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Questions and Answers
What is a promissory note?
Which of the following is NOT a type of credit according to the maturity period?
What characterizes a secured loan?
Which type of credit is specifically designed for commercial investors to finance purchases of inventory?
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How is interest treated in a discount loan?
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Which type of credit is extended to individuals for personal funding needs?
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Which of the following best describes an overdraft?
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Which of the following types of credit is typically used for long-term financial needs by businesses?
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Which of the following is a characteristic of consumer or personal credit?
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A secured loan is only backed by the borrower's integrity and willingness to pay.
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What type of credit involves a small down payment followed by equal monthly installments?
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A promissory note is an ________ promise in writing to pay a definite sum of money in the future.
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Match the following types of credit with their correct descriptions:
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What is the maximum repayment period for short-term credit?
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All bank credits must be backed by cash on hand.
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What type of loan receives interest collected in advance before giving the balance to borrowers?
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________ loans are granted to finance the cultivation of crops and improvement of agricultural land.
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Which type of credit typically caters to short-term financing for working capital?
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Study Notes
Credit Money
- Central notes are considered credit money and act as a medium of exchange.
Credit of Limited Acceptability
- Promissory Note: A written promise to pay a specific sum of money in the future.
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Bank Credits:
- Deposit currency represents funds held by banks.
- Banks must maintain a certain amount of cash on hand.
Credit Classification By Form
- Direct Loan: The lender provides the borrower the full amount stated in the promissory note.
- Discount: The lender collects interest upfront and provides the borrower with the remaining balance.
- Overdraft: Commercial banks allow customers to withdraw funds even if their account balance is insufficient.
Credit Classification By Type of User
- Consumer or Personal Credit: Granted to individuals for personal needs, such as education expenses.
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Retail Credit:
- A type of consumer credit, it can be either a charge account (where purchases are paid off in full) or installment credit (where purchases are paid off in installments).
- Maintaining good credit standing is essential for accessing retail credit.
- Installment Credit: Purchases are paid for with a small down payment and subsequent equal monthly installments.
- Mercantile or Commercial Credit: Extended to commercial and trade businesses to finance inventory purchases. It's usually short-term credit.
- Bank Credit: Commercial banks provide short-term credit to businesses for working capital needs, such as purchasing raw materials.
- Investment Credit: Businesses obtain long-term funds through financial institutions like investment banks, savings banks, and insurance companies.
Credit Classification By Maturity
- Short-term credit: Loans payable within one year.
- Intermediate or medium-term credit: Loans payable between one and five years.
- Long-term credit: Loans payable over five to ten years or more.
Credit Classification By Security
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Unsecured Loans:
- Based solely on the borrower's creditworthiness and willingness to repay.
- Single-name paper refers to a single individual or entity responsible for repayment.
- Double-name or multiple-name paper involves multiple individuals or entities jointly responsible for the debt.
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Secured Loans:
- Backed by tangible assets that can be sold by the lender if the borrower defaults.
Credit Classification By Purpose of Use
- Agricultural Credit: Loans provided to finance the cultivation, development, and improvement of agricultural land.
Credit Money
- Credit money is a form of money that serves as a medium of exchange.
- This includes central notes.
Credit of Limited Acceptability
- A promissory note is a written promise to pay a specific amount of money at a future date.
- Bank credits, including deposit currency, require the bank to have sufficient cash on hand.
Types of Credit
According to Form
- A direct loan involves the lender providing the borrower with the full amount stated in the promissory note.
- A discount loan sees lenders collecting interest upfront and providing the borrower with the remaining balance.
- An overdraft facility allows commercial banks to honor checks even if the account holder's balance falls below zero.
According to Type of User
- Consumer or personal credit is extended to individuals for personal needs, like paying for tuition.
- Retail credit, a type of consumer credit, can be a charge account or installment credit, requiring good credit standing.
- Installment credit allows customers to pay for purchases with a down payment followed by equal monthly installments.
- Mercantile or commercial credit is extended to businesses and trade investors, typically for short-term financing of inventory purchases.
- Bank credit is extended by commercial banks for short-term working capital purposes, such as acquiring raw materials.
- Investment credit, typically long-term, is obtained from financial institutions like investment banks, savings banks, and insurance companies.
According to Maturity
- Short-term credit is payable within one year.
- Intermediate or medium-term credit is payable within one to five years.
- Long-term credit is payable beyond five years, often up to ten years or more.
According to Security
- Unsecured loans rely solely on the borrower's trustworthiness and ability to repay, and can be single-name or double-name (or multiple-name).
- Secured loans are backed by tangible assets that can be sold if the borrower defaults.
According to Purpose of Use
- Agricultural credit is granted to finance the development and improvement of agricultural land.
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Description
Explore fundamental concepts of credit and money, including the classification of credit types and forms. This quiz covers essential topics like promissory notes, bank credits, and the different kinds of loans. Understand the role of credit in personal finance and retail transactions.
