Monetary Policy and Central Banking

Handouts 2: Monetary Policy and Central Banking

• All traded securities, from futures to currency swaps, are ownership investments. Investors buy them to share profits or because of increased value.
• Some investments, like stocks, give a portion of the company's value to the investor. Others, like futures contracts, allow specific actions that benefit owners.
• Money is anything generally accepted for goods and services. It serves as a store of value, a unit of account, and a medium of exchange.
• Money's value can be impacted by inflation. High inflation makes money less useful as a store of value and a medium of exchange.
• Barter is the exchange of goods and services directly without money. This process can be inefficient due to the need for "double coincidence of wants."
• Money efficiently solves the "double coincidence of wants" problem. It cuts down on search costs and allows workers to specialize in their areas of expertise.
• Investments involve committing money for a period to generate future payments that compensate the investor. This includes considering factors such as the time the funds are committed, expected rate of inflation and the uncertainty of future payments in this investment decision.
• Investors manage risk when making a tradeoff between expected returns and risk factors.
• The "investment decision process" includes security analysis and valuation, and portfolio management.
• There are different sources of risk, such as interest rate risk, purchasing power risk, bull-bear market, default, liquidity, and political risk.

Stocks and Bonds

• Stocks represent ownership shares in a corporation.
• Securities are proof of ownership or indebtedness in a company. Examples include Treasury bills, commercial papers, and stocks and bonds.
• Common stocks allow participation in profits and control of the company, with voting rights and last claim in case of liquidation.
• Preferred stocks have precedence over common stocks in dividend distribution, but have a limited rate of return.
• Warrants allow the holder to buy additional shares at a specified price.
• Philippine Deposit Receipts (PDRs) give rights to underlying shares or certain other benefits.
• Small-Denominated Treasury Bonds (SDT-Bonds) are long-term, risk-free debt securities issued by the Philippine government.
• Securities are bought and sold through stock exchanges like the Philippine Stock Exchange (PSE).
• Stockbrokers facilitate share and bond transactions.
• There are minimum investment amounts required for the stock market, which vary according to the market prices and the price range, specified by the board lot.

Lesson 1: Money and Inflation

• Economists compare money to inventions like the wheel and inclined plane, emphasizing its utility.
• Money facilitates transactions in amazing ways.
• Understanding how money, investment, and different forms of credit work.
• Understanding the difference between a charge card and a credit card. Charge cards require payment in full each month, whereas credit cards can carry a balance.
• Installment credit involves a set amount borrowed, set monthly payments, and a timeframe for repayment.
• Common forms of installment credit include mortgages and auto loans, which often require collateral.
• Non-installment credit allows borrowers to pay for services at a later date.
• Credit management involves granting credit, setting terms, and recovering credit, ensuring the compliance with credit policies.
• The spread between lending rates and deposit rates is vital to a bank's profitability.

Credit System

• Credit is the amount of money a borrower can access from a lending institution, with repayment terms and fees.
• Credit includes a borrowing reputation, showing a history of repayment capability which is also known as a risk factor
• Credit is used as a convenient financial tool for transactions, from credit cards to loans.
• Understanding credit is crucial for utilizing it effectively and avoiding debt.
• Four common forms of credit include revolving, installment, and service credit. Different forms of credit have different repayment structures.
• There are specific requirements for granting credit to a customer, including the customer's integrity, capacity to repay or manage debt, and capital.

Post-Test

• Research 10+ Philippine lending and financing companies, including their CA updates and pertinent laws and IRRs for protection
• Identify relevant legal procedures and regulations concerning SEC registration
• Gather information on SEC reporting, compliance requirements and grievance procedures.

Additional Information

• Specific examples of securities, different types of lending, and the factors affecting investment decisions are described in detail.