PRE-FINAL EXAMINATION

BASIC FINANCE
BMGT 24
Hi Class,
There are some terminologies that are uncovered by the group reporters which are
included in this summarized hand outs. Best of Luck!

-The BSP took over from the Central Bank of Philippines, which was established on 3 January
1949, as the country’s central monetary authority.

-The BSP enjoys fiscal and administrative autonomy from the National Government in the
pursuit of its mandated responsibilities.

Executive Management Services – the functional grouping of all units directly reporting to the
Monetary Board or to the Governor.

Monetary Boardexercises the powers and functions of the BSP, such as the conduct of
monetary policy and supervision of the financial system. Its chairman is the BSP Governor, with
five full-time members from the private sector and one member from the Cabinet.

20 PESO Security Features: (1) embossed prints, (2) serial number, (3) security fibers, (4)
watermark, (5) see-through mark, (6) concealed value, (7) security thread

500 PESO Security Features: (1) embossed prints, (2) serial number, (3) security fibers, (4)
watermark, (5) see-through mark, (6) concealed value, (7) security thread, (8) optically variable
device
 1000-PESO Security Features: (1) embossed prints, (2) serialnumber, (3) security fibers,
(4) watermark, (5) see-through mark, (6) concealed value, (7) security thread, (8)
optically variable device, (9) optically variable ink

BANKING AND FINANCE IN THE PHILIPPINES

- Banco De Oro Unibank, Inc.

- Metropolitan Bank and Trust Company
- Bank of the Philippine Islands
- Land Bank of the Philippines
- Philippine National Bank
- Development Bank of the Philippines
- Security Bank Corporation
- China Banking Corporation
- Rizal Commercial Banking Corporation
- United Coconut Planters Bank
- Asia United Bank

BASIC BUILDING BLOCKS OF FINANCIAL SYSTEM

1. Financial System – A network of various institutions, together with government
agencies, laws and policies, which generates, circulates and control money credits.
2. Financial Institutions – are firms that connect borrowers and lenders, provide savers and
borrowers access to financial instruments and markets.
3. Financial Management - involves financial planning, asset management and fund
raising decisions to enhance the value of businesses.

TYPES OF FINANCIAL INSTITUTION

1. PRIVATE BANKING INSTITUTIONS
1. Commercial Banking Institutions – collects deposits from individual and lend to
businesses and individuals.
 2. Thrift Banks – primarily engaged in mobilizing the small savings of people. They
encourage the habit of thrift and savings, and provide loans at reasonable interest
rates.

2. GOVERNMENT BANKING INSTITUTIONS

1. Philippine National Bank – a universal bank which operates under the provision of
Executive Order No. 80, the 1996 revised charter of PNB
2. Development Bank of the Philippines – provides banking services principally to
service the medium and long term needs of agricultural and industrial enterprises, particularly in
the countryside and preferably for small and medium enterprises.
3. Landbank of the Philippines – created by the Agrarian Reforms Code to finance the
acquisition and distribution of agricultural estates for division and resell these to small
landholders. It also financed the purchase of landholdings by Agricultural lessees.
4. Al-Amanah Islamic Investment Bank of the Philippines – created for the purpose of
promoting and accelerating the socio-economic growth and development of Mindanao.

3.PRIVATE NON-BANK INSTITUTIONS

1. Securities brokers – are agents of investors who match buyers with sellers of
securities.
2. Securities dealers – link buyers and sellers by buying and selling securities at stated
price.
3. Building and Loan Association – corporations whose capital stock is required to be
paid in by the stockholders in regular, equal periodical payments.
4. Lending Investor – They operate as money brokers.
5.Pawnshops – provide credit to small borrowers who are not qualified to obtain small
loans from other financial institutions with the security of personal property.

4.GOVERNMENT NON-BANK FINANCIAL INSTITUTIONS

1.Government Service Insurance System – extends life insurance coverage and benefits to
government employees.
2.Social Security System – provide benefits to workers/employees in the private sector.

BANGKO SENTRAL NG PILIPINAS

Objectives:
The BSP’s main primary objective is to maintain price stability conducive to balanced
and sustainable economic growth. The BSP also aims to promote and preserve monetary
stability and the convertibility of the national currency.

Responsibilities:
The BSP provides policy directions in the areas of money, banking and credit. It
supervises operations of banks and exercises regulatory powers over non-bank financial
institutions with quasi-banking functions.
The BSP Seal
The new BSP logo is a perfect round shape in blue that features three gold stars and a
stylized Philippine eagle rendered in white strokes. These main elements are framed on the left
side with the text inscription “Bangko Sentral ng Pilipinas” underscored by a gold line drawn in
half circle. The right side remains open, signifying freedom, openness, and readiness of the BSP,
as represented by the Philippine eagle, to soar and fly toward its goal. Putting all these elements
together is a solid blue background to signify stability.

