FINMARKETS REVIEWER
I. MULTIPLE CHOICE
1. Paul Phoenix wants to know the future
value of his hard-earned cash worth
20,000. Should he invest it in a financial
institution that pays an interest of 5%
p.a. compounded annually. How much
would it be in 5 years’ time? 25,525.63
2. ______ is the first governor of the
Central Bank of the Philippines. MIGUEL
CUADERNO SR.
3. It is the interest calculated only on the
original principal amount. This is a quick
& easy method of calculating interest
charged on a loan. SIMPLE INTEREST
4. The Securities & Exchange Commission
was created on. OCTOBER 26, 1936
5. What is the man of all values in the data
given? Data: 898, 999, 645, 325, 218, &
768. 643.67
6. It is the concept that states money
available in the present time is worth
more than money available in the future
even if they have the same amount.
TIME VALUE OF MONEY
7. It is defined as state of not having a job.
UNEMPLOYMENT.
8. If a P9,500 loan was granted to Bryan
Fury with an interest rate of 7% how
many years will it take to yield P3,500?
7 YEARS OR 5 YEARS (NOT SURE)
9. A place, where creation & trading of
financial assets, such as shares, bonds,
derivatives, currencies, etc. take place.
FINANCIAL MARKET
10. A branch of Economics that focuses on
the economy as a whole (or on whole
11.
12.
13.
14.
15.
16.
17.
economies
as
they
interact.)
MACROECONOMICS
It is the total market value of all final
goods and services provided annually by
the citizens of a country, whether
physically in that country or not. GROSS
DOMESTIC PRODUCT
The ______ is a self-regulatory body
that facilitates the selling & buying of
the issued stocks & warrants.
SECURITIES & EXCHANGE COMOSSIONS
Each year, the government borrows
funds from its citizens & foreigners to
cover its budget deficits. How does the
government do this? BY SELLING
SECURITIES, (TREASURY BONDS, NOTES,
& BILLS) PROMISING TO REPAY WITH
INTEREST.
The time period (form time of purchase
until time of sale or checking of returns)
in which the investment or security is
held by an investor. HOLDING PERIOD.
Jin Kazama just took out a Consumer
loan at Strong Right Bank amounting to
Php 300,000.00 that will have to pay Php
24,000.00 interest at the end of 1 year.
What is the interest rate? EIGHT
PERCENT PER ANNUM
The _________ is the percentage
increase or decrease over your initial
investment. It represents what you’ve
earned or loss on that investment. RATE
OF RETURN.
The is a capital budgeting technique
used to determine the profitability of a
project. It helps a company decide
whether to invest in a project or not.
INTERNAL RATE OF RETURN
18. It is the law that aims to create a selfregulating free market. Otherwise
known as “The Securities Regulation
Code” REPUBLIC ACT 8799
19. The primary motivation for investment
is to EARN PROFIT
20. What is the HPR for Mr. Sergei
Dragunov, who bought stock a year ago
at 100.00 & received 20.00 in dividends
over the year if the stock is now 120.00.
40%
II. TRUE OR FALSE.
1. In Finance, it is a general rule that the
smaller the variance is, the riskier the
investment. False
2. The central idea of Monetarism is that
government intervention can stabilize
the economy. True
3. Nobel laureate William Fredkin of the
University of Chicago was the most
famous proponent of monetarism. False
4. Perpetuity is defined as a regular
sequence of equal cash flows of
payments for a specific time period.
False
5. Regardless of the type of investment,
there will always be some risk involved
True
6. Tax cuts for individuals will tend to
increase consumption demand, while tax
increases will tend to diminish it. True
7. One function of the Bureau of Treasury
under Executive Order No. 449 is that it
assists in the formulation of policies on
borrowing, investment & capital market
development. True
8. Supply-side economics is an economic
theory that claims that lowering taxes &
permitting free trade are the most
effective ways to promote economic
growth. True
9. A Bond is a contractual agreement by the
borrower to pay the holder of the
Instrument fixed amounts at regular
intervals (interest& principal payments)
until a specified date (the maturity date),
when a final payment is made. True
10. The Philippine Financial system is
primarily capital market based rather
than bank based. True
11. Financial analysts examine the polit rates
of return of different companies to see
which one offers the best return. False
12. A negative net present value (NPV)
indicates that if you continue with the
investment. you will earn money after
accounting for the time value of money.
False
13. The main role of the Philippine Stock
Exchange is to regulate the securities
markets & to protect investors. True
14. Futures market refers to how much a
single cash flow today would grow over a
period of time with a corresponding
interest rate. False
15. Financial analysts examine the rates of
return of different companies to see
which one offers the best return. False
III. IDETIFICATION
1. ______ is the interest calculated on the
amount that includes the principal plus
accumulated interest on the previous
period. This is also called the interest on
interest. COMPOUND INTEREST
2. This is what someone pays for the use of
someone else’s money. INTEREST
3. It refers to the uncertainty over the
future that something unpleasant,
undesirable, or welcome may happen.
RISK
4. Institutions, businesses, systems &
regulations working together are called
the. FINANCIAL SYSTEM
5. Measures the dispersion of data from its
expected value. It is used in making an
investment decision to measure the
amount of historical volatility associated
with an investment to its annual rate of
return. STANDARD DEVIATION
6. The value of all final goods & services
produced within a country in a given year
is known as. GROSS DOMESTIC PRODUCT
7. A market where buyers pay for the right
to receive a good at a specified date in
the future. FUTURES MARKET
8. It is any enterprise which primarily
engages, whether regularly or an
isolated basis, in the underwriting of
securities of another person or
enterprise, including securities of the
government or its instrumentalities.
INVESTMENT HOUSE
9. It is the measurement of how far off each
date point is from the mean & thus from
each & every other data point in the set.
STANDARD DEVIATION
10. It is a general & ongoing rise in the level
of prices in an entire economy.
INFLATION
IV. ESSAY
Explain the importance of Financial Market
in Economy
In essence, financial markets exist to
connect people so that cash can move
freely across society. Financial markets
are crucial in guaranteeing that
businesses may keep expanding and
prospering by bringing together those
with money to invest and those who
need finance. In other words, financial
markets provide an opportunity for
businesses to raise a capital or fund that
require for expansion and growth and
for investors to get a return on their
investment.
Is taking a greater risk guarantee a greater
return?
As per discussion, greater risk is not
guaranteed to result a greater return,
but it is rather a potential one. It would
be more accurate to say that the degree
of risk and the potential for reward are
positively correlated. A lower risk
investment typically has a lower chance
of success. A higher risk investment
offers a larger chance of success but also
a higher chance of loss. Thus, it is
improper to say that greater risk is
equivalent to greater reward.
How is Time Value of Money important to
investors? Or what is the importance of
knowing time value of money?
Investors use the time value of money to
analyze the current worth of money in
relation to its potential future value.
Investors frequently use this formula to
analyze the current worth of money in
relation to its potential future value.
This is because money today can be
invested and earn interest, while money
in the future cannot. Moreover, some
external
factors
could
possibly
deteriorate the economy that would
result in loss value of money like
inflation and downward trend vin
stock’s market.
🡽
The Financial Markets
Gatongay, Cyrus Osorio
FIN-0013 - PLM
Learning Objectives
1.
Explain what a Financial System is all about.
2.
Regulating Bodies.
3.
Functions of the Financial System;
4.
The Nature & Development of the Philippine
Financial System
5.
Financial Markets: Its Structure & Components
The Financial System
Financial Institution - any type of business that’s involved in
financial transactions.
Financial Markets - a place, where creation & trading of financial
assets, such as shares, bonds, derivatives, currencies, etc. take
place. (Forex, Bond, & stock markets)
Financial Intermediaries - Institutions that borrow funds from
people who have saved & then make loans to others.
banks, insurance companies, & mutual & pension funds.
Financial Instrument - a contract for trading a financial asset.
Check, certificates of deposit, stock trades & contracts. (securities)
Institutions, businesses, systems & regulations working
together are called the Financial System.
Financial System Participants:
Why it needs to be Regulated
It allows transfer of funds from people or business without
business opportunities to one who has them.
It is a complex, interrelated arrangement of financial
institutions & markets.
Financial institutions (banks, insurance companies,
mutual funds, etc.) – driven by financial motives.
Government regulatory agencies – (PDIC, PCHC, SEC) which
overlook these institutions – makes sure that trading is
fair & equitable.
The Central Bank - which decides the monetary policy &
thereby impacts all institutions in the financial market.
Function of Financial System
The Philippine Financial System
“The Philippine Financial System is composed of banking
institutions & nonbank financial intermediaries, including
universal & commercial banks, specialized government
banks, thrift banks & rural banks. It is also composed of
offshore banking units, building & loan associations,
investment & brokerage houses & finance companies. The
Bangko Sentral ng Pilipinas & the Securities & Exchange
Commission maintains the regulatory & supervisory
control.”
It is primarily bank-based rather than capital market-based.
Banks are the main source of credit in the economy.
The Philippine Financial System
1754 - 1820 - The 1st credit institution in the Philippines, “The
Obras Pias” was started by Fr. Juan Fernandez de Leon.
August 1, 1851 - the 1st Philippine Bank was established, the
“Banco Espanol-Filipino de Isabela II,” named after the
mother of then Spanish King Alfonso XII. It began
operations in 1852 & was given the honour of being the 1st to
issue paper money.
1906 - “First Agricultural Bank of the Philippines”
July 22 1916 - The Philippine National Bank (PNB) was
created. It is the country’s 1st universal bank, & functioned as
the de facto Central Bank of the Philippines until 1942.
