Money, Credit, & Banking System PDF

**MONEY, CREDIT, & BANKING SYSTEM** **Stages in Exchange Development** 1. **Direct Appropriation Stage** - What early man's needs was provided by its natural resources 2. **Barter/Direct Stage** - Goods and services directly exchange for other goods and services - Barter ended man's se...

**MONEY, CREDIT, & BANKING SYSTEM** **Stages in Exchange Development** 1. **Direct Appropriation Stage** - What early man's needs was provided by its natural resources 2. **Barter/Direct Stage** - Goods and services directly exchange for other goods and services - Barter ended man's self-sufficiency and ushered in economic inter-dependence among men. 3. **Use of Commodity as Money** - Some goods because of its usefulness, beauty, scarcity and rarity commands a wide acceptance as medium of exchange. 4. **Credit Money** - Money whose monetary value is more than its material or commodity value **Difficulties of Barter** 1. Product do not have the same value 2. No double coincidence of wants 3. Lack of store value 4. It is cumbersome, inconvenient and indivisible **Types of Money** - Non-Metallic (rice, corn, wheat, salt, tea, cattle) - Metallic Money (gold, silver, copper.) - Intrinsic value or material value is equal it's monetary value. **Definition of Money** - Money comes from the Greek Word **"Moneta"** - Any item or medium of exchange that *symbolizes perceived value.* - Anything which is used as a *medium of exchange* and is *widely accepted for the payment* of goods and services, debts and obligations within a given territory without reference to the credit standing of the person who offers it. **Purchasing Power** - Buying power to *how much you can buy with your money*. As prices rise, your money can buy less. As prices drop, your money can buy more. **What gives money its purchasing power?** - The Law has given money a *Legal Tender Power.* It is a mandatory law that makes money accepted in payment for all kinds of services. **Legal Tender Money** - Any form of money which according to law is acceptable for all forms of obligations **What are Considered Legal Tender Money in the Philippines?** - Notes and coins issued by Bangko Sentral ng Pilipinas (BSP) **Security Features of Philippine Banknote** **[Look]** - Sampaguita Clear Window - Serial Numbers - Shadow Thread - Vertical Clear Window - Metallic Features - Blue Iridescent Figure **[Feel]** - Polymer Substrate - Sampaguita Clear Window - Tactile Dots - Embossed Prints - Flying Eagle **[Tilt]** - Enhanced Value Panel - Metallic Features - Blue Iridescent Figure A close-up of a currency Description automatically generated 1. Polymer Substrate - **Feel** the smooth surface. The banknote is one continuous sheet with transparent areas. 2. Enhanced Value Panel - **Tilt** the note from left to right, and vice versa, to see the rolling-bar effect 3. Sampaguita Clear Window - **Look** through the small transparent window depicting the Sampaguita - **Feel** the transparent embossed line structure with the text "BSP" inside the flower on the front face of the note 4. Serial Numbers - **Look** for two (2) identical serial numbers composed of two (2) prefix letters and seven (7) asymmetric (increasing in size) digits 5. Tactile Dots - **Feel** the five (5) highly embossed dots intended to assist the elderly and the visually impaired 6. Embossed Prints - **Feel** the raised link that is rough to the touch - **Front:** Philippine Eagle portrait, "Republika ng Pilipinas", signatures, and amount in words 7. Shadow Thread - **Look** for the 5-mm vertical band on either side of the note when viewed against the light. The denomination value and "BSP" text appear in repeated series 8. Vertical Clear Window - **Look** through the large transparent vertical window containing multiple security features 9. Metallic Features - **Look** at the details of metallic images and symbols in the vertical clear window - **Tilt** the note to see color changes and dynamic motion - **Dynamic Waves.** Wavy lines on the front face of the note move when it is tilted back and forth. - **Republic of the Philippines (RP) Seal and Mirrored Denomination.** Both show moving vertical-line effects when the note is tilted back and forth. - **Bangko Sentral ng Pilipinas (BSP) Logo and 3D Denomination.** Front: BSP logo and 3D denomination outline display a striking rainbow - effect when the note is tilted at different angles. Back: Only the BSP logo is visible. 