Chapter 1

An Introduction to
Finance
Important Terms:

Finance – the study of how individuals, institutions,

governments and businesses acquire, spend and
manage money and other financial assets.

Financial Environment – includes the financial

system, institutions, markets and individuals that make
the economy operate efficiently.
Financial Markets – physical or electronic forums
that facilitate the flow of funds among investors,
businesses, and governments.

Investments- involve the sale or marketing of

securities, the analysis of securities and the
management of investment risk.

Financial Management -involves financial

planning, asset management and fund raising
decisions to enhance the value of businesses.
 Figure 2. Financial System and their Financial Functions

Creating Money

Monetary System
Transferring Money

Accumulating Savings
Financial Institutions

Lending/Investing Savings

Marketing Financial Assets

Financial Market

Transferring Financial Assets

Classification of the Financial System

1.The Banking Sector

a.Expanded Commercial Bank or Universal

b.Commercial Banks
c.Rural Banks
d.Thrift Banks
•Savings banks
•Private development banks\cooperative banks
•Islamic banks
•Microfinance banks
a.Specialized Banks
b.Offshore Banking Units
2. Non-Bank Financial Institutions

a.Investment houses
b.Investment Companies
c.The Securities dealers
d.Securities Brokers
e.Private Insurance Companies
f.Pawnshops or pawnbrokers
g.Non-stock savings and loan associations
h.Mutual and Building Loan Association
i.Credit Unions
j.Trust and pension fund managers
k.Lending Investors
Chapter 2

The Role and Uses of

Money
Money

Anything that people regularly use to buy

goods and services from other people.

It can be anything accepted as a means of

paying for goods or services or for paying
off debts.
 Basic Function of Money

To facilitate the exchange

of goods and services, to
lessen time and effort
required to carry on trade.
 The Barter System

The exchange of goods without the use

of money
 Traditional Characteristics of Money

1.Utility

2.General Acceptability

3.Portability

4.Uniformity

5.Malleability

6.Durability
 Functions of Money
1. As a medium of exchange.
2. As a standard of value.
3. As a store of value.
4. As a standard of deferred payment.
5. As a reserve or guaranty for solvency.
 Classification of Money

I.Full-bodied money
The value as a commodity for non-monetary
purposes is as great as
its value as money.

II.Representative Full-bodied money