MODULE 1: OVERVIEW OF FINANCE

FINANCE
• Finance is defined by Webster’s • In simple terms, finance is concerned
Dictionary as “the system that includes with decisions about money, or more
the circulation of money, granting of appropriately, cash flows. Finance
credit, the making of investments, and decisions deal with how money is raised
the provision of banking facilities.” and used by businesses, governments,
• It may be defined as the science of and individuals.
managing and creating money, • To make sound financial decisions you
administration and operations of must understand three general, yet
institutions like banks, investment reasonable, concepts: Everything else
companies, cooperatives, lending being equal:
groups that facilitate credits and a unit or 1. More value is preferred to less
department that directs the 2. The sooner cash is received, the
organizations’ assets, liabilities, and more valuable it is
equities. 3.Less risky assets are more valuable
• At large, finance boils down to “funds than (preferred to) riskier assets.
and resources.”
GENERAL AREAS OF FINANCE
1. Financial Markets and Institutions
➢ Financial institutions, which include banks, insurance companies, savings and loans, and
credit unions, are an integral part of the general financial services marketplace. The
success of these organizations requires an understanding of factors that cause interest
rates and other returns in the financial markets to rise and fall, regulations that affect such
institutions, and various types of financial instruments, and various types of financial
instruments, such as mortgages, automobile loans, and certificates of deposit, that financial
institutions offer.

2. Investments
➢ This area of finance focuses on the decisions made by businesses and individuals as they
choose securities for their investment portfolios. The major functions in the investments
area are (a) determining the value, risks, and returns associated with such financial assets
as stocks and bonds and (b) determining the optimal mix of securities that should be held in
a portfolio of investments, such as a retirement fund.

3. Financial Services
➢ Financial services refer to functions provided by organizations that deal with the
management of money. Persons who work in these organizations, which include banks,
insurance companies, brokerage firms, and similar companies, provide services that help
individuals and companies determine how to invest money to achieve such goals as home
purchase, retirement, financial stability and sustainability, budgeting, and so forth

4. Managerial (business) finance

➢ Managerial finance deals with decisions that all firms make concerning their cash flows,
including both inflows and outflows. As a consequence, managerial finance is important in
 all types of businesses, whether they are public or private, and whether they deal with
financial services or the manufacture of products. The duties encountered in managerial
finance range from making decisions about plant expansions to choosing what types of
securities should be issued to finance such expansions.
➢ Financial managers also have the responsibility for deciding the credit terms under which
customers can buy, how much inventory the firm should carry, how much cash to keep on
hand, whether to acquire other firms (merger analysis), and how much of each year’s
earnings should be paid out as dividends versus how much should be reinvested in the
firm.

Roles of Financial Managers

I. Allocation or Utilization of Funds
✓ The financial manager decides as to where to get financial resources like cash,
inventories, equipment, and other assets needed by the firm in its operation. If cash is
acquired, the financial manager decides where to use the cash – finance a new project,
pay outstanding obligations, pay operating expenses, or buy equipment needed by the
firm.
II. Management of Funds
✓ The person in charge of the finance function is called the director of finance, VP –
Finance, or finance manager. He is responsible for the allocation of the financial
resources of a company, the acquisition of additional funds needed, and the utilization
of these financial resources to attain organizational objectives.

III. The finance manager or comptroller supervises

✓ The chief accountant, the purchasing manager, the investment manager, the budget
and planning manager, the treasury department, and the risk management and
insurance department.

Goals of the Financial Manager

1. Acquisition of funds with the least cost from the right sources at the right time;
➢ Acquiring funds form the right sources at the right time with the least cost provides an
advantage toward goal attainment. Establishing the right connection or networking is
important in this respect. Sources of funds include banks, financial institutions and financial
intermediaries, insurance companies, mortgage and loan associations, and individual and
corporate investors.

2. Effective cash management;

➢ Effective cash management needs a detailed cash flow budget so that the sources and
uses of funds can be carefully planned. Taking advantage of cash discounts in paying trade
payables, prioritizing the use of cash, and other similar strategies help in managing cash.

