Introduction To Financial System

Introduction to
Finance and the

Financial System
Ateneo de Zamboanga University

School of Management and Accountancy
Accountancy Department
FINMAN 1: FINANCIAL MARKETS
Agenda Style
INTRODUCTION TO FINANCE
01 Definition of Finance, The Need to Study Finance,
Areas of Finance, Fundamental Principles
THE FINANCIAL SYSTEM

02 Definition of Financial System, The Capital Allocation
Process, Elements of Financial System
Contents
03 Get a modern PowerPoint Presentation that is beautifully designed. I
hope and I believe that this Template will your Time.
Contents
04 Get a modern PowerPoint Presentation that is beautifully designed. I
hope and I believe that this Template will your Time.
Introduction to Finance
What is The study of how individuals,
institutions, governments, and
Finance? businesses acquire, spend, and
manage money and other financial
assets.
It is both an ART and a SCIENCE.

Why Study Finance?
We deal with finance in

01
our daily lives.
To make informed
02
investment decisions.
To determine good
03
financing sources.
We need to know tools to
04 maximize returns and
minimize risks.
Areas of Finance
Areas of
Studies
Financial
Management Capital Markets
focuses on decisions and Institutions Investments
relating to how much relates to the study of
and what types of financial systems and
assets to acquire, how focuses on decisions
its components, interest concerning stock and
to raise the capital and securities valuation,
needed to buy assets, bond investments,
and the regulation of security analysis,
and how to run the firm financial markets and
so as to maximize its portfolio management,
institutions. and market analysis.
value.
Areas of Finance
Areas of
Application
Corporate
Finance Personal
Application of finance Finance Public
tools in investing and Application of finance Finance
financing decisions in tools in the
an institutional setting. Application of finance
management of tools for the effective
individual and family allocation of public
financial resources. funds for government
services, public
investment, and public
debt.
Fundamental Principles in Finance
Money has TIME VALUE

A Peso received today is worth more than a Peso received in the future.
There is a RISK-RETURN Tradeoff

Investors will hold risky investments if they expect to be compensated with additional return.
CASH FLOWS are the Source of Value

Cash – not profit – is king!
Market Prices Reflect Information

Investors respond to new information by buying and selling their investments.
The Principal’s and Agent’s Interests may Differ

Managers’ decisions may not necessarily be aligned with the owners’ interests unless incentivized adequately.
The Financial System
The institutional mechanism
What is established by the society to produce
and deliver financial services and
Financial allocate resources participated by
different economic units, which takes
System? into account the use of money, credit,
and the various instruments
associated with money.
It consists of the business firms

supplying financial services, the
customers of the financial service
firms, and the government regulatory
entities that enforce the rules
prevailing within the financial sector.
Some individuals and firms may have
What is surplus of funds which can be made
available for savings or investment
Financial (savings-surplus units or suppliers of
funds).
System?
Businesses, Government, and
Individuals often need to raise capital
It is where the suppliers
(savings-deficit units or demanders of
and users of funds meet to
funds) :
finance their needs and
• Support in increasing firm’s
satisfy their objectives.
operations (operational expansion)
• Investment in project proposals
(capital expenditures)
• Infrastructure projects
• Investment in real estate
The Capital Allocation Process
SECURITIES
DEMANDERS SAVERS
CASH (PESOS)
SECURITIES SECURITIES
INVESTMENT
DEMANDERS SAVERS
BANK
CASH (PESOS) CASH (PESOS)
COMPANY INTERMEDIARY
SECURITIES SECURITIES
FINANCIAL
DEMANDERS INTERMEDIARY
SAVERS
CASH (PESOS) CASH (PESOS)
Elements of Financial System
Financial The evidences of debt or ownership that are traded in the

Instruments market.
Financial Consists of the Financial Markets and Institutions.

Sector
Financial Rules and standards issued by pertinent government

Regulations agencies in regulating the activities in the financial sector.
Financial Instruments
An Overview
One that is used to facilitate the
Financial provision of funds for a certain
economic undertaking.
Instruments
Take the form of documents, which
contain certain characteristics that
meet the requirements of the issuer
and investor.
Legal contracts or indentures

specifying the amount of the
transaction and the terms and
conditions for repayment.
Denomination
Maturity
Differences Claim Against Issuer

Among
Collateral
Financial
Instruments Marketability
Form of Interest Payment
Options
Treasury Bills
Short-term debt financial instrument issued by the government.
Commercial Paper
Short-term unsecured promissory notes issued by large companies with strong credit
ratings
Negotiable Certificates of Deposit
Certificate issued by a bank as an evidence of existence of a time deposit.
Examples Banker’s Acceptance

Time draft payable to a seller of goods, with payment guaranteed by a bank.
of Financial Repurchase Agreements

