Introduction to

Business Finance
 Introduction to

Financial
Management
 objectives
By the end of this session, you are expected to be able to:
1. explain the major role of financial management and the
different individuals involved;
2. distinguish a financial institution from financial
instrument and financial market;
3. enumerate the varied financial institutions and their
corresponding services.
 Today’s
01 Agenda 02
Financial Management Financial Institution vs
and the people involved Financial Instrument

03 vs Financial Market

Different Financial
Institutions
 02
Financial
Instruments vs
Financial
Institutions vs
Financial Markets
❏ Financial intermediaries
❏ broad range in the financial
sector that provides a broad
range of business and services
to the savers and users.

Banking, insurance,
investment management.
❏ Individuals deposit funds here
❏ Uses the deposited funds to
provide commercial loans to firms
and personal loans to individuals
❏ Purchase debt securities issued by
firms or government agencies.

FINANCIAL
INSTITUTIONS
❏ Individuals purchase insurance
(life, property, health) protection
with insurance premiums.

FINANCIAL
INSTITUTIONS
❏ Pool these insurance premiums
and invests the proceeds with
various securities until the funds
are needed to pay off claims by
the policyholders.

FINANCIAL
INSTITUTIONS
❏ Owned by investment companies
that enable small investors to
enjoy the benefits of investing in a
diversified portfolio of securities
purchased on their behalf by
professional investment
managers.
FINANCIAL
INSTITUTIONS
❏ Financial institutions that receive
payment from employees and
invest the proceeds on their
behalf.
❏ ex. GSIS, SSS, Unit Investment Trust
Funds (UTIF), investment banks,
credit unions
FINANCIAL
INSTITUTIONS
❏ Real or virtual document
representing a legal
agreement involving some sort
of monetary value.

Financial Asset, Financial

FINANCIAL
INSTRUMENTS
❏ A contractual right to
exchange instruments with
another entity under
conditions that are potentially
favorable.

FINANCIAL
INSTRUMENTS
❏ Examples:
❏ Notes Receivable
❏ Loans Receivable
❏ Investment in stocks
❏ Investment in bonds

FINANCIAL
INSTRUMENTS
❏ Any liability that is a contractual
obligation
❏ to deliver cash or other financial
instrument to another entity
❏ to exchange financial instruments
with another entity under
conditions that are potentially
unfavorable
FINANCIAL
INSTRUMENTS
❏ Examples:
❏ Notes Payable
❏ Loans Payable
❏ Bonds Payable

FINANCIAL
INSTRUMENTS
❏ Have fixed returns due to fixed
interest rates
❏ Examples
❏ Treasury Bonds & Treasury
Bills
❏ Corporate Bonds

FINANCIAL
INSTRUMENTS
❏ Treasury Bonds & Treasury Bills
❏ issued by the Philippine
government
❏ have usually low interest rates
and have very low risk of default
since the government assures that
these have been paid.

FINANCIAL
INSTRUMENTS
❏ Corporate Bonds
❏ issued by publicly listed
companies
❏ higher interests than Treasury
Bonds
❏ not risk-free

FINANCIAL
INSTRUMENTS
❏ Any contract that evidences a
residual interest in the assets
of an entity after deducting
all of its liabilities

FINANCIAL
INSTRUMENTS
❏ Examples:
❏ Ordinary Share Capital or
Common Stock
❏ Holders are the real owners
of the company

FINANCIAL
INSTRUMENTS
❏ Examples:
❏ Preference Share Capital or
Preferred Stock
❏ has priority over a common
stock in terms of claims over
the assets of a company and in
cash dividend declaration.

FINANCIAL
INSTRUMENTS
❏ where creation and trading of
financial assets such as shares,
debentures, bonds, derivatives
and currencies, takes place

MARKETPLACE
PRIMARY vs SECONDARY MARKETS
● PRIMARY
○ To raise funds, users go here to
issue new securities (either debt
or equity) through a public
offering or a private placement.

MARKETPLACE
● PRIMARY
○ Public Offering
■ initial public offering - sale of
new securities to the public

MARKETPLACE
● PRIMARY
○ Private Placement
■ sale of new securities to one
investor or a group of investors

MARKETPLACE
PRIMARY vs SECONDARY MARKETS
● SECONDARY
○ where sale of previously owned
securities takes place

MARKETPLACE
MONEY vs CAPITAL MARKETS
● MONEY MARKETS
○ Securities with short-term
maturities (less than one year)
are sold.

MARKETPLACE
MONEY vs CAPITAL MARKETS
● CAPITAL MARKETS
○ Securities with long-term
maturities (more than one year)
are sold (ex. Bonds, Common
Stock and Preferred Stock).

MARKETPLACE
You are your
01
Choose a financial instrument you would
like to invest in.

household’s
Consider your household’s income and expenses.

financial 02
Identify a financial market where you can
buy this financial instrument.

manager.
03
Name a financial institution that can help
you invest in this financial instrument.