PBON – PRELIMS NOTES

Stages in Exchange Development  Sampaguita Clear Window

 Serial Numbers
1. Direct Appropriation Stage
 Shadow Thread
- What early man’s needs was provided by its natural
 Vertical Clear Window
resources.
 Metallic Features
2. Barter/Direct Stage  Blue Iridescent Figure
- Goods and services directly exchange for other goods and
services Feel
-Barter ended man’s self-sufficiency and ushered in economic  Polymer Substrate
inter-dependence among men.
 Sampaguita Clear Window
3. Use of Commodity as Money  Tactile Dots
-Some goods because of its usefulness, beauty, scarcity, and  Embossed Prints
rarity commands a wide acceptance as medium of exchange.  Flying Eagle
4. Credit Money Tilt
- Money whose monetary value is more than its material or
commodity value  Enhanced Value Panel
Difficulties of Barter  Metallic Features
 Blue Iridescent Figure
1. Products do not have the same value.
2. No double coincidence of wants. ₱1,000 Peso Banknote ↓↓↓
3. Lack of store value
1. Polymer Substrate
4. It is cumbersome, inconvenient, and indivisible.
-Feel the smooth surface. The banknote is one
Types of Money continuous sheet with transparent areas.
2. Enhanced Value Panel
 Non-Metallic (rice, corn, wheat, salt, tea, cattle) -Tilt the note from left to right, and vice versa, to see
 Metallic Money (gold, silver, copper. the rolling-bar effect
 Intrinsic value or material value is equal it’s 3. Sampaguita Clear Window
monetary value. -Look through the small transparent window
depicting the Sampaguita
Money comes from the Greek Word “Moneta.” -Feel the transparent embossed line structure with the
- Any item or medium of exchange that symbolizes perceived text “BSP” inside the flower on the front face of the
value. note
-Anything which is used as a medium of exchange and is 4. Serial Numbers
widely accepted for the payment of goods and services, debts -Look for two (2) identical serial numbers composed
and obligations within a given territory without reference to of two (2) prefix letters and seven (7) asymmetric
the credit standing of the person who offers it. (increasing in size) digits
Purchasing Power 5. Tactile Dots
-Buying power to how much you can buy with your money. As -Feel the five (5) highly embossed dots intended to
prices rise, your money can buy less. As prices drop, your assist the elderly and the visually impaired.
money can buy more. 6. Embossed Prints
-Feel the raised link that is rough to the touch.
What gives money its purchasing power? -Front: Philippine Eagle portrait, “Republika ng
-The Law has given money Legal Tender Power. It is a Pilipinas”, signatures, and amount in words.
mandatory law that makes money accepted in payment for all -Back: Philippine map, South Sea Pearl, “Tubbataha
kinds of services. Reefs Natural Park”, T’nalak weave design,
denomination, and amount in words
Legal Tender Money 7. Shadow Thread
-Any form of money which according to law is acceptable for -Look for the 5-mm vertical band on either side of
all forms of obligations. the note when viewed against the light. The
-Legal Tender Money in the Philippines that are considered denomination value and “BSP” text appear in
are the Notes and coins issued by Bangko Sentral ng repeated series.
Pilipinas (BSP)
8. Vertical Clear Window
-Look through the large transparent vertical window
containing multiple security features
9. Metallic Features
Security Features of Philippine: Banknote -Look at the details of metallic images and symbols
in the vertical clear window
Look
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-Tilt the note to see color changes and dynamic
motion
 -Dynamic Waves. Wavy lines on the front
face of the note move when it is tilted back
and forth.
 -Republic of the Philippines (RP) Seal and
Mirrored Denomination. Both show
moving vertical-line effects when the note is
tilted back and forth.
 -Bangko Sentral ng Pilipinas (BSP) Logo
and 3D Denomination.
Front: BSP logo and 3D denomination
outline display a striking rainbow effect
when the note is tilted at different angles.
Back: Only the BSP logo is visible.
10. Blue Iridescent Figure
-Tilt and look to see the figure that displays varying
tones of blue when the note is viewed at different
angles
11. Flying Eagle
-Feel the transparent embossed outline of a stylized
flying eagle
Functions of Money
As a Medium of Exchange
 Money serves as a common medium or tool of exchange.
As a Standard Unit of Value
 Money serves as a measuring device in which the value of
goods and services can be expressed.
As a Store of Value
 Money has the quality to be kept or stored for future use.
As a Standard of Deferred Payment
 The money that we use as a medium of exchange is the
same money we can use to pay for our debts and
obligations.
Characteristics of Good Money
Portability
Money is made light, to be easily carried from one place to
another.
Stability
Value must not change every now and then and not susceptible
to fluctuations, devaluation, inflation, etc.
General Acceptance
Accepted by anyone in exchange for goods and services.
Cognizability
Design should not only be aesthetically beautiful but also
difficult to counterfeit.
Durability
Money must withstand longer periods of time against wear
and tear.
Homogeneity
Material used must be uniform in composition throughout
Divisibility
Divisible into small parts and likewise possible to recombine
these small parts into bigger denominations.
Uniformity
 Money must conform to certain standards to avoid
confusion (size, shape, and color).
Malleability
 Money can be melted and beaten into a desired shape to
conform to the specification of the government.
Forms of Money
Commodity Money
Money that is made up of precious metal or another valuable
commodity:
● Non-Metallic Money
● Metallic Money (Gold/Silver)
Currency (Bills and Coins)
 Domestic currency can only be used in its country of
origin. If it is used in another country, it needs to be
exchanged with the currency of the of that country.
Check
 Generally used by businesses and persons in conducting
business, as well as personal transactions
 It is a written order to a bank (drawee), by the person who
issues the check (maker or drawer) to pay someone whose
name is written on the face of the check (payee) a certain
amount of money on demand.
Definition of Finance
A term broadly describing the study and system of creating,
circulating, and managing money, investments, and other
financial instruments.
Financial Intermediaries
Institutions that acts as a middleman between two parties to
facilitate a financial transaction. They reallocate uninvested
capital to productive sectors of the economy through debts and
equity (i.e. commercial banks, investment banks, mutual
funds, and pension funds).
Asset Storage
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 Commercial banks provide safe storage and records r = Interest rate
of withdrawals, deposits, and direct payments they
have authorized n = Term of loan (in years)