The Philippine Financial System
1946 - the Rehabilitation Finance Corporation was
formed. Its primary purpose was to provide credit
facilities for the rehabilitation & development & expansion
of agriculture, & industry, the reconstruction of property
damaged by the war. This later becomes the
“Development Bank of the Philippines”.
June 1948 - Pres. Elpidio Quirino signed the RA No. 265,
or the Central Bank Act of 1948.
January 3, 1949 - the Central Bank of the Philippines was
formally inaugurated with Miguel Cuaderno, Sr. as the 1st
governor.
The Philippine Financial System
August 8, 1963 - Land Bank of the Philippines was
established. (Agri. Land Reform Code, or RA No. 3844)
1973 - The Philippine Amanah Bank was established by
Pres. Ferdinand Marcos under PD No. 264 with an initial
capital of 100M. It was sold to DBP on 2008.
1980 - The World Bank & the IMF passed measures that
allows banks with a net worth of at least P500 million
could engage in expanded commercial banking, or
“unibanking”
The Philippine Financial System
1984-85 - the PNB & DBP, became insolvent & a number
of financial institutions failed, including the 3 largest
investment houses, 3 commercial banks, & more than
1,000 rural banks. (Aquino assassination)
1991 – A WB memorandum noted that the extent of
bank profits indicated a “lack of competition” & a
“market structure for financial services characterized by
oligopoly.
1997 – Asian Financial Crises.
2008 – Global Financial Crises
Overview Of Financial Markets
markets in which funds are transferred from people
who have surplus of available funds to people who
have shortage of available funds.
a place, where creation & trading of financial
assets, such as stocks, bonds, derivatives,
currencies, etc. take place.
Structure & Components
of Financial Markets
Structure
Financial
Markets
facilitates the smooth
operation of capitalist
economies by allocating
resources & creating
liquidity for businesses &
entrepreneurs.
Components of Financial Markets:
Nature of Claim - Debt & Equities
Debt – by borrowing. The borrower would be issued a
debt instrument, (bond or a mortgage)
Bond - a contractual agreement by the borrower to pay
the holder of the instrument fixed amounts at regular
intervals (interest & principal payments) until a specified
date (the maturity date), when a final payment is made.
Equities (stocks/ownership) - claims to share in the net
income (inc. after exp. & taxes) & the assets of a
business. Equities often make periodic payments
(dividends) to their holders & are considered long-term
securities .
Components of Financial Markets:
Maturity of Claim – Money & Capital Markets
Money Markets – trade in products with highly liquid
short-term maturities (less than 1 year). Less risk but
low return in interest. Eg. Mutual funds, T - bills.
Capital Market – longer term debt (1 year or greater)
& equity instruments are traded. Eg. mortgages,
stocks & long-term bonds.
Primary market - where securities are initially issued,
such as a bond or a stock, are sold to initial buyers by
the corporation or gov’t agency. (Initial Public Offering)
Secondary market - where securities that have been
previously issued can be resold. (NYSE, PSE)
Components of Financial Markets:
Timing of Delivery – Cash & Future Markets
Cash Market – the commodities or securities
purchased are paid for & received at the point of
sale. A.k.a. as spot markets because transactions
are settled on the spot. (eg. PSE – stocks, forex).
Futures Market – buyers pay for the right to
receive a good at a specified date in the future.
It sometimes utilizes clearing houses to settle &
confirm trades. (Barrel of oil, commodities)
Components of Financial Markets:
Org. Structure – Exchange Traded & OTC
Exchange Traded Market - buyers & sellers of
securities (or their agents or brokers) meet in one
central location to conduct trades. Organized
exchanges. eg. stocks, bonds
Over the Counter Markets – a decentralized
market – it doesn’t have a physical location.
Dealers buy & sell securities without a broker.
“Directly between 2 parties.”
eg. Forex,
Commodities & agricultural products.
Money Market – savings, demand deposit, T-bills (G),
Commercial Paper (C).
Capital Market – Government Securities; Bonds
(Debt) & Stocks (Equity).
Forex Market - marketplace for exchanging national
currencies.
Derivatives Market - a financial contract between 2
parties for buying or selling a property, assets,
commodity, or other security at a predetermined
price within a specific time period.
References
“The Economics of Money, Banking, & Financial
Markets” 13th Edition (2022) Frederick S. Mishkin,
Pearson
“Fundamentals of Financial Management,”
Eugene Brigham 15th Edition (2019), Cengage
“Financial Markets & Institutions” 10th Edition
(2018) Frederick S. Mishkin, Stanley Eakins Pearson
“Macroeconomics” 2nd Edition (2017) Open Stax,
Rice University
Investopedia; Business Insider; sec.gov.ph
🡽
‫ﮐﺎ ﺷﮑرﯾہ‬
Seeking Holiness in Daily Life.
🡽
Inflation &
Economic Theories
Gatongay, Cyrus Osorio
FIN0013 - PLM
Economics
Macroeconomics – it deals with the human
behavior & choices as they relate to an entire
economy.
Macro. It studies the performance, structure, behavior
& decision-making of the entire economy, be that a
national, regional, or the global economy. Aggregate
indicators including inflation, employment, & national
income.
Inflation
A condition of continually
rising price level of goods &
services in an economy over
a period of time.
When the price level rises,
each unit of currency buys
fewer goods & services.
Theories of Inflation - Monetarism
Milton Friedman (1912-2006) – Monetarism “Inflation
(π) is always & everywhere a monetary phenomenon.”
They consider fiscal policy, or government spending &
taxation as ineffective in controlling inflation because
the primary driver in the price level is the quantity of
money.
Whenever a country’s inflation rate is extremely high
for a sustained period of time, its rate of money supply
growth is also extremely high.
German Hyperinflation 1921-1923
“Hyperinflation
is a period of
fast-rising
inflation.
inflation rates
exceed 50%
Episodes of Rapid Inflation
1923 – France invaded the Ruhr
$ = 1.6T Marks; Inflation rose 1M%
Inflation Rates (Jan. 2022)
Venezuela –
1198%; Sudan –
340%: Lebanon –
201%; Syria –
139%; Suriname –
63.3%: Zimbabwe 60.7%; Argentina –
51.2%; Turkey –
36.1%; Iran 35.2%; Ethiopia –
33% -
high Money
growth causes
high inflation.
Zimbabwe Hyperinflation (2008-2009)
Why printing money
cause inflation?
If the money supply is increased, but the
output stays the same, everything will just
become more expensive.
Theories of Inflation - Keynesian
Keynesian View - John Maynard Keynes - economists
argue inflation results from economic pressures such as
the increased cost of production & look to government
intervention as a solution.
Also known as the demand-side theory, it is built on the
idea that economic growth is stimulated through
demand.
Keynes showed that government spending (fiscal policy)
—would stimulate the economy when businesses &
individuals were tightening budgets.
Keynesian - What causes Inflation?
Cost-push inflation - results from general increases in the
costs of the factors of production. (capital, land, labour, &
entrepreneurship) —are the necessary inputs required to
produce goods & services. When the cost of these factors
rise, producers wishing to retain their profit margins must
increase the price of their goods & services.
Demand-pull inflation - results from an excess of aggregate
demand relative to aggregate supply. The theory in
demand-pull inflation is if aggregate demand exceeds
aggregate supply, prices will increase economy-wide.
Fiscal Policy (F3P638)
- is a means by which a
government adjust
its
spending levels & tax rates to
monitor & influence a nation’s
economy.
Ex. A One Shot Permanent
Increase in Government Budget
from P1.9T – P3T
G ↑ permanent
1. AD shifts right to AD2
2. Y > Yn, AS shifts in to AS2
3. P ↑ to P2, but doesn’t
keep rising
Can Fiscal Policy by Itself
produce Inflation? (SAP, ayuda)
No.
Theory of Inflation – Supply Side
Supply Side Economics - an economic concept
whereby increasing the supply of goods lead to
economic growth.
It is used by governments as a premise for
targeting variables that bolster an economy's ability
to supply more goods.
Privatization, Corporate Income Tax cuts,
Deregulation, Removing regulations/red-tape, Free
trade agreements, vocational training
Unemployment
The state of not having a job.
A terrible & a life wrenching experience.
Financial Stress, painful adjustments.
The human costs of unemployment would justify
making a low level of unemployment an important
public policy priority.
An economic resource is going unused.
Unemployment Rate &
The Financial Market
The money that people make from their jobs is the key
source of primary income for the majority of workers.
So, if the unemployment rate is higher, the general
income (& therefore, cash to spend) will be limited. With
less cash, people spend less money, & there’s less of a
demand for products.
Less Demand for products means a decline in stock prices.
Interest Rates
It is the cost of borrowing or the price paid for the
rental of funds.
Eg. mortgage interest rates, car loan rates, & interest
rates on many different types of bonds.
Interest rates are among the most closely watched
variables in the economy. Its movements are reported
almost daily by the news media because they directly
affect our everyday lives & have important
consequences for the health of the economy.
How Do Interest Rates Affect
the Financial Market?
Any impact on the stock market to a change in the
interest rate changes is generally experienced
immediately, while it may take about a year for the
rest of the economy.
Higher interest rates tend to negatively affect earnings &
stock prices (with the exception of the financial sector benefit the most when interest rates move higher.)
Low interest rates stimulate the economy. It is seen as
a benefit to personal & corporate borrowing leading to
greater profits & robust economy.
Gross Domestic Product
GDP is the value of all final goods & services produced
within a country in a given year.
The GDP of an economy can be measured either by the
total peso value of what is purchased in the economy, or
by the total peso value of what is produced.
GNP – the total market value of all final goods &
services provided annually by the citizens of a country,
whether physically in that country or not.
