MONEY
NATURE OF MONEY
 Money was derived from the Latin word
moneta, surname of the Roman goddess Juno.
 Moneta refers to a mint or a place for coining
money.
 According to the etymonline.com, it also comes
from the Old French monoie and the Modern
French monnaie, meaning money, coin,
currency, or change.
 “bucks” – from the word “buchskins,” a medium
of exchange used by the settlers during early
times.
Money defined….
 It is something generally accepted as a medium
of exchange, a measure of value, or a means of
payment. – Merriam-Webster
 It is anything authorized by law to be generally
accepted as legal tender, as a medium of
exchange, and a standard of value in payment
of goods and services without reference to the
general standing of the person who offers it.
 Money is the lawful token used in our society to
pay goods, services, and debt.
 It is anything which is used as a medium of
exchange and which is widely acceptable for the
payment of goods and services without
reference to the general standing of the person
who offers it. Miranda(2004)
Money….
1. Medium of exchange
2. Legal tender
3. Measure of value
4. Means of payment
5. Standard of value
CHARACTERISTICS OF MONEY
Scarcity
 It makes something valuable, and overabundance makes it worthless. Scarcity means
rare or hard to find. This is based on the basic
economic law of supply and demand.
 The harder a thing is to find, the more that
thing becomes. This is the reason why precious
metals, especially gold and silver, deemed a
good choice as a medium of exchange.
However, limited supply makes these metals
impractical or too expensive to use.
Divisibility
 It is another feature that enables one to suit the
medium of exchange to the kind of transaction,
big or small. Small units apply to small
transactions and big units apply to big
transactions.
 It refers to the quality of being broken down
into smaller units. The property of malleability
of metals makes them desirable for coinage
because they can be melted and formed into
different shapes and sizes and different
denominations.
Portability
 An ease in handling or carrying makes one
thing desirable as a medium of exchange.
 This allows people to bring it with them
anywhere they go to enter into a
transaction.
 A piece of metal is easier to carry than a
carabao. Paper money is more portable
than metals or even coins.
Durability
 It means long lasting. Metal is almost
indestructible that is why it became a
medium of exchange for a long time.
 There are countries nowadays that use
plastic polymer money in place of paper
money. Plastic is more durable than paper.
 Philippine Coins are made of metals while
paper bills are composed of 80% cotton and
20% abacca.
FUNCTIONS OF MONEY
The basic functions of money:
 To facilitate the exchange of goods and services
 To lessen the time and effort required to carry
on trade
1. Medium of Exchange
2. Standard of Value
3. Store of Value
4. Means of Deferred Payment
5. Conveyance
Medium of Exchange
 The use of money to facilitate the transfer of
goods and services and settle obligations has
made money the basic medium of exchange.
 In the history of money, various commodities
had been used as a medium of exchange.
Therefore, we can say that in those times,
whatever commodity was used to effect
transfer could be considered “money”- cowries,
wampums, and cattle.
 Money, as a medium of exchange, can be used
for exchange of goods and services.
Standard of Value
 Money is our measuring stick to measure the
value or worth of something.
 Goods, services, assets, liabilities, and net worth
(equity or capital) are all measured in terms of
money.
 As a standard of value, money measures the
relative worth of goods and services. In short,
money is the common denominator, the basis
for comparison.
Store of Value
 The excess of income over expenses is usually
saved. Our savings, usually in the form of
money, is stored either in the bank or at home
for future use – that is the idea of store of
value.
 The value needed in the future is stored. When
we make investments in the form of stocks,
bonds, or other securities and fixed assets like
land, or excess money is stored in these assets.
In case we need money in the future, we can
sell them and produce the money we need.
Means of Deferred Payment
 As legal tender, money is acceptable in payment
of debts or liabilities. If payment is to be made
in the future, money becomes a means of
deferred payment.
 Deferred means postponed or held for future
use. So long as prices remain stable, the amount
owed is what is paid, and the creditor is able to
buy the same amount of goods or services.
 However, when prices rise, the amount owed
will be able to buy less (creditors lose); when
prices go down, the amount owed will be able
to buy more (creditors gain).
Conveyance
 It refers to the means of transport or transfer.
