Elfa Preliminary Exam

Elfa, Verlyn B. Prepared by: Atty. Ferdinand B.
Sales
ACCTNG 3A
20181114
PRELIMINARY EXAMINATION QUESTIONNAIRE IN FINANCIAL MARKETS
1. What is the significance of suitability rule embodied in the listing rules of the Philippine
Stock Exchange?
- The suitability rule embodied in the listing rules of the Philippine Stock Exchange is
significant in the sense that it covers the ground for the disqualification of listing
applications.
2. Enumerate areas of suitability rule and then explain.

- The following are the areas of suitability:
• When an Issuer fails to show that its financial situation is stable and that it has
the ability to grow in the future, the steps taken and to be taken in order to
advance its business during a three-year period under the declaration of active
business pursuits and objectives will be utilized to determine chances for
continued growth.
• When there is any major representation or warranty made by the Issuer in its
Listing Application, and any other related papers submitted in connection with
it, has been found to be incomplete, erroneous, or misleading at the time it was
made or deemed to be made.
• When there is considerable doubt about the Issuer's or any of its directors,
executive officers, promoters, or control persons' honesty or capacity.
• When the Issuer engages in activities that are detrimental to the public good,
public morality, good customs, laws, rules and regulations, public order, or
public policy.
• When there is a lawsuit or claim against all or substantially all of the Applicant
Company's property as defined under Section 39 of the Revised Corporation
Code of the Philippines.
• When within the last five (5) years, the Issuer or any of its officers and directors
has been the subject of legal proceedings for payment suspension or other
debt relief, or has otherwise become unable to pay its debts as they mature, or
has made or threatened to make an assignment for the benefit of, or a
composition or arrangement with, creditors or any class thereof, or shall
proclaim an indebtedness moratorium.
• When according to the Rules of Court or other relevant laws, the Issuer has
applied for or consented to the appointment of any receiver, trustee, or similar
officer for its or substantially all of its property; or a competent court, arbitrator,
or government agency appoints such officer for the Applicant Company for all
or substantially all of its property.
• When any new law or regulation, or any change to existing rules or regulations,
that has a meaningful and negative impact on the Issuer.
• When any legislation, rule, regulation, administrative practice, or interpretation
has changed or is about to change in a way that could materially alter any of
the features, yield, or marketability of the securities sought to be listed.
• When the Commission or any government agency issues an order canceling,
terminating, suspending, or otherwise forbidding the Issuer's securities from
being listed.
• When using the criteria under Article 1 Part B of the Listing Rules of Philippine
Stock Exchange, the Exchange has determined that the transaction between
the Issuer and its directors and/or officers constitutes a material conflict of
interest and is harmful to the Issuer.
• When the Issuer does not follow the Exchange's published regulations and
requirements which the Exchange may deem essential and prescribe in the
future.
• When any other incident or condition that, in the Exchange's opinion could
make the Applicant Company's shares ineligible for listing under the Rules, as
determined by the Exchange during its due diligence.
3. Explain the regulatory framework for Investment Companies.

- The regulatory framework for Investment Companies is the Investment Company Act
(R.A. 2629) wherein the word "fund" must be included in the corporate name of
investment businesses requesting for registration, with the principal objective
indicating that they will “act in the business of investing, reinvesting, or trading in
securities or other investment assets.”
4. Explain the regulatory framework for financial markets.

- The regulatory framework for financial markets is the Securities Regulation Code to
create a self-regulating, socially conscious free market; encourage the broadest
possible participation in enterprise ownership; to increase wealth democratization, to
encourage the growth of the capital market; to safeguard investors; to ensure
complete and accurate disclosure of securities; and to reduce, if not completely
eradicate, insider trading and other fraudulent or manipulative methods and practices
that cause market distortions.
5. What are financial markets?

- People, corporations, and institutions that need or have money to lend or invest come
together in financial markets. The financial markets, in a broad sense, are a massive
global network of individuals and financial organizations who may be lenders,
borrowers, or shareholders in publicly traded corporations.
6. Enumerate then explain the classification of financial markets.

