St.

Ferdinand
College Ilagan,
Isabela College of
Accountancy

COURSE HANDOUT

Prepared by:

MARICEL A. PASCUA-RAMOS, MBA,

LPT
Asso. Prof. II
 MODULE 1 – FINANCIAL MARKET: AN OVERVIEW

FINANCIAL MARKETS: STRUCTURE AND ROLE IN THE FINANCIAL SYSTEM

The financial system plays the key role in the economy by stimulating economic growth,
influencing economic performance of the actors, affecting economic welfare. This is achieved
by financial infrastructure, in which entities with funds allocate those funds to those who
have potentially more productive ways to invest those funds. A financial system makes it
possible a more efficient transfer of funds. As one party of the transaction may possess superior
information than the other party, it can lead to the information asymmetry problem and
inefficient allocation of financial resources. By overcoming the information asymmetry problem
the financial system facilitates balance between those with funds to invest and those needing
funds.

According to the structural approach, the financial system of an economy consists of three
main components:

1) financial markets;

2) financial intermediaries (institutions);

3) financial regulators.

Each of the components plays a specific role in the economy. According to the functional
approach, financial markets facilitate the flow of funds in order to finance investments by
corporations, governments and individuals. Financial institutions are the key players in the
financial markets as they perform the function of intermediation and thus determine the flow
of funds. The financial regulators perform the role of monitoring and regulating the participants
in the financial system.
Financial markets studies, based on capital market theory, focus on the financial system, the
structure of interest rates, and the pricing of financial assets.

An asset is any resource that is expected to provide future benefits, and thus possesses
economic value. Assets are divided into two categories: tangible assets with physical
properties and intangible assets. An intangible asset represents a legal claim to some future
economic benefits. The value of an intangible asset bears no relation to the form, physical or
otherwise, in which the claims are recorded.

Financial assets, often called financial instruments, are intangible assets, which are expected
to provide future benefits in the form of a claim to future cash. Some financial instruments are
called securities and generally include stocks and bonds.

Any transaction related to financial instrument includes at least two parties:

1) the party that has agreed to make future cash payments and is called the issuer;

2) the party that owns the financial instrument, and therefore the right to receive the
payments made by the issuer, is called the investor.

Financial assets provide the following key economic functions.

● they allow the transfer of funds from those entities, who have surplus funds to invest to
those who need funds to invest in tangible assets;
● they redistribute the unavoidable risk related to cash generation among deficit and
surplus economic units.

The claims held by the final wealth holders generally differ from the liabilities issued by those
entities who demand those funds. Their role is performed by the specific entities operating in
financial systems, called financial intermediaries. The latter ones transform the final liabilities
into different financial assets preferred by the public.

WHAT IS A 'FINANCIAL MARKET'?

The financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial
markets are typically defined by having transparent pricing, basic regulations on trading, costs
and fees and market forces determining the prices of securities that trade.
Some financial markets only allow participants that meet certain criteria, which can be based
on factors like the amount of money held, the investor's geographical location, knowledge of
the markets or the profession of the participant.

● Classifications and functions of Financial Markets

Financial markets can be found in nearly every nation in the world. Some are very small, with
only a few participants, while others - like the New York Stock Exchange (NYSE) and the forex
markets - trade trillions of dollars daily.

Investors have access to a large number of financial markets and exchanges representing a vast
array of financial products. Some of these markets have always been open to private investors;
others remained the exclusive domain of major international banks and financial professionals
until the very end of the twentieth century.

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.

Any government or corporation requires capital (funds) to finance its operations and to engage
in its own long-term investments. To do this, a company raises money through the sale of
securities - stocks and bonds in the company's name. These are bought and sold in the capital
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
company's future performance.

This market can be split into two main sections: the primary market and the secondary market.
The primary market is where new issues are first offered, with any subsequent trading going on
in the secondary market.

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. Bonds can be bought and sold by investors on credit markets
around the world. This market is alternatively referred to as the debt, credit or fixed-income
market. It is much larger in nominal terms that the world's stock markets. The main categories
of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which
are collectively referred to as simply "Treasuries."

