MODULE 1: MONEY IN THE 1.

Commodity money

NATION'S ECONOMY -The origin of money is traced back to the

early stages of trade, where the initial direct
INTRODUCTION
exchange of goods or services for other goods
or services (the barter system) formed the
A. Money and its Evolution
basis of trade. The inconveniences of the
barter system provided the basis for the
-- Money is the most important invention of
development of a process of indirect
modern times. It has undergone a long
exchange.
process of historical evolution, Human beings
passed through a stage when money was not
-Over time, different communities have used
in use and goods were exchanged directly for
different commodities as a medium of
one another. Such exchange of goods for
exchange
goods was called Barter Exchange.

2. Metallic money
-- The inconveniences and drawbacks of
barter led to the gradual use of a medium of
- Some communities accepted the use of
exchange. If we study the history of money
precious metals like gold, silver, and copper as
we shall find that all sorts of commodities like
money. The limit was the scarcity of precious
seashells, pearls, precious stones, tea,
metals in all countries. It was also impossible
tobacco, cow, leather, cloth, salt, wine, etc.
to determine their value. The value was based
have been used as a medium of exchange (ie.,
on the amount of metal in the coin.
money).
3. Coin age
What is Money?
- This came after the metallic money. Initially,
- Whatever commodity is acceptable to both
a privet goldsmith determined what quantity
buyers and sellers in exchange for goods or
of metal was to be in each coin. However, this
services is referred to as money.
role was taken over by governments in
different countries. Coins were made as either
- It's the means of payments, especially notes
full-bodied or token coins. A full-bodied coin is
and coins, given and accepted in buying and
one whose face value is equivalent to the
selling.
metal contained in the coin. Token coins are
coins in which the face value of the coin is far
- Professor D.H. Robertson defines money as
much higher than the value of the metal used
"anything which is widely accepted in
to mint it. Such coins are cheaper to produce
payment for goods or in the discharge of
and are durable.
other kinds of business obligations.

- Was mainly through commodity money,

metallic money, paper money, bank money,
Electronic Money, and Cryptocurrency.
4. Paper money c. Electronic money can be classified into two
broad categories: hard and soft.
- The use of full-bodied coins as money was
fraught with risks. The coins could be easily • Hard electronic money is when e-money is
lost e.g. to robbers. Paper money was initially used for irreversible transactions, ones that
introduced by goldsmiths however banks are highly securitized and are more or less
developed and took up the responsibility of procedural in nature. They may include
issuing paper money. With the expansion and transactions that are drawn through a bank -•
development of trade and the need for more Soft electronic money is when e-money is
paper money, governments took up the used for reversible or flexible transactions.
responsibility of issuing paper money. Paper There is an increased level of flexibility
money issuance is called a fiduciary issue. offered, and users are allowed to manage
Paper money is acceptable for use because their transactions even after payment is
the 'paper on which it is printed has a legal processed, like canceling a transaction or
status hence the name legal tender. modifying the payment price, etc.

- Legal tender is an attribute that is granted to 7. What is cryptocurrency?

money by law for it to be acceptable in the
exchange of goods and services in a given - Cryptocurrency is a digital payment system
jurisdiction. Legal tender can be convertible that doesn't rely on banks to verify
nonconvertible. When it is nonconvertible it transactions. It's a peer-to-peer system that
implies that one can exchange it for foreign can enable anyone anywhere to send and
currency on demand. receive payments. Instead of being physical
money carried around and exchanged in the
5. Credit money real world, cryptocurrency payments exist
purely as digital entries to an online database
- This is the payment of goods using a credit describing specific transactions. When you
card. A credit card holder is relieved of the transfer cryptocurrency funds, the
need to carry notes and coins for exchange. transactions are recorded in a public ledger
Cryptocurrency is stored in digital wallets
6. What is Electronic Money?
- Cryptocurrency received its name because it
a. Electronic money refers to the currency uses encryption to verify transactions.This
electronically stored on electronic systems means advanced coding is involved in storing
and digital databases used to make it easier to and transmitting cryptocurrency data
transact electronically. between wallets and to public ledgers. The
aim of encryption is to provide security and
- It is popularly referred to by many names, safety.
including digital cash, digital currency, e-
money, and so on.