Gawa Dito Pinas
Gawa Natin Pinoy
Gross Domestic Product &
the Financial Market
Having a greater equity shows a sector or business is
doing well. When most businesses present increased
profit & downturn in liabilities, the country’s GDP will
expect a significant growth, indicating that its
economy is in great condition & that business is
good within its sectors. In effect, investors gain
confidence in companies so they trust in the
financial market more.
References
“The Economics of Money, Banking, & Financial
Markets” 13th Edition (2022) Frederick S. Mishkin,
Pearson
“Financial Markets & Institutions” 10th Edition
(2018) Frederick S. Mishkin, Stanley Eakins Pearson
“Macroeconomics” 2nd Edition (2017) Open Stax,
Rice University
“Money, Banking, & Financial Markets” (2012)
Laurence M. Ball, Worth Publishers
Investopedia; Business Insider; sec.gov.ph
🡽
‫ﮐﺎ ﺷﮑرﯾہ‬
Seeking Holiness in Daily Life.
Definition Of The Time Value of Money (TVM) julia
Single Cash Flow julia
Annuities (ordinary annuity, annuity due, deferred annuity) Periodic Payments, angelo
Uneven & Irregular Cash Flows allid
Present Value jm
Future Value jm
Interest Rate angelo
Term allid
Time value of money (TVM) JULIA
-QUESTIONSAccording to the concept of time value of money, a certain amount of money is worth
more right now than it will be in the future.
The formula for calculating the time value of money takes into account the current
value, the potential future worth, the potential earnings, and the time period.
Single Cash Flow JULIA
Cash flow can be defined as the amount of money and the money equivalents which is
circulating into and out of a business or an organization (Muda, & Hasibuan, 2018)
Annuities ANGELO
Annuities is a sequence of periodic payments made at a regular interval of times usually
bi-monthly, monthly, semi-annually, quarterly, or annually to pay a loan or construct
fund.
Examples of installment that payment made are rentals, life of premiums, salaries,
pension, and monthly amortization in Pag-ibig Fund, GSIS, SSS and other financing
agencies.
Notation / Terminologies:
Periodic Payment (R) – it is the amount paid during the installment period of the loan
Interval Payment (pi) – is the time between consecutive payments of annuity.
Term of Annuity (t) – is the time from the beginning of the first payment interval up to the
last payment interval. The number of conversion periods in the term of the annuity is n
which arrives from getting the product of the time (t) and the conversion period (m).
rate (i) – interest rate per period
n – total number of payments
A – present value of annuity
S – future value of annuity
d – number of deferred payments (periods without payments)
Two types of Annuities
1.Annuity Certain – is an annuity in which payments begin and end on a definite or fixed
date.
2.Contingent annuity (annuity uncertain) – is an annuity in which the payment and the
termination is indefinite because each event may be undetermined. Ex. Premiums in life
insurance.
Classification of Simple Annuities
1.Ordinary Annuity is where the periodic payments are due at the end of each payment
interval.
2.Annuity Due is one in which the periodic payments are made at the beginning of the
payment intervals.
3.Deferred Annuity is one in which the first payment is made neither at the end nor at
the beginning of the 1st payment interval but at some later time.
ORDINARY ANNUITY- JM
A. Future Value and Present Value
The amount of an annuity, denoted by S, is the sum of the values of all the periodic
payments at the end of the term. While, the present value of an ordinary annuity is
denoted by A, is the sum of present values of all the payments at the beginning of the
term. The following formulas are used to find the future value and present value of an
ordinary annuity.
Formula:
Future Value, S = R (〖(1+𝑖)〗^𝑛−1)/𝑖
R = payment amount
i = interest rate per period
n = total number of payments
S = future value of annuity
If the given is in Future Value
P12,000.00 a year for 10 years, interest at 7 ½ %.
Given:
R = 12,000.00
i = r/m = .075
n = tm = 10x1 =10
Solution:
S = R (〖(1+𝑖)〗^𝑛−1)/𝑖
= 12,000 (〖(1+.075)〗^10 −1) / .075
= 12,000 (〖(1.075)〗^10 −1) / .075
= 12,000 (2.061031562 − 1) / .075
= 12,000 (1.061031562) / .075
= 12,732.37875 / .075
= P169,765.05
Formula: Present Value, A = R (1−〖(1+𝑖)〗^(−𝑛))/𝑖
R = payment amount
i = interest rate per period
n = total number of payments
A = present value of annuity
If the given is in Present Value
An investment will yield P50 at the end of each month for the next 15 years. If money is
worth (.05, m = 4), what would be a fair present value for the project?
Given: R = P50
i = r/m= .05/4 = .0125
n = tm =15x4 = 60
Solution:
A = R (1−〖(1+𝑖)〗^(−𝑛))/𝑖
A = 50 (1−〖(1+.0125)〗^(−60))/.0125
A = 50 (1−〖 (1.0125) 〗^ (−60))/.0125
A = 50 (1−0.4745676026)/.0125
A = 50 (0.5254323974) / .0125
A = 26.27161987 / .0125
A = P 2,101.73
Periodic Payment
Consider that S is the amount and A is the present value of an ordinary annuity. Let R
is the periodic payment. And to solve for the periodic payment, we have to consider the
following formulas:
Formula:
If the given is the Future Value of Ordinary Annuity:
R= (S(i))/(〖(1+i)〗^n−1)
If the given is the Present Value of Ordinary Annuity
R= (A(i))/〖1−(1+i)〗^(−n)
: Periodic Payment
If money is worth 5% compounded semiannually, how much must a person save every
6 months to accumulate P3000 in 4 years?
Given:
j= 5%
n= tm = 4x2 = 8
m= 2
S= P3000
t= 4 years
i= 0.025
Solution:
R= (S (i))/(〖(1+i)〗^n−1)
R= (3000(0.025))/(〖(1+0.025)〗^8−1)
R= 343.4020375 or 343.40
A family wants to buy a home costing P60,000.00. If they pay P10,000.00 cash, how
much will their monthly payments be if they get a 20-year mortgage with a rate of 9%
converted monthly? How much will their monthly payments be?
Given:
A= 60,000.00
Down Payment= 10,000.00
t= 20 yrs.
j= 9%
m= 12
n= 240
i= 0.0075
Solution:
A - Down Payment = x
60,000-10,000 = 50,000
R= (A(i))/〖1−(1+i)〗^(−n)
R= (50,000(0.0075))/〖1−(1+0.0075)〗^(−240)
R= 449.8629779 or 449.86
Rate
At what rate computed monthly can Luis purchase an annuity of P2,000 payable
monthly
for 2¾ years if the present value of such an annuity is P20,000?
Given: n = 33
R= P2,000.00
A= P 20,000.00
a = (n²-1) = 1088
b = 6(n+1) = 204
c = 12 [1- n * R/A] = -27.6
Solution:
𝑟=(−𝑏+√(𝑏^2−4𝑎𝑐))/2𝑎
𝑟=(−(204)+√(〖(204)〗^2−4(1088 ∗−27.6)))/(2 ∗ 1088)
r = 9.11%
Simple Interest (Julia)
- It is the payment for the use of some money over a period. As a result, the
interest is computed on the original principal during the whole time at the given
interest rate.
Wherein:
I = Simple Interest
P = Principal, Face Value, Present Value, or Proceeds
r = rate of interest
t = time (should be expressed in years)
F = future value or final amount
1.Find the interest if P3,000 is invested at 6% interest rate for 5 years.
Solution:
I=Prt
I = 3,000x .06 x 5
I = P900.00
Present Value
-
-
It is the time value of money for a series of cash flows that calculates the value of
the money today.
Future cash flow is calculated by dividing the future cash flow by a discount
factor that incorporates the amount of time that will pass and expected interest
rates.
Formula - P = I/rt or P = F/(1+rt) or P = F - I
Examples:
1. How much did Jay invest in the bank if the interest he received after 2 years at
7% interest rate is P4,500.
Formula: P = I/rt
Solution:
P = 4,500/(0.07)(2)
P = 4,500/0.14
P = 32,142.86
2. Mike promised to pay Patrick the amount of P5,750 at the end of 3 years. If
money is worth 5%, find the present value.
Formula: P= 𝐹/(1+𝑟𝑡)
P = 5,750/((1+(0.05)(3))
P = 5,750/(1+0.15)
P = 5,750/1.15
P = 5,000
Reference: Heyford, S.C. (2022, May 23). Understanding the Time Value of Money
Retrieved from: https://www.investopedia.com/articles/03/082703.asp
Future Value
- A sum of money today is calculated by multiplying the amount of cash by a
function of the expected rate of return over the expected time period.
- A financial concept that assigns a value to an asset based on estimated variables
such as future interest rates or cash flows.
- Formula: F = P+I or F = P (1+rt)
Examples:
1. How much final amount would Mike receive if she invests P85,000 for 4 years at
9% simple interest?
Formula: F = P (1 + rt)
Solution:
F = 85,000 ((1+(0.09)(4))
F = 85,000 (1+0.36)
F = 85,000 (1.36)
F = 115,600
Reference: Chen, J. (2022, Aug. 31). Future Value: Definition, Formula, How to
Calculate,
Example,
and
Uses.
Retrieved
from:
https://www.investopedia.com/terms/f/futurevalue.asp
ALLID - Uneven Cash Flow & Terms
Uneven Cash Flow
-Based on Eugene F. Brigham and Joel F. Houston, Uneven cash flow is a series of
cash flow where amount varies from one period to the next.
Cash Flow (CFt)
-This term designates a cash flow that’s not part of an annuity.