3. Effective working capital management;

4. Effective inventory management;
➢ Similarly, inventories need to be managed effectively. Overstocking is undesirable; it
ties up capital. Understocking, likewise, is undesirable because the firm will miss sales
opportunities that could have increased profits. Purchasing the right inventory at the right
 time from the right sources gives the company an edge over its competitors. Disposing
slow-moving inventories needs to be done, that is why some companies resort to barter in
the barter exchanges where slow-moving inventories can be sold.

5. Effective investment decisions;

➢ Determining where to invest excess funds to create additional income is making an
investment decision. Too much cash lying in the bank or checking accounts that do not
ears interest are not advisable. Any excess cash needs to be invested to earn income,
either in the form of interest or dividends. Investing in the right assets is a must for
successful management of a firm. Engaging in new projects and buying new assets are
investment activities.

6. Proper asset selection; and

➢ Proper asset allocation is important. Selecting the right machinery and equipment needed
by a company in its operation is important to attain its production goal that creates sales.
Deciding on buying a computer and the type of computer to buy will help the company
attain improvement in organizational efficiency.

7. Proper risk management.

➢ Risk management is a task so important to the firm to weigh risks associated with certain
business decisions. Buying stocks or investing in something needs risk analysis and
assessment. In general, the riskier the project, the higher should be the return. Every
management decision involves risk, more so every financial decision. Risk management is
a primary task for the financial manager.

MODULE 2: MONEY
NATURE OF MONEY
➢ Money was derived from the Latin word moneta, surname of the Roman goddess Juno.
➢ Moneta refers to a mint or a place for coining money.
➢ According to the etymonline.com, it also comes from the Old French monoie and the Modern
French monnaie, meaning money, coin, currency, or change.
➢ “bucks” – from the word “buchskins,” a medium of exchange used by the settlers during early
times.

DEFINITION OF MONEY
➢ It is something generally accepted as a ➢ Money is the lawful token used in our
medium of exchange, a measure of society to pay goods, services, and
value, or a means of payment. – debt.
Merriam-Webster ➢ It is anything which is used as a medium
➢ It is anything authorized by law to be of exchange and which is widely
generally accepted as legal tender, as a acceptable for the payment of goods
medium of exchange, and a standard of and services without reference to the
value in payment of goods and services general standing of the person who
without reference to the general offers it. Miranda(2004)
standing of the person who offers it.
MONEY
1. Medium of exchange 3. Measure of value 4. Means of payment
2. Legal tender 5. Standard of value

CHARACTERISTICS OF MONEY
1. Scarcity can be melted and formed into
➢ It makes something valuable, and different shapes and sizes and
over-abundance makes it worthless. different denominations.
Scarcity means rare or hard to find. 3. Portability
This is based on the basic economic ➢ An ease in handling or carrying
law of supply and demand. makes one thing desirable as a
➢ The harder a thing is to find, the medium of exchange. This allows
more that thing becomes. This is the people to bring it with them
reason why precious metals, anywhere they go to enter into a
especially gold and silver, deemed a transaction.
good choice as a medium of ➢ A piece of metal is easier to carry
exchange. However, limited supply than a carabao. Paper money is
makes these metals impractical or more portable than metals or even
too expensive to use. coins.
2. Divisibility 4. Durability
➢ It is another feature that enables one ➢ It means long lasting. Metal is almost
to suit the medium of exchange to indestructible that is why it became a
the kind of transaction, big or small. medium of exchange for a long time.
Small units apply to small ➢ There are countries nowadays that
transactions and big units apply to use plastic polymer money in place
big transactions. of paper money. Plastic is more
➢ It refers to the quality of being broken
durable than paper.
down into smaller units. The property ➢ Philippine Coins are made of metals
of malleability of metals makes them while paper bills are composed of
desirable for coinage because they 80% cotton and 20% abacca.

