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MONEY, CREDIT AND BANKING value of all kinds of goods and services
Week 1 - Can be gold, silver, paper
Importance of Money If the unit of account is gold then it is gold standard
1. Money facilitates trade Classification:
2. Money stimulates production 1. Commodity Standard – one which uses gold or any metal as the basis
3. Money accelerates economic growth of value
History of Money Types:
- The Phoenicians the peddlers of the sea during the ancient a. Monometallism – based on one metal
times, conducted their trade by means of barter b. Bimetallism – based on two metals which are standard
- Slave girls were exchanged with cattle, iron, bronze money at a fixed value in terms of one another
- Grain, cattle, salt, tobacco, shells and various metals were c. Symmetallism – based on a simple metallic unit which is a
used as money mixture of different metals legally proportioned
- Greeks innovated the coined money
- Coined money were made of a natural mixture of good and
silver
- Used of coins stimulated trade
- Used of money made the rulers of the powerful Roman
Empire corrupt and immoral
- The government could no longer support the high expenses
of the large Roman Armies
- That resulted to stagnant trade and agriculture was neglected
- Attila the Hun, took advantage of the decaying economy and
plundered Roman Empire currencies circulated
Pre – Spanish Era
- Barter rings, gold ornaments and beads
- Piloncitos – 1st recognized form of coinage
Spanish Era
- Cobs or Macuquinas – odd-shaped silver coins
- Dos mundos or pillar dollars – silver
- Barillas – copper coins
- Counter stamped coins
Portrait series
- Peso fuertes – 1st banknotes issued
1st gold coins were also called Isabelinas and Alfonsinos – stamped
“Filipinas”
American Regime
‐ Silver Certificates
‐ Treasury Certificates
Japanese Occupation
- Japanese Invasion Money
- Guerilla Notes or Resistance Currencies
Week 2
Money – is anything that is generally acceptable in exchange for goods
and services
Functions of money:
1. Medium of exchange or means of payments
2. Unit of account or value
3. Store of value
4. Standard of deferred payment
Features/Characteristics of Money:
1. Generally acceptable
2. Divisible
3. Uniform/homogenous
4. Malleable – applies only to coins
5. Cognizable
6. Portable
7. Durable
Kinds of money:
1. Commodity money
2. Fiat money
Fiat means “order” or “sanction”
Managed Currency – any currency that can have its exchange rate
affected by the intervention of a Central Bank
2. Paper Standard – one which does not use gold or any metal as the - Accelerated the exchange of goods and services not only
basis of value within countries but among nations
- called as credit or Fiduciary Standard because it is dependent on the - Value or price of goods and services can be determined by
people’s trust in the government. means of money
Monetary System – includes in its scope designation of the unit of - To make the payment system more efficient, aside from using
account plus the whole government mechanism established to regulate paper money and coins and checks, electronic money has
the creation of money and to control its quality in circulation been developed.
Central Bank Security Printing Plant, Mint and Gold
Refining Complex
- Located in East Avenue, Diliman, Quezon City
- Five – building complex which houses the Central Bank
Security Printing Plant, Mint and Gold Refinery
- Considered as first of its kind in Southeast Asia
- It is likened to that of the United Sates renowned gold
depository in Fort Knox
- The complex is being managed as two separate departments
a. the Security Printing Plant
b. The Mint and Gold Refinery
- The set up is mainly for functional and administrative
purposes
- Before the establishment of the Complex, CBP is depended
on foreign contractors for its notes and coins
- Thomas de la Rue and Co. Ltd – a well – known and highly
respected security printer in England where Philippine bank
notes had been printed since 1949
- Coins were minted in the United States, Germany and other
foreign countries
The Security Printing Plant
- In a span of 200 working days, the Plant has the capability of
producing 384 million bank notes
- Can accept printing other related security instruments such as
MICR-encoded checks of the banking and financial systems,
deposit passbooks, Torren titles, internal revenue stamps,
postage stamps
The Mint
- Annually, the Mint has the capability of producing 120 million
coins of different denominations
- Has the equipment to reproduce the working dies used for
stamping the coins on imported master dies
3. Business Reference
4. CB credit information system – to ensure confidentiality, the
CB assigns a reference number of each inquiry
According to Purpose: ‐ Bank draft – drawn by a bank upon another bank where it
a. Commercial credit – includes the promise to pay of maintains an account
businessmen for the funds they borrowed in the purchased of - used for international cash payment drafts
goods for productive or profitable ventures. These are the - international drafts are called banker’s demand drafts
merchants, distributors and manufacturers a. Bill of exchange – an unconditional signed written
b. Agricultural Credit – includes the promises to pay of farmers order addressed by one person to another to pay
and farm organizations for the funds they borrowed in the on demand or at a specified future date a certain
acquisition of farm inputs such as fertilizers, chemicals, seeds sum of money to order or bearer.