Present Value of Cash Flow
Formula:
PV =
CF0
(1 + I)0
+
CF1
(1 + I)1
+
CF2
(1 + I)2
+… +
CFN
(1 + I)N
Where:
PV = present value
C qFt= cash flow
I = interest rate
t = period
Example
PV of CF0 = $0/(1+0.12)(0) = $0
PV of CF1 = $100/(1+0.12)(1) = $89.29
PV of CF2 = $300/(1+0.12) (2) = $239.16
PV of CF3 = $300/(1+0.12) (3) = $213.53
PV of CF4 = $300/(1+0.12) (4) = $190.66
PV of CF5 = $500/(1+0.12) (5) = $283.71
Thus, the total present value of the uneven cash flow stream is $1,016.35
Another example:
What’s the present value of the following uneven cash flow stream: $0 at Time 0, $100 in Year 1 (or at Time 1),
$200 in Year 2, $0 in Year 3, and $400 in Year 4 if the interest rate is 8%? ($558.07)
PV of CF0 = $0/(1+.08)(0) = $0
PV of CF1 = $100/(1+.08)(1) = $92.59
PV of CF2 = $200/(1+.08) (2) = $171.48
PV of CF3 = $0/(1+.08) (3) = $0
PV of CF4 = $400/(1+.08) (4) = $294.01
Thus, the total present value of the uneven cash flow stream is $558.08
Future Value of Cash Flow
Formula:
FV = CF0 × (1 + I)t + CF1 × (1 + I)t-1 + CF2 × (1 + I)t-2 + … + CFN
Where:
FV = future value
CFt= cash flow
I = interest rate
t = period
Example:
FV of CF0 = $0 × (1+0.12)(0) = $0
FV of CF1 = $100 × (1+0.12)(5-1) = $157.35
FV of CF2 = $300 × (1+0.12) (5-2) = $421.48
FV of CF3 = $300 × (1+0.12) (5-3) = $376.32
FV of CF4 = $300 × (1+0.12) (5-4) = $336.00
FV of CF5 = $500 × (1+0.12) (5-5) = $500
Thus, the total future value of the uneven cash flow stream is $1,791.15.
Another Example:
What is the future value of this cash flow stream: $100 at the end of 1 year, $150 due after 2 years, and $300
due after 3 years, if the appropriate interest rate is 15%?
FV of CF1 = $100 × (1+0.15)(5-1) = $132.25
FV of CF2 = $150 × (1+0.15) (5-2) = $172.50
FV of CF3 = $300 × (1+0.15) (5-3) = $300
Thus, the total future value of the uneven cash flow stream is $604.75
Term
Quiz
1. Which is incorrect about the time value of money?
a. the concept that a sum of money is worth more now than the same sum
will be at a future date
b. A delayed investment is a lost opportunity.
c. Investors would prefer to receive money on a later date.
d. Opportunity cost is key to the concept of the time value of money.
2. The amount of money that a person expects to have in the future is referred to
as?
a. Principal
b. Future Value
c. Simple Interest
d. Present Value
3. The loss of other alternatives after one alternative was chosen.
a. Waste
b. Opportunity cost
c. Opportunity
d. Choice
4. You have just won a 500,000 lottery. This new lottery, however, will pay out the
award 60 years from today. What is the present value of your award based on a
16% interest rate?
a. 135.68
c. 134.68
b. 135.98
d. 136.98
5. You invest Rs. 10,000. During the first year, the investment earned 20% for the
year. During the second year, you earned only 4% for that year.
How much is
your original deposit worth at the end of the two years?
a. 12,500
c. 12,460
b. 12,480
d. 12,400
6. If Mike lends 1,500 to his friend at an interest rate of 4.3%. Find the future value after
6 years by using the future value simple interest formula?
a. 1887
c. 1889
b. 1888
d. 1886
7. What is the periodic payments that are due at the end of each payment interval?
a. Deferred Annuity
b. Annuity Due
c. Ordinary Annuity
d. All of the choices
8. The time from the beginning of the first payment interval up to the last payment
interval.
a. Term of Annuity
c. Interval Payments
b. Periodic Payment
d. Rate
9. . A business takes out a simple interest loan of 10,000 at a rate of 7.5%. What is the
total amount the business will repay if the loan is for 8 years?
a. 14,000
c. 14,500
b. 16,000
d. 15,000
10. What’s the present value of the following uneven cash flow stream: $0 at Time 0,
$100 in Year 1 (or at Time 1), $200 in Year 2, $0 in Year 3, and $400 in Year 4 if the
interest rate is 8%?
a. 689.08
b. 558.08
c. 559.08
d. 658.08
Reference:
https://www.cuemath.com/future-value-simple-Interest-formula/
https://www.mathbootcamps.com/simple-interest-formula-and-examples/
REPORTING : OCTOBER 8, 2022!!!
ACTIVITY
TARGET DATE
Finished Written Report &
Quiz Details
October 4, 2022 (Tuesday)
11:59pm
Ice Breaker
October 5, 2022
(Wednesday) 11:59pm
Finished Quiz (Forms)
October 5, 2022
(Wednesday) 11:59pm
Finished PPT
October 7, 2022 (Friday)
11:59pm
Designation of Parts:
PPT and Forms : Roemina Barilla
Ice Breaker Presenter, D.1, & D.2 : James Matthew Bedayo
D.3: Pau Bermido
D.4 & D.5 : Rhobie Anne Bayani
D.6: Roemina Barilla
Ice Breaker : Everyone
Written Report:
Learning Objectives:
After the discussion, students are expected to be able to:
➔ Discuss capital budgeting.
➔ Calculate and use the major capital budgeting decision criteria, which are
NPV, IRR, MIRR, and payback.
➔ Explain why NPV is the best criterion and how it overcomes problems
inherent in the other methods.
D.1 Definition of Capital Budgeting
Capital Budgeting
➔ Capital refers to long-term assets used in production.
➔ Budget is a plan that outlines projected expenditures during some future
period.
➔ The capital budget is a summary of planned investments in long-term assets,
and capital budgeting is the whole process of analyzing projects and deciding
which ones to include in the capital budget.
Categories of Projects according to Firms
➔ Replacement: needed to continue current operations
➔ Replacement: cost reduction
➔ Expansion of Existing products or markets
➔ Expansion into new products or markets
➔ Safety and/or environmental projects
➔ Other projects
➔ Mergers
Criteria for deciding to Accept or Reject projects:
➔ Net present value (NPV)
➔ Internal Rate of Return (IRR)
➔ Modified Internal Rate of Return (MIRR)
➔ Regular Payback
➔ Discounted Payback
D.2 Net Present Value
➔ NPV is the present value of the project’s free cash flows discounted at the
cost of the capital. (or simply present value of cash inflows - present value of
cash outflows over a period of time)
➔ It tells us how much a project contributes to shareholder wealth.
➔ A method of ranking investment proposals using the NPV, which is equal to
the present value of the project’s free cash flows discounted at the cost of
capital.
Formula:
➔ If there’s one cash flow from a project that will be paid one year from now,
then the calculation for the NPV of the project is as follows:
NPV =
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
𝑡
(1+𝑖)
− 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
where:
i = required return or discount rate
t = number of time periods
➔ If analyzing a longer-term project with multiple cash flows, then the formula for
the NPV of the project is as follows:
𝑛
NPV = ∑
𝑅𝑡
𝑡
𝑡=0 (1+𝑖)
where:
n = time multiplied with the frequency of income (i.g. semi-annual in 5 years:
n = 5 x 2 = 10)
t = number of time periods
𝑅𝑡= net cash inflows-outflows during a single period t
i = discount rate or return that could be earned in alternative investments
Computing NPV in Excel
➔ =NPV(discount rate, future cash flow) + initial investment
➔ In the example above, the formula entered into the gray NPV cell is:
➔ =NPV(green cell, yellow cells) + blue cell
➔ = NPV(C3, C6:C10) + C5
Why is NPV the superior technique?
➔ The NPV method is considered a superior method of evaluating the cash
flows from a project because it yields the net value added to shareholders'
wealth if a given project is undertaken. Thus, if the calculated NPV is positive,
a project is accepted, and if the calculated NPV is negative, a project is
rejected. (study.com)
D.3 Internal Rate of Return
● The internal rate of return (IRR) is a metric used in financial analysis to
estimate the profitability of potential investments.
● IRR is a discount rate that makes the net present value (NPV) of all cash
flows equal to zero in a discounted cash flow analysis.
● IRR calculations rely on the same formula as NPV does.
● Decision making tool
Formula of IRR.
Where:
NPV= Net present value of the project
CFn= Cash flow at time
CFo= total Initial investment
IRR= internal rate of return
Three procedures can be used in calculating IRR:
1. Trial and error. We could use a trial-and-error procedure—try a discount
rate, see if the equation solves to zero, and if it doesn’t, try a different rate.
2. Calculator solution. Enter the cash flows in the calculator’s cash flow register
just as we did to find the NPV; then press the button labeled “IRR.”
Instantly, you get the IRR.
3. Excel solution. It is even easier to find IRRs using Excel’s IRR function
When the calculation is done, here are the decision rules:
● Independent projects. If IRR exceeds the project’s WACC, accept the project. If
IRR is less than the project’s WACC, reject it.
● Mutually exclusive projects. Accept the project with the highest IRR, provided
that IRR is greater than WACC. Reject all projects if the best IRR does not
exceed WACC.
Note:
If IRR=WACC then you must use another method to evaluate it.
Basically the higher the IRR the better it is.
Example Problem:
Method 1- Trial and Error
Method 2- Calculator
Step 1. Type the given formula which is
"500/(1+x)^1+400/(1+x)^2+300/(1+x)^3+100/(1+x)^4-1000" in your calculator. Do not
include the quotation marks.
Step 2. Click alpha, calc and 0(zero)
Step 3. Click shift, calc and =
Step 4. Then you would get the answer.
Method 3- Excel
Step 1. Find the home tab and look for ΣAutoSum
Step 2. Click More Function
Step 3. Search for IRR and click ok
Step 4. Select the value and click ok.
