2. Causes of Income Inequality
1. intelligence and talents
-individuals who are more intelligent and talented are more likely
to earn more income.
2. education and training
-those with higher levels of education and training generally gets
higher income.
3. unpleasant and risky jobs
- individuals are forced to take dirty and risky jobs in order to
have 3meals in a day.
3. 4. ownership of productive factors
- families who owned most of the productive factors like land,
machines, buildings and so forth are the ones that are rich for they
earn big income from their properties.
5. luck and connections
- example of these are those who earn big amount of money in
lotteries.
- aspirants in business, first thing that they are doing is to first
established connections to the prospects so it would be easy for them
to introduce the business to them.
4. Money- is anything that is commonly used and generally accepted as
medium of exchange or as a standard of value (Kent, 1970)
The introduction of money eliminated the disadvantages of the
barter system.
The exchange of goods became faster…people had started to
specialize on their products.
5. .Different Definitions
• Hyman defines money as “anything that is generally accepted as
payment for goods and services”
• Cargill, is “anything used to make payment, for a good, a service or a
debt obligation.” – includes third object of payment: debt obligation
• Kidwell and Peterson as “a generally acceptable medium of
exchange.”
6. Money serves the following functions
1. Medium of Exchange –anything that is used or understood as medium of
exchange
- in the absence of money, people are forced to trade goods with goods.
-And since it wont always happen that both party will agree with the certain
terms to barter
-thus inhibit/restrain the expansion of trade, and economic development
will be difficult to attain.
With the use of money, exchange can take place even if there are no
coincidences of wants.
Thus a hog raiser who does not own a goat will just have to sell his pig and accept
money as payment. Later, he can use the money as payment for anything he
desires including a goat.
As exchange are facilitated with the use of money, trade expansion is expected.
7. 2. Standard of value- this is also known as unit of
account, exact value
- when people used to engage in barter, the exercise was not always easy to
execute.
The exchange would be easier if we will let/allow money to enter the
picture.
It is because money will be used to express the value of the sword and the
guavas.
Finally when money became the basic means of trade, we will be able to
determine the relative worth of the sword compared to guavas.
Now in our case trading will be easier if we can have the monetary value of
sword is, say. P5ooo and a kilo of guavas is 50.
8. 3. Store of Value- it can be kept or saved
- A person with excess production can only enjoy the surplus for a limited period of
time.
- Without the use of money, producers will be forced to barter their surplus with
products they may not exactly want. This will place them at a disadvantage.
- When money is accepted as payment, seller gets hold of money.
- With the money, he has luxury of time to even wait for his wants to become
urgent and when that time comes then he will spend his money.
- The waiting may take time (hour, month, year) but the holder of the money does
not have to worry about losing the value of the product he sold previously.
This arrangement makes money as a store of value.
Useful to persons who produce large quantities of products. (Imagine a
billionaire
9. 4. Deferred payment- it can be paid later.
- it is the function of being widely accepted way to value a debt;
thereby allowing goods and services to be acquired now and paid for in
the future.
10. Disadvantage of Using objects as Money
1. Objects are perishable
2. Indivisible
3. Not easily portable
11. Fiat Money and Credit Money
- Refers to paper currency decreed by a government as legal tender but
not convertible into coins or precious metal.
- It is backed by a government promise that it is legally acceptable as a
means of exchange for products.
- Ex. Mickey mouse money
12. CREDIT- “trust” refers to the ability to acquire something of
value like goods, services, money, or securities at the present
time in return for a promise to pay at a certain future time.
- CREDIT CARD is a common form of credit.
- with a credit card, the credit card company, often a bank, grants
a line of credit to the card holder.
The card holder can make purchases from merchants, and
borrow the money for these purchases from the credit card company.
13. 5`Cs of Money
1. Character – refers to the personal integrity of the borrower
2. Capacity – refers to the managerial ability of the borrower
3. Capital – refers to the resources owned by the borrower
4. Collateral- refers to the security of the borrower, like land and
building
5. Condition- refers to the community of the whole economy that
affects the ability of the borrower to pay.
