Presented by Jhon lyle Empasis

The Basic Functions

of the Financial
System
Among the basic functions of the financial system are
the following:
Promote savings.
1. Through the various markets in the fi nancial system, the
savings of diff erent surplus spending units turn into investments
because these markets off er a potential rate of return for a
relatively low risk.

Enable payment 2. The fi nancial system has the best and most expedient mechanisms in
facilitating payments when purchasing goods and services, e.g., the
checking accounts that commercial banks, as well as other types of
authorized banks off er, etc. The plastic cards almost all banks and
institutions provide their clients likewise make payment more
convenient. In fact, plastic cards will most likely replace checks and
check paper from negotiable orders of withdrawal (NOW) accounts as the
principal means of payment in the near future.

Protect against 3. Through the sale of life, property, and accident insurance
risks
policies by insurance companies, the fi nancial market has become
necessary to entrepreneurs, consumers, and the government.
Insurance companies off er protection from practically all kinds of
risk.
Present a means
4. The diff erent fi nancial markets are excellent placements for
to wealth savings that various economic units accumulate. These markets
off er the highest interest rate and a wide range of maturity to
suit any investor's plans. They also serve as a means to wealth,
i.e., they preserve the value of the funds until the funds are
used and they generate earnings at the same time.

5. The numerous fi nancial instruments used to store the wealth

Provide liquidity
possessed by diff erent economic units can readily be converted
into cash with little or no risk of loss. The fi nancial system
provides this service to savers who hold fi nancial instruments
and are in need of cash. In a modern city, only the deposits of
cash held by banks are the fi nancial instruments which have a
perfect liquidity, Le., they can be spent without being
converted into some other form of instrument.
Provide credit facilites
6. Aside from expediting the conversion of savings into
investments and providing liquidity, markets also make
credit facilities available to consumers and investors
whether for spending or for any other purpose. The
banks that trade in the fi nancial market are the main

sources of formal credit. The volume of credit extended

by the money and capital markets today is

truly immeasurable, i.e., without the said markets, the

business world will probably fi nd it diffi cult

to enter into fi nancial transactions.

The Philippine
Financial System
The fi nancial system may be defi ned as the diversifi ed fi nancial activities performed
by diff erent economic units whose activities are so closely related to one other, and
which take into account the use of money, credit, and the various instruments
associated with money. The word fi nancial implies a reference to money matters,
especially large sums. The diff erent economic units are the fi nancial institutions:
banks and non-banks, business organizations, and individuals. These units engage in
vastly diff erent activities and may operate either domestically or internationally with
or without the help of other fi nancial institutions. Because of fi nancial markets (the
intricate networks of facilities and processes involving the diff erent economic units),
funds and other vast fi nancial resources are made available and credit facilities that
hasten the production of goods and services are extended. Theoretically, the volume
of goods and services produced by the economic system of any country depends on
the funds which can be loaned (as fi nancial resources) and the credit facilities which
can be provided.
Financial Intermediary
Suppose an individual wanted to invest his/her savings to earn additional income. Where should he/ she
go? One suggestion is that he/she can go to a bank and open a savings or a time deposit account. The
deposits he/she makes, in turn, are used by the bank to lend to borrowers. Here, the bank is not obliged to
tell the depositor where his/her money is going. The only obligation of the bank is to safekeep the money
and pay the stipulated interest. The function of the bank, in short, is to act like a middleman. It obtains
money from providers (investors) and lends it to users (borrowers).

What if it is a fi rm or a government agency that wants to raise money to fi nance its needs? Where should it
go and what should it do? Should it approach individuals or fi rms with surplus money and ask them to lend
funds in exchange for interest? Most individuals or fi rms do not approach the fi nancial markets directly;
rather, they use middlemen or fi nancial intermediaries. An investment bank is also a fi nancial
intermediary. It does not accept deposits but provides funds to individuals or companies that need them.
When fi rms and government agencies want to raise money by issuing bonds or commercials papers, they
can go to an investment bank.
A fi nancial intermediary brings together the users and the providers of funds without having them meet
face to face. For this reason, they are also known to engage in an indirect form of funds channeling.
Actually, people and fi rms can go directly to the providers or users of funds. By doing so, the use of a
fi nancial intermediary is eliminated, resulting in a higher return. However, if this is the case, why do some
people and businesses still tap the services of fi nancial intermediaries?
The answer is that approaching financial intermediaries can be
advantageous to providers of funds.

1. Financial intermediaries hire highly qualifi ed people to

assess risky investments.

2. Financial intermediaries know how to diversify.

3. Hiring fi nancial intermediaries has a cost advantage or

economy of scale.

4. Financial intermediaries reconcile the confl icting

interests of the users and lenders of funds.

