SECURITIES
ng investment.
 Form of ownership that can be easily traded on
a secondary market
 It allow investors to own the underlying asset
without taking possession.
Marketable Securities
Securities than can be convert into cash in the near
term.
The liquidity of marketable securities - is
magmamatured sya ng less than one year, and yung
rates na related sa security that can be bought or sold ay
may little effect lang sa price.
Marketable securities are classified as either a
marketable equity security or a marketable debt
security.
 marketable equity security – an entity’s
ownership of other companies’ common stocks
 marketable debt security – these are bonds
issued by corporations, municipalities, and the
government
Reasons for Holding Marketable Securities
• They serve as a substitute for cash balances –
yun ginagamit ang marketable securities as
substitute sa mga cash balance, yung mga
diniscuss kanina isa na ditto yung precautionary
balanace, na diniscuss ko
• They are held as a temporary investment –
• They are built up to meet known financial
requirements – since mabilis iconvert ang
marketable securities into cash , madali mo na
ring mababayaran yung mga financial
requirement such as yung mga tax payment and
maturing bond issue.
Factors influencing the choice of Marketable Securities
 Risk -
1. Default Risk – kind of risk na kung saan
si Borrower ay hindi makapagbayad ng
principal at interest on time.
2. Interest rate risk – risk na if may chance
na magkaroon ng unexpected change sa
interest rate ay pwedeng magkaroon ng
either positive or negative effect sa value
Interest rate risk ang pinakang
naapektuhan nito yung mga bonds kaysa
sa mga stocks, and it is a major risk to all
bondholders. As interest rates rise, bond
prices fall, and vice versa.
EXAMPLE:
Halimbawa nagpurchase ka bond from
Company XYZ. And then nagkaroon ng
unexpected increase in interest rates
ibig sabihin yung investment mo baba
ang value. So, If you expect na ibenta na
lang yung bond before it matures, ang
mangyayari since tumaas ang interest
rate, ibebenta mo yung bond na mas
mababa sa price kung magkano mo sya
binili.
 Of course, the magnitude of
change in the bond price is also
affected by
the maturity, coupon rate, its
ability to be called, and other
characteristics of the bond.
3. Inflation risk
Inflation is the rate at which the general level of
prices for goods and services is rising and, consequently,
the purchasing power of currency is falling
Halimbawa:
2017 – ngayon yung value ng 1000 mo kapag
bumili ka ng damit, makakabili ka ng tatlong damit then
2019, biglang nagkaroon ng inflation, so tumaas ang
presyo ng mga damit,ngayon ang purchasing power o
value ng 1000 mo, ang kaya na lang bilhin ay isang damit.
So dito pinapakita lang na Malaki ang impact ng
inflation sa mga investment , kaya ang inflation risk ay
tinatawag ding purchasing power risk dahil yung cash
flows from an investment ay hindi na magiging worth as
much in the future because of changes in purchasing
power due to inflation
4. Marketability (Liquidity Risk)- nangyayari
sya kapag ang isang individual investor,
business or financial institution ay hindi
 kayang ma-meet yung mga short-term
debt obligations or hindi kayang iconvert
yung security into cash for a short
period of time or hard
asset to cash without a loss
of capital and/or income in the process.
5. Event Risk - risk of a negative impact on
a company's financial position as a result
nung mga unexpected event like a
natural disaster, industrial accident
or hostile takeover.
Example: The terrorist attack on September 11, 2001
was a massive external event which disrupted business
activities and caused huge shareholder losses in the
airline and financial services industries.
 Maturity
Recall lang natin di ba ang price ng debt
securities katulad ng bond pwdeng magdecrease
kapag ang interest rates ay tumaas and then
increase kapag interest rates ay bumaba. For a
given change in interest rates, prices of longterm
securities fluctuate more widely than prices of
short-term securities with equal default risk. Yun
nga mas mabilis magbago ang price ng mga
long-term securities as compared sa short term.,
if ever na may change sa interest rate. Kaya
yung mga investor na may mga long-term
securities, they are exposed to a greater risk of
loss if the securities have to be sold prior to
maturity.
Kaya mas maganda daw na mag-invest sa mga securities
na ang maturity date is in less than 90 days. Dahil ang
mga Short-term investments they carry less return than
long-term investments, since the default risk and the
interest rate risk are minimized with short-term
instruments.