and the facilities for production and other agricultural b. Bank Acceptance – similar to a trade acceptance
operations except that the order to pay is drawn upon a
c. Investment credit – is the promise to pay of individuals or bank by the seller of goods
business firms for the loans they obtain in buying capital 2. Trust Receipt Transaction – any transaction by and
goods such as machineries, lands and construction of plants between an entruster (bank) and an entrustee (importer)
and factories. This is also called industrial credit. whereby the entruster (bank) who owns or holds absolute title
d. Consumer Credit – constitutes all the obligations to pay or security interests over certain specified goods, documents
people for the money they borrowed for consumption or instruments releases them to the possession of the
purposes such as medical care, tuition fees, goods and other entrustee (importer). The importer signs a document called
things for personal needs. “trust receipt” wherein he promises to hold the designated
5. Speculative Credit – used for dealing in securities or goods goods, documents or instruments in trust for the bank and to
with the intention of making a profit through favorable price sell or dispose them with the obligation to turn over to the
changes bank the proceeds
According to time period:
a. Short – term credit - a loan which is payable in less than one
year
b. Long – term credit – a loan whose maturity is from 5 yrs. or
more
Week 8 - 9
Philippine Financial System
Financial System – a network of various institutions which generate,
circulate and control money and credit
- Provides intermediation between the suppliers and users of
credit
- The idle funds of some people who have excess money are
made available for profitable projects or production that may
result to more employment and income
Elements:
1. Financial claims – are the money and the rights to receive
money under specific circumstances
Categories:
a. Debts – financial obligations which are to be paid
b. Equities – claims of ownership like shares of
stocks
2. Financial institutions – are private or government organization
whose assets consist primarily of claims or income primarily
derived from dealing in and/or performing services in
connection with claims.
E.g. banks, finance companies
3. Financial Markets – institutions which expedite transactions in
financial claims
e.g. Philippine Stock Exchange
4. Government agencies – The Central bank supervises and
regulates the banking institutions and other financial
institutions
5. Laws and Policies – are legislated by Congress and
implemented the Central Bank of the Philippines
Functions of Financial Institutions
General Function: to facilitate the transfer of funds from the savers to the
users.
Specific Functions:
1. Investigation and credit analysis
- Loan applications are properly evaluated to ensure the
efficient use of credit and to protect the savings of individuals
as well as to minimize the risk of non payment of loans
2. Matching the supply and demand for funds
- They bring together the lenders and borrowers by providing
conveniently located offices
3. Provisions for liquidity
- through the brokerage functions of the financial institution
Structure of the Philippine Financial System ‐ The bank has 15 non – regional member countries which are
1. Central Bank of the Philippines highly developed countries like the United States, France,
2. Banking Institutions Canada, West Germany among others.
Private banking institutions ‐ Very rigid requirements have been imposed on borrowing
a. Commercial banking institutions member countries with very low credit ratings like the
- Ordinary commercial banks Philippine
- Expanded commercial banking/universal banking e.g. for the approval of loans – a country should implement
b. Thrift Banks political, fiscal and monetary reforms
- Savings and mortgages banks ‐ They decide the specific type of project they want to finance
- Private development banks Usual Conditionalities whenever a member country applies for loan from
- Stock savings and loan association the WB-IMF:
c. Rural Bank a. Adoption of floating rate system
Government banking institutions b. Devaluation of the peso
d. Land Bank of the Philippines c. Import liberalization
e. Development Bank of the Philippine d. Export promotion
f. Philippine Amanah Bank e. Encouragement of foreign investment
3. Non – Bank Financial Institutions f. Raising of specific tax on oil products
a. Private non – bank financial institutions g. Removal of price control over essential goods for domestic
1. Investment companies use
2. Financing companies h. Limiting of growth of money supply and domestic credit
3. Securities dealers/brokers i. Reduction or elimination of consumption subsidies like rice
4. Pawnshops subsidy
5. Trust Companies/departments j. Limiting of budget deficit of the national government
6. Insurance companies
7. Credit cooperatives
b. Government non – bank financial institutions
1. Government Service Insurance System
2. Social Security System
Multinational Banks – operate in our country through their branches or
equity investments in both financial and non – financial institutions
e.g. Maybank – Malaysia
Deutsche Bank – Germany
Citibank and Bank of America – US
Standard Chartered Bank and Hong Kong
Shanghai Banking Corporation (HSBC) – Great Britain
Week 11
Role of World Bank – International Monetary Fund and Asian
Development in the Philippine Financial System
- United States is the biggest stockholder of all the three
international financial institutions
- The president of the World Bank is always an American
- The managing director of International Monetary Fund is
always European who is acceptable to the Americans
- The president of the Asian Development Bank is always a
Japanese
- United States has a strong influence in all three institutions
because of its large voting power
- World Bank and IMF were created in 1945 and occupy the
same headquarters at Washington D.C
- Both hold their annual meetings together
- Objectives of International Monetary Fund
a. To assist in the reconstruction of Western Europe
which has been devastated by World War II
b. To finance the development programs/projects of
the developing countries.
