Financial system

The financial system consists of the group of institutions in the economy that perform the

essential function of channeling funds from economic players that have saved surplus funds to

those that have a shortage of funds. Promotes economic efficiency by producing an efficient

allocation of capital, which increases production. Promotes economic efficiency by producing an

efficient allocation of capital, which increases production. Improve the well-being of consumers

by allowing them to time purchases better. Improve the well-being of consumers by allowing

them to time purchases better.

Financial markets refers to a marketplace, where creation and trading of financial assets,

such as shares, debentures, bonds, derivatives, currencies, etc. take place. It plays a crucial role

in allocating limited resources, in the country's economy.

Two types of Financial Markets

*Stock Market: Share of ownership in a firm. Firms borrow money from savers who buy

their shares.

Importance of Stock Market: Function and purpose: The stock market is one of the

most important sources for companies to raise money. This allows businesses to be publicly

traded, or raise additional capital for expansion by selling shares of ownership of the company in

a public market.

*Bond Market: Debt instrument. Government and firms issue bonds to borrow money

from savers who buy these bonds.

 The Bond Market is Important

Governments need to borrow money. They borrow money through selling bonds to the

private sector. Usually, investors are quite happy to buy government bonds. They are seen as a

safe investment (governments usually don't default) and the investor gets a guaranteed rate of

interest in return.

Savings

Savings are that part of our income that we do not spend. S = Y - C Savings means:

(1)Depositing cash in a safe place (2) Having minimal return and (3)Less risk Short term

needs & emergencies.

Importance of Savings:

To have money available to buy something in the future.

To have money available for unexpected bills.

To have an income when they retire.

Investment

An Investment is the COMMITMENT of MONEY or other RESOURCES inthe

expectation of obtaining FUTURE BENEFITS.

Important Steps to Investing

1. Obtain written documents explaining the investment.

2. Read and understand such documents.

 3. Verify the legitimacy of the investment.

4. Find out the costs and benefits associated with the investment.

5. Assess the risk-return profile of the investment.

6. Know the liquidity and safety aspects of the investment.

7. Ascertain if it is appropriate for your specific goals.

8. Compare these details with other investment opportunities available.

9. Examine if it fits in with other investments you are considering or you have already

made.

10. Deal only through an authorized intermediary.

11. Seek all clarifications about the intermediary and the investment.

12. Explore the options available to you if something were to go wrong, and then, if

satisfied, make the investment.

 EASTERN MINDANAO
COLLEGE OF TECHNOLOGY

Saving Investment
and the financial
system

Submitted by:
Catherine May Bandiala Tamula BSMA-1
Submitted to:
Ms. Rovy Mae Gabunilas Masong