MACROECONOMICS

• Financial system composed of

  • Various banks
  • Insurance companies
  • Pawnshops
  • Credit unions
  • Money market
  • Central bank
  • Monetary laws and policies
• Most dominant and powerful financial institutions

  • World Bank
  • International Monetary Fund
  • Asian Development Bank
  • Multinational or transnational banks
• Where are they involved

  Global banking or finance
• How are they influenced

  They greatly influence the operations of our financial system. Hence, they also control our national economy
• Fundamental function of money


  Medium of exchange of goods and services
• Money greatly contributes to economic growth in terms of investment, employment, and income
• Mismanagement of the money supply by the government results in inflation and unemployment
• Bangko Sentral ng Pilipinas has been equipped with certain monetary tools for attaining monetary stability and economic growth
• Financial system


  A network of various institutions, together with government agencies, laws and policies, which generates, circulates and controls money and credit
• Function of financial system

  Provides a link between the lenders and borrowers of money. Aside from granting loans to individuals like farmers, fishermen, consumers, producers, and businessmen, the financial system also finances the socioeconomic programs of the country
• Where does the government borrow money

  Bangko Sentral or from the public to fund its various projects
• Investing money on banks is good for the whole economy since it would earn interest
• Role of financial institutions


  They have the facilities in channeling the surplus money of individuals into more profitable or productive ventures
• Moneylenders


  Can directly deal with borrowers however, in a larger market, middlemen are needed to facilitate the meeting of lenders and borrowers
• In a primitive society

  Financial specialists are needed not only to expedite financial transactions but also to maximize economic interests of both lenders and users of funds
• In a modern economy

  There is a mobilization of larger capital information
• Financial capital is key to economic progress
• Investment


  It creates more employment, production and income. These are the factors which accelerate economic development of any country
• Functions of financial institutions

  To facilitate the transfer of funds from the savers to the users
• Why does it require assistance from financial institutions

  Because the volume of savings is large
• Barriers created in the process of transferring funds

  • Risk
  • Inconvenience
  • Cost of transfer
  • Liquidity problems
• Specific functions of financial institutions

  • Matching supply and demand for funds
  • Investigation and credit analysis
  • Provision of liquidity
  • Providing payments system
• Financial institutions as money brokers

  They bring the lenders and borrowers of funds. For their convenience and economy, financial institutions specialize in matching the supply of savings with the demand for loans
• Provision of liquidity


  Not a few individuals with excess money are reluctant to transfer their money to borrowers. They may need cash anytime before their debtors will pay them. There are certain financial instruments which cannot be converted immediately into cash
• Providing payments system


  Through the medium of money, goods and services can be easily transferred from one person to another person. They are responsible for developing an efficient payment system in order to facilitate the exchange of goods and services
• Structure of the Philippine financial system

  • Bangko Sentral ng Pilipinas
  • Banking institutions (private and government)
  • Non-bank financial institutions (private and government)
• The General Banking Act, Savings and Loan Associations Act, Private Development Banks Act, Charter of the Development Bank of the Philippines, Investment Houses Act, and the Central Bank Act were laws produced in 1980 as part of financial reforms
• The IMF-CB group in 1972 was responsible for the organization of an offshore banking system in 1977, allowing multinational banks to operate in the Philippines
• Objectives of the 1980 financial reforms

  • To attain greater efficiency through increased competition and scale of economies
  • To obtain greater availability and use of long term funds
• Outcomes of the 1980 financial reforms

  • Introduction of universal banking
  • Removal of most ceilings on interest rates of deposits and loans
  • Increase of the powers and functions of quasi-banks
  • Elimination of all functional distinctions between private development banks and saving banks
  • Minimization of the difference between banks and quasi-banks
• Money


  One of the most outstanding inventions in the entire history of mankind
• Without money, the production and distribution of goods and services would be very slow and international markets would not likely prosper
• Functions of money


  • Medium of exchange
  • Standard of value
  • Store of value
• Medium of exchange


  We can exchange our money with goods and services
• Barter


  The exchange of goods or services with goods or services
• Standard of value


  Money measures the value of the product or service. Such economic values are stated in the monetary terms as prices
• The function of money as a standard of value is more important than its function as a medium of exchange
• Without a standard of value or unit of account, it would be extremely confusing for firms, institutions, governments and individuals
• Store of value


  Money which is not spent constitutes savings
• During inflation, people prefer to keep or save their money by buying jewelry, appliances or real estates