 In law (which finance uses), conveyance means
the process of or the documents effecting the
transfer of property from one owner to
another. The said document is the money
because it facilitates transfer of ownership,
while the process is the transfer of title or
ownership.
 The seller owns the goods he is selling. The
buyer owns the money he wishes to spend. If he
wants the goods the seller is selling, he will
exchange his money with the goods. After the
transaction is consummated, the goods now
belong to the buyer, and the money belongs to
the seller. This is similar to the function of
medium of exchange.
 Money conveys or transfers title or possession.
CLASSIFICATIONS OF MONEY
Paper Money
o The Chinese invented printing and the use of
paper money during the Tang Dynasty (618-906
AD).
o Mongolia was the second country to begin using
paper money in the 11th century.
o The Bank of Sweden issued the first paper
money in Europe in the 17th century.
o The government issued paper money to
represent certain quantities of gold or silver
kept by the government to cover what has been
issued, representative paper money.
o The was replaced with the term fiat money.
Plastic (Polymer) Money
o Plastic money is actual cash made of superresistant polymer film (instead of paper).
o Polymer money feels like regular paper bill, but
lasts longer.
o Australia was the first country to develop and
use polymer notes in general circulation in 1988
after significant research and development
done by the Commonwealth Scientific and
Industrial Research Organization (CSIRO) and
the Reserve Bank of Australia.
Plastic Money
o It is the hard plastic cards used in everyday
exchange transactions in place of actual bank
notes
1. Credit Cards
2. Debit Cards
3. Cash Cards
1. Gift Card/Certificate
2. Store Card
3. Multi-currency Prepaid Card
 Credit Card
 Allows owners to buy products on credit from
different stores and establishment, in lieu of
cash or money, except that it has a credit limit,
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that is, the maximum amount that can be
charged to the credit card.
It bears a relatively higher rate of interest, but if
the cardholder pays his balance in full each
moth (on or before the due date), no interest is
charged.
Examples: American Express, Visa, MasterCard,
and Discover
Debit Card
the bank where the account is maintained
issues the debit card.
Payments using this card are immediately
charged to the cardholder’s bank account,
instead of paying the card at a later date.
Cash Card
it only allows withdrawal of money through an
Automated Teller Machine (ATM).
It can be used as a debit card as well.
It is convenient in that the holder need to stay
in line inside the bank to withdraw money
Prepaid Cash Card
Gift Card/ Certificate
A prepaid cash card that can be given as gift so
that the recipients can choose what they want
as a gift.
This card can be a specific prepaid cash card
issued by the store where it can be used for
purchase.
It can also be issued by financial institutions and
can be used at any store, just like credit card.
Once fully used, it has no value at all.
Store Card
It is like a credit card, generally issued by a
particular store and can be used for purchase in
the same store.
This is a simple credit granted by stores to
encourage customers to spend more in their
store.
Multi-currency Prepaid Card
An example of this card was launched by
EastWest Bank last Sept. 30,2013, Southeast
Asia’s first multi-currency prepaid card.
It can load up to six different currencies – US
dollar, Euro, British pound, Hong Kong dollar,
Australian dollar, and Japanese yen.
It can be used from all Visa-affiliated merchants
here in the Philippines and abroad regardless of
the currencies loaded.
Classification of Money
 Full-bodied Money
 Representative full-bodied money
• Issued by government
1. Token coins
2. Representative token money
3. Circulating promissory notes
• Issued by banks
1. Circulating promissory notes issued by
central bank
2. Circulating promissory notes issued by
other banks
3. Demand deposits subject to check
Full-Bodied Money
 Money whose value as a commodity for
nonmonetary purposes is as great as its value as
money
Representative Full-Bodied Money
 Usually made of paper
 It has no significant value as a commodity, but it
represents in circulating an amount of metal
with a commodity value equal to the value of
the money.
Gold Certificate
Credit Money or Fiat Money
 Any money, except of representative fullbodied money, that circulates at a value greater
than the commodity value of the material from
which it is made.
 It can also result as the issuing authority buys all
the money material offered to it, but at a price
significantly below the monetary or face value
of the money into which it is transformed.
