Banking and Finance


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Banking and Finance

  1. 1. Banking andFinancial Institutions Mahal Arce Lebanan
  2. 2. 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.
  3. 3. 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
  4. 4. History
  5. 5. jiaozi
  6. 6. Types of Money Bank Notes  Coins - Paper currencies - Made of precious and/or semi-precious metals
  7. 7. Properties of MoneyUnit of AccountMedium of ExchangeStore of Value
  8. 8. Properties of Money Unit of AccountThis means that goods andservices can be valued easily inone term of measurement, suchas dollars.
  9. 9. Properties of Money Medium of ExchangeThis means that we can usemoney to exchange for goodsand services instead of barter.
  10. 10. Properties of Money Store of ValueThis means that we can delayour purchases or save forfuture spending.
  11. 11. 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
  12. 12. Significance of Money Money and Production Money and Trade Money and Wages Money and Economic Growth
  13. 13. 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.
  14. 14. Monetary Theory
  15. 15. The Monetary Theory: Definition The theory that relates changes in the quantity of money to changes in economic activity at the price level.
  16. 16. Money Supply Money supply is the total value of money that circulates in the economy.
  17. 17. The Financial System The financial system is a network of institutions allowed by law to create, circulate, and control money in a country.
  18. 18. Banking and the Money Supply Banks create money… … not by printing money but through lending.
  19. 19. 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
  20. 20. 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
  21. 21. 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.
  22. 22. 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
  23. 23. 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
  24. 24. 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
  25. 25. 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