A contractual agreement involving a sale of high-quality, highly liquid
Instruments securities, with a promise by the seller to buy back those assets at a
specified date and price.
Treasury Bonds
Long-term debt financial instrument sold by the government.
Corporate Bonds
Long-term promissory notes issued by companies with strong credit ratings
Stocks
Evidence of ownership in a corporation, allowing the holder to enjoy some profits and rights
Financial Institutions
An Overview
Financial intermediaries that channel
Financial the savings of individuals, businesses,
and governments into loans or
Institutions investments.
They serve as media to channel

funds from those who have surplus of
funds to those with deficit in funds.
They convert primary instruments
received (savings) into another
Key Features financial product (secondary
instruments, e.g. loans, insurance
of Financial policies, equity investments, etc.)
Institutions They provide intermediation (the

process by which savings are
accumulated and lent or invested)
rather than provide a forum where
demanders and suppliers of funds
can come together.
They provide financial services and

advices to both suppliers and
demanders of funds.
• The relatively large size of the FI allows
collection of information and monitoring of
Monitoring Costs actions of firms to be accomplished at a lower
average cost (economies of scale).
Liquidity and Price • FIs provide financial claims to household savers

with superior liquidity attributes and with lower
Risk price risk.
Services
Performed Transaction cost • Similar to economies of scale in information
production costs, an FI’s size can result in
by Financial services economies of scale in transaction costs.
Institutions
Maturity • FIs can better bear the risk of mismatching the
Intermediation maturities of their assets and liabilities.
Denomination • FIs such as mutual funds allow small investors to

overcome constraints to buying assets imposed
intermediation by large minimum denomination size.
Money supply • Depository institutions are the conduit through
which monetary policy actions impact the rest of
transmission the financial system and the economy in general.
• FIs are often viewed as the major, and

Services Credit Allocation sometimes only, source of financing for a
particular sector of the economy, such as farming
and residential real estate.
Performed
by Financial
Intergenerational • FIs, especially life insurance companies and
Institutions wealth transfers
pension funds, provide savers with the ability to
transfer wealth from one generation to the next.
• The efficiency with which depository institutions

Payment Services provide payment services directly benefits the
economy.
Categories of Financial Institutions
Depository Institutions
financial institutions
whose main
business activities
involves accepting
deposits or savings
from individuals (and
institutions) and then
lending these pooled
savings to
businesses,
governments, and
other individuals.
Contractual Savings
Organizations
whose primary
function is to collect
premiums from fund
suppliers and
provide savings
and/or financial
protection against
loss of life and
properties.
Securities Firms
whose main business
activities involves
accepting savings
from individuals or
businesses and pool
them to invest in
financial securities,
and to facilitate and
transfer securities
between investors.
Finance Firms
engaged in providing
loans directly to
consumers and
businesses, and
helping borrowers
obtain mortgage
loans on real
property.
Financial Markets
An Overview
a mechanism in which buyers and
Financial sellers trade financial assets (stocks,
bonds, currencies, etc.).
Markets
They provide for a forum/platform
onto which the providers and
demanders of funds can do financial
transactions directly.
Categories of Financial Markets
Categories of Financial Markets
Regulation of the
Financial System
Regulators of Financial Institutions
Bangko Sentral ng Pilipinas (BSP)

The central bank of the Republic of the Philippines.
It was established on 3 July 1993 pursuant to the provisions of the 1987 Philippine
Constitution and the New Central Bank Act of 1993. The BSP enjoys fiscal and
administrative autonomy from the National Government in the pursuit of its mandated
responsibilities.
OBJECTIVES:
1. to maintain price stability conducive to a balanced and sustainable economic
growth
2. to promote and preserve monetary stability and the convertibility of the national
currency.

Responsibilities:
LIQUIDITY MANAGEMENT
The BSP formulates and implements monetary policy aimed at influencing money supply consistent with its primary objective to
maintain price stability.
CURENCY ISSUE
The BSP has the exclusive power to issue the national currency. All notes and coins issued by the BSP are fully guaranteed by
the Government and are considered legal tender for all private and public debts.
LENDER OF LAST RESORT

The BSP extends discounts, loans and advances to banking institutions for liquidity purposes.
FINANCIAL SUPERVISION
The BSP supervises banks and exercises regulatory powers over non-bank institutions performing quasi-banking functions.

Responsibilities:
MANAGEMENT OF FOREIGN CURRENCY RESERVES
The BSP seeks to maintain sufficient international reserves to meet any foreseeable net demands for foreign currencies in order
to preserve the international stability and convertibility of the Philippine peso.
DETERMINATION OF EXCHANGE RATE POLICY

The BSP determines the exchange rate policy of the Philippines. Currently, the BSP adheres to a market-oriented foreign
exchange rate policy such that the role of Bangko Sentral is principally to ensure orderly conditions in the market.
OTHER ACTIVITIES
The BSP functions as the banker, financial advisor and official depository of the Government, its political subdivisions and
instrumentalities and government-owned and -controlled corporations.
Thank you
Insert your subtitle here

Introduction To Financial System

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Introduction To Financial System

Uploaded by

Copyright:

Available Formats

Introduction to

Finance and the

Ateneo de Zamboanga University

THE FINANCIAL SYSTEM

It is both an ART and a SCIENCE.

We deal with finance in

Money has TIME VALUE

There is a RISK-RETURN Tradeoff

CASH FLOWS are the Source of Value

Market Prices Reflect Information

The Principal’s and Agent’s Interests may Differ

It consists of the business firms

Financial The evidences of debt or ownership that are traded in the

Financial Consists of the Financial Markets and Institutions.

Financial Rules and standards issued by pertinent government

Legal contracts or indentures

Differences Claim Against Issuer

Form of Interest Payment

Examples Banker’s Acceptance

of Financial Repurchase Agreements

They serve as media to channel

Institutions They provide intermediation (the

They provide financial services and

Liquidity and Price • FIs provide financial claims to household savers

Denomination • FIs such as mutual funds allow small investors to

• FIs are often viewed as the major, and

• The efficiency with which depository institutions

Bangko Sentral ng Pilipinas (BSP)

Bangko Sentral ng Pilipinas (BSP)

LENDER OF LAST RESORT

Bangko Sentral ng Pilipinas (BSP)

DETERMINATION OF EXCHANGE RATE POLICY

You might also like