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.
Money market securities consist of negotiable certificates of deposit (CDs), banker's
acceptances, U.S. Treasury bills, commercial paper, municipal notes, eurodollars, federal funds
and repurchase agreements (repos). Money market investments are also called cash
investments because of their short maturities.

The money market is used by a wide array of participants, from a company raising money by
selling commercial paper into the market to an investor purchasing CDs as a safe place to park
money in the short term. The money market is typically seen as a safe place to put money due
the highly liquid nature of the securities and short maturities. Because they are extremely
conservative, money market securities offer significantly lower returns than most other
securities. However, there are risks in the money market that any investor needs to be aware
of, including the risk of default on securities such as commercial paper.

Cash or Spot Market

Investing in the cash or "spot" market is highly sophisticated, with opportunities for both big
losses and big gains. In the cash market, goods are sold for cash and are delivered immediately.
By the same token, contracts bought and sold on the spot market are immediately effective.
Prices are settled in cash "on the spot" at current market prices. This is notably different from
other markets, in which trades are determined at forward prices.

The cash market is complex and delicate, and generally not suitable for inexperienced traders.
The cash markets tend to be dominated by so-called institutional market players such as hedge
funds, limited partnerships and corporate investors. The very nature of the products traded
requires access to far-reaching, detailed information and a high level of macroeconomic
analysis and trading skills.

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. If that sounds complicated, it's because it is. The derivatives market adds yet
another layer of complexity and is therefore not ideal for inexperienced traders looking to
speculate. However, it can be used quite effectively as part of a risk management program.

Examples of common derivatives are forwards, futures, options, swaps and contracts-for-
difference (CFDs). Not only are these instruments complex but so too are the strategies
deployed by this market's participants. There are also many derivatives, structured products
and collateralized obligations available, mainly in the over-the-counter (non-exchange) market,
that professional investors, institutions and hedge fund managers use to varying degrees but
that play an insignificant role in private investing.

Forex and the Interbank Market

The interbank market is the financial system and trading of currencies among banks and
financial institutions, excluding retail investors and smaller trading parties. While some
interbank trading is performed by banks on behalf of large customers, most interbank trading
takes place from the banks' own accounts.

The forex market is where currencies are traded. The forex market is the largest, most liquid
market in the world with an average traded value that exceeds $1.9 trillion per day and includes
all of the currencies in the world. The forex is the largest market in the world in terms of the
total cash value traded, and any person, firm or country may participate in this
market.

There is no central marketplace for currency exchange; trade is conducted over the counter.
The forex market is open 24 hours a day, five days a week and currencies are traded worldwide
among the major financial centers of London, New York, Tokyo, Zürich, Frankfurt, Hong Kong,
Singapore, Paris and Sydney.

Until recently, forex trading in the currency market had largely been the domain of large
financial institutions, corporations, central banks, hedge funds and extremely wealthy
individuals. The emergence of the internet has changed all of this, and now it is possible for
average investors to buy and sell currencies easily with the click of a mouse through online
brokerage accounts.
 MODULE 2 – FUNDAMENTALS OF FINANCIAL MARKETS

FUNCTIONS OF FINANCIAL MARKETS

The arrows show that funds flow from lender-savers to borrower-spenders via two routes:
direct finance, in which borrowers borrow funds directly from financial markets by selling
securities, and indirect finance, in which a financial intermediary borrows funds from lender-
savers and then uses these funds to make loans to borrower-spenders.

Financial markets perform the essential economic function of channeling funds from
households, firms, and governments that have saved surplus funds by spending less than their
income to those that have a shortage of funds because they wish to spend more than their
income.

Those who have saved and are lending funds, the lender-savers, are at the left and those who
must borrow funds to finance their spending, the borrower-spenders, are the right.

The principal lender-savers are households, but business enterprises and the government
(particularly state and local government), as well as foreigners and their governments,
sometimes also find themselves with excess funds and so lend them out.