For additional option: (To check more detailed)
Step 1. Click the cell where you input the IRR function.
Step 2. Go back to ΣAutoSum and click again More Function
Step 3. Check the more accurate IRR.
Decision:
WACC: 10%
In POV of Independent projects:
Both Project S and Project L would be accepted because it is higher than the WACC.
In POV of Multiple exclusive projects:
Only Project S would be accepted because it has a higher IRR compared to Project
L albeit they are both greater than WACC.
Multiple Rate of Return
● It is a situation where a project has two or more IRRs.
To illustrate multiple IRRs, suppose a firm is considering a potential strip
mine (Project M) that has a cost of $1.6 million and will produce a cash flow of
$10 million at the end of Year 1. Then at the end of Year 2, the firm must spend
$10 million to restore the land to its original condition. Therefore, the project’s
expected cash flows (in millions) are as follows:
Note that:
If Project M’s cost of capital was 10%, its NPV would be 2$0.7736 million,
and the project should be rejected. However, if r was between 25% and 400%, NPV
would be positive, but those numbers would not be realistic or useful for anything.
Advantages of using IRR method
● Finds the Time Value of Money
● Simple to Use and Understand
● Hurdle Rate Not Required
Disadvantages of using IRR method
● Ignores Size of Project
● Ignores Future Costs
● Ignores Reinvestment Rates
D.4 Payback Period
- The length of time required for an investment’s cash flows to cover its cost.
- Indicates project liquidity rather than its profitability.
- The shorter the payback, the better the project.
Advantages
- The formula is straightforward to know and calculate.
- Payback period helps in project evaluation quickly.
- Helps in reducing the risk of losses.
Disadvantage
- Ignores the time value of money.
FORMULAS
Payback period - even cash inflows
- If cash inflows from the project are even, then the payback period is
calculated by: Initial investment cost / Annual cash inflow.
Example:
Company Brim wants to invest in a new project. This project requires an initial
investment of P30,000, and is expected to generate a cash flow of P5,000 per year.
Management's maximum desired payback period is 7 years.
Solution:
● P30,000 divided by the P5,000 = 6
● Therefore, the payback period for this project is 6 years.
Payback period - uneven cash inflows
- If cash inflows from the project are uneven, then we need to calculate the
cumulative cash inflow, and use the following formula to compute the payback
period: Number of years prior to full recovery + (Unrecovered cost at start of
year/Cash flow during full recovery year)
Example:
An investment of $200,000 is expected to generate the following cash inflows in six
years:
Year 1: $70,000
Year 2: $60,000
Year 3: $55,000
Year 4: $40,000
Year 5: $30,000
Year 6: $25,000
Required: Compute payback period of the investment. Should the investment be
made if management wants to recover the initial investment in 3 years or less?
Solution:
(1). Because the cash inflow is uneven, the payback period formula cannot be used
to compute the payback period. We can compute the payback period by computing
the cumulative net cash flow as follows:
Payback period = 3 + (15,000*/40,000)
= 3 + 0.375
= 3.375 Years
● Therefore, the payback period for this project is 3.375 years.
*Unrecovered investment at start of 4th year:
= Initial cost – Cumulative cash inflow at the end of 3rd year
= $200,000 – $185,000
= $15,000
D.5 Discounted Payback Period
- The length of time required for an investment’s cash flows, discounted at the
investment’s cost of capital, to cover its cost.
- The shorter a discounted payback period is, the better.
Advantages
- Consider the time value of money.
- Shows how long it will take to recover an investment.
Disadvantages
- Ignores the cash flows after the payback period.
FORMULA
- Discounted Payback Period = Year Before the Discounted Payback Period
Occurs + (Cumulative Cash Flow in Year Before Recovery / Discounted Cash
Flow in Year After Recovery)
Example:
Wanheda Manufacturing Company uses a discounted payback period to evaluate
investments in capital assets. The company expects the following annual cash flows
from an investment of $3,500,000:
The company’s cost of capital is 12%.
Required: Compute discounted payback period of the investment. Is the investment
desirable if the required payback period is 4 years or less?
Solution:
Discounted Payback Period = 5 + ($255,500/$456,300)
= 5 + 0.56
● Therefore, the discounted payback period for this project is 5.56 years.
Present value factor: 1 ÷ (1 +i)^n
WHERE:
i = rate (e.g. interest rate or discount rate)
n = number of periods
D.6 Modified Internal Rate of Return
- The modified internal rate of return (MIRR) assumes that positive cash flows
are reinvested at the firm's cost of capital and that the initial outlays are
financed at the firm's financing cost.
- Based on having the cash inflows reinvested at the company’s cost capital
- MIRR improves on IRR by assuming that positive cash flows are reinvested at
the firm's cost of capital.
- MIRR is used to rank investments or projects a firm or investor may
undertake.
- MIRR is designed to generate one solution, eliminating the issue of multiple
IRRs.
Where;
FV = future value of positive cash flows at the cost of capital for the company
PV = present value of negative cash flows at the financing ost of the company
n = number of periods
Example:
Corbett and Sullivan Enterprises (CSE) use the MIRR when evaluating projects.
CSE’s cost capital is 9.5%. What is the MIRR of a project if the initial costs are
P10,200,000 and the project lasts seven years, with each year producing the same
after-tax cash inflows of P1,900,000?
Resources:
- https://www.investopedia.com/terms/p/paybackperiod.asp
- https://www.investopedia.com/terms/d/discounted-payback-period.asp
- https://www.investopedia.com/terms/n/npv.asp
- Lanctot, P. (2019, March 1). The Advantages and Disadvantages of the
Internal Rate of Return Method. Small Business - Chron.com. Retrieved
October 5, 2022, from
https://smallbusiness.chron.com/advantages-disadvantages-internal-rate-retur
n-method-60935.html
QUIZ (10items)
1. You are debating whether or not to invest in your best friend's business idea, so use
IRR to evaluate the project:
Cost of Capital: 10%
Initial Investment: -$200
Cash Flows over the past 5 years:
Years 1 & 2: $50
Years 3 & 4: $100
Year 5: $125
Choices:
A. 15.36%
B. 31.20%
C.-17.29%
D. 26.04%
E. none of the above
2. Your friend's got another business scheme...see if you want to help him out!
Cost of Capital: 5%
Initial Investment: -$1500
Cash Flows over the past 5 years:
Years 1,2 & 3: $100
Year 4: $200
Year 5: $500
Choices:
A. 2.61%
B.-9.66%
C. 10.65%
D.-21.79%
E. none of the above
3. Which of the following is an advantage of using the discounted payback period?
A. The discounted payback period is easy to compute
B. The discounted payback period requires less information to accurately
calculate.
C. The discounted payback period accounts for the time value of money.
D. The discounted payback period accounts for the impact of taxes on the
return.
4. A form defined by calculating how long it will take for the asset to earn back the money
you invested in purchasing it.
A. Internal Rate Return
B. Payback Period
C. Net Present Value
D. Cost Accounting
5. Kay/o Company is planning to purchase a machine known as Machine KJ.
Machine KJ would cost P25,000 and would have a useful life of 10 years with zero
salvage value. The expected annual cash inflow of the machine is P10,000. Compute
the payback period of machine KJ and conclude whether or not the machine would
be purchased if the maximum desired payback period of Kay/o is 3 years.
A. 2. 5 years
B. 4 years
C. 5 years
D. 9.9 years
6. Assumes that positive cash flows are reinvested at the firm's cost of
capital.
A. Discounted Payback Period
B. Payback Period
C .Internal Rate Return
D. Modified Internal Rate Return
7. A plan that outlines projected expenditures during some future period.
A. Capital
B. Budget
C. Capital Budgeting
D. Net Present Value
8. It tells us how much a project contributes to shareholder wealth.
A. Capital
B. Budget
C. Capital Budgeting
D. Net Present Value
9. Summary of planned investments in long-term assets, and capital
budgeting is the whole process of analyzing projects and deciding which ones
to include in the capital budget.
A. Capital
B. Budget
C. Capital Budgeting
D. Net Present Value
10. An investor made an investment of $500 in property and gets back $570
the next year. If the rate of return is 10%. Calculate the net present value.
A. $18.18
B. $20.18
C. $18
D. $20
ICE BREAKER (Maximum of 5)
in-vase-men-t
Answer: Investment
Pay-back pee-riot
Answer: Payback period
Cost - cup - feet - tall
Answer: Cost Capital
Coffee - TAL - Bud - Jet - ING
Answer: Capital Budgeting
Net - Present - Valley - You
Answer: Net Present Value
Group 3: Measuring of Risks and Rates of Return
Definition of Risks
 The probability that actual results will differ from expected results
 The concept of ―risk and return‖ is that riskier assets should have higher expected returns to compensate
investors for the higher volatility and increased risk.
 the effect of uncertainty on achieving or surpassing business objectives. This effect may be positive,
negative or a deviation from the expected, for example in forecasts and projections.
 Market risk is the possibility that an individual or other entity will experience losses due to factors that
affect the overall performance of investments in the financial markets.
Types of Risks
MAIN:
1. Systematic Risk
-market risk
-affects the performance of the entire market
-may arise due to changes to interest rates, exchange rates, geopolitical events, or recessions, natural
disasters, terrorist attacks.
