Republic of the Philippines

Laguna State Polytechnic University

Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

LSPU Self-Paced Learning Module (SLM)

Course Special Topics in Financial Management

Sem/AY Second Semester/2023-2024
Module No. 1
Lesson Title INTRODUCTIONTO FINANCIAL MANAGEMENT /
FINANCIAL MARKET
Week Duration
1-5
Date January 29 - March 1, 2024
Description This module covers the definition of finance,
of the business finance, types of finance, functions of
Lesson finance manager and importance of financial
management, basic functions of the financial system,
Philippine financial system, financial market and the
Philippine Stock Exchange.

Learning Outcomes

Intended Students should be able to meet the following intended

Learning learning outcomes:
Outcomes Explain the types of finance.

 Distinguish the difference between finance and
business finance.
 Explain the necessity of a financial intermediary.
 Differentiate a financial intermediary from a
financial market.
Targets/ At the end of the lesson, students should be able to:
Objectives
 Discuss the objectives of financial management.
 Enumerate the functions of finance manager
 Discuss the different types of financial markets.
 Enumerate different financial instruments used in
the money market.
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Student Learning Strategies

Online Activities A. Online Discussion via Google Meet

(Synchronous/ You will be directed to attend in a One Hour
Asynchronous) class discussion on the nature and types of
educational technologies. To have access to
the Online Discussion, refer to this link:
https://meet.google.com/vkk-rmwm-chu
The online discussion will happen on January 29
to March 1, 2024, from 1:00 pm - 4:00 pm.
(For further instructions, refer to your Google
Classroom and see the schedule of activities
for this module)
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Lesson 1:
Introduction to Financial Management

Definition of Finance
Finance may be defined as the art and science of managing money. It
includes financial service and financial instruments. Finance also is referred
as the provision of money at the time when it is needed. Finance function is
the procurement of funds and their effective utilization in business concerns.
The concept of finance includes capital, funds, money and amount. But
each word is having unique meaning.

According to Khan and Jain, “Finance is the art and science of

managing money”.

According to Oxford dictionary, the word 'finance' connotes

'management of money’. Webster's Ninth New Collegiate Dictionary defines
finance as "the Science on study of the management of funds' and the
management of fund as the system that includes the circulation of money, the
granting of credit, the making of investments, and the provision of banking
facilities.

Definition of Business Finance

According to the Wheeler, "Business finance is that business activity
which concerns with the acquisition and conversation of capital funds in
meeting financial needs and overall objectives of a business enterprise".

According to the Guthumann and Dougall, “Business finance can

broadly be defined as the activity concerned with planning, raising, controlling,
administering of the funds used in the business".

In the words of Parhter and Wert, "Business finance deals primarily

with raising, administering and disbursing funds by privately owned business
units operating in non- financial fields of industry".
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Corporate finance is concerned with budgeting, financial forecasting,

cash management, credit administration, investment analysis and fund
procurement of the business concern and the business concern needs to
adopt modern technology and application suitable to the global environment.

According to the Encyclopedia of Social Sciences, "Corporation

finance deals with the financial problems of corporate enterprises. These
problems include the financial aspects of the promotion of new enterprises
and their administration during early development, the accounting problems
connected with the distinction between capital and income, the administrative
questions created by growth and expansion, and finally, the financial
adjustments required for the bolstering up or rehabilitation of a corporation
which has come into financial difficulties".

Types of Finance
Finance is one of the important and integral part of business concerns,
hence, it plays a major role in every part of the business activities. It is used in
all the area of the activities under the different names.
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Finance can be classified into two major parts:

Private Finance, which includes the Individual, Firms, Business or

Corporate Financial activities to meet the requirements.

Public Finance which concerns with revenue and disbursement of

Government such as Central Government, State Government and Semi-
Government Financial matters.

Definition of Financial Management

Financial management is an integral part of overall management. It is
concerned with the duties of the financial managers in the business firm.

The term financial management has been defined by Solomon, "It is

concerned with the efficient use of an important economic resource namely,
capital funds".

The most popular and acceptable definition of financial management

as given by S.C. Kuchal is that "Financial Management deals with
procurement of funds and their effective utilization in the business".

Howard and Upton: Financial management "as an application of

general managerial principles to the area of financial decision-making.

Weston and Brigham: Financial management "is an area of financial

decision-making, harmonizing individual motives and enterprise goals"

Joshep and Massie: Financial management "is the operational activity

of a business that is responsible for obtaining and effectively utilizing the
funds necessary for efficient operations.

