Business Finance Module 2: Financial Institutions, Instruments and Markets | Overview | Grade 12

Ma'amsh Allen

18 Oct 202016:50

Summary

TLDRThis script from Module 2 of Business Finance dives into financial institutions, instruments, and markets. It outlines three types of financial institutions: depository, financial intermediaries, and investment institutions, explaining their roles and examples. The discussion then shifts to financial instruments, such as cash, loans, bonds, and stocks, detailing their functions and the differences between preferred and common stocks. Lastly, it covers financial markets, distinguishing between primary and secondary markets, and between money markets and capital markets, providing a comprehensive foundation on finance.

Takeaways

🏦 Module 2 of Business Finance focuses on financial institutions, instruments, and markets, covering three main lessons.
💼 Financial institutions are organizations that provide financial services like loans, credits, and fund administration.
🏢 Depository institutions include banks, trust companies, credit unions, and savings and loan associations, which accept deposits and extend loans.
🏦 Banks play a central role in financial systems, facilitating payments and providing loans, with classifications like universal commercial, thrift, and rural cooperative banks.
💡 Trust companies act as fiduciary agents or trustees, managing and distributing property for beneficiaries.
🏦 Credit unions are member-owned financial cooperatives that provide financial assistance by pooling members' funds.
🔄 Financial intermediaries act as middlemen between investors and borrowers, including mutual funds, pension funds, and insurance companies.
💹 Mutual funds pool money by selling shares to investors, offering a way to invest in a diversified portfolio.
💼 Pension funds are established by businesses to meet the retirement needs of their employees.
🏥 Insurance companies provide risk protection to individuals or businesses in exchange for premiums.
📈 Investment institutions engage in buying financial securities for investment purposes, holding them until maturity to earn income.
📋 Financial instruments are contracts that create financial assets for one party and liabilities for another, including cash, loans, bonds, and stocks.
📊 Preferred stockholders have priority over common stockholders in terms of dividends and asset claims.
🌐 Financial markets are forums where funds are exchanged directly between suppliers and users, including primary and secondary markets.
💼 Money markets deal with short-term securities (less than one year), while capital markets handle long-term securities.

Q & A

What are the main topics covered in Module 2 of Business Finance?
-Module 2 of Business Finance covers financial institutions, financial instruments, and financial markets.
What is the role of financial institutions?
-Financial institutions are organizations that provide financial services such as loans, credits, and fund administration.
What are the types of depository institutions mentioned in the script?
-The types of depository institutions mentioned are banks, trust companies, credit unions, and savings and loan associations.
What is a universal commercial bank as classified by the Bank of Central Filipina Circular Number 271?
-A universal commercial bank is a type of bank that operates in the Philippines, offering a wide range of banking services including accepting deposits, providing loans, and facilitating fund transfers.
What is the function of a trust company as a financial institution?
-Trust companies act as fiduciary agents or trustees, managing, administering, and distributing property to the target beneficiaries.
How do credit unions differ from savings and loan associations?
-Credit unions help extend financial assistance to their members by pooling and accumulating funds, while savings and loan associations focus on financing and mortgage loan capital.
What is a financial intermediary and what are some examples?
-Financial intermediaries are institutions that act as middle persons between investors and borrowers. Examples include mutual funds, pension funds, and insurance companies.
What is the purpose of a mutual fund as mentioned in the script?
-A mutual fund is an accumulation of money by selling shares of stocks to individuals or corporate investors, pooling their funds for investment purposes.
What is the difference between preferred stock and common stock?
-Preferred stockholders have priority over common stockholders in terms of claims over the company's assets and usually receive fixed dividends. Common stockholders may benefit from the company's growth and receive variable dividends.
What are the two main types of financial markets discussed in the script?
-The two main types of financial markets discussed are primary markets, where initial public offerings occur, and secondary markets, where previously owned securities are sold.
What is the distinction between money markets and capital markets?
-Money markets deal with securities that have short-term maturities of one year or less, while capital markets handle securities with longer maturities.

Outlines

00:00

🏦 Introduction to Financial Institutions

The script introduces Module 2 of Business Finance, which focuses on financial institutions, instruments, and markets. It outlines three lessons: financial institutions, instruments, and markets. The first lesson delves into financial institutions, which are organizations that provide financial services like loans and fund administration. The paragraph explains the role of depository institutions, including banks, trust companies, credit unions, and savings and loan associations. It also mentions specific banks operating in the Philippines and their classifications according to the Bank of Central Filipina circular number 271, such as universal commercial, thrift, and rural cooperative banks. The lesson encourages learners to recall their experiences with banks or seek information from relatives to understand the practical aspects of these institutions.

05:06

💼 Financial Intermediaries and Investment Institutions

Paragraph 2 discusses financial intermediaries, which act as middlemen between investors and borrowers. These do not have depository functions and include mutual funds, pension funds, and insurance companies. The script provides examples, such as the Home Development Mutual Fund (HDMF) for employees, pension funds for private sector employees, and the role of insurance companies in providing risk protection in exchange for premiums. The paragraph also covers investment institutions, which are companies that buy financial securities for investment purposes and hold them until maturity to earn income. The lesson concludes with a transition to the next topic, financial instruments.

10:08

📈 Financial Instruments and Their Types

Paragraph 3 defines financial instruments as contracts that create financial assets and liabilities for different entities. It explains that these instruments involve two parties: one with the right to receive assets and the other with the obligation to pay. The script lists common financial instruments, including cash, loans, bonds, and stocks. It differentiates between preferred and common stocks, explaining that preferred stockholders have priority over common stockholders in terms of asset claims and dividend payments. The lesson provides a foundational understanding of how these instruments function within the financial system.

