1. What are the differences between the bond market and stock market?

A bond market is a marketplace for debt securities. It enables the distribution of funds
from savers or investors to issuers seeking funds for projects or other operations. The bond
market includes both government and business issued debt securities. Bond market, which is also
known as the debt market, performs an important function in the economy as they enable
corporations and governments to acquire funds to finance their operations. Bonds issued by the
national government and commonly used to fund infrastructure projects and pay off national
debts.
On the other hand, the stock market is a widely followed financial market where equity
instruments such as common stock are traded. Stock market is an ecosystem where individuals
buy and sell shares of a publicly listed company. There are two main kinds of stocks: the
common stocks and the preferred stocks. Companies sell “shares” or a piece of ownership to a
primary market in order to raise capital for the business. The trade in the stock market begins
when buyers place a bid on the stocks they prefer to buy. Eventually these stocks are sold in the
market at either a loss or a gain. The stock market is a vital component of the global economy as
it provides companies with access to capital by selling shares of stock to the public, and it also
provides investors with the opportunity to earn a return on their investment.

2. Why does a well-performing financial market affect economic growth positively and vice-
versa? Is it always true? Explain.
Financial markets play a critical role in the distribution of financial resources in the
economy. This system allows capital to be allocated more efficiently to the continuous
restructuring and development of the economy. In a well-performing financial market, lender-
savers who have surplus funds channel their resources to the borrower-spenders, or those who
are in need of financing. This system creates an opportunity to have a competitive market that
will eventually facilitate economic growth. An efficient financial market also allows us to
maintain an increasing quality of life via different financial instruments. Through these
instruments, people can save and transfer their surplus resources to the future and be able to
smooth their consumption throughout their lifetimes. Lastly, a wider financial market lessens the
risk of fluctuating prices and economic collapse through risk sharing. Financial instruments are
created and traded in financial markets to facilitate this risk sharing. However, while every
country dream of achieving a well-developed financial market, the complexity that comes with it
requires extensive regulation and oversight. Because financial markets are interconnected, the
failure of one market can potentially lead to multi-faceted effects to other markets and the entire
economy.

3. What do you think is the most important financial institution in the Philippines? Why?
The Bangko Sentral ng Pilipinas (BSP) is the most integral financial institution in the
Philippines. The BSP is generally the body with independent autonomy to inject money and
execute monetary policy and banking regulation to promote a healthy monetary situation for the
country. The BSP keeps the economy functioning by lending money to commercial and rural
banks, regulating money supply and keeping the inflation steady.
BSP is the bank of all banks in the Philippines. One of its primary jobs is to print money
and deposit it to different financial intermediaries in the country. This prevents commercial
banks from going bankrupt in the events of economic slumps or recessions, securing the savings
of bank customers. Another integral function of the BSP is to regulate the money supply that is
circulating by implementing monetary policies. Central banks can either increase the money
supply in the economy through purchasing government bonds during expansionary monetary
policy, or decrease the money supply in the country by selling bonds, which commonly happens
when contractionary monetary policy is implemented. The BSP also steadies the movement in
average prices by setting the interest rate. When a country is experiencing a spike in inflation, the
BSP raises the interest rate so people in debt-fueled economies spend less, thus inflation should
decline. The competency of the central bank in executing all of its functions directly influences
the country's economic success.

4. Do you think that Filipinos are knowledgeable about the financial market? If so, explain.
No, Filipinos are not adequately knowledgeable about the financial market. In a 2021
survey conducted by the Banko Sentral ng Pilipinas (BSP), only two percent (2%) of Filipinos
were able to correctly answer all the six (6) basic financial literacy questions which measured
their knowledge of financial concepts and principles such as risk-return tradeoff, diversification,
inflation, and interest rates. Furthermore, the survey revealed that Filipinos have minimal
awareness of digital financial products and services. In particular, less than half of respondents
were aware of virtual currency/cryptocurrency, electronic/mobile banking, and online/mobile
payments. In this digital era, interactions in financial markets predominantly take place in digital
spaces, and these findings effectively demonstrate where Filipinos currently stand in terms of
familiarity to financial markets. Given that even just the mere awareness of basic financial
concepts and systems runs short among most Filipinos, common knowledge of the financial
market among the public seems unlikely at present.

Refences:

Bangko Sentral ng pilipinas inclusive finance. Bangko Sentral ng Pilipinas. (n.d.). Retrieved
February 15, 2023, from
https://www.bsp.gov.ph/SitePages/InclusiveFinance/InclusiveFinance.aspx

Mishkin, F. S. (2019). The Economics Of Money, Banking, And Financial Markets (12th ed.,
Vol. 1). Pearson Education.