Thus, Financial Management is mainly concerned with the effective

funds management in the business. In simple words, Financial Management
as practiced by business firms can be called as Corporation Finance or
Business Finance.
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Objectives of Financial Management

Effective procurement and efficient use of finance lead to proper
utilization of the finance by the business concern. It is the essential part of the
financial manager. Hence, the financial manager must determine the basic
objectives of the financial management. Objectives of Financial Management
may be broadly divided into two parts such as:

1. Profit maximization

2. Wealth maximization.

 Profit Maximization
Main aim of any kind of economic activity is earning profit. A business
concern is also functioning mainly for the purpose of earning profit. Profit is
the measuring techniques to understand the business efficiency of the
concern. Profit maximization is also the traditional and narrow approach,
which aims at, maximizes the profit of the concern. Profit maximization
consists of the following important features.

1. Profit maximization is also called as cashing per share maximization.

It leads to maximize the business operation for profit maximization.

2. Ultimate aim of the business concern is earning profit, hence, it

considers all the possible ways to increase the profitability of the concern.

3. Profit is the parameter of measuring the efficiency of the business

concern. So it shows the entire position of the business concern.

4. Profit maximization objectives help to reduce the risk of the business.

 Favourable Arguments for Profit Maximization

The following important points are in support of the profit

maximization objectives of the business concern:

(i) Main aim is earning profit.

(ii) Profit is the parameter of the business operation.

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited
(iii) Profit reduces risk of the business concern. (iv) Profit is the
main source of finance.

(v) Profitability meets the social needs also.

 Unfavourable Arguments for Profit Maximization

The following important points are against the objectives of profit

maximization:

(i) Profit maximization leads to exploiting workers and

consumers.

(ii) Profit maximization creates immoral practices such as corrupt

practice, unfair trade practice, etc.

(iii) Profit maximization objectives leads to inequalities among

the sake holders such as customers, suppliers, public shareholders,
etc.

 Wealth Maximization

Wealth maximization is one of the modern approaches, which involves

latest innovations and improvements in the field of the business concern. The
term wealth means shareholder wealth or the wealth of the persons those
who are involved in the business concern.

Wealth maximization is also known as value maximization or net

present worth maximization. This objective is an universally accepted concept
in the field of business.

 Favourable Arguments for Wealth Maximization

(i) Wealth maximization is superior to the profit maximization

because the main aim of the business concern under this concept is to
improve the value or wealth of the shareholders.

(ii) Wealth maximization considers the comparison of the value

to cost associated with the business concern. Total value detected
from the total cost incurred for the business operation. It provides
extract value of the business concern.
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited
(iii) Wealth maximization considers both time and risk of the
business concern.

(iv) Wealth maximization provides efficient allocation of

resources.

(v) It ensures the economic interest of the society.

 Unfavourable Arguments for Wealth Maximization

(i) Wealth maximization leads to prescriptive idea of the

business concern but it may not be suitable to present day business
activities.

(ii) Wealth maximization is nothing, it is also profit maximization,

it is the indirect name of the profit maximization.

(iii) Wealth maximization creates ownership-management

controversy.

(iv) Management alone enjoy certain benefits.

(v) The ultimate aim of the wealth maximization objectives is to

maximize the profit.

(vi) Wealth maximization can be activated only with the help of

the profitable position of the business concern.

Functions of Finance Manager

Finance function is one of the major parts of business organization,
which involves the permanent, and continuous process of the business
concern. Finance is one of the interrelated functions which deal with personal
function, marketing function, production function and research and
development activities of the business concern. At present, every business
concern concentrates more on the field of finance because, it is a very
emerging part which reflects the entire operational and profit ability position of
the concern. Deciding the proper financial function is the essential and
ultimate goal of the business organization.
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Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Finance manager is one of the important role players in the field of

finance function. He must have entire knowledge in the area of accounting,
finance, economics and management. His position is highly critical and
analytical to solve various problems related to finance. A person who deals
finance related activities may be called finance manager. Finance manager
performs the following major functions:

1. Forecasting Financial Requirements

It is the primary function of the Finance Manager. He is responsible to

estimate the financial requirement of the business concern. He should
estimate, how much finances required to acquire fixed assets and forecast the
amount needed to meet the working capital requirements in future.

