Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

UNIVERSITY OF MINDANAO
College of Accounting Education
Program: BSA, BSIA, BSMA, BSAIS
Physically Distanced but Academically Engaged
Self-Instructional Manual (SIM) for

Self-Directed Learning (SDL)
Course/Subject: ACCBP 100 – Accounting Plus
Name of Teacher: _______________________

Name of Author: WALTER S. DELIG
THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

REPRODUCTION AND DISTRIBUTION OUTSIDE OF ITS INTENDED
USE. THIS IS INTENDED ONLY FOR THE USE OF THE STUDENTS
WHO ARE OFFICIALLY ENROLLED IN THE COURSE/SUBJECT.
EXPECT REVISIONS OF THE MANUAL
TABLE OF CONTENTS
Particulars Pages
Cover Page
Table of Contents
Course Outline
Course Outline Policy
Course Information
Big Picture: Week 1-3
ULOa. Describe and understand the nature of money, its various
aspects and characteristics.
ULOb. Understand and apply the concept of money supply in computing
for the standard monies, money equivalents, and the net performance
approach, and apply the same for computing the contribution of the
private, public or the government, and foreign sector to the money
supply in the economy. 1
ULOa and ULOb. Metalanguage 1
ULOa and ULOb. Essential Knowledge 2
ULOa and ULOb. Self Help 9
ULOa and ULOb. Let’s Check 9
ULOa and ULOb. Let’s Analyze 11
ULOa and ULOb. In a Nutshell 14
ULOa and ULOb. Q&A List 15
ULOa and ULOb. Keywords Index 16
ULOc. Know and identify the different Philippine banknotes and their
security features.
ULOd. Know and explain the nature of the Philippine Financial System,
and the role of the Bangko Sentral ng Pilipinas and its organizational
structure.
ULOe. Describe and identify the fiscal and monetary policies of the BSP.
ULOf. Understand and apply the concept of Fractional Banking System
to know the computation of how money supply is measured.
ULOg. Know and understand the basics of financial markets and
institutions. 17
ULOc, ULOd, ULOe, ULOf and ULOg. Metalanguage 17
ULOc, ULOd, ULOe, ULOf and ULOg. Essential Knowledge 17
1
ULOc, ULOd, ULOe, ULOf and ULOg. Self Help 32
ULOc, ULOd, ULOe, ULOf and ULOg. Let’s Check 32
ULOc, ULOd, ULOe, ULOf and ULOg. Let’s Analyze 37
ULOc, ULOd, ULOe, ULOf and ULOg. In a Nutshell 38
ULOc, ULOd, ULOe, ULOf and ULOg. Q&A List 39
ULOc, ULOd, ULOe, ULOf and ULOg. Keywords Index 40
ULOh. Know and understand the nature of finance, and its
importance.
ULOi. Know the overview of Finance, and its different perspectives
and areas 40
ULOh and ULOi. Metalanguage 40
ULOh and ULOi. Essential Knowledge 41
ULOh and ULOi. Self Help 45
ULOh and ULOi. Let’s Check 45
ULOh and ULOi. Let’s Analyze 46
ULOh and ULOi. In a Nutshell 48
ULOh and ULOi. Q&A List 49
ULOh and ULOi. Keywords Index 49

ULOa. Understanding Global Finance
ULOb. Explain the Role of Financial Managers. 50
ULOc. Summarize the Use and Implications of the Time Value of Money
ULOd Calculate the Present Value and Future Value of Money. 64
ULOc and ULOd. Metalanguage 64
ULOc and ULOd. Essential Knowledge 64
2
ULOc and ULOd. Self Help 74
ULOc and ULOd. Let’s Check 74
ULOc and ULOd. Let’s Analyze 77
ULOc and ULOd. In a Nutshell 78
ULOc and ULOd. Q&A List 79
ULOc and ULOd. Keywords Index 79

ULOa. Understanding the purpose of management
ULOb. Understanding the manager’s job
ULOc. Enumerating and understanding the different types of managers
and their roles 80
ULOa, ULOb and ULOc. Metalanguage 80
ULOa, ULOb and ULOc. Essential Knowledge 81
ULOa, ULOb and ULOc. Self Help 91
ULOa, ULOb and ULOc. Let’s Check 91
ULOa, ULOb and ULOc. Let’s Analyze 92
ULOa, ULOb and ULOc. In a Nutshell 94
ULOa, ULOb and ULOc. Q&A List 95
ULOa, ULOb and ULOc. Keywords Index 95
ULOd. Describing the ethical and social environment of management,
including individual ethics, the concept of social responsibility, and
how organizations can manage social responsibility
ULOe. Describing the importance and determinants of an
organization’s culture, as well as how organizational culture can be
managed 96
ULOd & ULOe. Metalanguage 96
ULOd & ULOe. Essential Knowledge 96
ULOd & ULOe. Self Help 103
ULOd & ULOe. Let’s Check 103
ULOd & ULOe. Let’s Analyze 105
ULOd & ULOe. In a Nutshell 106
ULOd & ULOe. Q&A List 107
ULOd & ULOe. Keywords Index 107
3
ULOa. Define marketing and understand several important marketing
terms
ULOb. Understand the importance of building customer relationships 108
ULOc. Explain the major marketing functions that are part of the
marketing management
ULOd. Understand the role of marketing in our society and the world 121
Course Schedules 138
Online Code of Conduct 140
4
Course Outline: ACCBP 100 – Accounting Plus
Course Coordinator: Walter S. Delig

Email: wdelig@umindanao.edu.ph
Student Consultation: By appointment
Phone: c/o UM CAE 305-0645
Effectivity Date: June 2020
Mode of Delivery: Blended (On-Line with face to face or virtual sessions)
Time Frame: 54 Hours
Student Workload: Expected Self-Directed Learning
Requisites: None
Credit: 3
Attendance Requirements: A minimum of 95% attendance is required at all
scheduled Virtual or face to face sessions.
Course Outline Policy
Areas of Concern Details

Contact and Non-contact Hours This 3-unit course self-instructional manual is designed
for blended learning mode of instructional delivery with
scheduled face to face or virtual sessions. The expected
number of hours will be 54 including the face to face or
virtual sessions. The face to face sessions shall include
the summative assessment tasks (exams) since this
course is crucial in the licensure examination
for certified public accountants.
Assessment Task Submission Submission of assessment tasks shall be on 3rd, 5th, 7th
and 9th week of the term. The assessment paper shall be
attached with a cover page indicating the title of the
assessment task (if the task is performance), the name
of the course coordinator, date of submission and name
of the student. The document should be emailed to the
course coordinator. It is also expected that you already
paid your tuition and other fees before the submission of
the assessment task.
If the assessment task is done in real time through the

features in the Blackboard Learning Management
5
System, the schedule shall be arranged ahead of time
by the course coordinator.
Since this course is included in the licensure

examination for certified public accountants, you will be
required to take the Multiple- Choice Question exam
inside the University. This should be scheduled ahead
of time by your course coordinator. This is non-
negotiable for all licensure-based programs.
Turnitin Submission (if necessary) To ensure honesty and authenticity, all assessment
tasks are required to be submitted through Turnitin with
a maximum similarity index of 30% allowed. This means
that if your paper goes beyond 30%, the students will
either opt to redo her/his paper or explain in writing
addressed to the course coordinator the reasons for the
similarity. In addition, if the paper has reached more
than 30% similarity index, the student may be called for
a disciplinary action in accordance with the University’s
OPM on Intellectual and Academic Honesty.
Please note that academic dishonesty such as cheating

and commissioning other students or people to complete
the task for you have severe punishments
(reprimand, warning, expulsion).
Penalties for Late The score for an assessment item submitted after the
Assignments/Assessments designated time on the due date, without an approved
extension of time, will be reduced by 5% of the possible
maximum score for that assessment item for each day
or part day that the assessment item is late.
However, if the late submission of assessment paper

has a valid reason, a letter of explanation should be
submitted and approved by the course coordinator. If
necessary, you will also be required to present/attach
evidences.
Return of Assignments/ Assessment tasks will be returned to you two (2) weeks
Assessments after the submission. This will be returned by email or via
Blackboard portal.
For group assessment tasks, the course coordinator will

require some or few of the students for online or virtual
sessions to ask clarificatory questions to validate the
originality of the assessment task submitted and to
ensure that all the group members are involved.
6
Assignment Resubmission You should request in writing addressed to the course
coordinator his/her intention to resubmit an assessment
task. The resubmission is premised on the student’s
failure to comply with the similarity index and other
reasonable grounds such as academic literacy
standards or other reasonable circumstances e.g.
illness, accidents, financial constraints.
Re-marking of Assessment Papers You should request in writing addressed to the program
and Appeal coordinator your intention to appeal or contest the score
given to an assessment task. The letter should explicitly
explain the reasons/points to contest the grade. The
program coordinator shall communicate with the
students on the approval and disapproval of the request.
If disapproved by the course coordinator, you can

elevate your case to the program head or the dean with
the original letter of request. The final decision will
come from the dean of the college.
Grading System All culled from BlackBoard sessions and traditional
contact
Course discussions/exercises – 30%
1st formative assessment – 10%
2nd formative assessment – 10%
3rd formative assessment – 10%
All culled from on-campus/onsite sessions (TBA):

Final exam – 40%
Submission of the final grades shall follow the usual

University system and procedures.
Preferred Referencing Style APA 6th Edition.
7
Student Communication You are required to create a umindanao email account
which is a requirement to access the BlackBoard portal.
Then, the course coordinator shall enroll the students to
have access to the materials and resources of the
course. All communication formats: chat, submission of
assessment tasks, requests etc. shall be through the
portal and other university recognized platforms.
You can also meet the course coordinator in person

through the scheduled face to face sessions to raise
your issues and concerns.
For students who have not created their student email,

please contact the course coordinator or program head.
Contact Details of the Dean LORD EDDIE I. AGUILAR

Email: Aguilar_LordEddie@umindanao.edu.ph
Phone: (082) 3050645 local 137
Contact Details of the Program Jade D. Solaña
Head (BSA, BSMA)
Email: jd_solana@umindanao.edu.ph
Phone: (082) 3050645 local 137
Devzon U. Porras
(BSIA, BSAIS)
Email: dporras@umindanao.edu.ph
Phone: (082) 3050645 local 137
Students with Special Needs Students with special needs shall communicate with the
course coordinator about the nature of his or her special
needs. Depending on the nature of the need, the course
coordinator with the approval of the program coordinator
may provide alternative assessment tasks or extension
of the deadline of submission of assessment tasks.
However, the alternative assessment tasks should still
be in the service of
achieving the desired course learning outcomes.
Online Tutorial Registration Through LMS or PM Chats
8
Library and Information Center Brigida E. Bacani
(LIC) Resource Email: library@umindanao.edu.ph
09513766681
for inquiries, you can email at

umlic.eresources@gmail.com,
raphael_digal@umindanao.edu.ph or
chat with us here http://library.umindanao.edu.ph/
Facebook page: https://www.facebook.com/UM-
Learning-and-Information-Center-Davao-City-
962331877193048/
Well-Being Welfare Support Help Ronadora E. Deala
Desk Email: Ronadora_deala@umindanao.edu.ph
09212122846
GSTC Facilitator
Zerdszen P. Rañises
Emai: gstcmain@umindanao.edu.ph
09058924090
GSTC Facebook Page:

https://facebook.com/UM-GSTC-Main-CAE-
111901303784349/?modal=admin_todo_tour
Course Information – see/download course syllabus in the Black Board LMS
CC’s Voice: Hello, future accountants! Welcome to this course- ACCBP 100:
Accounting Plus. Certainly, I am confident that this course will help you
understand a lot of things which will contribute more to your body of
knowledge in relation to accounting, and how you can apply it to real
life situations. I am looking forward for a term full of learning and
excitement with you, future accountants. Happy Auditing!
CO In order to become a certified public accountant, you will need to learn

not only the fundamentals of accounting, but also its allied area of
disciplines. In this course you are expected to apply key concepts in
basic finance in business decision-making, to explain the basic
concepts, nature and functions of management and to explain the
fundamental concepts and functions of marketing. As being part of the
introductory course in the program you have chosen, you are expected
to be honed with the necessary knowledge, and apply the same on the
next accounting subjects you will have as you progress.
Let us begin!
9
Big Picture
Week 1-3: Unit Learning Outcomes (ULO): At the end of the unit, you are expected to
a. Discuss the nature of money, its various aspects and characteristics.

b. Apply the concept of money supply in computing for the standard monies, money
equivalents, and the net performance approach, and apply the same for computing the
contribution of the private, public or the government, and foreign sector to the money
supply in the economy.
c. Explain the different Philippine Banknotes and their security features.
d. Explain the nature of the Philippine Financial System, and the role of the Bangko Sentral
ng Pilipinas and its organizational structure.
e. Discuss the fiscal and monetary policies of the BSP.
f. Apply the concept of Fractional Banking System to know the computation of how money
supply is measured.
g. Discuss the basics of financial markets and institutions.
h. Explain the nature of finance, and its importance.
i. Discuss the overview of Finance, and its different perspectives and areas.
Big Picture in Focus:
ULOa. Discuss the nature of money, its various aspects and characteristics.
ULOb. Apply the concept of money supply in computing for the standard monies,
money equivalents, and the net performance approach, and apply the same for
computing the contribution of the private, public or the government, and foreign sector
to the money supply in the economy.
Metalanguage
In this introductory section, we will discuss the nature and description of money by
elaborating its characteristics, its roles in the economy and the monies that are recognized by
authorities. You will encounter the terms as we go through the study of money. Please refer to these
definitions in case you will encounter difficulty in understanding the concepts.
1. Money. A current medium of exchange in the form of coins and banknotes; coins and
banknotes collectively.
2. Barter. A system of exchange where participants in a transaction directly exchange goods
or services for other goods or services without using a medium of exchange, such as
money.
3. M1 (Standard Monies). The money aggregate of money supply that is composed of coins
and paper money in circulation, and demand deposits.
4. M2 (Money Equivalents). The money aggregate of money supply that is composed those
1
of M1 and Money Market instruments.
5. M3 (Net Performance Approach). The money aggregate of money supply that is
composed of the contributions from Private, Public or Government, and the Foreign
Sector.
Please proceed immediately to the “Essential Knowledge” part since the first lesson is also
definition of essential terms.
Essential Knowledge
“Money” is a way or means of exchange which allows people to possess their needs in
order for them to survive. Furthermore, money can be defined as any object that it acceptable
as a mode of payment for goods and services, and extinguishment of debts in a specific
country or socio-economic context.
Important Concepts:
1. A barter system (with no money) would be awkward and extremely inefficient.

Barter is the mode of exchange wherein two individuals possess several goods of
which the other party wanted, would enter into a trade agreement.
In ancient times, bartering, however do not have the ability to obtain transferability
and divisibility, which makes trading agreements and exchanges extremely
inefficient. For example, one party has chickens but he wants to acquire pineapples,
and that only means that the other party on this trading or barter agreement, must
find not only who has pineapples but also desires chickens. The inadequacy of being
able to be transferred of bartering goods is exhausting, unclear and ambiguous, and
not efficient. But that is not where the problems end; even if the person finds
someone with whom to trade chickens for pineapples, they may not consider
chickens to be worth a bunch of pineapples. Such a trade requires coming to an
2
agreement and devising a way to determine how many chickens are worth a number
of pineapples.
Money makes exchanges and trades faster thus, makes the whole economy more
productive. Double Coincidence of Wants is not that common and takes time to
find the correct and valid exchange or trade; therefore, money greases the wheels
of exchange and thus makes the whole economy more productive.
2. Money has its functions, in accordance to its conceptual definition.
Money functions as:
2.1 Medium of Exchange. Money acts as a medium of trade or exchange to facilitate

different transactions, like sales and purchases. It fills in as a medium trade that is
accepted in all trades, by all gatherings, paying little respect to whether they want
every others' products and entity. In contrary to the trade agreements, where the
trading of products relied on a twofold fortuitous event of needs, cash is readily
available from any such reliance and enables an individual to fulfill his/her
arrangement of needs.
2.2 Unit of Account. For one, it will necessarily become the unit of account—that is,
the standard unit for determining prices. Thus, if residents and citizens of an idyllic
tropical island use corns and coconuts as money, they would be foolish to quote
prices in terms of fish and seafood.
2.3 Store of Value. Money also may come to be used as a store of value. In the
event that Farmer Jones' corn deals acquire more an incentive than he needs to
spend immediately, he may think that its advantageous to store the difference briefly
3
as cash. He realizes that cash can be "sold" effectively for products and enterprises
sometime in the future, though land, gold, and different stores of significant worth
probably won't be. Obviously, if inflation is significant, he may choose to do without
the comfort of cash and store his riches in some other structure as opposed to see
its purchasing power eroded. Money’s role as a store of value is far from imminent.
Money also serves as a storage of its own value or of purchasing power. Money can
also be held over an indefinite period of time and to back up installments in the future.
Furthermore, when people set aside some funds/cash, they get the affirmation that
the funds will have the value when they want to spend it on a future time.
2.4 Means of Deferred Payment. Payments which are meant to be settled in the
future are called deferred payments. On these cases of payments, funds/money
allows transactions to be done in the future. Deferred disbursements or payments is
one of money’s four functions. Here, cash is utilized as a standard or an agreement
for indicating future installments for current purchases. As such, standard of deferred
payment is an acknowledged method to settle obligation in a given market.
CHARACTERISTICS OF MONEY
1. General Acceptability / Legal Tender
Legal tender is the national currency, for example, paper cash and coins, that is
proclaimed by law to be legitimate payment for obligations and monetary
commitments. Legal tender power implies that when the cash is offered in payment
of an obligation, public or private, the equivalent must be acknowledged and
accepted.
4
Philippine bank currency notes have no known limit to their power of legal tender.
Particularly, all banknotes and coins issued by the Bangko Sentral ng Pilipinas
shall be fully guaranteed by the Government of the Republic of the Philippines and
shall be legal tender in the Philippines for all obligations, both public and private,
as stipulated under Section 52 of R.A. No. 7653. On the other hand, in the case of
denominations of coins of 1-, 5- and 10-Piso they shall be legal tender in amounts
not exceeding PHP1,000.00 while coins in denomination of 1-, 5- and 10- and 25-
Sentimo shall be legal tender in amounts not exceeding PHP100.00, in
accordance to BSP Circular No. 537, Series of 2006.
2. Portability. Movability or Portability is that cash must have the option to go any
place with the end goal that it is anything but difficult to ship as individual’s travel.
3. Durability. Malleability of money is such that it can be utilized again and again;
hence it must survive wear and tear in the long-term period.
4. Divisibility. This aspect deals with the fact that money must be easily divided to
enable a person to buy different products. Philippine money can be divided into
smaller denominations, like 20 pesos which can be composed of either 1 20-peso
bank note, or 2 10-peso coins, or 4 5-peso coins, and so on.
5. Uniformity. Consistency and uniformity of money calls for a standardization of

money so that it appears the same. This helps for the currency to be easily
recognized.
WHAT SERVES AS MONEY
COMMODITY MONEY VS FIAT MONEY
Money has taken a several varieties of forms in different cultures. Gold, silver, cowrie
shells, cigarettes, and even cocoa beans have been utilized as money. Even if these items
are used as commodity money, they also possess a value from use as something other
than money. Gold, as an example, has been utilized throughout the ages as money although
today it is not used as money but rather is valued for its other qualities and attributes. Gold
is an excellent electricity conductor and is utilized in the industry of electronics and
aerospace. Gold is also used in the industry of manufacturing energy efficient reflective glass
for skyscrapers and is utilized as well in the medical industry. Certainly, gold also possesses
value due to its beauty and malleability in the creation of jewelries. As a commodity money,
gold has been historically served its function and purpose as a medium of trade and
5
exchange, a store of value, and as a unit of account.
As economies in the world developed and became progressive in nature, the utilization of
commodity monies turned out to be declining. Nations moved towards the use of fiat money.
Fiat money is a money which has no intrinsic value or worth, however is declared by a
legislature to be the legal tender of a nation. The Philippine's paper money, for instance,
conveys the announcement: "ANG SALAPING ITO AY BAYARIN NG BANKO SENTRAL AT
PANANAGUTAN NG REPUBLIKA NG PILIPINAS" as it were, by government order, in the
event that you owe an obligation, at that point lawfully, you can pay that obligation with the
Philippine cash, despite the fact that it isn't sponsored by a product. The main sponsorship
of our cash is all inclusive confidence and trust that the money has worth, and that's it.
MONEY SUPPLY
The money supply is all the currency and other fluid instruments in a nation's economy
on the date estimated. The money supply generally incorporates both money and deposits
that can be utilized nearly as effectively as cash. Governments issue bank notes (paper
money) and coins through some combinations of their central banks and treasuries. Bank
regulators tend to influence money supply available to the public through the standards and
requirements placed on banks to hold required reserves, how to extend credit and other
regulations.
Economists examine the money supply and create strategies rotating around it
through controlling loan costs (interest rates) and expanding or diminishing the measure of
cash streaming in the economy. Public and private sector analysis is performed in light of the
money supply's potential effects on price level, inflation, and the business cycle. In the
Philippines, the Fiscal and Monetary Policy is the most important deciding factor in the money
supply.
An increase in the money supply will lower interest rates, which in turn will generate
more investment opportunities and gives more money in the hands of the consumers, thereby
increasing spending. Businesses also react by ordering rawer materials and improving or
increasing their production. The demand for labor is being raised due to the increased
business activities. The opposite can occur if the money supply decreases or when its growth
rate is declining.
6
**Above exhibit shows the relationship and behavior of money supply and the amount of interest
and its movement.
HOW MONEY SUPPLY IS MEASURED
The various types of money in the money supply are generally classified as Ms, such
as M1, M2 and M3, according to the type and size of the account in which the instrument is
kept. Not all of the classifications of money supply are widely used, and each country may
utilize different classifications. The money supply shows the different types of liquidity each
type of fund/money has in the economy. It is broken down into several categories of liquidity.
M1, for example, are also called narrow money and includes coins and banknotes
(paper money) that are in circulation and other money equivalents (demand deposits) that
can be easily converted to cash.
M2 includes M1 and, in addition, short-term time deposits in banks and certain money
market instruments.
M3 considers and sums up the result of the following:
7
(a) Private Sector Contribution
Total Loans granted – Total private sector Deposits
(b) Public Sector or the Government Contribution

