M1: THE FINANCIAL SYSTEM

• Financial system describes collectively the financial markets, the financial system participants and the financial requirements and securities that are traded in the financial markets.
• The functions of the financial system are:

  • To channel the funds from the savings units (lenders) to the deficit units (borrowers)
  • To provide a medium of exchange
  • To provide a mechanism for risk sharing; and
  • To provide a channel through which the central bank can influence the economy, in general and the financial system, in particular
• Four basic functions of financial system

  • Fund acquisition
  • Fund allocation
  • Fund distribution
  • Fund utilization
• • Fund acquisition – a way of getting deposits and necessary funds to finance projects and investments
• Fund allocation – determining to which uses ,projects, or investments the acquired funds will be used.
• Fund distribution - the process by which necessary funds are given to the uses, projects, or investments that need funds. 
• Fund utilization – using the funds for its intended purpose
• FINANCIAL SYSTEM PARTICIPANTS

  There are six participants or sectors in the financial system:

  • Households or consumers
  • Financial institutions/intermediaries
  • Non-financial institutions
  • Government
  • Central bank
  • Foreign participants
• Households or Consumers - are generally described as the group that receives income, majority of which typically comes from wages and salaries. Such income is spent on goods and services, and part is saved.
• Financial Institutions / Intermediaries

  • are the firms that bridge the gap between surplus units (SUs) or investors/lenders and deficit units (DUs) or borrowers.
• Financial Institutions / Intermediaries

  • They channel funds from lenders to borrowers.
• Financial Institutions / Intermediaries

  • They include depository institutions and non-depository institutions. Other than being channels, they are lenders and borrowers at times, When they underwrite securities or acts as brokers or dealers, they are intermediaries. If they buy securities, they are investors or lenders, and when they are the ones issuing the securities, they are borrowers
• Non-financial Institutions

  • they are businesses other than financial institutions or intermediaries.
• Non-financial Institutions

  • They include trading, manufacturing, extractive industries, construction, genetic industries, and all firms other than the financial ones.
• Non-financial Institutions

  • Just like the households, and financial institutions, there are also borrowers or lenders or both at one time or another.
  • When these non-financial institutions buy securities, they are lenders, investors or savers; when they issue the securities, they are the borrowers.
• Government

  This means the national, provincial, municipal, or city governments, and barangays or towns comprising the Philippines as a whole.
• Government

  • Each division has its heads and agencies that help in running the division they are responsible for.
• • The Bureau of the Treasury (BTR) is part of the government that is a participant in the financial system. When BTR or any other subdivisions of government issue their own securities, they act as borrowers/deficit units; and when the BTR or any other subdivisions of government buy securities, they act as investors or savers/surplus units
• Central Bank

  The Bangko Sentral ng Pilipinas and all other central banks of the different countries are mandated to ensure that their respective countries have a stable and healthy financial system.
• Central Bank

  They oversee the operations of their entire financial system and mandate the rules, regulations, and monetary policies that will help them maintain a healthy and stable economy.
• Foreign Participants

  refer to participants from the rest of the world-households, governments, financial, and non-financial firms and central banks.
• Foreign Participants

  Goods and services and financial instruments/ securities are exchanged across national boundaries, as well as within these boundaries.
• • Financial system encompasses the financial markets, participants, and instruments dealt with in said markets.
  • The functions of the financial system include channeling funds from saving units to deficit units, providing a medium of exchange, providing a mechanism for risk-sharing, and providing a channel through which the central bank can influence the economy in general and the financial system in particular.
• • There are six participants or sectors in the financial system. They are households, financial institutions, non-financial firms, government, central bank, and foreign participants.
  • Households or consumers are the wage/salary-earners whose income is spent on goods and services and if there is something left to save, they save it.
  • Financial institutions/intermediaries are the firms that act as bridge between surplus units/lenders and deficit units/borrowers.
• • Non-financial institutions are businesses other than the financial institutions intermediaries like trading, manufacturing, mining, and other businesses.
  • Government includes all levels of government from barangays up to the national government. All government units act as either lenders or borrowers at one time or another.