The most important borrower-spenders are businesses and the government (particularly the
federal government), but households and foreigners also borrow to finance their purchases of
cars, furniture, and houses.

In direct finance, borrowers borrow funds directly from lenders in financial markets by selling
them securities (also called financial instruments), which are claims on the borrower’s future
income or assets. Securities are assets for the person who buys them, but they are liabilities
(IOUs or debts) for the individual or firm that sells (issues) them.
Financial markets are critical for producing an efficient allocation of capital (wealth, either
financial or physical, that is employed to produce more wealth), which contributes to higher
production and efficiency for the overall economy. Indeed, when financial markets break down
during financial crises, as they did during the recent global financial crisis, severe economic
hardship results, which can even lead to dangerous political instability.

STRUCTURES AND ORGANIZATIONS OF FINANCIAL MARKETS

PRIMARY MARKET

☐ In the primary market, investors buy securities directly from the company issuing them,
while in the secondary market, investors trade securities among themselves, and the
company with the security being traded does not participate in the transaction.

☐ When investors purchase securities on the primary capital market, the company offering
the securities has already hired an underwriting firm to review the offering and created
a prospectus outlining the price and other details of the securities to be issued.

☐ Companies issuing securities via the primary capital market hire investment bankers to
obtain commitments from large institutional investors to purchase the securities when
first offered. Small investors are not often able to purchase securities at this point,
because the company and its investment bankers seek to sell all of the available
securities in a short period of time to meet the required volume and must focus on
marketing the sale to large investors who can buy more securities at once. Marketing
the sale to investors can often include a "road show" or "dog and pony show," in which
investment bankers and the company's leadership travel to meet with potential
investors and convince them of the value of the security being issued.

WHAT IS UNDERWRITING?

☐ Underwriting is the process by which investment bankers raise investment capital from
investors on behalf of corporations and governments that are issuing either equity or
debt securities. The word "underwriter" originally came from the practice of having each
risk- taker write his name under the total amount of risk he was willing to accept at a
specified premium.

IPO

☐ IPOs can be complicated because many different rules and regulations dictate the
processes of institutions, but they all follow a general pattern:
 1. 1. A company contacts an underwriting firm to determine the legal and financial details
of the public offering.

2. A preliminary registration statement, detailing the company's interests and prospects

and the specifics of the issue, is filed with the appropriate authorities.

The appropriate governing bodies must approve the finalized statement as well as a final
prospectus, which details the issue's price, restrictions and benefits, and is issued to
those who purchase the securities. This final prospectus is legally binding for the
company.

SECONDARY MARKET

☐ The secondary market is where securities are traded after the company has sold all the
stocks and bonds offered on the primary market.

☐ Markets such as the New York Stock Exchange (NYSE), London Stock Exchange or
Nasdaq are secondary markets.

☐ On the secondary market, small investors have a better chance of buying or selling
securities, because they are no longer excluded from IPOs due to the small amount of
money they represent. Anyone can purchase securities on the secondary market as long
as they are willing to pay the price for which the security is being traded.

☐ On the secondary market, an investor requires a broker to purchase the securities on his
or her behalf. The price of the security fluctuates with the market, and the cost to the
investor includes the commission paid to the broker. The volume of securities sold also
varies from day to day, as demand for the security fluctuates. The price paid by the
investor is no longer directly related to the initial price of the security as determined by
the first issuance, and the company that issued the security is not a party to any sale
between two investors.

Investment Bankers

An investment banker is an individual who works in a financial institution that is in the

business primarily of raising capital for companies, governments and other entities, or
who works in a large bank's division that is involved with these activities, often called an
investment bank.

Investment bankers may also provide other services to their clients such as mergers and
acquisition advice, or advice on specific transactions, such as a spin-off or
reorganization. In smaller organizations that do not have a specific investment banking
arm, corporate finance staff may fulfill the duties of investment bankers.
The Role of an Investment Banker

1. Identify risks associated with a project before the company moves forward.

2. Gives advice on how best to plan their development.

3. Serves as a facilitator between a company and investors when the company wants to
issue stock or bonds.

4. Assists with pricing financial instruments so as to maximize revenue and with navigating
regulatory requirements.

Investment Bankers must:

be very trustworthy.

abide by their firm's stipulated code of conduct and will generally sign a confidentiality
agreement.

