financial market module 2

a private non-profit and non-stock organization created to provide and maintain a fair, efficient, transparent and orderly market for the purchase and sale of securities such as stocks, warrants, bonds, options and others.

The PSE bring together companies which aim to raise capital through the issue of new securities.

The Philippine Stock Exchange began 70 years ago, on August 8, 1927. Five Manila based businessmen, namely W. Eric Little, Gordon W. Mackay, John J. Russell, Frank W. Wakefield and W.P.G. Elliot felt that increasing trading activity would stimulate the business atmosphere.

currently the only organized exchange in the Philippines licensed for trading stocks and warrants.

The PSE”S organizational structure holds five (5) groups, namely: Listings & Disclosure Group, Compliance & Surveillance Group, Operations/Automated Trading Group, Finance and Investment Group and Business Development & Information Group along with the Office of the General Counsel, Membership Department and Human Resources Management Department, which reports directly to the Office of the President.

The Bangko Sentral ng Pilipinas (BSP) is the central bank (bank of all banks) 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.

Liquidity Management. Currency issue. Lender of last resort. Management of foreign currency reserves. •Financial Supervision. Determination of exchange rate policy Other activities.

One of the non-broker members heads the Exchange, appointed by the Board as the President and Chief Executive Officer (CEO)

The exchange rate is the price of a unit of foreign currency in terms of the domestic currency.

Under the system of freely floating exchange rates, the value of the dollar in terms of the peso is determined in the interbank foreign exchange market (by the forces of supply and demand just like any commodity or service being sold in the market). Under a fixed exchange rate system, a par value rate is set between the peso and the dollar by the central bank. The par value may be adjusted from time to time.

Under a floating exchange rate system, if more dollars are demanded than are offered, the price of the dollar in terms of the peso will tend to increase; that is, it will cost more pesos to acquire one dollar.

interest rates are prices. These are the price paid for the use of money for a period of time and are expressed as a percentage of the total outstanding balance that is either fixed or variable.

first, from the point of view of a borrower, it is the cost of borrowing money (borrowing rate); and second, from a lender’s point of view, it is the fee charged for lending money (lending rate).

The interest rates charged on borrowed funds are generally classified according to the tenor or the maturity period: short‐term (less than one year); medium‐term (more than one year but less than five years); and long‐term (more than five years).

Real interest rates are interest rates adjusted for the expected erosion of purchasing power resulting from inflation.

The BSP’s past experience with rate‐setting made apparent the limitations of an administratively fixed interest rate. For this reason, the BSP shifted to a market‐oriented interest rate policy in 1983. The re‐imposition of rate ceilings or limits on the spread between the T‐bill rate and lending rate will only introduce distortions in the credit market, including: a) the pricing of credit outside of the fundamental issue of risk; b) the exclusion of certain segments of the economy from the market; c) the need to also regulate other banking products and services; and d) the increased burden on bank supervision.

Yes, by law, the BSP can effectively set interest rates. Under the Usury Law (Act No. 2655, as amended by P.D. 116), the Monetary Board can prescribe the maximum interest rates for loans

Interest rate movements in the Philippines are affected generally by the price level or inflation rate, fiscal policy stance, and intermediation cost which could impact the demand and supply for money.

A government that incurs a fiscal deficit needs to finance its existing budgetary requirements by borrowing from the domestic market or from abroad. The higher is the fiscal deficit, the stronger the demand to borrow to finance the gap.

Financial institutions incur costs in extending their services. Interest rates will tend to be high when intermediation cost is high. Included in the intermediation costs are administrative costs and the BSP’s reserve requirements.

Determination of exchange rate policy

Financial Supervision.

Liquidity Management