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Module 1 - Topic 2

Financial intermediaries are entities like banks that convert funds from depositors into loans for borrowers, acting as a link between investors and those seeking funds. They accept deposits at low interest and lend the funds at higher rates to generate a margin. Types of financial intermediaries include banks, credit unions, insurance companies, and investment companies. Financial markets are places where demanders and suppliers of funds can transact, and come in two types - money markets for short term loans under 1 year, and capital markets for longer term loans like stocks and bonds.

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175 views

Module 1 - Topic 2

Financial intermediaries are entities like banks that convert funds from depositors into loans for borrowers, acting as a link between investors and those seeking funds. They accept deposits at low interest and lend the funds at higher rates to generate a margin. Types of financial intermediaries include banks, credit unions, insurance companies, and investment companies. Financial markets are places where demanders and suppliers of funds can transact, and come in two types - money markets for short term loans under 1 year, and capital markets for longer term loans like stocks and bonds.

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© © All Rights Reserved
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PRINTABLE LEARNING MATERIAL

Module 1- Topic2: Financial Intermediaries and Financial Markets

LEARNING OUTCOME:
Determine and enumerate the financial institution from financial instrument and financial
market. (ABM_BF12-IIIa-2-3)

Defining Financial Intermediaries

As published by Maxcor Publishing House, Inc (Santoyo, Lim, and Patiu) Financial
Intermediaries/ Institutions- (banks) are entities that convert funds supplied by
depositors (individuals, businesses, & government) into loanable funds which in turn
gets to be utilized by borrowers. As per Prachi M. (2019) of Investors Book, this is the
organization that acts as a link between the investor and the borrower, to meet the
financial objectives of both the parties.

(This image is lifted from: https://theinvestorsbook.com/financial-intermediaries.html)

The image above can be seen as business entities that accept deposits from the
depositors or investors (lenders) by allowing them low interest on their sum. Further,
these organizations, lend this amount to the individuals and firms (borrowers) at a
comparatively high rate of interest to make their margin.
Types of Financial Intermediaries

(This image is lifted from: https://theinvestorsbook.com/financial-intermediaries.html)

Defining Financial Institutions

Adam Hayes (2020) of Investopedia defines Financial Institutions as a


company engaged in the business of dealing with financial and monetary transactions
such as deposits, loans, investments, and currency exchange. The different types of
Financial Institutions are:

1. Commercial Banks are types of bank financial institution that accepts deposits,
offers checking account services, makes business, personal, and mortgage
loans, and offers basic financial products like certificates of deposit (CDs) and
savings accounts to individuals and small businesses.
2. Investment Banks specialize in providing services designed to facilitate
business operations, such as capital expenditure financing and equity offerings,
including initial public offerings (IPOs).
3. Insurance Companies are non-bank financial institutions that are providing
insurance, whether for individuals or corporations, is one of the oldest financial
services.
4. Investment companies and brokerages, such as mutual fund and exchange-
traded fund (ETF) provider Fidelity Investments, specialize in providing
investment services that include wealth management and financial advisory
services.

Defining Financial Markets are places or organizations where demanders and


suppliers of funds (money) can transact business. Example: Philippine Stock Exchange.
(This image is lifted from: https://r3.rappler.com/previous-articles?filterMeta=PSE%20Index)

As published by Maxcor Publishing House, Inc (Santoyo, Lim, and Patiu), Primary
Market- New issues of security and Secondary Market- Previously issued securities.

There are 2 types of Financial Market:

1.Money Market- Short Term Maturity. (1 year or less)


Examples: Treasury Bills (issued by the government) & Commercial Papers (are issued
by financially sound businesses to fund investments in inventories and receivables.)

2. Capital Markets- is the forum where long term financial transactions take place.
Corporate shares of stocks and bonds are examples.

Licensing & Attributions / References

 Hayes, Ad,(2020) Retrieved January 7, 2021, from


https://www.investopedia.com/terms/f/financialinstitution.asp
 PSE Image, https://r3.rappler.com/previous-articles?filterMeta=PSE%20Index
 Prachi M. (2019). Retrieved January 7, 2021, from https://theinvestorsbook.com/financial-
intermediaries.html
 Santoyo, Alfredo, Lim, Edralin & Patiu, Liberty. (2018). Business Finance. MaxCor Publishing
House Inc.

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