Activity 3: Ch. 6 The Philippine Financial System and Ch.

7 Financial Markets: An Overview

Review Questions: Chapter 6
1.Compare the function of a commercial bank with the function of a universal bank.
- A commercial bank or the domestic bank is limited only to the commercial bank functions while the
universal bank or the expanded commercial bank is any commercial bank that conducts investment house
functions as an addition to its commercial bankingauthority and it may put investments in the equities of an allied
or non-allied enterprises. Allied enterprises may either be financial or non-financial. (p.73 par. 1-2)
7. Explain briefly how the following regulatory agencies intend to align their policies, roles, and
practices with global standards.
a. BSP – BSP has released Circular No. 975 in October 2017 to simplify the requirements of issuance
of bonds and commercial papers by banks and quasi-banks and Circular Nos. 984 and 985 in December 2017
toliberalize the regulatory framework governing foreign currency. They also set the target to Sept. 1, 2018 for
banks to comply with the updated guidelines for managing liquidity risk under the Basel III reform initiative's
Guidelines for Sound Risk Management and Supervision. (p.79 par.4)
b. Insurance Commission - they adopt the international reporting practices and is preparing for the
implementation of the Philippine Financial Reporting Standards by the FRS Council that will be applied to the
insurance companies. They also require keeping reserves to pay policyholders in the event of insolvency
and set standards for the orderly acquisition, merger, consolidation, sale of insurance portfolio, and exit from
the domestic insurance business should another financial crisis for subsidiaries and branches of the Global
Systematically Important Insurers. (p.80 par 1)
c. SEC – authorized the changes to the Company Code and Securities Regulation Code, and supports
the bill governing Collective Investment Plans to strengthen local laws and follow best practices from throughout
the world. They also study how virtual currencies regulations should be treated to protect the investors. (p.80
par 2)
8. Discuss briefly the following current risk in the Philippine Financial system
a. Repricing, refinancing, and repayment risks – Due to factors like the normalization of US monetary
policy, poor global development, a slowdown in international trade that harm the development of many
enterprises, and high levels of debt in various countries that make them vulnerable to an increase in interest
rates, concerns about financial stability have increased. It shows the extent to which domestic economies are
impacted by global changes, with the Philippines' tiny and open economy suffering the most. (p.85 letter A)
b. Developments in the credit market – Due to local intermediations are still continuing in peso-funded
but supported by foreign currency (FCY), the banking’s loan portfolio has increased significantly. The incentive
to borrow in Philippine peso and to invest these in US dollar instruments. In order to support the growth in
domestic currency loans, banks have raised their FCY debts. (p.86 letter B par.2)
c. Increasing demand for credit by corporate business and households – A major portion of the
incremental loans made by the banking system go to households and non-financial firms. The need to effectively
manage household debt outside of the formal sector is urgent because, according to the BSP Consumer
Finance Survey, households frequently borrow from banks to buy a residential area, a vehicle, and other items.
As a result, the greatest concern appears to be higher household leverage rather than an increase in consumer
loans. (p.86-87 letter C par.1-3)
10. What positive developments are occurring that could possibly reverse some unfavorable impact of
the COVID-19 pandemic?

a. Many companies are now on recovery mode, planning for the longer term by strengthening
their operation and having business resilience. (p.89D par 7)
b. Many companies considered optimization of supply chain resilience for long-term
operations, move low-cost production t o other countries, and adapting remote working
environment and have digital infrastructure. (p.89D par.8)
c. Having a new International Treaty for preparedness response in case of the future pandemic.
(p.89D par 9)
Review Questions: Chapter 7
2. Distinguish between public financial markets and corporate financial market.
- Public financial markets are the market where the national, state and local government borrows
funds for public activities while the corporate financial market is where the large corporations
raise their funds. (p.95 par.4)
 3. Distinguish between primary market and secondary market.
- Primary market is the original sale of securities by governments and corporations while the
secondary market, known as the Stock Market/Exchange, is where securities can be traded
after it is sold to the public. (p.101)
4. What are the basic functions of the financial markets? Explain them briefly.
- Financial markets act as effective way for the investors to place their money within companies.
Financial markets can be used for risk management, price manipulation, investment, money
transactions, and capital raising for businesses. (p.98-99)
5. What are the two principal sources of funds in the financial market? Explain briefly.
- The two principal sources of funds in the financial markets are debt instruments and equity
instruments. Debt instruments are the most commonly used; bonds or a mortgage are contractual
agreements by the borrower to pay the holder until a specific date. While equity instruments are
claims to share in net income and the assets of a business. (p.100 par 1-2)
6. Distinguish between the organized stock exchange and over-the-counter exchange.
- The organized stock exchange have physical location where the stock buying and selling
transaction happens in the stock exchange floor while the over-the-counter exchange the shares, bonds and
money market instrument are traded using a system of computer screens and telephones. (p.102 par 1-2)
12. What is the implication of the SEC granting a “Self-Regulation Organization” status to the
Philippine Stock Exchange?

- SEC granted the PSE a “Self-Regulatory Organization” SRO status, meaning that the bourse can
implement its own rules and establish penalties on erring trading participants(TPs) and listed companies. (p.105
par. 3)

REYES, JOHN PAUL V.

MGT7B
CBEA-01-401E