There is a typical hierarchy of positions in investment banking, which is as follows, from

most junior to most senior: Analyst, Associate, Vice President, Senior Vice President, Managing
Director.

MONEY MARKET AND CAPITAL MARKET

MONEY MARKET

- Money market - in which only short-term financial instruments are traded.

- Money markets are used for a short-term basis, usually for assets up to one year.
- Money markets are a good place to "park" funds that are needed in a shorter time
period - usually one year or less.
- Instruments used in the money markets include deposits, collateral loans, acceptances
and bills of exchange.
- Provide a variety of functions for either individual, corporate or government entities.
- Liquidity is often the main purpose for accessing money markets.
- Plays a key role in ensuring companies and governments maintain the appropriate level
of liquidity on a daily basis, without falling short and needing a more expensive loan or
without holding excess funds and missing the opportunity of gaining interest on funds.
- Investors, on the other hand, use the money markets to invest funds in a safe manner.
- Considered low risk
CAPITAL MARKET

- Capital markets are perhaps the most widely followed markets. Both the stock and bond
markets are closely followed and their daily movements are analyzed as proxies for the
general economic condition of the world markets. As a result, the institutions operating
in capital markets - stock exchanges, commercial banks and all types of corporations,
including nonbank institutions such as insurance companies and mortgage banks - are
carefully scrutinized.
- Institutions operating in the capital markets access them to raise capital for long-term
purposes
- The buyers, or the investors, buy the stocks or bonds of the sellers and trade them.
- Investors are willing to take on more risk and have patience to invest in capital markets
- Financial instruments used in capital markets include stocks and bonds
- Offer higher-risk investments
- Offer higher returns
 MODULE 3 – FUNDAMENTALS OF FINANCIAL INSTITUTIONS

FINANCIAL INTERMEDIARY
What Is a Financial Intermediary?
A financial intermediary is an entity that acts as the middleman between two parties in a
financial transaction, such as a commercial bank, investment bank, mutual fund, or pension
fund. Financial intermediaries offer a number of benefits to the average consumer, including
safety, liquidity, and economies of scale involved in banking and asset management. Although
in certain areas, such as investing, advances in technology threaten to eliminate the financial
intermediary, disintermediation is much less of a threat in other areas of finance, including
banking and insurance.

KEY TAKEAWAYS
 Financial intermediaries serve as middlemen for financial transactions, generally
between banks or funds.
 These intermediaries help create efficient markets and lower the cost of doing business.
 Intermediaries can provide leasing or factoring services, but do not accept deposits from
the public.
 Financial intermediaries offer the benefit of pooling risk, reducing cost, and providing
economies of scale, among others.

How a Financial Intermediary Works

A non-bank financial intermediary does not accept deposits from the general public. The
intermediary may provide factoring, leasing, insurance plans or other financial services. Many
intermediaries take part in securities exchanges and utilize long-term plans for managing and
growing their funds. The overall economic stability of a country may be shown through the
activities of financial intermediaries and the growth of the financial services industry.

Financial intermediaries move funds from parties with excess capital to parties needing
funds. The process creates efficient markets and lowers the cost of conducting business. For
example, a financial advisor connects with clients through purchasing insurance, stocks, bonds,
real estate, and other assets. Banks connect borrowers and lenders by providing capital from
other financial institutions and from the Federal Reserve. Insurance companies collect
premiums for policies and provide policy benefits. A pension fund collects funds on behalf of
members and distributes payments to pensioners.

Benefits of Financial Intermediaries

Through a financial intermediary, savers can pool their funds, enabling them to make
large investments, which in turn benefits the entity in which they are investing. At the same
time, financial intermediaries pool risk by spreading funds across a diverse range of
investments and
loans. Loans benefit households and countries by enabling them to spend more money than they
have at the current time.