- There are various classifications of financial markets. Below are the classifications
recognized in the Philippines:
a. Stock Market
- You can purchase and sell shares in public corporations on the stock
market. Each share has a market value, and when stocks perform well,
investors profit. The major challenge is figuring out which stocks will make
money for the investor.
b. Bond Market
- The bond market can be used by businesses and governments to raise
financing for a project or investment. In a bond market, investors buy bonds
from a company, which then returns the bond amount plus interest to the
investors over a defined period of time.
c. Commodities Market
- Commodities markets are meeting places for producers and consumers
to trade physical commodities such as crops, animals, and soybeans, as well
as energy goods (oil, gas, and carbon credits), precious metals (gold, silver,
and platinum), and "soft" commodities such as gold, silver, and platinum (such
as cotton, coffee, and sugar). Spot commodities markets are those where
physical goods are traded for cash.
d. Derivatives Market
- A derivative is a contract between two or more parties whose value is
determined by the value of an underlying financial asset (such as a securities)
or a group of assets (like an index). Derivatives are secondary securities whose
value is solely determined by the primary security to which they are tied. On its
own, a derivative is useless. Rather than trading equities directly, a derivatives
market trades futures and options contracts, as well as other advanced
financial products, that derive their value from underlying instruments like
bonds, commodities, currencies, interest rates, market indexes, and stocks.
Futures markets are where futures contracts are listed and sold. Unlike OTC
forwards, futures markets are well-regulated, have established contract
parameters, and trades are settled and confirmed by clearinghouses.
7. Distinguish open end investment company with close end investment company.
- Open-end investment companies (what most people think of when they think of mutual
funds) are distributes shares to investors directly, while a close-end investment
company issues a defined number of shares in a closed-end fund through an initial
public offering. Although open-end funds are potentially safer than closed-end funds,
closed-end funds may provide a superior return by combining dividend payments and
capital appreciation. A closed-end fund works similarly to an exchange traded fund
(ETF) rather than a mutual fund.
8. Distinguish stock market with bond market.

- The stock market features central places or exchanges where stocks are purchased
and sold, which is one of the fundamental differences between the bond and stock
markets. Another significant distinction between the stock and bond markets is the
level of risk associated with each. Investors in stocks may be exposed to risks such
as nation or geopolitical risk (depending on where a company conducts business or
is situated), currency risk, liquidity risk, or even interest rate risk, all of which can affect
a firm's debt, cash on hand, and bottom line. Bonds, on the other hand, are more
vulnerable to inflation and interest rate fluctuations. Bond prices tend to fall when
interest rates rise. If interest rates are high and you need to sell your bond before it
matures, you may receive a lower price than when you bought it. You're taking a credit
risk when you buy a bond from a firm that isn't financially healthy. In a situation like
this, the bond issuer is unable to make interest payments, putting the bond issuer at
risk of default.
9. Enumerate the kinds of securities that could be traded in the financial markets.
- The following are the kinds of securities that could be traded in the financial markets:
a. Shares of Stock
- Shares of stock represent a division of a corporation's stock ownership
into units, allowing multiple people to control a portion of the business.
b. Bonds
- Corporations, municipalities, states, and sovereign governments utilize
bonds to fund projects and operations. Bondholders are the debtors, or creditors,
of the issuer.
c. Derivatives
- Derivatives are financial instruments that rely on contractually obligated
cash flows from another investment or index to determine their value.
d. Mutual Funds
- A mutual fund is a type of investment vehicle that pools money from a
number of investors and invests it in stocks, bonds, and short-term loans.
e. Debentures
- A debenture is a non-collateralized bond or other debt instrument. Due to
the lack of collateral, debentures must rely on the issuer's reputation and credibility
for backing. Enterprises and governments regularly issue debentures to raise cash
or funds.
f. Notes
- A note is a legal binding document that represents a loan or investment
made by an issuer to a creditor. Under notes, you must repay the principal amount
borrowed, as well as any predetermined interest payments.
g. Evidence of Indebtedness
- Evidence of indebtedness is a bond, a note, or any other written promise
to pay a public debt.
h. Asset-backed Securities
- The term "asset-backed securities" refers to a group of loans that have
been packaged and sold to investors as securities. Securitized loans include home
mortgages, credit card receivables, auto loans (including loans for recreational
vehicles), home equity loans, student loans, and boat loans.
10. Explain the role of transfer agents in the financial markets.

- When shares are purchased and transferred from the seller to the buyer, the
transaction should be recorded in the stock books of every publicly traded firm, which
keep track of each stockholder's total shareholdings. However, most corporations
have a second agency, known as a transfer agent, keep track of his records. When a
transaction is completed, the company's transfer agent records the facts in a ledger
or record book. As a result, the transfer agents keep ledgers for each issuer business
that list the name and address of each registered shareholder as well as the quantity
of shares they own. When shares are sold, a transfer agent, which can be a
commercial bank or a trust firm, can also revoke old certificates, issue new certificates,
and alter the name of the certificates to the buyer's name.

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Elfa, Verlyn B. Prepared by: Atty. Ferdinand B.

PRELIMINARY EXAMINATION QUESTIONNAIRE IN FINANCIAL MARKETS

2. Enumerate areas of suitability rule and then explain.

3. Explain the regulatory framework for Investment Companies.

4. Explain the regulatory framework for financial markets.

5. What are financial markets?

6. Enumerate then explain the classification of financial markets.

8. Distinguish stock market with bond market.

10. Explain the role of transfer agents in the financial markets.

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