2. Unsystematic Risk
-unique to a specific company or industry
-specific risk, diversifiable risk, residual risk
Others:
1. Systematic Risk – The overall impact of the market
2. Unsystematic Risk – Asset-specific or company-specific uncertainty
3. Political/Regulatory Risk – The impact of political decisions and changes in regulation
4. Financial Risk – The capital structure of a company (degree of financial leverage or debt burden)
5. Interest Rate Risk – The impact of changing interest rates
6. Country Risk – Uncertainties that are specific to a country
7. Social Risk – The impact of changes in social norms, movements, and unrest
8. Environmental Risk – Uncertainty about environmental liabilities or the impact of changes in the
environment
9. Operational Risk – Uncertainty about a company’s operations, including its supply chain and the
delivery of its products or services
10. Management Risk – The impact that the decisions of a management team have on a company
11. Legal Risk – Uncertainty related to lawsuits or the freedom to operate
12. Competition – The degree of competition in an industry and the impact choices of competitors will have
on a company
Rate of Return
 net gain or loss of an investment over a specified time period, expressed as a percentage of the
investment’s initial cost.
 determining the percentage change from the beginning of the period until the end.
 used to measure the profit or loss of an investment over time.
 can be used on a variety of assets, from stocks to bonds, real estate, and art.
 the RoR works with any asset provided the asset is purchased at one point in time and produces cash
flow at some point in the future.
Example of a Rate of Return (RoR)
The rate of return can be calculated for any investment, dealing with any kind of asset. Let's take the
example of purchasing a home as a basic example for understanding how to calculate the RoR. Say that
you buy a house for $250,000 (for simplicity let's assume you pay 100% cash).
Six years later, you decide to sell the house—maybe your family is growing and you need to move into a
larger place. You are able to sell the house for $335,000, after deducting any realtor's fees and taxes. The
simple rate of return on the purchase and sale of the house is as follows:
Importance of Measuring Risks and Return
 Without identifying risks, it is difficult to successfully define your objectives and set out strategies for
achieving them.
 It is best practice to integrate business risk management with your strategy formulation and business
planning processes.
 Understanding and managing risks allows you to control, and often prevent, the financial,
organisational, legal and other ramifications associated with risks.
 A positive correlation exists between risk and return: the greater the risk, the higher the potential for
profit or loss.
Holding Period Return (Yield)
 The total return received from holding an asset or portfolio of assets over a period of time, known as the
holding period, generally expressed as a percentage.
 Calculated on the basis of total returns from the asset or portfolio (income plus changes in value).
Total Return
When measuring performance, is the actual rate of return of an investment or a pool of investments over a given
evaluation period.
Includes:
 Interest
 Capital Gains
 Dividends
 Distributions realized over a period
Portfolio
 Collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents,
including closed-end funds and exchange traded funds (ETFs).
Holding period
 The amount of time the investment is held by an investor, or the period between the purchase and sale of
a security.
Holding Period Return (HPR) Formula:
Examples:
1. What is the HPR for an investor, who bought a stock a year ago at $50 and received $5
in dividends over the year, if the stock is now trading at $60?
2. Which investment performed better: Mutual Fund X, which was held for three years and appreciated
from $100 to $150, providing $5 in distributions, or Mutual Fund B, which went from $200 to $320
and generated $10 in distributions over four years?
Calculation of annualized HPR:
Thus, despite having the lower HPR, Fund X was the superior investment.
Arithmetic Mean
 The simplest and most widely used measure of a mean or average. It simply involves taking the sum of
a group of numbers, then dividing that sum by the count of the numbers used in the series.
 For example, take the numbers 34, 44, 56, and 78. The sum is 212. The arithmetic mean is 212 divided
by four, or 53.
Geometric Mean
 The average of a set of products, the calculation of which is commonly used to determine the
performance results of an investment or portfolio. It is technically defined as "the nth root product
of n numbers."
 The geometric mean differs from the arithmetic average, or arithmetic mean, in how it is calculated
because it takes into account the compounding that occurs from period to period. Because of this,
investors usually consider the geometric mean a more accurate measure of returns than the arithmetic
mean.
Here is arithmetic mean vs geometric mean in terms of their formulas. For a set of data values, say, x₁, x₂, x₃,
..., xₙ,
 The arithmetic mean (AM) = (x₁ + x₂ + x₃ + ... + xₙ) / n.
1/n
 The geometric mean (GM) = (x₁ · x₂ · x₃ · ... · xₙ) .
Example: For the values 1, 3, 5, 7, and 9:
Arithmetic mean = (1 + 3 + 5 + 7 + 9) / 5 = 5.
Geometric mean = (1 × 3 × 5 × 7 × 9)1/5 ≈ 3.93.
VARIANCE
 A measurement of how far each number in a data set is from the mean (average), and thus from every
other number in the set.
2
 Variance is often depicted by this symbol: σ
 It is used to determine volatility and market security.
 Con: Variance is not easily interpreted, it can give added weight to outliers
 In statistics, variance measures variability from the average or mean
 It is calculated by taking the differences between each number in the data set and the mean, then
squaring the differences to make them positive, and finally dividing the sum of the squares by the
number of values in the data set.


In finance, if something like an investment has a greater variance, it may be interpreted as more risky or
volatile.
Variance is calculated by using the following formula:
CALCULATING VARIANCE
1. Calculate the mean of the data.
2. Find each data point's difference from the mean value.
3. Square each of these values.
4. Add up all of the squared values.
5. Divide this sum of squares by n – 1 (for a sample) or N (for the population).
Example:
1. The number of cars of various colors in a parking lot with 5 levels is summarized by the table below:
What is the variance of red cars among the 5 levels?
The population of red cars across the 5 levels is: 11, 9, 13, 14, and 12.
 Add the values and divide by five to get the mean of 11.8.
 Square each of the values and sum the squares:

Divide the sum of the squares by the number of values in the set (since this is the whole population of red
cars), getting 711/5 = 142.2, and subtract the mean squared (11.8^2=139.24)

The variance of the population of red cars is 142.2−139.24=2.96
STANDARD DEVIATION “σ”
 Standard deviation is a statistical measurement in finance that, when applied to the annual rate of return
of an investment, sheds light on that investment's historical volatility.
 The square root of the variance is the standard deviation (SD or σ), which helps determine the
consistency of an investment’s returns over a period of time.
 Standard deviation (σ, pronounced ―sigma‖) is used to quantify the tightness of the probability.
 If the data points are further from the mean, there is a higher deviation within the data set; thus, the more
spread out the data, the higher the standard deviation.
 There are some downsides to consider when using standard deviation. The standard deviation does not
actually measure how far a data point is from the mean. Instead, it compares the square of the
differences, a subtle but notable difference from actual dispersion from the mean.
 The smaller the standard deviation, the tighter the probability distribution and, accordingly, the
lower the risk.
Formula of Standard Deviation
Calculating Standard Deviation
Standard deviation is calculated as follows:
1. Calculate the mean of all data points. The mean is calculated by adding all the data points and dividing
them by the number of data points.
2. Calculate the variance for each data point. The variance for each data point is calculated by subtracting
the mean from the value of the data point.
3. Square the variance of each data point (from Step 2).
4. Sum of squared variance values (from Step 3).
5. Divide the sum of squared variance values (from Step 4) by the number of data points in the data set less
1.
6. Take the square root of the quotient (from Step 5).
Example: Take the values 2, 1, 3, 2 and 4.
Determine the mean (average):
2 + 1 +3 + 2 + 4 = 12
12 ÷ 5 = 2.4 (mean)
2. Subtract the mean from each value:
2 - 2.4 = -0.4
1 - 2.4 = -1.4
3 - 2.4 = 0.6
2 - 2.4 = -0.4
4 - 2.4 = 1.6
3. Square each of those differences:
-0.4 x -0.4 = 0.16
-1.4 x -1.4 = 1.96
0.6 x 0.6 = 0.36
-0.4 x -0.4 = 0.16
1.6 x 1.6 = 2.56
4. Determine the average of those squared numbers to get the variance.
0.16 + 1.96 + 0.36 + 0.16 + 2.56 = 5.2
5.2 ÷ 5 = 1.04 (variance)
5. Find the square root of the variance.
Square root of 1.04 = 1.01
The standard deviation of the values 2, 1, 3, 2 and 4 is 1.01.
COEFFICIENT OF VARIANCE
 The coefficient of variation (CV) is the ratio of the standard deviation to the mean and shows the extent
of variability in relation to the mean of the population.

The higher the CV, the greater the dispersion.
CV = Standard Deviation / Mean
 The coefficient of variation is useful as it is dimensionless (i.e. independent of the unit in which the
measurement was taken) and thus, comparable between data sets with different units or widely different
means.
Example: Find the coefficient of variation of the following sample set of numbers.
{1, 5, 6, 8, 10, 40, 65, 88}.
Solution:
Given sample set: {1, 5, 6, 8, 10, 40, 65, 88}.
