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. 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
10. Properties of Money
Unit of Account
This means that goods and
services can be valued easily in
one term of measurement, such
as dollars.
11. Properties of Money
Medium of Exchange
This means that we can use
money to exchange for goods
and services instead of barter.
12. Properties of Money
Store of Value
This means that we can delay
our purchases or save for
future spending.
13. 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
14. Significance of Money
Money and Production
Money and Trade
Money and Wages
Money and Economic Growth
15. 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.
17. The Monetary Theory: Definition
The theory that relates changes in the
quantity of money to changes in economic
activity at the price level.
18. Money Supply
Money supply is the total value of money that
circulates in the economy.
19. The Financial System
The financial system is a network of institutions
allowed by law to create, circulate, and control
money in a country.
20. Banking and the Money Supply
Banks create money…
… not by printing money but
through lending.
21. Categories of Financial Institutions
1. 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
22. Categories of Financial Institutions
1. Non – banks – pawnshops, insurance companies,
securities dealers, investment houses, lending
investors
2. Non – banks maintained by the government – SSS,
GSIS, Pag – ibig Fund
23. 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.
24. 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 Money
7. Others: Trade*, Remittances*, Foreign Debt Servicing
25. Monetary Instruments’ Effect on Money
Supply
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
26. Monetary Instruments’ Effect on Money
Supply
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
27. Monetary Instruments’ Effect on Money
Supply
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