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Ralph Joseph Sandoval

FIN 111-0 AY01

Finance - The science that describes the management, creation and study of money, banking,
credit, investments, assets and liabilities. Finance consists of financial systems, which include
the public, private and government spaces, and the study of finance and financial
instruments, which can relate to countless assets and liabilities.
Financial Market - is a market in which people trade financial securities, commodities, and
other fungible items of value at low transaction costs and at prices that reflect supply and
demand. Securities include stocks and bonds, and commodities include precious metals or
agricultural goods.
Financial Institution - is an institution that provides financial services for its clients or
members.
TYPES OF FINANCIAL INSTITUTIONS (BANKING)
1. Commercial Banks - accept deposits and provide security and convenience to their
customers.
2. Investment Banks- is a financial intermediary that performs a variety of services for
businesses and some governments.
3. Insurance Companies - collecting premiums from a large group of people who want to
protect themselves and/or their loved ones against a particular loss, such as a fire, car
accident, illness, lawsuit, disability or death. Insurance helps individuals and
companies manage risk and preserve wealth.
4. Brokerages - acts as an intermediary between buyers and sellers to facilitate
securities transactions.
5. Investment Companies - Is a corporation or a trust through which individuals invest in
diversified, professionally managed portfolios of securities by pooling their funds with
those of other investors.
NON BANKING INSTITUTIONS
1. Savings and Loans
2. Credit Unions
3. Shadow Banks
MONEY - a current medium of exchange in the form of coins and banknotes; coins and
banknotes collectively.
EVOLUTION OF MONEY
1. Commodity Money - In the earliest period of human civilization, any commodity that
was generally demanded and chosen by common consent was used as money.
Goods like furs, skins, salt, rice, wheat, utensils, weapons etc. were commonly used as
money. Such exchange of goods for goods was known as Barter Exchange.
2. Metallic Money - gold, silver, copper.
3. Paper Money
4. Credit Money
5. Plastic Money Credit and Debit Cards.
BARTER SYSTEM

ADVANTAGES

It is a simple system devoid of the complex problems of the modern monetary system.
There is no question of over or under-production under the barter system since goods
are produced just to meet the needs of the society.
The problems of international trade, such as, foreign exchange crisis, adverse balance
of payments, do not exist under barter system.
There is no problem of concentration of economic power into the hands of a few rich
persons under the barter system because there is no possibility of storing the
commodities.
Personal and natural resources are ideally utilised to meet the needs of the society
without involving any wastage.

DISADVANTAGES
1.
2.
3.
4.
5.

Double Coincidence of Wants


Absence of Common Measure of Value
Lack of Divisibility
The Problem of Storing Wealth
Difficulty of Deferred Payments
Functions of Money

1. Medium of Exchange anything that facilitates trade by being generally accepted by all
parties in payment for goods and services.
2. Unit of Account a common unit for measuring the value of each good or services.
3. Store of Value anything that retains its purchasing power over time.
Characteristics of Money
1.
2.
3.
4.
5.
6.

Durable
Portable
Divisible
Uniform Quality
Low Opportunity Cost
Stable Value

Credit - the ability of a customer to obtain goods or services before payment, based on the
trust that payment will be made in the future.
Advantages

Credit is convenient. You do not need to carry a lot of money with you.
You may save money, because you can take advantage of sales.
Credit can help if you need money for emergencies, such as unemployment, illness,
death, or property loss.

Disadvantages

Credit usually costs more than paying cash. Interest and other charges may be added
to the purchase price.
You may buy more than you can afford.
Credit ties up future income. When you use credit, you owe money that must be paid
back from future income.

Bangko Sentral ng Pilipinas (BSP) - is the central bank of the Republic of the Philippines. It
was established on 3 July 1993 pursuant to the provisions of the 1987 Philippine Constitution
and the New Central Bank Act of 1993. The BSP took over from the Central Bank of
Philippines, which was established on 3 January 1949, as the countrys central monetary
authority. The BSP enjoys fiscal and administrative autonomy from the National Government
in the pursuit of its mandated responsibilities.

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