Total government expenditures – total government deposits
(c) Foreign Sector Contribution

Total foreign loans – total foreign deposits
ILLUSTRATIVE PROBLEM
A. Consider the following currencies in the economy of a certain country:
● Coins P 200,000
● Demand Deposit P 400,000
● Money Market Funds P 200,000
● Paper Money P 800,000
● Total Foreign Deposits P 300,000
● Total Foreign Loans P 900,000
● Total Government Deposits P 500,000
● Total Government Expenditures P 600,000
● Total Private Deposit P 600,000
● Total Private Loans P 800,000
Let us try to compute for the M1, M2 and M3.
1. M1 = Coins + Paper Money + Demand Deposit

M1 = 200,000 + 800,000 + 400,000
M1 = 1,400,000
2. M2 = M1 + Money Market Funds

M2 = 1,400,000 + 200,000
M2 = 1,600,000
3. M3 = *Private Sector Contr’n + **Public/Government Contr’n + ***Foreign Sector

Contr’n
M3 = (800,000 - 600,000) + (600,000 – 500,000) + (900,000 – 300,000)
M3 = 200,000 + 100,000 + 600,000
M3 = 900,000
*Private Sector Loans – Private Sector Deposits
** Government Expenditures – Government Deposits
8
*** Foreign Sector Loans – Foreign Sector Deposits
Even though money supply is a low market impact event which is not directly tradable, it
can be used as an indicator to predict policy direction of central banks.
Self-Help: You can also refer to the sources below to help you further
understand the lesson:
- Brigham, Eugene & Houston, Joel F. (2015). Fundamentals of Financial Management (13th
Edition). Pasig City: Cengage Learning Asia Pte Ltd (Philippine Branch), [2014] [2015].
- Croushore, Dean Fiscal and Monetary Policy (2019)
Let’s Check
Activity 1. Now that you know the most essential terms in the study of money, its nature and
characteristic in Philippine setting, let us try to check your understanding of these terms. In
the space provided, write the term/s being asked in the following statements:
1. Money is defined as something that is
a. Used as a medium of exchange

b. Portable and indivisible
c. Authorized by a commonly recognized monetary institution
d. Both A and C.
2. The kind of money which appears in metallic form and whose face value approximates
that of the worth of the metal itself is called
a. Credit Money
b. Commodity Money
c. Paper Money
d. Fiat Money
3. The following are characteristics of a good money except
a. Portability
b. Convertibility
c. Malleability
d. Saleability
9
4. According to the New Central Bank Act of the Philippines, legal tender for coin currencies
are as follows:
Statement A - Not exceeding Php 1,000 for 1-peso, 5-peso, and 10-peso coins.
Statement B - Not exceeding Php 101 for 1-centavo, 5-centavo, 10-centavo, and 25-
centavo coins.
a. Both statements are correct.

b. Both statements are incorrect.
c. Only Statement A is correct.
d. Only Statement B is correct.
5. Ultimately, the usefulness of money rests in exchanging it for goods or services.
a. True
b. False
6. Economies without money typically engage in the barter system.
a. True
b. False
7. Barter system does not allow us to easily enter into future contracts for the purchase of
many goods and services.
a. True
b. False
8. It is an attribute of money that allows it to be held for future use without the loss of value
in the meantime.
a. Unit of account
b. Medium of exchange
c. Store of value
d. Means of deferred payment
9. It is a money whose value is fixed by government edict or decree.
a. Commodity money
b. Credit money
c. Paper money
d. Fiat money
10
10. A promissory note is what type of money?
a. Commodity money
b. Credit money
c. Paper money
d. Fiat money
Activity 2. Consider the following monies in an economy:
Total private deposit P 360,000

Paper money P 520,000
Total government deposits P 90,000
Demand deposit P 120,000
Total government expenditures P 120,000
Money market P 80,000
Total private loans P 540,000
Coins P 120,000
Total foreign loans P 750,000
Total foreign deposits P 580,000
1.How much is the supply of money using the standard monies approach (M1)?
2.How much is the supply of money using the money equivalent approach (M2)?
3.How much is the supply of money using the net performance approach (M3)?
Activity 3. If M2 is equals to P312,000 wherein the Money Market Funds is 30% of the M1,
and the demand deposit is 1/3 the amount of coins in circulation, and the paper money is
200% of the demand deposits, how much is your Paper Money? (5 points)
Let’s Analyze
Activity 1. Getting acquainted with the essential terms in the study of money and its nature
and characteristics is not enough, what also matters is you should also be able to explain its
inter-relationships. Now, I will require you to explain thoroughly your answers.
A. P’Dim and P’Green discusses the use of cowrie shells as money. Although cowrie shells
are no longer used as money, do you think other forms of commodity monies are
possible? What role might technology play in our definition of money?
________________________________________________________________________
________________________________________________________________________
11
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
____________________________________________________________________
B. Imagine that you are a jeepney driver in a world without money. Explain why it would be
tricky to obtain groceries, clothing, and a place to live.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
C. How does the existence of money simplify the process of buying and selling?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
12
________________________________________________________________________
________________________________________________________________________
D. If ours were a barter economy, how would you pay your tuition bill? What if your
college/university did not want the goods or services you offered in payment? Briefly
discuss your answer.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Activity 1. The discussion of money supply and its other dimensions have presented above.
These philosophies when used as a lens in promoting quality understanding about how
money is supplied and measured, will give us better appreciation by answering the following
questions below.
At this juncture, you will be required to ELABORATE your answers about the following
questions:
A. Currently, a lot of individuals and workers from different sectors and industries
remain at home without options of Work-From-Home scheme, due to the ECQ/GCQ
caused by the COVID-19 pandemic. Why can’t the government just print, by a large
number, its currencies (paper money) and have it distributed to those who need it?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
13
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
______________________________________________________________________
B. Prove or disprove these statements:
“Printing more money doesn’t increase economic output – it only increases the
amount of cash circulating in the economy. If more money is printed, consumers
are able to demand more goods, but if firms have still the same amount of goods,
they will respond by putting up prices.”
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
In a Nutshell
Activity 1. The study of the nature of money, its nature and characteristics is indeed
pre-requisite to understanding how the financial aspect of the economy works. Based from
the definition of the most essential terms in the study of the topics and the learning exercises
that you have done, please feel free to write your arguments or lessons learned below. I have
indicated my arguments or lessons learned.
1. Money is what people regularly use when purchasing or selling goods and services, and
thus money must be widely accepted by both buyers and sellers. This concept of money
is intentionally flexible, because money has taken a wide variety of forms in different
cultures.
2. All the difficulties of barter were overcome with the introduction of money.
14
YOUR TURN
3. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
4. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
5. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
6. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
7. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
8. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
9. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
10. ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Q&A List
Do you have any question for clarification?

Questions/Issues Answers
15
Keywords Index
Money Barter Exchange
Legal tender Commodity Money Fiat Money
Portability Paper Money Money Supply
Convertibility Malleability Unit of account
Promissory Note Expenditures Store of value
16
ULOc. Explain the different Philippine Banknotes and their security features.
ULOd. Explain the nature of the Philippine Financial System, and the role of the
Bangko Sentral ng Pilipinas and its organizational structure.
ULOe. Discuss the fiscal and monetary policies of the BSP.
ULOf. Apply the concept of Fractional Banking System to know the computation of
how money supply is measured.
ULOg. Discuss the basics of financial markets and institutions.
Metalanguage
In this section, we will discuss the nature and description of money by elaborating its
characteristics, its roles in the economy and the monies that are recognized by authorities. You will
encounter the terms as we go through the study of curriculum. Please refer to these definitions in
case you will encounter difficulty in understanding the concepts.
1. Liquidity. The availability of liquid assets to a market or company.

2. Currency. A system of money in general use in a particular country.
3. Banking. An industry that handles cash, credit and other financial transactions.
4. Financial Institution. A company engaged in the business of dealing with financial and
monetary transactions such as deposits, loans, investment and currency exchange.
5. Credit. The ability of a customer to obtain goods and services before payment, based on the
trust that payment will be made in the future.
17
Essential Knowledge
Bangko Sentral ng Pilipinas (BSP)
The BSP was created by the Republic Act No. 7653, also known as the New Central
Bank Act of the Philippines. The BSP is the Philippines’ central monetary authority that
provides policy directions in the areas of money, banking and credit. The BSP’s powers and
functions are exercised by its Monetary Board, consisting of seven members appointed by
the President of the Philippines (chairman, with five full-time members from the private sector
and one member from the Cabinet).
The Governor is the Chief Executive Officer of the Bangko Sentral and is required to
supervise and direct the operations and interval administration of BSP. The BSP aided in its
bank monitoring and examination process by credit rating agencies and financial
conglomerates. Bangko Sentral is also committed into the upgrading of its domestic
prudential standards and requirements in areas of capitalization, connected or pooled
lending, loan provisioning, data disclosure, and qualifications of managers and owners.
Furthermore, BSP also imposes the requirements on the operations on e-bankers.
To see more of the organization structure of the Bangko Sentral ng Pilipinas, kindly check
the link provided.
(http://www.bsp.gov.ph/downloads/BSP%20Interim%20Org%20Chart.pdf)
OVERVIEW OF FUNCTIONS AND OPERATIONS
18
Objectives
The Bangko Sentral ng Pilipinas’ primary goal and objective is to maintain stability of
prices which are useful to a sustainable and balance growth in the economy. The BSP
also desires to preserve and promote monetary stability and the convertibility of the
national currency of the Philippines.
Responsibilities
The BSP grants and make policy directions in the areas of credit, money, and banking. It
also supervises bank operations and exercises regulatory powers over non-bank financial
institutions with quasi-banking functions.
Under the Republic Act 7653 also known as the New Central Bank Act, the Bangko Sentral
ng Pilipinas also does the following functions, all of which relate to its status as the Republic’s
central monetary authority.
Liquidity Management. The BSP creates and exercises monetary policy which aims
to influence money supply consistent with its main objective to maintain stability of
prices.
Currency issue. The BSP has the exclusive power to issue the currency of the nation.
All banknotes (paper money) and coins issued by the BSP are fully guaranteed by the
Government and are acknowledged as legal tender for all public and private
obligations.
Lender of last resort. The BSP provides discounts, loans and advances to banking
institutions for purposes of liquidity.
Financial Supervision. The BSP is also tasked to supervise banks and exercise
regulatory powers over non-bank institutions performing quasi-banking functions.
Management of foreign currency reserves. The BSP looks to keep up adequate

international reserves to satisfy any predictable needs and demands for foreign
currency so as to safeguard the international dependability and stability, and
convertibility of the Philippine peso.
Determination of exchange rate policy. The BSP regulates the exchange rate
policies of the Philippines. Furthermore, the BSP complies to a market-oriented
foreign exchange rate policy in which the Bangko Sentral’s role is primarily to ensure
orderly conditions in the market.
Other activities. The BSP also functions as the banker, financial advisor and official
19
depository of the Government, its political subdivisions and instrumentalities and
government-owned and -controlled corporations.
THE MONETARY BOARD OF BSP
The function and powers of Bangko Sentral are practiced by its Monetary Board, which
has seven individuals delegated by the President of The Philippines. Under the New
Central Bank Act, one of the government sector members from the Monetary Board
should likewise be an individual from the Cabinet assigned by the President.
The New Central Bank Act sets up specific qualifications for the individuals from the
Monetary Board and furthermore precludes individuals from holding certain positions
with other governmental offices and private institutions which may cause conflict of
interest. Except for the individuals from the Cabinet, the Governor and different
individuals from the Monetary Board serve terms of six years and may just be removed
for cause.
.
The Monetary Board members are meeting weekly. The Board may be summoned to
a meeting by the Governor of the BSP or by two (2) other members of the Monetary
Board. Most of the time, the Board meets every Thursday but, in some cases, it
convenes to discuss issues that are urgent.
In the execution of its authority, the Monetary Board shall:
● Provide rules and regulations, it considers necessary for the efficient and
effective delivery of the duties and responsibilities and exercise of the powers
vested upon the Monetary Board and the Bangko Sentral;
● Direct the management, operations, and administration of the Bangko Sentral,

reorganize its human resource, and issue such implementing rules and
regulations as it may deem required or convenient. The legal units of the
Bangko Sentral shall be under the sole supervision and control of the Monetary
Board;
● Create a human resource management system which will help in the selection,
hiring, appointment, transfer, promotion, or removal/dismissal of all personnel.
Such system shall target to create excellence and professionalism at all levels
of the BSP in relation to sound management principles.
A compensation plan and structure, with reference on job evaluation studies

and wage surveys dependent on the Monetary Board's approval, shall be
expected as an essential component of the BSP’s human resource
development program.
20
Upon the BSP Governor's suggestion, choose, fix the compensations and
different remittances, and dismiss work force of the BSP, subject to appropriate
civil service laws: Provided, That the Monetary Board will have sole and final
power to promote, advance, assign, or reassign staff of the BSP and these
employee activities are thought to be made in light of an interest of the service
and not disciplinary: Provided, further, That the Monetary Board have the
choice to delegate such authority to the Governor under such rules and
arrangements as it might decide;
● Follow an annual budget and authorize such procurements by the BSP in the
interest of the effective operations and administration of the BSP in compliance
with applicable laws and regulations; and
● Indemnify its organization members and different authorities associated with

the BSP including representatives of the divisions performing assessment and
administering functions against all expenses reasonably obtained by such
people regarding any civil or criminal action, suit or procedures to which he
might be, or is, made a party by reason of the exercise of his duties and
responsibilities, except if he is adjudged in such action or proceeding to be at
risk for misconduct or negligence.
Currently, the BSP Monetary Board is composed of the following officers:
Chairman Benjamin E. Diokno

Members Carlos G. Dominguez III
Felipe M. Medalla
Juan De Zuniga, Jr.
Peter B. Favila
Antonio S. Abacan, Jr.
V. Bruce J. Tolentino
The Philippine Banknotes
As for the Philippine Banknotes issued by the Bangko Sentral ng Pilipinas, as well as
their corresponding security features, kindly refer to the link below. Kindly get familiar
with the personalities, landmarks, symbolisms and animals included on each note.
(https://drive.google.com/file/d/10wTxkVL0_WfbyU6cvkHRFTMAbQ8SqzY5/view?usp=sharing)
21
The Banking Institution
The banking institution of the Philippines can be categorized as private or government

banking.
The private banking institutions are comprised of commercial banking such as

universal banks and ordinary commercial banks; thrift banks like savings and mortgage
banks, private development banks, and stock savings and loan association; and the rural
banks.
The government banking institutions on the other hand, consists of Philippine National
Bank, Development Bank of the Philippines, Land Bank of the Philippines, and the Philippine
Amanah Bank.
PRIVATE BANKING INSTITUTIONS
1. Commercial Banking Institutions
Ordinary or non-expanded commercial banks fall under this category. These

banks continue to represent for many of the total banking industry’s resources.
Examples of these are BDO Unibank Inc, Metropolitan Bank and Trust Company
(Metrobank), Bank of the Philippine Islands (BPI), etc.
2. The Thrift Banks
Thrift banks are primarily involved in the mobilization of the small savings of savers
and the people. They provide funds for agriculture and industry at reasonable interest
rates. The small producers like people connected to activities like farming, fishing,
craftsmanship, and poor consumers can be dependent on such banks for financing
their production and consumption inputs. The following banks fall under the category
of Thrift banks:
2.1 The Savings and Mortgages Bank

- The primary function of a savings and mortgage bank is to receive time deposit
of different types and to invest its funds in long term investment.
2.2 The Savings and Loan Association

- Very similar to the savings and mortgage banks are the savings and loan
associations nowadays. However, such entities may either be classified as
corporations that non-stock or stock.
22
2.3 The Private Development Banks
- This is somehow not the same from the government entities of the same name.
It is a government institution, formerly known as the Rehabilitation Finance
Corporations.
2.4 The Rural Banks

- Rural Banks fulfill the investment function by allowing small farmers to finance
their needs through the granting of loans for capita and other uses.
GOVERNMENT BANKING INSTITUTIONS
1. The Philippine National Bank
The Philippine National Bank (PNB) operates under the provision of the
Executive Order No. 80, the 1996 revised charter of PNB.
2. The Development Bank of the Philippines
The Development Bank of the Philippines (DBP) started operating in 1935 as

National Loan and Investment Board. To coordination and manage trust funds was its
first mission.
3. The Land Bank of the Philippines
It was the Agrarian Reforms Code that made the Land Bank of the Philippines
(LBP) to finance the procurement and conveyance of agricultural estates for division
and resell these to little landholders.
4. The Al-Amanah Islamic Investment Bank of the Philippines
The Al-Amanah Islamic Investment Bank of the Philippines (Islamic Bank) was
made under the Republic Act No. 6848 to promote the social and the financial
development of Mindanao, especially the territories of Cotabato, Lanao del Sur, Lanao
del Norte, Zamboanga del Sur, Zamboanga del Norte, and Sulu.
NON-BANK FINANCIAL INSTITUTIONS
These are other financial institutions which take part in specific roles and functions.
They offer types of assistance and services identified with claims, financial and budgetary
23
data, and advice, oversee and manage portfolios of monetary resources (financial assets)
for the benefit of other financial and economic units, purchase and sell claims on organization
from clients, and help with discovering sources for those monetary units looking for loans.
These are either private or government non-bank financial establishments.
PRIVATE NON-BANK INSTITUTIONS
1. Investment House/Banks
The terminology "investment house" is characterized to mean as "any

enterprise" which takes part in the underwriting of securities of different
organizations. Underwriting is the demonstration or procedure of ensuring the
circulation and sale of securities of any sort given by another corporation.
Securities are composed evidences of ownership, interest, or participation in any
entity, or written confirmations/evidences of obligation of an individual or
enterprise.
2. Securities Brokers/Dealers
In accordance with the arrangement of the Revised Securities Act, no broker,

or vendor or sales reps must take part in business in the Philippines as such
representative, seller or sales reps or sell any securities, including securities
excluded under the said law.
3. Building and Loan Association
A building and loan association is an exceptional sort of investment funds

organization. On account of its very nature, be that as it may, it falls under this
classification considering the way that it likewise gets investment funds from
members and loans funds to them.
4. Credit Unions
A credit union is another type of savings institution. It also has its purpose of
the inculcation of the habit of thrift, frugality, and the idea of helping one another.
5. Private Insurance
Private insurance agencies add to the nation's financial improvement just as to

the protected or insured individuals.
6. The Pawnshop
24
Pawnshops provide credit to small borrowers who are not qualified to obtain
small loans from financial institutions. In pawnshop, the cost of the borrowing and
terms of the payment are generally fair.
7. Trust Companies
A trust company is any enterprise shaped or sorted out to go about as trustee

or managing any trust or holding property or on deposit for the utilization,
advantage, or behoof of others.
8. Non-stock savings and Loans Associations
A non-stock savings and loan association is an organization involved with the

matter of collecting the investment funds of its individual members.
9. Financing Companies
Financing companies or partnerships, except those regulated by the Bangko

