COLLEGE OF BUSINESS AND ACCOUNTANCY

MANUEL S. ENVERGA UNIVERSITY FOUNDATION - LUCENA CITY, PHILIPPINES

An Autonomous University
CHED CEB Res. 076-2009

FINANCIAL MARKETS (AE121)

Module 1
CASE STUDY
NAME: REGINA P. BASAN DATE: SEPTEMBER 21, 2021
PROGRAM AND YEAR: BSA - III PROFESSOR: IMELDA D. CABASCO

CLASS SCHEDULE: MWF 3:30-4:30 PM (C061)

CASE 1. Bank Orig is offering a 2% interest on their savings account deposits with
1.5% withholding/bank charges. Will you place your savings to Bank Orig or will you
rather go to a Credit Cooperative/Credit Union? State your reasons. *
I will place my savings to for Credit Cooperative, one reason is that credit cooperative
offers lower interest rates and high savings rates, emphasis on strong customer service. May have
low or no-fee accounts and services for customers. Compared to Banks with, potentially higher
interest rates on loans, less emphasis on personalized customer service and where most checking
and savings accounts come with high fees.
Credit unions look to serve their membership and tend to be more flexible when it comes
to customer needs. Votes regarding customer service issues are influenced by the account owners
the members of the credit union who have equal voting rights. Also, credit union membership is
smaller and better known to local branches, which helps facilitate establishing relationships with
branch managers and loan decision-makers. That can make it easier to get the loan you need. Of
course, some banks make consumer outreach a goal so you may also find good personal service at
a local bank branch. Credit unions typically offer lower fees, higher savings rates, and a more
hands-and personalized approach to customer service to their members. In addition, credit unions
may offer lower interest rates on loans. And it may be easier to obtain a loan with a credit union
than a larger impersonal bank. In addition, members of credit unions play an active role in it. Credit
union members get to vote on policies and decisions made by the financial institution. Hence, I
will go to credit unions due to its lower fees but higher savings rates.

CASE 2. As a concerned citizen, what concrete economic actions can you

contribute to your community during this time of pandemic.
As a concerned citizen of this country, the economic actions I can do to support our
country amidst academic through suggesting to more ways we can recover The Philippine Central
Bank, for its part, picked up on the trend and also pointed to the pandemic as the catalyst for
accelerating the digitalization of the financial industry. In the past months, digital payments rose
in both volume and value as people resorted to online transactions after the government imposed
a lockdown. Also, as we’re still in this pandemic, investing on internet connection will surely affect
the employees and its productivity.
 The World Bank noted that the Philippines’ high-speed Internet penetration is far below its
regional peers. The Philippines' download speed is one of the slowest at just half of the average
rate in Southeast Asia, and yet, one of the most expensive. This slow procurement might further
push back the expected date of widespread vaccination, which the Economist Intelligence
Unit forecasted to happen during the fourth quarter of 2023. This predicted time frame was the
latest among major ASEAN nations.

CASE 3. In the illustration provided in Module 1 starting with Amos bank,

summarize the actual process on how money is created explaining the
fundamental factor needed in creating money.
Based on the given module, Amos National Bank is not alone in the money creation process.
More money creation magic occurs because the loan to Lucy is borrowed for a reason, to spend,
to buy tires. To summarize, the process in which the banking system creates checkable deposits
by lending excess reserves. The total amount of checkable deposits is created by the banking
system depends on the number of excess reserves available and the reserve requirement ratio
specifying the reserves needed to back up deposits. The money creation process is the movement
of reserves from bank to bank, with each bank using excess reserves to make loans, then keeping
a fraction of the reserves to back up newly created deposits. The deposit expansion multiplier
captures the money creation process, indicating the number of checkable deposits created if the
banking reserve acquires a given number of excess reserves.

To explain, the fundamental factor in creating a money is the reserve ratio set by the Central
Bank. Fractional-reserve banking is what makes the money creation process possible. In this
example, banks keep reserves equal to 10 percent of their deposits. Each $10 of deposits is backed
by $1 of reserves. Or stated in a reverse way, each $1 of reserves is used to back $10 of deposits.
The key is the 10 to 1 ratio between deposits and reserves.

