FINALS FLASHCARDS
A financial entity that is authorized to
accept deposits and give credit.
Bank
It refers to a network of institutions
that provide financial services to
customers.
Banking system
The banking system’s goal
to give economic security and confidence.
Earliest banking systems
- Grain, food, and livestock
- Banking was done before there were coins
by exchanging grain and other commodities.
Banking in the Roman Empire
Rome’s first banks were established in the
temples dedicated to the old Gods.
In ancient Rome, banking played a
significant role in the growth of trade and
commerce and the emergence of wealth.
European Monarchs Discover Easy
Money
Due to multiple pointless wars, Philip II of
Spain managed to drown his kingdom in
debt in 1557, leading to the first national
bankruptcy and the second, third, and fourth.
Big ___________ _______ gained significant
economic and political power, taking over
most national banking responsibilities and
providing loans and corporate finance. (Evolution of Banking System)
merchant banks
In ______, the Bank Panic occurred due to the collapse of a copper trust, leading to a run on banks and stock sell-offs. (Evolution of Banking System)
1907
The formation of the __________ ___________ ______ in 1913 marked the end of private bankers.
Federal Reserve Bank
These were created in the 1960s to enable depositors to access their money after business hours.
Automated Teller Machine (ATM)
It was a charitable foundation by laymen for charity works and religious activities. It was a banking institution run by the friars.
Obras Pias
During the _______________ Spanish colonial era, the first organized credit institutions known as “Obra Pias” were established in the Philippines.
16th-century
In ________, the opening of the Suez Canal facilitated trade between the Philippines and Europe.
1869
1900 - ___________ was passed by the First Philippine Commission placing all banks under the Bureau of Treasury.
Act No. 52
Banking History in the Philippines: February 1929
The Bureau of Banking under the Department of Finance took over the task of banking supervision.
Banking History in the Philippines: 1933
A particular group of Filipinos were trying to conceptualize a central bank for the Philippines.
The first US law passed setting a process and a date for the Philippines to gain independence from the United States.
Hare–Hawes Cutting Act
Banking History in the Philippines: 1939
A bill establishing a central bank was drafted by Secretary of Finance Manuel Roxas and approved by the Philippine Legislature.
However, the bill was returned by the US government, without action, to the Commonwealth Government.
Banking History in the Philippines: February 1948
President Manuel Roxas submitted to Congress a bill “Establishing the Central Bank of the Philippines, defining its powers in the administration of the monetary and banking system, amending pertinent provisions of the Administrative Code concerning the currency and the Bureau of Banking, and for other purposes.
Banking History in the Philippines: 15 June 1948
The bill was signed into law as Republic Act No. 265 (The Central Bank Act) by President Elpidio Quirino.
Banking History in the Philippines: 3 January 1949
The Central Bank of the Philippines (CBP) was inaugurated and formally opened with Hon. Miguel Cuaderno, Sr. as the first governor.
Banking History in the Philippines: 3 July 1993
The Bangko Sentral ng Pilipinas (BSP) was established to replace the CBP as the country’s central monetary authority.
It is the central bank of the Philippines, oversees the entire banking sector.
Bangko Sentral ng Pilipinas (BSP)
The BSP was created by the Republic Act No. 7653, otherwise known as the ______ ___________ _______ _____ ___ ______.
New Central Bank Act of 1993
These banks continue to account for the bulk of the total resources of the banking industry.
Commercial Banking
Primarily engaged in mobilizing the small savings of the people. They provide funds for agriculture and industry at reasonable interest rates.
Thrift Banks
To receive time deposits of different types and to invest its funds in long-term investment.
The Savings and Mortgages Banks
It may either be a stock or non-stock
corporation.
The Savings and Loan Association
It is a government entity, formerly the Rehabilitation Finance Corporation.
The Private Development Banks
It allows small farmers to finance their needs through the granting of loans for capital or other uses.
The Rural Banks
Its principal commercial banking activities include deposit-taking, lending, bill discounting, trade finance, foreign exchange.
