Banking Finance Business activity of Concerned with accepting and resource allocation as safeguarding money well as resource owned by other management, individuals and acquisition and entities. 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
Types of Money Bank Notes Coins - Paper currencies - Made of precious and/or semi-precious metals
Properties of MoneyUnit of AccountMedium of ExchangeStore of Value
Properties of Money Unit of AccountThis means that goods andservices can be valued easily inone term of measurement, suchas dollars.
Properties of Money Medium of ExchangeThis means that we can usemoney to exchange for goodsand services instead of barter.
Properties of Money Store of ValueThis means that we can delayour purchases or save forfuture spending.
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 Production Money and Trade Money and Wages Money 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.
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 Institutions1. Non – banks – pawnshops, insurance companies, securities dealers, investment houses, lending investors2. 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:2. Open Market Operations – BSP buys and sells government securities.3. Reserve Requirement – certain percentage of the bank’s assets are deposited in the BSP.4. Discount Rates/Discount Window/Rediscount Rate – rate at which financial institutions can borrow from the BSP.5. Moral Suasion – BSP begs from financial institutions not to charge higher interest rates to borrowers.6. Printing or Minting Money7. Others: Trade*, Remittances*, Foreign Debt Servicing
Monetary Instruments’ Effect on MoneySupply Open Market Operations BSP buys securities – increase in Ms BSP sells securities – decrease in Ms Reserve Requirement BSP increases RR – decrease in Ms BSP decreases RR – increase in Ms DR/DW/RdR BSP increases rate – decrease in Ms BSP decreases rate – increase in Ms
Monetary Instruments’ Effect on MoneySupply Moral Suasion BSP increases Moral Suasion – increase in Ms BSP decreases Moral Suasion – decrease in Ms Printing or Minting Money BSP increases printing/minting money – increase in MS BSP decreases printing/minting money – decrease in MS
Monetary Instruments’ Effect on MoneySupply Foreign Debt Servicing BSP pays Local Debts – increase in Ms BSP pays Foreign Debts – decrease in Ms *Others: Trade X˃M – increase in Ms M˃X – decrease in Ms *Others: Remittances More Remittances – increase in Ms Less Remittance – decrease in Ms