Sentral ng Pilipinas (BSP), the Insurance Commissioner, and the Cooperative
Administration Office which are primarily organized for the purpose of providing
credit facilities to consumers and to industrial, commercial, or agricultural
enterprises.
10. Other Non-bank Financial Institutions
These are financial institutions that are not too known to many people. Fund
managers, lending investor, and venture capital corporations are among these
institutions
GOVERNMENT NON-FINANCIAL INSTITUTIONS
1. The Government Service Insurance System
On May 13, 1937, the Government Service Insurance System (GSIS) started
its operation. Presently, the GSIS administers the following: Life Insurance Funds,
Retirement Funds, Health Insurance Fund/Medicine, State Insurance
Fund/Employees’ Compensation, General Insurance Fund/Property Insurance,
and Barangay Officials’ Life Insurance.
2. The Social Security System
On September 1, 1957, the Social Security System (SSS) started its operation.
25
From the outset, SSS allowed just death, disability, sickness, and mature age
benefits under its social security program for the workers/employees in the private
sector. As its ability of the funding and administrative experience developed,
different benefits have been added to the program, for example, hospitalization
benefits under the Medicare program, workers' remuneration advantages, and
maternity benefits.
3. Philippine Export and Foreign Loan Guarantee Corporation
The Presidential Decree No. 1080 entrusts the Philippine Export and Foreign
Loan Guarantee Corporation (PEFLGC) to undertake the following:
● To guarantee affirmed foreign loans, in entire or to a limited extent, given

to any local institution, enterprise, or corporations, majority of the capital
of which is claimed and owned by residents of the Philippines.
● To guarantee Philippine banking and financial institutions against loss

that may be incurred in connection with:
a. The grant of loss/credit accommodations to exporters, makers of

export items, or contractual workers with affirmed service contractors
abroad, given that such exporters, producers or makers, or service
contractors are Filipinos or entity's majority capital share of which are
claimed and owned by citizens of the Philippines; and
b. The issuance of standby letters of credit or of letters of guarantee,

as the case may be, to secure the performance of approved service
contracts abroad entered into by any domestic entity, enterprise or
corporation, majority of the capital of which are owned by citizens of
the Philippines.
4. The National Home Mortgage Finance Corporation
The National Home Mortgage Finance Corporation (NHMFC)’s purpose is to

develop and provide a secondary market for home mortgages granted by public
and/or private home financing institutions. Under Section 5 of Presidential Decree
No. 1267, the NHMFC is authorized to exercise the following powers and
functions:
(a) To purchase, acquire, sell, discount, refinance, or otherwise deal in home

mortgages or participations therein under such terms and conditions as may
be prescribed by the Board of Directors of the Corporation;
26
(b) Subject to the provisions of Section 7 hereof, to borrow funds from
domestic or foreign private or public financial institutions as may from time to
time be required for its operations, and to issue bonds, promissory notes,
debentures, and other debt instrument in local or foreign currency;
(c) To own, lease, purchase or otherwise acquire, sell or otherwise dispose of,
property, real or personal, as may be necessary and appropriate for the
conduct of its business;
(d) To invest the funds or monies of the Corporation not invested in mortgage
loans in securities issued by the National Government, Central Bank of the
Philippines and other government entities, including government-owned and
controlled corporations the servicing and repayment of which are fully
guaranteed by the Republic of the Philippines;
(e) To enter into and perform such contracts with any person or entity, public
or private, as may be necessary, proper or conducive to the attainment or
furtherance of the objectives and purposes of the Corporation;
(f) To adopt, alter and use a corporate seal; to sue and be sued; and generally,
to exercise all the powers of a corporation under the Corporation Law which
are not inconsistent herewith; and
(g) To promulgate such rules and regulations and to do and perform any and
all things as may be necessary and proper to carry out its responsibilities,
powers and functions under this Decree
FINANCIAL SYSTEM
Financial system depicts collectively the financial markets, the instruments and securities
that are traded in the said markets, as well as the participants. The functions of the financial
system are to channel the funds from lenders to borrowers, provide a means of exchange, a
mechanism for risk sharing and a channel through which the BSP may be able to influence
the economy, generally, and the financial system in particular.
FINANCIAL SYSTEM PARTICIPANTS
1. HOUSEHOLDS. Consumers or households are usually described as a group that

receives income, majority of which typically come from their salaries and wages.
Gross savings can be computed by deducting the current expenditures from the
current income of each individual or household. The same income is spent on
services and goods and a portion is set aside as savings. Goods that are
27
consumed and utilized within the current period are non-durable consumer goods.
Goods which lasts for a period exceeding a year are termed durable consumer
goods. Consumers of households purchase non-durables from current income and
borrow for the durables like cars, washing machines, air conditioners, and houses.
2. FINANCIAL INSTITUTIONS/INTERMEDIARIES. Financial institutions channel

the funds from lenders to borrowers. They can also be the lenders and borrowers
themselves. If they can buy securities, they are lenders, but if they are the ones
issuing the securities, they are borrowers.
3. NON-FINANCIAL INSTITUTIONS. Non-financial institutions are ventures and

businesses that involves processes and industries like trading, manufacturing,
construction, extractive, and genetic industries. Non-financial institutions can also
be the lender and borrowers just like financial institutions.
4. THE GOVERNMENT. This is what comprises the Philippines as a whole, from the
national level, provincial, city and towns.
5. THE CENTRAL BANK / BANGKO SENTRAL NG PILIPINAS. It the institution

that control a nation’s currency, supply of money, and the rates of interest. Central
bank also generally oversees and supervises the commercial banking system of
their respective countries.
6. FOREIGN PARTICIPANTS. Foreign participants refer to the members from the

rest of the world, for example, family units, government, monetary and non-
financial firms and central bank. They trade merchandise and services across
national limits. International trade and exchange and international finance are
portions of globalization.
FINANCIAL MARKETS IN THE PHILIPPINES
Financial Markets are structures through which funds flow. Financial markets could
be classified along two (2) different dimensions: (1) Primary vs. Secondary Markets and (2)
Money versus Capital Markets. The role of financial markets can be traced on savings
mobilization, investment, national economic growth, entrepreneurial growth of individuals
and entities, and industrial development.
1. Capital Market. This is the market for long-term securities and is managed by the
Philippine Stocks Exchange (PSE). Furthermore, it is in this market where trading of
equity (stocks) and debt (bonds) instruments with maturities of more than one year, occur.
Capital markets are prone to wider changes in prices, which provides greater risk and
28
returns for participants. Examples of the instruments under the capital market are as
follows:
a. Corporate Stocks. The fundamental ownership claim in a public corporation.

b. Mortgages. Loans to individuals or businesses to purchase a home, land or other
real properties.
c. Corporate Bonds. Long-term bonds issued by corporations.
d. Treasury Bonds. Long-term bonds issued by the Philippine’s Bureau of Treasury.
e. State and Local Government Bonds. Long-term bonds issued by state and local
governments.
f. Bank and Consumer Loans. Loans to commercial banks and individuals.
2. Foreign Exchange Market (FOREx). A market for foreign currencies.
3. Money Market. It is a market for short-term securities and usually occurs between
banks and other financial institutions where they lend each other on overnight basis
and/or where the treasury bill is exchanged. This market trades debt securities or
instruments with maturities of one year or less, and transactions involving money markets
are said to be over-the-counter (OTC) markets. Examples of the instruments under the
money market are as follows:
a. Treasury Bills. Short-term obligations by the Philippine government.
b. Federal/State Funds. Short-term funds transferred between financial institutions
usually for no more than one day.
c. Repurchase Agreements. Agreements involving the sale of securities by one
party to another with a promise by the seller to repurchase the same securities
from the buyer at a specified date and price.
d. Commercial Paper. Short-term unsecured promissory notes issued by a company
to raise short-term cash.
e. Negotiable Certificate of Deposit. Bank-issued time deposit that specifies an
interest rate and maturity date and is negotiable, (i.e., can be sold by the holder to
another party)
f. Banker’s Acceptance. Time draft payable to a seller of goods, with payment
guaranteed by a bank.
4. Commodities Market. It is a market for commodities such as oil, gold, and silver.
5. Derivatives Market. It is a market of financial contracts derived from the capital and
usually depends on the price of the asset where it is derived. Examples of which are spot,
forward, options and warrants.
BUILDING BLOCKS OF FINANCIAL SYSTEM
1. Money
29
2. Financial Instruments
3. Financial Institutions
4. Central Bank (BSP)
Requirements of an effective financial system

● The financial system must provide an efficient medium for exchanging goods
and services.
● The financial system must create capital on a large scale, which is enough to
meet the demands of the nation’s economy.
● The financial system must provide markets and procedures for the transfer of
claims to wealth and for the conversion of claims to cash.
FRACTIONAL BANKING SYSTEM
Fractional Banking is a banking system that expects banks to hold just a segment of
the cash stored with them as reserves. The banks use client deposits to make new loans and
grant interests on the deposits made by their clients. The reserves are held as balances in
the bank's account at the central bank (BSP) or as currency in the bank. The reserve
requirement permits business/commercial banks to go about as middle people
(intermediaries) among borrowers and savers by offering loans to borrowers and giving
prompt liquidity to contributors who need to make withdrawals.
The system of fractional banking came into existence as an answer to problems

encountered during the Great Depression when depositors made large sum of withdrawals,
leading to bank runs. The government introduced the reserve requirements to help protect
depositor’s funds from being invested in risky investments. For example, if a person deposits
Php 100,000 in a bank account, the bank cannot lend out all the money. It is not required to
keep all the deposits in the bank’s cash vault. Instead, banks are required to keep 10% of
the deposits, i.e., Php 10,000, as reserves, and may lend out the other Php 90,000. The BSP
sets the reserve requirement as one of the tools for guiding monetary policy, and is currently
at 12%.
RESERVE REQUIREMENTS
Required reserve, or the required rate of reserve, are central bank regulations that
dictate the minimum amount of reserves that a bank should hold and not lend to borrowers.
Bank are not allowed to hold less than the required amount of reserve, however bank shall
also be allowed to maintain or hold more than the amount required as reserve. The amount
of reserves in excess of level of reserve needed are called as excess reserves. Some banks
hold excess reserves as a safeguard in any case of the occurrence of mass cash withdrawals
by customers, especially during periods of economic uncertainty.
HOW BANKS CREATE MONEY
30
Commercial banks are mandated to hold only a portion of customer deposits as
reserves and may use the rest of the deposits to grant loans to borrowers, and different
individuals needing the funds. When giving loans, Commercial banks accepts negotiable
instruments like promissory notes in exchange for credit that is deposited in the borrower’s
account in the bank, when granting and giving loans. Deposits to the borrower’s account, as
opposed to giving loans in the form of currency, is part of the process banks use to create
money. When a bank issues a loan, it creates new money, which in return increases the
money supply. As an example, when an individual loans a Php 1,000,000 mortgage loan, the
bank credits the borrower’s account with money equal to the size of the mortgage loan
instead of giving them currency amounting to the value of the loan.
THE MONEY MULTIPLIER
The money multiplier estimates the measure of business bank or commercial bank
cash that can be made utilizing a particular unit of central bank cash. Commercial bank
money refers to the demand deposits in the retail bank that you can use to compose checks
or utilize a charge, whether debit or credit card. Central bank cash, then again, pertains to
the cash adopted by the central bank and incorporates valuable metals, coins, banknotes,
reserves held in accounts with the central banks, and whatever else utilized by the central
bank as a type of cash.. Analysts use the multiplier equation to estimate the impacts of the
reserve requirements on the economy. The equation is expressed as follows:
m=1/R
Where:
m is the money multiplier
R is the reserve requirement
In this respect, the central bank can alter the money supply by changing the reserve
requirement. For example, if it sets a reserve requirement of 10%, it creates a money supply
equal to ten times the amount of reserves. A 20% reserve requirement creates a money
supply equal to five times the amount of reserves in the economy.
ILLUSTRATIVE PROBLEM
Given the information below,
Initial reserve deposit P 3,000,000

Reserve ratio 10 percent
31
Compute for:
1. Required Amount of Reserve
2. Excess Reserve that can be loaned out to borrowers
3. Money Multiplier
4. Total Money Supply
5. The change in the total money supply if the initial change in deposit is equal to initial
reserve deposit.
SOLUTION:
1. Required Amount of Reserve = Initial Reserve Deposit x Required Rate of Reserve
Required Amount of Reserve = 3,000,000 x 10%
Required Amount of Reserve = 300,000
2. Excess Reserve = Initial Reserve Deposit – Required Amount of Reserve
Excess Reserve = 3,000,000 – 300,000
Excess Reserve = 2,700,000
OR
Excess Reserve = Initial Reserve Deposit x (100% - Required Rate of Reserve)
Excess Reserve = 3,000,000 x (100% - 10%)
Excess Reserve = 3,000,000 x 90%
Excess Reserve = 2,700,000
3. Money Multiplier = 1 / Required Rate of Reserve

Money Multiplier = 1 / 0.10
Money Multiplier = 10
4. Total Money Supply = Initial Reserve Deposit x Money Multiplier

Total Money Supply = 3,000,000 x 10
Total Money Supply = 30,000,000
5. Total Change in Money Supply = Total Money Supply – Required Amount of Reserve
Total Change in Money Supply = 30,000,000 – 300,000
Total Change in Money Supply = 29,700,000
Brigham, Eugene & Houston, Joel F. (2015). Fundamentals of Financial Management (13th
San Andres-Francisco, Eva (2016). Fundamentals of Business Finance. Manila:
32
Mindshapers.
Let’s Check
1. The current governor of Bangko Sentral ng Pilipinas is ________, and he assumed his office
last ___________.
a. Benjamin E. Diokno, March 4, 2019

b. Nestor A. Espenilla, March 4, 2019
c. Nestor A. Espenilla, February 4, 2019
d. Benjamin E. Diokno, March 7, 2019
2. The four (4) Deputy Governors of BSP are in-charge of the following Major Sectors of BSP,
except
a. Financial Supervision Sector

b. Money and Economics Sector
c. Currency Assessment Sector
d. Corporate Services Sector
3. Based on the information coming from the Bangko Sentral ng Pilipinas, the current required
rate of reserve is
a. 12%
b. 20%
c. 17%
d. 19%
4. It is the specific location, under the control of BSP, as to where money is printed.
a. Security Plant Complex

b. Plant Security Complex
c. Mint and Refinery Department
d. Cash Management
5. The new generation of banknotes are made up of
a. 80% cotton and 20% abaca

b. 70% cotton and 30% abaca
c. 90% cotton and 10% abaca
d. 75% cotton and 25% abaca
33
6. The Bangko Sentral ng Pilipinas (BSP) is mandated to do the following except
a. maintain international stability of Philippine peso and its convertibility into foreign
currencies
b. manage money supply or money aggregate at a certain level
c. monitor tendencies of inflation and deflation
d. Both A and B.
7. In the new BSP logo, the three stars represent the three pillars of central banking which are
a. Price stability, financial stability and reliable payment system

b. Price stability, market stability and centralized payment system
c. Price stability, financial stability and efficient and safe settlement system
d. Price stability, economic stability and regulated payment system
8. What is the scientific name, as reflected and indicated in the 1,000-peso bill, also known as
the South Sea Pearl, which serves part of the security feature of the aforementioned bill,
specifically as an optically variable device?
a. Pinctada Fucata
b. Pinctada Maxima
c. Pinctada Margaritifera
d. Pinctada Pteriida
9. To protect against counterfeiting, a thin ribbon is entrenched across the note's paper. This
security mark is called
a. security fibers
b. security lash
c. security thread
d. security ribbon
10. This Act sets the constitutional provision for the creation of BSP
a. RA 7635
b. RA 6753
c. RA 6735
d. RA 7653
11. Under the New Central Bank Act of the Philippines, the BSP performs the following functions,
except
a. Formulates and implements monetary policy aimed at influencing money supply

34
consistent with its primary objective to maintain price stability.
b. Extends discounts, loans and advances to banking institutions for liquidity
purposes.
c. Seeks to maintain sufficient international reserves to meet any foreseeable net
demands for local currencies in order to preserve the international stability and
convertibility of the Philippine peso.
d. Serves or functions as the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and government-
owned and -controlled corporations.
12. The new generation of banknotes has varied security features to ensure protection against
counterfeiting. These features include the following except
a. Watermark
b. Optically variable device patch
c. Concealed value
d. Encrypted code
13. The president who prioritized the crafting of the Central Bank Charter is
a. Manuel Roxas
b. Manuel Quezon
c. Diosdado Macapagal
d. Sergio Osmena
14. Statement 1: Monetary policy is not developed through the Monetary Board of the BSP in
order to control the supply of money for promoting economic growth and stability.
Statement 2: A monetary authority, that is the Central Bank, is one of the building blocks of
non-effective financial system.
Which of the following statements above is/are true?
a. Only statement 1
b. Only statement 2
c. Both statements are true
d. Neither statement 1 nor 2 is true
15. This financial activity distributes the surplus funds of a sector in an economy to a sector
that requires it.
a. Financial distribution
b. Financial intermediation
35
c. Financial allocation
d. Financial provision
16. The following are requirements of an effective financial system except
a. It creates capital and wealth on a large scale enough to meet the demands of
the nation's economy
b. It ensures non-efficient medium for exchanging goods and services
c. It provides markets and opportunities for the transfer of money and conversion
of debts
d. It does not guaranty free-debt economy and fixed money aggregates
17. Financial intermediaries refer to persons or entities whose principal functions include lending,
investing or placement of funds among others. The following are examples of financial
intermediaries except
a. Pawnshop
b. Investment house
c. Security broker
d. Mutual fund association
18. The bank which is established to promote and expand rural economy is termed
a. Commercial bank
b. Rural bank
c. Thrift Bank
d. Special Government bank
19. Financial markets play a significant role in the economy. Among its primary roles are the
following except
a. entrepreneurial growth
b. saving mobilization
c. national development
d. international trade
20. This market is for short-term securities and usually occurs between banks and other
financial institutions where they lend each other on an overnight basis.
a. Foreign exchange market

b. Money market
c. Commodities market
d. Capital market
36
21. This is a market of financial contracts derived from the capital and usually depends on the
price of the asset where it is derived. This market can be divided into two, that for exchange-
traded and for over-the-counter.
a. Commodities Market
b. Money Market
c. Capital Market
d. Derivatives Market
22. It is a global decentralized or over-the-counter market for the trading of currencies. This
market determines foreign exchange rates for every currency. It includes all aspects of
buying, selling and exchanging currencies at current or determined prices.
a. Money Market
b. Commodities Market
c. Foreign Exchange Market
d. Derivatives Market
23. Statement 1: Financial institution is an organization through which money and money claims
are gathered and transferred from one economy to another.
Statement 2: Banking institutions are not authorized to lend funds through the receipt of
deposits.
Which of the following statements above is/are true?
a. Only statement 1
b. Only statement 2
d. Neither statement 1 nor 2 is true
Given the following information:
Initial reserve deposit P 3,000,000

Reserve ratio 10 percent
24. Using the fractional reserve banking system, how much can be loaned out to borrowers
who can invest and spend the money in the economy?
25. How much is the change in the total money supply if the initial change in deposit is equal to
initial reserve deposit?
37
Let’s Analyze
Activity 1. The impact of new technologies on the banking industry has been a key feature
of research over the past twenty years. Several studies have examined patterns of adoption
of innovations, including: Automated Teller Machines (Hannan, T., & McDowell, J. M. (1986)).
Kindly discuss how technological change revolutionized the processing and analysis of
financial data, as well as delivery systems, which reduced bank costs, increased lending
capacity and improved the quality and variety of banking services available to customers.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Activity 2. The following are the information for the securities in the market:
Security Amount
Bank and consumer loans 200,000
Banker’s acceptances 150,000
Commercial Paper 75,000
Corporate bonds 110,000
Corporate Stocks 210,000
Federal funds 315,000
Mortgages 410,000
Negotiable certificates of deposit 70,000
Repurchase Agreements 145,000
State and local government bonds 95,000
Treasury bills 105,000
Treasury bonds 180,000
38
1. Compute for the amount attributable to Money Market Instruments.
2. Compute for the amount attributable to Capital Market Instruments.
In a Nutshell
It is definitely important for us to know how the BSP as the central bank, who supervises banks,
stands its fiscal and administrative autonomy from the National Government in pursuit of its
mandated responsibilities. In this portion of the unit, you will be required to state your
arguments relevant to the topic presented. I will supply the first two items and you will continue
the rest.
1. If there were no central banks, interest rates would be set by the market. In other words, if
interest is the “price” of money, the supply and demand of money offered by lenders and
money demanded by borrowers would adjust to create a suitable interest rate.
2. Financial markets and institutions play a key role in the economy by managing risks and
allocating savings to productive activities; when functioning smoothly, they enable economic
growth and improvements in overall welfare.
YOUR TURN
3. ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
4. ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
5. ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
39
Q&A LIST
Do you have any questions for clarification?
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
KEYWORDS INDEX
This section lists down the keywords that help you for recall the discussions.
Fractional Banking System Money Multiplier Monetary Policy

Autonomy Required reserve Bangko Sentral
Liquidity Monetary Board Private Banking
Money Supply Pillars of BSP Governor General
40
ULOh. Explain the nature of finance, and its importance.

