FINANCIAL MARKETS

ASSIGNMNENT WEEK 1
Discuss the following base on your understanding from our discussion:

1. Role of Financial System in the economy

The financial system plays a crucial role in the economy by facilitating the
flow of funds from surplus units (such as individuals and firms with excess
savings) to deficit units (such as individuals and firms in need of funds for
investment or consumption). It does this by providing various financial
instruments and services, such as banking, insurance, and capital markets,
which help to channel funds from savers to borrowers and allocate credit to
the most productive uses. The financial system also helps to reduce the risk
of financial transactions and provides a means for managing and transferring
financial risks. This contributes to the efficient allocation of resources and
promotes economic growth and stability.

Additionally, the financial system helps to facilitate price discovery and

determination of asset values through the pricing of financial instruments such
as stocks and bonds. This helps to allocate capital to its most productive uses
and supports investment decisions. It also enables businesses to raise capital
by issuing securities and provides individuals with a variety of savings and
investment options. The financial system is also a crucial player in the
payment and settlement process, facilitating the exchange of goods and
services. Furthermore, it supports the development of new financial products
and services, contributing to innovation and progress in the economy. Overall,
the financial system plays a key role in the functioning and growth of the
economy.

2. Primary & Secondary market

The primary market is where new securities, such as stocks and bonds,
are issued and sold to investors for the first time. In this market, issuers, such
as companies or governments, raise capital by issuing and selling securities
directly to the public. The proceeds from the sale of securities in the primary
market are used for various purposes, such as funding new projects or
expanding existing ones.

The secondary market is where previously issued securities, such as

stocks and bonds, are bought and sold among investors. In the secondary
market, securities are traded without the involvement of the issuer, and it
provides liquidity for the securities by enabling investors to buy and sell their
holdings as their investment needs or circumstances change. The secondary
market helps to provide a more efficient and flexible means for investors to
manage their portfolios and allocate their resources.

3. What is the BSP and what is it's role in the Financial Market?
 The Bangko Sentral ng Pilipinas (BSP) is the central bank of the
Philippines, tasked with the important role of maintaining stability in the
country's financial system.
The BSP plays a vital role in ensuring price stability and promoting a
sound financial system in the Philippines. One of the key functions of the BSP
is issuing currency and setting monetary policy, which helps to control inflation
and ensure the stability of the Philippine peso. The BSP also regulates the
banking sector, acting as a supervisor to ensure that financial institutions are
operating in a safe and sound manner and following regulations.
In addition, the BSP acts as a lender of last resort, providing support to
the banking system in times of financial stress. The BSP also provides
important financial services to the government, such as managing the
country's foreign exchange reserves and acting as a clearing house for
government transactions. Another important aspect of the BSP's role in the
financial markets is promoting financial literacy and inclusion. This includes
promoting access to financial services, especially for underserved sectors of
the population, and fostering the development of the Philippine economy.
Overall, the BSP plays a crucial role in maintaining the stability of the
Philippine financial system and supporting financial stability in the country. Its
various functions and responsibilities help to promote a sound financial
system and contribute to the growth and development of the Philippine
economy.