5. Financial intermediaries provide savers with liquidity.

Financial Market
A fi nancial market is a mechanism in which buyers and sellers trade
fi nancial assets such as stocks, bonds, currencies, and derivatives.
Unlike fi nancial intermediaries, it is not a source of funds, but a link
to provide a forum in which suppliers of funds and buyers of
loans/investments can transact business directly (Khan, et al., 2006),
Financial markets are generally characterized as having formal
regulations; transparent pricing; basic regulations on trading, costs,
and fees; and market forces which determine the prices of the
securities that are being traded. Here, the providers of funds know
where their money is being invested or

lent to. There are two types of fi nancial markets, namely the money
market and capital market.
 Presented by Jhon lyle Empasis

Thank you
very much!
Money Markets
• The money market is a market intended for short-term
placements. A placement usually takes at most one
year to mature. These markets deal with short-term
borrowing and lending, typically involving instruments
with maturities of one year or less, like Treasury bills,
commercial paper, and certificates of deposit.
Capital Markets
• Capital markets are used for raising long-term
funds for businesses and governments through
the issuance of equity and debt instruments.
 Types of Capital Market
• Primary market is a venue where firms and
government agencies raise money by issuing financial
instruments like stocks or bonds for the first time.
• Secondary market is also called the aftermarket. It is
where the financial instruments that are already issued
are traded.
The Philippine Stock Exchange, Inc.
• The Philippine Stock Exchange, Inc. (PSE) is a
private organization that provides and ensures a
fair, efficient, transparent, and orderly market for
the buying and selling of securities
DIFFERENT TYPES OF
FINANCIAL MARKETS
• Stock Markets
These are venues where shares of publicly traded

companies are bought and sold.

• Bond Markets
Also known as the fixed-income market, this is
where investors buy and sell debt securities,
primarily bonds
• Commodity Markets
These markets involve the trading of physical
goods or raw products like oil, gold, or agricultural
products.
• Foreign Exchange (Forex) Markets
The forex market is the largest financial market in
the world, where currencies are traded.
• Derivatives market
It provides instruments to help manage financial
risks. The market can be divided into two:
exchange-traded derivatives and over-the-
counter derivatives. Examples of derivatives
markets are futures market, insurance market,
and options market.
 INVESTMENT BANKER

DEFINITION:

One of the functions of a finance manager is to

raise money to that the firm he/she is working for
can support its operations, including future
expansion.
INVESTMENT BANKER
1. Origination of Securities Issues
- Negotiations occur between the issuing firm’s officers and
the investment bank’s officers.

A. Initial Discussions: Focus on determining the capital

amount, the type of security, and the terms and conditions.

B. Investigation:
- The firm’s financial capability is assessed to ensure
investor satisfaction.
- CPAs are hired to audit and develop financial
statements.
- Lawyers review legal aspects.

C. Final Negotiation:
- Finalizes the securities details.
- The underwriter’s spread is calculated (difference
between the security’s issue price and the amount remitted
 INVESTMENT BANKER

2.Underwriting Securities Issues:

The investment banker guarantees the sale of securities in
the primary capital market.

a. Risk and Responsibility: The investment banker assumes

the risk of selling the securities. They remit the entire
amount to the issuing company, minus the agreed spread,
by the closing date

b. Underwriting Syndicate: The underwriter may form a

syndicate with other investment bankers to share the risk.
The originating investment bank becomes the “manager” of
this syndicate.

c. Market Stabilization: The syndicate manager is

responsible for stabilizing the market during the sale of
INVESTING PROCEDURE
(Philippine Stock Exchange, Inc.)

1. Choose a stockbroker.
A stockbroker not only represents the investor in the stock
market but also provides additional services like access to
market reports, timely delivery of important documents, and
investment advice.

2. Open an account and fill out a customer account information

form and submit identification papers for verification.

3. Give the order to the trader, and then ask for the confirmation
receipt.

4. Pay before the settlement date.

What is Trading Cycle?
Upliftment/Withdrawal
Fee
If a buying client opts to have a stock certificate
issued in his/her name, he/she must make the
request through his/her broker who will then issue
the upliftment request through the PDTC system.
Upon receipt, the PDTC will then submit the request
to the transfer agent for the issuance of the
certificate.
Cancellation Fee
If a selling client has physical certificates, he/she must have
the certificates converted into book-entry form in the PDTC
system by requesting (through his/her broker) for a direct
transfer (DT) with the transfer agent, which costs 1100 (plus
12% VAT) per certificate for the transfer of ownership of
shares to the PDTC Nominee Corporation (PCNC).

Stock Transaction Tax

The sale of equities listed and traded in the Philippine Stock
Exchange is subject to a stock transaction tax of ½ of 1% (50
basis points) of the value of the transaction charged to the seller
in lieu of the capital gains tax. The sale, barter, or exchange of
the shares of stock listed and traded in the PSE are exempt from
 Withholding Tax
■ Under the National Internal Revenue Code of 1997, and
except in cases where tax treaties are in force, the
dividends received from domestic corporations are subject
to a withholding tax.