Financial Management 19

UNIVERSITY OF SAN JOSE RECOLETOS
Corner P. Lopez and Magallanes Sts. Cebu City Cebu
ACTIVITY 1: OVERVIEW OF FINANCIAL MARKETS &
INSTITUTIONS
1. Financial Institutions serve as the bridge of investors between financial markets.

Investors make investments, and people or lenders obtain cash or funds from financial
markets through any financial institutions which is why financial institutions are the poll
of resources and channel funds from savers/lenders to those of spenders/borrowers.
Without financial institutions, there's a possibility that information and transaction costs
of financial market transactions would be high. Financial markets enable a short-term
debt instruments trading to address the demands of cash users. In financial institutions,
depository institutions is the recommended one to assist in managing finances,
safeguard your finances from loss and it help create an opportunity for you to earn
interest.
2. The 3 main depository institutions are:
• Commercial Banks - is a bank that accepts deposits and grant commercial or

business loans. They are the most dominant depository institution as it serve surplus
units by offering a wide variety of deposit accounts and transfer it to deficit units by
providing direct loans or purchasing securities debts. Banks have an under appreciated
role as payment agents within a country and between nations. The risks of leaving cash
at home or in a wallet are high, as is the risk of theft and accidents.
example: Banco de Oro (BDO Unibank, Inc. because it is a full-service universal

bank that provides a complete array of industry leading products and services to the
retail and corporate markets including Lending (corporate, middle market, SME, and
consumer), Deposit-taking, Foreign Exchange, Brokering, Trust and Investments, Credit
Cards, Corporate Cash Management, and more.
• Thrifts - includes savings and loans associations and savings banks. They accept
deposits and grant loans except for commercial loans. It is a type of financial institution
that specializes in offering savings accounts and originating home mortgages for
consumers. Thrift banks are also sometimes referred to as Savings and Loan Association
example: BPI Family Savings Bank, Inc. is the country's largest thrift bank with
P274. 65 billion in assets, P222. 86 billion in deposits and P222. 61 billion in loans as of
the end of March based on philstar last 2021.
• Credit Union - Non-profit and are exclusive for credit union members only. It is an
alternative to regular commercial banks. Credit unions are almost always organized as
not-for-profit cooperatives. Like banks and savings and loan associations, credit unions
can be chartered at the federal or state level. Like savings and loan associations, credit
unions typically offer higher rates on deposits and charge lower rates on loans in
comparison to commercial banks. Credit unions tend to be much smaller than other
depository institutions since it uses most of their funds to provide loans to their
members.
example: HSBC Savings Bank is one of the world's largest banking and financial
services organizations. We serve approximately 40 million customers through our global
businesses: Wealth and Personal Banking, Commercial Banking, and Global Banking &
Markets.
3. The Non-Depository Institutions:
• Finance Companies - they grant loans to businesses and individuals but they do
not accept deposits. Most Finance companies obtain funds by issuing securities and
then lend the funds to individuals and small businesses. The functions of finance
companies overlap the functions of depository institutions.
example: Metropolitan Bank & Trust Company offers commercial and investment
banking services. The Bank's business activities include borrowing and lending, trade
finance, remittances, treasury, investment banking, and savings.
• Mutual Funds - it pools financial resources and invests in a diversified portfolio.

Mutual Funds sell shares to surplus units and use the funds received to purchase a
portfolio of securities. They are the dominant non-depository financial institution
measured in total assets. Some mutual funds concentrate their investment in capital
market securities, such as stocks or bonds.
example: Sun Life Financial s a financial services company providing financial

planning, life insurance, health insurance, investments and more. It is one of the top life
insurance companies offers financial planning, investment options, insurance,
retirement savings & other products.
• Securities Firms - Underwrite securities and engage in securities. Securities firms
provide a wide variety of functions in financial markets. Some securities firms use their
information resources to act as a broker, executing securities transactions between two
parties. Brokerage services and securities firms also provide investment banking
services. Some securities firms place newly issued securities for corporations and
Governments. agencies. Under Securities, Firms are Investment Banks for primary
market and Brokerages for the secondary market.
• Insurance Companies - they provide insurance policies to individuals and firms

that reduce the financial burden associated with death, illness, and damage to property
or assets. They charge premiums in exchange for the insurance that they provide. They
invest the funds that they receive in the form of premiums until the funds are needed to
cover insurance claims. Insurance companies commonly invest the funds in stocks or
bonds issued by corporations or in bonds issued by the government.
example: Philippine Axa Life Insurance Corporation is one of the largest and fastest
growing insurance companies in the country. It offers financial security to close to 2
million individuals through its group and individual life insurance as well as general
insurance products through its wholly-owned subsidiary Charter Ping An.
• Pension funds - offer savings funds for retirement. Many corporations and
government agencies offer pension plans to their employees. The employees, their
employers, or both periodically contribute funds to the plan. Pension funds provide an
efficient way for individuals to save for their retirement. The pension funds manage the
money until the individuals withdraw the funds from their retirement accounts. The
money that is contributed to an individual's retirement accounts is commonly invested
by the pension funds in stock or bonds issued by corporations or in bonds issued by the
govt. Pension funds finance the needs of deficit units and thus serve as important
financial intermediaries.
example: Government Service Insurance System is a social insurance institution

that provides a defined benefit scheme under the law. It insures its members against the
occurrence of certain contingencies in exchange for their monthly premium
contributions.

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UNIVERSITY OF SAN JOSE RECOLETOS

Corner P. Lopez and Magallanes Sts. Cebu City Cebu

ACTIVITY 1: OVERVIEW OF FINANCIAL MARKETS &

1. Financial Institutions serve as the bridge of investors between financial markets.

2. The 3 main depository institutions are:

• Commercial Banks - is a bank that accepts deposits and grant commercial or

example: Banco de Oro (BDO Unibank, Inc. because it is a full-service universal

3. The Non-Depository Institutions:

• Mutual Funds - it pools financial resources and invests in a diversified portfolio.

example: Sun Life Financial s a financial services company providing financial

• Insurance Companies - they provide insurance policies to individuals and firms

example: Government Service Insurance System is a social insurance institution

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