Financial intermediaries also provide the benefit of reducing costs on several fronts. For
instance, they have access to economies of scale to expertly evaluate the credit profile of
potential borrowers and keep records and profiles cost-effectively. Last, they reduce the costs
of the many financial transactions an individual investor would otherwise have to make if the
financial intermediary did not exist.

Source: https://www.investopedia.com/terms/f/financialintermediary.asp

TYPES OF FINANCIAL INTERMEDIARIES

Financial intermediaries fall into three categories: depository institutions (banks),

contractual savings institutions, and investment intermediaries.

Depository Institutions
Depository institutions (for simplicity, we refer to these as banks) are financial
intermediaries that accept deposits from individuals and institutions and make loans. These
institutions include commercial banks and the so-called thrift institutions (thrifts): savings and
loan associations, mutual savings banks, and credit unions.

Commercial Banks These financial intermediaries raise funds primarily by issuing checkable
deposits (deposits on which checks can be written), savings deposits (deposits that are payable
on demand but do not allow their owner to write checks), and time deposits (deposits with
fixed terms to maturity). They then use these funds to make commercial, consumer, and
mortgage loans and to buy government securities and municipal bonds.
Credit Unions These financial institutions are typically very small cooperative lending
institutions organized around a particular group: union members, employees of a particular
firm, and so forth. They acquire funds from deposits called shares and primarily make consumer
loans.

Contractual Savings Institutions

Contractual savings institutions, such as insurance companies and pension funds, are
financial intermediaries that acquire funds at periodic intervals on a contractual basis. Because
they can predict with reasonable accuracy how much they will have to pay out in benefits in the
coming years, they do not have to worry as much as depository institutions about losing funds
quickly. As a result, the liquidity of assets is not as important a consideration for them as it is for
depository institutions, and they tend to invest their funds primarily in long-term securities such
as corporate bonds, stocks, and mortgages.
Life Insurance Companies Life insurance companies insure people against financial hazards
following a death and sell annuities (annual income payments upon retirement). They acquire
funds from the premiums that people pay to keep their policies in force and use them mainly to
buy corporate bonds and mortgages. They also purchase stocks but are restricted in the
amount that they can hold.

Pension Funds and Government Retirement Funds Private pension funds and state and local
retirement funds provide retirement income in the form of annuities to employees who are
covered by a pension plan. Funds are acquired by contributions from employers and from
employees, who either have a contribution automatically deducted from their paychecks or
contribute voluntarily. The largest asset holdings of pension funds are corporate bonds and
stocks.

Investment Intermediaries
This category of financial intermediaries includes finance companies, mutual funds,
money market mutual funds, and investment banks.

Finance Companies Finance companies raise funds by selling commercial paper (a short-term
debt instrument) and by issuing stocks and bonds. They lend these funds to consumers (who
make purchases of such items as furniture, automobiles, and home improvements) and to small
businesses. Some finance companies are organized by a parent corporation to help sell its
product. For example, Ford Motor Credit Company makes loans to consumers who purchase
Ford automobiles.

Mutual Funds These financial intermediaries acquire funds by selling shares to many
individuals and use the proceeds to purchase diversified portfolios of stocks and bonds. Mutual
funds allow shareholders to pool their resources so that they can take advantage of lower
transaction costs when buying large blocks of stocks or bonds. In addition, mutual funds allow
shareholders to hold more diversified portfolios than they otherwise would. Shareholders can
sell (redeem) shares at any time, but the value of these shares will be determined by the value
of the mutual fund’s holdings of securities. Because these fluctuate greatly, the value of mutual
fund shares does, too; therefore, investments in mutual funds can be risky.