b. Fiat money, simply put, is a legal tender, - The first cryptocurrency was Bitcoin, which
whose value as a currency is established by an was founded in 2009 and remains the best
issuing government and consequently, is also known today. Much of the interest in
regulated by it.
cryptocurrencies is to trade for profit, with • It is portable. Money is always portable. The
speculators at times driving prices skyward. portability of money basically means that it
must be easy and convenient to carry about
B. Role, Characteristics, and functions of wherever you go.
money
• Money is divisible. That it is divisible. By
Definition of money - "anything that is divisible, we mean that money is capable of
generally accepted as a means of exchange being divided into smaller denominations.
(ie., as means of settling debts) and that at the
same time acts as a measure and as a store of • Money is durable. By being durable, money
value." does not easily wear out or deteriorate.

The four functions of money • Money is recognizable. It is recognizable by

the general and knows its value. Because of
1. medium of exchange, this feature of money, it makes it pretty easy
for many to identify counterfeit currency.
2 measure of value,
• Money is homogenous. By being
3. store of value, and homogenous, what we mean is that money is
uniform. Each denomination should be the
4. standard of deferred payments. same everywhere in the country.

• Medium of exchange - Money is accepted • Money is scarce. The last but not least
freely in exchange for all other goods. characteristic or feature of money is the fact
that it is not abundant in the system, and
• Measure of value - we can measure the maintains its value. If it is abundant in the
value of a good by the money we pay for it. system then it becomes valueless. This is the
reason why we cannot use sand as money
• Store of value - Suppose the wealth of a
because sand is so abundant that it has
man consists of a thousand cattle. He cannot
practically become valueless. Money is always
preserve his wealth in the form of cattle. But if
scarce in the economy.
there is money, he can sell his cattle, get
money for that, and can store his wealth in C. Monetary Policy
the form of money.
Monetary Policy
• Standard of deferred payments - is used as
a standard benchmark or a contract for - is the way the central bank, the Bangko
specifying future payments for current Sentral ng Pilipinas, controls the supply and
purchases. Simply "buy now pay later". availability of money, the cost of money, and
the rate of interest.
What are the characteristics of money?
- allows the government to influence the
• Money is generally accepted. It must be economy, control inflation, and stabilize the
acceptable by the general public as a medium currency.
of exchange for goods and services. This is
one of the major characteristics of money. Fiscal Policy/Year
- (government spending and taxes) highly liquid assets will be included in this
measure
Money Supply Indicator
D. Monetary Standard
- are often found to contain the necessary
information for predicting the future behavior - A country is said to have established a
of prices and assessing economic activity. For monetary standard or system when it sets
Example, the government may opt to increase down rules to govern the creation of money
the money supply to stimulate the economy and control the quantity in circulation
or the government may opt to decrease the whether the rules are strictly followed or are
money supply to control a possible mishap in to be accepted simply as guidelines for its
the economy. own money managers.

- To measures that include not only money - Standard money is the monetary unit
but other liquid assets are called money recognized by the government as the ultimate
aggregates under the name M1, M2, M3, etc. basic standard of value upon which all other
kinds of money are convertible. In the
M1: Narrow Money Philippines, the monetary system is the
managed currency system, and the monetary
- M1 includes currency in circulation. It is the unit is the Peso.
base measurement of the money supply and
includes cash in the hands of the public, both A. Commodity Standard - is a monetary
bills, and coins, plus peso demand deposits, system in which the purchasing power or
tourists' checks from non-bank issuers, and value of the monetary unit is equal to the
other checkable deposits value of a designated quantity of a particular
commodity or set of commodities are
M2: Broad Money sometimes called full-bodied money because
it is one hundred percent (100%) backedup by
- This is termed broad money because M2 gold or silver reserves
includes a broader set of financial assets held
principally by households. This contains all of 1. Monometallic Standard subdivided into
M1 plus peso saving deposits (money market gold and silver standard gold and silver
deposit accounts), time deposits, and standard are further subdivided into: Gold
balances in retail money market mutual coin standards, Gold bullion standard and
funds. Gold exchange standard.

