BUSINESS FINANCE-2nd QUARTER -Week3-4.pptx

QUARTER 2- BUSINESS FINANCE

1. Learning Co mpetencies: The Learner is able to compare and contrast the different types of investments ABM_BF12-IVm-n-23

2. Objectives: At the end of the lesson, the learner: Define what a money management philosophy is. Identify and describe various money management philosophies. Compare and contrast different approaches to managing money. Reflect on their own financial beliefs and behaviors.

3. Direction: List five(5) items or activities in the center column that you plan to have or to do soon. Go back and look at each listed item or activity that takes money. Put a check mark in the NEED or WANT column. Write your answers on a separate sheet.

4. In our society, we are bombarded daily with advertisements telling us we need the products being advertised. As a result, many people have trouble distinguishing between needs and wants .

5. NEEDS are basic for your survival. WANTS are desirable to make your life more comfortable.

6. Personal finance is a term that covers managing your money as well as saving and investing. is about meeting personal financial goals, whether it’s having enough for short-term financial needs, planning for retirement, or saving for your college education.

7. It all depends on your income, expenses, living requirements, and individual goals and desires—and coming up with a plan to fulfill those needs within your financial constraints. But to make the most of your income and savings it's important to become financially literate, so you can distinguish between good and bad advice and make savvy decisions

8. Here are some personal finance principles from Money Boss: You are the boss of you. Nobody cares more about your money than you do. It’s always best to be proactive. Saving must be a priority.

9. 5 . Small amounts matter 6 . Slow and steady wins the race. 7 . The perfect is the enemy of the good. 8. Action is the cornerstone of success. 9. Failure is okay.

10. 10. Smart money management is more about mindset than it is about math. 11. You can have anything you want—but you can’t have everything you want. 12. Financial balance lets you enjoy tomorrow and today . 13. It’s more important to be happy than it is to be rich.

11. Money management involves managing all your resources to achieve your goals and objectives. Your time, talents and money are some of those resources. Knowing the differences between your needs and wants will help you manage your money better

12. Money management is the process of budgeting, saving, investing, spending of otherwise overseeing the cash usage of an individual or group. It is also called investment management

13. Inflation is a gradual loss of purchasing power that is reflected in a broad rise in prices for goods and services over time.  High inflation means that prices are increasing quickly, while low inflation means that prices are growing more slowly.

14. Inflation can be contrasted with deflation , which occurs when prices decline and  purchasing power   increases. Why should we be concerned with inflation in terms of money management?

15. If inflation goes up too much, we will not be able to afford the same amount of goods we used to afford. How will you be able to keep the same quality of life?

16. Purchasing Power is the amount of goods and services money can buy. It is the amount of goods or services that they can afford to buy.

17. ACTIVITY 3- BUSFIN Directions: Read & understand the following question and answer it comprehensively.

18. 1. What does “money management” mean to you? 2. What influences your financial decisions—culture, family, goals? 3. Choose at least 2 money management policies that describes and suits your personality.

19. Savings is about safety and accessibility . You’re protecting your money and keeping it available for emergencies or short-term goals. Investing is about growth and risk . You’re putting your money to work in hopes of earning more—but you could also lose some or all of it.

20. 🔗 Similarities Between Savings and Investing 💡 Future-Focused Both are about setting aside money today to meet future goals—whether it's buying a house, funding education, or preparing for retirement. 📊 Require Planning and Discipline You need to budget, make regular contributions, and stay consistent. Whether you're saving or investing, success depends on good habits.

21. 🔗 Similarities Between Savings and Investing Benefit from Time The longer you save or invest, the more you can benefit from compound growth—interest in savings and returns in investments. 💼 Use Financial Tools Both involve placing money into financial products: savings accounts, CDs, or money market accounts for saving; stocks, bonds, or mutual funds for investing.

22. 🔗 Similarities Between Savings and Investing 🧠 Risk Awareness While savings are low-risk and investing carries more risk, both require understanding how external factors (like inflation or market changes) can affect your money. 🎯 Goal-Oriented Whether you're saving for a short-term emergency or investing for long-term wealth, both are tied to specific financial goals.

23. 🔍 Real-Life Analogy Think of savings like a rainy-day umbrella —you want it handy when the storm hits. Investing is more like planting a tree —it takes time, care, and patience, but the payoff can be much bigger in the long run.

24. Objectives for Investing The purpose of investing varies from one person to another. Yet, it is essential to comprehend the main objectives of investment. These objectives guide investors in deciding the type of investment that is appropriate for them. People generally invest their money for financial safety, income, and growth.