Providing Loans Compound Interest

 They channel funds from depositors with surplus
cash to individuals who are looking to borrow money
Investments
 Savers can make larger investments by pooling funds
Compound interest or “interest on interest” is the interest on
savings calculated on both the initial principal and the
accumulated interest from previous periods.
Formula:

( )
nt
together by gaining access to a broader pool of r
Compound Interest (A) = P 1+
investors. n
Spreading Risk where:
 Commercial banks provide safe storage and records A = Future value
of withdrawals, deposits, and direct payments they
have authorized P = Principal

Economies of scope & scale r = Interest rate

 Intermediaries help create efficient markets and lower n = Number of times interest is compounded per year
the cost of doing business. offer the benefit of
t = Time in years
pooling risk, reducing cost, and providing economies
of scale, among others.
Interest

 Monetary charge for the privilege of borrowing

money expressed as a percentage rate over a period
of time. The amount of interest a person must pay is
often tied to their creditworthiness, the length of the
loan, or the nature of the loan.
Interest Rate

 The amount a lender charges a borrower and is a

percentage of the principal—the amount loaned.
 Interest rates may be fixed or may be variable or
"floating," meaning the rate may move higher or
lower over time.
Two common types of interest:

 simple interest (based on the principal amount)

 compound interest (based on principal and
previously-earned interest)