M3: Broad Money Liabilities a. Gold coin standard - a country is said to be

in the gold coin/silver standard when the
- Broad Money Liabilities include M2 plus government allows the conversion of gold
money substitutes such as promissory notes bullion into coins which are freely obtained by
and commercial papers. the citizens of the country in exchange for
other forms of money.
M4: Liquidity Money
b. Gold bullion standard - system wherein the
- These include M3 plus transferable deposits, monetary unit or standard money of the
treasury bills, and deposits held in foreign
currency deposits. Almost all short-term,
country is expressed in a definite weight and • Utopian Paper Standard/ Pure Fiat
fineness of gold in bar or bullion form Standard - proposes the adoption of standard
money that is desired primarily because of
c. Gold exchange standard - the monetary what it can buy for the individual and not
unit of the country is expressed in terms of because of its gold or silver content. This is
gold. Gold does not have to be coined or used the forerunner of the Involuntary and
as bullion but the monetary unit of the managed currency system.
country must be defined in terms of a specific
quantity of gold (In the Philippines, the Peso • Involuntary paper Standard - adopted by a
was equivalent to 12.9 grains of gold, of 9 country that finds itself in a dilemma of not
fine, whereas the US Dollar was equivalent to being able to redeem its currency in either
25.8 grains of gold of 9 fine). gold or silver and so is forced by
circumstances to adopt the involuntary paper
2. Bimetallic Standard - when each of two standard.This is often the standard used
metals provides the basis for the money in during wartime.
circulation and the issuer stands ready to buy
or sell either of two metals at stated prices, • Managed Currency Standard - espouses the
the monetary system is called a bimetallic use of an inconvertible and irredeemable
standard - It may also be defined as a paper money that is issued against no gold or
monetary system in which coins of two silver reserves, which is managed by the
different metals at a fixed legal ratio of weighs Central Bank in such a way as to keep the
and fineness are used as the monetary unit or price levels fairly stable by increasing the
the standard unit of value Legal ratio /coinage amount of paper money at one time and
ratio/mint ratio refers to the ratio between decreasing it at another time, using the trade
the weights of gold coins and silver coins in and industrial conditions as the barometer.
the mint Market ratio refers to the ratio of the People accept this paper money because the
value of gold and silver as being bought and government has given it a legal tender power.
sold in the market Gresham's Law states, that
the bad or overvalued money drives out the
good or undervalued money from circulation.
Given a sufficient supply of bad or overvalued The Bottom Line
money that has the qualities of general
acceptability, the good or undervalued money Money has changed substantially since the
will be displaced by the lighter or overvalued days of shells and skins, but its main function
money. The law operates whenever the hasn't changed at all. Regardless of what form
market ratio of silver to gold shifts away from it takes, money offers us a medium of
the mint or legal ratio. exchange for goods and services and allows
the economy to grow as transactions can be
B. Non-Commodity or Flat Standard- refers to completed at greater speeds.
a monetary system in which the face value of
the monetary unit is much higher than that of MODULE 2: BANKING
the value of the material used as money. INSTITUTIONS
Types of Fiat Standard
The Role of the Central Bank in a Developing
Economy of a Country
The central bank in a developing economy - A Central Bank is an independent national
performs both traditional and non-traditional authority that conducts monetary policy,
functions. The principal traditional functions regulates banks, and provides financial
performed by it are the monopoly of note services including economic research, Its goals
issue, bankers to the government, bankers' are to stabilize the nation's currency, keep
bank, lender of the last resort, controller of unemployment low, and prevent inflation.
credit, and maintaining stable exchange rate.
ORIGIN of CENTRAL BANKING
Role of Central Bank in Economic
Development: Creating a Central Bank for the Philippines