ULOi. Discuss the overview of Finance, and its different perspectives and areas.
Metalanguage
Hola! As a student aspiring to be a Certified Public Accountant, it is but important to

understand one of the important things you should be familiar with today, and be expert with as
you come across with it in your next accounting subjects – finance / financial management.
Finance is the heart and lifeline of every business. However, finances, like other resources, are
always limited. On the other hand, wants are always unlimited, therefore gives birth to the need
of managing business finances efficiently. As an introduction to financial management, we will
look into its nature and importance, its perspectives, and areas covered by the same.
1. Accounting. It is considered as the language of finance because it provides financial data

through financial statements.
2. Financial Management. It refers to capital procurement, funds allocation, capital
restructuring, and profit administration which involves financial planning, analysis of financial
condition and supervision of financial operations.
3. Treasurer. Responsible for the firm’s financial activities including financial planning, raising
funds, making capital budgeting decisions and managing the firm’s working capital. It is also
known as the Chief Financial Manager.
4. Controller. In-charge of the firm’s accounting activities such as corporate accounting, tax
management, financial accounting, and cost accounting. It is also known as the Chief
Accountant.
Essential Knowledge
41
Financial Management
Perspectives
Economic Perspective
Asset is based on the
future cash flows the asset
will provide.
Accounting Perspective
Asset refers to resources
owned, managed and
controlled by an enterprise
Financial Management includes planning, organizing or sorting out, coordinating/directing

and controlling the money related exercises, for example, obtainment and usage of assets of the
venture. It implies applying general management standards to financial resources of the undertaking
or entity. Accordingly, financial management is a touch base with all the areas of how an entity or
venture deals with its financial resources in order to minimize risks and maximize the profits in the
long run.
SCOPE AND ELEMENTS OF FINANCIAL MANAGEMENT
1. Decisions in relation to investment, includes the investment in fixed asset (capital budgeting).
Investment in current assets are also included as part of the decisions in investment termed
as working capital decisions.
2. Financial decisions – this is connected to raising of finance from different resources which
will be dependent on the decision on type of source, period of financing, cost of financing
and the returns of the same.
3. Dividend decision – the manager for finance has to make decisions with regards to the
income distribution. Net profits are generally segregated into two:
i. Dividend for shareholders – dividend and the rate it has to be decided.
42
ii. Retained earnings – amount of retained earnings has to be finalized which will depend
upon expansions of the enterprise and the plans of diversifying its investments and
other resources.
Financial
Management
Three Areas
of Finance
Capital
Investments
Market
AREAS OF FINANCE
A. Financial Management (Corporate Finance)

- Focuses on decisions relating to how much and what types of assets to acquire, how to
raise the capital needed and how to maximize its value.
B. Capital Market
- Refers to markets where interest rates along with stock and bond prices are determined.
Banks, investment banks, stockholders, mutual funds, insurance companies, and the like
bring together savers who have money to invest in businesses that need capital for various
purposes.
C. Investments
- Relates to decisions concerning stocks and bonds and include a number of activities:
C1. Security Analysis (finding proper values of individual securities)
C2. Portfolio Theory (best way to structure portfolios or baskets of stocks and bonds.
OBJECTIVES OF FINANCIAL MANAGEMENT
Financial management is concerned with disbursements, allocation and control of

43
financial assets of an entity. The objectives of financial management could be as follows:
A. To make sure regular, consistent and enough supply of funds for the entity.
B. To ensure prompt and adequate dividends to the entity’s stockholders, which will be
dependent on the entity’s capacity to earn, share’s market price, and the stockholders’
expectations.
C. To maximize usage of funds.
D. To ensure investment safety
E. To decide and organize a valid capital structure, balancing debt and equity.
FUNCTIONS OF FINANCIAL MANAGEMENT
Functions Descriptions
A manager for finance must make assessments in connection

to capital needs of the entity. This will be dependent on the
expected costs and returns and future programs and policies.
Appraisal of Capital Requirements
Estimations must be made in a valid and sound manner which
increases and maximizes the earning capacity of the
venture/entity.
If the appraisal has been realized, capital composition or

structure must be taken into consideration. This includes both
short-term and long-term debt equity analysis. This will be
Determination of Capital Structure
dependent upon the allocation of equity capital a company is
acquiring and additional funding which has to be accumulated
or possessed from external parties.
For additional funding to be procured, a company has several

choices, like:
Choice of Sources of Funds
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds
44
The manager for finance must choose to allocate funds into
Investment of Funds profitable ventures and opportunities in order to maintain
safety on investments and returns is possible.
The net income decisions must be made by the finance

manager. Such decisions may be done in two different ways:
a. Dividend Declaration – It involves identifying the rate of

Disposal of Surplus dividends and other benefits like bonus.
b. Retained Earnings – The volume must be decided and
taken into consideration and will be dependent on
expansional, innovational, and diversification plans of the
entity.
Financial Managers must make decisions in connection to

cash management. Cash is mandatory for many reasons like
disbursement for wages and salaries, disbursements of
Management of Cash
electricity and water bills, payment to creditors, meeting
current obligations, maintenance of enough stock, and
purchase of raw materials, etc.
Finance managers have to plan as well as procure and use

the funds but must also make sure that controls are in place
Financial Controls
over these finances. This can be done via techniques like ratio
analysis, forecasting, cost and profit control, etc.
45
Brigham, Eugene & Houston, Joel F. (2015). Fundamentals of Financial Management (13th
San Andres-Francisco, Eva (2016). Fundamentals of Business Finance. Manila: Mindshapers.

Williams, John (2015). Financial Management. New York: Arcier Press.
Let’s Check
1. This refers to business activities that aim to create value to firm, maximize limited
resources and manage risk for greater return
a. Accounting
b. Finance
c. Management
d. Taxation
2. Statement 1: Financial Management focuses on relating how much and what types of
assets to acquire, how to raise the capital needed, and how to maximize its value.
Statement 2: Based on an economic perspective, asset refers to resources owned,

managed, and controlled by an enterprise.
Which of the above statements is/are true?
a. Only Statement I
b. Only Statement II
d. Neither statement I nor II is true
3. It focuses on decisions relating to how much and what types of assets to acquire, how to
raise the capital needed to purchase assets, and how to run the firm so as to maximize
its value
a. Financial Management
b. Capital Management
46
c. Investment Portfolio Management
d. Capital Budgeting
4. The goal of the firm is always ____________________.
a. Maximize manager wealth

b. Mitigate manager wealth
c. Maximize shareholder wealth
d. None of the above
5. True or False: Management' goal should be to take actions designed to maximize the
market price.
a. True
b. False
6. Which of the following is NOT a duty of CFO?
a. Accounting
b. Marketing
c. Treasury
d. Capital budgeting
Kindly identify the terms to which the statements refer to.
7. The process of planning and managing a firm's long-term investments.

8. The mixture of debt and equity maintained by a firm.
9. A firm's short-term assets and liabilities.
10. A second investments related career path. Manages money for investors.
Let’s Analyze
Activity 1. Suppose you were a member of Company A’s board of directors and chairperson
of the company’s compensation committee. What factors should your committee consider
when setting the CEO’s compensation? Should the compensation consist of a dollar salary,
stock options that depend on the firm’s performance, or a mix of the two? If “performance” is
to be considered, how should it be measured? Think of both theoretical and practical (that
is, measurement) considerations. If you were also a vice president of Company A, might your
actions be different than if you were the CEO of some other company?
47
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Activity 2. Suppose three honest individuals gave you their estimates of Stock X’s intrinsic
value. One person is your current roommate, the second person is a professional security
analyst with an excellent reputation on Wall Street, and the third person is Company X’s
CFO. If the three estimates differed, in which one would you have the most confidence?
Why?
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Activity 3. Sarawat Corporation recently made a large investment to upgrade its technology.
While these improvements won’t have much effect on performance in the short run, they are
expected to reduce future costs significantly. What effect will this investment have on
Sarawat Corporation’s earnings per share this year? What effect might this investment have
on the company’s intrinsic value and stock price?
_______________________________________________________________________________
_______________________________________________________________________________
48
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
In a Nutshell
It is very important for you to know this overview and basics of financial management and its
nature and role, in order for you to thoroughly understand you higher finance courses in the
program. In this portion of the unit, you will be required to state your arguments relevant to
the topic presented. I will supply the first two items and you will continue the rest.
1. When the finance manager uses the funds properly, they can reduce the cost of capital and
increase the value of the firm.
2. Financial management helps to take sound financial decision in the business concern.
Financial decision will affect the entire business operation of the concern
YOUR TURN
3._______________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
4. _____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
5. _____________________________________________________________________________
49
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
6. _____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
7. _____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Q&A LIST
Do you have any questions for clarification?
6. 6.
7. 7.
8. 8.
9. 9.
10. 10.
KEYWORDS INDEX
This section lists down the keywords that help you for recall the discussions.
Funds Management Capital Structure Financial Institutions

Barter Risk Minimization Financial Markets
Financial Management Wealth Maximization Financial System
Bangko Sentral ng Bank Reserves Money Supply
Pilipinas
50
Big Picture
a. Discuss the nature and purpose of financial management;

b. Explain the role of finance managers;
c. Discuss the use and implications of the time value of money to financial management and
company as a whole; and
d. Apply the concept present value and future value of money.
ULOa. Discuss the nature and purpose of global finance.

ULOb. Explain the role of finance managers.
Metalanguage
In this section, the most essential terms relevant to the study of curriculum and to
demonstrate ULOa and ULOb will be operationally defined to establish a common frame of
refence as to how the texts work in your chosen field or career. You will encounter these terms
as we go through the study of curriculum. Please refer to these definitions in case you will
encounter difficulty in the in understanding the nature and purpose of financial management.
1. Proprietorship. A form of business organization that is unincorporated and is
51
owned by one individual.
2. Partnership. A form of business organization that is unincorporated that is
owned by two or more persons.
3. Corporation. A legal entity by a state, separate and distinct from its owners and
managers, having unlimited life, easy transferability of ownership, and limited
liability.
4. Finance. Art and science of managing money.
5. Economics. Provides a structure for decision making in the area of risk analysis;
it also provides a broad picture of the economic environment that affects the
business.
6. Accounting. It is considered as the language of finance because it provides
financial data through financial statements.
7. Financial Management. It refers to capital procurement, funds allocation, capital
restructuring, and profit administration which involves financial planning, analysis
of financial condition and supervision of financial operations.
8. Treasurer. Responsible for the firm’s financial activities including financial
planning, raising funds, making capital budgeting decisions and managing the
firm’s working capital. It is also known as the Chief Financial Manager.
9. Controller. In-charge of the firm’s accounting activities such as corporate
accounting, tax management, financial accounting, and cost accounting. It is also
known as the Chief Accountant.
10. Stockholder Wealth Maximization. The primary goal for managerial decisions;
considers the risk and timing associated with expected earnings per share in
order to maximize the price of the firm’s common stock.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes) for the first three
(3) weeks of the course, you need to fully understand the following essential knowledge
that will be laid down in the succeeding pages. Please note that you are not limited to
exclusively refer to these resources. Thus, you are expected to utilize other books,
research articles and other resources that are available in the university’s library e.g.
ebrary, search.proquest.com etc.
In business, Financial Management problems are inevitable, no matter what the

size of your business is. For example, if you were to start a small business of your own,
you must develop a plan. This plan covers what assets or other resources will the
business require. The purchase of these resources can require substantial funds. Thus,
Financial Management is essential.
1. Finance. It is the art and science of managing money. The field of finance is
52
closely related to economics and accounting. Thus, a financial manager
must understand both economics and accounting.
1.1 Economics. Provides a structure for decision making in the area of risk
analysis. It also provides a broad picture of the economic environment
that affects the business.
1.2 Accounting. It is considered as the language of finance because it
provides financial data through financial statements.
2. Financial Management. It refers to capital procurement, funds allocation,

capital restructuring, and profit administration which involves financial
planning, analysis of financial condition and supervision of financial
operations. Financial management endeavors to make optimal investment,
financing, and dividend/share repurchase decisions.
2.1 Scope of Financial Management. It covers:

● Working Capital Management
● Investment/Portfolio Analysis
● Capital Investment Analysis
● Capital Structure
●
2.2 Financial Manager. A financial manager actively handles the financial
affairs of the business firm. His/her tasks involves:
● Financial Planning and Forecasting
● Making Investment and Financing Decisions
● Risk Management
2.3 Goal of Financial Management. As stated on the discussion of Week

1-3, the goal of financial management is more than just profit maximization.
It is value maximization or maximizing shareholders’ wealth.
3. Forms of Business Organization. The key aspects of financial management

are the same for all businesses, large or small, regardless of how they are organized.
Still, its legal structure does affect some aspects of a firm’s operations and thus must
be recognized. There are three main forms of business organization:
3.1 Sole Proprietorship. It is an unincorporated business owned by an individual.

Going into business as sole proprietor is easy – merely begin business operations.
This form is primarily used for small businesses
SOLE PROPRIETORSHIP
ADVANTAGES DISADVANTAGES
Easy and inexpensive to Proprietors have unlimited
53
form personal liability for the
business debts, which can
result in losses that exceed
the money they have
invested in the company.
Difficulty for
Subject to few
proprietorships to obtain
government regulations
large sums of capital
The life of a business
Subject to lower income organized is limited to the
taxes than corporations life of the individual who
created it.
3.2 Partnership. It is a legal arrangement between two or more people who decide to do
business together. They can be established easily and inexpensively. They are also not
subject to corporate income tax.
PARTNERSHIP
Easy and inexpensive to form Unlimited personal liabilitya
Not subject to corporate income tax Difficulty in raising capital
Limited lives
aUnlimited Personal Liability – Under Partnership Law, each partner is liable for the business’s debts. Therefore,
if any partner is unable to meet his/her pro rata liability and the partnership goes bankrupt, then the remaining
partners are personally responsible for making good on the unsatisfied claims.
3.3 Corporation. It is a legal entity created by a state, and it is separate and distinct from
its owners and managers.
CORPORATION
High cost of setup and
Unlimited life
report filing
Limited liabilityb Subject to double taxationc
It is easier to transfer one’s
ownership interest (stock) in a
corporation than one’s interest in a
nonincorporated business.
It is much easier for corporations to
raise the capital necessary to
operate large businesses.
bLimited Liability - their owners are not subject to losses beyond the amount they have invested in the business
cDouble Taxation - the earnings of the corporation are taxed at the corporate level, and then, when after-tax earnings
54
are paid out as dividends, those earnings are taxed again as personal income to the stockholders.
4. Deciding on a form of organization. Firms must trade off the advantages of

incorporation against a possibly higher tax burden. However, the value of any business
other than a very small one will probably be maximized if it is organized as a corporation
for the following three reasons:
4.1 Limited liability reduces the risks borne by investors, and, other things held
constant, the lower the firm’s risk, the higher its value.
4.2 A firm’s value is dependent on its growth opportunities, which, in turn, are
dependent on its ability to attract capital. Because corporations can attract
capital more easily than can unincorporated businesses, they are better able
to take advantage of growth opportunities.
4.3 The value of an asset also depends on its liquidity, which means the ease of
selling the asset and converting it to cash at a “fair market value.” Because an
investment in the stock of a corporation is much easier to transfer to another
investor than are proprietorship or partnership interests, a corporate
investment is more liquid than a similar investment in a proprietorship or
partnership, and this too enhances the value of a corporation.
5. The finance functions. The size and importance of the finance function depends on the
size of the firm.
5.1 The finance function and the size of the firm.
SIZE OF THE FIRM FINANCE FUNCTION

Small Firms Accounting Unit
Bigger Firms Separate Finance Unit
Chief Financial Officer, Treasurer
Large Corporations
and Controller
5.2 Treasurer. He/she is responsible for the firm’s financial activities including
financial planning, raising funds, making capital budgeting decisions, and
managing the firm’s working capital. It is also known as the Chief Financial
Manager.
5.3 Controller. He/she is in-charge of the firm’s accounting activities such as
corporate accounting, tax management, financial accounting, and cost
accounting. It is also called as Chief Accountant.
5.4 Finance within the organization.
55
5.5 Major decisions in the finance function.
● Investing Decision. It involves provision of capital to proposals whose

benefits are to be realized in the future. Investments in capital projects
should provide expected returns in excess of what financial markets require.
● Financing Decision. It involves determination of the best capital structure.

Capital structure involves determining the best mix of debt, equity, and
hybrid securities to employ.
● Dividend Decision. It involves allocation of cash to be distributed to

shareholders. Excess cash can be distributed to stockholders directly
through dividend.
● Risk Management. It involves determining which risks to accept, which to

neutralize, and which to transfer. The four key processes in risk
management are: Identification, Assessment, Mitigation and Transference.
FINANCING WITH INTERNATIONAL BONDS
International bonds are debt securities issued by foreign companies or governments and
sold domestically.
*HOW IT WORKS/EXAMPLE*
Foreign companies or governments may issue bonds that are securitized and sold to
56
domestic investors in the form of international bonds. These bonds are typically denominated
and pay interest in the currency of the issuing country. Therefore, the value of the bonds in
the domestic currency will fluctuate depending on the economic conditions and exchange
rates between the domestic country and foreign country.
*WHY IT MATTERS*
International bonds can be used to hedge against currency and country-specific risks. For
example, Americans invested in international bonds have reaped the gains from falling US
dollar in recent years as it has made interest payments from foreign bonds worth more in
dollar terms.
*Brigham, E. and Houston, J. (2007). Fundamentals of Financial Management (11th Edition). USA:
Thomson South-Western
*Broyles, J. (2003). Financial Management and Real Options. England: John Wiley & Sons, Ltd.
*Hill, A. (2008). Strategic Financial Management. Ventus Publishing.
*Drake, P.P. and Fabozzi, F. (2010). The Basics of Finance: An Introduction to Financial Markets,
Business Finance, and Portfolio Management. USA: John Wiley & Sons, Ltd.
*Mcmenamin, J. (2005). Financial Management: An Introduction. USA: Routledge
Let’s Check
Activity 1 (Adapted. Brigham & Houston. (2015). Fundamentals of Financial
Management). Now that you know the most essential knowledge in the nature and
purpose of financial management, let us try to check your understanding. In the space
provided, write the letter of the correct answer.
1. Which of the following statements is FALSE?
a. In most corporations, the CFO ranks under the CEO.

b. The board of directors is the highest-ranking body in a corporation, and the chairman
of the board is the highest ranking individual. The CEO generally works under the board
and its chairman, and the board generally has the authority to remove the CEO under
57
certain conditions.
c. Partnerships and proprietorships generally have a tax advantage over corporations.
d. A disadvantage of the corporate form of organization is that corporate stockholders are
more exposed to personal liabilities in the event of bankruptcy than are investors in a
typical partnership.
2. Choose the INCORRECT statement/s.
I. An advantage of the corporate form of organization is that corporations are

generally less highly regulated than proprietorships and partnerships.
II. One advantage of the corporate form of organization is that it avoids double
taxation.
III. It is generally harder to transfer one's ownership interest in a partnership than
in a corporation.
a. Statement I only
b. Statement I and II
c. All statements are correct.
d. None of the statements are correct.
3. Choose the CORRECT statement/s.
I. It is generally less expensive to form a corporation than a proprietorship

because, with a proprietorship, extensive legal documents are required.
II. The more capital a firm is likely to require, the greater the probability that it will
be organized as a corporation.
III. One disadvantage of forming a corporation rather than a partnership is that this
makes it more difficult for the firm's investors to transfer their ownership
interests.
a. Statement I only
b. Statement II only
c. Statement I, II and III
d. All of the statements are incorrect.
4. Choose the INCORRECT statement/s.
I. Organizing as a corporation makes it easier for the firm to raise capital. This is
because corporations' stockholders are not subject to personal liabilities if the
firm goes bankrupt and because it is easier to transfer shares of stock than
partnership interests.
II. Maximizing firm’s profit is not equivalent to maximizing shareholders’ wealth.
58
a. Statement I only
b. Statement II only
c. Neither statements are incorrect.
d. Both statements are incorrect.
5. Which of the following statements is CORRECT?
a. One of the disadvantages of incorporating your business is that you could become
subject to the firm’s liabilities in the event of bankruptcy.
b. Having sole proprietorship or partnership as a form of business is advantageous in
terms of taxes in comparison with corporations.
c. Corporations are subject to lesser regulations than sole proprietorship.
d. Partners have equal rights, privileges, and liabilities in all types of partnership.
6. He/she is in-charge of the firm’s accounting activities such as corporate accounting, tax
management, financial accounting, and cost accounting.
a. Controller
b. Treasurer
c. Chief Financial Officer
d. Chairman of the Board
7. He/she is responsible for the firm’s financial activities including financial planning, raising
funds, making capital budgeting decisions, and managing the firm’s working capital.
a. Controller
b. Treasurer
c. Chief Financial Officer
d. Chairman of the Board
8. It involves determination of the best capital structure.
a. Investing Decision
b. Financing Decision
c. Dividend Decision
d. Safekeeping Decision
9. It involves allocation of cash to be distributed to shareholders.
59
10. It involves provision of capital to proposals whose benefits are to be realized in the future.
60
Let’s Analyze
Activity 1. Please explain your answers thoroughly. Kindly observe a minimum of five (5)
sentences per paragraph
1. There are three (3) forms of business organization: Sole Proprietorship, Partnership
and Corporation. If you are to start your own business, which form of business
organization would you choose? Why did you choose this form or business
organization? How did you come up with your answer?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
61
_________________________________________________________________________________
2. Among the major decisions involved in finance function (investing, financing, dividend
and risk management), which is the most essential? Please expound your answer.
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
62
3. In 1776 Adam Smith described how an “invisible hand” guides companies striving
to maximize profits so that they make decisions that also benefit society. Smith’s
insights led economists to reach two key conclusions: (1) Profit maximization is the
proper goal for a business, and (2) the free enterprise system is best for society. In
the current age, given the various evolvement in business enterprises, do you still
regard the “invisible hand” as a reliable guide? Please expound your answer.
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
635
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
________________________________________________________________________________
_
In a Nutshell
Based from the discussion of the nature and purpose of financial

management and the learning exercises that you have done, please feel free
to write what have you learned below.
1. _______________________________________________________________
_______________________________________________________________
_______________________________________________________________
2. _______________________________________________________________
_______________________________________________________________
_______________________________________________________________
3. _______________________________________________________________
_______________________________________________________________
_______________________________________________________________
4. _______________________________________________________________
_______________________________________________________________
_______________________________________________________________
5. _______________________________________________________________
645
_______________________________________________________________
_______________________________________________________________
Q&A List