FUNCTIONS OF MONEY
BASIC FUNCTIONS
• To facilitate the exchange of goods and services
• To lessen the time and effort required to carry on trade
1. Medium of Exchange
❖ The use of money to facilitate the transfer of goods and services and settle obligations has
made money the basic medium of exchange.
❖ In the history of money, various commodities had been used as a medium of exchange.
Therefore, we can say that in those times, whatever commodity was used to effect transfer
could be considered “money”- cowries, wampums, and cattle.
❖ Money, as a medium of exchange, can be used for exchange of goods and services.
 2. Standard of Value
❖ Money is our measuring stick to measure the value or worth of something.
❖ Goods, services, assets, liabilities, and net worth (equity or capital) are all measured in
terms of money.
❖ As a standard of value, money measures the relative worth of goods and services. In short,
money is the common denominator, the basis for comparison
3. Store of Value
❖ The excess of income over expenses is usually saved. Our savings, usually in the form of
money, is stored either in the bank or at home for future use – that is the idea of store of
value.
❖ The value needed in the future is stored. When we make investments in the form of stocks,
bonds, or other securities and fixed assets like land, or excess money is stored in these
assets. In case we need money in the future, we can sell them and produce the money we
need.

4. Means of Deferred Payment

❖ As legal tender, money is acceptable in payment of debts or liabilities. If payment is to be
made in the future, money becomes a means of deferred payment.
❖ Deferred means postponed or held for future use. So long as prices remain stable, the
amount owed is what is paid, and the creditor is able to buy the same amount of goods or
services.
❖ However, when prices rise, the amount owed will be able to buy less (creditors lose); when
prices go down, the amount owed will be able to buy more (creditors gain)

5. Conveyance
❖ It refers to the means of transport or transfer.
❖ In law (which finance uses), conveyance means the process of or the documents effecting
the transfer of property from one owner to another. The said document is the money
because it facilitates transfer of ownership, while the process is the transfer of title or
ownership. The seller owns the goods he is selling. The buyer owns the money he wishes
to spend. If he wants the goods the seller is selling, he will exchange his money with the
goods. After the transaction is consummated, the goods now belong to the buyer, and the
money belongs to the seller. This is similar to the function of medium of exchange.
❖ Money conveys or transfers title or possession

CLASSIFICATIONS OF MONEY
PAPER MONEY
➢ The Chinese invented printing and the use of paper money during the Tang Dynasty (618-906
AD).
➢ Mongolia was the second country to begin using paper money in the 11th century.
➢ The Bank of Sweden issued the first paper money in Europe in the 17th century.
➢ The government issued paper money to represent certain quantities of gold or silver kept by the
government to cover what has been issued, representative paper money.
➢ The was replaced with the term fiat money.
PLASTIC (POLYMER) MONEY
➢ Plastic money is actual cash made of super-resistant
polymer film (instead of paper).
➢ Polymer money feels like regular paper bill but lasts
longer.
➢ Australia was the first country to develop and use polymer
notes in general circulation in 1988 after significant
research and development done by the Commonwealth
Scientific and Industrial Research Organization (CSIRO) and the Reserve Bank of Australia.
PLASTIC MONEY
❖ It is the hard plastic cards used in everyday exchange transactions in place of actual bank notes

1. Credit Cards
❖ Allows owners to buy products on credit from different
stores and establishment, in lieu of cash or money,
except that it has a credit limit, that is, the maximum
amount that can be charged to the credit card.
❖ It bears a relatively higher rate of interest, but if the
cardholder pays his balance in full each month (on or
before the due date), no interest is charged.
❖ Examples: American Express, Visa, MasterCard, and Discover
2. Debit Cards
❖ The bank where the account is maintained issues the debit card.
❖ Payments using this card are immediately charged to the cardholder’s bank account,
instead of paying the card at a later date.
3. Cash Cards
❖ It only allows withdrawal of money through an Automated Teller Machine (ATM).
❖ It can be used as a debit card as well.
❖ It is convenient in that the holder need to stay in line inside the bank to withdraw money.

