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CHAPTER 11: THE CAPITAL MARKET

Capital Market is that portion of the financial market which deals with longer term loanable funds. Money Market deals with the short-term funds. Components of the Capital Market 1. The bond market 2. The mortgage market 3. The capital market Two Components of Stock Market 1. The organized exchanges 2. The less formal over-the-counter markets Corporate Securities Securities refers to income yielding paper traded on the stock exchange or secondary market. TYPES OF SECURITY 1. Fixed interest 2. Variable interest 3. Others Primary Market it referred to as when securities are issued and offered by the corporation for the first time to public. Secondary Market refers to the market dealing with the resale and purchase of securities or other titles to property or commodities. - The secondary market actually provides liquidity to investments made in the primary market. THE MARKETING OF SECURITIES Corporate securities are distributed in two methods 1. Primary distribution 2. Secondary distribution PRIMARY DISTRIBUTION may be achieved through any of the ff. 1. The investment bankers 2. Private placements 3. Individual investors SECONDARY DISTRIBUTION may be achieved through any of the ff. 1. Stock exchanges 2. Over-the-counter trading THE INVESTMENT BANKERS Is any person engaged in the business of the underwriting securities issued by the other person or firms. UNDERWRITING refers to the act or process if guaranteeing the distribution and sale of securities of any kind issued by another corporation PRIVATE PLACEMENT refers to the selling of securities by private negotiation. INDIVIDUAL INVESTORS individuals who either have excess funds or willing to forego or postpone a part of his ability to spend, constitute a portion of the capital market.

UNDERWRITING AND SELLING THE FIRMS SECURITIES The underwriting of securities may be done using any of the ff. methods. 1. Negotiated underwriting when the issuing firm and the investment banker meet and agree on the terms and conditions of the underwriting. 2. Competitive Underwriting is similar to the negotiated underwriting except that the underwriting group bids against other underwriting groups for the initial purchase of the securities at a public auction. 3. Commission-Best Effort Basis when the investment banker acts as selling agent for the issuer and not as an underwriter, he is paid a commission. 4. Direct Sale There are instances when the issuer sells directly to the public, bypassing the underwriter entirely. 5. Firm Commitment Basis is an underwriting agreement wherein the investment house agrees to purchase the issue from issuing corporation.

CHAPTER 12: THE SECURITES MARKET


Securities Market plays an important role in the distribution of securities. It serves as conduit for buying and selling of outstanding issues of securities. Components of Securities Market 1. Auction type markets 2. Negotiation type markets Stock Market is an auction-type market where securities are bought and sold. Stock exchanges are found in most capital cities of the world. New York Stock Exchange (NYSE) is the largest stock exchange in the world in terms of US dollar value traded. Over-the-counter Market is a negotiation type market where OTC transactions are carried out directly between dealers. THE MIDDLEMEN OF SECURITIES 1. Broker is a person engaged in the business of buying and selling securities for the account of others. 2. Dealer means any person who buys and sells securities for his/her own account in the ordinary course of business. 3. Salesman is a natural person, employed as such as an agent, by a dealer etc. 4. Associated Person of a Broker or dealer is an employee thereof who, directly exercises control of supervisory, but does not include a salesman whose functions are solely clerical. Securities and Exchange Commission (SEC) is the government agency tasked with regulating trading in the securities market. - Trading in the PSE is in one continuous session daily except Saturdays, Sunday, legal holidays, and days when Bangko Sentral ng Pilipinas (BSP) clearing office is closed. - The trading of shares are in terms of fixed minimum amounts called board lots. - The method of transaction is a double auction market between buyer and a seller who are represented by brokers. - The legal framework used in the implementation of state policy regarding securities trading is the Securities Regulation Code.

REPORT OF GROUP 6 CHAPTER 11 THE CAPITAL MARKET CHAPTER 12 THE SECURITIES MARKET
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FINAO1A ADD15

Quiz TEST 1: IDENTIFICATION 1. It deals with the short-term funds. 2. It is that portion of the financial market which deals with longer term loanable funds. 3. It referred to as when securities are issued and offered by the corporation for the first time to public. 4. It refers to income yielding paper traded on the stock exchange or secondary market. 5. It refers to the market dealing with the resale and purchase of securities or other titles to property or commodities. 6. It refers to the act or process if guaranteeing the distribution and sale of securities of any kind issued by another corporation 7. It plays an important role in the distribution of securities. It serves as conduit for buying and selling of outstanding issues of securities. 8. It is the largest stock exchange in the world in terms of US dollar value traded. 9. It is a person engaged in the business of buying and selling securities for the account of others. 10. It is the government agency tasked with regulating trading in the securities market. TEST 2: ENUMERATION 1-3 Give the 3Components of the Capital Market 4-6 Give the 3 Types of Security 7-10 give at least 4 methods of underwriting of securities TEST 3: TRUE OR FALSE 1. Over-the-counter Market is an auction- type market where OTC transactions are carried out directly between dealers. 2. Broker means any person who buys and sells securities for his/her own account in the ordinary course of business. 3. The legal framework used in the implementation of state policy regarding securities trading is the Securities Regulation Guide. 4. Firm Commitment Basis is an underwriting agreement wherein the investment house agrees to purchase the issue from issuing corporation. 5. Negotiated underwriting when the issuing firm and the investment banker meet and agree on the terms and conditions of the underwriting.

ANSWER KEY TEST 1


1. MONEY MARKET 2. CAPITAL MARKET 3. PRIMARY MARKET 4. SECURITIES 5. SECONDARY MARKET 6. UNDERWRITING 7. SECURITIES MARKET 8. New York Stock Exchange (NYSE) 9. BROKER 10. Securities and Exchange Commission (SEC)

TEST 2: ENUMERATION
1-3 Components of the Capital Market The bond market The mortgage market The capital market 4-6 TYPES OF SECURITY Fixed interest Variable interest Others 6-10 METHODS OF UNDERWRITING OF SECURITIES Negotiated underwriting Competitive Underwriting Commission-Best Effort Basis Direct Sale Firm Commitment Basis

TEST 3: TRUE OR FALSE


1. 2. 3. 4. 5. FALSE FALSE FALSE TRUE TRUE