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Questions and Answers
What is a bank?
Entities engaged in the lending of funds obtained in the form of deposits.
Which of the following is NOT a main function of a central bank?
The Bangko Sentral ng Pilipinas (BSP) was established on 3 July 1993.
True
What is the primary mandate of the BSP?
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Which law governs the secrecy of bank deposits in the Philippines?
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The BSP is the central bank of the ______.
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What does 'fiscal autonomy' mean in the context of the BSP?
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Which of the following is a product or service of banks?
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Study Notes
What is a Bank?
- A bank is a financial institution whose primary function is lending out funds obtained through deposits.
- Banks are defined by their economic functions, their product and service offerings, and the legal basis for their operations.
Economic Functions of Banks
- Facilitate payments between households, businesses and government entities
- Act as intermediaries between those with surplus funds (savers) and those with deficit funds (borrowers).
- Pool assets by aggregating small deposits into large loans.
- Transform the maturity of funds by taking in short-term deposits and turning them into long-term loans.
- Transform risk by minimizing risk for small savers and guaranteeing repayment of deposits.
Bank Products and Services
- Depository accounts, including current, savings, and term deposits.
- Trust functions, such as escrow arrangements.
- Collection and remittance services, including global remittance.
- Loans and discounts, including personal and business loans.
- Advisory services, including wealth management and estate planning.
Legal Basis of Banking
- The General Banking Law of 2000 (R.A. 8791) sets the legal framework for banking operations.
- The Law on Secrecy of Bank Deposits (R.A. 1405) protects the confidentiality of customer account information.
- The Foreign Currency Deposit Act (R.A. 6426) governs foreign currency deposits.
- The Unclaimed Balances Law (R.A. 3936) deals with unclaimed deposits in banks.
- The Bouncing Check Law (Batas Pambansa 22) penalizes the issuance of bounced checks.
Important Concepts in Banking and Finance
- Moral hazard occurs when a party taking on risk does not face the full consequences of their actions.
- Asymmetric information exists when one party in a transaction has more information than the other.
Main Functions of a Central Bank
- A central bank oversees the monetary system of a nation (or group of nations) with the objective of fostering economic growth.
The Bangko Sentral ng Pilipinas (BSP)
- The BSP is the central bank of the Philippines.
- The BSP was established on July 3, 1993, pursuant to the 1987 Constitution and the New Central Bank Act of 1993.
- The BSP replaced the Central Bank of the Philippines, which was established on January 3, 1949.
- The BSP enjoys fiscal and administrative autonomy from the national government in carrying out its mandated responsibilities.
BSP Mandate
- Maintain price stability, monetary stability, and the convertibility of the Philippine Peso.
- Promote financial stability and oversee payment and settlement systems.
- Promote broad and convenient access to high-quality financial services.
"Fiscal Autonomy"
- The Supreme Court defines fiscal autonomy as "freedom from outside control."
- This means that the BSP has the authority to set its own budget and authorize expenditures, as needed for its operations.
Major Central Banks
- United States: The Federal Reserve System (The Fed).
- European Union: European Central Bank.
- United Kingdom: Bank of England.
- Japan: Bank of Japan.
- Switzerland: Swiss National Bank.
- Canada: Bank of Canada.
- Australia: Reserve Bank of Australia.
- New Zealand: Reserve Bank of New Zealand.
Islamic Banking in the Philippines
- The BSP has supported the growth of Islamic banking in the Autonomous Region in Muslim Mindanao (ARMM).
- The BSP promotes and utilizes Islamic banking, financing, and investment in agriculture, commerce, and industry in the ARMM.
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Description
This quiz explores the fundamental concepts of banking, including the primary functions of banks, their economic roles, and the various products and services they offer. Test your knowledge on how banks facilitate payments, act as intermediaries, and manage deposits and loans.
