Sev R.

Arriola
B.S. Accountancy

1. Discuss Financial System and its importance to the nation.

Financial system is an economic arrangement wherein financial institutions facilitate the

transfer of funds and assets between borrowers, lenders, and investors. It is important to the
nation since it efficiently distributes economic resources to promote economic growth and
generate a return on investment (ROI) for market participants.

2. Discuss the role of each participant (except consumers) in the financial system.

 Non-financial institutions – role is generally to allocate surplus resource to

individuals and companies with financial deficits, allowing them to supplement
banks; it enhances competition in the financial sector
 Financial institutions – it offers a marketplace for money and assets so they can
efficiently allocate capital where it is most beneficial; leading role is to facilitate
liquidity in the economy and allow a higher level of financial movement
 Government – makes broad changes to monetary and fiscal policy, including
raising or lowering interest rates which impacts businesses; boosts the currency;
intervenes when companies or entire segment of the economy are falling by
providing bailouts
 Central bank – responsible for implementing monetary policy, managing the
currency of a country, or group of countries, and controlling the money supply;
influences interest rates and participates in open market operations to control
the cost of borrowing and lending throughout an economy
 Foreign Participants – foreign financial institutions provide net benefits to the
countries in which they invest; large multination corporations will seek new
opportunities for economic growth by opening branches and expanding their
investments in other countries
3. Give three specific examples each

 Money market instruments

o Treasury bills
o Certificates of deposit
o Commercial paper
 Capital market instruments
o Bonds
o Stocks
o Debentures