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

Summary

This 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.