‐ Objective of World Bank
a. To ensure an international monetary system that
will promote the international free trade free trade
dominated by the US and other industrialized
nations
- Objective of ADB which is based in Manila
a. To help promote the economic and social
development of its member countries especially
the less developed ones.
Week 12 Central Bank – a body corporate entrusted with the responsibility of
Banks are entities duty authorized by the Monetary Board of the Central administering the monetary, banking and credit system of the country
Bank that may engage in the lending of funds obtained from the public - Mother of all banks
through the receipt of deposits of any kind Objectives:
Attributes/Characteristics: 1. To maintain internal and external monetary stability in the
1. It must be authorized by the monetary board of the Central Philippines
Bank 2. To foster monetary, credit and exchange conditions
2. It must engage in the lending of funds conducive to a balanced and sustainable growth of the
3. It must obtain the funds from the public through the receipt of economy
deposits of any kind
4. It must regularly conduct such operations
Principal Functions:
a. Deposit
b. Loan
Classification:
1. Commercial Bank
a. Universal Bank/expanded commercial bank
b. Ordinary commercial bank
2. Thrift Banks
a. Savings and mortgages banks
b. Private development banks
c. Stock savings and loan association
3. Rural Banks
4. Government Specialized Banks
Deposit – is constituted from the moment of a person receives a thing
belonging to another with the obligation of safety keeping it and of return
the same.
Deposit Substitutes – an alternative form of obtaining funds from the
public other than deposits through the issuance, endorsement or
acceptance of debt instruments for the borrower’s own account, for the
purpose of relending or purchasing of receivables and other obligations
e.g. promissory notes, repurchase agreements
Deposit Insurance – handled by Philippine Deposit Insurance
Corporation
- Amount insured Php 500,000.00
Members:
- The Governor of the Central Bank
- 2 Citizens of the Philippines appointed by the
President
Loan – a sum of money lent at interest
Classification:
1. Secured and unsecured
2. According to maturities
a. Demand
b. Time
1. Short - term
2. Medium/intermediate
term
3. Long term
Quasi – Banking Functions – mean borrowing funds for the borrower’s
own account through the issuance, endorsement or acceptance of debt
instrument of any kind other than deposits or through the issuance of
participation, certificates of assignment or similar instruments for the
purpose of relending or purchasing of receivables and other obligations
Regulation – the issuance of rules of conduct or the establishment of
modes or standards of operation for uniform application to all institutions
or functions covered.
Supervision – includes not only the issuance of rules but also the
overseeing to ascertain the regulations are complied with.
Universal Banking – an expanded commercial banking
- A mixture of combination or merges of two business entities
distinct, separate and oppose from one another
Offshore Banking – the conduct of banking transactions in foreign
currency involving the receipt of funds from external sources and the
utilization of such funds as provides in the Decree.
