Chapter 1: Rationale in Studying Financial Markets and Institutions Understanding financial markets and institutions is crucial for comprehending the economy's functioning. Learn how funds are transferred and their impact on personal wealth, business behavior, and the cyclical performance of countries worldwide. Why S tudy Financial Markets? Driving the Economy 📈 Influence on Business and Personal Wealth 🏦 Global Connectivity 🌍 Financial markets influence Studying financial markets countries worldwide, making profits, goods and services helps understand how they it essential to comprehend production, and the affect personal wealth and their functioning. economic well-being of business behavior. countries. Financial markets impact The Significance of Financial Markets 1 Impact on Poverty 2 Contribution to Economic Growth Learn how financial markets contribute to high economic growth and promote prosperity. Poorly performing financial markets can lead to poverty. Explore the effects of financial markets on the economy and society. 3 Daily Life Influence Financial markets and institutions play a critical role in our daily lives. Find out how they affect our personal wealth and business behavior. Understanding Financial Markets 1 3 Clarifying Common Phrases 📚 2 Working Mechanism 🔄 This book explains the Learn how financial markets purposes of different function and the meanings financial markets like "Wall attached to phrases often S treet" and "stock market." unclear or outdated. Real-World Examples 🌏 Discover how financial markets exercise enormous influence over modern life. Role of Financial Institutions 1 Transaction Costs Reduction ❗ Financial institutions reduce transaction Sharing Opportunities 🌐 2 costs, making financial markets more accessible. Financial institutions allow small savers and borrowers to benefit from the existence of financial markets. 3 Solving Problems 💡 Learn how financial institutions solve problems created by adverse selection and moral hazard. Approach to S tudy Financial Markets Analytic Framework 📊 Bank Management 👔 This book utilizes a unifying, Explore the role of financial analytic framework to study institutions in the management Discover the role of monetary asset prices and the structure of of banks. policy in influencing the financial markets. Monetary Policy and the Economy 💰 economy. Keeping Up With the Financial News 1 Lifelong Habit 📰 Regularly follow the 2 Recommendations 💼 3 Online Resources 🌐 The World Wide Web financial news to better Read leading financial provides a convenient understand the real-world publications and the resource for financial impact of financial finance/business section research. markets and institutions. of newspapers to stay informed. The Filipino E xample In the Philippines, the study of financial markets and institutions is essential for understanding the functioning of the Philippine Stock Exchange (PSE) and its impact on the economy. Exploring how funds are transferred, shared, and managed is key to grasping the dynamics of this vital institution. Chapter 2 : Money and Interest Rate Money enables transactions and the flow of wealth in our economy. Banks and financial institutions play a crucial role in allowing individuals to deposit money, earn interest, borrow, invest, and start businesses. The Federal Reserve and "Bangko S entral ng Pilipinas" control the economy, issuing currency, and determining interest rates in the US and the Philippines, respectively. Characteristics and Key Functions of Money 1 S tore of Value 2 Item of Worth Money allows wealth to be stored for Money historically had intrinsic value, future use, requiring it to be durable ensuring its acceptance. and easily manageable. 3 Means of E xchange 4 Unit of Account Money should be freely Money serves as a measure of exchangeable for goods, with a personal and national wealth, stable value. Divisibility and sufficient requiring a recognized authority to denominations are important for issue it to maintain trust. transactions. 5 S tandard of Deferred Payment Money is useful for deferred payments, providing a medium of exchange and unit of account. The Evolution of Money Barter System Commodity Money Fiat Money Barter, the direct exchange of Commodity money takes the Fiat money is backed by the goods, was the earliest form of form of a precious metal, such government and has no intrinsic trade. as gold or silver. value. Digital Transactions Digital transactions use virtual money, stored on electronic devices, to facilitate payment. Advantages and Disadvantages of Barter Advantages Disadvantages • Fosters strong trading relationships • Requires mutual desire for offerings • Relies on physical goods exchange • Challenges in establishing item values • Difficulty conducting large-scale transactions Artifacts of Money 1 Spices S pices were used as a currency in the Shells 2 Middle Ages. S hells were a form of currency in Africa and Oceania. 3 Tokens Tokens were used as currency in ancient China, Rome and Japan. The E conomics of Money 1 Economics as a discipline 2 National Banks National banks were 3 New Forms of Trading From the 16th century established to regulate New forms of trading, onwards, the money supplies. such as credit cards, understanding of money digital transactions, became more cryptocurrencies, and sophisticated. financial derivatives, emerged in the post-Gold S tandard era. Highlights in the History of Money 1 Pre-Spanish Regime Before the Spanish arrived in 1521, the Philippines already had trade with neighboring countries. Barter was the main medium of exchange. 2 Spanish Regime When the Spanish colonized the Philippines, they introduced coins in 1521. Silver coins from Mexico were commonly used. 3 American Regime After gaining independence in 1898, the Philippine Peso was introduced in 1903 as the country's first local currency, replacing the Spanish-Filipino Peso. 4 Japanese Regime During World War II, Japan occupied the Philippines and issued Japanese War Notes. 5 Post-War Period After the war, the Philippine Commonwealth was established. Japanese currencies were declared illegal, and new treasury certificates called Victory Money were printed. The S upply and Demand for Money The Money S upply The Demand for Money Deposits at banks are considered money, but The demand for money comes from trans action, check payments and consumer credit cards are precautionary, and s peculative needs . The not included in the money supply. Key measures interest rate affects the demand for money. If the include MI, M2, M3, and L. interest rate increases, the opportunity cost of holding money goes up, leading to decreased consumption and increased saving. The Supply and Demand for Money Money Supply M2 M3 • Currency in circulation • Savings deposits • Demand deposits • Money market assets • Traveler's checks • Financial institutions The Bangko Sentral ng Pilipinas determines the supply of money through open market operations, reserve requirements, and the discount rate, which affects interest rates, borrowing costs, consumption, and investment levels. The demand for money includes transaction demand, precautionary demand, and speculative demand. The Impact of Money S hort-Term Impact Long-Term Impact The central bank's monetary policy has an In the long run, prices are assumed to be fully immediate impact on the economy. Higher interest flexible, and the quantity of money is proportional to rates can decrease investment and consumption. the price level. Inflationary gaps can be addressed by decreasing the quantity of money and raising the interest rate. THANK YOU!