25. OBJECTIVES FOR INVESTING SAFETTY OF MONEY MONEY GROWTH SOURCE OF INCOME

26. Safety of Money Some people invest to safekeep their money. However, no investment is risk-free. The engagement with a specific type of investment depends on the investor's risk tolerance. If an individual's primary objective is safety and security, the investment must have minimal risk. Investment with small returns is the safest investment.

27. 2. Source of Income People who want to have other sources of income aside from their wages or salaries put their money into revenue-generating investments. This way, their salaries cover their present needs, and their investments will be used for future needs.

28. 3. Money Growth Businesses are established with the expectation of earning profits. Similarly, investment involves capital appreciation, a long-term goal that helps investing entities guarantee their financial future. Real estate, mutual funds, commodities, and stock are the most vital assets for long-term growth.

29. 1. Security or Property Investments can be classified as either securities or property. Security represents ownership or indebtedness of a business. Companies and governments can issue securities; thus, investors have the right to financial claims over the organization's assets. Common examples of securities issued are stocks for ownership of a business and bonds for a company's indebtedness. On the other hand, a property is a tangible investment. These properties can be categorized into real property or tangible personal property.

30. 2. Direct and indirect investments present the manner of acquisition of the investment. An investment is considered a direct investment when the investor acquires the financial asset directly from the company. On the other hand, indirect investment is acquired through the aid of a financial intermediary or person

31. 3. Debt, Equity, and Derivative Securities Investments can also be classified according to the source of financing. Debt securities refer to financial obligations to investors for letting the organization borrow funds from them. In exchange for these funds, debt securities are issued plus interest. One of the most common debt instruments is a bond

32. Equity securities represent ownership of a business. When a company issues equity securities to an investor, the latter has the legal right to claim interests in the business. The common equity securities are stocks. Derivatives derive their value from another underlying asset. Examples of derivative securities are futures and options.

33. 4. Low- and High-Risk Investments The most common way of classifying investments is through risk-level identification. Low-risk investments are more secured and stable in terms of their yields. However, this type of investment gives low returns as well. One of the most common low-risk investments is a bank deposit. People usually deposit their money in banks that yield low-interest incomes. Still, they are sure the bank will return their money safely because they are secured.

34. 4. Low- and High-Risk Investments On the other hand, high-risk investments may not regenerate income nor be returned to investors. An example of a high-risk investment is a stock investment. Due to the price volatility of stocks, there is a high chance that their funds may increase or decrease in value.

35. 5. Short-term and Long-term Investments When investments are classified according to their maturity, they could be either s hort-term or long-term. Short-term investments mature within twelve months or a year. An example of this is a time deposit. Most time deposits mature between 30 days, 60 days, 90 days, 180 days, or 360 days. In contrast, long-term investments mature longer than a year or those investments that lack the specificity of the maturity date.

36. 6. Domestic and Foreign Investments Investments can also be classified into domestic or foreign investments. Domestic investments are those securities that home-grown company's issue. If, for instance, the stocks you have invested in are issued by a local company, it is considered a domestic investment. On the one hand, foreign investments are those securities that foreign-based company's issue

37. Activity 2. Answer the following questions using your own understanding and knowledge. (1 whole sheet of paper) (5 points each) 1. What factors should an individual consider before making an investment? 2. Why Is Investment Important in Personal Financial Planning? 3. How emotions like fear and greed can impact decisions. 4. If You Were Given 10,000 today, How Would You Invest It and Why?

38. Learning Objectives By the end of this lesson, learners will be able to: Define investment risk and explain its importance Identify different types of investment risks Understand the risk-return tradeoff Learn strategies to manage and mitigate risk

39. What Is Investment Risk? Investment risk refers to the possibility of losing money or not achieving expected returns from an investment.

40. Why It Matters? Every investment carries some level of risk. Understanding it, helps investors make informed decisions and align their choices with their financial goals and risk tolerance.

41. Investments are the means to achieve one’s financial goals. While individuals want risk-free investments that would yield higher returns, this notion is considered “too good to be true.” And so, as the risks increase, investors must decide which investment is suitable for their financial needs and goals.

42. Different Investment Risks

43. 1. Business Risk Business risk refers to uncertainty surrounding an investment's revenues and ability to deliver the expected returns (interest, principal, and dividends). For example, investors may receive no return if the firm's earnings are insufficient to pay obligations. On the other hand, creditors are likely to receive some (but not all) of the money owed to them due to the special treatment that debt receives under the law.

44. 2. Market Risk Market risk refers to the possibility that investment returns would suffer from events influencing the entire market rather than just one firm or investment. Political, economic, and social upheavals and changes in investor tastes and preferences are examples of market risk. Market risk encompasses a variety of concerns such as purchasing power, interest rate, and tax risk. For Example, Stock prices falling

45. 3. Financial Risk Financial risk is the more significant uncertainty arising when a company borrows money. The more debt a company uses relative to its assets and profits, the bigger its financial risk. Businesses in all industries are exposed to the ups and downs that are called business risk , but companies that employ more debt are at an even higher risk

46. When a company borrows money, it agrees to make future interest and principal payments. This commitment is not dependent on its profits but is set by a contract between the company and its lender. When business conditions are excellent, and profits are good, shareholders benefit from the earnings from the additional fund acquired from debt.