General Monetary or Credit Controls: 3. Appoint, fix the remuneration and other emoluments and
1. Open – market operations decide on the removal of Central Bank personnel except the
2. Discount rates governor
3. Reserve requirement – to control money supply 4. Authorize such expenditures of the Central Bank in the
Functions: interest of its effective administration and operation
1. As fiscal agent of the government Services of the Central Bank:
2. As caretaker of bank’s reserves 1. Supervises and regulates operations of banking institutions
3. As manager of international reserve of the country (consisting 2. Regulates operations of non – bank financial intermediaries
of gold and foreign exchange) 3. Regulates foreign exchange
4. As issuer of notes 4. Regulates Credit
5. As regulator or controller of credit 5. Issues money
Features: 6. Mints coins and prints paper money
1. Except in isolated cases, the central bank is said not to be 7. Keeps reserves
directly dealing with any particular individual or individuals or 8. Clears checks
the public at large 9. Prints checks
2. Although the Central Bank may realize profits from its 10. Prints government securities
operation, it is definitely organized or created not for the 11. Grants loans and advances
purpose of profit – making or profit – seeking venture 12. Buys and sells government securities
3. As a body corporate owned by the government, it is expected 13. Collects revenues for the government
to fulfill its role as an agency of the government in
implementing public policy
4. Exercises supervision and regulation over – monetary credit
and banking system of the country
5. Serves as the linkage or the connecting link between the
banking system of one country and that of another or the rest
of the world
Central Banks inaugurated last Jan. 3, 1949
- Has over 3000 employees
- Has more than a billion dollar international reserve as against
$420million in Jan 1949
- Adopted trade controls in 1950’s
- Adopted credit controls in 1960’s
- Unrestricted exchange rate or floating peso in 1970’s
- restructuring of the banking system in 1980’s like amending
banking laws to give way to the so – called “Universal
Banking”
Role of the Central Bank
- To ensure a strong monetary foundation and adequate
resources inputs to the development process
Factors:
1. Bank Capital build – up (increase capitalization of banking
institution)
2. Regional dispersal of credit and financial institutions
(availability of funds must not be limited or concentrated in
Metro Manila)
3. Rationalization of interest rate structure (upgrading of interest
on deposit)
4. Credit allocation to agro – industrial development (such as
move will speed – up the country’s industrialization process)
5. Careful international debt management ( using prompt
payments or otherwise of our maturity international
obligations)
Monetary Board – the policy – making body of the Central Bank
Members:
1. Governor
2. A cabinet member (Dept. Finance)
3. 5 members from the private sector – appointed by the
president
Powers:
1. Prepare and issue rules and regulations for the effective
discharge of the responsibilities and exercise of the powers
vested in
2. Direct management, operation and administration of the
Central Bank and prepare the necessary rules and
regulations for the purpose
Week 13 b. Investment transaction – involves the sale of financial on an
Investment – refers to an asset or property right acquired for profit motive impersonal basis to any buyer through dealers or brokers
Investor – a person who makes investment and earn profit in return. Classification on the basis of maturity:
Speculator – a person who expect big profits a. Capital Market refers to the buying and selling of long – term
Gamblers – individuals who speculate on the basis of tips, rumors or financial instrument like bonds and stocks
engage in situations which they do not understand b. Money Market is concerned with the buying and selling of
Factors affecting the profitability of investments: short – term financial instruments such as Treasury bills,
1. Inflation rate bankers acceptance and commercial paper.
2. Taxes
3. Technology
4. Tastes and preferences
5. Peace and order
6. Attitudes
7. Interest rates
Types of risk of investment
1. Business risk – due to competitive, change in demand, error
in management, inflation and change in technology
2. Market risk – fluctuations in market prices, income and
preferences
3. Inflation risk – a situation in which there is a general increase
in the level of prices
Causes:
a. Shortage of supply
b. Excessive money supply
c. High cost of production
d. Desire of capitalists for more profit
4. Social risk – brought about by government laws and policies
Classes of Investments:
1. Savings deposits
2. Time deposits
3. Life insurance policies
4. Bonds
5. Money Market placement
Money Market refers to the buy and sell of short – term funds
through a financial intermediary.
6. Houses, apartments and building ownership
7. Land ownership
8. Business ownership
9. Education and training
10. Foreign exchange Investment
11. Precious tangibles
e.g. gold and silver coins, jewelry, old paintings, rare books,
antiques
Planning Personal Investment
Suggestions:
1. Life Insurance
2. Readily availability funds
3. Investment for personal needs
e.g. house and lot provide personal satisfaction to the owner
Features of Good Investments:
1. Safety of the value of investment – affected by inflation
2. Saleable instruments
3. Stability of income
e.g. interest from bank deposits and bonds rentals of
apartments and buildings
4. Taxes
if tax rate is high, it discourages investment our government
provides tax incentives to cooperatives and cottage industries
in order to promote their growth
Financial Markets – a market whenever buyers and sellers agree to
exchange regardless of their location and how they transact their mutual
interests.
Types of financial transactions:
a. Loan transactions – require face to face negotiations
between borrowers and lenders