14. Financial System- is a network of various institutions,
together with government agencies, laws and policies which
generates, circulates and controls money and credit.
- it is as system that allows the exchange of funds between
lenders, investors, and borrowers.
- Financial systems operate at national and global levels.
15. .
Functions of Financial Institution
1. Matching supply and demand for funds
- We are monitoring to which area are needing funds and those
who are having excess.
2. Investigation and Credit analysis
- one calculates the credit worthiness of a business or
organization or a person.
-it is the evaluation of the ability of a company to honor its
financial obligations.
16. 3. Provision of Liquidity
- plays a large role in providing funding liquidity to both financial
institutions and market makers
- the degree of something is in high supply and demand, making
it easily convertible to cash.
- or a degree which an asset or security can be quickly bought or
sold in the market without affecting the asset`s price.
4. Provides Payment Systems
- accepts payments
Ex. Financial Institutions: ML, Cebuana, Banks,
17. Exchange Rates Policy- refers to the manner in which a
country manages its currency in respect to foreign currencies and the
foreign exchange market.
1. Pegged Exchange Rates- fixed or controlled exchange of local currencies
- is a type of exchange rate regime in which a currency`s value
is fixed against either the value of another single currency, a basket of other
currencies, or another measure of value, such as gold.
2. Free-floating or flexible exchange rates- uncontrolled exchange of local
currencies
- is a regime where the currency price of a nation is set by the forex
market based on supply and demand relative to other currencies.
This is in contrast to fixed exchanged rate, in which the government
entirely of pre-dominantly determines the rate.
18. 3. Managed Floating Exchange Rates- guided exchange or
local currencies
- current international financial environment in which
exchange rates fluctuates form day to day, but central banks
attempts to influence their countries` exchange rates by
buying and selling currencies to maintain certain range.
-Almost all currencies are managed since all countries
intervenes to influence the value of their currency.
---IMF as of 2014, 82 countries and regions used a
managed float or 43% of all countries
19. Banking-is the strong force in mobilizing the savings of the people
and the use of these resources for investment.
• The Central Bank Charter of 1948 (New Central Bank of 1993)
20. Monetary Board- policy making body of BSP
- consist of seven members to serve for a term of six years appointed
by the President of the Philippines.
1. Benjamin Diokno, BSP Governor and Chairman of Monetary Board
Diwa Guinigundo, Deputy Governor of the BSP
2. Carlos Domiguez III, Secretary of the Department of Finance (DTI)
3. Antonio S. Abacan Jr (Members From Private Sectors)
4. Juan D. De Zuniga Jr.
5. V. Bruce J.
6. Felipe M. Medalla
7. Peter B. Fabilla
21. Powers of Monetary Board
1. Issues rules and regulations for effective discharge of
responsibilities and exercise powers.
2. Direct the management, operations and administration of the BSP
3. Establish human resource management system which shall govern
the selection hiring and appointment of personnel
4. Adopt an annual budget for effective administration and operations
of BSP.
22. Functions of Central Bank
1. It is a bank of issue (Section 50 RA no 7653: The new Central Bank
Act)
- has a complete monopoly of note issue (money)
23. 2. The banker, adviser and agent of the government
-the central bank conducts the banking accounts of the
government agencies and instrumentalities.
-It advises the President of the financial condition of the country.
3. It is the custodian of cash reserves of banks
- banks are required to deposit certain percentage of their bank
deposits as a means of regulating money supply.
24. 4. It is the custodian of the nation`s reserve of international currency
-reserves gold and acceptable international currencies
- as of Oct 2000 the BSP has gold reserves values at
approximately USD1.86 billion
5. It is a bank of rediscount and lender of last resort
- it assist bank in distress
6. It is a bank of Central clearance and settlement
-clearing of checks and interbank balances
7. It controls Credit
- it regulates money supply to maintain price stability.