Types of Money Issued in the Philippines
 Standard Money – Central Bank Notes
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Representative Money – Philippine Treasury
Certificates 1903
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Convertible Representative Money – Philippine
Treasury Certificates 1903
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Fiat Money (old concept) – Japanese War Notes
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Fiat Money (current concept) – bangko sentral
notes
Token Coins – Metallic Coins
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Credit Money – Bangko Sentral Notes
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Guerilla notes
Forms of Money
1. Commodity Money
• It has its own value other than using it as
money.
• It has its own intrinsic value, the value of the
commodity itself.
• Example: shells, cattle
2. Currency (Bills and Coins)
• The government of any country issues
currency that is legal tender in the country,
• These bills and coins are in different
denominations (the divisibility feature), minted
and printed, by the central bank of a country.
• Domestic currency can only be used in its
country of origin.
3. Check
• It is generally used by businesses and persons
in conducting business, as well as personal
transactions.
• It is a written order to a bank (drawee), by the
person, who issues the check (maker or drawer)
to pay someone whose name is written on the
face of the check (payee) a certain amount of
money on demand (upon
presentation/immediately) or at a future date
(post-dated check).
4. Bank Draft
 is issued by banks against their own
account
 Ensure availability of funds without any
need to check on the character of the
person issuing the check
 Prevalent in the UK
Types of Bank Draft
1. Demand Draft (sight draft) – payable on
demand or upon sight
2. Time Draft – payable sometime in the future
like postdated check
3. Local Draft – issued by a bank in a single country
4. International Draft – used globally or
internationally
5. Automatic Bank Draft (ABD)- takes out money
from the payer’s account electronically at a
regular intervals.
5. Money Order – it refers to the instrument
issued generally by the post office of a country
ordering a sum of money to be paid to the
payee indicated on the instrument itself. This
under R.A. 7354, an Act Creating the Philippine
Postal Corporation under Art. II, Sec. 6.
6. Warehouse Receipt (WR)
 It covers all warehouses, whether public
or private, bonded or not
 A document of title to goods
 A proof of the possession or control of
the goods
 Authorizing or purporting to authorize
the possessor of the documents to
transfer or receive, either by
endorsement or by delivery goods
represented by such document
Parties to a Check
1. Maker – the drawer or writer of the check
2. Drawee – the bank which is order to pay the
payee
3. Payee – the one to whom the check is to be
paid
Personal Check – issued by persons to be drawn against
their own current/checking account in the bank.
Business Check – a check issued by
companies/businesses. It is drawn on the issuer’s bank
checking or current account. It is used for business
transactions.
Cashier’s Check – it is issued by the bank against its own
account ensuring availability of funds. It is purchased
with a fee from a bank that issues the check. It can be
signed by the bank cashier or any other bank official.
Certified Check – it is issued by the bank certifying that
the account of the person issuing it has available funds
(just like any ordinary personal check). The bank
certifies the availability of fund by earmarking the
corresponding amount on the check which will only be
used to pay the check itself.
Traveler’s Check- it is a fixed amount check which is
preprinted, allowing the signatory of the financial
institution who is selling the traveler’s check to make an
unconditional payment to whoever has the traveler’s
check in his possession.
Parties to a traveler’s check
1. Issuer or obligor – the company issuing or
producing the traveler’s check
2. Agent – the financial institution who sells the
traveler’s check.
3. Purchaser – the person buying the traveler’s
check and will use it as a form of money
4. Payee – the seller of goods or services to be
paid with the traveler’s check.
BSP ROLE IN MONEY PRODUCTION
BSP VISION
THE BSP AIMS TO BE RECOGNIZED GLOBALLY AS THE
MONETARY AUTHORITY AND PRIMARY FINANCIAL
SYSTEM SUPERVISOR THAT SUPPORTS A STRONG
ECONOMY AND PROMOTES A HIGH QUALITY OF LIFE
FOR ALL FILIPINOS.
BSP MISSION
TO PROMOTE AND MAINTAIN PRICE STABILITY, A
STRONG FINANCIAL SYSTEM, AND A SAFE AND
EFFICIENT PAYMENTS AND SETTLEMENTS SYSTEM
CONDUCIVE TO A SUSTAINABLE AND INCLUSIVE
GROWTH OF THE ECONOMY.