Principal Elements:
1. The Philippine Eagle, our national bird, is the world’s largest eagle and is a symbol of
strength, clear vision and freedom, the qualities we aspire for as a central bank.
2. The three stars represent the three pillars of central banking: price stability, stable banking
system, and a safe and reliable payment system. It may also be interpreted as a geographical
representation of BSP’s equal concern for the impact of its policies and programs on all
Filipinos, whether they are in Luzon, Visayas or Mindanao.

Colors
1. The blue background signifies stability.
2. The stars are rendered in gold to symbolize wisdom, wealth, idealism, and high quality.
3. The white color of the eagle and the text for BSP represents purity, neutrality, and mental
clarity.

Font or Type Face

Non-serif, bold for “BANGKO SENTRAL NG PILIPINAS” to suggest solidity, strength, and
stability. The use of non-serif fonts characterized by clean lines portrays the no-nonsense
professional manner of doing business at the BSP.

Shape
Round shape to symbolize the continuing and unending quest to become an excellent monetary
authority committed to improve the quality of life of Filipinos. This round shape is also
evocative of our coins, the basic units of our currency.

FUNCTIONS OF BSP
Under the New Central Bank Act of 1993, the BSP performs the following functions, all
of which relate to its status as the Republic’s central monetary authority.
1. LIQUIDITY MANAGEMENT - The BSP formulates and implements monetary policy
aimed at influencing money supply consistent with its primary objective to maintain price
stability.
2. CURRENCY ISSUE - The BSP has the exclusive power to issue the national currency.
All notes and coins issued by the BSP are fully guaranteed by the Government and are
considered legal tender for all private and public debts.
3. LENDER OF LAST RESORT - The BSP extends discounts, loans and advances to
banking institutions for liquidity purposes.
4. DETERMINATION OF EXCHANGE RATE POLICY - The BSP determines the
exchange rate policy of the Philippines. Currently, the BSP adheres to a market-oriented
 foreign exchange rate policy such that the role of BSP is principally to ensure orderly
conditions in the market.

ORGANIZATION of the BANGKO SENTRAL

The basic structure of the Bangko Sentral includes:
1. The Monetary Boardwhich exercises the powers and functions of the BSP, such as
conduct of monetary policy and supervision of the financial system.
2. The Monetary Stability Sector which takes charge of the formulation and
implementation of the BSP’s monetary policy, including serving the banking needs of all
banks through accepting deposits, servicing withdrawals and extending credit through the
rediscounting facility.
3. The Supervision and examination Sector which enforces and monitors compliance to
banking laws to promote a sound and healthy banking system, and
4. The ResourceManagement Sector which serves as the human, financial and physical
resource needs of the BSP

CONTEMPORARY ISSUES AFFECTING FINANCIAL INSTITUTION

1. The BSP on Money Supply and Deposit Expansion.
1.a) Money Supply – The total supply of money in circulation in a given
country’s economy at a given time.
1.b) Deposit Expansion – Change in the money supply as a result of an increase
in bank reserves.
2. Monetary Board – The powers and function of Bangko Sentral are exercised by its
Monetary Board, which has seven members appointed by the President of the
Philippines.
3. Monetary Policy – measures or actions taken by the Central bank to influence the
general price level and the level of liquidity in the economy.

CLASSIFICATION OF BANKS
1. Central Bank - This bank acts as the leader of the banking system and money market of
the country by regulating money and credit.
- These banks are the bankers to the government, they are bankers' banks and
the ultimate custodian of a nations foreign exchange reserves.
2. Commercial Banks - A bank, which undertakes all kinds of ordinary banking business.
3. Industrial Bank - one which specializes by providing loans and fixed capital to
industrial concerns by subscribing to share and debenture issued by public companies.
4. Cooperative Bank - They are organized on cooperative principles of mutual help and
assistance.
5. Land Mortgage Bank –banks which supply long-term loans for a period up to 15 years
for development of land to improve agricultural yields.
6. Savings Banks - These are institutions which collect the periodical savings of the general
public. Their main object is to promote thrift and saving habits among the middle and
lower income sections of the society.
7. International/Foreign Banks - are those which are operating in different countries.
8. Rural Banks - Local level banking organizations operating in different States of any
country.
 9. Domestic bank - the banks which working under its geographical boundaries.
10. Public banks – banks in which a state or public actors are the owners. It is a company
under state control.

PRESIDENTIAL DECREE No. 734 – indicates that vesting minors with the supervision of
their parents, the power to make savings and time deposits.

Senate Bill No. 613 - All movie, television, radio producers, including promotions
and advertising agencies, talent promoters, and other like entities, who in the course of business
hires, procures, or engages the services of an emancipated minor below eighteen (18) years of
age shall be required to deposit in the name of the said minor.

DEPOSIT - A transaction involving a transfer of funds to another party for safekeeping.

