Detailed Notes on Capital Markets Module 1

Module 1 Overview

  • Introduction to the Financial System
  • Focus on Bangko Sentral ng Pilipinas (BSP) and Monetary Policies
  • Review of Financial Markets
  • Introduction to Financial Instruments
  • Includes lesson exercises, quizzes, and assignments

Module 1 Learning Objectives

By the end of the module, students should be able to:

  1. Identify different participants in the financial system and their roles
  2. Explain monetary policy and its role in economic development
  3. Understand financial instruments

Course Content for Module 1

Activities and Time to Complete

  • Lecture Discussion on BSP and Monetary Policies - 45 minutes
  • Lecture Discussion on Financial Markets Review - 15 minutes
  • Lecture Discussion on Financial Instruments - 30 minutes
  • Quick Review - 15 minutes
  • Activity 1 - 30 minutes
  • Summative Quiz - 15 minutes

Financial System

  • Definition: Encompasses financial markets, participants, and instruments
  • Functions:
    • Channels funds from savers to borrowers
    • Provides a medium of exchange
    • Mechanism for risk-sharing
    • Channel for central bank influence
  • Participants in the Financial System:
    1. Households: Wage earners who save leftover income
    2. Financial Institutions: Firms bridging lenders and borrowers
    3. Non-Financial Firms: Businesses like trading, manufacturing, etc.
    4. Government: All levels from local to national
    5. Central Bank: Governing body of financial system (e.g., BSP)
    6. Foreign Participants: International players in the economy

Bangko Sentral ng Pilipinas (BSP)

I. Banking Institutions

  • Private Banking Institutions:
    1. Commercial Banks (Ordinary, Universal)
    2. Thrift Banks (Savings & Mortgage, Development, Loan Associations)
    3. Rural Banks
  • Government Banking Institutions:
    1. Land Bank of the Philippines
    2. Development Bank of the Philippines
    3. Al-Amanah Islamic Investment Bank

II. Non-Bank Financial Institutions

  • Private:
    1. Investment Companies
    2. Finance Companies
    3. Securities Dealers/Brokers
    4. Pawnshops
    5. Fund Managers
    6. Insurance Companies
  • Government:
    1. Government Service Insurance System (GSIS)
    2. Social Security System (SSS)

Monetary Policy

  • Definition: Management of money supply and credit cost
  • Objective: Control overall demand for goods and services, and achieve price stability
  • Mechanism:
    • Contractionary Policy: Tightening money supply to fight inflation
      • Results in higher interest rates, less lending, and increased savings
    • Expansionary Policy: Loosening money supply to stimulate economy
      • Results in lower interest rates, more lending, and increased spending

Financial Instruments

  • Definition: Contracts giving rise to financial assets
  • Common types include stocks, bonds, and derivatives
  • Bonds: Debt securities issued by corporations/state to raise funds
  • Stocks: Represent ownership in a corporation

Conclusion

  • This module provides a foundational understanding of how the Philippine financial system, represented by the BSP, affects economic stability and growth through various financial participants and instruments.
  • Understanding these concepts is vital for future studies in finance and economics, particularly in relation to monetary policy and the roles played by different sectors in the financial landscape.