Financial Economics of

Money
Objective:
• To understand the financial instruments in the
Philippines, delve into the concept of money
supply and its measures, and analyze the
relationship between economic indicators and
money market conditions.
Financial Instruments in the
Philippines
Overview of Financial Assets: Currency, Deposits, Securities
Currency
Definition and Types
of Currency:

• Currency refers to the circulating

medium of exchange in an economy. It
includes banknotes and coins. In the
Philippines, the Bangko Sentral ng
Pilipinas (BSP) issues Philippine Peso
banknotes and coins.
Role of Currency in
the Economy:

• Currency facilitates transactions, serves

as a store of value, and is a unit of
account. Understanding the role of
currency is crucial for grasping the basics
of monetary economics.
Factors Influencing the
Value and Stability of
Currency:

• Factors such as inflation, interest rates,

and the overall economic stability impact
the value and stability of a currency.
Deposits
Types of
Deposits:

• Different types include demand

deposits (e.g., checking
accounts) and time deposits
(e.g., certificates of deposit).
Each type has distinct
characteristics and uses.
Functions of
Deposits in the
Financial System:
• Deposits play a vital role in the
functioning of the banking
system, serving as the
foundation for lending and
investment activities.
Deposit
Insurance and its
Significance:
• An introduction to deposit
insurance schemes, like the
Philippine Deposit Insurance
Corporation (PDIC), which
protects depositors in case of
bank failure.
Securities
Introduction to
Various Types of
Securities:
• Securities encompass a range of
financial instruments such as
bonds, stocks, and derivatives.
Each type carries its own risk
and return profile.
Role of
Securities in
Capital Markets:
• Understanding how securities
contribute to capital formation,
investment, and risk
management in financial
markets.
Risks and Returns
Associated with
Different Securities:
• Examining the risk-return
tradeoff and how investors make
decisions based on their risk
tolerance and investment
objectives.
Money
Supply
Measures
and Their
Significance
Introduction to Money
Supply
Definition and
Importance in
the Economy:
• Money supply refers to the total
amount of money in circulation.
It's crucial for understanding the
overall health of the economy
and the potential for inflation or
deflation.
Components of
Money Supply
(M1, M2, M3):
• Different measures capture
various forms of money. M1
includes currency and demand
deposits, M2 adds savings
deposits, and M3 further
includes time deposits and other
larger liquid assets.
Significance of
Money Supply
Measures
• Relationship Between Money Supply
and Inflation: Exploring how an
increase or decrease in the money
supply can influence inflation rates.
• Implications for Monetary Policy:
How policymakers use money supply
data to formulate effective monetary
policies.
• Analyzing the Velocity of Money:
Understanding how quickly money
circulates in the economy, impacting
overall economic activity.
Economic Indicators and Money
Market Conditions
Analysis of Economic
Indicators Influencing
Money Markets

Key Economic Indicators:

• GDP, Inflation Rate,
Unemployment Rate: How these
indicators reflect the overall
health of the economy and
influence money market
conditions.
• Interconnections Between
Economic Indicators:
Understanding the
interconnectedness of these
indicators and their impact on
monetary policy decisions.
Relationship Between
Interest Rates and
Economic Conditions

Interest Rate Determinants:

• Factors Influencing Interest Rates:
Examining the role of inflation, central
bank policies, and market forces in
determining interest rates.
• Yield Curves and Their Significance:
Understanding the different shapes of
yield curves and what they imply for
future economic conditions.
• Impact of Interest Rate Changes on
Borrowing and Investment: How
businesses and individuals respond to
changes in interest rates.
Relationship Between
Interest Rates and
Economic Conditions

Money Market Conditions:

• Supply and Demand in the Money
Market: Analyzing the forces that
drive supply and demand for money in
short-term markets.
• Factors Affecting Short-term Interest
Rates: Understanding how central
bank policies and market dynamics
impact short-term interest rates.
• The Role of Central Bank Policies in
Shaping Money Market Conditions:
How the BSP's monetary policies
influence the overall conditions in the
money market.
Thank you!