PREPAID CASH CARD

A. Gift Card/Certificate
o A prepaid cash card that can be given as gift so that the recipients can choose what
they want as a gift.
o This card can be a specific prepaid cash card issued by the store where it can be
used for purchase.
o It can also be issued by financial institutions and can be used at any store, just like
credit card. Once fully used,
B. Store Card
o It is like a credit card, generally issued by a particular store and can be used for
purchase in the same store.
o This is a simple credit granted by stores to encourage customers to spend more in
their store.
 C. Multi-currency Prepaid Card
o An example of this card was launched by EastWest Bank last Sept. 30,2013,
Southeast Asia’s first multi-currency prepaid card. It can load up to six different
currencies – US dollar, Euro, British pound, Hong Kong dollar, Australian dollar, and
Japanese yen. It can be used from all Visa-affiliated merchants here in the
Philippines and abroad regardless of the currencies loaded.
FULL-BODIED MONEY
❖ Money whose value as a commodity for non-monetary purposes
is as great as its value as money
REPRESENTATIVE FULL-BODIED MONEY
➢ Issued by government ➢ Issued by banks
1. Token coins 1. Circulating promissory notes issued by
2. Representative token money central bank
3. Circulating promissory notes 2. Circulating promissory notes issued by
other banks
3. Demand deposits subject to check
❖ Usually made of paper
❖ It has no significant value as a commodity, but it represents in circulating an amount of metal
with a commodity value equal to the value of the money
GOLD CERTIFICATE
CREDIT MONEY OR FIAT MONEY
❖ Any money, except of representative full-bodied money,
that circulates at a value greater than the commodity value
of the material from which it is made.
❖ It can also result as the issuing authority buys all the money material offered to it, but at a price
significantly below the monetary or face value of the money into which it is transformed.

Types of Money Issued in the Philippines

1. Standard Money – Central Bank Notes

2. Representative
Money – Philippine Treasury
Certificates 1903

3. Convertible Representative Money – Philippine

Treasury Certificates 1903
4. Fiat Money
(old concept) – Japanese War Notes

5. Fiat Money
(current concept) – bangko sentral notes
6. Token Coins – Metallic Coins
 7. Credit Money – Bangko Sentral Notes

8. Guerilla Notes

FORMS OF MONEY
1. Commodity Money
o It has its own value other than using it as money.
o It has its own intrinsic value, the value of the commodity itself.
o Example: shells, cattle
2. Currency (Bills and Coins)
o The government of any country issues currency that is legal tender in the country.
o These bills and coins are in different denominations (the divisibility feature), minted and
printed, by the central bank of a country.
o Domestic currency can only be used in its country of origin.
3. Check
o It is generally used by businesses and persons in conducting business, as well as
personal transactions.
o It is a written order to a bank (drawee), by the person, who issues the check (maker or
drawer) to pay someone whose name is written on the face of the check (payee) a
certain amount of money on demand (upon presentation/immediately) or at a future
date (post-dated check).
o Parties to a Check
1. Maker – the drawer or writer of the
check
2. Drawee – the bank which is order to
pay the payee
3. Payee – the one to whom the check
is to be paid
o Personal Check – issued by persons to be drawn against their own current/checking
account in the bank.
o Business Check – a check issued by
companies/businesses. It is drawn on the
issuer’s bank checking or current account. It is
used for business transactions.
o Cashier’s Check – it is issued by the bank
against its own account ensuring availability of
funds. It is purchased with a fee from a bank
that issues the check. It can be signed by the
bank cashier or any other bank official
 o Certified Check – it is issued by the bank certifying that the
account of the person issuing it has available funds (just like
any ordinary personal check). The bank certifies the availability
of fund by earmarking the corresponding amount on the check
which will only be used to pay the check itself.

o Traveler’s Check- it is a fixed amount

check which is preprinted, allowing the
signatory of the financial institution who is
selling the traveler’s check to make an
unconditional payment to whoever has
the traveler’s check in his possession.
▪ Parties to a traveler’s check
1. Issuer or obligor – the company issuing or producing the traveler’s check
2. Agent – the financial institution who sells the traveler’s check.
3. Purchaser – the person buying the traveler’s check and will use it as a form
of money
4. Payee – the seller of goods or services to be paid with the traveler’s check.

