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The Philippine Deposit Insurance Corporation (PDIC) was established in

June 22, 1963 by R.A. 3591. The corporation is mandated to provide depositor
protection and promote financial stability by providing permanent and continuing
deposit insurance up to maximum deposit insurance range of P500,000 per
depositor per bank.

Money makes the world go around

Money has always been at the center of economic transactions from the day
when gold and silver were need purchases to todays payment with a plastic
card. No longer constrained by physical proximity money flows around the globe
through banking institution and primary exchanger of money.

Financial System consist of all securities intermediaries and markets that

exist to match savers and borrowers.

Financial Security is a contract whereby a borrower, who seeks to obtain

money from someone, provides to compensate the lender in the future. Exactly
what is provided by the contract determines what type of security it is. Everyone
who borrows or lends money may issue or purchase a financial security.
1. Debt Security a contract that promises to pay a given amount of
money to the owner of the security at specific date in the future.
2. Equity Security a contract that makes the owner of a security a part
owner of the company that issued the security
Ex. Stock another name for an equity security

Investor the owner of financial security

Stocks type of security that signifies ownership in a corporations assets and

Examples of Debt Security

Treasury Bills
- Popular know as T-bills
- Peso denominated short-term fixed income securities issued by the
Republic of the Philippines through its Bureau of Treasury.
- Sold at a discount, with the interest paid in advance
- Interest given to client is based on prevailing market rates and is a subject
to withholding tax community at 20% and broker commission.
Treasury Bonds
- Medium to long-term government securities that pay interval regularly.
- Risk free investment as these are direct obligations of the Republic of the
- Denominated in the local currency
- Quoted in terms of field-to-maturity its value depend on prevailing market
- Computation of selling price is based on number of year/days remaining
till the maturity of a series using a 360 days count.

Examples of Equity Security

Stocks (Common Stock) usually entitles the owner to vote at shareholders
meeting and receive dividends.

Bank Run a situation in which many depositors go to a bank at the same time
to withdraw their money.
Amortization a process in which the principal amount of a security is repaid
gradually overtime.

Collateral an asset that a borrower promises to give to the bank if that

borrower is unable to repay the banks loan.

Compounding earning interest on interest that has earned in prior years.

Diversification ownership of a variety of securities by an investor.
Excess Reserves a banks total reserves minus its required reserves.
Exchange Rate the amount of one currency needed to purchase one unit of
another currency.
Legal Tender the condition that a lender must accept money in the repayment
of debts, by law.
Lender of Last resort the service provided by the government that
guarantees funds to a bank when needed.
Maturity the time until borrowed funds are repaid.
Mutual Fund an investment company that pools the funds of many investors
and buys a large number of different stocks (or other securities)
Portfolio the collection of securities an investor owns.
Portfolio Investment investments in other countries from purchasing
financial securities
Present Value the amount of money you would need to invest today to yield a
given future amount.

Primary Market the market in which a security is initially sold to an investor

by a borrower.
Secondary Market
- The market in which a security is sold from one investor to another.
- The amount of money invested in a financial security or deposit in a
financial intermediary.

Recession a period when output income and employment are declining.

Risk the amount of uncertainty about the return on a security.
Shareholders investors who own stock in a corporation; also called
Stock another income for an equity security
Open Market Operations the tool the BSP uses to affect the money supply,
consisting of purchases and sales of government securities in the secondary

Payment System the mechanisms by which cash, checks and electronic

payments flow from buyers to sellers, equivalently, the set of mechanisms used
for making transactions.

Dividend the periodic payment made on as equity security.

- Obtain funds from lender by issuing debt and equity security
- Include households, business forms, foreigners, governments and financial

Functions of Financial Intermediaries

1. Helps savers diversify their financial investment
2. Pool the funds of many people
3. Take short-term deposits and make long-term loans
4. Play an important role in the economy by gathering information
5. Reduce the cost of transacting

Direct Finance when savers buy securities directly from borrowers

Indirect Finance when savers invest through financial intermediaries which

buy securities from borrowers
Money plays a unique role in the financial system as the item used to buy
goods and services.

Roles money plays in society

1. Medium of exchange
2. Unit of account
3. Store of value
4. Standard of deferred payment