10. Blue Iridescent Figure - **Tilt and look** to see the figure that displays varying tones of blue when the note is viewed at different angles 11. Flying Eagle - **Feel** the transparent embossed outline of a stylized flying eagle **Functions of Money** **As a Medium of Exchange** - Money serves as a common medium or tool of exchange **As a Standard Unit of Value** - Money serves as a measuring device in which value of goods and services can be expressed **As a Store of Value** - Money has the quality to be kept or stored for future use **As a Standard of Deferred Payment** - The money that we use as a medium of exchange is the same money we can use to pay for our debts and obligations. **Characteristics of Good Money**  **Portability-** Money is made light, to be easily carried from one place to another **Stability-** Value must not change every now and then and not susceptible to fluctuations, devaluation, inflation, etc. **General Acceptance**- Accepted by anyone in exchange for goods and services **Cognizability-** Design should not only be aesthetically beautiful but also difficult to counterfeit **Durability-** Money must withstand longer period of time against wear and tear A black and white circle with a black dot Description automatically generated **Homogeneity**- Material used must be uniform in composition throughout **Divisibility**- Divisible into small parts and likewise possible to recombine these small parts into bigger denominations **Uniformity**- Money must conform to certain standard to avoid confusion (size, shape, and color) **Malleability**- Money can be melted and beaten into a desired shape to conform to the specification of the government **Forms of Money** **Commodity Money** - Money that is *made up of precious metal* or another valuable commodity: - Non-Metallic Money - Metallic Money (Gold/Silver) **Currency (Bills and Coins)** - *Domestic currency* can only be used in its country of origin. If it is used in another country, it needs to be exchanged with the currency of the of that country. **Check** - Generally used by businesses and persons in conducting business, as well as personal transactions - It is a *written order to a bank* (drawee), by the person, who issues the check (maker or drawer) to pay someone whose name is written on the face of the check (payee) a certain amount of money on demand. **Definition of Finance** - A term broadly describing the study and system of creating, circulating, and managing money, investments, and other financial instruments. **Financial Intermediaries** - Institutions that acts as a middleman between two parties to facilitate a financial transaction. They reallocate uninvested capital to productive sectors of the economy through debts and equity (i.e. commercial banks, investment banks, mutual funds, and pension funds). **Financial Intermediaries** **Asset Storage** - Commercial banks provide *safe storage* and records of withdrawals, deposits, and direct payments they have authorized **Providing Loans** - They channel funds from depositors with surplus cash to individuals who are looking to borrow money **Investments** - Savers can make larger investments by pooling funds together by gaining access to a broader pool of investors. **Spreading Risk** - Commercial banks provide safe storage and records of withdrawals, deposits, and direct payments they have authorized **Economies of scope & scale** - Intermediaries help create efficient markets and lower the cost of doing business. offer the benefit of pooling risk, reducing cost, and providing economies of scale, among others. **Interest** Monetary charge for the privilege of borrowing money expressed as a percentage rate over a period of time. The amount of interest a person must pay is often tied to their *creditworthiness*, the *length of the loan*, or the *nature of the loan*. **Interest Rate** - Amount a lender charges a borrower and is a percentage of the principal---the amount loaned. Interest rates may be fixed or may be variable or \"floating,\" meaning the rate may move higher or lower over time. - Two common types of interest: *simple interest* (based on the principal amount) and *compound interest* (based on principal and previously-earned interest) **Simple interest** is an interest charge that borrowers pay lenders for a loan. It is *calculated using the principal only* and does not include compounding interest. **Formula:** Simple Interest (A) = *P* x *r* x *n* *where:* *A =* Future value *P* = Principal *r* = Interest rate *n* = Term of loan (in years) **Compound interest** or "interest on interest" is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods. **Formula:** Compound Interest (A) = [\$P\\left( 1 + \\frac{r}{n} \\right)\^{\\text{nt}}\$]{.math.inline} *where:* *A =* Future value *P* = Principal *r* = Interest rate *n* = Number of times interest is compounded per year *t =* Time in years