Keywords Index
Finance Corporation Chief Finance Officer

Stockholder Wealth
Economics Unlimited Personal Liability
Maximization
Accounting Limited Liability Investing Decision
Financial Management Double Taxation Financing Decision
Proprietorship Treasurer Dividend Decision
Partnership Controller Risk Management
655
ULOc. Discuss the use and implications of the time value of money.
ULOd. Apply the concept present value and future value of money.
Metalanguage
For you to demonstrate ULOc and ULOd, you will need to have an
operational understanding of the following terms below. Please note that you will
also be required to refer to the previous definitions found in ULOa and ULOb section.
1. Time Value of Money. It is the math of finance whereby a financial return is

earned over time by saving or investing money.
2. Time Line. It is an important tool used in time value analysis. This is a graphical
representation used to show the timing of cash flows.
3. Time Horizon. It is a horizontal timeline that can be used to illustrate the cash
flows of a given investment or savings.
4. Present Value. It is the value today of a savings amount or investment.
5. Future Value. It is the value of savings amount or an investment at a specified
time or date in the future.
6. Compounding. It is the arithmetic process of determining the final value of a
cash flow or series of cash flows when compounded interest is applied.
7. Discounting. The process of finding the present value of a cash flow or a
series of cash flows. It is the reverse of compounding.
8. Annuity. It is a series of equal payments at fixed intervals for a specified
number of periods.
9. Ordinary Annuity. The annuity whose payments occur at the end of each
period.
10. Annuity Due. An annuity whose payments occur at the beginning of each
period.
11. Uneven (Nonconstant) Cash Flows. A series of cash flows where the amount
varies from one period to the next.
Essential Knowledge
Before we proceed further with the study of financial management, it

is highly important that we understand the time value of money. We all agree
that the one peso today will not be one peso in the future. Since most of us
experienced saving money in some point, I believe most of us get the gist of
the saying. Thus, upon the end of this section, students should have a better
665
understanding on the time value of money.
1. Time Line. To begin the time value analysis, it is essential to set up a

time line that can help you visualize the situation. To illustrate, consider
the following graph, where PV represents P100 that is on hand today and
FV is the value that will be in the account on a future date and periods
represents the number of years:
The question in the illustration may be how much will the P100 today
worth after 1, 2 or 3 years considering a 5% interest.
1.1. Time Horizons. It is a horizontal time line that can be used to
illustrate the cash flows of a given investment or savings.
2. Annuities. It is a stream of equal periodic cash flows over a specified

time period.
2.1. Ordinary Annuity. An annuity whose payments occur at the end of
each period.
2.2. Annuity Due. An annuity whose payments occur at the beginning of
each period.
2.3. Illustration
3. Future Value. A peso in hand today is worth more than a peso to be

received in the future since if you will invest or save it, it earns interest.
3.1. Compounding. When we are talking about compounding, we are
looking for the future values.
3.1.1. Illustration – Single Cash Flow
Assume that on January 1, 2020, Celeste invested P100.00 in
a financing company. Celeste would like to find out what would
675
be the worth of her P100 after 3 years with an interest rate
pegged at 5%.
● Step-by-Step Approach. Multiply the initial amount, and
each succeeding amount, by (1 + i) or (1.05).
● Formula Approach. The same problem can also be

computed using a formula.
● Using Interest Tables. The mathematical formula may be

modified by using a present value and future value table. The
tables can be downloaded in a separate PDF document in
LMS.
3.1.2. Illustration – Annuities

● Ordinary Annuity.
Assume that Kawaii Company is to make annual
investment of P300,000 for four years. The interest for this
investment was pegged at 9%. The investment is made at
year end. What is the future value of this annuity?
● Step-by-Step Method.
685
● Formula Method.
● Annuity Due.
Let us use the data of Kawaii Company in the previous
illustration. Assume that Kawaii is to make annual
investments of P300,000 for four years. The interest for this
investment was pegged at 9%. The investment is made at
the beginning of each year. What is the future value of this
annuity due?
● Formula Method.
Since the payment occurs one period earlier with an
annuity due, the payments will earn interest for on
additional year. Therefore, the FV of annuity due is
greater that the FV of ordinary annuity.
695
4. Present Value. This is the value today of a future cash flow or series of
cash flows. It is the opposite of the future value. If you have a targeted
amount in for a certain time period, how much would you invest or save
today?
4.1. Discounting. It is the process if finding the present value of a cash
flow or a series of cash flows. It is the reverse of compounding.
4.1.1. Illustration – Single Cash Flow
Assume that Quentin Corporation would like to know the
amount of investment it will make in order to yield an amount
of P200,000 which it will receive three years from now. Assume
that the rate for this type of investment is 25%.
Please note that the PV Factor can be also found in the

Interest Table. This will be uploaded in the LMS.
4.1.2. Illustration – Annuities

● Ordinary Annuity.
Assume that on January 1 of the current year, Kei
Corporation sold its property costing P600,000 for P900,000
to Doom Corporation. Doom paid P300,000 as down
payment and the balance was paid with a non-interest
bearing note for P600,000. The note shall be paid in equal
annual installments (this is the series of amounts that Kei
will receive in the future) every year end amounting
P200,000/year. The prevailing interest rate for this type of
note is 10%. You have been tasked by Kei Corporation on
705
the present value of the note receivable to be recognized by
the company.
OR
715
● Annuity Due.
Assume that on January 1 of the current year, Kei
Corporation sold its property costing P600,000 for P900,000
to Doom Corporation. Doom paid P300,000 as down
payment and the balance was paid with a non-interest
bearing note for P600,000. The note shall be paid in equal
annual installments (this is the series of amounts that Kei
will receive in the future) at the beginning of each year
amounting P200,000/year. The prevailing interest rate for
this type of note is 10%. You have been tasked by Kei
Corporation on the present value of the note receivable to
be recognized by the company.
725
Or
5. Uneven Cash Flows. This is the stream of unequal periodic cash flows. It is
also called mixed stream. Since the cash flows are unequal, the computation is
a little bit more complex.
5.1. Future Values of Complex Streams.
Assume that Lily Company is to make an investment of uneven cash
payments for four years. The interest for this investment was pegged
at 9%. The investment is made every year end. What is the future
value of this annuity? Please see data below:
735
5.2 Present Value of Complex Streams.
Assume the following annual payments of notes payable of Domo
Company with 8% discount rate. What is the present value of the
annual payments? Consider the data below:
5.2.1 Method 1.
745
5.2.2 Method 2.
10.2.3 Method 3.
For the first three years, kindly follow the same procedure as
method 1 and 2.
For the 4th year, use the procedure below:
755
10.2.4 Method 4.
Steps:
Self-Help: You can also refer to the sources below to help you
further understand the lesson:
Brigham, E. & Houston, J. (2007). Fundamentals of Financial Management, 11th Edition. Thomson
Corporation. United States of America.
Let’s Check
Instructions: Please choose the letter of the best answer.

(Adapted: Brigham & Houston. (2015). Fundamentals of Financial Management)
1. Which of the following statements is correct?
a. A time line is not meaningful unless all cash flows occur annually.
b. Time lines are useful for visualizing complex problems prior to doing
actual calculations.
c. Time lines cannot be constructed in situations where some of the cash
flows occur annually but others occur quarterly.
d. Time lines cannot be constructed for annuities where the payments occur
765
at the beginning of the periods.
a. Time lines are not useful for visualizing complex problems prior to doing
actual calculations.
b. Time lines cannot be constructed to deal with situations where some of
the cash flows occur annually but others occur quarterly.
c. Time lines can only be constructed for annuities where the payments
occur at the end of the periods, i.e., for ordinary annuities.
d. Time lines can be constructed where some of the payments constitute an
annuity but others are unequal and thus are not part of the annuity.
3. You plan to analyze the value of a potential investment by calculating the sum
of the present values of its expected cash flows. Which of the following would
lower the calculated value of the investment?
a. The cash flows are in the form of a deferred annuity, and they total to
P100,000. You learn that the annuity lasts for only 5 rather than 10 years,
hence that each payment is for P20,000 rather than for P10,000.
b. The discount rate increases.
c. The riskiness of the investment's cash flows decreases.
d. The total amount of cash flows remains the same, but more of the cash
flows are received in the earlier years and less are received in the later
years.
4. You plan to analyze the value of a potential investment by calculating the sum
of the present values of its expected cash flows. Which of the following would
increase the calculated value of the investment?
a. The cash flows are in the form of a deferred annuity, and they total to
$100,000. You learn that the annuity lasts for 10 years rather than 5
years, hence that each payment is for $10,000 rather than for $20,000.
b. The discount rate decreases.
c. The riskiness of the investment's cash flows increases.
d. The total amount of cash flows remains the same, but more of the cash
flows are received in the later years and less are received in the earlier
775
years.
a. The cash flows for an ordinary (or deferred) annuity all occur at the
beginning of the periods.
b. If a series of unequal cash flows occurs at regular intervals, such as once
a year, then the series is by definition an annuity.
c. The cash flows for an annuity due must all occur at the ends of the
periods.
d. The cash flows for an annuity must all be equal, and they must occur at
regular intervals, such as once a year or once a month.
a. The cash flows for an ordinary (or deferred) annuity all occur at the
beginning of the periods.
b. If a series of unequal cash flows occurs at regular intervals, such as once
a year, then the series is by definition an annuity.
c. The cash flows for an annuity due must all occur at the beginning of the
periods.
d. The cash flows for an annuity may vary from period to period, but they
must occur at regular intervals, such as once a year or once a month.
7. A P50,000 loan is to be amortized over 7 years, with annual end-of-year

payments. Which of these statements is CORRECT?
a. The annual payments would be larger if the interest rate were lower.
b. If the loan were amortized over 10 years rather than 7 years, and if the
interest rate were the same in either case, the first payment would include
more dollars of interest under the 7-year amortization plan.
c. The proportion of each payment that represents interest as opposed to
repayment of principal would be lower if the interest rate were lower.
d. The last payment would have a higher proportion of interest than the first
payment.
8. A P150,000 loan is to be amortized over 7 years, with annual end-of-year
785
payments. Which of these statements is CORRECT?
a. The annual payments would be larger if the interest rate were lower.
b. If the loan were amortized over 10 years rather than 7 years, and if the
interest rate were the same in either case, the first payment would include
more dollars of interest under the 7-year amortization plan.
c. The proportion of each payment that represents interest as opposed to
repayment of principal would be higher if the interest rate were lower.
d. The proportion of each payment that represents interest versus
repayment of principal would be higher if the interest rate were higher.
9. Which of the following investments would have the highest future value at the
end of 10 years? Assume that the effective annual rate for all investments is the
same and is greater than zero.
a. Investment A pays $250 at the beginning of every year for the next 10
years (a total of 10 payments).
b. Investment B pays $125 at the end of every 6-month period for the next
10 years (a total of 20 payments).
c. Investment C pays $125 at the beginning of every 6-month period for the
next 10 years (a total of 20 payments).
d. Investment D pays $2,500 at the end of 10 years (just one payment).
10. Which of the following investments would have the lowest present value?
Assume that the effective annual rate for all investments is the same and is
greater than zero.
a. Investment A pays $250 at the end of every year for the next 10 years (a
total of 10 payments).
b. Investment B pays $125 at the end of every 6-month period for the next
10 years (a total of 20 payments).
c. Investment C pays $125 at the beginning of every 6-month period for the
next 10 years (a total of 20 payments).
d. Investment D pays $2,500 at the end of 10 years (just one payment).
795
Let’s Analyze
At this juncture, you will be required to answer the following problems. Kindly show
your computations. Please double rule and bolden your final answer.
1. You deposit P1,000 today in savings account that pays 3.5% interest, compounded
annually. How much will your account be worth at the end of 25 years?
2. Suppose a Bangko Sentral ng Pilipinas bond will pay P1,000,000 ten years from
now. If the going interest rate on these 10-year bonds is 5.5%, how much is the
bond worth today?
3. Suppose an Exxon Corporation bond will pay P450,000 ten years from now. If the
going interest rate on safe 5-year bonds is 4.25%, how much is the bond worth
today?
4. You want to by a new house 3 years from now, and you plan to save P420,000 per
year, beginning one year from today. You will deposit your savings in an account
that pays 5.2% interest. How much will you have just after you make the 3 rd
deposit, 3 years from now?
5. You want to quit your job and go back to school for a law degree 4 years from now,
and you plan to save P50,000 per year, beginning immediately. You will make 4
deposits in an account that pays 5.7% interest. Under these assumptions, how
much will you have 4 years from today?
6. You have a chance to buy an annuity that pays P25,000 at the end of each year
for 3 years. You could earn 5.5% on your money in other investments with equal
risk. What is the most you should pay for the annuity?
7. You inherited an oil well that will pay you P250,000 per year for 25 years, with the
first payment being made today. If you think a fair return on the well is 7.5%, how
much should you ask for it if you decide to sell it?
8. What is the present value of the following cash flow stream at a rate of 12%?
805
9. You sold a car and accepted a note with the following cash flow stream as your
payment. What was the effective price you received for the car assuming an
interest rate of 6%?
10. Your father paid $10,000 (CF at t=0) for an investment that promises to pay $750
at the end of each of the next 5 years, then an additional lump sum payment of
$10,000 at the end of the 5th year. What is the expected rate of return on this
investment?
In a Nutshell
To be a good finance manager, you must understand the time value of

money. In this portion of the unit, you will be required to state your arguments
or synthesis relevant to the topics presented. I will supply the first two items
and you will continue the rest.
1. Money will change its value over time. The one peso today will not be one
peso in the future.
2. Creating a time line helps analysts to visualize the timing of cash flows.
YOUR TURN
3. __________________________________________________________
__________________________________________________________
__________________________________________________________
4. __________________________________________________________
__________________________________________________________
__________________________________________________________
5. __________________________________________________________
815
__________________________________________________________
__________________________________________________________
Q&A List

Keywords Index
Time Value of Money Present Value Discounting Annuity Due
Time Line Future Value Annuity Uneven Cash Flows
Compounding
Time Horizon Compounding Ordinary Annuity
Interest
825
Big Picture
a. Discuss the purpose of management

b. Explain the manager’s job
c. Discuss the different types of managers and their roles
d. Analyze the ethical and social environment of management, including individual
ethics, the concept of social responsibility, and how organizations can manage
social responsibility.
e. Explain the importance and determinants of an organization’s culture, as well
as how organizational culture can be managed.
ULOa. Discuss the purpose of management

ULOb. Explain the manager’s job
ULOc. Discuss the different types of managers and their roles
demonstrate ULOa, ULOb and ULOc will be operationally defined to establish a common
frame of refence as to how the texts work in your chosen field or career. You will
encounter these terms as we go through the study of curriculum. Please refer to these
definitions in case you will encounter difficulty in the in understanding the nature and
purpose of management.
1. Management – it a set of activities which includes planning and decision

making, organizing, leading and controlling. It is also directed at an
organization’s resources (human, financial, physical and information) with
the aim of achieving organization goals in an efficient and effective
manner.
2. Efficiency – using resources wisely and in a cost-effective way.
3. Effectively – making the right decisions and successfully implementing
them.
4. Manager – someone whose primary responsibility is to carry out the
management process
835
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes) for the
next two (2) weeks of the course, you need to fully understand the following
essential knowledge that will be laid down in the succeeding pages. Please
note that you are not limited to exclusively refer to these resources. Thus, you
are expected to utilize other books, research articles and other resources that
are available in the university’s library e.g. ebrary, search.proquest.com
etc.
Efficiency
versus
Effectiveness
WHAT IS A MANAGER?
In an organization a manager is:

- Someone whose primary responsibility is to carry out the management
process.
- Someone who plans and makes decisions, organizes, leads and controls
human, financial, physical and information resources.
Furthermore, managers can be classified into different kinds as follows:

a. Top managers
b. Middle managers
c. First-line managers
845
● TOP MANAGERS
The relatively small group of executives who manage the organization’s
overall goals, strategy, and operating policies.
● MIDDLE MANAGERS
Largest group of managers in organization who are primarily responsible for
implementing the policies and plans of top managers. They supervise and
coordinate the activities of lower-level managers.
● FIRST-LINE MANAGERS
Managers who supervise and coordinate the activities of operating
employees.
KIND OF MANAGERS BY AREA or DEPARTMENT
In a complex organization, there are departments which are led by different

managers, and enumerate and describe them one by one.
a. Marketing Managers. Work in areas related to getting consumers, customers and

clients to buy the organization’s products or services.
855
b. Financial Managers. Deal primarily with an organization’s financial resources.
c. Operations Managers. Concerned with creating and managing the systems that
create organization’s products and services.
d. Human Resource Managers. Involved in human resource planning, recruiting
and selection, training and development, designing compensation and benefit
systems, formulating performance appraisal systems.
e. Administrative Managers. Generalists who are familiar with all functional areas
of management and who are not associated with any particular management
specialty.
f. Other Kind of Managers. Specialized managerial positions directly related to the
needs of the organization.
MANAGEMENT, AND THE MANAGEMENT PROCESS IN ORGANIZATIONS
865
Regardless of level or area, management involves the four basic functions of planning
and decision making, organizing, leading, and controlling.
Planning and Decision Making

- In its simplest form, planning means setting an organization’s goals and
deciding how best to achieve them. Decision making, a part of the planning
process, involves selecting a course of action from a set of alternatives.
Planning and decision-making help managers maintain their effectiveness by
serving as guides for their future activities. In other words, the organization’s
goals and plans clearly help managers know how to allocate their time and
resources.
Organizing
- Once a manager has set goals and developed a workable plan, his or her next
management function is to organize people and the other resources necessary
to carry out the plan.
- Determining how activities and resources are grouped.
Leading
- The third basic managerial function is leading. Some people consider leading
to be both the most important and the most challenging of all managerial
activities.
- The set of processes used to get organizational members to work together to
advance the interest of the organization.
Controlling
- The final phase of the management process is controlling, or monitoring the
organization’s progress toward its goals. As the organization moves toward its
goals, managers must monitor progress to ensure that it is performing in such
a way as to arrive at its “destination” at the appointed time.
- Monitoring organizational progress towards goals.
SKILLS AND THE MANAGER
875
To carry out these management functions most effectively, managers rely on a number
of different fundamental management skills, of which the most important are technical,
interpersonal, conceptual, diagnostic, communication, decision-making, and time
management skills.
Technical Skills
- Technical skills are necessary to accomplish or understand the specific kind

of work done in an organization. Technical skills are especially important for
first-line managers. These managers spend much of their time training their
subordinates and answering questions about work-related problems. If they are
to be effective managers, they must know how to perform the tasks assigned
to those they supervise. While Reed Hastings now spends most of his time
dealing with strategic and management issues, he also keeps abreast of new
and emerging technologies and trends that may affect Netflix.
Interpersonal Skills
- Managers spend considerable time interacting with people both inside and
outside the organization. For obvious reasons, then, they also need
interpersonal skills—the ability to communicate with, understand, and
motivate both individuals and groups. As a manager climbs the organizational
885
ladder, he or she must be able to get along with subordinates, peers, and those
at higher levels of the organization. Because of the multitude of roles that
managers must fulfill, a manager must also be able to work with suppliers,
customers, investors, and others outside the organization.
Conceptual Skills
- Conceptual skills depend on the manager’s ability to think in the abstract.

