FINANCIAL INSTITUTIONS,

INSTRUMENTS, AND MARKETS

LEARNING OBJECTIVES:

1. DESCRIBE A BUSINESS ENVIRONMENT

2. DISCUSS THE FINANCIAL SYSTEM
3. IDENTIFY THE ELEMENTS OF A FINANCIAL SYSTEM
2.1 THE BUSINESS ENVIRONMENT
The business does not operate in a vacuum but in an
environment influenced by various forces, variables, and
systems.
In marketing or entrepreneurship, the environment where
the business operates is broadly classified as either macro or
micro environment. In finance, the business environment is
divided into international, national, regional, and local levels.
Business is always affected by outside forces.
2.1 THE BUSINESS ENVIRONMENT

One of the environmental layers of the macro environment is the

societal environment. This environment is made up of the
following system:

1. Political system
2. Financial system
3. Economic system
4. Socio-cultural system
5. Technological system
6. Legal system
 Political System

Financial System
Economic System

Socio-Cultural System
Technological System

Legal System

The Business

Figure 5. The Societal Environment of the Business

2.2 THE FINANCIAL SYSTEM

The financial system at the societal environment or regional level

is principally responsible for the flow of money or funds from the
lender to the borrower.
The financial system controls, regulates, and facilitates the saving,
borrowing, and investing activities happening among the different
players in the system.
There is no standard structure of a financial system that operates
in the world. It varies among countries and among business
organizations. The type of government and the economic system
also determine or influence the structure of the financial system
of a country.
Figure 6. Typical Structure of a Financial System
Cash Payments
Cash Returned

Cash
Household Investments
Savings/Surplus • Financial
Cash Institutions

• Financial Cash Loans Borrowers

Cash Markets • Individuals
Investments • Corporate
Business • Financial Entities
Savings/Surplus Instruments
Cash

Cash Returned
Cash Payments
In the Philippines financial system, the government plays an active
role in the flow of money in the economy through the Bangko
Sentral ng Pilipinas (BSP). The BSP regulates the operations of
financial institutions and financial intermediaries.

The basic elements of a financial system are as follows:

1. Financial Institutions
2. Financial Markets
3. Financial Instruments
4. Lenders and Borrowers