PRELIM PERIOD
MODULE 1: FINANCIAL MARKETS
Financial Market – market in which people trade at low transaction costs:
 Financial securities, and
 Derivatives
The Need to Study Financial Markets
 Involve huge flows of funds throughout the world economy; affect business profits,
production of goods and services and the economic well being of countries
 Involve how funds are transferred from people who have excess to those who have a
shortage
 Well functioning FM are key factors in producing high economic growth; Poor FM are one of
the reason why poor countries remain poor
Financial Institution



Provide services as intermediaries for transactions
Engage in dealing with transactions: deposits, loans, investments, and currency exchange
Acquire funds: issue liabilities; use such to acquire assets by buying securities
The Need to Study Financial Institution

They play an important role in the financial system because they reduce transaction costs,
allow sharing and solve problems created by adverse relation and moral hazard.
They allow small savers and borrowers to benefit from the existence of financial markets
thereby increasing the efficiency of the economy

ROLE OF MONEY IN THE ECONOMY
Money – any item or commodity that is generally accepted as a means of payment for goods
and services or for repayment of debt, and that servces as an asset to its holder


Composed of the bills and coins which have been printed or minted by the National Gov’t
In modern economy, works on fiduciary basis, relying on the public's confidence in the
established forms of monetary exchange
Characteristics and key functions of money
 Store of value
 Items worth
 Means of exchange
 Unit of account
 Standard of Deferred Payment
EVOLUTION OF MONEY
Barter - exchange (goods/services) for other good/services w/o using money
Over the century, money has appeared in many forms but whatever shape it takes – coin, note,
stored in digital server – money always provides a fixed value against which any item can be
compared.
HIGHLIGHTS IN THE HISTORY OF MONEY IN THE PHILIPPINES
Pre-Spanish Regime – commodity money: gold, gold dust, silver wires, coffee, sugar, rice,
spices, carabao
Spanish Regime - Introduced coins in PH in 1521
Silver coins minted in Mexico – used in 1861; first mint was established to standardize coinage
American Regime – independence in 1898, Spain ceded PH to US
PH first local currency- PH Peso was introduced to replace Spanish-Filipino Peso
PNB was authorized to issue PH bank notes
Japanese Regime – PH occupied by Jap during WW2, Jap issued Japanese War Notes
Bills has no reserve nor backed by any gov’t asset
“Mickey Mouse Money”
Post War Period – All Jap money circulating = illegal; all banks = closed, PNB notes = withdrawn
Victory Money – new treasury certificate; printed in 500, 200, 100, 50, 20, 10, 5, 2, and 1
Central Bank = established