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Questions and Answers
What is a financial system?
An economic arrangement wherein financial institutions facilitate the transfer of funds and assets between borrowers, lenders, and investors.
Which components are part of the financial system?
Scarcity refers to the unlimited wants and desires of individuals.
True
What is one function of banks within a financial system?
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The two types of economies are __________ based and __________ planned.
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What are examples of financial institutions?
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What do tradable or financial instruments include?
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What is the purpose of financial services?
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What is the value of currency in the financial system?
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What type of bank performs investment house functions?
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Study Notes
Financial System Overview
- A financial system is an arrangement facilitating fund and asset transfers among borrowers, lenders, and investors to promote growth.
- It aims to efficiently allocate economic resources despite scarcity, stimulating economic development and generating ROI for participants.
- Key market participants include investment banks, stock exchanges, insurance companies, and individual investors, operating at corporate, national, and international levels.
- Components include financial institutions, markets, assets, and services, each playing distinct roles in the economy.
Functions and Benefits
- Financial systems provide mechanisms for payment processing (banks), earning interest (investment institutions), risk protection (insurance), financial information distribution (credit agencies), regulatory stability (central banks), and liquidity maintenance (financial institutions).
Fund Flow Methods
- Market-Based: Involves trading securities (stocks, bonds) where supply and demand dictate pricing.
- Centrally Planned: Investment decisions are made by a governing authority, often resulting in a combination of both approaches.
Financial Institutions
- Serve as intermediaries for providing various financial services, including:
- Banks: Central, retail, and commercial banks.
- Insurance Companies: Offer risk management solutions.
- Investment Companies and Brokerage Firms: Facilitate investment opportunities.
Financial Markets
- Platforms for exchanging assets like stocks, bonds, derivatives, and commodities, aiding business growth through capital influx from investors expecting returns.
Financial Instruments
- Tradable assets that include cash, stocks (representing ownership), bonds, options, and futures, enabling market transactions.
Financial Services
- Help manage assets and protect against systemic risk, ensuring optimal investment of capital for growth. Key players include banks and insurance firms.
Currency Functionality
- Currency serves as a medium of exchange for products, services, and investments, maintaining societal value.
Structure of the Philippine Financial System
- Bangko Sentral ng Pilipinas (BSP): Governing body overseeing the country's financial system.
Banking Institutions
- Expanded Commercial Banks/Universal Banks (ECB/UB): Engage in both commercial and investment banking functions.
- Commercial Banks (CB): Focus on traditional banking activities like accepting deposits, issuing letters of credit, and providing credit.
- Thrift Banks (TB): Include savings, mortgage banks, and private development banks, focusing on savings accumulation and investment.
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Description
Test your knowledge about the Philippine financial system and its key components. This quiz covers the roles of various financial institutions and how they facilitate economic transactions. Explore how these systems support growth and investment in the economy.