Managers need the mental capacity to understand the overall workings of the
organization and its environment, to grasp how all the parts of the organization
fit together, and to view the organization in a holistic manner. This ability allows
them to think strategically, to see the “big picture,” and to make broad-based
decisions that serve the overall organization.
Diagnostic Skills
- Successful managers also possess diagnostic skills—skills that enable them

to visualize the most appropriate response to a situation. A physician diagnoses
a patient’s illness by analyzing symptoms and determining their probable
895
cause. Similarly, a manager can diagnose and analyze a problem in the
organization by studying its symptoms and then developing a solution.
Communication Skills
- Communication skills refer to the manager’s abilities to both effectively

convey ideas and information to others and effectively receive ideas and
information from others. These skills enable a manager to transmit ideas to
subordinates so that they know what is expected, to coordinate work with peers
and colleagues so that they work well together, and to keep higher-level
managers informed about what is going on. In addition, communication skills
help the manager listen to what others say and understand the real meaning
behind e-mails, letters, reports, and other written communication.
Decision-Making Skills
- Effective managers also have good decision-making skills. Decision-making

skills refer to the manager’s ability to correctly recognize and define problems
and opportunities and to then select an appropriate course of action to solve
905
problems and capitalize on opportunities. No manager makes the right decision
all the time. However, effective managers make good decisions most of the
time. And, when they do make a bad decision, they usually recognize their
mistake quickly and then make good decisions to recover with as little cost or
damage to their organization as possible.
Time Management Skills
- Effective managers usually have good time management skills. Time

management skills refer to the manager’s ability to prioritize work, to work
efficiently, and to delegate work appropriately. As already noted, managers
face many different pressures and challenges. It is too easy for a manager to
get bogged down doing work that can easily be postponed or delegated to
others. When this happens, unfortunately, more pressing and higher-priority
work may get neglected.
Management Skill Mixes at Different Organizational Levels
915
You might be wondering why CEOs, CFOs, COOs are receiving higher
compensation when they do not do much of the technical side of the job. Here’s an
illustration that would explain such.
The Science and Art of Management

(Management: Science or Art?)
Given the complexity inherent in the manager’s job, a reasonable question relates to
whether management is a science or an art. In fact, effective management is a blend of both
science and art. Successful executives recognize the importance of combining both the science
and art of management as they practice their craft.
● The Science of Management

- Assumes that problems can be approached using rational, logical, objective
and systematic ways.
- Requires technical, diagnostic, and decision-making skills and techniques to
solve problems related to the organization.
● The Art of Management
- Decisions are made and problems are solved using a blend of intuition,
experience, instinct, and personal insights.
- Requires conceptual, communication, interpersonal, and time management
skills to accomplish the tasks associated with managerial activities.
925
The Human Relations Movement
The human relations movement, which grew from the Hawthorne studies and
was a popular approach to management for many years, proposed that workers respond
primarily to the social context of the workplace, including social conditioning, group
norms, and interpersonal dynamics. A basic assumption of the human relations
movement was that the manager’s concern for workers would lead to increased
satisfaction, which would in turn result in improved performance. Two writers who helped
advance the human relations movement were Abraham Maslow (1908–1970) and
Douglas McGregor (1906–1964). In 1943, Maslow advanced a theory suggesting that
people are motivated by a hierarchy of needs, including monetary incentives and social
acceptance. Meanwhile, Douglas McGregor’s Theory X and Theory Y model best
represents the essence of the human relations movement. According to McGregor,
Theory X and Theory Y reflect two extreme belief sets that different managers have about
their workers. Theory X is a relatively pessimistic and negative view of workers and is
consistent with the views of scientific management. Theory Y is more positive and
represents the assumptions made by human relations advocates. In McGregor’s view,
Theory Y was a more appropriate philosophy for managers to adhere to. Both Maslow
and McGregor notably influenced the thinking of many practicing managers.
935
THEORY X and Y
Munsterberg, Mayo, Maslow, McGregor, and others have made valuable

contributions to management. Contemporary theorists, however, have noted that many
of the human relationists’ assertions were simplistic and provided inadequate descriptions
of work behavior. Current behavioral perspectives on management, known as
organizational behavior, acknowledge that human behavior in organizations is much
more complex than the human relationists realized. The field of organizational behavior
draws from a broad, interdisciplinary base of psychology, sociology, anthropology,
economics, and medicine. Organizational behavior takes a holistic view of behavior and
addresses individual, group, and organization processes. These processes are major
elements in contemporary management theory. Important topics in this field include job
satisfaction, stress, motivation, leadership, group dynamics, organizational politics,
interpersonal conflict, and the structure and design of organizations. Our discussions of
organizing and leading are heavily influenced by organizational behavior. And, finally,
managers need a solid understanding of human behavior as they address diversity-
related issues such as ethnicity and religion in the workplace. Indeed, all these topics are
useful to help managers better deal with the consequences of layoffs and job cuts and to
motivate today’s workers.
The primary contributions of behavioral management approach relate to how it has

changed managerial thinking. Managers are now more likely to recognize the importance
of behavioral processes and to view employees as valuable resources instead of mere
tools. However, organizational behavior is still relatively imprecise in its ability to predict
behavior, especially the behavior of a specific individual. It is not always accepted or
understood by practicing managers. Hence the contributions of the behavioral school are
just beginning to be fully realized.
*Griffin, Ricky W. (2016). Fundamentals of Management (8th Edition). Australia: Cengage

Learning
Let’s Check
Now that you know the essential knowledge in the management processes and the
manager’s job, let us try to check your understanding.
945
IDENTIFICATION (15 points)
1. They create organizational goals, overall strategy and operating policies.

2. The skills necessary to accomplish or understand the specific kind of work done
in an organization.
3. The manager’s abilities both to effectively convey ideas and information to
others and to effectively receive ideas information from others.
4. Suggests that appropriate managerial behavior in a given situation depends
on, or is contingent on, unique elements in a given situation.
5. Setting an organization’s goals and deciding how best to achieve them.
6. Managers whose responsibility is to deal with and manage organization’s
financial resources.
7. It is the wise use of resources in a cost-effective way.
8. Involves selecting a course of action from a set of alternatives.
9. An arrangement whereby one company allows another company to use its
brand name, trademark, technology and patent in exchange for a royalty based
on sales.
10. A set of values, beliefs, behaviors, customs and attitudes that helps
organization’s members understand what it stands for, how it does things and
what it considers important.
11. A set of activities directed at an organization’s resources with the aim of
achieving. organizational goals in an efficient and effective manner.
12. A management perspective that emphasizes individual attitudes and behaviors
and group processes.
13. A group of people working together in a structured and coordinated fashion to
achieve a set of goals.
14. A formal written statement of the values and ethical standards that guide a
firm’s action.
15. A body that has the potential to control, legislate, or influence organization’s
policies and practices.
Let’s Analyze
Upon internalizing the underlying concepts that compose management and its
process, try to answer these problems that will stir your analytical skills.
955
1. Recall a recent group project or task in which you have participated. Explain
how members of the group displayed each of the managerial skills.
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
2. Young, innovative, or high-tech firms often adopt the strategy of ignoring history
or attempting to do something radically new. In what ways might this strategy
help them? In what ways might this strategy hinder their efforts?
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
965
3. You’re the vice president of a large company that makes outdoor furniture for
decks, patios, and pools. Each product line and the firm itself have grown
substantially in recent years. Unfortunately, your success has attracted the
attention of competitors, and several have entered the market in the last two
years. Your CEO wants you to determine how to cut costs by 10 percent so
that prices can be cut by the same amount. She’s convinced that the move is
necessary to retain market share in the face of new competition.
You’ve examined the situation and decided that you have three options for
cutting costs:
a. Begin buying slightly lower-grade materials, including hardwood,

aluminum, vinyl, and nylon.
b. Lay off a portion of your workforce and then try to motivate everyone
who’s left to work harder; this option also means selecting future hires
from a lower-skill labor pool and paying lower wages
c. Replace existing equipment with newer, more efficient equipment;
although this option entails substantial up-front investment, you’re sure
that you can more than make up the difference in lower production costs.
QUESTIONS
1. Carefully examine each of your three options. In what ways might each
option affect other parts of the organization?
2. Which is the costliest option in terms of impact on other parts of the

organization, not in terms of absolute dollars? Which is the least costly?
3. What are the primary obstacles that you might face in trying to
implement each of your three options?
975
4. Are there any other options for accomplishing your goal of reducing
costs?
In a Nutshell
Based from the discussion of the management process, and the learning
exercises that you have done, please feel free to write what have you learned
below.
1. ______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
2. ______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
3. ______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
4. ______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
985
Q&A List

Keywords Index
Management Efficient Science
Manager Effective Art
Conceptual Skills Technical Skill Diagnostic Skills
Interpersonal Skills Top Managers Middle Managers
First-line Managers Management Process Resources
995
ULOd. Analyze the ethical and social environment of management, including

individual ethics, the concept of social responsibility, and how organizations can
manage social responsibility.
ULOe. Explain the importance and determinants of an organization’s culture, as
well as how organizational culture can be managed.
Metalanguage
demonstrate ULOd and ULOe will be operationally defined to establish a common frame
of refence as to how the texts work in your chosen field or career. You will encounter
these terms as we go through the study of curriculum. Please refer to these definitions in
case you will encounter difficulty in the in understanding ethical and social environment
in relation to management as well as its culture’s determinants.
1. Ethics. An individual’s personal beliefs about whether a behavior, action, or

decision is right or wrong.
2. Ethical Behavior. Behavior that conforms to generally accepted social norms.
3. Unethical Behavior. Behavior that does not conform to generally accepted
social norms.
4. Managerial Ethics. Standards of behavior that guide individual managers in
their work.
5. Code of Ethics. A formal, written statement of the values and ethical standards
that guide a firm’s action
6. Social Responsibility. The set of obligation that an organization has to protect
and enhance the societal context in which it functions
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes) for the next two (2)
weeks of the course, you need to fully understand the following essential knowledge that
will be laid down in the succeeding pages. Please note that you are not limited to
exclusively refer to these resources. Thus, you are expected to utilize other books,
research articles and other resources that are available in the university’s library e.g.
1005
ebrary, search.proquest.com etc.
The business has main purpose of earning profits. However, such is not its sole
purpose. It could also be the production of goods and services, and maintaining
sustainable environment and compliance, and so on.
The ethical and social environment has become an especially important area for
managers in the last few years. In this section, we first explore the concept of individual
ethics and then describe social responsibility. We define ethics as an individual’s
personal beliefs about whether a behavior, action, or decision is right or wrong. Note that
we define ethics in the context of the individual— people have ethics, whereas
organizations do not. Likewise, what constitutes ethical behavior varies from one person
to another. For example, one person who finds a Php 500.00 bill on the floor of an empty
room may believe that it is okay to keep it, whereas another may feel compelled to turn it
in to the lost-and-found department. Further, although ethical behavior is in the eye of
the beholder, the term usually refers to behavior that conforms to generally accepted
social norms. Unethical behavior, then, is behavior that does not conform to generally
accepted social norms.
Managerial ethics consists of the standards of behavior that guide individual

managers in their work. One important area of managerial ethics is the treatment of
employees by the organization. It includes, for example, hiring and firing, wages and
working conditions, and employee privacy and respect.
1015
Ethical scandals have become almost commonplace in today’s world. Ranging
from business and sports to politics and the entertainment industry, these scandals have
rocked stakeholder confidence and called into question the moral integrity of our society.
At the same time, most women and men today conduct themselves and their affairs in
accordance with high ethical standards. Hence, as we summarize several emerging
ethical issues in organizations, it is important to remember that one cannot judge
everyone by the transgressions of a few.
A related area of emerging concern is ethical issues in corporate governance. As

discussed earlier in this chapter, the board of directors of a public corporation is expected
to ensure that the business is being properly managed and that the decisions made by
its senior management are in the best interests of shareholders and other stakeholders.
But many of the recent ethical scandals discussed here actually started with a breakdown
in the corporate governance structure.
1025
ORGANIZATIONAL SOCIAL RESPONSIBILITY
Ethics are associated with individuals and their decisions and behaviors.
Organizations themselves do not have ethics, but they relate to their environments in
ways that often involve ethical dilemmas and decisions. These situations are generally
referred to within the context of the organization’s social responsibility. Specifically,
social responsibility is the set of obligations an organization has to protect and enhance
the societal context in which it functions.
ARGUMENTS IN FAVOR AND AGAINST SOCIAL RESPONSIBILITY
1. In favor of social responsibility
People who argue in favor of social responsibility claim that—because

organizations create many of the problems that need to be addressed, such as air and
water pollution and resource depletion—organizations should play a major role in
solving them. The Sustainability Matters feature discusses one such example. They
also argue that, because corporations are legally defined entities with most of the
same privileges as private citizens, businesses should not try to avoid their obligations
as citizens. Advocates of social responsibility point out that, whereas governmental
organizations have stretched their budgets to the limit, many large businesses often
have surplus revenues that could be used to help solve social problems. For example,
Dell donates surplus computers to schools, and many restaurants give leftover food
to homeless shelters.
2. Against social responsibility
Some people, however, argue that widening the interpretation of social

responsibility will undermine the US economy by detracting from the basic mission of
business: to earn profits for owners. For example, money that Chevron or General
Electric contributes to social causes or charities is money that could otherwise be
distributed to owners in the form of dividends. Shareholders of Ben & Jerry’s
Homemade Holdings once expressed outrage when the firm refused to accept a
lucrative exporting deal to Japan simply because the Japanese distributor did not have
a strong social agenda. Finally, critics argue that organizations lack the expertise to
understand how to assess and make decisions about worthy social programs. How
can a company truly know, they ask, which cause or program is most deserving of its
support or how money might best be spent?
1035
ORGANIZATIONAL CULTURE
Organizational culture is the set of values, beliefs, behaviors, customs, and

attitudes that helps the organization’s members understand what it stands for, how it does
things, and what it considers important.
Importance of Organizational Culture
It’s the quality that binds the organization together, and prevents it from falling
apart; a quality that gives the organization the strength to deal with difficult challenges; a
quality that makes it stand out from the rest.
Like individuals, organizations have a unique personality that we refer to as

‘culture’. It’s an invisible yet powerful force that drives the thoughts and actions of each
1045
of its members. It’s a system of shared values, beliefs, and goals. Organizational culture
has a huge impact on the company’s ability to succeed and make it big in the competitive
world that we live in today. A company without a tangible culture finds it difficult to tap into
the full potential of its employees, and to keep them happy. And, that puts both the
organization’s and its people’s well-being at risk. Here are some of the reasons why
organizational culture plays such an important role in the success of any business:
1. Unity
“It’s not the size of the dog in the fight, it’s the size of the fight in the dog,” Mark
Twain had said in one of his famous quotes. An organization, irrespective of its actual
size – whether it’s a start-up with 10-15 employees or an organization with a bigger
workforce, is strengthened by its unity. The unity results from a solid organizational
culture – a set of shared values and principles that the members abide by in every
decision that they take. The similarity of thought and action enables the employees of
a company to work synergistically, to help each other in their goals, and to stay strong
as a group in order to fight against the rival forces.
2. Business Success
One organization that has a palpable organizational culture is Google Inc. One
look at the Google products and campuses across the globe, few interactions with its
employees, and we would know what the company stands for – Creativity and
Innovativeness. Building and maintaining Google’s culture requires relentless effort,
as Google’s Developer Advocate Don Dodge explains in this blog post. However, the
company very well knows that the secret to its success is its people and the culture
they create and maintain.
3. Stability
Author Daniel H Pink in his book Drive: The Surprising Truth About What Motivates
Us talks about the role of ‘Purpose’ in improving the performance of people in the
workplace. Lack of purpose and motivation is one of the major reasons why people
are often dissatisfied at work and why they quit their jobs and look for greener
pastures.
Organizational culture, by its very nature, ensures that the purpose of its members
is aligned with the purpose of the organization. And, this compatibility of goals and
way of thinking drives the members to perform well, be self-directed, and be loyal to
the organization they belong to.
4. Sense of Direction
1055
When an organization has laid out its values, beliefs and goals, its employees have
a clear direction to work towards. They can discern between right and wrong,
important and unimportant and this clarity ensures a focused approach to work, and
a productive use of the organization’s time and resources.
5. Identity
‘Identity’ and ‘brand image’ emerge from an organization’s culture and its people.
Apple’s products wouldn’t be known for their ‘perfection’ and ‘enduring beauty’, had it
not been for Steve Jobs’ unique way of approaching the technology business, his
emphasis on creating products that weren’t just efficient, but also aesthetically
pleasing and immaculately designed. It’s the people who create the organization and
it’s the organization that creates the ‘brand image’. And, we know what a big role the
identity of the brand plays in how well it’s received by the market and how far it goes.
Managing Organizational Culture
How can managers deal with culture, given its clear importance but intangible
nature? Essentially, the manager must understand the current culture and then decide
whether it should be maintained or changed. By understanding the organization’s current
culture, managers can take appropriate actions. Culture can also be maintained by
rewarding and promoting people whose behaviors are consistent with the existing culture
and by articulating the culture through slogans, ceremonies, and so forth.
Managers must walk a fine line, however, between maintaining a culture that still
works effectively and changing a culture that has become dysfunctional. For example,
many of the firms already noted, as well as numerous others, take pride in perpetuating
their culture. Shell Oil, for example, has an elaborate display in the lobby of its Houston
headquarters that tells the story of the firm’s past. But other companies may face
situations in which their culture is no longer a strength. For example, some critics feel that
General Motors’ culture places too much emphasis on product development and internal
competition among divisions, and not enough on marketing and competition with other
firms. They even argue that this culture was a major contributing factor in the business
crisis that GM faced in 2009.
1065
Culture problems sometimes arise from mergers or the growth of rival factions
within an organization. For example, Delta recently merged with Northwest Airlines.
Combining the two companies led to numerous cases of conflict and operational
difficulties because the cultures of the two firms were so different. To change culture,
managers must have a clear idea of what they want to create. When United and
Continental Airlines merged, top managers stressed that they wanted the new firm to
personify Continental’s employee-friendly culture and avoid the old United culture that
was fraught with hostility and mistrust between management and labor.
Griffin, Ricky W. (2016). Fundamentals of Management (8th Edition). Australia: Cengage Learning
Let’s Check
Now that you know the essential knowledge about ethics in management and about
organizational culture, let us try to test your understanding.
PART 1. Multiple Choice
1. A general plan outlining decision about the resource allocation, priorities, and action
steps necessary to reach strategic goals.
a. strategic plan c. tactical plan

b. operational plan d. midyear plan
2. An organizational strength possessed by only a small number of competing firms
a. distinctive competence c. market niche

b. competitive edge d. organizational power
3. When applied to strategy, it specifies the range of markets in which an organization

will compete
a. limit c. scope
b. range d. magnitude
4. The set of strategic alternatives from which an organization chooses as it manages its
operations simultaneously across several industries and several markets
1075
a. corporate-level strategy c. unit-level strategy
b. business-level strategy d. tactical-level strategy
5. It refers to a careful evaluation of an organization’s internal strengths and weaknesses

as well as its environmental opportunities and threats.
a. PESTLE analysis c. BCG analysis

b. SWOT analysis d. GAP analysis
6. A strategy in which an organization seeks to distinguish itself from competitors through

the quality of its products or services.
a. cost strategy c. differentiation strategy

b. quality strategy d. market leadership
7. A plan aimed at achieving tactical goals and developed to implement parts of a

strategic plan.
a. tactical plan c. operational plan

b. standing plan d. calculated plan
8. A single -use plan for a large set of activities. It might consist of identifying procedures
for introducing a new product line, opening a new facility, or changing the
organization’s mission.
a. policy c. project
b. program d. standing plan
9. A single -use plan of less scope and complexity than a program.
10. A standing plan that specifies the organization’s general response to a designated
problem or situation.
1085
11. The determination of alternative courses of action to be taken if an intended plan is
unexpectedly disrupted or rendered inappropriate.
a. decision point c. contingency planning

b. fallback plan d. SOP
12. The set of procedures the organization uses in the event of a disaster or other
unexpected calamity
a. crisis management c. contingency plans

b. action plans d. recovery management
PART 2. ESSAY.
A. Discuss how Sarbanes-Oxley Act of 2002 was passed and the reason of its
creation.
B. Discuss its importance (SOX Act of 2002) in present times.
Let’s Analyze
Upon internalizing the underlying concepts about managerial ethics and social
responsibility, try your best to answer the cases and questions presented.
1095
Required:
1. Problem Statement
2. Alternative Courses of action
3. Conclusion and recommendation
4. Implications of practice
In a Nutshell
1105
Based from the discussion of the ethics and organizational culture, and the
learning exercises that you have done, please feel free to write what have you
learned below.
1. ________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
2. ________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
3. ________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
Q&A List

1115
Keywords Index
Ethics Organizational Culture Social Responsibility
Identity Diversification Sarbanes-Oxley Act of 2002
Unity Environment Factions
1125
Big Picture
a. Discuss marketing and several important marketing terms.

b. Explain the importance of building customer relationships.
c. Explain the major marketing functions that are part of the marketing management
process.
d. Discuss the role of marketing in our society and the world
.
ULOa. Discuess marketing and several important marketing terms