 Yield or Return on Securities
The criterion must involve an evaluation of the
risks and benefits inherent in different securities.
If a given risk is assumed, such as lack of liquidity,
a higher yield may be expected on the less liquid
investments.
The higher a security’s risk, the higher its required
return
Isa sa mga factor ay rate of return: Di ba lahat ng
investment may certain level of risk, and then yung
return is not guaranteed. Kaya kailangan nating
iconsider ang rate of return sa pagpili ng mga
securities, and then dito ang mga investor should
understand yung degree nung risk na pwde nilang
maencounter sa kanilang mga investments o gaano
sila kawilling na irisk yung kanilang pera inexchange
for potential gain or in worse case loss. But in
general mas maganda dw mag-invest duon sa mga
security na mataas yung risk, dahil mataas din yung
rate of return na pwde mong makuha.
Types of Marketable Securities
Two Major Type of Money Market Instruments
1. Discount Paper- are money market instruments
that are issued at a value less than (or
“discounted” from) their stated face value and
mature for their face value.
Discount instruments include
 Treasury bills,
 commercial paper, and
 Bankers acceptances.
2. Interest-bearing securities - A fixed-interest
security is a debt instrument such as a bond,
debenture, or gilt-edged bond that investors use
to loan money to a company in exchange for
interest payments.
Treasury Bills
 are short-term security with maturity of less than
one year
 Treasury bills are one of the safest forms of
investment because they are backed by the
government. They are considered risk-free.
 these are government bonds or debt securities
  Katulad din ng commercial paper, treasury bill are
issued at a discount and investors get a face value
on maturity
Other Short-Term Commercial Papers Issued by
Finance Companies and Other Corporation
 an unsecured form of promissory note that
pays a fixed rate of interest,. Type of security
na wala syang mga collateral
 Ang commercial paper typically iniissue sya
ng mga large banks or corporations to cover
short-term receivables and meet short-term
financial obligations, such as funding for a
new project
 One of the advantage of commercial paper
is hindi na sya kailangan pang iregister sa
Securities and Exchange Commission
(SEC) as long as it magmamature ito before
nine months, or 270 days. Kaya ang
commercial paper ay kinoconsider as a very
cost-effective means of financing.
 Yung proceeds mula ditto sa commercial
paper ay pwede lang gamititn sa mga
current assets, or inventories, at hindi sila
pwedeng gamitin sa mga fixed assets, such
as a new plant, ng walang SEC involvement.
Negotiable Certificate of Deposit
 Ito po ay time deposit
 It is an agreement between kay depositor at
kay bangko. So ditto, si depositor
magdedeposit sya ng pera for a fixed period
sa bangko na magbabayad naman sa kanya
ng interest, bilang kapalit.
 Makaka-receive ka ng mas mataas interest
rate kapag mahaba yung time commitment
dun sa fund na dineposit mo sa bangko
 Kapag meron kang certificate of deposit,
willing ang mga bangko na magbayad sayo ng
mataas na interest, since may fixed term na
napagkasunduan kung kailan pwedeng
withdraw ni depositor ang kanyang pera. So
yung pera ay ipapahiram muna ni depositor
sa bangko for a longer period, and then yung
pera pwede ng gamitin ng bangko for a
longer-term investment like loans., and as a
reward para sa mga depositor, yung bangko
willing silang magbayad ng mataas na
interest.
 Pero paano kung winitdraw mo na kaagad
yung pera sa bangko before yung term na nap
agkasunduan nyo, dito kailangan mong
magbayad ng early withdrawal penalty
 Yung penalty pwedeng ibawa s mula duon sa
naearned mo na interest or kung kulang
pwede ding mabawasan yung initial deposit
mo. Kaya mas better daw po na magdeposit
sa savings account, kasi if may time na
kailanganin mo yung pera., madali kang
makawithdraw.
 Kasi ang pagkakaiba ng Savings accounts sa
CSD. Sa savings account pwede kang
magdeposit and pwde mo ring iwithdraw
yung pera any time while sa CSD, since time
deposit nga sya, meron kayong fixed term na
napagkasunduan, para maaccess or
mawithdraw yung perang dineposit mo
kailangan mo munang magbayad ng penalty,
for the breach of contract.
