CHAPTER 2

Question 1

What is regulation?

Answer 1

A process where a government authority provides oversight and establishes rules for firms in an industry.

Question 2

Who is responsible for ensuring compliance with financial regulations?

Answer 2

A regulatory agency or governance body.

Question 3

What is the purpose of financial regulation?

Answer 3

To manage risks and protect all parties in the financial system by imposing standards and policies.

Question 4

What are the key objectives of financial regulation?

Answer 4

1. Identify drivers affecting financial sustainability
2. Recognize financial regulators in the Philippines
3. **Identify risks ** in financial markets.

Question 5

What is Credit Risk?

Answer 5

The probability that a payor will not settle their obligation.

Question 6

What is Liquidity Risk?

Answer 6

The probability of failing to raise sufficient resources to repay financial obligations.

Question 7

What is Default Risk?

Answer 7

The probability that currently maturing obligations are not settled on time.

Question 8

What is Technological Risk?

Answer 8

The probability that services will be interrupted due to technological limitations.

Question 9

What is Legal Risk?

Answer 9

The probability that new laws, rules, or regulations will affect creditworthiness.

Question 10

What are the key drivers controlled by financial regulations?

Answer 10

• Competitiveness
• Market Behavior
• Consistency
• Stability

Question 11

What does Competitiveness in financial regulation ensure?

Answer 11

Parity among parties in access to capital, credit, loan terms, and risk management.

Question 12

How does financial regulation influence Market Behavior?

Answer 12

By setting policies to regulate disclosure, insider information, entry of new players, and governance requirements.

Question 13

Why is Consistency important in financial regulation?

Answer 13

To isolate factors affecting financial results for better analysis and reduce risk.

Question 14

What is Market Stability in financial regulation?

Answer 14

Ensuring financial sustainability by managing market risks and forecasting effectively.

Question 15

Who are the key financial regulators in the Philippines?

Answer 15

1. Bangko Sentral ng Pilipinas
2. Insurance Commission
3. Philippine Securities and Exchange Commission
4. Board of Investments

Question 16

What is the role of Bangko Sentral ng Pilipinas?

Answer 16

Regulating liquidity management, currency issues, reserves, and exchange rates.

Question 17

What is a payment system?

Answer 17

A system that enables the transfer of funds from one party to another, effecting settlements.

Question 18

What are the key functions of payment systems?

Answer 18

1. Managing safe and real-time transactions
2. Effective risk management
3. Facilitating financial market transactions

Question 19

Financial Institutions

Answer 19

Intermediaries that channel savings into loans or investments.

Question 20

Commercial Banks

Answer 20

Institutions that provide a secure place for savers and offer loans to businesses and individuals.

Question 21

Investment Banks

Answer 21

Institutions that assist companies in raising capital and engage in market activities.

Question 22

Shadow Banking System

Answer 22

Institutions that engage in lending but do not accept deposits and are less regulated.

Question 23

Primary Market

Answer 23

Market where new securities are issued, involving the issuer directly.

Question 24

Secondary Market

Answer 24

Market where pre-owned securities are traded among investors.

Question 25

Broker Market

Answer 25

A market **where buyers and sellers are directly connected through brokers**.

Question 26

Dealer Market

Answer 26

A market where **dealers execute buy/sell orders without direct interaction** between buyer and seller.

Question 27

Money Market

Answer 27

**Market for short-term funds (maturity less than a year), including Treasury bills and commercial paper.**

Question 28

Capital Market

Answer 28

Market for **long-term securities like bonds and stocks.**

Question 29

Securitization

Answer 29

**Pooling loans and selling securities backed** by those loans in the secondary market.

Question 30

Mortgage-backed Securities

Answer 30

**Securities representing claims on cash flows from pooled mortgages.**

Question 31

Glass-Steagall Act

Answer 31

A 1933 act **separating commercial and investment banking activities**.

Question 32

Securities Act of 1933

Answer 32

**Regulates the sale of new securities** to ensure adequate disclosure to investors.

Question 33

Securities Exchange Act of 1934

Answer 33

**Regulates trading in the secondary market** and established the SEC.

Question 34

Dodd-Frank Act

Answer 34

A 2010 law **aimed at increasing financial regulation** to prevent future crises.

Question 35

Financial Stability Oversight Council

Answer 35

**Created by Dodd-Frank to oversee financial system risks.**

Question 36

Federal Deposit Insurance Corporation (FDIC)

Answer 36

**Provides insurance for bank deposits and monitors bank stability.**

Question 37

Foreign Bond Market

Answer 37

**International market for bonds issued in a foreign currency and country.**

Question 38

Eurocurrency Market

Answer 38

**Market for short-term bank deposits denominated in foreign currencies.**

Question 39

Efficient Market

Answer 39

A market where **securities reflect all available information**, leading to fair pricing.

Question 40

Risk in Financial Markets

Answer 40

Includes ***credit risk, liquidity risk, default risk, technological risk, and legal risk***.

Question 41

Capital Gain

Answer 41

**Profit from selling an asset for more than its purchase price.**

Question 42

Marginal Tax Rate

Answer 42

**The tax rate applied to the last dollar of income earned.**

Question 43

Market Behavior

Answer 43

**Regulations ensuring fairness in information disclosure** and entry of new players.

Question 44

Market Stability

Answer 44

**The ability of financial markets to function smoothly** despite economic fluctuations.