DEPOSIT IN TRANSIT - A deposit in transit is money that has been received by a company
and sent to the bank, but which has not yet been processed and posted to the account by the bank.
TIME DEPOSIT - A savings account or certificate of deposit (CD) held for a fixed-term, with
the understanding that the depositor can make a withdrawal only by giving notice. A time deposit
is an interest-bearing bank deposit that has a specified date of maturity.
DEPOSIT SLIP -A small written form that is sometimes used to deposit funds into your
account.
DEPOSITARY RECEIPT - A negotiable financial instrument issued by a bank to represent a
foreign company's publicly traded securities.
Insurance - is the equitable transfer of the risk of a loss, from one entity to another in exchange
for payment.
Premium - The amount of money to be charged for a certain amount of insurance coverage.
Methods of insurance
1. Co-insurance – risks shared between insurers
2. Dual insurance – risks having two or more policies withsame coverage.
3. Self-insurance – situations where risk is not transferred to insurance companies and solely
retained by the entities or individuals themselves
4. Reinsurance – situations when Insurer passes some part of or all risks to another Insurer called
Reinsurer

Types of insurance
• Auto insurance
• Gap insurance
• Health insurance
• Accident, sickness, and unemployment insurance
• Casualty
• Life
• Burial insurance
• Property
• Liability
• Credit
BANKING CORPORATION – Financial services specifically offered to corporations, such
as cash management, financing, underwriting, and issuing of stocks, bonds, or other instruments.
Retail Banking- Banking services for individual customers
Wholesale Banking- A large organization.

LOANS AND OTHER CREDIT PRODUCTS

1. Treasury and cash management services
2. Equipment lending
3. Commercial real estate
4. Trade finance
5. Employer services
6. Equipment lending
7. Commercial real estate
8. Trade finance
9. Employer services

Investing equities - is risker than and definitely demands more than investing through mutual
funds.
Real Estate - is property consisting of land and the buildings on it.

Types of Income-Producing Real Estate

1. Office Property
2. Retail Property
3. Industrial Property
4. Multi-family Residential Property

Broker– who the realtors and agents are working for.

co-borrower – is an additional individual who is both obligated on the loan and is on title to the

KEY FACTORS ON CONTEMPORARY ISSUES AFFECTING FINANCIAL

INSTITUTIONS

Financial Stability – is defined in terms of its ability to facilitate and enhance economic
processes, manage risks, and absorb shocks.
Regulator – an official or body that monitors the behavior of companies and the level of
competition in particular markets.
Transparency – the full, accurate, and timely disclosure of information.
Deregulation – is the removal or simplification of government rules and regulations that
constrain the operation of market forces.

NBFI is a financial institution that does not have a full banking license or is not supervised by a
national or international banking regulatory agency. NBFIs facilitate services such as investment
risk pooling, contractual savings, and market brokering.

Multinational Bank-bank that has offices and operations across multiple countries.
Universal Bank - a banking system in which banks provides a wide variety of financial services
including both commercial and investment services.
FOUR TYPES of FINANCIAL STATEMENT

Income Statement, also known as the Profit and Loss Statement, reports the company's financial
performance in terms of net profit or loss over a specified period. Income Statement is composed of the
following two elements: Income and Expense

Statement of Financial Position, also known as the Balance Sheet, presents the financial position of an
entity at a given date.

1. Assets: Something a business owns or controls

2. Liabilities: Something a business owes to someone
3. Equity: Represents the difference between the assets and liabilities

Statement of Changes in Owner’s Equity - Is a financial statement that reports the changes in the equity
section of the balance sheet during an accounting period.

Cash Flow Statements - is a financial statement that shows how changes in balance sheet
1. Operating Activities - refer to the primary revenue-generating activities of a business
2. Investing Activities – include cash activities related to noncurrent assets.
3. Financing Activities - Shows investors the company’s financial strength.

 cash inflow – the money coming into the business

 cash outflow- the money going out from the business

Financial statement analysis involves the identification of the following items for a company's financial
statements over a series of reporting periods.

Users of Financial Statement Analysis

Owners and Invertors
Management
Lenders
Trade creditors or suppliers
Government
Employees
Customers
General Public

1.Liquidity Ratio- measure the ability of company to remain in business.

2. Profitability Ratio- measures how well a company perform in generating a profit.
3. Solvency Ratio- is a measure of the risk an insurer faces of claims that it cannot absorb.

Global Banking – functions as an international banks transcend with the domestic bank because they link
savers and borrowers across different countries.
LEADERS OF FINANCIAL SYSTEM

1. International Monetary Fund (IMF) – is an international organization which promotes

international monetary cooperation and exchange stability.
2. World Bank (WB) –provides loans and development assistance to middle income and lower
income countries with a stated aim of reducing poverty.
Two Institutions under WB
a. International Bank for Reconstruction and Development (IBRD)
b. International Development Association (IDA)
3. Asian Development Bank (ADB) – is a regional development bank to promote economic and
social development in Asian and Pacific countries through loans and technical assistance.
4. Islamic Development Bank (IDB) – is a bank to provide equity participation and grant loans for
productive projects and enterprises.

NOTE: Study on outflow and inflow movement of cash on cash flow activities which will be discussed
further by the chapter 7 reporters on Tuesday.