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TASK PERFORMANCE
IN
FINANCIAL MANAGEMENT
(PRELIM PERIOD)
MEMBERS CONTRIBUTION
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Financial Market and Institutions
Assume that you recently graduated with a degree in finance and have just reported
working as an Investment adviser at the brokerage firm of Mac & Co. Your first
assignment is to explain the nature of the Philippine financial markets to Pedro Juan,
a professional basketball player. He recently came to the Philippines from the United
States. Juan is a highly ranked basketball player who expects to invest substantial
amounts of money through Mac & Co. He would like to understand in general terms
what will happen to his money. Your boss has developed the following questions that
1. Discuss the three (3) primary ways in which capital is transferred between savers
and borrowers.
indirect transfers through a financial intermediary are the three main methods that
government sells its securities directly to the savers. Then, the business will deliver
the securities to the savers, who, in return, will give the firm the money it needs. On
the other hand, indirect transfers may go through investment bankers or a financial
intermediary. They can go through an investment bank like Goldman Sachs, which
underwrites the issue. An underwriter serves as the middleman and facilitates the
issuance of securities. The company sells its bonds or stocks to the investment
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bank, which will also sell these same securities to savers. In addition, this is a
primary market transaction because new securities are involved and the
corporation receives the proceeds of the sale. Lastly, indirect transfers happen
buys its own assets from depositors in exchange for money. The intermediary then
spends this cash on buying and holding securities from firms, and the investors
Financial markets really play a huge role in our economic growth. Without
services. We all know that financial markets can provide more profit for our
business. In financial markets, we can have transactions with different people and
3. Suppose Apple decided to issue additional common stock, and Juan purchased
100 shares of this stock from Mac & Co., the underwriter. Would this transaction
stocks from Mac & Co., but they already bought the stock from Apple. Secondary
markets are where buyers go to the investors who bought the stocks from the
issuing company. Therefore, Juan went directly to the investor to buy the stocks.
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4. Would it make a difference if Juan purchased previously outstanding Apple
No, since Juan bought the Apple stock from the dealer, it will be a
secondary market because the stock that he bought from the dealer is not a new
5. What does it mean for a market to be efficient? Explain why some stock prices
There are many participants, open information, and few obstacles to trading. An
reasonable regulation that is not overly burdensome. Even in a market with great
efficiency, some stock prices could be more efficient than others. This generally
happens with businesses that see greater trade activity, which typically results in
greater price discovery. On the other hand, sparsely traded stocks could not show
6. After your consultation with Pedro Juan, he wants to discuss these two (2) possible
stock purchases:
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TV network say that a particular medical research company just received Food
and Drug Administration (FDA) approval for one of its products. Based on this
“hot” information, Pedro Juan wants to buy many shares of that company’s
stock. Assuming the stock market is highly efficient, what advice would you
give him?
I would advise him to continue his plan to buy many shares of that
company's stock since the market is highly efficient, which means that the price
is close to intrinsic value and the stock is in equilibrium, which also means that
Pedro can purchase a stock and expect something good in return, or get
Unless the market is inefficient, it would lead to a poor allocation of capital and
economic stagnation.
this item is, according to the most effective version of EMH, there are no gains
because stock represents all information that is available to the public, and no
gains can be made on this stock. Its pricing already includes information.
b. He has read several newspaper articles about a huge initial public offering
purchase as many shares in the IPO as possible and would even be willing to
buy the shares in the open market immediately after the issue. What advice do
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It is very risky to make an investment in something that you
don't have that much information on. He should have more information about it
before investing so he can understand the risks that he can possibly encounter
Moreover, the shares are in demand, so the prices could be a little higher, and
when investing, we want to make sure that the value of the shares will grow
even more in the future. Investing all your money in one place is not that good
because it means all or nothing. If your investment does not pay off, you will
IPOs well, so he will not make any mistakes when investing. There will always
be risks, but what you need to do to prepare is to be ready and have sufficient
knowledge about the risks that could possibly happen. First public offerings
(IPOs) are not always well received. In spite of finding a It is usually impossible
to buy shares in the initial offering, a common issue. These sales are
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Rubric for Grading:
INDICATORS TS
scenarios
TOTAL 5
Reference
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