OVERVIEW OF FUNCTIONS AND OPERATIONS
OBJECTIVES:
THE BSP’S PRIMARY OBJECTIVE IS TO MAINTAIN PRICE
STABILITY CONDUCIVE TO A 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 QUASIBANKING FUNCTIONS.
UNDER THE NEW CENTRAL BANK ACT, THE BSP
PERFORMS THE FOLLOWING FUNCTIONS, ALL OF
WHICH RELATE TO ITS STATUS AS THE REPUBLIC’S
CENTRAL MONETARY AUTHORITY.
• LIQUIDITY MANAGEMENT. THE BSP FORMULATES
AND IMPLEMENTS MONETARY POLICY AIMED AT
INFLUENCING MONEY SUPPLY CONSISTENT WITH ITS
PRIMARY OBJECTIVE TO MAINTAIN PRICE STABILITY.
• LENDER OF LAST RESORT. THE BSP EXTENDS
DISCOUNTS, LOANS AND ADVANCES TO BANKING
INSTITUTIONS FOR LIQUIDITY PURPOSES.
• 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.
• FINANCIAL SUPERVISION. THE BSP SUPERVISES
BANKS AND EXERCISES REGULATORY POWERS OVER
NON-BANK INSTITUTIONS PERFORMING QUASIBANKING FUNCTIONS.
• MANAGEMENT OF FOREIGN CURRENCY RESERVES.
THE BSP SEEKS TO MAINTAIN SUFFICIENT
INTERNATIONAL RESERVES TO MEET ANY FORESEEABLE
NET DEMANDS FOR FOREIGN CURRENCIES IN ORDER TO
PRESERVE THE INTERNATIONAL STABILITY AND
CONVERTIBILITY OF THE PHILIPPINE PESO.
• DETERMINATION OF EXCHANGE RATE POLICY. THE
BSP DETERMINES THE EXCHANGE RATE POLICY OF THE
PHILIPPINES. CURRENTLY, THE BSP ADHERES TO A
MARKETORIENTED FOREIGN EXCHANGE RATE POLICY
SUCH THAT THE ROLE OF BANGKO SENTRAL IS
PRINCIPALLY TO ENSURE ORDERLY CONDITIONS IN THE
MARKET.
• OTHER ACTIVITIES. THE BSP FUNCTIONS AS THE
BANKER, FINANCIAL ADVISOR AND OFFICIAL
DEPOSITORY OF THE GOVERNMENT, ITS POLITICAL
SUBDIVISIONS AND INSTRUMENTALITIES AND
GOVERNMENT-OWNED AND -CONTROLLED
CORPORATIONS.
What is Finance?
 Finance is defined by Webster’s
Dictionary as “the system that includes
the circulation of money, granting of
credit, the making of investments, and
the provision of banking facilities.”
 It may be defined as the science of
managing and creating money,
administration and operations of
institutions like banks, investment
companies, cooperatives, lending
groups that facilitate credits and a unit
or department that directs the
organizations’ assets, liabilities, and
equities.
 At large, finance boils down to “funds
and resources.”
 In simple terms, finance is concerned
with decisions about money, or more
appropriately, cash flows. Finance
decisions deal with how money is raised
and used by businesses, governments,
and individuals.
 To make sound financial decisions you
must understand three general, yet
reasonable, concepts: Everything else
being equal:
1. 1.More value is preferred to
less
2. 2.The sooner cash is received,
the more valuable it is
3. 3.Less risky assets are more
valuable than (preferred to)
riskier assets.
GENERAL AREAS OF FINANCE
 Financial Markets and Institutions
 Investments
 Financial Services
1. Financial Markets and Institutions
 Financial institutions, which include
banks, insurance companies, savings
and loans, and credit unions, are an
integral part of the general financial
services marketplace.
 The success of these organizations
requires an understanding of factors
that cause interest rates and other
returns in the financial markets to rise
and fall, regulations that affect such
institutions, and various types of
financial instruments, and various types
of financial instruments, such as
mortgages, automobile loans, and
certificates of deposit, that financial
institutions offer.