Repurchase Agreement
 A repurchase agreement is the
equivalent of a short-term, collateralized
loan.
 Yung owner nung marketable securities
ibebenta yung securities sa a buyer for
cash.
 As part of the deal, si seller at si buyer
ay nagkaroon ng agreement na kung
saan si seller irere-purchase nya yung
the securities in the future, and then si
buyer, ibebenta nya naman yung
securities kay seller in the
future,(reverse repurchase agreement).
 So yung price na ibabayad
to repurchase the securities ay mas
mataas than the original selling price.
Yung difference between the original
price and the repurchase price is
equivalent to interest.
 Kaso meron ding risk ang repurchase
agreement: what if si original seller ay
hindi na kayang repurchase yung
securities. In that case, si buyer may
right syang ibenta yung securities sa
market.
'Banker's Acceptance
 a short-term debt instrument issued by a
company that is guaranteed by a commercial
bank.
 Banker’s Acceptance is a time drafts
 a type of short-term credit na ginagamit
for financing transactions of goods in
international trade
 The financial institution promises to pay the
exporting firm a specific amount on a specific
date, at which time it recoups its money by
debiting the importer’s account.
 Halimbawa gusto magpurchase ng goods ni
Phillippines mula sa Japan, ditto ang importer
Reducing the need for precautionary balance
natin ay ang Pilipinas at ang exporter ay ang
Japan. Kapag nag-issue ng banker’s acceptance
ang Philippines that is guaranteed by the bank.
 Bali ang mangyayari, si Bangko muna ang
magbabayad nung specific amount nung lahat
ng goods na binili ni Philippines, on a specific
date. After mabayaran ng Bangko si exporter
(JAPAN), ang sisingilin nya na ay si Importer
(Phillippines). Dito sa Banker’s Acceotance, since
it is a time draft, yung bangko allow si buyer
(Phillippines) a delay in payment after accepting a
shipment of exported goods.
Money Market Mutual Fund
 Money market funds are fixed income mutual
funds that invest in debt securities characterized
by short maturities and minimal credit risk.
 Ang money market fund ay isang investment na
ang objective ay mag-earn interest para sa mga
shareholders while maintaining a net asset value
(NAV) of P1 per share
 Net Asset Value = (A-L) / No. of Shares
 NAV –ito yung fund's value na pwdeng makuha
ni investor once na winithdraw nya na yung
kanyang perang dineposit.
 Money market mutual funds nag-ooffer sya ng
convenient parking place for cash
reserves kapag si investor ay hindi pa ready mag-
investment or is anticipating a near-term cash
outlay for a non-investment purpose.
Precautionary Balance
 Cash held for emergencies or an unexpected
outflow of funds is referred to as precautionary
balances.
 Ito yung mga cash na tinatabi para sa mga
unforeseen emergency.
 Halimbawa ay yung mga cash receipts and cash
payments sa isang company na kung saan they
cannot be perfectly foreseen, kaya di ba minsan
nagkakaroon di ng mga fraud. Kaya yung ibang
mga company naghohold sila ng mga
precautionary balances to minimize the potential
loss arising from a contingency.
1. More accurate cash budgeting
- Dapat yung estimation ng cash inflows
and outflows ay accurate
 Cash budgets are generally used to estimate
whether yung isang company ba ay may
sufficient amount of cash to uphold yung mga
regular operations.
 Since meron tayong cash budgeting, Kapag
malapit ang amount ng cash inflows at cash
outflows, the more certain daw po yung
forecasts, and the less need for precautionary
balances.
2. 'Line Of Credit’
- dapat mag-established ng maximum
amount of a loan that the customer can
borrow.
- Dito po sa line of credit si borrower
pwede nyang ma-access yung funds
from the line of credit at any time, as
long as hindi nya maexceed yung
maximum amount set in the agreement
and meets any other requirements, such
as making timely minimum payments.
- Maganda rin na may line of credit para
mamonitor at macontrol mo yung mga
cash outflows.
3. Temporary investments
- are securities that can be sold in the
near future.
- Mas maganda daw pong mag-invest sa
mga highly liquid securities, mga
securities na mabilis iconvert into cash
 kaysa sa maghold ng mga idle
precautionary cash balance.
- Dahil kapag nag-invest ka sa mga short-
term securities, yung fund na itatabi mo
ay mag-eearn pa ng interest.