The central bank in a developing country aims A group of Filipinos had conceptualized a
the promotion and maintenance of a rising central bank for the Philippines as early as
level of production, employment, and real 1933. It came up with the rudiments of a bill
income in the country. The central banks in for the establishment of a central bank for the
the majority of underdeveloped countries country after a careful study of the economic
have been given wide powers to promote the provisions of the Hare-Hawes Cutting bill, the
growth of such economies. Philippine independence bill approved by the
US Congress.
The Basic Nature of Central Banking can be
enumerated as follows: During the Commonwealth period (1935-
1941), the discussion about a Philippine
1. The Central Bank does not aim at profits central bank that would promote price
but aims at national welfare. stability and economic growth continued. The
country's monetary system then was
2. The Central Bank does not compete with administered by the Department of Finance
the member banks and the National Treasury. The Philippines
was on the exchange standard using the US
3. The Central Bank has a special relationship dollar-which was backed by 100 percent gold
with the government and with commercial reserve as the standard currency.
banks,
In 1939, as required by the Tydings-McDuffie
4. The Central Bank is generally free from Act, the Philippine legislature passed a law
political influence. establishing a central bank. As it was a
monetary law, it required the approval of the
5. The Central Bank is the apex body of the United States president. However, President
banking structure of the country. Franklin D. Roosevelt disapproved it due to
strong opposition from vested interests. A
6. The Central Bank should have overall second law was passed in 1944 during the
control over the financial system. Japanese occupation, but the arrival of the
American liberalization forces aborted its
Definition of Central Banking
implementation.

- A Central Bank is simply a bank that another

Shortly after President Manuel Roxas
bank has in common.
assumed office in 1946, he instructed then
Finance Secretary Miguel Cuaderno, Sr. to
draw up a charter for a central bank. The Constitution, the National Assembly was
establishment of a monetary authority mandated to establish an independent central
became imperative a year later as a result of monetary authority. Later, PD 1801
the findings of the Joint Philippine-American designated the Central Bank of the Philippines
Finance Commission chaired by Mr. Cuaderno. as the central monetary authority (CMA).
The Commission, which studied Philippine Years later, the 1987 Constitution adopted the
financial, monetary and fiscal problems in provisions on the CMA from the 1973
1947, recommended a shift from the dollar Constitution that were aimed essentially at
exchange standard to a managed currency establishing an independent monetary
system. A central bank was necessary to authority through increased capitalization and
implement the proposed shift to the new greater private sector representation in the
system. Monetary Board.

Immediately, the Central Bank Council, which The administration that followed the
was created by President Manuel Roxas to transition government of President Corazon C.
prepare the charter of a proposed monetary Aquino saw the turning of another chapter in
authority, produced a draft. It was submitted Philippine central banking. In accordance with
to Congress in February 1948. By June of the a provision in the 1987 Constitution, President
same year, the newly proclaimed President Fidel V. Ramos signed into law Republic Act
Elpidio Quirino, who succeeded President No. 7653, the New Central Bank Act, on 14
Roxas, affixed his signature on Republic Act June 1993. The law provides for the
No. 265, the Central Bank Act of 1948. The establishment of an independent monetary
establishment of the Central Bank of the authority to be known as the Bangko Sentral
Philippines was a definite step toward ng Pilipinas, with the maintenance of price
national sovereignty. stability explicitly stated as its primary
objective. This objective was only implied in
Over the years, changes were introduced to the old Central Bank charter. The law also
make the charter more responsive to the gives the Bangko Sentral fiscal and
needs of the economy. On 29 November administrative autonomy which the old
1972. Central Bank did not have. On 3 July 1993, the
New Central Bank Act took effect.
Survey Commission which made a study of the
Philippine banking system. The Commission Overview of the BSP
proposed a program designed to ensure the
system's soundness and healthy growth. Its The Bangko Sentral ng Pilipinas (BSP) is the
most important recommendations were central bank of the Republic of the
related to the objectives of the Central Bank, Philippines. It was established on 3 July 1993
its policy-making structures, the scope of its pursuant to the provisions of the 1987
authority, and procedures for dealing with Philippine Constitution and the New Central
problem financial institutions. Bank Act of 1993. The BSP took over from the
Central Bank of Philippines, which was
Subsequent changes sought to enhance the established on 3 January 1949, as the
capability of the Central Bank, in the light of a country's central monetary authority. The BSP
developing economy, to enforce banking laws enjoys fiscal and administrative autonomy
and regulations and to respond to emerging from the National Government in the pursuit
central banking issues. Thus, in the 1973 of its mandated responsibilities
Objectives non bank institutions performing quasi
banking functions.
The BSP's primary objective is to maintain
price stability conducive to balanced and • Management of foreign currency reserves.
sustainable economic growth. The BSP also The BSP seeks to maintain sufficient
aims to promote and preserve monetary international reserves to meet any
stability and the convertibility of the national foreseeable net demands for foreign
currency. currencies in order to preserve the
international stability and convertibility of the
Philippine peso.

