Financial System provides the platform by which funds are transferred from those entities that have

funds to invest to those entities that needs funds to invest

Can you see the difference between those that have and those that needs. This is just a recap from
our previous lesson. Those that have funds are the ones that spend less than their income and they are
what we call THE FUND PROVIDERS. While those that need funds experience fund shortage vecasue
they spend more than their income and they are what we call FUND DEMANDERS.
Mag recitation kit yana, What are the two routes where funds can flow?
Direct Financing- The borrower-spender borrows and deal directly with their supplier.
Indirect Financing- the borrowing activity between both parties happens though indirectly through the
intervention of a financial intermediary.
So, Nano man an financial intermediary? they act as 3rd party that facilitate the borrowing activity
between Lenders and borrowers.
This borrowing activity or transaction happened with the use of what we call cash and near cash.
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Cash- is money in physical form of currency such as Banknotes and Coins or these are the ready
money use for an exchange transaction.
Near-cash item is a term used to describe non-cash assets that are very liquid and that are easily
convertible into cash such as savings accounts, certificates of deposit (CDs), foreign currencies, money
market accounts, marketable securities, and Treasury bills (T-bills).
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Cash is used in an exchanged transaction that readily available or pag need mo andyan lang sa
wallet or bulsa mo. For example, kung bibili ka fishball dyan sa gawasan sa may Novo, hindi naman
pwedeng kukuha ka ng fishball pati kwek-kwek tapos ipambabayad mo yung atm card mo, bukod sa
sobra sobra na nga yung kinuha mo pahihirapan mo pa si kuya kung saang lupalop magwiwithdraw
para sa bente pessos mong binili.
Near Cash- although highly liquid, still, it will take time to convert it into cash. Like what I said kanina
sa example, if you have debit card pareho kunyari if you're a scholarship sa CHED, pinapa-open ka
nun ng savings account sa LANDBANK and then every sem may ilalagay sila dun sa account and then
ikaw pwede mong withdrawhin which is syempre pag winithdraw diba cash yung lalabas and that cash
can be used in your transactions. The word nearness of money refers to how much time will it take to
xconvert it into cash.
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Most people used cash and or near cash items as they are considered more efficient way to do
business as compared to the barter system.
Barter system- is simply defined as trading goods and services between two or more parties without
the use of money. Like for example, si San Miguel Corporation, magbibihgay sila ng supply of coffee
every month to the ABS-CBN now in exchange, the ABS-CBN will continously promote and advertise
the product of San Miguel Corporation. Through that the San Miguel Corporation will decrease their
alloted funds for the media campaign and may acquire new customers.
Pero, according to survey they still prefer the use of cash and near cash items kasinga mas madali
at mas malalaman nila yung value ng items nga nabenta or lumabas sa kanila.
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 Money:
1. Medium of Exchange- money serves as a medium through which goods and services are
exchanged. It can take various forms such as coins, banknotes.
2. Store of Value and Unit of Account- serves as a store of value by retaining its purchasing power
over time. This means that if you save money today, you can generally expect it to retain its value in the
future, allowing you to purchase goods and services at a later date.
3. Standard Measurement- serves as a standard of measurement by providing a common unit of
account that can be used to express the value of goods, services, and assets. Individuals and
businesses can more effectively assess the value of different items and make informed decisions about
how to allocate resources.
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Do you know this kind of coin?
I assume that you’re aware of what is this. Well, this is Bitcoin. Say hi too bitcoin. It is a
decentralized digital currency that operates without a financial system or government authorities.
As you all know, bitcoins are gaining popularity in digital financial system; but they are not regulated
in a specific country and are considered speculative assets. [Bitcoins and other cryptocurrencies are
not regulated in a specific country because they are decentralized digital assets that operate on a
global scale. Unlike traditional currencies issued by governments, which are regulated by central banks
and governments, cryptocurrencies are typically not tied to any specific country or jurisdiction] Some
developed countries allow Bitcoin to be used, such as the U.S., Canada, and the U.K.
Several countries, including China and Saudi Arabia, have made it illegal to use Bitcoin.
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Now, let's go back to Financial System, it is a network of institution, market, and contracts that bring
together lenders or providers and borrowers or demanders. They are the two main players of the
system. Diba, in our country or even in other country, there are households, firms or corporations, and
government. Now the three of theM can either be lenders or borrowers depending on their role in the
borrowing activity or transaction.
LENDERS- are those who believe that money that they have now has the pottential of snowballing in
the future; hence they lend it to a financial institution like a bank.
Borrowers- can be household that needs to buy a house or a car but does not have enough money
on hand or a car but it does not have enough money on hand to acquire it; a firm that needs more
capital to fund an asset to bring more income; or the government that typically spends more than it
owns.
The lenders and borrowers agree to fulfill their goals through exchange in three ways:
1. Bond Market, the banking system where depositors are considered lenders and those who loan
funds are considered borrowers. This bond market is also known as debt market, a financial market
which participant are provided wiht the issuance and trading of debt securities.
2. IOU or I owe you- Government may choose to increase its funds by issuing IOU, a written
acknowledgement of the debt of one party to another, promising to pay on a regular basis and the
principal at a certain date
3. Stock Market- a place where ownership in a company may be sold and brought. It is composed
of exchanges and over the counters where shares are issued and traded publicly. Rememeber that
changes in stock market may just be reactions to real or perceived changes in the performance of an
economy or of the company.
