Credit Instruments

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Credit Instruments:

Credit Instruments A document evidencing the existence of a credit obligation which defines the responsibility of the debtor towards his creditor and the right of the creditor to collect from the debtor on the date designated.

Kinds of Credit Instruments:

Kinds of Credit Instruments The open book account The promissory note The trade acceptance

Classification of Credit Instruments:

Classification of Credit Instruments 1. Credit Instruments with General Acceptability - instruments that are widely acceptable - it may be in the for of bank notes, treasury certificates, or a fiduciary paper money. 2. Credit Instruments with Limited Acceptability - accepted only by few people -two types: Credit Instruments for Investment Purposes and for Commercial Purposes

A. Credit Instruments for Investment Purposes:

A. Credit Instruments for Investment Purposes Stock Certificates - evidences of ownership in a corporation. a.1. Preferred Stocks a.2. Common Stocks b. Bond Certificates - are evidences of indebtedness of a corporation to bondholders.

Kinds of Bonds:

Kinds of Bonds Debenture Bonds Collateral Trust Bonds Mortgage Bonds Sinking Fund Bonds Registered Bonds Guaranteed Bonds Convertible Bonds 8. Redeemable Bonds 9. Serial Bonds 10. Income Bonds 11. Coupon Bonds 12. Profit-sharing Bonds

A. Credit Instruments for Investment Purposes:

A. Credit Instruments for Investment Purposes c. Money Market Bills - are negotiable financial instruments bought and sold in the market. A money market is a meeting place for users and suppliers of short term funds. Parties to a money market transaction Fund user Fund Supplier Broker

Kinds of Money Market Instruments:

Kinds of Money Market Instruments Interbank Call Loans Promissory Notes Repurchase Agreement Certificates of Assignments Certificates of Participation Commercial Papers Central Bank Certificate of Indebtedness (C.B.C.I) Treasury Bills D.B.P Progress Bonds Other government securities:

Other Government Securities:

Other Government Securities PW and Ed Bonds LBP Bonds Treasury Notes Treasury Bills Bonds ACA Notes EPZA Bonds

Other Government Securities:

Other Government Securities 8. Socio-economic Bonds 9. Premyo Savings Bonds 10. Biglang Bahay Bonds 11. NFA Bonds 12. NDC Bonds 13. LRT Notes 14. Bahayan Certificates

Dealers intermediating in the money market:

Dealers intermediating in the money market Commercial Banks Savings Banks Investment Houses Investment Companies Finance Companies Securities Dealers

Investors in the money market:

Investors in the money market Individual Investors Trust Funds and Pension Funds Government Insurance Social Security System Government Service Insurance System Private insurance companies Other government corporations Other Private corporations

Investors in the money market:

Investors in the money market Lending Investors National Government Other Institutions Development Bank of the Philippines Land Bank of the Philippines Philippines Amanah Bank (Islamic Bank)

B. Credit Instruments for commercial purposes:

B. Credit Instruments for commercial purposes Promise-to-pay instrument Promissory notes (negotiable, non-negotiable, secures, unsecured) Financial institution deposits Letter of credit (commercial, traveler) Open book accounts

B. Credit Instruments for commercial purposes:

B. Credit Instruments for commercial purposes Order-to-pay- instrument Checks Crossed Check Post Dated Check Stale Check Manager’s Check, Cashier’s Check, and Treasurer’s Check Bouncing or Rubber Check Counter Check Certified Check Falsified and Forged Check Personal Check and Business Check Cancelled Check Returned Check

Advantages of checks:

Advantages of checks They are easy and safe mean of paying. They are easily negotiated. They are convenient to use for large payments Drawers can put a stop payment on their check in case of loss, robbery or theft, and non-compliance of commitment. Forged checks paid by the bank would be a responsibility of the bank rather than of the depositor Checks cancelled by the bank may serve as receipts for payments made.

disAdvantages of checks:

They are not readily accepted for payment especially if the drawer does not know the payee or the payee does not trust the drawer. Drawers have to carefully keep track of their deposits so they will not issue bouncing checks Carelessness on the part of the drawer may result in loss of his check and thereby enable another to forge the lost check. Most of the swindling cases were done because of checks. disAdvantages of checks

The giro system:

The giro system Is a technique in credit transaction which features the use of electronic machines. A draft is a bill of exchange which is an unconditional order made by the drawer requesting the drawee to pay the payee a sum certain in money on demand or at a determinable future time.

Kinds of drafts:

Kinds of drafts Demand and Time Drafts Bank Draft and the Commercial or Trade Draft Acceptance Draft Documented Drafts Clean Drafts

Money order:

Money order Bank money order Postal money order

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