banking and finance
Post on 06-May-2015
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Banking and Financial
InstitutionsMahal Arce Lebanan
BankingBanking
Business activity of accepting and safeguarding money owned by other individuals and entities.
FinanceFinance
Concerned with resource allocation as well as resource management, acquisition and investment.
Deals with matters related to money and the markets.
MONEY A medium that
can be exchanged for goods and services and is used as a measure of their values on the market.
Legal tender
jiaozi
Types of Money
Bank Notes- Paper currencies
Coins- Made of precious
and/or semi-precious metals
Properties of MoneyUnit of AccountMedium of ExchangeStore of Value
Properties of Money
This means that goods and services can be valued easily in one term of measurement, such as dollars.
Unit of Account
Properties of Money
This means that we can use money to exchange for goods and services instead of barter.
Medium of Exchange
Properties of Money
This means that we can delay our purchases or save for future spending.
Store of Value
Characteristics of Money Durable Divisible Convenient and Portable Consistent Possess value in itself Limited in the quantity that is
available Has a long history of acceptance
Significance of Money
Money and ProductionMoney and TradeMoney and WagesMoney and Economic Growth
Categories of Money
M1 (Narrow Money) – money that circulates in the economy (used for daily transactions) – coins and paper bills.
M2 (Quasi – money) – M1 + other forms of money which may be used as a basis of exchange and store of value (money substitutes) – checks, savings deposits, time deposits, credit cards.
M3 (Broad Money) – M2 + government securities – Treasury Bills (T – bills), bonds, notes.
Monetary Theory
The Monetary Theory: Definition
The theory that relates changes in the quantity of money to changes in economic activity at the price level.
Money Supply
Money supply is the total value of money that circulates in the economy.
The Financial System
The financial system is a network of institutions allowed by law to create, circulate, and control money in a country.
Banking and the Money Supply
Banks create money…
… not by printing money but through lending.
Categories of Financial Institutions1. Banks – institutions that accept deposits from
more than 20 persons, organizations, and corporations.- Commercial banks – privately owned banks.- Rural banks – lending institutions for the rural areas.- Thrift banks – savings and loan associations- Specialized Government banks – maintained by the government to provide money for the development of the agri sector – LBP, DBP, AAIB
Categories of Financial Institutions2. Non – banks – pawnshops, insurance
companies, securities dealers, investment houses, lending investors
3. Non – banks maintained by the government – SSS, GSIS, Pag – ibig Fund
The Central Bank (BSP)
Government agency which has authority and responsibility over the entire financial system of the country.
Called the “bank of all banks”. Sets the general guidelines, rules and
regulations regarding the operations of banks and other financial institutions.
Incharge with the management of foreign currency reserves, gold, local and foreign debts.
Sole printer and responsible for the issuance of the Philippine currency.
Instruments (Tools) of the BSP NOTE: Use of these instruments may increase or
decrease money supply:1. Open Market Operations – BSP buys and sells
government securities.2. Reserve Requirement – certain percentage of the
bank’s assets are deposited in the BSP.3. Discount Rates/Discount Window/Rediscount Rate –
rate at which financial institutions can borrow from the BSP.
4. Moral Suasion – BSP begs from financial institutions not to charge higher interest rates to borrowers.
5. Printing or Minting Money6. Others: Trade*, Remittances*, Foreign Debt
Servicing
Monetary Instruments’ Effect on Money Supply Open Market Operations
BSP buys securities – increase in MsBSP sells securities – decrease in Ms
Reserve Requirement BSP increases RR – decrease in MsBSP decreases RR – increase in Ms
DR/DW/RdR BSP increases rate – decrease in MsBSP decreases rate – increase in Ms
Monetary Instruments’ Effect on Money Supply Moral Suasion
BSP increases Moral Suasion – increase in MsBSP decreases Moral Suasion – decrease in Ms
Printing or Minting MoneyBSP increases printing/minting money – increase in MSBSP decreases printing/minting money – decrease in MS
Monetary Instruments’ Effect on Money Supply Foreign Debt Servicing
BSP pays Local Debts – increase in MsBSP pays Foreign Debts – decrease in Ms
*Others: TradeX˃M – increase in MsM˃X – decrease in Ms
*Others: RemittancesMore Remittances – increase in MsLess Remittance – decrease in Ms
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