PHILIPPINE FINANCIAL SYSTEM

Simple Interest Financial System
Simple interest is an interest charge that borrowers pay lenders A financial system is a network of financial institutions, such
for a loan. It is calculated using the principal only and does as banks, insurance companies, and stock exchanges, that
not include compounding interest. permit the exchange of funds.
Formula: To allocate or match the supply of savings in the economy to
the users of those savings in a safe and efficient manner.
Simple Interest (A) = P x r x n
Elements of a Financial System
where:
 Financial Institution
A = Future value
P = Principal
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These are organizations that offer financial services which can
be a private or a government organization. These may include
financial intermediaries acting as middlemen.
 Financial Market
A mechanism that allows people to buy and sell financial
securities, including stocks and bonds, commodities. This
includes the Philippine Stock Exchange and other similar
groups dealing with money market operations.
 Financial Instruments
These are assets belonging to a person or company. This can
include cash, bonds, or other assets; such as property or items
of value.
 Financial Claims
These include the rights to receive money based on financial
instruments presented. These instruments serve as evidence for
claims either a debt claim or equity claims.
 Financial Services
These are offered by financial institutions. These include such
things as banking, insurance policies, loans and mortgages, as
well as pensions.
 Financial Practice
A sort of guideline around how financial institutions should
operate their services.
 Financial Transactions
These are the actual exchange of assets for goods or services -
paying for a new car, or a loan, for instance.
Types of Financial Markets
Capital Markets
Provide financing either through issuance of shares or debt
instruments.
Money Markets
Provide short-term debt financing and investment.
Commodity Markets
Facilitate the trading of commodities.
Foreign Exchange Markets
Facilitate the trading of foreign exchange.
Stock Market
Provide financing through issuance of shares and facilitate the
subsequent trading thereof.
The main difference is that preferred stock has a fixed,
guaranteed dividend, while common stock dividends can
change over time or even be discontinued.
 Common Stock
A representation of partial ownership in a company and is the
type of stock most people buy. Common stock comes with
voting rights, as well as the possibility of dividends and
capital appreciation.
 Preferred Stock
A class of stock with preferences over common shares—
higher claim on assets and earnings than common stock has,
including distribution of dividends and corporate assets upon
dissolution of the corporation.
Bond Market
Provide financing through the issuance of bonds and facilitate
the subsequent trading thereof.
Bond market is by far the largest securities market in the
world, providing investors with virtually limitless investment
options.
Primary Markets
Primary bond markets include the direct selling of new bonds
to investors by issuers. New bonds are issued in primary bond
markets. New bonds are also referred to as ‘new issue’
markets.
Secondary Markets
Secondary bond markets involve the trading of existing bonds
among investors. Often significantly more liquid than main
bond markets allowing investors to purchase and sell bonds at
agreed-upon prices.
Instruments Traded in the Money Market
 Treasury Bills
Treasury bills are sold at a discount to their face value, and the
difference between the discounted purchase price and face
value represents the interest rate.
 Commercial Paper
Unsecured loans issued by large institutions to finance short-
term cash flow needs, such as inventory and accounts
payables. It is issued at a discount, with the difference between
the price and face value of the commercial paper being the
profit to the investor.
 Certificate of Deposit
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Issued directly by a commercial bank, but it can be purchased
through brokerage firms. It comes with a maturity date
ranging from three months to five years and can be issued in
any denomination.
 Repurchase Agreements
A short-term form of borrowing involves selling a security
with an agreement to repurchase it at a higher price at a later
date.
Commodity Market
A commodity market is a marketplace for buying, selling, and
trading raw materials or primary products.
 Hard Commodities
Hard commodities include natural resources that must be
mined or extracted, such as gold, rubber, and oil
The BSP is now 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 (Governor is the CEO).
Functions of the Bangko Sentral ng Pilipinas (BSP)
 Supplier of Money
BSP is the only one of the financial institutions who has the
rights to produce, print out paper bills and mint coins.
This is enacted to ensure the uniformity in design and content
of money, for the people to prevent the circulation of
counterfeited/fake money.
 Money Manager

 Soft Commodities
Soft commodities are agricultural products or livestock, such
as corn, wheat, coffee, sugar, soybeans, and pork.
Commodities have two general pricing forms: spot prices in
the physical markets and futures prices for later delivery.
General Markets --- Trade many commodities.
The BSP manages the amount of money available to the
public to keep prices from increasing more than usual in
preservation of the value of money and earnings, and savings
are not eroded by abnormal increases.
BSP do not easily print out money, they need to know first
the state of our economy.

Specialized Markets---Trades only one commodity

 Bank of All Banks

Banks are required to have fund reserved to BSP to protect

its creditors.

The BSP grants loans to and accepts deposits only from

Commercial Banks Thrift Banks
Private
banks.
Rural Banks
Banking
It lends cash to banks in times of national or local
Institution
Development Bank Land Bank of the
emergencies or when stability of banks is at risk.
of the PH (DBP) Philippines
Bangko Government BSP regularly monitors and examines the operations of
Sentral ng Philippine Veterans
Pilipinas Bank (PVB) banks as part of its role to supervise all registered banks in the
(BSP)
country.
Private
Non-Bank Financial
Institution  Main Bank of the Gov’t
GSIS
Government The BSP is the official depository of the government.
SSS
Some of the tax collections, proceeds of the sale of
government securities and foreign loans are deposited with
BSP.