CASE 4. “Proponents of "green monetary policy" are proposing that central

banks include climate-related criteria in their collateral eligibility
frameworks, when conducting asset purchases and also in their
refinancing operations.[10] But critics such as Jens Weidmann are arguing
it is not central banks' role to conduct climate policy.” What is your
personal opinion on this? State your reasons/arguments.
In January 2020, the European Central Bank has announced, it will consider climate
considerations when reviewing its monetary policy framework. As for my opinion about this
matter, green monetary policy can be in charge to Central bank since it holds a huge resource
where climate policy can be tackled and address.
 As the broad impact of climate change comes into focus, the Federal Reserve can
incorporate climate-related risk into policy actions. The process is likely to be gradual,
given constraints on open market operations, but recent commentary by Fed governors
suggests that they are moving forward. We first review the channels, including output,
employment/productivity, and inflation, through which climate could affect the economy
and the Fed's dual mandate.
It is unclear whether it is within the Fed's mandate to explicitly pursue climate-related
objectives. Unlike some other central banks, the Federal Reserve has a very specific
mandate that leaves little room for interpretation.

In principle, the Fed's operational independence would allow it to make mitigating

climate change an intermediate objective in pursuit of its ultimate goals – maximum
employment and price stability. However, recent comments from Fed officials indicate
that this is not how they see it. A change in Fed leadership may alter the stance on
whether to use monetary policy to combat climate change, but limitations on the Fed's
toolkit are likely to constrain its ability to act. Climate change has the potential to impact
the real economy, financial risk, market prices, and in turn the conduct of monetary
policy. As a result, central banks around the world have begun considering their available
options to address the financial and economic risks of climate change. The ECB was the
first to implement a green shift in policy by proposing to adjust collateral, policy
portfolios, and bank capital at a measured pace. We expect the Fed may follow suit.

