THE FINANCIAL SYSTEM

Financial System – describes collectively the

financial markets, the financial systems participants,
and the financial instruments and securities that are
traded in the financial market.
FUNCTIONS OF THE FINANCIAL SYSTEM

 To channel the funds from the savings units (lenders) to

the deficit units (borrowers).
 To provide a medium of exchange.
 To provide a mechanism for risk sharing.
 To provide a channel through which the central bank can
influence the economy, in general and the financial
system, in particular.
Multinational Financial System – refers to the collective
financial transfer mechanism that facilitates the movement of
money and profits between and among financial system
participants throughout the world.

With the advent of globalization, we have a multinational

financial system. These mechanism include transfer of prices
on goods and services traded internally and internationally;
intercompany loans and leading (speeding up) and lagging
(slowing down) payments, fees, and royalty charges wherever
they are located in the world; and dividend payments.
FUNCTIONS OF FINANCIAL MANAGERS

Fund Acquisition – a way of getting deposits and necessary

funds to finance projects and investments.
Fund Allocation – determining to which uses, projects, or
investments the acquired funds will be used.
Fund Distribution – the process by which necessary funds
are given to the projects or investments that need funds.
Fund Utilization – using the funds for its intended purpose.
FINANCIAL SYSTEM PARTICIPANTS

1. Households or Consumers
2. Financial Institutions/Intermediaries
3. Non-financial Institutions
4. Government
5. Central Bank
6. Foreign Participants
Households or Consumers – are generally described as the group that
receives income, majority of which typically comes from wages and
salaries. Such income is spent on goods and services, and part of it is
saved.

Financial Institutions/Intermediaries – are the firms that bridge the gap

between surplus units (SUs) or investors/lenders and deficit units (DUs)
or borrowers. They channel funds from lenders to borrowers. They
include depository institutions and non-depository institutions.

Non-Financial Institutions – are business other than financial institution

or intermediaries. They include trading, manufacturing, constructions,
extractive industries, and all firms other than the financial ones.
Government – means the national, provincial, municipal or city
governments. Each division has its heads and agencies that help in
running the division they are responsible for.

Central Bank – the Bangko Sentral ng Pilipinas and all other central
banks of the different countries are mandated to ensure that their
respective countries have a stable and healthy financial system.

Foreign Participants – refer to the participants from the rest of the

world - households, governments, financial and non-financial firms,
and central banks. Goods and services and financial instruments,
securities are exchanged across boundaries, as well as within
boundaries. International trade and finance are parts of globalization.