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Real Assets- something with intrinsic value due to its substance and properties. Examples of these
are valuable pieces of jewelry, machines or other physical assets that are used to produce products
and services to generate revenues.
Real estate- is defined as the land and any permanent structures, like a home, or improvesments
attached to the land, whether natural or man-made.
Commodity- are raw materials used to create the products consumers buy, from food to furniture to
gasoline or petrol. Commodities include agricultural products such as wheat and cattle, energy products
such as oil and natural gas, and metals such as gold, silver and aluminum.
- commodities like gold and silver may be considered financial asset or real asset depending
on the behavior in the marke
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Short term Instruments- mostly securities the mature in less than one year and are traded in
money market. Money market cater to fund demanders who need short-term fund from fund providers
who have excess short-term funds.
Long-term instruments- those mature more than a year and are traded in capital market. The
foundation of the capital market is made up by the dealers and brokers market which create a venue for
bond and st0ck transaction.
Financial derivative- are forms of financial instrument, a value of which is derived from another
instrument. Example is stock option, wherein the stock is the base and the option whould be its
derivative. It is tradable financial instrument based on an asset's underlying value.
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Investment management, also known as asset management, is the professional management of
securities and assets on behalf of individuals, institutions, or funds.
1. Investment management involves channeling funds because it aims to allocate capital in a way
that generates returns or achieves specific financial objectives for investors. By channeling funds into
various investment opportunities, such as stocks, bonds, or real estate, investment managers seek to
grow the value of the funds over time.
2. Investment management involves transferring and scheduling risks to ensure that an investment
portfolio is aligned with the investor's risk tolerance and financial goals.
3. the appropriation of investment classes is a fundamental aspect of investment management that
aims to achieve diversification, optimize returns, and manage risk for investors.
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In the economy, assets are being plotted by these players they are:
1. Firm- firms play a crucial role in the allocation and utilization of these assets. Firms acquire,
control, and deploy assets to produce goods and services, generate revenue, and create value for their
owners and stakeholders.
2.Government- the government is often seen as an entity that is limited by its budget constraint,
meaning it cannot spend more than its revenue allows without borrowing. This view is based on the
idea that the government's ability to generate revenue is ultimately constrained by the economy's
productive capacity and the tax base.
3. Financial intermediaries- Financial intermediaries are institutions that act as intermediaries
between borrowers (debtors) and lenders (creditors) in the financial markets. They play a crucial role in
facilitating the flow of funds between those who have excess funds (surplus units) and those who need
funds (deficit units).
4. Household:
Lending: Households can lend money to financial intermediaries by depositing funds into
savings accounts, certificates of deposit (CDs), or other types of interest-bearing accounts offered by
banks and credit unions. These funds are then used by the financial intermediaries to provide loans to
other borrowers, such as individuals, businesses, or governments.
Borrowing: Households also borrow from financial intermediaries to finance various
expenditures, such as buying a home (mortgage loans), purchasing a car (auto loans), or funding
education (student loans). They may also use credit cards, which are a form of borrowing from financial
institutions.
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2. Develop labor and employment
More manufacturing companies can boost their working capital, thereby they are able to
employ more individuals. Working capital is the difference between Current assets and current
liabilities. So, kun madugngan an working capital, a business can expand its operation, pareho san
pagdugang san ira production capacity, pag open bag o nga branch, or pwede lat nga mag explore sira
bag o nga product. Tungod sini nga pagdako san ira operation or expansion magkakamay ada
additional job oppurtunities para sa damo nga waray trabaho.
4. Trade Development
Advance business, both domestically and internationally, allows capital goods to be sold
through hire purchase and installement schemes.
Hire purchase- it is like an agreement of hiring goods.
Installment schemes- it is an agreement of sales
Like for example, i bought a car but instead of paying it in full, kulang ak syempre sa kwarta asya an
akon ginhimo, nag installment basis ak, the word installment basis can also be use in hire purchase. In
that scenario, if an ownership san kotse wara la gihap ma transfer sa akon unless mahuman ko an final
payment an tawag sadto is hire purchase. Now, if upon my first installement payment, i become the
owner of the car then that is what we call installment schemes. You see both of them have differences
but their similarity is that both of them are paid in installment basis.
6. Uphold Fiscal Policy
Financial System is regulated by Bangko Sentral ng Pilipinas, wherein laws and regulations
are enfirced to mitigate the risk of unwanted and speculative transactions and these are:
a. RA 3765- An Act to Require the Disclosure of Finance Charges in Connection with Extensions of
Credit
b. RA 6426- An Act Instituting a Foreign Currency Deposit System in the Philippines, and for other
purpose
c. RA 3591- An Act Establishing the Philippine Deposit Insurance Corporation
8. Foster Economic Integration
Economic integration aims to promote economic growth, enhance competitiveness, and
improve the overall welfare of the member countries by creating a more integrated and efficient
economic space. Examples of economic integration schemes include the European Union, ASEAN
(Association of Southeast Asian Nations), and MERCOSUR (Southern Common Market).
 10. Sustainable Macroeconomic Balance
A good financial system contributes to a balanced and sustainable economic growth by
providing businesses in all sectors with the financial resources and tools they need to thrive.