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Financial System
Classification of
Banks
Central Banks
issuing currency
Leader of Banking system and money
market of the country.
Bankers to the Government.
Aim-to maintain price and stability.
Commercial Banks
Undertakes all kinds of ordinary banking
business.
Provides money and credit for commercial
and trade activities.
Receives short and medium term deposits
from public and grant short term loans and
advances.
Supply working capital to industries.
Discount internal and foreign bills.
They
provides
agency
services
like
collection of cheques, dividends, interest on
investments, issue of drafts, letter of credit,
Co-operative Banks
Co-operative principles of mutual help and
assistance.
Grant short term loans to agriculturalist.
Market Regulation
Second building block, namely regulation of financial
markets. One of the key lessons from the crisis is that the
risks to market returns did not come mainly from shocks to
the real economy. The risks came from the financial sector
itself.
The financial structures that we thought were in place to
assess, absorb and neutralize risk were either
dysfunctional or worked to magnify volatility. Key factors in
creating this risk were opaque financial structures and procyclicality in financial markets. The lack of transparency in
many financial instruments meant that some market
players could exploit for their own, private benefit
information that was not generally available. Pro-cyclicality
acts as a formidable accelerator of financial trends.
Financial Decisions of
Household and
Corporations
Households in developing countries are not
simply consumers supplying factor inputs and
purchasing and consuming outputs. Many are also
engaged in production in both farm and non-farm
activities. There are often large timing differences
between inputs purchased and outputs sold, as
for farmers with infrequent harvests, and timing
differences between inputs acquired and revenue
received, as for businesses with trade credit. Thus
high frequency data are important for the study
of liquidity, the smoothing of consumption, the
protection of investment from cash flow
fluctuations, and the financing of budget deficits.
Roles of Financial
Markets
Capital Markets
A capital market is one in which individuals
and institutions trade financial securities.
Organizations and institutions in the public
and private sectors also often sell securities on
the capital markets in order to raise funds.
Thus, this type of market is composed of both
the primary and secondary markets.
Stock Markets
Stock markets allow investors to buy and sell
shares in publicly traded companies. They are
one of the most vital areas of a market
economy as they provide companies with
access to capital and investors with a slice of
ownership in the company and the potential of
gains based on the companys future
performance.
Bond Markets
A bond is a debt investment in which an
investor loans money to an entity (corporate or
governmental), which borrows the funds for a
defined period of time at a fixed interest rate.
Bonds are used by companies, municipalities,
states and U.S. and foreign governments to
finance a variety of projects and activities.
Money Market
The money market is a segment of the
financial market in which financial instruments
with high liquidity and very short maturities are
traded. The money market is used by
participants as a means for borrowing and
lending in the short term, from several days to
just under a year.
Derivatives Markets
The derivative is named so for a reason: its
value is derived from its underlying asset or
assets. A derivative is a contract, but in this
case the contract price is determined by the
market price of the core asset.
Non-Bank Financial
Institutions
Private Non-Bank
Institutions
Investment House/Bank
The term investment house is defined to
mean as any enterprise which engages in the
underwriting securities of other corporations.
Underwriting is the act or process of
guaranteeing the distribution and sale of
securities of any kind issued by another
corporation.
Securities Brokers/Dealers
Pursuant to the provisions of the revised
securities Act, no broker, dealer, or salesman
must engage in business in the Philippines as
such broker, dealer, or salesman or sell any
securities, including securities exempted under
the said law, except in exempt transactions,
unless he has been registered as a broker,
dealer, or salesman.
Credit Unions
A credit union is another type of savings
institution. It also has for its purpose the
inculcation of the habit of thrift, frugality, and
the idea of helping one another. A credit union
is also a membership institution. In some
instances it also does banking functions,
although its operations are under the
supervision and control of the cooperatives
Administration Office, it being one of the
different types of cooperatives existing in this
country.
The Pawnshops
Provide credit to small borrowers who are not
qualified to obtain small loans from other
financial institutions. In pawnshops, the cost of
borrowing and the terms of payment are
generally fair. Thus, as one of the components
of the countrys financial system, pawnshops
play a vital role in socio-economic development.
Trust Companies
A trust company is any corporation formed or
organized for the purpose of acting as trustee or
administering any trust or holding property in
trust or on deposit for the use, benefit or behoof
of others. Such corporation, with the approval of
others.
Non-Stock
Savings
and
Loan
Associations
A non-stock savings and loan association is a
corporation engaged in the business of
accumulating the savings of its members. The
membership of a savings and loan association
organized as a non-stock corporation is confined
to a well-defined group of persons. Such entity
is not authorized to transact business with the
general public.
Financing Companies
Financing companies are corporations or
partnerships, except those regulated by the
Bangko Sentral, the Insurance Commissioner,
and the Cooperative Administration Office which
are primarily organized for the purpose of
extending credit facilities to consumers and to
industrial,
commercial,
or
agricultural
enterprises.