing shares, borrowing) and repaying it (loan amortization, dividend payments).

Investing Activities

Cash flows from acquiring or disposing of long-term assets and investments such as equipment or financial instruments.

Operating Activities

Core business cash flows—receipts from sales and collections, and payments to suppliers, employees, and tax authorities.