12 Questions
What is the key role of banking institutions in economic development?
They play a vital role in the field of savings and investment of money from the public and lending to business concerns
What is the main purpose of the capital market?
It is an institutional arrangement for borrowing medium and long-term funds and provides a facility for marketing and trading of securities
What is the main purpose of the money market?
It deals in financial assets whose period of maturity is up to 1 year and is highly liquid and easily marketable
What is the difference between the primary and secondary markets?
The primary market is where securities are offered for the first time for receiving the public subscription, while the secondary market is where pre-issued securities are dealt between the investors
What are the examples of financial instruments in the capital market?
Shares, debentures, bonds
What are the examples of financial instruments in the money market?
Treasury bills, commercial paper, certificates of deposit, repurchase agreements
What is the main purpose of the financial system?
All of the above
How does the financial system help in economic development?
All of the above
What is the process of transforming savings into investment instruments called?
Capital Formation
How does the financial system help in decreasing transaction costs and increasing returns?
By linking savers and investors
What is the role of the government in the financial system?
To decide monetary policy
What are the two main types of financial institutions mentioned in the text?
Banking and Non-Banking
Study Notes
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.
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