1. Banking and
Financial Institutions
Mahal Arce Lebanan

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

4. History

7. jiaozi

8. Types of Money
 Bank Notes  Coins
- Paper currencies - Made of precious and/or
semi-precious metals

9. Properties of Money
Unit of Account
Medium of Exchange
Store of Value

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.

16. Monetary Theory

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