Hedge Funds Hedge funds are a type of mutual fund with special characteristics. Hedge funds
are organized as limited partnerships with minimum investments ranging from $100,000 to,
more typically, $1 million or more. These limitations mean that hedge funds are subject to
much weaker regulation than other mutual funds. Hedge funds invest in many types of assets,
with some specializing in stocks, others in bonds, others in foreign currencies, and still others in
far more exotic assets.
Investment Banks An investment bank is a type of intermediary that helps a corporation
issue securities. First it advises the corporation on which type of securities to issue (stocks or
bonds); then it helps sell (underwrite) the securities by purchasing them from the corporation
at a predetermined price and reselling them in the market. Investment banks also act as deal
makers and earn enormous fees by helping corporations acquire other companies through
mergers or acquisitions.

FINANCIAL REGULATORY AGENCIES IN THE PHILIPPINES

1. SECURITIES AND EXCHANGE COMMISSION

MANDATE

The Securities and Exchange Commission (SEC) or the Commission is the national
government regulatory agency charged with supervision over the corporate sector,
the capital market participants, and the securities and investment instruments
market, and the protection of the investing public. Created on October 26, 1936 by
Commonwealth Act (CA) 83 also known as The Securities Act, the Commission was
tasked to regulate the sale and registration of securities, exchanges, brokers,
dealers and salesmen. Subsequent laws were enacted to encourage investments and
more active public participation in the affairs of private corporations and enterprises,
and to broaden the Commission’s mandates. Recently enacted laws gave greater
focus on the Commission’s role to develop and regulate the corporate and capital
market toward good corporate governance, protection of investors, widest
participation of ownership and democratization of wealth.

SEC is the registrar and overseer of the Philippine corporate sector; it supervises
more than 600,000 active corporations and evaluates the financial statements (FS)
filed by all corporations registered with it. SEC also develops and regulates the
capital market, a crucial component of the Philippine financial system and economy.
As it carries out its mandate, SEC contributes significantly to government revenues.

FUNCTIONS:

Its
major functions include registration of securities, analysis of every registered security, and
the evaluation of the financial condition and operations of applicants for security issue. [6]
The functions of the SEC are defined in Section 5 of the Securities Regulation Code, and include
the following major areas:

 Supervision over all registered business entities in the country, including

suspensions and revocations of their registrations
 Policymaking with regard to the market in securities
 Control over and approval of security registration statements
  Power to investigate violations of securities laws and to impose sanctions for such
violations
 Power to issue subpoenas, punish for contempt, and issue cease and desist orders in
furtherance of its law enforcement mission

CHAIRMAN:

EMILIO B. AQUINO

2. INSURANCE COMMISSION

MANDATE

To regulate and supervise the insurance, pre-need, and HMO industries in accordance with the
provisions of the Insurance Code, as amended, Pre-Need Code of the Philippines, and Executive
Order No. 192 (s. 2015)

OBJECTIVES

 To promote growth and financial stability of insurance, pre-need, and HMO companies
 To professionalize insurance, pre-need, and HMO services, and develop insurance, pre-
need, and HMO consciousness among the general populace
 To establish a sound national insurance market
 To safeguard the rights and interest of the insuring public, pre-need and HMO customers

FUNCTIONS

1. Promulgation and implementation of policies, rules and regulations governing the

operations of entities engaged in insurance, pre-need, and HMO activities as well as
benevolent features
2. Licensing of insurance, reinsurance companies, its intermediaries, mutual benefit
associations, trusts for charitable uses, pre-need companies, pre-need intermediaries,
and HMO companies
3. Conducting insurance agent’s examinations, as well as processing of reinsurance treaties
and request for investments of insurance companies
4. Examination/verification of the financial condition and methods of doing business of
entities engaged in insurance business, pre-need, mutual benefit associations, trusts for
charitable uses, and HMO companies
5. Evaluation and preparation of statistical reports, studies, researches, annual reports,
and position papers relative to insurance, pre-need matters, and HMO matters
6. Review of premium rates imposed by life and non-life companies, mutual benefit
associations; statistical reports of adjusters to determine compliance with established
standards.
 7. Adjudication of claims and complaints involving loss, damage or liability incurred by an
insurer under any kind of policy or contract of insurance or suretyship;
8. Review and approval of all life and non-life policies, pre-need, and HMO plans before
sale to prospective clients.