4. Bank Draft
o Is issued by banks against their own account
o Ensure availability of funds without any need
to check on the character of the person
issuing the check
o Prevalent in the UK
o Types of Bank Draft
1. Demand Draft (sight draft) – payable on demand or upon sight
2. Time Draft – payable sometime in the future like post-dated check
3. Local Draft – issued by a bank in a single country
4. International Draft – used globally or internationally
5. Automatic Bank Draft (ABD)- takes out money from the payer’s account
electronically at a regular interval.
5. Money Order
o It refers to the instrument issued
generally by the post office of a
country ordering a sum of money
to be paid to the payee indicated
on the instrument itself. This
under R.A. 7354, an Act Creating
the Philippine Postal Corporation under Art. II, Sec. 6.
 6. Warehouse Receipt (WR)
o It covers all warehouses, whether
public or private, bonded or not
o A document of title to goods
o A proof of the possession or
control of the goods
o Authorizing or purporting to
authorize the possessor of the
documents to transfer or receive,
either by endorsement or by delivery goods represented by such document

MODULE 3: SECURITY FEATURES OF PHILIPPINE MONEY

Security Features of the New Generation Currency (NGC)
• Designing a currency goes beyond sketches, drawings, and colors. Currency requires more
features that are resistant to counterfeiting.
• The designs executed by the Filipino artists have to be adjusted by the banknotizer, a highly
trained artist on currency design concept. This process is called bank notization.
Four Layers of Security Features
• Level I: Security features which can be easily recognized by the public without the use of
special instruments. These are the “look,” “feel,” and “tilt” elements in the notes, enumerated
below.
• Level II: Security features recognizable by professional cash handlers/bank tellers with the use
of magnifying lens or ultraviolet light. Examples are fluorescent features and microprinting.
• Level III: Hidden or convert security features that are reserved for the use of the BSP.
• Level IV: Forensic security features which require special laboratory examination procedures
and equipment for identification; most relevant in establishing the authenticity of a banknote in
the course of any court proceedings.
LEVEL I SECURITY FEATURES
1. Embossed Prints
o The embossed or raised print nature of the ink deposition combined with the quality of
cotton-based paper gives the traditional banknote a unique tactile effect that makes it
the first and the most important line of defense against counterfeiting. This can be felt
over the words “REPUBLIKA NG PILIPINAS,” denominational value in text, signatures,
and value panels particularly, the one located at the lower right corner of the obverse.

2. Asymmetric Serial Number

o Alphanumeric characters at the lower left and upper
right corners of the note bearing one or two prefix
letters and six to seven digits, with font increasing in
size and thickness.
3. Security Fibers
o Visible red and blue fibers
embedded on the paper
and randomly scattered on
the face and back of the
note.
4. Watermark
o Shadow image of the
portrait with the highlighted
denominational value that is
particularly seen against the light
from either side of the blank space
on the note.
o Examine the watermark on the
unprinted portion of the note
▪ The watermark is the
silhouette of the portrait
appearing on the face of the
note. Sharp details of the light
and shadow can be seen
when the note is viewed against the light.
5. See-through Mark
o The pre-Hispanic script (Baybayin)
at the lower right corner of the face
of the note slightly above the value
panel. This is seen in complete
form only when the note is viewed
against the light. The script means
“Pilipino”
o As illustrated, the upper “0” digit of
the numerical value on the face of
200-piso NDS note and the “0” digit
of the numerical value directly
located at the reverse registers perfectly when viewed against the light. This feature can
also be found in denomination 10-, 20-, 50- and in the “0” at the middle of 100-piso NDS
notes.
6. Concealed Value
o The denominational value superimposed at the smaller version portrait at the upper left
portion of the note. This becomes clearly visible when the note is rotated 45 degrees
and slightly tilted.
7. Security Thread (Embedded or Windowed)
o Embedded thread that runs vertically across the width of 20- and 50- piso notes when
viewed against the light. Also, the stitch-like metallic thread on the 100-, 200-, 500- and
1000- piso notes which changes color from red to green and bears the cleartext of
“BSP” on the reversem both in repeated series.
8. Optical Variable Device (OVD) Patch
o Found only in 500- and 1000- piso notes, this patch is a reflective foil, bearing the image
of the Blue-naped parrot for 500- piso/clam with South Sea pearl for 1000- piso,
changes color from red to green when the note is rotated 90 degrees.
 9. Optically Variable Ink (OVI)
o Found only in the 1000-piso note, this embossed denominational value at the lower right
corner of the face of the note changes color from green to blue when viewed at different
angles.