2. Acquiring Necessary Capital

After deciding the financial requirement, the finance manager should

concentrate how the finance is mobilized and where it will be available. It is
also highly critical in nature.

3. Investment Decision

The finance manager must carefully select best investment alternatives

and consider the reasonable and stable return from the investment. He must
be well versed in the field of capital budgeting techniques to determine the
effective utilization of investment. The finance manager must concentrate to
principles of safety, liquidity and profitability while investing capital.

4. Cash Management

Present days cash management plays a major role in the area of

finance because proper cash management is not only essential for effective
utilization of cash but it also helps to meet the short-term liquidity position of
the concern.

5. Interrelation with Other Departments

Finance manager deals with various functional departments such as

marketing, production, personnel, system, research, development, etc.
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited
Finance manager should have sound knowledge not only in finance related
area but also well versed in other areas. He must maintain a good relationship
with all the functional departments of the business organization.

Importance of Financial Management

Finance is the lifeblood of business organization. It needs to meet the
requirement of the business concern. Each and every business concern must
maintain adequate amount of finance for their smooth running of the business
concern and also maintain the business carefully to achieve the goal of the
business concern. The business goal can be achieved only with the help of
effective management of finance. We can't neglect the importance of finance
at any time at and at any situation. Some of the importance of the financial
management is as follows:

 Financial Planning

Financial management helps to determine the financial requirement of

the business concern and leads to take financial planning of the concern.
Financial planning is an important part of the business concern, which helps
to promotion of an enterprise.

 Acquisition of Funds

Financial management involves the acquisition of required finance to

the business concern. Acquiring needed funds play a major part of the
financial management, which involve possible source of finance at minimum
cost.

 Proper Use of Funds

Proper use and allocation of funds leads to improve the operational

efficiency of the business concern. When the finance manager uses the funds
properly, they can reduce the cost of capital and increase the value of the firm.

 Financial Decision

Financial management helps to take sound financial decision in the

business concern. Financial decision will affect the entire business operation
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited
of the concern. Because there is a direct relationship with various department
functions such as marketing, production personnel, etc.

 Improve Profitability

Profitability of the concern purely depends on the effectiveness and

proper utilization of funds by the business concern. Financial management
helps to improve the profitability position of the concern with the help of strong
financial control devices such as budgetary control, ratio analysis and cost
volume profit analysis.

 Increase the Value of the Firm

Financial management is very important in the field of increasing the

wealth of the investors and the business concern. Ultimate aim of any
business concern will achieve the maximum profit and higher profitability
leads to maximize the wealth of the investors as well as the nation.

 Promoting Savings

Savings are possible only when the business concern earns higher
profitability and maximizing wealth. Effective financial management helps to
promoting and mobilizing individual and corporate savings.

Nowadays financial management is also popularly known as business

finance or corporate finances. The business concern or corporate sectors
cannot function without the importance of the financial management.
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Engaging Activities:

Answer the following questions.

1. What is finance? Define business finance.

2. Explain the types of finance.

3. Discuss the objectives of financial management.

4. Discuss the role of financial manager.

5. Explain the importance of financial management.

 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Lesson 2:
Financial Market
The Basic Functions of the Financial System
Among the basic functions of the financial system are the following:

1. Promote savings. Through the various markets in the financial systems, the
savings of different surplus spending units turn into investments because these
markets offer a potential rate of return for a relatively low risk.

2. Enable payment. The financial system has the best and most expedient
mechanisms in facilitating payments when purchasing goods and services, e.g.,
the checking accounts that commercial banks, as well as other types of authorized
banks offer, etc. The plastic cards almost all banks and institutions provide their
clients likewise the payments more convenient. In fact, plastic cards will most likely
replace checks and check paper form negotiable orders of withdrawal (NOW)
accounts as the principal means of payment in the near future.

3. Protect against risks. Though the sale of life, property and accident insurance
policies by insurance companies, the financial market has become necessary to
entrepreneurs, consumers, and the government. Insurance companies offer
protection from practically all kinds of risk.

4. Present a means to wealth. The different financial markets are excellent

placements for savings that various economic units accumulate. These markets
offers the highest interest rate and a wide range of maturity to suit any investor's
plans. They also serve as a means to wealth, i.e., they preserve the value of the
funds until the funds are used and they generate earning at the same time.