• Determination of exchange rate policy. The

BSP determines the exchange rate policy of
Responsibilities the Philippines. Currently, the BSP adheres to
a market-oriented foreign exchange rate
The BSP provides policy directions in the areas policy such that the role of Bangko Sentral is
of money, banking, and credit. It supervises principally to ensure orderly conditions in the
operations of banks and exercises regulatory market.
powers over non-bank financial institutions
with quasi-banking functions. • Other activities. The BSP functions as the
banker, financial advisor, and official
Under the New Central Bank Act, the BSP depository of the Government, its political
performs the following functions, all of which subdivisions and instrumentalities, and
relate to its status as the Republic's central government-owned and controlled
monetary authority. corporations.

• Liquidity Management. The BSP formulates Philippine Financial System

and implements monetary policy aimed at
influencing the money supply consistent with What is a Financial System?
its primary objective to maintain price
stability. A financial system is a set of institutions, such
as banks, insurance companies, and stock
• Currency issue. The BSP has the exclusive exchanges, that permit the exchange of funds.
power to issue the national currency. All notes Financial systems exist on firm, regional, and
and coins issued by the BSP are fully global levels. Borrowers, lenders, and
guaranteed by the Government and are investors exchange current funds to finance
considered legal tender for all private and projects, either for consumption or productive
public debts. investments, and to pursue a return on their
financial assets. The financial system also
• Lender of last resort. The BSP extends includes sets of rules and practices that
discounts, loans, and advances to banking borrowers and lenders use to decide which
institutions for liquidity purposes. projects get financed, who finances projects,
and the terms of financial deals.
• Financial Supervision. The BSP supervises
banks and exercises regulatory powers over Brief History of the Philippine Financial
System
The first credit institution in the Philippines, - Cooperative banks
"The ObrasPias" was started by Father Juan
Fernandez de Leon in 1754 and ended in - Microfinance banks
1820. It was in 1851 that the first Philippine
Bank was established, the 'Banco Espanol-
Filipino de Isabela II. Banco Español Filipino de
Isabela Il is now known as the Bank of the Roles of Financial Institutions
Philippine Islands. It is the oldest standing
bank in the Philippines and in the whole of A. Government Banking is a shared
Southeast Asia. It was established on August government function that provides critical
1, 1851, and named after the mother of the banking services across central government
Spanish King Alfonso XII. Her mother's name and for wider public sector customers.
was Isabella. The bank only came into being
B. Commercial bank offers the widest range
after 23 years after Spanish Monarch
of services for both businesses and individual
Ferdinand VII decreed that a public bank was
depositors. With these mainstream banks,
to be established in the Spanish-colonized
you can open a savings account, invest
country of the Philippines. The bank began its
money, or secure loans.
operations in 1852 and was given the honor of
being the first to issue paper money. In 1906
C. Thrift/Savings bank focused on helping
"First Agricultural Bank of the Philippines" was
individuals and families to secure their
established and in 1916 all of its assets and
financial futures via cash deposits. The bank
liabilities were transferred to the newly
invests the money they collect to help grow it
organized Philippine National Bank.
and give the depositors a higher earning
potential
The Banking Sector