ULOb. Explain the importance of building customer relationships
Metalanguage
demonstrate ULOa, and ULOb will be operationally defined to establish a common frame
case you will encounter difficulty in the in understanding the nature and purpose of
marketing.
1. Market. A set of all actual and potential buyers of a product. It is some sphere
or space, where certain physical and institutional arrangements could be seen,
and the forces of demand and supply are at work to determine prices with a
view of transferring the ownership of some quantity of good or service.
2. Marketing. Marketing refers to the various groups of activities that take place
in a market. These activities are either planned or spontaneous.
3. Customer. A person or organization that buys goods or services from a store

or business.
4. Product. An article or substance that is manufactured or refined for sale.
1135
Essential Knowledge
Marketing is more than simply advertising or selling a product; it involves
developing and managing a product that will satisfy customer needs. It focuses on making
the product available in the right place and at a price acceptable to buyers. It also requires
communicating information that helps customers determine if the product will satisfy their
needs. These activities are planned, organized, implemented, and controlled to meet the
needs of customers within the target market. Marketers refer to these activities— product,
pricing, distribution, and promotion—as the marketing mix because they decide what type
of each element to use and in what amounts. A primary goal of a marketing manager is
to create and maintain the right mix of these elements to satisfy customers’ needs for a
general product type.
Marketing is an ancient art and has, since the day of Adam and Eve, been
practiced in one form or the other. In the modern world, Marketing is everywhere; most of
the task we do and most of the things we handle are linked to marketing. Marketing is an
activity. Marketing activities and strategies result in making products available that satisfy
customers while making profits for the companies that offer those products. Your morning
tea, your newspaper, your breakfast, the dress you put on for the day, the vehicle you
drive, the mobile in your pocket, the quick lunch you have at the fast food joint, the PC at
your desk, your internet connection, your e-mail ID almost everything that you use and
everything that is around you, has been touched by marketing. Marketing has its imprint
1145
on them all depending on the product and the context/experience the imprint may be
visible or subtle. But it is very much there. Marketing permeates most of your daily
activities. Marketing is an omnipresent entity.
Who is the focus of Marketing?
It is the customers. These are the purchasers of the organization’s products; the
focal point of all marketing activities. Relationship marketing involves establishing long-
term, mutually satisfying buyer–seller relationships. Customer relationship management
(CRM) focuses on using information about customers to create marketing strategies that
develop and sustain desirable customer relationships. Managing customer relationships
requires identifying patterns of buying behavior and using that information to focus on the
most promising and profitable customers. Value is a customer’s subjective assessment
of benefits relative to costs in determining the worth of a product. Benefits include
anything a buyer receives in an exchange, whereas costs include anything a buyer must
give up to obtain the benefits the product provides
PRODUCTS, PRICE, DISTRIBUTION, and PROMOTION (Marketing Mix)
1155
1. Price Variable.
- Decisions and actions associated with establishing pricing objectives and
policies and determining product prices.
- The price variable relates to decisions and actions associated with establishing
pricing objectives and policies and determining product prices. Price is a critical
component of the marketing mix because customers are concerned about the
value obtained in an exchange. Price is often used as a competitive tool, and
intense price competition sometimes leads to recovery wars. High prices can
be used competitively to establish a product’s premium image. Waterman and
Mont Blanc pens, for example, have an image of high quality and high price
that has given them significant status.
2. Distribution/Place Variable
- Make products available in quantities desired
- Minimum costs of inventory, transportation and storage
- Select/Motivate intermediaries
- Establish/Maintain inventory control
- Develop/Manage transportation and storage systems
3. Product Variable.
- Successful marketing efforts result in products that become part of everyday
life. Consider the satisfaction customers have had over the years from Coca-
Cola, Levi’s jeans and so on. The product variable of the marketing mix deals
with researching customers’ needs and wants and designing a product that
satisfies them. A product can be a good, a service, or an idea. A good is a
physical entity you can touch. The MiniCooper car, Apple iPhone, a bar of Ivory
soap, or a kitten at an animal shelter are all examples of goods. A service is
the application of human and mechanical efforts to people or objects to provide
intangible benefits to customers. Air travel, dry cleaning, haircutting, banking,
medical care, and day care are examples of services. Ideas include concepts,
philosophies, images, and issues. For instance, a marriage counselor, for a fee,
gives spouses ideas to help them in their marriage issues. The product variable
also involves creating or modifying brand names and packaging and prosperity
may include decisions regarding warranty and repair services. Even one of the
world’s best basketball players is a global brand. Yao Ming, the Houston
Rockets’ center, has endorsed products from McDonald’s, PepsiCo, and
Reebok, many of which are marketed in his Chinese homeland.
4. Promotion Variable
- Activities to inform individuals or groups about the organization and its
products.
- Its aim is to increase awareness of the organization and new or existing
1165
products.
Strategic Marketing and Planning
An effective marketing strategy combines the 4 Ps of the marketing mix. It is

designed to meet the company’s marketing objectives by providing its customers with
value. The 4 Ps of the marketing mix are related, and combine to establish the product’s
position within its target markets.
The analysis of the consumer environment is a keystone of the functionalist
approach to marketing. On this view the marketer who fails to adapt to changing
environmental trends will fail to ensure the company’s survival. The discussion starts by
reflecting on the difficulties of determining what may happen in the future. Bearing this in
mind, aspects of the current marketing environment are considered, focusing in particular
on time–space compression, the body and globalization and fragmentation. Then the
business organization in relation to the marketing environment is considered. This puts
into frame the organizational decision making as a form of problem solving. In simple
terms it involves devising a goal state, an initial state and operators of how to get to the
goal state from the initial state. In management jargon the goal state is discussed with
reference to concepts such as the mission and objectives; initial state by marketing audit;
and operators by strategies
Stanton defines strategic marketing planning as the process of setting marketing

goals, selecting target markets and designing a marketing mix to satisfy these markets
and achieve these goals. The marketing strategy is therefore functional strategy. It is
different from corporate strategy. However, the marketing strategy stems from the
corporate strategy. In other words, the functional strategies should be in conformity with
the overall strategy of the company. The functional strategy like marketing strategy sets
the boundaries for all the action programmes related to marketing. According to Stanton,
the six stages involved in strategic marketing planning process are:
1. Situational analysis-with a purpose to determine where we are and where are

we going.
2. Determine the objectives – these goals should be specific and realistic
3. Select and measure target markets-identify present and potential customers
4. Design marketing mix strategies and tactics – How do we get to where we want
to go.
5. Prepare annual marketing plan-the how to do it guide to yearly marketing
operations.
6. Implementation and evaluation – How are we doing? Did we do what we said
we would do?
1175
Situation analysis consists of an analysis of external environmental forces and the
non-marketing resources that influence an organization’s marketing programmed. These
factors are: political, economic, competitive, socio cultural, historical, etc. this analysis
also reviews and evaluates an organization’s existing marketing mix so as to identify the
flaws and problems associated with them. This analysis will help an organization to know
where it is and where it should reach in future, which may be called the first stage.
The second stage is to formulate the objectives. This includes both the corporate
objectives as well as marketing objectives. At the time of setting the marketing objectives,
care should be taken to make it specific, measurable and in conformity with the corporate
objectives. It will be better to spell them out in writing so that there is no scope for
confusion.
In the third stage, the organization should identify the present and potential
customers. This is what is called selection of target markets. Apart from analyzing the
existing market for its products, the organization should try to identify the new market for
its products. For this purpose, the company has to adopt the marketing segmentation
technique. Once the market is segmented, it is necessary to forecast the market for the
product in each segment.
The fourth stage is to design a strategic marketing mix that enables the
organization to satisfy the wants of its target markets and to achieve the marking
objectives. The design and later the operation of the marketing mix components constitute
the bulk of a Company’s marketing effort.
In the fifth stage, the strategic marketing planning is prepared. A series of short-
1185
term marketing plans are prepared. Usually a period of one year is covered. They are
called annual marketing plans. It includes a statement of objectives, identification of target
markets, strategies relating to the marketing mix, information regarding the budgetary
support for the marketing activity.
After formulating the strategic marketing planning in the above manner, the last
stage is, it should be implemented and evaluated periodically. This is done to understand
how for the organization is following plan. If there are deviations, the causes and
consequences of such deviations are analyzed. Further, to design the future course of
action, there is a need to analyze the changing marketing environment. The actual
performance of the strategic plan has to be critically evaluated so as to accomplish the
objectives of the company as desired and as planned. In the process of evaluation, it any
defect is found, corrective measures should be incorporated immediately. It would also
be wise to do this evaluation segment – wise so that the strategy developed for each
segment can be perfected. It is also good to study the strategic planning of the competitor
to come out with new ideas and plans
Scope of Marketing
Under marketing management, a marketing programme is prepared on the basis

of needs, wants, tastes and fashions of the customers. It involves decision making in
regard to pricing of the products, publicity, distribution and after-sales service. Thus,
marketing management is an action science consisting of principles for improving the
effectiveness of exchange. It represents professionalization in the carrying out of
exchange relationships. In recent times marketing management has become a self-
conscious craft. It is the analysis, planning, implementation and control of programmes
designed to bring about designed exchanges for the purpose of personal or mutual gain.
It relies heavily on the adaptation and coordination of product, price, promotion, and place
for achieving effective response.
1195
Forces of the Marketing Environment
1. Economic Environment
Every day, marketing managers face a barrage of economic news. They must
digest it, assess its impact, and alter marketing plans accordingly. Sometimes (but not
recently), the news is cause for optimism—the economy’s improving, unemployment’s
declining, consumer confidence is up. At other times (like today), the news makes
them nervous—our economy is weak, industrial production is down, jobless claims
are rising, consumer confidence has plummeted, credit is hard to get. Naturally,
business thrives when the economy is growing, employment is full, and prices are
stable. Marketing products is easier because consumers are willing to buy. On the
other hand, when the economy is slowing (or stalled) and unemployment is rising,
people have less money to spend, and the marketer’s job is harder.
Then there’s inflation, which pushes interest rates upward. If you’re trying to sell
cars, you know that people facing higher interest rates aren’t so anxious to take out
car loans. Sales will slip, and to counteract the anticipated slowdown, you might have
to add generous rebates to your promotional plans.
Moreover, if you operate in foreign markets, you can’t focus on solely domestic
economic conditions: you have to monitor the economy in every region where you do
1205
business. For example, if you’re the marketing director for a Philippines-based
company whose goods are manufactured in China and sold in Brazil, you’ll need to
know as much as you can about the economies in three countries: the Philippines
China, and Brazil. For one thing, you’ll have to pay particular attention to fluctuations
in exchange rates, because changes will affect both your sales and your profits.
2. Technological Environment
A technological force everybody can think of nowadays is the development of

wireless communication techniques, smartphones, tablets and so further. This may
mean the emerge of opportunities for a business, but watch out: every new technology
replaces an older one. Thus, marketers must watch the technological environment
closely and adapt in order to keep up. Otherwise, the products will soon be outdated,
and the company will miss new product and market opportunities.
3. Political and Regulatory Environment
Every business is limited by the political environment. This involves laws,

government agencies and pressure groups and such influences and restrict
organizations and individuals in a society. Therefore, marketing decisions are strongly
influenced and affected by developments in the political environment.
Before entering a new market in a foreign country, the company should know
everything about the legal and political environment. How will the legislation affect the
business? What rules does it need to obey? What laws may limit the company’s ability
to be successful? For example, laws covering issues such as environmental
protection, product safety regulations, competition, pricing etc. might require the firm
to adapt certain aspects and strategies to the new market.
As we have seen, the company is surrounded by a complex environment. The

Macro Environment consists of a large variety of different forces. All of these may
shape opportunities for the company, but could also pose threats. Therefore, it is of
critical importance that marketers understand and have an eye on development in the
Macro Environment, to make their business grow in the long term.
4. Sociocultural Environment
Marketers also have to stay tuned to social and cultural factors that can affect
sales. The values and attitudes of Filipino consumers are in a state of almost constant
flux; what’s cool one year is out of style the next. Think about the clothes you wore
five years ago: would you wear them today? A lot of people wouldn’t—they’re the
wrong style, the wrong fit, the wrong material, the wrong color, or just plain wrong.
1215
Now put yourself in the place of a marketer for a clothing company that targets
teenagers and young adults. You wouldn’t survive if you tried to sell the same styles
every year. As we said at the outset of this chapter, the key to successful marketing
is meeting the needs of customers. This means knowing what they want right now,
not last year.
5. Economic Environment
The Economic forces relate to factors that affect consumer purchasing power and
spending patterns. For instance, a company should never start exporting to a country
before having examined how much people will be able to spend. Important criteria are:
GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment,
Inflation, Disposable personal income, and Spending patterns.
SUMMARY
To wit, marketing is the process of creating, pricing, distributing, and promoting goods,
services, and ideas to facilitate satisfying exchange relationships with customers and to
develop and maintain favorable relationships with stakeholders in a dynamic
environment. The essence of marketing is to develop satisfying exchanges from which
both customers and marketers’ benefit.
A target market is the group of customers toward which a company directs a set of
marketing efforts.
The variables—product, price, distribution, and promotion—are known as the

marketing mix because marketing managers decide what type of each element to use
and in what amounts. Marketing managers strive to develop a marketing mix that matches
the needs of customers in the target market. Before marketers can develop a marketing
mix, they must collect in-depth, up-to-date information about customer needs.
Individuals and organizations engage in marketing to facilitate exchanges—the

provision or transfer of goods, services, and ideas in return for something of value. Four
conditions must exist for an exchange to occur: (1) Two or more individuals, groups, or
organizations must participate, and each must possess something of value that the other
party desires; (2) the exchange should provide a benefit or satisfaction to both parties
involved in the transaction; (3) each party must have confidence in the promise of the
“something of value” held by the other; and (4) to build trust, the parties to the exchange
must meet expectations. Marketing activities should attempt to create and maintain
satisfying exchange relationships with all stakeholders—those constituents who have a
“stake,” or claim, in some aspect of a company’s products, operations, markets, industry,
and outcomes.
1225
The marketing environment, which includes competitive, economic, political, legal and
regulatory, technological, and sociocultural forces, surrounds the customer and the
marketing mix. These forces can create threats to marketers, but they also generate
opportunities for new products and new methods of reaching customers.
- Pride, W.M., Farell, O.C., & Hutt, T.M. (2014). Marketing Foundations. 5th
Edition. Andover: Cengage Learning.
Let’s Check
Now that you know the essential knowledge in the marketing process, let us test
your understanding of the subject matter before we proceed to another subtopic of
marketing.
The definition of marketing includes all but one of the following:
a. the need to earn a profit.

b. the process of determining customer wants and needs.
c. profitably providing customers goods and services that meet their needs.
d. an exchange between the organization and a customer.
2. Which of the following is a step in the marketing process?
a. finding a need.
b. conducting research.
c. setting a price and do market testing.
d. all of the above.
3. Organizations in a _______________ mobilize their resources toward selling,

advertising and other promotional efforts.
a. sales orientation
b. marketing orientation
c. product orientation
d. production orientation
4. The marketing concept includes which of the following:
1235
a. customer orientation.
b. training in customer service.
c. profit orientation.
d. all of the above.
5. Which of the following elements is specifically related to a societal orientation?
a. earning a profit.
b. total quality management.
c. concern for ethical behavior.
d. defining clear objectives.
6. The first step in the marketing process is:
a. find a need.
b. test marketing.
c. conduct research.
d. build a relationship with customers.
7. The marketing mix includes the following factors:
a. production, price, promotion and product.

b. public relations, place, promotion and price.
c. product, price, place and promotion.
d. price, promotion, place, distribution.
8. ______ is the process of planning and executing the conception, pricing promotion
and distribution of ideas, goods and services to create exchange that satisfy individual
and organizational goals.
a. Selling
b. Manufacturing
c. Marketing
d. Advertising
9. Which concept holds that consumers will favor those products that offer the most
quality, performance or innovative features?
a. Production concept
b. Product concept
1245
c. Marketing concept
d. Selling concept
10. What is the basic difference between a “need‟ and “want‟?
a. A want is a basic requirement whereas a need arise when wants are satisfied
b. A need is a basic requirement whereas a want arise when needs are satisfied
c. Both needs and wants are basic requirements of customers
d. None of the above
Let’s Analyze
Upon internalizing the underlying concepts that compose marketing and its process, try to
answer these problems that will stir your analytical skills.
CASE ANALYSIS: Kentucky Fried Chicken in China (A)
For the copy of the case, please go to this link
https://drive.google.com/file/d/1jQ1M6f5koRrGAw-
QvWpHkQQ4PArsq0Bz/view?usp=sharing
For this case, kindly answer these questions:
1. What are the opportunities and risks of China at the time of the case?
2. What are KFC’s competencies and deficiencies?
3. Argue where the company should go first: Beijing, Shanghai, or Guangzhou.
4. Also, a brief SWOT/PESTEL analysis, an alternative and a recommendation.
In a Nutshell
Based from the discussion of the management process, and the learning exercises
that you have done, please feel free to write what have you learned below.
1255
1. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
2. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
3. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
4. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Q&A List

1265
Keywords Index
Customer-relationship
Marketing environment Relationship marketing
management
Marketing Mix Customers Stakeholders
Marketing Concept Product Target Market
1275
ULOc. Explain the major marketing functions that are part of the marketing
management process
ULOd. Discuss the role of marketing in our society and the world
Metalanguage
demonstrate ULOc and ULOd will be operationally defined to establish a common frame
case you will encounter difficulty in the in understanding the major marketing functions
and its role in the society.
1. Marketing Management. It is the organizational discipline which focuses on the

practical application of marketing orientation techniques and methods inside
enterprises and organizations and on the management of a firm’s marketing
resources and activities.
2. Needs. A special kind of want, and refer to things we must have to survive, such
as food, water and shelter.
3. Wants. Are desires for goods and services we would like to have but do not
need. Many wants may seem like needs.
4. Satisfaction. The fulfillment of one’s wishes, expectations or needs or the
pleasure derived from it.
5. Supply Chain. It is a system of organizations, people, activities, information and
resources involved in supplying a product or service to a consumer.
Essential Knowledge
Going back to the previous discussion that we had with marketing, let us once
again have a glimpse of how marketing is defined. Marketing is identifying and meeting
human and social needs. In short, marketing is “meeting needs profitably”.
Philip Kotlar, a pioneer in marketing, defined marketing as a social and managerial

process by which individuals and groups obtain what they need and want through creating
and exchanging products and value with others.
Furthermore, the American Marketing Association defined marketing as an

1285
organizational function and a set of processes for creating, communicating and delivering
value to customers and for managing customer relationship, in ways that benefit the
organization and its stakeholders.
On the other hand, marketing management is the art and science of choosing
target markets and getting, keeping and growing customers through creating, delivering
and communicating superior customer value.
Previously stated the objectives of marketing is to satisfy the needs, wants, and
demand of consumer and businesses, as well as to provide value, quality and
satisfactions.
WHAT IS BEING MARKETED?
1. Goods like cars, machines, watches, cosmetics etc.