Chief-of-Staff

Atty. Czarina J. Pablo-Nepomuceno

IC Division Manager

3. BANGKO SENTRAL NG PILIPINAS

The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Republic of the Philippines. It was
established on 3 July 1993 pursuant to the provisions of the 1987 Philippine Constitution and
the New Central Bank Act of 1993. The BSP took over from Central Bank of Philippines, which
was established on 3 January 1949, as the country’s central monetary authority. The BSP enjoys
fiscal and administrative autonomy from the National Government in the pursuit of its
mandated responsibilities.

MANDATE, FUNCTIONS AND RESPONSIBILITES

 Monetary policy
 Monetary operations
 Systematic risk management
 Financial supervision
 Payments and settlements system oversight
 Currency management
 Inclusive finance
 Loans and credit operations
 International reserves management
 International operations
 International economic cooperation
 Economic education

BSP Governor:

Benjamin E. Diokno
4. PHILIPPINE DEPOSIT INSURANCE CORPORATION

PDIC is a government instrumentality created in 1963 by Republic Act 3591, as amended, to

insure the deposits of all banks. PDIC exists to protect depositors by providing deposit insurance
coverage for the depositing public and help promote financial stability.

PDIC is tasked to strengthen the mandatory deposit insurance coverage system to generate,
preserve, maintain faith and confidence in the country's banking system; and protect it from
illegal schemes and machinations.

Public Policy Objectives

PDIC was established to promote and safeguard the interests of the depositing public by way of
providing insurance coverage on all insured deposits. PDIC also aims to strengthen the
mandatory deposit insurance coverage system to generate, preserve, and maintain faith and
confidence in the country's banking system, and protect it from illegal schemes and
machinations.

Mandates
Consistent with its public policy objectives, the PDIC has the following mandates:

I. Deposit Insurance. PDIC provides a maximum deposit insurance coverage of PhP500,000

per depositor per bank. To pay claims on insured deposits, PDIC builds up the Deposit
Insurance Fund (DIF) primarily through assessments of banks at an annual flat rate of
1/5 of 1% of their total deposit liabilities.
II. Receivership of Closed Banks. PDIC proceeds with the liquidation process upon order of
the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). The assets of the closed
bank are managed and eventually disposed of to settle claims of creditors in accordance
with the preference and concurrence of credits as provided by the Civil Code of the
Philippines.

Carlos G. Dominguez III

CHAIRMAN
Secretary, Department of Finance

5. DEPARTMENT OF FINANCE

The Department of Finance (DOF) is the government’s steward of sound fiscal policy. It
formulates revenue policies that will ensure funding of critical government programs that
promote welfare among our people and accelerate economic growth and stability.
The Department of Finance (DOF) is responsible for the management of the government’s
financial resources. Its duties include policy formulation, revenue generation, resource
mobilization, debt management, and financial market development. The DOF is also tasked
with the rationalization, privatization, and public accountability of corporations and assets
owned, controlled, or acquired by the government.

Department Secretary:

Carlos “Sonny” Dominguez

6. PHILIPPINE STOCK EXCHANGE

The Philippine Stock Exchange (PSE) is the only stock exchange in the Philippines. It is one of the
oldest stock exchanges in Asia, having been in continuous operation since the establishment of
the Manila Stock Exchange in 1927. It currently maintains a trading floor at the PSE Tower in
Bonifacio Global City, Taguig City. The PSE is composed of a 15-man Board of Directors with Jose
T. Pardo as Chairman.

7. BUREAU OF TREASURY

The Bureau of the Treasury (BTr) acts as principal custodian of the financial assets of the
national government. It makes funds available for various government programs and projects. It
assists in the formulation of policies on borrowing, investment, and capital market
development; in managing cash resources; in collecting taxes; and in controlling and servicing
public debt.

ROBERTO B. TAN

Treasurer of the Philippines