47. 4. Liquidity Risk Liquidity risk refers to being unable to sell or liquidate an investment fast enough without l owering its price. A liquid investment is one that investors can sell rapidly without lowering its price. For instance, security purchased for ₱ 100,000 would not be considered highly liquid if one could only sell it promptly for, say, ₱ 95,000. The liquidity of an investment is an essential factor to consider in investing decisions.

48. 4. Liquidity Risk Risk of not being able to sell an asset quickly without . Real estate during downturn

49. 5. Exchange Rate/ Currency Risk Exchange rate risk refers to the possibility that an unexpected change in the exchange rate between the foreign and the local currency in which a project's cash flows are denominated could lower the cash flow's market value. If the local currency depreciates against the dollar, the dollar worth of future cash inflows can be substantially affected.

50. 6. Country risk is the possibility that a country will experience political or economic instability that could adversely affect the performance of an investment.

51. Country risk can be divided into four categories: Political risk: the risk that a country will experience changes in its government or policies that could negatively impact investments Risk from changes in laws or government policies 2. Economic risk: the risk that a country will experience economic downturns or instability that could adversely affect investments

52. 3. Social risk: the risk that a country will experience social unrest or upheaval that could adversely affect investments 4. Natural disaster risk: the risk that a country will experience natural disasters, such as earthquakes, hurricanes, or floods, could adversely affect investments

53. The Risk-Return Tradeoff Core Principle: Higher potential returns usually come with higher risk. Low Risk = Low Return (e.g., savings accounts, government bonds) High Risk = High Return (e.g., stocks, cryptocurrencies)

54. Visual Analogy of Investment Risk: Think of it like climbing a mountain—the higher you go (return), the steeper and riskier the path becomes.

55. Managing Investment Risk

56. Here are some smart strategies to reduce or manage risk: Diversification: Spread investments across different asset classes (stocks, bonds, real estate) Asset Allocation: Match your portfolio to your risk tolerance and time horizon

57. Research & Analysis: Understand what you're investing in Risk Assessment Tools: Use metrics like beta, standard deviation, and Value at Risk ( VaR ) Stay Informed: Monitor economic indicators, news, and market trends

58. Activity 3. Answer the following question with your own knowledge and ideas. 1. What’s your investment time horizon? 2. How would you feel if your investment dropped 20% in value? 3. Are you more focused on growth or stability?

59. PETA #1 Reflect on your personal values, financial goals, and comfort with uncertainty by answering the question using mind map. “Is it ever worth taking high risks for high returns? Why or why not?” What arguments support each side? What evidence or examples can you use? What arguments support each side? What evidence or examples can you use?

60. Understanding the Investment Risk Ladder Here are the major asset classes, in order of ascending risk, on the investment risk ladder:

61. 1. Cash A bank deposit is the safest and easiest investment asset to understand—it's also usually the first one we have. It not only gives investors a detailed account of the interest that they'll earn but also guarantees that they’ll get their capital back.

62. 2. Bonds A  bond  is a debt instrument representing a loan made by an investor to a borrower. A typical bond will involve either a corporation or government, where the borrower will issue a fixed interest rate to the buyer of the bond in exchange for using their capital.

63. 3. Mutual Funds A  mutual fund  is a big investment pool where many people put their money together and hand it to a professional money manager that buys stocks, bonds, or other investments on their behalf. In return, you get shares proportional to how much you put in for the immense pool of assets.

64. 4. Exchange-Traded Funds (ETFs) Exchange-traded funds (ETFs)  have grown significantly in popularity since their introduction in the early 1990s. ETFs are like mutual funds but trade throughout the day on a stock exchange. So, you can trade them just like shares of Apple Inc. ( AAPL ) or another publicly traded company. This also means that their value rises and falls as the trading day goes on.

65. Feature Explanation Diversification One ETF can hold many different stocks or bonds , spreading out risk. Traded Like Stocks You can buy and sell ETFs on the stock market during trading hours. Low Fees Most ETFs have lower fees than mutual funds because they are passively managed. Transparency Most ETFs publish their holdings daily , so you know exactly what you're investing in. Flexibility Can be used to invest in different sectors, countries, or asset types. :

66. 5. Stocks When you buy a stock, you're buying a tiny piece of ownership in a company. If you own Apple stock, for example, you really are a part-owner of the company—even if it's just a modest amount.