FINANCIAL MARKET (MAC206B)

Presented by: Vernie Handumon and Lloyd Llanera

1. To know the history of FOREX market in the Philippines

2. To understand the foreign exchange market, exchange rate bulletin, currency appreciation and
depreciation
3. To compare and contrast the spot market and forward market
4. To appreciate foreign exchange function
5. To identify the foreign exchange risks and market participants
6. To describe the characteristics of FOREX market
7. To determine the pros and cons of FOREX market
8. To arrive with conclusions and recommendations

HISTORY OF THE FOREIGN EXCHANGE MARKET IN THE PHILIPPINESS

The brief history lesson about the Philippine Peso can be divided into six different
periods namely; Pre-Hispanic Era, Spanish Occupation, Revolutionary Period, American
Occupation, Japanese Occupation, and the Philippine Republic.
1.Pre-Hispanic Era
-barter system was imposed
Piloncitos were the first pieces of gold that came into coinage. Before this, the barter system was
imposed, and then cowry shells were used for buying and selling in the early days.
2. The Spanish Occupation
-first paper money
During 1521-1897, the Spanish introduced coins to the Philippines. They also brought the first
paper money in. Pesos Fuertes was the first paper money in circulation, which was issued by the
first bank in the Philippines: El Banco Español Filipino de Isabel II.
3. Revolutionary Period
- the first Philippine president, issued independent coins and paper currency
In the period 1898-1899, the Spanish-Filipino was replaced. Emilio Aguinaldo, the first
Philippine president, issued independent coins and paper currency under the Malolos
Constitution.
4. The American Occupation
- Philippine pesos was based on the gold standard
After the 1898 Declaration of Independence of the Philippines, the United States took over in
1901. During this period, the Philippine pesos was based on the gold standard. Of course, it was
also pegged to the American Dollar. From 1903 to 1946, the exchange rate was 2 Philippine
pesos per 1 USD.
El Banco Español Filipino was then renamed Bank of the Philippine Islands in 1912. It should
also be noted that the language being used for the currency was changed from Spanish to
American English.
5. The Japanese Occupation
-“Mickey Mouse” money emerged
The time of the Japanese Occupation was also the time of World War II. This was the time that
“Mickey Mouse” money emerged. Such money were big in denominations but it has no backup
reserves.
But, there were provinces that created their own currency as an act of resistance to the Japanese
government.
6. The Philippine Republic
-Central Bank of the Philippines was established.
Finally, the Filipino Currency was reintroduced in 1949, the same time that the Central Bank of
the Philippines was established. Initially, the banknotes were issued in English, but in 1960s, the
currency integrated Filipino in its issuances.
As the Philippines regained and maintained its sovereignty, it had full control on the Philippine
peso. The latest update was the New Generation Currency (NGC) Banknotes that was first issued
in 2010 and is still in circulation as of today. But, recently, BSP has issued new polymer
banknotes which they say will be more durable compared to the NGC.
Practically, when it comes to investment or in doing business, people care about the exchange
rate. According to Investopedia, exchange rate is generally defined as a rate or the equivalent
value of one currency as exchanged to another. The exchange rate is affected by trade and money
movement in each individual country.As mentioned above, 1 USD used to be exchanged for 2
Philippine pesos. As of writing, the value of one US Dollar is equivalent to more than 55
Philippine pesos.
In trading, however, there are two exchange rates to know about. The buying rate and the selling
rate. The buying rate, known as “bid”, is the price at which a buyer is willing buy or acquire a
currency. The selling rate or “ask” is the price at which a seller is willing to sell or let go of a
currency. The difference or the gap between these two is called the spread.
Usually, the “bid” is lower than the “ask” so the formula to compute the spread is: ask – bid =
spread

Knowing the difference of ask and bid can help someone who is into foreign exchange
investment. To have profit in this, you have to know when to buy and when to sell a currency.
But speaking of investments, one that’s good to have is real estate.

FOREIGN EXCHANGE MARKET IN THE PHILIPPINES

 The Bangko Sentralng Pilipinas (BSP) maintains a floating exchange rate system
 The role of the BSP in the foreign exchange
 Commercial banks in the Philippines are allowed to engage in spot, outright forward, and
swap transactions

What is Foreign Exchange?

 Is a process of changing one currency into another country's currency

Foreign Exchange Market?

 A location where the international currencies are bought and sold by economic
participants at exchange rates.
 It compiles the entire supply and demand for an international currency

Exchange Rate Bulletin as of March 29, 2023

CURRENCY APPRECIATION AND CURRENCY DEPRECIATION

Currency Appreciation
 When the exchange rate for currency increases it becomes more expensive in the FOREX
market and then now takes more of every other currency around the world to purchase it.
Currency Depreciation
 When the exchange rate for currency decreases, it becomes less expensive in the FOREX
market and it now requires less of every other currency around the world to purchase it.
COMPARE AND CONTRAST SPOT AND FORWARD MARKET
Spot Market- As how much you would have to pay in one currency to buy another at this
moment in time.
Forward Market- An agreement between two parties to exchange two designated currencies at
a specific time in the future.
FOREIGN EXCHANGE FUNCTION
1. Transfer Function
2. Credit Function
3. Hedging Function

FOREIGN EXCHANGE RISK

A potential gain or loss that occurs as a result of an exchange rate change.
1. Transaction exposure – net amount of existing commitments to make or receive in
outlays in foreign currency.
2. Translation exposure – net book value of assets and liabilities denominated in a
foreign currency arising out of changes in exchange rates.
3. Economic exposure - risk that are associated with the changes in the present value
of a firm, an assets or a liability on account of the exchange rate changes.

CHARACTERISTICS OF FOREIGN EXCHANGE MARKET

1. Market Transparency
2. Dollar Most Widely Traded
3. Most Dynamic Market
4. International Network Dealers
5. Over the Counter Market
6. 24 Hours Market
7. Lower Trading Cost
8. High Liquidity

FOREIGN EXCHANGE MARKET PARTICIPANTS

1. Commercial Banks
- Are the major players that provides the core market.
- It is normally absorbing the position to support the economy.
- They buy and sell currencies for their clients
- May operate on their own.
 2. Foreign Exchange Brokers
- Also operates in the international currency market.
- Facilitate a deal between banks.
- They are working as a bridge between buyers and sellers of the foreign currency.

3. Central Bank or BSP

- Their role includes trying and controlling the currency suppl, interest rates and inflation
rates.
- Banks are the currency exchange market participants that usually have official or
unofficial target rates for their currencies.

4. Multinational Companies
- Their role involves winding up the financial activities and seeking currency exchange to
obtain goods and services.
- They are the major non-bank participants within the commodities as they exchange cash
flows related to their multinational operations.

5. Individual and Small Business

- operate in the foreign exchange market for transactional or speculative purposes.
- Also use the foreign exchange market to facilitate the execution of commercial or
investment transactions.
-

CONCLUSION PROS AND CONS OF FOREIGN EXCHANGE MARKET

Advantages
1. Flexibility
2. Trading Options
3. Transaction Cost
4. Leverage
Disadvantages
1. Counter Party Risks
2. Leverage Risks
3. Operational Risks

CONCLUSION
- In today’s global marketplace, there is a critical need for almost everyone to understand
foreign exchange market like never before. As the world shrinks, there is an increasing
likelihood that we will be required to address the risk associated with the fact that there
 are different currencies used all around the world and that these currencies will have
immediate impact on our world.
RECOMMENDATION
1. The government should continue to manage the floating exchange rate for the benefit of
the economy.