OTHER FEATURES OF THE NGC

• The BSP is proud to be the first to adopt the latest OVD patch security feature in the NGC. The
technology of the OVD patch used in the NGC is anchored on the characteristic color
permutation that is different from the OVD patch seen in euro notes, Japanese yen and other
currencies of the world.
• This makes our currency design at par with or even better than the currencies of other central
bank worldwide. The NGC is also the first currency note in ASIA to incorporate the hygienic
treatment of the substrate to make it a hostile environment for E.coli bacteria and Aspergillus
Niger fungus, which can cause diarrhea and skin diseases, respectively.

4 FILIPINO ADJECTIVES FOR NGC

1. Matibay (strong). Our currency contains Philippine abaca, which is known for its strength and
versatility. This is a reflection of the resilience of our economy amidst challenges.
2. Makulay (colorful). The vibrant colors in our banknotes symbolize the colorful history of our
nation. They also mirror the happy and fun-loving Filipino disposition even when faced with
adversities.
3. Maganda (beautiful). Our country is beautiful, epitomized by the feature natural wonders. For
all their beauty and bounty, our county’s natural resources are worth preserving as these are
our refuge against hunger, calamity, and boredom.
4. Malinis (clean). As mentioned earlier, each NGC note was given hygienic treatment that
makes it hostile to the growth of E.coli bacteria and Aspergillus Niger fungus.
IDENTIFICATION OF THE SALIENT FEATURES OF MONEY ACTIVITY
1. CHECK THE COMPLETE PARTS OF THE CHECK

Kinds of check
• Postdated • Outdated • Bearer check
• Stale dated • Crossed check • Manager’s Check

MODULE 4: BSP ROLE IN MONEY PRODUCTION

BSP VISION
THE BSP AIMS TO BE RECOGNIZED GLOBALLY AS THE MONETARY AUTHORITY
AND PRIMARY FINANCIAL SYSTEM SUPERVISOR THAT SUPPORTS A STRONG
ECONOMY AND PROMOTES A HIGH QUALITY OF LIFE FOR ALL FILIPINOS.

BSP MISSION
TO PROMOTE AND MAINTAIN PRICE STABILITY, A STRONG FINANCIAL SYSTEM,
AND A SAFE AND EFFICIENT PAYMENTS AND SETTLEMENTS SYSTEM CONDUCIVE TO
A SUSTAINABLE AND INCLUSIVE GROWTH OF THE ECONOMY.

OVERVIEW OF FUNCTIONS AND OPERATIONS

OBJECTIVES:
The BSP’s primary objective is to maintain price stability conducive to a balanced and
sustainable economic growth. The BSP also aims to promote and preserve monetary stability
and the convertibility of the national currency

RESPONSIBILITIES:
The BSP provides policy directions in the areas of money, banking and credit. It supervises
operations of banks and exercises regulatory powers over non-bank financial institutions with
quasi-banking functions
UNDER THE NEW CENTRAL BANK ACT, THE BSP PERFORMS THE FOLLOWING
FUNCTIONS, ALL OF WHICH RELATE TO ITS STATUS AS THE REPUBLIC’S CENTRAL
MONETARY AUTHORITY.
• LIQUIDITY MANAGEMENT. The BSP formulates and implements monetary policy aimed at
influencing money supply consistent with its primary objective to maintain price stability.
• CURRENCY ISSUE. The BSP has the exclusive power to issue the national currency. All
notes and coins issued by the BSP are fully guaranteed by the government and are considered
legal tender for all private and public debts.
• LENDER OF LAST RESORT. The BSP extends discounts, loans and advances to banking
institutions for liquidity purposes.
• FINANCIAL SUPERVISION. The BSP supervises banks and exercises regulatory powers over
non-bank institutions performing quasi-banking functions.
• MANAGEMENT OF FOREIGN CURRENCY RESERVES. The BSP seeks to maintain
sufficient international reserves to meet any foreseeable net demands for foreign currencies in
order to preserve the international stability and convertibility of the Philippine peso.
• DETERMINATION OF EXCHANGE RATE POLICY. The BSP determines the exchange rate
policy of the Philippines. Currently, the BSP adheres to a market-oriented foreign exchange
rate policy such that the role of Bangko Sentral is principally to ensure orderly conditions in the
market.
• OTHER ACTIVITIES. The BSP functions as the banker, financial advisor and official
depository of the government, its political subdivisions and instrumentalities and government-
owned and -controlled corporations.