Likewise, when the government needs to repay its foreign

Bangko Sentral ng Pilipinas debts or disburse money to pay expenses, it withdraws funds
from BSP.
The Bangko Sentral ng Pilipinas (BSP) was created by the
Republic Act No. 7653, otherwise known as the New Central Private Banking Institution
Bank Act of 1993. The bank began formal operation on July
 Commercial Banks
3, 1993.
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Covers the widest range of functions among all financial
intermediaries.
Their services include receiving, collecting, transferring,
paying, lending, investing, dealing, exchanging and handling
money, safe deposit, custodianship, agency and money claims
domestically and internationally.
 Rural Banks
Regional banks operate primarily to serve the needs of the
people in the provinces and sub-urban areas.
Rural Banks fulfill the investment function by allowing small
farmers to finance their needs through the granting of loans for
capital or other uses.
 Thrift Banks
Are savings and mortgage banks, stock savings and loan
associations, and private development banks.
They grant loans, invest in readily marketable bonds and other
debt securities, but they cannot engage in international
banking operations.
Government Banking Institution
 Development Bank of the Philippines
Tasked with the development and expansion of agricultural
industry and promoting the establishment of private
development banks.
Its lending activities are concentrated on the development
projects such as agriculture, industry and low cost – housing.
 Land Bank of the Philippines
Provide timely and adequate financial support to the Agrarian
Reform Program.
Its lending activities are geared primarily towards helping
farmers acquire land under the agrarian reform program, as
well as finance the cultivation of these lands and marketing of
the produce.
 Philippine Veterans Bank
A medium- sized commercial bank owned by the Philippine
World War II veterans and their families and caters to both
corporate and retail financial markets.
As part of its charter, it allocates 20% of its annual net income
for the benefit of its shareholders.
Private Non-Bank Institutions
 Investment Houses
Companies engage in the underwriting of securities of other
corporations.
 Investment Companies
Financial institutions that raise funds in the capital market by
selling their own securities
 Financing Companies
Financial institutions that raise funds in the capital market by
selling their own securities
 Security Dealers/Brokers
Financial institutions that raise funds in the capital market by
selling their own securities
 Pawnshop
Lends money on personal property delivered as security for
loan.
 Trust Corporations
Act as trustee or administrator of any property or trust, and
deposit.
 Insurance Companies
Provides a mechanism for distributing equitably losses among
a large number of persons who are subject to a particular risk.
 Fund Managers
Performs quasi-banking functions engaged in the
administration and management of property or money.
 Lending Investors
Receive funds from one group of people and make available
or lend these funds to another person or entity who cannot
borrow from banking institutions.
Government Non-Bank Financial Institutions
 Government Service Insurance System (GSIS)
Entrusted with the administration of a life insurance fund and
benefits to government employees in the country.
It provides social insurance and security benefits to members
and has supported financially a wide range of economic
development projects, both government and private sector.
 SOCIAL SECURITY SYSTEM (SSS)
Grants to its members, those from private sector, benefits such
as sickness, disability, death, and old-age pension.
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Additional benefits have been incorporated into the including
hospitalization benefits, employees’ compensation benefits
and maternity benefits.
Issues Affecting Financial Institutions
 Regulatory Compliance
The ever-changing regulatory environment poses a constant
challenge for financial institutions of all types.
 Security Breaches
Battling fraud, data breaches, and other cybersecurity threats
feels more daunting as each year goes by
 Customer Expectations
Changing customer expectations reinforce the impact of
service quality, highlighting the influence of technology.
 Disruptive Technologies
Disruptive technologies can reshape entire industries,
including finance. (i.e. blockchain technology)
 Increasing Competition
The banking industry is facing increasing competition from
new digital players.
 Economic Instability
Economic instability or market fluctuations can lead to
increased credit risk and reduced profitability.
Monetary Policy
The BSP's main responsibility is to formulate and implement
policy in the areas of money, banking and credit with the
primary goal of preserving price stability.
 Price stability refers to a condition of low and stable
inflation.
o By keeping price stable, the BSP helps
ensure strong and sustainable economic
growth and better living standards.
The primary objective of the BSP's monetary policy is to