The Philippine National Bank
The Philippine National Bank operates under the provision of
Executive Order No. 80
Its primary objective is to provide banking services to cater to the medium and long-term needs of agricultural and industrial enterprises with an emphasis on small and medium-scale industries
The Development Bank of the Philippines
The Development Bank of the Philippines’ first mission
to coordinate and manage trust funds
The Agrarian Reforms Code created the
________ _______ ____ ____ ___________ to finance the acquisition and distribution of agricultural estates for the division and reselling of these small landholders.
Land Bank of the Philippines (LBP)
It was created under Republic Act No. 6848 to promote and accelerate the socio-economic growth of Mindanao.
The Al-Amanah Islamic Investment Bank of the Philippines
They provide services related to claims, financial information, and advice, manage portfolios of financial assets.
Non-Bank Financial Institution
The term “___________ ________” is defined
to mean “any enterprise” which engages
in the underwriting of securities of other
corporations.
investment house
It is the act or process of guaranteeing the distribution and sale of securities of any kind issued by another corporation.
Underwriting
These are written evidence of ownership & interest.
Securities
Under the provision of the Revised
Securities Act, no broker, dealer, or salesman must engage in business in the Philippines as such broker, dealer, or salesman or sell any securities, including securities exempted under the said law.
Securities Brokers/dealers
A type of savings institution that receives savings from members and lends funds to them.
Building and Loan Associations
It also has for its purpose the inculcation of the habit of thrift, frugality, and the idea of helping one another
Credit Unions
They contribute to the country’s socio-economic development as well as to the insured.
Private insurance companies
Primary Functions of Banks
- Accepting Deposits (saving and
recurring deposits…) - Granting Advances (loans…)
Secondary Functions of Banks
- Agency Functions (transfer of funds,
collection of cheques) - Utility Functions (drafts, project reports)
Classification of Banks based on Ownership: Public Sector Banks
Governments use public funds as leverage to produce credit, which benefits the public in many ways (infrastructure development, small company loans, etc.) Ex: Landbank
Classification of Banks based on Ownership: Private Sector Banks
A financial institution that is owned and operated by private individuals or companies, as opposed to the government; Ex: Security Bank
Classification of Banks based on Ownership: Foreign Bank
Financial institutions that serve customers outside of their own country; Ex: Citibank
It is also known as Single-Office Banks; they are small, independent financial institutions that operate a single-branch
Unit Banks (Ex: Cantilan Bank)
it refers to a system in which a bank provides banking services through a wide network of branch offices
Branch Banks (Ex: BPI)
A form of bank governance in which individuals or an entity takes control of, at least, three banks that are independently chartered.
Chain Banks (Ex: Union Bank)
A third-party financial organization
serves as a bridge between local and
foreign institutions.
Correspondent Banks
Classification of Banks based on Function: Commercial Banks
They contribute to the maintenance of economic stability and economic progress (ex. BPI)
Classification of Banks based on Function: Industrial Banks
Specialized financial institutions that are primarily focused on providing financial services to industrial companies.
A system that includes individuals and institutions, instruments, and procedures.
Financial Markets
The primary role of financial markets
to facilitate markets in the flow from individual governments that need funds over their incomes.
The sum of all cash inflows/outflows from and into different financial assets.
Flow of Funds
Three financial phases
- Young adults borrow
- Older working adults save
- Retired adults use saving
________ transfer of the money to saver or borrower, __________ transfer through investment banking house, and financial intermediates
Direct ; Indirect
It assists both people and businesses in raising capital through underwriting. Act as intermediaries between security issuers and investors and help new firms go public.
Investment banking house
An entity that facilitates a financial transaction between 2 parties.
Financial intermediaries
Market Efficiency: Economic Efficiency
Funds are allocated to their optimal use at the lowest costs.
Market Efficiency: Informal Efficiency
Investment prices are adjusted quickly to reflect current information.
Market Efficiency: Weak-form
All information contained in past price movements is reflected in current market prices.
Market Efficiency: Semi-strong-form
Current prices all publicly available information.
Market Efficiency: Strong-form
Current prices reflect all pertinent information, both public and private.
Money versus capital markets
a) Money market- used for short-term lending assets held 1 year or less.
b) Capital- Long-term securities have a direct/indirect impact on the capital.