5. Provide liquidity. The numerous financial instruments used to store the wealth
possessed by different economic units can readily be converted into cash with little
or no risk of loss. The financial system provides this service to savers who hold
financial instruments and are in need of cash. In a modern city, only the deposits of
cash held by banks are the financial instruments which have a perfect liquidity, i.e.,
they can be spent without being converted into some other form of instrument.

6. Provide credit facilities. Aside from expediting the conversion of savings into
investments and providing liquidity, markets also make credit facilities available to
consumers and investors whether for spending or for any other purpose.
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

The Philippine Financial System

The financial system may be defined as the diversified financial activities
performed by different economic units whose activities are so closely related to one
other, and which take into account the use of money, credit, and the various
instruments associated with money. The word financial implies a reference to money
matters, especially large sums. The different economic units are the financial
institutions: banks and non-banks, business organizations and individuals. These
units engage in vastly different activities and may operate either domestically or
internationally with or without help of other financial institutions.

Financial Intermediary
A financial intermediary brings together the users and the providers of funds
without having them meet face to face. For this reason, they are also known to
engage in an indirect form of funds channeling. Actually, people and firms can go
directly to the providers or users of funds. By doing so, the use of a financial
intermediary is eliminated, resulting in a higher return. However, if this is the case,
why do some people and business still tap the services of financial intermediaries?

The answer is that approaching financial intermediaries can be advantageous

to providers of funds.

1. Financial intermediaries hire highly qualified people to assess risky investments.

Investing through a financial intermediary is less risky than lending directly.

With years of experience in lending, financial intermediaries can determine which
individuals or firms are capable of paying their obligations.

2. Financial intermediaries know how to diversify.

Instead of placing money in a single investment, they distribute it among

different investment opportunities. They can combine stocks, bonds, mutual funds,
and fixed income securities in a portfolio.

3. Hiring financial intermediaries has a cost advantage or economy of scale.

If a firm needs a substantial amount of money, it takes time and resources

before the amount needed is raised. With the help of a financial intermediary, the
money invested can be pooled and lent to the firm.
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ISO 9001:2015 Certified
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4. Financial intermediaries provide savers with liquidity.

Liquidity is the ability to convert assets into a “spendable form”, i.e., money,
quickly. A house is an illiquid asset; selling one can take a great deal of time. If an
individual saver lends money directly to another person, the loan can also be an
illiquid asset. If the lender suddenly needs cash, he/she must either persuade the
borrower to repay quickly, which may not be possible, or he/she must find someone
else who will buy the laon from him/her, which may be very difficult.

Financial Market
A financial market is a mechanism in which buyers and sellers trade
financial assets such as stocks, bonds, currencies and derivatives. Unlike financial
intermediaries, it is not a source of funds, but a link to provide a forum in which
suppliers of funds and buyers of loans/investments can transact business directly
(Khan, et al., 2006). financial markets are generally characterized as having formal
regulations; transparent pricing; basic regulations on trading, costs, and fees; and
market forces which determine the prices of the securities that are being traded. Here,
the providers of funds know where their money in being invested or lent to. There are
two types of financial markets, namely the money market and capital market.

Money Market
The money market is a market intended for short-term placements. A
placement usually takes at most one year to mature. Money markets exist because
individuals or firms look for temporary investments where their idle funds can be
placed to earn income. To some extent, companies look for short-term financing to
support their seasonal needs. Because of money markets, the temporary needs of
the providers and users of funds are met.
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Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Money-market Instruments
There are various money-market instruments traded in the money market:

1. A certificate of deposit is a time deposit in which the depositor has to wait for a
certain number of days before the stated fixed interest is earned. The interest given
depends on the range of the amount deposited and the number of days stipulated.
The higher the amount deposited, the higher the interest received.

2. A piece of commercial paper is an unsecured promissory note with a fixed

maturity of 1 up to 270 days. Commercial paper is a money-market security issued
by high-credit-rating companies to raise money to meet short-term obligations. Firms
offering this kind of financial instrument are not required to offer a collateral because
of their excellent credit rating from a recognized credit-rating agency. A commercial
paper is usually sold at a discounted price and provides a higher interest repayment
rather than bonds.

3. A repurchase agreement (repo) is a financial instrument in which one party sells

a financial instrument to another at a specified price with the commitment to
repurchase the financial instrument at a fixed amount at a specific date. Many repos
have maturity date of 1 to 2 weeks.

4. Treasury bills (T-bills) are an obligation incurred by the national government. The
interest is usually higher than that in a savings or time deposit. T-bills are issued
through a competitive bidding process at a discount from par, which means that
rather than paying fixed-interest payments, the return expected by the investor is
capital appreciation.

