FINANCIAL SYSTEM

system that covers financial transactions and the

exchange of money between investors, lender and
borrowers.
can be defined at the global, regional or

firm specific level.
made of intricate and complex models that
portray financial services, institutions and
markets that link depositors with investors.

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IMPORTANCE OF ECONOMIC SYSTEM
helping society decide on the optimal allocation of
our limited resources. The fundamental problem of
economic is said to be scarcity - the idea that wants
(demand) is greater than the resources we have.
Frequently we face choices on:
What to produce
How to produce
For whom to Produce

Economics helps to decide on questions like this. More

specifically economics is important in these areas.
FINANCIAL INTERMEDIATION
It is a productive activity in which an institutional unit
incurs liabilities on its own account for the purpose of
acquiring financial assets by engaging in financial
transactions on the market.
Their role is to channel funds from lenders to borrowers by
intermediating between them.
The process performed by banks of taking in funds from a
depositor and then lending them out to a borrower.
Financial institutions that allow them to lend out money at
relatively high rates of interest while receiving money on
deposit at relatively low rates of interest.

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PHILIPPINE FINANCIAL SYSTEM

Serves as the catalyst in the countrys growth and

development
The financial system does not onlyincludebanks, credit
unions, pawnshops or usurers,but also other financial
institutions such asinsurance companies, investment
companies,lending investors, etc
World Bank, International Monetary Fund, andthe Asian
Development bank are part of thePhilippine Financial
System. (GreatImplementation of our banking laws
andmonetary policies)
BRIEF HISTORY
COMPONENTS OF FINANCIAL
SYSTEM

1. BANKS

2. NON-BANKING FINANCIAL
INSTITUTIONS
(NON-BANKING SECTOR)
TYPES OF BANKS
1. Expanded Commercial banks or Universal
Banks
2. Commercial banks
3. Specialized Government Banks
4. Thrift Banks
5. Small Private Banks
NON-BANKING FINANCIAL
INSTITUTIONS

that does not have a fullbanking license or is not

supervised by a national or international banking regulatory
agency.

NBFIs facilitate bank-relatedfinancial services, such

asinvestment, andmarket brokering.

Examples of these includeinsurance firms, pawn shops,

cashiers check issuers, check cashing locations, payday
lending, currency exchanges, and micro loan organizations.

FINANCIAL DECISIONS OF
HOUSEHOLDS
Decision making was often instigated by a trigger,
which caused one partner to identify the need to
decide on a course of action. At this point, it was
common for only one partner to have engaged
seriously with the idea. It was usual for couples to
return to the issue under discussion several times
before reaching a decision. With each discussion,
momentum increased until both partners were
engaged, and each recognized the need to make a
decision. However, engagement could vary between
the two partners, with one partner generally more
interested and involved in the decision than the
other.
 Most couples included one partner who was
more active in the decision-making process,
and another who was comparatively reactive,
or passive. In referring to these two types, we
use the labels alpha and beta roles
respectively. Similarly, broad themes emerged
in the roles and responsibilities that men and
women fulfilled. This section discusses alpha
and beta roles, as well as the tasks typically
undertaken by male and female partners.
 Alpha partners took the most responsibility for
household finances. In general, this person was
more closely involved in the day-to-day running
of the home than their partner, and by
extension, closer to the household bills and
used to dealing with them. Alpha partners
usually referred to a range of sources when
they needed financial information or advice,
and were the more likely to have a relationship
with a professional financial adviser.
FINANCIAL DECISIONS OF
CORPORATIONS
What kinds of decisions are we talking about?
The field of finance is often divided into two parts: Corporate
(or Managerial) Finance which deals with financial decisions
made by managers of a company, and Investments, which
focuses on how individuals or professional investment
companies decide how to invest.This class will look at both
parts of finance. While not everyone will be involved in the
financial decisions of the company they work for, everyone in
business needs to be able to talk to financial managers and
understand what they are doing. An even if you are not
involved in financial matters at work, you will certainly be
making investment decisions over the course of your lifetime.
Investment Decision
One of the most important finance functions is
to intelligently allocate capital to long term
assets. This activity is also known as capital
budgeting. It is important to allocate capital in
those long term assets so as to get maximum
yield in future. Following are the two aspects of
investment decision
Financial Decision
is yet another important function which a
financial manger must perform. It is important to
make wise decisions about when, where and how
should a business acquire funds. Funds can be
acquired through many ways and channels.
Broadly speaking a correct ratio of an equity and
debt has to be maintained. This mix of equity
capital and debt is known as a firms capital
structure.
Dividend Decision
Earning profit or a positive return is a common
aim of all the businesses. But the key function a
financial manger performs in case of
profitability is to decide whether to distribute
all the profits to the shareholder or retain all
the profits or distribute part of the profits to
the shareholder and retain the other half in the
business
Liquidity Decision
It is very important to maintain a liquidity
position of a firm to avoid insolvency. Firms
profitability, liquidity and risk all are associated
with the investment in current assets. In order
to maintain a tradeoff between profitability and
liquidity it is important to invest sufficient funds
in current assets. But since current assets do
not earn anything for business therefore a
proper calculation must be done before
investing in current assets.
 WHAT IS FINANCIAL
MARKET?
people and organizations wanting to borrow
money are brought together with those who
have surplus funds in the financial markets.
financial market is a market in which people
trade financial securities, commodities and
the fungible items of value at low transaction
cost
in economics, typically , the term market
means the aggregate of possible buyers and
sellers of a certain good or service and the
transaction between them,
the term market is sometimes used for what
are money strictly exchanges, organizations
that facilitate the trade in financial securities
like stock exchange or commodity exchange.
This may be a physical location like NYSE,
 TYPES OF
MARKETS
1.SPOT MARKET- the markets in which assets are
bought or sold for on the spot delivery.
2.FUTURES MARKET- the markets in which
participation agree today to buy or sell an asset at
some future date.
3.MONEY MARKET- the financial markets in which
funds are borrowed or loaned for short periods (less
than one year)
4.CAPITAL MARKET- the financial markets for stocks
and for intermediate or long term debt (one year or
longer)
5.PRIMARY MARKETS- markets in which corporation
raise capital by issuing new securities.
6.SECONDARY MARKETS- markets in which securities
and other financial assets are traded among
investors after they have been issued by
corporations.
7. PRIVATE MARKETS- markets in which transactions
 WHAT IS THE
SIGNIFICANCE OF
FINANCIAL SYSTEM?
Financial system is a system
that allows the exchange of
funds between lenders,
investors and borrowers. It
manipulates the balance of the
economy as it draws within the
chain of monopoly.

This system serves as the

center of any industry that
relies on money or any capital in
particular, as it reflects the
 MAJOR PLAYERS AND
THEIR ROLES
BANKS - these are intermediaries who lends money to
borrowers in order for the firm and bank to generate
revenue. Examples of these are

FINANCIAL COMPANIES- a company that makes small

short-term loans most likely to individuals

INSURANCE COMPANIES- this insures protection for

the properties of a business against loss or
contingency or peril

MUTUAL FUNDS- a type of investment in which the

money from other people is used to buy stocks from
different companies.

GOVERNMENT- this includes a group of people that

gives authority and rights to banks to operate