Some Basic Definitions

Market ! A place where buyers and sellers meet to trade their goods and services Financial Markets ! Markets in which funds are transferred from those who have excess of available funds to those who have a shortage

Overview of the Financial System

Fintmed Session 1 Second Term Academic Year 2013 - 2014

Some Basic Defintions

Security (or a financial instrument) ! A claim on the issuers future income or assets Bond ! A debt security that promises to make payments periodically for a specified period of time

Some Examples of Financial Markets

! Stock Market
! Claims on earnings of corporations are traded

! Foreign Exchange Market

! Conversion of funds transferred from one country to another

Interest Rate
! Cost of borrowing or price paid for the rental of funds

! Bond Markets
! Claims on earnings of issuers of long-term debt

The Financial System

The Financial Intermediation Process

Suppliers Borrowers

Demander of funds (mainly firms and governments)

Flow of funds (savings)

Flow of financial securities

Incomes, and financial claims

Supplier of funds (mainly households and businesses)

Individuals Businesses Institutions Government

Funds Returns

Funds

Financial System

Returns

Individuals Businesses Institutions Government

Lenders

Risk management, liquidity, and information

Users

Source: Santos, Essentials of Investments

The Philippine Financial System

Type of Institution Banking Components Regulator/s
Universal, Commercial, Thrift, BSP, SEC Rural, Specialized Government, Microfinance Investment Houses Financial Companies Securities Dealers Investment Companies Insurance Companies Pawnshops Pre-need Companies Venture Capital Corporations Mutual Building and Loan Associations Non-stock Savings and Loans BSP, SEC SEC SEC SEC SEC, IC SEC, BSP SEC SEC SEC SEC

Why Study Financial Institutions?

! Financial institutions are what make financial markets work ! Without financial institutions, financial markets would not be able to move the funds ! Financial institutions play a crucial role in improving the efficiency of the economy ! Banks are part of the financial institutions (but this is Finterm!:!)

Non-Bank Financial

Non-Bank Thrift