D. Rural bank - also known as a cooperative

The Philippine Financial Institutions
bank, this institution finances agricultural
a. Central Bank/BSP projects and offers high-interest yields to help
boost the rural economy.
b. Banking Institutions
- purposes are to provide credit and facilities
- Private Banking to farmers, agricultural laborers, and small
entrepreneurs in rural areas.
- Commercial Banks
E. Digital bank - unlike traditional online
- Expanded Commercial Bank/Universal Banks banking, you don't have to visit a branch just
Thrift banks to open an account, you can just open one
through your smartphone. Digital bank apps
- Savings and mortgage bank allow you to do most banking transactions on
your smartphone, such as depositing a check.
- Private Development bank However, there's currently no easy way to
deposit cash on hand.
- Stock savings and loan associations
F. Credit unions or member-owned financial
- Rural banks cooperatives - a type of small-scale bank
controlled by its members motivated to help - supporting government departments with
each other financially. their non-standard and foreign currency
payments

- voice of government into the payment

G. Non banks that may not own a full banking industry as it evolves at a rapid pace
license but offer bank-related services.
- provide advice to departments on
Government and Non-bank Financial appropriate financial controls and share
Institutions information on cyber security through
newsletters and webinars to minimize the risk
- Government Banking Institutions of fraud to government

- Development Bank of the Phils. II. Non-bank Financial institutions

- Landbank of the Phils 1. Private Non-bank Financial Institutions

- Philippine Amanah Bank - Investment houses

- Philippine National Bank - Investment companies

Government Banking is responsible for: - Financing companies

- consulting government departments on their - Securities Dealers/Brokers

banking and payment needs and supporting
them with the delivery of payment - Non stock Savings and Loans Associations
strategy/transformation ensuring they are
using the most cost-effective payment - Building and Loan Associations
methods
- Pawnshops
- centralized procurement, and management
and security assurance of contracts and - Lending Investors
suppliers to save cost and resources for the
government - Retirement/Provident/Pension Fund
Manager
- monitoring supplier performance against
their contractual commitments and ensuring - Trust Companies
that their service levels meet our expectations
and those of our customers - Insurance companies

- Providing HM Treasury with a selection of - Venture Capital Corporations

accurate and detailed reports that include
customers' payments and receipts intraday 2. GOVERNMENT NON-BANKING FINANCIAL
together with historic and future-dated INSTITUTION were created primarily to
payment information protect the welfare of the employees.

- Social Security System (SSS)

- Government Service Insurance System (GSIS) checks or for regular transactions such as
payments for bills, tuition fees, rent, and
business expenses.