15:14

🌐 Financial Markets: Primary, Secondary, Money, and Capital

The final paragraph of the script discusses financial markets, which are forums where suppliers and users of funds can transact directly. It differentiates between primary and secondary markets, with the former being for initial public offerings and the latter for the sale of previously owned securities. The Philippine Stock Exchange is mentioned as an example of a market that serves both purposes. The script also distinguishes between money markets, which deal with short-term securities (one year or less), and capital markets, which handle securities with longer maturities. The lesson concludes with a prompt for learners to engage in activities related to Module 2 and a预告 of the next module, which will cover the flow of funds and the role of financial managers.

Mindmap

Keywords

💡Financial Institutions

Financial institutions are organizations that provide financial services and engage in activities such as accepting deposits, extending loans, and facilitating fund transfers. In the context of the video, they are categorized into depository institutions, financial intermediaries, and investment institutions. Examples given in the script include banks, trust companies, and credit unions.

💡Depository Institutions

Depository institutions are financial institutions that accept deposits from individuals and corporate entities. They play a crucial role in the economy by extending loans and managing funds for investment purposes. The script mentions banks, trust companies, credit unions, and savings and loan associations as types of depository institutions.

💡Financial Intermediaries

Financial intermediaries act as middlemen between savers and borrowers, facilitating the flow of funds from those who have surplus funds to those who need them. They include mutual funds, pension funds, and insurance companies. The video script explains that these institutions do not have depository functions but are essential in channeling funds from one party to another.

💡Investment Institutions

Investment institutions are companies that buy financial securities of other companies for investment purposes. They hold these securities until maturity and earn income in the form of interest or dividends. The script does not provide specific examples but emphasizes that these institutions are geared towards long-term investments.

💡Financial Instruments

Financial instruments are contracts that create financial assets for one party and financial liabilities for another. They are integral to the functioning of financial markets and include cash, loans, bonds, and stocks. The video script discusses how these instruments facilitate transactions and investments, with examples such as bonds issued by companies to generate capital.

💡Preferred Stock

Preferred stock represents a type of equity security that may offer some preference over common stock in terms of dividends and asset claims. The video script explains that preferred stockholders typically receive fixed dividend payments and have priority over common stockholders in the event of liquidation.

💡Common Stock

Common stock is a security that represents ownership in a corporation and entitles holders to voting rights and earnings. The script contrasts common stock with preferred stock, noting that common stockholders may benefit more from a company's growth as they can receive variable dividends, unlike the fixed dividends of preferred stock.

💡Financial Markets

Financial markets are forums where buyers and sellers of funds can transact directly. They are categorized into primary and secondary markets, with the primary market being for initial public offerings and the secondary market for the sale of previously owned securities. The script also differentiates between money markets, which deal with short-term securities, and capital markets, which handle long-term securities.

💡Primary Market

The primary market is where new securities are issued for the first time. It is the initial stage where companies and governments raise capital by selling their securities directly to investors. The video script mentions that the Philippine Stock Exchange serves as both a primary and secondary market.

💡Secondary Market

The secondary market is where previously issued securities are bought and sold. It provides liquidity to investors as it allows them to trade securities that have already been issued. The script explains that the sale of securities that were initially purchased in the primary market takes place in the secondary market.

💡Money Markets

Money markets are parts of financial markets that deal with short-term debt instruments, typically with maturities of one year or less. They play a critical role in providing short-term financing and liquidity. The video script uses money markets as an example of where short-term securities are traded.

💡Capital Markets

Capital markets are financial markets for long-term funds, where securities with maturities exceeding one year are traded. They include the stock market and the bond market, providing a platform for companies and governments to raise long-term capital. The script highlights capital markets as places where investors can invest in longer-term maturities.

Highlights

Introduction to Module 2 of Business Finance, focusing on financial institutions, instruments, and markets.

Lesson 1 covers financial institutions, including their roles and types such as depository institutions, financial intermediaries, and investment institutions.

Depository institutions are organizations that accept deposits and provide financial services like loans and fund management.

Types of depository institutions include banks, trust companies, credit unions, and savings and loan associations.

Banks are common depository institutions known for accepting deposits, providing loans, and facilitating fund transfers.

Savings and loan associations cater to the financial needs of their members, offering savings and mortgage loans.

Trust companies act as fiduciary agents, managing and distributing property to beneficiaries.

Credit unions are member-owned financial cooperatives that provide financial assistance through pooled funds.

Lesson 2 delves into financial instruments, which are contracts creating financial assets and liabilities.

Cash is a common financial instrument, serving as a financial asset for the holder and a liability for the issuer.

Loans are financial assets for the lender and liabilities for the borrower.

Bonds are financial assets for the bondholder and liabilities for the issuing company.

Stocks represent equity ownership in a company, with two types: preferred and common stock.

Preferred stockholders have priority over common stockholders in dividend payments and asset claims.

Lesson 3 discusses financial markets, which are platforms where suppliers and users of funds can transact.

Primary markets are for initial public offerings, while secondary markets handle the sale of previously issued securities.

Money markets deal with short-term securities, while capital markets handle securities with longer maturities.

The Philippine Stock Exchange serves as both a primary and secondary market for securities.

Module 2 concludes with an overview of the flow of funds and the role of financial managers in Module 3.