Brief Summary
This video provides an overview of financial institutions, instruments, and markets, which are the key components of business finance. It explains the different types of financial institutions, including depository institutions, financial intermediaries, and investment institutions. It also discusses financial instruments such as cash, checks, loans, bonds, and stocks, as well as the differences between preferred and common stock. Finally, it describes the different types of financial markets, including primary, secondary, money, and capital markets.
- Financial institutions are organizations that provide financial services, including loans, credits, and fund administration.
- Financial instruments are contracts that give rise to financial assets and liabilities.
- Financial markets are forums where suppliers and users of funds can make transactions.
Introduction to Module 2: Financial Institutions, Instruments, and Markets
The video introduces Module 2 of business finance, which covers financial institutions, instruments, and markets. This module is divided into three lessons: financial institutions, financial instruments, and financial markets. The video begins with a discussion of financial institutions.
Financial Institutions: Depository, Intermediaries, and Investment
Financial institutions are organizations that provide financial services such as loans, credits, and fund administration. These institutions are categorized into three types: depository institutions, financial intermediaries, and investment institutions. Depository institutions accept deposits from individuals and corporate entities, extend loans, transfer funds, and manage funds for investment purposes. Examples include banks, trust companies, credit unions, and savings and loan associations. Banks accept deposits, bills payments, provide loans, and facilitate fund transfers. Savings and loan associations accommodate savings of its members. Trust companies act as fiduciary agents for managing and distributing property. Credit unions extend financial assistance to their members by pooling funds and offering competitive interest rates.
Financial Intermediaries: Mutual Funds, Pension Funds, and Insurance Companies
Financial intermediaries act as middlemen between investors and borrowers. They receive money from one party and offer it to another as financial aid, without having depository functions. Common examples include mutual funds, pension funds, and insurance companies. Mutual funds accumulate money by selling shares of stocks to investors. Pension funds are set up by businesses to pay the pension requirements of retired employees. Insurance companies provide protection against risks in return for premium payments.
Investment Institutions: Investing for Maturity and Income
Investment institutions are companies that buy financial securities of other companies for investment purposes. These securities are held until maturity, earning income in the form of interest or dividends. Investors invest their money in these institutions until a specific maturity date, after which they receive their investment plus interest or dividends.
Financial Instruments: Cash, Checks, Loans, Bonds, and Stocks
Financial instruments are contracts that create financial assets for one entity and financial liabilities for another. Common financial instruments include cash, checks, loans, bonds, and stocks. Cash is a financial asset for the holder and a financial liability for the government. A check is a financial asset for the payee and a financial liability for the issuer. A loan is a financial asset for the lender and a financial liability for the borrower. Bonds are financial assets for the holder and financial liabilities for the issuing company, used to generate capital. Stocks represent financial assets for the investor or shareholder and equity for the issuing company.
Stocks: Preferred vs. Common Stock
Under stocks, there are preferred and common stock. Preferred stockholders have priority over common stockholders in terms of claims over the company's assets and cash dividend declarations. Dividends for preferred stockholders are usually fixed rate. Common stockholders benefit from the company's growth, and during profitable periods, they receive all the excess dividends beyond the fixed rate paid to preferred stockholders.
Financial Markets: Primary, Secondary, Money, and Capital Markets
Financial markets are organized forums where suppliers and users of funds can make transactions. These markets include primary, secondary, money, and capital markets. The primary market is where initial public offerings (IPOs) occur, while the secondary market is where previously owned securities are sold. The Philippine Stock Exchange operates as both a primary and secondary market. Money markets trade securities with short-term maturities (one year or less), while capital markets trade securities with longer maturities, such as stocks.