5. A banker’s acceptance is a bank draft in which a bank is required to pay the

holder a specified amount on a specified date. It has a maturity of 90 days from the
date of the issue, which can be extended to 180 days. At the time of purchase, these
drafts are sold at a discount and their value increases as it approaches the maturity
date. Bank drafts are normally used in export and import transaction. They are less
risky than the other instruments because the importer’s bank guarantees their
payment.
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Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Capital Market
The capital market is intended for long-term financial instruments. Included in
the capital market are issuances of securities and long-term obligations by business
and government agencies. Some of the financial instruments have no maturity date
(as in the case of common stocks and preferred stocks) while others have a maturity
date that lasts for more than a year (as in the case of bonds).

There are two important elements of a capital market:

1. Organized security exchanges

A securities exchange operates under the rules and regulations formulated by

an exchange. Investors actively trading on the exchange are aware of the rules and
conduct trades accordingly. In the Philippines, the most active security exchange is
the Philippine Stock Exchange.

2. Over-the-counter (OTC) markets

Over-the-counter markets are involved in the buying and selling of financial

instruments but not of organized securities exchanges. These are stocks of
corporations that are registered with and licensed by the SEC to sell stocks to the
public which are not traded in the PSE.

Types of Capital Market

The capital market is involved in transactions involving long-term financial
instruments. The capital market is classified as follows:

1. The primary market is a venue where firms and government agencies raise
money by issuing financial instruments like stocks or bonds for the first time. The
proceeds from the new issues are sent directly to the issuer. The dealer normally
earns a commission built into the price of the financial instrument. Once the
securities are sold to the public for the first time, they are called the initial public
offering (IPO).
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ISO 9001:2015 Certified
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Players in the Primary Market

The players in the primary market are the following:

A. Issuers. These are either public or private corporations. Funds are raised
by means of public issues, right issues or private placements.

B. Financial Instruments. These are the instruments purchased by the

investors. They may take the form of bonds, equities, warrants, etc.

C. Financial Intermediaries. These are the financial institutions which

facilitate the issuance of the securities. Examples include universal and investment
banks.

D. Investors. These are the individuals or firms with extra funds who are
willing to invest in the securities offered.

2. The secondary market is also called the aftermarket. It is where the financial
instruments that are issued are traded. It allows the first owner of the issued
securities to sell these securities to the market. The securities are sold by the
investor to another investor for the purpose of gaining profit or minimizing loss. The
gain or loss is based on the trading price of the instrument in an organized market
such as the PSE. It is also in the secondary market where the current market price of
the instrument is determined.

Other Examples of Financial Markets

1. The bond market is where long-term debt instruments are issued by firms and
government agencies to raise money. It is also where participants can buy and sell
bonds. The participants are individuals, the government or private firms who have
extra money and are looking for a venue where they can invest it to generate
additional income in the form of interest and capital gain on bonds.

2. The commodity market is where raw or primary commodities are traded. The
commodities are traded on regulated commodities exchanges where they are bought
and sold in standardized contracts. Forward contracts and future contracts are
normally used in executing exchanges in this kind of market. Normally, farmers
hedge to insure against a poor harvest by purchasing future contracts in the same
commodity. If a farmer has a significantly less of its product to sell due to calamities
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Laguna State Polytechnic University
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ISO 9001:2015 Certified
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or infestations, the loss incurred is covered by the profit on the market. Examples of
commodities are corn, sugar, coffee, cotton, copra and tea.

3. The stock market is where publicly listed stocks are bought and sold. If a firm
wants to raise money in the forms of stocks, it normally goes to an investment banker
to facilitate the sale. This is in the form of an initial public offering (IPO) where stocks
are sold for the first time to the general public.

4. The derivatives market provides instruments to help manage financial risks. The
market can be divided into two: exchange-traded derivatives and over-the-counter
derivatives. Examples of derivatives markets are futures market, insurance market
and options market.

5. The foreign-exchange market is a venue for the exchange of currencies. Banks

normally assume the role of foreign exchange market.

Philippine Stock Exchange

The Philippine Stock Exchange, Inc. (PSE) is a private organization that
provides and ensures a fair, efficient, transparent and orderly market for the buying
and selling of securities.