promote a low and stable inflation conducive to a balanced
and sustainable economic growth.
Monetary Policy Report (MPR)
MPR was launched in February 2022.
It replaces the quarterly publication of the Inflation Report
and serves as the flagship BSP publication on monetary policy.
The MPR provides the public with a detailed view of the
BSP’s forecasts as well as guidance on the likely direction of
monetary policy over the near term.
TYPES OF BUSINESS ORGANIZATION
Business Organization
An establishment intended to carry commercial business by
producing goods or services and meet the customers' needs.
Most of the organizations have a standard such as social
structure, purpose goals, utilization of resources, rules and
regulations, etc.
Three Main Types:
Sole proprietorship, partnership, and corporation (also include
cooperatives and non-profit organizations)
Types of Business Organization
Sole Proprietorship
The Philippine law defines sole proprietorship as a business
structure owned by a lone individual who has complete
control/authority of its own and holds all the assets, personally
owes and answers to all liabilities and losses.
Partnership
The Philippine Civil Code provides for a definition of a
partnership as follows: Art. 1767. By the contract of
partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Corporation
A corporation is an artificial being created by operation of
law, having the right of succession and the powers, attributes,
and properties expressly authorized by law or incidental to its
existence.
Types of Partnership
General Partnership
Easiest and cheapest type of partnership to form. Two or more
general partners own it, with joint and several legal liabilities
for all debts and obligations. They jointly manage and control
the business, simple to dissolve.
Limited Partnership
Type of partnership that limits the legal liability of some
partners for debts and obligations. At least one limited partner
is a passive contributor of cash and assets.
Limited Liability Partnership
An extension of a general partnership that limits the legal
liability of all partners. General partners in this type of
partnership have protection from the wrongful acts of the other
partners, such as negligence, misbehavior, and other
unprofessional conduct.
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Corporations
A legal entity that is separate and distinct from its owners.
Under the law, corporations possess many of the same rights
and responsibilities as individuals.
Stock
Or equity, is a security that represents the ownership of a
fraction of the issuing corporation.
Growth of Corporations
Mergers
Combinations of two or more corporations into a larger
corporation. They are closely watched by the government to
prevent the creation of monopolies.
Types of Mergers
Horizonal Merger
A merger occurring between companies in the same industry.
 Disney+ and HotStar
 Facebook, WhatsApp, Instagram, and
Messenger
Vertical Merger
Merger between two or more companies that produce separate
services or components along the same supply chain. A way
for companies to significantly cut costs, increase profits,
expand their market, and turn their focus on bigger goals of
improving their company.
 eBay and PayPal
 Globe and Innove
 Conglomerate
A company that owns a controlling stake in smaller companies
—independent operators in similar, but sometimes unrelated,
industries (i.e. Meta, Google, Unilever, Ayala, SM, Aboitiz,
etc.)
Multinational Corporations
Any corporation that is registered and operates in more than
one country at a time. Generally, the corporation has its
headquarters in one country and operates wholly or partially
owned subsidiaries in other countries. Its subsidiaries report
to the corporation's central headquarters (i.e. Apple Inc.,
Microsoft, Amazon, Coca-Cola, etc.).
 Cooperatives
A cooperative is an association of persons that is owned and
controlled by the people to meet their common economic,
social, and/or cultural needs and aspirations through a jointly
owned and democratically controlled business (enterprise).
 Cooperative Development Authority (CDA)
A proactive and responsive lead government agency for the
promotion of sustained growth and full development of the
Philippines cooperatives for them to become broad - based
instruments of social justice, equity and balanced national
progress.
 Non-Profit Organizations (NPOs)
A nonprofit designation and tax-exempt status are given only
to organizations that further religious, scientific, charitable,
educational, literary, public safety, or cruelty-prevention
causes or purposes. Examples of nonprofit organizations
include hospitals, universities, national charities, churches,
and foundations.
 Non-Profit Organization in the Philippines
In the Philippines, not-for-profit organizations (NPOs) are
typically organized as "non-stock corporations" registered
under the Corporation Code.
 UNICEF Philippines; Philippines World Vision;
Dream Big Pilipinas; The Green Earth Heritage
Foundation; Bukas Palad Foundation of the
Philippines, Inc.; Philippine Center for
Investigative Journalism; etc.
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