CASE 5. Make your own commentary regarding the proposed subject in the article below
stating the Pros and cons of having a gold standard for the economy. A gold standard is
better for the economy posted by Eric Jurado September 21, 2018, at 12:00 am
We wouldn’t have these inflation problems if the value of the Philippine peso remained
stable. That’s why many free-market economists advocate constructing a new gold standard—
setting the value of the peso based on a fixed quantity of gold, or at least having it fall within a
range of, say, P62,000 to P68,000 ($1,150 to $1,250) an ounce at current market prices.
Anchoring the peso to gold would restore stability to the market. It would sharply reduce the
role of government and politics in determining the value of the currency. Today, for example, a
country seeking to fund massive social and infrastructure spending will often do so by printing
more money. What happens? The added money in circulation ends up lowering the value of its
currency. Gold is exceptionally well suited to anchoring currency values because its intrinsic
value is constant. All the gold that has been mined is still in existence: gold cannot be destroyed.
Even a major find wouldn’t be large enough to dramatically alter prices. Thus, you don’t get
supply shocks and the kind of upheaval that, say, a typhoon might have on the price of rice. In a
report for the Cato Institute, University of Missouri economic historian Lawrence White wrote
that while gold is not perfect, studies have shown it to be the best way to create an orderly global
market.
 “A gold standard does not guarantee perfect steadiness in the growth of the money supply, but
historical comparison shows that it has provided more moderate and steadier money growth in practice
than the present-day alternative, politically empowering a central banking committee to determine growth
in the stock of fiat money. ”Fiat currency encourages inflation because governments can capriciously
print more money. The opposite is true of gold: in the years that the US maintained a classical gold
standard—from 1880 to 1914—inflation was virtually zero. In the old days, Washington was obligated
to convert to gold the dollars that were presented to it. This became a problem in the mid-1960s to early
1970s, when the Federal Reserve (the US central bank), attempting to lubricate economic growth, printed
too many greenbacks. It became impossible to maintain the dollar’s value at $35 an ounce. The US
abandoned the gold standard, as Lawrence White had observed, not because of any flaw in the system,
but because of politics. Former President Richard Nixon was under pressure to do something about
America’s balance of payments and trade deficits. For the gold standard to work today, the government
has to keep the value of the peso pegged to gold at a value—as previously mentioned—of P62,000 to
P68,000 per ounce. In today’s modern markets, the government doesn’t need piles of gold to maintain a
gold standard. Nor does the government need to promise to exchange gold at a fixed rate for pesos. All
the central bank has to do is look at the market price of gold: if it moves outside a certain narrow range,
the monetary authority should react by either tightening or loosening the money supply. Today, many
economists ridicule the gold standard as “crazy.” However, for centuries, gold was the touchstone of
money. From the days of American founding father, Alexander Hamilton, until the 1960s (except briefly
in 1933-34), it was an article of faith that, barring a major war, the dollar should be fixed to gold in order
to remain strong and stable. The biggest objection to gold is that the fixed nature of the system restrains
economic growth. But this thinking is based on the illusion that a central bank can create prosperity by
printing more money. Another objection is that a major discovery could increase the outstanding supply,
which will cause inflation. But experience demonstrates that even major finds such as the 1849 California
gold rush or the mammoth amounts of gold that Spain took out of Latin America led only to a mild
increase in prices, and then not for very long. The disruptions of such discoveries are minimal compared
to the damage politicians routinely wreak when a currency isn’t anchored to gold. An additional argument
against gold is that it caused the Great Depression of the 1930s. This is also a myth. The Great Depression
was the product of bad policy—excessive tariffs. Gold was the victim of the resulting global trade wars.
Amidst an atmosphere of heightened economic and political uncertainty, people around the world
exchanged their currencies for gold. With government supplies under pressure, nations led by Great
Britain broke the link to gold. Its central role was restored at the end of World War II with the creation
of the gold-based Bretton Woods international monetary system. Richard Nixon blew up the system in
1971 because of concern over the America’s increasing trade imbalance (he and his advisers mistakenly
thought an imbalance hurt the economy) and his declining poll numbers. So he succumbed to the
temptation to try to “fix” the situation by devaluing the dollar. His unilateral abandonment of Bretton
Woods and imposition of 90-day wage and price controls were the “Nixon shocks.” They left the US and
the world economy reeling and set the stage for the stagflation of the 1970s. Sadly, succeeding
administrations did not learn from this lesson. America and the world paid the price in 2008.The lesson:
Predictability and stability are necessary conditions for business investment in all markets. Stabilizing
the peso’s value through a tie with gold is the best way to create a stable foundation in currency markets.
What is your personal opinion on this? State your reasons/arguments.

To fully grasp the gold standard, it's important to understand how gold has been used
for centuries to set the standard for currency value, why it's fallen out of favor, and its pros and
cons. One the benefit of a gold standard is that a fixed asset backs the money's value. It also
provides a self-regulating and stabilizing effect on the economy: Under the gold standard, a
government can only print as much money as its country has in gold. It also discourages inflation
and debt: Inflation happens when too much money chases too few goods. The gold standard also
discourages government budget deficits and debt, which can't exceed the supply of gold.

Lastly, rewards productive nations: If a country receives gold when it exports, it has more
gold in its reserves. That means it can print more money, in turn boosting investment in its
profitable export businesses. The gold standard also prompted the Gold Rush in California and
Alaska during the 1800s.
On the other hand, A country's economy is dependent upon its supply of gold: The economy
is not reliant on the resourcefulness of its people and businesses. Countries without any gold are
at a competitive disadvantage. The U.S. never had that problem. It was the world's second-largest
gold-mining country after Australia. Most gold mining in the U.S. occurs on federally owned lands
in 12 westerns stated. Countries fixate on keeping their gold: Countries that are worried about gold
tend to ignore the more important task of improving the business climate. During the Great
Depression, the Federal Reserve raised interest rates. It wanted to make dollars more valuable and
prevent people from demanding gold, but it should have been lowering rates to stimulate the
economy.