Introduction to Financial System

Financial Institutions

• Key players in economic development, facilitating savings and investments, and lending to businesses
• Divided into banking and non-banking institutions

Banking Institutions

• Play a vital role in economic development
• Involved in savings and investments, and lending to businesses

Non-Banking Institutions

• Entities that provide certain bank-like and financial services without a banking license
• Government non-banking institutions:
  • Government Service Insurance System (GSIS)
  • Social Security System (SSS)
  • National Home Mortgage Finance Corporation
  • Philippine Veterans Investment Development Corporation
  • National Development Corporation
• Private non-banking institutions:
  • First Metro Investment Corporation
  • Philippine Depository and Trust Corporation
  • Many more

Financial Markets

• Deal with various financial instruments and services
• Divided into:
  • Capital Market: for medium and long-term funds
  • Money Market: for short-term funds

Capital Market

• Institutional arrangement for borrowing medium and long-term funds
• Provides facility for marketing and trading of securities
• Examples:
  • Shares
  • Debentures
  • Bonds
• Divided into:
  • Primary Market: where securities are offered for the first time
  • Secondary Market: where pre-issued securities are traded

Money Market

• Deals in financial assets with maturity up to 1 year
• Highly liquid and easily marketable
• Examples:
  • Treasury bills
  • Commercial paper

Financial Services

• Customer-focused services provided by the finance industry
• Study customer needs in detail before deciding financial strategy
• Consider cost, liquidity, and maturity
• Examples:
  • Insurance companies
  • Credit rating facilities

Financial Instruments

• Any contract that gives rise to a financial asset or liability
• Examples:
  • Shares
  • Debentures
  • Bonds
  • Treasury bills
  • Commercial paper
  • Certificates of deposit
  • Repurchase agreements

Financial System

• Organized and regulated structure for exchange of funds between lenders and borrowers
• Supplies necessary financial inputs for production and promotes well-being
• Consists of various institutions, markets, and instruments
• Significance:
  • Induces people to save by offering attractive interest rates
  • Channels savings into investments
  • Monitors corporate performance
  • Links savers and investors
  • Decreases transaction costs and increases returns
  • Helps in deciding monetary policy
  • Facilitates capital formation

Explore the fundamental aspects of financial systems including institutions, markets, and instruments that facilitate the exchange of funds between lenders and borrowers. Understand how financial systems contribute to economic growth and the well-being of society.