2. Services like restaurants
3. Events like Olympics, concerts
4. Experiences like amusement park, water park
5. Persons like celebrity marketing
6. Properties like real estate
7. Ideas like AIDS awareness, discouragement of smoking
CHARACTERISTICS OF MARKETING
1. Marketing Research
Under the marketing concept; knowledge and understanding of customer’s

needs, wants and desires is very vital. Therefore, a regular and systematic
marketing research programme is required to keep abreast of the market. In
1295
addition, innovation and creativity are necessary to match the products of
requirements of customers.
Up-to-date and adequate knowledge must be available to answer the

following questions:
a. What business are we really in?
b. What do customers want?
c. How should we distribute our products?
d. How can we communicate most effectively with our customers?
2. Customer-orientation
All business activities should be directed to create and satisfy the

customer. Emphasis on the needs and wants of consumers keeps the business
on the right track. All marketing decisions should be made on the basis of their
impact on the customer. Consumer becomes the guide of business.
3. Marketing Planning
The marketing concept calls for a goal-oriented approach to marketing. The

overall objectives of the firm should be the earning of profits through satisfaction
of customers. On the basis of this goal, the objectives and policies of marketing
and other departments should be defined precisely. Marketing planning helps to
inject the philosophy of consumer-orientation into the total business systems and
serves as a guide to the organization’s efforts.
4. Integrated Marketing
Once the organizational and departmental goals are formulated, it becomes

necessary to harmonize the organizational goals with the goals of the individuals
working in the organization. The activities and operation of various organizational
units should be properly coordinated to achieve the defined objectives. The
marketing department should develop the marketing mix which is most appropriate
for accomplishing the desired goals through the satisfaction of customers.
5. Customer Satisfaction
The aim should be to maximize profit over the long run through the
1305
satisfaction of customers wants.
The Core Marketing Concepts
1. Market, Marketing, Marketer and Prospect
In marketing management, frequently used words are markets, marketing,

marketer, and prospects. A market consists of all potential customers sharing a
particular need or want who might be willing and able to engage in exchange to satisfy
this need or want.
Marketing is social and managerial process by which individuals and groups obtain
what they need and want through creating and exchanging product and value with
others.
1315
Marketer is one who seeks one or more prospects (buyers) to engage in an
exchange. Here, seller can be marketer as he wants other to engage in an exchange.
Normally, company or business unit can be said as marketer.
Prospect is someone to whom the marketer identifies as potentially willing and able
to engage in the exchange. (In case of exchange between two companies, both can
be said as prospects as well as marketers). Generally, consumer or customer who
buys product from a company for satisfying his needs or wants can be said as the
prospect.
2. Relationship and Network
Today’s marketing practice gives more importance to relation building. Marketing

practice based on relation building can be said as relationship marketing. Relationship
marketing is the practice of building long-term profitable or satisfying relations with key
parties like customers, suppliers, distributors, and others in order to retain their long-
term preference in business.
A smart marketer tries to build up long-term, trusting, and ‘win-win’ relations with
valued customers, distributors, and suppliers. Relationship marketing needs trust,
commitment, cooperation, and high degree of understanding.
Relationship marketing results into economical, technical, social, and cultural tie
among the parties. Marketing manager is responsible for establishing and maintaining
long-term relations with the parties involved in business.
Network is the ultimate outcome of relationship marketing. A marketing network

consists of the company and its supporting stakeholders – customers, employees,
suppliers, distributors, advertising agencies, colleges and universities, and others –
whose role is considered to be essential for success of business. It is a permanent
setup of relations with stakeholders. A good network of relationships with key
stakeholders results into excelling the marketing performance over time.
3. Exchanges, Transaction and Transfers
Exchange is in the center of marketing. Marketing management tries to

arrive at the desired exchange. People can satisfy their needs and wants in one of
the four ways – self-production, coercion/snatching, begging, or exchanging.
Marketing emerges only when people want to satisfy their needs and wants
through exchange. Exchange is an act of obtaining a desired product from
1325
someone by offering something in return. Obtaining sweet by paying money is the
example an exchange.
4. Value, Cost and Satisfaction
Utility or Value means overall capacity of product to satisfy need and want.
It is a guiding concept to choose the product. Every product has varying degree of
utility. As per level of utility, products can be ranked from the most need-satisfying
to the least need-satisfying.
Utility is the consumer’s estimate of the product’s overall capacity to satisfy
his/her needs. Buyer purchases such a product, which has more utility. Utility is,
thus, the strength of product to satisfy a particular need.
Cost means the price of product. It is an economic value of product. The
charges a customer has to pay to avail certain services can be said as cost. The
utility of product is compared with cost that he has to pay. He will select such a
product that can offer more utility (value) for certain price. He tries to maximize
value, that is, the utility of product per peso.
Satisfaction means fulfillment of needs. Satisfaction is possible when buyer
perceives that product has more value compared to the cost paid for. Satisfaction
closely concerns with fulfillment of all the expectations of buyer. Satisfaction
releases the tension that has aroused due to unmet need(s). In short, more
utility/value with less cost results into more satisfaction.
5. Product
Product can also be referred as a bundle of satisfaction, physical and

psychological both. Product includes core product (basic contents or utility), product-
related features (color, branding, packaging, labeling, varieties, etc.), and product-
related services (after-sales services, guarantee and warrantee, free home delivery,
free repairing, and so on). So, tangible product is a package of services or benefits.
Marketer should consider product benefits and services, instead of product itself.
Marketer can satisfy needs and wants of the target consumers by product. It can
be broadly defined as anything that can be offered to someone to satisfy a need or
want. Product includes both good and service. Normally, product is taken as tangible
object, for example, pen, television set, bread, book, etc.
However, importance lies in service rendered by the product. People are not
interested just owning or possessing products, but the services rendered by them. For
examples, we do not buy a pen, but writing service.
1335
Similarly, we do not buy a car, but transportation service. Just owning product is
not enough, the product must serve our needs and wants. Thus, physical product is
just a vehicle or medium that offers services to us.
As per the definition, anything which can satisfy need and want can be a product.
Thus, product may be in forms of physical object, person, idea, activity, or organization
that can provide any kind of services that satisfy some needs or wants.
6. Demand
Demand is the want for specific products that are backed by the ability and
willingness (may be readiness) to buy them. It is always expressed in relation to
time. All wants are not transmitted in demand. Such wants which are supported by
ability and willingness to buy can turn as demand.
Marketer tries to influence demand by making the product attractive,
affordable, and easily available. Marketing management concerns with managing
quantum and timing of demand. Marketing management is called as demand
management.
7. Wants
Wants are the options to satisfy a specific need. They are desire for specific
satisfiers to meet specific need. For example, food is a need that can be satisfied
by variety of ways, such as sweet, bread, rice, etc. These options are known as
wants. In fact, every need can be satisfied by using different options.
Maximum satisfaction of consumer need depends upon availability of better
options. Needs are limited, but wants are many; for every need, there are many
wants. Marketer can influence wants, not needs. He concentrates on creating and
satisfying wants.
8. Needs
Existence of unmet needs is precondition to undertake marketing activities.

Marketing tries to satisfy needs of consumers. Human needs are the state of felt
deprivation of some basic satisfaction. A need is the state of mind that reflects the
lack-ness and restlessness situation.
Needs are physiological in nature. People require food, shelter, clothing,
esteem, belonging, and likewise. Note that needs are not created. They are pre-
existed in human being. Needs create physiological tension that can be released
by consuming/using products.
1345
FUNCTIONS OF MARKETING
Marketing is not something to be done just by the marketing department. The real
task of doing marketing is delivering benefits to meet customer’s present and future needs
– is part of everyone’s job.
● The following are the tasks in marketing:
1. Setting marketing objectives

2. Developing and implementing strategic marketing plans
3. Market and environmental analysis
4. Conducting market research
● Designing the appropriate mix:
1. The service product itself

2. Pricing policy
3. Promotion and advertising
4. Distribution systems
5. People-customer service and marketing training delivery process
6. Designing the service environment
The important functions of marketing management are:

✔ Selling
✔ Buying and Assembling
✔ Transportation
✔ Storage
✔ Standardization and Grading
✔ Financing
✔ Risk Taking
✔ Market Information
a. Selling
It is core of marketing. It is concerned with the prospective buyers to

actually complete the purchase of an article. It involves transfer of ownership of
goods to the buyer. Selling plays an important part in realizing the ultimate aim of
earring profit. Selling is enhanced by means of personal selling, advertising,
publicity and sales promotion. Effectiveness and efficiency in selling determines
the volume of company’s profits and profitability.
1355
b. Buying and Assembling
It involves what to buy, of what quality, how much from whom, when and at
what price. People in business buy to increase sales or to decrease costs.
Purchasing agents are much influenced by quality, service and price.
The products that the retailers buy for resale are determined by the needs
and preferences of their customers. A manufacturer buys raw materials, spare
parts, machinery, equipment’s, etc. for carrying out his production process and
other related activities. A wholesaler buys products to resell them to the retailers.
Assembling means to purchase necessary component parts and to fit them

together to make a product. ‘Assembly line’ indicates a production line made up of
purely assembly operations. The assembly operation involves the arrival of
individual component parts at the work place and issuing of these parts to be
fastened together in the form of an assembly or sub-assembly.
Assembly line is an arrangement of workers and machines in which each

person has a particular job and the work is passed directly from one worker to the
next until the product is complete. On the other hand, ‘fabrication lines’ implies a
production line made up of operations that form or change the physical or
sometimes chemical characteristics of the product involved.
c. Transportation
Transportation is the physical means by which goods are moved from the
places where they are produced to those places where they are needed for
consumption. It creates place, utility. Transportation is essential from the
procurement of raw material to the delivery of finished products to the customer’s
places. Marketing relies mainly on railroads, trucks, waterways, pipelines and air
transport.
The type of transportation is chosen on several considerations, such as

suitability, speed and cost. Transportation may be performed either by the buyer
or by the seller. The nature and kind of the transportation facilities determine the
extent of the marketing area, the regularity in supply, uniform price maintenance
and easy access to the supplier or seller.
d. Storage
1365
It involves holding of goods in proper (i.e., usable or saleable) condition from
the time they are produced until they are needed by customers (in case of finished
products) or by the production department (in case of raw materials and stores);
storing protects the goods from deterioration and helps in carrying over surplus for
future consumption or use in production.
Goods may be stored in various warehouses situated at different places,
which is popularly known as warehousing. Warehouses should be situated at such
places from where the distribution of goods may be easier and cheaper. Situation
of warehouses is also important from the view of prompt feeding of emergency
demands. Storing assumes importance when production is regional or
consumption may be regional. Retail firms are called “stores”.
e. Standardization and Grading
The other activities that facilitate marketing are standardization and grading.
Standardization means establishment of certain standards or specifications for
products based on intrinsic physical qualities of any commodity.
This may involve quantity (weight or size) or it may involve quality (color,
shape, appearance, material, taste, sweetness etc.) Government may also set
some standards, for example, in case of agricultural products. A standard conveys
a uniformity of the products.
f. Financing
It involves the use of capital to meet financial requirements of agencies

dealing with various activities of marketing. The services to provide the credit and
money needed, the costs of getting merchandise into the hands of the final user is
commonly referred to as finance function in marketing.
In marketing, finances are needed for working capital and fixed capital
which may be secured from three sources—owned capital, bank loans and
advance and trade credit. (Provided by manufacturers to wholesaler and by the
wholesaler to the retailers.) In other words; various kinds of finances are short-
term finance, medium-term finance, and long-term finance.
g. Risk Taking
Risk means loss due to some unforeseen circumstances in future. Risk

bearing in marketing refers to the financial risk interest in the ownership of goods
held for an anticipated demand including the possible losses due to a fall in prices
1375
and the losses from spoilage, depreciation, obsolescence, fire and floods or any
other loss that may occur with the passage of time.
From production of goods to its selling stage, many risks are involved due
to changes in market conditions, natural causes and human factors. Changes in
fashion or inventions also cause risks. Legislative measures of government may
also cause risks. Risks may arise during the course of transportation.
They may also be due to decay, deterioration and accidents, or due to

fluctuation in the prices caused by changes in their supply and demand. The
various risks are usually termed as place risk, time risk and physical risk, etc.
h. Market Information
The importance of this facilitating function of marketing has been

recognized only recently. The only sound foundation on which marketing decisions
may be based is correct and timely market information. Right facts and information
reduce the aforesaid risks and thereby result in cost reduction.
Modern marketing requires a lot of information adequately, accurately and
speedily. Marketing information makes a seller know when to sell, at what price to
sell, who are the competitors, etc. Marketing information and its proper analysis
has led to marketing research which has now become an independent branch of
marketing.
Business firms collect, analyze and interpret facts and information from
internal sources, such as records, sales-people and findings of the market
research department. They also seek facts and information from external sources,
such as business publications, government reports and commercial research
firms.
Retailers need to know about sources of supply and also about customers
“buying motives and buying habits”. Manufacturers need to know about retailers
and about advertising media. Firms in both these groups need information about
‘competitor’ activities and about their markets.
Even ultimate consumers need market information about availability of
products, their quality standards, their prices and also about the after-sale service
facility. Common sources for consumers are sales people, media advertisements,
colleagues, etc.
Keeping Pace with the Challenges and the Changing World
Product variable decisions and related activities are important because they
are directly involved with creating products that address customers’ needs and
1385
wants. To maintain an assortment of products that helps an organization achieve
its recession, marketers must develop new products, modify existing ones, and
eliminate those that no longer satisfy enough buyers or that yield unacceptable
profits. In the funeral home industry, for example, some companies have
developed new products such as DVD memoirs, grave markers that depression
photos along with a soundtrack.
Marketing drives a consumer economy, promoting goods and services and

targeting consumers most likely to become buyers. Higher sales for a business
that employs successful marketing strategies translate into expansion, job
creation, higher tax revenue for governments and, eventually, overall economic
growth. In addition, the marketing industry itself creates jobs and wealth as
businesses seek new and innovative ways to promote themselves and their
products. Consumer demand for marketing in new venues, such as cellphones,
creates new branches of the marketing industry and furthers growth. Marketing is
very important for the welfare of society. Marketing helps to any country to run their
economic system easily. Business organization spends huge money on marketing
to improve their sales but marketing also benefits as a whole activity. Marketing
helps to growth properly society and the society’s people. Marketing gather the
power of the economic strength for society improvement.
Importance of marketing can be traced with the following:

✔ Adjusting Supply with Demand
✔ Proper Distribution
✔ Creating Utility
✔ Research and Development
✔ Consuming Unproduced Products
✔ Facilitating Large-scale production
✔ Employment
✔ Availability of Product
✔ Developing Foreign Trade
✔ Consumer Satisfaction
✔ Improving Standard of Living
- Pride, W.M., Farell, O.C., & Hutt, T.M. (2014). Marketing Foundations. 5th
Edition. Andover: Cengage Learning.
1395
Let’s Check
Now that you know the essential knowledge in the marketing functions and its
importance to society, let us test your understanding of the subject matter. Kindly identify
what is being described with the following sentences.
1. The process by which companies create value for customers and build strong
customer relationships in order to capture value from customers in return
2. States of felt deprivation
3. The form human needs take as they are shaped by culture and individual
personality
4. The art and science of choosing target markets and building profitable
relationships with them.
5. The extent to which a product's perceived performance matches a buyer's

expectations
6. The act of obtaining a desired object from someone by offering something in

return.
7. A _______ is a brand that has been given exclusive legal protection for both
the brand name and pictoral design.
8. Enumerate the 4Ps or known as the marketing mix (4 Points)
9. As a consumer, why do you think marketing is important? (9 points)
Let’s Analyze
Upon internalizing the underlying concepts that compose marketing and its process, try
to answer these problems that will stir your analytical skills.
CASE ANALYSIS 1: ZARA CASE PROBLEM (Retail)
1405
https://drive.google.com/file/d/1u6ojcDN3j2sfYGX1Hz7pHrRFYkMItaVD/view?usp=shari
ng
Provide the following:
1. Industrial Analysis using PESTLE model.

2. Conclusion and Suggestions
CASE ANALYSIS 2: PEPSI CO. CASE ANALYSIS
https://drive.google.com/file/d/1DxFgColSaN0TYiqsYowpI57OKTy-
7uhA/view?usp=sharing
Provide the following:
1. How Pepsi’s diversification maximized shareholders’ value.

2. Identify opportunities, problems, and strategic actions that would help to sustain
its impressive financial and market performance
CASE ANALYSIS 3: WHAT HAPPENED TO FOREVER21?
(200-300 only). Research what happened to Forever21 which led to its bankruptcy, and
discuss how marketing should have been incorporated to save it.
In a Nutshell
Based from the discussion of the marketin, and the learning exercises that you
have done, please feel free to write what have you learned below.
1. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
1415
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
2. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
3. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
4. _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Q&A List

1425
Keywords Index
Needs Wants Demand
Utility Customer relationship Marketing Plan
Risk Taking Standardization Strategic Plan
COURSE SCHEDULES
This section calendars all the activities and exercises, including readings and lectures, as
well as time for making assignments and doing other requirements.
WHERE TO
ACTIVITY DATE
SUBMIT/PERFORM
Big Picture ULOa, and ULOb:
Blackboard LMS
Let’s Check
Blackboard LMS
Let’s Analyze
Blackboard LMS
In a Nutshell
Blackboard LMS - Forum
Q&A List
Big Picture ULOc, ULOd, ULOe,
ULOf, and ULOg: Blackboard LMS
Let’s Check
Let’s Analyze
1435
In a Nutshell
ULOf, and ULOg: Blackboard LMS - Forum
Q&A List
Big Picture ULOh, and ULOj:
Blackboard LMS
Let’s Check
Blackboard LMS
Let’s Analyze
Blackboard LMS
In a Nutshell
Q&A List
Week 1-3 Synthesis: Blackboard LMS -
Via Blackboard Collaborate Collaborate
1st Examination January 29, 2021 Blackboard LMS
Blackboard LMS
Let’s Check
Blackboard LMS
Let’s Analyze
Blackboard LMS
In a Nutshell
Q&A List
Big Picture ULOc, and ULOd:
Blackboard LMS
Let’s Check
Blackboard LMS
Let’s Analyze
Blackboard LMS
In a Nutshell
Q&A List
2nd Examination February 12, 2021 Blackboard LMS
Big Picture ULOa, ULOb, and ULOc:
Blackboard LMS
Let’s Check
Big Picture ULOa, ULOb, and ULOc: Blackboard LMS
1445
Let’s Analyze
Blackboard LMS
In a Nutshell
Q&A List
Big Picture ULOd and ULOe:
Blackboard LMS
Let’s Check
Blackboard LMS
Let’s Analyze
Blackboard LMS
In a Nutshell
Q&A List
3rd Examination February 26, 2021 Blackboard LMS
Blackboard LMS
Let’s Check
Blackboard LMS
Let’s Analyze
In a Nutshell Blackboard LMS

Q&A List
Blackboard LMS
Let’s Check
Blackboard LMS
Let’s Analyze
Blackboard LMS
In a Nutshell
Q&A List
4th/FINAL Examination March 10-11, 2021 Blackboard LMS
Online Code of Conduct
1455
1. Students are expected to abide by and honor code of conduct, and thus everyone and
all are exhorted to exercise self-management and self-regulation.
2.All students are guided by professional conduct as learners in attending On-Line

Blended Delivery (OBD) course. Any breach and violation shall be dealt with properly
under existing guidelines, specifically in Section 7 (Student Discipline) in the Student
Handbook.
3.Professional conduct refers to the embodiment and exercise of the University’s Core
Values, specifically in the adherence to intellectual honesty and integrity; academic
excellence by giving due diligence in virtual class participation in all lectures and activities,
as well as fidelity in doing and submitting performance tasks and assignments; personal
discipline in complying with all deadlines; and observance of data privacy.
4.Plagiarism is a serious intellectual crime and shall be dealt with accordingly. The
University shall institute monitoring mechanisms online to detect and penalize plagiarism.
5.Students shall independently and honestly take examinations and do assignments,

unless collaboration is clearly required or permitted. Students shall not resort to
dishonesty to improve the result of their assessments (e.g. examinations, assignments).
6.Students shall not allow anyone else to access their personal LMS account. Students
shall not post or share their answers, assignment or examinations to others to further
academic fraudulence online.
7.By enrolling in OBD course, students agree and abide by all the provisions of the Online
Code of Conduct, as well as all the requirements and protocols in handling online courses.
Course prepared by:
WALTER S. DELIG
Author
Course reviewed by:
DEVZON U. PORRAS JADE D. SOLAÑA

PH-BSAIS/BSIA PH-BSA/BSMA
Approved by:
1465
LORD EDDIE I. AGUILAR
Dean
1475

Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Self-Instructional Manual (SIM) For Self-Directed Learning (SDL)

Uploaded by

Copyright:

Available Formats

UNIVERSITY OF MINDANAO

College of Accounting Education

Program: BSA, BSIA, BSMA, BSAIS

Physically Distanced but Academically Engaged

Self-Instructional Manual (SIM) for

Course/Subject: ACCBP 100 – Accounting Plus

Name of Teacher: _______________________

THIS SIM/SDL MANUAL IS A DRAFT VERSION ONLY; NOT FOR

Big Picture: Week 4-5

Big Picture: Week 6-7

Course Coordinator: Walter S. Delig

Course Outline Policy

Areas of Concern Details

If the assessment task is done in real time through the

Since this course is included in the licensure

Please note that academic dishonesty such as cheating

However, if the late submission of assessment paper

For group assessment tasks, the course coordinator will

If disapproved by the course coordinator, you can

All culled from on-campus/onsite sessions (TBA):

Submission of the final grades shall follow the usual

You can also meet the course coordinator in person

For students who have not created their student email,

Contact Details of the Dean LORD EDDIE I. AGUILAR

Online Tutorial Registration Through LMS or PM Chats

for inquiries, you can email at

GSTC Facebook Page:

Course Information – see/download course syllabus in the Black Board LMS

CO In order to become a certified public accountant, you will need to learn

a. Discuss the nature of money, its various aspects and characteristics.

Big Picture in Focus:

1. A barter system (with no money) would be awkward and extremely inefficient.

2. Money has its functions, in accordance to its conceptual definition.

Money functions as:

2.1 Medium of Exchange. Money acts as a medium of trade or exchange to facilitate

1. General Acceptability / Legal Tender

5. Uniformity. Consistency and uniformity of money calls for a standardization of

WHAT SERVES AS MONEY

COMMODITY MONEY VS FIAT MONEY

HOW MONEY SUPPLY IS MEASURED

M3 considers and sums up the result of the following:

(b) Public Sector or the Government Contribution

(c) Foreign Sector Contribution

A. Consider the following currencies in the economy of a certain country:

Let us try to compute for the M1, M2 and M3.

1. M1 = Coins + Paper Money + Demand Deposit

2. M2 = M1 + Money Market Funds

3. M3 = *Private Sector Contr’n + **Public/Government Contr’n + ***Foreign Sector

1. Money is defined as something that is

a. Used as a medium of exchange

3. The following are characteristics of a good money except

a. Both statements are correct.

5. Ultimately, the usefulness of money rests in exchanging it for goods or services.

6. Economies without money typically engage in the barter system.

9. It is a money whose value is fixed by government edict or decree.

Activity 2. Consider the following monies in an economy:

Total private deposit P 360,000

B. Prove or disprove these statements:

Do you have any question for clarification?

Money Barter Exchange

Legal tender Commodity Money Fiat Money

Portability Paper Money Money Supply

3. M3 = Private Sector Contr’n + Public/Government Contr’n + Foreign Sector