FIN0013 – Financial Markets (Tue 10 am – 1
pm)
e.g. Treasury Bills
Malvin Jason S. De Vera
A way for the government to borrow
Investment money in the short term.
An asset bought or acquired with the goal of Just like bonds, they are debt instruments that
generating an income, profit, or appreciation. allow the public to lend their money to the
state. They are called with that name because
You are buying something now with the
they are issued by the Bureau of the Treasury.
intention of selling it at a future time at a higher
price. Why T-bills?
Risk Management is needed because not all These bills are sold on a discount. Meaning,
investments go up. they are not sold on their face amount. Instead,
they are sold less than its price. A ₱1,000
the deal between them.
treasury bill may be sold for ₱990. The investor
Fixed income earns with the spread, which is just another
name for the difference between the face
Broadly refers to those types of investment
amount and the price paid. In this case, you get
security that pay investors fixed interest or
₱10 or 1% in exchange return for letting the
dividend payments until its maturity date. At
government borrow your money (the
maturity, investors are repaid the principal
government pays the face value of the bill upon
amount they had invested. Government and
maturity).
corporate bonds are the most common types of
fixed-income products. 2. Capital Market
Financial Market The capital market is where stocks and bonds
are traded. Its movements from hour to hour
A market in which people and entities
are constantly monitored and analyzed for clues
can trade financial securities, commodities and
to the health of the economy at large, the
other fungible assets at prices that are
status of every industry in it, and the consensus
determined by pure supply and demand
for the short-term future.
principles.
The overriding goal of the company’s
Markets work by placing the two
institutions that enter into the capital markets is
counterparts, buyers, and sellers, at one place
to raise money for their long-term purposes,
so they can find each other easily, thus
which usually come down to expanding their
facilitating
businesses and increasing their revenues. They
1. Money Market do this by issuing stock shares and by selling
corporate bonds.
The money market is the trade in short-term
debt. It is a constant flow of cash between e.g. Stock Market
governments, corporations, banks, and financial
The stock market trades shares of ownership of
institutions, borrowing and lending for a term as
public companies.
short as overnight and no longer than a year.
When stocks are bought at a cheaper price and a. Face value is the money amount the
are sold at a higher price, the investor earns bond will be worth at maturity; it is also
from the sale. the reference amount the bond issuer
uses when calculating interest
Glossary:
payments. For example, say an investor
Earnings per share - is a company's net profit purchases a bond at a premium $1,090
divided by the number of common shares it has and another investor buys the same
outstanding. bond later when it is trading at a
discount for $980. When the bond
Dividends - distribution of profits by a matures, both investors will receive the
corporation to its shareholders. $1,000 face value of the bond.
Dividend payout ratio - is the ratio of the total
amount of dividends paid out to shareholders b. The coupon rate is the rate of interest
relative to the net income of the company. It is the bond issuer will pay on the face
the percentage of earnings paid to shareholders value of the bond, expressed as a
in dividends. percentage. For example, a 5% coupon
rate means that bondholders will
receive 5% x $1000 face value = $50
every year.
c. Coupon dates are the dates on which
the bond issuer will make interest
payments. Payments can be made in
any interval, but the standard is
Retained earnings - is the amount of net income semiannual payments.
left over for the business after it has paid out
dividends to its shareholders. d. The maturity date is the date on which
the bond will mature, and the bond
Bonds issuer will pay the bondholder the face
Unlike stocks, bonds do not give you ownership value of the bond.
rights. They represent a loan from the buyer
(you) to the issuer of the bond. e. The issue price is the price at which the
bond issuer originally sells the bonds.
Bonds are issued by governments and
corporations when they want to raise money. 3. Forex Market
By buying a bond, you're giving the issuer a
loan, and they agree to pay you back the face Market in which participants can buy, sell,
value of the loan on a specific date, and to pay exchange, and speculate on currencies. As such,
you periodic interest payments along the way, the forex market is the most liquid market in
usually twice a year. the world, as cash is the most liquid of assets.
Characteristics of Bonds 4. Commodity Market
Most bonds share some common basic The commodities market is where traders and
characteristics including: investors buy and sell natural resources or
commodities such as corn, oil, meat, and gold. A
specific market is created for such resources
because their price is unpredictable. There is a
commodities futures market wherein the price
of items that are to be delivered at a given
future time is already identified and sealed
today.
5. Spot Market
The spot market is where financial instruments,
such as commodities, currencies, and securities,
are traded for immediate delivery. Delivery is
the exchange of cash for the financial
instrument. A futures contract, on the other
hand, is based on the delivery of the underlying
asset at a future date.
The spot price is for payment and delivery "on
the spot." The futures price locks in the cost of a
commodity in advance.