Sample mean = (1 + 5 + 6 + 8 + 10 + 40 + 65 + 88)/8 = 223/8 = 27.875
= 7578. 875
Sources:
CFI Team. (2022). Risk. https://corporatefinanceinstitute.com/resources/knowledge/finance/risk/
Hayesm A. (2022). Market Risk Definition: How to Deal With Systematic Risk. Investopedia.
https://www.investopedia.com/terms/m/marketrisk.asp
Kenton, W. (2022). Rate of Return (RoR) Meaning, Formula, and Examples. Investopedia.
https://www.investopedia.com/terms/r/rateofreturn.asp
Risk Management. (n.d.). NIBUSINESSINFO.CO.UK.
https://www.nibusinessinfo.co.uk/content/types-risk-your-business-faces
Segal, T. (2021). Is There a Positive Correlation Between Risk and Return? Investopedia.
https://www.investopedia.com/ask/answers/040715/there-positive-correlation-between-risk-andreturn.asp
Arithmetic Mean Definition. (2022). Investopedia. https://www.investopedia.com/terms/a/arithmeticmean.asp
What Is a Geometric Mean? How to Calculate and Example. (2022). Investopedia.
https://www.investopedia.com/terms/g/geometricmean.asp
Arithmetic Mean Vs Geometric Mean - Differences, Table, Examples. (2022). Cuemath.
https://www.cuemath.com/data/arithmetic-mean-vs-geometric-mean/
Variability Definition. (2022). Investopedia. https://www.investopedia.com/terms/v/variability.asp
Standard Deviation Formula and Uses vs. Variance. (2022). Investopedia.
https://www.investopedia.com/terms/s/standarddeviation.asp
What Is Variance? (2022). Investopedia. https://www.investopedia.com/terms/v/variance.asp
Coefficient of Variation - European Commission. (2022). Europa.eu.
https://datacollection.jrc.ec.europa.eu/wordef/coefficient-ofvariation#:~:text=Coefficient%20of%20Variation%20Coefficient%20of,CV%2C%20the%20greater%20t
he%20dispersion
Fidelity International. (2015). Fidelity.com.sg. https://www.fidelity.com.sg/beginners/your-guide-to-stockinvesting/understanding-stock-market-volatility-and-how-it-could-helpyou#:~:text=What%20is%20volatility%3F,may%20happen%20in%20the%20future
Examples of Standard Deviation and How It’s Used. (2022). Yourdictionary.com.
https://examples.yourdictionary.com/examples-of-standard-deviation.html
CK-12 Foundation. (2022). CK12-Foundation. CK-12 Foundation; CK-12 Foundation.
https://flexbooks.ck12.org/cbook/ck-12-probability-and-statisticsconcepts/section/5.7/primary/lesson/variance-practice-pst/
Admin. (2020, March 5). Coefficient of Variation Formula with Solved Examples. BYJUS; BYJU’S.
https://byjus.com/coefficient-of-variation-formula/
COURSE: FINANCIAL MARKETS
SUBJECT CODE & SECTION: FIN 0013-2
GROUP #4
Members:
De Jesus, Timothy John
De Luna, Juan Miguel
Dela Cruz, Jannelle
THE PHILIPPINE SECURITIES REGULATIONS CODE & OTHER REGULATING
BODIES
TOPICS
1. The Securities and Exchange Commission
2. Regulations on Capital Market Institutions
3. Regulations on Capital Market Professionals
4. The Capital Market Participants Registry System (CMPRS)
5. The Philippine Stock Exchange
6. The Securities Clearing Corporation of the Philippines
7. The Bureau of Treasury
8. The Philippine Dealing & Exchange System
LEARNING OBJECTIVES
•
Learn the nature of securities regulation in the Philippines
•
Understand the role of the SEC in the financial market
•
Learn the different capital market participants
•
Understand the importance of registration of capital market institutions, professionals
& securities.
THE SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission (SEC) or the Commission is the national
government regulatory agency charged with supervision over the corporate sector, the capital
market participants, and the securities and investment instruments market, and the protection
of the investing public.
History
•
The SEC was established on 26 Oct 1936 by virtue of the Commonwealth
Act No. 83 or the Securities Act.
•
Operations began on 11 Nov 1936 under the leadership of Commissioner
Ricardo Nepomuceno.
•
The agency was abolished during the Japanese occupation and was replaced
with the Philippine Executive Commission. It was reactivated in 1947 With
the restoration of the Commonwealth Government.
•
Due to the changes in the business environment under Pres. Ferdinand
Marcos, the agency was reorganized on 29 Sept 1975 as a collegial body
with 3 commissioners and was given quasi -judicial powers under PD902-A.
•
In 1981, the Commission was expanded to include two (2) additional
commissioners and two (2) departments, one for prosecution and
enforcement and the other for supervision and monitoring.
•
Then on 01 December 2000, the SEC was reorganized as mandated by R. A.
8799 also known as the Securities Regulation Code.
Importance
•
Subsequent laws were enacted to encourage investments and more active
public participation in the affairs of private corporations and enterprises,
and to broaden the Commission’s mandates.
•
Recently enacted laws gave greater focus on the Commission’s role to
develop and regulate the corporate and capital market toward good
corporate governance, protection of investors, widest participation of
ownership and democratization of wealth.
•
SEC also develops and regulates the capital market, a crucial component of
the Philippine financial system and economy. As it carries out its mandate,
SEC contributes significantly to government revenues.
•
SEC must progressively perform its critical role as the prudent registrar and
supervisor of the corporate sector and the independent guardian of the
capital market.
Roles and Functions
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who
are the grantees of primary franchises and/or a license or permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the securities market, advise
Congress and other government agencies on all aspects of the securities market and propose
legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and
other SROs;
(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued
pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders;
(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the
Government, civil or military as well as any private institution, corporation, firm, association
or person in the implementation of its powers and functions under this Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for contempt of the Commission, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all
documents, papers, files and records, tax returns, and books of accounts of any entity or person
under investigation as may be necessary for the proper disposition of the cases before it, subject
to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided by
law; and
(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express powers
granted the Commission to achieve the objectives and purposes of these laws.
CAPITAL MARKET INSTITUTIONS
It acts in linking investors and savers. Facilitates the movement of capital to be used more
profitability and productively to boost the national income. Boosts economic growth.
Mobilization of savings to finance long term investment.
Type of License
Broker/Dealer
in
Securities
(BDO
SECURITIES
CORPORATION,
PNB
SECURITIES INC.)
Broker in Securities (CITICORP FINANCIAL SERVICES AND INSURANCE
BROKERAGE PHILIPPINES, INC.)
Dealer in Securities (BANK OF THE PHILIPPINE ISLANDS, BDO UNIBANK, INC.,
RCBC SAVINGS BANK, INC.)
Brokers in Proprietary Shares (GOLFERS CLUB SHARES, INC.)
Voice Brokers in Securities (AFS PHILIPPINES, INC)
Investment Houses (PNB CAPITAL AND INVESTMENT CORPORATION)
Investment Houses Engaged in Dealing Government Securities (CHINA BANK
CAPITAL CORPORATION)
Underwriters of Securities Engaged in Dealing Government Securities (EAST
WEST BANKING CORPORATION, LAND BANK OF THE PHILIPPINES)
Government Securities Eligible Dealers (LEGACY EQUITIES, INC.)
Investment Company Advisers (SUN LIFE ASSET MANAGEMENT COMPANY,
INC.)
Mutual Fund Distributors (RCBC CAPITAL CORPORATION, BPI INVESTMENT
MANAGEMENT, INC.)
CAPITAL MARKET PROFESSIONALS
Any persons (individual or corporate) duly registered by the Commission to perform specific
functions in the capital market', which covers brokers, underwriters, solicitors and their
respective firms.
Type of License
Broker/Dealer in Securities (Associated Person, Salesman)
Broker in Securities (Associated Person, Salesman)
Dealer in Securities (Associated Person)
Brokers in Proprietary Shares (Associated Person, Salesman)
Voice Brokers in Securities (Fixed Income Market Salesman)
Investment Houses (Compliance Officer)
Investment Houses Engaged in Dealing Government Securities (Compliance Officer,
Fixed Income Market Salesman)
Government Securities Eligible Dealers (Compliance Officer/ Associated Person, Fixed
Income Market Salesman)
Underwriters of Securities Engaged in Dealing Government Securit ies (Compliance
Officer/ Associated Person, Fixed Income Market Salesman, Salesman)
Investment Company Advisers (Compliance Officer, Certified Investment Solicitor)
Mutual Fund Distributors (Associate Person, Certified Investment Solicitor)
Issuer of Timeshares (S)
Commercial Paper Issuer (Fixed Income Market Salesman)
CAPITAL MARKET PARTICIPANTS REGISTRY SYSTEM (CMPRS)
The Online Capital Market Participants Registry System (CMPRS) was launched
on November 21, 2017.
Aside from the manual filing of applications, the Capital Market Participants can now lodge
their transactions using the system (CMPRS) as an option. The system is intended for the
following:
Capital Market Institutions (CMIs)
• Broker/Dealer in Securities
• Broker in Securities
• Dealer in Securities
• Brokers in Proprietary Shares
• Voice Brokers in Securities
• Investment Houses
• Investment Houses Engaged in Dealing Government Securities
• Underwriters of Securities Engaged in Dealing Government Securities
Government Securities Eligible Dealers
• Investment Company Advisers
• Mutual Fund Distributors
Capital Market Professional (CMPs)
• Associated Persons (AP)
• Compliance Officer (CO)
• Salesmen/Fixed Income Market Salesman (S/FIMS)
• Certified Investment Solicitors (CIS)
The CMPRS is a web-enabled system designed to:
• Manage online submission of applications;
• Manage online evaluation/processing of applications of Capital Market Participants;
• Automatic generation of Certificate of Registration and Confirmation of Payment of Annual Fees;
• Facilitate tagging/clearing of infractions as results of monitoring activities; and
• Real-time searching of registered Capital Market Participants.
PHILIPPINE STOCK EXCHANGE
History
The Philippine Stock Exchange is among the oldest stock exchanges in Asia. Since its
foundation in 1927, it has been operating continuously as the national stock exchange of the
Philippines. PSE is a private, non-profit, non-stock company with the goal of establishing and
maintaining a fair, effective, transparent, and orderly market for the buying and selling of
securities, including stocks, warrants, bonds, options, and other kinds.
1927 - The Manila Stock Exchange was founded on Aug. 8, 1927, by five U.S. businessmen
namely W. Eric Little, Gordon W. Mackay, John J. Russell, Frank W. Wakefield, and W.P.G.
Elliot.
1936 - Commonwealth Act No. 83 or the Securities Act of 1936 was enacted on October 26
which created the Securities and Exchange Commission (SEC).
1940 - The MSE stopped operations during the Japanese Occupation.