Debt versus equity markets
a) Debt market- Market where debt instruments were traded.
b) Equity market- Market from trading equity instruments.
Primary versus secondary markets
a) Primary- Where securities are created.
b) Secondary- Where to those securities traded by investors.
Financial markets for derivatives, financial instruments like futures contracts or options, are derived from other forms of assets. (Example: Currency future)
Derivatives markets
It is a place where shares of publicly listed companies are traded.
Stock Market
A decentralized market in which market participants trade stocks, commodities, currencies, or other instruments directly between two parties and without a central exchange or broker.
Over-the-counter Market
It is often called the debt market, fixed income market, or credit market—is the collective name given to all trades and issues of debt securities.
Bond Market
It refers to trading in very short-term debt investments.
Money Market
A type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark
Derivative Market
It allows participants, such as banks and individuals, to buy, sell, or exchange currencies for both hedging and speculative purposes. It is the largest financial market in the world.
Forex Market
It is a marketplace for buying, selling, and trading raw materials or primary products.
Commodities Market
It is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
Cryptocurrency Market
Functions of the Markets: Puts savings into more productive use
Financial markets like banks open it up to individuals and companies that need a home loan, student loan, or business loan.
Functions of the Markets: Determines the price of securities
Investors aim to make profits from their securities. However, unlike goods and services whose price is determined by the law of supply and demand, prices – of securities are determined by financial markets.
Functions of the Markets: Makes financial assets liquid
Buyers and sellers can decide to trade their securities anytime. They can use financial markets to sell their securities or make investments as they desire.
Functions of the Markets: Lowers the cost of transactions
In financial markets, various types of information regarding securities can be acquired without the need to spend.
3 GENERAL STOCK MARKET ACTIVITIES
- The secondary market - trading in the outstanding, previously issued share of established, publicly owned companies
- The primary market - additional shares sold by established, publicly owned companies
- IPO market - new public offerings by privately held firms
This is the regulation of national securities
exchanges exchange. They have the power to prohibit manipulation of securities’ prices and control over stock trades by corporate insiders.
Securities and Exchange Commission (SEC)
Special segment of Banking operation that helps individuals/ organizations raise capital + provides financial consultancy services to them.
Investment Banking
- Helps corporations design securities
attractive to investors - Buys these securities from the
corporation - Resells the securities to investors
Investment Banker
A syndicate of investment firms formed to spread the risk associated with the purchase and distribution of a new issuance of securities.
Underwriting Syndicate
The member of an underwriting syndicate who manages the distribution and sale of a new security offering.
Lead or Managing Underwriter
A network of brokerage firms formed to distribute a new issuance of securities.
Selling Group
Shelf Registrations on SEC
- Securities registered with the SEC for sale at a later date
- Held “on the shelf” until the sale
Maintenance of the Secondary Market
- When a company is going public for the first time, the investment banker is obligated to maintain a market for the shares after the issue has been completed.
- The lead underwriter agrees to “make a
market” in the stock and keep it reasonably liquid.
THE ROLE OF FINANCIAL INTERMEDIARIES
- Facilitate the transfer of funds from
those who have funds (savers) to those
who need funds (borrowers). - Manufacturing a variety of financial
products that take the form of either
loans or savings instruments.
The probability of an asset declining in value which then results in unanticipated fluctuations in interest rates.
Occurs when interest rates affect the values of bonds and stocks in the market.
INTEREST RATE RISK
Risk that a financial institution will be unable to reinvest at a rate that corresponds to the current rate of return.
REINVESTMENT RISK
Refers to the potential loss due to exchange rate fluctuations wherein the rate of a certain currency is not in line with the favor of the financial institution.
FOREIGN EXCHANGE RISK
It is associated with any investment decision. It is brought about by the price volatility which often arises due to fluctuations that commonly affect the financial instruments.
MARKET RISK/ PRICE RISK
The probability of loss due to the borrower’s failure to pay its loan or debt.
CREDIT RISK
This risk talks about the possibility of a firm not meeting its obligation or running out of cash to pay bills and keep the firm operating.
LIQUIDITY RISK