The PSE traces its roots from the country’s two former bourse: the Manila
Stock Exchange (MSE) and the Makati Stock Exchange (MkSE). founded in March
1927, the MSE was the first stock exchange in the Philippines and is one of the
oldest in Asia. Originally housed in downtown Manila, the MSE moved to Pasig City
in 1992. the MkSE, on its part, was established in May 1963 and became the second
bourse to operate in the country. It was based in Makati City, a budding business
district during those days.

While trading the same listed issues, the MSE and MkSE remained separate
entities for almost 30 years. December 23, 1992 marked a milestone for the
Philippine capital market when the MSE and MkSE were unified to become the PSE.

At present, the PSE maintains two trading floors -- one in Makati City and
another in its head office in Pasig City. Even with two trading floors, the PSE
maintains a “one-price, one-market” exchange through the MakTrade System. This is
a single-order-book system that tallies all orders into one computer and ensures that
these orders match with the best bid/best offer, regardless of which floor the orders
are placed in. The MakTrade System likewise allows the PSE to facilitate the trading
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of securities in a broker-to-broker market through automatic orders, trade routing and
confirmation. It also keeps an eye on any irregularity in the transactions with its
market regulations and surveillance databases.

In June 1998, the Securities and Exchange Commission (SEC) conferred the
PSE with the status of a self-regulatory organization, which enables the PSE to
implement its own rules and impose penalties on erring trading participants and listed
companies.

In 2001, or a year after the Securities Regulation Code of 2000 was enacted,
the PSE was recognized and transformed from a non-stock, member-governed
organization into a shareholder-based, revenue-generating corporation. Along with
this rebirth came the separation of the Exchange's ownership and trading rights,
opening the doors for new market participants. On December 15, 2003, PSE shares
were listed by way of introduction. (www.pse.com.ph)

Investment Banker
One of the functions of a finance manager is to raise money so that the firm
he/she working for can support its operations, including future expansion. Moreover,
when finance managers look for assistance, they normally go to a financial
intermediary like an investment bank. An investment bank is a middleman engaged
in raising long-term funds for businesses and government agencies. It provides
advice to the issuing corporation on the prices and securities to be issued. The usual
functions of investment bankers are as follows:

1. Originate securities issues through negotiations between the officers of the issuing
firm and officers of the investment bank.

a) The initial discussions are concerned with determining the amount of

capital to be raised, the security to be issued, and the particular terms and
conditions of the issue.

b) The investigation looks into the financial capability of the firm if the
issuances of the securities satisfy the investors. CPAs are hired to scrutinize
the books, audit, and developed the required financial statements. Lawyers
are hired to investigate the legal aspects of the issue.

c) The negotiation finalizes the details concerning the securities to be issued.

The spread of the underwriters (I.e.,the difference between the price of the
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security to be issued and the amount to be remitted in addition to out-of-
pocket costs incurred by the investment bank) are also computed.

d) The registration ensures that all requirements on the new issues are
submitted to the SEC where all the material information about the security is
disclosed.

2. Underwrite the issues by guaranteeing their sale in the primary capital market.

a) The investment banker assumes the risk and responsibility of remitting the
entire amount to the issuing company less the amount of the spread agreed
upon on a given closing date.

b) The underwriter may invite other investment bankers to spread out the risk
of selling the securities to the public through an underwriting syndicate. The
originating house becomes the “manager” of the underwriting syndicate.

c) A part of underwriting is market stabilization. The syndicate manager places

the bid in the secondary market at its offering price to stabilize the market
price of the stock.

3. Manage the distribution of the securities to the ultimate investors. Members of the
underwriting syndicate form a selling group consisting of dealers who will contact the
ultimate investors.

4. Give advice to the corporate clients on long-term financial matters.

Investing Procedures (Philippine Stock Exchange, Inc.)

The following procedure is followed when investing:

1. Choose a stockbroker.

2. Open an account and fill out a customer account information form and submit
identification papers for verification.

3. Give the order to the trader, and then ask for the confirmation receipt.

4. Pay before the settlement date.

5. The investor shall receive from his/her broker either the proceeds of the sale of
his/her stocks (after 3 business days) or proofs of ownership of the stocks he/she
bought (confirmation receipt and invoice).
 Republic of the Philippines
Laguna State Polytechnic University
Province of Laguna
ISO 9001:2015 Certified
Level I Institutionally Accredited

Learning Resources
 Financial Management Part II, Ferdinand L. Timbang, CPA, MSCF
 Financial Management, C. Paramasivan, T. Subramanian, New Age International
Publisher