2. Investments
 This area of finance focuses on the
decisions made by businesses and
individuals as they choose securities for
their investment portfolios.
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 The major functions in the investments
area are
 (a) determining the value, risks, and
returns associated with such financial
assets as stocks and bonds and
 (b) determining the optimal mix of
securities that should be held in a
portfolio of investments, such as a
retirement fund.
3.) Financial Services
 Financial services refer to functions
provided by organizations that deal
with the management of money.
Persons who work in these
organizations, which include banks,
insurance companies, brokerage firms,
and similar companies, provide services
that help individuals and companies
determine how to invest money to
achieve such goals as home purchase,
retirement, financial stability and
sustainability, budgeting, and so forth.
Managerial (business) finance
Managerial finance deals with decisions that all
firms make concerning their cash flows,
including both inflows and outflows.
Managerial finance is important in all types of
businesses, whether they are public or private,
and whether they deal with financial services or
the manufacture of products.
The duties encountered in managerial finance
range from making decisions about plant
expansions to choosing what types of securities
should be issued to finance such expansions.
Financial managers also have the responsibility
for deciding the credit terms under which
customers can buy, how much inventory the
firm should carry, how much cash to keep on
hand, whether to acquire other firms (merger
analysis), and how much of each year’s earnings
should be paid out as dividends versus how
much should be reinvested in the firm.
Allocation or Utilization of Funds
The financial manager decides as to where to
get financial resources like cash, inventories,
equipment, and other assets needed by the firm
in its operation. If cash is acquired, the financial
manager decides where to use the cash –
finance a new project, pay outstanding
obligations, pay operating expenses, or buy
equipment needed by the firm.
 Management of Funds
 The person in charge of the finance function is
called the director of finance, VP – Finance, or
finance manager. He is responsible for the
allocation of the financial resources of a
company, the acquisition of additional funds
needed, and the utilization of these financial
resources to attain organizational objectives.
 The finance manager or comptroller supervises
the chief accountant, the purchasing manager,
the investment manager, the budget and
planning manager, the treasury department,
and the risk management and insurance
department.
Goals of the Financial Manager
1. Acquisition of funds with the least cost from the
right sources at the right time;
2. Effective cash management;
3. Effective working capital management;
4. Effective inventory management;
5. Effective investment decisions;
6. Proper asset selection; and
7. Proper risk management.
 Acquiring funds form the right sources at the right
time with the least cost provides an advantage toward
goal attainment. Establishing the right connection or
networking is important in this respect. Sources of
funds include banks, financial institutions and financial
intermediaries, insurance companies, mortgage and
loan associations, and individual and corporate
investors.
 Effective cash management needs a detailed cash
flow budget so that the sources and uses of funds can
be carefully planned. Taking advantage of cash
discounts in paying trade payables, prioritizing the use
of cash, and other similar strategies help in managing
cash.
 Similarly, inventories need to be managed
effectively. Overstocking is undesirable; it ties up
capital. Understocking, likewise, is undesirable because
the firm misses sales opportunities that could have
increased profits. Purchasing the right inventory at the
right time from the right sources gives the company an
edge over its competitors. Disposing slow-moving
inventories needs to be done, that is why some
companies resort to barter in the barter exchanges
where slow-moving inventories can be sold.
 Determining where to invest excess funds to create
additional income is making an investment decision.
Too much cash lying in the bank or checking accounts
that do not ears interest are not advisable. Any excess
cash needs to be invested to earn income, either in the
form of interest or dividends. Investing in the right
assets is a must for successful management of a firm.
Engaging in new projects and buying new assets are
investment activities.
 Proper asset allocation is important. Selecting the
right machinery and equipment needed by a company
in its operation is important to attain its production goal
that creates sales. Deciding on buying a computer and
the type of computer to buy will help the company
attain improvement in organizational efficiency.
 Risk management is a task so important to the firm
to weigh risks associated with certain business
decisions. Buying stocks or investing in something needs
risk analysis and assessment. In general, the riskier the
project, the higher should be the return. Every
management decision involves risk, more so every
financial decision. Risk management is a primary task
for the financial manager.