1946 - The MSE resumed trading operations
1963 - The Makati Stock Exchange, Inc. (MkSE) was organized by Hermenegildo B. Reyes,
Bernard Gaberman, Eduardo Ortigas, Aristeo Lat, and Miguel Campos on May 27.
1965 - The MkSE started operations on November 16.
1992 - To consolidate logistics and speed up the growth of the capital market, MSE and MkSE
jointly released a declaration on December 23 on the merging of the nation's two bourses under
the Philippine Stock Exchange, Inc.
1994 - On March 4, the SEC authorized the PSE to run as a securities exchange. Both the MSE
and MkSE licenses were canceled at the same time.
1996 - The PSE developed the Banking and Financial Services Index to reflect the financial
environment and the All-Shares Index, which includes all listed firms.
2006 - The PSE updated the industry categorization of listed companies on January 2 by
classifying them in accordance with their primary source of income.
Roles and functions
Aside from being the marketplace for securities, the PSE also functions as a:
- Provider of information about the stock market in response to the public's demand.
- Venue for raising capital. Thus, bringing businesses together by listing new securities.
- Regulatory body as it guarantees complete, fair, timely, and accurate disclosure of material
information from all listed firms and promotes transparency of listed companies.
- Provider of information for potential investors (individual or companies) looking for
investment.
- Factor for economic growth since it is essential to the funding of profitable businesses that
use the money for expansion and the creation of new jobs. Hence, economic growth.
BUREAU OF TREASURY
The Bureau serves as the primary custodian of the national government's financial assets,
contributing and assisting policy creation regarding borrowing, investing and growth of capital
market. As its primary custodian, it sponsors a variety of programs and initiatives, managing
cash resources, and managing and servicing the public debt.
The Bureau of Treasury is under the Department of Finance which is the government
organization responsible for formulating fiscal policy. Aside from being the primary custodian,
it also has responsibilities revenue and expenditure management as it has duties regarding data
gathering and financial monitoring.
History
1897 - Baldemoro Aguinaldo was the first national treasurer and a secretary of treasury. Thus,
the establishment of the first National Treasury Office. Its primary duties were the imposition
and collection of taxes.
1900 - The Bureau of Insular Treasury was established by the Philippine commission led by
William H. Taft. It started the nation's banks' supervision.
1901 - Section 3 of Act No. 222 put the Executive Control of the Department of Finance and
Justice over the Bureau of Insular Treasury.
1905 - The Bureau of Insular treasury was renamed to the Bureau of Treasury by Act no. 1679
1929 - The Bureau of Banking assumed the supervision of banks from the bureau of the treasury
1949 - The central bank of the Philippines, which had just been established, assumed control
of coinage and money printing with the signing of Republic Act No. 265.
1965 - Treasury branches were opened throughout the country
1971 - The Bureau was reorganized into three principal services: the Financial and
Administrative Service, the Cash Operations Service, and the Public Debt Management Service
as a result of the implementation of the Integrated Reorganization Plan of the Government
under RA 6130.
1976 - The Bureau's Regional Offices were established.
1986 - The Department of Finance and the line bureaus, including the Bureau of the Treasury,
were reorganized by Executive Order No. 127, which also reorganized the Bureau of the
Treasury as a line bureau.
1995 - The Bureau took over the financial responsibilities that RA 7653 mandates be
transferred from Bangko Sentral ng Pilipinas (BSP) to the Department of Finance, namely the
issuing, service, and redemption of Government Securities.
1997 - The adoption of scripless electronic and real-time transactions on government securities,
or the Registry of Scripless Securities, in order to remove the risk and expense of transporting
physical securities (RoSS)
2000 - The 25-year Bond's offering. This longest Treasury Bond product in Asia is only offered
in Japan and the Philippines.
2001 - On January 15, 2001, started the listing and trading of small-denominated treasury bonds
at the Philippine Stock Exchange.
2009 - The Bureau of the Treasury started the procurement process to develop a new National
Office building at the Ayuntamiento site in Intramuros, which is on Calle Cabildo and Aduana.
2011 - Executive Order no. 55 mandated the implementation of a Treasury Single Account
(TSA).
Roles and functions
Under Executive Order No. 449, aside from the above-mentioned functions, the bureau
responsibilities also include:
- Create sufficient operational rules for financial and fiscal policy.
- Help in the preparation of an annual program for the national
government's cash balances, borrowing levels, and revenue and expenditure
targets by the relevant government agencies.
- Keep accounting records of national government cash transactions.
- Control national government's monetary resources, gather any advances
provided and guaranteed and forward any fees the national government is owed.
- Manage and service NG public debt, both foreign and domestic
- Issue, service, and redeem government securities for the account of NG
as the President may be permitted by law.
SECURITIES CLEARING CORPORATION OF THE PHILIPPINES
History and Importance
About SCCP
The Securities Clearing Corporation of the Philippines (SCCP) is a wholly-owned subsidiary
of The Philippine Stock Exchange, Inc. (PSE) and is under the regulatory supervision of the
Securities and Exchange Commission (SEC).
It acts as a Central Counterparty to trades executed at the PSE.
History
It was incorporated on January 23, 1996, to operate as a central securities clearing institution
in the Philippines and thereby manage and support the clearance of trades in securities listed
and executed on the PSE or other official securities markets in the Philippines.
SCCP started its commercial operations on January 3, 2000, and was granted its permanent
license to operate on January 17, 2002. SCCP is authorized by the SEC to impose fines,
penalties, and other sanctions as approved by the SCCP Board of Directors to ensure
compliance of its Clearing Members.
Roles and Functions
Mission
To deliver high-quality systems for the settlement of eligible trades on a Delivery versus
Payment (DVP) basis, ensuring the finality and irrevocability of these trades
To administer appropriate risk management functions to prevent any untoward event that may
affect the settlement process.
Services
SCCP is responsible for establishing the cash and securities liabilities and entitlements of its
Clearing Members, synchronizing the settlement of funds and the transfer of securities based
on the Delivery-versus-Payment Model 3 or Multilateral Net Settlement; guaranteeing the
settlement of trades in the event of a trading participant's trade default in order to ensure the
finality and irrevocability of all Exchange trades through its Fails Management procedures, and
implementing appropriate risk management measures to mitigate risks in the clearing and
settlement of Exchange trades and the maintenance and administration of the Clearing and
Trade Guarantee Fund ("CTGF").
THE PHILIPPINE DEALING AND EXCHANGES SYSTEM
History and Importance
The PDS Group was born as a community solution following the economic stresses felt in the
region in 1997. The Group was formed to shepherd the implementation of a Market Reform –
the organized market.
Powered by state-of-the-art technology, PDS provides a full suite of services, from trading to
clearing and settlement, and post-settlement across different asset classes. It also offers learning
facilities to equip its markets and communities in keeping pace with market development and
professional practice, here and abroad.
PDS Group, the Complete Capital Market Infrastructure, is composed of a holding company,
the Philippine Dealing System Holdings Corp., and operating subsidiaries:
•
Philippine Dealing & Exchange Corp. (PDEx) – Trading Services Arm
•
Philippine Depository & Trust Corp. (PDTC) – Securities Services Arm
•
Philippine Securities Settlement Corp. (PSSC) – Payment and Transfer Services Arm
•
PDS Academy for Market Development Corp. (PDSA) – Market Education and
Development
PDS Group operates in a regulatory environment that ensures conformance to governance and
regulatory requirements and commitment to stability, integrity, and investor protection.
Roles and Functions
Vision
We provide a complete financial market infrastructure – uniquely positioned to deliver investor
protection through efficient trading platforms, sound settlement highways, and essential
securities services, creating value for our stakeholders and abiding by the highest standards of
market governance and international best practice.
Mission
Promote investor empowerment with a holistic array of products and services that address
varied needs, institutionalize price discovery, cultivate liquidity and create market depth.
Power an integrated and orderly market, across financial sectors in the Philippines and with
the regional and global markets, to provide investors, issuers and intermediaries the broadest
and most efficient possible platform to address their financial objectives.
Develop learning programs that heighten awareness of the products and services available in
the market as well as the issues that affect investment choices while harnessing the technical
capabilities of market professionals who serve the public
Diversify market opportunities for all stakeholders who harness the power of the marketplace
for their needs.
Stand for a regulatory environment that nurtures the creativity of intermediaries within a
dynamic, fair and responsible framework for both risk management and market governance.
Strengthen synergies across different financial industries so that issuers can raise capital best
suited to their requirements under the most competitive and equitable terms.
References:
History – Corporate. (2012). Retrieved from Pse.com.ph website: https://corporate.pse.com.ph/about-pse/corporateprofile/history/?fbclid=IwAR1aU8arDQN4tsvBXzSuJJAU-OAqcIxTlZ7Yg2GPJJz56Wr-ll-VVkRf91Y
KNOWING THE PHILIPPINE STOCK EXCHANGE. (2022). Retrieved from Tripod.com website:
https://fglinc.tripod.com/knowstockex.htm?fbclid=IwAR2KHbmzpl9mMmr-V-_c6cy2Smo3YIRtLJKtYaII_i5CG-caf0vzLPISIvc
History, Seal and Credo | Bureau of the Treasury PH. (2015). Retrieved October 20, 2022, from Treasury.gov.ph website:
https://www.treasury.gov.ph/?page_id=44614
https://www.sccp.com.ph/main/aboutUs.html#
https://www.sccp.com.ph/main/services.html#
https://www.pds.com.ph/index.html%3Fpage_id=180.html
https://www.pds.com.ph/index.html%3Fpage_id=222.html
https://www.pds.com.ph/index.html%3Fpage_id=234.html
www.sec.gov.ph
www.treasury.gov.ph