- Home Development Mutual Fund (PAG-IBIG • Time Deposit Account - pays higher interest
Fund) than a regular savings account. The money
you put here is kept for one month to seven
B. Commercial bank - offers the widest range years, during which the bank lends and
of services for both businesses and individual invests the money to earn you a higher
depositors. With these mainstream banks, interest of up to 3.50%. Only choose this
you can open a savings account, invest account if you have money that you won't be
money, or secure loans. touching anytime soon. While it's possible to
withdraw the money prematurely, it comes
The role of Commercial bank with a huge penalty fee that easily beats the
money you should have earned.
- The primary role of commercial banks in the
developed world is to offer business bank • Dollar/Foreign Currency Account - ideal for
accounts with standard options, such as those who regularly transact using foreign
deposits, withdrawals, and loans. currencies, including OFWS and their families,
online business owners, and regular travelers.
- A secondary role of commercial banks is Money in dollar accounts also earns interest
supporting the development of the local in dollars. You can also withdraw your money
economy. in pesos with a better exchange rate than
most money changers. Aside from US dollars,
Five types of bank accounts you can choose
you can also open an account for other
from.
foreign currencies such as the British pound,
euro, Chinese yuan, Hong Kong dollar,
• Savings Account - is where you put your
Japanese yen, and many more.
money if you want to build your emergency
fund or save up for something important like
• Joint Account - is preferred by couples,
a car, wedding, or vacation. It requires a low
associations, or business partners who want
initial deposit so students or anyone with an
to keep their income under one account. A
unstable income can open an account. The
joint account can be a savings, checking, or
drawback is its annual interest rate of less
time deposit. The account holders may
than 1%, and the penalty fees you'll incur if
choose either a joint "AND" or a joint "OR"
your balance falls below the required
account. The former requires both signatories
maintaining balance.
for any withdrawal to take place, while the
latter allows either one of the account holders
• Checking Account - is a type of deposit
to withdraw without the need for the other's
account that you mainly use for payments. It
signature.
requires a higher initial deposit and
maintaining balance than a savings account. A
These types of bank accounts cater to the
checking account allows you to issue checks
different needs of people. Identify your needs
which isn't possible if you're a savings account
or the exact reason why you want to open an
holder. Use this account if you have loans that
account. Then, choose a bank that can fulfill
require repayments through post-dated
those needs.
C. Thrift/Savings bank - focused on helping Here are some of the Philippine rural banks:
individuals and families to secure their
financial futures via cash deposits. The bank a) One Network Bank, Inc. (a subsidiary of
invests the money they collect to help grow it Banco de Oro)
and give the depositors a higher earning
potential. b) East West Rural Bank, Inc. (a subsidiary of
East West Bank)
- may sometimes be referred to as Savings
and Loan Associations (S&Ls) c) CARD Bank, Inc. (an MF RB)

Examples: City Savings is the thrift bank of d) Guagua Rural Bank, Inc.
the Union Bank of the Philippines, which is a
member of the Aboitiz Group. PNB Savings is a e) First Isabela Cooperative Bank (FICO Bank)
subsidiary of the Philippine National Bank,
which in turn is part of the Lucio Tan f) GM Bank of Luzon, Inc. (a rural bank)
conglomerate. Again, BPI Family tops in the
g) Quezon Capital Rural Bank, Inc.
capital category with P25.8 billion end-2015.
Also the following banks:
h) Metro South Cooperative Bank
- Philippine Savings Bank (PSBank)
i) BOF, Inc. (a rural bank)
- BPI Family Savings Bank
j) AMA Rural Bank of Mandaluyong, Inc.
- RCBC Savings Bank, Inc.
Credit System It's classes and kind
- Planters Development
Nature Of Credit
- Banco Filipino Savings and Mortgage Bank
CREDIT
- Producers Savings Bank Corporation
> is the ability to obtain a thing of value in
- Philippine Business Bank, Inc., A Savings exchange for a promise to pay definite sum of
Bank money, on demand or future determinable
time
- Robinsons Savings Bank Corporation
> this creates OBLIGATIONS and rights to both
- First Consolidated Bank, Inc. (A Private Dev't. debtor and creditor
Bank)
ELEMENTS of Credit
- Citibank Savings, Inc.
• It is the ability to obtain a thing of value
D. Rural bank - also known as a cooperative
bank, this institution finances agricultural • A promise to pay
projects and offers high-interest yields to help
boost the rural economy. • Definite sum of money

• Payable on demand or future time

 5. CONDITIONS - local business or economic
conditions

Characteristics of Credit
CLASSIFICATIONS OF CREDIT
• it is a BI-PARTIE or a TWO PARTY CONTRACT
✓ According to Type of User:
• it is ELASTIC
*CONSUMER CREDIT
• presence of TRUST OF FAITH
*COMMERCIAL CREDIT
• it involves FUTURITY
✓ According to Purpose:
FOUNDATIONS OF CREDIT

*INVESTMENT CREDIT
1. CONFIDENCE - creditor must trust the
debtor's personal character as a measure of
*AGRICULTURAL CREDIT
his capacity to pay
*EXPORT CREDIT
2. PROPER FACILITIES - to make an agreement
valid (Credit Information and Credit
*REAL ESTATE
Document)
*INDUSTRIAL CREDIT
3. STABILITY OF MONETARY STANDARD - the
more stable value of money, the greater is the
✓ According to Maturity:
possibility for approving credit
*SHORT TERM
4. GOVERNMENT ASSISTANCE - regulations
protecting both parties are highly considered
*LONG TERM
for credit transactions

✓ According to Form of Credit:

5. CREDIT RISK - the possibility that the debtor
may NOT FULFILL his promise payment
*CASH FORM

C's of Credit * MERCHANISE FORM

1. CHARACTER - personality of the debtor SOURCES OF CREDIT

2. CAPACITY - willingness and the capacity to • Private Individuals

pay
• Retail Stores
3. CAPITAL - real and personal properties for
credit approval • Pawnshops

4. COLLATERAL - debtor's asset as pledge • Savings and Mortgage Banks

• Mutual Savings Bank • COMMERCIAL CREDIT INSTRUMENTS

• Savings and Loan Associations ✓ INVESTMENT CREDIT INSTRUMENTS

• Credit Unions • BONDS - promises to pay the principal as

well as the interest to the holder at a certain
• Insurance Companies specified time indicated on the face of the
instrument.
• Pension Funds
• bondissuer (issuer)
• Bond and Money Market Funds
• bondholder (creditor)
• Sales Finance Companies
• STOCKS - permanent invested capital of a
• Banks corporation contributed by the owners which
are evidenced by certificates
CREDIT INSTRUMENTS
"COMMON STOCKS - with voting right
- premises or orders to pay a definite or
determinable sum of money to bearer or "PREFERRED STOCKS - given preference to
order. on demand or at a future specified time assets, dividends, declarations and payments

- this document gives evidence to a credit COMMERCIAL CREDIT INSTRUMENTS

obligation resulting from the past transaction
which sets forth the responsibility of the - DOCUMENTS USED DURING BUSINESS
debtor to his creditor TRANSACTION TO REPLACE CASH

These instruments has four this instrument includes:

CHARACTERISTICS
• promissory notes
✓ payable to bearer - when the instrument
does not specify the payee's time • checks

✓ payable to order - when the instrument • bank draft

specifies the payee's name
• bill of exchange
✓ payable on demand - instruments with the
current dates, like open check • bank deposits

✓ payable at a future time - an instrument

with a future time
PROMISSORY NOTE

Credit instrument can be classified -AWRITTEN PROMISE BY A PERSON, called the

as: "maker" to another party, called the "payee"
to pay a definite sum of money at a certain
• INVESTMENT CREDIT INSTRUMENT future time
• it can be: 8. Stale-Dated Check

- A SINGLE NOTE 9. Post Dated Check

- TWO NAME NOTE

NEGOTIATION & ENDORSEMENT

*maker - issuer of the note ENDORSEMENT

*payee - party to whom the payment is due

-Signature of the payee on the back of the
negotiable instrument

ELEMENTS OF A PROMISSORY NOTE Kinds Of Endorsement

- it is a promise to pay 1. Special endorsement - applies to check

payable to order
- definite sum of money
2. Blank edorsement - checks payable to
- future date bearer

CHECK 3. Restricive endorsement - "for deposit

only"
- A written order drawn by a depositor, (the
drawer), upon a bank, (the drawee) to pay on 4. Qualified endorsement - "without
demand or at a future determinable time sum recourse"
of money to order or bearer (the payee)

KINDS OF CHECK

1. Open Check

2. Crossed Check

3. Certified Check

4. Manager's/Cashier's Check

5. Travellers Check

6. Overdraft Check

7. Bouncing Check